No longer My Country (185/365)

by Lee Santiva July. 04, 2019 410 views

This blog is about the series of events which changed my life. It is long, full of details and complicated. I would be pleased if you read the whole thing to the end.

In the previous blog Where You Came From I explained that I was born in Chicago, USA but I am German.

Does a passport really express your identification with "country"?

Does a passport really express your identification with "country"?

It used to be a great privilege to have US citizenship and a US passport. In 2010 this changed dramatically.

My life became a living hell all because of a US passport.

The details about how my life descended into "hell" are later in this blog, but first some background information is necessary for you to understand my situation and the choices I had to make.

Fact #1: You become a US citizen automatically when you are born in the United States.

Fact #2: There are 193 sovereign states (countries) on this planet. Only two of them tax their citizens on their worldwide income:

The United States of America and

... wait for it...

...you will never guess it...

... Eritrea.

Yes, that bitterly poor African country governed by a one-party dictatorship and the mighty democratic United States both treat their citizens as tax slaves.

All other - 191 countries - tax you according to residency. If you live in that country, you pay taxes to that country. If you leave, you pay taxes elsewhere. Not the USA.

Fact #3: As a US citizen you are required every year to file a tax return with the IRS. And you have to report your financial holdings to the US Treasury.

It doesn't matter that you don't live in the US, never visit the USA, or that you work for a non-US company and already pay taxes and report financial holdings to the country where you live. You still have to file in the US on your income in another country. For clarity: it doesn’t mean you were taxed twice, ratheryou were taxed differently. In US you can deduct mortgage interest, in Germany only if you rent the property. Incredibly complicated.

Each country does not respect the "tax-saving" programs for retirement of the other country. US withdraws taxes directly from German accounts including retirement schemes just as if they were regular investments.

In 2009 I got audited by the IRS. The myriad of various forms for foreign filers got to be too much and I had made a mistake.

Some of the typical tax forms for US Citizens living abroad

Some of the typical tax forms for US Citizens living abroad

I had to hire a very expensive multinational tax consultancy to get through the audit, because think about it - how many tax consultants in Germany know US tax law? After the experience with the audit, every year I paid two different tax consultants to prepare the tax forms for US and for Germany. At this point, I was now paying more for tax preparation than I was saving in taxes.

Each time I would ask myself, what do I really get out having a US citizenship when I live and work elsewhere? Will I ever live in the USA again?

It got worse. But at this point I still had no idea just how bad it could get. Like the frog in a pot of water which is slowly starting to boil.

I hope the frog will keep you interested to keep reading...

I hope the frog will keep you interested to keep reading...

In 2010, the US passed the FATCA (Foreign Account Tax Compliance Act). Because of it every US citizen not living in the USA has to complete the FBAR Report of Foreign Bank and Financial Accounts. It is mandatory for all accounts, even those accounts where I was not the account holder but just a beneficiary, for example, my husband's accounts.

The FBAR is the most powerful government document in the world. To get the same records in the US, law enforcement would have to get a subpoena.

Failure to file the information FBAR had more drastic penalties than if you failed to pay taxes. The penalty not to file the information:

...for a willful violation, the maximum penalty is the greater of $100,000 or 50% of the balance in the account at the time of the violation. For a nonwillful violation, the maximum penalty is $10,000. (source 1)

That is crazy. We're just talking about information, not about any taxes being due.

You are required to expose every single monetary cent that you have to a greedy US tax authority, all the details like account numbers, routing numbers etc. If you didn't provide all this private information, they would take 50% of the money in that account. On what basis were they allowed to do this? US government is all-powerful, and it was recently upheld as legal. Of course it was, it was a court in the United States, and you are a US citizen, bound by its laws.

US tax authority's stranglehold on US citizens and foreign financial institutions

US tax authority's stranglehold on US citizens and foreign financial institutions

The US is so powerful that it put a strangehold on all financial institutions in the world. The US required every single foreign financial institution in all other 192 countries to report everything on US citizens and to withhold US taxes in addition to any withholding that country might have from any interest bearing accounts. If they didn't do so, they could not perform any financial transactions in USA.

There was so much additional "paperwork" for all these institutions that they just decided not to have any US citizens as customers anymore .

There was no communication about FATCA, FBAR or any of this to the general public. When you live outside the US, you don't spend your free time looking up whether US tax laws have changed recently, and no one is informing you.

