Many “U.S. Persons” outside of the U.S. are aware of the Reed Amendment — an incoherent & unenforceable 1996 law which makes former U.S. citizens inadmissible to the U.S. if the Attorney General determines they renounced citizenship to avoid taxes — and Chuck Schumer (D-NY)’s attempt to make it worse in 2012 with the Ex-PATRIOT Act. But in the years between, there were nearly two dozen other attempts to pass a different law which also would have exiled former U.S. citizens:
Ineligibility for Visa or Admission To United States.—
(1) In general.— Section 212(a)(10)(E) of the Immigration and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to read as follows:
(E) Former citizens not in compliance with expatriation revenue provisions.— Any alien who is a former citizen of the United States who relinquishes United States citizenship (within the meaning of section 877A(e)(3) of the Internal Revenue Code of 1986) and who is determined by the Attorney General, after consultation with the Secretary of the Treasury, not to be in compliance with sections 877A and 2801 of such Code (relating to expatriation).
This provision appeared in something I’ll be referring to as the “Baucus Amendment”, after its author Senator Max Baucus. Another piece of the Baucus Amendment created the current 26 USC § 877A expatriation tax, which has been the subject of a great deal of popular and academic attention. But the above-quoted piece of the Baucus Amendment (which I hereby dub “Baucus’ Reed Amendment fix”) has no better-known name; as far as I can see, it’s generally gone unnoticed in the popular press and even tax scholarship (the only person I’ve seen mention it is Michael Kirsch, in his 2004 paper “Alternative Sanctions and the Federal Tax Law”).
Baucus is a Democrat from Montana; however, he wouldn’t have succeeded at getting this provision inserted into so many other bills without help from Republicans on the Senate Finance Committee, in particular Chuck Grassley (R-IA).
Table of contents
- Supplemental Appropriations Act for Fiscal Year 2002
- Armed Forces Tax Fairness Act of 2002
- Immigration reform by banishing emigrants: the SAFER Act
- Numerous bills in the 108th Congress (2003–2004)
- Support in the House
- 109th Congress: TIPRA and other hypocrisy
- 110th Congress: The last gasp of Baucus’s Reed Amendment fix?
- The aftermath
Senate Amendment 3628 by Max Baucus, Conrad Burns (R-MT), and Jeff Bingaman (D-NM) to the Supplemental Appropriations Act for Fiscal Year 2002 (H.R. 4775) was the first attempt to “fix” the Reed Amendment. Baucus was not new to the issues surrounding extraterritorial taxation & renunciation of citizenship; in 1995, he referred to ex-citizens as “freeloaders … [who] are skipping town, evading taxes, and making us cut Medicare and student loans to make up the difference” (never mind that U.S. Persons abroad can’t access Medicare in the first place, even if they have to pay double social security taxes to support it because they are self-employed in a country which lacks a Totalization Agreement with the U.S.)
Back in 2002, the U.S. expatriation tax still consisted of 10 years’ post-relinquishment taxation on U.S.-source income; another portion of the Baucus Amendment would have changed that system to what was eventually created by the HEART Act in 2008 (capital gains tax on unrealised appreciation in U.S. and non-U.S. assets). Subtitle B, Section 11(d)(1) of the Baucus Amendment, which I quoted above, would also have clarified the Reed Amendment to close the “relinquishment loophole” (the Reed Amendment only applies to aliens who “officially renounce United States citizenship”), and to impose visa ineligibility solely on former citizens who failed to comply with the expatriation tax provisions of § 877A or whose heirs or gift recipients failed to comply with the § 2801 estate-tax-plus provisions. It would not have applied to former green card holders.
(Although it is § 6039G and not § 877A which imposes the requirement to file Form 8854, since the IRS needs the information on Form 8854 in order to make the determination of covered expatriate status under 877A, it seems to me that failure to file Form 8854 would make you a person “not in compliance with section 877A”, and it’s not clear either that a late filing would restore you to “compliance”.)
As former IRS counsel Bill Yates mentioned in an interview with Virginia La Torre-Jeker, one major problem with enforcement of the Reed Amendment is that due to the confidentiality provisions of 26 USC § 6103, the IRS has no authority to share data on former citizens’ tax affairs with either the Department of Justice or the Department of State. That means that consular officers doing visa interviews, as well as the immigration & customs folks at the border, cannot make any determination of whether a former citizen renounced citizenship “for the purpose of avoiding taxation”. So, another portion of Baucus’ Reed Amendment fix would have removed former citizens’ § 6103 tax information confidentiality protections, to allow the IRS to share information with the INS so that the latter could identify former citizens seeking admission and determine whether or not they had paid the expatriation tax:
(2) Availability of information.—
(A) In general.— Section 6103(i) (relating to disclosure to Federal officers or employees for administration of Federal laws not relating to tax administration) is amended by adding at the end the following new paragraph:
(8) Disclosure to deny visa or admission to certain expatriates.— Except as provided in paragraph (6), upon written request of the Attorney General, the return of an individual or return information with respect to such individual shall be open to inspection by, or disclosure to, officers and employees of the Federal agency responsible for making a determination under section 212(a)(10)(E) of the Immigration and Nationality Act for the purpose of, and to the extent necessary in, making such determination with respect to such individual.
