— Citizenship Lawyer (@ExpatriationLaw) June 11, 2014
Introduction – It’s about “disclosure” and penalties for “non-disclosure”
On June 9, 2014 U.S. lawyer Robert Wood wrote a short but interesting article titled: “Offshore Bank Letters, FATCA & IRS Penalties – Are There Any Choices Left?“.
The article included:
With the impending FATCA compliance rollout and the U.S. Justice Department deal for Swiss banks, there are lots of letters and phone calls being made to account holders with American indicia. American citizens, residents—even people with a U.S. address or phone number—should be prepared. Possible American status means proving you’re compliant with the IRS or proving you’re not American after all.
Some people react like a deer in the headlights. But the bank’s letter or call is unlikely to evaporate. Failing to respond in any way is likely to mean the bank will close your account, if it isn’t closed already. Banks routinely turn over the names of closed accounts, and may even be more likely to disclose closed accounts than active ones..
Swiss banks are the most serious, since they are trying to get better penalty categories for themselves. But FATCA, the Foreign Account Tax Compliance Act, is also taking some blame. The U.S. can penalize foreign banks if they don’t hand over Americans.
Mr. Wood’s article alludes to a number of different topics. FATCA is unrelated to the U.S. attack on Swiss banks. But, Americans abroad are clearly under siege. Those in Switzerland are under the most pressure (at the moment). The community of Americans abroad should pay attention. Without international “pushback” there is nothing to prevent the U.S. from using the attack on Swiss banks as a blueprint to attack the banks in other countries. Why would these banks be attacked? It’s because they are suspected of allowing those with a U.S. birthplace (can you imagine a greater crime?), to hold bank accounts.
When it comes to FATCA …
Canada is the “FATCA Eye Of The Storm”. It is estimated that Canada is home to approximately one million Canadians with U.S. origins. Canadian citizens who are also U.S. citizens have served notice that they will be challenging the Canada U.S. FATCA IGA. The outcome of this will be interesting. For the moment I can confidently say that:
Canadians are leading the world in challenging participation in FATCA.
When it comes to FBAR …
You are invited to read the following letter from Swiss Bank Post Finance to those who it believes may be “U.S. Persons”.
A few weeks ago, as part of my “Problems of U.S. Citizenship” seminar series, I met with a group in Zurich Switzerland.
My meeting with Americans abroad in Zurich was more of a “therapy session” than an information session. Some attendees openly admitted to being afraid to attend the meeting. Others described how their bank accounts had been frozen simply because:
1. The U.S. government is pressuring the Swiss Banks (a number of Swiss banks have entered the U.S. Government Voluntary Disclosure Program for Swiss banks with customers who are suspected of being U.S. persons) to pay penalties for having U.S. customers who not have been IRS compliant; and
2. The Swiss banks are attempting to “download their penalty liabilities” on those customers suspected of being “U.S. persons” – resulting in the freezing of bank accounts.
The situation is extraordinary. It’s one thing to read about it. It’s quite another to see the fear and desperation of U.S. citizens in Switzerland. Many are having their existing bank accounts frozen. Others are no longer able to open/keep bank accounts. Looking for a mortgage as a U.S. citizen in Switzerland? Forget it! This is a truly incredible situation. Lawful residents and taxpayers of Switzerland are being disabled by the U.S. government – because of their place of birth!
Taxation based on “place of birth”
I repeat – because of their place of birth! My point is that what the United States calls “citizenship-based taxation” is actually “place of birth taxation”. “Place of birth” might make someone technically a U.S. citizen or give someone “born abroad” the right to claim U.S. citizenship. But, “place of birth” does not make one a citizen in any meaningful sense. There are millions of people living outside the U.S. who were born in the U.S. Many of them don’t even know that they are considered to be U.S. citizens. (The IRS even allows them to pay a reduced penalty in the OVDP program.) Clearly they are not “citizens” in a way that could possibly justify taxation.
As the debate at the recent Toronto ACA Conference on Citizenship-based taxation, demonstrated, the debate about “citizenship-based taxation” is much more a debate about the meaning of citizenship. To what extent does citizenship require a “voluntary component”, a decision, or an acceptance?
Furthermore, I have never met a person who chose where they were born (making place of birth an immutable characteristic).
