A reasonable explanation of the current law of expatriation. Ignore the part about gun purchases, however. As we know, all gun sales from FFLs have to undergo online verification (not just those by expatriates), and "foreigners" can't buy guns these days (from FFLs). The rest of the article is all too true.
December 28, 1998
By BARRY NEWMAN Staff Reporter of THE WALL STREET JOURNAL
It got harder to buy a gun this month for the lowlifes nobody trusts. Now Tanya Rose Bottygeig will have to put up with a federal background check if she ever walks into a pawnshop to pick up a shotgun -- not because she's a known felon, or a dope fiend, or mentally ill.
No, Ms. Bottygeig can't drive to the Kmart and buy guns with the rest of us because she is literally un-American. She has renounced her U.S. citizenship and joined up with some other nation.
The right to expatriate is fundamental; the British subjects who claimed their freedom in 1776 cited it as a law of nature in the Declaration of Independence. In today's America, though, expatriates are a lot less respectable than they were then. The gun law casts them onto a heap with the rest of America's least loved. And gun dealers are only some of the parties newly interested in keeping tabs on them. The Internal Revenue Service doesn't trust them; nor does the Immigration and Naturalization Service. Anyone else who might consider them suspicious, moreover, will have no problem finding out who they are: A list of their names has started showing up every quarter in the Federal Register.
Source of the List
It gets printed thanks to Sam Gibbons, a Florida Democrat now retired from Congress. In 1995, he sponsored a bill to publicly identify Americans who commit what he called "the despicable act of renouncing their allegiance to the United States." Rep. Gibbons imagined that the list would include "a handful of the wealthiest of the wealthy" who give up their passports for one reason: to dodge taxes.
So far, the lists have run not to handfuls but to hundreds of names -- from Adankus and Ahn, through Kelly and Kikuchi, and all the way to Yoo and Zerafa. If billionaires lurk among them, they aren't famous billionaires. True, many might have stood to save on taxes. But for many more, a tax bill was far from the first thing on their minds; their motives for turning into un-Americans, if you listen to them, are as various as the roots their names recall.
Mr. Gibbons's list had its beginnings in a cloud of patriotic umbrage that passed over America in the mid-1990s. Congress got mad at legal aliens who use social services but don't become U.S. citizens. Less noisily, it got mad at Americans who become legal aliens in other countries, use services there, but decide not to remain U.S. citizens for life.
A tax bill passed in 1996 establishes a legal presumption that anyone who gives up U.S. citizenship and is worth more than $500,000 (like several million other Americans) must be doing it to avoid taxes. The IRS will therefore tax them on all earnings it can reach for 10 years after they give up citizenship. For renouncers who move to countries where they have no immediate family, the law pronounces the presumption of tax-ducking "irrebuttable." No matter how many reasons such people may have for snipping their American umbilicus, the IRS will hear none of them.
Snipping the Umbilicus
A month after passing this tax law, Congress came down on illegal immigrants -- and slipped into that bill a four-line clause meant to penalize supposedly odious emigrants. It makes Americans who give up citizenship to escape taxes "excludable." That means banishment: Like terrorists and people with communicable diseases, renouncers can be barred from setting foot in the U.S. ever again.
Even if they chip in all the taxes the IRS says they owe, the law allows the INS to banish them anyway. Regardless of what either agency does to them, their names will still appear on Rep. Gibbons's list.
"No one in my family, no matter how much money they made, would have ever renounced their American citizenship," Rep. Martin Frost, a Texas Democrat, said at the time. "We're talking about basic patriotism and basic fairness." And perhaps some national pique. "Nobody likes being suckered," says Peter Schuck, an immigration scholar at Yale Law School searching for the logic behind the rules. "Suckered means we thought we were your fellow citizens, we thought we were engaged in a common venture, and as soon as you can save a few bucks, you throw us over."
Craziness in Africa
With the draft long past, the thinking seems to go, what cost can a U.S. passport entail apart from a tax bill? A lawyer who used to work at a U.S. consulate in Africa remembers an American woman who would come in every few months asking to turn her passport in. She was sent away. "The embassy basically told her she was crazy," the lawyer says. "No rational person gives up U.S. citizenship."
The law's presumptions may seem presumptuous, though, in a mobile age when some Americans decamp from Brazil to Korea the way others pull up stakes in Vermont and head for Arizona.
