When Law Becomes a Substitute for Morality & Causes Cruel & Unneccesary Harm

 

if you cant trust

 
Another comment deserving its own post

USCitizenAbroad says
March 13, 2017 at 7:08 am
@Karen and all

Thank you for collecting and posting these stories.

Our Stories

I would like to offer some general observations (of which Shaun is one of many examples) and suggest some lessons which are largely based on Shaun’s story in particular.

Shaun’s Story

It seems to me that the lesson(s) from Shaun’s story are simple. So, let’s summarize them:

1. Those Australians who have entered the U.S. tax system need to renounce as quickly as possible (hopefully before they are “covered expatriates”) and probably even if they are “covered expatriates”.

Anybody who doesn’t get this does not understand the U.S. tax system. (Not that anybody understands the system.)

2. Because of the prevalence of Superannuation in Australian society, those who are NOT in U.S. tax compliance should not be too quick to enter the U.S. tax system (better clarification on the tax status of one’s particular Superannuation – they are NOT all the same) – is needed.

3. Under NO circumstances should anybody in Australia engage the services of a U.S. based CPA or lawyer. The simple reality is that these “specific life forms” (1) Don’t give care about you in the least (2) don’t understand your local tax system (3) subconsciously believe that you are a “tax cheat” (because all Americans are) and (4) are required to view the world entirely through the “perverted prism” of the Internal Revenue Code (which presumes that anything that is “Not U.S” (not one of “us”) exists ONLY for the purpose of defrauding the U.S. Treasury.

Remember that when it comes to the Internal Revenue Code and Americans abroad:

– Americans abroad are deemed to actually live inside the USA; and

– the assets of Americans abroad are deemed to be foreign (even though they are really local to the individual)

4. It is painfully obvious that Shaun would have been far better off if he had NEVER entered the U.S. tax system. This is hindsight. He could never have understood where this was going. Truth is that things have changed a great deal over his 30 years in Australia. But, Shaun has provided a great lesson to Australian citizens and residents who are NOT in the system.

The lesson is this:

For Americans abroad in general, but for Australians in particular (think Super), the consequences of entering the U.S. tax system lead to far worse results than the consequences of NOT entering it. It’s pretty simple. Shaun lost the following:

– his retirement
– his health
– his happiness (you can be sure that he carries with him anger and resentment)
– he has probably become a very negative person
– if he has an Australian spouse (or still has one) it is likely that this has impacted his family in a big way

Shaun is unique. Although it doesn’t specifically say that he has filed U.S. taxes for 30 years, it is clear that he has filed U.S. taxes for many many years. Poor Shaun. He filed because filing “is the law”. Yes, it’s the law. Shaun probably thought that there was some connection between law and morality or law and “doing the right thing”.

There is no connection between law and morality. Filing U.S. taxes is “obeying the law” and obeying unjust and immoral laws. A great American writer (by the name of Thoreau) wrote a book (considered to be subversive in the land of the free) on this topic. It’s called “Civil Disobedience”. Read it sometime. (He discusses the relationships among: laws, unjust laws and compliance with unjust laws.)

Clearly Shaun (and others who have exhibited this kind of “life time” compliance while living outside the USA) are “model citizens”. Yet they have been proven to have been “model fools”. Through compliance with these laws, they have destroyed their lives.

The U.S. tax system, enforced by the tax professionals (who usually don’t know what they are doing anyway) is such that:

It’s far more punitive to be in the U.S. tax system than not be in it. There are a number of reasons for this, but we see how Shaun loses his life savings by trying to comply (doing the “right thing”).

Believe, me Shaun has lost a lot more than his money. Year ago I wrote a couple of posts based on theme that:

“It’s not what they take from you, it’s what they leave you with”.

Collective psychotherapy – U.S. citizens outside U.S. – Not what they take from you, it’s what they leave you with

followed by:

The agony of U.S. citizenship for U.S. citizens living outside the U.S.

Take particular note of the comments (including one from MarkPineTree who was Dr. Marcio Pinheiro whose anxiety over Mr. FBAR made the last few years of his life a “living hell”). See a tribute to him at:

http://isaacbrocksociety.ca/2015/08/18/another-brock-warrior-down-in-memory-of-marcio-v-pinheiro/

Finally, this story is a sad, sad reminder that those who have been most hurt by the predatory and immoral practice of U.S. “place of birth taxation” are the ones who tried hardest to comply.

The Tax Compliance Industry might say:

“Resistance is futile!!!!”

Those who have tried hard to comply will say:

“Compliance is impossible”

Put it this way:

“It’s very clear that “compliance is impossible”. But, it’s not clear that “resistance is futile”. The proof is rather simple:

Seven out of eight Americans abroad recommend non-compliance and every one of them is in a better state than our friend Shaun!

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

The ACA RBT Proposal is a “carve out” within CBT

 


 
This post is based upon a comment made at the Isaac Brock Society concerning American Citizens Abroad’s new (Febrary 2017) proposal on replacing citizenship-based taxation with residency-based taxation.

