What follows is a commentary on Virginia La Torre Jeker’s interview of ex-IRS Willard (Bill) Yates, recently retired from the Office of Associate Chief Counsel (International), If You Go, You Can’t Come Back. The Reed/Schumer Follies-Past And Proposed Anti-Expat Legislation: Interview With Bill Yates, Former IRS Attorney (International). Yates explains why US has never enforced the exile provision of the Reed Amendment.
It is said that you can tell a lot about a person by what he finds funny. Inside the IRS, they laugh at laws that intend to penalize people through taxation and exile for exercising their fundamental right to expatriate. The United Nations Universal Declaration of Human Rights states (Articles 13.2; 15) :
Everyone has the right to leave any country, including his own, and to return to his country. … Everyone has the right to a nationality. …. No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.
Congress has passed tax laws aimed at attracting foreign capital: non-resident aliens may invest in the US exempt from interest income tax and capital gains. Therefore, some billionaires have taken advantage of this huge loophole by expatriating to gain tax-free income on their US-based investments. Congress therefore passed the Reed Amendment (1996) to close this loophole. It would penalize the renunciant of US citizenship with permanent exile and ten years of further taxation. Neither penalty is in conformity with fundamental human rights, and this law, and the proposed “Ex Patriot Act” of Charles Schumer, shred the dignity of thousands of alleged US citizens who dare not renounce their US citizenship, lest they be cut off from their loved ones in the US.
I have talked to a few US expats whose only reason for not renouncing US citizenship is that they still have close family members, usually parents, children and/or grandchildren, who are living in the US, and these beleaguered expats do not wish to risk permanent exile from the US. This effectively prevents them from exercising their fundamental right to change their nationality. In the age of NSA and FATCA, many Canadians, for example, would gladly expatriate, if they could, to protect themselves from having their banks reveal their accounts to the IRS, thus exposing them to extortionate FBAR fines, to rights violating extraterritorial taxation, to gouging cross-border tax specialists, and to friendly cross-border lawyers that are really wolves in sheep’s clothing. But the act of expatriating in many cases could potentially expose them to the bill of attainder called the Reed Amendment.
Now Bill Yates explains why the Reed Amendment has never been enforced. We had reason to suspect this, but we never knew why until now. The reason is that Section 6103 of the IRS code prevents the IRS from revealing tax information to other agencies of the US government, including Immigration and Naturalization Service (INS), which would enforce the Reed Amendment on any renunciant, whose loss of citizenship was motivated by the desire to avoid US taxation. Yates says that INS would have to detain renunciant entering the US and insist that the renunciant waive his 6103 rights so that the INS could obtain the private letter ruling (which determines if the person’s expatriation was to avoid taxes) from the IRS. If the renunciant refused, INS would send him off packing. However, this procedure never came to fruition only because the INS failed to finalize the regulations.
Yates uses the imaginary example of “AC”=”accidental citizen”, who was born in the US but lived from childhood in UK. AC had never paid US taxes and one day his tax account (another wolf in sheep’s clothing), hears that AC is a US citizen. The accountant then informs AC that he should be filing and paying US taxes along with his UK taxes. It is a very realistic story, and likely based on real-life examples. It shows that the IRS intentionally makes life hell for accidental Americans. It exposes the evil inside the IRS. It is a must read for people who wish to understand the mentality of career bureaucrats. Obviously, they have no concern for fundamental human rights. They only care about whether the bureaucracy has the ability to implement a law, once passed. A law is good or bad based on the ease implementation. If it is unworkable, Yates finds it funny, no matter how much misery it could cause. Yates only laughs because the other laws prevented him from implementing the full provisions of the Reed Amendment. Yet he is proud of his authoring of 877a which implements the current exit tax on expatriates, another major obstacle on the path to exercising one’s fundamental right to change one’s nationality.
Now please consider how much misery permanent exile could cause. I am an ex-American. Imagine that an INS agent in Toronto invoked the Reed Amendment when I joined in the search for my missing father last July. Luckily, there is no procedure for enforcing the Reed Amendment, and the border guard let me pass. Had INS barred me from entering the US, I would have felt regret to the end of my days–and that would be in addition to the great grief of losing a loved one.
