The Ownership and use of the US Person Which Includes a Citizen as an Instrument of Foreign Policy

 
cross-posted from citizenshipsolutions
originally published July 7, 2016
 
Prologue – U.S. citizens are “subjects” to U.S. law
wherever they may be in the world

 

by John Richardson
 
Welcome and a bit of an introduction

This post turned out to be longer and cover more topics than I originally intended. The problem with discussing the problems experienced by Americans abroad is that there are many “moving parts”. I have broken SOME of the “moving parts” into, well six parts and a “prologue”.

In addition, as the title suggests, the original intention of the post was to discuss how the U.S. Government uses its citizens as “instruments of foreign policy”. The obvious question is: how can they possibly do this? Doesn’t U.S. law end at U.S. borders? How can the United States impose law on the rest of the world. The answer to that question raises other issues (which are discussed in the other parts of this post).

I guess I need a new title for the post.

I would also like to say that I am hopeful that there will be change.
That said, change is possible ONLY (regardless of intention) if all of the issues are understood individually and how they interact.
 
Posts in this Series

Prologue U.S. citizens are “subjects” to U.S. law wherever they may be in the world

Part IThe U.S. “Giveth” and the U.S. “Taketh” – How the U.S. uses “citizenship” as a weapon against individuals

Part II – U.S. Citizens living abroad – “Life in the penalty box”

Part IIII’m a “Toxic American”, but it’s not my fault – How U.S. regulation makes “U.S. citizens undesirables in other nations

Part IVThe use of U.S. citizens as instruments of foreign policy

Part VWhy Americans abroad are renouncing U.S.
citizenship

Part VIThe injustice of the S. 877A “Exit Tax” as applied to Americans abroad

___________________________________________________________________________________

Prologue – U.S. citizens are “subjects” to U.S. law wherever they may be in the world …

Yes, it’s true. In 1932 (eight years after the Supreme Court decision in Cook v. Tait), Justice Hughes of the U.S. Supreme Court, in the case of Blackmer v. United States ruled that:

While it appears that the petitioner removed his residence to France in the year 1924, it is undisputed that he was, and continued to be, a citizen of the United States. He continued to owe allegiance to the United States. By virtue of the obligations of citizenship, the United States retained its authority over him, and he was bound by its laws made applicable to him in a foreign country. Thus, although resident abroad, the petitioner remained subject to the taxing power of the United States. Cook v. Tait, 265 U.S. 47, 54 , 56 S., 44 S. Ct. 444.
For disobedience to its laws through conduct abroad, he was subject to punishment in the courts of the United States. United States v. Bow-
[284 U.S. 421, 437] man, 260 U.S. 94, 102 , 43 S. Ct. 39. With respect to such an exercise of authority, there is no question of international
law,2 but solely of the purport of the municipal law which establishes the duties of the citizen in relation to his own government. 3 While the legislation of the Congress, unless the contrary intent appears, is construed to apply only within the territorial jurisdiction of the United States, the question of its application, so far as citizens of the United States in foreign countries are concerned, is one of construction, not of legislative power. American Banana Co. v. United Fruit Co., 213 U.S. 347, 357 , 29 S. Ct. 511, 16 Ann. Cas. 1047; United States v. Bowman, supra; Robertson v. Labor Board, 268 U.S. 619, 622 ,
45 S. Ct. 621. Nor can it be doubted that the United States possesses the power inherent in sovereignty to require the return to this country of a citizen, resident elsewhere, whenever the public interest requires it, and to penalize him in case of refusal. Compare Bartue and the Duchess of Suffolk’s Case, 2 Dyer’s Rep. 176b, 73 Eng. Rep. 388; Knowles v. Luce, Moore 109, 72 Eng. Rep. 473.4 What in England was the prerogative of the sov- [284 U.S. 421, 438] ereign in this respect pertains under our constitutional system to the national authority which may be exercised by the Congress by virtue of the legislative power to prescribe the duties of the citizens of the United States. It is also beyond controversy that one of the duties which the citizen owes to his government is to support the administration of justice by attending its courts and giving his testimony whenever he is properly summoned. Blair v. United States, 250 U.S. 273, 281 , 39 S. St. Ct. 468. And the Congress may provide for the performance of this duty and prescribe penalties for disobedience.

It’s that simple. If you are a U.S. citizen, some would argue that you are the property of the U.S.government.

On the other hand (and this will be the subject of another post), the Supreme Court decisions in Cook v. Tait and Blackmer v. The United States were decided in an era where there was no U.S. recognition of dual citizenship. It is reasonable to argue that these decisions have no applicability in the modern world.

There will be those who will say: Come on! Get real! The United States would never rely on these old court decisions. Well, they still do cite Cook v. Tait. Mr. FBAR lay dormant until it was resurrected by the Obama administration as the “FBAR Fundraiser“.

US tax reform bill appears to confiscate 12% of retained earnings of certain Canadian Controlled Private Corporations

 

UPDATE November 9, 2017

Today Chairman Brady concluded the “Mark Up” period of his proposed tax legislation. The “Mark Up” period contained NO move to “territorial taxation” for individuals. It did increase increase the “proposed confiscation” of the retained earnings of certain Canadian Controlled Private Corporation, from 12% to 14%.

