Category Archives: FATCA self certification

U.S. Citizenship clarification: Time between your actual renunciation and the date your CLN is issued

Two questions that I frequently receive from people who have renounced U.S. citizenship are:

I. An immigration question: What if I attempt to travel to the United States during the period of time between my actual renunciation of U.S. citizenship and actually receiving my CLN (which is my proof of having renounced U.S. citizenship)?

II. A tax question: At what point after I renounce U.S. citizenship do I cease to be treated as a U.S. citizen for U.S. tax purposes? For example, when am I free to sell my house (located outside the USA) and NOT be subject to U.S. capital gains taxes?

Two kinds of U.S. citizenship: How the issuance of a CLN affects (1) U.S. citizenship for Immigration purposes and (2) U.S. citizenship for tax purposes

1. How the issuance of a CLN affects U.S. citizenship for immigration and nationality purposes:

Immigration and Nationality Act S. 349(a) (U.S. Code 1481(a)) make it clear that the issuance of a CLN is completely irrelevant to your status as a U.S. citizen for immigration purposes. A CLN is of value ONLY for the purposes of PROVING that you are not a U.S. citizen.

Therefore, one ceases to a U.S. citizen for immigration purposes on the date of the relinquishing (renunciation) act.

2. How the issuance of a CLN affects U.S. citizenship for U.S. tax purposes

Internal Revenue Code 877A(g)(4) mandates that those relinquishing/renouncing U.S. citizenship after June 16, 2008:

– will continue to be treated as U.S. citizens for U.S. tax purposes until the CLN is actually issued; and

– the date of ceasing to be a U.S. citizen for U.S. tax purposes will be the actual date of the relinquishing act (date of renunciation).

Therefore, (assuming a relinquishing act after June 16, 2008) one continues to be a U.S. citizen for tax purposes until the CLN is issued.

These distinctions are discussed in an earlier post:

Renunciation is one form of relinquishment – It’s not the form of relinquishment but the time of relinquishment

Bottom line: One ceases to be a U.S. citizen for immigration purpose before one ceases to be a U.S. citizen for tax purposes.

Generally people are more concerned with travelling to the USA during the time gap between renouncing U.S. citizenship and before receiving a CLN. Fortunately, we have a “guest post” written by someone who has just experienced this issue from the Immigration perspective. He has shared his thoughts as follows:

Travel Limbo? Keep calm and CLN on.

Recently, I found myself in a potentially sticky situation enroute to a holiday in the U.S while at a Canadian airport. My Canadian passport showed a U.S. birthplace and before allowing me
through, the U.S. Border Officer wanted me to show my Certificate of Loss of Nationality (CLN) or an American passport.

Although I had renounced my U.S. citizenship several months earlier, the U.S. Department of State had not yet issued my CLN. Before this experience, I had always been able to cross the border to the U.S. with my Canadian passport (the only passport I’d ever had).

Fortunately, the situation didn’t escalate. I attempted to give the officer a simple explanation that I had renounced at a U.S. Embassy many months before but the approved CLN had not been couriered in time for my trip. If he would permit me, I would show him my email correspondence with the U.S. embassy.

The officer accepted my explanation. Before he waived me through, I asked if he had any advice to share with anyone caught in travel limbo without their CLN.

Hopefully, his comments will help others to navigate a soft landing:

Keep calm

There is a line-up of people behind you. This is not the time to be outraged or to educate agents about the plight of Accidental Americans or dual citizens.

Show proof

Travel with a copy of your CLN. If you’re still waiting for it, carry a copy of Form DS-4080 (the form you sign when you renounce and swear an oath at a U.S. Embassy). Keep copies on your phone.

Provide a reasonable explanation

If you accidentally forget your documents or booked a trip before your CLN arrives, a simple description of the renunciation process and the long wait times for the approved CLN to arrive will hopefully be reasonable enough to a reasonable officer.

Thanks to our guest blogger for the relaying the above experience!

