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.
Great post Petros!
It’s important to note that on two separate occasions last year Senators Reed and Schumer proposed amendments to the Act that would have provided the mechanism for barring people who renounce for “tax avoidance purposes.” The proposed amendments were identical (down to the typos) and neither became law.
The proposed amendments would have worked like this: a) all “Covered Expatriates” (those to whom the Exit Tax applies) would be presumed to renounce for “tax avoidance purposes” and therefore become excluded; b) the presumption could be overcome if the individual is able to establish, by clear and convincing evidence, that tax avoidance was not one of the principal purposes for expatriation.
Rather onerous stuff.
You can read obtain links to the full text of the proposed amendments in an article a colleague of mine wrote on the topic: http://www.moodysgartner.com/renouncing-your-us-citizenship-new-law-may-keep-you-out-forever/
@Roy, thanks for the reference..
Charles Schumer lashed out at my article in the American Thinker against the Ex Patriot Act, as Eric pointed out. Yet to this day, no one has made me aware of an argument that the Reed Amendment and the Ex Patriot Act, if passed, are not bills of attainder.
In any case, all such laws, including 877a of which Yates is so proud, are just obstacles put in the path of exercising a fundamental right. I suggest that an good analogy would be requiring people to pay $450 at the polls to exercise their right to vote. The point is that these people do not understand the basis of American democracy. Likewise, no one is able to mount an argument that this is not a violation of the fundamental right to expatriate.
It seems to me that the better way to go about this is simply to tax interest and capital gains the same whether the money comes from an non-resident alien or from a resident or citizen. This would close up the loop hole. If the goal is to attract capital, then simply make such income tax free for everyone. It’s as simple as that.
Does this mean that the selective nature of the Federal Register is to define individuals who are to be barred or harrassed at a future date? It suggests that individuals listed will be “detained” until Monday if they arrive on the weekend.
Virginia La Torre Jeker J.D. made a nice comment:
I read that article in a different way. He was giving a very dark humor about something he saw as being ridiculous. I assumed the laughter was meant to show what a ridiculous set of laws was handed down to him.
To maintain 30 yrs in a govt position would have required anyone to say yes to the “laws of the land” and implement them. I took the laughter to be gallows humor.
Most of us have seen that the incompetence of the lawmakers never ends. There is no such thing as a set of laws, it is just one stupid law on top of another. They go to Congress (actually just for the power of it, but..) to make laws, and they measure themselves by how many they make—not how many they take away and not how many they improve or modify.
Then they don’t even attempt to collect feedback on the laws they applied.
There are other administrators who are in a class of their own–take the whole GAO who is out proposing further legislation to collect money from US persons overseas and proposing the removal of Foreign Exclusion “loopholes”. Those are the guys that are waiting for a mean spirited stooge like Hillary Clinton or Barack Obama to carry out the dirty work. Those are the moral-less people that scare me.
@Mark Twain, I think we agree in the essentials. I do see it as dark humour. But I only emphasized the idea that what Yates finds funny is that the Reed Amendment’s exile provision is impossible to reconcile with existing rules. He wasn’t the least bit worried about the people having their financial heads cut off without any justification. That makes it gallows humour, to be sure.
So what makes the law funny to an IRS man is the inability to make it work. That’s stupid legislation. If another law (like 877a for Yates takes credit) is workable, it’s not funny. But what if the law is bad not because it is unworkable but because it destroys people. Gallows humour indeed.
Petros, I think that elected officials are idiots who usually have near zero idea of how a law will play out in human terms, but those like Yates, they know and to be able to stick with their jobs for as long as some of them do, they have to be able to disassociate from the outcomes. Gallows humor helps with that.
Being currently embroiled in Canadian Immigration cluster-fuckery, I am feeling more than a bit jaded about govts in general, but I do believe that once a person makes the decision to emigrate/immigrate, they are exposing themselves to a no man’s land of uncertainty or just plain old danger. The state – any state – doesn’t give a shit about you if it isn’t legally compelled to in some way and even then, you are expendable.