Clearly, exile is punishment and the Reed Amendment is punishment via Congress made laws applied to single class of people–those who exercise their fundamental right to expatriate. The Constitution bans such laws by forbidding bills of attainder. This is no laughing matter.
NB: Please see Yates mysterious reference to the War of 1812. Does this indicate that Yates reads the Isaac Brock Society? If so, hi Mr. Yates! Feel free to make a comment below.
Pingback: Income taxation and international mobility | US Taxation Abroad
Petros
You should be very careful about crossing US border.
I have heard story about USCIS stopping Canadians at border.
more info that IRS and USCIS share info
http://www.canada.com/story.html?id=75c1f0e6-ac6a-4533-b2e1-9dc4aaf00eda
“Leslie Kellogg, a partner with Hodgson Russ added in an interview that while U.S. border guards likely have the authority to detain travellers for failing to fulfil any tax obligations, so far “we haven’t seen any indication that they are going the next step and trying to do the IRS’s job in terms of tax collection efforts.”
“Right now what we’ve been seeing more is that people would be either denied entry or … are being asked questions that they were never asked before … which then starts to worry our clients,” Kellogg explained. “We’ve never seen them before asking any types of tax questions at all.”
I am not interested in a debate, only in practical ways of beating the system.
@swisspinoy;
re; “first one has to revise the people who revised tax code. Changing the tax code won’t do much good with the current state of the average mentality in the US.”..
So true. That mental state does not allow ethics, or reality to penetrate. Or even just practicality. Otherwise they could not defend for example the FBAR requirements and confiscatory penalty structures. Especially with the aggregated threshold of 10,000. , which includes in the aggregate the non-US ordinary legal local accounts of other non-US people, employers, etc. – where we have NO financial gain and no financial interest, and whose actual non-US owners have NO obligation or connection to the US, and a legal expectation of and entitlement to data and account security in the country where they are non-US persons, and where Canadian law reigns, not that of the US.
That is one of the main reasons why I continue to feel that expatriation is the only realistic manner of protecting ourselves abroad, and our NON-US family – IF (the big ‘if’) our individual situation would allow for expatriation without obliteration. If those in charge in the US are intent on continuing to force obviously flawed and damaging laws and policies on the entire rest of the world and expats ‘no matter where in the world they reside’ (and were born, and earn and save, and pay a full set of taxes, and are citizens, etc…..), no matter the size of the harm and expensive associated ‘compliance’ costs, then we must expatriate. I cannot afford the professional costs, have minimal income, and am not willing to risk the IRS and Treasury penalty lottery every year based on forms I cannot understand and cannot complete with confidence or competence myself – and which in the past, even expensive professionals have made errors in preparing – or are now refusing to prepare. This year alone I paid over 300. for a simple US return from abroad and a 3520/A. To report an income that was barely or non-taxable in the NON-US country which has been my permanent home for decades.
Now I am free to look for employment where I can, if necessary, be a co-signatory on a Canadian employer’s or organization’s Canadian accounts without having to report on them to the IRS and expose them to the US Bank Secrecy Act – thus breaking Canadian privacy laws and fiduciary duty to the employer if I do not have their consent (a firing offense and basis for being sued). It is laughably unlikely that any Canadian employer is going to consent to have their Canadian accounts detailed by any ordinary employee – and sent to the US to be subject to the Patriot Act and Homeland Security. They’d fire me first, or just not hire me to begin with. And, I am now free to volunteer with my local charitable and professional organizations as a treasurer or board member – without reporting the accounts of for example; a Canadian church, school, junior sports team, etc. I am free to be a co-signatory on Canadian family member accounts if they should become incapacitated. I can hold a TFSA again, or save and invest without any reference to the punitive vagaries of US tax law. I can sell my modest principal residence in Canada without wondering if the US will lower the threshold for capital gains and levy a tax on it. I can sleep without wondering if there are any new punitive laws being hatched up by the US Congress that will exterritorially impose on me and my non-US family new onerous obligations plus a ‘fair’ ‘share’ of the US domestic debt.
sorry IBS administrators, icon change due to typo
@bubblebustin, I always appreciate your sassy posts and welcome them as a fellow mustelid. There is no deficit.
