Tag: U.S. tax compliance

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!

Is an American a Piece of Property?

 
 
I originally wrote this piece over a year ago. It comes to mind when considering the hideous practice of citizenship-based taxation. No other country on earth practices this archaic concept and without a doubt, the enforcement of #CBT since 2008 and onward, most definitely has resulted in the new movement of renunciation of American citizenship.

Recent discussions with a friend have me wondering whether Americans abroad are indeed the “property” of the US government. At first I considered this a bit exaggerated but am coming to appreciate that there is a great deal of truth in it. Perhaps reflecting a bit on the past might provide valuable insight on how we might approach this ongoing, changing situation. The idea that a human being could be considered “property” is initially strange to me. The only obvious parallel would be that of being a slave. In spite of growing up in a somewhat racially-tense city, I was largely unaware that the very foundation of the U.S. included slavery. I was 10 years old in 1965 when the riots in Watts occurred. Two years later, there were 159 riots during the “Long Hot Summer of 1967. The next year, following the assassination of Dr Martin Luther King Jr, more riots. By then I was 13 and able to understand some of the reasons: poor schools, lack of employment, overcrowding in filthy ghettos, pollution, discrimination by police, etc. MLK described it as “humiliation for decades, for centuries.” Along with the other assassinations, Vietnam, etc, it did not yet occur to me that the problem was rooted in a very underlying hypocrisy. In spite of the U.S. being the “Land of the Free and the “American Dream” supposedly available to all, the fact was the U.S. was a place where gross abuse of human “rights” was visible in daily life as long as I had been alive.

There are some interesting CBC Radio “Massey Lectures” given by Dr. Martin Luther King Jr that John Richardson wrote about recently on the ADCS wordpress site. As I listened, I was struck by the fact that intellectually, it was obvious enough that “rights” had been violated in a perverse way for so long. But I was more horrified by the immorality of it. I was much too young to really appreciate what he was and am overwhelmed by his intelligence, clarity and devotion to non-violence. The issue of race in America is clearly an ethical issue, no doubt about it. One could go on and on about social, economic and other mitigating factors but at its root, the problem truly is that one group of human beings is denied the basic respect, dignity and consideration others receive due to discrimination of what they are from birth. The recent incidents in Ferguson, Cleveland and other cities show not much has changed in the last 50 years.

I was taught that America was born due to the brave actions of those who left England because of persecution due to religious beliefs; later attempts to tax the colonists who had no representation in the parliament etc. In recent years, having learned my ancestral roots, I have been proud of the fact that my family has played an integral role in that beginning. Yet at the same time, for the last three years, experience of the treatment at the hands of the US government definitely casts a different light on it. Americans abroad (and even people who are not truly “American”) are not given the same respect as those who live in the Homeland. What’s at the root of this? Does the U.S. view us as if they “own” us? Are we their property and are we not free to leave the country? We may be able to buy our way out but fundamentally, what difference is there between that and a slave from the past doing the same? In the modern world there is a tendency to minimalize emotional or mental suffering as if it is not valid since it is not as severe as say, physical torture. That may be true to a certain degree yet I fail to see how that removes the immoral forces that can be responsible for both. In fact, the only way to see it may be to draw parallels between them.
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