Petros isolates the term “Certificate of Loss of Nationality” (CLN) in the new FATCA rules.
The latest regulatory text (pdf) coming out of Mordor is the IRS’s new rules regarding FATCA (February 8, 2012). The text is in gobbledygook, the language of the Orcs of Mordor, and it is frankly impossible to read, though you can pay me to do it (we will start at $500 an hour–otherwise no deal–I have some experience reading exotic languages). But this is finally why people around the world will have to pay higher banking fees. It will will probably cost banks around the world at least a billion dollars just to pay interpreters to decipher the regulations.
Is your bank going to rat you out because you were born in the United States and you don’t have a CLN? Thanks to word search ability in Adobe reader, I was able to find the word “Certificate of Loss of Nationality” five times: I have isolated it and reproduced it below. If you want to skip reading all that because no one is paying you $500 per hour, then here are the working terms (emphasis mine):
A withholding agent may also treat the individual payee as a foreign person, notwithstanding the U.S. birth place, if the withholding agent obtains a non-U.S. passport or other government-issued identification evidence of citizenship in a country other than the United States and either a copy of the individual’s Certificate of Loss of Nationality of the United States or Form I-407, or a reasonable explanation of the account holder’s renunciation of U.S. citizenship or the reason the account holder did not obtain U.S. citizenship at birth.
Now we’ve already dealt with the term “reasonable cause“. In gobbledygook, that means you had to have been in coma or otherwise incapacitated. Here is a new term, “reasonable explanation”. I wonder what it means in the language of Mordor. Whatever it means, it appears that the CLN is not the only proof of loss of nationality, for we now have “reasonable explanation” as a second type of proof that one can use to get out of being in the cross-hairs of new FATCA regulations.
By the way, I still haven’t figured out what a “withholding agent” is.
Appendix: The occurances of the Certificate of Loss of Nationality are as follows: Twice on page 212:
(C) U.S. place of birth–(1) Accounts opened on or after January 1, 2013. For accounts opened on or after January 1, 2013, a withholding agent has reason to know that a withholding certificate provided by an individual payee or beneficial owner is unreliable or incorrect if the withholding agent has, either on accompanying documentation or as part of its account information, a place of birth for the payee in the United States. A withholding agent may treat the individual payee as a foreign person, notwithstanding the U.S. birth place, if the withholding agent has no knowledge that the individual has any other U.S. indicia described in this paragraph (e) and the withholding agent obtains a copy of the individual’s Certificate of Loss of Nationality of the United States or Form I-407, Abandonment of Lawful Permanent Residence Status. A withholding agent may also treat the individual payee as a foreign person, notwithstanding the U.S. birth place, if the withholding agent obtains a non-U.S. passport or other government-issued identification evidence of citizenship in a country other than the United States and either a copy of the individual’s Certificate of Loss of Nationality of the United States or Form I-407, or a reasonable explanation of the account holder’s renunciation of U.S. citizenship or the reason the account holder did not obtain U.S. citizenship at birth.
(2) Accounts opened prior to January 1, 2013. For accounts opened prior to January 1, 2013, a withholding agent will not be required to conduct a search of its documentation to identify a U.S. place of birth associated with a payee.
Next on pages 216-218:
(C) U.S. place of birth—(1) Accounts opened on or after January 1, 2013. For accounts opened on or after January 1, 2013, a withholding agent has reason to know that documentary evidence provided by an individual payee or [216]beneficial owner to demonstrate the individual’s status as a foreign person is unreliable or incorrect if the documentation contains a U.S. birth place for the payee or the withholding agent has, as part of its account information, a place of birth for the payee in the United States. A withholding agent may treat the individual payee as a foreign person, notwithstanding the U.S. birth place, if the withholding agent has no knowledge that the payee has any other U.S. indicia described in paragraph (e) of this section and the withholding agent obtains a copy of the individual’s Certificate of Loss of Nationality of the United States or Form I-407. A withholding agent may also treat the individual payee as a foreign person, notwithstanding the U.S. birth place, if the withholding agent obtains a valid withholding certificate from the payee that establishes the payee’s foreign status and either a copy of the individual’s Certificate of Loss of Nationality of the United States or Form I-407, or a reasonable explanation of the account holder’s renunciation of U.S. citizenship or the reason the account holder did not obtain U.S. citizenship at birth.
(2) Accounts opened prior to January 1, 2013. For accounts opened prior to January 1, 2013, a withholding agent will not be required to conduct a search of its documentation to identify a U.S. place of birth associated with a payee. However, if the withholding agent, on or after January 1, 2013, does review documentation that contains a U.S. birth place for a payee that is treated as a foreign person, then the account will be considered to have a experienced a change of circumstance as of the date that the withholding agent reviewed the documentation and the withholding agent will be considered to have reason to [217] know that a payee is a U.S. person. See paragraph (c)(6)(ii)(D) of this section for rules regarding the time period allowed to cure a change in circumstance.
