They Have A Strange Definition of "Internal"

It's times like these that make me glad that my family hasn't had anything to do with the United States since my ancestors left/were kicked out of (the history is not crystal clear) New York state after the Revolution. Over the past few months, news has been bubbling up in the broadsheets here regarding a tightening of loopholes in US tax law and the hardening of requirements for American citizens living abroad to file their taxes. August 31st marked the deadline for Americans in Canada to send their returns to the IRS.

That's right; if you're the holder of an American passport, you're legally obligated to file a tax return with the Internal Revenue Service every year, regardless of whether or not you live or work or make any money whatsoever in the United States. This stands in opposition to the tax practices of... well, every other country on Earth except Eritrea. If you're Canadian and living abroad, unless you have revenue coming in from Canadian sources, you have no obligation to pay income taxes.

This is a bit of a problem for the many, many dual citizens or expatriate Americans who are living in Canada - in 2006 there were over three hundred thousand American-Canadians reported, and estimates of American part-time residents and landed immigrants up here go as high as two million. For some of these "American-Canadians," American citizenship - which is acquired at birth if you're born in the United States or certain territories subject to its authority, or if your parents are citizens - is a legal quirk at best, something irrelevant to their daily lives.

There's more to citizenship than the legal aspects - citizenship is a state of mind. Is a "citizen" who carries another country's passport, has lived in that country for 99% or more of their life, and who has spent every working day in that country really a citizen in anything more than a legal term? Well, yes. That's why these legal issues crop up so often. That doesn't mean it's just, though. A recent opinion piece in the Los Angeles Times has something to say about that.

Now, some might say that this is their own fault - that American-Canadians like, say, Margaret Wente should have known that moving to Canada as a teenager and getting citizenship as a young adult doesn't nullify duties to the US. Some might say something like, "Ignorance is no excuse. It was their responsibility to know the laws that affected them and follow them. If they don't like it they can give up their American citizenship."

Yeah, about that...

Look at all these sweet, sweet United States dollars. The IRS wants these, oh yes they do. Good thing I have no obligation to them.

The process of renouncing United States citizenship is fairly simple, but the State Department website is specific that a citizen's renunciation "may have no effect whatsoever on his or her U.S. tax or military service obligations," so there are no guarantees that a renunciation would get the IRS off an ex-citizen's back. What makes that note even better is that it comes only two paragraphs after the explanation that anyone who renounces American citizenship can no longer enjoy any of the rights and privileges that come with that citizenship, "as this would be logically inconsistent with the concept of renunciation."

Yet the rabbit hole goes even deeper than that! In the right circumstances, you don't even have to be an American at all to have an obligation to the IRS. I pulled this straight from their website:

• A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. You must file even if:
  
  • Your income did not come from a trade or business conducted in the United States,
    
  • You have no income from U.S. sources, or
    
  • Your income is exempt from income tax.

So even if you don't live in the United States, even if you're not a citizen of the United States, the IRS still reserves the authority to extract revenue from you despite your externality. Incredible, isn't it? This goes out the window if "U.S. source income is wages in an amount less than the personal exemption amount" - but in keeping with the byzantine nature of the IRS that I have absorbed osmotically through decades of exposure to American culture, I cannot actually determine what this amount is.

I understand the basic intent of the law - as well they should, the US government wants to stop wealthy Americans and corporations from hiding their income in tax havens and thus acting as financial parasites. But this is a long dragnet, and the people it's intended to catch will also have the most resources to escape it; it's people like everyday American-Canadians, the people it wasn't intended to catch, that will have to deal with the worst of it - all for a country they left behind. A lot of these people wouldn't even owe taxes to the IRS at all; the problem is more that they did not file tax returns.

To me, it's arrogance. People who do not live in a country, who do not personally profit from the services of that country, should not be responsible for paying the general costs of that country even if they're a citizen. I could understand if the US wanted to levy, say, a "consular tax" on their expatriate citizens, because such consular services are the only ones they would use; say, if they need to be evacuated from some kind of trouble spot. The only real niggle in this is the issue of expatriate voting - not something I'm going to address at the moment, though I recognize it is an issue. But responsibilities and privileges should go both ways.