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.
@J.E. Gutierrez, I am a middle class Canadian. Born a Canadian, but in the US. I have lived half my childhood and my entire adult life in Canada. I renounced some time ago but did not file the 8854 form. This makes me a Covered Expatriate. There is nothing “high-class” about it. I’m a Canadian since birth, I live in Canada, I work in Canada, I pay tax in Canada, I live under Canadian laws. I was not about to send my personal information to a foreign country, no law in Canada says I have to. Being a Covered Expatriate has nothing to do with Class, and has not been a problem for me here in Canada.
@JEG, You don’t seem to be able to see the obvious. Expatriation is a fundamental right. Exile is threat designed to thwart or punish a person for exercising his right.
Exile in this case is not voluntary because Congress has passed laws that force a US citizen to relinquish his citizenship (my case). Thus, I did so reluctantly to protect my family from the long reach of the IRS, the US Treasury department, and US Justice Department (etc.). I did this with the knowledge that I would be able to return based upon my Canadian citizenship–as Canadians normally can enter the US for six months without a visa. Your point of those who might be health threat does not pertain–you may be prevented from traveling even within your own country by reason of the public health. Schumer’s Ex Patriot Act sends a chill dread to those on this site. Would the US be so vindictive to violate the principles it set forth in the 1868 Expatriation Act and thus demand other countries recognize the US citizenship of its former citizens while the US does not lead by example. Surely you understand the concept of reciprocity? Oh, wait, you are an American, and Americans only understand that they are exceptional.
As for barring a person who has been convicted of a felony, well at least that is based upon an actual conviction. The Reed Amendment and the Ex Patriot Act are punishments wielded against the innocent.
The UN Declaration only affirms a right established in American law since the Declaration of Independence.
Of course the UN Declaration of Human Rights is not valid in the United States. Even the US constitution is not valid in the US. You don’t have rights in the US anymore. None of your rights are worth a pile of shit. Why would you think that the UN rights would be worth anything? My point is not that the US recognizes anyone’s human rights. Duh. My point is that the US does not acknowledge human rights, whether their basis is in international law or in US law. Thus, the United States is not a civilized country.
In any case, if you find a country that takes away its natural-born sons’ right to re-enter, for the sole reason that they left to live somewhere else and became a citizen there, I would reckon that such countries are not likely free countries.
Am I the only person who still thinks there needs to be a serious clarification between FUBAR (Title 31) vs tax (Title 26)? If one does not owe tax, it is ridiculous to even mention the possibility of renouncing/relinquishing for tax purposes.The issue for many is FUBAR, not tax. How about the privacy rights of non-US persons married to USP’s? Again Fubar is the issue here and just because IRS manages the program, it does not make that a “tax issue.”
@Tricia, FBAR is just plain wrong.
Even Phil Hodgen has argued now that FBAR compliance is not necessary for tax expatriation.
@Petros
This is a completely unnecessary use of foul and abusive language. Since you made this personal, i guess you wont mind a somewhat robust reply.
Nobody forced you to expatriate; as you said, you exercised your absolute right to do so. There are over 6 million Americans living overseas, and only (although this number is rising alarmingly fast) 3,000 or so renouncing. The logical conclusion is that at least 6 million Americans are NOT feeling forced to renounce like you did.
You decided to expatriate to avoid (not evade) your obligations under US tax laws. Again, that is perfectly your right. But it is presomptuous to expect that this will not severely restricts the rights you previously enjoyed as a US citizen. You may find that the adverse consequences of your expatriation are somewhat excessive, and I agree with you that in he the event that the Schumer-Reed amendment becomes law, it would indeed be the case. However, there is no chance that the Courts would find the amendment to be unconstitutional.
I fully understand the concept of reciprocity, but I also understand, unlike you, that a domestic law does not create reciprocal obligations for the United States. This would have to be agreed and documented as part of a treaty and ratified by the Senate. There exists to my (arguably limited knowledge) no such treaty with any nation related to the 1868 Expatriation Act.
The funny thing here is that I agree with you that the Schumer-Reed amendments are terrible pieces of legislation, but believe that they cannot be fought on the basis of the law.
@J.E. Gutierrez
You wrote: “There are over 6 million Americans living overseas, and only (although this number is rising alarmingly fast) 3,000 or so renouncing. The logical conclusion is that at least 6 million Americans are NOT feeling forced to renounce like you did.”
I fail to find even one shred of logic in your conclusion that “at least 6 million Americans are NOT feeling forced to renounce like you did.”
