The Little Red #FATCA Book – Review, Identify & Report on U.S. Persons How #FATCA affects the non-US World

reposted from the citizenshipsolutions blog

As many of you know, the long-awaited #FATCA hearing will take place three weeks from today. This is exciting and followed by the news that Congressman Mark Meadows will reintroduce his repeal FATCA legislation. Closely matching is the effort of Nigel Green & Jim Jatras. The recent letter, endorsed by major think tanks, etc is here . We still await the hoped-for tax reform. The fate of those who have not yet chosen whether to become compliant and/or renounce hangs in the balance. Regardless of the outcome(s), our direction will become much clearer in the next little while.

There are so many aspects to #FATCA and how it affects the lives of expats, I suspect it is impossible to be aware of them all. One of the best things we can do, as “ambassadors” is to make sure we are thoroughly conversant with all aspects of it as we discuss it with our family and friends, on online articles and blogs.

j fatca forumJohn Richardson has long been writing about this and has re-organized his “Little Red FATCA Book.” It is likely the most complete account anywhere. I will be reposting it on all the appropriate websites, blogs and Facebook Groups/Pages. Please, share this as widely as possible. Convincing Homelanders, as impossible as it seems, will go farther than perhaps anything else, in garnering support from Congress to rectify this horrid situation. Please, don’t give up, go out and comment everywhere and make sure you know your facts!
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The “Little Red FATCA Book” is a collection of posts that I created over an 18 month period. I have decided to collect the individual posts and organize them in one place. I have grouped the individual posts into three broad chapters which I will call Chapter A, Chapter B and Chapter C. This is a “work in progress”. Some of the posts are incomplete.

FATCA which is essentially the enforcement mechanism of U.S. “Place of Birth Taxation” is a controversial topic. Feel free to post your thoughts and comments.

John Richardson

MORE AT citizenshipsolutions blog

The agony of US citizenship for US citizens living outside the US

cross-posted from renounceuscitizenship blog

The agony of US citizenship for US citizens living outside the US
 

 
U.S. citizens cry out in agony! But, the U.S. government Silence is Deafening .

The cries are getting louder and louder! Inside the U.S. only Taxpayer Advocate seems to be listening. Outside the United States, American Citizens Abroad continues to soldier on. In Canada, the home of (probably) the largest number of U.S. citizens (many of who are also Canadian citizens) the Government of Canada is listening. Finance Minister, Jim Flaherty, has been consistent in his position that FATCA is intrusive and unnecessary and the Canada will not collect FBAR penalties. He has been consistent with the sentiments expressed in his public letter of September 16, 2011. U.S. citizens in Canada are in a far better position than U.S. citizens in other countries. Furthermore, Mr. Flaherty has been responsive to citizen’s concerns, recognizing that Canadians are desperate for help. The evidence is building. to protect themselves from the U.S. government. Take the above poll which is from a previous post describing how renunciations of U.S. citizenship are soaring under Obama. Consider the following wisdom from a U.S. citizen living in France.

Homeland Americans do not love their “Domestic Abroad” and routinely characterize them as “traitorous Benedict Arnold’s.” Now these citizens abroad are in a complete panic now that they are aware of the U.S. tax and reporting requirements. They are facing the same compliance issues as U.S. immigrants and they are now encountering discrimination in their host countries (loss of local banking services, for example, or limited retirement investment opportunities or even being cut out of business deal by non-US partners) as a result of FATCA.

Many of them cannot easily return to the U.S. – if they did they would have to close their businesses or leave their jobs, get divorces from their foreign spouses and, in some cases, leave their minor children behind in the host country. Contrary to popular belief in the homeland, the vast majority of these people are not millionaires and run a real risk of arriving back home in the U.S. with limited assets, if not in a state of outright penury. On the other hand, they can no longer continue to reside in their host countries as U.S. citizens where they risk paying double taxes (U.S. taxes in addition to host country taxes) and must pay the increasing cost of compliance (international tax specialists to file the 1040 and a whole host of other forms demanded of overseas citizens who have built lives abroad and are permanent residents of their host countries). Even Nina Olsen, the IRS Taxpayer Advocate in the U.S., said in her 2011 report:

The complexity of international tax law, combined with the administrative burden placed
on these taxpayers, creates an environment where taxpayers who are trying their best to
comply simply cannot. For some, this means paying more U.S. tax than is legally required,
while others may be subject to steep civil and criminal penalties. For some U.S taxpayers
abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship.And that sums up quite nicely what is, in fact, happening. Those who are in the know and can afford it are mostly “complaining and complying” while those who cannot are renouncing U.S. citizenship. 2011 was a banner year for renunciations of U.S. citizenship. 2012 will be worse (see this and this excellent analysis over at Overseas Exile.)

http://thefranco-americanflophouse.blogspot.ca/2012/03/diaspora-tax-war-of-2012-stakeholder_27.html

In addition to the current Government of Canada, the Official Opposition of Canada (NDP) is taking the IRS assault on Canadian citizens very seriously. Individual MPs have made an effort to respond and educate. Individual MPs have organized public meetings. Interestingly, the newest NDP MP, Craig Scott is a law professor/human rights lawyer. Furthermore, he attended a public meeting about FATCA. He would be a great addition to the cause. Interestingly there has been very little support from the Liberal Party of Canada. Here is a letter from Bob Rae. Although the Green Party of Canada has only one seat in the House of Commons, their leader Elizabeth May (who was born in the U.S.) has expressed her support for Canadians.

As the FATCA implementation date comes closer and as we find ourselves in tax season, many U.S. citizens (whose only crime is to live outside the United States) are living in a state of desperation and agony. Some samples:

This man gives the word “prescient” real world application:

In closing, some “psychotherapy for U.S. citizens living outside the United States” – the Widsom of Moe Levine:

We are living in interesting times.

Burning Down Barns is not Wrong Because it is illegal; it is illegal Because it is Wrong

 

Burning Down Barns is not Wrong Because it is illegal; it is illegal Because it is Wrong

 


 

Every #Americanabroad (along with his/her “alien” family) understands all too well the reality of the betrayal perpetrated by the U.S. government in the fight against “tax evasion.” To have it then furthered by the country of residence changing the law in order to allow it is a further betrayal. One does not feel betrayal unless one has been wronged.
 
The government would have one think that it is walking the moral high road, taking upon itself the noble fight of searching out those who rob everyone else because they are not “paying their fair share.” Isn’t it just and right to do so? On the surface it would apppear it is but the problem becomes twofold. First, it has to be devised well-enough to actually produce the results it seeks to achieve and second, while doing so, certain rules of fairness about how the attempt is applied are required. Every kid on a playground learns this and readily understands when the rules are broken.
 

It is easy enough to see that the FATCA hunt has huge “design problems.” First off, the U.S. indicia are all items that suggest one lives in the Homeland. There is nothing to “weed out” those who aren’t American but don’t have CLN’s (and that doesn’t mean you are an American). Banks turning in people below the thresholds is truly wasteful as those people are so unlikely to owe tax. The crowning glory however, is that there is no simple way for the IRS to get money from people outside the country unless they willingly send it. I cannot think of any aspect of FATCA that would suggest it is well devised.
 
kids fightingTwo groups of kids are on the playground. The more agressive kids’ part of the playground is on their side of a line dividing the space. The other kids have their space on the other side of the line. One of the bullies comes up to the edge and says somebody on the other side really is one of them and tries to forcefully pull them over. There is no reason other than the bully wants something that isn’t his. What would happen? The other side would probably try to prevent the exchange, even if they are smaller and unlikely to win the fight. But everybody knows who started it and which side of the line the kid really belongs on. Then an adult shows up and all kinds of nonsense starts being spewed to try and muddle the issue because admitting wrong is not going to happen.
 
There is no way that an Accidental American belongs on the “American” side of the line no matter how much the U.S. whines and bellows it is so.
There is no way that anyone who chose to leave for education, marriage or employment and is living in another country in tune with the laws there, can be seen to “belong” to the U.S.
 
What are they going to do? A sort of reverse of what may happen soon in the U.S.? Where they kick out “illegal” adults and purposely separate them from their (American) children? Have everybody shipped back? They probably ARE mean enough but the fact is, that costs money. Lots of it.
 
The 14th Amendment, the 16th Amendment, Cook v Tait and all of it, belongs to those people who are on the U.S. side of the line. All the “laws” and arguments about polity and old case law just muddles the real issue. The fact of life is:
 
Everybody else has a right to be on their side of the line.
 
So everytime a condor hits you with that “It’s U.S. law” or “Until it’s changed it has to be obeyed” don’t allow them to drag you into arguing. It’s just plain dumb and so are they for thinking they can fool (or shame) you with such stupid arguments.
 
