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.
@blaze – they ask for citizenship information. It’s the standard know your customer stuff (KYC) that is everywhere. It’s been this way in Urugay (small country to the south) for a long time. Most banks there tell Americans to take a hike.
Welp, at least now I don’t see any options to renouncing…
@Tim
I don’t trust the Commission or Barroso either. Van Rompuy is arguably even less legitimate, since he was just selected in a closed door meeting. I believe in the democratic legitimacy of the European Parliament though. Let’s hope that they do the right thing. The Parliament also has yet to ratify ACTA, which 22 Member states have already ratified. I hope that they shoot that down as well.
As to your second point, you know what, I’ve become so cynical that I doubt it even matters anymore what is legal and what isn’t. These countries are scrambling as fast as they can to appease granddaddy Uncle Sam and couldn’t care less about which laws they trample on along the way. The only legal protection from the US that I believe in anymore is a CLN in my hand!
The fact that our Finance Minister has the balls to stand up to the United States on this issue makes me so proud to be a Canadian. People think Canadians are not aggressive … we are when something is this important.
@OMG: Don’t give them ideas! It would be the new Scarlet Letter–A!
@rogerconklin- do you think that it is possible that they are using dominant citizenship and letting place of birth be the determining factor for U.S. status? After all there are legal limits as to how far a none government official can go in conducting an inquiry.
Maybe asking questions about one’s parentage would be over stepping a bank’s legal grounds?
@DonPomodoro
I totally agree with you on ACTA. Notwithstanding the Commission’s positive pronouncements they can’t allow just five EU states to sign their own agreement on FATCA so at some point this has to go to European parliament.
Having a CLN is probably the best strategy especially if you need to travel to the US on business over the course of your life. I don’t know for sure but I get the sense the State Department is under quite a bit of strain right now to process all the renounciates and it will be interesting to see what repercussions come out of that. Will they add more staff and make it easier for people or will they in fact make it harder
@Tim de facto harder. Long waits at consulates even to get in to see someone. They also don’t always accept relinquishments, and they require two appointments to renounce. Clearly, the whole system is bottle-necking at State and undoubtedly that’s the way they want it–you heard Rice talk about how they fast-tracked the visas for the Eritrean delegation that never arrived. So they could let the people go, but someone has hardened Pharoah’s heart.
@Petros
This is another area the Canadian government needs to put pressure on them. If necessary they need to start doing more group sessions. My guess is when someone in Congress finds out how many resources they are putting toward just the minimal amount they are doing now there will be a huge outcry at which point will really need to make ourselves known. I was wondering if anyone has heard anything from the lady that writes at GenevaLunch about how their meeting went the US Ambassador to Switzerland on the 8th
@tim- I would think that a lot will depend on how the banks play things. If the banks play it safe and require a CLN along with a non-U.S. passport then the demands on the State Department to relax the CLN acquisiton rules will have to be relaxed. Under such a scenario I could see that they would start allowing people to use a local notary and mail in the paperwork.
Also if the banks decide to require a CLN there would be an uproar if the U.S. made them harder to get and the resultant publicity would be most embarrassing to the government.
On the other hand if you consider that it is the normal thing for the government to do the very opposite of what it should do, then it is most likely that getting a CLN will become harder.
My life insurance policy application has place of birth. so they will be notified ASAP of change of status. Local consulate said it will provide photocopy of oath of renunciation.
@Petros – FWIW, whatever the problems elsewhere, I haven’t had any trouble getting appointments in Toronto.
@abmoahp- I didn’t encounter any problems with getting an interview in Calgary. I actually cancelled my first one which I had made in November of last year and in December I was able to get a new appointment for February of this year.
@Broken, Recalcitrant, True, the longest lines are in places like Berlin and Bern, you know cities that start with “ber”.
So…to ask a stupid question…is the final draft of FATCA out?
@Mach7 FATCA as a law is law passed by Congress signed by Obama. The regulations are the IRS rules for implementation, and they are out in draft form, presumably to invite feedback.
Petros, I am impressed that could get that much out of it. I had a quick skim through about 1/4 of it. It was all I could manage, but I came up with 2 relevant bits. (Sorry can’t figure out how to copy it)
1) They are willing to exclude certain FFI’s which are “local” and not providing international banking and therefore not likely to be havens for tax evasion. (Are they admitting that they are not after American “person”‘s abroad who are just using local banking services?)
2) There are certain “Indicia” of US persons which the FFI’s are supposed to look for, including birthplace, address, and some other things, none of which included birthplace or citizenship of parents.