John Richardson

The Little Red #FATCA Book – (Review, Identify and Report on “U.S. Persons”) – How FATCA affects the non-U.S. World

About FATCA – The “worst law nobody has heard of” …

FATCA (The Foreign Account Tax Compliance Act) was signed into law – as a revenue offset provision to the Hire Act – in March of 2010. It is doubtful that Congress even knew that FATCA was part of the HIRE Act (“Hiring Incentives To Restore Employment”). Yet, FATCA has created havoc in banking systems around the world, has destroyed the lives of the citizens and residents of other nations (who just happen to have been born in the United States), led to many Americans abroad renouncing their U.S. citizenship and forced banks to waste tens of millions (and this is conservative) of dollars in compliance fees. Interestingly FATCA has also led to other countries actually changing their domestic laws (overriding their own constitutions) to “hunt” for people with a U.S. birthplace. FATCA has generated significant hatred of America and has severely eroded America’s “moral capital” during a time when China is challenging the United States for global supremacy.

FATCA has recently been part of an inquiry by the Government of France into the “overreaching” of U.S. laws. Nigel Green of the Devere Group has joined with Jim Jatras to lobby for the repeal of FATCA.

2012 – The world according to FATCA  – For the compliance industry: “The Gift That Just Keeps on Giving” …

2014 – At Home In Canada – The genesis of the ADSC Lawsuit – Opposition Rising …

2015 – Meanwhile, In The Homeland – The Bopp FATCALegalAction.com Lawsuit begins …

Interestingly, in August 2016, Dr. Stephen Kish, a plaintiff in the Bopp lawsuit and Chair of the Alliance For the Defence of Canadian Sovereignty renounced his U.S. citizenship.

Listen to the legal arguments …

 

December 2016 – Advocacy For Americans Abroad Fails: U.S. Treasury refuses proposed FATCA Same Country Exemption for Americans Abroad (but not for “Accidental Americans”) …

To be clear, much of the FATCA harm caused to “some” Americans abroad could be alleviated with the FATCA Same Country exemption (proposed by “ACA” and “Democrats Abroad”). FATCA SCE could be achieved by regulation. In December of 2016, U.S. Treasury refused to support a regulation creating the FATCA Same Country Exemption. This means that, the Obama administration was:

1. Aware of the harm that FATCA was causing to Americans abroad (leaving aside the harm to the rest of the world); and

2. Refused to provide relief for Americans abroad!

2017 – The world according to FATCA  – Hearings in Washington, D.C. …

 

On April 26, 2017, at the initiative of Congressman Mark Meadows and Senator Rand Paul, “FATCA Hearings” will take place in Washington, DC. Although FATCA has been the subject of much discussion outside of the United States, there has been little discussion of FATCA inside the United States. In fact, FATCA is NOT well known in the United States.

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The “Little Red FATCA Book” Documenting the “Worldwide Hunt” for “U.S. Persons” …

The “Little Red FATCA Book” is a collection of posts that I created over an 18 month period. I have decided to collect the individual posts and organize them in one place. I have grouped the individual posts into three broad chapters which I will call Chapter A, Chapter B and Chapter C. This is a “work in progress”. Some of the posts are incomplete.

FATCA which is essentially the enforcement mechanism of U.S. “Place of Birth Taxation” is a controversial topic. Feel free to post your thoughts and comments.

John Richardson

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Part 22: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Oh my God! #FATCA affects even a Paypal account!

 

 

 

Part 18: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Responding to the #FATCA Letter

The above tweet references an earlier post about the FATCA Letter and how to respond.

How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation”

The above tweet references the comment I left on an article titled: ”

Why is the IRS Collecting Taxes for Denmark?

which appeared at the “Procedurally Speaking” blog.

The article is about the “assistance in collection” provision which is found in 5 U.S. Tax Treaties (which include: Canada, Denmark, Sweden, France and the Netherlands). I am particularly interested in this because of a recent post at the Isaac Brock Society.