*****

Brock founder Peter Dunn/Petros says it quite eloquently. Re-blogged from the Isaac Brock Society March 31, 2015

We are living a crisis of morality in which leaders have difficulty distinguishing between what is right and wrong. Today, political leaders facing a legal obstacle to their agenda believe that all they have to do is change the law. So if the government stealing from people is illegal, all that one needs to do is change the law and call it “civil forfeiture“, and suddenly it becomes morally acceptable.

I recall reading a few years back a National Post article that brought up the question of lawmaking and morality came up.  Fortunately, Mark Steyn, cites the money quote from George Jonas:

Back in the Trudeaupian golden age, you may recall, the great man’s barnstorming transformation of Canada was momentarily halted by a storm about barns. It emerged that some overzealous officers of the Royal Canadian Mounted Police had burned down barns belonging to Quebec separatists. The press was briefly exercised over this, but M. Trudeau gave one of his famous shrugs and airily remarked that, if people were so upset by the Mounties burning down barns illegally, perhaps he’d make the burning of barns by the Mounties legal. As the great George Jonas commented:

“It seemed not to occur to him that it isn’t wrong to burn down barns because it’s illegal, but it’s illegal to burn down barns because it’s wrong. Like other statist politicians, Mr. Trudeau seemed to think his ability to set out for his country what is legal and illegal also entitled him to set out for his citizens what is right and wrong. He either didn’t see, or resented, that right and wrong are only reflected by the laws, not determined by them.

The Honourable Stephen Harper, Prime Minister of Canada, is a moral embarrassment. Before he forced the FATCA IGA into law, it was illegal for the government of Canada, based on national origin discrimination, to give the financial information of Canadian citizens to a foreign government. But it is still wrong to do so, and it doesn’t matter how many laws Harper forces through Parliament, it will remain wrong.

When law becomes a substitute for morality

When law becomes a substitute for morality

reblogged from the renounceuscitizenship wordpress blog

Today I’ve decided that I would like to go back and reblog some of the best expat posts from the last five years. For lack of a better title, I am going to call it the “A Blast From the Past Series.” This week I am going to focus on the disconnect between law and morality.

Every now and then I realize that people are still coming into awareness and that they do not realize a lot of what has gone on; how long some of us have been involved in this and most importantly, why some of us are so vehemently resistant and unyielding when it comes to evaluating the U.S. government, the tax compliance industry and so on. I guess some of us are afraid that this long period of lassitude may give a false sense of “safety.”

Without resorting to outright fearmongering, there are a number of things that may not happen (tax reform) or that will change (discontinuation of the Streamlined Program) etc. Our main reason for being involved in this from the very beginning, was to get the word out, to do our own research/take responsibility for educating ourselves and others about this hideous situation. I think it is important for people to understand how this situation has played out since the beginning……..

One of the worst aspects of everything happening today is the growing lack of morality in the world. I mean this in the “big” sense of the word; something which is on the mind of every human being as we watch America turn from being an open and welcoming society into one moving toward closed borders, over-the-top surveillance, etc. Today the Secy of Homeland Security literally said he was considering separating (illegal) parents from their (American-born) children. Unbelievably cruel and totally unnecessary. And the reinstatement of the “travel ban” which has been tweaked a bit but cannot possibly be seen for anything except what is clearly is – a move to keep Muslims out of America.

What does this have to do with us? Everything. Because when you see your government behaving like this, you are forced to evaluate two things:

1) Can YOU trust them?
2) Is there any reason to reject them/protect yourself given the unusual situation expats find themselves in?

In addition to being scared out of my mind and full of doubt whether to renounce or not (late 2011), what I could not ignore was my observation of how the U.S. was behaving outside the law. Clear, undeniable abuse of the law. Invading Pakistani airspace (I don’t care what the reason, that is not supposed to be done); the horrid abuse of prisoners at Abu Ghraib ; the assassination of Americans without due process and worst of all, holding men at Guantanamo Bay for as long as 12 years without charge, torture, etc. I did not find it difficult to believe the U.S. would think nothing of destroying our retirement by forcing me to sell my home to pay FBAR fines. It was a no-brainer.

Everyone has to come around to this decision on their own terms. All the more reason however, to take a long hard look at what has gone on over the last five years (which should influence whatever decision you choose to make).

Some of the people mentioned in this post you may not be aware of:

renounceuscitizenship – in addition to his/her own blog, one of most influential authors at the Isaac Brock Society from the beginning. Has an uncanny ability to predict long in advance, how things are going to move and a piercing, unbending analytical approach to assessing the source of our issues. Originator of the Renounce & Rejoice meme.

Steven J. Mopsick – aka “30 year IRS Vet” – a former IRS attorney who took part in a lot of the early conversations at Brock. The relationship was friendly at first and eventually disintegrated due to the natural friction between someone from a compliance point-of-view and those who did not intend to buckle under. A nice gentleman of whom was said “You can take the man out of the IRS but you cannot take the IRS out of the man.”

JustMe a much-beloved expat who suffered two-plus long years having entered the 2009 OVDP program, trying to make things right. He coined many of our expat idioms: “LCUs (Life Credit Units – how much of your life lost trying to deal with this); FATCAnatics (you can guess); CC&W (Complain, Comply & Warn-his explanation of what he was doing!),DATCA, GATCA, and so on. After he requested the help of the Taxpayer Advocate, he spent quite a long time devoting himself to our cause and taught a lot of us how to do Twitter, learn html, you name it. He finally needed to put it aside (I am sure his wife was happy about this!) and is much missed……..

Former Secretary of the Treasury Timothy F. Geitner aka “Turbo Tax Timmy” – who hadn’t paid social security or self-employment taxes on income received from the International Monetary Fund from 2001 to 2004; the IRS audited Geithner for tax years 2003 and 2004, which resulted in him paying back taxes and interest–but no penalties–totaling $16,732. Geithner voluntarily amended his 2001 and 2002 returns only after Obama expressed interest in nominating him to the Treasury post. The total bill this time: $25,970. He also failed to get proper verification for three individuals who worked for his family. As a prior Treasury employee who prior to Secy position, had run the NY Federal Reserve, one has to wonder how he could fail to understand social security or SE tax. This was infuriating to expats suffering through the OVDP/OVDI penalties. As well, former Congressman Charlie Rangel (D-NY), a sponsor of FATCA, headed the powerful House Ways and Means Committee that writes the nation’s tax laws, was censured by the House of Representatives in December for ethics violations.A chief violation included his failure to pay 17 years’ worth of taxes on rental income from the Dominican Republic property. GRRRRRRR! (still burns……..)
****************

tombstones

The following tweet appeared as a post at the Isaac Brock Society and generated a collection of comments.

To provide some context:
Steven J. Mopsick wrote a post which was a report of his experience at a recent FATCA conference. He was impressed by how the attendees were exploiting the business opportunity (inadvertently referring to them as “steakholders”) that FATCA has created for the compliance industry. Interestingly, Mr. Mopsick specifically makes the point that:

The focus of the conference was strictly on FATCA from the standpoint of complying financial institutions. Most of the participants did not even know about and individual’s duty to file FBAR’s, Foreign Asset Statements (form 8938) and there was very little talk about privacy concerns, fears about the dangers of an emerging international banking data base system, or how Canadian politicians were doing in shaking their lap dog image as pawns of the US government.

In other words: the focus was on the law of FATCA with no consideration of the morality, unintended consequences or effect on society as a whole. (Most law students would kill to have a prof like this!) To put it another way, the important consideration is the law itself. The fact of the law itself is the only issue. The values that underlie the law are irrelevant.
“Just Me” in his usual “wit and wisdom” commented that:

This is the Truism I take away from Steven: “The people around the world who stand to profit from FATCA are not thinking much about government intrusions into the private lives of the world citizens.”

“Them’s the FATCAs FACTs”, as they say.

Although, they may think it is a ‘business and growth opportunity’ others see it as a pending financial disaster for the World’s economy. Who is right? I think the latter, but we shall see. I could be wrong.

FATCA and US fiscal imperialism threaten to sink global economy

In all due respect to 30 year IRS vet, I think he may have his perspectives twisted (which comes from his background?) when he thinks that profiting off the backs of the government regulatory tit is “free enterprise/free market system at work.” Rather, it represents the worst of unprincipled and amoral aspects of human nature at work. These actions are not based upon free enterprise/free markets, but on artificial markets based upon dubious legal assertions.

Free markets do not require or accept extortion as their engine of enterprise.

I can think of other examples of so called free enterprise ~70 years ago, where other“hard-working, serious, responsible business men and women who were on their way up in their companies” were probably attending conferences on how to ramp up manufacturing and supply of cattle cars for another freight train in another era that he would not be so willing to celebrate. He would not like that comparison, and maybe it is a bit hyperbolic, but the same human nature principle is at work.