"People do things for a variety of motives, and they're often mixed," says Edward Betancourt, a State Department citizenship specialist. "People in one family can have two nationalities, even more. They want to travel with one passport. They want to deal with one bureaucracy. They want to simplify that aspect of their lives. They're usually middle class. Money isn't the issue."
Some who move in tow of multinational companies become true multinationalists; in a more romantic day, they would be called citizens of the world. Now, exposed in the Federal Register and faced with permanent exile, none are eager to tell their stories. But if tax avoidance really is their motive, it must rank with love and war as a driving force in unusual lives.
A Saga of Citizenship
One man's saga is recounted in a detailed letter written by a New York accountant to the IRS as an appeal for a less-absolute judgment. The IRS treated the letter as a "comment" on the law and released it for publication on the Internet.
The story began 74 years ago when the accountant's client was born in Calcutta, British India, to parents who were Chinese. They were citizens of China, and so was their son. He grew up in Calcutta and found his first job at the Bank of China's Calcutta office. The bank soon sent him to its branch in Karachi, where he worked as a teenage trainee through World War II. In 1945, this young banker returned to Calcutta. Two years later, with the British gone and India partitioned, the Bank of China sent him back to Karachi, in what by then was Pakistan.
He traveled, as before, on a Chinese Nationalist passport. Then China fell to the Communists. The Bank of China expected him to take up citizenship of the new People's Republic. He declined. He resigned, gave up his Chinese passport, applied for Pakistani citizenship -- and got it. He married a Chinese woman of Malayan parentage who was also born in India. They lived in Karachi, and had five children.
In 1954, as his accountant tells the IRS, the young banker turned insurance man, getting a job with a Bermuda-registered insurance company. He worked his way up. In 1965, the company sent him to Hong Kong, and in two years made him a vice president. But the company thought it best not to have someone from Pakistan on its Hong Kong board. So, in 1967, he stopped being Pakistani. He became British.
"I come from all different places, you see." That, he says in a reluctant telephone interview, is what he tells strangers who ask where he is from.
Hong Kong wasn't his last stop. In 1975, he became an assistant treasurer in his insurance company's New York headquarters. The company sponsored him for a permanent resident's visa -- a green card -- and in 1981, says the IRS Internet posting, he did what came naturally: naturalize as a U.S. citizen.
He lived on Manhattan's East Side and in time moved to New Jersey. His wife and children moved, too. All became Americans. But in 1988, at age 64, the assistant treasurer began thinking about retirement and decided on one final move: to end his days as a Canadian.
Why? Because, he says, he wanted to be safe, and New York City in 1988 wasn't safe enough. He wanted to walk into a hospital in agony after a bookcase falls on an index finger and not be asked for insurance papers or a Social Security number or a credit card -- all of which happened at a hospital in Secaucus, N.J. And, his accountant stressed, he wanted to grow old in the company of two sisters and four brothers. They all live in Toronto, where the streets are safe and the hospitals free.
So, in 1991, he completed his career and entered Canada on a retiree's visa. In three years, he applied for citizenship. At a ceremony in 1995, he sang, "O Canada! Our home and native land! True patriot love in all thy sons command." Then he wrote the U.S. State Department to say he had finished being an American.
Did the assistant treasurer, now retired, renounce his U.S. citizenship to save on taxes? No doubt taxes crossed his mind. He has retirement income of $80,000 a year and a net worth of nearly $2 million. Canada has no estate tax; his heirs could gain when he dies. Had he moved to China -- where his parents were born and he never lived -- the IRS would have let him put forth all his other reasons for moving to one more new country. But his Canada ties aren't enough.
The law, passed in 1996, was made retroactive to 1995, before the date of his renunciation. It says tax avoidance has to be a prime motive for his desertion of the United States. There is no arguing it.
An American Anomaly
Citizenship, it seems, means more to America than to many of those who expatriate. They preserve their identity in blood, language, clan and family. With religion and territory added, so do many nations, from Laos to Latvia. But countries of immigration like the U.S. have no organic national glue. They synthesize nationhood out of ideas and a will to belong. Citizenship keeps them whole.
For a thing so treasured, though, U.S. citizenship has steadily become easier to get and harder to lose. Except for war criminals and the like, revoking it without consent is next to impossible. And the U.S. grants it to every baby born here, even if the mother is an illegal immigrant on a day trip. They all remain Americans whether or not they remain in America.
