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.
@USCitizenAbroad
Actually, I am not a lawyer, so it will take me some time to digest…
@JEG, you say
“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.”
If you suggesting that FATCA be applied so that it’s no more burdensome on USP’s abroad than it is to someone living in the US, on what basis can the US government differentiate between resident and non-resident taxpayers, when US tax law applies to all US persons equally regardless of where they live?
@ petros
one of my points exactly “expensive Xmas holiday in the US, in Hawaii or Florida. No more. How much business are they losing?”
i was susposed to go to california this spring with 12 other people for 10 days. nope not any more we are going to mexico.
my parents who would travel to the states 2 or 3 times a year for a week or 10 days at a very upscale resort. nope not any more they are looking at either mexico or cuba
if you and i are thinking this way just how many others are doing the same?
just imagine what would happen if all the people effected by fatca all decided that as of xx date we are no longer going to travel to america to spend our money how fast the media would sit up and take notice.
@JEG……did you really even listen to the vocals those women put into that song????
Just what are your credentials in seemingly debating with us U.S. tax and other law. I want a real lawyer please.
mettleman,
We also don’t have to have the same music appreciation as Mr. JEG has.
@J.E.G.
Everyone who posts at Brock, has a reason for coming here. In my case, I was born in USA while my Canadian born parents lived there temporarily (therefore I have dual citizenship), however I have lived, schooled and worked in Canada for 50 of the 51 years I have been on the planet, and knew nothing about CBT until I heard about FATCA just over a year ago. I have been completely devastated to find out that USA considers me a delinquent US taxpayer despite having no economic connection to the USA, and rarely even visiting the USA. Brock has been a place where I have found both emotional support, and a wealth of information regarding how to deal with the life altering situation I find myself in.
What is YOUR reason for hanging around here?
@calgary411
I meant, I am not a constitutional lawyer and in fact I am not a practicing lawyer anymore.
I went to law school and took the bar exam, but that was a long time ago.
@J.E. Gutierrez,
So, since US citizens in Puerto Rico are not harassed and harmed with US national origin discrimination crimes, you blame and condemn the Swiss because of FATCA violations?
JEG,
If you told us you are not a lawyer and now tell us that it is not what you meant to say that really you are, we might conclude you are very confused and should disregard what you say.
@calgary411
My spouse and my kids do this all the time (conclude I am confused and ignore me), so I would not mind at all.
@J.E. Gutierrez, so you insult and condemn people and honor national origin discrimination crimes while blaming the victims of such since you figure that you are a lawyer. That makes sense!
Now, where is that signed statement which confirms that Swiss can rewrite Model 2 in compliance with Swiss laws without US threats and pressure? I’m still waiting. You know as well as anyone that FATCA violates Swiss laws because of US dictation.
@JEG
Small world – I can relate to that one.
@JEG, I do apologize. I meant to write that you are “brazen idiot”. For you are making a fine distinction between two things where one defines the other: IRS codes defines a taxpayer=”US person”, as a US citizen or a resident of the US. This is near perfect tautology in the US system of taxation: US taxpayer=US citizen. This applies particularly in the foreign setting, where there are no “residents” of the US.
So in other words, you are saying, as another lawyer more famous than you once said, “It depends on what the meaning of the word ‘is’ is.” It’s like you’re being stupid on purpose. That’s why you are being brazen about it. Obviously you’re not fooling anyone here, except perhaps yourself.
Quite honestly, I do not care what US law is, or how badly they have screwed up their country. I care what the laws of MY country are (Canada). That the US government LIED to me in the 90s, telling me I was NOT a US citizen (border baby), was a matter of convenience for a corrupt country. TRYING to confiscate my Canadian spouse’s hard-earned Canadian income is yet another matter of convenience for the US government. That any US resident citizen can attempt to justify this is any way, is yet another matter of convenience.
It is a matter of convenience for me to totally disregard US law, as I do not live there. This should be the stance for the Canadian government, as well.
Thank you USCitizenAbroad for your comments at http://isaacbrocksociety.ca/2013/12/30/irs-insider-explains-why-the-united-states-has-never-enforced-the-reed-amendments-banishment-provision-he-thinks-its-funny/comment-page-7/#comment-915556 .
You and others here have raised the issue of discrimination based on the actual EFFECT and outcome of US laws as applied to those abroad, vs. JEG’s assertion that uniform application was enough in order to assert that FATCA and CBT were non-discriminatory.
JEG:
It is well established that in developed societies, we must have financial accounts in order to live. Our financial accounts are necessarily local – held where we live, and usually generated and taxed there (often at source before it ever is deposited into our accounts). It is not practical or possible for us abroad to maintain normal saving and financial relationships by banking in the US.
