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.
@Petros
I am obviously very grateful to @SwissPinoy for serving our country and defending out freedom. I will always support the men and women who sacrifice so much so that we can live our blessed lives.
I also regret that @SwissPinoy was inconvenienced in his financial affairs to the extent that he felt he no alternative but to renounce his US citizenship.
This blog/site seems to have a well established history of allowing posters to express anger, fear, frustration, confusion, and many other emotions. I am certainly not the one to put an end to that.
At the same time, it is not reasonable for any poster to expect another contributor to engage into a conversation based on what is obviously an emotional tirade.
Have a think about it and, if you let reason prevails, I am sure you will agree to this.
@TrueNorth
If that is the case, now may be the time for many of the offenders to face the consequences.
@JEG, The USA is free to send me a letter and let me know the “consequences”, they have my name and address.
@TrueNorth
I did received a similar letter once. It was a little scary for a while, but turned out to be ok.
JEG wonders why, if US extra-territorial tax policies are so bad, more expatriate US citizens aren’t renouncing. I think I know why. The considerable number of such people that I know here in Toronto fall into a few categories:
– willing to remain/become compliant, no matter the high cost;
– in the process of renouncing or documenting prior relinquishment of US citizenship;
– doing nothing and waiting to see how things develop;
– mostly ignorant about the situation.
At this time, I believe, most are still in the last two categories. The attitude of those who are waiting can be summarized as “Surely the US is after major tax evaders, not me, and surely the Canadian government will protect my interests in this matter, or the US will change its policies so they don’t apply to me.”
We here at IBS are aware that major events are due to occur this year that will clarify the situation considerably:
– a possible IGA signed by the Canadian and US governments,
– enforcement of FATCA beginning on July 1;
– possible tax reform undertaken by the US Congress that could change the US from CBT to RBT.
It’s impossible to know how it will all play out. So it’s understandable that many US citizens here are unwilling to take the drastic action of renunciation while the uncertainty remains. However, if the apparent intention of the US to enforce its tax and financial policies continues on its present course, coming to a head this year when Canadian financial institutions begin enforcing FATCA, I expect major opposition to be expressed and action taken by those who have been silently waiting so far.
Thanks, Sad-in-the-UK. I also found this. Petros and all, I’ll be back to having a bit of worry for these of us (as someone referred to us: poor bastards) who have no idea and not many resources that won’t go very far, least of all as far as professional US tax advice. Will they (many veterans who patriotically served their country) be backed into a corner?
http://www.anewlifeinparadise.com/passing-on-information-regarding-atms-and-international-wire-transfers/
Also, http://www.anewlifeinparadise.com/understanding-facta-and-what-it-means-to-you/
I think you’ve analyzed and given just what is going on, AnonAnon. Thanks for clarifying for JEG — and for defining it in our own minds. The silent waiting is excruciating!
@J.E. Gutierrez, national origin discrimination is not an “inconvenience”. Rather, national origin discrimination is a US federal crime:
http://www.justice.gov/crt/legalinfo/natorigin.php
Your government is being a federal criminal. Your government is violating its rights and obligations as a US citizen.
Troubling Americans living abroad with US jurisdiction law is national origin discrimination. With national origin discrimination being a US federal crime, the US is forcing renunciations by forcing national origin discrimination when it forces US law outside of US jurisdiction. Renunciations occur when national origin discrimination is enforced to the Point where it becomes no longer tolerable.
You do not honor people who served the country. Rather, you honor national origin discrimination and thus you honor American federal crimes against the American people. Your enemy is the American citizen.
Great, SwissPinoy.
The US Department of Justice should absolutely be going after the USA for discriminating against its own citizens in other countries — their own people of US national origin. The absurdity never ends.
@AnonAnon
I think you pretty much nailed it.
JEG: “If Americans abroad are uncomfortable with their obligations under US laws, they are free to expatriate, under the condition that they have satisfied all their obligations.”
I wish it were as easy as moving to a new country, applying for citizenship after a few years and then visiting a nearby US embassy renounce. The reality in many countries is not so simple. Here are some cases in acquiring foreign citizenship that don’t fit the mold:
1) A USC moved to a European country on a non-immigrant work and resident visa. After eight years this USC changed companies and was able to obtain an immigrant-type visa, which allowed citizenship to be applied for after seven more years. Total of 15 years before the USC was eligible for foreign citizenship.