See the “Manager’s Amendment” here:

summary_of_chairman_amendment_2

Now back to our regular programming …

*******

cross-posted from citizenshipsolutions

by John Richardson, J.D.

US tax reform bill appears to confiscate 12% of retained earnings of certain Canadian Controlled Private Corporations

 
Kudos to Max Reed for his quick analysis of the how the proposed U.S.
tax reform bill might affect Canadians citizen/residents who also have hold U.S. citizenship. You will find the bill here. His analysis, which has been widely discussed at the Isaac Brock Society (beginning here) includes provisions that are very damaging to those who are the owners of Canadian Controlled Private Corporations (noting they are also under assault from Messrs Trudeau and Morneau). The damaging provisions are both prospective and retrospective.

Continue reading “US tax reform bill appears to confiscate 12% of retained earnings of certain Canadian Controlled Private Corporations”

Twelve % Tax on Deferred Earnings Likely to Apply ONLY to Larger/Multi-National Corporations

 
UPDATE November 6 2017 – see below
 


 
Since the new House GOP Tax Bill came out, many are looking beyond the obvious and trying to analyze what this might really mean in peoples’ lives. This post appeared on the Isaac Brock Society on Nov 2 by Stephen Kish. The following sections are excerpts from that post:

Here is the United States House “Tax Cuts and Jobs Act” bill of November 2, 2017.

This is a first pass proposed repeal/amendment etc. of the 1986 Internal Revenue Code of 1986 and is permanently stored here.

November 3 UPDATE:

I was just made aware of an article by Max Reed that apparently indicates that US persons overseas who own small business corporations might be harmed by the new tax legislation. In particular, the imposition of a one-time 12% tax on deferred earnings [THIS INCLUDES LOCAL EARNINGS] would hit not just the intended giant corporations overseas, but also the tiny incorporated businesses (e.g., family or one person farming or medical doctor “corporation”). This would include “U.S. Persons” who have no meaningful relationship with the U.S.

From the Max Reed article:

“… New punitive rules that apply to US citizens who own a business. Currently, most US citizens who own a Canadian corporation that is an active business don’t pay tax on the company’s profits until they take the money out. The House plan changes this. It imposes a new, very complicated, set of rules on US citizens that own the majority of a foreign corporation. The proposal would tax the US citizen owner personally on 50% of the entire income of the Canadian corporation that is above the amount set by an extremely complex formula. At best, this will make the compliance requirements for US citizens that own a business extremely complicated and expensive. At worst, this will cause double tax exposure for US citizens who own a Canadian business on 50% of the profits of that business.

Imposition of a 12% one-time tax on deferred profits. Under the new rules, the US corporate tax system is transitioning to a territorial model. As part of this transition, the new rules impose a one-time 12% tax on income that was deferred in a foreign corporation. Although perhaps unintentional, since US citizens will not benefit from a territorial model, the new rules impose a 12% tax on any cash that has been deferred since 1986. Take a simple example to illustrate the enormity of the problem. A US citizen doctor moved to Canada in 1987. She has been deferring income from personal tax in her medical corporation and investing it. Now, 12% of the total deferred income since 1986 would be subject to a one-time tax in the US. That may be a significant US tax bill…”

November 4 UPDATE:

Republicans Overseas responds to the above concern:

“Stephen Kish, Your comments were forwarded to a House Ways and Means Committee member’s office. His legislative counsel is looking into this. We will report once we receive their reply.

*******

Needless to say, while many hoped there would be improvements in our situation, virtually no one voiced concerns about something appearing that would make things worse. Imagine being an incorporated individual (such as a doctor, accountant, lawyer etc, in Canada) and suddenly being told any retained/deferred earnings left in the corporation since 1986 would be taxed at 12%! While there are no guarantees at the moment, before this idea takes firm hold, particularly in the minds of the tax compliance community, here is an analysis which suggests such a notion could most definitely seen as out-of-context if viewed as a standalone. It really only makes sense when applied to the corporations who moved overseas for whom the U.S. is trying to entice to come back.

*******
 
USCitizenAbroad says
November 5, 2017 at 9:29 pm

@Stephen Kish

You refer to the “frightening prospect” of the 12% tax on the retained earnings of Canadian Controlled Corporations suggested by Max Reed as follows:
 

Imposition of a 12% one-time tax on deferred profits. Under the new rules, the US corporate tax system is transitioning to a territorial model. As part of this transition, the new rules impose a one-time 12% tax on income that was deferred in a foreign corporation. Although perhaps unintentional, since US citizens will not benefit from a territorial model, the new rules impose a 12% tax on any cash that has been deferred since 1986. Take a simple example to illustrate the enormity of the problem. A US citizen doctor moved to Canada in 1987. She has been deferring income from personal tax in her medical corporation and investing it. Now, 12% of the total deferred income since 1986 would be subject to a one-time tax in the US. That may be a significant US tax bill…”

 
@Eric in a later comment confirms that Mr. Reed’s analysis comes from a reference to Sec. 4004 (the transition tax).
 

@Stephen Kish: Yes, he’s referring to Sec 4004 (the transition tax)

 
Although this is unclear and generally difficult to read, I believe that the 12% transition tax (dealing with past retained earnings) does NOT apply to the retained earnings of Canadian Controlled Private Corporations which are owned by INDIVIDUAL shareholders.
 
