Month: August 2016

Part 1: Tax Treaties, determining “tax residence” and new OECD Common Reporting Standard (“CRS”)

cross posted from citizenshipsolutions dot ca

Part 1: Tax Treaties, determining “tax residence” and new OECD Common Reporting Standard (“CRS”)

The above tweet references an article from Stikeman Elliot which includes:

For CRS purposes, the term “reportable person” generally refers to a natural person or entity that is resident in a reportable jurisdiction (excluding Canada and the United States) under the tax laws of that jurisdiction, or an estate of an individual who was a resident of a reportable jurisdiction under the tax laws of that jurisdiction immediately before death, other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a related entity of a corporation described in clause (i); (iii) a governmental entity; (iv) an international organization; (v) a central bank; or (vi) a financial institution. See definitional subsection ITA 270 (1).

This morning I received an email that included the following question:

My friend lives and works in country A, and has bank accounts in Country B. He is a permanent resident of Canada. Will the banks in either Country A or Country B, report his accounts to the Canada Revenue Agency? Country A (where he resides) has no income tax system. This is common in Gulf Countries. Country A has not signed on to Common Reporting Standard. Country B (a European country) has signed on to the Common Reporting Standard.

Part A – let’s review how the Common Reporting Standard works.

Leaving aside the technicalities, to understand how the Common Reporting Standard works, the obvious questions are:

  1. What is a “reportable jurisdiction”?
  2. What is a “reportable person”?
  3. What is a “tax resident” and how is that determined?

A “reportable jursidiction” is a country that has agreed to implement the OECD Common Reporting Standard.

Note that the United States has not agreed to implement the Common Reporting Standard. Therefore, the United States is NOT a “reportable jurisdiction”. As been noted by many, this fact does contribute to and enhance the United States as a Tax Haven.

A “Reportable Person” as described by HSBC is:

From HSBC

‘Reportable Person’ A Reportable Person is defined as an individual who is tax resident in a Reportable Jurisdiction under the tax laws of that jurisdiction. Dual resident individuals may rely on the tiebreaker rules contained in tax conventions (if applicable) to solve cases of double residence for purposes of determining their residence for tax purposes.

Note especially the ability to use the Tax Treaty to determine residence in the case of multiple residencies. (Think for example about “residence” and Article IV of the U.S. Tax Treaty. This will be a way to prevent information going to certain countries.)

What are the individual country rules for determining “tax residency”?

Here is a dedicated (and amazing) site that is used to determine whether one is a “tax resident” in a specific jurisdiction.

If you are ambitious and would like to get this “straight from the horses’s mouth”, see the information referenced in the following tweet:

Part B – How Do The Banks Understand Their Responsibilities Under the Common Reporting Standard?

General Background of the Common Reporting Standard As

Described By HSBC

About the CRS

The Common Reporting Standard (CRS) is a global information-gathering and reporting requirement for financial institutions such as HSBC. It was developed by the Organisation for Economic Co-operation and Development (OECD), the G20 countries and in close cooperation with the EU. A detailed explanation of the OECD?s Common Reporting Standard for the Automatic Exchange of Information can be found here.

Under the CRS, we are required to determine where all customers are tax resident – this is will usually be where a customer is liable to pay income or corporate taxes.

If the customer is tax resident outside the country where they hold their account(s), we may need to give the national tax authority this information, along with information relating to their accounts. This information may then be shared between different countries’ tax authorities.

The standard consists of three components:

The CRS, which contains the reporting and due diligence rules
The Model Competent Authority Agreement (Model CAA), which contains the detailed rules on the exchange of information
The OECD Commentaries, which provides additional guidance on local implementation of the CAA and CRS
The CRS is being implemented in participating countries through national legislation and as of 1 April 2016, 100 governments have indicated their commitment to, and support for, the CRS.

How do the banks allow residents to “self-certify” their “tax residency” status?

It’s simple. It’ about forms. Here are some sample forms from HSBC.

For individuals:

CRS-I_Individual_Self_Cert_Form

For entities:

CRS-CP_Self_Cert_Form

Notice how the self certification forms work. They DO ask about “place of birth”. But they do NOT ask about citizenship.

