cross-posted from citizenshipsolutions by John Richardson

Update January 2018: This post has been updated with some new links and discussion.

Prologue – The “Story Of The Century

Since July 1, 2014, the United States via threats threats of the FATCA Sanction, has begun a “world wide hunt” for people born in the United States
(or are otherwise deemed to be “U.S. tax subjects”). A compilation of my posts describing the mechanics, effects and costs of FATCA and the FATCA IGAs is available in “The Little Red FATCA Book“. FATCA has spawned litigation against both the U.S. and Canadian Governments. A discussion of the “Alliance For The Defense Of Canadian Sovereignty” FATCA lawsuit against the Government of Canada is available here. Some thoughts on the “U.S. FATCA Legal Action” lawsuit against the U.S. Government are here. Both lawsuits have been vigorously defended by the respective Governments. The U.S. lawsuit may have reached the end of its viability (lack of standing and various procedural issues). The Canadian lawsuit continues.

With respect to those “Born In The USA”, the U.S. legal “claim of tax jurisdiction” is two-fold:

1. Those born in the United States (unless they have relinquished U.S. citizenship” for both tax and nationality purposes) are U.S. citizens.

2. Citizens of the United States are subject to the provisions of the Internal Revenue Code regardless of where they live in the world. The Internal Revenue Code (“IRC”) includes but is not limited to the obligation to pay taxes according to U.S. tax rules. The “IRC” also includes a wide range of “penalty laden reporting requirements“. The “IRC” also strongly discourages (through penalties and sanctions) participation in non-U.S. pension plans, non-U.S. investments (including non-U.S. mutual funds), the use of “non-U.S. business corporations” and (incredibly) non-U.S. spouses. (Even the divorce of a U.S. citizen and non-citizen is likely to be significantly more expensive.) As a result, the “extra-territorial application of the “IRC”) has the effect of exercising U.S. “control” over the lives of it’s citizens who do NOT live in the United States. Therefore, it is clear that the “extra-territorial” application of the “IRC” both (1) imposes the full force of the “IRC” on the resident/citizens of other countries and (2) has the effect of imposing the U.S. cultural values mandated in the “IRC” on those other countries. One can identify a list of the “10 Commandments” which are imposed on Americans abroad in an FBAR and FATCA world.

(Note that with the exception of U.S. citizens and “permanent residents”, as per Internal Revenue Code Sec. 7701(b), an actual physical connection to the United States is required to establish U.S. tax residency.)

As the article referenced in the above tweet makes clear, many people “claimed” by the United States as “tax residents”have never had any connection to the United States except that they were born there. The article includes:

Awad Al-Zahrani, whose son has US citizenship, said he would give it up.

“My son got the passport since he was born there while I was studying in the country back in 2000. At the time, the Saudi embassy had told me that it would not be a problem for him to hold two passports. Now that we have to pay taxes, though, we’ll be giving the US passport up.”

Abdulrahman Al-Habib, head of journalism studies at KAU, argues that Saudis who were born in the US should be exempt from paying taxes.

“We should establish a unified center to help Saudis clear their former tax registers,” he said.

US Consul-General Todd Holmstorm,however, confirmed that US citizens should pay income tax and called on their international counterparts to help them eliminate tax evasion.

“The tax law is designed to combat evasion through increasing transparency in the financials of US taxpayers,” he said.

Mr. Holmstorm’s bio indicates that his career has had a Canadian connection in Ottawa, Canada. His comments in the above article imply that he believes that those (1) born in the U.S. who (2) do not live in the U.S. and (3) do not pay taxes to the U.S. are guilty of “tax evasion”. Strong language indeed. Yet, these are his words which clearly reflect the attitude and policy of the U.S. Government.

 
 

 

 

cross-posted from Brock by Stephen Kish

It is now likely that the new United States Tax “Reform” legislation will not help citizen-residents of other countries who are deemed to be “U.S. persons”.