My reasoning follows …
 
Sections 4001 – 4004 are part of Subtitle A in the proposed bill which appears to deal specifically with the “foreign source” dividends received from certain specific 10-percent owned foreign corporations”. The point is that it deals with domestic corporations that are shareholders of “foreign corporations”.

If you analyze Sections 4001 – 4004, they appear to achieve their objective by amending two different Subchapters of the Internal Revenue Code.
 
Amendments to Sec. 245 which is in the Subchapter of the Internal Revenue Code that describes the computation of taxable income
 
Sec. 4001 is an amendment to the current Sec. 245 which deals very specifically with the deductions available to corporations in the computation of taxable income. Furthermore, by its plain terms Sec. 4001 describes domestic shareholders that are shareholders of foreign corporations. In general the section allows domestic corporations to deduct foreign dividends from the calculation of taxable income. This is the way the USA moves to “territorial taxation” for corporations ONLY.
 
Amendments to the subpart F rules which are found in Subchapter N and used to attribute the income of controlled foreign corporations to U.S. shareholders (Sec. 956, Sec. 961 and Sec. 965)
 
Sec. 4002 is an amendment to the current Sec. 956 which speaks only to the application (or non application) of the section to corporations. In other words, Sec. 4002 applies only to corporations.
 
Sec. 4003 is an amendment to the current Sec. 961 which applies ONLY to corporate shareholders of foreign corporations.
 
Sec. 4004 replaces Sec. 965 which is a section that deals specifically with “the case of a corporation which is a United States shareholder”. I agree that Sec. 4004 (if read outside the context of Subtitle A) could be interpreted to apply to individual shareholders. That said:
 
1. Sec. 4004 replaces a section that deals specifically with corporations; and

2. For Sec. 4004 to apply to individuals would make it the “odd man out” in Subtitle A (in the proposed bill) which is clearly descriptive of how corporations would transition to “territorial taxation”.
 
For these reasons I don’t see how the 12% “transition tax” would apply to individual shareholders.
 
But, Mr. Reed also describes a “prospective tax” (found in Sec. 4301) of the proposed bill on the U.S. citizen shareholders of Canadian Controlled Private Corporations as follows (which I think may be accurate):
 

It imposes a new, very complicated, set of rules on US citizens that own the majority of a foreign corporation. The proposal would tax the US citizen owner personally on 50% of the entire income of the Canadian corporation that is above the amount set by an extremely complex formula. At best, this will make the compliance requirements for US citizens that own a business extremely complicated and expensive. At worst, this will cause double tax exposure for US citizens who own a Canadian business on 50% of the profits of that business.

 
Renounce & Rejoice!

*******

UPDATE November 6 2017

Stephen wrote to Max, asking him to explain his conclusion and why it differed from USCitizenAbroad’s. Unfortunately for us, he is sticking to his initial analysis. Let us hope this gets clarified ASAP.

 

Max Reed has just reviewed USCA’s analysis for me but still feels that, irrespective of intent of the drafters, the proposed tax reform bill, as stated, captures ALL owners of foreign corporations (bad news for us if true).

I am passing this analysis on to Republicans Overseas hoping that it will be passed on to the mark-up folks.

 

Max’s November 6, 2017 response sent to me:

“The purpose of the two sections 4004 and 4301 are to transition the US federal corporate tax regime from a global model to a territorial model. To accomplish this, they create new categories of Subpart F” income that relies in large part on the existing controlled foreign corporation US citizens abroad are already familiar with these rules as they apply to those who own foreign corporations.

As a result, the way the sections are drafted provides for a broader application than the drafters may have intended (I’m not sure).

The technical reasons for this result are briefly summarized as follows. Both sections 4004 and 4301 apply to “United States Shareholders”.

That term is currently defined in Code section 951(b) to mean a US person defined in 957(c) who owns 10% or more of the voting stock of a foreign corporation. Section 957(c) essentially adopts the definitions 7701(a)(30) including US citizen.

There is no change to either Code section 951(b) or Code section 957(c) in the House bill that would alter this. Consequently, 4004 and 4301 apply to “US Shareholders” including all US citizens, US green card holders, US trusts as well as US corporations who own 10% or more of the voting stock of a foreign corporation.

There is no carve out elsewhere in the bill.

The fact that other provisions in the same section only apply to corporate shareholders does not affect the reading of 4004 and 4301. Those sections specifically note the limited application of those provisions whereas 4004 and 4301 do not. Further, the fact that existing section 965 only applied to corporate shareholders also does not matter as it is being replaced in its entirety by new section 965.

In short, the purpose of the provisions may be to assist in the transition to a territorial corporate tax system.

But, as drafted, from a technical perspective the legal effect of them will be so much broader. It will apply this 12% one-time tax to US citizens who own an interest in CFCs [e.g., an incorporated medical doctor’s clinic].

It will further apply an ongoing complex new tax regime to US citizens that own a foreign business that earns active business income. These provisions may not be passed in their current state. I certainly hope not. But if they are the effects on US citizens outside the US will be significant.”