This post discusses the “assistance in collection” provision found in Article XXVI A of the Canada U.S. Tax Treaty. The full test of this article is:

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Part 17: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Retirement accounts are exempt from FATCA reporting in all cases

First, Canadian Retirement Accounts are “deemed to be compliant under S. 1471 and S. 1472 of the Internal Revenue Code

The Canada U.S. FATCA IGA …

FATCA-eng

IGA Article IV describes the “Specific Treatment of Canadian Retirement Plans” as follows:

3. Specific Treatment of Canadian Retirement Plans. The United States shall treat as deemed-compliant FFIs or exempt beneficial owners, as appropriate, for purposes of sections 1471 and 1472 of the U.S. Internal Revenue Code, Canadian retirement plans identified in Annex II. For this purpose, a Canadian retirement plan includes an Entity established or located in, and regulated by, Canada, or a predetermined contractual or legal arrangement, operated to provide pension or retirement benefits or earn income for providing such benefits under the laws of Canada and regulated with respect to contributions, distributions, reporting, sponsorship, and taxation.

Second, because Canadian Retirement Accounts are NOT “financial accounts” as per Annex II of the IGA, they are NOT “reportable accounts” under the definitions section of Article I of the IGA

IGA Article I (definitions) includes …
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Part 13: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Colonizing other nations by imposing US taxation on the world

Introduction – FATCA is really about extending the U.S. tax base into other nations …

In other words, FATCA is more about the “creation of taxable income” than it is about the “taxation of existing income”. This point was also made in my “Tax Haven or Tax Heaven Series“.

 

What follows is a comment that I tried to leave on the following blog post:

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Part 12: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – Including US residents who are citizens of France and other nations!

Introduction – FATCA and U.S. residents

In Part 10 of this series of FATCA posts, I discussed the meaning of “U.S. Person”. The vast majority of people affected by FATCA are non-U.S. residents. That said, FATCA can affect U.S. residents who are citizens of other nations and have bank accounts in the United States. In some cases, the “due diligence” rules under the FATCA IGAs are making it difficult for citizens of other nations to keep access financial services (including bank accounts) in their country of citizenship. This topic is sure to gain more and more attention.

FATCA and Swiss citizens who are resident in Switzerland

 

FATCA and French citizens resident in the USA

 

The above tweet references a post at Frenchmorning.com which I was alerted on Keith Redmond’s AmericanExpatriates Facebook group. Although the post is in French you can get a rough translation with Google Translate*.

I was first alerted (in hindsight very obvious problem) by a French politician.

Here is the problem:

  1. FATCA forces French banks to hunt for customers with U.S. indicia.
  2. French citizen (and likely permanent resident of France) is living in the United States. He could be living in the United States under a number of different visas, including a “Green Card” (permanent resident visa). In addition, he might be a France/USA dual citizen.
  3. Because of a U.S. address or phone number, he washes up the shores of the “FATCA inquisition”.
  4. He is threatened with account closures and all the other disabilities that are common in Europe.
  5. He may not be able to pay his bills because of the FATCA related bank account problems.
  6. He may or may not be required to file U.S. taxes.
  7. If he is required to file U.S. taxes, he may or not be filing U.S. taxes.
  8. Either way he has a problem with his French bank.
  9. If he has a Green Card and attempts to move back to France, he may be subject to the S. 877A “Exit Tax”.
  10. Which is why the French Politician commented that “Many of our French citizens are currently “in prison in America”.

The time has come for Governments around the world to protect their citizens from the United States of America. Fortunately, France has recently taken the lead. To be specific: France has established an inquiry into how U.S. extra-territorial legislation affects the sovereignty of France.

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* Here is the current attempt by Google to translate the French article:
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Part 10: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – But only those “Born In The USA”

The purpose of this post is to highlight:

  • who are the targets of the “FATCA inquisition” under the FATCA IGA; and
  • who will not turn up in the “FATCA inquisition” under the FATCA IGA.

There are four parts to this post:

Part A – Who is a “U.S. Person” and how are they defined?

Part B – The FATCA IGA doesn’t hunt ALL U.S. persons. It is designed to hunt primarily for people who were “Born In The USA”

Part C – But, those “Born In The USA” may not actually be U.S. citizens or may have NO connection to the United States – Meet Tina

Part D – The FATCA IGA has been interpreted by the Canada Revenue Agency to NOT hunt “Green Card Holders” resident in Canada

Part A – Who is a “U.S. Person” and how are they defined?