2) A USC moved to a European country, stayed for four years and then his company moved him back to the US for about two years. He then returned to the same European country, stayed for several years, married a national of the European country and then returned again to US for about two years. He then returned to same European country where he applied for citizenship after uninterrupted residence of five years. He lived approx. 11 years in that country before he became eligible for citizenship.
3) A USC moved to Italy for five years, then moved to another EU country for two years and then returned to Italy, which started the clock again towards the 10 year residency requirement. He subsequently married an Italian and applied for citizenship three or four year later, i.e., 10 or 11 years after leaving the US he obtained Italian citizenship through marriage. If he hadn’t married an Italian, it would have taken 17 years abroad.
4) On the other hand, a USC moved to Europe to marry a permanent resident with Italian citizenship but who lived outside of Italy (and, parenthetically, has never lived in Italy). She applied for Italian citizenship after three years of marriage while living outside of Italy. (It would have taken only two years if they lived in Italy.)
5) The most extreme case I am aware of is a USC who moved abroad in about 1990 and only became eligible for citizenship after 22 years abroad. This was due to an initial non-immigrant visa, changing countries and an attitude that being a USC was good enough. This person applied for European citizenship in 2012 and hopes to obtain it in 2014, 24 years after leaving the US.
Many USCs who used to view European citizenship as unnecessary have changed their opinion in the past several years. Many USCs who are long-term residents in Europe are now scrambling to obtain a European citizenship so that they can make an orderly exit.
In many parts of the world, particularly in Europe, a distinction is made between citizenship and nationality.
The US however doesn’t make any distinction thereby creating confusion (perhaps purposely so), hence the term Certificate of Loss of Nationality rather than Certificate of Loss of Citizenship.
When I renounced several years ago, the Consular officer gave me a very confused look when I said that I was renouncing my US citizenship but not renouncing the fact that I am and always will be an American.
I explained told that I was renouncing the papers in my pocket, not the blood in my veins. My renunciation was approved so I think the Consular officer understood what I had meant.
@JEG
The word “inconvenienced” is a bit of an understatement with regards to the injustices faced by expats.
Perhaps you ought to try walking a few thousand kilometres in the shoes of an expat. Then you will begin to understand just how “inconvenienced” expats are when it comes to their financial affairs or should I say, their financial survival.
Can spending 5% of your income on US tax compliance to pay $20 in tax while being treated as a second-class citizen in both the country where we live and in the US be categorized as an “inconvenience”? JEG, stop being an apologist for this rotten US policy, and get on the right side of history before it’s too late.
Great comments folks. Keep them coming!
JEG
I wish I could renounce my US citizenship. I can’t. Other than the ability to live approx. 120 days a year in USA, I would be a lot better off without it.
JEG: “If Americans abroad are uncomfortable with their obligations under US laws, they are free to expatriate, under the condition that they have satisfied all their obligations.”
I think this is actually at the heart of the issue. Because the US puts obstacles in the path of expatriation. Here are list of the few:
(1) Consulate obstacles: the burden of proof for renunciation/relinquishment is higher than for filing an expat tax return, entering OVDP. Consulates regular require that renunciants prove they are US citizens (original form birth certificates–it requires often more documentation than to run for president of the US!!). For relinquishment, documentation of one’s new citizenship is often required. It cost $450 dollars now to renounce citizenship. This is no small dollar figure and represents a significant burden for some. Also, some have experienced difficulties getting appointments; others have found consulate staff objecting and preventing their expatriation–it is routinely necessary to make two visits to US Consulates to renounce, and in one case, a member of this website had a clear relinquishment case, and the Consulate refused to acknowledge her relinquishment until she changed venues, going to a different Consulate and paying an immigration lawyer to write a letter complaining about the action of Consular official during the initial visit.
(2) Tax obstacles: the US makes a false distinction between expatriation and tax expatriation. Many would expatriate but the tax expatriation requirements dissuade them. This is a violation of their fundamental right to expatriate.
(3) Re-entry obstacles: the heart of this post, the Reed Amendment destroys the right to expatriate by barring people whose news citizenship would normally permit them to legally enter the United States, either with a visa or through a bilateral agreement with their country of new citizenship. It doesn’t matter that the Reed amendment has never been implemented, because it remains as a threat and thus a clear obstacle in the path of renunciation.
@JEG
Perhaps being made to sit in the back of the bus was at one time an “inconvenience” for black Americans, at least until Rosa Parks had the courage to say enough was enough, its time to renounce the bullshit and take a seat in the front.