When Congress cut welfare payments to noncitizens in 1996, this cheapening of citizenship seemed to turn around. Millions applied to naturalize. Rarely since the 1950s has so much loyalty talk been heard in the land. The oath new citizens take still obligates each to "absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince or potentate. ..." But it takes more than an oath to alter the facts of multinational life.
Some who naturalize may go through the motions of renouncing former citizenships. Many more don't -- and the U.S. looks the other way. Likewise, Americans overseas who want to swear loyalty to a second country once got dirty looks at U.S. embassies; now they can get help. When lives overarch borders, gaining a passport or giving one up often has as much to do with practicality as nationality.
Sirens do wail in Washington, however, when U.S. citizens overseas hand their passports back -- precisely what the letter of the law demands of every immigrant who takes the citizenship oath here. The underlying reason is a great American anomaly: The U.S. taxes all the earnings of all its citizens, whether they live in Duluth or Dnepropetrovsk. Only two other countries treat their citizens that way. One is the Philippines. The other is Eritrea.
Americans outside the country -- perhaps three million -- file tax returns spottily at best. In 1994, the IRS received just 257,000 returns claiming a special tax break for citizens overseas. But America's passion for taxing everyone everywhere has long posed temptations to belong to other nations.
A tax law to deter renouncers first hit the books in 1966. It was hardly used, yet in the next 27 years, with a blip for the Vietnam War, fewer than 30,000 passports were turned in; through the 1980s, the average was 300 a year. Then, in 1994, this "trend" became an "issue." An article ran in Forbes magazine mentioning a few big names who had sidestepped taxes by expatriating to places like the Bahamas and Belize. They were known as "yacht people."
In Washington, the Democrats decided to sink them. President Clinton proposed an "exit tax" on wealthy ex-citizens who would pay on capital gains as if they had sold their assets -- or died. They could then rewrite their wills, and nobody would ask why they snubbed America. The Republicans wouldn't buy it. They rejoined with a hardening of the old rules that ended up as today's law. Rather than go after the super rich alone, it casts a wide net that can even snare departing green-card holders. It hangs on for a decade, taxing any money earned in the U.S. In practice, that mostly means capital gains on the sale of American assets. And the law pins a motive of tax avoidance on any expatriate in the upper middle class.
"Sometimes I'm sorry I brought this thing up," Michael Pfeifer says; now a partner at Ernst & Young, he devised the exit tax while at the IRS in 1995. "It evolved from a tax on the wealthiest two dozen people who expatriate in a year to something far broader," he says. "My intention was to make the tax automatic. If you go, you owe. Get the motive out."
The motive, however, is still in.
A Finn born in Chicago who stays a week and lives in La Paz for 30 years before giving up U.S. citizenship is as much a tax dodger, under the law, as an Iowa-bred billionaire who buys a Cape Verde passport and lives in Cannes. Mexico frowned on dual citizenship until this year; American-born Mexicans who moved south couldn't attend Mexican colleges, for example, without turning in their U.S. passports. Germany, which is also rethinking its rules, still wants anyone who becomes German to give up earlier loyalties and prove it. Koreans who get U.S. passports and then go home will be barred from owning property or starting businesses.
But if they renounce U.S. citizenship -- the Federal Register's list of expatriates is full of Korean names -- the law will brand them as tax avoiders, as it will another suspect minority: Americans who marry foreigners.
A New York lawyer's case file contains the tale of an American who ships out to France in World War II, falls in love, marries and never comes back. Everything he owns is in France. He wants to will it to his wife. A citizen spouse would get it all, but in 1988, Congress decided to tax estates left to aliens, lest they take the money and run. The American in France hates the thought of his wife being forced to sell their home to pay U.S. taxes, so he gives up his citizenship. His motive, obviously, is tax avoidance.
For many renouncers, the tax law does offer one way out. It gives them a chance to refute its knee-jerk presumptions if they live in their new country of citizenship and show strong ties to it. Sound easy? Ask Henry Haugen.
"I have no idea what the IRS is thinking," he says. "They're certainly not thinking of the common person in this situation. The information they require is just overwhelming."
Mr. Haugen is a maritime lawyer in Seattle, and the person he's talking about is a relative in northern Norway. Born in the U.S., she traveled to the old country at 19, met a man, married him, and has lived in his town for almost 50 years. Loyally, she filed U.S. returns; Norway's high taxes offset anything she owed. But in her 60s, she decided to simplify her estate for the sake of her children, Norwegians all.