If the purpose of FATCA is to hunt for “U.S. Persons”, “U.S. person” includes “U.S. citizen”, and the FATCA IGA’s state that “U.S. Citizen” is defined under the Internal Revenue Code, we must ask:

Who does the Internal Revenue Code define as a “U.S. Person”. The definitions are found in S. 7701 of the Internal Revenue Code.

S. 7701

(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—

(1) Person

The term “person” shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.

(30) United States person The term “United States person” means—
(A) a citizen or resident of the United States,
(B) a domestic partnership,
(C) a domestic corporation,
(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and
(E) any trust if—
(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
(ii) one or more United States persons have the authority to control all substantial decisions of the trust.

(50) Termination of United States citizenship
(A) In general

An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).

(B) Dual citizens

Under regulations prescribed by the Secretary, subparagraph (A) shall not apply to an individual who became at birth a citizen of the United States and a citizen of another country.

(b) Definition of resident alien and nonresident alien
(1) In general For purposes of this title (other than subtitle B)—
(A) Resident alien An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii), or (iii):
(i) Lawfully admitted for permanent residence

Such individual is a lawful permanent resident of the United States at any time during such calendar year.
(ii) Substantial presence test

Such individual meets the substantial presence test of paragraph (3).
(iii) First year election

Such individual makes the election provided in paragraph (4).
(B) Nonresident alien

An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).

(3) Substantial presence test
(A) In general Except as otherwise provided in this paragraph, an individual meets the substantial presence test of this paragraph with respect to any calendar year (hereinafter in this subsection referred to as the “current year”) if—
(i) such individual was present in the United States on at least 31 days during the calendar year, and
(ii) the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier determined under the following table) equals or exceeds 183 days:

In the case of days in: The applicable multiplier is:
Current year 1

1st preceding year 1/3

2nd preceding year 1/6

(B) Exception where individual is present in the United States during less than one-half of current year and closer connection to foreign country is established An individual shall not be treated as meeting the substantial presence test of this paragraph with respect to any current year if—
(i) such individual is present in the United States on fewer than 183 days during the current year, and
(ii) it is established that for the current year such individual has a tax home (as defined in section 911(d)(3) without regard to the second sentence thereof) in a foreign country and has a closer connection to such foreign country than to the United States.

(6) Lawful permanent resident For purposes of this subsection, an individual is a lawful permanent resident of the United States at any time if—
(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, and
(B) such status has not been revoked (and has not been administratively or judicially determined to have been abandoned).

An individual shall cease to be treated as a lawful permanent resident of the United States if such individual commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country, does not waive the benefits of such treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment.

The Internal Revenue Code mandates that “U.S. Persons” are subject to U.S. taxation. “U.S. Persons” include both individuals and entities.

Individuals – include U.S. Citizens, Green Card Holders and those who meet the “substantial presence” test.

Entities – include a trust, estate, partnership, association, company or corporation.

Part B – FATCA doesn’t hunt ALL U.S. persons. It is designed to hunt primarily for people who were “Born In The USA”

Here is why …

In a recent paper McGill Professor Allison Christians notes that:

Perhaps surprisingly, FATCA’s identification method does not align with the statutory construction of the US Person population described above/ The misalignment is evident when comparing the three US Person categories to the FATCA indicia meant to alert financial institutions to the possible existence of a US Person. The misalignment continues to the verification phase, where taxpayers are asked to furnish various negative proofs of their status as US Persons, as Tina was asked to do. By examining the identification and verification processes, we begin to get a sense of the population actually being targeted by FATCA to enforce US taxation and financial reporting requirements on nonresidents.

FATCA has financial institutions searching for US Persons by looking for the following “indicia” of status:

1. account holder is identified as a US citizen or resident;
2. birthplace in the United States;
3. a US telephone number;
4. a US residence or mailing address;
5. standing instructions to transfer funds to a US based
account;
6. Indications of a power of attorney over the account to a
person with a US address;
7. a “care of” or hold mail address as the sole address.