I think most long-term expats couldn’t care less about re-entering the US if they didn’t have loved ones still living there.
Barring expats from ever seeing family members again (particularly elderly parents) is a cruel and unusual punishment for people whose only crime was to be born in the USA and later emigrating to somewhere else. How dare those natural born Americans leave the “land of the free?” They must be punished for committing such a crime.
The Reed Amendment and Schumer Corollaries are aimed at Americans abroad who are guilty of nothing more than renouncing the “inconvenience” of living in the shackles and chains of CBT.
@SwissPinoy
In time-tested Swiss/Alpine fashion you are well and truly going over your skis. Whatever it is that you are doing as your daytime job, stick to it and don’t ever develop the thought of coming close to the legal profession.
The Constitution’s Sixteenth Amendment, and various other clauses unequivocally empower the Federal Government to levy income tax. Citizenship-base taxation has been in force for well over a century, and the constitutionality of this practice has never been challenged in court, where a claim would almost certainly be unsuccessful.
More substantially the inconvenience you seem to have experienced in your banking affairs was not caused by the laws of the United States or the actions of the US governments, but was entirely the result of your banks’ own decision to discontinue its services to US taxpayers. At no point did the US authorities prevent your local bank from servicing you or your fellow Americans in Switzerland.
You may have a case to bring against your bank for violating your civil rights under the laws of (presumably) Switzerland. But that is strictly a matter of Swiss law, and would have to be pursued in local courts.
@Samuel Adams, Actually there is a legal difference between US citizenship and nationality. US nationality is a larger set, which contains US citizenship. So all US citizens are also US nationals, but there is a small group of people who are just US nationals, without US citizenship. Currently, the only people who have this status are American Samoans. This distinction is defined in title 8 of the US code, which deals with nationality and immigration.
What is interesting is that all the alleged “benefits of citizenship”, often mentioned as the justification of CBT, are actually benefits of nationality. American Samoans also use a US passport, receive US consular protection, they can enter, live, study and work in the US without restriction, and they can apply to become US citizens, if they wish, after residing in the US for 3 months. The only rights specifically for citizens that I can think of are the right to vote, to work in US government jobs, and to sponsor foreign relatives to immigrate to the US.
What is also interesting is that the US tax code mentions US citizens all the time, but not US nationals. US nationals without US citizenship are taxed as aliens, so they are taxed on worldwide income (and are subject to reporting requirements on foreign assets) if they reside in the US, and are taxed only on US income (and are not subject to reporting requirements on foreign assets) if they don’t reside in the US.
And what is even more interesting is that US law only allows renunciation of the entire US nationality, which includes US citizenship, but not just the citizenship. That’s why it’s called a Certificate of Loss of Nationality. Apparently the law was written this way on purpose, because Congress doesn’t want to allow Americans abroad to have the status of American Samoans, who are US nationals but are taxed with RBT.
@Innocente
You seem to imply that one of the practical difficulties in expatriating is to gain an other nationality. I fully accept that this is the case, however this can hardly be blamed on United States’ policy. As far as I know, the United States naturalize around 1 million new citizens every year, which is about double the entire EU combined (I am not sure about this data, which I am citing from memory, so please don’t hold it against me if it is off).
@Petros
I have a great deal of sympathy for your points #1 and #3, although as we discussed much earlier in this thread, I do not think that either would be seen to breach a US Citizen’s right to expatriate.
I have less sympathy for #2. Certainly, the act of expatriation should not cause an expatriate from being discharged of his/her tax liabilities accrued whilst a citizen.
Doesn’t FATCA have a provision that requires foreign banks to close Americans’ accounts?
Sounds like its a good time to be a Samoan or Puerto Rican.
@JEG, I agree with you that CBT is constitutional. The constitution does allow the federal government to tax anything under its jurisdiction, so CBT is technically allowed. But that doesn’t mean that it’s good, fair or logical. A tax rate of 100% is also constitutional.
On the other hand, I argue that the Reed amendment is unconstitutional. Yes, the government has total discretion whether to allow each foreigner to enter the country, for any reason, but the Reed amendment was written specifically as a punishment. It’s obviously unusual, since no other country in the world has anything similar, and it’s definitely cruel in cases that prevent relatives from seeing each other. Therefore, it violates the 8th amendment as a cruel and unusual punishment.