Category Archives: FBAR

US Passport application links Citizenship @StateDept to Taxation @USTreasury to enforce “Taxation based Citizenship”

Yesterday I was forwarded an email which originated from the U.S. Consulate in Toronto. The purpose of the email (included at the end of this post) was to give notice of  U.S. tax obligations for U.S. citizens living outside the United States. In other words, the State Department is assisting the IRS by notifying Americans abroad of their U.S. tax filing obligations. Put another way, this email represents:

“Tax Education Outreach” from the IRS delivered by the State Department”

I do NOT recall this in previous years. That said, this email notification is extremely significant. It means that the IRS can argue that those who received this email may well have had notice that they were required to file U.S. tax returns. Over time, this will increase awareness of U.S. tax filing obligations. The greater the increase in awareness of U.S. tax filing obligations, the harder it will be to claim ignorance of those obligations. (This is in addition to the “Educational Outreach” coming in the form of FATCA letters from your local bank and your friendly journalists. In both cases, you are being asked to consider the question of: “Are you or have you even been an American citizen?“) Although, this is NOT an immediate problem, it seems logical that sooner or later it will become more difficult for Americans abroad to claim ignorance of their U.S. tax filing obligations. This may have implications for coming into U.S. tax compliance.

 

Q. Who would have received this email from the U.S. consulate?

A. Anybody who is on the U.S. Consulate email list.

Q. Who would be on the U.S. Consulate email list?

A. It would include almost anybody who has applied for a U.S. passport.

To put it simply:

One who applies for a U.S. passport is now putting oneself in a position where one will be told about U.S. tax filing obligations. Since most Americans abroad need a U.S. passport, it stands to reason that those who apply for a U.S. passport are creating a situation where they will be told about U.S. “taxation based citizenship”. You can see where this is going.

This appears to be the next step in the progression that includes …

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Why the S. 877A(g)(1)(B) “dual citizen exemption” encourages dual citizens from birth to remain US citizens and others (except @SenTedCruz) to renounce

Introduction – The S. 877A(g)(b)(B) “born a dual citizen” defense to being a “covered expatriate”

The “dual citizen” exemption to the S. 877A “Exit Tax” rules is not well understood. It is also not as simple (who could have known) as it initially appears. The focus of this discussion will be on being born both a Canadian citizen and a U.S. citizen. Although the post is “Canada centric” (hey, I am a lawyer in Canada), it will help anybody hoping to benefit from this wonderful “defense”. For the benefit of those born before February 15, 1977 (the date of the second Canada Citizenship Act), I am required to explore some of the history and difficulties of the the 1947 Canada Citizenship Act. This will lead me into a discussion of the “Lost Canadians” citizenship issue – pioneered by Don Chapman.

This is the 1st of seven posts analyzing the “dual citizen exemption” to the S. 877A Exit Tax which is found in S. 877A(g)(1)(B) of the Internal Revenue Code. Please remember that the “dual citizen exemption” is available ONLY to those who meet the “five year tax compliance test”.

1. What is the S. 877A(g)(1)(B) “dual citizen exemption” and why does it encourage those “born dual citizens” to not renounce U.S. citizenship?

2. The history of Canada’s citizenship laws: Did the 1947 Canada Citizenship Act affirm citizenship or “strip” citizenship and create @LostCanadians?

3. The S. 877A “dual citizen” exemption – I was born before the first ever Canada Citizenship Act? Could I have been “born a Canadian citizen”?

4. The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act – Am I still a Canadian or did I lose Canadian citizenship? (The “Sins Of The Father”)

5. The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act and the requirements to be “born Canadian

6. “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of Canada?

7. The S. 877A “Dual Citizen” exemption: “MUST certify tax compliance for the five years prior to relinquishment

Here, we go, Post number 1 …

U.S. Senator Ted Cruz and London Mayor Boris Johnson are “high profile” examples of people who have the “unwanted citizenship” of the countries of their birth. Each of them has found the citizenship of the country of his birth to be inconvenient.

Ted Cruz was born in 1971 in Canada. He was therefore born a Canadian citizen. He claims to have been born to a U.S. citizen mother and was therefore a U.S. citizen by birth. (Whether he qualifies as a “natural born citizen” is a different question.) As a Canadian citizen he had the right (prior to renouncing Canadian citizenship) to live in Canada. Had Mr. Cruz, moved back to Canada, he could have avoided the U.S. S. 877A Exit Tax. Incredible but true. It will be interesting to see whether Mr. Cruz regrets renouncing his Canadian citizenship. As you will see, by renouncing Canadian citizenship, Mr. Cruz surrendered his right to avoid the United States S. 877A Exit Tax.