Finally again on page 238:
(1) If the account holder is identified as a U.S. resident or citizen, the participating FFI must request a Form W-9 and a valid and effective waiver as described in section 1471(b)(1)(F)(i), if necessary, from the account holder.
(2) If the account holder information unambiguously indicates a U.S. place of birth, the participating FFI must request either a Form W-9 and a valid and effective waiver described in section 1471(b)(1)(F)(i), if necessary, or a Form W-8BEN and a non-U.S. passport or other government-issued identification evidencing citizenship in a country other than the United States. In addition, to establish the foreign status of any account holder with a U.S. place of birth, the participating FFI must obtain a copy of the individual’s Certificate of Loss of Nationality of the United States or Form I-407, or a reasonable explanation of the account holder’s renunciation of U.S. citizenship or the reason the account holder did not obtain U.S. citizenship at birth.
Reasonable explanation. “I became a Canadian citizen with the intention of relinquishing my US citizenship..”
End of story.
Well this looks promising. I guess that it is the only way to accomodate the right to privacy that dual citizens have. In many ways it seems to be a fall back to the previous position in which banks only had to report the accounts of non resident U.S. citizens. But now a country’s resident U.S. citizens are no longer protected by the country’s privacy laws.
1- The last “mention” is the clearest,
2- Looks like people born outside the US are safe,
3- People like me, who only have the US passport for now are screwed. Either the bank says take a hike or “if you’re lucky”, fill out this IRS form. Talk about being treated like a dog on a leash. This is disgusting!
4- The “magical” it seems is to renounce before 01/01/2013. Because if I remember correctly, the renunciation date on the CLN is the date of the actual renuncation and not when you actually received the CLN.
Peter, I’m taking the “reasonable explanation” to mean someone whose parents were possibly consular officials from other countries. Maybe someone else has some better insight into this.
Canadian banks cannot ask for this information under the Bank Act. Period. A deal between Flaherty and the US would seem to be unlikely at this point. Flaherty needs to call up Emily S McMahon Deputy Assistant Secretary for Tax Policy and tell her to take her law degree from Yale(1985) and stick it someplace in her body where the sun doesn’t shine.
@geeez- you are correct. Your CLN will be dated for the day when you appeared before a Counsular official and performed the act of renunciation. It can take 6 mos. to a year before you actually receive the certificate.
Thank you Petros. You’ve earned your $500 an hour! IRS will still probably try to nab you for a large portion of it–even though you have formally relinquished.
As you know, I had decided earlier this week that I will not formally relinquish because I did that 40 years ago and I don’t want to get caught up in US systems again in any way. If I’m reading this correctly, there is no need for a CLN as long as I can prove I’m a Canadian citizen and a “reasonable explanation” of why I’m no longer US citizen.
More importantly, it does not seem to demand that FFIs request info about place of birth from their customers. Based on information Tim posted elsewhere, a birth certificate is only accepted as ID at a Canadian financial institutions if birth certificate is Canadian. So, there is no way for the FFI to know where a person was born. So, even for Canadian residents who are still US citizens, there is limited ability for Canadian FIs to know where a customer was born. The info they have on existing customers does not contain that information. For new accounts, if people provide their SIN, permanent resident card or driver’s license, there is no record of place of birth.
Geez, what are the laws in Brazil? Do financial institutions actually ask for a birth certificate to identify place of birth or national origin? How soon will you be able to get your Brazilian citizenship and passport?
I will sleep better tonight. I hope IRS won’t change the rules tomorrow and will be more reasonable in administering “reasonable explanation” than they are with “reasonable cause.”
I’m going for my CLN, no matter what. I’ll keep it with my Canadian passport for those dangerous journeys past the Black Gates of Mordor, and hopefully as a protective talisman against whatever new threats the empire may come up with. More importantly, I want to frame a copy and proudly hang it beside my Certificate of Canadian Citizenship – a match made in heaven, wouldn’t you agree?
@Blaze
There does still appear to be a conflict between what the US wants and Canadian law so I wouldn’t say things are completely settled. Its obvious with the announcement of the agreements with the five European countries what ever happens with Canada will be done on a government to government basis. I guess the question is in that type of framework what will the US demand and what will be the time frame for getting it implemented and what Canada’s response will be. I would say “Resonable Explanation” is something still to be determined. I expect on this and other issues relations between Canada and the US will continue to deterioate so I wouldn’t expect a resolution anytime soon.
What is form I-407? Is it possible that you could fill out form I-407 instead of paying $450 to get a CLN? I am planning to renounce soon, before they decide to raise the fee even higher, but maybe form I-407 is an alternative.
@Joe Smith, I like your idea. Maybe we could just print those words in bold type on a piece of paper and keep it with our Canadian passports when we pass through the “Black Gates of Mordor” as Deckard1138 accurately describes the border.
