Senator Schumer's plan to tax people who leave the US. - page 6

by azhiker96 | 2,754 Views | 65 Comments

Sen. Schumer is upset that the US may miss out on $67M in taxes due to Eduardo Saverin renouncing his naturalized US citizenship. So the Senator wants to place a huge tax on capital gains of anyone who renounces their... Read More


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    Of course, the Honorable Senator's law would not just affect one man. It would apply to anyone who meets it's conditions and there are quite a few. The IRS got very aggressive in 2011 at hunting down US citizens abroad to ensure they are filing and paying taxes. Quite a few are accidental US citizens who have not lived in the US but were either born in the US or had at least one parent who was a US citizen.

    Accidental U.S. citizenship – does it stay with you for life? Freedom from the tyranny of U.S. citizenship-based taxation for U.S. and dual citizens outside the U.S.The Perils of 'Accidental' U.S.*Citizenship by Mark Nestmann

    In the second link has the story of a Mexican gentleman whose mother traveled to the nearest hospital to give birth. That hospital happened to be on the US side of the border. After discharge, the both returned to Mexico and he lived there not knowing that the US considered him to be a US citizen. 70 years later he decided to purchase a condo in San Diego to escape the hot climate. That is when he hit the IRS radar and they initiated proceedings against him for failing to file and pay taxes.

    This has cost him $100,000 in attorneys fees with an estimated $50,000 in accounting fees to convert and process his tax returns to then pay $500,000 in taxes. $650,000 seems a bit steep to me to repay the US for the benefits he received by being born here. I'm guessing that's his "fair share" and he should be happy for the privilege of paying it.

    Maybe someone could explain to me how this is fair.
    tewdles, Jolie, and Spidey's mom like this.
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    Most of the children born to mexican mothers in US hospitals reap significant benefits from their birth citizenry...WIC, insurance, education, etc. It is too bad that a few might have the experience that you posted.

    Did someone say that taxes are fair?
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    Quote from tewdles
    Did someone say that taxes are fair?
    I suspect 1% of the US population does.
  4. 1
    Quote from azhiker96
    Accidental U.S. citizenship – does it stay with you for life? Freedom from the tyranny of U.S. citizenship-based taxation for U.S. and dual citizens outside the U.S.The Perils of 'Accidental' U.S.*Citizenship by Mark Nestmann

    In the second link has the story of a Mexican gentleman whose mother traveled to the nearest hospital to give birth. That hospital happened to be on the US side of the border. After discharge, the both returned to Mexico and he lived there not knowing that the US considered him to be a US citizen. 70 years later he decided to purchase a condo in San Diego to escape the hot climate. That is when he hit the IRS radar and they initiated proceedings against him for failing to file and pay taxes.

    This has cost him $100,000 in attorneys fees with an estimated $50,000 in accounting fees to convert and process his tax returns to then pay $500,000 in taxes. $650,000 seems a bit steep to me to repay the US for the benefits he received by being born here. I'm guessing that's his "fair share" and he should be happy for the privilege of paying it.

    Maybe someone could explain to me how this is fair.
    A moving story to be sure, although it could be more persuasive if there was any chance it was actually true.

    The first problem with this story is that we have a double taxation treaty with Mexico, so long as he was complying with Mexican tax laws he would not owe any US income tax. Even if we pretend that is not the case, all 5 years of taxes he owed occurred when he was over the age of 65, again exempting him from US taxes. If we ignore that as well, then we're still in the difficult position of trying to believe that it cost him $50,000 to convert his Mexican tax returns to GAAP format, which for personal income tax returns is nearly identical and according to a relative/accountant who converts to GAAP for a living, it would take at most a couple of hours for a complicated return, or about 10 hours for the 5 years in question, yet for this story to be true this would have taken 500 hours.

    I don't doubt that our citizenship-based system produces some situations that are relatively unfair which you'd find agreement on all sides should be fixed. But saying nobody should have to pay taxes that could be described as unfair is a bit ridiculous. Some don't think taxes are fair because it goes to pay the $50 billion a year we pay in welfare, others because it goes to pay the $1.3 trillion a year to the DOD. I think everyone's taxes are too high. Yet I don't think we should cut taxes on investors just to shift that burden to families and small-business owners; is it fair that middle-class families paid a higher percentage of their income to fund TARP than investors did, even though it benefited investors to a much higher degree?

