Shadow Raider made the following comment:
Due to the extreme difficulty in having a decent discussion about CBT with Congress, I decided to start a plan B. I’m not abandoning the RBT proposal, but I see that it’s going to take a long time, so I came up with an alternative that may work in the meantime. I’ll explain it below.
In US law, nationality and citizenship are not exactly the same thing. Citizenship is actually a subset of nationality, so all US citizens are also US nationals, but it is possible to be a US national without citizenship. Such status was historically created for people in US territories, and today it only applies to American Samoa.
What is interesting is that the alleged “benefits of citizenship”, often mentioned as the justification for CBT, are actually benefits of nationality. US nationals without citizenship also use a US passport, receive US consular protection, and they can enter, live, study and work in the US without restriction. They can also apply to become US citizens, if they wish (after residing in the US for a short period). The only rights specifically for citizens that I’m aware of are the right to vote, to work in US government jobs, and to sponsor foreign relatives to immigrate to the US. US nationals without citizenship also transmit their status to their children born abroad.
What is also interesting is that the US tax code mentions US citizens all the time, but not US nationals. US nationals without 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. Basically, they are subject to RBT. There is no “nationality-based taxation”.
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 the document that renunciants get is called a Certificate of Loss of Nationality.
You may have realized where I’m going with this. My proposal is to allow people to renounce only US citizenship while retaining US nationality if they wish. I suppose many Americans abroad would like this option, as they would get rid of CBT, FBAR, FATCA etc. but would keep a US passport and the ability to return to the US at any time and even to become US citizens again later. They would still be subject to the expatriation taxes but not to the Reed amendment, because they would become aliens under the tax code but not under immigration law. The option would be totally voluntary, of course.
I know that this proposal is not nearly as good as RBT, and it would not work for people like calgary411′s son. But it’s a sort of temporary solution, and I believe it would be much easier to implement and to gather support in Congress. It would consist of only a small paragraph to be added to the section of law that deals with renunciation (I already wrote a draft), and it would not touch the tax code at all. It would completely avoid the Ways and Means and Finance committees and the heated debate about taxes, and would satisfy those who stubbornly want to keep the tradition of CBT.
I would like to contact some congressmen to see if they are interested. The American Samoan delegate would be a good start, as he is aware of the subject and recently stated that citizenship should be a choice. Also, his constituency is very small, so he may be more accessible than regular congressmen.
What do you think? Is this idea too weird, or it is worth a try? If you had the option, would you renounce US citizenship but keep US nationality?
@Shadow Raider,
What would be the motivation for US lawmakers to consider your idea, the renunciations? Also, have you ever considered discussing with lawmakers how it is that non-resident USP’s are subjected to US taxation because we are deemed “resident” in the US? I’m pretty sure that some would find this to be absurd!
I’m all for ideas, Anne Frank, but you suggestion of paying $500 a year in lieu of filing and reporting feels like a membership fee to me. Why can’t the US just allow what most every other country’s citizens enjoy without the added premium? This just feeds into the American exceptionalism problem that plagues the US in their perception of themselves in the world. As for your second idea – our tax liability with the US didn’t show up on a Canadian return, as the capital gain on the sale of a principal residence is not reportable on a Canadian tax return. The IRS won’t buy it.
@ChearsBigEars your Obama banana joke has really pissed me off.
@Susan Ouderkirk- I admire your optimism. From memory- several brockers already approached the ACLU and their response was “we don’t deal with the situation of Americans Abroad”…. I wish you the best of luck! Keep us all posted and maybe, just maybe, this could gain traction with the ACLU… so much of the world is turning upside down so quickly that anything seems possible these days.
@ Susan Ouderkirk
Thank you for that offer to help. Your argument is very rational although most of us have decided that the USA is behaving in an irrational manner (in many areas) and that’s a huge obstacle. I don’t know if the ACLU has been approached about this or not. I recall it being mentioned here before. Have you been in touch with James Jatras of repealfatca.com? He’d probably have all the information you need to make a presentation. This needs to be attacked from every angle possible. You may have noticed we’re working hard in Canada to persuade the parliament to vote NO on the FATCA IGA.
