120 thoughts on “MUST READ paper defending FATCA and Citizenship based taxation”
“A citizenship-based tax regime minimizes the role of taxes in a citizen’s residency decision. If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors”
That’s true only if all of one’s residency decisions were equal with respect to one’s tax situation. But why would anyone assume that?
If someone actually realized what the tax and reporting implications were for various residency choices (outside of the US), tax considerations would dominate the decision process, and not in favor of leaving the US.
I’m not going to bother reading the article. Thanks to those of you who have provided summaries and commentary. I have just one quick question to add for Mr. Kirsch:
If CBT is good policy and practice, why are almost all countries in the world using RBT instead?
I’m happier than ever that I’m no longer a US citizen and don’t have to deal with such nonsense.
@serfingUSA, I disagree with the statement of the author here. “If a citizen is subject to U.S. tax regardless of where he lives”, this means that the citizen will have to file 2 tax returns if he chooses to leave the US, therefore increasing his cost and burden therefore, his residency decision IS governed by tax factors. It won’t be governed by tax factors if the citizen would only have to file 1 tax return regardless of where he lives. Then, the residency decision will be governed by non tax factors, like quality of live, family work balance, healthcare etc…
The author does not make sense on this one.
I skimmed the article last night but am not going to delve into it seeing everyone else’s feelings are like mine.
As long as the “entitled” US retains Citizenship-Based Taxation, nothing will be fair one country to another in solving the real tax evasion problems — Residence-Based Taxation will better find the real culprits “residing in the US and sending their untaxed monies offshore.” Surely, the lawmakers of the US can understand this; they ignore the consequences. Citizenship-Based Taxation reaps enormous amounts of collateral damage, which just tells me that the US cares not an iota about collateral damage. We are the cost of whatever of their efforts excuses collateral damage.
Did Henry James file his FBARs?
Just kidding.
In the late 19th century, American expats probably were wealthy or part of an artistic or literary elite. Situation entirely different now.
Pray tell . Why is this crap a MUST READ?
Professors have to write in journals to get promoted. Many will write any old BS in the guise of scholarly research. It used to be called ‘publish or perish’. Doesn’t make it worth paying any attention to.
We wouldn’t want the author’s pov to be clouded by facts, would we?
@Johnson
The FEIE neutralizes the main objective of CBT – which is to levy taxes. I believe we’re going to find out VERY SOON whether anyone’s made a convincing enough argument to keep the FEIE loophole as part of broader tax reform.
Thomas L. Hungerford describes five tax loopholes that should be considered for the chopping block, including the FEIE:
However, his rationale that CBT is a way for the government to “influence” where citizens choose to live reinforces our belief that CBT is more about control than it is taxes.
For all their lip service to the idea of the individual, freedom and rights, the USG wants to exercise control over all it views as citizen/property.
I skimmed the article and agree that the author overlooks the most obvious problems that expats face: the burdens and costs of compliance. Sure, I could actually understand the notion that to continue or maintain the ‘club membership’ that perhaps I could have been willing to pay a small ongoing tribute tax of perhaps a few hundred dollars; but to have continued to suffer ongoing accounting fees of over $2000-5000 EACH year for the REST of my life, with US tax returns of at least 100, if not 200 pages long would have been overly burdensome and absurd.
Plus, he fails to make any mentions of the stealthy forms of taxation that would inevitably result in double taxation for many expats such as PFIC taxation, or taxation on capital gains of one’s primary residence in many countries such as Canada. Furthermore, he didn’t seem to emphasize that many could be inadvertently caught out by draconian fines for innocent failure to file foreign trust forms (3520 and 3520A) which would almost be required for most government-registered accounts such as RESPs, possibly employer-sponsored pensions plans, etc.
It would seem to me that the main method of taxation for expats will thus be by stealth and penalty revenue. What a crock. 🙁
It’s interesting that those USP’s abroad who end up paying no tax would be considered by the USG and homelanders to have all of their benefits subsidized by other US taxpayers.