The truth is that most of these people don’t even know what is about to hit them, so they haven’t yet had the opportunity to formulate ANY feelings about it. Many of them do not even KNOW that they are American, or “US Persons” in the correct Newspeak vernacular. Many others have an inkling of what fate has in store for them and they are now TERRIFIED. Can you understand that? Terrified of their place of birth (or, worse, conferred unwanted citizenship upon them through parental connection). Terrified of all the unstable and vindictive regimes which have successively destroyed what was left of the original American experiment. Terrified of what new insane and punitive measures an out-of-touch and out-of-control US Government will dream up next and unilaterally impose upon the rest of the world, starting with its own tiny, defenceless diaspora. Faced with so many unknowns, and potentially disastrous consequences, it is probable that many more expats would like to renounce, but are held back by fears of not being able to see family, or repatriate their property or their life savings without draconian penalties.
THIS is what your “civilized” society has become – a monstrosity, and an embarrassment to humanity. America’s fall from grace is now nearing terminal velocity and the impact will be devastating. Better get ready.
@Petros, agreed. I had hoped Phil’s argument might begin to have an effect. Add to that there has to be some responsibility taken by the government for misapplying the Bank Secrecy Act and once they decided to do so, for not taking any effort to inform those they intended to rip off. Did they think nobody would notice this misapplication for the 40 years where it “wasn’t applied?”
Who doesn’t understand that the law was meant for homelanders who invested outside the country to avoid tax? It’s really not that complicated to note there is a huge difference between that kind of behaviour and people who have legitimate accounts in order to live. It’s really so incredibly simple and completely ridiculous to even have to consider answering to such a lack of critical observation.
@JEG
FWIW, when my renunciation was completed, the vice-consul said that I would have the same rights to enter the country as any other Canadian. And he meant it. The consulates understand what is going on. At least the majority of those we are aware of.
I am curious what your interest in all of this is, if I may ask?
@Deckard,
There are still those who simply don’t believe it is happening. I almost feel sorrier for them than for those who don’t yet know. Plus, I’m not sure those who think by not renouncing, they will avoid the horrid penalties. That’s exactly one of the reasons I had to make the decision I did. When your non-US spouse makes all the money in the family, and it is outside the US with absolutely no obligation to the US (of any kind), there is simply no way you can make the choice to put the financial well-being at such a risk. That doesn’t exactly feel like the decision made is a free choice but rather, forced by a bully who knows what is going on and refuses to do anything to rectify it. And Yates finds all this funny? It’s outrageous, all of it.
@JEG,
US tax law and policy as currently applied to its diaspora is in potential violation of Civil Rights Acts, the International Covenant on Civil and Political Rights (signed and ratified by the US, legally binding internationally and based on many principles of the UN declaration of Human Rights) along with various constitutional amendments; primarily the fifth, especially the eighth, potentially the ninth (very good reference to US legal obligations to uphold many of principles in the Universal Declaration of Human Rights) and the fourteenth.
Main point is, the US has implemented a complex and unconstitutional emigration control system over the decades that seeks to discourage at a minimum and penalize at a maximum every innocent Citizen that seeks to relocate abroad.
The reason this unconstitutional system hasn’t gained traction in the American legal system is that most Americans, including the IRS bloke at the time interviewed, cannot conceive life outside of the US and thus do not understand the word emigration.
Much the same as many people living in forms of governments that have committed significant crimes throughout history couldn’t have conceived or understood what was going on, even in some cases where there are legal restrictions to what was done (both domestic and international).
@ Deckard,
Of all the not yet renounced US citizens that I come across while abroad (not only in Switzerland where I live, but also in all the continents I frequently travel to), about 90% of them have expressed a desire to renounce as soon as possible but cannot as they need another citizenship (preferably EU-15/EFTA/AU/NZ/CAN/SG/HK/ROK/JP/TW).
Another 5% are US citizens capable of completely hiding all US indicia and are content with simply burying their US passport (if they have one) and pretending they never saw it.
The remaining 5% are the blind patriots who refuse to renounce who don’t realize the upcoming train wreck and when informed of it they are thrown into a state of confusion and panic.
I expect renunciations to climb to the tens of thousands in the next one to two years and possibly into the hundreds of thousands afterwards as those 90% start securing foreign passports, which is no quick task (long residency requirements in Europe ranging from 5-12 years) along with a circa 1-2 year naturalization process. The numbers will start to become noticeable and politically hard to ignore.
I see that the tone of the article indeed is that his gallows humor is directed at the impossibility of implementing the law, and indeed I fail to see that his gallows humor is directed at the poor schmucks who are subjected to the law and fail to see remorse versus his lack of knowing about accidental citizens.
