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.
Anyone else see the parallel between Democrats Abroad’s same country exemption and this proposal? If the US wants their CBT so badly, they can do it without this citizen.
@WhiteKat- I believe that neither of us has any inside knowledge for our respective positions. All that I can truthfully say is that this compromise is a serious deviation from the original position of the opposition to FATCA and C.B.T.
This compromise puts a lot of faith in a government that has a real track record of being untrustworthy. At root though the compromise gives assent to the lie of C.B.T.
@Bubblebustin- You have hit the nail on the head.
@Recalcitrantexpat, Re: “All that I can truthfully say is that this compromise is a serious deviation from the original position of the opposition to FATCA and C.B.T. ”
There are many ways to wound/kill the beast. There is no single right way to do this, and the fight won’t end even if AF’s proposal was a success. All options with a reasonable chance at bringing relief to a large number of people soon, are worthy endeavours particularly since time is not on our side.
“Why ANYONE would pass up an opportunity to help ALL US persons world-wide right NOW, with 90% being offered a perfect solution, and 10% a less than perfect solution, boggles my brain.”
That sounds like the same logic governments (like Canada) use to justify signing IGA’s which result in the royal screwing of a significant minority of their own citizens.
Expats need to stick together.
@Whitekat- earlier in this thread there was a comment was made to the effect that any settlement arrived at now will close the door to any future corrective measures. I believe this to be true. Is there any reason why after the 100 year existence of this evil that we should let it live another 100 yrs.?
We must stand on principle.
Yes, Samuel Adams, if we did and even with spreading the cost of litigation, we would be a strong force. I believe too many have / will solve “their own” US citizenship-based taxation problem, not to draw attention to themselves and their families and all for their particular risks, and be on their way to a then more normal life outside the USA.
@WhiteKat – I am an “accidental”. Ann’s brilliant proposal would be great for me.
But I agree with recalcitrantexpat’s point of view.
I thought the people this would be pitched to are the Republicans – who have publicly stated their intent to get rid of
RBTCBT entirely – so why give them any ideas to the contrary? This dilemma reminds me of the “A penny doubled everyday” question. Having persistence is absolutely the best choice for the long run, in this case, a lot of persistence! – but the reward will be priceless.As for the revenue neutral question, well, the stupid law is costing them big time – http://www.sovereignman.com/offshore-banking-2/still-happening-canada-just-became-north-americas-first-offshore-renminbi-hub-15541/
@SamuelAdams re: ” That sounds like the same logic governments (like Canada) use to justify signing IGA’s which result in the royal screwing of a significant minority of their own citizens.”
Except that it’s NOT the same situation at all, and not a valid comparison! The Canadian government actively went out of its way to knowingly, quietly, and purposely harm people that it has a moral responsibility to protect, all the while knowing that there were OTHER options that could have been taken. Not only that, but no one wins with what the Canadian government did – not the ‘US persons’ and their families, and not ANY Canadians because WE ALL LOSE when our Charter of Rights and Freedoms are violated. Only the banks were saved.
AF’s proposal is not an attempt to throw some under the bus in order to protect the interests of others – it is a potential way out for most NOW; not the end of the FATCA/CBT fight. And it is actually a BETTER scenario for EVERYONE, not just the 90% – most people will not wait an entire 10 years to be free, and for those that do they will not yet be invested in their new countries so will not face the compliance burden that the 90% face.
@Recalcitrantexpat re:@Whitekat- earlier in this thread there was a comment was made to the effect that any settlement arrived at now will close the door to any future corrective measures. I believe this to be true. Is there any reason why after the 100 year existence of this evil that we should let it live another 100 yrs.?We must stand on principle.”
Neither of us has a crystal ball, so who knows what will happen in the CBT/FATCA fight if AF’s proposal were to come to fruition. I presume ACDC would still be trying to stop FATCA in Canada for example.
What we DO KNOW FOR SURE, is that if AF’s proposal works, 90% have a huge burden lifted now, and 10% have much less of a burden with an eventual guaranteed escape. To let this opportunity pass by, pretty much guarantees several years of hell for lots of people – no crystal ball is required to know that.
