UPDATE: December 23, 2014
Stephen Kish says:
The Republicans may or may not introduce legislation to kill citizenship-based taxation during the next two years. Even if introduced, it is uncertain whether such legislation will be successfully passed into law.
An alternative approach is litigation. However, a lot of money will be required to sue in U.S. federal court with a citizenship-based taxation constitutional challenge.
The ballpark estimate I have received for the legal cost is about $200k.
If there are any potential donors who might consider funding a significant portion of the legal cost for such a court challenge please contact me at: http://www.adcs-adsc.ca/ContactADCS.html.
Stephen Kish
Chair, Alliance for the Defence of Canadian Sovereignty
Shadow Raider says in a recent comment:
@all, I want to believe that Republicans Overseas are being honest, but they are way too focused on FATCA. I can’t help thinking that they are doing this more for the banks and wealthy US residents with actual foreign bank accounts, and using Americans abroad as an excuse. But I wouldn’t be surprised if they are just misinformed and disorganized, as Republicans usually are. I’m not sure.
I’m still against FATCA even for US residents, because it’s disproportional, unilateral, ineffective and unnecessary. But to me CBT is worse. My main constitutional argument is based on discrimination, and I have also written one based on the general power to tax. The courts could easily rule against either one, but I think the discrimination argument is stronger.
Addition of very relevant USCitizenAbroad addition:
@Shadowraider
Excellent 14th amendment arguments. A long time ago I wrote a post on the issue of “citizenship classifications” and the 14th amendment. You will find the complete post here:
(This is part of the series of Cook v. Tait posts which are listed at the beginning of this post:
Citizenship and Equal Protection
I note that in your argument you say suggest that the standard of review is “rationally related”. I don’t think that is correct. I believe that the appropriate standard of review for “citizenship classifications” is “strict scrutiny”. In any case, you might find this part of the post (in particular) to be of interest:
As Bernard Schneider notes:
“The difference between the tax imposed on nonresidents and that imposed on expatriates constitutes part of the “citizenship penalty” paid by U.S. persons abroad.”
Why should U.S. citizens abroad be compared to “Homelanders” instead of non-resident aliens? Shouldn’t this trigger 14th amendment scrutiny?
Equal Protection and the Standard of Review
Obviously Congress has the right to make laws. Obviously the Supreme Court has the right to invalidate laws that violate the constitution. The problem facing all lawyers considering an “equal protection” challenge is the question of:
“How much will the court allow congress to get away with? How much will the court defer to Congress? The problem facing any lawyer is how to get the attention of the court. How can the lawyer get the court to actually consider whether there is a violation of “equal protection”? The answer depends largely on the kind of classification involved.
When will the court intervene? At the risk of oversimplification, the court has identified the following standards of review.
– Rational Basis: “turn a blind eye” – all Congress to do what it wants
– Intermediate Scrutiny: “wink” – take a brief look, but then allow Congress to do what it wants
– Strict Scrutiny: “take a good look” – make Congress justify what it is doing
The question is: what set of facts will trigger which level of scrutiny.
Citizenship Classifications and the Equal Protection Clause of the 14th Amendment
The law of equal protection and citizenship is complicated by the facts of each case. Here is a primer on citizenship and equal protection. The vast majority (if not all) of the reported cases deal with discrimination based on citizenship where the non-U.S. citizen is claiming discrimination. That said, the cases are about discrimination based on citizenship. When it comes to non-U.S. residents, the United States is discriminating based on citizenship: in this case against its own citizens! It seems strange that a non-citizen would get a benefit (lower taxes than a U.S. citizen). Therefore, the tax treatment of U.S. citizens abroad arguably violates the equal protection clause of the U.S. constitution.
Citizenship classifications – Standard of Review
Finally, “citizenship classifications” are regarded as particularly offensive and will be subjected to a probing level of analysis. The justification for this “probing analysis” was given by Justice Harlan in an old Supreme Court decision of Carolene Products.