    There are very few people that can't make argument that their taxes aren't fair, but making one person's taxes relatively much less fair in order to make someone else's taxes more "fair". I guess I'm not sure what you're proposing, should those who've made money on the back of a system we all pay for not have to contribute to that system and just add it to my bill?
    Last edit by MunoRN on Jun 8, '12
    herring_RN likes this.
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    After 65 we dont have to pay taxes?
    azhiker96 likes this.
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    Quote from tntrn
    After 65 we dont have to pay taxes?
    If you're a US citizen and are "residing" in Mexico then so long as you are complying with Mexican tax laws then no, you would not owe any US taxes on income earned in Mexico.
    herring_RN likes this.
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    Quote from munorn
    if you're a us citizen and are "residing" in mexico then so long as you are complying with mexican tax laws then no, you would not owe any us taxes on income earned in mexico.
    it would be nice if this were true. it is not, at least according to the irs. granted, there is an exclusion for the first $93k of earned income which would not apply to investment income. additionally people can claim a deduction for taxes paid to their host country on income which is not excluded. there is no age 65 exclusion in the real world either. i do wish you'd check the facts before making posts.

    regarding paying taxes on foreign income, here is the source.
    u.s. citizens overseas

    • u.s. citizens and resident aliens are taxed on their worldwide income.
    • some taxpayers may qualify for the foreign earned income exclusion and foreign housing exclusion, or foreign housing deduction
    publication 54 (2011), tax guide for u.s. citizens and resident aliens abroad
    limit on excludable amount


    you may be able to exclude up to $92,900 of your foreign earned income in 2011.
    i can't find a source to the age 65 exclusion because none exists and i can't prove a negative. however, if you can find a government source that says us exempts those over 65 from taxation i will humbly apologize for my error.
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    i do understand how folks might doubt a random website. here's a couple of links to the issue, one in the huffington post and the other reuters.
    american expatriates renounce citizenship over taxes

    special report: tax time pushes some americans to take a hike | reuters

    as an american, dunn had to file tax returns and report all of his bank accounts - even joint accounts and his canadian retirement fund. if he didn't, he would be breaking u.s. law and could face penalties of up to $100,000 or 50 percent of his undeclared accounts, whichever is larger. dunn says he was tired of tracking irs policy changes, and he had no intention of returning to the united states. renouncing his citizenship, as he puts it, was "a no-brainer."

    dunn, who blogs about expatriation, takes issue with being characterized as a tax evader. he says the taxes he pays in canada are higher than what he would pay in the united states, and he says he had always complied with the irs before renouncing.
  9. 1
    Quote from azhiker96
    It would be nice if this were true. It is not, at least according to the IRS.
    Actually, according to the IRS;
    http://www.irs.gov/pub/irs-trty/mexico.pdf

    Quote from azhiker96
    Granted, there is an exclusion for the first $93K of earned income which would not apply to investment income.
    The rule that the first $93K earned oversees is tax free is a blanket rule, double taxation treaties, such as what we have with Mexico, cover much more income as tax free (at least US tax free). The story you provided specifically stated that his investments had lost, not made money.

    Quote from azhiker96
    Additionally people can claim a deduction for taxes paid to their host country on income which is not excluded. There is no age 65 exclusion in the real world either. I do wish you'd check the facts before making posts.
    Said the person who posted an obviously fictitious story.

    I don't think it's any secret that the IRS views those over 65 differently, as an example;
    Over 65? Retired? The IRS may have tax benefits for you!
    Nobody is exempt from filing or paying taxes simply because they are over 65, what I was referring to is that in this particular example, the IRS would view his cash accounts differently since these can often be labelled as "retirement savings" in these situations if the person is over 65. This is according to an accountant, not google, and since it's not something that is easily googlable, I'll concede that argument, although it still leaves us with double-taxation problem, if he was living in Mexico as a US citizen, making money in Mexico, and paying Mexican income taxes, he would have no outstanding US income taxes per our treaty with Mexico, yet the story claims he does.

    Quote from azhiker96
    Regarding paying taxes on foreign income, here is the source.

    U.S. Citizens Overseas



    Publication 54 (2011), Tax Guide for U.S. Citizens and Resident Aliens Abroad


    I can't find a source to the age 65 exclusion because none exists and I can't prove a negative. However, if you can find a government source that says US exempts those over 65 from taxation I will humbly apologize for my error.
    These are the Universal rules, and then there are country-specific laws which overstep those; here is a list of those from the IRS:
    United States Income Tax Treaties - A to Z
    herring_RN likes this.
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    Quote from azhiker96
    I do understand how folks might doubt a random website. Here's a couple of links to the issue, one in the Huffington Post and the other Reuters.
    American Expatriates Renounce Citizenship Over Taxes

    Special Report: Tax time pushes some Americans to take a hike | Reuters
    This is actually a much different story than the previous one. His Canadian income is exempt from US taxation, although he does still have to file a US tax return (even though he owes nothing), which I agree is a hassle and should be done away with. In the mean time though, Quicken is $40, so it's not as though the up-to-$100,000 fine for not filing isn't easily avoidable.


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