It’s like being a consumer good. Once you are used up, what do you matter?
It’s not just barring people who renounce.
Should the unthinkable happen and residence-based taxation become law, there will also be the highest effort to ensure that US persons overseas never spend much time visiting their relatives in the US and thereby abuse their citizenship:
“Impose significant restrictions on visiting the United States – If U.S. citizens can avoid U.S.
tax by being a nonresident, but still retain substantial contact with the United States, there could
be a public uproar.” and
“Since the (A)CA Proposal adopts the substantial presence test in I.R.C. § 7701(b)(3), it effectively allows U.S. citizens abroad to visit the United States for up to 182 days in some cases, and on average 121 days a year in other cases. Personally, I believe this is too generous and would suggest a maximum of 45–60 days. Congress will need to form its own opinion.”
From: http://americansabroad.org/files/1413/7848/1535/harvey_2013.pdf
Keeping laws on the books to enforce when someone feels like it is not good enough. Bottom line is people are voting with their feet. Concentrate on getting IGAs struck down in ‘local’ courts and push the debate back to Parliament.
I read this article late last night, just before turning off the computer, thanks to Badger who posted it here. I too took some of it as gallows humor, but there were a couple takeaways that struck me. I need to re-read again to be sure I am understanding correctly and see what else I missed.
1. The fact that they NEVER wrote implementing regulations for the Reed Amendment speaks volumes to me. This means, as we have all assumed, they have WIDE discretion to do as they will with whatever stupid piece of legislation is handed down from the Congressional idiots that don’t know what they are voting for. Especially with these obscene amendments buried in “democratic fashion” (the FATCA apologist insist) inside of some other legislation that has noting to do with the agenda they have.
Now, I do wonder why they couldn’t have used the same discretion NOT to write 544 pages of regulations and IGAs to implement FATCA? Is it because they favored the legislation? If they don’t favor it, well then, there is always a reason why they can find why they CAN’T implement it.
2. Now I understand the mentality of OVDP FAQ 52.2 where they still want a 5% penalty out of the AC who doesn’t live in America and doesn’t know they are Americans. At a certain, level, as he said, they don’t believe there is such a thing! So, extract some revenue if you can!
3. I found interesting that the Ex-Patriot Act was NOT going to apply to Green Card holders. Another good reason for GC holders not going the next step to Citizenship. If the Ex-Patriot Act came into force, you would be a idiot to exercise the Citizenship option, it seems to me.
4. The other take away is how at every turn, Congress, via new legislation and penalties is constantly shifting the burden of proof, from innocent until proven guilty, to GUILTY until you prove your innocence. This seems so fundamentally wrong (morally wrong) on so many levels, to say nothing about ‘due process’ considerations of that quaint little Constitution.
Anyway, I need to go back and read this again. It sure did provide insights into the mentalities of those that work forever inside the ‘belly of the beast’ and get “awards” for their servitude. They can at the margins see the absurdity of the legal processes, but not the human impacts in any meaningful way, and have no moral qualms about what they do, it would seem.
The most interesting part of the article is:
How could anybody not know they were are American citizen?
Simple: By taking the position that one is a citizen where has always lived, worked, contributed to the community, etc. By not knowing that the fact of being born in the U.S. makes one a citizen, etc. By not knowing that the U.S. might consider somebody born abroad to a U.S. parent to be a citizen. As Just Me points out even the OVDP rules acknowledge somebody might not know one is a citizen.
Assuming one knows one is a citizen, why would one think that a non-U.S. resident should pay U.S. taxes?
Obviously no reason.
Yates proves that Homelanders have difficult conceiving of a world outside the USA.
Seems to me that the most important messages to take away from this are two things:
1. As Virginia says: U.S. citizenship is very perilous;
2. The only thing worse than being a U.S. citizen is to be a “covered exapat”.
Renounce while you can!