As reported by one commenter:
The idea of the “discrete and insular minority” originated in the now famous footnote four of the opinion in UNITED STATES V. CAROLENE PRODUCTS COMPANY (1938). Justice HAR- LAN F. STONE, writing for only a plurality of the Court, queried—without answering the question—“whether prejudice against discrete and insular minorities may be a special condition, which tends seriously to curtail those political processes ordinarily to be relied upon to protect minorities, and which may call for a correspondingly more searching judicial inquiry.” In the wake of the Court’s about-face in 1937, Justice Stone was serving notice that the Court might not accord the same deference to statutes directed at “discrete and insular minorities” that it would to statutes directed at ECONOMIC REGULATION.
The Court made little use of the concept until the early 1970s, when it began to delineate the class characteristics of such groups. Included were groups that had been “saddled with such disabilities, or subjected to such a history of purposeful unequal treatment, or relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.” Although race, nationality, and alienage seem to have been firmly established as class characteristics of the “discrete and insular minority,” the Court has refused to extend such class status to illegitimates,
It is quite obvious that U.S. citizens abroad are in a position of “political powerless”. That they need protection from the “majoritarian political process”. (I recently suggested in a blog post that U.S. citizens abroad need a lobbyist or two in Washington.)
Why, among the group of non-U.S. residents, should U.S. citizens be singled out for punitive treatment? Of course, that assumes the purpose of the tax is to raise revenue for government services. But then again, maybe the taxation of U.S. citizens abroad is, as Roger Conklin says, a punishment for leaving the Homeland – a kind of “sin tax.“
U.S. Citizenship Abroad and the “Equal Protection”
U.S. citizens abroad compared to Homlanders:
In this case it’s clear that U.S. citizens abroad are discriminated against only they have chosen to live outside the “Homeland”. This results in discrimination only for the sake of discrimination. Surely this would violate the “equal protection clause”.
U.S. citizens abroad when compared to non-resident aliens?
This is an example of what Bernard Schneider calls the “citizenship penalty”. A penalty based on citizenship would violate the equal protection.
Conclusion:
The substance, form and administration of U.S. tax laws as applied to U.S. citizens abroad violates the 14 amendment. Whether they are compared to “Homelanders” (discrimination based on residence) or to “Non-resident aliens” (discrimination based on citizenship) they are discriminated against. i
To repeat Bernard Schneider:
“The difference between the tax imposed on nonresidents and that imposed on expatriates constitutes part of the “citizenship penalty” paid by U.S. persons abroad.”
Discrimination based on citizenship is subject to a very high standard of scrutiny under U.S. constitutional law. It is doubtful that this kind of discrimination could pass constitutional muster.
foo said:
@ShadowRaider,
I read your constitutional argument against CBT:
CBT configures discrimination based on citizenship, because a nonresident citizen is taxed very differently from a nonresident alien solely due to citizenship, all other circumstances being the same.
Nice. This answers the “horizontal equity” arguments in favor of CBT: the proper comparison for a US citizen abroad is not to a US person inside the US, but to a Non-Resident Alien.
I like it.
and, FromTheWilderness
@Shadow Raider
I think your constitutional argument is awesome. I also agree with you about being suspicious that RO and the Bopp team are too focused on FATCA when we all know that CBT is the real problem for non-resident Americans. US banks will fight against reciprocity and use expats as part of their argument against FATCA.
I am very much in favour of allying with RO against FATCA and FBAR but if the Bopp team is sincere about wanting to help expats they will include CBT as part of their portfolio.
Be that as it may, I think you are definitely on the right track, especially with the comparisons made with residents of Puerto Rico, Samoa, Virgin Islands etc.
I would only expand more on the lack go benefits expats are able to receive such as unemployment insurance and food stamps. I would also go into taxation without congressional representation. Granted, Wash DC residents have taxation without representation but they have unimpeded access to and use of all public goods and services that congress spends tax money on, i.e. US highways, roads, dams, bridges, schools, hospitals, fire, police, courts, national parks, power grid etc. In other words, Cook vs Tait needs to be torn to pieces.
To top it off, I think it needs to mentioned how the creation of America is the direct result of Great Britain enforcing citizenship based taxation on its expats in America. Moreover, the intended purpose of citizenship based taxation during the civil war was to punish people for leaving. I really think the argument needs to include some historical and national perspective beyond only court cases.