Here is why …

The S. 877A Exit Tax rules in the Internal Revenue Code, are the most punitive in relation to U.S. citizens living outside the United States (AKA Americans abroad). To put it simply, with respect to Americans abroad, the S. 877A Exit Tax rules:

– operate to confiscate assets that are located in other nations; and

– operate to confiscate assets that were acquired by U.S. citizens after they moved from the United States.

There is not and has never been an “Exit Tax” anywhere else that operates in this way. The application of the S. 877A Exit Tax to assets located in other nations, is both an example of “American Exceptionalism” at its finest and a strong deterrent to exercising the right of expatriation granted in the “Expatriation Act of 1868“.

But, the “Exit Tax” applies ONLY to “Covered Expatriates” and “dual citizens from birth” can avoid being “Covered Expatriates” …

As has been previously discussed, the Exit Tax applies ONLY to “covered expatriates“. There are two statutory defenses to becoming a “covered expatriate”. This post is to discuss the “dual citizen from birth” defense to being treated as a “covered expatriate”. I have discovered that this defense is NOT as well known or understood as it should be.

The statute granting the “dual citizen from birth” defense to “Covered Expatriate” status reads as follows:

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Prologue: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – #Americansabroad and forced renunciation of US citizenship

U.S. Citizenship Abroad in a FATCA and FBAR World

FATCA has inflicted pain on the world. The pain has been most acutely felt by those with a U.S. place of birth. The following report is shocking in its brutality.

Listen to the pain and anguish of the woman interviewed who can’t have a bank account simply because she is a “U.S. person”. Listen to the language she uses. Jen is proud to be an American, feels that she is being forced to renounce U.S. citizenship, and considers the current U.S. government to be a “bunch of extortionists”. She is clearly suffering extreme pain and anguish. Listen to the French citizen and resident, who doesn’t speak English and is claimed by the United States to be a “U.S. person”. Then listen to the unnamed “Voice of the Obama Administration”, which says:

“The U.S. Treasury Department has worked tirelessly to address many of these problems and most have been resolved. All you have to do is look to see how many countries have agreed to the law and how many financial institutions have signed on to the law.”

Clearly the voice of the Obama administration is either a liar or is delusional.

How we got there – A brief backgrounder on “how many countries have agreed to the law and how many financial institutions have signed on to the law”

FATCAHunt2

As you know the U.S. Government is hunting for those they consider to be “U.S. persons”. The hunt is taking place outside the United States. The hunt is intended to identify the residents and citizens of other nations that the U.S. chooses to define as “U.S. persons”. The vast majority of those deemed to be “U.S. persons”, are deemed so because they were born in the United States. To put it simply: The United States exercises taxing jurisdiction based on reasons that include “place of birth”. The fact that somebody is a citizen and resident of another nation is irrelevant. If you were born in the United States, then you are subject to U.S. law and control wherever you may reside. The only defense is to have “relinquished U.S. citizenship”. Relinquishment is a broad term that includes “renunciation”. President Obama promised “change you can believe in”. President Obama delivered. The most enduring legacy of the Obama presidency will be that he has made a “Certificate of Loss of U.S. Nationality” (“CLN”) the most sought after document in the world today.

Furthermore, the United States and the United States alone decides who is a U.S. citizen.

See comments about the BBC Interview here and here.

Some of the interesting comments include:

Great job Keith. Hearing Jen (?) speak was very powerful. Even with understanding what is going on with this mess, to hear her speak just opened the wound a little wider if possible.

How they cannot see how absolutely disgusting CBT/FATCA is and how “exceptionally” abusive they are I will never understand. This mess has taught me what hatred feels like, something I could have well lived without.

and

Made my blood pressure boil hearing Treasury quoted as saying the rest of the world wants FATCA – Mythster Stack is a &%#*}#!!!!

and

Giving up US citizenship is not an alternative. It is a last resort solution. Cutting off one’s arm to escape the trap. One doesn’t get rid of a problem by getting rid of the victims of the problem. The only real solution to this problem is for the US to adopt residence as a standard for taxation, the same as every other country in the world. Only then will non-resident US citizens be placed on an equal footing with other non-resident citizens from other countries and no longer have to suffer the consequences of discrimination.

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?

“Coming Into Tax Compliance Book” – How Americans can come into U.S. tax compliance in a FATCA world

Are you “Coming To America” by entering the U.S. tax system as an American Abroad?

The “How To Come Into U.S. Tax Compliance” book for Americans abroad

John Richardson, LL.B, J.D.

I have contributed to establishing the new “Citizenship Taxation” site. As part of launching that site, I have written a series of posts providing relevant information (in a broad sense) about how Americans abroad, who did not know about their U.S. tax obligations, can come into U.S. tax compliance.

Sooner or later, it’s likely that many people will receive a FATCA letter. In your panic, you should be careful. There are a number of things Americans abroad should consider before consulting a lawyer or tax professional.

