This post comes from Anne Frank. I agree with the contents and thank Anne Frank for taking the time to organize these thoughts.
Practical Solutions Needed
In my view, the election has created a small opening NOW to pursue a pragmatic solution that will resolve MOST but not all of the injustice that FATCA and CBT generally have wreaked upon US Persons outside the United States and their families. What is needed is (i) a VERY SIMPLE and SUCCINCT summary of why this is an injustice that can be grasped by any voter in a coffee shop with the attention span of a four year old; (ii) a SIMPLE and CLEAN proposal to make the problem go away; and (iii) a Congressman or woman with the courage to take it on.
There is an opening in my view because a) the Republicans control both houses; b) the Republicans have apparently embraced repeal of FATCA and CBT as bad policies; c) Democrats Abroad at least have recognized most of the injustices US law perpetrates upon its diaspora and can be expected to endorse at least limited action to address the worst of it if not outright repeal of FATCA; and d) a Congress which has a double majority has some hope of getting a bill passed which – if consistent with principles the Democrats have at least paid lip service to – the President might not veto. FATCA may be bad law, but it sells politically because it targets “FATCAT” tax evaders. We need to let them solve that problem in their own time and in their own way providing they stop with the collateral damage! We all know Congress will have only a short honeymoon period where it has any hope of getting things done, so the best hope of getting something passed is early and not late in the lifetime of the new Congress. The pending Canadian litigation will serve to keep some level of political attention and heat on the issue (I don’t overestimate that factor in the US of course!).
I think our group can collaborate on the simple summary idea. The Democrats Abroad brief is not a bad one and could likely be an appendix to a short summary that highlights a) double taxation that persists despite tax credits and exemptions; and especially b) the ways in which the fines and penalties associated with “death by a thousand forms” subjects US Persons outside the US to discrimination and threats not faced by Homelanders. Real stories of real people will carry 100 times the weight of an academic brief.
What is the simple solution? Well, I tried to put together something as simple as what we put before Parliament when C-31 was being debated. Here is what I came up with (drafted as an amendment to the US Tax Code):
“General (1) For all purposes of this Title 26 and any other statute referring thereto other than Title 8, a person shall neither be considered to be a citizen of the United States nor a U.S. Person if the person would not be considered a resident of the United States (absent the existence of United States citizenship) under the substantial connection test in 26 U.S.C. para. 7701(b)(3) for the particular year nor any of the ten preceding years. This statute shall apply with retroactive effect.
Repeal (2) Title 26, U.S. C. para. 7701(a)(50) is hereby repealed.
Transitional (3) Any person who has filed any return or paid any tax or penalty prior to the coming into force of this statute shall have no claim against the United States government arising from the application of the law prior to the coming into force of this statute. ”
In simple terms, what the amendment to the US Tax Code drafted above seeks to accomplish is to cut the head off the snake. If CBT is the root of all evil, kill as much of it as we can as simply as we can. What I did was go to the source of CBT in the United States Tax Code which is Title 26 in the definitions section (para. 7701). This is where “US Person” is defined to include a citizen or resident. What my amendment would do is simply provide that for purposes of the Tax Code and any other statute that references it (but not the Immigration and Nationality Act which is Title 8), a US citizen is NOT considered a “tax” citizen if you will if they haven’t met the “substantial presence” test for the year in question nor any of the ten preceding years. For someone who left as a child or was born outside the US to US parents, this is a complete waiver. For someone who left as an adult, this limits their “problem years” to the ten years after they left.
The virtue of this is that it does not require the creation of any new tests, definitions or concepts which often involves the law of unintended consequences (and stalls things for a long time while such consequences are studied and debated). Substantial presence has been in the Tax Code for years – it may be a mess, but it’s their mess! Snowbirds need to be wary of it, but occasional visitors do not.
This is not perfect. People who have been out of the country for ten years or more have connections sufficiently tenuous to the US that it will not be hard to explain to Congress and Homeland voters that it is unjust to persecute them. Yes, it does mean that Eduardo Savarin’s of this world will eventually be able to get out of the tax net, but the IRS will still get to torture them for a decade before they get away. They can create new exit taxes for such people if they like. It won’t be hard to do. It does mean that the vast majority of Accidental Americans would simply be out of their net for all purposes and for all time unless they decide to establish themselves in the US.