@Anne Frank
When I said to please pass the message on, I was not referring to a flat tax. I am against CBT. What I was referring to were your arguments which showed how detrimental CBT is for american coorporations abroad. Its bad for business – THATS what I think could help to persuade politicians to rethink FATCA and CBT:
@Susan Ouderkirk
The greatest discrimination is not only taxation wirthout representation, but double taxation.
@Susan Ouderkirk,
Please keep trying, but last year I approached the ACLU in my home state (Washington) without success. The ACLU did not say explicitly that it will not help US citizens abroad, but only that it does not have the resources for all who need help.
I have been looking up this exception and the last countries that gave up on global cbt for all citizens abroad seem to have done as part of economic reform with some indication that they wanted to rebuilt ties with their diasporas. Maybe if the costs get too high the U.S. will reconsider, but it should be pointed out the last few were Vietnam and Burma and some former Eastern Europe countries. Some countries retain taxes on citizens living in known tax havens, which is more like Levin’s idea for the crackdown was.
What on earth does this mean?
ChearsBigEars says
March 13, 2014 at 12:33 pm
“Chiquita just left”
Obama’s gonna starve
@ DM,
It means nothing relevant to the conversation that we should be focusing on here. Too bad.
This “nationality without citizenship” thing sounds like it is the result of an old discriminatory policy, and not something that deserves to be propagated or expanded going forward.
If I ever do get to the point of relinquishing citizenship, I can’t imagine having any interest in maintaining “nationality.”
I’d rather focus efforts on achieving RBT, which makes sense, is easy to understand, and has lots of precedents to point to.
@bubblebustin & @DM
I don’t think he means it in a bad way… just presented it in the wrong context… I think… Chiquita corp is leaving the US for Ireland… So here is another off-shore corp that will take its money out of the US… but then.. I could be wrong… been like that lately….
@calgary411 I agree – it’s irrelevant. Distracting and damaging to the discussion.
I understand that all political perspectives are welcome here but this strikes me as not political. Moderation can sometimes be a good thing for a forum.
@bubblebustin, I’m starting to think that not even the renunciations will make Congress look into the issue of Americans abroad. It amazes me, but Congress completely ignores them as if they didn’t exist. The motivation would be something totally unrelated: if the courts force citizenship on American Samoans, I can see Congress passing a law to allow them to revert to their previous status on an individual basis upon request. They did something similar for the Northern Mariana Islands. In that case, I would ask the delegate to make the legislation more broad and allow any US citizen to become a US national without citizenship. I expect that the delegate would agree and that Congress wouldn’t notice the technicality.
@foo, Nationality without citizenship clearly is a remnant of old discrimination and imperialism. The US invented it to deny citizenship to people who wanted it. But a century later, the situation is reversed, as now the US is forcing citizenship on people who don’t want it. Although my proposal relies on the old status as its legal basis, it’s fundamentally different because it would make everything voluntary. People would be able to choose which status they want, according to what they see fit in their personal circumstances. I still believe RBT is the best solution, but there is nothing I can do about it while Congress refuses to even acknowledge that there is a problem.
By the way, the time stamps haven’t switched to daylight saving time.
Shadow Raider:
Well, I can imagine Congress giving American Samoans a special option to retain nationality without citizenship, as a way to clean up an historical injustice, but I cannot see why they would make this a general option for anybody. If it were slipped in without them noticing the wording, then once non-Samoans started taking advantage of it, I can only imagine the outcry that would ensue, with hasty changes to the law following to close that “loophole.”
The only way I could see this being sold is to play up the aspect of giving up one’s right to vote in exchange for being taxed only if resident. That I could see being perceived as fair. (In fact, Canada does something like this with their non-resident citizens, does it not? Though without changing their citizenship status.)
Hmm, well, perhaps there may be something to this after all…
@Foo, I would be for it as a workable middle way. I would also hope that Congress would have the compassion to allow recent renunciants the option of restoring US nationality though doubt that will happen…
I am relieved to have my CLN but still worry about the Reed Amendment possibly being enforced against me someday, especially as I’d owed substantial taxes. They could thus look at my 8854 and assume I left to avoid taxes, even though the actual reason was the huge ongoing compliance costs I would have been burdened with.
I still have many ties to the US so a part of me admittedly is ambivalent about my decision, and that I probably made it in haste. It’s certainly not as black and white as it might appear, at least for me.