I have met a number of retiree immigrants inside USA who, together with their US tax advisors, have no clue as to what is coming at them. I have also met accidental citizens and US emigrants outside USA with zero understanding, and have 2nd hand info about many who have already had the hammer come down on them. How could they? The rules weren’t even published in pub 54 til the year FATCA was being passed.
JEG can defend this plea bargain in the OVDP also
————————————————————————–
Condition (FAQ 52.2): “Taxpayers who are foreign residents and who were unaware they were U.S. citizens.
Example 1: The taxpayer was born in the U.S. to parents of foreign citizenship. She grew up in a foreign jurisdiction, unaware that she had been born in the U.S. She has a $60,000 account in the foreign jurisdiction. She has never filed U.S. returns or FBARs. She became aware she was a U.S. citizen when she had to get a birth certificate in order to obtain a passport from the foreign jurisdiction where she resides. Unless she decides to opt out, she is entitled to the reduced 5% offshore penalty”
(otherwise, the nonwilful penalty is $10,000 per account per year, going back 6-8 yrs, the willful penalty is 50% per year—totalling 300%)
((Note additionally that the IRS has not been awarding any 5% penalties in OVDP, they have only been awarding 27.5% penalties.))
http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
@JEG wrote:
Privileges that I enjoyed as US citizen. Are you joking? You believe that the United States offers privileges to its citizens? The Constitution talks about rights and you are talking about privileges and obligations. Let’s see, how did that pledge go: To the United Socialist America, with removable privileges and obligations for all.
Somewhat excessive? Let me ask you, would it be excessive to whip people who vote? How about fining everyone that votes? Why not exile people for voting?
Don’t you understand the difference between a fundamental right and a privilege? The US used to criticize countries that made laws barring people from exercising fundamental rights. Now they are the chief violator of rights.
Exile is punishment. It always has been since time immemorial. Punishing a person for exercising a fundamental right is called oppression. Doing so through legislation is called a bill of attainder. Why do you think Schumer wants the Ex Patriot Act: because he is so angry at Eduardo Saverin and the other people who get their freedom from democrat slavery to pay taxes to keep Schumer in office, that he wish to punish them as heretics.
JEG wrote: “This is a completely unnecessary use of foul and abusive language. Since you made this personal, i guess you wont mind a somewhat robust reply.”
You seem to have delicate sensibilities.
@ Tricia:
In response to your comment: “There are still those who simply don’t believe it is happening. I almost feel sorrier for them than for those who don’t yet know.”
I agree with you in that I feel sorrier for those who simply don’t believe what is happening than for those who do not yet know. I hadn’t really considered this comparison of sympathies until I read your comment. Both the “deniers” and the “uninformed” will have a rude awakening but the “deniers” will also bear the burden of embarassment.
This illustrates one of the biggest benefits of IBS: empathy and the sharing of perspective.
@Petros
It would be helpful if you actually read what I wrote before turning up your righteous monologue machine. I wrote about your rights, not your privileges. The two things are different.
It would be also be useful if you understood rudimentary law. In your situation, you obviously have the right to change nationality and expatriate, and as I understand it you exercised that right. However, you do not have a right to be automatically released upon expatriation from the obligations you incurred whilst you were a US citizen.
You repeatedly complain that you are being punished for expatriating, but this is a fallacy. If there is any ‘punishment’, it is because you were non-compliant during your time as a citizen (irrespective of whether the non-compliance was intentional or not). Your decision to expatriate has no bearing on that.
I agree with you that exile as contemplated by Schumer-Reed is ridiculously punitive. I doubt however that it amounts to an unconstitutional form of punishment. The only avenue to fight it is through shroud politics, something for which your inflammatory and mis-informed outings are counter-productive.
@ J.E. Gutierrez says
There are over 6 million Americans living overseas, and only (although this number is rising alarmingly fast) 3,000 or so renouncing. The logical conclusion is that at least 6 million Americans are NOT feeling forced to renounce like you did
hey JEG i got news for you…..i am FEELING FORCED to renounce but am fiscialy unable to take the chance. based on what my accountant has told me it would cost me somewhere around $45,000 to become tax compliant (his costs and potential fines) and that is not a risk i am willing to take lightly as it would greatly jepordize my family because we do not have anywhere close to the ability to drop that kind of money for the “enjoyment” of renouncing my american citzenship.
i want nothing to do with america but america seems to want everything to do with me, my wife and the not for profit groups i am signitory to bank accounts for.
we have made the decision to never go to the us of a again and that if the irs really want to find me they are going to have to look hard cause i am not going to be giving them an easy out by being stopped at the border.
if we are just 2 people making the decision to “lie low and see what happens” and would like to renounce and can not how many others like us are out there? betcha there are more than just us out there doing that
@CHF Forever
You write that US tax laws as applied to non-resident US taxpayers breach various laws and/clauses of the Constitution.
