— CBT Lawsuit (@CBTLawsuit) November 13, 2015
The CBT lawsuit will be launched by the Alliance for the Defeat of Citizenship Taxation. The most obvious reason why you should donate to this litigation is that abolition of CBT would nullify your tax and information reporting and paying – forever.
Up to now, the work dedicated to improving the plight of “US Persons” has been carried on in various ways by different groups and individuals. After general protest against the onerous penalties for FBAR, that work has taken on a general direction toward protection against FATCA. This has included all types of letter campaigns (in Canada as well as expats all across the globe targeting their U.S. Senators and Representatives in the United States); petitions; small demonstrations in Canada; individuals appearing in media; individuals trying to educate the general public by responding to articles and comments online; annual visits to Washington. Some groups have started litigation; Alliance for the Defence of Canadian Sovereignty and Republicans Overseas/James Bopp Jr). Others are pushing for Residence-based Taxation, ( ACA, AARO, and FAWCO ; the Safe Harbour/Same Country Exception” (SH/SCE)( DA). Two “newer” groups are reaching out: American Expatriates FB covers many topics and Accidental Americans FB has begun to focus on the specific problems of “Accidental Americans” (France). In other words, a great deal of effort has been put forth to communicate what is happening; to try and educate governments, the media, and Americans who live in the United States.
We have very few allies. Nina Olson of the Tapayer Advocate Service (TAS) having issued a Taxpayer Advocate Directive (TAD) was completely ignored by then Commissioner Douglas Shulman. Every year she continues to press Congress on our behalf; so far, it seems Congress is not listening. Very few journalists and politicians understand the complexities of our situation. There is a congressional committee, the Americans Abroad Caucus headed by Congresswoman Carolyn B. Maloney. Looking at the bills introduced, many had to do with voting and were referred to committees but did not progress further. The Caucus drafted a letter to Treasury Secretary Lew and IRS Commissioner Koskinen supporting the position that financial accounts in the country where one lives should not be subject to FATCA reporting (SH/SCE). The letter was circulated in the House of Representatives, asking for co-signers; very few did so. HR 3078 (Commission on Americans Living Abroad Act of 2015) was re-submitted in July 2015 but has not advanced farther than committee assignment.
Most of us are able to vote; however, according to ACA, the largest percentage of concentration of expats in a district is 2%. In most states, this ratio is much lower. We simply do not have the ability ensure our concerns are adequately represented. The reality is that the most important thing to a politician is re-election, and to claim to be “going after tax evasion” with all of its convoluted and incorrect assumptions, plays very nicely into that scenario.
The incorrect stereotype is that most “Americans abroad” are considered to be persons of privilege so any abuse of our rights are easily dismissed. Then there are those who simply cannot see past the mis-applied cliché – rich expats living abroad, tax cheats, traitors. It is unrealistic to think these perceptions are a matter of simple education; it will take decades, perhaps generations for this to change.
Most importantly there is the extremely punitive response of the U.S. government, escalating in 2009 when our “foreign” accounts were targeted.This was done after years of non-enforcement. Virtually no one knew of these obligations and the U.S. did NO due diligence to notify/educate those abroad who were affected. It was an immediate and ongoing campaign of threats, penalties and intimidation.
First, the notorious OVDP 2009 “in lieu of FBAR penalties” – 20% of highest balance of highest account for 6 yrs plus other non-filing fees for information returns ($10,000 per type), accuracy penalties (20-40%) etc. As we will see with other actions, there is an increase in penalties; the in-lieu of penalty is now 27.5%, covers 8 years and the penalty base now includes FATCA Form 8938. These programs are for criminals. If one is unfortunate enough to be discovered by the IRS before coming into compliance there are consequences some of which can be extremely severe. The IRS created considerable distrust by disallowing FAQ #35 in March 2011.
There are now more forms and more penalties. For a description of this escalation, see here.
The renunciation fee originally was 0$, rose to $450 and is now a whopping $2350 USD. There is now a fee for relinquishments, also $2350 USD. The explanation for this obscene rise is completely nefarious.
There have been repeated attempts to modify, repeal or phase out the Foreign Earned Income Exclusion; as well as attempts to lower the Estate Tax threshold. The Reed Amendment (1996), designed to keep expats out if they renounced in order to avoid tax, is unenforceable. The tax compliance community is particularly fond of over-emphasizing this in order to frighten people into compliance, often without even examining possible/likely loss of citizenship. The 2 bills introduced in 2012 & 2013 (the “ExPatriot Act” and the “Taxpatriation Act”) by Senators Schumer and Reed seek to make “specified expatriates” inadmissible. Such persons will suffer a 30% tax on their US-source capital gains; the expatriation rule is to be retroactive by applying it to anyone who is a “covered expatriate” who gave up his citizenship in the last ten years. Congress is considering passport revocation for anyone with a $50k tax liability; (see section 7345). All of these measures are oppressive and demonstrate callousness toward citizens who have dared to live outside the Homeland.
Regarding FATCA, Former Canadian Minister of Revenue the Honorable Kerry-Lynne Findlay stated:
“This is strictly a tax information-sharing agreement. This agreement will not impose any U.S. taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada.”
So is FATCA to deal with tax evasion and collection of tax? If so, why the need for listing more financial assets on Form 8938? Does anyone seriously doubt that a Wealth Tax is next? Or at the very least, the U.S. is tracking assets to map out Gift and Estate Tax for U.S. Persons abroad? Recently the IRS updated the regulations for the Gift Tax ; Section 2801 imposes a tax on covered gifts and covered bequests received by a citizen or resident of the United States from a covered expatriate. Now there is a presumption that the donor is “covered.” It is the responsibility of the recipient to prove whether the donor is ‘covered’ or not.