Part C – Let’s apply this information to answer our question about the Resident of Country A with bank accounts in Country B who is a “permanent resident” of Canada

My friend lives and works in country A, and has bank accounts in Country B. He is a permanent resident of Canada. Will the banks in either Country A or Country B, report his accounts to the Canada Revenue Agency? Country A (where he resides) has no income tax system. This is common in Gulf Countries. Country A has not signed on to Common Reporting Standard. Country B (a European country) has signed on to the Common Reporting Standard.

The definition of “tax resident” is determined at the treaty level although the Treaty defers (at least at present) to individual country definitions. The Swiss legislation probably says: Many countries have signed on to the CRS. If you are a “tax resident” of any of those countries you need to disclose this on a form.

Therefore, the question becomes: Is our person a “tax resident” of Canada?

In order to answer this question we must go to the OECD site here. We click on Canada and read what it says. You will see that the answer is ambiguous. It says:

In Canada, an individual’s residency status for income tax purposes is determined on a case by case basis. An individual who is resident in Canada can be characterized as ordinarily resident (also known as factual resident) or deemed resident.

An individual’s whole situation and all the relevant facts must be considered with reference to Canada’s tax laws
and views of the Courts.

This is very unclear. It appears to be a question of fact that is determined in each case.

You will notice that it implies that immigration status is a factor but not a determinative factor. Does your friend really still have Permanent Resident status in Canada? This is a question of Immigration law. His status under the Immigration laws will have a bearing on whether he is a tax resident, but it probably not determinative. Consider this: what if he loses his “permanent residency status” and then somehow spends more that 183 days a year in Canada (which would “deem” him as a “tax resident.

Breaking “tax residency” to Canada can be difficult and does NOT automatically happen if one moves from Canada. See this sobering discussion in one of my earlier posts about ceasing to be a tax resident of Canada.
Let’s assume that our “friend”, without considering possible “tax treaties” is a “tax resident” of Canada. Would consideration of possible tax treaties make a difference?

This completes Part 1 of a 2 Part series of posts.

John Richardson

When it’s all said and done: All roads lead to renunciation

Click on the link in the above tweet to see the complete discussion.

The bottom line is that Dr. Stephen Kish – Chair of the Alliance For The Defence of Canadian Sovereignty as well as the Alliance for the Defeat of Citizenship Taxation and plaintiff in the Bopp FATCA Lawsuit, has formally renounced U.S. citizenship. He performed this act in Iceland which is the final resting place of Robert James Fischer – one of the most famous and well known cases of U.S. citizenship relinquishment.

sk portrait

Never Forget What Happened in 2011 – JustMe and the OVDP, an 851-day Nightmare

 
reblogged from the Isaac Brock Society

A Series of Posts to Explain the Anger and Vehemence Fueling the anti-FATCA, anti-IGA & anti-CBT Movement
 

 

An excerpt from January 5, 2012 post from the renounceuscitizenship WordPress Blog
 
PART I: The Players
 
UPDATED Thursday November 26
 
The Taxpayers Part 2 – Those who ventured into OVDP/OVDI
 
First Part of Post (from yesterday) is HERE
 

Do the drudgery……do your own research
LCU’s……Life Credit Units
minnows…..little guys
whales…big guys
CCW……… Complain Comply & Warn
OVDP……..Overseas Voluntary Disclosure Program
DATCA… Domestic Account Tax compliance Act
GATCA….Global Account Tax Compliance Act

As usxcanada recently said, anyone who cannot guess right away who the above terms come from, needs to learn some Brock History!

MarvinAfter a much-earned vacation from years of FUBAR expat life, “Just_Me” (Marvin van Horn) may not be posting and tweeting much anymore but those of us who were lucky enough to have “known” him cannot help but smile. He was nothing short of a human dynamo, completely wound up in communicating our plight to everyone and anyone.I remember wondering if he ever slept; he would be online when I first got up in the morning and seemingly still there when I would get to bed in the wee hours of the next morning. He was omnipresent! It didn’t seem to matter whether he was in the U.S., sailing on his boat or at home in New Zealand. Marvin was the reason I learned Twitter. Marvin was the reason I joined LinkedIn groups. He taught me how to make a link. He was the reason many of us knew about the Taxpayer Advocate. He educated us about how horrible it was, to enter OVDP. Above all, he was a true example of what a real person is; he was not bitter in spite of an absolutely miserable experience; “took responsibility” for not being aware of filing; tried to do the “right thing” putting himself at great peril. He devoted himself to the “cause” and refused to let it ruin his life. I cannot recall ever hearing anyone having a bad thing to say about him.