More recently, there was an army of war profiteering “hard-working, serious, responsible business men and women” contractors, attending conferences in Vegas to learn how suckling off the “free enterprise” of ‘War Contracting Gone Wild’ could benefit their companies. They didn’t want to get left out of the ‘business and growth opportunity’that an amoral and unnecessary war provided. What if the government threw a contractor party to support its misguided war effort at that time, and no one came? I blame the compliant and willing contractors co-enablers as much as the government initiators for the sad legacy we left in Iraq.

Maybe in fairness to Steven, what he is saying, is yes, human nature is responding to an artificial market that would NOT exist, except for US hubris, financial imperialism and extra-territoriality. I don’t think I would be citing the FATCA Compliance Industrial Complex’s (FCIC) “hard-working, serious, responsible business men and women” as an example of ‘supply and demand’ in action that Adam Smith would identity or praise.

Although I certainly agree that “Free markets do not require or accept extortion as their engine of enterprise”, the Mopsick post raises an even larger issue. Mr. Mopsick has and continues to make an enormous contribution to the discussion of FATCA, FBAR and U.S. tax compliance in general. Some of the best thinking on these topics may be found in the “Mopsick Trilogy” – a series of posts that he wrote about the compliance problems facing US citizens abroad. His posts are a unique blend of raising questions and answering questions. In this case, his post has raised an important issue.

The issue is that, in the America of today, laws have become a substitute for morality. A society where laws have become a substitute for morality, is a society that is past the point of “no return”. This is where “Form Nation” – AKA The United States of America – finds itself today.

“Form Nation” – A country structured by laws and not by men

In the beginning we had the ten commandments which were expressions of the fundamental principles of justice. The ten commandments reflected principles which were for the common good. Gradually legislatures began to create laws. In the early stages of society, these laws were specific applications of fundamental principles of justice and for the most part these laws continued to be for the common good.

What is in the common good is not necessarily what is good for specific individuals. Those specific individuals who control the political process have strong incentives to act in their interest at the expense of the public interest.

Once legislatures saw how easy it was to create laws, they began to create laws which were NOT for the common good but were to benefit specific individuals at the expense of the common good. That’s how the Internal Revenue Code and regs grew to 17,000 pages. It’s simply incredible. Mr. Romney pays low tax on his “carried interests” and U.S. citizens abroad pay confiscatory taxes on their mutual funds “PFICs”. Not only is this unfair, but it’s a wonderful example of how laws are passed to benefit the individual at the expense of the common good.

But, it gets far worse. Who exactly are the legislatures? Democracy in the “Form Nation” of today is controlled by two private clubs. You will recognize them as the Democratic and Republican parties. Not only are they private clubs, but they have the intellectual dishonesty to rely on public funding for their existence. Their job is to campaign and to stay in power. Why? Because they will profit from being power. Those of you who have seen the Movie Chicago will remember Mama Morton singing “reciprocity“.

If you have the money you can get the ear of a Congressman. If you don’t you can’t. If you are the mutual fund industry you can lobby to get the PFIC laws passed. If you are the Romney’s of the world (and I still believe Romney would have been a better president) you can lobby to get your “carried interest” laws passed. As Fareed Zakaria has noted, the system is corrupt at it’s core. A large part of the problem is the way the political system works in the United States. There is nobody who represents the voters. The elected representatives (and they are not really elections because of a lack of choice on the ballot) are in business for themselves. Their business is in passing laws that benefit themselves or their clients. This is the only reason that the IRC and regs grew to 17,000 pages. To put it simply: elected representatives are in the business of making laws.

It’s laws, laws and more laws!

The United States of today is burdened by so many laws that:

– everybody is in violation of some law (show me the man and I will show you the crime);

– the complexity of the laws means that people cannot even understand what they are required to do (the FBAR rules are a weird combination of the enabling statute, the regs and the form itself);

there are fewer and fewer laws where “mens rea” (the intent to commit the crime) is necessary for a conviction;

– people are forced to pay lawyers for an opinion on what they may be required to do (lawyers have become the modern day “priests”);

– the sheer volume of laws means that enforcement is largely discretionary (will the IRS enforce FBAR penalties or not?);

– the focus on laws leads to a presumption of criminality (the fact that US citizens abroad are subject to so many laws means they must be guilty of something);

– the moral foundation (if any) of the law becomes irrelevant. The original purpose of the law becomes irrelevant. All that matters is the mechanical application of the law. Nobody ever imagined that PFIC rules, Foreign Trust rules or the FBAR rules would be used to unleash a “reign of terror” on US citizens abroad. On the “Homelander Front”, do you really believe that Martha Stewart deserved incarceration? Of course, the good old USA has the highest rate of incarceration in the world.

Laws have become a replacement for morality. Laws are the only standard for morality.

If you are not in violation of the law, you are not immoral.

If you are in violation of the law you are immoral.

(If the U.S. is really concerned about the “crime rate” then maybe it should reduce the number of laws.)

Conclusion: The US does not have laws that are fair.

“Form Nation” – A country governed by those who decide when to apply the laws and in relation to whom! (A government of tyrants)

In the context of the laws, the laws are not applied equally

President Obama commented that Mr. Geithner should not be punished for a mistake commonly made. It was okay for Timothy Geithner, a man with the money to get accurate tax advice, to file inaccurate tax returns. It is NOT okay for US citizens abroad to fail to file or to file inaccurate tax returns.

Conclusion: The US does NOT have fair application of the law.

1. The United States of today is country where laws are passed by members of private clubs, which have no incentive to benefit the common good and every incentive to benefit themselves at the expense of the common good.

2. The laws are so numerous that every person in the United States is in violation of something.

3. The laws that passed carry no presumption of morality and simply have no moral force.

4. The laws (regardless of content) are enforced in an unpredictable and unfair way.

The result is that people live in terror of the government.

As Jefferson said:

When people fear the government there is tyranny. When government fears the people there is liberty.

So, what’s all this got to do with #FATCA and the Mopsick post?

FATCA is the “gift that keeps on giving” (well to the compliance industry that is). As Mr. Mopsick confirms, the concern of the industry in on the fact of the law. What does it say? What does it require? As Mr. Mopsick reports:

Many readers of this blog will be disappointed to hear this report. The people around the world who stand to profit from FATCA are not thinking much about government intrusions into the private lives of the world citizens. That is the furthest thing from their minds. These folks were all good students, in effect, knowing full-well that there was a new body of rules and regulations on the table which they needed to learn and master.

The implication is that the “good students”, those “hard-working, serious, responsible business men and women who were on their way up in their companies”, the “best and the brightest” (are they really that bright?) should be concerned with embracing the new morality, getting in tune with the “new world” caring about the implications of their conduct. That’s exactly what happens when law becomes a substitute for morality. Just Me compares this mentality to another time in history when he notes that:

I can think of other examples of so called free enterprise ~70 years ago, where other“hard-working, serious, responsible business men and women who were on their way up in their companies” were probably attending conferences on how to ramp up manufacturing and supply of cattle cars for another freight train in another era that he would not be so willing to celebrate. He would not like that comparison, and maybe it is a bit hyperbolic, but the same human nature principle is at work.

Interesting analogy. What is the purpose of FATCA? What are the moral underpinnings of FATCA? Has anybody ever asked the question? Clearly nobody in the world of the FATCA compliance industry. They would be afraid of the answer!

But, that’s what happens when law becomes a substitute for morality. Many of you are concerned about what reason to give for renouncing your U.S. citizenship.

Why not just say:

I do not wish to be a citizen of a country where law has become a substitute for fairness and morality!
 

TOMORROW : Burning Barns Down is not Wrong Because it is Illegal – It is Illegal Because it is Wrong

A Little More About Treasury’s Disallowment of SCE


Great article
by Helen Burggraf regarding Treasury’s denial of ACA’s SCE program.

Just a couple of thoughts………

US officials reportedly felt that the potential risk of expat Americans using their “same-country” bank accounts to avoid their US tax obligations was ultimately too great to be able to grant them such an exemption – in spite of the inconvenience this would result in, as it already has, for many of the estimated 8.7 million American expats across the globe.

The stupidity of this comment by Treasury officials is beyond belief. Americans abroad do not use “foreign” bank accounts as a way to avoid their U.S. tax obligations. They also are not “foreign” but their local bank down the street whereby they can cash their cheques, pay bills and so on. Obviously, accounts used in this manner are not at all the same as wealthy people living in the U.S. using foreign banks to avoid taxation. This has been stated so many times over the last five years and yet it is STILL not understood. The government continues to use this as a way to keep up several misconceptions as a way to justify FATCA:

Americans who live in the U.S use foreign banks to avoid taxation are wealthy
creates the idea that

Americans who use foreign banks to avoid taxation are wealthy
this does not equal

Americans who live outside the US are wealthy and use foreign banks to avoid taxation.

K.I.S.S., doh, it’s not rocket science to see the difference here!

The key difference, is residence. We all know 99% of all countries on this planet, base taxation upon residence.