All of these factors are considerably depressing. Virtually nothing has developed over the last four years that provides serious relief from the miserable situation CBT puts us in. The IRS and Congress are very aware of how we are affected by this. At this point, no one can claim we are merely “collateral damage;” many see aspects of this as part of a long term negative approach toward anyone who chooses to live outside of the U.S. There was a ray of hope for “Accidental Americans” with the Obama Administration’s 2016 Green Book (Revenue Proposals); it included a provision under which an individual would not be subject to the exit tax requirements if certain conditions were met. Unfortunately it is unlikely to become law. Many will remember (mid-2012) the following statement, which then served as a motto for those who felt they should renounce but were hesitant:
“Get out while the getting is semi-good. Don’t wait for more time. More time means more laws.”
Phil Hodgen, June 2012 “Why People Expatriate”
It is clear that Phil’s comment most definitely was accurate at the time and is even more so now.
To imagine that somehow, this will be fixed due to the efforts of others is unrealistic. There are two aspects to this. First, the people who have been engaged in this work, some for decades, and others very intensely over the last four years, simply cannot be expected to continue to carry the ball without support. This applies to those who give of their time as well as those who have already given donations. It is grossly unfair to expect “other people” to put out and then to just sit by and do nothing when one gains from their actions. President Ronald Reagan had some strong words in this regard:
Second, most have very little faith in the political process; the reality is that most responses are limited to form letters and many receive no reply at all. There has been NO action taken by any government in any country to protect their expat citizens. In fact, many have had to change their own laws (via the IGAs) to make it possible to comply with this extraterritorial U.S. law. The reality for the FFI’s of these countries continues to be the economic sanction the U.S. has inflicted upon financial institutions around the world if said countries do not comply with FATCA reporting.
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.
ADCT is registered non-profit organization in Canada. It is not a charitable organization and is unable to issue tax-receipts for donations. The Directors are:
Chair Dr. Stephen J. Kish
Co-chair John Richardson
Treasurer-Secretary Patricia Moon
Director Carol Tapanila
There has been no major tax reform since 1986 (nearly 30 years ago). At that rate, most of us will not live to see any relief from this. At the very least, we owe it to our children to try and get this changed before it destroys their chances to build a solid retirement (if they choose not to renounce).
Should one decide that they have a tax problem (instead of a compliance problem), here is what there is to look forward to:
- Streamlined program to get back into the system (one concession that has been made) without penalties
- A lifetime of filing (and paying for) many forms for no tax owed
- a need to protect the sale of your primary residence from U.S. capital gains tax
- inability to own domestic Mutual Funds
- inability to make use of country-specific tax deferred savings plans (such as the Tax-Free Savings Account in Canada)
- limited to investing on interest income, simple stocks & rental income
- required to report/pay on undistributed amounts (ex. domestic tax-deferred programs utilized)
- effects on non-U.S. pensions, such as Australia’s superannuation situation
It is time for each and every American citizen abroad to face reality. Our own governments, press and fellow-citizens consider us “privileged.” They DO NOT consider the unjustness of CBT to be a matter of “human rights.” They DO NOT question the utter hypocrisy and imperialistic reality of the U.S. extraterritorial enforcement of CBT. They do not even question the immorality of US imposing FATCA on all other countries and peoples of the world (and making them pay for it). There is simply no point in trying to change from within the system. We do not have effective representation. We can see the US government actions focus on compliance (largely through punishment whether it be direct penalties or via punitive policies such as AMT, MFS thresholds, Obamacare tax, etc) and keeping us in the chains of taxation and information reporting. We can see our own governments’ kow-towing to the reality of the banks’ need to have access to the US capital markets. Our own governments simply rewrite the laws to make it legal to break the laws. This makes it necessary to go to our only resource – the courts.
Once one comes to the realization that litigation is the only way to combat this, here is why donating to the CBT lawsuit makes sense:
- A way for those who have not participated yet to become involved in an effort that is not country-specific; this would help ALL Americans, everywhere
- A way to be rid of the punitive effect of the US tax system toward anything “foreign”- once and for all without giving up U.S. citizenship
- Relief at preventing this situation from being passed on to our children as well as our “alien” spouses/family
The CBT lawsuit is cost-effective:
- If you want to renounce and are “covered” a donation could bring you under the threshold
- Consider how much it will cost to remain compliant (just to file, not actual tax amounts) to a tax system which provides nothing in return
For one who is 50 now & lives another 30 years:
Average compliance cost of
- $2,000 per year x 30 years = $60,000
- $2,500 per year x 30 years = $75,000
- $5,000 per year x 30 years = $150,000
Do you really want to part with that amount of your hard-earned money while the conditions are likely to continue to worsen?
While the U.S. seems undisturbed at this point about the number of renunciations taking place, the behaviour of trying to make it harder demonstrates the government would like to prevent people from dropping their citizenship. It is also significant that the courts tend to make rulings in favour of maintaining one’s status as a U.S. citizen.
We expect this case to go all the way to the Supreme Court of the United States as Cook v Tait did in 1924.
In summary, if you really want to be free, once and for all, from the effects of U.S. taxation on your life and the lives of your family, please join in, and support the CBT lawsuit with your donations. It is our best chance for putting an end to this invasive control mechanism imposed upon us simply because we were “born in the United States of America.”