The GPO has just published the full text of Schumer’s proposed Ex-PATRIOT Act (S. 3205). The act creates the new category of “specified expatriates” (a subset of 877A(g)(1)’s “covered expatriates”) and gives rules for determining who is a “specified expatriate”. It then imposes a tax of 30% on U.S. capital gains of “specified expatriates”, and makes them inadmissible to the United States.
The first thing to note about the Ex-PATRIOT Act is that it would close the Reed Amendment “relinquishment loophole”. The 1996 Reed Amendment added INA 212(a)(10)(E), which states:
(E) FORMER CITIZENS WHO RENOUNCED CITIZENSHIP TO AVOID TAXATION
Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible.
(I wrote a Wikipedia article about the Reed Amendment for those who would like more background.) The plain language of the Reed Amendment alone (without delving into the legislative intent) would not seem to make relinquishers inadmissible. In contrast, the Ex-PATRIOT Act retains the title of that paragraph of the INA, but changes the body significantly: Timmy Geithner rather than Eric Holder would be empowered to exclude people from the U.S., and it would no longer matter whether you gave up U.S. citizenship by relinquishment or renunciation:
(i) IN GENERAL- Any alien who is determined by the Secretary of the Treasury to be a specified expatriate is inadmissible.
(ii) SPECIFIED EXPATRIATE- In this subparagraph, the term `specified expatriate’ has the meaning given that term in section 871(a)(2)(C) of the Internal Revenue Code of 1986.
(iii) NOTIFICATION OF EXCEPTED INDIVIDUALS- The Secretary of the Treasury shall notify the Secretary of State and the Secretary of Homeland Security of the name of each individual who the Secretary of the Treasury has determined is not a specified expatriate under section 871(a)(2)(C)(ii) of the Internal Revenue Code of 1986.
The other crucial part of the act is the definition of a “specified expatriate”
(C) SPECIFIED EXPATRIATE-
(i) IN GENERAL- For purposes of subparagraph (A), the term `specified expatriate’ means, with respect to any taxable year, any covered expatriate (as defined in section 877A(g)(1)) whose expatriation date (as defined in section 877A(g)(3)) occurs after the date which is 10 years prior to the date of the enactment of this subparagraph.
(ii) EXCEPTION- An individual shall not be considered a specified expatriate if such individual establishes to the satisfaction of the Secretary that the loss of such individual’s United States citizenship did not result in a substantial reduction in taxes.
This is a much tighter standard than the old procedure (I believe prior to 2004) under which former citizens could apply to the IRS for a ruling that they had non-tax reasons for giving up citizenship (see here for details). Instead it presumes you are guilty, and the only way to prove your innocence is to demonstrate that your tax bill did not go down. There are many countries with lower tax rates than the U.S. which also do not permit dual citizenship. An American who settled in one of those countries, achieved career or entrepreneurial success (or even just bought a house in the middle of a downturn and then waited a decade while real estate went up and the U.S. dollar went down), and then naturalised so he could vote on issues in the place where he lived, could become a permanent exile from the U.S.
Furthermore, the Ex-PATRIOT Act provides no exception for naturalised citizens returning to their country of origin after retirement, Americans who married non-Americans and settled abroad, or any of the other dozens of legitimate non-tax reasons that people would leave the United States. The only exceptions are those provided in 877A: people who were dual citizens at birth, or people who renounced U.S. citizenship within six months of turning 18 and did not live in the U.S. for more than 10 years.
And let’s not forget that “covered expatriates” are not just rich people. There is a third category of covered expatriate which everyone forgets about, besides those meeting the asset test or tax liability test: “877(a)(2)(C) covered expatriates”, ordinary emigrants who missed out on some of the IRS’ countless forms in their years of leading ordinary financial lives overseas, and thus cannot honestly check the Form 8854 box certifying that they have complied with all their tax obligations in the past five years. They too could become “specified expatriates” at Geithner’s whim.
@ Outraged, Please, Stephen’s article is pretty tame, and only a bit patriotic. The Hall of Shame must have people in it who either shame us or who actively promote policies that hurt us.
I think we need to try to explain to him patiently our problems rather than trying to shame him. I agree that he is on the border of really pissing us off. But let’s try to work with him. I’ll send him an e-mail.
Besides, he can’t be all bad, look at his last name!