In addition, where indicia are not present, a “responsible officer” must certify as to any knowledge of an account holder’s status as a US Person, and must monitor its accountholders for possible changes in circumstances.38 Other than the first factor on the list, the FATCA indicia do not align with the three categories of US Person as defined by § 7701.

2. Citizenship

“Citizens” are the second category of US Person described above. Only two of the indicia have any direct bearing on one’s status as a citizen, namely, the account holder’s identification as such, and her birthplace in the United States. The first of these indicia confirms the voluntary nature of the nonresident citizen’s acquiescence to her status. Announcing oneself as a US citizen to a non-US bank seems to be the clearest indication that the account holder is in fact a US citizen and therefore a US Person for tax purposes.44

Birthplace in the United States, however, highlights a major difficulty in imposing citizenship taxation. A person born within the territory of the United States is usually entitled to birthright citizenship, with few exceptions. 45 That is why Tina is automatically a citizen, without any independent action on her part or that of her parents. However, the definition of a citizen in US law is complex and is subject to widespread misunderstanding by those who receive the status by birthright but have never lived permanently in the country. 46 Moreover, citizenship can be changed by the individual through relinquishment 47 or renunciation.48 In the past, it was possible for a person to relinquish her citizenship automatically upon naturalization in another country.49 However, the US Supreme Court rejected this position and reinstated citizenship once thought lost.50 Today, the individual must display intent in order to lose citizenship status.51

The interplay of these immigration rules with taxation on the basis of citizenship is subject to intense debate and certainly exceeds any scope of common wisdom.52 In the past, expatriation would have automatically negated a person’s citizenship status for tax purposes; at present, it does not.53 Indeed, the definition of citizen for tax purposes is potentially circular in the application.54 These complications attending to birthright citizenship are sufficiently detailed and specific to the individual that they create legal uncertainty that is not answered in the tax law, let alone in FATCA indicia.

pages 15 – 17

SSRN-id2717367

Part C – But, those “Born In The USA” may not actually be U.S. citizens or may have NO connection to the United States – Meet Tina

Allison Christians is the H. Heward Stikeman Chair in Tax Law at McGill University in Montreal, where she writes and teaches in the area of national and international tax law and policy. You can follow her on the Tax, Society & Culture blog at taxpol.blogspot.com or on Twitter (@taxpolblog). She delivered the following speech at the International Conference on Taxpayer Rights in Washington on November 18.

* * * * *

I would like to tell you a story about the taxpayer’s right to know what the law requires of her and to have the law administered fairly. This is just one story based on things happening now, but it is a common story. I’m telling this story instead of giving an exposition on the underlying legal texts because sometimes the rules are too complicated and too technical for anyone to really understand, even tax lawyers. Moreover, reading the law itself doesn’t explain what isn’t written on the books, which can matter more in how things play out in human terms. As you will see, the implementation of the law gives rise to a taxpayers’ rights issue — one that wouldn’t be clear from reciting the law alone.

The story I am going to tell you is about a woman named Tina. She’s Canadian. She is 62. Tina is nearing retirement age and has been a cautious and diligent person all her life, carefully saving for her old age following the textbook investment advice that tells us we should invest in low-load pooled investment vehicles — mutual funds — and hang onto them for the long term.

Tina isn’t buying and selling investments, following market trends, or taking risks. She doesn’t have time for that. Tina is married with two kids and lives in the family home she bought with her husband some 30 years ago. She’s hanging in for slow and steady, reliable, low-risk growth, planning for retirement in Canada. As a child, Tina occasionally took a trip down to the United States. Visiting Florida in February is still a tempting prospect, given the harshness of Canadian winters, but Tina has only dreamed of that kind of vacation so far. She is careful with her money, plans to live on her savings, and doesn’t want to burden her kids.

One day, Tina finds the following letter in her mailbox. It’s from her neighborhood bank where she has been banking all her adult life, where she has her checking and savings accounts.

Read Tina’s story and the story of all Tina’s at Tax Analysts.

 

Part D – The FATCA IGA has been interpreted by the Canada Revenue Agency to NOT hunt “Green Card Holders” resident in Canada

See the post referenced in the above tweet.