*******

a response from USCitizenAbroad

@Stephen Kish

Re: The Max Reed response to you vis-a-vis my suggestion that that the proposed should NOT be read to include the Canadian Controlled Private Corporations for the “one off 12% tax”.

Mr. Reed’s interpretation is characterized by a the notion that one section of the IRC can/should be divorced from the context in which it appears. Perhaps he is right. Perhaps not. But interestingly the IRS specifically warns that the individual sections of the IRC should be read in the context of the entire code (and therefore obviously the individual subtitles).

Specifically note IRS Official Guidance:

Finally, the IRC is complex and its sections must be read in the context of the entire Code and the court decisions that interpret it. At a minimum, please do not be misled by the false interpretations of the IRC promoted by the purveyors of anti-tax law evasion schemes.

The idea that a a move to territorial taxation for corporations (who have the opportunity to repatriate their earnings at a discount) should be applied to the individual shareholders of Canadian Controlled Private Corporations, is absurd.

*******

Will Territorial Taxation Solve All the Problems of #AmericansAbroad?

 


 
Tomorrow’s the big day! Will there be something for us in tomorrow’s Ways & Means Committee bill? Lots of hints suggest something is there. Most seem to expect a shift to territorial taxation for individuals. That’s a great start! There are still likely to be lots of issues remaining and this comment from the Isaac Brock Society lays it out.

This is not meant to be negative in any way. However, to expect that suddenly ALL of our issues will simply disappear is extremely unlikely. Better to have a reasonable expectation to offset disappointment! But, who knows? Tomorrow will tell….
 

USCitizenAbroad says
November 1, 2017 at 9:26 am

Fred (B)

I’m sorry, but anything that truly makes life easier for US persons abroad is fine by me. I have been skeptical of TTFI, and dream of true simple RBT. But frankly, at this point, if the US says what you do abroad stays abroad, I’ll take it.

I wonder if TTFI would do away with FBARs. After all, if they don’t need to look at your income abroad, they don’t need to look at your accounts abroad. Well, I know that’s not true — they want to make sure people aren’t spiriting funds abroad to hide them there.

Fred (IMHO) they will NEVER get rid of FBAR. The FBAR statute in its purest form requires any person who enters the USA on business to report his/her foreign bank accounts. The original purpose of FBAR was not primarily about taxation. Treasury has considered getting rid of FBAR for Americans abroad and declined to do so. Recent events make it clear that FBAR is an effective tool of intimidation … Mr. FBAR embodies what it means to be an American.

A move to “territorial taxation” (what income is subject to U.S. taxation) has nothing to do with (1) the definition of “tax resident” (what persons are subject to the U.S. tax system) and (2) the FBAR requirements found in Title 31.

It follows from this that a move to “territorial taxation” (absent further legislative change) would in no way affect:

– FBAR rules
– the FATCA IGAs (which are based on the U.S. definition of “tax resident”)
– Chapter 4 of the IRC (Sections 1471 – 1474 which are FATCA)
– the requirement to file a tax return and other information returns
– the draconian “Exit Tax” rules
– gift tax rules
– estate tax rules (unless the estate tax is abolished)

and much more.

ONLY a move to RBT can affect the above …

Of course a move to “territorial taxation” is helpful to Americans abroad. But, (without additional changes) it is only a beginning.

What a move to “territorial taxation” would probably achieve is, that foreign source income would not be subject to U.S. taxation. I would think (but wouldn’t count on) that territorial taxation would lead to the elimination of certain information return requirements: 8938 and 8621 (which have already been eliminated for Green Card holders who make a treaty election).

But, these are just some thoughts. Who knows what the final product will look like? It’s possible to move to “territorial taxation” for individuals and retain A LOT of the pain for Americans abroad. On the other hand, a lot of the pain could be removed.

Neither RO nor ACA has proposed the elimination of CBT. The RO proposal makes CBT more tolerable for Americans abroad. The ACA proposal reinforces CBT, but allows a “buy out” for specified individuals (and is ultimately better for those who can take advantage of it).

DA has yet to make a specific proposal. But, in the DA worldview, CBT is essential to ensure that a small group of people don’t escape paying their “fair share”. For this reason, DA does NOT really support RBT – time for the loyal Democrats to stop drinking the “Kool Aid”.

The ONLY proposals for RBT are found in the some of the individual submissions to House Ways and Means (2013) and Senate Finance (2015).

But on the other hand: We don’t know what the proposed legislation will look like. It could incorporate various suggestions from various proposals and could actually be RBT. But, given the fact that there has been no organized support of RBT, I think this is unlikely.

I read somewhere (or did I just dream it) that:

“All roads lead to renunciation!”

Renouncing for some is excruciating & not because of the emotional ties

 

 

Barbara left the following comment at Brock earlier today. Her story is different in that she lives in a lower-tax based country (easier to owe US tax) where gaining citizenship is very difficult, if not impossible. I think this situation has come up far less often in public discussions and all of us should be aware of all the ways US tax policy is abusive to expats.

Barbara
2017/10/31

Agree with Mike : Renouncing is not only not easy, it’s excruciating. On that annual Greenback Tax expat survey, they often come up with a number like 37% of expats “considering renunciation”. My husband and I are two of those. I’ll bet the majority our fellow would-be renunciants have not taken the plunge, not because they don’t want to bother, but because the obstacles are just too extreme.