See the bottom of the post for information on how you can join the discussion.
 
carve out
 
USCitizenAbroad says:

The ACA proposal is painful to read. But, it is an opportunity to dialogue with ACA and others who are engaged in the process of tax reform and its application to Americans abroad. I wonder if a separate site/Facebook group or something could be dedicated to the specific issue of “Tax Reform and Americans Abroad”. But, anyway …

The specifics of the proposal are a diversion from what I believe is the real issue. The real issue is the assumptions that ACA (and to be fair) the vast majority of Americans abroad bring to the table.

ACA proceeds from the operating assumption that American citizens are nothing but slaves to the U.S. Government and the IRS. ACA has absolutely bowed down to the United States of America and acknowledged the absolute servitude of Americans to Congress and the IRS. ACA has done this NOTWITHSTANDING THE FACT that most Americans abroad do not (and apparently will not) file U.S. taxes, FBAR and the other components that have stripped Americans of their liberties. (Donald Trump would probably say that those who do not file are “smart”. Why? Because the rules of U.S. style CBT are so punitive that in most cases it is safer to not file at all. Well, assuming you can even understand what is asked of you.)

Because ACA begins by accepting the principle of slavery, they then begin by asking for a “carve out” for certain slaves. These are slaves who have been particularly good and compliant slaves. The principle of “carve out for exceptional slaves” was last seen in the FATCA same country exemption proposal.

Understand the following two points:

1. FATCA SCE was a proposal that was absolutely in support of FATCA, but asked for an exemption for ONLY those Americans abroad who could demonstrate compliance with their tax slavery.

2. The current proposal (RBT not) ABSOLUTELY ACCEPTS CBT AS THE OPERATING PRINCIPLE, but asks for an exemption for those who have been particularly compliant with CBT. Because of the emphasis on “compliance, compliance, compliance” there is NO relief for Accidental Americans (and similarly situated people). The proposal makes NO mention of dual citizens and to what extent dual citizenship should play a role. As the Titanic is going down, ACA is proposes to save “tax compliant” (the good slaves) Americans from going down.

To be clear (as the “Change you can believe in” guy used to say):

This is NOT a proposal for residence-based taxation. This is a proposal for “taxation-based citizenship” with an exemption for certain groups of people. Therefore, under NO CIRCUMSTANCES should this be referred to as an RBT proposal. This is a proposal to worship at the altar of taxation-based citizenship, but exempt the “high priests” from the burdens.

That said, as a practical matter, if you can fit yourself into the one of “taxation-based citizenship” exemptions, it does provide benefits. But, as @Eric notes, this proposal will institutionalize “taxation-based citizenship”.

More, on the specifics later.

FURTHER INFORMATION ON THE ACA PROPOSAL AND DISCUSSION:

The document is here
 
Discussions are happening at Brock and
at the ACA Facebook page
https://www.facebook.com/americancitizensabroad/posts/10154429235779072
 
ACA is soliciting everyone’s questions and comments and ADCT encourages ALL expatriates, their families and friends (especially if living in the Homeland) to read the proposal and to provide feedback

info@americansabroad.org and/or

here

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.

How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation”

cross-posted from Citizenshipsolutions

The above tweet references the comment I left on an article titled: ”

Why is the IRS Collecting Taxes for Denmark?

which appeared at the “Procedurally Speaking” blog.

The article is about the “assistance in collection” provision which is found in 5 U.S. Tax Treaties (which include: Canada, Denmark, Sweden, France and the Netherlands). I am particularly interested in this because of a recent post at the Isaac Brock Society.

This post discusses the “assistance in collection” provision found in Article XXVI A of the Canada U.S. Tax Treaty. The full test of this article is:

Continue reading “How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation””

Do Canadian (or Australian etc.) Tax Attorneys Advising Canadian Clients on United States IRS Compliance Typically Comply With The “Professional Code of Conduct” of Their Law Societies?

cross-posted from Isaac Brock Society

In a recent post I mentioned the situation of a “Caroline” who seeks advice from a Canadian tax attorney (let’s say in B.C.) regarding a question of (IRS) tax compliance with a country foreign to Canada.

How should the Canadian tax attorney advise this frightened Canadian citizen– specifically, regarding the disclosure of relevant options she (or any Canadian) should consider before entering, or not entering, into tax compliance with United States Internal Revenue Service?

What information should (must) the attorney disclose to the Canadian to comply with professional standards and ethical obligations of an attorney?

USCitizenAbroad suggests that the Canadian tax attorney needs to disclose two relevant facts:

“It seems to me that the first thing that a Canadian lawyer (I note that the rules of B.C. Professional Conduct are included in this post) might be to say:

1. You are living in Canada. There is NO Canadian law (no matter who you are) that requires you to comply with U.S. tax laws. Canada may [find] it amusing. But Canadian law does not require compliance.

