Another American Turns in Passport to Protest Idiotic New Banking Regulations

Scott Schmith is a 50-year-old fatcat ingrate American photographer who has lived and worked in Switzerland for many years. In June, according to a Wall Street Journal article brought to my attention by Stephen Shewmaker, Schmith

received a certified letter from Swissbankers Prepaid Services saying the firm was terminating the relationship because of his American citizenship. The company, which is owned by several Swiss banks, asked Mr. Schmith for an address to send his account balance.

Why are Swiss banks jettisoning American money? As we've been writing about in this space, the newish Foreign Account Tax Compliance Act (FATCA) has essentially conscripted foreign financial institutions into collecting tax money for the Internal Revenue Service. Unsurprisingly, most banks in otherwise friendly-to-America countries (and not just Switzerland) are opting out of the arrangement by telling Yankees to go home. Equally unsurprisingly, Americans are increasingly responding by opting out of their citizenship.

"Two months later, I got my Swiss citizenship, and I decided to renounce," says Mr. Schmith. "I have nothing to hide, but my heart is here, my business is here, and my life is here." On October 9, he went to the U.S. embassy in Bern and gave back his passport.

So how does FATCA sponsor and Senate Finance Committee chairman Max Baucus (D-Montana) respond to the news that his law is spurring non-rich, non-criminal, and professedly I.R.S.-compliant American expatriates to rip up their passports? A Baucus aide told the WSJ:

Foreign tax evasion is a drain on the federal budget worth tens of billions of dollars, and it puts an unfair burden on law-abiding American taxpayers to fill that gap.

Actually, American tax evaders will just transfer their money to territories (such as Macau) that don't care too much about fuzzy relations with Washington. It's the already tax-compliant non-rich who are feeling the squeeze. As Thomas Brotzer, a Zurich-based tax partner at Ernst & Young, tells the Journal: "If you are an ordinary retail client with an average income and wealth, you are in trouble."

After the jump, read an alarming detail from the WSJ article that I hadn't heard before.

Americans aren't absolved of their tax obligations if they renounce their citizenship.

For the renunciation to become official, the taxpayer has to certify that he or she has been in full tax compliance for five years and perhaps pay an exit tax. If a taxpayer lies, the IRS can declare the expatriation invalid and proceed against him or her, according to Scott Michel, an attorney with Caplin & Drysdale in Washington. "In practice, people shouldn't assume they'll never have to deal with the U.S. again," he says.

And did you know that there is a Senate bill, introduced by Sen. Chuck Schumer (D-New York), called "The Ex-PATRIOT Act"? Read all about it. Then read more on this topic from me, in chronological order: 

* Stupid New Washington Law Blocks Americans From Opening Bank Accounts Abroad

* 5 New Ways the IRS Is Screwing America

* Facebook Co-Founder Eduardo Saverin Becomes Most Famous American to Renounce His Citizenship Probably for IRS-Compliance Reasons
* The Dark Side of Anti-'Swiss Bank Account' Politics

* 'No one in Youngstown has a Swiss bank account'…Except for Maybe That Big New Swiss Employer in Town?

* '[T]he legislation's penalties may end up killing more U.S. jobs than all the call centers in India combined'

* The Insatiable Taxman

Comments

[R C Dean]

One of the hallmarks of failing states, authoritarians, fascists, crony capitalist regimes, and all the things that the US is not supposed to be is "capital controls", meaning limits/prohibitions on citizens sending their money out of the country.

I hadn't realized it until it was pointed out to me recently, but FATCA is stealth capital control on US citizens.

And, of course, the idea that any person should need permission to renounce their citizenship should be anathema.

But here we are. Your money is the property of the State, and so are you.

[Dr. Frankenstein]

No kidding RC. We ship a lot to Venezuela but it's a pain in the but because of the currency controls that an oil rich country has.

[John]

Bachus pretty much wrote Obamacare. My God he is a menace. He really is in the top ten of dumbest people to ever serve in Congress. I don't think he is a crook and I honestly think he means well. He just really is this stupid.

[NoVAHockey]

And he's the smart one when Grassley is in the room.

[John]

And those two are a regular brain trust when Chuck Schumer shows up.

We do live the era of stupid.

[Brutus]

Schumer is actually very intelligent, scoring a 1600 on his SAT. He's just an amoral cretin who think that gives him the right to tell everyone what to do.

[cw]

And of course he is a Senator from my state, Montana.

I'd say he's a douchenozzle.

[rts]

Hmm. Perhaps having my son in the US wasn't the best move (for him. For my wife it was great, we had facilities for his birth the likes of which we couldn't even dream of in Canada.)

[Whiterun Guard]

Well, the good news is that if your son has a son, he'll have to go to Canada for the better facilities.

