Category Archives: Green Card

Tax residency vs. physical presence: The four questions you must ask before making a country your home

An introduction to “tax residency” …

Most people equate residency with physical presence. They assume that where you are physically presence determines where you live. They further assume that where you live is where you pay your taxes. Conclusion: The country where you live is the country where you must be “tax resident”. Not necessarily!

There is no necessary correlation between where one lives and where one is a “tax resident”. In fact, “residency for tax purposes” may be only minimally related to “residency for immigration (where you live) purposes”. It is possible for people to live in only one country and be a tax resident of multiple countries. The most obvious example is “U.S. citizens residing outside the United States”.

The concept of “tax residency” is fundamental to all systems of taxation. The fundamental question, at the root of all tax systems is:

“what kind of connection to a country is required to assume tax jurisdiction over an “individual”, over “property” or over an “entity”?”

Continue reading

The US “expatriation tax” and the the incentive to apply for a Green Card and/or remain in the USA

America doesn’t really need skilled immigrants, or does it?

The above tweet references a post that references a comment by Victoria Ferauge:
Continue reading

Is Form 8938 required by “Green Card Holders” who are nonresidents by “treaty tie breaker”? – Any exemption is the result of “IRS grace”

Summary:

The context: Form 8938 was created by the IRS to meet the reporting requirements mandated by Internal Revenue Code S. 6038D. S. 6038D was mandated by S. 511 of the HIRE Act.

On March 18, 2010 President Obama signed the HIRE Act into law. The HIRE Act had two targets. The first target was the Foreign Financial Institutions that were willing to do business with U.S. citizens. The second target was Americans citizens who attempted to do business with any “non-U.S. bank or other financial institution.

The first target – Foreign Financial Institutions: The HIRE Act introduced Chapter 4 of Subtitle A – AKA FATCA – into the Internal Revenue Code. Pursuant to Chapter 4 Foreign Financial Institutions are threatened with a 30% sanction for failing to “Review, Identify and Report” those who the U.S. claims as “U.S. persons“. The Canadian FATCA lawsuit, launched by the Alliance For The Defence of Canadian Sovereignty, is related to the reporting requirements imposed on the banks.

The second target – American citizens attempting to use Foreign Financial Institutions outside the United States: The second group is composed of “individuals” who are required to disclose information to the IRS. The HIRE Act imposed extraordinary reporting requirements on Americans abroad. The most visible – Form 8938 – is an intrusive form that is aimed at targeting “individuals”. The term “individuals” means every human life form on the planet.  The U.S. based “FATCA Legal Action” lawsuit (which was condemned by Democrats abroad), is a lawsuit that is primarily intended to attack the requirements imposed on individual Americans abroad.

Internal Revenue Code Section 6038D and “Foreign Asset Disclosure”

A previous post discussed the interaction among: the Internal Revenue Code, tax treaty tie breaker rules and whether a Green Card Holder is a U.S. resident for FATCA purposes. This post is to discuss the form 8938 requirement and how it applies to Green Card Holders (resident aliens) who are deemed by treaty to be “nonresidents” under a treaty “Tie Breaker” rule.

The statute – Internal Revenue Code Section 6038D – gives the “Secretary” (meaning IRS) the right to create specific exemptions. “Nonresident aliens” is one group that the IRS is allowed to specifically exempt from the form 8938 requirement. Green Card Holders are statutory “resident aliens” under S. 7701(b) of the Internal Revenue Code. Yet, in some cases “Green Card Holders” can be treated as “nonresident aliens” pursuant to a tax treaty.

What is a “Treaty Tie Breaker” rule?

It’s possible for a person to be treated as a “tax resident” of two countries. In this case a Tax Treaty can be used to determine in which country the person is a “tax resident”. For example Section 2 of Article IV of the Canada U.S. Tax Treaty says:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

(Note that the “Treaty Tie Breaker” rules are available to “Green Card” holders. The treaty “savings clause” prevents U.S. citizens from being treated solely as a resident of Canada.)

So, what do the IRS regulations say?

On December 29, 2014 the IRS removed the temporary regulations (which are described here) and issued final Form 8938 reporting rules. The final regulations, which took effect on December 29, 2014 (making them applicable for years 2014 and onward), make it clear that Green Card Holders, who pursuant to a treaty tie-breaker provision, are treated as “nonresidents” (nonresident aliens) are NOT required to file Form 8938.