Once again, awesome argument. I wonder if it can be launched without having to pay all these high retainer fees like ADSC has to pay in Canada.
and
Is there a good reason why the general power to tax argument cannot be combined together with the discrimination argument?
The constitution reads:
“The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
1.) Pay the Debts: Expats don’t use the public goods and services that are paid for with Debt.
2.) Provide for Common Defence: Expats don’t live within US borders and therefore not within the territory that is being commonly defended. If expats are ever evacuated by the US they have to pay for it directly anyway.
3.) General Welfare: Expats are not eligible for medicare, medicaid, unemployment insurance, welfare and food stamps.
So what then is the reason for taxing them other than punishment for leaving a la Abraham Lincoln’s decree against civil war refugees?
Prior posts by Petros and USCitizenAbroad regarding Shadow Raider’s great work:
Shadow Raider explains the difference between US “nationality” and US “citizenship”
Bulletin from Shadow Raider – You will want to read this
Shadow Raider is rewriting the United States Internal Revenue Code
From Republicans Overseas Facebook page today. A look back at 2014, and a look forward to the 2016 Presidential election. They pulling out all stops to get our vote.
Michael George DeSombre, Worldwide President of Republicans Overseas just issued the 2014 RO Action Report to RO country chapters worldwide.
December 22, 2014
My fellow Americans,
2014 completes our first full year of operations at Republicans Overseas. It has been a very successful first year.
Republicans Overseas was founded in September 2013 as the successor to Republicans Abroad. Republicans Overseas was formed to provide a voice into the Republican Party and Republican policy debates for the 7.6 million Americans residing outside of the United States of America. We advocate on behalf of Americans overseas so that issues important to Americans overseas are understood by Republican politicians and can be implemented into policy. We believe that if the Republican party takes up issues important to the 7.6 million Americans living overseas the Republican Party will get more votes and win back the White House in 2016.
In 2014, some of our significant accomplishments are as follows:
• Invitations for RO Country Leaders to RNC quarterly meetings;
• Quarterly presentation by Republicans Overseas at the RNC’s Conservative Steering Committee breakfast preceding each RNC meeting;
• RNC Resolution calling for the repeal of FATCA (http://v.gd/9yPEu0 );
• RNC Resolution calling for the adoption of residence based taxation (http://v.gd/ZdNOeA );
• Global conference calls with key Republican leaders, including Governor Jeb Bush, House Majority Leader Kevin McCarthy, Senate Majority Leader Mitch McConnell, Senator Rob Portman, Congressman Greg Walden, RNC Chairman Reince Priebus;
• Four city European tour for Senator Mike Lee and Jim Bopp in relation to FATCA lawsuit;
• Reception in Beijing for Governor Rick Perry;
• Agreement in principle with GOP Data Trust to provide us with all GOP data on voters with overseas addresses (physical and email addresses); and
• Introduction of RNC Resolution opposing OECD Global FATCA (GATCA) for the incoming RNC Winter meeting in January (http://v.gd/3Ygyre ).
Fighting to take town the Foreign Account Tax and Compliance Act (FATCA) has been our major effort in 2014 and will continue to be a focus in 2015. Raising the necessary funds to commence our lawsuit and take on the full power of the Obama administration has taken longer than we initially contemplated. We had hoped to file the lawsuit by the end of 2014 but now anticipate filing it in the first quarter of 2015. In this regard, we do still require some additional donations to get to our required budget. Please visit http://www.fatcalegalaction.com to donate if you have not done so already.
In the meantime our education and publicity effort have been quite successful. In addition to briefing two of the top Presidential candidates (Governor Bush and Governor Perry) and many Congressman and Senators on issues created by FATCA for Overseas Americans, we have been very active in media interviews and have been extensive quoted and interviewed in each of Wall Street Journal, Washington Times, (http://v.gd/AU8kks , http://v.gd/y9PbDs , http://v.gd/4FzFhz , http://v.gd/dmh1rB , http://v.gd/eAGkH7 , http://v.gd/ZPHdM4 , http://v.gd/CATFBI , http://v.gd/4aP6U6 , and http://v.gd/vAqwcS ) Amcham Hong Kong magazine (http://v.gd/FbDY45 ) and others.