To the best of my recollection, Marvin had been posting on Jack Townsend’s blog and when Peter read his comments, he invited him to become an author at Brock. For Marvin, the 2009 OVDP program was an 851- day process. I have taken excerpts from a couple of his posts to try and capture his story: OVDI drudgery for minnows and Letters to Shulman or a case sudy of OVDP communication attempts with the IRS
 

Just_Me writes:

Rightfully or wrongly, I came to the conclusion that joining the OVDP was my only option. My logic was probably flawed, but it went like this…

Prior to the moment I heard about the IRS program on NPR during the family visit back to the Seattle area, I didn’t know that a FBAR existed or understand foreign income reporting requirements. Those considerations never enter your mind when you are sailing the Pacific in a small yacht, or gardening in NZ. Maybe that represented some due diligence failure on my part for not staying fully aware of all the complex tax rules and reporting requirements even for my simple existence. I had never visited the IRS.gov web site in my life.

From that moment in late September, 2009, until I submitted my letter in October 12th there was a very stressed and compressed journey. First I had to convince my wife this was something that we could not ignore and had to do. There was the scramble for knowledge. I had to search out attorneys, and CPAs for a cram course of discovery of what my obligations were. There were returns to amend, and the almost unfathomable foreign tax credit form 1116 to complete that the CPA couldn’t even do correctly. There was a long distance bank record compilation effort that was extremely difficult to do in the time frame I had. There was the embarrassment of your predicament which meant you didn’t want family and friends to know. Then came the very hard, emotional and lonely decision which ended with you walking into the Seattle IRS Criminal Investigation (CI) division offices feeling like a criminal. I did all that, because I had reluctantly came to the conclusion, that once I was aware of my failures and aware of the IRS program, I had knowledge and could not escape it.

I KNEW! Therefore, now, I had to do the right thing.

So, what was the choice given my knowledge? To me, None! I had to enter the OVDP. My big mistake was assuming that the IRS would realize that I was a Minnow and not subject me to the harsh 20% penalties. I naively thought my appeals to Shulman would result in logic and reason prevailing. They would do the right thing, and not treat me as a Whale. How wrong I was!!
Continue reading “Never Forget What Happened in 2011 – JustMe and the OVDP, an 851-day Nightmare”

Never Forget What Happened in 2011

reblogged from the Isaac Brock Society

 
A Series of Posts to Explain the Anger and Vehemence Fueling the anti-FATCA, anti-IGA & anti-CBT Movement
 

 

Perspective:

This post was written approximately 3 months after the mass hysteria (there simply is no other word for it) of late Fall 2011. Brock was less than a month old. We had only just started to gather information, starting at the ExpatForum. Renunciation was a very scary topic only slightly less than the terror of imagining losing everything due to FBAR penalties. IMHO, FBAR will prove to be the number one issue that fueled the expat movement, hands-down.
 

An excerpt from January 5, 2012 post from the renounceuscitizenship WordPress Blog
 
PART I: The Players
 
RenounceUSCitizenship writes:

 

The IRS assault on U.S. citizens living outside the United States has been a frightening interplay among three groups:

1. The Taxpayers

2. The Cross Border Professionals

3. The IRS

Let’s imagine the perspective of each.

The Perspective of the Taxpayers

I suspect that few U.S. expats will forget the events of 2011. It was a year where they realized how quickly life could change. For the most part U.S. citizens living abroad are hard working honest people who are paying higher income and value added taxes than they would be in the U.S. The U.S. uses citizenship-based taxation. Many of them have been filing U.S. tax returns. But, virtually none of them (except those who always had the benefit of specialized and expensive legal and tax advice) knew about FBAR. When they heard about FBAR, OVDI and the rest they were:

– scared out of their minds; and

– wanted to be compliant

It’s just that they didn’t know how. Hence, they did what anybody would do. They sought professional help.

Furthermore, professional help did not come easily. It did not come inexpensively. It was typically like this: “Yes, I will meet with you. But, bring in a money order for $2000 (or more) and we will start the conversation. The conversation usually focused on whether to enter OVDI. Entering OVDI was a logical option, an expensive option, but I believe for most people a bad option. It was also (because it was a new kind of program) something not well understood by the so called “cross border professionals”.

The Decision To Enter OVDI

For many there was no “decision” to enter OVDI. The entry into OVDI was an “emotional reaction” based on fear.