Specifically, the IRS confirms that:

1. Dual resident taxpayers

A comment recommended an exemption from the section 6038D reporting requirements be included for an individual who is a dual resident taxpayer and who, pursuant to a provision of a treaty that provides for resolution of conflicting claims of residence by the United States and the treaty partner, claims to be treated as a resident of the treaty partner. In such a case, a dual resident taxpayer may claim a treaty benefit as a resident of the treaty partner and will be taxed as a nonresident for U.S. tax purposes for the taxable year (or portion of the taxable year) that the individual is treated as a nonresident. The final rule adopts this recommendation for a dual resident taxpayer who determines his or her U.S. tax liability as if he or she were a nonresident alien and claims a treaty benefit as a nonresident of the United States as provided in § 301.7701(b)–7 by timely filing a Form 1040NR, “Nonresident Alien Income Tax Return,” (or such other appropriate form under that section) and attaching a Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).” The Treasury Department and the IRS have concluded that reporting under section 6038D is closely associated with the determination of an individual’s income tax liability. Because the taxpayer’s filing of a Form 8833 with his or her Form 1040NR (or other appropriate form) will permit the IRS to identify individuals in this category and take follow-up tax enforcement actions when considered appropriate, reporting on Form 8938, “Statement of Specified Foreign Financial Assets,” is not essential to effective IRS tax enforcement efforts relating to this category of U.S. residents.

Why this makes sense …

Continue reading

Relinquishing US citizenship: South African Apartheid, the Accidental Taxpayer and the United States S. 877A exit tax

Introducing this “guest post”

This guest post is written by Dominic Ferszt of Cape Town, South Africa. I first became aware of Mr. Ferszt when, in October of 2014, his post: “The Accidental Tax Invasion” was published in Forbes. I have discussed various aspects of “citizenship-based taxation” with him since. I am very pleased that he has accepted my invitation to write this “guest post” for publication at Citizenship Solutions. His post exposes an aspect of “citizenship taxation” and the S. 877A U.S. expatriation tax that has not (as far as I am aware) been discussed before. Those who did NOT acquire “dual citizenship” at birth because of discriminatory laws (example British and Canadian laws saying that citizenship could be passed down from the father but not from the mother) will find this post extremely interesting and relevant.

Without further adieu …

___________________________________________________________________________

Apartheid and the Accidental Taxpayer

How the United States Congress has passed legislation which imposes a tax obligation in accordance with the discriminatory policies of foreign nations; and how this might offer a glimmer of hope to millions around the world who feel unjustly targeted by FATCA or the IRS.

By Dominic Ferszt, Cape Town

Continue reading

The ownership and use of the “U.S. Person” (which includes a “citizen”) as an instrument of foreign policy

Welcome and a bit of an introduction

This post turned out to be longer and cover more topics than I originally intended. The problem with discussing the problems experienced by Americans abroad is that there are many “moving parts”. I have broken SOME of the “moving parts” into, well six parts and a “prologue”.

In addition, as the title suggests, the original intention of the post was to discuss how the U.S. Government uses its citizens as “instruments of foreign policy”. The obvious question is: how can they possibly do this? Doesn’t U.S. law end at U.S. borders? How can the United States impose law on the rest of the world. The answer to that question raises other issues (which are discussed in the other parts of this post).

I guess I need a new title for the post.

I would also like to say that I am hopeful that there will be change. That said, change is possible ONLY (regardless of intention) if all of the issues are understood individually and how they interact.

Prologue – U.S. citizens are “subjects” to U.S. law wherever they may be in the world

Part I – The U.S. “Giveth” and the U.S. “Taketh” – How the U.S. uses “citizenship” as a weapon against individuals

Part II – U.S. Citizens living abroad – “Life in the penalty box”

Part III – I’m a “Toxic American”, but it’s not my fault – How U.S. regulation makes “U.S. citizens undesirables in other nations

Part IV – The use of U.S. citizens as instruments of foreign policy

Part V – Why Americans abroad are renouncing U.S. citizenship

Part VI – The injustice of the S. 877A “Exit Tax” as applied to Americans abroad

___________________________________________________________________________________

Prologue – U.S. citizens are “subjects” to U.S. law wherever they may be in the world …