[John]

For the renunciation to become official, the taxpayer has to certify that he or she has been in full tax compliance for five years and perhaps pay an exit tax.

Nothing says "smart diplomacy" like strong arming other countries into going after our alleged tax evaders.

[darius404]

Don't forget extorting a bribe in order to renounce citizenship. That's what an "exit tax" is.

[MJGreen]

If you don't like it, why don't you leave?

[Randian]

Ha! Nice.

[Almanian's Evil Twin]

-1 citizen (former citizen)

[HazelMeade]

What, Switzerland?

[Whiterun Guard]

I wouldn't worry about that 5 year thing (unless you plan on ever returning to the US).

The courts where that would be adjuticated aren't to sympathetic with us, and never will be.

[John]

Nor should they be for this kind of shit.

[Jerry on the road]

Most countries have an exit tax, but the tax is deferred and cancelled after a decent number of years.

[tarran]

One of the signs that a totalitarian government is running its course is when it tries to prevent wealth from leaving its zone of control.

The U.S. governments increasingly frantic efforts to find money are little more than the frantic scrabbling of a mouse caught in a trap.

It is ultimately futile. At this point the United States government is coming up with 70 cents for every dollar it spends. The wealth it needs to feed its rapacious appetite just doesn't exist.

It will crater when the economic dislocations it creates as it flails for its survival get so severe that the public order starts to break down.

[John]

That is what they want you to think. Most of that money is being stolen ans wasted. Even on 70% we can maintain public order and national defense. The cuts really are not going to be draconian. They will just seem like it to a political class that things decreasing the increase in spending is a cut.

[R C Dean]

That's if they balance the budget today, and interest rates don't rise. The elephant in the room is debt service.

An increase in rates to historical averages will basically triple our debt service from $250BB/year to $700BB/year. You would be foolish to bet against reversion to the mean over any long time frame.

And, of course, as we add a trillion/year to the debt, the debt service will increase accordingly.

To balance the budget at historical average interest rates will mean cutting spending by something closer to 50%.

[John]

Why would interest rates rise when the fed can just buy the bonds by printing money?

And as far as inflation goes, inflation won't happen until the economy turns around. And if the economy turns around revenue will rise and make balancing the budget that much easier.

Your 50% total assumes that the economy stays in permanent stagnation. Possible but highly unlikely and if it does the fed will be able to print money pretty much forever without causing inflation.

Chances are the economy turns around and they make just enough cuts to avoid disaster. Things are never as good or as bad as they seem.

[Randian]

Why would interest rates rise when the fed can just buy the bonds by printing money?

Because at some point inflation is going to make that interest rate look stupid, and you're in black market currency territory.

[John]

Because at some point inflation is going to make that interest rate look stupid, and you're in black market currency territory.

Only if the economy turns around, in which case they won't have to print money anymore.

[Invisible Finger]

I see. So Zimbabwe's economy was going great during their inflation.

[Restoras]

Inflation is a monetary event, not an economic one. You don't need an economy to "turn around" in order for inflation to become a serious problem.

[Brutus]

It's a monetary event only if that added cash makes it into the commerce stream. If it's given to banks who just sit on it and make interest from the Fed, it's not inflationary...yet.

[Red Rocks Rockin]

If you want to see our future, just look at Japan--decades of low-to-zero interest loans in an attempt to keep the economy from plummeting, and you know what their current revenues cover?

Social Security and interest on their debt. That's it. Everything else is paid for with borrowed money, which will increase obligations on the latter.

Keep this in mind every time someone bloo-bloos on here about how deflation hurts the poor.

[Red Rocks Rockin]

And keep in mind that Japan has higher tax revenue-to-GDP ratio than we do, and still can't pay its bills.

[ant1sthenes]

Once you get that many people on the public tit, any austerity will result in massive public disorder. Greece is our future.

[Whiterun Guard]

Of course it will, cause scumbags like that photographer won't pay their fair share.

[$park?]

These shitstain 1%ers might as well be stealing money right out of my pocket.

[Paul.]

The U.S. governments increasingly frantic efforts to find money are little more than the frantic scrabbling of a mouse caught in a trap.

I'd more call it the frantic scrambling of a very large, highly dangerous animal flailing around in your living room. By trying to roust it from the premisis, I'm the one who's going to get hurt.

[alex griggs]

One of the signs that a totalitarian government is running its course is when it tries to prevent wealth from leaving its zone of control.

This is interesting to juxtapose with our tax laws that deter capital from coming home to the U.S. How much corporate cash is sitting offshore right now because repatriation rates are so high?

[Restoras]

Quite a lot, I'd wager. I don't know the exact figures but whenever I comb through a 10-k filing (occasionally required at work) company's that sell into international markets mostly hold that cash off shore.