Our efforts are beginning to bear fruit as demonstrated in The Senate Finance Committee Republican staff report on Comprehensive Tax Reform released this month which states that “The United States needs to rethink its taxing rules for nonresident U.S. citizens” and advocates moving to taxing non-resident Americans on US source income only. A PDF file of the Comprehensive Tax Reform for 2015 and Beyond could be downloaded at http://v.gd/IuKIbk .
We look forward to a very active 2015. After we launch the lawsuit challenging the constitutionality of FATCA we intend to roll out a new global website and social media platform and commence in earnest a global voter registration and identification program designed to bring enough votes to the Republican candidate in 2016 to win the White House.
In 2012, only 7% of 7.6 million overseas Americans (532,000) voted in the Presidential election. Mitt Romney lost the race by 333,000 votes in four battleground states: FL, HO, NH, and VA. We must change that. The good news is we have a huge potential to grow overseas GOP votes for 2016. We must remind overseas voters that when we do not vote, we do not have political voices in Washington, D.C.
Just imagine if we could bring 75,000 Republican votes to each of the key battleground states, we would change the course of the 2016 election. It would make our effort to repeal FATCA and replace CBT with RBT legislatively much easier in 2017. To do this we need the financial resources and we need your active participation in Republicans Overseas. Whether you have been actively involved before or not, please let me know if you would like to take a leading role in driving Republicans Overseas to victory!
Regards,
Michael George DeSombre
Worldwide President, Republicans Overseas
Twitter: @MichaelDeSombre
Email: michael.desombre@gmail.com
@Shadowraider
Excellent 14th amendment arguments. A long time ago I wrote a post on the issue of “citizenship classifications” and the 14th amendment. You will find the complete post here:
http://renounceuscitizenship.wordpress.com/2013/07/03/cook-v-tait-11-who-should-americansabroad-be-compared-to-for-tax-purposes-even-u-s-citizens-are-entitled-to-equal-protection-under-the-14th-amendment/
(This is part of the series of Cook v. Tait posts which are listed at the beginning of this post:
http://renounceuscitizenship.wordpress.com/2014/03/28/cook-v-tait-14-its-not-citizenship-based-taxation-its-extraterritorial-taxation/ )
Citizenship and Equal Protection
I note that in your argument you say suggest that the standard of review is “rationally related”. I don’t think that is correct. I believe that the appropriate standard of review for “citizenship classifications” is “strict scrutiny”. In any case, you might find this part of the post (in particular) to be of interest:
Thanks for placing this here, bubblebustin!
Thanks for this, USCitizenAbroad. I’ve placed it in the text of the post so your information does not get buried.
What does anyone think the chances are of the US doing away with CBT? I know Bopp mentioned it, but honestly, what are the chances? Is he going for it? Democrats Abroad say it’s unrealistic and won’t happen.
@USCitizenAbroad
Shouldn’t the constitutionality of RBT be examined at some point? Isn’t there the need to argue that RBT is constitutional, at least not unconstitutional, or possibly more constitutional than CBT is? Is it just assumed that if CBT fails, RBT would replace it? I often tell the homelander’s that I’m willing to be part of the U.S. tax system, just one based on residency, not citizenship. Not the alternative to either CBT or RBT – whatever that is.
@ShadowRaider,
I passed your constitutional argument on CBT to Jim Bopp.
I also just spoke with another U.S. attorney, familiar with the issues, about what it would take to move a constitutional argument against CBT into a U.S. federal court.
Assuming that the argument has merit he tells me that the (his) ballpark cost to get into U.S. federal court would be around $200k and require a very “well-qualified plaintiff”.
Thank you for posting this in a separate thread. I’ll answer the posts from the other thread here.
@FromTheWilderness, Unemployment insurance and food stamps are good examples, I’ll try to add them when I get the time. Regarding the power to tax, I wrote the same argument. However, that clause already existed at the time of Cook v. Tait, so the courts would have to rule against a precedent if they are based on this clause. The advantage of the discrimination argument is that the courts’ understanding of the 5th and 14th amendments changed since then. But of course, both arguments could be presented, and the courts can examine each one.