So it really looks like the banks at this stage are not going to pick up on foreign born US citizens unless they have a US address or phone number or have money regularly transferred to the US, or some other such thing that most of us, I would assume, don’t have.
@canuckdoc- well it looks like your local credit union will be excluded or any financial entity that is provincially regulated as opposed to being federally regulated.
Four of my five children are born in Canada so this is good news for them as long as they don’t get involved with any American related financial entity. So I guess the rule is, don’t live like an American. Unfortunately for my one child she was born in the U.S. and so she probably should still get a CLN.
If only FATCA was the only problem.
Even if the FFI doesn’t identify them, for me that’s not a good enough reason to for my children to do nothing. There are other ways they might be “caught”, including if they one day decide to work in the US.
I have encouraged my Canadian born children not to ignore it. My daughter is going to renounce before she she starts making enough money to have to file tax forms for anybody, since she is happy in the UK and is adamant she never wants to work in the US. I am encouraging my son to “comply” until he decides, because then he can renounce whenever he wants, being all up to date on his IRS.
I just don’t want them ever to find themselves in the position I am in
@mach7
Here’s what Deloitte says…
http://www.deloitte.com/view/en_US/us/Services/tax/06ad46bb0c765310VgnVCM1000001a56f00aRCRD.htm
“…These are proposed regulations, not final ones.
The rules released by the Treasury Department and IRS are not yet finalized. Industry can still submit written or electronic comments to the Treasury Department and IRS by April 30. A public hearing is scheduled for May 15.
There’s a lot more to know about the proposed FATCA rules. Deloitte1 will release a more in-depth look at the rules and their implications in the coming days. In the meantime, these high-level takeaways aim to offer some context to help financial services executives begin to understand how FATCA is evolving.”
@CanuckDoc, I am in the same situation as you, as far as children are concerned.
For anybody thinking about alternative citizenship, you may want to look at Henley’s Visa Restriction Index:
https://www.henleyglobal.com/citizenship/visa-restrictions/
@Petros – some Consulates (e.g., Calgary) only require one appointment for renunciation. That could be because it serves a large geographical area; I had to travel 1,300 kms.
@Tim – one of the recent renunciates in Toronto mentioned that Mrs. A. said they had hired more people to handle processing the paperwork. It might have been Baird68 but I can’t remember which post/thread.. My impression was she meant more people hired in Wash DC and that the wait time was ~ 5 months.
Every so often I take a look at the appointment schedule in Toronto and it’s often quite open, so no apparent slow downs here.
@ Rick Blaine I wonder why Canada is not higher up on the list? At any rate this struck me as odd:
Tax Planning Aspects of Alternative Citizenship
There is a growing tendency for many countries to follow the lead of the United States in taxing even non-resident citizens. Alternative citizenship is therefore increasingly important as an effective tool for international tax planning. As a national of two or more different states, you generally have more planning options open to you, and also enjoy more privacy in banking and investment.
Does anyone know about this “growing tendency for many countries to follow the lead of the United States in taxing even non-resident citizens?” I also cannot follow the logic of two citizenships being effective for tax planning. One of the more disturbing aspects of trying to decide to renounce was the off-setting situations of my CDN husband inheriting from me or my dual son. And “more privacy in banking?”
RE: CLN
The idea that restrictions or obligations related to national or ethnic origin could be released by an official “certification” is not new. The Reich paid a lot of attention to this sort of thing.
http://www.holocaustresearchproject.org/holoprelude/reichclaw.html
(link to see original document)
——————– verbatim —————
Petition for exemption of Jewish classification:
Polizeipräsident
Hamburg 3rd November 2542
Herrn
Dr. Hugo Israel Möller
in Hamburg
Rathausstr. 27 II.
II C 10.71.10/263/41
Ref. : Exemption of the children Ingrid Eckler, born in Hamburg on the 29th October 1935, and Irene Sara Eckler, born in Hamburg on the 6th August 1937, from the regulations of the Reich Citizenship Laws and their implementation.
Their former guardian, Dr. Hermann Israel Gerson, applied for the equal grading of the children as Jewish ‘Mischling’, second degree.
As their present guardian, you are hereby informed that on orders from the Reich Interior Minister, due to the war, it is necessary to reduce administration work and such petitions will not be dealt with until further notice.
The certificates sent by your predecessor can be returned on application.
2.) Copy D 51
with File 1
To the Amtsgericht. De12t. 112 Hamburg
with the request to take note.
The Guardianship File, ref. no.112 vn E 83, received 28th October 1942, is herewith returned.ethnicity is not new.