This series of posts developed from my “Educational Outreach” program for Americans abroad. It is an effort to respond in a practical way to the questions that people have.

The chapters of “Coming Into Compliance Book” are:

Chapter 1 – “Accepting Cleanliness – Understanding U.S. Citizenship Taxation – To remain a U.S. citizen or to renounce U.S. citizenship

Chapter 2 – “But wait, I can’t renounce U.S. citizenship if I’m not a U.S. citizen. How do I know if I am a U.S. citizen?”

Chapter 3 – “No matter what, I must come into U.S. tax compliance – Coming into U.S. tax compliance for those who have NOT been filing U.S. taxes

Chapter4 – “Oh no, I have attempted U.S. tax compliance by filing tax returns. I have just learned that I have made mistakes. How do I fix those mistakes?”

Chapter 5 – “I don’t want to renounce U.S. citizenship. How to live outside the United States as a U.S. tax compliant person

Chapter 6 – “I do want to renounce U.S. citizenship. This is too much for me. How the U.S. “Exit Tax” rules might apply to me if I renounce

Chapter 7 – “I really wish I could do retirement planning like a “normal” person. But, I’m an American abroad. I hear I can’t invest in mutual funds in my country of residence. The problem of Americans Abroad and non-U.S. mutual funds explained.

Chapter 8 – “We all have to live somewhere. Five issues – “The problem of Americans Abroad and non-U.S. real estate explained

Chapter 9 – “Receiving U.S. Social Security – #Americansabroad and entitlement to Social Security

Chapter 10 – “Paying into Social Security – #Americansabroad, double taxation and the payment of “Self-employment” taxes

Chapter 11 – “Saving the children – INA S. 301 – “Residence” vs. “Physical Presence” and transmission of US citizenship abroad

Chapter 12 – “Relinquishing citizenship and your IRA – bringing your IRA home

Chapter 13 – “Married filing separately” and the “Alien Spouse” – the “hidden tax” on #Americansabroad

Chapter 14 – “The Obamacare “Net Investment Income Tax” – Pure double taxation of #Americansabroad

Chapter 15 – “To be “FORMWarned is to be “FORMArmed” – It’s “FORM Crime” stupid!!

Chapter 16 – “Most “Form Crime” penalties can be abated if there is “reasonable cause”

Chapter 17 – “How to get “credit” for taxes (foreign) paid to your country of residence

Chapter 18 – “I don’t pay taxes in the country where I live. Can I “exclude” my foreign income from the U.S. tax return?

Chapter 19 – “Is it better to take the “Foreign Tax Credit” or the “Foreign Earned Income Exclusion” – a discussion

Chapter 20
– “The child tax credit: take it, leave it or how to take it

Chapter 21 – “How #Americansabroad can continue to use the #IRA as a retirement planning vehicle

Chapter 22 – “To share or not to share” – Should a U.S. citizen share a bank account with a “non-citizen AKA alien spouse?

The “Coming Into Compliance Book” is designed to provide an overview of how to bring some sanity to your life.

 Coming to America

You may remember the old Eddie Murphy movie about “Coming To America”.

Welcome to the confusing and high stakes rules for U.S. taxation and Americans abroad.

The United States has the most complex, confusing, most penalty ridden and most difficult anti-deferral regime in the world. McGill Professor Allison Christians has noted that Americans abroad are both:

“deemed to be permanently resident in the United States for tax compliance and financial reporting purposes” …

and are

“subject to the most complex aspects of the U.S. tax code regardless of any activity in the United States, and facing extraordinary compliance costs and disclosure risks even for nil returns”

Although Americans abroad are deemed to be resident in the United States, their assets are treated as “offshore”. In addition Americans abroad are subject to taxation in their country of residence.

All of this means that:

1. Americans abroad are subject to the worst and most punitive aspects of the U.S. tax system (there is no Homelander who is treated as badly as an American abroad); and

2. Denied most benefits of the tax systems of their country of residence.

To put it simply, Americans abroad get the worst of all possible tax systems.

The most horrific aspects of the U.S. tax system are saved for Americans abroad. Prepare to be shocked. As one commenter at the Isaac Brock Society site recently said:

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Thoughts from a conversation: Green Cards – Dangers of moving to America and moving from America

How could  somebody possibly not  know about  FBAR?

In our case my wife hailed from the Republic of Ireland. We were married in the early 1990’s. As any immigrant knows it is a hard road. Homesickness, difficulties with the Immigration Service, it’s an enormous adjustment. In our immigration packet of hundreds of documents I recall one that was quite frightening. It was from the US treasury and said that if you have more than $10K in assets you need to file an FBAR or you could lose half of what you owe. Thankfully we didn’t owe anything. At that time there was not 1040 tax requirement to list all overseas assets. That came in a few years later, about 1998. By 1997 my wife received a small lump sum pension. It put her over the limit, but by then we had plenty of other issues consuming us that drove the FBAR issue out of our line of sight. She was suffering from a mysterious illness that was weakening her by the month, she was homesick and I was struggling on a new job. I work somewhere else now. It was a very difficult time and difficult times can leave you open to mistakes.