Yes, it’s true. In 1932 (eight years after the Supreme Court decision in Cook v. Tait), Justice Hughes of the U.S. Supreme Court, in the case of Blackmer v. United States ruled that:

While it appears that the petitioner removed his residence to France in the year 1924, it is undisputed that he was, and continued to be, a citizen of the United States. He continued to owe allegiance to the United States. By virtue of the obligations of citizenship, the United States retained its authority over him, and he was bound by its laws made applicable to him in a foreign country. Thus, although resident abroad, the petitioner remained subject to the taxing power of the United States. Cook v. Tait, 265 U.S. 47, 54 , 56 S., 44 S. Ct. 444. For disobedience to its laws through conduct abroad, he was subject to punishment in the courts of the United States. United States v. Bow- [284 U.S. 421, 437] man, 260 U.S. 94, 102 , 43 S. Ct. 39. With respect to such an exercise of authority, there is no question of international law,2 but solely of the purport of the municipal law which establishes the duties of the citizen in relation to his own government. 3 While the legislation of the Congress, unless the contrary intent appears, is construed to apply only within the territorial jurisdiction of the United States, the question of its application, so far as citizens of the United States in foreign countries are concerned, is one of construction, not of legislative power. American Banana Co. v. United Fruit Co., 213 U.S. 347, 357 , 29 S. Ct. 511, 16 Ann. Cas. 1047; United States v. Bowman, supra; Robertson v. Labor Board, 268 U.S. 619, 622 , 45 S. Ct. 621. Nor can it be doubted that the United States possesses the power inherent in sovereignty to require the return to this country of a citizen, resident elsewhere, whenever the public interest requires it, and to penalize him in case of refusal. Compare Bartue and the Duchess of Suffolk’s Case, 2 Dyer’s Rep. 176b, 73 Eng. Rep. 388; Knowles v. Luce, Moore 109, 72 Eng. Rep. 473.4 What in England was the prerogative of the sov- [284 U.S. 421, 438] ereign in this respect pertains under our constitutional system to the national authority which may be exercised by the Congress by virtue of the legislative power to prescribe the duties of the citizens of the United States. It is also beyond controversy that one of the duties which the citizen owes to his government is to support the administration of justice by attending its courts and giving his testimony whenever he is properly summoned. Blair v. United States, 250 U.S. 273, 281 , 39 S. St. Ct. 468. And the Congress may provide for the performance of this duty and prescribe penalties for disobedience.

It’s that simple. If you are a U.S. citizen, some would argue that you are the property of the U.S.government.

On the other hand (and this will be the subject of another post), the Supreme Court decisions in Cook v. Tait and Blackmer v. The United States were decided in an era where there was no U.S. recognition of dual citizenship. It is reasonable to argue that these decisions have no applicability in the modern world.

There will be those who will say: Come on! Get real! The United States would never rely on these old court decisions. Well, they still do cite Cook v. Tait. Mr. FBAR lay dormant until it was resurrected by the Obama administration as the “FBAR Fundraiser“.

Part I – The U.S. “Giveth” and the U.S. “Taketh” – How the U.S. uses “citizenship” as a weapon against individuals …

The U.S. Taketh: Draft Resistors in Canada in the 60s and 70s – The use of  stripping people of “citizenship” as a mechanism to control the people

I my recent post: “Muhammad Ali, draft resistors, loss of US citizenship, the “Rumble In The Jungle” and a trip down memory lane“, I wrote:

During the last few years I have met many former Americans who came to Canada to escape service in the Viet Nam war. Their circumstances vary greatly. This was clearly a tumultuous time and difficult time. Many of them have commented that it has similarities to the circumstances of today. In both the 70s and present day, certain Americans abroad and former Americans abroad, feel uneasy and unsure about their U.S. citizenship. It’s also interesting how in both cases the United States is using “citizenship” as a mechanism to exercise control over individuals who do not live in the United States. In the 70s the United States was punishing people by stripping them of their citizenship. In 2016 the United States is punishing people by imposing citizenship on them. Either way, it’s clear that “citizenship” (and a U.S. place of birth) is a powerful weapon to be used against people to achieve governmental objectives.

