Category Archives: Uncategorized

False Form 8854 used as part of “willful” #FBAR prosecution

The primary story is of a U.S. professor who pleaded guilty to an FBAR violation and was subjected to a 100 million FBAR penalty.  Notably the “tax loss” was 10 million dollars and the FBAR penalty was 100 million dollars. It appears that Mr. FBAR is becoming an important tool in the arsenal used by the United States Treasury.

The more interesting (for the purposes of expatriation) was the role that a “false Form 8854 “Expatriation Statement”) may have played in the guilty plea.

The story has been reported at the following two sources:

and on Jack Townsend’s blog

What is most  interesting is the description from the Department of Justice site which includes:

Horsky directed the activities in his Horsky Holdings and other accounts maintained at the Zurich-based bank, despite the fact that it was readily apparent, in communications with employees of the bank, that Horsky was a resident of the United States.  Bank representatives routinely sent emails to Horsky recognizing that he was residing in the United States.  Beginning in at least 2011, Horsky caused another individual to have signature authority over his Zurich-based bank accounts, and this individual assumed the responsibility of providing instructions as to the management of the accounts at Horsky’s direction.  This arrangement was intended to conceal Horsky’s interest in and control over these accounts from the IRS. 

In 2013, the individual who had nominal control over Horsky’s accounts at the Zurich-based bank conspired with Horsky to relinquish the individual’s U.S. citizenship, in part to ensure that Horsky’s control of the offshore accounts would not be reported to the IRS.  In 2014, this individual filed with the IRS a false Form 8854 (Initial Annual Expatriation Statement) that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years.

Horsky also willfully filed false 2008 through 2014 individual income tax returns which failed to disclose his income from, and beneficial interest in and control over, his Zurich-based bank accounts.  Horsky agreed that for purposes of sentencing, his criminal conduct resulted in a tax loss of at least $10 million.  In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed false FBARs for 2012 and 2013.

The point is that the false Form 8854 (used primarily to provide information about whether one is a “covered expatriate” and to calculate the Exit Tax) was used as evidence of part of a conspiracy to evade taxes. This is an interesting use of the Form 8854,  which is primarily an “information return”.

Obviously this a “general interest” post with extremely unusual circumstances. But, it is an example of how associations with others, in the  “Wide and Wonderful World of U.S. Tax Forms” can become a problem.

This is also a reminder the “information returns” DO matter!

 

 

 

 

 

 

 

 

 

Why Boris Johnson must relinquish US citizenship on the occasion of his appointment as British Foreign Minister

A recent post (July 7, 2016) on this blog began with:

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“.

Dual Citizenship: What is the “effect” of a U.S. citizen also holding the citizenship of another nation?

The State Department description includes:

However, dual nationals owe allegiance to both the United States and the foreign country. They are required to obey the laws of both countries. Either country has the right to enforce its laws, particularly if the person later travels there. Most U.S. nationals, including dual nationals, must use a U.S. passport to enter and leave the United States. Dual nationals may also be required by the foreign country to use its passport to enter and leave that country. Use of the foreign passport does not endanger U.S. nationality. Most countries permit a person to renounce or otherwise lose nationality.

The life and times of Boris Johnson – A United States taxpayer by birth

Assumptions about Mr. Johnson’s citizenship …

I am assuming that he became both a U.S. and U.K. citizen by birth. I also assume that he remains both a U.S. and a U.K. citizen.

A U.S. Centric Perspective: As a U.S. citizen, Mr. Johnson is defined primarily in terms of taxation. On the occasion of Mr. Johnson’s recent appointment as the U.K. Foreign Minister, the Washington Times published the following article.

The article referenced in the above tweet provides an interesting summary of the Mr. Johnson’s adventures with the U.S. tax system. The article demonstrates how U.S. “place of birth” taxation is used to extract capital from other nations and transfer that capital to the U.S. Treasury. (As always the comments are of great interest.)

A non-U.S. Centric Perspective: Mr. Johnson is a “poster boy” for the problems of the U.S. “place of birth taxation” (AKA “taxation-based citizenship”). Mr. Johnson’s “IRS Problems” resulted in raising the profile and awareness of U.S. tax policies. A particularly interesting article was written by Jackie Bugnion and Roland Crim of “American Citizens Abroad”.

At a minimum, Mr. Johnson is subject to IRS jurisdiction, IRS reporting requirements, IRS threats and penalties and IRS assessments.

Boris Johnson has now been named the U.K. Foreign Minister …

How does his United States citizenship impact on this situation? Is it possible for him to be both a U.S. citizen and the British foreign minister? The “logical answer” is “Yes he can”. That said, having a U.S. citizen as the U.K. foreign minister raises many questions.

