Monthly Archives: October 2015

CBT extracts capital from the economies of other nations. Example of CBT extraction in action

Everybody knows that U.S. “citizenship taxation” extracts capital from other nations and transfers it to the U.S. Treasury. The above tweet references an interesting Facebook post that demonstrates “CBT Capital Extraction” in action.

As always, the comments are interesting. The post begins with:

cbtcapitalextraction-300x284

The author, Heitor David Pinto has been an extremely prolific and effective advocate for residence based taxation. He also submitted comments to the Senate Finance Committee in April 2015.

Renouncing US citizenship: The Road More (Forcibly) Traveled

I came across the two following interesting article/comments on the same day at about the same time. They are significant NOT because they focus (as most of these articles do) on why Americans abroad must should come into U.S. tax compliance. Rather the focus on what it means to live as a U.S. Tax Compliant American abroad (something I have written on here).

First the perspective of a “young dual UK/US citizen” living in the UK.

I am a young dual UK/US citizen. I left the States as a child with my family, and while I hold fond memories of the US, I have built my life so far in the UK and I don’t foresee myself returning stateside in the near or medium term. Life has just worked out that way.

I cannot understand how the US can treat its overseas citizens so poorly. After a horrible awakening to the nightmare of citizenship based taxation, complex reporting requirements and (terrifying) enforcement laws, I came into US compliance (at great expense, having hired a tax specialist to put together my 120+ page filing which proved that I didn’t owe anything to the US. Unsurprising for a 24 year old with no assets who has worked for only 2 years since college).

Now, I am compliant. What next? I look ahead and all I see are serious impediments to my ability to plan for my future appropriately, and, as dramatic as it sounds, to live a free and normal life in the country of my choosing. All thanks to US tax policy. It looks impossible to save and invest efficiently here in the UK; starting my own business is totally out of the question as long as I am a US citizen living in Europe, and I worry that I may lose access to basic banking services as a result of FATCA. These worries are just the tip of the iceberg. Something has got to give! Do I: a) give up my US citizenship, b) keep my citizenship and stay at my home in the UK, but severely limit my ability to save and subject myself to eternal US filing costs (financial and stress-related), not to mention permanent exposure to risk of US tax penalties that could wipe out whatever I do manage to save; or c) move back to the US with my tail between my legs, which seems to be what the US government is encouraging us to do (with a heavy stick rather than a carrot).

Accidentals don’t care about their US citizenship and want to be rid of it, and so they should be. I, however, am not an accidental, I am an American, and I detest this awful system which is putting me under immense pressure to give up my birthright, for no good reason.

The US must end citizenship-based taxation, and must introduce representatives in Congress for expatriate voters specifically — we have NO voice right now and we are being abused without a second thought from the US government. The stupidest part is that even in a world of perfect compliance (basically impossible), the amount of money the US will raise from shaking down its overseas citizens pales in comparison to the costs being imposed on those citizens, foreign governments and foreign businesses to comply with these maniacal rules.


Second, the thoughts of a investment advisor who explains: “What Foreign Expats Who Live In The U.S. Have that Americans Expats Don’t”

The article includes:

For American expats, some of their financial struggles may be in part from the Foreign Account Tax Compliance Act, which aims to ensure that Americans living overseas pay their fair share of U.S. taxes.

Signed into U.S. law on July 1, 2010, FATCA took effect in July 2014. The first international exchange of taxpayer information between the IRS and foreign financial institutions, which is part of the IRS’ overall efforts to implement FATCA, took place in late September.

The information exchange involves certain intergovernmental agreements that not only enable the IRS to receive information from foreign financial institutions but also enable more efficient exchange by allowing a foreign tax administration to gather information and provide it to the IRS.

Many critics and expatriates argue FATCA is a compliance headache that often makes it difficult for Americans living abroad to maintain legitimate bank accounts — and curbs banks’ willingness to serve expats.

In 2010 the question was: why would an American abroad renounce U.S. citizenship?

In 2015 the question is: why would an American abroad NOT renounce U.S. citizenship?

How can a country treat its citizens abroad so horribly?

