Here’s a little news item that caught my eye this week.
Apparently, a group of concerned US citizens abroad is brining a lawsuit against the government, because of the “astronomical” fees for renouncing US citizenship.
The best write-up I’ve found is in the Guardian.
It talks about the fact that there are several million Americans abroad. It talks about FATCA (the Foreign Accounts Tax Compliance Act) – AKA the US government’s plan to treat every overseas American like a billionaire tax evader, even though many of us (here in Spain at least) have bank balances that often struggle to reach the mid 4 figures.
Also mentioned, the fact that the US is the only country besides Eritrea that makes all citizens file a tax return, no matter where they’re living in the world.
Apparently, the lawsuit claims that the $2,350 fee for renouncing US citizenship is way out of line with what other high-income countries charge, and wants it lowered, to make renouncing citizenship more accessible to all.
Will “suing the government” work? Perhaps.
I talk about renouncing citizenship in my article about getting Spanish nationality – specifically, I talk about the persistent myth that Americans just lose their citizenship if they take on another nationality.
(The short version is that you have to say you’re giving up your other nationalities when you swear your allegiance to the King and Constitution of Spain – but you’re not automatically stripped of anything.)
The longer version is, of course, that you have to go to a couple of meetings at a US consulate and swear that you really don’t want to be American anymore, as well as pay a large fee, before they’ll cancel your US passport. And that renunciation is supposed to be voluntary, not coerced.
Who does this kind of thing? I used to assume it was only the very wealthy, but apparently the number of people renouncing US citizenship is growing.
Did you know that former British Prime Minister Boris Johnson used to be an American citizen? He was born in the US, and lived in New York until he was five.
The Boris Johnson situation is actually part of a larger story about “Accidental Americans” – people born in the US who have citizenship because of the birthright citizenship clause of the 14th amendment, but who otherwise have little or no relationship to the country.
The plight of the Accidental Americans
I’ve met several people like this: mostly born in the US because their parents were there for a year or two, but they haven’t lived stateside since they were babies.
In Johnson’s case, he gave up his US citizenship in 2017, after the IRS came after him for capital gains tax on the sale of a house in London. His argument was: I haven’t lived there since I was 5 years old. Why should I pay taxes on transactions that didn’t even happen in America?
At the time this story was reported on, ol’ Boris was Mayor of London, and then became Foreign Secretary, but not Prime Minister – he gave up his US citizenship in 2017, and didn’t become PM till 2019.
Apparently, any Member of Parliament can become Prime Minister in the UK, so renouncing his US citizenship wasn’t necessary for that reason. However, the Guardian claims that Johnson was considered to have “ambiguous loyalties” and that renouncing ended the speculation about it.
Another famous renouncer is Tina Turner – when she died, it was reported that she’d previously given up US citizenship because she’d lived in Switzerland for many years.
Now, Boris Johnson and Tina Turner are both people who aren’t just scraping by – I still suspect that most people don’t worry about renouncing US citizenship unless it makes a lot of financial sense… and if you’re a normal person with a normal net worth, it probably doesn’t.
The US makes it difficult to live abroad
In any case, the tax filing is a pain for everyone.
I’ve been abroad my whole adult life, and I haven’t actually had to pay taxes in the US. That’s because I pay so much here in Spain – but the filing itself can be expensive.
(Thanks to Taxes for Expats for taking care of me the last several years – sign up with that link and you’ll get a $25 discount on next year’s tax preparation.)
But the 1040 is quite a thing to get through – as is the Foreign Earned Income Exclusion, the declaration of overseas accounts, etc.
And last year, the IRS unveiled form 8858, which (long story short) is yet another declaration of my overseas self-employment which I have to treat as if I were the owner of some giant holding company. More time and money spent on tax prep!
In theory, all US expats have to file at least a 1040, whether they think they owe taxes or not.
Do most US expats actually file those 1040s? Maybe not.
A lot of expats here in Spain are probably earning $18,000 a year and don’t file with the IRS – the chances of the feds coming after someone with a typical Spanish salary is rather low.
But I would never recommend not filing – and as usual, this is not legal advice. Talk to a real tax person, or a lawyer, before you do anything silly.
Anyway, FATCA is still a problem for anyone who wants to move beyond the “stack of 50s in a drawer” level of financial independence. And I’m not the only one that thinks the whole thing is yet another example of the US government overreaching into people’s lives.
I’m sure there are billionaire tax evaders out there, but your average overseas person is not one of them.
So far, I’ve only had a couple of banks say they can’t work with me because of FATCA. But it’s expensive and time-consuming for financial institutions to do all the paperwork, and makes foreign banks think twice before opening accounts for Americans.
In the meantime, living abroad is a lot of work. Both Spanish and foreign, the bureaucracy never ends!
It’s one of the less glamorous sides to expat life. But the benefits of making your life in another country are also quite interesting. So I’m here, for now, in the land of bullfighting and flamenco, with no plans to go back to the US.
That’s about all I’ve got for today.
Hope you’re having a good one, wherever you are.
Daniel AKA Mr Chorizo.
P.S. Have you ever considered giving up your citizenship? American or otherwise – some countries have nationalities that are unrenounceable, and most are less interested in what you do abroad than the US. Let me know, right here in the comments.
P.P.S. I know, I know… this is a lot of articles about bureaucracy lately. I guess that’s just how my life is going. Hopefully, I can get back to more interesting topics soon. While we’re here, how about a bit of my love story with Spanish cuisine, for example?