2. The Canada U.S. Tax Treaty means that Canada will not assist the IRS in collection on Canadian citizens”

I could well be wrong but suspect that few if any Canadian (or Australian) tax attorneys (irrespective of whether they are US persons or “enrolled agents”) ever provide this disclosure to their clients — who are just seeking good service.

The question I have is whether, by not making this disclosure, are these Canadian tax attorneys in violation of their law society’s (the governing body) Professional Code of Conduct? For example. the British Columbia Professional Code seems to be pretty clear on disclosure of facts and options:

“A [Canadian] lawyer should obtain sufficient knowledge of the relevant facts and give adequate consideration to the applicable law [This must include Canadian law — correct?] before advising a client, and give an open and undisguised opinion of the merits and probable results of the client’s cause…”

It would also seem that any Canadian tax attorney who is an “enrolled agent” with the IRS must disclose that significant conflict of interest (additional loyalty) to the client. Yes? See:

“A lawyer should disclose to the client all the circumstances of the lawyer’s relations to the parties and interest in or connection with the controversy, if any, that might influence whether the client selects or continues to retain the lawyer. A lawyer must not act where there is a conflict of interests between the lawyer and a client or between clients.”

Do these issues of “reasonable disclosure” need to be brought up with the law societies? Could someone from one of the Canadian provincial law societies please respond and address these questions?

The Reed Amendment

 
UPDATE:

Someone strongly disagreed with my conclusion (Reed cannot be applied) due to worry of dealing with border guards. However, if a border guard were to claim he/she was denying one entry based upon a perception of Reed, such an action would not constitute an application of the Reed Amendment but an inaccurate assessment by an overzealous/ignorant border guard. This reminds me of something I have heard John Richardson say many times; that there will be a solution to one’s compliance predicament but that it won’t likely be a “good” one or one to like. IOW there are no perfect (or necessarily likeable) solutions. If any US govt employee (or compliance or media person for that matter) misapplied the Reed Amendment, that does not constitute wrong conclusions or information in this post. And it certainly does not suggest I am “misleading.” The DHS has indicated Reed cannot be applied. The State Dept has said it can’t apply it. An IRS counsel could not draft regulations and says it cannot be applied. If one thinks a compliance person or a misguided govt official or a media person should be believed over all these, then what more can be said?

If one needs a “stock answer” to a border guard, the simple answer to “Did you renounce for tax purposes” is “No.” If one feels the need to say more something like “I’ve lived in/been a dual citizen for x-number of years and simply feel more CDN/French whatever.” Something as neutral as possible. A zealot would still see such a statement as treason. There are no perfect solutions. I really dislike adding this because the whole point of this post is to give expats the information to STOP that reaction of “but what if”..IOW, the fear factor. I am NOT writing this to diss any firm, govt agency etc (even though I will not hide my anger or disgust at how this is abused). However, I am responding to the criticism mentioned above. FWIW, I hope this helps.
 

See also:

Stop! Enough Already!! The Reed Amendment is a Myth!!!
Homeland Security Enforced Reed Amendment Twice in 14 Years Banished Two Ex-Citizens Who Mentioned Tax Motivations
Who Voted For the Reed Amendment in 1996
BiPartisan Attempts to Exile Former U.S. Citizens
No civilized country would ban Eduardo Saverin

 

no fear montering  symbol

NO ONE has been stopped at the border and refused entry because a CBP agent suspected they renounced “for tax purposes.” There is NO CONNECTION between an expatriate’s tax liability and a renunciant’s intent. NONE!   Once again, I see a major firm bringing up the idea of the Reed Amendment as a possible consequence of expatriation.
 
 
 

Individuals who choose to renounce their US citizenship need to be aware of the potential negative consequences of doing so and take steps to avoid them. The negative consequences can include the imposition of the US exit tax[9], permanent inadmissibility from the United States, and the imposition of the inheritance tax.[10]

NEW

Notice the lack of footnote for the phrase concerning permanent inadmissibility. A post on the blog of their website acknowledges that this is a remote possibility-only if you stated that was your reason for renouncing.

However, in the practical application of the original Reed Amendment, the renouncing individual is rarely denied re-entry to the US unless he confesses during his exit interview to be renouncing for tax avoidance purposes. Needless to say, very few expatriates renouncing their US citizenship confess to having tax avoidance purposes. Consequently, identifying those expatriates who renounce for tax avoidance purposes is nearly impossible. Congress knows this and is attempting to tighten the screws on the renunciation program through the proposed Reed-Schumer Amendment.

Just look at the language used; “confesses at his exit interview.” In spite of this, we continue to see this unreasonable emphasis which does nothing but frighten people. I have no argument that it is very likely Congress will try again/make this worse. But is this the right way to present this to people just finding out about this? This has become my number one irritation and I will try to address it again. The point of this post is to debunk the long-standing, commonly mis-communicated information regarding the Reed Amendment.