Q. Is a CLN necessary to relinquish US citizenship for tax purposes? A. It depends on the date of relinquishment

In a recent post, I discussed your “Taxabililty Freedom Day“. This is the day when you cease to be a taxable U.S. person. From that day you begin life free of the U.S. tax system. That post discussed the role of Form 8854 (noting that between June 3, 2004 and June 16, 2008 one had to file Form 8854 to no longer be a U.S. tax citizen). During the period between June 3, 2004 and June 16, 2008:

IF [you relinquished U.S. citizenship under the Immigration and Nationality Act)] THEN

[You continued to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you gave “notice” of your “relinquishment” to a government agency.] For this period part of the “notice” was filing Form 8854 with the Internal Revenue Service. In other words, there was no way to cease to be a “U.S. person” for tax purposes until you had notified the IRS.

In order to STOP being a “U.S. citizen for tax purposes” Form 8854 had to be filed with the IRS. Without filing Form 8854, you simply continued to be treated as a “U.S. citizen” for tax purposes.

The purpose of this post is to discuss the relation between the U.S. Certificate of Loss of Nationality (“CLN”) and loss of U.S. citizenship for tax purposes. This is an anxiety inducing and  confusing area. If you don’t want to read the analysis go straight to the bottom which provides the following answer to the question:

Is a CLN required in order to cease to be a U.S. citizen for either immigration or tax purposes?

Putting it all together – is a CLN necessary for relinquishment of U.S. citizenship?

  1. Prior to June 3, 2004 – NO for either immigration or tax purposes
  2. June 3, 2004 – June 16, 2008 – NO for either immigration or tax purposes.
  3. After June 16, 2008 – No for immigration purposes – Yes for tax purposes. A CLN  is necessary as a confirmation of having met the “notice requirement” to end U.S. citizenship for tax purposes.

Therefore, a CLN (for practical purposes) is necessary for relinquishment of U.S. citizenship, for tax purposes,  for expatriating acts after June 16, 2008.

And finally, a disclaimer …

These issues are complex. They are not well understood. There is some disagreement in the legal and accounting professions about these issues. I am not your lawyer. Nothing on this site is  legal advice. Get yourself competent counsel.

The rest of the post is explanation which is tedious and technical. You are welcome to it if you want.

 

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The above tweet references the following insightful comment at the Isaac Brock Society.

The comment appeared on a post discussing the new $2350 fee that applies to (non-renunciation) “relinquishments” of U.S. citizenship. Those who are entitled to “back dated” relinquishments should still attempt to seek “non-renunciation relinquishments“.

@Eido, @Allison Christians, You (Eido) state “they are now charging the same amount of money for relinquishing U.S. nationality as they are for renouncing it” and “This means that it costs ALL American nationals thousands of dollars to change their nationality.”

Let me punch some holes in what you wrote as it will improve the arguments that we from the “Borg Collective” will make.

I have argued on this board that a CLN is NOT a requirement to lose ones US Nationality if an appropriate action was taken in accordance with 8 US Code. I relinquished a decade ago, do not have a CLN but do have documentation from the US Government recognizing my relinquishment and that I am no longer a USC. That said, I do believe a CLN can be a pretty handy piece of paper to have in ones pocket!!

I would argue that this regulation further supports my argument that a CLN is not in fact required to have lost US Citizenship hence the reason I believe the above quotes by the author are incorrect.

The State Department is now acutely aware of the Expatriation Act 1868 and cites the act in 7 FAM 1200, “That any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.”

http://www.state.gov/documents/organization/120536.pdf

So how do you complete the circle between the left hand and the right hand? It is very clear that charging $2,350 to relinquish ones USC clearly runs foul to the Expatriation Act 1868 which the State Department clearly acknowledges!!

What is State charging for? They are not charging for “relinquishing” they are charging for “Documentation for Loss of Nationality.” They are charging those persons that want the State Department to issue them a piece of paper just as they charge for issuing an affidavit or notarial service.

They also state “In the past, individuals seldom requested Certificates of Loss of Nationality from the Department to document relinquishment.”

This is important for several reasons. First, it highlights in writing for those giving an FI a reasonable explanation as to why they do not have a CLN is simply that prior to the date of this notice “individuals seldom requested Certificates of Loss of Nationality.”

