Updated with a poll at the end.
Wayne State law prof article reveals interesting attitude toward #FBAR #FATCA and #Americansabroad https://t.co/9QfEjdxr6z
— U.S. Citizen Abroad (@USCitizenAbroad) November 26, 2015
Thanks to Trish Moon for her “work in progress” documenting the history of the “FBAR Fundraiser” and how President Obama, Secretary Geithner and Commissioner Shulman launched their assault on those they considered U.S. taxable property U.S. citizens abroad. The post referenced in the above tweet references a blog post by Wayne State Law Professor Linda Beale which reveals much about the “Homelander Mindset” towards these matters. Professor Beale has been he subject of previous discussion at Brock.
As we consider how to explain our position to Homelanders, I strongly suggest reading some of her posts and comments. She (like many Homelanders) appears to be unable to conceive that there is a world outside the United States. Because of the strength of her convictions (ill conceived or not) it’s important to understand her positions.
For example:
Wayne State Law Prof Linda Beale explains why the FEIE is unfair to Homelanders https://t.co/G8ZDGJdkhZ – Time for #Homelanderreachout
— U.S. Citizen Abroad (@USCitizenAbroad) November 26, 2015
Mike Citizenship carries both benefits and responsibilities. So renounce. Fine with me. But til you do, all I ask is that you comply with the law. As for the exclusion for foreign earned income, one could easily see how the person staying at home could find it unfair that someone from their company working broad for 2-3 years and earning the same or more in gross income from the firm would pay taxes on a very small portion of that. Like the “active business exception” to offshoring company assets, the exclusion acts as an incentive to encourage working abroad and results in tax discrimination against those who don’t do so.
I would be interested in how to best counter the argument that the FEIE (Foreign Earned Income Exclusion) discriminates against Homeland Americans because they can’t exclude part of their income.
Is the answer the same as that suggested by many Homelanders:
Well, the same laws apply to everybody. If you don’t like it then you can move abroad too. Just don’t let the door hit you on the way out.
By the way, I have just discovered that Wayne State has a new faculty member – Senator Carl Levin himself. Understand that this provides the best opportunity for dialogue that there ever was. This is great news and the possibilities are endless.
Update:
See the comment below that asks the question:
Should Americans abroad take the position that the FEIE be abolished?
“Do they really think that there are no income taxes but American income taxes?”
Yes they do think that. The reason is that there actually exist a few countries that rely on high import duties or maybe sales taxes instead of income taxes. I think Bermuda is an example. In a rare example of actually closing a treaty gap, if a middle class US citizen in Bermuda pays their dues when buying things, the FEIE lets them avoid paying a second time due to the US taxing income instead of consumption.
So anyway, yes they think that because maybe around 5% of countries are like that, and they don’t understand that the other 95% of us exist.
“Perhaps Professor Levin would like to face some American ex-pats abroad and explain to them in person why his FATCA legislation was a good move for them?”
Why would he face us[*] when he wouldn’t even face the IRS’s Taxpayer Advocate who told him the same thing?
[* slightly inaccurate wording where “us” no longer includes “me”]
“I don’t care who you are, CBT makes it impossible for Americans to fully integrate with the rest of the world.”
No. CBT makes it impossible for Americans to fully integrate with the US. FATCA makes it impossible for Americans to fully integrate with the rest of the world.
@Publius
The author could have been clearer if that is the case. It says “income earned” which to me is far broader in scope than “earned income”. Unfortunately I don’t have the 1926 tax code to hand. But as you say, given that few would have had passive income at the time, maybe it was quasi RBT while entrapping the really rich in the US.
“If you take the FEIE then that foreign income AND any foreign tax on that get excluded not credited, even if the foreign tax rate is way higher than the US rate.”
That’s what the rules say in instructions published by the IRS, but lawyers for both the IRS (in Tax Court) and US Department of Justice (in Court of Federal Claims) called me frivolous for obeying those instructions.
In Tax Court the judge and the IRS both observed that I presented the IRS’s instructions, but this issue was ignored after that. It didn’t enter into any ruling.
I think the Court of Federal Claims ruling should be interpreted as overturning the IRS’s instructions. In order to avoid being labelled frivolous, people have to “double dip” now, putting all non-US earned income on line 1 of Form 1116 (and also have to fabricate social security numbers for spouses who don’t have any, etc.). The ruling was affirmed by Court of Appeals for the Federal Circuit, and cert was denied by US Supreme Court.