The law would have retroactive effect (just as the amendments to the citizenship rules did back when they were changed in the 80′s). This would simply make the problem go away for almost everyone. The provision of para. 7701(5) being deleted is the root of “covered expatriate” in the existing statute (citizen for tax purposes until all obligations discharged under s. 877). They are free to come up with a new exit tax for the fat cats who may leave tomorrow if they like,
What I have NOT tried to resolve here is (i) giving citizenship back to those who were effectively forced to renounce; and (ii) refunding money extorted in the past. In a perfect world, a just government would address both of these issues fairly. I strongly suspect that if we try to bite off too much, we may instead get nothing. The perfect can be the enemy of the practical. On balance, I think this remedy is simple enough to explain that it has SOME hope of getting traction if the story behind it is compelling.
That leaves the problem of finding a sponsor. Maybe Rand Paul? Maybe even Ted Cruz? I leave that to others. I confess to having little insight into how this might be done.
My suggestion is that we try to refine these ideas and develop a near perfect “pitch” collaboratively that can be sold to one or more Congress people and let’s see if we can’t actually solve this problem at the source. FATCA will still be bad law imposing lots of expense, but it will effectively only hunt for or disclose US residents with the proverbial Swiss accounts.
@Anne Frank
“The reason I picked ten years is because THEY did – that was the original “tax slavery” period they picked back in the 90′s.”
Giving thumbs up to ten years of slavery just because the Clinton Administration did it is morally wrong and should not be presented as something expats are in support of.
@Mark Twain, you litigate and lobby for legislation at the same time. Its a two front engagement and they compliment one another.
@FromTheWilderness, the point AF is making is what can be sold to congresscriters.
Based on the explanation, I think 10 years is likely the magic number for the gauntlet that must be crossed.
We should point out that there is absolutely no sense in forcing non-residents to file any FBAR forms. The object of FBAR is to make sure that resident citizens, who have access to the U.S. financial system, aren’t hiding money overseas. Therefore there is no logic in forcing non-residents to file FBAR because they are by definition overseas and must conduct their financial affairs where they live. I know that the government is also talking about FBAR as being an anti-money laundering tool but the truth is that their concern is that the U.S. financial system would be used to launder the money. This concern totally disappears with regards to non-residents since they don’t have access to U.S. based financial accounts.
So the whole FBAR thing is a scam. There is no other Western or OECD based country which sees CBT taxation as a means to combat money laundering by its expats. The U.S. government is just grasping at anything it can possibly use to justify IRS imprisonment. If expats are laundering money then it is the responsibility of their country of residence to determine this. There is nothing that FBAR gives the government which allows it to determine whether or not an expat is laundering money. FBAR is a U.S. government inventory of the individual’s wealth. You can’t launder money that you don’t use.
That’s like saying Rosa Parks should have remained in the back of the bus for ten years before being allowed to sit in the front.
@monalisa, it is cruel and my heart goes out to you. I know you are thinking along the lines how the UK and other civilized countries have resumption of citizenship provisions.
One other tiny typo — US Pesons — makes us sound like a newly discovered subatomic particle (first paragraph). Although we could be considered to be “pesons” being drawn into an IRS black hole I suppose. Otherwise a top-notch piece — just as we’ve come to expect from our Anne Frank. Thanks Anne for putting this together.
RE: “(i) giving citizenship back to those who were effectively forced to renounce”
I believe Mr. Bopp mentioned in an interview that the RNC actually were discussing that possibility. It might not be too far a stretch to get reinstatement of US citizenship BUT it would have to be an individual choice.
RE: “(ii) refunding money extorted in the past”
Unfortunately, as far as I know, nobody has considered giving back any ill-gotten gains and we all know the USA is good at taking but bad at giving back. It’s not likely going to happen.