The U.S. Giveth: “Accidental Americans” in Canada and throughout the world – The imposition of “U.S. citizenship” as a way to raise tax revenue

There is no one definition of “accidental American”. The group includes primarily those who were born in the United States (often with no memory of having lived there) and have spent all their lives in other nations. I have previously written about the horrible situation of “accidental Americans” in Stanstead, Quebec. Many Stanstead residents were born in Vermont because it was the closer hospital.

The problems of “accidental Americans” worldwide, are well described (on an ongoing basis) by Jude Ryan in his Facebook “Hunger Strike to President Obama”.

The problems experienced by “Accidental Americans” are that at the present time:

– they (in many cases) did not even know they were considered to be U.S. citizens

– if they did know they were U.S. citizens they did not know about the uniquely American practice of “taxation-based citizenship

– they are deemed to be U.S. citizens and are therefore subject to U.S. regulations

– they don’t reside in the United States AND are citizens of other nations

– they are being identified by FATCA and in some cases are having banking problems

– they can’t afford the financial costs of the tax compliance to formally renounce U.S. citizenship

– they can’t afford the $2350 fee to renounce U.S. citizenship

– they live in a state of terror and uncertainty (many don’t believe this or laugh it off)

In short, the forced imposition of U.S. citizenship (or at least the CURRENT unavailability of an easy out) is destroying their lives.

I highly recommend the following presentation by McGill Law Professor Allison Christians in which she puts the problems of “accidental Americans” in perspective.

 

Part II – U.S. Citizens living abroad – “Life in the penalty box”

I do NOT want to devote a major part of this post to this issue. The bottom line is this:

U.S. citizens living abroad are subject to ALL provisions of the Internal Revenue Code (and other U.S. laws – see below). The effect of this is to:

– subject them to double taxation on their incomes (the tax preparers and accountants who claim this is NOT true are dead wrong)

– deem all of their non-U.S. assets as “foreign” triggering numerous penalty provisions

– make it very difficult (in some cases impossible) for them to engage in normal financial planning – this is a “Buy American” provision

– make divorce (if they are married to a non-U.S. citizen potentially much more costly) – this a “Marry American” provision

– report the details of virtually all of their “non-U.S. activities” and investments to the IRS under threats of draconian penalties (this is what makes interaction with Americans “toxic” – see below)

In short, Americans abroad are NOT permitted to fully integrate into the societies where they live (and are often citizens). For more details on this see:

Part III – I’m a “Toxic American”, but it’s not my fault – How U.S. regulation makes “U.S. citizens undesirables in other nations …

U.S. citizenship-taxation, enforced by FATCA, does have an impact on the economies of other nations. There is evidence that this will negatively affect the job and career prospects of Americans abroad. “Citizenship-taxation” is increasingly affecting the way that nations and the citizens of other nations interact with “U.S. citizens”. Because of the “immutable characteristic” of a “U.S place of birth”, many U.S. citizens living outside the United States (assuming they are allowed to have a bank account in a FATCA world) have become undesirable as business partners.

See the following two accounts of discrimination against U.S. citizens abroad

Good points that highlight, yet again, the absurdity and detachment of the U.S. political system from 9 million of their citizens now living in an ever globalized and ever more competitive world. The U.S. political class and presidential candidates disinterest in this ever-growing and important group of citizens only speaks to the total stupidity, general ignorance, global unawareness, profound provincialism and confirms a totally dysfunctional and archaic system that is today the United States. A country that attacks and harms its diaspora and through its laws has succeeded in turning its own citizens into international pariahs with international banks, in international business partnerships, in marriage and in the general perception outside of the U.S.

I recently met with three start-ups at a fair in Germany, two from the UK and one from Sweden. In my work as a headhunter they were hiring me to find them some talented people for their growing and successful startups. In all three cases, and each in separate meetings with me, the startups told me that they did not want any Americans or Europeans with U.S. Green cards or passports. They were all wisely warned by their banks and financial advisors not to bring any U.S. Persons into their business. Two of them knew the reasons and the risk that any American presence would bring to the business. The other one learned the hard way. They had an American investor who got them into his FATCA mess, reporting his holdings and his American tax consultant demanding the business’s bank details and the personal details of the owners. They returned his investment, threw him out and agreed never again to get involved with any U.S. persons in their business. This is now widely known and even if FATCA and all of the other reporting requirements for Americans would be eliminated, the damage is already done. The perception out there is to avoid hiring any Americans and also avoiding their investments. They are too much trouble and their government is an intrusive bully that thinks it can control the entire world. That spirit is so foreign to the young brilliant startup minds out there today. The U.S. has become a has-been and definitely not seen as a cool place anymore.