” The regulations say nothing about the problem of lock-out. They fix only on the un-quantified and un-weighted risk that what must be a relatively small population of US taxpayers residing in a foreign country and banking at their local bank might evade US tax.
The regulations do not say whether, and, if so, to what extent, Treasury Department took into consideration the widely-admitted fact that FATCA continues to put the community of 8 million Americans overseas at risk of lock-out from access to financial accounts needed for the management of basic living expenses, [including] paying bills, paying rent [and] receiving paychecks.

The Treasury Department has very little statistical information on the diaspora. That is why they have to resort to the fishing expedition that #FATCA is. There have been so many reports, letter-writing campaigns and so on, trying to communicate the problems. So the story has been told. Yet we see no meaningful feedback from the government, indicating what percentage of money they have supposedly collected comes from Homelanders, non-resident citizens, etc. In fact, it is rather amazing that Treasury has not actually said anything different that what they have always implied: Americans living abroad are tax cheats and criminals.

While many of us do not endorse SCE, I think we all respect the efforts of any expat organization that tries to rectify this situation.
And while the future actions of the newly-elected Administration and Congress may offer some hope, we should stay focussed on the fact that many years of concerted effort have failed to solve the situation. Litigation remains a hugely valuable option and may be our best hope.

IRS Claims Statutory Authority for FATCA Agreements Where no Such Authority Exists


 

A lot of discussion has taken place recently as to what (if anything) might happen with FATCA & the IGAs given the election of Donald Trump and the positions regarding RBT etc, in the platform of the Republican Party. The nagging question seems to be that if FATCA were rescinded, the IGAs would remain, with FFI’s still on the hook. A rather bizarre situation where countries agree to something not actually rooted in law? Simply absurd and presumably, Congress would take steps (or be reminded to do so) to put the whole business to rest.

Then there is general discussion that includes the reversal of President Obama’s executive agreements. With this we would still have FATCA but no implementing IGAs. Should FFI’s pass private banking information directly to the IRS sans the IGAs, they would be in violation of the privacy laws of many countries. With (more) lawsuits certain to follow.

All of this brings to mind another nagging question, and that is, just exactly what are the IGA’s? The Canadian government claimed ithe IGA was a Treaty, and accepted it as such. The U.S. did not have it ratified by 2/3 of the Senate which is normal procedure there. Professor Allison Christians has long indicated they are actually sole executive agreements with “dubious legal status.” Other interesting perspectives are offered here.

Of course, the original overall objection to the IGA’s is that they are hardly agreements; they are documents where the U.S. inflicts its will on all 192 countries of the world; incurs no cost for doing so and while mitigated, the 30% withholding remains.

It may be very useful to review all that is involved in Professor Christians’ viewpoint so that any future action ensures complete finality to these abominable and odious “agreements.”

*******

This appeared at the Isaac Brock Society on July 4, 2014 and was cross-posted with permission from Prof. Christians’ blog

I saw the letter referenced below on Jack Townsend’s site and included Professor Christians in a tweet questioning the validity of the IRS’arguments regarding IGA’s. I am delighted to see she has taken this further and posted the following today on her blog.

 
allison_christians_2012_150x225

Over at federal tax crimes blog Jack Townsend has posted a letter from the IRS to Congressman Bill Posey, in response to an inquiry the Congressman apparently made about the intergovernmental agreements (“IGAs”) to implement FATCA by other governments (instead of directly by foreign financial institutions, per the law Congress enacted in 2010). Treasury says:

“Your letter also asks about statutory authority to enter into and implement the IGAs. The United States relies, among other things, on the following authorities to enter into and implement the IGAs: 22 USC Section 2656; Internal Revenue Code Sections 1471, 1474(f), 6011, and 6103(k)(4) and Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B (Information Concerning Transactions with Other Persons).”

None of these sources of law contain any authorization to enter into or implement the IGAs. It is patently clear that no such authorization has been made by Congress, and that the IGAs are sole executive agreements entered into by the executive branch on its own under its “plenary executive authority”. As such the agreements are constitutionally suspect because they do not accord with the delineated treaty power set forth in Article II. As Michael Ramsey wrote in a 1998 article, the danger is that if the president seeks to reach agreements outside of his plenary constitutional powers, the agreement lacks domestic legal effect.

Just to be clear, the fact that a document signed by an individual might or might not bind the United States as a matter of constitutional law does not mean that the United States will not honor whatever commitments the individual makes under such an agreement. The contrary is likely the case especially given the predicament Treasury found itself in, coupled with the pitiable small promises undertaken by the US in these “agreements.”

But we should be clear that the analytical terrain we should be traversing is whether the scope of the plenary executive authority can suffice to support as a matter of law the promises made in some 80 or so IGAs (many of which are currently agreements in principle only). We should not be wasting anyone’s time pretending that Congress has authorized Treasury or the Secretary of State to enter into the IGAs. It has not.

So let’s take a look at what these sources actually say.

22 USC 2656 is about the power of the secretary of state. It says:

The Secretary of State shall perform such duties as shall from time to time be enjoined on or intrusted to him by the President relative to correspondences, commissions, or instructions to or with public ministers or consuls from the United States, or to negotiations with public ministers from foreign states or princes, or to memorials or other applications from foreign public ministers or other foreigners, or to such other matters respecting foreign affairs as the President of the United States shall assign to the Department, and he shall conduct the business of the Department in such manner as the President shall direct.
If that is an authorization for the IGAs, it is a vague one at best. Does an IGA constitute “correspondences, commissions, or instructions,” “negotiations”, “memorials or other applications,” or “such other matters respecting foreign affairs”? Under what interpretation of such relevant provisions? Also there is nothing here about the content or scope of the treaty power hereby implicitly authorized. Is IRS saying that with this power the Secretary of State can bind the nation at will on any matter, without the need for the President to seek advice and consent from the Senate prior to ratification? If so this is an extraordinary claim that does not scan with either historical practice or constitutional theory.

26 U.S. Code § 1471 is, of course, part of FATCA. It is entitled “Withholdable payments to foreign financial institutions”. It sets out the reporting obligations imposed on foreign financial institutions and states that the Secretary is authorized to treat a foreign financial institution as “meeting the requirements” of 1471 if the institutions complies with procedures or requirements set forth by the Secretary or is “a member of a class of institutions” identified by the Secretary.

There is explicit authorization in 1471 for the Secretary to engage in agreements with FFIs to implement FATCA. However where is the authorization in 1471 for the Secretary to engage in agreements with other countries to implement FATCA? It is not in the text, certainly.

Therefore to what specific provision of 1471 could IRS possibly refer when it suggests this statute authorizes individuals to sign agreements altering the reach of FATCA on behalf of the United States? There is clearly no explicit authority. Is it implied? If so, by what?

Moreover, many or most of the IGAs have been signed by officers of the Secretary of State, ambassadors, consulates general and others, and not by Treasury. Does s1471 also impliedly delegate its implied treaty power authority to those outside of Treasury who have signed on behalf of the United States? Certainly there is no explicit delegation here.

26 U.S. Code §1474(f), also part of FATCA, is the statutory authorization for the Secretary of the Treasury to
“prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of, and prevent the avoidance of, this chapter.”
There is no authority expressed in this provision for the Secretary to enter into agreements with other governments. Does IRS suggest that an IGA constitutes “regulations” or “other guidance”? Under what interpretation of that characterization does the Treasury interpret the promulgation of either regulations or other guidance as an authorization to negotiate an agreement with a foreign government?

26 U.S. Code § 6011 is entitled “General requirement of return, statement, or list,” and it states the parameters under which a person must make a return “[w]hen required by regulations prescribed by the Secretary.” There is authorization in 6011 for the Secretary to require taxpayers to fulfill various reporting requirements, including electronic reporting. There is no authorization in 6011 for the Secretary to engage in agreements with other countries to implement 6011.

What provision of 6011 is IRS suggesting confers the authority to negotiate agreements with other governments without Senate advice and consent? Does IRS mean to imply that each and every authorization that Congress gives Treasury for the prescription of regulations is an implicit authorization for Treasury (or its implied designees in other departments) to conclude agreements with other governments? If so, this is a surprising claim of executive power that is inconsistent with the treaty power described in Article II of the constitution. I would think Congress would like to know under what interpretation of Congressional direction to the Secretary to issue guidance, IRS or Treasury would conclude that it now holds the power to make treaties on behalf of the United States.

In other words, if IRS stands by this authorization it is suggesting that any tax code section that authorizes Treasury to regulate implicitly contains both a treaty making power as well as the power to delegate authority to departments other than that specifically charged with implementing the statute. That is not a plausible claim.