That is when the dam broke and within several weeks, very suddenly, without any warning, it became impossible to have a "normal" financial life as a US citizen living abroad.

That is when my life went directly to hell.

Flooding of the Rhine River - the dam is submerged

Flooding of the Rhine River - the dam is submerged

My German bank where I had been a customer for over 20 years, as well as other German financial institutions sent me letters informing me that my accounts would be closed in two weeks.

In the case of investments, I was to immediately sell off all my holdings (my retirement savings, just to name one example). If I didn't sell myself, the bank/financial institution would sell anyway and place the funds in a court-mandated account where I would have to employ a lawyer to get at my own money. How to pay those expenses when you do not have a bank account or access to your money? No answer to that question.

Overnight, my life was a nightmare. I had 2 weeks to find another bank or move to the US permanently. The second option I didn't take very seriously. Who could do that?

There was no one to turn to for help. The German government couldn't help, and the EU won't help. My US representative in Illinois, my last place of residence over 30 years ago? He wouldn't care about a citizen who doesn’t really live in his state. No taxation without representation, unless, you decide to live outside of the US - then, anything goes.

There was nothing I could do, and no where I could go. The clock was ticking everyday and I was starting to panic because already certain financial transactions weren't getting processed.

Eventually I found an online bank which would accept US citizens and managed to move all my money/investments within the last few days of the two-week period - it was as intense as in a Hollywood movie - will I get out in time and safely?

Those two weeks in financial hell changed my life. I didn't want the enormous hassle of being a US citizen anymore and I started to look into how I could get out of these obligations.

There is only way out: giving up the US citizenship. Forever. Irreversible.

There is a lot of paperwork and expense to get your renounciation processed, for example you must have the last five years of US tax reporting completed, all the FBARs and you have to have a lifetime asset assessment (how much money you will have in your lifetime). I had to have an accountant perform that calculation for me. The US charges an „exit tax“ on those giving up their citizenship if the estimate is over $2 million. Fortunately (in terms of paying taxes not so much about my financial outlook...) my assets would never come near millions.

My US passport was going to expire in 2012. I set that as my goal: be rid of the US citizenship by 2012. I will save the story of travelling to the USA from Germany and going through passport control as a no-longer US citizen for another blog.

The only way out: Expatriation. Documented in my US passport

The only way out: Expatriation. Documented in my US passport

In the process, I got to know a lot of "Accidental Americans" at my company and living in southwestern Germany. Globally, there is estimated to be somewhere between 2,8 and 6,8 million US citizens living abroad (source - 6)

An "Accidental American" is a person who was born in the US but identifies 100% as a citizen of another country. Usually they only lived in US as a baby, and couldn't even walk or talk when they left the US and thus never had a social security number or anything "citizen" like...many of them cannot speak English. Nonetheless they are required to file tax forms and the FBAR because they got US citizenship automatically when they were born in America.

Those people were hit the hardest. They had absolutely no idea they had any obligations to the country where they were born. Seriously, how could they? Every other country on the planet performs taxation based on residency. They could not believe they had to suddenly file the FBAR as well as the past 5 years of US income tax forms in order to keep the money in their accounts. The US government was about to take 50% of their money away from them. (source -4)

Incredible. But TRUE.

Land of Liberty - The Silver Liberty US Dollar

Land of Liberty - The Silver Liberty US Dollar

USA - what a country. Forget the 4th of July "land of the free", you are not financially free when you leave US territory because you stay a tax slave for the rest of your life or until you give up US citizenship.

I renounced my US citizenship on June 29, 2012. I wish I could say it was all over. But it's not. Still today, seven years later, I am denied financial accounts because of my "country of birth" although I am a German citizen (only, exclusively and most definitely not a US citizen anymore).

I really thought all my hassles would be over...nonetheless, I'm one of the lucky ones.

The latest change to US tax law under Trump has really hit some US citizens living abroad hard - like, destroy their lives hard. That law allowed a one-time tax on assets that U.S.-controlled businesses have accumulated overseas, whether or not they repatriate them to the United States.

Carrie is a 50-year-old, self-employed doctor living in Amsterdam. She is Dutch and was born in the US while her parents were living there for six months ... She is facing a tax bill of at least $107,000 which would wipe out her life savings. (source - 5)

Carrie and millions like her are facing a horrible financial fate due to the country of birth and there is very little they can do about it.