The world has moved on and the U.S. politicians and presidential candidates still haven’t realized that the world has changed since their anachronistic citizenship based tax system dating from the Civil War. Truly, a nation of idiots.

As a former U.S. citizen, who renounced just in order to survive, as my four non-U.S. business partners gave me an ultimatum, either get rid of your U.S. citizenship, which was contaminating our totally German business and subjecting our company’s accounts to U.S. Treasury and IRS scrutiny, or you must sell your shares and leave. This all started upon the advice of our German bank, who said that they wouldn’t deal with our accounts if there was any American/’U.S. Person’ involvement? Not to mention the personal impact on my mortgage, on my bank closing all of my investment accounts and everything else that every reader here knows all too well.

What amazes me most, and also amazes all of my personal and professional friends, all of them non U.S. persons, is how obedient and conforming the organizations supposedly representing the interests of U.S. citizens abroad are. With all that has happened, and especially now, subsequent to the Senate Finance Committee’s “report” on tax reform, paying nothing but contemptuous lip service to the plight of US citizens abroad, it should be more than obvious that U.S. Citizens abroad are of absolutely no relevance for lawmakers and legislators in Washington. Yet, the attitude of all of the organizations supposedly looking out for and fighting for the rights of US citizens abroad has been to follow a very respectful path of presenting the case for change, as if they were dealing with a fair democratic system, that respects equal representation and justice. They look ridiculous, all of them! When I read that Democrats Abroad have been trying to push the “bandage” fix of ‘Same Country Exception’ for more than four years, with no result, I say that this is absolutely pathetic. When I see American Citizens Abroad sending endless delegations to Washington, year after year, and even opening an office there, only to see the interests of overseas Americans relegated to a footnote, with no action proposed n the recent Senate Financial Committee report, I would think that they should be embarrassed and ashamed, as they should be. It has taken the group Republicans Overseas over one year to formulate an intended lawsuit, which has been postponed endless times, with a “promise” to file it next week, I say that they too have not approached this in the right way. Too much damage has been done in the interim.

What astonishes all of my “foreign” friends is how passive, obedient and fearful U.S. people are of their government, especially when confronted with such outright injustice, literal extortion and destruction of their financial wellbeing and that of their families and business partners. Even the ever law abiding Germans wouldn’t put up with any of this and they would probably, en masse, as one lawyer friend told me, simply refuse to cooperate with any of this Byzantine filing of forms and endless intrusions into their privacy and that of their families and business partners. They would collectively refuse and file class action suits against the authorities behind these injustices worthy of a fascist totalitarian regime. Perhaps the Germans understand better than the Americans what this sort of thing leads to, when a society becomes so beaten down, so subservient, so fearful of authority that it complies with the most horrific and undemocratic “laws” and is unable to unite and simply say NO, collectively. Until Americans fight to recover some form of democracy and fairness, the ravages of FATCA will be but one in a coming litany of similar such abuses. To continue believing that they are dealing with democratic institutions and that reason and fairness will prevail is nothing but a naive attitude that will lead them nowhere, as we can now see with the recent Senate Finance Committee report.

How by defining you as a “U.S. Person” (which includes a “U.S. citizen”) you will be used to facilitate U.S. foreign policy …

Part IV – The use of U.S. citizens as instruments of foreign policy

To leave the USA one needs a passport and when it comes to having a U.S. passport …

No passport shall be granted or issued to or verified for any other persons than those owing allegiance, whether citizens or not, to the United States.

“U.S. citizen” vs. “U.S. Person” – What is the difference?

All U.S. citizens are U.S. persons, but not all U.S. persons are U.S. citizens

My impression is that:

– the term “U.S. citizen” is a term that is used to describe one as a person who has rights or membership, benefits and some responsibilities to the United States

– the term “U.S. Person” is a a broader term that “U.S. citizen”. It is defined differently in different pieces of legislation. The class of “U.S. Persons” is broader than the class of “U.S. citizens”. The class of “U.S. Persons” often includes “Green Card holders”, perhaps “U.S. Nationals”, etc. For example, S. 7701(a)(30) of the Internal Revenue Code defines “U.S. Persons” as “citizens or residents”.