Sure, if you’re a lifelong Canadian, it may be administratively simple to renounce. Sure, you have to deal with is the boo-hoo emotional part, and 5000 bucks; I get that. But if you’re one of the tens or hundreds of thousands of Americans living in Saudi or Korea or Nigeria or China or Iceland, or other such places where it is either nearly impossible, or extremely unattractive, to take on local citizenship–even if we choose to or even enjoy living there–then renunciation is one of the most difficult decisions one can face.

We took years to make the decision. It isn’t costing us $2350 plus a few tears. It’s costing us our entire life’s savings to buy a passport of convenience through a property purchase, one which seems safe, but certainly not the best of all potential financial investments. Then we get to wait three years. Then we get the passports, we think. Then we deal with whether or not changing citizenship might affect our permanent residency status where we live. Only then do we face the pleasure of renouncing.

No matter what happens with the current tax reform, we’re determined to go through with it. We’ve lost all faith in the US government. There’s no doubt in my mind that the next administration will be a reaction against this one, and will be all Democrats, out for blood. And there’s no question the economy and national deficit will be in a worse mess than it is now. And us rich squillionaires hiding money abroad will be the first to be roped right back in.

Anyone who claims renouncing is easy, try thinking outside your own borders.

And I too hate all Homeland Americans. I find it hard to talk to them at all anymore. Who gives a damn about talking about Harvey Weinstein? I want to talk about TTFI.

October 29, 2017 Canadian FATCA IGA Legislation Litigation Update: Government delay in obtaining their expert witnesses

cross-posted from the Isaac Brock Society

by Stephen J. Kish

OCTOBER 29, 2017 CANADIAN FATCA IGA LITIGATION UPDATE:

Our trial on Canada’s FATCA IGA legislation in Federal Court will now be delayed further because Mr. Justin Trudeau’s lawyers are having problems obtaining their expert witnesses (our side’s experts have already filed affidavits).

The problem is that Government’s contracting/procurement process is not functioning as it should, and Government is having difficulty establishing the necessary retainer contracts for each of the experts they wish to use.

The hoped for time frame for the experts contracts is now end of November; however, Government experts want at least 12 weeks to prepare their affidavits.

I can’t give you a firm date yet on the trial, but speculate that trial might take place sometime early summer 2018.

Each year more and more Canadian citizens are rounded up and turned over to a foreign country

Testimony: Green Card Holder Victim Of FATCA After Failing To Return Expired Card

cross posted from Tax Connections

Original Statement on April 9, 2015

Submission to the United States Senate Finance Committee
International Tax

To anyone who doesn’t really understand the fear and frustration of FATCA and the insanity of the US tax system:
 
I am not and never have been American. I don’t live in the USA and I have no financial connections to the USA.

However, many years ago I got a green card when I married an American. We lived in the so-called, Land of the “Free”, until we decided to move permanently to my home country to care for my elderly parents.

A year or so after my return to my home country my green card expired, became null and void, but I didn’t know I was supposed to return it to USCIS along with an I-407 form. (Green cards don’t come with a set of disposal instructions.) Years later when I found out about this I searched for days to find that old green card and then I sent it away. It was received (according to the mail trace) but never officially acknowledged and there were no replies to my follow-up inquiries.

This left me trapped in a perpetual state of deemed US “personhood” which comes with onerous US tax filing and now highly intrusive FATCA reporting too. The threatened penalties for not filing FBAR (FinCEN114) forms are staggering. They would exceed my life savings (mostly a modest inheritance from my non-American parents). If I lose my life savings to the IRS I could end up on welfare and that would not be fair to taxpayers here in my home country.

What did I take from the USA when I left? I took savings of less than $5K and a gain of less than $75K from the sale of the house we built with our own labour and paid for entirely from the savings I brought with me from my home country (no mortgage on that house). All of this was reported to the IRS and taxed appropriately.

What do I get from the USA? Absolutely nothing – NO right to return to the USA to live or work; NO US Social Security because I have never had US income; NO rescue by US marines in a disaster; NO US vote; NO representation in the US Congress; and since I haven’t visited the USA in almost 20 years (and never will again), NO benefit from the USA’s infrastructure. I do not want any of those things anyway.

What do I want from the USA? I want to be left alone so that I can lead a normal life without the stigma of being called a “US person for tax purposes” (and ONLY tax purposes).

What’s the biggest irony of my whole situation? Well, my husband is no longer American since he recently relinquished his US citizenship. He now has a priceless piece of paper called a CLN (Certificate of Loss of Nationality) which means he can open and retain bank accounts here with no intrusive FATCA reporting.

Meanwhile I, who never was American, will have to live with uncertainty for the rest of my life. If my bank finds out about my past connection and failed disconnection to the USA, it will report me and my accounts to my country’s tax agency which will forward that information to the IRS. And then … well I shudder to think.

Some Americans may hate me for saying this but I have no love or respect for what the USA is doing with its irrational citizenship-based tax system and now its FATCA overreach. These same Americans might even laugh and gloat about how I became trapped as a “US person for tax purposes” but at least my husband, an upstanding citizen, has escaped the clutches of the USA. He did so with no regrets and when his CLN finally arrived he felt nothing but relief. I and my country are proud and pleased to have him. His warm and welcoming citizenship ceremony here in my, now OUR, country was one of the best days of both of our lives.