DEBUNKING:

  • you can/will be turned away at the border if you are an expatriate
  • there is information sharing between the IRS and other agencies
  • the consulate will try to determine whether or not you are renouncing for tax purposes
  • once you renounce you cannot go back

FACTS:

  • while CLNs may be forwarded to the other 3-lettered agencies, NO TAX UNFORMATION may be shared by the IRS; a border guard DOES NOT have access to this information
  • The lack of regulations makes it impossible for the State Department or the DHS to determine tax liability as motive for renouncing
  • the IRS no longer makes rulings on whether or not an expatriate’s intention to renounce is tax-motivated.
  • Most consular officer routinely issue visas to former U.S. citizens

The Congress has created laws that are in conflict with each other, the end result being, that the Reed Amendment is completely useless unless one chooses to state expatriation is due to tax purposes. Our expatriate movement is now almost five years old. Since that time, we have managed to challenge a lot of misinformation put out there by the media, the compliance industry, etc. This is another one to throw on the pile.

The Reed Amendment
 

The United States, ironically enough, has a long history of using citizenship as a way to punish those it deems “ungrateful,” “unpatriotic” etc. Putting aside some of the older versions of this idea, the modern beginnings of punishing those who expatriate began with President Kennedy and the Foreign Investors Tax Act of 1966. This Act created I.R.C. § 877 and allowed some U.S.-source income of former citizens to be taxed for up to 10 years following the date of their loss of citizenship. There were no amendments to 877 until President Clinton’s time in office; at this point, things began to change rapidly and drastically for expatriates.

The Reed Amendment formed part of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996.Enacted on September 30, 1996, it was written by Senator Jack Reed (D-RI)The bill was a response to wealthy U.S. citizens expatriating who then wished to return to live in the United States. Once out of the country, any non-citizen could avoid taxes on capital gains and estates. A well-known example is that of this was Kenneth Dart owner of Dart Container, who had become a citizen of Belize who then attempted to obtain a diplomatic visa to serve as Belize’s new consul in Florida. He offered his own residence to serve as the consulate (while the rest of his family was still living there). Had he succeeded, as a foreign diplomat, he would have been exempt from any obligations to the IRS.

U.S.C. § 1182(a)(10)(E) / INA 212(a)(10)(E)
8 U.S. Code § 1182 – Inadmissible aliens

(a)Classes of aliens ineligible for visas or admission Except as otherwise provided in this chapter, aliens who are inadmissible under the following paragraphs are ineligible to receive visas and ineligible to be admitted to the United States:
(10)Miscellaneous
(E)Former citizens who renounced citizenship to avoid taxation
Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible.

According to Michael Pfeifer, a tax lawyer with Caplin & Drysdale a difficulty ensued
in determining whether the Reed Amendment would apply to all those renouncing U.S. citizenship under INA 349 a 1; intending to lose U.S. citizenship by performing an expatriating act.

HIPAA In addition to other legislation being considered to apply to expatriates, President Clinton proposed an expatriation tax in his 1996 budget in order to close the loophole.The Health Insurance Portability and Accountability Act enacted August 21, 1996; Title V amends provisions of law relating to people who give up United States citizenship or permanent residence by:

  1. expanding the expatriation tax to be assessed against those deemed to be giving up their U.S. status for tax reasons, (U.S. Code § 877 )and
  2. making ex-citizens’ names part of the public record through the creation of the Quarterly Publication of Individuals Who Have Chosen to Expatriate (U.S. C. § 6039G – the “Name & Shame List”)

 

U.S. Code § 877 – Expatriation to avoid tax a)Treatment of expatriates (1)In general

Every nonresident alien individual to whom this section applies and who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection (after any reduction in such tax under the last sentence of such subsection) exceeds the tax which, without regard to this section, is imposed pursuant to section 871.

(2)Individuals subject to this section This section shall apply to any individual if—

(A)the average annual net income tax (as defined in section 38(c)(1)) of such individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $124,000,

(B)the net worth of the individual as of such date is $2,000,000 or more, or

(C)such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require

U.S. C. § 6039G Information on individuals losing United States citizenship
(d)Information to be provided to Secretary Notwithstanding any other provision of law—

(3)the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of https://www.law.cornell.edu/uscode/text/26/7701 section 7701(b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.

Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877(a) or 877A) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

The Reed Amendment is unenforceable

After 9/11, responsibility was transferred from Customs/Border (now CBP) to DHS.

