The “Alliance For the Defence of Canadian Sovereignty” is prosecuting the first “Anti-FATCA” lawsuit in the world. Republicans Overseas has indicated that they expect the “Made in America” “Anti-FATCA” lawsuit to be commenced in the first quarter of 2015. We eagerly await that development. Information on the Republicans Overseas lawsuit is at FATCALegalAction. The announcement from Republicans Overseas appeared on their Facebook site.
Republicans Overseas deserves our congratulations for an amazing “inaugural year”. They are off to a truly fabulous start. Much has been done and much remains to be done.
I attended a Continuing Education conference last month (yes, any lawyer helping Americans abroad is in permanent student mode). One of the speakers suggested that the only reason that FATCA existed was because of U.S. “extra-territorial taxation”. As you know the U.S.A. is the only country in the world that claims the right to:
1. Levy taxes on people who do NOT reside in the U.S.; and
2. Levy those taxes on income and property not associated with the U.S.
Furthermore, many of the requirements of U.S. “Extra-territorial taxation” are NOT related to tax.The fact that an “edict” is found in the Internal Revenue Code does NOT mean that it is related to tax. (Was the purpose of the “HIRE” Act related to FATCA?) I’m thinking of the penalty laden reporting requirements. I’m thinking of the difficulties in operating businesses. I’m thinking of the rules that make “investing” and “retirement planning” very difficult. I am also reminded of the “special rules” governing marriages between U.S. citizens and non-citizen (AKA “alien”) spouses. I’m thinking of expensive U.S. tax compliance costs (tax returns that can easily exceed 100 pages RESULTING IN ZERO TAX OWING) required under threat of terrifying penalties The truth is that what the U.S. calls “citizenship-based taxation” (the word “citizen” makes it sound like these requirements are moral and patriotic) is really a form of:
I guarantee you that NO U.S. citizen residing in America would tolerate this!
Who is subjected to “residence based life control”? On what basis does the U.S. justify the right to impose these life restrictions? The U.S. claims the right to regulate the lives of any person who was “Born in the U.S.A.” With a U.S. place of birth, it doesn’t matter where you live in the world. You are subject to the edicts of the U.S. In the 21st century, if you were born in the United States of America, then:
As one person said to me (not sure he really believed what I was saying) about “extra-territorial taxation”:
But, surely this is justified because a U.S. place of birth makes you an American citizen? Surely, the U.S. has the right to control its citizens both inside the United States and outside the United States! Wait a minute. If a U.S. birthplace is sufficient to confer U.S. citizenship, then there a lot of “U.S. citizens” with no connection to the United States. Many of these people – including the plaintiffs in the ADCS FATCA Lawsuit – have not lived in the U.S. since they were children. The recent issue of “The IRS vs. Boris Johnson” has highlighted this issue. Many have have NOT earned one cent in the United States. Many of them were either born citizens of other countries or became citizens of other countries. Think of it. The U.S. is claiming the right to regulate the lives of these people based solely on a U.S. birthplace. Some of these people are at most “technical citizens”. They are not citizens in any meaningful sense. Many of them do NOT consider themselves to ever have been U.S. citizens. Many of them acknowledge that “Once upon at time” they were U.S. citizens – but that they are NO longer U.S. citizens. Yet the U.S. claims the right to subject them to “extra-territorial taxation” aspects of “residence-based life control” for life.
Surely, “citizenship” involves more than a governmental “claim of ownership” based on “place of birth”. Clearly it’s time for the world to reconsider what is the essential meaning of citizenship. Citizenship must have characteristics that make it “voluntary”, “consensual” and “meaningful”. The fact that someone is deemed to be a “citizen” in a legal and technical sense does NOT make one a “citizen” in a moral or meaningful sense. To put it simply:
The United States is defining people as U.S. citizens who do NOT agree that they are U.S. citizens.
(This situation is particularly problematic when one considers the status of people born outside the United States to U.S. parents. But, I digress …)
Finally – to be sure – there are many people with a U.S. birthplace, who ARE U.S. citizens and DO live outside the United States. This group is the ONLY group where where one can meaningfully discuss the issue of “extra-territorial” taxation. If the taxation of true U.S. “citizens” abroad can be justified, the question becomes:
How should they be taxed? What should the requirements be? Should Americans abroad be subject to the exact same tax rules as U.S. residents? U.S. citizens abroad are already subject to the tax system of the country they reside. Can the U.S. impose, under the guise of “taxation”, a form of “residence-based life control” that forces people to protect themselves by renouncing their U.S. citizenship? Supreme Court Justice Hugo Black, ended his ruling in the famously relevant Afroyim case by suggesting that Congress could NOT do anything that resulted in the “forcible destruction” of U.S. citizenship. Are these rules of “residence-based life control” – constitutional under the constitution of the United States of America?