26 U.S. Code § 6103 is entitled “Confidentiality and disclosure of returns and return information” and it provides that “returns and return information shall be confidential,” with exceptions provided by statute. There is authorization in 6103 for the Secretary to engage in agreements with taxpayers to implement 6103 (for example in the case of advance pricing agreements). There is no authorization in 6103 for the Secretary to engage in agreements with other countries to implement 6103. Therefore, as with 1471 and 6011, to what specific provision of 6103 does IRS refer, and under what interpretation of the authority given by Congress in 6103 to enter into agreements with taxpayers does IRS find the authority for anyone to enter into agreements with other countries?

26 U.S. Code Part III, Subpart B is entitled “Information Concerning Transactions With Other Persons” and it contains 26 US Code §§ 6041 through 6050W—a very broad set of statutes involving information reporting, none of which explicitly grant anyone the power to bind the nation to anything. Certainly nowhere in the subpart appears any express authorization for Treasury to enter into agreements with other governments in respect of s1471 or otherwise. Therefore the same questions I have raised with respect to 1471, 1474, 6011, and 6103 would seem to arise here.

In short I see no express authorization anywhere in any of these authorities for the Treasury to enter into the intergovernmental agreements. Moreover there is no precedent for such agreements, and they are being signed by US officials who are not members of the Treasury. Does it not seem at least noteworthy that an enormous network of bilateral tax agreements has been established, a network that dwarfs the existing tax treaty network in size and scope, all without any explicit Congressional authorization, and without any regard to the Treaty power clearly laid out in Article II of the Constitution?

And why not cite the TIEA power?

I would add that is not at all clear why any list of authorizations for an individual to enter into agreements with other governments on behalf of the United States would not include 26 US Code § 274(h)(6)(C)(f), which has long been relied upon to by Treasury to find the authority to enter into tax information exchange agreements (“TIEAs”) that were not expressly authorized by the statute (because they are not listed in Section 274 as beneficiary Caribbean Basin countries). This statute has clearly been abused by Treasury in extending it way beyond what Congress intended. However, the fact that Congress has not complained suggests that it has acquiesced to the overreach.

That makes the TIEAs good precedent for those who want to defend the IGAs as a matter of law. In omitting this, the only plausible source of support for the authority to bind the nation without the advice and consent of Senate, does IRS suggest that Treasury now backs away from this authority? If so, why would they do that? The answer is of course that IRS believes that if necessary the TIEAs can also be considered sole executive agreements, and as such a TIEA “does not need Senate or other congressional approval.” This is an official claim that the IRS doesn’t think Treasury or anyone needs even s.274 as a cover: the executive can simply act alone to achieve its tax goals through international agreements.

At the end of the day, it is clear that Treasury saw a real and serious need to work with other governments to make FATCA work. There is no disputing that fact, and indeed it is a step toward multilateral cooperation which should be celebrated if only it weren’t so lopsided, and if only it weren’t being accomplished via the threat of economic sanctions for all the world’s tax havens except the United States itself. But no amount of need or want can sidestep the constitutional delegation of powers among the branches, and the treaty power is no exception: nor should it be. At least one Treasury official has already conceded that the explanation for the IGAs is that they are “executive agreements”, not Article II treaties.

IRS and Treasury should therefore just admit that the IGAs are simply “sole” executive agreements—not authorized by Congress but entered into by the executive branch under its sole discretion.

This is a tenuous position and it ought to fail constitutional scrutiny but for the fact that in the past, Congress has acquiesced to this exercise of power by the executive and it is likely to do so again, especially given how little has been undertaken by the United States in these IGAs. As Lee Sheppard pointed out in a Tax Notes article two years ago, “An executive agreement depends on the good will of the parties to enforce it.” And as Susie Morse also pointed out in Tax Notes last year, Treasury is very likely to try to enforce their part of the IGAs.

Since the US side of the IGAs is to deliver very modest undertakings that Treasury also believes can be done without congressional approval (namely, extending the longstanding s. 6049-based information exchange with Canada to other countries), this is probably true; all IGA promises to alter the law in the future should be seen as what they are, unenforceable promises that are beyond Treasury’s control and so won’t be delivered.

Therefore honesty is still the best policy for Treasury. Instead of citing non-existent statutory authority that is easily refuted by simple reading, Treasury should own what it is doing outright. These are sole executive agreements, they lack statutory approval, they undertake very little on the part of the United States, but they are an effective way of pretending to be cooperative so that other countries can save face as they submit to the threat of economic sanctions that is FATCA. There isn’t really any reason why Treasury shouldn’t acknowledge this reality, since it is, strictly speaking, of Congress’ own making.
Posted by Allison Christians at 8:34 PM

Now’s the Time – Here’s What They Promised – Let’s Hold Them to It

UPDATE SUNDAY NOVEMBER 13, 2016

REINCE PRIEBUS CHOSEN TO BE PE TRUMP’S CHIEF OF STAFF

EXCERPTS:

WASHINGTON — President-elect Donald J. Trump on Sunday chose Reince Priebus, the chairman of the Republican National Committee and a loyal campaign adviser, to be his White House chief of staff, turning to a Washington insider whose friendship with the House speaker, Paul D. Ryan, could help secure early legislative victories.

But as chief of staff, Mr. Priebus will be the one who has several hundred White House staff members reporting to him. He will be the primary gatekeeper for Mr. Trump and the person most responsible for steering the president’s agenda through Congress. That role will be especially critical for Mr. Trump, who has never served in government and has few connections to important political figures.

As Mr. Trump denounced the Republican primary process as rigged and, on occasion, threatened to quit the party and run on his own, Mr. Priebus remained neutral. And when Mr. Trump secured the nomination, Mr. Priebus stood by his side.

Mr. Priebus worked with Mr. Trump on the nuts and bolts of presidential politics, trying to smooth his rough edges and staying in close contact as a bare-bones campaign prepared to go up against the Clinton machine.


PRESS RELEASE
VIA MR. PRIEBUS JULY 2015

RNC PR NO FATCA

**********

I found myself wondering just what it is expats will want to focus on now, that the Republicans have the Presidency, and control of the House and the Senate. As Stephen Kish pointed out, this could change in two years (well, really just a bit more than a year as once the campaiging for the interim elections in 2018 start, we will likely have lost our chance to get this done quickly. What we do in the next year is critical to dumping FATCA and CBT.

I started thinking about what they promised and have gone through the Platform. I am going to list the main things I found that relate to our issues; if anyone finds more, please post. I also have two documents that focus specifically on FATCA and RBT as well as the link to Republicans Overseas Resolutions posted long ago on their FB site. It would be helpful if others want to isolate points and phrases to focus on in communications to the Republicans.

People may. may not want to coordinate efforts but I assume there will be letters written, emails sent and so on. You may remember that Congressman Mark Meadows (R NC) introduced H.R. 5935 seeking to have an oversight hearing on FATCA repeal. Once we know the date of the hearings and who will sit on the committee, we would start there I presume. And then follow the movement of what occurs……Calls for witnesses were posted on the Isaac Brock Society indicating interested parties should contact Keith Redmond by email at FATCA_Testimonials@outlook.com

*****

THE REPUBLICAN PLATFORM
excerpts from sections related to our issues

RESTORING THE AMERICAN DREAM

Fair and Simple Taxes for Growth p 1

The current tax code is rightly the object of both anger and mockery. Its length is exceeded only by its complexity. We must start anew. That will be an enormous undertaking and, if it is to succeed, it must command the attention and approval of the American people………….. We will welcome all to this enterprise — to discuss, debate, challenge, and amend — so that together we can restore economic growth for the American people and, even more important, renew their faith in the future

NB:This is their promise to listen.
 
Our Tax Principles p 2
To ensure that past abuses will not be repeated, we assert these fundamental principles. We oppose retroactive taxation. We condemn attempts by activist judges at any level of government to seize the power of the purse from the people’s elected representatives by ordering higher taxes. We oppose tax policies that deliberately divide Americans or promote class warfare.

NB:This would deal with the bizarre idea that 877A is retroactive.
 
To guard against hypertaxation of the American people in any restructuring of the federal tax system, any value added tax or national sales tax must be tied to the simultaneous repeal of the Sixteenth Amendment, which established the federal income tax.

NB:This would eliminate the whole need for filing in terms of taxes as value added or national sales tax will not affect Americans abroad in any significant way.
 
A Competitive America p 2
American businesses now face the world’s highest corporate tax rates. That’s like putting lead shoes on your cross-country team. It reduces companies’ ability to compete overseas, encourages them to move abroad, lessens their investment, cripples job creation here at home, lowers American wages, and fosters the avoidance of tax liability — without actually increasing tax revenues. A more damaging policy is hard to imagine.

NB:Please see an excellent paper by Roger Conklin which outlines how CBT directly affects Trade.(via The Revenue Act of 1962 & The Tax Reform Act of 1976; the U.S. has never recorded a trade surplus since 1975).