But that 10 years part rather befuddles me, even though it would completely take me off the hook. It would prove beyond a reasonable doubt that a person should no longer be considered a taxable citizen/person of the USA but it’s a long time for weecats and fatcats to be on the US tax form filing hook after they have chosen to live outside the USA. Would they be filing a regular 1040 or a 1040NR? Seems like there are two considerations a) where is/was an individual physically present and b) where is/was an individual’s assets which produce income located. Guess that’s why the smart countries use RBT. I’ve got to think more on this.
@George
The only thing that should be sold to congresscritters is multiple lawsuits in multiple jurisdictions and mass renunciations.
@recalcitrantexpat, I keep constantly reading the recitals to the law and you are spot on!
http://www.law.cornell.edu/uscode/text/31/5314
This is a 1970s law that has been dusted off. It does not make sense in the 21st Century….
Otherwise, lets get out some 8 Track tapes and listen to some Led Zepplin and Jefferson Airplane while we do the FBAR man… …groovy……
Just to point out the madness of the non-updated FBAR requirement from 1970.
In 1970 the FBAR requirement was signed into law by President Nixon.
Expats were a drop in the bucket.
Dual nationals overseas did not exist because dual nationality was essentially not permitted.
The Boeing 747 did its first commercial flight to London.
Lavalamps were the in thing.
Coppertone and Avocado were the colours were wanted for your kitchen appliances.
The USA enters Cambodia.
Kent State……
John Kerry was in his last year of service with the US Navy.
Obama was in fourth grade at Elementary School.
And……
http://www.thepeoplehistory.com/1970.html
FBAR was for another era thats long gone.
I just disagree with this whole concept. It s like people are becoming traitors to our original cause here. Why the hell is Bopp going to court to sue the government for unconstitutionality if we don`t have a case? Those penalties are unconstitutional! We have been second class US citzens- discriminated against and treated poorly the whole time, and now one is supposed to find some sort of compromise which means that those who have already been screwed get no justice? I can see keeping those taxes they asked for, but not the exorbitant penalties. Remember thee bragging about how much revenue they have gotten- ill begotten wealth that was like one hundred times over anything they would have gotten in the way of taxes? And i don`t think those who had to pay should be the ones to carry the burden for everybody else. I`m actually appalled. There HAS to be a better way!
I completely agree that there is at least a potential chance this can be done given the Republican majority. I would encourage IBS to not be shy and submit the proposal to American Citizens Abroad and try to get ACA to pick up the ball in a consistent fashion. ACA tends to be more conservative and what is needed is a significant fix not just a band-aid.
@Polly, there is major difference between getting something through the legislative process and persuing litigation.
There are profound limits on what can get through the House, through the Senate and signed by POTUS.
POTUS is the big blockade.
Eliminating CBT legislatively will not be signed into law, thats the reality. So what can be pushed through that path?
Litigation is another story and that is asking the Courts to strike down the whole thing and as part of that compensation.
Both avenues are being persued with vigor.
Thank you, Anne, and George as well for your helpful comments.
Anne wrote above, “However, my governing principle is keep it simple, find the lowest common denominator and sell it. It will be tough enough to get something done – if one tries to get an ideally balanced, fair provision, you will be decades or longer waiting. Ten years is intended to be a long time.” Having worked on Capitol Hill in my salad days before moving to Canada, I agree with all of this. (And my youthful Democratic self is appalled that I am looking to the Republicans for salvation.)
Not only would the proposal save U.S. $ at the IRS and State Department, but it would go far in making the U.S. once again a favourable place for international investment and no longer an international laughingstock. Definitely worth pointing out to Congressional Republicans, since, of course, the business of America is business. There is no point appealing to principles when the bottom line is, well, the bottom line.
Those US Pesons are now “Persons”. Thanks, EmBee.
@George and Anne Frank
“Eliminating CBT legislatively will not be signed into law, thats the reality. So what can be pushed through that path?”
That is only your opinions.
I am of the opinion that enough renunciations and enough media attention (which is turning in our favor) will force the issue to be dealt with head-on by whichever party happens to be in power.
Selling out fellow expats to “ten years of CBT slavery” or a “FATCA same country exemption” in the name of trying to improve a few “practical” things is only going to prolong the problem.