Regulations were never written originally, nor when responsibility was transferred to DHS in 2002
 


 
§ 6103 prohibits the disclosure of “return information,” by the IRS, subject to criminal prosecution under18Title 18 of the U.S. Code. (a)General rule Returns and return information shall be confidential, and except as authorized by this title—

  1. no officer or employee of the United States,
  2. no officer or employee of any State, any local law enforcement agency receiving information under subsection (i)(1)(C) or (7)(A), any local child support enforcement agency, or any local agency administering a program listed in subsection (l)(7)(D) who has or had access to returns or return information under this section or section 6104(c), and
  3. no other person (or officer or employee thereof) who has or had access to returns or return information under subsection (e)(1)(D)(iii), subsection (k)(10), paragraph (6), (10), (12), (16), (19), (20), or (21) of subsection (l), paragraph (2) or (4)(B) of subsection (m), or subsection (n),shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee or otherwise or under the provisions of this section. For purposes of this subsection, the term “officer or employee” includes a former officer or employee.

The Attorney General was never authorized to receive the information necessary from the IRS.


 

IRS Counsel Willard Yates was tasked with finding a work-around to § 6013. He explains the difficulty:

  1. Customs (now Customs and Border Protection) would have been required to check the names of all aliens appearing at U.S. ports of entry against the list of former United States citizens published by the IRS under HIPAA.
  2. Those who were identified as former U.S. citizens would be required to sign a waiver of their rights under § 6103;
  3. Customs would then fax the waiver to the IRS so that the IRS could provide Customs with tax information relating to the former citizen, in particular whether the former citizen met the asset thresholds of 26 U.S.C. § 877(a)(2), and any private letter ruling regarding whether or not the former citizen had tax motivations for giving up U.S. citizenship.
  4. only one IRS agent would have been assigned to handling such requests; no IRS agent would be available on a weekend
  5. If one arrived on a weekend, he or she might have to be detained until Monday in order for border agents to make the required determination of tax motivation

Important recap: I.R.C. 6103 sets up a situation where there is no way for IRS to give info to CBP or later, DHS; nor is there any way for the Attorney General to receive the information in order to make a determination.
 
Other Difficulties in Enforcing the Reed Amendment
 


 

The Department of Homeland Security In 2014, Senator Reed directed DHS to report
on the steps it was undertaking to enforce the Reed Amendment, including a schedule for issuing guidance or regulations

Some comments from the report:

“Interagency coordination between DHS and DOS operations in this area is improving continuously, but there currently are no advisable options for altering enforcement of the inadmissibility ground against persons who do not affirmatively admit to renouncing their U.S. citizenship for the purpose of avoiding U.S. taxation.”

“even if a renunciant were to waive Treasury confidentiality provisions, such that DHS and DOS might review specifics of an individual’s Internal Revenue Service filings, DHS lacks the expertise and resources to review tax filings meaningfully or engage in complicated tax liability analysis, involving both domestic and foreign tax law to determine whether a section 212(a)(10)(E) inadmissibility presumption could be rebutted.”

Interestingly, DHS makes the observation that it would be difficult to rely on the imposition of such a tax as the basis for determining that a person who is subject to such a tax subjectively renounced citizenship for tax avoidance purposes, as section 212(a)(10)(E) requires, particularly if an individual in fact complied in paying any liability resulting from the expatriate tax provisions

According to the DHS report, only two individuals were denied admission to the United States on the grounds of the Reed Amendment between 2002 and 2015 because they stated they had renounced for tax purposes. Another five individuals were thought to possibly be inadmissible; one who renounced pre-1996 who was denied submitted a legal brief to CBP & the decision was reversed

The Department of State also has no regulations to proceed from and is unable to determine whether a renunciation is based upon avoidance of tax.

FAM 302.10
INELIGIBILITY BASED ON OTHER ACTIVITIES
9 FAM 302.10-6 FORMER CITIZENS WHO RENOUNCED CITIZENSHIP TO AVOID TAXATION – INA 212(A)(10)(E)FAM 302.10-6(B)(2) Consular Officer’s Role
(CT:VISA-85; 03-07-2016)

The role of the Department and the consular officer is very limited in implementing this ground of inadmissibility. Unless the applicant appears as a hit in the lookout system revealing a finding of inadmissibility under INA 212(a)(10)(E), you must assume the applicant is eligible.

9 FAM 302.10-6(D)(2)
(U) Waivers for Nonimmigrants
(CT:VISA-85; 03-07-2016)

For those individuals seeking to visit the United States temporarily, however, this ground of inadmissibility can be waived. You should recommend non-immigrants for an INA 212(d)(3)(A) waiver. The waiver is discretionary and applications are evaluated on a case-by-case basis. (See FAM 305.4-2).

Eugene Chow of Chow & King Associates states that in spite of the Reed Amendment, consular officers “routinely issue visas” to ex-U.S. citizens, and the State Department’s Office of the Legal Adviser has reversed denials based on the Reed Amendment after being made aware of them.
 
ATTEMPTS TO STRENGTHEN THE REED AMENDMENT
 
THE BAUCUS-BINGAMAN-BURNS AMENDMENT – JUNE 2002

Rewrote the 9 U.S.C. 1182 (a) (10)(E) replacing “expatriating for tax purposes” to ”not in compliance with expatriation revenue provisions” (new versions of sections 877 and 2801)(relating to expatriation). It included changes that would allow IRS to release taxpayer information to the Attorney General. It did not pass into law.