My email to Stephen Dunn
Hi Stephen
Very nice sentimental piece you wrote about the bones of patriots washing to shore. I pledged to the Queen because she is the only one standing between me and the confiscatory and evil IRS, which is a thousand times worse than King George was to the colonist, what with his tea tax and other abuses.
I’ve been threatened with 300% fines of my financial wealth. I must protect myself and my wife somehow. The Canadian crown has promised to do that.
Yes, the United States rescues the world from every danger. But who the hell is going to protect us from the United States?
Your friend,
Peter W. Dunn
@Watcher, Your suspicion is correct. I know former US residents who decided to return to their country because of FATCA and the like. They were not planning to stay in the US forever, but they would have stayed a few more years. By the way, this is how I heard of FATCA and became aware of the problems of citizenship-based taxation.
An additional e-mail that I sent to Stephen Dunn:
Hi Stephen,
One more thing. It is not really rule of law in the United States. It is called crony capitalism. Consider how not one bankster went to jail over the subprime mortgage crisis. Who has been charge with theft when Obama backer and former democrat governor of New Jersey Jon Corzine saw billions of private clients accounts pillaged under his watch at now defunct MF Global. I don’t call this rule of law. I call this crony capitalism.
Now the Patriot Act is not rule of law. Please read my article, http://www.americanthinker.com/2012/05/no_civilized_country_would_ever_banish_eduardo_saverin.html
Have nice day,
Peter
@Petros, so you think I overreacted, eh? Well how about putting his name up for the Hall of Lame instead?
@ outraged, let’s see how he responds to my emails. May be he’d be willing to do a piece showing our side of the story.
Something else that puzzles me about this bill is the apparent unseemly rush to get it through a vote. Since it’s retroactive for ten years, you wouldn’t think there’d be that much urgency.
Could it be that the idiots that proposed it would like to get it done and dusted as fast as possible and while most of the press is in full-steam outrage? So that more measured and balanced folk won’t have the opportunity to point out its huge gaping flaws, inconsistencies, and unintended consequences until it’s too late to stop it? Of course not.
I personally feel it’s unconstitutional, especially with it being retroactive ten years. Also completely goes against the Anglo-Saxon notion of Magna Carta. Seems the US is heading towards the Napoleonic Code and especially capital cronyism.
I see two possible motives behind it:
1. Chucky Cheese wants to put himself in the spotlight while the issue of Severin renouncing citizenship is grabbing headlines.
2. The Dems want to stem the outflow of citizenship renunciations because the high numbers make them look bad while bringing into question the sensibility of FATCA.
As usual, having no representation, ex-pats are convenient scapegoats.
@ Watcher who wrote: “Where this could really smart is when a green card holder loses US permanent residency involuntarily because they have to live outside the US for a year or two. All the disadvantages of the “exit tax”, the permanent bar on re-entry, and a decade of further servitude to US capital gains taxes for something as simple as, say, having to spend time looking after a sick relative in their home country.”
That sounds like me. I’ve returned their darn expired green card, no word back yet, but I’ve already decided it’s out of my hands now so, official stamp or not, I am NOT a green card holder and I will act accordingly. However, even if I hit the exit tax threshold (I don’t) I would not pay it or provide them any information on a form. I sympathize with anyone who needs to visit the USA but I have not been there for 15 years and I will not go there in the future. As for US capital gains taxes well I have no US source income so they couldn’t get anything from me there either. I guess what it boils down to is I’m not going there and they are not getting anything from me. But here’s something to consider, suppose everything you say comes to pass for a poor hapless, unwitting holder of an expired green card. Think of the really, really bad PR when a sweet little old granny (not me but this is a better example) is blocked at the border holding her Canadian passport in her hands and simply wanting to enter the USA to visit her American family and friends.
As for that Stephen Dunn character (an unfortunate last name for our Peter’s sake). What a load of patriotic sounding but irrelevant poop (or drivel as some commenters called it)! Maybe he should take another stroll down history lane and take a look at the sacrifice our Isaac Brock made to save Canada from American occupation in the War of 1812. I appreciate your outreach, Peter, but this way out other Dunn is, at the very least, Hall of Lame material as outragedcanadian suggested.
