Tax Man Makes it Hard to be American

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Published May 18, 2012

| FOXBusiness

Peter Dunn renounced his U.S. citizenship last year so he no longer would have to deal with the Internal Revenue Service.

He says he's not wealthy, or hiding income or assets. He's just a middle-class investor with less than $1 million in assets at 48 years of age. He's also a theologian who no longer can face the moral inequities of an IRS shakedown of Americans living in foreign countries.

"Jesus talked about the Pharisees putting burdens on people that they couldn't carry, and not lifting one finger to help them carry it," he said. "That sounds like the IRS to me."

Dunn grew up in Anchorage, Alaska, the son of a physician. He studied in Seattle and went on to Cambridge University to earn a PhD in divinity. Along the way, he married a Canadian who works in her family's business.

"I owe everything to her and the company that her family has here in Canada," Dunn said. "Being an American was a liability to my wife."

Dunn, who now lives in Toronto, was one of about 1,780 expatriates who renounced U.S. citizenship last year. This is up from only 235 in 2008 when Washington launched a major crackdown on UBS AG (UBS) for helping wealthy Americans dodge taxes.

Another renouncer was Facebook co-founder Eduardo Saverin, 30 years old. Saverin was born in Brazil but became a U.S. citizen, went to Harvard University, met Facebook's Mark Zuckerberg, and now plans to live in Singapore with the billions he'll make from Facebook's initial public offering. He's getting blowback for it in the press, including a Los Angeles Times headline that declared "Americans feel defriended."

Big guys like Saverin get headlines while little guys get eaten alive. It's the same phenomenon that arose from Enron: A powerful giant abuses the system, Congress responds with a new set of laws, and it's the innocent, little businesses that are most punished by the new regulations and enforcement efforts.

As Washington steps up its tax-collection efforts on the uber-rich, the number of not-so-rich choosing to renounce their U.S. citizenship is likely to keep rising. "People are at the tipping point," said Marylouise Serrato, executive director of American Citizens Abroad.

Her Geneva-based nonprofit group has gathered more than 200 testimonials from beleaguered Americans at a series of town hall meetings. "These are pretty average people who are just trying to work," she said. "Their average salaries are between $49,000 and $89,000."

In some cases, they were unaware they were required to report pension accounts from their foreign employers, which the IRS considers foreign bank accounts. For this, some are facing enormous penalties, Serrato said. Imagine having to give up a quarter of your retirement savings because you forgot to fill out a form required on the other side of the planet.

In many cases, Americans living abroad have been denied jobs, bank accounts, insurance policies and mortgages because many foreign companies don't want to deal with the complexity and uncertainty of changing U.S. tax policies and their enforcement, Serrato said.

And in most cases, people are simply overwhelmed by the paperwork. "I now spend about $1,000 per year to have an accountant prepare my U.S. tax return," reads one of the testimonials Serrato's group has gathered. "I generally owe little or no U.S. taxes...I do not want to renounce my U.S. citizenship...But the increasing demands for information on income not earned in the U.S. are becoming intolerable."

Dunn renounced his U.S. citizenship for a slew of reasons, the threat of hyperinflation being one of them. Remember when the Canadian dollar was worth less than the U.S. dollar? Today it's worth a tad more. Dunn said he believes the U.S. will choose to hyperinflate its currency to deal with its mounting trillions in national debt. If this happens, his assets, denominated in stronger Canadian dollars, will be worth considerably more, possibly forcing him to a threshold where he's heavily taxed.

Dunn also believes that one day he will be a lot richer than he is today. "Every investor's dream is to make it rich, isn't it?," he said. And he wants out before this happens.

He blogs about these issues at the Isaac Brock Society, named for a Canadian military leader who lost his life fending off a U.S. invasion in 1812.

The group begins with the premise that citizenship-based taxation is wrong. Taxation should be based on residency, and where the income is actually made. Imagine, for example, the unfairness of having to pay state income taxes in New York after you've long moved to Texas.

"We don't know anybody who is rich," Dunn said of the folks who gather around his website. "Many of us are closer to retirement, and therefore we have retirement savings to protect."

Dunn, however, does sympathize with the tax burdens of the rich in his blog posts, including Facebook's now un-American co-founder, Saverin.

"America didn't make this man rich," Dunn wrote. "He came from a wealthy Brazilian family. He didn't need the United States. The United States needed him. He was the one who made Mark Zuckerberg rich with his investment to set up the original servers for Facebook.

"The American media would do well to take the high road, and instead of rebuking Saverin, they should wish him well and explain to him that if he ever wants to come back again and create another multi-billion dollar company, that he would be more than welcome to do so."

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at al.lewis@dowjones.com or tellittoal.com)

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