Consequently, we at the Alliance for the Defeat of Citizenship Taxation (ADCT), a non-profit corporation, want to move quickly on a lawsuit in federal District Court in the United States.

Our lawsuit will focus on the core doctrine of “Citizenship Taxation” which serves as the basis for the extraterritorial reach of U.S. tax obligations as well as the annual financial reporting requirements imposed upon permanent residents and citizens of other countries.

The litigation will also seek to overturn other U.S. laws made applicable to persons who may have been born in the United States but have long since had little or no nexus to United States. In addition, the legal action would challenge the excessive costs and time delays imposed on those seeking to abandon U.S. citizenship.

The lawsuit will require plaintiffs who have suffered a distinct, not “speculative”, injury and funds to pay legal costs.

We estimate that legal costs will be U.S. $200,000 to take litigation through U.S. Court of Appeals.

We cannot finalize agreement with any law firm until we have received the necessary funding. We already have a legal opinion from Washington D.C. attorney Mr. Jim Butera (Jones Walker LLP), who has previously acted on our behalf, and once funds are received we will explore a contract with Mr. Butera.

At present we are not accepting any funds. Once the U.S. tax reform bill becomes law our preference is to obtain quickly the necessary funds from a small number of major donors (minimum, $U.S. 50,000).

If interested in the possibility of being a major donor, please contact Stephen Kish at information@cbtlawsuit.ca.

We all agree that asking “small” donors to fund this litigation is very unfair. However, should we receive no indication of interest from major donors by January 15, 2018 we will have no choice but to seek funding of any amount from donors of limited means.

John Richardson,
Carol Tapanila
Patricia Moon
Stephen Kish

Alliance for the Defeat of Citizenship Taxation (www.citizenshiptaxation.ca) 283 College Street, P.O. Box 67678 Toronto, Ontario, CANADA M5T 3M1

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

 

Published by Tax Connections Blog 21 Jun 2017 Posted in FBAR
Written by John Richardson
 

This is one more in a series of posts discussing the FBAR rules. The FBAR rules were born in 1970, laid virtually dormant until the 2000s and then were then unleashed in their full “ferocity” on U.S. persons.

Mr. FBAR has not visited Canada, but he has visited Canadian citizens
 

Readers of this blog (particularly those in Canada) may recall that I have previously written about the adventure of Mr. Jeffrey P. Pomerantz, currently of Vancouver, Canada, with Mr. FBAR. At that point—March 2017—it was clear that the U.S. Department of Justice planned to sue Mr. Pomerantz to collect the FBAR penalties to which it felt entitled. It is worth noting that FBAR penalties are assessed under the Bank Secrecy Act (Title 31 of U.S. laws) which is different from the Internal Revenue Code (Title 26 of U.S. laws.) In order to collect FBAR penalties, the U.S. Government must sue, and sue it did. The purpose of this post is to tell the story of what happened when the U.S. Government sued Mr. Pomerantz in U.S. District Court in Seattle.

But, before we begin our story, this post is more about “Civil Procedure” than it is about Mr. FBAR……………here

 

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cross posted from the Isaac Brock Society

This is an update on our Canadian FATCA IGA lawsuit — just to let you know that the lawsuit is alive and is moving forward, slowly.

Today our litigators and the Government attorneys met with a Case Management Judge to resolve differences.

The good news is that we now have permission from the Case Management Judge to file a motion for the Charter-Constitutional trial and provide our evidence in support of the motion. Government will also file a motion, for which we have 28 days to respond, on an issue in which there is disagreement between our side and Government.

Once that Government motion and our response is sorted out, there will be another Case Management Conference to resolve remaining issues prior to trial and to schedule the hearing.

— I am sorry, but we do not yet have a trial date in 2017, and I will keep you informed on developments.

Thank you for your patience. By now, we all know that litigation against Government does not move quickly.

Finally, I want to thank the brave Plaintiffs and Witnesses for their courage: They make our lawsuit possible.

Stephen

 
 

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…”