Neither of us is “un-American” but we are “non-American” and we cannot fathom why the USA will not graciously let its people go.

Anonymous

Perspectives on Announcement of Possible Tax Reform for #AmericansAbroad

 

Our big news broke yesterday and in spite of the fact it is not actually confirmed, many are
counting on this to become reality. Discussions are covering quite a range of issues/reactions;
2 comments from the Isaac Brock Society deserve a post of their own.

On October 26, 2017 at 6:25 am USCitizenAbroad says
says

@Polly

The title of the article (presumably) comes from the Financial Times authors and NOT from Rep Brady. It’s very important to stay supportive of the main message and not be distracted by small aspects that one doesn’t like.

@Plaxy

The White House does not write the legislation. Unless the White House actively opposes changes for the taxation of Americans abroad, it’s response is not as important as the response of Congressional tax writing committees.

When you read the complete article you will see it has been reported that a change in tax policy for Americans Abroad appears to be supported (or at least not opposed by):

1. Mark Mazur of Obama Treasury fame

2. American Chamber of Commerce

3. It appears that Brady is saying that the lawmakers supporting that area of the tax code have also made the change for RBT (which suggests that the 2013 and 2015 submissions have done their work).

4. The White House sees no problem with it (maybe)

5. RO is mentioned as having brought the signatures to the White House

Appears that the collective work of a lot of people/groups, over a period of years, may be paying off. I think that the most significant support (from the perspective of change) may be from Homelanders: the American Chamber of Commerce and perhaps Mark Mazur.

Assuming the truth of this article, the biggest hurdle has been crossed. Congress is acknowledging and considering the issue (I suspect that this may already have been written into the draft legislation).

Considering that the effects of CBT cannot be understood by those who have never lived it, this is a tremendous achievement – which reflects the work of large numbers of people (and organizations) since 2011.

It’s vitally important that those large number of people and organizations, come together in support of change.

What unites all people affected by this issue (the end of “place of birth” taxation) is far more important than the specific aspects of what divides them (RBT vs. Territorial, etc.).

 

On October 26, 2017 at 7:39 am USCitizenAbroad says
says

@Petlover

My worry is that any advantageous changes made to the tax code now could just as easily be undone when the next tax reform comes along. It is nerve-wracking not knowing where you stand and what to expect in respect to year-to-year filing obligations. What US person can possibly live a normal life abroad with that uncertainty hanging over them? I just reliquished my citizenship in August this year and the feeling of relief is enormous. Even if these tax reforms pass, I’m glad I’ll never have to waste another thought on whether I am compliant with the US/IRS in every conceivable way.

Those who have lived with the US/Obama/FATCA/FBAR/ Condor enforced assault on Americans abroad since 2009 (this is when the rollout began) would agree with you. Interestingly, this experience has put people to some hard thinking of what U.S. citizenship is really worth. For those who have another “First World Passport”, U.S. citizenship is clearly more of a liability than a benefit.

Yes, I think it makes a lot of sense for those who can easily renounce to renounce. Good decision.

From a practical perspective, the people most affected by this are those who have been U.S. tax compliant. What has become clear is that the only Americans who can live outside the United States are those who do NOT file U.S. taxes. Filing U.S. taxes is (whether known at the time or not) always the first step toward renunciation. It’s not the taxes, it’s not even the reporting. It’s that U.S. tax compliance means that one cannot integrate into the retirement and financial planning programs of other countries. And then (as you point out) there is the constant fear and anxiety.

Actually, U.S. citizenship-based taxation is okay, except for the following four points:

1. Totally Unjust: It’s extremely unjust. Why should people be taxed just based on “place of birth”:?

2. Completely incomprehensible: It’s so complicated that Americans abroad can’t understand what is required of them. For example, when it comes to the forms, there is a lack of agreement in the tax compliance community.

3. Compliance is impossible: Even it U.S. tax compliance for Americans abroad could be understood, it is basically impossible to comply with.

4. Escape is impossible: And finally: Even though it’s unjust, incomprehensible and impossible to comply with, there is no way to to escape without paying lots of fees and in the case of many a a Nazi and Soviet style “Exit Tax”. (The U.S. “Exit Taxes” are far more comprehensive than any Exit Tax imposed by any other country.)

But, other than those four things, U.S. “citizenship-based taxation” really isn’t so bad!

October 24, 2017 Canadian and United States (RO) FATCA IGA/FATCA Litigation Update

cross-posted from the Isaac Brock Society

October 24, 2017 Canadian and United States (RO) FATCA IGA/FATCA Litigation Update

by Stephen J Kish
October 24, 2017

OCTOBER 24, 2017 FATCA IGA legislation/FATCA litigation update.

Canadian (Alliance for the Defense of Canadian Sovereignty [ADCS] is the “client”) FATCA IGA legislation lawsuit:

We are suing (since 2014) the Government of Canada (specifically Justin Trudeau’s Attorney General and Revenue Minister), in Federal Court for rounding up Canadians having a U.S. taint and turning them over to a foreign government. We argue that this violates Canada’s sovereignty as an independent nation and its Charter of Rights that is meant to protect all Canadians.