What happened was something like this:

1. Media publishes articles written by journalists who don’t have a clue what they are talking about. Yes, the IRS is going after U.S. taxpayers who don’t reside in the U.S. Yes, there is OVDI and you must get in the program by August 31, 2011. No, OVDI is not amnesty – but let’s pretend that it is and enter it. I have said before and I will say again that some people entered the OVDI program, without a consideration of their individual circumstances, following the advice of the so called “cross border professionals”. They will regret this.

It is interesting that the advice from a number of lawyers was something like:

“You must enter OVDI” – the IRS frowns on quiet disclosures, etc. These lawyers either did not think that “reasonable cause” was available or that the IRS would not consider arguments based on “reasonable cause”. The important point is that there were “cross border professionals” who did NOT inform their clients that:

A. OVDI was an optional program

B. Filing of FBARs was mandatory

C. The FBAR statute recognizes that “reasonable cause” was and continues to be a defense

(It is interesting that the effect of this advice was to deter people from doing what was mandatory (just file the damm FBARs) and encourage people to do what was voluntary (enter OVDI).

The purpose of OVDI was to go after people who were using foreign banks and other entities to evade U.S. taxes. There is nothing illegal about having a foreign bank account. Most U.S. citizens living outside the United States had local bank accounts for the purpose of living their lives. On the other hand, the IRS has publicized the cases of U.S. citizens living inside the U.S. who used foreign bank accounts for tax evasion. Those of you who are aware of (outside of OVDI) anybody paying FBAR penalties based on willfulness, please leave a comment.

Anybody could have entered OVDI – why would the IRS stop you? By entering OVDI you are simply agreeing to pay them penalties. Furthermore, the range of assets subjected to penalties in the OVDI program is greater than what is required to be disclosed on an FBAR (something not explained by some lawyers). Hence, it is clearly to the advantage of the IRS that people enter OVDI (plus the IRS doesn’t have to waste time on “reasonable cause” arguments).

It is important to note that OVDI is a program which is designed for criminals and removes “reasonable cause” from the discussion. The only way to get “reasonable cause” into the discussion is to “opt out” and subject yourself to a full audit along with all the risks and high costs associated with it.

“Reasonable cause” has always been a defense to FBAR penalties. S. 5314 of the FBAR statute bars the imposition of FBAR penalties if two conditions are met:

1. Failure to file FBARs was due to “reasonable cause”; and

2. The FBAR is filed

Now, I understand that there is no clear definition of “reasonable cause”. I also understand that this is a determination made by the IRS. My point is that the same “reasonable cause” arguments must be made either inside OVDI (after an opt out) or outside OVDI.

While OVDI was going on, few “cross border professionals” talked about “reasonable cause”. Maybe, they thought that the IRS wouldn’t recognize or apply the law. Who knows? I invite a lawyer who encouraged clients to enter OVDI to comment on this.

 
Now, if you came to the “expat movement” in say, 2013 or so, you might not think there is so much new info here. But in early 2012, this was very unusual. To find a concise and correct assessment that did not favour the completely chaotic viewpoint of the media and tax compliance community was not only life-saving (literally) but became the base for what we have become today: those who would dare fight back when the U.S. government came knocking, coming after you, your families and your hard-earned, non-U.S. money.
 
Next: stories of expats in the 2009 OVDP/2011 OVDI
 


 

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

Now That It’s Clear the U.S. Will Not ‘Reciprocate’ on FATCA, Will ‘Partner’ Countries Wise Up?

reposted in its entirety with permission of the author
 

Now That It’s Clear the U.S. Will Not ‘Reciprocate’ on FATCA, Will ‘Partner’ Countries Wise Up?
 
Jim Jatras
 
As I have warned for several years now (for example, see with respect to Europe, Canada, and Cayman), “partner” governments signing legally defective “Foreign Account Tax Compliance Act” (FATCA) “intergovernmental agreements” (IGAs) under “promises” from the U.S. Treasury Department that the U.S. would provide reciprocal information from domestic American institutions was at best a long shot, more likely just a deception. Almost three years ago, in July 2013, Florida Congressman Bill Posey made it clear requests for legislative authority to provide “reciprocity” were dead on arrival.

Yet foreign governments have continued to deceive themselves – or their publics, or both – that American participation in a global GATCA, or intergovernmental “automatic exchange of information” (AEOI), “disclosure of corporate beneficial ownership,” and a “common reporting standards” (CRS) regime, probably under OECD auspices, were just around the corner . . .