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@everyone- I just wanted to say that before any jumps up and gives the U.S. credit for doing the right thing after having finally exhausted all other alternatives- a paraphrase of a statement by Winston Churchill; that you should think about this.
If FATCA had been written as a College paper on the international monitoring of bank accounts held by a country’s nationals in other jurisdictions, that it would have gotten a “F”. When you consider the fact that this piece of legislation was written and passed by a legislative and Executive body that probably has one of the highest percentages of people possessing a post secondary degree, you have to ask some serious questions about their level of intelligence. These guys would have been laughed out of their program of study.
Basically the only way that FATCA legislation has been raised from the grade of “F” to that of “C+” is because other nations and private banking institutions have had to do the hard intellectual work that the U.S. government should have done. If anyone deserves to be paid for the work that had gone into this legislation it is not the people in Congress or the President. But rather the legislators of other countries and the millions of American expat citizens who protested to the legislators in their countries of residence and spent countless hours bloging about this on the Internet.
Credit should also be given to the brave people who renuciated/relinquished their U.S. citizenship rather than have their rights trampled upon by an incompetent governmental body composed of intellectually lazy, self enriching, Washington politicians.
@somerfugl- I-407 is your abandonment of long term residence in the U.S. In other words it is what Green Card holders get and is the equivalent of a CLN
I think that most banks will play this safe and routinely demand a CLN for anyone with a US birthplace, regardless of what the regulations say.
I personally can’t wait to have a CLN. I remember the last time that I tried to open a bank account and said that he couldn’t because my US birth place indicated having US citizenship. That had me tongue tied…I would have loved to have whipped out a CLN and have said: “What, did you mean this citizenship here?” 😛
I think its so sad that its come to this. The US should be ashamed, but all of the “IRS partner countries” should hang their heads even lower in shame. I will never forgive Italy or the EU if they implement any of the proposed “deals” which contravene EU data protection laws.
i just found form I-407. http://photos.state.gov/libraries/164203/dhs/I-407.pdf
It looks like this form only applies to “the abandonment of residence of a lawful permanent resident alien of the United States.” So unfortunately it wouldn’t apply to those of us who were born in the US.
@somerfugl
Form I-407 is ” designed to provide a simple procedure to record the abandonment of residence of a lawful permanent resident alien of the United States.” Someone who wasn’t a citizen but was a long term resident I guess. Too bad. I would love to abandon.
Petros, An interesting change from the previous draft which said that an account holder with a US place of birth “will be required to provide a written explanation regarding the account holder’s renunciation of US citizenship” However, for Canadians it is moot. You do not need to tell your financial institution where you were born. They won’t ask. I.D. other than your passport is perfectly acceptable. “Don’t ask, don’t tell”
@DonPomodoro
This might be stepping on your turf a little bit more than I should but I don’t happen think too much of EU Commission President Manuel Barroso who I think is a competely toady of the US and was installed in his position by former UK Prime Minister Tony Blair who was an even bigger toady of the US.
@DonPomodoro
Do you think it is really legal to demand a CLN under Italian or EU non discrimination law. I know that be changed but I wonder if Italy et al bit off more than they can chew.
@all, Whoa, this new FATCA regulation as hole in it big enough to drive a Mercedes bus through (That’s Brazils biggest bus manufactrer). I don’t see one word about detecting US citizens who were born outside of the US to a US parent? Unless I missed it there is no requirement that foreign banks be provided by account holders born outside of the US with proof that neither of their parents held US citizenship. There are certainly a lot of Canadian citizens that could sneak through this loophole.
I can’t believe that the IRS doesn’t appear to realize that such persons are just as much US citizens as a person born in the US. Maybe somebody better tell Doug Shulman that he could loose his job for an oversight like this.
@ Roger I should mention that I only pulled out the 4-5 pages of text which mention the CLN. You’d have to read the entire 400 pages in orcish before you can be sure that Shulman has made no provision for US citizens born outside the US. Still, it really seems that the real problem is being born in the United States.
@roger,
A child born to a Canadian citizen is not always Canadian citizen unless the parent has lived in Canada for certain years.
I guess that is also true to US citizenship.
Under the Canadian Charter of Rights and Freedoms the same Consitutional protections are afforded to all Citizens and legal residents, so I don’t know how this would work in Canada.
Petros said: …the real problem is being born in the United States
These poor souls should all get tattoos … Born into Slavery. The IRS would probably love that, they’d be easier to spot.
@Roger
Hope then they carve this part in stone.
@Roger and others. I heard a few months ago from someone who spoke with an IRS employee who said IRS was reviewing the issue of children born outside US to US citizens. Do you this could be the result?
@omghe’sstillanamerican,
My kids will have tattoos “born free” instead. We will make it change for all expats being free from IRS. The other day, my 6 years old son told me “my favorite person is MLK, and my favorite president is George Washington”. Folks, there is a hope of change, and someday, you will all come back to claim your US citizenship.