@JC, I see that Solomon Yue has good intentions after all. But I think $60k just to ask for a lawyer’s opinion is way too much. I’d rather keep the lawyer I contacted.
@MuzzledNoMore, You can link my paper if you want.
@USCitizenAbroad, The courts used strict scrutiny in cases of state law that discriminated against aliens, but for cases of federal law the courts used only rational basis, citing the explicit constitutional power to regulate immigration, so that’s why I thought rational basis was appropriate in this case. However, now that you mentioned it, strict scrutiny may be appropriate here too, because this is not discrimination against aliens, it’s against citizens. Citizens are not subject to immigration.
If I have my way, I’d like to as an EU passport holder challenge FATCA/IGA’s on discrimination and work this issue up to the European Court of Justice.
Just as other EU citizens are exempted from bank reporting, why should I regardless of my US status?
Also some EU governments may also fund the legal challenge as well because it deals with discrimination.
@Stephen Kish, Thank you for sending my argument to the lawyers. Well-qualified plaintiffs are easy to find, any US citizen (who hasn’t renounced) who lives permanently outside the US and had to pay tax to the US on foreign income in the last 3 years. There are thousands of them, many of whom are active on this site. The problem, of course, is the money. I was hoping that a lawyer could accept a contingency fee, so the plaintiffs would only pay if they win. In that case, they would receive the taxes they paid back from the IRS, and part of the money would go to the lawyer. It could be very attractive if there are a lot of plaintiffs, with a high total amount in stake.
Good idea: I’d join some sort of class action thing – there’s power in numbers.
@ShadowRaider,
My understanding is that you do not need many plaintiffs (we only have two for the Canadian lawsuit) but they have to be carefully selected.
Yes, the problem is money. If we only had a small number of deep pocket folks interested in attacking a bad U.S. law, it could happen…
@Shadowraider
The “rational basis” test means that if anybody can make up a reason for the law that it will get a pass. “Rational” does not mean that that there is a consensus that the law makes sense. If the test is “rational basis” then I am afraid that a court would simply look at Cook v. Tait and say:
Well, it’s rational to think that – the U.S. Government, particularly in the form of, “Barack Obama, Chuck Schumer, Senator Reed, et al – “by their very nature benefit U.S. citizens abroad”.
(The fact that Cook v. Tait is a bad decision does not mean that it could NOT be used to justify “rational basis”. If Justice McKenna thought the taxation of Americans abroad was rational then it meets the test of rational basis.)
Nevertheless, the idiocy of “Cook v. Tait” would have to be argued as part of any constitutional challenge. By re-arguing Cook v. Tait you will explain a great deal about “U.S. citizenship abroad” and discrimination associated with it.) By doing this you will be using facts which will justify the appropriateness of “strict scrutiny” (or at least “intermediate scrutiny”.
So:
1. The existence of Cook v. Tait may allow the government to argue that the “rational basis” test has been met. But,
2. By attacking Cook v. Tait it will help argue that “strict scrutiny” on the “equal protection” argument is appropriate.
(Remember that a successful argument against Cook v. Tait does NOT mean that the “taxation of U.S. citizens abroad is unconstitutional”. It simply means that “Cook v. Tait” can’t be used to justify it’s constitutionality. So, you move to “equal protection”.)
What I would suggest (as a starting point) is the following:
Rework your “equal protection” argument where you argue for a standard of either strict scrutiny or intermediate scrutiny. In order to do demonstrate that “strict scrutiny” is the standard you must necessarily discuss “Americans abroad” as a group. This will include all kinds of issues like “political powerlessness”, etc. Show how they have been damaged by the Obama Offshore Jihad – double taxation, closure of bank accounts, etc.
Once you have explained the argument for why either “strict scrutiny” (or at the least “intermediate” scrutiny) is appropriate, then argue the violation of “equal protection” based (separately) on all three standards. Don’t abandon the argument that it fails even the rational basis test – just don’t rely on it.
Senate Finance Committee Rethinks Tax Rules for Americans Overseas
http://www.wdam.com/story/27685240/senate-finance-committee-rethinks-tax-rules-for-americans-overseas
Good, now kill FATCA for non-residents.