As SwissPony points out, this guy was (is?) actually a policy wonk in the U.S. Treasury Dept., and thus it is worth reading just to try to understand the Official Mind in these matters.
The thing that struck me the most was the American Exceptionalist ideology. Any other country might think ‘gosh, we’re the only ones doing this anymore? Maybe we should ask everyone else why they don’t do it, or why they stopped doing it, and learn something. Maybe they have some good ideas we could adopt.’
Not Kirsch. No, he actually at one point in the article says that the U.S. might be a leader in this regard, and given the new global regime of increasing bank transparency, and given the victory of the DoJ and Treasury Dept. over the Swiss (which he crows over), then hey, other countries should want to harmonize with the U.S. position, instead of the U.S. harmonizing with the other 190 odd world jurisdictions by dropping CBT regime.
The Exceptionalism also comes out in the condescending tone in which he writes about USCs abroad, including duals. As another poster here said, he seems to think USC nationality is always dominant, or should be, because of that oh-so-precious Right to Return, or else the general awesomeness of the little blue passport…or something. You’ve been living abroad for decades and given your loyalty to your new country by taking out citizenship? Well, isn’t that special. Your USC status comes first.’ is what I am hearing from him.
I swear this is why the College of Cardinals will never elect a U.S. Pope. The Power of the Keys notwithstanding, Kirsch and the IRS would be demanding His Holiness fork over Peter’s Pence to Treasury, and when he doesn’t, federal agents would be confiscating cathedrals all over America.
Government shutdown aside, where ARE those renunciation numbers?
“A citizenship-based tax regime minimizes the role of taxes in a citizen’s residency decision. If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors …
This guy is a real indicator of my theory that Americans have some sort of fixation on taxes. Like this guy really believes tax is a factor in why people choose to immigrate from one country to another?! Sheesh! Never ran into that in my decades working in immigration. Likewise not at Brock – though many Brockers have been compelled to renounce so they could continue living a normal life where they already live, their country of residence which they chose for reasons completely unrelated to tax.
That country is so self-centred and tax-centric it just keeps sounding more like another planet!
@monalisa1776, ok, well, assuming that the US got smart, dropped FATCA, abolished CBT, slashed its military and reduced the size of its government to 10 people, then I could picture myself paying $50 per year to maintain US citizenship. Yet, I’d want something in return for that, such as free entry to every national park and museum whenever I visit the US. Heck, I might even pay $75/year for that when accompanied with a free stateside airline ticket per visit. 🙂
If CBT were to ever work, then it would have be structured like a loyal customer rewards program. It would have to reward expats for purchasing US products, giving them patriot points that they could cash in for free free flights to the US, free American flags, front-row seats to football games or even a flight to the moon, all based upon how much they purchased in American goods, promoted or used US products! One could even use NSA to examine how expats apply US products to reward them with patriot points. FATCA would reward expats patriot points based upon how much they profited from US investments!
I better stop mumbling like this, otherwise the IRS might accuse me of being pro-America and get me arrested or even droned!
@ USCitizenAbroad
You brought our attention to this:
“A citizenship-based tax regime minimizes the role of taxes in a citizen’s residency decision. If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors …. In contrast, a tax system that does not use citizenship as a basis to tax might significantly impact a U.S. citizen’s choice of where to live.”
That’s one of the few passages I did read and then I re-read it because it made no sense whatsoever to me. CBT makes people (those who are aware of its existence) think twice and twice more about moving outside the U.S.A. It makes them hesitant to take up a new “overseas” residence due to the complications and expense of having two tax masters. In other words it has a maximum effect, not a minimun effect, on their decision. Anyway, you said it better and if the rest of the paper is that perplexing I’m glad I didn’t spend much time on it last night.
@Em,
Likewise. I thought I’d misread at first, too. It’s rather wacky to read an argument that argues against itself.
My favourite bit is to paraphrase “people of the United States feel as one with their citizens abroad?!?!?”
They hate our guts and are generally jealous and envious.
Also they believe the myth we’re all sitting on be beaches sipping pina coladas not working middle class jobs paying often much higher foreign taxes. But hey at least in Europe we’ve go the healthcare and infrastructure.
