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.
@SwissPinoy
Seems to me that any Swiss bank that has foreign branches has nothing to gain by retaining US persons as customers, yet of those who are solely local, 80 out of 90 will rid themselves of USP’s anyway. From what you and Edelweiss have written, this ‘carve out’ for both Swiss banks and US persons doesn’t appear to be of much interest to Swiss banks that might qualify (at least so far).
Better to err on the side of caution, I suppose, when walking on the shifting sands of US diktat.
@SwissPinoy
You keep banging on about national discrimination and FATCA, but that only exposes your ignorance of some rudimentary workings of the law.
The application of the Model 2 IGA to Swiss banks was legislated under Swiss law, not US law, so to the extent that one feels that this is an instance of national discrimination, a claim would have to be made to the Swiss courts. I know very little about Swiss law, but I would assume that the issue of national discrimination has been dealt with in the drafting of the implementation of the IGA.
I will leave it to you to comment in further detail if you feel that there exists a case under Swiss law alone.
You would find impossible to bring a claim for national discrimination under US law as FATCA imposes the same additional requirements on resident and non-resident US taxpayers. This is exactly the same basis as with all other aspect of citizenship-based taxation which (rightly or wrongly as a matter of morality) is entirely constitutional.
@J.E. Gutierrez, you wrote: “that only exposes your ignorance”
So, I’m supposed an ignorant Jew, while you figure that you are a superior Nazi who defends the Reich. Go figure! Might makes right.
You wrote: “the Model 2 IGA to Swiss banks was legislated under Swiss law, not US law”
So what you are saying is that the Swiss can freely legislate the Model 2 IGA to treat all Swiss residents equally regardless of national origin, excluding US citizens from FBAR, FATCA and citizenship-based taxation without the US slapping a 30% withholding tax on any Swiss entity and without the US uttering a word or lifting a finger of protest. Cool!
Can you please put this in writing and have Obama sign it so that I can have the Swiss government rewrite Model 2 Swiss-style with full US approval?
FATCA is a banking regulation that forces FFIs to implement national origin discrimination into their policies: it is that by design. The Swiss reaction is admittedly far and beyond the requirements of FATCA, but it is a natural expression which would help them to avoid the problem, and it is against Swiss law. Thus, FATCA is a US banking regulation which forces FFIs to implement national origin discrimination in violation of local laws. Interesting. Who is ignorant? I think it is JEG not SwissPinoy.
@SwissPinoy
The use of hyperbolic and provocative language does not make you any less ignorant. For your information, President Obama does not make laws, Congress does. There is no need to be a legal scholar to know that. Usually, having attended middle-school, on any side of the tracks, would be sufficient. You will end this day smarter than you started.
Whatever you may think of the political end economic environment in which the Swiss-US IGA was negotiated, the Swiss government and Congress made it binding under Swiss law. The same applies to the legislation and regulation required for its implementation in Switzerland.
The way to deal with it is not to make wild allegations about imaginary breaches of US statutes, but to support the referendum that certain Swiss citizens have initiated to see the IGA and its legislation struck down. If I were Swiss, I would certainly support it.
@Petros
First, FATCA is not a banking regulation, but a tax law. It is part of Title 26 of USC.
Second, I have no idea whether the Swiss-US IGA breaches Swiss law, but considering that the whole idea behind the IGA (and its accompanying legislation) is to create a legal environment in which Swiss banks can safely comply with FATCA, I seriously doubt that Swiss lawmakers would not have taken great care to make it compliant with Swiss law.
Third, the entire notion of national discrimination is absurd with respect to US federal laws: FATCA applies uniformly and indiscriminately to ALL US Citizens (and other categories of taxpayers), regardless of whether thy are Irish-Americans, Cuban-Americans, Swiss-Americans, dual nationals, etc. Unlawful discrimination would arise if a Federal law applied a different treatment to US Citizens based on the national origin, which is clearly not the case here.
Saying that FATCA is not banking regulation is pedantry. As for the FATCA violating Swiss law, please have look at the side bar: National Origin Discrimination is Prohibited by Many Constitutions, Charters, and Declarations Around the World Not just CH but many countries: it also forces Canadian banks to violate article 15 of Charter of Rights.
