Friday, 25 January 2013

What's FBAR got to do, got to do with it

Everything, I am guessing. Tina will give up her US citizenship now that she has attained Swiss citizenship.  Reason given: to "clarify her situation." John Nolte says "She's 73 years-old, her longtime partner lives overseas, and as far as I know she's not in any way making a political statement." He seems a bit puzzled about her decision to give up her status, and he welcomes her back anytime.

Well said. So why is she giving up her citizenship?  Short of making a political statement, I can think of only one good reason: America's newfound vigor for enforcing citizenship-based taxation, and all of the surveillance and form-filling that entails.  Just consider that giving up citizenship is not a simple matter of mailing in your passport. It can be a complex and time- and resource-consuming process which involves enhanced scrutiny and fees for those with high net worth, who are viewed as attempting to flee the tax jurisdiction.

The US has always had citizenship based taxation on the books, but it wasn't truly enforced until FBAR came under IRS authority and FATCA emerged as its enforcement mechanism in 2010.  Now those who have not been compliant will be "rooted out" (former IRS Commissioner Shulman's description of FATCA) with ongoing monitoring, and hefty fines for failure to file. Those who have been compliant will go on to face a regime that is increasingly byzantine, with new forms and requirement seemingly being piled on all the time, in a situation that is becoming very lucrative for tax return preparers and the compliance industry in general--just google FATCA compliance officer job posting and you will get the idea.  Of course, the regime is meant to catch Americans hiding their cash offshore: a laudable goal especially in light of so many high profile cases, many prominently featuring Switzerland.

So the question is whether Tina Turner is an "American" and if she, with her Swiss bank accounts, is "hiding offshore." This raises a series of unanswered questions about the relationship between the individual and the state, none of which, I think, are easily answered. These include, to which country does Tina belong, if she has dual citizenship?  Is this a first come, first served world, so she belongs to the US in perpetuity, based on her birth in Tennessee, no matter where she lives out her life?  Can she choose to belong to another country, or only if she is willing to pay the cost of her continued US status in the form of ongoing compliance with US tax law?  Is Tina going to be allowed to leave the US jurisdiction only on the condition that she renounces any right to come back?  What financial restrictions should a state place on people--especially wealthy ones--who want to move to other jurisdictions?

As long as Tina holds on to her citizenship, even if she is a dual citizen living in another country, the answer to the first question is that she is now and will ever be American. And as long as she has any accounts anywhere in the world outside of the US, the answer to the second is "guilty unless proven innocent on an annual basis." None of the other questions are answerable in law: all are a matter of opinion and, more than anything else, geo-political power.

I am sure that Tina's expatriation will be viewed by many as a response to the high US tax rate, or a betrayal of her US roots, or both. But it is likely neither.  As a Swiss citizen resident in Switzerland, Tina's worldwide income is subject to income tax (federal, cantonal, and municipal), wealth taxes, VAT, etc., and we can only speculate about how much tax she may be asked to pay in the US after credits, exemptions etc. as a US citizen living abroad.  It could very well be zero or close to zero.  So it is seems more likely this is about the hassle of filing a thicket of tax forms, year after year, despite owing little or no tax to the US, and stiff penalties for even "non-willful" infractions, including mistakes.  And it could be about having to do all of that because Americans living abroad are viewed as likely criminals because they have offshore bank accounts.  

If Tina has been tax compliant all these years, she may just be exhausted with the effort; if not, she may see many reasons to cut ties by going the drastic step of irrevocable renouncement.

I would very much like to know if there is some other reason to give up her US citizenship. "Clarifying" one's situation seems just abstract enough to cover the hassle of dealing with US tax compliance.

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