 

We endorse the recommendation of the National Commission on Fiscal Responsibility and Reform, as well as the current Administration’s Export Council, to switch to a territorial system of taxation so that profits earned and taxed abroad may be repatriated for job-creating investment here at home. We believe American companies should be headquartered in America. We should reduce barriers to accomplishing that goal. A Winning Trade Policy International trade is crucial for all sectors of America’s economy. Massive trade deficits are not. We envision a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a “Reagan Economic Zone,” in which free trade will truly be fair trade for all concerned.

NB:Trade is important to Trump. He needs to know how CBT affects it. If they offer territorial taxation to corporations,they can offer RBT to Americans abroad.
 
A REBIRTH OF CONSTITUTIONAL GOVERNMENT

The Fourth Amendment: Liberty and Privacy p 13

The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows “unreasonable search and seizures” but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.

NB: This needs no comment. Other than it might be pointed out that many of the accounts reported on FBAR and 8938, are registered government plans. Some even include government grants which are taxed. The idea that these can be used for money laundering or terrorism is simply absurd.
 

GOVERNMENT REFORM

Reforming the Treaty System p 26

We intend to restore the treaty system specified by the Constitution: The president negotiates agreements, submits them to the Senate, with ratification requiring two-thirds of the senators present and voting. This was good enough for George Washington but is too restrictive for the current chief executive, who presumes to bind this country to bilateral and multilateral agreements of his devising. His media admirers portray his personal commitments — whether on climate change, Iranian weapons, or other matters — as done deals. They are not, and a new Republican executive will work with the Congress to re-establish constitutional order in America’s foreign relations. All international executive agreements and political arrangements entered into by the current Administration must be deemed null and void as mere expressions of the current president’s preferences. Those which are in the national interest but would traditionally have been made by treaty must be abrogated, renegotiated as treaties, and transmitted to the Senate for its advice and consent as required by the Constitution. The United States will withdraw from all agreements and arrangements failing those standards.

NB: Bye bye IGAs

Please see Professor Allison Christians excellent paper The Dubious Legal Pedigree of IGAs (and Why it Matters)

 
Internal Revenue Service p 27

We also support making the federal tax code so simple and easy to understand that the IRS becomes obsolete and can be abolished.

NB: Bye bye OVDP, Streamlined, threats of penalties etc
 
************

Here are three more direct sources of the Republican positions. I will probably do the same with these as above. But the more the merrier!

Resolution Supporting Residence Based Taxation

Resolution toRepeal the Foreign AccountTaxCompliance Act

A proposed RNC Resolution titled — Resolution to Repeal the Foreign Account Tax Compliance Act (FATCA) compiled by Republicans Overseas.

 

Dual Citizens of Sweden, France, Netherlands, Denmark & Canada take note! Your Country WILL NOT Collect for the U.S.

Last week in my email was a link to an article by Michael J DeBlis (unable to determine whether it was the father or the son). It runs in my memory that prior to the launch of the Tax Connections website, the younger Michael had started a blog that was specifically about expatriate issues and many of us joined and took part. He seemed particularly sympathetic and supportive of our plight and one who I would never have labelled a “condor.” And this post is in no way meant to be demeaning.

Imagine my surprise to read this:

Consider the following example. Pierre is a dual citizen of the U.S. and Canada who presently resides in Montreal. He has fastidiously filed U.S. and Canadian tax returns for the last ten years. Following an audit of his 2012 U.S. tax return, the IRS determined that there was a $ 20,000 deficiency and mailed him a notice of deficiency. Pierre timely filed a protest but Appeals found in favor of the IRS. Having failed to file a petition with the tax court, that deficiency soon became a $ 20,000 assessment.

The IRS now seeks to collect on its claim by imposing a tax lien on real estate owned by Pierre in Canada. Essentially, what the U.S. government is attempting to do is cajole collection officials from the Canadian Revenue Agency (Agence du revenue du Canada) to do its dirty work for it: namely, to collect Pierre’s unpaid U.S. taxes by enforcing an IRS tax lien on property located within Canada.

As incredible as this might sound, reliance upon a foreign taxing authority for assistance in collecting a tax judgment against a citizen of the requesting country is entirely permissible under the terms of the U.S.-Canadian Treaty. Of course, such a request must be accompanied by documents firmly establishing that the taxes have been finally determined.[ix]

Therefore, the Canadian Revenue Agency would have no choice but to enforce the lien and to collect the unpaid taxes. But what if Pierre filed a motion in a Canadian court to have the tax lien imposed by the Canadian Revenue Agency, at the behest of the IRS, set aside? Not surprisingly, the court would refuse Pierre’s request on the grounds that the imposition of the tax lien was proper under the terms of the treaty.

The reason for my surprise was that it is a well-known fact not only in Canada, but among expats in general, that Canadians are lucky because Canada will not collect tax for the U.S. on people who were Canadian citizens at the time the tax was incurred. Nor will the CRA collect FBAR penalties as they are not a tax, falling under Title 31 of the U.S.C. Most of us had become aware of that when our-then Finance Minister, the late Jim Flaherty had stated unequivocably that Canada would not collect for the U.S. under these two circumstances. So I decided to post a comment.

Patricia Moon
2016-10-26 18:51:10
Thanks for this article, particularly for outlining the limits of what can/cannot be done with regard to the border. While the officers can be bullies, along with knowing very clearly, the limits of the Reed Amendment, this is good information to have. Canada and Denmark both have provisions that state they will not collect for that US citizens/persons that are also, their own citizens. In the case of the US-CDN Treaty: Article XXVIA 8) No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that: a) Where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested state …………. So the CRA would not collect for the US in Pierre’s case, since he is dual and a citizen of Canada. While the boundaries for the revenue rule may be fading, it is still alive and one which the late Finance Minister, Jim Flaherty, reiterated many times while voicing his shock that the US would expect FATCA to be implemented in Canada. It is very clear that FBAR penalties, which are not part of Title 26 and therefore not covered under the Treaty, also would not be collected by the Canada Revenue Agency. The Canadian courts have refused to enforce claims of the US against Canadian citizens. I presume the Canadian government would honor XXVIA for US citizens/persons who are permanent residents of Canada who are not Canadian citizens. What I am afraid we will see, in spite of past rulings, is that the IRS will attempt to collect from Canadian bank branches in the US with corresponding branches in Canada. I have been told that this does happen by compliance people in spite of court rulings etc. However, it seems to me a bank would be liable to be sued, since presumably, PIPEDA (privacy laws) would in this case, apply to the US citizen/person even though it is overridden by the IGA when the bank sends info to the CRA. We have all seen how the compliance industry tends to enforce the “law” even when the IRS etc, has not provided guidance (which also, is not necessarily, the “law”). An example of this is putting someone who relinquished US citizenship decades ago, into the system according to 877A. Tax lawyers have tended to dismiss past citizenship laws that as far as can be seen, are not automatically changed retroactively. This is completely unacceptable. It is largely useless to Canada to have the right to collect on Canadian citizens resident in the United States due to the fact that once a Canadian is a permanent resident of another country, they are no longer liable for tax in Canada. This is also the reason that FATCA is of very little value to Canada.

and

Patricia Moon
2016-10-26 23:10:13
You may be interested in a few of the court cases mentioned (indirectly) above: United States of America v. Harden (1963), 41 D.L.R. (2d) 721 Supreme Court of Canada https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/7322/index.do 68 O.R. (2d) 379; 1989 Ont. Rep. LEXIS 206 RE VAN DEMARK ET AL. AND TORONTO-DOM http://uniset.ca/other/cs6/68OR2d379.html Chua v. Minister of National Revenue, 2000 DTC 6527 (FCTD http://ca.vlex.com/vid/chua-v-minister-of-national-revenue-38618242

I received a message asking if I could confirm the information concerning Canadians at this post on the CitizenshipTaxation FB group.I became involved in the conversation and remembered that I had recently learned that Denmark also had such a clause protecting its citizens in the US-Denmark Treaty. So I wondered if it could be the same for the other three countries that have a Mutual Assistance in Collection clause in their treaties with the U.S. namely, Sweden, France and the Netherlands. It didn’t take too long to find that they do indeed have the same type of clause. I was dumbfounded. Why had we never heard this before? I was careful to look at the Protocols because some of the Treaty dates are over 20 years old; there was nothing to suggest the conclusion was incorrect. I also had a couple of professionals take a look and they agreed.

So this is A VERY BIG DEAL. If you are a dual citizen of DENMARK SWEDEN FRANCE the NETHERLANDS or CANADA and were a citizen at a time when the U.S. claims you owe U.S. tax, your country WILL NOT ASSIST THE U.S. in collecting U.S. tax. !!!!!!!!

Then I wondered about FBAR and where that might be confirmed since it is not specifically stated in the Treaty. I googled and found a link to a comment of mine that I have no memory of posting:

25 July 2012 T.I. 2011-0427221E5 – FBAR penalties

Principal Issues: Whether US FBAR penalties are included in “revenue claims” defined in Art.XXVI-A(1) of the Canada-US Treaty.