As for national origin discrimination being absurd. It is at the very basis of FATCA banking rules: FFI must ask all their new customers if they are of US national origin to determine if they must discriminate against them by violating their privacy rights in handing over to the IRS account information in what is a fishing expedition pure and simple: not on the basis of reasonable cause, but just to see if they have filed their FBARs. You are being absurdly obtuse in your inability to accept this point.
@JEG
There’s the enforcement of laws and there’s good governance. Forcing people en masse to comply with laws that result in the destruction of their own citizens lives – whether it be by leaving them no choice but to renounce or by levying financially destroying taxes and penalties – is not good governance. Has it occurred to you that perhaps the US had until now skirted enforcing CBT because it was still attempting to practice some semblance of good governance – that is to represent the best interests of its citizens everywhere? The US government can exercise a certain degree of discretion in how it enforces its laws, without going the way of Draco as it’s currently doing.
It doesn’t take a cost-benefit analysis to know that CBT and FATCA don’t help America, but lawmakers are in such a panic about the fiscal state they’ve put themselves in that they’re willing to turn any rock over – even if it’s to bash their own heads and the heads of their citizens in with.
@Petros
I may be a pedant, and I also may be obtuse, but I am definitely right when it comes to the law.
FATCA does not require FFIs to identity if their customers are of US national origin, but if they are US taxpayers. It is a completely different concept. And in any event, US law already allows that: whoever opens an account with a bank or securities firms in New York will be asked to fill in a form disclosing their US tax status.
There is an element of truth to the idea that FATCA forces FFIs to breach local laws, but this is not a concern to the United States. Congress authority to make laws is not constrained by other countries’ legal or constitutional arrangements, but subject only to the United States’ Constitution.
I am perfectly aware that in practice, FATCA is fed down the throat of other countries and their financial systems, but this is a function of relative political, financial and economic power. Under the laws of the United States, the thing is, sadly, water-tight.
@JEG, Depart of Justice website says on National Origin discrimination:
Note that equal opportunity and equal treatment is now essentially impossible for people of US national origin when banking outside the US. This is because FATCA forces banks to discriminate against persons of US origin.
@bubblebustin
Fully agreed. I would like to see FATCA enforced but with a very ‘generous’ enforcement regime for overseas citizens, which would show an understanding for their particular circumstances.
On a separate note, could we please get some perspective on the supposed ‘fiscal’ state of the United States: We have a rapidly decreasing deficit (now less than 2% of GDP), Federal spending in line with its average sine the 1960s, a manageable level of about (about 10% less than Canada), are growing at about the fastest rate of any major developed nation.
Sadly, water-tight because the USA has become a banana republic and a major human rights violater. This is becoming clearer everyday, and what is your interest in defending this as a legal practice? (silence). You never say why you are commenting here in the first place.
But alas, forcing other countries to discriminate against people of US national origin is immoral, abusive, unilateral and a violation of international laws and human rights codes and major trade agreements. But it perfectly agrees, sadly, with US law, in the opinion of JEG. Why does that make you sad?
@Petros
You are running in circles. Under the law US taxpayers residing overseas are suffering these inconveniences because of FFIs’ decisions, not because of national discrimination as defined in US Federal statutes.
Second, as already stated FATCA applies to all US taxpayers, irrespective of their national origin (or birthplace, ancestry, culture or language, etc.). If FATCA were to apply a differentiated treatment to taxpayers based on any of these attributes, it would be in breach of non-discrimination laws.
Good leaders lead. They don’t extort, threat and cause themselves and their citizens to be objects of resentment. The US lost its ability to lead when it demanded the rest of the world follow its diktats.
@JEG
I have a couple of questions I would like your help on (in no particular order):
1. In some comment on this thread, I believe that you said that the SCOTUS has never ruled on the constitutionality of citizenship-based taxation. I must assume that you are well aware of Cook v. Tait which upheld the right of the U.S. government to tax its citizens wherever they may live.
Obviously, you do NOT see this as a SCOTUS decision that citizenship-based taxation is constitutional. I am curious as to why not.