This is interesting, but makes me wonder why none of the several associations of Americans living abroad has ever brought a court case in the United States against the statutes. Much energy seems to be spent on legal initiatives with seemingly negligible chances of success in Canada, Switzerland and the EU. It would appear to me that energy and resources would be better used if directed at the US court system.
Personally, I think that your arguments will have a tough time prevailing. Because of the citizenship-based system of taxation, US federal tax laws apply to both resident and non-resident taxpayers in equal manner. So, if tax laws breached non-residents’ constitutional or civil rights, they would by definition also breach the same rights of resident taxpayers. I struggle to see how that would be the case, seeing that the Constitution clap early grants the Federal government the right to levy taxes.
Your views would be welcome.
@mettleman
I am truly sorry to read about your hardship. Your case and the case of Accidental Americans highlighted by @Mark Twain above perfectly illustrate the dysfunction of the disclosure programs.
JEG,
How is an exit tax not punitive?
@J.E. Gutierrez, I was forced to renounce US citizenship. I refinanced my local mortgage with my local bank which now rejects US clients, signing a form which confirms that I am not a US citizen and that I am aware of the legal action which would be used against me if I were to be discovered as being a US citizen.
So, it has now become a criminal offense to be a US citizen living abroad, thanks to US policy. Renunciations are necessary.
JEG wrote:
Mea culpa. I admit misreading your words. No blood no foul. In any case, rights that may be removed via bills of attainder are actually understood by the US government as privileges which the government bestows. This is exactly the mentality of Senators Reed and Schumer. The confusion lird in the manner in which the US arbitrarily removes rights.
Now you wrote:
This is precisely what is wrong with the Reed/Ex Patriot Act: It does not punish on the basis of outstanding obligations whatsoever. Eduardo Saverin, at whom the Ex Patriot Act bill of attainder is aimed, e.g., actually paid all of his exit taxes. He was completely compliant. I too am 100% tax compliant, as far as the IRS is concerned. No, this legislation is intended to punish those who exercise the right to expatriate pure and simple: it is not about holding expatriates from prior obligations but about destroying their lives because they had the audacity to flee from tyranny. It is punitive against a person who is forced to expatriate because of unconstitutional taxation without representation which forces expats to renounce their citizenship. I’m sorry, but my main concern stands: It is only totalitarian countries which punish people in this manner. USSR did it. The USA does it.
@Mettleman, if you are planning to stay away from the US anyway, there is no reason not to renounce and then, just ignore the filing expectations. That is an option, especially for Canadians.
@Roy, Tricia
I don’t feel at all sorry for people that are not aware. As those who are not aware, they are not lining up at the doors of the compliance industry to be picked clean. They are not being led into OVDI, into which many led by bad shepherds as sheep to the slaughter to the altar of financial ruin.
And when/if Canada (et al.) signs an IGA, and they are awoken from a deep blissful slumber, they will have many more resources, to protect themselves from the mercenary shepherds, than the many sheep who were slaughtered in 2010. The Isaac Brock Society for one. In this compliance game, one’s worst enemy is oneself.
@ Petros
hmmmm had not thought of it that way before. my worry was/is that if i were to go forward and renounce and then not be tax compliant in the given time frame it would open me up to even further legal issues in addition to giving the US gov’t additional information that i do exist
as much as i would love to give the us gov’t the one finger salute i don’t really want to do anything to help them know about or find me
@mettleman, I recommend that you closely watch what is going on in Switzerland. The US “Program” consists of 4 categories and several non-Swiss banks are already listed in category 1. Some individuals have suggested that this “program” will be spread around the world.
What the program does is that it pretty much forces banks to declare themselves as helping US citizens to evade taxes (category 2) since banks don’t always know if their clients are Americans and since banks have no way of knowing if their clients are compliant with US taxation.
This means that bank clients are guilty unless proven innocent, with proof of innocence being undefined, meaning that banks cannot avoid being slapped with heavy penalties for having US indicia. To reduce the penalties, they try to pressure their clients into OVDI. The Swiss government officially gives US citizens two choices: OVDI or streamlined OVDI.
What this means for you is that your bank is likely eventually going to try to force you to enter OVDI to reduce its penalties. A CLN might help, depending upon when one renounced. My bank is asking to see form 8854, but for other clients this means frozen accounts, getting kicked out of the bank, having to fill out a W-9, W-8BEN, etc.
So far, all signs suggest that the situation is going to get very ugly for Americans living abroad worldwide. Once US politicians see the billions that they were able to extort out of Swiss banks, then they will be excited about misusing US indicia to extort more billions from the rest of the banks around the world.