Position: No.

Reasons: FBAR penalties are not civil penalties in respect of taxes covered under Art.II of the Treaty.

https://www.taxinterpretations.com/tax-topics/treaties/article-26a#node-326646
25 July 2012 T.I. 2011-0427221E5 – FBAR penalties

XXXXXXXXXX
2011-042722
P. T.
(613) xxx-xxxx
July 25, 2012

Dear XXXXXXXXXX:

Re: Civil Penalties and Article XXVI-A

We are writing in response to your letter of November 7, 2011, in which you asked for our comments in respect of the application of Article XXVI-A of the Canada-United States Tax Convention (1980) (“Treaty”).

You have described a hypothetical situation involving an individual who is a citizen of the United States (“U.S.”) by right of birth, and a Canadian citizen by way of naturalization prior to 1995. The individual is a resident of Canada for purposes of the Income Tax Act (“Act”) and the Treaty. We are to assume that the individual has failed to file Form TD F90-22.1 Report of Foreign Bank and Financial Accounts with the U.S. Department of the Treasury as required under the U.S. Bank Secrecy Act. As such, the individual has been assessed a civil penalty (“FBAR Penalty”) in the U.S. for the failure to file Form F90-22.1.

In this regard, you have asked whether the FBAR Penalty could be considered a civil penalty that is included in a “revenue claim” as defined at paragraph 1 of Article XXVI-A of the Treaty, and if so, whether paragraph 8 of Article XXVI-A would preclude the collection of the FBAR Penalty by the Canada Revenue Agency (“CRA”) on behalf of the U.S. Government.

Our Comments

The CRA has previously indicated that Canada would assist the U.S. Government in the collection of interest and penalty in respect of U.S. taxes owing pursuant to Article XXVI-A of the Treaty. However, paragraph 8 of Article XXVI-A provides that Canada will not assist in the collection of a revenue claim from the U.S. Government in respect of an individual who is a Canadian citizen, such as the individual described in your hypothetical situation.

In addition, we are of the view that a civil penalty, such as the FBAR Penalty, which is imposed under the U.S. Bank Secrecy Act, is not a penalty in respect of U.S. taxes owing. Therefore, it is our view that an FBAR Penalty is not an amount that would be considered a “revenue claim” pursuant to the definition at paragraph 1 of Article XXVI-A.

We trust that our comments will be of assistance.

Yours truly,

Robert Demeter
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

Then I started wondering about FATCA. The “reassurance” we receive constantly from the Canadian government is that FATCA does not result in any new tax etc, that it is just an information exchange. Which begs the question, why is the information being collected if there won’t be any “new” taxes? In this regard:

Andrew Bonham, “FATCA and FBAR Reporting by Individuals: Enforcement Considerations
from a Canadian Perspective” (2012) 60:2 Canadian Tax Journal 305-54, at 345.

Still, as noted above, the minister has the discretion to refuse assistance in collection. Certainly from a public policy standpoint, it must be relevant that the Crown, in providing collection assistance on a FATCA revenue claim, would in many cases be acting against its own taxpayers in the enforcement of a claim founded upon information obtained in a manner that may not be constitutional under the laws of Canada. The Crown is not obliged to do anything contrary to the public policy of Canada in collecting a revenue claim under the treaty. This last point is analogous to the common-law public policy defence discussed above.

However, it is also quite possible, and perhaps probable, that FATCA is in equal part both an information-gathering tool and a revenue-generating tool. It is for this reason that FBAR will never go away. With information garnered from FATCA FFI reports, penalties can be levied under both FATCA and FBAR if an individual fails to file. However, as we have noted, the long arm of the IRS cannot reach Canada with respect to FBAR, and as further posited, it is likely that FATCA penalties would also be unenforceable in Canada. From the US perspective, the best-case scenario would see all financial institutions around the globe complying with the strictures of the disclosure requirement. Armed with the massive list that would be generated from such compliance, the IRS would merely have to check names against received disclosures and levy fines against those individuals who had not complied. Carrying this scenario further, the IRS could then, after the exhaustion of all administrative appeal periods and recourse, approach the minister of national revenue with a list of individuals owing FATCA penalties and ask that those penalties be enforced by the CRA under the terms of the Canada-US tax treaty. It is assumed that in a large number of cases, a notice from the IRS to an individual noting lack of FATCA compliance would not be responded to, and in those cases, a penalty of $50,000 would be levied, thereby raising a very significant amount of revenue.

Finally, although the revenue rule and the penal/public-law rule would currently preclude Canadian courts from assisting in collection, the ever-expanding role of judicial comity may one day see a repeal of these rules, or at least a relaxation of their strictures. Should that occur, the United States would be in a position to resort to principles of public international law as a basis for enforcement, even against dual citizens. In such a case, it may well be open to defendants to argue that the mere fact of their US citizenship should not, in and of itself, be enough to satisfy the real and substantial connection test—especially in cases where the defendant has had little or nothing to do with the United States and has certainly derived no benefit from his or her US citizenship.

A lot of interesting possibilities are discussed in the article above and it is definitely worth reading. While there are no guarantees that these Treaties will not change in the future, the advantage of this information now is:

  • if you are in an unsure situation at the moment, this is something that is as much a part of your situation as your “U.S. Person-ness” and can be a great help in deciding what your risk level is
  • if you are not compliant & not yet a citizen of the 2nd country, you might consider applying for citizenship now
  • you can help get this information out to other members of your expat community

Lastly, here are the actual wordings in the treaties involved; I am only including the Article/paragraphs that pertain to this idea.

SWEDEN
• Income Tax Treaty – 1994
• Protocol – 2005

ARTICLE 27

Administrative Assistance

1. The Contracting States undertake to lend assistance and support to each other in the collection of the taxes to which this Convention applies, together with interest, costs, and additions to such taxes.

4. The assistance provided for in this Article shall not be accorded with respect to the citizens, companies, or other entities of the State to which the application is made, except as is necessary to insure that the exemption or reduced rate of tax granted under this Convention to such citizens, companies, or other entities shall not be enjoyed by persons not entitled to such benefits.

FRANCE

• Income Tax Treaty – 1994
• Protocol – 2004, 2009

19 ARTICLE XII
Paragraph 5 of Article 28 (Assistance in Collection)
of the Convention shall be deleted and replaced by the following:

“The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made.”

ARTICLE 28
Assistance in Collection

1. The Contracting States undertake to lend assistance and support to each other in the collection of the taxes to which this Convention applies (together with interest, costs, and additions to the taxes and fines not being of a penal character) in cases where the taxes are definitively due according to the laws of the State making the application.

5. The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made except in cases where the exemption from or reduction of tax or the payment of tax credits provided for in
paragraph 4 of Article 10 (Dividends) granted under the Convention to such citizens, companies, or other entities has, according to mutual agreement between the competent authorities of the Contracting States, been enjoyed by persons not entitled to such benefits.

Article XII of the Protocol replaces paragraph 5 of Article 28 (Assistance in Collection) of the Convention. The change revises paragraph 5 so as to remove the now obsolete reference to the provision of paragraph 4 of Article 10 (Dividends) of the existing Convention prior to amendment by the Protocol related to the “avoir fiscal.”

NETHERLANDS

ARTICLE 31
Assistance And Support in Collection

1. The States undertake to lend assistance and support to each other in the collection of the taxes which are the subject of the present Convention, together with interest, costs, and additions to the taxes and fines not being of a penal character.

4. The assistance provided for in this Article shall not be accorded with respect to the citizen, corporations, or other entities of the State to which application is made, except in cases where the exemption or reduced rate of tax granted under the Convention to such citizens, corporations or other entities has, according to mutual agreement between the competent authorities of the States, been enjoyed by persons not entitled to such benefits.

DENMARK

INCOME TAX TREATY 2000

ARTICLE 27
Administrative Assistance

1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in Article 2 (Taxes Covered), together with interest, costs, additions to such taxes, and civil penalties, referred to in this Article as a “revenue claim.”

8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.

CANADA

Article XXVI A
Assistance in Collection

1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”.
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that
(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and………

Article 22
1. Subparagraph 8(a) of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:

(a) Where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested State or, if the taxpayer became a citizen of the requested State at any time before November 9, 1995 and is such a citizen at the time the applicant State applies for collection of the claim, to a taxable period that ended before November 9, 1995; and

2. Paragraph 9 of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:

9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected, and to contributions to social security and employment insurance premiums levied, by or on behalf of the Government of a Contracting State.

