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What is Citizenship Taxation?

Imagine you were born in California. A year later your parents relocated back to their original home in New York. Or you grew up there and later in life you moved to New York for a great job, love of your life, or just an adventure. California has a taxation system based on “citizenship taxation.” This means California considers you a taxpayer-for-life based on the fact that you were born there. So despite moving to New York and paying New York State and City resident taxes, California still demands full reporting and taxes on your earned income, investment income, pension and other retirement savings, virtually everything.  It lets you offset some tax liability with some New York taxes you pay, but structures its own tax code so differently, so that some taxes are not applicable and nearly all New York retirement plans do not qualify. California is also suspicious of some New York investment products, so it taxes them up to 100%. Concerned about voluntary cooperation and reporting, California threatens your local New York bank with huge financial penalties and even their license to do business in California if they do not provide detailed, private financial information on you. Because of the cost of compliance and fear of an error, your bank drops you as a customer, closes your investment accounts, and cancels your home mortgage. “We do not want Californian customers,” they tell you. You are too risky for them.

You are required then to file taxes in California and New York, even though the tax systems are quite different. And California loads tons of additional paperwork on you to the point you need an expert on California taxes. This expert is many times more expensive than a tax person in New York.  To deter non-filing, California also increases fines and penalties to draconian levels. Administering ‘foreign’ tax collections is quite expensive and no one is even sure it generates enough income to finance or justify the system. But California sees citizen taxation as a way of paying for needed infrastructure and due to your birth in California, it holds you should participate forever in California’s well-being.

And there is more

If you want to start up a New York business, California considers your company a foreign corporation and wants to tax it as well, regardless if you own 10% or 100%. Because of that, you cannot get a loan in New York to help finance your local business, and no investor or partner wants to work with you. You also must pay California specialists to convert your entire business records to meet California standards for informational reporting. Also, your New York spouse is dragged into the mess as well, and you automatically pass along ‘California citizenship’ to your children.

It doesn’t matter if you ever considered yourself a citizen of California. If you happened to be born there, you are in the system. If you want to renounce your citizenship, the fees are in the thousands, and possibly you have to pay an exit tax. Some Congressmen in California then discover that this is a group of people that can easily be taxed more, so they toughen the code and reporting ongoing and there is no consequence and no protest at their front door; the impacted people live far away and have no voice in their government.

Now exchange California with the US, and New York with any country of your choice. This is US expat life today.

The US is the only country in the world (other than Eritrea!) that does this to its citizens. And Eritrea has been condemned by the UN for taxing its expats.

This is not exaggerated. This is exactly the situation that the US government puts American citizens overseas through. Many Americans abroad are unaware of these draconian measures and are just starting to find out how their government is treating them. Many have been silent hoping that the problems would go away. Some have renounced their citizenship in frustration. Some have been forced to choose between their citizenship and their mortgage. All foreign nationals who were simply ‘born in the US’ to non-US parents are being outed by their local banks based on their birthplace of record – and all of a sudden, for the first time in their lives, being treated as US citizens, rather than citizens of their rightful country of loyalty and residence. Many experts in the compliance industry are being used to police and coerce us. We have no representation. We are fighting back.

The US and Eritrea are the only two countries that tax based on citizenship

What are our goals?

Replace Citizen Based Taxation with Resident Based Taxation

Elimination of the need for the FBAR for non-residents

Elimination of the need for FATCA for non-residents

  • Resident based taxation should be comparable to other industrialized countries.
  • Long-term US Citizen in the foreign country should participate only in social programs of that country.

If resident taxation is implemented, FBAR costs to the US Government can be limited to US residents opening a foreign bank account, and not non-residents opening a (local) bank account.

FATCA implementation for non-resident Americans has been a disaster. It has been described as “sewing a Star of David” on each American. It is understandable tracking US residents opening bank accounts overseas. But double filing requirements for US Citizens abroad with high risk to FFIs is unacceptable. FATCA for non-resident Americans should be repealed.

How do we achieve our goals

  • Inform Americans abroad of the fight and work with other grassroots organizations
  • Publish voting records, positions, and bill proposals of Congressional members and candidates
  • Recommend voting for candidates based on their substantiated beliefs on our issues, ignoring the partisan rhetoric in the US
  • Make suggestions to both parties on adapting their legislation to represent us properly
  • Gain support for our problems in our local countries while supporting our resident country’s sovereignty

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