@USCitizenAbroad
I found that the most interesting part because of his narcissistic, self-righteous rage. That is frightening because it gives these people the momentum to “punish” in the name of patriotism gone awry. ( As we now know- it is nationalism and not patriotism).
@Polly
Yes, that’s a good way to put it. These people are clearly out of touch with the reality of the world. Anyway, Yates is no Patriot. He just one of these people who thinks – the law is the law- doesn’t matter whether it’s just, doesn’t matter if it’s right, doesn’t matter if it’s moral, doesn’t matter if anybody knows about it, doesn’t matter who it hurts. All that matters is the it’s the law and you must comply. That’s the opposite of Patriotism.
As Mark Twain said (not the IBS Mark Twain but the original writer):
‘Patriotism is supporting your country all the time and your government when it deserves it.’
Most of the rest of the world (the sane world that is) uses RBT, which is applied to anyone who spends 183 or more days a year in the country.
Meanwhile, US bureaucrats with their self-proclaimed academic experts continue to dream up new justifications for punishing expats for being blessed with the flimsiest of connections to the US to include just being born there or born abroad to parents of US origin.
Expats should be grateful for the privilege of being born into permanent US servitude and show their gratitude by sending annual tribute along with brainteaser forms back to the homeland. It is not important what the tribute is spent on, only homelanders will use it anyway. Don’t worry about the hassle of voting because your homelander congressmen and senators don’t have a clue about your interests outside the US anyway.
So expats, the best thing you can do is stop all the whining, be good sports and send your “fair share” of tribute along with the extra helping of paperwork back to the homeland. The public officials who don’t represent you need to spend it on stuff you will never have to worry about using anyway. But you need to pay for it, just in case you might want to use it someday (kind of like one of Dash’s insurance policies).
I read this from a Twitter link yesterday and didn’t think Yates was particularly funny. Thanks for posting this Petros. If anything, it certainly should make it clear we have another good reason for our anger at being betrayed.
Here’s a great article by Chris Hedges which completely reflects my feelings about Mr. Yates and his award-winning ilk:
The Greatest Crimes Against Humanity Are Perpetrated by People Just Doing Their Jobs
@IRSCompliantForever
To allow a US citizen less time in the US than a visitor in triggering tax obligations is just plain mean-spiritied. I don’t understand the rationale behind such a suggestion, when we would be the group of visitors most likely to spend more in the US given the chance!
Oh, but then I considered the source.
@Deckard1138
and the irony of that piece from Robert Sheer’s TruthDigg, is that he would be in full throated support of FATCA if he ever bothered to report on it. But like the rest of the guys at Public Radio and Progressive media, they ignore it.
Thanks for the link, Deckard. I didn’t see Chris Hedges was the author of the piece until the end, but it figures. He’s got it right as far as I’m concerned.
@Just Me
Well, FATCA and the rest has resulted in all kinds of ironies and strange bedfellows, hasn’t it? I could never have imagined, a scant couple of years ago, that I would EVER regard Republicans, for example, as possibly our last, best hope. I also couldn’t imagine, in those heady post-Bush Obama honeymoon days, that the party my mother had passionately supported for decades would soon preside over the most paranoid, vindictive, mean-spirited attack on fellow Americans since the McCarthy era. And I could certainly never have imagined how thoroughly, despicably weak the rest of the so-called “civilized” world would become in the face of America’s imperialistic crusade. How a global war might be fought – and won – without a single shot being fired. Who knew?
As for “progressive” media, two words come to mind: willful blindness. Again, a conclusion I could not easily imagine arriving at before the fall of 2011. So much has changed since then; as much inside me as in the world around me.