These questions include:

1. What effect (if any) does Mr. Johnson’s acceptance of this position have on his retention of United States citizenship as a matter of U.S. law?

2. If his acceptance of the position were a “relinquishing act” (under U.S. law) would Mr. Johnson be subject to the United States S. 877A Exit Tax?

3. Assuming that Mr. Johnson were to retain “dual” U.S./U.K. citizenship, how would his “divided loyalties” impact on this ability to serve as the British foreign minister?

4. Assuming that Mr. Johnson were to retain “dual” U.S./U.K. citizenship, how does the fact that the IRS has the jurisdiction to threaten him with fines and penalties impact the situation? What about the reporting requirements?

5. Should Boris Johnson formally relinquish his U.S. citizenship in order to avoid the conflict of interest that would arise because of divided loyalties?

Each question will be considered separately. Here we go …

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Dual citizenship, the lack of definition of “citizen” in the “Savings Clause” of U.S. Tax Treaties and why these are important

 

Introduction …

This is a “follow up” to my first post about the “Savings Clause” in the Canada U.S. Tax Treaty. The purpose of that first post was to demonstrate that pursuant to the “Savings Clause”, the Government of Canada has agreed to allow the United States to impose direct taxation on some Canadian citizens who are resident in Canada. The post generated a fascinating discussion about the “Savings Clause” and was widely discussed at the Isaac Brock Society. A subsequent post at the Isaac Brock Society provided greater detail about exactly how, and in what respects, the Government of Canada has agreed that the United States can impose direct U.S. taxation on some Canadian citizens and residents. One obvious conclusion from this discussion is reflected in the comment that:

Next time someone tells me that the tax treaty relieves double taxation, I’ll tell them that it causes it. We have RDSP’s and RESP’s to prove it.

I absolutely agree. Although there are a few specific areas where the Tax Treaty mitigates against double taxation, for the most part, because of the Savings Clause, the U.S. Canada Tax Treaty, does NOT prevent double taxation. By ensuring U.S. taxation of Canadian residents and citizens, the U.S. Canada Tax Treaty guarantees double taxation!

It’s a myth that the tax treaty prevents double taxation. As John F. Kennedy said in his commencement address at Yale University on June 11, 1962:

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Evolution of process of relinquishing US citizenship in Canada – Form 4079 no longer used

In the last year I have written the following three posts about the evolution of the process of “formal expatriation” (NOT the do it yourself version AKA – simply “delete US citizenship“).

This is the fourth post. This post confirms that the the process in Canada no longer includes Form 4079. Instead a questionnaire has been included as a possible substitute for Form 4079. It appears that those who are applying for “back dated relinquishments” should use the questionnaire to document the basis for the claim.

The first three posts have been:

1. July 10, 2015 -Thoughts on: Major updates to Foreign Affairs Manual on U.S. citizenship renunciation proceduresRelinquishment fee moving from no charge to $2350, phasing out Form 4079, no lawyers allowed at appointments

2. November 4, 2015 State Department Phasing Out Form 4079 for relinquishments of U.S. citizenship – A review the role played by Form 4079 in different U.S. consulates around the world.

3. February 17, 2016 – New instructions to book Canada appointments to relinquish or renounce US citizenshipdescribing the new centralized process for relinquishment U.S. citizenship in Canada

Today’s (May 26, 2016) post confirms that Form 4079 appears to have been eliminated in Canada. What is expected now?. You being the relinquishment process (which includes renunciation) in Canada (different countries have different rules) by emailing: CanadaCLNinquires@state.gov. You will then receive a reply email which provides instructions.

That is the contents of the automated reply which provides direction and guidance – Here is the questionnaire that is attached to the email:

Questionnaire from CanadaCLNInquiries

As of May 26, 2016 the reply email includes:

__________________________________________________________________________

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Part 15: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – @RepealFATCA on: Why the Canadian banks supported the #FATCA IGA

Jim Jatras of RepealFATCA.com has been a long time opponent of FATCA. He has also been one of the best (if not the best) educators on what FATCA is really about. He spoke at the original “FATCA Forum“, (organized and sponsored by Canada’s Progressive Canadian Party) in 2012. He recently granted an extensive FATCA interview with U.S. tax law firm IRSMedic. Mr. Jatras has an unusually broad understand of FATCA, the American political process and how FATCA could ultimately be defeated.


The above tweet references a letter to the Toronto Star that includes:

Canada’s capitulation to this expensive, invasive and anti-sovereign demand is unnecessary. Canada has many tools to resist FATCA, from World Trade Organization and legal challenges to reciprocal, dollar-for-dollar withholding of payments to U.S. institutions. A “no” from Canada could itself doom FATCA in light of growing U.S. domestic opposition. A FATCA repeal bill has been introduced by Senator Rand Paul, a leading 2016 presidential prospect. The Republican Party, which recently approved a resolution advocating FATCA repeal, will continue to control the House and likely will capture the Senate this year.