@ eliza
“I thought the people this would be pitched to are the Republicans – who have publicly stated their intent to get rid of RBT entirely – so why give them any ideas to the contrary?”
We know you meant “to get rid of CBT entirely”. It’s okay, I’m having one of those kind of days too.
Recalcitrantexpat says: ” We must stand on principle.”
SamuelAdams says: “Expats need to stick together. ”
Calgary411 says: “Yes, Samuel Adams, if we did and even with spreading the cost of litigation, we would be a strong force. I believe too many have / will solve “their own” US citizenship-based taxation problem, not to draw attention to themselves and their families and all for their particular risks, and be on their way to a then more normal life outside the USA.”
Haven’t we been encouraging those who can claim past relinquishment (thus not having to worry about 5 years of tax compliance, nor a renunciation fee) to GO FOR IT? Yet at the same time we acknowledge that those born dual, as ‘accidentals’ who have the least US ties of all of us, are unable to avail themselves of such an easy way out. Is this fair? – no, hardly, but we don’t tell the relinquishers that they should hang back with the unfortunate accidentals – just out of principle.
AF’s proposal would open doors for another group of US persons, including the completely screwed over duals from birth. Should we not also be in support of measures that will allows this group to escape?
Could someone please tell me what incentive the US government has to look at any proposals that would bring change to the status quo?
@EmBee – oops. Thanks for pointing that out. I hate it when my fingers don’t type what I’m thinking.
@Bubblebustin – http://www.sovereignman.com/offshore-banking-2/still-happening-canada-just-became-north-americas-first-offshore-renminbi-hub-15541/
@WhiteKat- okay now, lets be honest. The Canadian government is not the culprit in all of this but rather it is the U.S. It is true that the Canadian government capitulated to FATCA and I certainly don’t like that fact. But FATCA only exist because of the unilateral steps that the U.S. has taken to unilaterally impose its laws on an extraterritorial basis. FATCA is a take or leave it proposition. The rules for FATCA can be changed at any time in the future purely at the discretion of the U.S. government. The U.S. reserves the sole right to define who is a U.S. person and the U.S. retains the sole right to establish the rules for shedding dreaded U.S. citizenship.
If the U.S. were a sane and fair country there would be no problem with being an American abroad. No other citizen from a OECD country has to live with the problems of the conflict between their citizenship and their residency in another country. That is where the buck stops. Where is the justice in being placed on the IRS short leash for 10, 8, 5, ? years.
It is less than truthful to claim that no one is being thrown under the bus, when anyone who is excluded from the 90% is the one who is being left out to be fun over by its wheels. What is proposed is a dual kind of U.S. citizenship, when all citizens are suppose to have the same rights. All that you are arguing is that the harm done to recent U.S. person immigrants will be minimal because they wouldn’t have accrued a lot of wealth as non-residents.
@Bubblebustin- The U.S. really has no incentive to change things. The only things that could bring about change would be if the Republicans stick to their platform to repeal FATCA and establish R.B.T. Another event that could push the Americans to change things would be for ADCS to win their case in the Canadian court. Such a win would force the Americans to confront a refusal, on long established English law, from a legitimate Democratic country who is their cultural and legal equal. Then there is also the Human Rights complaint that has been filed in the U.N. Public humiliation is what has to be brought to bear on the arrogant government members in Washington.
Those are the only ones that I can think of for now. If anyone has more I think we would all be glad to hear them.
@WhiteKat- you still have no reason to believe that AF’s proposal will be accepted and R.B.T. rejected. Why anyone would anyone settle for less when what you want is being offered by one of the parties? The only reason to accept a lesser offer would be if one was aligned with the party that was offering less.
When the American Revolution was fought the combatant colonists put everything on the line and so should we. Human Rights are not conditional but absolute.
@Recalcitrant re: “@WhiteKat- okay now, lets be honest. The Canadian government is not the culprit in all of this but rather it is the U.S”
Okay now, lets stay on topic. You are deflecting the conversation away from the purpose of this post (i.e. AF’s proposal), by debating who is the worst culprit – the Canadian government or the USA.