These “politicians” just come across as whiny little kids full of a lot of hot air. If this passes all that it will do to me is ensure that I don’t bring in any foreign earned money into the US on holiday and will go out of my way to make sure that I don’t invest in the US. Good move senators 😛
I have my first renunciation appointment tomorrow. Stuff like this heightens my ambivalence:
On the one hand, this makes my decision harder because I am very sad about the potential of never being able to enter the US again – and it saddens me.
On the other hand, this makes my decision even easier, because I can only conclude that it will only get worse, and if I don’t get out while I can, I may well be well and truly screwed.
@Gentleman: The chance that you will not be able to enter the US again is much lower than the probability that things will get worse. Put another way, if you renounce, you MAY encounter problems getting back in. If you don’t renounce, it WILL get worse for you. Go into the appointment with your head high, and Godspeed.
@Gentleman’s Rapier, I also wish you the best. If my parents were no longer here, I too would be seriously considering it but simply cannot risk not being able to visit. Hoping things will improve.
@ Gentleman
First appointment was a bit tense with lots of questions about why I wanted to expatriate.
Second appointment was more casual and focused on trying to talk me out of it. A sort of good cop / bad cop approach.
Good luck and you might as well enjoy letting the door hit you in the ass. Schumer, Casey and the rest of the Demo-commies are determined to slam it on us anyway.
Nice quote from an article over at The Hill by GOP strategist Cheri Jacobus (Twitter: @CheriJacobus):
Simon Black also has some interesting analysis in his latest newsletter:
Previously I was conflicted about renouncing. I have no need of my citizenship, but it seemed foolish to close a door unnecessarily. Now the message is loud and clear – get out while you still can.
My only interest in future visits to the US is to take my daughters to see the Grand Canyon. It is bizarre that renouncing now is the best thing I can do to protect my ability to do so…
Thanks for all the well-wishing, all.
@foxyladyhawk thanks for clarifying it a bit better for me. That’s exactly why I’m doing it.
Getting married overseas is pretty funny. The sales pitch the embassy tries to make on getting a green card for your spouse is laughable. If there is anyone else in the room when you point out the absolute stupidity in doing that, you’ll be kindly escorted off the grounds by a nice man with a gun. Speaking from experience.
@ A Gentleman’s Rapier
Today’s your big day. Good luck! Hope you’ll let us know how it goes. I wonder how aware the consulate staff is of the Ex-PATRIOT Act? Now don’t ask them though. You need to keep the encounter low key. It’s just me wondering is all.
@ harold
No kidding? You were actually escorted out because you were only too aware of the consequences of getting your new bride a kryptonite card? Wow!
@Em – kyptonite card… too funny
@Harold – my experiences here down South were:
1) The DoS guys showed shock, bewilderment, and frustration when I said that I didn’t care to register my kid, and my wife can care less about a green card.
@All – this is good because all it does is hasten the downfall (and hopeful change to the US). They are sending a very clear message throughout the world — “Come here and you can never leave. If you DO become successful, you have to pay through the nose to leave.”
Personally, I’m not in the income bracket to really be concerned about it, even if I did want to go back there.
@Em, kryptonite card, LOL! Reminds me of the Globe and Mail article about Superman renouncing citizenship (sorry, can’t find the Brock link):
http://www.theglobeandmail.com/news/world/americas/truth-justice-and-becoming-un-american/article2112388/
Interesting to see the various responses to the new bill on how it will affect renunciations.
@Eric: you quote Simon Black saying: “More importantly, this bill is also a major deterrent for people who are thinking about renouncing US citizenship today. The passage of this law will undoubtedly cause many people who were considering expatriation to abandon the idea altogether as the thought of being permanently barred from entry is too much to bear.”
@Gabriel says: “Previously I was conflicted about renouncing. I have no need of my citizenship, but it seemed foolish to close a door unnecessarily. Now the message is loud and clear – get out while you still can.”
Both are undoubtedly true. This will cause major anguish to people whose future will be profoundly altered by this bill in ways they are utterly unable to predict. Even the threat of banishment is cruel and unusual punishment. It has placed many many people, myself included, at a clear fork in the road of our lives.
I hear tell that many conservatives are furious about the bill and are letting Boehner know it. If he backs off his support for the bill, it won’t pass. Wouldn’t it be nice if we could all just put this catastrophe behind us and go back to the mere nightmare we were living in a few days ago?