The term “U.S. Person” appears to be used in a context that imposes prohibitions and sanctions directly on the “U.S. Person” and/or is used to imply “U.S. ownership and control” over the person. Often this “ownership or control” is exercised in the context of U.S. interaction with “foreign nations”. When used in the context of interaction with “foreign nations”, the “U.S. Person” is often used as an instrument of foreign policy.

There is no one definition of “U.S Person” …

Restrictions on U.S. currency going to Cuba …

When it comes to “Corrupt Foreign Practices”, “U.S. citizens” are “domestic concerns” …

It has become clear that United States enforces its extra-territorial law by pressuring other governments, organizations and entities (under threats of sanction) to do “U.S. dirty work for the U.S.”.

Some examples include:

– the use of the OECD to enforce the U.S. Corrupt Foreign Practices Act

– the FATCA IGAs to impose U.S. taxation on the citizens and residents of other nations

– as per Juan Zarate in “Treasury’s War” the “blacklisting of foreign banks”

The OECD employs “full-time lawyers” whose mission is to enforce the U.S. Corrupt Foreign Practices Act worldwide!

Bobby, you may be a national hero, but don’t even consider playing chess in Serbia …

Restrictions on “U.S. Persons” under FATCA and the FATCA IGAs …

When it comes to FATCA, the definition of “U.S. Person” is broad …

Part V – Why Americans abroad are renouncing U.S. citizenship …

Put it this way:

Ireland recently opened a museum honoring the achievements of Ireland’s diaspora.

The United States continues to control the lives of U.S. citizens living outside the United States. “When in Rome, Live As A Homelander“.

The United States continues to cause other nations to discriminate against U.S. citizens who leave the United States.

The United States continues to use U.S. citizens as instruments of foreign policy.

The United States continues to threaten it’s diaspora (citizens abroad) with penalties and sanctions

It’s no surprise that renunciations of U.S. citizenship are growing! They will continue!

Part VI – The injustice of the S. 877A “Exit Tax” as applied to Americans abroad

For many Americans abroad to renounce U.S. citizenship they will be required to pay an Exit Tax. Those who are “covered expatriates” will be required to pay an “Exit Tax” that is based on the value of their non-U.S. assets, their non-U.S. pensions and possibly more. A detailed explanation is NOT the purpose of this post. For information on the S. 877A Exit Tax, I refer you to:

In closing …

Let us not look back in anger, nor forward in fear, but around us in awareness

John Richardson

The Internal Revenue Code does NOT explicitly define “citizen”, “citizenship” or require “citizenship-based taxation”

 

It is widely understood that the United States Internal Revenue Code requires that “U.S. citizens” are subject to U.S. taxation wherever they may live in the world. Although this is true, Subtitle A (Income Taxes) of the Internal Revenue Code:

  1. Does NOT explicitly say that U.S. citizens are subject to U.S. taxation on their world income wherever they reside; and
  2. Does NOT explicitly define the term “citizen” or “U.S. citizen”. (This contrasts with the the terms: “U.S. Person”, “Permanent Resident”, “Substantial presence”, etc. that ARE explicitly defined in the Internal Revenue Code here and here. This means that the starting point for the definition of “U.S. citizen” is in the 14th Amendment of the Constitution and the United States Immigration and Nationality Act.

(Interestingly it appears that only the “Estate Tax” provisions in Subtitle B of the Internal Revenue Code (Internal Revenue Code S. 2001) specifically impose tax liability on the “taxable estate of every decedent who is a citizen or resident of the United States”.)

Some thoughts on each of these points …

Continue reading

Green Card Holders and #Americansabroad: “Residence”, “Long Term Residence” and the S. 877A “Exit Tax”

Tax jurisdiction and residential ties

The two types of residential ties considered for all aliens

When considering the meaning of “residence” for tax purposes, attempting to ascribe a place of “residence “to an individual, and imposing taxation on individuals, the Internal Revenue Code considers:

A. The extent of “residential ties” to the United States; and

B. The extent of “residential ties” to another country.

We see both aspects of residence considered as a way to defeat the “substantial presence” test in Internal Revenue Code S. 7701(b). If the country of residence is uncertain, or if a person is considered to be a “tax resident” of the United States and another country, the Internal Revenue Code considers ties to both the United States and the other country in question.