Was Jim Bopp ever asked his opinion on attacking the constitutionality of CBT in and of itself and, if so, what was his opinion? I have in front of me a 5 page memo from Jim Bopp to Bruce Ash (no relation), dated 4/18/2014, in which he provides arguments for constitutionally attacking FBAR and FATCA but is more silent on CBT. I’ve always had more reservations about attacking CBT than FBAR or FATCA but Bopp is the expert here, and I’d defer to Bopp’s view if he felt we could launch a successful attack on CBT based on 14th amendment or other arguments.
in the 1890’s the US Supreme Court in Plessy v Freguson held the that separate but equal did not violate the constitution, in 1954 in Brown v Board of Education that separate facilities were inherently unequal.
to overturn Cook v Tait, one could argue that residents benefit from tax supported, but non-resident do not;
and that services for non-residents are paid on a fee per use basis.
@StephenKish
“If we only had a small number of deep pocket folks interested in attacking a bad U.S. law, it could happen…”
The US effort seems more focused on “deep pocketed” donors than the Canadian (ADCS) and I’m not sure I understand the difference in strategy. The strategy of relying on mostly smaller donors seems to be working for ADCS–I know donations for the 3rd retainer are slightly behind schedule but we are not that far behind given the holiday season and there is every reason to believe we’ll catch up in the new year.
Even though I initially gave money to both efforts, there are many reasons why I’m currently focusing my donation efforts on the Canadian process:
That (ADCS) lawsuit is already filed so I know for sure my donations are going to support a real action–I can’t be so sure what will happen on the US side.
There has been very little communication from the US folks and what communication there has been has been sporadic and unreliable.
The legal arguments being potentially pursued in the US action still seem a bit more vague.
The US effort seems to be seeking more “deep pocketed” donors. Although I’ve tried to donate generously to the Canadian effort, I doubt I’m “deep pocketed” enough for the tastes of the US effort.
I believe the US effort will eventually happen but for all of the above reasons I’m not ready to donate again to the US effort and for now will remain a regular donor to the Canadian effort.
Michael DeSombre wrote:
“Just imagine if we could bring 75,000 Republican votes to each of the key battleground states, we would change the course of the 2016 election. It would make our effort to repeal FATCA and replace CBT with RBT legislatively much easier in 2017.”
2017? Obama’s FATCA will have already mortally wounded or killed off a lot of expats by then.
@Dash1729 Tweet from Solomon Yue:
Solomon Yue @SolomonYue 16h16 hours ago
@JCDoubleTaxed @RepubAbroadHK u raise 1st $60K, I retain Bopp 2 study CBT’s constitutionality/report if we can claim it is unconstitutional.
@JC
That’s a good snippet of information but the challenge for me is that when it comes to the US effort, the info seems to come in occasional snippets like this. It is hard to get the “big picture” as to what is going on.
Plus I’m not personally able to donate at anything close to the $60k level–although I’ve tried to give generously based on my current finances–so if they are looking for a “few good deep pockets” I may not be their person.
@Dash1729 I like the daily update from ADCS. While fatcalegalaction must be getting donations their thermometer has not started to move.
There is something that I do not understand in ShadowRaider’s argument under 14th Amendment.
Discrimination can only be established between groups enjoying the same constitutional rights. ShadowRaider’s writes that CBT discriminates (non-resident) US Citizens versus non-resident aliens. But this latter group does not have constitutional rights (or if it does, they are very limited).
Maybe someone who understands these things can explain how and why ShadowRaider’s analysis would withstand this counter-challenge.
Michael George DeSombre of Republicans Overseas writes:
This is backwards, Michael. If you want my vote in 2016, show me the RBT bill that has been passed by the Republican-controlled Congress by then. I will not vote based on the promise of action — I have been burned by that way too many times before. I will vote to reward action already taken, however.
This should be easy for you. Your party is in control of both houses of Congress, and the RNC has adopted a resolution in favor of RBT. All you have to do is get a bill out on the floor and voted on. You could even sneak it in as a midnight attachment to some unrelated, apple-pie bill that everyone will be voting on the next day.
Show us actions, not words. I’m done rewarding words.