The Tax Hazards of a U.S. Passport

Lew Rockwell

Recently, I was having a conversation with a friend of mine who is a journalist here in the Caribbean. While she grew up in the islands, she was born in Florida. During my friend’s early childhood, her mother divorced and relocated to the Caribbean. Subsequently, her mother remarried and the husband formally adopted my friend as his legal daughter.

In the course of our conversation, my friend mentioned that she had just re-discovered her long-lost U.S. passport in a drawer at her mother’s home. It had expired a few years ago. In the intervening years, she had visited the United States several times, but using another passport. This is a serious violation of U.S. law, because U.S. citizens must always use their U.S. passport to cross U.S. borders. However, because her stepfather’s last name appears on my friend’s Caribbean passport, no “alarm bells” were ever triggered when she crossed a U.S. border.

But, this was just the beginning of my friend’s problems. I asked her is she was still filing U.S. tax returns. “No,” she replied. “I left the United States when I was a child. Why would I have to file tax returns there when I’ve never worked there or even lived there since childhood?”

I patiently explained that the United States requires its citizens to pay tax on their worldwide income, no matter where they live. I also told her that she possibly faced a long prison sentence for not disclosing each year the existence of all bank accounts she held outside the United States with an aggregate value exceeding $10,000. And I mentioned that while she could make an appointment to give up her U.S. passport at a local U.S. consulate, she would continue to be subject to these taxes and criminal sanctions for all past years. She could be arrested and taken into custody anytime she visits the United States!

Her response was a mixture of horror and disbelief. After a few minutes, she replied “well, screw ’em! They can keep their damn passport.”

I doubt that the Department of State will collect any passport renewal fees from this young lady! But even if she formally gives up U.S. citizenship and “expatriates,” that still won’t eliminate her past tax or reporting obligations. She needs legal representation in the United States to deal with these obligations, and it won’t come cheaply.

The moral of this story is that if you are a U.S. citizen, no matter where you live, you must file a U.S. tax return each year. You must also disclose details of every “bank, securities or ‘other’ financial account” to the U.S. Treasury each year, if their aggregate value exceeds $10,000 on Form TD F 90-22.1. Incidentally, the information on the TD F form may be shared with virtually any government or police agency anywhere in the world!

Being a former U.S. citizen, I am no longer subject to these unreasonable and frankly dictatorial requirements. Nor am I subject to U.S. jurisdiction, except to the extent of my U.S. investments, or when I visit the United States.

That’s true freedom, and the essence of being a “sovereign individual.”