What follows are two of his best interviews.

Jim Jatras – 2016

Jim Jatras – 2012

 

 

Tax Haven or Tax Heaven 8: The US attempt to “suck and blow” at the same time – keeping corporate profits out of the USA

The previous posts have argued that:

1. The purpose of a “Tax Haven” is to lure or entice capital from “foreign” jurisdictions.

2. The purpose of U.S. citizenship-based taxation is to lay claim to the capital of other nations and transfer that capital to the U.S. Treasury.

The attraction of capital is a good thing and helpful to nations. In fact, the purpose of “citizenship by investment programs” is another way that countries attract capital.

Yet, the United States has an Internal Revenue Code that (leaving aside the tax rates and the narrow circumstances of Internal Revenue Code S. 871) operates to keep capital out of the United States.

Examples include:

A. The rules that keep U.S. corporations from repatriating corporate profits to the United States.

B. The rules that prevent gifts and bequests (yes this is capital) from “covered expatriates” from returning to the U.S. economy.

C. The oppressive corporate tax rules that incentivize corporations to “invert” and effectively renounce their citizenship.

D. The S. 877A Exit Tax rules that incentivize “Green Card Holders” to move from the United States before they become “long term residents” and subject to the Exit Tax.

The problem is NOT tax havens. The problem is NOT tax evasion. The problem is an “Internal Revenue Code” that operates in a way that is contrary to the formation, investment and retention of capital in the United States. Why is this not obvious? Why doesn’t the United States face up to this obvious problem?

Outside looking in vs. inside looking out …

This seems so clear if one is outside the United States looking in. Perhaps it is impossible to see if one is inside the United States looking out.

The biggest threat to the United States is NOT what takes place outside the United States. The biggest threat to the United States is the Internal Revenue Code of the United States.

What follows is an article that I wrote that appeared in Forbes Magazine.

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@SenTedCruz sponsors “Expatriate Terrorism Act”: threatens certain US citizens with loss of citizenship

By the time I had received this fascinating “hot off the press” information from a U.S. law firm, I had read the article referenced in the above tweet. The article is written by David Bier who is an immigration policy analyst at the Niskanen Center. It has generated interesting discussion at Keith Redmond’s  “American Expatriates Facebook Group“.

Yes, it’s true, Canadian born, U.S. presidential candidate Ted Cruz, has introduced a bill threatening people with the loss of U.S. citizenship (notwithstanding that the U.S. Supreme Court has ruled that U.S. citizenship belongs to the citizen and NOT to the government). It is clear that Senator Cruz, hearkening back to the days of the Viet Nam era and before, is of the view that U.S. citizens remain citizens only as long as Congress allows them to. The purpose of the revocation of citizenship is to provide a mechanism to keep them out of the United States. This is is a form of “border control” – a “Cruz concern” as evidenced by the following @SenTedCruz tweet:

The article in the Huffington Post is remarkably well researched and provides a reasonable overview of the issue.

See for example:

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State Department phasing out Form 4079 for renunciations of U.S. citizenship

On July 10, 2015 a I wrote about the “Major Updates To The Foreign Affairs Manual On U.S. Citizenship Renunciation Procedures“. That post included:

8. Form 4079 is NOT required for “renunciation cases” – but may be useful for the DOS…

While Form DS – 4079, Request for Determination of Possible Loss of United States Citizenship, is not standard or typically necessary for renunciation cases, where there is a question about intent it may prove useful.
Further, the DS -4079 may serve as a helpful tool for information gathering in appropriate cases regarding, for example, ties to the United States and the host country, or possible earlier commission of an expatriating act. In short, consular officers should not seek completion and signature of the DS – 4079 in renunciation cases as a matter of routine but only if pertinent as described above.

Hmmm…. It strikes me that renunciants should NOT seek to complete the form either. Clearly, nothing good can come from it. On the other hand, Form 4079 will continue to be vital for those claiming “relinquishments”. Clearly, the Department of State is beginning to separate “renunciations” from “relinquishments”.

An update …

At least the U.S. Consulates in Nassau and Paris have ceased using Form 4079. As of two weeks ago the Consulate in Bangkok  was still using it. It’s clear that the phaseout of Form 4079 for renunciations has begun. Form 4079 has been replaced with:

Paris

Renunciation of U.S. Citizenship Paris Information

Renunciation Questionnaire

Nassau

CLN QUESTIONS FOR INTERVIEW 2 NASSAU

Canada – Effective May 2016

Questionnaire from CanadaCLNInquiries