Meanwhile the IRS also says that people shouldn’t rely on the IRS’s published instructions, and courts usually agree: http://www.forbes.com/sites/robertwood/2015/11/11/amazingly-irs-says-you-cant-rely-on-irs-instructions/
I beg to differ vehemently with all you people in “high tax” countries. I admit to living in one of those “lower tax” jurisdictions, and for me, eliminating FEIE would be lethal, not just in terms of having to pay much higher tax, but in the accounting fees which we currently don’t have to pay because FEIE makes our filing relatively easier. And there are hundreds of thousands of us.
Sure, getting rid of FEIE would remove one miniscule argument Homelanders have in favor of CBT. But let’s not blow that argument out of proportion. One person above said: “CBT could not survive if FEIE and FTCs were abolished, …….that is, provided the US does want some US Citizens abroad.”
Can you really support this argument? If the US government and its sheeple aren’t already alarmed at the bank account closures caused by FATCA and the leap in renunciations, they are absolutely not going to give one rat’s ass whisker about the added filing burden of people like me, without the FEIE.
Many of us here, including right in this thread, accuse Homelanders of living in a bubble. But in many ways so do we Brockers. We live and act as if every one of these issues surrounding CBT is at fire alarm level, when people who are not us hardly even notice. We think everyone, including Congressmen, is studying these issues with a jeweler’s lens like we are. But they aren’t. We think others besides us know the difference between FEIE and FTC. They don’t. They don’t need to or want to.
Sure, you might take away the Homelanders’ argument: “But y’all git $100,000 deduction. Sure wish I could deduct $100,000.” But eliminate FEIE…
And then guess what will happen…
Homelanders will now cite the Foreign Tax Credit and say, “So ya get to take off the tax you pay to your country of origin, and pay the balance to America. Which means you end up paying the same amount in the end as if you live in the USA, just like everyone else. So what are you belly-aching about?”
No, eliminating the FEIE would accomplish nothing toward eliminating CBT. But it would screw a huge number of expats–not just short-termers!!!–like me and hundreds of thousands of others. I certainly hope nobody here is seriously contemplating lobbying in favor of its elimination. Step back and look again at the situation in wide angle and you’ll see how little (i.e. zero) effect it would have in our quest to eliminate CBT.
Err guys. The FEIE and FTC are on different footings. To remove the FTC would mean the US broke loads of tax treaties in a major way. Supposedly qualified dividends are allowed for foreign dividends to countries with tax treaties just because they worried about breaking these.
The FEIE isn’t needed for the tax treaties and they could change it easily.
Living abroad is, by and large, better than living in America. Homelanders understand this, and so they have no sympathy that the American taxation system disadvantages Americans abroad. Because even with that, living abroad is still better than living in America.
Anyway, the thing that pisses me about Beale is this part: “So renounce. Fine with me. But til you do, all I ask is that you comply with the law.” Which seems to imply that after renunciation, we don’t have to worry about American law. But we do. With an exit tax (we fill the forms out after we renounce, after all). With FATCA (those of us born in the U.S. are getting letters from our banks because we look like we are U.S. persons). And, as I understand it, even when we die, any American heirs will have to prove we were not covered expatriates. Which will be a right royal pain, thirty or forty (I hope) years after the fact.
What would be fair, is for renunciation to be costless and a complete break. But it’s not.
@Barbara
” One person above said: “CBT could not survive if FEIE and FTCs were abolished, …….that is, provided the US does want some US Citizens abroad.”
I made that comment, and I’ll stand by it. If FEIE and FTCs for expats were abolished, there would be no (or very few) Americans abroad; in which case CBT would become redundant. Sadly, there would be no US expats abroad to celebrate.
Before you reach through your computer screen to rip my throat out, let me say I agree with you. Campaigning to abolish FEIE and FTCs for expats is cutting off our nose to spite our face. I could not endorse it. BUT, if we wanted to play really dirty with the Homeland, we’d do it, and insist the same apply to US entities. It gives resolution to the Homelanders’ argument by eliminating expats, but would force economic isolation on the Homeland, and the negative publicity would be huge.
JC was struggling to understand the consequences for part time workers in countries with high initial tax thresholds. Without FEIE, they would not qualify for FTCs. Today, pensioners in not only those countries mentioned, but ALL countries with higher tax thresholds, and with incomes meeting certain circumstances (incomes just below those thresholds), owe no tax to their country of residence, but likely owe tax to the US. FEIE doesn’t enter into the equation. Again, that’s the situation that exists today.
This is the comment I’ve been dreading to make. It makes me a real Dickie Downer. As you say, no one in the Homeland cares. Trying to increase comprehension of the true consequences of CBT will fall on deaf ears. The Homeland mentality is simple: if taxing whoever decreases my tax rate, then I have more money to spend for crap on Black Friday. All the logic in the world will not overcome that ingrained ‘national’ mentality, and politicians do not want to touch it (if they want to be re-elected).