2. When you talk about discrimination/equal protection/equal application of the, I am struggling to understand what you mean. Your understanding of these concepts seems to assume:
A. That when considering equal protection what matters is “procedural due process” – as long as the law is applied to everybody – it is consistent with equality and equal protection. In the tread about the arrest of the Indian diplomat, you went so far as to say that because all people were stripped searched the law was somehow okay. You also stated that morality is irrelevant to law and is an improper consideration when considering equal protection/equality. Furthermore, in that particular thread you confirmed your view that the equal application of laws, regardless of he content of the law, was what in fact made Americans free people. (I couldn’t understand how all those people who were forced into s strip search were free, but I invite you to explain that if you like …)
To put it simply, in your world of equal protection (as a great Homelander football coach would have said):
Procedural due process isn’t everything, it’s the only thing.
Could you help me understand where in the law of equal protection is the statement or interpretation that procedural due process is all that matters.
B. Continuing on with this concept. In this thread you have said repeatedly that FATCA,CBT, FBAR and the like are constitutional because they apply equally to homelanders and U.S. citizens abroad. For example, a couple of comments back you say (as one of a number of examples):
In other words, citizenship-based taxation, FBAR, FATCA are constitutional in the sense that:
“The law in its majesty prohibits both the rich and poor from sleeping on the park bench”.
You have just (I think in a rather nasty and unfair way for which you really should apologize) lashed out against Swisspinoy. Well hey, he’s not a lawyer. But, since you apparently are a lawyer, with the greatest respect, I would like you to justify this (“identical treatment”) understanding of equal protection and national origin discrimination. Are they separate concepts? Does the standard of review used in equal protection cases differ from the standard of review in Federal discrimination cases? If so, how is the standard different. If something doesn’t violate a federal anti-discrimination statute, could it still violate equal protection? If so, how?
My understanding of the law of equal protection is that it does NOT require identity in treatment and at times compels different treatment. In fact here is link to a “middle school” lesson plan prepared by the ABA on the concept of equality and equal protection. Note the following:
http://www.americanbar.org/groups/public_education/resources/resources_for_judges_lawyers/7-9/79_different_treatment.html
Now, I believe you have conceded that the treatment of Americans abroad is, in many circumstances, unfair.
My question for you:
Given that:
1. the law of equal protection does not require identical treatment, and may compel (in certain circumstances) different treatment;
2. Americans abroad are being forced to renounce their U.S. citizenship because they can’t live abroad with the Congressional IRS assault on their lives;
3. The 14th amendment ensures that U.S. citizenship is a constitutional right (meaning that there are limits on the extent to which governments car burden it)
Do certain aspects of what the U.S. calls CBT, violate the law of equal protection?
If yes, then in what respects?
If no, they why not?
@J.E. Gutierrez, “President Obama does not make laws, Congress does.”
A Freudian slip! I never stated that Obama or Congress makes Swiss laws. You said that! I simply asked for a statement signed by Obama which confirms that the Swiss are responsible for Swiss laws. In
Your response to that is that the US Congress is responsible for Swiss laws. Oooops!
I may be an “ignorant” Jew, but at least I’m not an American Nazi who blames the Swiss because FATCA!
The Swiss will abolish FATCA in a heartbeat if the American Nazis confirm that model 2 can be rewritten in compliance with Swiss laws without US threats or pressure.
JEG wrote:
I don’t see the closure of accounts as the only discriminatory practice. Why are trying to reduce it to that? You are creating a straw man argument. The worst discriminatory practice is FATCA itself because it forces banks to determine if their clients are so-called US persons (i.e., of US national origin–since they believe that US taxpayers and people of US origin are one and the same and the definition of the taxpayer is a citizen which is defined by a person of US national origin–you are just be a brazen idiot at this point).