As a graduate of Notre Dame myself I apologize for the points of Kirsch in this paper obviously written from the perspective of a US resident.
Am disgusted to even repeat all these points which unfortunately lead him to conclude for citizenship based taxation.
The stench that the US citizen is a pawn for the US government to manipulate this article exudes is overpowering. Again, written by someone not attuned to US citizens abroad. Sounds like a puppet for a fund hungry policy makers in Washington.
@Beth Thomas,
Welcome Beth. I don’t think we have seen you here before. Are you the same Beth Thomas who told Lisa exactly what you thought about FATCA? 🙂
Michael Kirsch is a professor at Notre Dame University in the US.
If there is any Notre Dame Alumni out there who reads this post, and does not agree with Kirsch’s surprising support for citizenship-based taxation, could you please email me at:
Re: ….”..If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors…”…
So, does that mean that when I was a toddler, that because of the ‘US taxable person’ chip implant I got at birth, I had absorbed all the US tax code, consulted US tax professionals, and made a ‘rational’ decision to make my parents move to Canada?
Does that mean that the Canadian born children of ‘US persons’ consulted the US tax code before directing their mothers to give birth on one side of the border vs. the other – because their knowledge of US tax laws based on citizenship demonstrated that they’d be US taxable regardless?
Tax ‘evaders’ or ‘avoiders’ from conception or birth?
Are these US homelanders smoking something?
maybe says
You might be right. Contacting the editor-in-chief might be good, could we claim we are peer reviewing his paper?! hahaha!
His paper is such a disaster, I don’t even know where to start… Honestly.. A waste of time to read it and I have no idea what to write him or the editor-in-chief,.. What a piece of trash…
“A citizenship-based tax regime minimizes the role of taxes in a citizen’s residency decision. If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors”
That’s true only if all of one’s residency decisions were equal with respect to one’s tax situation. But why would anyone assume that?
If someone actually realized what the tax and reporting implications were for various residency choices (outside of the US), tax considerations would dominate the decision process, and not in favor of leaving the US.
I’m not going to bother reading the article. Thanks to those of you who have provided summaries and commentary. I have just one quick question to add for Mr. Kirsch:
If CBT is good policy and practice, why are almost all countries in the world using RBT instead?
I’m happier than ever that I’m no longer a US citizen and don’t have to deal with such nonsense.
@serfingUSA, I disagree with the statement of the author here. “If a citizen is subject to U.S. tax regardless of where he lives”, this means that the citizen will have to file 2 tax returns if he chooses to leave the US, therefore increasing his cost and burden therefore, his residency decision IS governed by tax factors. It won’t be governed by tax factors if the citizen would only have to file 1 tax return regardless of where he lives. Then, the residency decision will be governed by non tax factors, like quality of live, family work balance, healthcare etc…
The author does not make sense on this one.
I skimmed the article last night but am not going to delve into it seeing everyone else’s feelings are like mine.
As long as the “entitled” US retains Citizenship-Based Taxation, nothing will be fair one country to another in solving the real tax evasion problems — Residence-Based Taxation will better find the real culprits “residing in the US and sending their untaxed monies offshore.” Surely, the lawmakers of the US can understand this; they ignore the consequences. Citizenship-Based Taxation reaps enormous amounts of collateral damage, which just tells me that the US cares not an iota about collateral damage. We are the cost of whatever of their efforts excuses collateral damage.
Did Henry James file his FBARs?
Just kidding.
In the late 19th century, American expats probably were wealthy or part of an artistic or literary elite. Situation entirely different now.
Pray tell . Why is this crap a MUST READ?
Professors have to write in journals to get promoted. Many will write any old BS in the guise of scholarly research. It used to be called ‘publish or perish’. Doesn’t make it worth paying any attention to.
We wouldn’t want the author’s pov to be clouded by facts, would we?
@Johnson
The FEIE neutralizes the main objective of CBT – which is to levy taxes. I believe we’re going to find out VERY SOON whether anyone’s made a convincing enough argument to keep the FEIE loophole as part of broader tax reform.
