A Wedding Present For Prince Harry And Megan Markle: American Pols Should Junk Our Horrible Expat-Screwing Tax Scheme
It's called FATCA -- get it? Like "Fat Cat," but so many of the "cats" lives it messes up are ordinary American citizens married to a, say European spouse, and living over there.
Thanks to FATCA, there will be three people in the upcoming royal marriage -- Megan Markle, Prince Harry, and the IRS agent peering into their financial affairs, explains Daniel J. Mitchell at FEE:
Most readers probably wonder how and why the IRS will be involved. After all, Ms. Markle no longer will be living in the United States or earning income in the United States after she marries the Prince.But here's the bad news (for the millions of Americans who live overseas, not just Ms. Markle): The United States imposes "worldwide taxation," which means the IRS claims the right to tax all income earned by citizens, even if those citizens live overseas and earn all their income outside of America.
More from a previous post, "The IRS Turns Being An American Expat Into A Nightmare."
Here's how my friends Matt Welch and his wife Emmanuelle Richard get their asses bitten by this. In reason, Matt writes:
Preposterous Foreign-Income Disclosure RulesThe IRS wants everyone with more than $10,000 in foreign-based financial institutions to cough up every last detail of every last account. Let's say (just for the sake of argument) that in 1997 you married a French woman who had previously written a few articles for a soon-to-be-defunct UK newspaper, and had opted to park her checks in a London bank for walking around money on future visits. Let's say further that she has earned enough European-based income over the ensuing 15 years to exceed that five-figure savings threshold.
Result? As of 2012, that London savings account, and every single other foreign based account you and your wife may have, must now be divulged in full--complete with your estimation of its highest value during the previous year--to the Internal Revenue Service.
Good luck figuring out form TD 90-22.1, by the way. My tax professional (who charged me more than $1,000 for her services, though it was worth every penny), shrugged, and gave me a yellow highlighter so that maybe I could shed light on the relevant verbiage of TD 90-22.1 and its rich cousin, form 8938. Even the Government Accountability Office has trouble; "Extent of Duplication Not Currently Known, but Requirements Can Be Clarified" was the subtitle on its recent paper on the dueling FBARs (foreign bank account requirements).
The important thing to realize is that by failing to cough up each and every detail of accounts that are filled with your legitimately earned and (in my case) already taxed money, you are subjecting yourself to a $100,000 fine and up to five years in prison.
If you happen to have some money overseas, and are nervous about the U.S. government's ability to harass or imprison you, you're probably better off burying the cash in a can. Or depositing it in a country that doesn't care about playing by Uncle Sam's rules.
The fun continues for those Americans living -- or trying to -- overseas:
Scaring Away Foreign BanksUniquely in the world, the United States government is demanding that all foreign financial institutions disclose the details of all U.S.-based accounts and withhold 30 percent in potential taxes from accounts held by other institutions that don't disclose. Let's see, what do you suppose might happen when Washington makes life a living hell for every foreign bank that dares do business with Americans?
Shocker: "Banks no longer want American clients." So if you are one of the estimated 6.6 million Americans living abroad, you can forget about opening or even maintaining that bank account. Sorry! Those 150 minutes of federal spending won't pay for themselves!
And back to Mitchell:
So what's the solution if the royal family wants to avoid the greedy and intrusive IRS?Ms. Markle will need to copy thousands of other overseas Americans and renounce her citizenship.
What if she (radical idea) just told them to go pound sand? Millions of Americans and Britons alike would cheer, and as long as she never returned to the US, she'd probably be OK unless the British government were cruel enough to allow her to be extradited - and the US government was foolish enough to ask for the extradition of the wife of a prominent royal.
Grey Ghost at December 4, 2017 5:25 AM
She is worth millions. It is entirely likely that the IRS would criminally prosecute her, and then file an extradition request. Remember Boris Johnston? Mayor of London, happened to technically be a US citizen, though (iirc) he never lived in the US. The IRS insisted on collecting taxes when he sold his house. Seriously, WTF?