The ownership and use of the “U.S. Person” (which includes a “citizen”) as an instrument of foreign policy-Part III

 
 
reposted from the citizenshipsolutions dot ca blog

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

U.S. citizenship-taxation, enforced by FATCA, does have an impact on the economies of other nations. There is evidence that this will negatively affect the job and career prospects of Americans abroad. “Citizenship-taxation” is increasingly affecting the way that nations and the citizens of other nations interact with “U.S. citizens”. Because of the “immutable characteristic” of a “U.S place of birth”, many U.S. citizens living outside the United States (assuming they are allowed to have a bank account in a FATCA world) have become undesirable as business partners.

See the following two accounts of discrimination against U.S. citizens abroad

Good points that highlight, yet again, the absurdity and detachment of the U.S. political system from 9 million of their citizens now living in an ever globalized and ever more competitive world. The U.S. political class and presidential candidates disinterest in this ever-growing and important group of citizens only speaks to the total stupidity, general ignorance, global unawareness, profound provincialism and confirms a totally dysfunctional and archaic system that is today the United States. A country that attacks and harms its diaspora and through its laws has succeeded in turning its own citizens into international pariahs with international banks, in international business partnerships, in marriage and in the general perception outside of the U.S.

I recently met with three start-ups at a fair in Germany, two from the UK and one from Sweden. In my work as a headhunter they were hiring me to find them some talented people for their growing and successful startups. In all three cases, and each in separate meetings with me, the startups told me that they did not want any Americans or Europeans with U.S. Green cards or passports. They were all wisely warned by their banks and financial advisors not to bring any U.S. Persons into their business. Two of them knew the reasons and the risk that any American presence would bring to the business. The other one learned the hard way. They had an American investor who got them into his FATCA mess, reporting his holdings and his American tax consultant demanding the business’s bank details and the personal details of the owners. They returned his investment, threw him out and agreed never again to get involved with any U.S. persons in their business. This is now widely known and even if FATCA and all of the other reporting requirements for Americans would be eliminated, the damage is already done. The perception out there is to avoid hiring any Americans and also avoiding their investments. They are too much trouble and their government is an intrusive bully that thinks it can control the entire world. That spirit is so foreign to the young brilliant startup minds out there today. The U.S. has become a has-been and definitely not seen as a cool place anymore.

The world has moved on and the U.S. politicians and presidential candidates still haven’t realized that the world has changed since their anachronistic citizenship based tax system dating from the Civil War. Truly, a nation of idiots.

As a former U.S. citizen, who renounced just in order to survive, as my four non-U.S. business partners gave me an ultimatum, either get rid of your U.S. citizenship, which was contaminating our totally German business and subjecting our company’s accounts to U.S. Treasury and IRS scrutiny, or you must sell your shares and leave. This all started upon the advice of our German bank, who said that they wouldn’t deal with our accounts if there was any American/’U.S. Person’ involvement? Not to mention the personal impact on my mortgage, on my bank closing all of my investment accounts and everything else that every reader here knows all too well.

What amazes me most, and also amazes all of my personal and professional friends, all of them non U.S. persons, is how obedient and conforming the organizations supposedly representing the interests of U.S. citizens abroad are. With all that has happened, and especially now, subsequent to the Senate Finance Committee’s “report” on tax reform, paying nothing but contemptuous lip service to the plight of US citizens abroad, it should be more than obvious that U.S. Citizens abroad are of absolutely no relevance for lawmakers and legislators in Washington. Yet, the attitude of all of the organizations supposedly looking out for and fighting for the rights of US citizens abroad has been to follow a very respectful path of presenting the case for change, as if they were dealing with a fair democratic system, that respects equal representation and justice. They look ridiculous, all of them! When I read that Democrats Abroad have been trying to push the “bandage” fix of ‘Same Country Exception’ for more than four years, with no result, I say that this is absolutely pathetic. When I see American Citizens Abroad sending endless delegations to Washington, year after year, and even opening an office there, only to see the interests of overseas Americans relegated to a footnote, with no action proposed n the recent Senate Financial Committee report, I would think that they should be embarrassed and ashamed, as they should be. It has taken the group Republicans Overseas over one year to formulate an intended lawsuit, which has been postponed endless times, with a “promise” to file it next week, I say that they too have not approached this in the right way. Too much damage has been done in the interim.

What astonishes all of my “foreign” friends is how passive, obedient and fearful U.S. people are of their government, especially when confronted with such outright injustice, literal extortion and destruction of their financial wellbeing and that of their families and business partners. Even the ever law abiding Germans wouldn’t put up with any of this and they would probably, en masse, as one lawyer friend told me, simply refuse to cooperate with any of this Byzantine filing of forms and endless intrusions into their privacy and that of their families and business partners. They would collectively refuse and file class action suits against the authorities behind these injustices worthy of a fascist totalitarian regime. Perhaps the Germans understand better than the Americans what this sort of thing leads to, when a society becomes so beaten down, so subservient, so fearful of authority that it complies with the most horrific and undemocratic “laws” and is unable to unite and simply say NO, collectively. Until Americans fight to recover some form of democracy and fairness, the ravages of FATCA will be but one in a coming litany of similar such abuses. To continue believing that they are dealing with democratic institutions and that reason and fairness will prevail is nothing but a naive attitude that will lead them nowhere, as we can now see with the recent Senate Finance Committee report.

John Richardson

Republicans Overseas July 5, 2016 Appeal of U.S. FATCA Lawsuit Dismissal

 
 

cross-posted from: Isaac Brock Society

by Stephen J. Kish

The Plaintiffs (of which I am one of seven) of the Republicans Overseas United States FATCA lawsuit, filed, on July 5, 2016 in U.S. Sixth Circuit Court of Appeals, a “Brief” arguing that the U.S. District Court erred in dismissing the FATCA lawsuit.

We are suing: United States Department of the Treasury, United States Internal Revenue Service, and United States Financial Crimes Enforcement Network. SEE THE BRIEF.

“The district court held that no Plaintiff has standing for any of the eight counts (Dismissal Order, RE 42), even with added plaintiffs and facts in the proposed Amended Complaint (RE 32-1).”

“Preliminarily, note that while the Government asserts interests in fighting tax evasion, money laundering, and terrorism, Plaintiffs are ordinary people abroad seeking freedom from serious harms from challenged provisions and IGAs. Plaintiffs are not alone. An extensive, careful survey,[from Democrats Abroad…]”

“The Government has other, successful tools to catch scofflaws without the unconstitutional, intrusive, bulk-data-collection approach of the challenged provisions and IGAs that so harm ordinary Americans.”

“Taxpayer information was recently stolen from the IRS itself because the IRS has not prevented hacking of its own systems and theft of taxpayer information.”

“Thus, people do have a reasonable expectation of privacy from the U.S. and foreign governments in their bank accounts under the situations at issue here. They reasonably do not expect the bulk, blanket reporting of information under challenged provisions and IGAs, including to foreign governments, without any hint of wrongdoing and without judicial oversight, the lack of which makes such searches “per se unreasonable.”18 So Plaintiffs have a cognizable privacy interest.”

“…Plaintiffs rely on no third-party standing, though they provide information about relevant third parties to demonstrate how FATCA negatively affects their lives and relationships. Rather, they rely on their own interests, especially the constitutionally protected interest in not disclosing information they do not want to disclose.”

“The district court said that because Plaintiffs harms, particularly problems in getting banking services for essential everyday-living accounts,20 are not fairly traceable to government action, Plaintiffs lack standing to challenge provisions motivating FFIs not to provide services to Americans abroad….So the argument is not that, e.g., the IRS persuaded some bank to deny services to Plaintiffs Crawford or Kuettel, but that FFIs don’t accept Americans’ accounts because of FATCA/IGA burdens. Where a provision/agreement harms a person by causing FFIs to deny services (or by disrupting marital joint accounts or the ability to open an account in a minor’s name), that harm is fairly traceable to the government responsible for the provision/agreement.”

“The law on causation for standing recognizes such indirect harm. For example, Plaintiffs affected by FATCA/IGAs have standing for the reasons stated regarding Count 1 because the FFI Passthrough Penalty is designed to punish noncompliance by account holders. And Plaintiffs would like to be noncompliant because they are burdened by FATCA/IGAs, which they believe are unconstitutional, but cannot be recalcitrant because of the Passthrough Penalty.”

“Furthermore, Plaintiffs alleged that they reasonably fear that they will be subject to the Willfulness Penalty for willful failure to file FBARs, indicating that they are filing FBARs. The FBAR report is a trap for the unprepared, uninformed, unwary, imposing this excessive penalty on those who know of the report but for some reason fail to get it done.”

“Moreover, Plaintiffs’ harms will be redressed by requested relief as to this Count. See Part I.C. Any notion that they must await a penalty or enforcement action is erroneous because one need not await enforcement to challenge unconstitutional provisions/agreements. And Plaintiffs would not file FBAR reports—and so become subject to this penalty—but for the challenged provision. So Plaintiffs have standing for Count 6…”