@ JEG
re your point of “FATCA applies uniformly and indiscriminately to ALL US Citizens ” is at the expense of forgetting that “ALL US CITZENS” that it applies to is citzens who don’t live in the united states and a foreign bank is being asked to collect information on its customers by a foreign gov’t.
if the united states is so concerned about collecting taxes or even having me be tax compliant it is more than welcome to request i do so the day i set foot again on american soil and i will be more than happy to compliy with that request but not a minute before that.
i have zero intention of ever setting foot in the united states ever again so they may have a bit of a long wait for me to return. i however feel vast sorrow for the ever growing number of people i talk to that are impacted by FATCA and did not know anything about being required to be tax compliant and having family in the united states and having the desire to see family again there by negating the option of never having to set foot in the states again.
there seems to be a growing backlash against FATCA one can only hope that it continues to grow.
my wife and i were watching the rose bowl football game on wensday and when the national anthem was sung i started to cry a)because it was an amazing rendition of the anthem and b)because of what is happening to we expats and the knowedge that i will possibly never be able to set foot in that country again and experience all that america had to offer.
@J.E. Gutierrez,
US national origin = US citizenship.
US taxpayers = US citizenship
Thus, FATCA is national origin discrimination and FATCA is a human rights violation according to US law.
@Petros
I am a blazen ‘idiot’… Thanks for that. Insult is ALWAYS the loser’s way conceding an argument.
By writing that “[….]believe that US taxpayers and people of US origin are one and the same and the definition of the taxpayer is a citizen which is defined by a person of US national origin”… you have just confirmed that the problem of discrimination is caused by the FFIs, not by the statute.
You cannot blame FATCA for banks’ (or in that case the Swiss lawmakers’) inability to write/read a law.
@J.E. Gutierrez, the only reason why the US government so desperately needs to deny that FATCA is the national origin discrimination that it is, is because it is aware of the serious mess that it has created for itself and it fears the consequences of its actions.
Mettleman, I used to go to at least one conference a year in the US and every other year, my wife and I would have an expensive Xmas holiday in the US, in Hawaii or Florida. No more. How much business are they losing?
Anyway, I laugh now when I hear the Star Spangled banner. It is nearly impossible to sing unless one is a professional singer, and what country celebrates not getting their asses kicked in a war? I had to come to Canada before I learned that the US lost the War of 1812.
@SwissPinoy
US origin is not a concept in law, US Citizenship is.
US taxpayers excludes certain US Citizens (those living in Puerto Rico) and includes various non-US Citizens.
Stop making a fool of yourself.
@mettleman
I actually thought that rendition of the anthem was terrible…..
Petros,
It appears to me (just from my gut, mind you) as I am just a slow joe who does not have the legal knowledge (as in “There is no need to be a legal scholar to know that. Usually, having attended middle-school, on any side of the tracks, would be sufficient.”) — my U.S. schooling did not effectively equip me with any knowledge of the US citizenship-based taxation laws and the U.S. did not inform me (as it could have, say, as I crossed the border many times with my Canadian passport showing a U.S. birthplace), JEG may say but is not sad at all. He seems (to me only) to delight in baiting people into debating with him so his knowledge of U.S. tax law shines for all to see. The law is the law is the law — and if the U.S. law is so defended, it is likely by a person who condones the immorality of it all. JEG also seems to delight in the fact that so many U.S. Persons Abroad, so unsophisticated from their lacking middle-school education, are just more U.S. collateral damage; delight in demeaning U.S. Persons Abroad. We get the JEG message that the U.S. rules over all other countries’ tax law.
My god, think of having JEG as the U.S. lawyer you are paying to help get you into U.S. compliance. I (and I’m only speaking for myself, slow joe) am weary of JEG debates, despite the fact that JEG thinks (what other reason is he here; he doesn’t tell us) may eventually be able to wear us down and convert us all to the U.S. way of thinking of its law so unfair to the rest of the world that operates under residence-based taxation law.
The U.S. tax law may or may not be ruled as discriminatory to U.S. Persons Abroad on the basis of national origin. It’s all there in reams of U.S. law somewhere. In the meantime, the fact that it is immoral and follows no common sense trumps — to me, it’s another use of U.S. entitlement to rule the world — even the world of its U.S. Persons Abroad. Unless the U.S. changes to RBT as the rest of the world, it values immorality over compassion for those it still considers its own people.
(I wonder how I was able to renounce my U.S. citizenhsip as my ‘mental capacity’ it seems could be questioned as my son’s is, again with no right of a parent, guardian, trustee blah, blah, blah.)