@JustMe
Regarding your point #1, note that the Reed legislation had some flexibility already built-in, in that it left it to the Attorney General’s discretion to deem a former citizen as admissible or not. FATCA, to my knowledge is drafted in a much more prescriptive manner. There is no easy way for the Treasury to avoid having to implement this particular piece of legislation, however terrible they may think it is.
Your observation under 4. is terrifyingly accurate and is part of a global trend (think UK terror laws for example) to shift the burden of proof from the accuser (in this case the state) to the accused. Over time we will come to regret this drift.
@Petros
As much as I dislike the various Reed-Schumer existing or proposed pieces of legislation, I believe your legal analysis is seriously flawed.
You refer a number of times to the Universal Declaration of Himan Rights, but you must surely be aware that it is non binding on the United States. This notwithstanding, as an expatriate you will have lost all rights to return to your now previous country. The United States have a long history of denying admission to widely define categories of applicants for several reasons (health, security, law and order, economic motives) and are perfectly allowed under the Constitution to shut the doors on former citizens as well.
Furthermore, the United States are not denying prospective expatriates the right to change nationality (as several posters on this blog seem to have done), but they are denying expatriates the ability to automatically extinguish their tax liability towards the United States upon expatriation. With the exception of Covered Expatriates, the act of expatriation does not create new liabilities towards the United States, but only causes existing ones to survive until fully settled.
I would have to get my head around the position of Covered Expatriates, although many would argue that theirs is really a high-class problem.
@J.E.G., I strongly suggest that you read my article at American Thinker. http://isaacbrocksociety.ca/2012/05/21/no-civilized-country-would-ever-banish-eduardo-saverin/ The Ex Patriot act is a violation of US law, first and foremost, because of the 1868 Expatriation Act (which I cite in that article). It is the insistence of the USA that other countries recognize their expatriates who had become US citizens as natural born citizens of the United States, because it was the intention of the US to protect those citizens the same–This 1868 Expatriation Act naturally precedes and thus establishes the UN Declaration of Human Rights on expatriation and the right of return. This right of the return, is not contingent upon never becoming a citizen of another country–at least not in my reading. However, I concede that if you become a citizens of country which does not have reciprocal arrangement with the the US, then you will have to apply for a visa. One should not be singled out because one is American but only treated as a natural born passport holder of one’s country of citizenship. Or perhaps you missed my article on the failed reciprocity of the United States. That is the manner in which the Ex Patriot Act and the Reed Amendment become bills of attainder.
@JEG, As for it being a “high class” matter–Canada is a class less society. I thought the US was one too. But I see that you are only interested in class warfare. So it is ok to violate the rights of the rich because they are rich? Well, sir, you just leave Canadians alone because they are Canadians. It doesn’t matter if they are rich or poor–it only matters that they have the protection of the Queen of Canada.
@Petros
I will be to admit that I am not familiar with the 1868 Expatriation Act, but I will also challenge you to find any part of the status (or any case law derived from it) that commits the United States to offer reciproca treatment to former US citizens naturalized in other nations. I am absolutely certain that the United States are routinely denying admission to former citizens on grounds of health (for instance until recently HIV-infected persons) or law and order (for instance for minor narcotics-related offenses), and I really fail to see why they would not feel entitled to add to category of inadmissible former citizens thaw perceived to have expatried for tax reasons.
Also, I note that you continue to refer to the Declaration of Human Rights although it is, as previously noted, not binding on the United States, and in any event protects the right of return to one’s country, not to one’s former country.
I have also read your article. Although a second read would surely be advisable, I would immediately object to the characterization of ‘exile’ as punishment or torture, for those must assume that they are inflicted against one’s will. Clearly the statute does not prevent expatriation and leaves that decision to one’s free will. It simply makes clear that it carries a number of consequences that should be weighed in at the time this step.
With regard to class-free Canada, I am happy to take your point. I will simply point out that the US are not concerned whether the expatriate is in Canada, India, London, or on the Moon.
Apologies for many errors in previous post. I am typing from a phone…