Sources:

1) https://www.ssacpa.com/claims-court-upholds-fbar-penalty-exceeding-regulatory-cap/

2) https://nomadcapitalist.com/2018/06/16/tax-consequences-of-renouncing/

3) https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca

4) https://americansoverseas.org/en/irs-tracks-down-accidental-americans/

5) https://americansoverseas.org/en/us-tax-system-creates-huge-bills-for-foreign-citizens/

6) https://www.migrationpolicy.org/article/counting-uncountable-overseas-americans

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There are 22 comments , add yours!
Russell Smith 2 years, 3 months ago

Flabbergasted I think is the word that describes my thoughts. Smoother waters and calmer winds will come your way :)

2 years, 3 months ago Edited
Lee Santiva Replied to Russell Smith 2 years, 3 months ago

Thank you for the well wishes Russell. A lot of water has flowed under the bridges ( a German saying) meaning I have reached a stable financial situation and found peace with my decision.

2 years, 3 months ago Edited
Russell Smith Replied to Lee Santiva 2 years, 3 months ago

Those are the two important things.

2 years, 3 months ago Edited
Björn Roose 2 years, 3 months ago

I can understand your story in financial terms: no one should be taxed twice over the same income. There was a practical solution to it however: full integration in your new homeland and thus giving up the nationality of your native country.

I for one live on the territory of a homeland that does not legally exist (yet). The country of which I have the nationality alas does exist. So, I lose over 50 percent of my income to taxes for a country which is not mine and I can not even denounce the nationality of it without leaving my homeland ...

2 years, 3 months ago Edited
Lee Santiva Replied to Björn Roose 2 years, 3 months ago

Thanks for taking the time with this subject, just for clarity, there were two rax forms to complete but I didn‘t pay double taxes. The problem was the German tax system gave you €800 tax-free as an incentive for saving for retirement. The US didn‘t recognize that form of retirement savings, so the US taxed the amount 1-800, and the Germans 801+

To your situation, I‘m not sure I understand the situation, is it like being an ethnic minority? I confess I don’t know the history of the Flemish, I’ll have to do some research.
As Peter commented earlier, we only have an illusion of democracy and “fairness”

2 years, 3 months ago Edited
Björn Roose Replied to Lee Santiva 2 years, 3 months ago

Nope, the Dutch speaking are the majority in this country. Demographically, not politically. Politically the French speaking population, some 35-40 % of the population are worth 50 % and can block anything the Dutch speaking majority wants. See, I don't even have an illusion of democracy smile 

Anyway, my homeland is not limited to the borders of this country, it contains the Flemish part of this country, the nowadays Netherlands and the Flemish part of France.

2 years, 3 months ago Edited
Lee Santiva Replied to Björn Roose 2 years, 3 months ago

Ah, now I understand a state without borders

2 years, 3 months ago Edited
Björn Roose Replied to Lee Santiva 2 years, 3 months ago

It has borders, historical ones, but they are not the borders of one of the nowadays existing states. The Flemish (or Dutch - historically they are the same) got separated into different artificial states as a consequence of a number of foreign occupations. The most southern group was officially subdued to Paris. The group in the middle was subdued to Paris too, but in a less obvious way (they became citizens of a country created by Paris and meant to be French speaking or not be at all). The group in the north was so happy to live in peace that in the end, after the violent French insurgence which split up The Netherlands again in 1830, they almost forgot about the more southern parts of their people. The false borders thus got recognized and the real borders forgotten.

2 years, 3 months ago Edited
Camellia Staab 2 years, 3 months ago

I am sorry you had to go through this but I also want to point out that the US and Eritrea are not the only countries with this type of a law. You have not mentioned that the US has signed treaties with many other countries and within those treaties both the US and the other country have come to some agreement as far as taxation, Germany is one of those countries with a signed treaty. I am not defending the US, although I in contrast to you chose to get my citizenship in this country. While taxes are high and sometimes the tax laws seem arbitrary, there are other countries whose taxation of its citizens are quadruple to what people pay in the US. Thank you of sharing your experience and again I am sorry you had to go through this experience.

2 years, 3 months ago Edited
Lee Santiva Replied to Camellia Staab 2 years, 3 months ago

What other country taxes its citizens on worldwide income and demands all details of their financial dealings? I researched this, I can only find Eritrea. Please let me know the others.
Yes, there is a treaty it is on earned income only, not on investment income. The fact remains that a US tax return is mandatory even if no tax is to be paid.
When I was preparing for expatriation no one could tell me what would happen when I retire and live from investment income and German social security. The tax treaty only covers while you are an employee. That‘s form 2555 earned income exclusion. The forms 1116 foreign investment do not really allow for investment income to be your only income.

