After 70-plus years of fighting for truth, justice and the American way, Superman is giving up his U.S. passport.
Tired of being tarred as a puppet of U.S. policy, the iconic comic-book hero said he would cut his ties, declaring in a recent issue that “the world's too small, too connected.”
The Man of Steel might, however, want to rethink his words. Becoming un-American is a lot easier said than done.
Never mind the emotion. Renouncing the most coveted citizenship on the planet can take years and may cost nearly half of everything you own, including your real estate and pension.
A series of tough new U.S. tax laws, designed to root out Americans hiding money offshore, is suddenly prompting many expatriates to consider the ultimate act of national repudiation – becoming un-American. In a move set for 2014, the U.S. Internal Revenue Service will require foreign financial institutions to identify all accounts held by Americans. Many Canadian banks and brokers are already starting to document customers with suspected ties to the U.S.
That's put many of the roughly one million Americans living in Canada in a strange limbo – afraid of breaking the law, but even more fearful of the potentially enormous cost of coming out of the shadows.
The situation is akin to the Eagles' Hotel California: You can check out any time you like, but you can never leave.
“If I didn't care about having money, it wouldn't be an issue,” explained Dave (not his real name), who came to Toronto as a student in the 1970s and stayed.
“But it would be financially ruinous. To renounce my citizenship would mean losing half the money I've ever had, for no good reason.”
Dave is now in his mid-50s and married to another American. He became a Canadian citizen in the 1990s, started a family and built a successful career as a communications consultant. And he has dutifully paid taxes in Canada ever since. Now, though, he's angry and frustrated that his country of birth won't leave him alone, but is unwilling to speak publicly for fear of being exposed – and taxed.
The catch lies in the fact that, unlike virtually every other country, the United States requires its citizens to file tax reports with the IRS on their worldwide income every year, regardless of where they live. That means annual filings with the IRS as well as in Canada. If you've been dutifully paying taxes in Canada, you may not owe much because the U.S. credits individuals for what they've already paid. But the IRS won't overlook the steep penalties for not filing – and it can reach back years to collect.
Canada is believed to be home to more U.S. expats and dual citizens than any other country. And like Dave, an untold number of them long ago stopped filing U.S. taxes as required, willfully ignoring the law or wrongly assuming they had renounced their citizenship by becoming Canadian.
Not so. Americans are Americans until the U.S. government officially says they're not.
That has put tens – perhaps hundreds – of thousands of people like Dave in a sort of trap. On a recent trip to the United States, a border guard noticed his U.S. birth in his Canadian passport. And by law that means he's required to enter and leave the United States on a U.S. passport, as the guard pointed out.
But getting a U.S. passport would almost certainly force him to come clean with the IRS. And that would mean years of back taxes, possible penalties and an obligation to file taxes in the U.S. for the rest of his life.
“I'm feeling a terrible sense of insecurity,” Dave acknowledged. “I resent being made to feel dishonest. If there was a way to deal with this reasonably, I would. I'd like to leave my citizenship behind, but I can't.”