The original question for this thread was how to reply to the statement “FEIE discriminates against the Homelanders”. Any answer, be it a short quip or a well reasoned reply, will be ignored. No answer will satisfy the prevailing Homeland mentality. We need to find another approach, and litigation seems the most obvious. That option must also extend to our current non-US countries of residence. I want to know why my foreign country of residence is not protesting the lack of reciprocity for FATCA. (After all, I want to buy more crap on Black Friday too! OK, poor joke), but I do think my country should be harangued about it’s lack of action in demanding reciprocity, or the erosion of the local economy due to US extraterritorial taxation. Other countries being forced by internal litigation, eventually, is another path which could force isolation on the Homeland, with equally huge negative publicity.
Unfortunately, all the negative publicity in the world still doesn’t seem to upset the Homelanders or their self centred me, me, me thinking. In reality, what they’re unwittingly asking for is the eradication of ANYONE being a US expat (by their definition) by making it totally impossible for ANYONE to survive as a US “person” abroad in any circumstance. But, they don’t, and won’t, try to understand that.
@OAP: Eloquently put. I will refrain from ripping your throat. I strongly agree with your observation that, for the life of me, I can’t comprehend why no politicians in any country, except possibly Israel, are even questioning FATCA’s effect on their privacy laws and economies. I also think litigation is the only recourse left to us.
As for the original question as to whether FEIE discriminates against those unfortunate to live in Homeland USA, I don’t think it really needs asking, or answering, since, as you said, the answer falls on deaf ears no matter what.
As for Black Friday, thank goodness they don’t have it here. Bad enough I just went the the supermarket and had to endure Christmas music in a country that is nominally 98% Buddhist. Another unwelcome American cultural stinkbomb: canned Xmas tunes to shop by.
The FEIE is a simple thing in a world of needless and evergrowing complexity.
The only argument for getting rid of it and the FTC is given by OAB: make life unlivable for US citizens abroad, and see what happens. Since renunciation is difficult or impossible, banking is difficult or impossible, USCs abroad will either have to come back or go underwater. I hear very good fake Syrian passports can be had for a reasonable price these days.
I love the FEIE because it’s easy when you are earning less that that amount. Taxes should be easy. Personal circumstances, various taxes paid abroad (income, sales, VAT, whatever), and so forth… FEIE is a vague nod to the idea that one is free to roam abroad. It has and almost celebratory feel: go forth, go to the world, take your chances, and don’t worry about taxes; be like any other human being. It makes filing fast and simple, truthful, straightforward.
I used FEIE when I came back from the US years ago and did my forms. I stopped filing when I earned more than the threshold and it was too complicated and I was too busy. I stopped filing for more than 10 years, and just started again this year, now using the FTC.
As to homelanders who are jealous of those who go earn money abroad, I’d like to return the “just renounce” argument: why don’t they “just go abroad”. It’s easier than renouncing, AND they’ll learn A LOT from it. Go, homelanders, go live abroad, see how things are elsewhere. You’ll come back greatly enriched, … not financially, but personally. Maybe you’ll even stay abroad for longer than you thought possible.
If the FEIE is a purely financial enticement to some, so be it! Why not? You go abroad, you are an ambassador, you learn things, create ties and come back better for the nation. Again, here, the FEIE is a little nod to the fact that there are charges and costs abroad, not always easy to mitigate. Besides, if you earn your money there, why should you be taxed on it in the US?
As for the FTC and Barbara’s remarks, they are quite true. Selfishly the FTC is more than enough for me. With the tax I pay in Belgium I can offset just about anything for life. It is so laughably high… (ok, filing US income tax forms is the ONLY time I ever laughed about my taxes).
But maybe being abroad means living in a low-tax country. That country will cost a lot in many other ways: other types of taxes, other types of expenses. Truly, FTC does not take that into account. And it’s more complicated than the FEIE.
“Living abroad is, by and large, better than living in America.”
Not really. Living in SOME countries is better than in America, but probably more than 100 are worse.
Homelanders mostly think living in other countries is worse than in America, so they’re not envious of ordinary people. They’re envious of the 1%. The problem is they don’t understand that the other 99% of us aren’t the 1%.
“I love the FEIE because it’s easy when you are earning less that that amount.”
FEIE used to be easier than FTC, but it was still complicated enough to confuse IRS lawyers, DOJ lawyers, and some judges.
When FEIE was changed to interact with capital gains and losses, with two worksheets that turn into three with exceptions to exceptions to exceptions, even the IRS’s worksheet designers got confused.
Some of the questions on Form 2555 are far more intrusive than necessary for tax purposes too. Some IRS employees understand the relevance of Supreme Court cases US v. Sullivan and Garner v. US, and ask questions less intrusive than Form 2555 does. Tax Court understood it too. The US Department of Justice and courts other than Tax Court trash the 5th Amendment though.