Furthermore, if you believe that taxation should be related to services provided (and there are many who do NOT):
Should U.S. citizens abroad, who receive NO U.S. services, be subject to U.S. taxation at all?
The recent enforcement of U.S. taxation on those with a “U.S. birthplace abroad” coupled with the imposition of FATCA have made this an urgent issue. The clear purpose of FATCA is to enforce the practice of “extra-territorial taxation”. FATCA has made it very difficult (if not impossible) for U.S. citizens to live outside the U.S. Furthermore, the problem of “extra-territorial taxation” exists irrespective of whether an American abroad is compliant with U.S. tax laws. In August of 2014 Robert Wood published a letter from a U.S. citizen, who had resided in Canada for 40 years, had attempted to comply with U.S. tax laws for those 40 years (doesn’t get more patriotic and law abiding than that) who felt that the “restrictions” were so great that she was forced to renounce U.S. citizenship. Here is another example – posted by Kelly Phillips Erb – of a patriotic American forced to renounce U.S. citizenship because of abusive laws that bear no substantive relationship to tax.
It’s time for those with a “U.S. place of birth” to stand up and be counted. It’s time for those with a “U.S. place of birth” to recognize that, they have a moral duty to, oppose the immoral practice of “residence-based life control” which is expressed as “place of birth taxation”. “Place of birth taxation” is the oxygen that provides the primary justification for FATCA (which raises its own issues of justice and morality).
As important as our Canadian “Anti-FATCA Lawsuit” is, the Government of Canada did NOT invent U.S. “place of birth taxation”. Canada cannot change U.S. “place of birth” taxation. Therefore the organized opposition to FATCA and “place of birth taxation” must originate in the United States itself.
According to the U.S. Constitution, there are three branches of the U.S. Government.
Executive Branch – The “Obama Administration” as a group is NOT sympathetic to the concerns of Americans abroad. The policies of the administration and it’s enforcement policies are forcing Americans abroad to “renounce U.S. citizenship”. While Americans abroad are being forced to renounce their citizenship, the Obama administration has raised the fee to renounce.(Should the U.S. government be imposing ANY fee to be allowed to NOT be a U.S. citizen?)
The sad reality is that many Americans abroad cannot afford the compliance costs required by U.S. “extra-territorial taxation” and cannot afford the “financial costs” imposed on those who renounce U.S. citizenship. (These “financial costs” include: the costs of tax compliance, the payment of taxes, interest and penalties, the $2350 fee for a “renunciation” appointment and the possibility of the Draconian “Exit Tax”.) People are simply trapped! The “Alliance For the Defence of Canadian Sovereignty” has retained Washington, DC lawyer Jim Butera to oppose the increase in the renunciation fee from $400 to $2350. There will be more to come.
The Courts – The U.S. Government attempts to justify “place of birth taxation” based on the (get this) 1924 (practically incoherent) decision of the Supreme Court in Cook v. Tait. The decision claims that the “U.S. Government by it’s very nature benefits its citizens wherever they may be”. I doubt that was true in 1924. It is certainly not true today. Actually, it’s the reverse. It’s perfectly clear that:
Nobody understood this principle better than the late Roger Conklin. Nobody taught this principle better than the late Roger Conklin. Nobody lived this principle better than the late Roger Conklin.
The time has clearly come to begin legal action in the U.S. courts. The time has clearly come to seek relief from U.S. laws and regulations that are unrelated to taxation, but are related to “life control”! Stay tuned. I predict this will be coming soon.
Congress – Congress makes the laws. Congress has made every single piece of discriminatory, unjust, incoherent, penalty laden piece of legislation that comes from the United States government. (They have been doing it for years.) Many of these laws are found in the Internal Revenue Code. (The U.S. tax code is so deficient and problematic that the very survival of the country depends on reforming the U.S. tax code.) Tax Reform requires making U.S. tax law understandable, making it less unfair, and bringing it in line with the world of the 21st century.
