Posted on October 6, 2012 by Joe Smith Posted in Issues regarding US persons abroad 64 Comments http://www.bcbusinessonline.ca/personal-finance/us-tax-laws-long-arm-uncle-sam Share this:TwitterFacebookEmailLike this:Like Loading...
@Petros, that’s basically what I think. The consular officer would see that on the 4079 and point out that there was no relinquishment but the person can renounce. From the limited data we have, that seems to be what they’re doing, and it makes sense logically.
I can’t really see why someone who relinquished should be fearful of applying for a CLN, since if it’s a no-go as far as relinquishment, the consulate tells you so. DC rarely rejects what they’re sent by the consulates (obviously the consulates do look at the criteria) and the very few cases of rejected CLN applications that I’ve been able to find are kind of odd situations, not likely to occur with run-of-the-mill people.
I suppose if you relinquished and now you’re afraid you’ll get hit with exit tax, you could take the position that you hadn’t relinquished, therefore not apply for a CLN at all, and simply remain a USC to avoid exit tax (but you’d still spend the rest of your life filing US tax forms, not sure it’s worth it, but it’s a personal choice, maybe some people would feel that’s the best option.)
Anyway, I personally can’t relate to that scenario, I just want this bi-national weirdness over!
*pacifica777, I just want the weirdness over, too. I want to echo to the U.S. the curses of the French persons to the English king and his men in Monty Python and the Holy Grail:
*Wondering. You have hit the nail squarely on the head.
If Mr Williams simply “sat tight” and DID NOTHING, by what mechanism would the US enforce its revenue claim upon him? My understanding is that Canadian courts do not enforce foreign tax revenue claims, and that the Canadian government will not assist in collecting the US tax from any Canadian citizen (unless it was incurred before they became a Canadian citizen).
Firstly, the US would not have a revenue claim because they would not know of his existence. Secondly, even if they knew of his existence, they would have no idea whether or not they had a claim unless he volunteered the information. In any case there is no way to enforce a claim.
‘Dear Sir, We understand you may owe us some money. Dear Sir, Can’t help you.
The best thing for people in his position to do may well be to do nothing, nada, rien , bugger all.
*My personal belief is that for the US Government take any action even in its own courts it must do so in and only in the US District Court for the District of Columbia. Now some not knowledgeable might say so what by definition the US District Court for DC is going to be like home field advantage to IRS and US DOJ. Umm Actually No, the Federal Court system in DC itself especially the US Court of Appeals for the DC Circuit are perhaps collectively by far some of the most anti government judges in the US. American “progressives” say that is because Republican presidents have stacked the court fill to the brim with batshit crazy right wing judges such as Janice Rogers Brown and Brett Kavanaugh who do things such as praise Ayn Rand in their rulings. Others will say the DC Circuit simply is far more prestigous than any other part of the US Federal Court system and has a higher quality of jurist. Historically the Court of Appeal for DC has been a stepping stone to the US Supreme Court although typically for more Conservative judges ala Clarence Thomas, Antonin Scalia, and John Roberts. Failed nominee Robert Bork and former Bill Clinton special prosecutor Kenneth Starr are both DC Circuit alums too.
After having a dicussion many months ago with Jack Townsend who worked many years ago for US DOJ he basically said the US Government will do anything to keep tax litigation criminal and civil out of the DC Circuit. For example he said if he was the government he would argue that a failure to file FBAR case could be held in Detroit not DC because the FBAR processing center is location in Detroit. Having said that I believe the rules of venue in the US Federal Court system are quite clear if any individual has no “ties” to any judicial venue in the US then the case MUST be held in Washington DC.
I am trying to find a link to it but there was a paper written several months claiming especially in cases of extraterritoriality there is a certain scratch everyone’s back mentality between the US Executive, US Legislative, US legal community, and the lower “regional” district and appeals courts in the US basically in favor of this constant expansion of government power and US law both domestically and international. However, the US Supreme Court as shown in Morrison vs NAB(and possibly Kiobel) does not have same type of “political” pressure as the lower US courts to have to “go along” with Congress and broader US public opinion in terms of this constant expansion of extraterritoriality. I would argue the US Court of Appeals for DC is probably more akin to the US Supreme Court in wanting to push back against US public opinion, the US Executive, and the US Congress.
I will note that Jack Townsend himself crictized the US Supreme Court a few months ago basically saying tax law was too “important” to be left to the US Supreme Court(What??). Which I basically read as the US Supreme Court is too willing to let hopelessly guilty and rich people off the hook(in the eyes of US DOJ, US IRS, US pubic opinion, and US lower court judges)
I suspect many tax lawyers might argue that tax cases are too “important” to be left to the US Court of Appeals for the DC Circuit also.