For “resident aliens” (Green Card Holders):

– both past and present residential ties to the United States and to other nations are considered in at least three ways under the Internal Revenue Code itself; and

– residential ties to both the United States and the other country of residence are considered in determining residence under Article IV of the Canada U.S. (and other) tax treaties**.

Green Card Holders and tax residence

A previous post discussed the fact that:

  1. Internal Revenue Code S. 7701(a)(30) defines “U.S. Persons” as including “citizens” and “residents”
  2. The combined effect of Internal Revenue Code S. 7701(b)(1) and S. 7701(b)(6) define Green Card Holders in a way that ensures that they meet the statutory test of “residence”. (Of course Green Card Holders  may be able to defeat the status of “resident” by making use of the Treaty Election in Article IV of the Tax Treaty)
  3. The statutory defenses to “residence” found in S. 7701(b) of the Internal Revenue Code, available to “aliens” who are NOT Green Card Holders, take into account and are a function of the extent of residential ties to other jurisdictions

Residence matters and residence matters hugely. Hence, the definition of “resident” matters and matters hugely.

Congress has directed its attention to the question of the kind of physical connection to the United States, that justifies deeming one to be a “resident” for tax purposes. Interestingly, the definition of “citizenship” has NOT received the same attention. Nor is “U.S. citizen” defined in the Internal Revenue Code.

The purpose of this post is to consider how actual U.S. residence affects the taxation of Green Card Holders.
Continue reading

Physical presence as a necessary condition for being a US “resident” under the Internal Revenue Code

Introduction

Every country in the world with the exceptions of Eritrea and the United States claim tax jurisdiction based on “residence”. Although the tests for “residence” may differ, “residence based taxation” means that it is possible to sever your tax connection to a country by severing residence.

The nations of Eritrea and the United States impose taxation based on citizenship. U.S. citizens (primarily those “Born In The USA”) can NEVER sever their tax connection to the United States as long as they remain citizens. When it comes to U.S. citizenship-based taxation it is possible to NEVER have lived in the United States and still be subject to taxation!
Continue reading

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.

 

Are Green Card holders resident outside the USA “US persons” under the #FATCA IGA?

Introduction …

The above tweet references a comment that was left on Olivier Wagner’s Tax Samurai blog. Olivier is discussing an earlier post of mine called “When It Comes To FATCA, There Are Four Kinds Of Americans Abroad“.

I highly recommend his “post about my post”.

The comments discuss the question of:

Is a Green Card Holder resident in Canada a “U.S. Person” for the purposes of FATCA?

The last comment notes that the Canada Revenue Agency is advising U.S. Green Card Holders who are resident in Canada that they should NOT identify as “U.S. Persons” under the FATCA IGA.

The exact text of the comment reads:

Green Card holders in Canada are interpreting the following statement from the Government of Canada to mean that FATCA does NOT apply to them:

http://www.cra-arc.gc.ca/tx/nnrsdnts/nhncdrprtng/ndvdls-eng.html

“I hold a U.S. green card. How does this affect my tax residency?

If you are a green card holder (that is, a lawful permanent resident of the U.S.), the U.S. considers you to be a U.S. resident.

However, if you are a resident of Canada for tax purposes and do not hold U.S. citizenship, you should not identify yourself as a U.S. person to your Canadian financial institution.”

The actual IGA is here.

http://www.fin.gc.ca/treaties-conventions/pdf/FATCA-eng.pdf

The definition section includes “U.S. residents” which presumably means tax residents (which in the case of Green Card Holders may be affected by a Treaty election).

The plain reading of the statement on the CRA site will mean that Green Card holders resident in Canada will NOT identify as being U.S. tax subjects.

Note: I tried to leave a similar comment a moment ago, but it didn’t seem to show up. This is a duplicate. Feel free to pick one comment or the other.

– See more at: http://www.taxsamurai.com/index.php/2014/09/06/four-kinds-americans-abroad-response/#comment-7

The purpose of this post is to expand this discussion …
Continue reading