What a wonderful way to start my day, from goat suckers to singing the US tax code to embryos. And Shadow Raider, thank you for our flight around the world.
Thank you everyone for being the most interesting, informed, passionate, funny (in all senses) group of people I could ever hope to know!
@Shadow Raider, have you heard of Panama’s new worldwide tax System that got snuck in at the last minute?
January 6 Panama – Territorial tax system replaced with worldwide tax system
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Pages/2014-1/panama-territorial-tax-system-replaced-with-worldwide-tax-system.aspx
This article has a link to a KPMG report which states: “Tax System will remain Territorial”
@Swisspinoy
Sadly- I agree with you. It is a result of the mentality and that will not change. It is all very narcissistic.
@SwissPinoy, I hadn’t heard of that, thanks for the news. I just read more about it and I agree with KPMG, the Panamanian tax system will remain territorial. It looks like the head of the tax agency asked the president to change the tax system to worldwide, then someone added an article to a totally unrelated bill, and the assembly passed the bill without noticing the amendment on the last day of the legislative session last year. There was an immediate uproar from various businesses, organizations, and many representatives themselves, and a new bill repealing the article retroactively was introduced yesterday, the first day of the legislative session this year. It should be approved soon, as the government already admitted that this was a mistake.
In any case, the article was very poorly written. It simply changes the first sentence of the income tax code, saying that income from “inside or outside” Panama is taxed (originally, the sentence only said “inside”). But it doesn’t define who is subject to worldwide taxation (there is no mention of residence or citizenship at all), and obviously Panama can’t tax everyone in the world. In my opinion, this really was a mistake.
In light of 9/11, just as with all other privacy issues, it is my opinion that the Reed Amendment will eventually see its day and we’ll see enforcement more and more often.
@Belinda, 9-11 was twelve years ago. What does the Reed Amendment have to do with privacy. Please, I expect better from someone in the business.
It’s never been enforced. So what makes you think it can be enforced now?
Pingback: The Isaac Brock Society
Oh, great. SPAM. (last three posts)
http://www.youtube.com/watch?v=g8huXkSaL7o
From Watcher at the Ask your Question FATCA thread…
Jack Reed is apparently taking yet another swipe at polishing the turd that is the “Reed Amendment”:
http://www.reed.senate.gov/news/release/reed-helps-advance-homeland-security-appropriations-bill
“The bill includes report language Reed requested relating to … people who renounce citizenship for tax purposes. … Reed’s provision to help prevent expatriate tax dodgers from reentering the United States calls on DHS to report within 90 days on their efforts to enforce the law that Senator Reed authored to prohibit individuals from reentering the United States if they renounced their citizenship in order to avoid taxes.”
@Just Me, it’s deja vu all over again.
Insert something unprintable here:
Simply re-confirms that amputating US citizenship is necessary and unavoidable for those living abroad. Reed et al are so insanely and WILLFULLY hellbent on burning us at the stake no matter the constitution, and the human and civil rights they spit on in the process or the so-called ‘un-intentional’ consequences. Why don’t they just propose to hold us for ransom by our non-US family?
I look forward to hearing Democrats Abroad explain this away, and continue to urge those abroad to get out the vote for the Democrats.
So, I asked them via a tweet, but expect no answer. They have to keep their partisan blinders on, and keep the faith that the 2008 Obama promises to Americans abroad are NOT in the “nevermind” category. Has any one politician wrecked such havoc its overseas constituents? And yet, they will remain loyal apologist. The FATCA cavity searches and bans for life, are just the cost of the ‘privilege’ for living abroad, they will say. Any right they have, is granted by government, and they are thankful for the small gifts. No hope for these Stepford wives.