Maybe they wouldn't go after a princess, because she's a VIP. Which would be an even worse result.
Renouncing your citizenship is the only sensible solution. Problem is: it became so popular that the Embassies couldn't keep up. Embarrassing, when so many people don't want your passport anymore. So they increased the fee to $2350. My wife and I renounced, our kids want to renounce (because they were born abroad, and never intend to have anything to do with the US). So more than $9000 for the family - for a normal family, that's a lot of money, and that doesn't the cost of the special paperwork (tax returns, FBARs, and such crap), for which you absolutely need a tax professional.
bradley13 at December 4, 2017 5:39 AM
Are the ex-pats going to expect the US to come evacuate them, with the mitary if necessary, if things go south in their current country of residence? (Not super likely in britain, but its happened in plenty of other places.) They can always renounce their citizenship. If they want to keep the perks of US citizenship, such as military protection if needed, then yes they should contribute to US upkeep.
Momof4 at December 4, 2017 6:07 AM
@MomOf4: um...no? Why would we expect that?
I wouldn't have minded keeping my citizenship, but FATCA makes it basically impossible. The annual paperwork is hugely complicated, and it hits any place you have a financial relationship with. Your spouse. Your bank. Your pension fund. Any company where you have signature authority. Really, it's utterly insane.
bradley13 at December 4, 2017 6:20 AM
Trust me Momof4, the monetary cost isn't the worst part. It is the paperwork. If you are a US citizen and own property outside of the US you pretty much can't file your own taxes. You need an accountant that is specialized in FATCA or the paperwork will get screwed up and you will get sued by the IRS. Even if you live here in the US this is a big problem. Essentially we've made it illegal for US citizens to own foreign property.
Ben at December 4, 2017 7:29 AM
Not sure which part of "renounce their citizenship" implies lifetime military protection.
Gog_Magog_Carpet_Reclaimers at December 4, 2017 10:50 AM
What you people do not understand is that the IRS does not just look at the American abroad from a tax standpoint, they tax the married couple, even is the spouse is not an American, has never been there and will never live there. I have lived abroad for more than 40 years, have never earned enough to have to pay any US taxes, have no investments or financial entanglements in the USA, but I have to pay about $1000/year to a special tax accountant (because US taxes are so convuluted a local guy is no use) to file my return that proves this. I do not expect the US goverment to do anything for me (except supply me with a passport I pay for, but seldom use as I'm a dual citizen). It's not just the nearly 3000 that I would have to shell out to renounce my citizenship, it's the emotional element. Ms Markle will be renouncing for sure when she discovers the British royal family doesn't want the IRS to be pawing through their business!
Robin at December 4, 2017 12:08 PM
Not sure which part of "American citizenship" does. If you go overseas and things go sideways, you have no guarantee that the US Marines will show up to bail you out.
So, this brings up the very real possibility that a British royal will be subject to American taxation, despite not being able to vote in an American election. Ironic. Can we say "taxation without representation?"
Conan the Gramamrian at December 4, 2017 12:39 PM
"no guarantee that the US Marines will show up to bail you out."
Exactly.
Gog_Magog_Carpet_Reclaimers at December 4, 2017 2:46 PM
Too bad, the IRS doesn't have this much energy to suss out the BILLIONS being stashed in offshore accounts by druggies, corporations, and whomever else. This is literally the lifeblood being sucked out of our (and many other) country's economy.
jefe at December 4, 2017 5:14 PM
"Too bad, the IRS doesn't have this much energy to suss out the BILLIONS being stashed in offshore accounts by druggies, corporations, and whomever else. This is literally the lifeblood being sucked out of our (and many other) country's economy."
Actually, there a reason for that, too. Ignore the part about Obama...
Radwaste at December 4, 2017 8:56 PM
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