FATCA and FBARs apply to ‘foreign’ (i.e. non-US) accounts.
US residents – US citizens and non-citizens, can bank where they live – in the US.
AND, FBAR applies also to our non-personal financial relationships with the accounts of non-US persons such as our Canadian employers, Canadian voluntary and charitable organizations, Canadian estates and Power of Attorney on NON-US accounts belonging to NON-US persons in Canada.
No US resident has their ordinary regular local legal affairs affected by FBAR and FATCA reporting, penalty structures and privacy invasion affected negatively in the manner that we do.
Our non-US spouses and joint account holders also have their financial and personal information affected by FBAR and FATCA even though they are NOT US persons, the assets ARE NOT US taxable or US sited, and they have NO legal or other obligation to the US.
Therefore, FBAR and FATCA in outcome and consequences affect those born and/or living outside the US in a manner that is not the case for US resident citizens.
We are NOT given the option or freedom to NOT be affected by FATCA and FBARs – whereas those living in the US have the option to choose to easily arrange their affairs in order never to need to hold or have any relationship with a NON-US account. And, in the case of joint accounts, our ‘compliance’ with FBARs and FATCA requires us (and now NON-US banks and other financial and non-financial organizations) to break the privacy laws and abridge the Charter rights of our country of residence (and country of NON-US citizenship) by disclosing the financial and personal information of NON-US persons (such as employers, spouses, estates, business partners, etc.) regardless of their permission if they refuse to give their consent to the disclosure to the US government. US residents are not routinely placed in a position where they must choose to break the laws of their home country and abridge the rights of their family and fellows in order to placate another government extraterritorially.
And FBARs and FATCA require the routine wholesale collection and reporting of financial account data which exceeds that required of US residents on their ordinary local (and often already post-tax assessed and post-tax-withheld ) accounts. FBAR and FATCA far exceed the routine reporting of ‘taxable’ or other interest on accounts, by including balances, and under FATCA, the withdrawals, deposits, activity, etc. Much/most of this information is NOT directly relevant to assessing US (or our own residential domestic tax burden) and exceeds the reporting required of US residents with US accounts. FATCA also applies to accounts and assets that are NOT US taxable, have not been realized, and with FBAR, are NOT US taxable, NOT personally owned by us, have NO personal current access or advantage and may be entirely theoretical and future contingent (ex. Power of Attorney for Finances – with only future contingent terms – ex. dependent on narrow future events such as mental incapacity).
Discrimination in requirements, effects and outcomes – no matter whether one could argue that it is ‘uniform’ or ‘equal’ in technical application to ALL US citizens.
The effect of US extraterritorial CBT also results in effective US double taxation and a marked inability to avail ourselves of BOTH or either of the government tax incentives offered by the US and by our country of tax residency – in the areas of education savings (ex. RESPs AND the US equivalent), tax advantaged accounts and grants (ex. RDSPs and TFSAs, IRAs, etc.) and US tax breaks on mortgage interest, etc.
NOT equal = Discriminatory.
JEG, please address the issue of unequal (negative) OUTCOMEs and ‘disparate impact’ of FATCA and FBAR, rather than your inappropriately narrow discussion of the APPLICATION of the related US laws – excluding any acknowledgement of the ” ‘disproportionate “adverse impact(s)”.
A law can be equal in application, yet result in predictable and measurable unequal and negative discriminatory outcomes on specific and definable groups.
For example:
“….. Disparate impact contrasts with disparate treatment. A disparate impact is unintentional, whereas a disparate treatment is an intentional decision to treat people differently based on their race or other protected characteristics.” http://en.wikipedia.org/wiki/Disparate_impact
…”A fundamental distinction can be drawn between three different conceptions of equality:
formal equality, equality of results, and equality of opportunity….” ….”Equality of results approach is critical of formal equality approach, because identical treatment is seen in practice to perpetuate existing inequalities that result from past or present discrimination….”….. “Besides direct and indirect discrimination, we may use the term institutional discrimination.
Institutional discrimination refers to the practices or procedures in a company or an institution,
or even the society as a whole, which are structured in a way that tends to produce
discriminatory effects…..”…. http://webcache.googleusercontent.com/search?q=cache:s-7OsysVbmYJ:action.web.ca/home/narcc/attach/Causes,%2520Forms,%2520Consequences%2520of%2520Discrimination%2520paper%255B1%255D.pdf+&cd=5&hl=en&ct=clnk&gl=ca&client=firefox-a
@JEG,
You may dismiss this as irrelevant on the grounds which you have earlier asserted, that the US may enact any law (as in FATCA and the BSA FBAR) it likes, whether or not it conflicts with the laws of other countries. Even if it results in ‘substantive inequality’. And as an aside, regardless of the issue of equal application vs. equality of outcome and result; in the case of the FBAR, even the IRS Taxpayer Advocate, and US tax and law professionals have noted that it very well may be ruled unconstitutional by the Supreme Court, based on grounds that the penalties are confiscatory. It awaits the right case and sufficient motive and resources to challenge it – which some have opined that the IRS is avoiding presenting opponents an opportunity to do – but which the current aggressive enforcement climate may make more probable because the stakes for defendants have become so high.