(B) Conforming amendment.— Section 6103(i)(6) (relating to confidential informants; impairment of investigations) is amended by striking “(5), or (7)” and inserting “(5), (7), or (8)”.
Finally, section 11(d)(3) provided that the entry ban would not be retroactive. This contrasts with Chuck Schumer’s later Ex-PATRIOT Act, which proposed a ten-year lookback period. (Oddly enough, Schumer himself proposed an amendment to Baucus’ amendment, but for purposes completely unrelated to taxation & immigration bans on ex-citizens: he wanted one hundred million dollars of pork for New York grape-growers.)
(3) Effective date.— The amendments made by this subsection shall apply to individuals who relinquish United States citizenship on or after the date of the enactment of this Act.
However, the record of actions on H.R. 4775 shows that Baucus’ amendment was never brought up for consideration.
After the House of Representatives passed the Armed Forces Tax Fairness Act of 2002 (H.R. 5063), the Senate Finance Committee amended the House version of the bill to include various provisions relating to taxation & immigration treatment of former citizens, including § 877A and another Reed Amendment “fix”. As the Senate Finance Committee report on the bill mentions:
The bill amends the immigration rules that deny tax-motivated expatriates reentry into the United States by removing the requirement that the expatriation be tax-motivated, and instead denies former citizens reentry into the United States if the individual is determined not to be in compliance with his or her tax obligations under the bill’s expatriation tax provisions (regardless of the subjective motive for expatriating). For this purpose, the bill permits the IRS to disclose certain items of return information of an individual, upon written request of the Attorney General or his delegate, as is necessary for making a determination under section 212(a)(10)(E) of the Immigration and Nationality Act. Specifically, the bill would permit the IRS to disclose to the agency administering section 212(a)(10)(E) whether such taxpayer is in compliance with section 877A and identify the items of noncompliance. Recordkeeping requirements, safeguards, and civil and criminal penalties for unauthorized disclosure or inspection would apply to return information disclosed under this provision.
The Committee Report does not specify who proposed or voted for that amendment, but Baucus was the chairman of the committee at that time, so the amendment was probably his handiwork. (I believe Jeff Bingaman was also a member of the Finance Committee back then, but I don’t think Conrad Burns was.) The text of the provision can be seen in the version of the bill that passed the Senate on 3 October 2002; it is identical to his previous amendment to the Supplemental Appropriations Act for FY 2002.
The Republican-dominated House did not agree to the Senate Amendments, leading Sheila Jackson-Lee (D-TX) to complain:
Instead, the Majority has gutted an excellent bill from the other body that would have helped our men and women serving in the military receive fair tax relief, and would have stopped the horrible practice of some wealthy individuals who renounce their U.S. citizenship in order to avoid their responsibilities to pay taxes. In a time of war, what kind of a signal are we sending to our people in uniform, by sacrificing their needs, in order to play politics, and benefit the worst tax-evaders?
In reality, back in 2001 & 2002 very few people whether wealthy or not gave up citizenship for tax reasons. Most of the famous ex-Americans were seeking government positions in their other country of citizenship — Hsiao Bi-khim and Tsay Ting-kuei of Taiwan, Raffi Hovannisian of Armenia, and Kristina Keneally of Australia, for example. Others were political activists in countries disallowing dual citizenship, and felt that obtaining local citizenship was important to their efforts to promote the causes they championed in the countries where they actually lived — for example, Taiwanese environmentalist Robin Winkler. These people may well have been non-compliant with their U.S. tax filing obligations, including Form 8854 — not because they were “tax evaders”, but because the IRS made no effort to inform emigrants of those requirements — and so could have been exiled from the U.S. by the Baucus Amendment.
However, House Republicans’ opposition to the Baucus Amendment certainly did not come about because they had such high regard for the right to leave any country and to change one’s citizenship. In the Securing America’s Freedom Through Enforcement Reform Act (H.R. 5013), a July 2002 immigration reform bill, 44 House Republicans proposed a change vastly more restrictive than the Baucus Amendment: striking the Reed Amendment’s clause about tax avoidance, thus banishing all ex-Americans who had renounced citizenship:
(E) Former citizens who renounced citizenship.— Any alien who is a former citizen of the United States who officially renounced United States citizenship is inadmissible.