Thomas L. Hungerford describes five tax loopholes that should be considered for the chopping block, including the FEIE:
http://www.epi.org/blog/replace-sequester-closing-tax-loopholes/
He’s a compliance whore.
However, his rationale that CBT is a way for the government to “influence” where citizens choose to live reinforces our belief that CBT is more about control than it is taxes.
For all their lip service to the idea of the individual, freedom and rights, the USG wants to exercise control over all it views as citizen/property.
I skimmed the article and agree that the author overlooks the most obvious problems that expats face: the burdens and costs of compliance. Sure, I could actually understand the notion that to continue or maintain the ‘club membership’ that perhaps I could have been willing to pay a small ongoing tribute tax of perhaps a few hundred dollars; but to have continued to suffer ongoing accounting fees of over $2000-5000 EACH year for the REST of my life, with US tax returns of at least 100, if not 200 pages long would have been overly burdensome and absurd.
Plus, he fails to make any mentions of the stealthy forms of taxation that would inevitably result in double taxation for many expats such as PFIC taxation, or taxation on capital gains of one’s primary residence in many countries such as Canada. Furthermore, he didn’t seem to emphasize that many could be inadvertently caught out by draconian fines for innocent failure to file foreign trust forms (3520 and 3520A) which would almost be required for most government-registered accounts such as RESPs, possibly employer-sponsored pensions plans, etc.
It would seem to me that the main method of taxation for expats will thus be by stealth and penalty revenue. What a crock. 🙁
It’s interesting that those USP’s abroad who end up paying no tax would be considered by the USG and homelanders to have all of their benefits subsidized by other US taxpayers.
As SwissPony points out, this guy was (is?) actually a policy wonk in the U.S. Treasury Dept., and thus it is worth reading just to try to understand the Official Mind in these matters.
The thing that struck me the most was the American Exceptionalist ideology. Any other country might think ‘gosh, we’re the only ones doing this anymore? Maybe we should ask everyone else why they don’t do it, or why they stopped doing it, and learn something. Maybe they have some good ideas we could adopt.’
Not Kirsch. No, he actually at one point in the article says that the U.S. might be a leader in this regard, and given the new global regime of increasing bank transparency, and given the victory of the DoJ and Treasury Dept. over the Swiss (which he crows over), then hey, other countries should want to harmonize with the U.S. position, instead of the U.S. harmonizing with the other 190 odd world jurisdictions by dropping CBT regime.
The Exceptionalism also comes out in the condescending tone in which he writes about USCs abroad, including duals. As another poster here said, he seems to think USC nationality is always dominant, or should be, because of that oh-so-precious Right to Return, or else the general awesomeness of the little blue passport…or something. You’ve been living abroad for decades and given your loyalty to your new country by taking out citizenship? Well, isn’t that special. Your USC status comes first.’ is what I am hearing from him.
I swear this is why the College of Cardinals will never elect a U.S. Pope. The Power of the Keys notwithstanding, Kirsch and the IRS would be demanding His Holiness fork over Peter’s Pence to Treasury, and when he doesn’t, federal agents would be confiscating cathedrals all over America.
Government shutdown aside, where ARE those renunciation numbers?
This guy is a real indicator of my theory that Americans have some sort of fixation on taxes. Like this guy really believes tax is a factor in why people choose to immigrate from one country to another?! Sheesh! Never ran into that in my decades working in immigration. Likewise not at Brock – though many Brockers have been compelled to renounce so they could continue living a normal life where they already live, their country of residence which they chose for reasons completely unrelated to tax.
That country is so self-centred and tax-centric it just keeps sounding more like another planet!
