susiesan

How is receiving social security and IRA/401K benefits/payouts treated if you have moved permanently to a foreign country in retirement but the monthly benefit is direct deposited into a bank account here in the US, then you wire transfer to a bank account in your new country? Who would you pay taxes to-your new home country or the US? What about interest, dividends, and cap gains earned on money and investments in your new country? Would you have to file both a US tax return and a foreign tax return?

If one already has a US passport and has no plans to ever return to the US where it could be revoked for not filing/paying taxes, could you get it renewed in another country? If not, and you are not a citizen of your new country, whose passport do you use to travel? Are you no longer a citizen of any country?

mbstone

I'm more interested in what happens when very large numbers of people are ruled ineligible for US passports (for whatever reason). Where can you go without a passport? What happens to the passport "requirement" at US ports of entry if/when significant numbers of people start showing up with their drivers' licenses and birth certificates?

GUWonder

Well, I would expect that there would have been a rising count of US citizens who have been reported (by various states) as having failed to pay child support payments in an adequate manner in recent years and they are currently exclude in the main from receiving ordinary US passports. I have no clue on what that number is for passport application denials because of child support payment delinquency, but the denial of such applications is pretty much routine work every working day to deny such persons US passports. That's because the State Department is required to make sure that no applicant for a US passport is given an ordinary US passport if on a HHS electronic list of those with reported child support debts (as determined/supplied by state agencies) above a certain amount. [In Canada, Canadian passport denial/revocation occurs when there are child support payments due or even unpaid alimony debts; so clearly the US is not the only country in this game of denying passports for child support and/or other types of reported debts.]

Mexico and Canada would be the two primary destinations for ordinary US citizens heading out of the US without a US passport.

Things get slowed down sometimes already as it is when this happens. If the backlogs become big enough and frequent enough some will likely push for a proposal to subject recognized US citizens to a fine for showing up at US port of entry without a US passport and seeking admission as a US citizen. However, keep in mind that even a dozen years ago, that the most common way to cross the border from the US to Canada or Mexico legally did not involve passports. Presenting a birth certificate and driving license was far more common than a passport at US ports of entry when traveling between the US and Canada/Mexico. Apparently, they could handle it just fine (pun intended) back then too -- all without a fine, and primarily in a timely manner at least when it came to Canada-US crossings.

GUWonder

To answer those questions requires a lot of personal details to be communicated to tax/tax law professionals in one or all involved countries. Most of the people of the above type probably have to file a US tax return and many probably also have to file a FBAR. Failure to file one or both of those (i.e. US tax return and/or FBAR), if required to file either one or both of them, is an invitation to unnecessary headaches. So make sure to get professional assistance based on the specifics of the circumstances.

The answer to the first question: if this works like it does with reported child support payment delinquents, then renewal of an ordinary (full duration, "unrestricted" use) US passport may end up being out of the question for many in the situation you mention above.

The answer to the second question depends on what is made available to such persons by other countries and/or perhaps even by the US.

The answer to the third question is derived from the following: that most countries are not currently engaging in the fundamental basic right violation of making their own citizens stateless; and that US citizens ordinarily remain US citizens until and unless they willfully renounce citizenship or engage in one of a limited set of behaviors that allow for the revocation of US citizenship status (less issues if the person is not going to become stateless as an immediate consequence). [Some countries have no problem with making their citizens stateless, but that is not considered an acceptable international norm by most developed countries.]

STBCypriot

I am an expat and now that I am living in a country where I intend to stay for more than 7 years (I have been living and working outside the US since 1994), I am working towards citizenship here in Cyprus. I have to live here for 7 years before I can start naturalization proceedings. I am planning on getting Cypriot citizenship for many reasons, not the least of which is to be in a position to renounce my US citizenship. Please note that I said "be in a position to"; I have not yet decided if I will do it. But certainly US tax laws and financial reporting (that are meant to capture the fat cats, but snag the little guy like me) are incentive enough to renounce my citizenship.

susiesan

mahomei: your scenario is the one I expect to happen when I retire. My DH and I plan to live in Australia on a retiree investor visa. We don't plan to become Aussies, as it is very difficult to do so. All of our assets will have been removed from the US; the only tie to US will be receiving our social security benefits. These would be direct deposited to a bank account in the US that I will have wire transferred to Australia.

I wasn't planning on filing a US tax return as there would be no taxes due from our meager social security checks. If I am receiving cap gains, dividends, and interest on assets in Australia, how is the US going to know about it unless I tell them? I doubt Australia sends a 1099 or W-2 to the IRS. They probably send it to their tax agency and I'll pay any taxes due to Australia as that's where I'll be living permanently. If I were to have a part time business and make some money in Australia, how would the IRS know unless I filed the tax return? And if one files a tax return from abroad with all foreign income that is self reported, how do they know it's accurate as no matching W-2's or 1099's will have been sent?

The only reason I can see to file with the IRS once I've left the US is to be able to renew a passport. Let's hope this never makes it into law.

Tom M.

Be careful.

I am no expert, but I do live in the Cayman Islands. The Banks here do not accept brokerage accounts for US persons and there are information sharing treaties.

mkt

I'm curious how this affects US Citizen residents of US territories whose residents don't pay federal taxes, as well as US Citizens abroad whose last US residence was one of those territories.

susiesan

To get a retiree visa for Australia one must bring their assets to Australia and invest there. I would sell all my US based stocks, mutual funds, and set up brokerage accounts in Oz and wire the money there. Then I'd invest the cash in Australian stocks and mutual funds. I could keep accounts open in the US but won't if it means I have to file with the IRS every year.

From this website, http://www.immi.gov.au

"In Australia, most income including salary or wages and government benefits are paid directly into a bank account.
You should open a bank account within six weeks of your arrival, as you usually need only your passport as identification. After six weeks you will need extra identification to open an account."

Tom M.

You should read IRS publication 54. Depending on the level of unearned income, you would likely still be required to file a tax return.

You will be required to declare your accounts to the US Treasury.

susiesan

What happens if I don't? What can they do to me in Australia? Seize my social security check? They could have it as it won't matter much to me. How far would the IRS go to pursue my being a tax scofflaw legally? Mind you, I'm not talking about millions of dollars here nor am I a high profile person of prominence or fame. Would it be cost effective to pursue someone over 8000 miles away to get them to file a tax return when no taxes are even due?

My sister, who has lived in England for the last 15 years has not filed a tax return in that period of time. She has never heard from the IRS. It appears she is under the radar, that the IRS has lost track of her.

Combat Medic

They might offer you the position of Treasury Secretary.

mahohmei

+infinity. I've said it before too. "We need to do our taxes before we get offered the position of Treasury Secretary."

cestmoi123

If she means that she doesn't owe any US tax because the tax she pays in the country in which she lives is higher, then, assuming she files a US return showing that, then she's right. If she either doesn't file, or believes that, because she doesn't live in the US, she's not obliged to pay US income tax, then she's most definitely misinformed.

mahohmei

Just a shot in the dark here, but during the Vietnam draft, thousands of young men moved to Canada to avoid being inducted into the armed forces. President Carter's 1977 amnesty meant that they could come back to the USA without fear of being arrest.

So when these young men were in Canada "hiding" from the USA, if they had jobs in Canada, did they file with the IRS? The other question, of course, is if they were able to vote to their hometowns via absentee ballot.

I don't personally know anyone who fled the draft, so there's nobody I can directly ask. :-)