The 21st century is a world where people are mobile. It’s a world that is interconnected. It’s a world where trade is essential to maintaining the economic base that is necessary for countries to provide services to its citizens. It’s a world that cannot and must not restrict the flow of capital and human mobility. And finally it’s a world with a consciousness of human rights!
It’s obvious that the U.S. is building a “Fortress America”. FATCA, FBAR, PFIC and the complete “alphabet soup” list of impediments to life impede mobility and impede progress. It’s no surprise that FATCA has been referred to as a modern day “Berlin Wall”.
The good news is that Congress has been considering tax reform. Corporate tax reform is a virtual certainty. As the number of inversions demonstrates, the only way that U.S. companies can compete internationally is if they cease being a U.S. company. Similarly, the only way that a U.S. citizen abroad can compete, is if he ceases to be a U.S. citizen. Contrary to “myth” U.S. citizens abroad ARE subjected to taxation from both the United States and their country of residence. Contrary to myth, U.S. citizens abroad are often subjected to double taxation. Contrary to myth, U.S. tax laws make it very difficult for Americans abroad to do meaningful financial and retirement planning. The controversy surrounding London Mayor Boris Johnson provides an excellent example of “double taxation”. The good news is that this message is starting to get through. The message is starting to be heard. The message is starting to be analyzed. As the message from Republicans Overseas indicates, the Senate Finance Committee has begun to consider the issue of “extra-territorial taxation”.
We are at an auspicious moment. Tax reform is on the agenda AND the Republicans have control of both the Senate and the House.
Republican control of Congress means that the time has come to push and push hard for legislative reform. Reform will come only from the Republicans. Why do I say that?
The simple fact is that the Democrats have had ample opportunity to remedy this injustice. Not only have they NOT remedied the injustice, but they have magnified the injustice. For 40 years the FBAR lay dormant only to be unleashed on Americans abroad by the current administration. FATCA and the injustice perpetrated on Americans abroad have directly from the current administration. The Obama administration has treated Americans abroad so unfairly that they are forced to renounce in order to have any semblance of a normal life.
As Ronald Reagan would have said:
The Republicans are the best (and possibly only) hope for legislative change.
I am very happy that Republicans Overseas support legislative change to “residence based taxation”. I am disappointed that they want to delay, to 2017, a legislative initiative to move to Residence Based taxation. The persecution of Americans abroad has now been going on since 2009. The climate has been getting worse and worse. There is absolutely no reason for delay. Justice delayed is justice denied.
The Republicans must take a “leadership role”. Leadership requires doing the right thing. U.S. “extra-territorial taxation” is immoral. It’s just simply wrong. Taking a “leadership role” requires the Republicans to push hard “for residence-based taxation” and end the profound injustice perpetrated on Americans abroad. This should be a priority for the Republicans because it is urgent and it is the right thing to do.
It’s absolutely unreasonable for Republicans to make either their support (or timing of the support) conditional on a guarantee of voting support from Americans abroad. If the Republicans act like leaders, I am certain that they will have the support of Americans abroad.
Republicans must move for changes in the law AT THE EARLIEST POSSIBLE MOMENT. Two years is a “lifetime” for those subjected to persecution from the U.S. government. Both the “sentiment and persecution” are clear from the comments on the on the Republicans Overseas Facebook page.
There is NO reason to wait until (and if) there is a Republican President. None at all.
The reasons include:
First, there is no reason to believe that President Obama would veto a “tax reform bill”. Why would he veto it? President Obama has never (as far as I know) even acknowledged that tax reform is an issue.
Second, what if he does veto it? An Obama veto would give the issue and the injustice more visibility.
I will end with this thought. Absent a profound change in the Obama presidency, Mr. Obama will leave office as one of the greatest disappointments in American history. If he were to leave today, his only real legacy would be that:
The policies of his administration have devalued U.S. citizenship to the point where people are willing to pay to get rid of it.
Yes, I repeat:
By NOT vetoing “Tax Reform” President Obama could claim to be the President (disengenuous as the claim may be) who freed Americans abroad by abolishing “Place of Birth” taxation. It is unwise and “short sighted” for the Republicans to deny President Obama that opportunity!
As the late great Robin Williams said in “Dead Poet’s Society”:
Move for the immediate adoption of “territorial taxation” which means “residence-based taxation” for individuals.
That would be my advice for Republicans Overseas and the Republican Party!
Co-Chair and Legal Counsel,
Alliance for the Defence of Canadian Sovereignty