THE SAFER ACT JULY 2002

Broadened the entry ban in 8 U.S.C. § 1182(a)(10)(E) to cover all renunciants regardless of whether or not they had tax avoidance motivations. Did not pass into law.
 

THE AMERICAN JOBS CREATION ACT (AJCA) 2004

In 2004, the American Jobs Creation Act removed the issue of intent; established new notification requirements as well as new thresholds resulting in a second type of citizenship (the “Tax Citizen”). Thus, the IRS no longer makes rulings on whether or not an expatriate’s intention to renounce is tax-motivated.
 


 

THE HEROES EARNINGS ASSISTANCE AND RELIEF TAX (HEART ACT) 2008

Included a new expatriation tax. As Mr. Yates pointed out, “The whole idea of the mark-to-market tax under section 877A was to eliminate the “motive” element of a prior version of section 877. It did not include the inadmissibility or tax information privacy waiver provisions. See: Notice 2009-85, Guidance for Expatriates Under Section 877A

Since 2000, the first year for which the State Department’s Report of the Visa Office included the relevant statistics, no consular officer has found any visa applicant ineligible for entry into the United States on the grounds of the Reed Amendment.

However, in 2015, a consular officer in Barbados refused to issue a visa to Roger Ver (“Bitcoin Jesus”) on the grounds he did not demonstrate non-immigrant intent (i.e., the officer suspected Mr. Ver was attempting to return to the United States to live). Some speculation occurred whether it was really due to the Reed Amendment but legal sources stated the known problems of enforcement. Mr. Ver received a visa later from the Embassy in Tokyo.

THE EX-PATRIOT ACT

In May 2012, Facebook co-founder Eduardo Saverin renounced his U.S. citizenship which outraged Senator Reed . He wrote to DHS director Janet Napalitano urging her to prevent him from re-entering the U.S. It should be noted that Mr. Saverin completed the entire process properly including paying a very large amount of Exit Tax. He would be a perfect example of DHS report’s observation that it would be difficult to ascertain one had renounced for tax purposes when “an individual in fact complied in paying any liability resulting from the expatriate tax provision.”

Senator Chuck Schumer (D-NY) knew the Reed Amendment could not accomplish this so along with Senator Bob Casey (D-PA) he created an act that would make former U.S. citizens inadmissible to the United States and charge them 30% capital gains tax on their U.S. investments. It died in committee.

In 2013, Reed along with Schumer & Casey tried to attach the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 as an amendment to a new bill but failed both in the Senate and later in the year, the House.

THE FUTURE

Expats continue to be threatened with exile as a way to prevent them from leaving “due to tax motivation.” It is important that all members of the tax compliance community understand the interplay of all these factors and stop contributing to the confusion that exists regarding The Reed Amendment.

There is endless fear that even without the Reed Amendment, the U.S. agencies will become digitally proficient and connected, thus a risk at crossing the border. Similarly, there is terror that the State Department will apply all sorts of tax-oriented questions, require returns and so on. Here is where things stand:

FAM 1240
INTERAGENCY COORDINATION AND REPORTING REQUIREMENTS
(CT:CON-611; 11-12-2015)(Office of Origin: CA/OCS/L)
7 FAM 1241 INTRODUCTION TO INTERAGENCY COORDINATION AND REPORTING REQUIREMENTS
(CT:CON-407; 06-29-2012)
a. The Bureau of Consular Affairs (CA) coordinates closely with various offices in the Department of State and other Federal agencies, and with U.S. States, on issues related to expatriation. Much of this interagency coordination is mandated by Federal law and policy guidelines. CA/OCS/L provides copies of approved Certificates of Loss of Nationality (CLNs) to the following Federal agencies pursuant to statutory requirements:

(1) U.S. Citizenship and Immigration Services (USCIS);

(2) Federal Bureau of Investigation (FBI);
The FBI is required to add names of expatriated citizens to the
National Instant Criminal Background Check System (NICS); this list is considered to be much more accurate than the “Name & Shame List.”

(3) Internal Revenue Service (IRS)

(4) In addition, loss-of-nationality cases involving threats against the United States or U.S. officials may also be brought to the attention of the U.S. Secret Service

Of special note: regarding the information requested/discussed at a renunciation interview:

Consular officers no longer obtain tax information from renunciants as previously required by the Health Insurance Portability and Accountability Act of 1996. The American Jobs Creation Act of 2004 (AJCA) made substantial changes to both the tax Section 877 (26 U.S.C. 877) of the Internal Revenue Codes and information reporting rules 26 U.S.C. 6039G that apply to individuals who expatriated or terminated their residency after June 3, 2004.

Questions about expatriation and taxation should be directed to the Internal Revenue Service (IRS) or the IRS Web site. Consular officers are not in a position to provide any advice or answer questions concerning these changes.