As to next steps, it now appears likely that most, if not all, of our brave lay witnesses, who provided written affidavits demonstrating harm, will NOT be examined by the Government lawyers. This is good news as it means that we will get to trial “sooner”. We do expect, however, that our expert witnesses will be cross-examined by Government next.

We have not yet received all of Government’s affidavits (e.g., from their experts). When we do, our legal team will need to decide whether they need to cross examine any of the affiants. We are moving forward but I am sorry but I cannot give you a time frame on this.

It is the “job” of the Case Management Judge, who supervises our case, to keep our litigation “moving”.

U.S. Republicans Overseas (RO, the client) FATCA, IGA, and FBAR lawsuit:

Mark Crawford, Senator Rand Paul, Roger Johnson, Daniel Kuettel, Stephen Kish, Donna-Lane Nelson, and Marc Zell are Plaintiffs, Republicans Overseas is the client. The lawsuit is in the U.S. Court of Appeals for the Sixth Circuit.

From the petition: “This case challenges FATCA, the IGAs unilaterally negotiated by the U.S. Department of the Treasury (“Treasury Department”) to supplant FATCA in signatory countries, and the Report of Foreign Bank and Financial Accounts (“FBAR”) ad- ministered by the U.S. Financial Crimes Enforcement Network. These laws and agreements impose unique and discriminatory burdens on U.S. citizens living and working abroad.”

U.S. Government lawyers have been arguing, so far successfully, that none of the Plaintiffs have the necessary “standing” to go to trial. The RO attorney however, argues in part that a “certain” threat of harm/prosecution is not necessary, but that a “credible” threat of prosecution should suffice for standing.

On August 30, 2017, Plaintiffs filed a petition for rehearing to the 6th Circuit Court of Appeals, arguing that the original panel’s Opinion conflicted with two decisions of the United States Supreme Court. Plaintiffs asked that the original panel reconsider the case under correct standards, and absent such action by the original panel, we asked that the full Court consider the case en banc to establish and apply standing rules compliant with existing Supreme Court decisions.

The 6th Circuit has now denied rehearing. Plaintiffs’ next step will be to file (which they will) a certiorari petition to the United States Supreme Court, asking them to review the decision of the lower court on standing. This petition is due on Monday, December 25, 2017.

— I mention the U.S. negative court decisions on Plaintiff standing as I personally suspect that this general issue will be brought up by Government attorneys in the Canadian FATCA IGA legislation lawsuit — Mr. Trudeau’s Ministers arguing that there has been no “FATCA harm” caused to any Canadian. I personally dispute this as Government admits that the Canadian FATCA IGA legislation has directly resulted in over 100,000 Canadians (now up to 500,000?) being turned over to a foreign country — a clear harm that is a Charter and Constitutional violation.

Alliance for the Defeat of Citizenship Taxation (ADCT) litigation efforts in United States:

An aim of ADCT is to defeat by litigation in U.S. court citizenship-based taxation and related laws that we believe, in part, violate the U.S. Constitution. ADCT is not moving forward with any lawsuit in U.S. Court until the US tax reform legislation is passed by Congress (probably in 2018) and our legal claims can be clarified in light of that legislation (or absence of legislation) and established at that time as being reasonable to pursue.

Continue reading “October 24, 2017 Canadian and United States (RO) FATCA IGA/FATCA Litigation Update”

Time to Reach Out to Another Community for Support Regarding Tax Reform

 

For some time an idea has been considered by ADCT and the letter below is the result of that idea. We have yet to tap into another community who is in a unique position to possibly offer us help – the tax compliance community. There are plenty who have voiced their opposition to FATCA, who think CBT is an abomination, etc. So why not ask them to join us?

We will be sending this letter to a “known” group of professionals which may expand in the future. In the meantime, please consider asking your tax accountant, lawyer or advisor to consider it.

*******


 
 
From The Desk of John Richardson

October 18, 2017

Greetings:

Re: Tax Reform as an opportunity to end the U.S. practice of imposing direct taxation on people who live in other countries.

(If you do not have time to read, please go directly to the last page of this letter.)

I am writing to you personally, on behalf of the millions of “hard working” American citizens living outside the United States and on behalf of the “Alliance For The Defeat Of Citizenship-Based Taxation”. American citizens living outside the United States are “Ambassadors For American Values”.

You are receiving this letter because you have been identified as a person who assists Americans abroad with tax, retirement planning, investment counselling, basic financial planning or a combination of the above. You are well aware of the devastating impact that the current rules of “citizenship-based taxation” have on the lives of “every day people” who have chosen to live outside the United States.

As you are aware, the United States is engaged in a process of tax reform. The last major tax reform was in 1986 (how the world has changed). Tax Reform 2017 appears to be a continuation of the work done by the House Ways and Means Committee (2013) and the Senate Finance Committee (2015). A discussion of “International Tax Reform” has featured prominently in these discussions.

Most of the discussion of changes in “international taxation” has been about changes in the rules governing corporations. There is a growing consensus that the U.S. system of “worldwide taxation” is damaging to corporations. As a result, momentum has been building towards changing corporate taxation from “worldwide taxation” to some form of “territorial taxation”. What “territorial taxation” (subject to the specifics) means in broad terms is that:

U.S. corporations would NOT be subject to taxation on profits earned outside the United States.
 