@Shadow Raider
It must be frustrating to feel like a ghost wandering around DC, when so many you wish to reach are simply too absorbed in their own naval gazing to hear you and knowing they do so at their own peril?
Could you give me your insight into the fact that the US subjects its non-residents to a diaspora tax by designating us as resident in the US? Isn’t there hope that some lawmakers would find this concept patently absurd?
@Shadow Raider
It is difficult to get the attention of Congress during a midterm election year unless you have a big bloc of votes to offer for a policy. The representatives are all focused on getting back into office. Overseas voters would not be considered ‘likely voters’ since they generally don’t vote in midterms. This may be a tough sell until after the November election or until the new Congress meets in January.
One danger is that the lame duck Congress could pass the Levin bill (he’s retiring, so would have sympathy).
The key difficulty with this issue is that nobody has heard of it. It is good to see that awareness of FATCA in Canada is high, but it is also really shocking at how little coverage there is here in the U.K.
@shadowraider, re;
“…..I’m starting to think that not even the renunciations will make Congress look into the issue of Americans abroad. It amazes me, but Congress completely ignores them as if they didn’t exist.”….
Yes, Congress seems to be blind (willfully so?) although the IRS CI seems to have taken notice – though I doubt it will respond in any constructive manner http://federaltaxcrimes.blogspot.ca/2014/03/irs-ci-is-looking-at-renunciations-of.html
On the other hand, it could be just another one of their scare tactics – cheaper to make public threats in order to scare people from exercising their right to expatriate than to locate all of us around the globe for the firing squad.
Maybe it is starting to get noticed and might be starting to make them look bad internationally. Certainly hope so.
Optics count for a lot, that’s why I’m now using the term “diaspora tax” instead of CBT wherever I can. For one thing, it gives the reference a more outdated feel to it, like the word “home lander” does for people of a certain mindset within the US. It also reflects the fact that many of us have some pretty loose ties to the US, which the term “CBT” lacks.
@bubblebustin, Designating nonresidents as residents certainly doesn’t make any sense, but according to my experience, those who support CBT don’t define issue that way. For them, residence is irrelevant, and citizenship is the tie that binds the person to the country, with all its duties including taxation, like a club membership. The argument falls apart because resident foreigners are also taxed like citizens, and nonresident citizens have the FEIE, but that’s the argument they make in princple anyway. However, there are congressmen who agree with RBT, they just haven’t been too vocal about it.
Sorry to barrage you with questions, Shadow Raider, but would CBT have a legal standing without the resident in US designation? If it would, why did they bother to include such a misconception? It would seem to me that to say something is what it isn’t would be offensive to many people.
@bubblebustin, No problem asking questions, but I don’t quite understand what you mean. CBT is not a misconception. The tax code doesn’t assume that citizens are residents, it explicitly says “citizen or resident” hundreds of times. As much as I fundamentally disagree with CBT, I have to admit that it’s legal. The only way to end it is by Congress changing the law.
@ Shadow Raider,
Thanks for pointing out we hadn’t changed the clocks here to daylight saving time. I fixed it.
Just in case they didn’t get all your assets in the OVDP they can get another chance now:
http://ronpaulinstitute.org/archives/featured-articles/2014/march/14/against-ukraine-war-obama-may-seize-your-assets.aspx
Call me stupid, but I just looked at the US Dept of State forms and they reveal something rather interesting:
http://isaacbrocksociety.ca/wp-content/uploads/2014/03/Consulate-Report-Directory-2013.03.05.c.pdf
Form DS-4079 for Relinquishing refers ONLY to US Citizenship
http://www.state.gov/documents/organization/97025.pdf
Form DS-4080 for Renouncing refers ONLY to US Nationality
http://www.state.gov/documents/organization/81606.pdf
Form DS-4081 Statement of Understanding refers to both US Citizenship and US Nationality (mixes back and forth in confusing manner)
http://www.state.gov/documents/organization/81607.pdf
Form DS-4083 Certificate of Loss of Nationality refers to US nationality but with intent to lose US citizenship
I have to read the forms again more closely, but my initial examination makes me wonder if it is legally possible to only relinquish US citizenship but to keep US nationality. This would open up the possibility that Shadow Raider is talking about.
Perhaps one of the Brocker lawyer types can study the forms more closely. I am only a layperson.