As well, FATCA still may face the hurdle that it may not be successfully enacted in some countries even with an IGA, as it may not be possible to reconcile its application domestically, for example in Canada because of conflict with our Charter of Rights and Freedoms and our Canadian Constitution. For example, the implementation of FATCA in Canada may very well be ruled to result in the denial of ‘substantive equality’ of Canadian citizens and residents:
…”Meaning and purpose of equality”
“According to the Supreme Court of Canada’s Section 15 jurisprudence, the equality guarantees of section 15 are aimed at preventing the “violation of essential human dignity and freedom through the imposition of disadvantage, stereotyping, or political and social prejudices, and to promote a society in which all persons enjoy equal recognition at law as human beings or as members of Canadian society, equally capable and equally deserving of concern, respect and consideration.” (Iacobucci J. in Law v. Canada, [1999])
To that end, the Charter recognizes four dimensions of equality, including substantive equality.
Equality before the law is equality in the administration of justice, where all individuals are subject to the same criminal laws in the same manner by law enforcement and the courts.
Equality under the law is equality in the substance of the law, where the content of the law is equal and fair to everyone so that everyone experiences the same result.
Equal benefit of the law ensures that benefits imposed by law will be proportionate.
Equal protection of the law ensure that the protections imposed by law will be proportionate so that the human dignity of every person is equally safeguarded by the law.
Unlike formal equality, which overlooks personal differences, substantive equality is concerned with the impact of the law on different groups of individuals. Substantive equality requires that there be an equal impact on the person affected by the law…”
http://en.wikipedia.org/wiki/Section_Fifteen_of_the_Canadian_Charter_of_Rights_and_Freedoms
J.E.G. wrote several threads back:
“I have often wondered what would happen if overseas citizens engaged in an act of mass civil disobedience over tax.
That may be the way to go.”
This is something an AGENT PROVOCATEUR would write, particularly while he also writes all kinds of stuff defending the ongoing US persecution of expats. Brockers beware, J.E.G’s posts smell of having a hidden agenda, and its not to help expats.
http://en.wikipedia.org/wiki/Agent_provocateur
I just found out another country that used to have CBT: Bulgaria. It abolished it in 1997, a few years after the fall of communism.
@boston T. It could be. I am perhaps the prime target. The US may be mounting a major investigation against me. All I have to do is cross the border into the United States and the celebrity US prosecutor Preet Bharara will nab me, strip search me, cavity search me, handcuff me and release me on $250,000 bail. Hell, I’ve even admitted on this blog and elsewhere to not filing FBARs. If I am also conspiring to get US citizens not to pay their taxes, I could go the way of Irwin Schiff and Wesley Snipes, two men that I admire.
They weren’t sufficiently organized in July, when I went to Alaska to join in the search for my father. But now they are ready.
@Boston T.
This is the only Agent Provocateur I know
http://www.agentprovocateur.com/
A little saucy and but very popular in the UK.
The founder has a beautiful house in the Northern suburbs of London with a gorgeous grass tennis court.
I’ve discovered recently that FATCA has not only affected my future financial health; it has also affected my present physical health. Even after reading, here, there and everywhere, for hundreds and hundreds of hours, my head will still need to work harder to accept that even though I am a law-abiding, tax-paying Canadian, the USA considers me to be a law-breaking, tax-cheating US person. Only a person though because I never was a US citizen. Is person a step up from having once been called an alien? American terminology is very strange to me — like being considered a resident while not actually being in residence. I don’t eat much these days and I guess that explains why my brain is in “fuzzy bits” a great deal of the time.
Each of us needs a bright shiny thing, sitting out there in our future. It’s part of what makes life worth living. Even under the most dire of circumstances if we have some hope that something good awaits us in the future, we will plod on. Until FATCA awareness hit I had that bright shiny thing but now it isn’t there anymore. Without a bright shiny thing there is only existence and now, in my case, it feels like sub-existence. Calgary411 once said she wanted to feel joyful again. Me too.