And last but not least, DO NOT let any compliance professional tell you it is a good idea to accompany you to the renunciation interview. It will cost you money and though it has not always been adhered to in the past, since July 2015 the State Department indicates it can compromise the issue of voluntary intent.

Other posts about the Reed Amendment:

Stop! Enough Already!! The Reed Amendment is a Myth!!!
Homeland Security Enforced Reed Amendment Twice in 14 Years Banished Two Ex-Citizens Who Mentioned Tax Motivations
Who Voted For the Reed Amendment in 1996

IRS to be audited!

 

reposted from Virginia La Torre Jeker ‘s site

 

 
 

Americans Abroad, IRS to be Audited
 
July 17, 2016

Maybe it’s time for the shoe to be on the other foot.

A new tax watchdog group, the Tax Revolution Institute (TRI) believes that the problems with the US tax system “demand nothing short of revolutionary change.” TRI has commenced a major effort to independently audit the Internal Revenue Service (IRS), with the help of all interested taxpayers.

TRI is a nonpartisan Washington, D.C.-based group, with its nonprofit status currently pending. TRI plans to conduct an “audit” of the IRS, in part, by collecting personal experiences from taxpayers detailing their encounters with the IRS. TRI is “committed to promoting transparency, accountability and integrity at all levels of the US tax system, while researching and developing simple and innovative tax reform solutions to advance freedom and prosperity for all Americans.” As part of its efforts, TRI will also examine the IRS’ employees, work culture, finances, policies and enforcement as well as taxpayer advice given by the IRS. “[T]hrough FOIA requests, briefings, testimonies, advocacy, research studies, white papers, and educational programs, TRI will expose corruption, fraud, and incompetence within the US tax system.” TRI plans to “provide educational tools and resources for tax accountability to policy makers, grassroots organizations, and the American public”.

You can make your voice be heard. Visit TRI’s website. Americans abroad who are experiencing hosts of problems caused by FATCA and citizenship-based taxation can use TRI as a platform for getting their views known and hopefully, acted on!

 
Audit IRS
 
 
Many Americans believe the IRS should be subject to an independent audit. We agree.

We are conducting the first ever independent audit of the IRS, and we need your help.

The Audit will examine all areas of :

The IRS’ treatment of individual taxpayers
The IRS’ treatment of small businesses
The IRS’ expectations of its employees
The IRS’ work culture
The IRS’ handling of its finances
Advice given to taxpayers by the IRS
IRS policy and enforcement
… and more

Click here to read Audit IRS Key Issues List

Every year, the IRS touches the lives of 246.23 million Americans who file tax returns, and has a much greater effect on the lives of the million or so Americans who are subjected to audits.

At any time, the IRS can demand up to six years of accurate financial information. Failure to provide this information can result in large fines and penalties, even in the absence of due legal process.

Unfortunately, the IRS does not meet the standards of transparency that it enforces on others. Lacking public oversight or accountability, the agency has frequently denied requests for information, ignored subpoenas and destroyed records. It has also been found to provide misleading and inaccurate information in response to legal requests.

Anything you share with us will be kept in the strictest confidence. We never publish personally identifying information. We also offer assistance to individuals who have been victimized by un-professionalism or corruption within the IRS. Just check the “I need help” box when completing the form.

Thank you for help.

To learn more about the people conducting this audit visit:

Tax Revolution
 

Don’t let fear push you into overcomplying, overpaying and losing your sanity!

 
 

This is a comment that stands alone as a post in itself. It was made in response to a post on the IsaacBrock Society

Petros, who authored the post this comment is a response to, is the pen-name of the founding administrator of the Isaac Brock Society. He has started this series of Petros Principles as a means of communicating guidelines which he believes have helped him and others deal with the United States’ world-wide tax invasion. He says:

Inordinate fear of the IRS is dangerous because it has caused some people to lay down all of their normal defense mechanisms and like an innocent lamb to stand paralyzed before the toothless lion.

One of the major roles of the cross-border compliance industry has been to frighten their clients and the public about the IRS’s power, and the media has too often created panic by consulting the compliance industry as their principle experts for information on US expat tax issues

The following response, by USCitizenAbroad will be of great help to anyone who is (understandably), in a confused and frightened state and in danger of being so overwhelmed, that reason and a considered assessment of what can/cannot be done by the IRS, that they simply over-comply, over-pay and lose way too many LCU’s.
 
USCitizenAbroad says
July 18, 2016 at 10:26 am

 

With due respect and appreciation for ALL the comments on this thread, this comment is to remind people of what Petro’s original point is (I think):

Petros is saying that fear can be such a dominant factor that it overwhelms all else and makes it much harder to make a “decision”. When “fear” is the dominant factor, people will “react to the fear” and NOT “decide on the facts”. There is NO way to know for certain what would be the result of any one decision.