I will have more about this later but question of nationality law(i.e. issuance of CLN’s) are also generally decided to be the DC Circuit and interestingly I get the feeling that there are some DC circuit judges who personally don’t like dual nationality and would be very sympathetic if some of the Brockers here ever found themselves at the Edward B Prettyman Courthouse in Washington DC(right across from the Canadian Embassy of all places). I will bet money that US Supreme Court Justices’ Scalia, Thomas, Alito, and Kennedy if they could(ignore Stare Decisis) would get rid of dual nationality too.
*I have to say this Justice Janice Rogers Brown of the US Court of Appeals for the DC Circuit is my “favorite” American judges. Excerpt below of some what she has to say:
A few days ago, the U.S. Court of Appeals for the District of Columbia Circuit handed down a decision in a little-noticed case involving milk regulations, with a remarkable concurring opinion written by Judge Janice Rogers Brown. Her worldview will surprise nobody who followed Brown’s contentious confirmation to the court widely seen as a feeder to the highest court in the land. (Brown was appointed to the bench by President George W. Bush and confirmed in 2005.) She has described liberal democracy as a form of “slavery” and post-New Deal regulations as “the triumph of our socialist revolution.”As a judge on the California Supreme Court, Brown made waves with speech in 2000, a discursion on the evils of Marxism, socialism, big government, and everything about the New Deal. These views often bled into her writing at the California Supreme Court.
Brown’s opinion in this week’s Hettinga v. United States follows many of these same rhetorical pathways, calling on the U.S. Supreme Court to revisit its decades-old economic liberty jurisprudence, and put courts back in the business of regulating economic freedom as a “fundamental right.” As Brown puts it:
America’s cowboy capitalism was long ago disarmed by a democratic process increasingly dominated by powerful groups with economic interests antithetical to competitors and consumers. And the courts, from which the victims of burdensome regulation sought protection, have been negotiating the terms of surrender since the 1930s. First the Supreme Court allowed state and local jurisdictions to regulate property, pursuant to their police powers, in the public interest, and to “adopt whatever economic policy may reasonably be deemed to promote public welfare.” Nebbia v. New York, 291 U.S. 502, 516 (1934). Then the Court relegated economic liberty to a lower echelon of constitutional protection than personal or political liberty, according restrictions on property rights only minimal review. United States v. Carolene Products Co., 304 U.S. 144, 152–53 (1938). Finally, the Court abdicated its constitutional duty to protect economic rights completely, acknowledging that the only recourse for aggrieved property owners lies in the “democratic process.” Vance v. Bradley, 440 U.S. 93, 97 (1979).
I sure can see why the lawyers in the IRS General Counsel’s Office and the US Department of Justice would shudder in fear of ever having to appear in front of Janice Rogers Brown.
@Tim: I wasn’t aware of Janice Rogers Brown, thanks. I haven’t lived in the US for 25 years. She is one of those rare glimmers of hope for Black America, like Sowell or Williams. My gut feeling is that she is also far more authentic than an Al Sharpton or a Jesse Jackson.
I think Jack Townsend and that Federal Tax Crimes blog are a bunch of douchebags. Take this statement from your hyperlink:
Anyone managing to prevent government tax cheats from conducting another theft is only conducting a “massive raid on the Treasury” in the minds of progressives and other tax eaters.
Without having read through all the postings (for want of time), I will comment on two points:
“One point that must kept in mind whether the 2008 and preceding 2004 exit tax laws comply with the US Canada Tax Treaty. Why is this important well unlike the 1996 law neither AJCA or HEART make any mention of Congress’ intent of to override previously agreed treaty obligations”
Especially in tax laws an “intent to override” is irrelevant. In the absence of ambiguity courts are likely to base their decisions on the black letter of the law. Not every scholar likes this: http://taxprof.typepad.com/taxprof_blog/2009/11/wolff-.html (summarising Mark J. Wolff’s law review article at 9 Fla. Tax Rev. 699 (2009)
“I will also note relinquishment does not help those who were born as dual citizens but basically lived their entire lives in Canada without ever obtaining a US Passport etc.”
Transmission of US nationality to offspring born abroad is dependent upon qualifying residence in the USA (now 5 years, with 2 years after age 14, or residence abroad as a dependent of a USG employee or military). The IRS is not competent to bring an action to establish US nationality. Claims for nationality rise or fall on the strength of proofs offered, including parental affidavit. As time goes on, relevant facts are ever harder to establish. A person who has never been documented as a US citizen and has never exercised an attribute of that citizenship probably would never be challenged on the issue. I am dealing now with a situation in which a mother will need to make a decision whether or not to register the birth of a child with a US consular office: to a certain extent the option is open to her and the child forever, although consular reports of birth abroad are subject to decision in Washington if the child is over age 5.