So she turned in her American passport and asked Mr. Haugen to square things with the IRS. That's when Mr. Haugen learned that to commute a sentence of tax dodging, the IRS first must see: U.S. and Norwegian income tax returns (translated into English) for three years into the future; theoretical estate returns for the U.S. and Norway hypothesizing death on the date of expatriation; and a schedule of gifts to be made in the coming decade.
For starters. The requisite stack of details (including site of cemetery plot) "is kind of a monstrous thing," says Mr. Haugen. He tallied enough hours compiling it to bill $10,000. Tax lawyers say they'd charge $25,000. And here's the zinger: Last summer, the IRS announced in an official notice that it couldn't decide if people such as Mr. Haugen's client abandoned the U.S. to escape taxes. It said "the inherently factual and subjective nature of the inquiry" made it too hard.
Renouncers entitled to a decision will stay up in the air; at any time for 10 years, the IRS could suddenly decide to decide. "They've lost track of common sense," Mr. Haugen says. And even if America's tax collectors do make up their minds to impose a tax or not, Mr. Haugen's Norwegian relative could still have something to fear from America's gatekeepers.
Power to the INS
In the 1996 illegal-immigration act, the section that bans ex-citizen tax shirkers for life comes right before the sections on deportation for high-speed flight and removal of alien terrorists. Sponsored by Rep. Jack Reed, now a Democratic senator from Rhode Island, it gives the INS -- not the IRS -- the power to divine the motives of renouncers and to pronounce tax-avoiders "excludable."
"The immigration law is not about tax enforcement," says Ann Lesk, a tax lawyer in New York. "It's about punishing people for making money in the U.S. and then going somewhere else. It's a meat ax." Told of it, some scholars wonder about the law's chilling effect on the right to expatriate. But once gone, ex-citizens have no more claim to come back than would-be immigrants do. As Harvard University professor Detlev Vagts says, "Aliens have no right of entry, and these people have transformed themselves into aliens."
The prospect of banishment isn't a pleasant one, especially for someone like one law professor who didn't make his fortune in America and never meant to come here in the first place:
"My name is in the Federal Register," he says, explaining why he would rather that a newspaper not use it.
He stems from a line of German-Jewish bankers who became Roman Catholic late in the last century and owned a 3,000-acre estate near Munich. The Nazis sent his grandfather to a concentration camp. His father and mother escaped with him to England. Then his parents divorced. His mother sailed to America, and he went with her.
They were stateless. At war's end, the family learned that its German patriarch had somehow survived. The money wasn't returned; the land was. But the mother had remarried in America. So, in 1947, she and her son became American citizens.
His father, meanwhile, returned to Germany. In 1950, at age 16, the son began visiting. He liked Europe, a tug that intensified when, in 1984, he fathered a child by a German woman. In 1993, he secured a post at a British university and left the U.S. His father had died in 1991, bequeathing him land that had been in the family since 1825. With a German son as his heir, the professor realized, the U.S. would ultimately tax those lands. Adding it all up, he decided to become German again. In 1997, aware of the consequences, he walked into the U.S. Embassy in London and renounced his American citizenship.
"I had no problem doing it," he says. He didn't owe the U.S. a dime, but under the tax law, he knew, his reasons would be reduced to tax avoidance. And he was taking the risk of never being allowed to come back. "Millions of Americans immigrated and gave up foreign citizenships," he says bitterly. "They would all be very outraged if they couldn't visit their mothers' graves."
In its two years of publication, Rep. Gibbons's list of expatriates in the Federal Register has grown no shorter; if the tax law has dissuaded anyone from giving up U.S. citizenship, it doesn't show. If it has raised any revenue to speak of, the IRS can't say. Nor has the INS managed to write rules to enforce the immigration law. In prickly consultations with the State Department and the IRS, nobody can agree on the precise mechanics of an "official" renunciation. And nobody knows how Congress could have given the INS the enormous power to brand people who give up U.S. citizenship as tax dodgers and banish them -- without appeal -- when the IRS can't legally let other agencies snoop through anybody's tax returns.
What can the U.S. tell expatriates living under this cloud?
The State Department's Mr. Betancourt says, "This is not a paperwork issue. The consequences are very serious. I can't say nothing's going to happen." For now, he advises, it is probably still safe for expatriated un-Americans to enter their forsaken land. But with their names on the "list of shame," they would all have some explaining to do if they ever got the urge to buy a gun.