Perhaps the anticipated outcome of my predicament is the bright shiny thing that will make JEG and so many others in the USA joyful because it will demonstrate and reaffirm to them that US law is THE law and it is being equally applied, everywhere in the world. Equal, yes, but fair, not so much. No matter, FATCA will transfer treasure from all over the world into US coffers. Can’t knock that for a bright shiny thing, can you? When all the flickering flames of overseas tax miscreants have been extinguished then I wonder what America will reach for as its new bright shiny thing? What will it be that promises to make America even more joyful? I actually shudder at the possibilities.
You can sure tell there isn’t a lick of lawyer in me but at least I still have heaps of humanity. And right now we are getting heaps of snow so I’d best plod outside with my snow shovel in hand.
@JEG,
It also appears to me clear that the US discriminates against those deemed US citizens with diminished mental/intellectual capacity who are deemed to be legally mentally incapable as they are not afforded the same right to renounce or relinquish as their fellow citizens.
As FATCA and US extraterritorial double taxation is imposed on disability grants and income, and on the RDSPs (US taxed as a ‘foreign trust’ and burdened with complex reporting requiring US tax professionals to effectively comply with) which allow parents and guardians to provide for the economic security of their dependent children with these disabilities, the US IN RESULT and in substantive EFFECT burdens them in a manner which does not apply to those without those disabilities.
How is that not discrimination? How is it not discriminatory to tax and thus destroy the very legal means that the parents, guardians and home government of these dependents have designed in order to keep these individuals from poverty – and also from dependency on their NON-US home country for upkeep?
Since they can never renounce or relinquish, and since their guardians cannot do so on their account, they cannot achieve economic security. Is that an acceptable outcome?
The US does also discriminate against our children deemed US taxable persons in the area of post-secondary education savings. We cannot use US tax incentives, yet are precluded from using the equivalent (ex. RESP) savings incentives offered us for this purpose in our home country. The US thereby burdens both the parents and the children deemed US taxable persons and citizens living abroad and reduces our economic security and opportunities to advance.
We are also not allowed to count our NON-US children as dependents for the purposes of the US return from abroad. So, if we had one US citizen child and one non-US child, we could only count one as a dependent. The effect is to discriminate against US citizens with non-US citizen children.
We are penalized with the ‘marriage penalty’ if we are married to a NON-US spouse – since the reporting thresholds and taxable thresholds are less favourable for those who must report as ‘married reporting separately’ even in comparison to the status of filing as ‘single’. This is unjust and discriminatory since the NON-US spouse has NO tax or reporting obligation to the US – and so we are forced to be penalized on the basis of our marriage to a NON-US person. The effect of this is discriminatory since if we are born and live abroad, it is highly likely that we will be married to a NON-US person.
“Annabelle”, a fashion magazine, has an article dated December 27, 2013 written by a young photographer on her US citizenship renunciation experience and what led to it. The article is called “What it is really like to give up US citizenship voluntarily”. Here’s a translated excerpt:
“The US passport, for which I was envied earlier today, became an obstacle. I feel discriminated against in Switzerland. A current form of racism: Again and again I have been a punching bag for rants about the tax dispute between the United States and Switzerland. I was denied a bank account because I’m obligated as an American citizen to give information on my financial matters, and will thus pose a risk to the local bank. Other dual citizens have problems finding a job in Switzerland because they are obliged to give the US authorities information about business account to which they might be a signatory.”
http://www.annabelle.ch/leben/gesellschaft/wie-ist-es-eigentlich-freiwillig-den-us-pass-abzugeben-32028
@Em, When they did autopsies on the young soldiers of the Korean and Viet Nam Wars, they found advanced artery disease. Stress is very bad for the health, and war leads to stress.
My Sudanese refugee friend once confronted looters on the campus of the school I taught at in Central African Republic. They had AK 47s, and he calmly spoke with them in Arabic, as they were from Chad. I asked him if he was afraid. He said no. The next day, having pondered this, I asked him why. He said, “Because they weren’t shooting at me.”
I think we should do our best not to allow the threats of the US destroy our health through excess anxiety and stress. We are not yet on the front lines of any kind of war–the US is happy to make collateral damage if we hand ourselves over to them–but they are not shooting directly at us because we are out of range. So provided we don’t surrender to the enemy, we should be safe for now. So let’s just relax (encouragement) and become arm-chair generals in this war. Ok?
@Mettleman
Oh I am not even interested in traveling to America anymore. I moved away 51 years ago and always felt foreign there anyway. I didnt get the slang, didnt understand the mentality anymore, really. So I am another one who will not be visiting America anymore. I agree with you, others will chose alternative destinations too.
I just read a poll somwhere in which America was rated the biggest threat to world peace.