Unlike the Baucus Amendment, the SAFER Act failed to close the “relinquishment loophole” — probably a mere oversight on the part of its drafters. However, even with that loophole intact, it was the most strident attack on emigrants that Congress ever thought up, exceeding even Schumer’s Ex-PATRIOT Act in its scope. Fortunately, it also died in committee.
The SAFER Act made only two further appearances, one in the 108th Congress (H.R. 3522) and one more in the 109th Congress (H.R. 688). Each time it had only nine cosponsors instead of forty-four, and each time it died in committee again. Hopefully that means this awful idea has been buried and forgotten.
(Note that the SAFER Act of 2013 is unrelated to this one, and contained no provisions related to former citizens — that SAFER was an acronym for Sexual Assault Forensic Evidence Reporting.)
Almost immediately after the 108th Congress convened, the attacks on emigrants resumed: on 7 January 2003, the Veterans and Military Personnel Fairness Act of 2003 (S. 19), sponsored by Tom Daschle (D-SD), also included provisions identical to Baucus’ 2002 amendment. Baucus was one of the 30 cosponsors of the bill — all Democrats — so once again, it’s likely due to his influence that the bill included that provision. Other cosponsors of the bill included some well-known enemies of U.S. Persons abroad — FATCA fanatic Carl Levin (D-MI), future Ex-PATRIOT Act co-sponsors Chuck Schumer (D-NY) and Tom Harkin (D-IA), and passport revocation supporter Bill Nelson (D-FL). That bill died in committee.
But again, it’s not as if the Republicans liked emigrants any better — remember that the Reed Amendment, despite its authorship by a Democrat, passed the Republican-dominated House Judiciary Committee back in 1995, and eventually became law as part of a Republican-supported immigration bill. So after the failed Democrat-only attempt to pass the Baucus Amendment in January 2003, it took only another month before the next attempt, and this one would be bipartisan: the Armed Forces Tax Fairness Act of 2003 (S. 289). The new AFTFA was sponsored by Foreign Earned Income Exclusion opponent Chuck Grassley (R-IA), and counted both Republicans and Democrats among its cosponsors. Baucus was, once again, one of the Democratic cosponsors, as was the original Baucus Amendment’s co-author Jeff Bingaman and future Ex-PATRIOT Act cosponsor Tom Harkin (D-IA); on the Republican side, there was also Orrin Hatch (R-UT), who would be one of the few Republicans to speak out in favour of the Ex-PATRIOT Act in 2012. That bill also died in committee.
Every subsequent version of the AFTFA would either have the Baucus Amendment included at introduction, or, if it were a House bill, added by amendment in the Senate. In March, Baucus & Grassley tried again with Senate Amendment 433, which would have replaced the House version of the AFTFA (H.R. 1307) then under consideration in the Senate with something similar to the old S. 289, including the Baucus Amendment; that passed the Senate unanimously on 27 March 2003, but the House took no further action on resolving the differences. (Grassley tried again with the AFTFA in November (S. 351), which made it through the Finance Committee but saw no further action.)
Having failed to promote tax hikes & exile for emigrants under the rubric of “armed forces tax fairness” in March, Baucus & Grassley tried again in May with so-called “tax cut bills”. Grassley used his position on the Finance Committee to get the Baucus Amendment inserted into the Jobs and Growth Reconciliation Tax Act of 2003 (S. 2), in basically the same terms as his S. 1054 from the week before. However, in conference, the two chambers agreed not to include the Senate’s tax & immigration provisions for ex-citizens. There was no further discussion of these provisions in in the House’s debate on the bill, which eventually became Public Law 108-27 after Vice President Dick Cheney cast the deciding vote in the Senate.
After that, the Baucus Amendment took on a life of its own, as politicians besides Baucus looked for opportunities to insert it into any bill where they needed a “pay-for”. Jim McDermott (D-WA) tried sticking it into the Taxpayer Protection and IRS Accountability Act (H.R. 1528) in June. The next month, Bill Nelson wrote it into his Sales Tax Equity Act (S. 1426), and it also showed up in another Baucus-cosponsored bill, the Relief for Working Families Tax Act (S. 1434). In September, Richard Neal (D-MA) added it into his replacement for the Charitable Giving Act (H.R. 7), and Chet Edwards (D-TX) made a speech in support:
Mr. Speaker, I think the American people would be offended to find out why we have to support this motion to recommit. For 6 months there has been a bill sitting in this Chamber at the Speaker’s desk that would provide these benefits, earned benefits, to our servicemen and -women and to the families of servicemen and -women killed in combat.