Well, it isn’t. Period. Full stop.
Continue reading “Now That It’s Clear the U.S. Will Not ‘Reciprocate’ on FATCA, Will ‘Partner’ Countries Wise Up?”

Solving U.S. Citizenship Problems – LONDON UK – Sunday, August 7, 2016

 

LONDON UK, Sunday, August 7, 2016

Have you received a FATCA letter or been warned of the consequences of being a U.S. person?
 

New this year in the U.S. assault on people and countries outside its borders, is the “second wave” of reporting – the “entity” reporting. This is nothing less than every financial entity – any corporation, non-profit corporation, your Canadian controlled-private corporation (CCPC), any fund with shareholders-is fair game for an associated financial lender, bank etc to ask:

“Who are your clients, shareholders? Are they, or have they ever been, U.S. citizens?”

If so, they need to fill out a US tax form. (W8-no withholding for non-US taxpayers or W9-for withholding on US taxpayers) to be kept on file with the bank.

My financial advisor indicated he now realized I had not exagerrated the extent of this U.S. interference in Canada. He now has to ask each and every new client, regardless of what they are buying,

“Are you, or have you ever been, a U.S. citizen?”

Utterly outrageous.
 

Why am I getting letters from my bank all of a sudden?

The “FATCA Hunt” – the hunt for U.S. persons (whatever that is) began on July 1, 2014 which was “Canada Day”. Although both the definition of “U.S. person” and whether one meets the definition is not always clear, the search has begun. The level of FATCA awareness has begun. Some organizations are actively warning people that “U.S. Personness” matters. The purpose of the warning is presumably to encourage people to ”come clean” and deal with their U.S. tax situations. In some cases, there is no particular warning – just a letter indicating that they are suspected to be a “U.S. person”. Often one must prove to the institution sending the letter that one is not a U.S. person.

What individuals are U.S. taxpayers? Who is a U.S. citizen?

There are individuals that the U.S. government would define as “U.S. citizens” who:

  • do NOT agree that they are U.S. citizens because they have performed a “relinquishing act” under applicable U.S. laws;
  • do NOT even know that they may be U.S. citizens because they have never lived in the United States
  • are citizens and residents of countries that do NOT allow multiple citizenships

To put it another way: one’s status as a U.S. citizen is NOT always clear.

I have never heard of these requirements! What determines the income that must be reported to the IRS? What “Information Returns” are required to be reported to the IRS?

  • FBAR (Now called FinCen 114)
  • FATCA 8938 – Report of Specified Foreign Assets
  • 5471 – Information return for Foreign Corporation
  • 3520 – Information return for a “Foreign Trust”
  • 3520A – related to the 3520
  • 8621 – for mutual funds
  • 8965 – for exemption regarding ACA (“Obamacare”)

I am only a snowbird! Why does this affect me?

  • Substantial Presence Test
  • Form 8840 Closer Connection Exception Statement for Aliens
  • Caution: Streamlined Programs & 35 day rule – Catch 22

What are the ways I can become compliant?

  • Offshore Voluntary Disclosure Program – AKA “OVDP – Not appropriate for the vast majority of people
  • Streamlined Compliance – A pre-packaged way to “clean up” past compliance problems
  • Obeying the law – filing amended tax returns outside the “IRS Created” programs
  • Delinquent FBAR Submission Procedures

What costs are involved in renouncing U.S. citizenship?

  • The costs of a total of 6 years (5 years prior the year of renuncation plus the year of renunciation) of tax compliance and information returns
  • The cost of any back taxes and penalties
  • A $2350 administrative fee
  • Possibility of having to pay an “Exit Tax” (which can be the biggest problem)

When: Sunday,August 7, 2016, 2:00 – 4:00 pm
Where: University of London International Hall Meeting Room, Landsdowne Terrace, London WC1N 1AS UK – 150m walk
from Russell Square Tube Station MAP
Admission: £15 payable in cash at the door
Who: John Richardson, B.A., LL.B., J.D. (Of the bars of Ontario, New York and Massachusetts), Toronto citizenship lawyer and Co-chair of the Alliance for the Defence of Canadian Sovereignty and the Alliance for the Defeat of Citizenship Taxation.   citizenshipsolutions.ca

Information presented is NOT intended or offered as legal or accounting advice specific to your situation.