In case you missed it, the RNC unanimously passed a resolution in support of RBT. That is not insignificant. So why give in so easy? Who are you trying to help, besides perhaps only yourselves?
I believe that you have to go for it all with no half measures. No one else in the OECD lives with half measures and why should people who happen have to be born in the U.S. or to have worked there, be subjected to such a gross injustice. If this opportunity is lost then another one will never come along.
There is no way that homelanders who believe in CBT can ever be appeased by any concessions. RBT/Territorial is the only just outcome of all this effort. Twelve years a slave was an injustice for Solomon Northup and so it is for any proposal that would see any year(s) of penance being done by U.S. person emigrants.
Let us not start to negotiate with ourselves.
@FromtheWilderness, “In case you missed it, the RNC unanimously passed a resolution in support of RBT. That is not insignificant. So why give in so easy? Who are you trying to help, besides perhaps only yourselves?”
I am no longer a USC, I am hanging in for my kids no other reason.
Giving in? It has to be agreeable to POTUS the emperor. He is still employed for 26 months.
The GOP has been trying for years now to eliminate Obamacare. How is that debate going and BTW a majority of homelanders want it repealed!!
I do believe in full throttle no holds bar litigation because thats how that process works. Strike the whole thing done plus compensation!!
But legislatively we have no representatives, expats are persona non grata. We have little to offer on the table to the politicians.
Ergo, legislatively something has to be slipped in that most will ignore or not care about. It needs to be easy to slip in and not appear contentious.
@George
I am no longer a USC as well and also hanging in the fight for loved ones. That is why I refuse to compromise.
I read somewhere that it was either Japan or the Philippines which just gave up CBT themselves only a few decades ago – and they did so of their own volition. Maybe they did so because they figured there was no way to find their diaspora and nail them. But maybe they also did so for economic reasons in favour of their own country`s corporations and business incentives. The idea of RBT might be less outlandish than one thinks- especially with republicans in office. They are more business oriented.
At any rate- I don`t think such blatant injustice can just be swept under the rug. It could mean that Tricia will still be hunted down for those 80000$ Fbar penalties down the road – and once she is ruined then this new law passes 3 weeks later with no means to regain her losses? Thats just nightmarish.
And I would hope that your efforts are not just for Canadians who are promised protections against penalties from their government. Many other places afford no such protections. And we have all paid into the litigation- not all just for you, but for all of us.
@recalcitrantexpat, legislatively who is our representative? We do not have one!!
Litigation will bear the greatest fruit.
Legislation will hopefully keep things in the press as a support front for the litigation effort.
But while I think something could be pushed along in the House, for it to be passed in the Senate with only 51 votes it MUST be a Budget Bill item. That narrows things…..
Remember Schumer and Reid are still in the Senate, they will gun this down yesterday in a heart beat.
Then we have the Emperor who has the veto pen.
There is no way the Emperor is going to sign stand alone legislation to repeal CBT, refund everyones penalties and give people the option to regain citizenship.
To get things done legislatively you need to be lobbying and the tiny problem is expats are expats!!! We have little clout and little to offer…..
We need extremely creative legal writing abilities along the lines of software coding……..getting the most done with as few lines of code as possible.
AF made a noble start. We literally need creative minds amongst our few allies in the GOP to figure the smallest amendment possible that will generate the most good.
@Fromthe Wilderness, I am not even Canadian (on paper) and I fund ADCS because the cause is just.
I think you are giving far too much credit for the POTUS Emperor. This man gave us FATCA in the first place!!
He is not going to change his stripes and give us RBT in his last 26 months of employment.
@Polly, “At any rate- I don`t think such blatant injustice can just be swept under the rug.”
Injustice and compensation is for Courts not capital hill.
This is the truth:
http://www.globaltimes.cn/content/890215.shtml
You are correct, there is no representation for expats in the U.S. government and there is none in our homeland governments since they have tossed in the towel. Don’t forget though that the House and the Senate can override a Presidential veto. The power now lies with the Republican dominated legislatures. It is the Republicans that must be reasoned with. Especially since revocation of FATCA and CBT is a part of their platform.