But do you know why that bill has been held up by the House Republican leadership? Because the military tax benefits are paid for by closing the loophole of tax benefits for those who leave this country and renounce their American citizenship in order not to pay taxes.
Let me repeat that. A bill has been held up for 6 months at the Speaker’s desk. We could pass it by unanimous consent today if the Republican leadership would work with us on it. But for 6 months it has been held up. We are holding up military benefits because the Republican House leadership is more interested in protecting tax benefits for those who would renounce their American citizenship.
Mr. Speaker, that offends every American value that I have ever been taught. I think that goes against the grain of every patriotic speech that has been given on the floor this year saluting the sacrifices of our servicemen and -women.
However, Neal’s version of the bill was voted down by the House, 201–221 (Roll No. 507), strictly along party lines. Subsequently, Chuck Grassley put the Baucus Amendment into both a November version of the AFTFA (mentioned above) and the Jumpstart Our Business Strength Act (S. 1637). The following year there were a variety of attempts to get it inserted into the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2004 (H.R. 3550) — not the last time we’d see a “highway bill” being used as a vehicle for highway robbery of emigrants.
The American Jobs Creation Act of 2004 (H.R. 4520) was the final attempt in the 108th Congress to get the Baucus Amendment made into law. The version of the AJCA which passed the House in June 2004 included some expatriation tax provisions: it removed HIPAA’s private letter ruling system regarding tax motivation for giving up citizenship or permanent residency, and replaced it with the same plain old asset, tax liability, and tax filing test which we have today. However, the Senate version of the AJCA the following month replaced those with the Baucus Amendment. Once again, the two chambers would go to conference to try to iron out the differences. The expatriation tax provisions were not discussed in the House’s 29 September debate on how to instruct the conferees, and the conference report stated (see page H8566) that the conference agreement would follow the House bill.
The Tax Increase Prevention and Reconciliation Act of 2005 (H.R. 4297) is already infamous among Americans abroad for its inclusion of Chuck Grassley’s “stacking” amendment to the FEIE, which increased taxes on the investment income of anyone who took the FEIE even if their wage income was well below the FEIE threshold. It’s far less well-known, however, that Grassley made two failed attempts that year to get the Baucus Amendment’s expatriation tax & banishment provisions passed into law, first with SAFETEA-LU (another “highway” bill) in May, and later with TIPRA. Once again, the House’s version of the TIPRA bill in December 2005 had nothing either about relinquishment of citizenship nor the FEIE; all the shenanigans happened in the Senate.
First, in November 2005 Grassley introduced the competing Tax Relief Act of 2005 (S. 2020), which included the Baucus Amendment but not the FEIE provisions; that quickly passed the Senate by a vote of 64–33. When the House’s TIPRA came up to the Senate in February 2006, Grassley proposed Senate Amendment 2707 to replace the entire bill with his own version including both the Baucus Amendment and the FEIE provisions; that passed the Senate in February, 66–31. The conference in May 2006 agreed to remove the Baucus Amendment (both the expatriation tax and the banishment provisions), but the FEIE changes stayed.
While Democrats and Republicans alike were busy condemning Americans who renounced U.S. citizenship, various Republicans in the Senate and the House introduced bills to require new Americans to renounce their other citizenships, in an attempt to enforce the clause in the Oath of Allegiance about “renounc[ing] and abjur[ing] all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty”. A fairly representative example is Senator Lamar Alexander (R-TN)’s Strengthening American Citizenship Act of 2005, which included the following provision:
(c) Notice to Foreign Embassies.— Upon the naturalization of a new citizen, the Secretary, in cooperation with the Secretary of State, shall notify the embassy of the country of which the new citizen was a citizen or subject that such citizen has—
(1) renounced allegiance to that foreign country; and
(2) sworn allegiance to the United States.
All of Alexander’s cosponsors had earlier voted in favour of Grassley’s Tax Relief Act of 2005 and his version of TIPRA, which both included the Baucus Amendment.
In the new session of Congress, Baucus wasted no time renewing his efforts to impose exile on former citizens. First came his Small Business and Work Opportunity Act of 2007, which made it through the Finance Committee in late January but was never brought up for consideration on the Senate floor. At nearly the same time, he moved Senate Amendment 100 to the Fair Minimum Wage Act of 2007 (H.R. 2). I’m having trouble tracing the history through all of the dozens of amendments, but in the end the Senate passed a version of the bill including the Baucus Amendment with only three opposers and three more who didn’t vote. (Oddly enough, FEIE enemy Tom Coburn (R-OK) and FEIE proponent Jim DeMint (R-SC) cast two of the nay votes, while Chuck Schumer was one of the non-voters). However, there was never a conference to reconcile the House and Senate versions of the bill after that.
