WSJ: Renouncing U.S. Citizenship Becomes Harder Than Ever (12/28/1998)
kuacou
December 28, 1998
Renouncing U.S. Citizenship Becomes Harder Than Ever
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.