The Issue

Why was ADCT formed?

The Alliance for the Defeat of Citizenship Taxation (ADCT) was formed due to the (lack of) response of the Senate Finance Committee to the well-documented harm that CBT with it’s vicious tentacles has done to “U.S. Persons” abroad. It is undeniably clear, that U.S. citizenship-based taxation is fueling the largest number of renunciations in U.S. history. Ironically, the government is not permitted to take actions which cause Americans to lose their citizenship:

In Afroyim v. Rusk, a divided Court extended the force of this first sentence beyond prior holdings, ruling that it withdrew [p.1567] from the Government of the United States the power to expatriate United States citizens against their will for any reason. “[T]he Amendment can most reasonably be read as defining a citizenship which a citizen keeps unless he voluntarily relinquishes it. Once acquired, this Fourteenth Amendment citizenship was not to be shifted, canceled, or diluted at the will of the Federal Government, the States, or any other government unit.

 


Short History of CBT

Citizenship-based taxation has been an issue throughout the 150-year history of the U.S. income tax. Interestingly, the United States started with a residence-based tax system. The first income tax enacted by Congress, passed in 1861 to help fund Civil War efforts, Rep. Justin Morrill, proponent of Revenue Act of 1861 only taxed citizens abroad on their income from U.S. investments; overseas income was specifically excluded. In 1864, Congress moved to citizenship-based taxation and passed a new law which taxed non-resident citizens on their non-U.S. income as well. The tax, both for residents and non-residents, was only in effect until 1872. Congress introduced an income tax law in 1894 which included taxation on all income of non-resident citizens. The law was ruled unconstitutional by the Supreme Court the following year (for reasons unrelated to non-resident taxation). Fourteen years later, the 16th Amendment to the Constitution was passed to overturn this Supreme Court decision, and the modern federal income tax was begun. The new income tax regime forming the basis of the modern system of U.S. taxation, created in 1913 and revised in 1916, applied to “every citizen of the United States, whether residing at home or abroad.” The provision of the new law taxing non-resident citizens on their global income was immediately controversial. Already by 1914, U.S. citizens in London had begun to renounce citizenship in order to escape double taxation, and American Abroad groups challenged the legality of the new provision. The challenges reached their climax in 1924 when the Supreme Court ruled in a case brought by a U.S. citizen living in Mexico that taxing non-resident citizens on their global income was indeed constitutional.


Cook v Tait

In 1924, the Supreme Court of the United States, per Justice McKenna ruled in Cook v. Tait that U.S. “citizenship taxation” was constitutional. Since that time Cook v. Tait has been cited to justify the constitutionality, although not necessarily the propriety, of “citizenship taxation”. Note that “citizenship taxation” contains both the words “citizenship” and “taxation”. As a result, Justice McKenna’s decision along with the relevant statutes, may tell us a great deal about what “taxation” and “citizenship” meant in 1924.
Cook v. Tait was argued on April 15, 1924 and decided on May 5, 1924. The taxpayer plaintiff “Cook” was described by Justice McKenna as:

a native citizen of the United States, and was such when he took up his residence and became domiciled in the city of Mexico


Note that there is no evidence that Cook had become a naturalized citizen of Mexico or that he had taken an oath of allegiance to Mexico.
In holding that Cook was a taxable U.S. citizen, Justice McKenna ruled:

The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in ‘mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relation to it.’ And that power in its scope and extent, it was decided, is based on the presumption that government by its very nature benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it ‘belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.’ In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found, and therefore has the power to make the benefit complete. Or, to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal—the government having power to impose the tax.

Cook v. Tait is now almost 100 years old. The case was decided in the context of the world as it was in 1924. The world has changed and changed a great deal. The concepts of both “taxation” and “citizenship” have evolved.