The subsequent attempts to pass the Baucus Amendment into law featured increasingly jingoistic names. In early February, Byron Lyndon (D-ND) treated us to the Act For Our Kids (S. 554), which died in committee. The Senate’s attempts to get the Baucus Amendment into the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 (H.R. 1591) in March were rejected in conference. Then Baucus, Grassley, and Schumer, among others, gave us the bipartisan Defenders of Tax Freedom Relief Act (S. 1593) in June. And then there was the one that finally did pass, Chuck Rangel (D-NY)’s Heroes Earnings Assistance and Relief Act (H.R. 6081) in May 2008.
However, the HEART Act included only part of the Baucus Amendment — the tax provisions now at 26 USC § 877A. The HEART Act did not include Baucus’ Reed Amendment fix. The June 2007 Defenders of Tax Freedom Relief Act turned out to be Baucus’ last attempt to get the banishment provisions passed into law. When Chuck Rangel introduced the Tax Collection Responsibility Act of 2007 (H.R. 3056) the following month, he only included the Baucus Amendment’s expatriation tax provisions and not the banishment provisions, and all subsequent attempts in both the House and the Senate followed that pattern. (There was later attempt, with which neither Baucus nor Grassley was associated — Amy Klobuchar’s American Renewable Energy Act (S. 2652), in February 2008; it died in committee.)
Unfortunately, I can’t tell you why this happened, because I plain old don’t know. I’d greatly appreciate input from anyone who does.
Anyway, for whatever reason, the HEART Act turned out to be a mixed blessing. Section 877A imposed tax on capital gains in assets that had absolutely nothing to do with the United States. A couple could have emigrated from the U.S. four decades ago, taken the citizenship of their new country, bought a house, and then achieved financial success entirely due to their own efforts and their new country’s support, with no help from the United States. But if they had ever made any mistakes (such as applying for an SSN instead of an ITIN) which led the State Department to regard them as having an “intent” to retain U.S. citizenship, when they finally found out that back-dated relinquishment was no longer an option and they had to pursue a current-dated renunciation in order to save their retirement, the U.S. would try to tax them on all forty years of appreciation in their non-U.S. assets.
But the passage of the HEART Act also led to a pause in the efforts at imposing exile on ex-citizens. From 2002 to 2008, the Baucus Amendment was always a package deal that included both the § 877A expatriation tax hikes and the Reed Amendment fix. There was a revenue estimate for the § 877A part, and so the whole package deal could be (and in fact was) used as a “pay-for” in all sorts of unrelated legislation, ranging from highway bills to sales tax reform. However, after the HEART Act made § 877A into law without the Reed Amendment fix, Baucus lost momentum for the banishment provisions. It took until 2012 for Chuck Schumer to invent a more extreme and retroactive form of Baucus’ Reed Amendment fix, and even then his efforts have gained far less traction than Baucus’ ever did.
Unfortunately, in the intervening years Washington’s efforts at harassing emigrants picked up steam in other areas. First we got FATCA in 2010, signed by a president who claimed he would address “the special concerns and issues of Americans living abroad”. The State Department hiked the fee for renunciation of citizenship from $0 to $450 and then $2350, twenty times the level in other industrialised countries. And in 2014, Baucus became the U.S. ambassador to China — a strange cog in the U.S. efforts’ to gain international cooperation for FATCA, and a major contributor to the ranks of former U.S. citizens.
The Reed Amendment and the failed Ex-PATRIOT Act which tried to replace it were not isolated outbreaks of anti-diaspora sentiment among unrepresentative extremists. They were waypoints in a nearly-two-decade-long chain of politically-mainstream, bipartisan attempts to intimidate emigrants from the U.S. who had considered giving up citizenship, by threatening never to let them return to the U.S. visit their friends and relatives — and if those relatives were too old or unwell to travel, that would mean never seeing them again. Meanwhile, the same politicians were encouraging immigrants to the U.S. to give up their respective former citizenships.
No matter what fancy words Congress use to try to justify it, an attempt to impose an entry ban on former citizens is not a principled ideological statement of the rights & duties of citizenship but a blatant attempt at extortion: “keep sending money to your accountant or you’ll never see your father again!” When other countries or armed groups take innocent people hostage in order to blackmail their relatives into paying ransom, it’s called terrorism. When Jack Reed, Chuck Grassley, Max Baucus, and Chuck Schumer do it, they call it “politics”.