U.S. tax laws make it impossible for an American in Germany to live a normal life

“Remaining compliant is almost impossible as the tax code is changing in so often that it is impossible to follow in every aspect all the time. This is especially true if you try to run a business, even a small thing like a burger place or a plumber shop.”

— Ronald Walther

Dear Congress,

I would like to give you an impression of what it feels like to be an American citizen living outside of the USA. There are many more examples where these came from.

In 1965 I was born to two German citizens temporarily residing in the US due to a job relocation of my father. By birth, I became a dual U.S. and German citizen, because these were the rules at that time. My father was working on his career and he loved and admired the USA. He jumped at the chance to live and work there. In 1966 the family returned to Germany. From 1972 to 1975 the family again spent three years in the United States, yet again because of another job relocation. I enjoyed three years of American elementary school. In 1975 the family returned back to Germany again. I was a kid at that time. I continued my education in the German school system. English became a foreign language for me. My last trip to the United States was in the late ‘90s.

Expert advice - not

In 1983, when I turned 18, my father and me looked for advice from a lawyer and a tax advisor about my citizenship status and if I had to change something. The answer was no. My citizenship status was legal. The tax advisor briefly read the double-taxation agreement and did not flag any issues. Both were knowledgeable people in their fields with decades of professional experience. There was no reason for us to question their advice. The only document in my hands was a U.S. passport. It stated nothing about taxes, just a lot of things about customs. Remember: this was the time of dial-phones and phone books: information was more difficult to find. There was no sign that remaining a U.S. citizen could cause significant trouble for me down the road. Neither did I have the ability to look decades into the future for problems that did not exist at that time, nor could I find any written obligation to constantly monitor, analyze and apply any U.S. legislation for changes that could somehow affect me, all this in a foreign language. I am stunned, when discussing these things how many people feel perfectly okay that this seems to be an obligation starting from birth onwards. How many Americans living in the United States are able to do this?

Life went on. I got jobs in Germany, with only German employers. I paid a lot of taxes. I did not become wealthy. In 2001 my mom became sick, and from thereon was in constant need of help. From that time onwards life turned upside down for me and every day was an emergency for the next 20 years. I missed the “HIRE Act” implementing FATCA in 2010.

A few years later an English mayor (and later UK prime minister), Boris Johnson, who was also born in the United States, sold his house in London. The United States taxed his profit on the house and he was very upset about this. This event really impressed me. How could the U.S. tax authorities find out that a U.S.-born Englishman sold his house and made a taxable gain? I learned that this was not a hoax, and that the United States demands compliance from American citizens everywhere in the world, no matter if they are able to do this on their own or not. I had to accept that I had relied on bad advice—for decades.

Don’t speak and understand enough English? Your problem! Don’t understand the 500 pages of highly complex instructions? Your problem! Taxes are not your profession? Bad luck! Walk-in assistance? Not in Europe. Need help? Bad luck for you! I never felt so helpless. It felt like a kick in the face.

CBT then and now

I learned that this so-called „Citizenship Based Taxation“ (CBT) was something from the civil war in the 1860s to sanction wealthy people who avoided the military draft by relocating and was last confirmed in 1924 because of a court case called „Cook vs. Tait“. Is this true? Must anyone born in the United States know about laws beginning from the steam-ship era onwards and 100 years of case law? Wow! I didn’t. I can confirm that this was not a topic in German elementary school. I was convinced that the United States was a modern constitutional state with mostly fair laws and had stopped discriminating against minorities long ago. It seems not.

I was stunned by the costs of becoming compliant. I had offers ranging from $6,000 to $14,000 for a simple streamlined foreign offshore procedure. Are all U.S. citizens considered millionaires? I did this procedure with a U.S. tax pro with massive effort in bumpy English to reduce costs. Hoping that nothing got lost or understood wrongly. So, after spending some thousands of dollars for paperwork, I found out that I actually did not owe any U.S. taxes because I pay a lot of German taxes. But due to the fact that I had signatory authority over my mother’s accounts (she could not pay her bills on her own anymore due declining health) I also had to declare my mom’s accounts on an FBAR form because of the threat of massive penalties that can wreck a life. Is this the United States? The land of the free? For what reason does an “agency” called FinCen (Financial CRIME Enforcement Network) demand all banking information from everyone born in the United States, including his or her family, for being born in the wrong place? My mom asked me if it was a crime to give birth in the United States. Would any American living stateside ever accept this? I seriously doubt it. It seems U.S.  citizens living abroad are 2nd class citizens.

Doomed if you do…

I had to learn that remaining compliant is almost impossible as the tax code is changing so often that it is impossible to follow in every aspect all the time. This is especially true if you try to run a business, even a small thing like a burger place or a plumber shop. CBT works like an occupational ban. If your business does not generate extreme profits starting from day one, or your business partners object to handing over personal data to the United States because of beneficial owner rules, you can end up bankrupt very fast. 

This is not theoretical but reality. Just one small everyday example: My employer values people who help one another. So I started to collect pizza orders for my colleagues in office. As no one uses cash anymore, they reimburse me via bank transfers.  After learning that a total of $600 of transfers per year (not that much pizza) can define me as a business owner required to file a 1099-k, I had to stop this immediately. Not even such a small thing seems to be allowed!

I did not even mention taxation on phantom gains or other nasty things like GILTI-, transition tax or PFICs. More knowledgeable people should do this. Still, their very existence tells me that the United States is making it impossible for me to live a normal life. This is not acceptable.

FATCA adds insult to injury

I also had to learn that German banks were dropping customers with “US-telltales“ because these customers create additional costs due to complex FACTA reporting. At least one bank threatened to close my account. This is a serious threat for one’s creditworthiness and could put me on the street. Besides this I had to accept that specific banking products are not available to me (e.g. ETFs), but are no problem for my Russian neighbor next door. This is open discrimination against an American citizen and it is unacceptable.

The only ways to get out of this nightmare are a) to cut all ties to job, family and friends and move to the United States, or b) to renounce my U.S. citizenship, or c) to support a bill like Darin LaHood’s Residence-Based Taxation for Americans Abroad Act, which would set things right.

We accidental Americans are no criminals! The current situation is unfair for Americans overseas of modest means. Fairness is, or at least has been, one of the founding principles of the United States. Please fix this! Please support the LaHood bill and end the double taxation of Americans abroad!

Sincerely,

Ronald Walther