I was born in the United States. I emigrated to Canada over 40 years ago. Nearly 15 years ago, I took out Canadian citizenship. When I did that, I was under the mistaken belief that doing so meant I was de facto giving up my US citizenship.
Apparently for tax purposes, I was wrong. The US is one of only a few (two?) countries that tax on the basis of citizenship, not on the basis of residence and not on the basis of where you earn your income. They assert that even if you take out citizenship in another country, if you were ever a US citizen, you are still a US citizen (at least for tax purposes).
This situation presented no problem for me until a few years ago. The taxes in Canada are higher than the taxes in the US, and so I never owed them anything. In fact, until two years ago, I stopped even filing a return (again believing that I no longer had to file since I am a Canadian citizen and have had no US income).
Things have changed. Margaret Wente is in the same situation (only more ridiculously so, since she left the US when she was 14):
Welcome to the nightmare of U.S. citizens abroad. There are hundreds of thousands of us in Canada, and millions more worldwide. Most of us are law-abiding people. But the U.S. government is treating us like tax cheats. It also says that any “U.S. person” (meaning anyone born in the United States, or even anyone with American parents) must keep filing U.S. tax returns, forever – or else. ...It gets worse, because now there will be no place to hide. On July 1, the loathsome FATCA (Foreign Account Tax Compliance Act) kicks in. It requires banks around the world to cough up the financial information of any client suspected of being a U.S. person. This means your RESPs, your mutual funds, your bank accounts. To its shame, Canada did not resist this extraterritorial abuse of power and privacy. The banks can’t resist, either – they’re on the hook for heavy fines if they don’t comply.
When I first heard about this stuff a couple of years ago, I thought it was a paranoid fantasy. But it was for real. When I wrote about my own dilemma about whether to comply, I was inundated with e-mails from terrified little old ladies who were afraid they’d be arrested at the border on their way to Florida. They won’t be. But the truth is bad enough. Even though the IRS has now promised not to treat them like criminals, simply complying with the law can cost thousands of dollars. On top of that, some people have been on the hook for taxes on assets that are tax-free in Canada. Plus, all the assets you hold jointly with your spouse have to be reported as if you owned them all.
These new US tax laws are an expensive pain. To cope with them, we have put all our US-taxable financial assets (including savings accounts that are tax-free in Canada as well as registered savings plans for grandchildren) in my wife's name, and I have moved all my Registered tax-free savings plans (including retirement savings) out of mutual funds (which the IRS declares to be "off-shore trusts").
It still costs me nearly $1000 a year for an accountant to prove to the IRS I don't owe them anything. As a result, I am seriously considering spending the money to renounce my US citizenship.
The only reason I bother with all this is that I have a son who lives in the US, and I would hate to be detained at the border on the way to visit him. Otherwise I would ignore the whole thing and just stay out of the US. "People respond to incentives."
And you know what? Before I emigrated, I don't think I contributed enough or long enough to collect Social Security from the Farghin Bastidges.