 
 
Individual (DNA) U.S. citizens are ALSO currently subject to a system of “worldwide taxation”.

The effects of being subject to a system of “worldwide taxation” based ONLY on “citizenship” (all other countries impose taxation based on residence) are:

1. U.S. citizens living in other countries are subject to the Internal Revenue Code, as though they lived in the United States, even though they do NOT live in the United States.
2. U.S. citizens living in other countries are subject to taxation on their “worldwide income” which includes income earned in their country of residence.
3. U.S. citizens living in other countries, who own financial assets or have pension plans locally in those countries are required to treat those “local” assets as “foreign” for the purpose of “reporting” to the IRS. This creates the possibility of “every day people” being subjected to punitive taxation and reporting penalties for attempting to live an “every day lives”.

In practical terms this means that a U.S. citizen living in France (who is subject to full taxation in France), is ALSO subject to taxation on his/her French income by the United States. In addition, because that U.S. citizen living in France is subject to all of the rules of the Internal Revenue Code, that individual is also subject to a collection of “penalty laden” reporting requirements that make full U.S. tax compliance difficult and costly. The cost of U.S. tax compliance for U.S. citizens living in other countries must be considered in terms of both “Direct Costs” and “Opportunity Costs”.

“Direct Costs”: U.S. citizens living in other countries are likely to be subjected to punitive taxation on the normal instruments of financial planning because their vehicle for financial planning is (although local to them) foreign to the United States. In addition, the cost of tax return preparation (when competent help is available) is often very high.

“Opportunity Cost”: Compliance with the Internal Revenue Code means that U.S. citizens living in other countries will often NOT be able to benefit from the financial and retirement planning opportunities available to their neighbours who are NOT U.S. citizens. For example, Australia has a public Superannuation plan. It appears that U.S. tax laws would deprive U.S. citizens living in Australia from benefitting from this plan.
 
 
 
“Role of Tax Treaties”: It’s important to recognize that in many cases these problems are not alleviated by U.S. tax treaties. In fact the problems are exacerbated by U.S. tax treaties which contain a “savings clause” which “saves” the right of the United States to impose taxation on (U.S. citizen) residents of other countries, according to the rules of the Internal Revenue Code.

The time has come to end this “relic of the past” which began as a form of deliberate punishment during the Civil War (yes in the 1800s) and continues to be a punishment today.

Significantly, the definition of “U.S. citizen” includes people who have NO CONNECTION to the United States and are residents and citizens of other countries!!!

It’s not Taxation Without Representation it’s Taxation Without Connection

It’s also important to note that the rules of U.S. “citizenship-based taxation” apply to the “citizens and residents” of other countries, who just happen to also be U.S. citizens because they were born in the United States. In many cases, these people have no connection to the United States (sometimes not even knowing that they are considered to be U.S. citizens). In other words, the United States is currently imposing direct taxation on the foreign incomes of people who do NOT live in the United States!

Previous advocacy, comments and requests – from “U.S. tax compliant” Americans abroad

In 2013 a large number of the comments from individuals submitted to the House Ways and Means Committee came from Americans abroad who were trying to comply with U.S. tax requirements.

In 2015 a large number of the comments from individuals submitted to the Senate Finance Committee came from Americans abroad who were trying to comply with U.S. tax requirements.

These submissions and comments may be found at:

http://www.box.com/citizenshiptaxation

A collection of very specific comments from those personally affected have been collected in the 195 page “book” found here:

https://app.box.com/v/citizenshiptaxation/file/28745871102
 
 
 

A rare display of bi-partisan unity

In 2017 a number of organizations, from across the political spectrum, including Republicans Overseas, Democrats Abroad and American Citizens Abroad have requested a change from the rules that require U.S. citizens living outside the United States to pay U.S. tax on their income earned outside the United States. Although the specific proposals advanced by these groups vary in the details, they all request that:

U.S. citizens living outside the United States, who are therefore tax residents of another country, should NOT be subject to the rules of the Internal Revenue Code that apply to Homeland Americans.

No person should be treated as a “tax resident” of more than one country! The time has come to correct this injustice. U.S. tax laws should be amended so that the United States does not impose U.S. taxation on the:

Non-U.S. source income earned by people who do NOT live in the United States.
 
 
 
So, what am I requesting you to do?

I intend to send a simple request to the various committees working on tax reform, which simply focuses on the result sought with the following request:

“Please amend the Internal Revenue Code so that the United States no longer claims the right to impose U.S. taxation on non-U.S. source income which is earned by people who do NOT live in the United States. For example: The United States should not be imposing U.S. taxation on the French income earned by a resident of France.”

This petition is supported by the following professionals (lawyers, accountants, investment advisors, etc.) who work with non-residents who are subject to U.S. taxation on their foreign income.

This petition is supported by the following professionals:

John Richardson – lawyer

Your name – capacity

All other names – capacity

If you simply reply to this email with your name and capacity, I will add your name to the petition. It’s that simple.

Thank you for your consideration and assistance.

John Richardson

http://www.citizenshiptaxation.ca

citizenshiptaxation@gmail.com