[Isaac Bartram]

I'm pretty sure you have to do a little more than turn in your passport to stop being a US citizen.

[Whiterun Guard]

Ink out your tattoos? And they turn your picture upside down on the clubhouse wall?

[$park?]

You must engage the President in unarmed combat. Then, at high noon, you must strike him directly on top of his head. That lowers his defenses enough that the dim mak will have an effect. If you can knock him out in less than 5 minutes, then you will have passed step one.

[Randian]

I choose my hawk David as my weapon.

[Zeb]

I think you just need to declare your renunciation at an embassy or consulate. And maybe sign a form. That's what it says in my passport, anyway.

[Paul.]

Equally unsurprisingly, Americans are increasingly responding by opting out of their citizenship.

All 17 of them! Take that Big Government!

[Lord Humungus]

Why do banks in Switzerland listen to the IRS?

[Paul.]

Stateside asset forfeiture.

[Invisible Finger]

Goes both ways though. I'd say America probably has more to lose than gain on that front. Though the losses would most likely be private rather than government.

In any event, it's not exactly wise foreign policy. But it's to be expected from America's Stupidest Adminstration. When you make Dubya's look smart in comparison...

[Paul.]

For the renunciation to become official, the taxpayer has to certify that he or she has been in full tax compliance for five years and perhaps pay an exit tax. If a taxpayer lies, the IRS can declare the expatriation invalid and proceed against him or her, according to Scott Michel, an attorney with Caplin Drysdale in Washington. "In practice, people shouldn't assume they'll never have to deal with the U.S. again," he says.

Never underestimate the government's ability to ban or regulate something through sheer force of will.

[Drake]

I'll hand in my written certification on a strip of used toiletpaper.

[CE]

As if the feds will need to "make up" the difference when one rich guy dodges part of his taxes. They don't seem to need to "make up" the difference for the permanent annual stimulus of one trillion dollars in overspending.

[Anonymous Coward]

For the renunciation to become official, the taxpayer has to certify that he or she has been in full tax compliance for five years and perhaps pay an exit tax. If a taxpayer lies, the IRS can declare the expatriation invalid and proceed against him or her, according to Scott Michel, an attorney with Caplin Drysdale in Washington.

Short version: Fuck you. Pay me.

Can there be any doubt that we live under the auspices of a robber-state? That our democratically-elected overlords are more concerned with how best to commit theft under color of law than protecting our rights?

[Paul.]

Politicians don't think of it as theft because they don't think of it as your money, they think of it as their money. The only theft that's going on is your refusal to hand it over without a fight.

[califernian]

^^THIS

Not just politicians. I can't tell you how many people I know here in california who profess that exact sentiment.

ALL YOUR MONEY IS OURS. BE THANKFUL WE LEFT YOU ANYTHING.

[thom]

If you don't like it, then leave! Er...

[Paul.]

Think of US Government spending as a runaway horse with Paul Krugman, its tiny Jockey, riding on its back, urging it to run faster while laughing the whole time.

[Almanian's Evil Twin]

Thanks for the nightmare, Paul!

[Almanian's Evil Twin]

"All your asset are belong to us."

It had to be said.

[NeonCat]

New American finance plan:
1) Remind everyone we are a nation of immigrants.
2) Declare every person on Earth with more than $1 million in assets to be naturalized citizens in perpetuity. Ignore complaints of other nations that we are shanghaiing their citizens.
3) Send them all tax bills. Those that refuse to pay get prosecuted (or at the very least their debts get counted as assets towards the Federal budget).

Dems will love its "eat the rich" rhetoric, Repubs will love that we're sticking it to those lousy foreigners, both will offer it as proof that they are pro legal immigration.

[CatoTheElder]

4) Drone strike the foreign tax scofflaws when they don't pay.

5) Ignore complaints about the drone strikes.

[MP]

Oh c'mon. This is screaming to be called FATCAT.

[Invisible Finger]

To boost the American economy, Obama will tax all foreigners living abroad.

[HazelMeade]

Is there some mechanism for Americans to function in Swiss society without having a Swiss bank account?

Is it possible for them to open an account with a US bank at a foreign branch? Are there any US banks that demoninate accounts in Euros or gold that a person like this could turn to?

It just seems very wrong to me that someone would be forced to give up his citizenship in order to function in a foriegn country.

This isn't a matter of evading taxes. It's that the IRS is attempting to "comandeer" foreign banks to make them enforce US tax law, and that in turn is making it impossible for Americans to live and work, legally, in foreign countries, even if they sare completely willing to pay US taxes. Because they just can't open a bank account.

Personaly, if there are any way that I could have any kind of bank account and still keep my US citizenship I would keep the citizenship. You don't renounce your citizenship just because you prefer Credit Suisse to Bank of America.

