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.
@WhiteKat- if you look at JC’s comment of Nov. 8 @ 12:29 you will see that he is concerned that a partial settlement now will preclude any changes down the road. He says that it is quite possible that Congress will accuse expats of not being satisfied. Nor does he say that no one is being thrown under the bus or left out.
I reject your position that my solution is impractical or unrealistic and that AF’s is pragmatically acceptable to the powers that be. The notion that a 10 yr. waiting period of harmless to a smaller class of people should and therefore is acceptable is not just. There is no reason that the U.S. can’t have RBT when the other countries of the world do. Do you forget the Bowles/Simpson budget proposal calls for the U.S. to use R.B.T. for corporations. I see no reason why that cannot easily lead to R.B.T. for individuals too because the Supreme Court did affirm that corporations are people.
@foo- if I understand it correctly the people who have already been out for 10yrs. or longer get immediate relief. Those who haven’t have to wait out their the 10yr. requirement from whatever time their non-residency starts. These are the ones who are thrown under the bus.
What people who support this dual route to tax freedom don’t acknowledge is that 10yrs. is a big chunk of time when it comes to earnings, investments and home ownership. They also don’t acknowledge the significant costs of tax filing and lost opportunity costs when it comes to restricted investments.
@recalcitrant:
No they’re not. An argument could even be made that those who have been abroad for less than 10 years are the ones who are most likely to return, and therefore should be expected to help pay to keep the home fires burning while they are away. Once one hits the 10-year mark, though, one has a pretty good idea of whether one is in it for the long haul or not.
<blockquote.What people who support this dual route to tax freedom don’t acknowledge is that 10yrs. is a big chunk of time when it comes to earnings, investments and home ownership. They also don’t acknowledge the significant costs of tax filing and lost opportunity costs when it comes to restricted investments.
Believe me, I know all this, having already experienced over 10 years of these problems already, with no prospect of relief in sight. With Anne Frank’s proposal, there would at least have been the prospect of getting out of jail eventually. I’d have taken that eventual promise of freedom to heart in a jiffy. Instead, I’m debating how much more of the pain I can endure before I have to throw in the towel entirely.
If AF’s proposal is such a good deal then why the need to talk about revisiting it later? The expressed faith seems to be inconsistent with the expected tolerance.
@recalcitrant:
I don’t think it would need to be revisited later. I have already said that whatever we push for now had better be what we can live with for the foreseeable future. I think AF’s proposal is good enough, and actually cleverly gives enough to both sides that it has a chance of getting passed.
@foo- that is true only if you are one of those who had moved abroad for purposes of work with the intent of returning. And here is where I find the tax treaties get pretty tricky. When you read them they seem to be written for those U.S. persons who could be considered itinerant workers and not for those who are abroad for purposes of emigration.
At least that is the impression I get when I read the U.S./Canada tax treaty.
I still maintain that a straight forward R.B.T. is and should be the goal. It is our original goal, it is clean and frees everyone at once. Plus the President’s own bipartisan budget committee included it in their budget proposal. And the Republicans, who now control the House and the Senate, have it in the platform. I somehow feel that his proposal is an attempt to pre-empt a Republican solution in favor of a Democratic one. Other than that I think I have no more to say.
Yeah, the US government is just dying to listen to our demands right now.
Americans abroad currently have three sources of leverage for changing CBT, FATCA and FBAR, and “compromise” isn’t among them.
1.) US banks do NOT want reciprocity of info sharing, particularly banks in Florida and Texas (two states with a lot of electoral votes). The Republicans understand this.
2.) Renunciations of US citizenship get a lot of media attention and make the party in power look bad, hence the increased renunciation fees, delayed appointment times and sandbagging of names in the Federal Register.
3.) Litigation (foreign and domestic) is an embarrassment and thorn in the side of supporters of FATCA, CBT and FBAR
IMHO it is better to focus on and try to expand the sources of leverage against CBT, FATCA and FBAR than to seek compromise through all kinds of “carve out” proposals.
Bullies tend to view a willingness to compromise as weakness. Appearing weak will only feeds the bully’s aggression. Expats need to remain hard — more lawsuits, more renunciations and more support for the politicians who are really taking action to help Americans abroad, not just paying lip service.
@Fromthewilderness- I agree wholeheartedly with your statements.
@FromThe Wilderness
Hear, here!
If the U.S. government is ever in the mood to consider change, why would we start by compromising when our best chance EVER for a switch to RBT would be before us? There’s no excuse for anyone affected by this to not either become politically involved or contribute to any of the legal fronts (or both), unless of course you can live with the situation as it is.
@recalcitrantexpat,
I made a typo referencing JC in an earlier comment I made – I was actually referring to FOO.
Our democrats have evolved into socialists who want every American on the government payroll or on the dole. They are equal to the old Soviet Union politically and economically. We know how that ended and they keep heading us there any way.
This is latest from RO Facebook conversation:
“The U.S. has not entered the OECD’s GATCA because the Treasury and IRS need to be satisfied with the foreign governments’data confidentiality protections. “The Obama administration enthusiastically supports the OECD initiative, but even the administration has realized important privacy issues at are stake. Robert B. Stack, Deputy Assistant Secretary of the Treasury for International Tax Affairs, has testified that “the United States will not enter into an information exchange agreement unless the Treasury Department and the IRS are satisfied that the foreign government has strict confidentiality protections.” http://dailysignal.com/…/want-private-financial…/”
OMG – they really don’t see the hypocrisy do they?
@Eliza, It’s an excuse. They don’t care about us and they don’t care about residents in US either except that they vote.