@monalisa1776, ok, well, assuming that the US got smart, dropped FATCA, abolished CBT, slashed its military and reduced the size of its government to 10 people, then I could picture myself paying $50 per year to maintain US citizenship. Yet, I’d want something in return for that, such as free entry to every national park and museum whenever I visit the US. Heck, I might even pay $75/year for that when accompanied with a free stateside airline ticket per visit. 🙂
You might be better off funneling your comments to the editor-in-chief of the journal (Florida Tax Review) looking to publish this paper:
Prof. Martin J. McMahon Jr.
http://www.law.ufl.edu/faculty/martin-j-mcmahon-jr
Maybe someone here has the energy to contribute an article. Instructions here:
http://www.law.ufl.edu/academics/degree-programs/ll-m-in-taxation/florida-tax-review
Funny: Prof McMahon is also co-editor of a $176 (!) book on fairness from an intl. perspective:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041132864
If CBT were to ever work, then it would have be structured like a loyal customer rewards program. It would have to reward expats for purchasing US products, giving them patriot points that they could cash in for free free flights to the US, free American flags, front-row seats to football games or even a flight to the moon, all based upon how much they purchased in American goods, promoted or used US products! One could even use NSA to examine how expats apply US products to reward them with patriot points. FATCA would reward expats patriot points based upon how much they profited from US investments!
I better stop mumbling like this, otherwise the IRS might accuse me of being pro-America and get me arrested or even droned!
@ USCitizenAbroad
You brought our attention to this:
“A citizenship-based tax regime minimizes the role of taxes in a citizen’s residency decision. If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors …. In contrast, a tax system that does not use citizenship as a basis to tax might significantly impact a U.S. citizen’s choice of where to live.”
That’s one of the few passages I did read and then I re-read it because it made no sense whatsoever to me. CBT makes people (those who are aware of its existence) think twice and twice more about moving outside the U.S.A. It makes them hesitant to take up a new “overseas” residence due to the complications and expense of having two tax masters. In other words it has a maximum effect, not a minimun effect, on their decision. Anyway, you said it better and if the rest of the paper is that perplexing I’m glad I didn’t spend much time on it last night.
@Em,
Likewise. I thought I’d misread at first, too. It’s rather wacky to read an argument that argues against itself.
My favourite bit is to paraphrase “people of the United States feel as one with their citizens abroad?!?!?”
They hate our guts and are generally jealous and envious.
Also they believe the myth we’re all sitting on be beaches sipping pina coladas not working middle class jobs paying often much higher foreign taxes. But hey at least in Europe we’ve go the healthcare and infrastructure.
As a graduate of Notre Dame myself I apologize for the points of Kirsch in this paper obviously written from the perspective of a US resident.
Am disgusted to even repeat all these points which unfortunately lead him to conclude for citizenship based taxation.
The stench that the US citizen is a pawn for the US government to manipulate this article exudes is overpowering. Again, written by someone not attuned to US citizens abroad. Sounds like a puppet for a fund hungry policy makers in Washington.
@Beth Thomas,
Welcome Beth. I don’t think we have seen you here before. Are you the same Beth Thomas who told Lisa exactly what you thought about FATCA? 🙂
Michael Kirsch is a professor at Notre Dame University in the US.
If there is any Notre Dame Alumni out there who reads this post, and does not agree with Kirsch’s surprising support for citizenship-based taxation, could you please email me at:
ComplianceNever@gmail.com
Re: ….”..If a citizen is subject to U.S. tax regardless of where he lives, his residency decision will be governed primarily by … nontax factors…”…
So, does that mean that when I was a toddler, that because of the ‘US taxable person’ chip implant I got at birth, I had absorbed all the US tax code, consulted US tax professionals, and made a ‘rational’ decision to make my parents move to Canada?
Does that mean that the Canadian born children of ‘US persons’ consulted the US tax code before directing their mothers to give birth on one side of the border vs. the other – because their knowledge of US tax laws based on citizenship demonstrated that they’d be US taxable regardless?
Tax ‘evaders’ or ‘avoiders’ from conception or birth?
Are these US homelanders smoking something?
maybe says
You might be right. Contacting the editor-in-chief might be good, could we claim we are peer reviewing his paper?! hahaha!
His paper is such a disaster, I don’t even know where to start… Honestly.. A waste of time to read it and I have no idea what to write him or the editor-in-chief,.. What a piece of trash…