Eventually somehow around 2000 I was reminded of the FBARs but realized that we were already in deep trouble. Had the first offense been in any way reasonable I would have paid up and gotten into compliance. The penalties however were far too harrowing. Today, you look on the internet and there are articles by the hundreds about filing an FBAR. Back then, because the government wisely didn’t enforce the FBAR rules and their draconian penalties, except for the most egregious offenders there simply were no reminders out there.
Fast forward to about 2010 and FBARs suddenly were pressing news, but for many it was simply too late.


There are several problems with the current scheme. Number one the penalties are insanely draconian for people who often owe less than $1K in taxes over the past 8 years. In our case that translates to $10K to a lawyer (the IRS highly suggest you get one) and $29K in IRS penalties. Any way you cut it that is a $40K penalty for less than $1K in back taxes. In fact it is possible that my attorney didn’t include foreign tax credits which could have brought our back taxes down to $0K. Because he is afraid of the Big Bad IRS, he doesn’t want to irk them and get penalized worse or rejected from the OVDP program. Another crazy thing is that if the IRS owes YOU in back taxes for previous years that doesn’t count by their reckoning. The only thing that matters is what you owe them. Therefore if they owe you $5K over the past 8 years but you owe them $3K over the past 8 years – are you ready for this accounting trick ? Therefore you owe them $3K over the past 8 years. They forgive themselves for the $5K that they owe you over the past 8 years. Therefore if in the Real World if you were owed $2K by the IRS thus strengthening your hand in opting out of the OVDP, think again. They only count what you owe them and you cannot carry forward what they owe you to cancel out what you them. How freaking convenient is that ?


This is a very dangerous trend. When truth and common sense are not the basis for our laws and regulations then we cease to live in a free and democratic society.


As I mentioned previously, every day, you and I are either heading to the light or to the darkness. We choose. We make the same choices with our country. It is “We The People” that is the conscience of our government. If we are too indulgent of our government, it is our fault if our government grows perverted, out of control and rapacious. We The People are our countries disciplinarian. We The People make our own collective breaks in what type of government we must live with. Silence is not Golden. It’s Golden only to tyrants.

 This post was prompted  because …

Today I had a brief conversation with somebody who was moving to America. I thought I would share some thoughts from the conversation. After all, tens of thousands of people move to the United States each year. Some move there as U.S. citizens. Some move there on Green Cards. Some move there on another type of U.S. visa.

The purpose of this is to reinforce some very simple points. I find that people always have more trouble remembering what’s simple. Here goes:

Moving to America

1. Asset Reporting

If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for penalties.

Please remember that if you are:

– a U.S. citizen – Internal Revenue Code – S. 7701(a)(1)(50)

– a Green Card holder – Internal Revenue Code – S. 7701(b)(1)(A)

– a person who meets the substantial presence test – Internal Revenue Code – S. 7701(b)(3)

that you are required to file FBARs, FATCA Form 8938s and possibly more forms and reporting requirements. Those who are leaving behind a limited company may meet the requirements to file Form 5471.

The failure to meet these reporting obligations has caused untold misery for may immigrants to the USA. Remember how many immigrants to the U.S. were damaged by the OVDI program in 2011. (The hyperlink in the previous sentence leads to a post with 382 comments!)

2. Make sure that you know the fair market value of any assets that you own at the time of your move to the USA. This (depending on your status at the time you entered the U.S.) may have implications for future taxes (including the S. 877A Exit Tax).

3. If possible do NOT enter the U.S. on a Green Card and do NOT acquire a Green Card.

If you acquire the Green Card you are one step away from being subjected to the S. 877A Exit Tax if you decide to leave America!

Green Card Holders Moving From America

Potential problems exist for those with a Green Card who move from the USA.

A partial list includes:

1. Read S. 877A of the Internal Revenue Code. You will see that if you held a Green Card for 8 of the last 15 years, you will be a “long term resident” and subject to the S. 877A Exit Tax rules.

2. You are deemed to be a tax resident until you File I-407 (or other reasons that are less common). In order to cease to be a “U.S. tax resident” you would file your I-407. But, be careful!  The filing of your I-407 may (depending on whether you are a “long term resident”) may trigger the Exit Tax rules! To put it simply: If you file the I-407, and you are a “long term” resident, you will be subject to the S. 877A Exit Tax rules. Extreme caution is warranted!

Moral of the story! Be careful. You will avoid many problems by avoiding the Green Card.

Conclusion:

To be forewarned is to be forearmed!