Second, it is not a fee for the act of relinquishment rather it is a fee to “document” same. There is a major difference between an action and documenting said action.

Now here is where Allison is on to something in stating “certainly relative to resisting the tax jurisdiction.”

I think Allison understands my above argument or if not will understand it now, but a CLN is a requirement dependent on relinquishment date to escape “tax jurisdiction.”

Effectively the IRS is now requiring the payment of an administrative fee of $2,350, circuitously through State, in order for a person to file a Form 8854 because a CLN date is required as part of that form!!

Is this action a good thing? Yes, I believe that the USG has provided another path forward for our cause. They have now confirmed in writing that CLNs were “seldom requested” which means most people that relinquished will NOT have a CLN!!! So when a FI asks a person for their CLN they can provide a reasonable explanation with their own written proof along with the State Departments own written word that such documents were “seldom requested.” The proof of not getting such a document now is the cost!!!

I do believe that State has perfected their argument on this matter but I also believe that they still need to be challenged based on the argument that this does violate the Expatriation Act 1868 and the UN Declaration. Such a challenge may force them to either back down on the fee which is good or it forces them to admit in stronger terms that the CLN is an “optional” document to have and that is good too! Arguing the case with State is a win/win for our cause.

The “bonus” in all this is that charging a fee to get a CLN, I think flies in the face with tax expatriation and Form 8854. I think if State lawyers had talked with Treasury lawyers they would not have gone down this route. It also muddies the water on the IGA agreements that were signed because many were signed when a CLN was free for to “document” a relinquishment.

OK Brockers fire back at me because iron strengthens iron. I know my argument sounds like a cheap lawyer talking but lessons were learned from the Summary Trial and the Bopp injunction. I believe that State was very careful in their choice of words.

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OVDI Refund: On the one hand #Americansabroad should “beware” and on the other hand they should “be aware”

beaware

It’s been a week of “ups and downs”. As you know, the Republicans Overseas lawsuit was NOT successful in obtaining an injunction. The Alliance For Canadian Sovereignty was NOT successful in obtaining their own injunction in the Canadian lawsuit. The rulings in both lawsuits included judicial observations, and were supported by affidavits, that are likely to be helpful as these lawsuits continue. These “observations” are good news.

But, on the “coming into U.S. tax compliance front” I bring you some additional good and interesting news.

I am happy to report (with the permission of the taxpayer, although the specifics of the information continue to be privileged) that:

A U.S. citizen abroad, who had NOT been filing U.S. taxes and who entered the Offshore Voluntary Disclosure Program (“OVDI”) in August 2011 (do  you remember that month?), has just received a full refund for the amount of the penalties that she paid under “OVDI” (well in excess of $100,000). The payment of the “in lieu of” penalty” was made with the initial “OVDI” submission in 2011. She did not receive a refund of the taxes and interest (which were very minor amounts)  or her legal and accounting fees (approximately $50,000).

After entering “OVDI” in 2011, filing eight years of back tax returns,  and paying an “in lieu of” penalty of approximately $120,000, she transitioned into “Streamlined” (which first became available in 2012). The bottom line is that she received a refund of all penalties paid under “OVDI”.

My point in writing this post is to illustrate that “compliance issues” can have better and worse outcomes. (Obviously the outcome depends on the “facts and circumstances” of one’s specific situation.) Given that this taxpayer, “voluntarily” (on the advice of lawyers) entered “OVDI”, this strikes me as an extremely good outcome. Furthermore, this outcome could not have been anticipated at the point of entering “OVDI” in 2011. Therefore, it’s important to understand that the resolution to compliance (or non-compliance) issues is always in a state of evolution.

Note that in 2012, the “OVDI” program was renamed “OVDP” (which continues to exist).

This story suggest that:

On the one hand, you should BEWARE, but

On the other hand, you should BE AWARE.

Finally …

The current “OVDP” program is suitable ONLY for those who have been committed “willful” tax and compliance omissions. You should NOT enter “OVDP” without being advised by at least three lawyers (who don’t know each other).

John Richardson