My comment regarding the Canadian government, was a direct refutation to SamAdam’s suggestion to me that AF’s proposal is as bad as the Canadian government’s decision to throw us under the bus with the IGA.
If you want to debate which is worse – the Canadian government or the American government regarding the treatment of ‘US persons’ residing in Canada, this is not the thread for it.
@recalitrantexpat
Exactly. In my mind only embarrassment, the realization that the status quo is destructive to the nation, and/or the desire to do the right thing are the only factors that will get the US off its present course.
Will this proposal cause or be the right response to any of these factors if they should to occur?
@Recalcitrant
Methinks you are being overly idealistic, and impractical – end result being that nothing improves for anyone.
@ Bubble The status quo might be altered when the US wakes up to the effect of FATCA and CBT on exports, no US citizens abroad, not joining GATCA, blowback from lack of reciprocity and the potential of capital flight out of the US. We all keep telling them this. How long that might take, who knows. The US isn’t great at realizing consequences of their actions.
@ All
Could a compromise of the two differing opinions on AF’s proposal be a valid approach? Give complete amnesty and easy, Canadian like, renouncement to all current US deemed persons who were mostly unaware of their obligations or designations. Victims of changing the rules rendering them entrapped. Fighting this on constitutional grounds as RO proposes. Going forward have a 10 year get out of jail free requirement? Make everyone aware via a broad campaign of the US requirements, FATCA and who are deemed citizens. This would allow folks to choose and fully understand the consequences going forward of a) leaving b)CBT c)FATCA. They could shorten the ten years by renouncing immediately after leaving.
Otherwise, for now I’m in the save as many as you can camp. If 90% are saved why would the US bother with the other 10% as there is little to be garnered for such a huge expense. Rather trick them into believing we are compromising, trying to make it palatable to the US yet rendering CBT useless and hopefully exposing its insanity. We must weigh getting nothing against throwing the US a small bone. The usual trick in getting things your way is to make the opponent believe there is something in it for them, not only utter capitulation.
@Bubblebustin- this proposal is a disaster if any of these factors should occur. This is because it is less than the universal clean slate that RBT would be. If you put a low offer on the table you will get exactly that low offer. I can’t repeat often enough that this is a sad case of, “bargaining with ourselves”.
The U.S. has clearly demonstrated that it has no interest in allowing people to leave the system. The most recent such demonstration being the 422% raise in the renunciation fee. The U.S. has consistently rejected taking already established lawful steps such as, excluding from FATCA countries that are known to not be tax havens, removal of the Savings Clause from all tax treaties, taking out the dual residency clause of tax treaties etc. The only direction in which the U.S. has moved to accommodate U.S. persons is to drive them up the chute that leads to compliance.
Can someone explain just who is supposedly thrown under the bus with Anne Frank’s proposal?
Everyone gets out after 10 years. For some, those 10 years have already passed, but everyone gets out. Who is being left behind here?
@WhiteKat- I would maybe be guilty of being over idealistic if the concept didn’t exist anywhere already but it does exist. So I am not just letting my dreams get away with me.
Also you have to remember that prior to the passing of FATCA that the U.S. had practised R.B.T. by default and it suffered absolutely no harm from it.
If the U.S. wants to catch tax evaders then it should first of all be honest when defining what is a offshore account. It should look at what its peers do and fall into line. I am not being idealistic at all.
@Recalcitrantexpat, By refusing to support a proposal by our very smart AnnFrank which can possibly save a lot of people right NOW – not five years from now, and does NOT throw anyone under the bus as JC keeps pointing out (unlike what our Canadian government did), just because you must have the perfect (unrealistic) solution NOW, is being idealistic in my opinion.
@JC, Like yourself, I do not know why people keep saying that AF’s proposal throws 10% under the bus. EVERYONE is in a better situation with her proposal – some more than others. And the ones with the most time to wait, are the one’s least vested in their adopted countries to begin with.