[Adam330]

"You don't renounce your citizenship just because you prefer Credit Suisse to Bank of America."

Perhaps not. But if you're country is systematically f'ing you over (even if you can get around the f'ign over by jumping through a bunch of stupid hoops), that's a pretty good reason to renounce.

[James Anderson Merritt]

This is a similar situation to private colleges, which are obligated to obey and enforce various tenets of Federal law because they admit students who receive Federal assistance; or private hospitals, which must operate according to various aspects of Federal law because they take Medicare patients. Thus, the emergence of institutions that do not accept students or patients who are federally subsidized in any way. I expect the number of such institutions to grow, unless the US actually, formally nationalizes healthcare or education in the near future. One never knows.

The Federals have been playing the "money-with-strings" trick, to force private actors to perform according to Uncle Sam's script, in exchange for Uncle Sam's scrip, for a long time. It is a deplorable, but reliable, approach.

[protefeed]

Americans aren't absolved of their tax obligations if they renounce their citizenship.

For the renunciation to become official, the taxpayer has to certify that he or she has been in full tax compliance for five years and perhaps pay an exit tax. If a taxpayer lies, the IRS can declare the expatriation invalid and proceed against him or her, according to Scott Michel, an attorney with Caplin Drysdale in Washington. "In practice, people shouldn't assume they'll never have to deal with the U.S. again," he says.

So, in response to a "Fuck you, I refuse to be owned by you anymore", the IRS demands you submit a bunch of paperwork and pay them a bunch of money for the privilege of no longer being their tax slave?

Fuck them. They don't own us.

[thom]

"Fuck them. They don't own us."

The guys with the guns say differently.

[NL_]

There's a basic principle at work in tax competition that undermines all cartels: the more rigorously the cartel enforces its exclusivity, the higher the gains reaped by the remaining tax havens.

So trying to squash tax havens works to some extent and countries like Switzerland and Ireland have made some moves to align their tax policies with the US and OECD to reduce their tax advantage. But the more they play ball, the greater the incentive for other countries to stay in the game - Bermuda's loss would become Nauru's gain.

So there's probably not going to be a totally effective crackdown on tax havens through diplomatic means, if only because potential tax havens can grab bigger sections of market share as other tax havens move away from tax competition.

[James Anderson Merritt]

"...it puts an unfair burden on law-abiding American taxpayers to fill that gap."

This. Government spending is out of control, and "the gap" just grows wider with time. Instead of reining in the government so that the gap can be narrowed or eliminated, the onus is on all citizens to pay their "fair share" of a pie they didn't ask for in the first place; anyone who tries to keep his money instead of sending it to the spendthrift government is painted as "unmutual" and demonized by the powers-that-be. There are few words better than "perverted" to describe such a situation.

[Ricky]

I renounced my U.S. citizenship this year and received my certificate of loss of nationality about a month later.

I was able to keep my bank accounts open in multiple countries because I was able to prove I'm no longer a U.S. citizen, these accounts were always reported with an FBAR and the new FATCA form for last years tax return.

Now just waiting for my final tax return to be sent off as soon as the IRS publishes this years final tax return forms, I had to pay the exit tax as I met the qualification but that's life.

You can also go stateless as the United States is one of the only countries that still allow you to give up your citizenship while not having another one, just make sure you have perm residency in the country you renounce in.

For those in doubt see U.S. State Dpeartment 7 FAM 1260 Renounciation of U.S. citizenship (google it) says the following:

Renunciation and statelessness: Potential renunciants who do not possess another nationality or a claim to one are nonetheless permitted to renounce U.S. nationality. In doing so the individual becomes stateless. You should explain the extreme difficulties that a stateless individual may encounter trying to establish residency in a foreign country or traveling between countries in order to ensure that the individual understands the consequences of statelessness. See 7 FAM 1215 for additional information about statelessness. If the individual still desires to proceed with the renunciation, you may proceed.

[jdgalt]

Let me add a point that this story should have covered but didn't:

FATCA also adds a requirement that anyone who has an interest in any foreign property file a new annual report form IN ADDITION to the existing TD-F-90-22.1 for foreign bank and financial accounts.

But I'm a professional tax preparer, and I can report that the entire profession is now refusing to touch these forms with a ten foot pole -- and will probably send you packing if you tell your preparer that you own any foreign property.

Why? Because as part of the bill, the Treasury Dept. has imposed a FORTY THOUSAND DOLLAR PENALTY, per form, on any preparer who makes the slightest mistake in preparing it, or files it late.

I'll be surprised if you can find even a lawyer, much less a CPA or EA, willing to prepare one of these for you. So if you own any foreign property this year, better read the law carefully, because you're on your own, buddy.