Yet the U.S. continues to attempt to impose taxation on anybody who happened to have been born in the U.S. The U.S. uses the definition of U.S. citizenship under the 14th amendment and Immigration and Nationality Act when it suits their revenue purposes. But, the U.S. will ignore the definition of citizenship under the 14th amendment and the Immigration and Nationality Act, when it suits their revenue purposes.
1. The U.S. Internal Revenue Code deems some who are NOT U.S. citizens under the U.S. Immigration and Nationality laws to be citizens for tax purposes (See the IRC S. 877A expatriation rules); and
2. All those who are U.S. citizens pursuant to the Immigration and Nationality laws are treated as citizens under the Internal Revenue Code.
Okay, assuming these residents of Switzerland are U.S. citizens …
One must ask:
How can the United States of America treat its citizens abroad in this manner? Does the U.S. really regard these people as “citizens” (in any meaningful sense)? Could the U.S. conduct be considered to “constructive expatriation”? Are U.S. citizens abroad being forced to renounce their citizenship? It’s clear that many are renouncing U.S. citizenship as a defensive measure.
The simple truth is that the conduct of the U.S. government amounts to a form of “constructive expatriation”. In the Afroyim decision, the Supreme Court of the United States, per Justice Black wrote that:
We hold that the Fourteenth Amendment was designed to, and does, protect every citizen of this Nation against a congressional forcible destruction of his citizenship, whatever his creed, color, or race. Our holding does no more than to give to this citizen that which is his own, a constitutional right to remain a citizen in a free country unless he voluntarily relinquishes that citizenship.
To understand why Americans abroad are forced to defend themselves by renouncing U.S. citizenship, consider:
Comments made by Americans abroad in Switzerland
“We have no voice/recourse/representation – our voices in the U.S. are meaningless.
For those of us who are not citizens of the countries in which we live, we cannot count on help from the local government.*
Organizations such as Democrats Abroad are a joke. The represent the Democratic Party and NOT citizens abroad.**
ACA is too nice.***
Local banks are overreaching by freezing accounts.
Can’t get banking.
America is like Stasi.
I just want to do retirement savings.****
I am putting cash aside because I can’t keep it in a bank.
There is no “trust” relationship.
I am ashamed to be an American.
I have lived here for ___________ years and was never told about having to file U.S. tax returns.
This post includes a letter, appropriately redacted, received by customers of Post Finance (an everyday bank for everyday people in Switzerland).
Of particular interest is the following:
The letter begins with:
As part of the future FATCA Tax Agreement and the Joint Statement tax deal which has been concluded between the Swiss Federal Finance Department and the U.S. Department of Justice, Post Finance is obligated to obtain additional documents from customers who are subject to U.S. tax laws.
The letter goes on to demand (among other things):
Copies of FBAR forms for tax years 2008 – 2012 and a confirmation that these have been duly submitted. … The confirmation of submission may be issued by your tax advisor or may be a confirmation of receipt or transmission.
After advising clients of the existence of OVDP (and a link to the IRS site), the letter concludes with:
We ask that you please return the specified documents no later than April 22, 2014 in the enclosed reply envelope.
Please note that your account _________________ will be blocked for debits pending receipt of the documents.
Note that Post Finance is seeking proof of FBAR Compliance. As those of you who file FBARs know, prior to the online filing which began in 2014, Treasury does NOT acknowledge receipt of FBARs. Therefore, a person who filed FBARs without the assistance of a tax professional, could NEVER prove FBAR compliance!
* So far there has been no country that has been willing to protect it’s citizens from the United States Government. Many countries – including the Government of Canada – have signed FATCA IGAs effectively turning their own citizens over to the IRS.
** In fairness, Democrats Abroad, does NOT and has never claimed to represent the interests of Americans abroad. They represent the Democratic Party.
*** American Citizens Abroad (“ACA”) is a non-partisan organization which strives to further the interests of Americans abroad in general. Their approach is to strive for political and non-confrontational solutions to the problems of Americans abroad. Their research and dedication has been and continues to be first rate.
**** It is very difficult for Americans abroad to be both U.S. tax compliant and have be able to plan effectively for retirement. The reasons are:
– the U.S. Internal Revenue Code treats anything that is “foreign” and that is based on “tax deferral” in a punitive way;
– Americans abroad are subject to the same rules as Americans who live in the United States;
– the retirement programs of most Americans abroad are deemed be foreign and will be taxed in a punitive manner. In this way U.S. tax laws are actually a form of capital control.