Tag Archives: accidental Americans

Part 25: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – What if the 8 month year old Canadian is a “US Person”?

 

Is it Congress or Treasury that is responsible for “taxation-based citizenship”? Perhaps change is through regulation and not law!

This post is a continuation to my recent post: “The Internal Revenue Code does not explicitly define “citizen”, “citizenship” or require “citizenship-based taxation“. That post was reposted at the Isaac Brock Society, and received a comment which included:

Your statement that the IRC does not explicitly define citizenship is technically correct. It is also misleading. When the IRC was codified in 1939, the Secretary of Treasury was given an order to issue all needful regulations. That mandate is now found at 26 USC 7805. The needful regulation of the Secretary, Treasury Regulation, 26 CFR 1.1-1(c) explicitly defines citizenship in terms of the 14th Amendment and it included the term subject. 26 CFR 1.1-1(a) explicitly states that the tax imposed by section 1 of the IRC imposes the tax on citizens and residents. It does not list any other type, class or category of person upon the tax may be imposed by force.

In the original post I had demonstrated why taxation based on “citizenship” was a reasonable inference from Sections 1 and 2 of the Internal Revenue Code. The basic reasoning from Sections 1 and 2 of the Internal Revenue (without consideration of outside sources) is reflected in the following syllogism:

1. All individuals with the exception of non-resident aliens are subject to U.S. taxation.

2. Citizens are individuals who are NOT “nonresident aliens”

Therefore, citizens are subject to taxation.

Nevertheless, the comment raises a very interesting question. To put it simply the question is:

Could U.S. Treasury/IRS by regulation exempt Americans abroad from U.S. taxation?

The purpose of this post is to explore this very interesting question.

Let’s work with the information in the comment.

1. S. 7805 of the Internal Revenue Code gives U.S. Treasury the authority to make regulations to implement the provisions of the Internal Revenue Code.

(a) Authorization

Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

2. The regulation made to interpret S. 7805 of the Internal Revenue Code is:

§ 1.1-1 Income tax on individuals.

(a) General rule.

(1) Section 1 of the Code imposes an income tax on the income of every individual who is a citizen or resident of the United States and, to the extent provided by section 871(b) or 877(b), on the income of a nonresident alien individual. …

(JR Note: This does NOT say ONLY “citizen or resident”, but okay.)

(b) Citizens or residents of the United States liable to tax. In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States. …

(c) Who is a citizen. Every person born or naturalized in the United States and subject to its jurisdiction is a citizen. For other rules governing the acquisition of citizenship, see chapters 1 and 2 of title III of the Immigration and Nationality Act (8 U.S.C. 1401-1459). For rules governing loss of citizenship, see sections 349 to 357, inclusive, of such Act (8 U.S.C. 1481-1489), Schneider v. Rusk, (1964) 377 U.S. 163, and Rev. Rul. 70-506, C.B. 1970-2, 1. For rules pertaining to persons who are nationals but not citizens at birth, e.g., a person born in American Samoa, see section 308 of such Act (8 U.S.C. 1408). For special rules applicable to certain expatriates who have lost citizenship with a principal purpose of avoiding certain taxes, see section 877. A foreigner who has filed his declaration of intention of becoming a citizen but who has not yet been admitted to citizenship by a final order of a naturalization court is an alien.

All well and good, what might this mean? Why might this be helpful?

A possible conclusion:

In the above regulation Treasury appears to have restricted the meaning and scope of the word “individual” to “citizen or resident”. For example a U.S. national is a broader term than citizen. (Confirmed by S. C of the above regulation “For rules pertaining to persons who are nationals but not citizens at birth“). Yet, in this regulation Treasury appears to have excluded “nationals”, who clearly are “individuals”, from payment of the income taxes imposed in Subtitle A of Title 26. Yet, U.S. “nationals” are clearly “individuals”.

Put it another way: In this Treasury regulation, Treasury is excluding at least one class of “individuals” (“nationals”) from the Income Tax. If Treasury can exclude one class of persons from the meaning of “individuals” for the purposes of S. 1 of the Internal Revenue Code, then why can’t it exclude another class of individuals?

I nominate Americans abroad as a class of “individuals” that Treasury could ALSO exempt from taxation under Subtitle A of Title 26 (the income tax).

To put it another way:

Could “taxation-based citizenship” be abolished by Treasury/IRS regulation? This seems like a simple argument. Why has this argument not been made before?

Afterthought …

In the last two Obama budgets, the White House has recognized the injustice of imposing “U.S. taxation” on certain “accidental Americans“. If Treasury believes it can define “individuals” in a way that excludes certain “individuals” from U.S. Income tax, then why not let the Obama government solve this problem through regulation (which he loves doing anyway) rather than waiting for Congress to change the law (at best as part of major tax reform) or through the Alliance For The Defeat of Citizenship Taxation lawsuit.

A question for President Obama and Democrats who have caused all the problems:

Cook v. Tait just means that the U.S. had (at least in 1924) the constitutional right to impose citizenship-based taxation. This does not mean that the U.S. is required to have citizenship-based taxation.

How about abolishing citizenship-based taxation through regulation?

With the stroke of a pen you could solve this problem – that is if you want to!

In fact, here is recent precedent of your attempting to amend the Internal Revenue Code by regulation:

Yes we can!!!

John Richardson

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

Tax Haven or Tax Heaven 4: Why bother “poaching capital” as a Tax Haven, if you can steal the capital using citizenship-based taxation?

Involuntary “poaching” of capital – “citizenship-based taxation”

U.S. citizenship-based taxation ALSO results in the direct “poaching of capital” from other nations! A thoughtful post describing the cost of U.S. “poaching” to Canada is here.

 

Through “citizenship-based taxation” the United States has turned U.S. citizens residing in other nations into “Weapons of Capital Extraction”. By imposing direct taxation on U.S. persons in other nations, the United States transfers the capital of other nations to the U.S. Treasury.

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