That means 2 tax returns every year. That is not necessary between any other 2 countries, for example between Germany and Singapore.

2 years, 3 months ago Edited
Lee Santiva Replied to Camellia Staab 2 years, 3 months ago

Thanks for taking the time on this very long blog and you sympathetic words. It was never about the taxes, per se, but the ability to have financial freedom. 
It was very frightening to have your very existence threatened in that way.

2 years, 3 months ago Edited
Amisha Shukla 2 years, 3 months ago

May ur life be full of happiness and relaxation!! May each day bring immense joy !!

2 years, 3 months ago Edited
Lee Santiva Replied to Amisha Shukla 2 years, 3 months ago

Thank you Amisha for such lovely wishes, yes, things are better now that it is no longer such a bureaucratic struggle

2 years, 3 months ago Edited
Amisha Shukla 2 years, 3 months ago

Hey! First of all excellent narration . how horrible it is!! Life actually becomes hell when u have so much of burden,the complex organisational structure is killing human peace!

2 years, 3 months ago Edited
Heidi Egerman 2 years, 3 months ago

Lee, I had no idea...
What a country. Huh? Thank you for sharing your story. It is going to require more thought. 
Best of luck moving forward through this dysfunctional system. My heart goes out to anyone dealing with this.

2 years, 3 months ago Edited
Lee Santiva Replied to Heidi Egerman 2 years, 3 months ago

Thanks Heidi for taking the time with this topic and for your kind words.
With so many years perspective I am no longer angry, it is sad that it had to come to this. 
The lawmakers were going after the big fish tax evaders and like a fisherman who had too big of a net, they ended up catching all of us small fishes. Unlike the big fish, we don‘t have the means like shell companies in Cyprus etc to get around it
I talked to Americans living in Germany today and they say the banks are no longer panicking and threatening closure but its still restrictive what types of investments you‘re allowed to make.

2 years, 3 months ago Edited
Heike 2 years, 3 months ago

Yikes! What a horror. I can understand that they tax US companies that are based abroad. But private persons? That's criminal in my eyes!

2 years, 3 months ago Edited
Lee Santiva Replied to Heike 2 years, 3 months ago

Danke Heike! Die Situation war sogar schlimmer als ich im Blog schrieb deswegen schreibe ich jetzt auf Deutsch. Ich war 3 Monate lang staatenlos. Ich hatte die amerikanische Staatsbürgerschaft aufgegeben aber hatte die deutsche noch nicht (doppelte Staatsbürgerschaft zw USA und DE war damals auch nicht erlaubt) und dann wurde meine Arbeitsstelle nach Indien verlegt...mir drohte die Arbeitslosigkeit ohne Staatsangehörigkeit. Man denkt an die Punkte zu den Physikern von Dürrenmatt: Die schlimmst mögliche Wendung ist nicht voraussehbar. Sie tritt durch Zufall ein.
aber nun ist alles gut und damals habe ich eine andere Stelle bei derselben Firma gefunden

2 years, 3 months ago Edited
Berckmans Peter 2 years, 3 months ago

This is a real horrorstory. But familiar. In the modern western world we have the illusion of freedom and democracy. Infact we are lived every moment of our life. when I met my wife she was an illegal alien in Belgium. Took me 3 years to get that sorted out. You have to be strong to get through all the threats and paperwork,seems you were

2 years, 3 months ago Edited
Lee Santiva Replied to Berckmans Peter 2 years, 3 months ago

Thank you Peter for taking the time to read my very long blog and to comment. I think that your wife's illegal status must have been a harder bureaucratic battle than mine. I'm glad to hear that it worked out well for both of you! Such an experience really opens your eyes that we are all living in an illusion like the movie "Matrix"

2 years, 3 months ago Edited
Berckmans Peter Replied to Lee Santiva 2 years, 3 months ago

So true,as long you walk between the lines of the system and not ask to much questions. You will be fine. But once you step out of those borders it is hell.

2 years, 3 months ago Edited
Lee Santiva Replied to Berckmans Peter 2 years, 3 months ago

Very well said. So true

2 years, 3 months ago Edited
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