Further: the mere number of noncompliant US citizens abroad, and the fact that most of them have no US assets or heirs and probably limited assets and income even abroad suggests that the IRS can only cherry-pick a few cases to pursue and that it will rely on automated penalty letters if and when foreign financial institutions report known US persons as having accounts. It is mainly US residents and those with US assets, income or heirs who are under pressure to become compliant. There are interesting implications for bankruptcy law and possibilities for discretionary protective trusts in the case of nonresident persons. Unfortunately few noncompliant middle-class Americans faced with the options now on offer are likely to be able to afford competent counsel.
It seems to me that no former US citizen has anything to gain by seeking a formal decision from the Department of State on his or her current status. That said, I can’t predict how a border guard would respond on presentation of a Canadian (or other) passport that showed a US place of birth when the traveller argued that he or he had been expatriated prior to 1986. US officials sometimes do stupid things: Google “Simas Kudirka”.
Oops — just read the comments on this thread. I guess Roy Berg is not a fan. I’ll take the time to look at his comments in more detail and respond in a few days. My first superficial look suggests he read more into the words than I intended — but let me have a better go at it.
OK — I’m going to have a go at rebutting this, although most of the attacks are vague.
could have avoided filing if he had obtained a Certificate of Loss of
Nationality, but then abandons that position and states that the only
way to bring unfiled returns up do date is to file them.
All the article says is if Williams had sought the CLN instead of entering OVDI, his tax liability (if he indeed has a US tax liability) would not likely have extended beyond 1986. It doesn’t say he could have avoided filing, although I’ve talked to some who believe that to be the case. Bottom line, no one knows for sure, including you. Believe me, he wishes he had gone in that direction now. OVDI has been a financial disaster.
In what way? a little more specific please.
with termination of US tax filing obligations – which is erroneous,
misleading, and dangerous
The article actually doesn’t say that — but in fact that CLN is indeed the first step towards ending whatever tax liability might have existed. For people who attain the CLN by renouncing, the tax rules are fairly clear. For people who are simply notifying the State department of an expatriating act committed several decades ago, the rules are as yet undefined and therefore untested, but I’d have a hard time believing even a US court would allow the imposition of current rules retroactively. Bottom line, the ONLY way to put an end to an ongoing US tax liability is to clearly and firmly ditch the citizenship.
FATCA is described in fairly general terms. Give me an example of a misstatement.
Minister Flaherty isn’t directly quoted anywhere. He is paraphrased extensively based on several comments he has made that are on the public record. Which of those comments do you challenge?
Glad you like the term. If you don’t think the extra-territorial reach of FATCA, and its obvious impact on millions of US expats who are not in any way tax cheats — what term would you use? By the way, take advantage of your computer’s spell checker.
Atrocious journalism. I hope BC Business has the fortitude to
suplement the article with an errata sheet, which would likely be longer
than the article itself.
You are of course entitled to your opinion.
This article is mostly about banks and credit unions and their deeply-rooted discomfort with having to risk breaches of Canadian law in order to root out account holders who may be US persons; that combined with the rather large sums of money they will be required to spend to do so. Maury Williams’ story was important to give readers an understanding of just what a mess this can become. He thinks he got bad advice from professionals who should have known better, and so far it has cost him a lot of money and has impacted his and his family’s health. Would you have taken him down this road, too?
*If someone has reasonable grounds to believe that s/he has been divested of US nationality, the mere filing of an application for a CLN, besides stirring up a hornet’s nest, is likely to give ammunition to agents of the USG who have a revenue interest in proving the opposite. I believe it would be difficult to prosecute for a tax crime anyone who had such a reasonable belief.
However devoted a lawyer may be to his or her clients, there is always a conflict of interest. The whole area of practice of private international law (“conflict of laws”) is riddled with cases that happened only because the original lawyer did not send the client to a more appropriate forum. But had s/he done so the lawyer would have sacrificed fees; and anyway s/he probably didn’t know enough about the “other” forum to provide proper counsel. New areas of law – and that includes the recent interface with immigration and nationality law and tax law – make every client a guinea pig. It is far better to wait until the law is settled and administrative practice has come to be known. At that point there will be law review articles and treatise advice and there will be lawyers with experience in dealing with the subject who can more reliably predict outcomes.
@Arrow, I felt strongly that Berg created a straw man or two in his nebulous rebuttal of your article. Thank you for taking the time to respond; you have more than acquitted yourself. Thanks also for the article which is, as I mentioned in my earlier comment, one of the best articles in a Canadian publication.
@Arrow, I think it is a tremendous article. Thanks so much. I have forwarded itto Craig Scott MP.
*Does the BCBusinessOnline site appear to be down right now and has been for several hours?