Petros is not (I don’t think) saying that people should be “fearless”. He is simply saying that one cannot allow decisions to be made primarily based on fear. On this point, I do agree (for what it’s worth) with him.

My perception of the Fear, The IRS, The Condors and Americans (so called) abroad:

About the fear:

I seriously doubt that long term Americans abroad are on the radar of the IRS. But, I don’t know and nobody really knows. Nevertheless, there is no indication to think that they are.

When people experience fear and the trauma associated with the fear they seek safety which includes certainty. They incorrectly believe they have a “tax problem”. They don’t a tax problem they have a “compliance” (maybe) problem. Suggest you read an old post on this issue:

The Taxpayer, the IRS and the Professionals; Where to Go From Here

About the tax compliance community

If you go to a “tax lawyer/accountant” you will achieve CERTAINTY. But, the CERTAINTY will be at the cost of (possibly) turning over a lot of money to the process (U.S. taxes, compliance fees, etc.). Understand that if you go to a “cross border professional” they will approach the problem in terms of compliance with the Internal Revenue Code. Actually, in most cases they will suggest “heightened compliance” (“we are not really sure if this form is required, so you should file it anyway” – WRONG, WRONG, WRONG and WRONG). Understand that U.S. tax law is NOT enforced by the IRS. It is enforced by the tax compliance community.

About the Internal Revenue Code

Because the Internal Revenue Code is a U.S. law which applies outside the USA, there is no way to know with certainty whether you are ever in compliance anyway. I don’t think (just my opinion) that you respond to this uncertainty with “over compliance”. I think (just my opinion) that you solve it by “defensible compliance”. “Over compliance” means that you have absolutely and completely entered the “prison of citizenship taxation”. Your life is absolutely over unless you renounce. “Defensible compliance” means that you are doing the best can, but when things are ambiguous (“Not even your IRS knows for sure”), you don’t resolve ambiguities in favor of the IRS. One example of this would be the ongoing discussion of whether TFSAs and RESPs are “foreign trusts”. Although this example is “overdone”, it is an example where tax compliance people are likely to say: “Well, we don’t know for sure, so why not fill out these forms!” Well: you are not the one who must live with the consequences of filling out the forms!

About Americans abroad

If the “compliance process” costs you a significant percent of your net worth (and it could depending on your situation), you will no longer have “fear” but you will have extreme (dangerously so) “anger”.

In other words, you will have converted the disabling emotion of “fear” into the disabling emotion of “anger”. As a great and late trial lawyer used to say in his closing remarks to the jury:

“It’s not what you take from them, it’s what you leave them with”

See this older post:

Collective psychotherapy – U.S. citizens outside U.S. – Not what they take from you, it’s what they leave you with

My point is largely this:

Whether you are in U.S. tax compliance or not you have a problem. The problem is that you have a U.S. connection. After destroying Americans abroad, the USA will begin destroying the Homelanders (who will think it is just great).

So, you have three options:

1. Take steps to get a CLN (usually renunciation) so that you CANNOT be accused of being American. In most cases this means the 5 years of compliance and renunciation. If you can achieve this for the cost of a used car you are doing well. The difference is that:

– used car is just a depreciating “asset”

– a CLN is simply the best investment that any human being can have in the world. It will grow in value every second of every minute, of every hour, of every day, of every month, of every year for the rest of your life!

2. Take steps to understand why you are NOT American so that you can defend the accusation of being American. (The FATCA IGA specifically allows for this possibility).

3. Live your life and ignore the whole thing.

I am neither discouraging this nor encouraging this. It depends entirely on you. In some cases, the cost of “buying your freedom” is so low that it might be worth doing. In fact there are many Canadian citizens (who with the help of the tax community”) have actually “pretended they are Americans” (even though they know they are NOT) so that they can renounce and get a CLN.

The people who have paid the highest price in emotional and financial terms are the ones who have turned this over to the lawyers and accountants to “do the right thing”. And I am NOT saying that ALL lawyers and accountants are a problem. But, enough are they you should be VERY careful in your choice of adviser. For a recent example, have a look at the following post from Jack Townsend’s blog where he references the story of two women in their 90s and one in her 80′s who tried to do the “right thing”. It was NOT the decision of the three elderly women to enter OVDP. It was the decision of their lawyer. Now, we can’t tall all the factors leading to the lawyer’s decision to enter OVDP, but we can certainly see the consequences of the decision. Returning to the original point, this is what happens when people have so much fear that they cannot think clearly (or at all).

New Case Filing Challenging Streamlined Transition Disparity with Streamlined

In conclusion:

Petros is not saying ignore fear. Petros is not saying don’t have fear. What Petros is saying is:

Do NOT allow the fear to overcome everything else – a point that I do agree with!

What would FDR likely say about this crisis and trauma?

It is NOT true that the ONLY thing we have to fear is fear itself!

It IS true that the most dangerous thing we have to fear is fear itself!