@Neill
Yes, no chance of the foreign tax credit disappearing.
@Fred
The FEIE might feel like a nod to freedom, but it has always been justified on purely economic grounds as aiding American business. Some politicians don’t like it that people with non-U.S. employers are using the FEIE, but don’t seem to have figured out a way around that one.
@Publius,
>Some politicians don’t like it that people with non-U.S. employers are using the FEIE,
>but don’t seem to have figured out a way around that one.
I assume they would run afoul of the anti-discrimination clauses int he tax treaties. You can screw green card holders in your country only by screwing Americans with foreign accounts also.
So you can’t offer a better deal to an American company if you don’t offer it to a foreign one. America reserves the right to treat it’s own slaves worse though.
http://www.bbc.co.uk/programmes/p037w5c9
Interesting story broadcasted on the BBC World Service on 12 Nov 2015.
They go to Paris and interview a Frenchman born in the US (who doesn’t even speak English) and an American lady living in France for 30 years. They are not pleased being hounded by French banks looking for ‘US persons’ or the US Government.
Although not mainstream these FATCA stories are picking up in Europe. I believe Europe is about 12 – 18 months behind the curve of awareness vs Canada.
Someone in the EU is going to challenge the IGAs in court at some point.
Coming in Q3 2016 for EU citizens resident in the EU (with US taint), there may be some relief coming with ‘Payment Accounts Directive’ which should be in full force by Sept 2016.
If you’re an EU citizens (regardless if you’re a US person), the EU bank must offer you a basic bank account.
http://www.bankingtech.com/286432/right-to-a-bank-account-poses-challenge-for-eu-banks/
“Chapter four of the PAD states that payment accounts must be offered to all customers, without prejudice based on their nationality, place of residence, race, age, sexual orientation or disability. The idea is to boost financial inclusion. The rules came into effect in September 2014, and therefore must be transposed into national law across the European Union by 18 September 2016. There is also specific provision for those of no fixed abode. But while praising the intention behind the legislation, some commentators have seen difficulty in implementation.”
If a bank is trying to limit its exposure to FATCA, this directive directly clashes.
Perhaps it will also provide another platform to take action against an EU banks.
https://www.gov.uk/government/consultations/implementation-of-the-eu-payments-accounts-directive/implementation-of-the-eu-payment-accounts-directive
Here’s the UK Government’s site on PAD. If a UK bank tries to refuse anyone an account, you may want to refer to this site.
In the BBC broadcast, linked above, there is reference to FEIE as being on earnings but excluding “assets.” As in you live somewhere for awhile you build up assets, retirement account etc.
“Chapter four of the PAD states that payment accounts must be offered to all customers, without prejudice based on their nationality, place of residence, race, age, sexual orientation or disability.”
Religion ____ Church of {England, France, Italy, etc.}: Welcome to our bank.
Religion ____ Church of America: Get lost, the PAD doesn’t protect your religion.
Permanent residence visa: UK, France, Italy, etc.: Welcome to our bank.
Green card: Get lost, the PAD doesn’t protect you.
Citizenship UK, Residence UK: How do we know you don’t have a green card?
@Barbara, re;
“….I can’t comprehend why no politicians in any country, except possibly Israel, are even questioning FATCA’s effect on their privacy laws and economies….”…
There is the indomitable EU MEP Sophie in’t Veld;
ex. the latest I’ve seen http://sophieintveld.eu/commission-discloses-documents-on-us-tax-agreements-with-eu-member-states/
and previously
http://isaacbrocksociety.ca/2013/04/04/video-of-discussion-on-fatca-in-eu-parliamentmust-watch/
http://isaacbrocksociety.ca/2013/04/22/new-questions-from-mep-sophia-int-veld-on-fatca/
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+E-2012-002760+0+DOC+XML+V0//EN
For more, try searches like;
“in’t veld” AND fatca
And as for WHY (re “no politicians in any country, except possibly Israel, are even questioning FATCA’s effect on their privacy laws and economies.”), well NZ and its Privacy Commissioner was pretty blunt about the trade off they were fully conscious and willful about making:
https://www.privacy.org.nz/news-and-publications/guidance-resources/fatca-faqs/
“…..Why is it a privacy issue?
Under the Privacy Act, organisations such as financial institutions are only allowed to collect and disclose personal information, including bank account details, under a limited set of circumstances. If there was no legislative authority, it would not be possible in many cases to disclose the information needed for FATCA compliance, unless consent had been given.
What would happen if New Zealand didn’t pass a law to allow FATCA reporting?
If there was no change to New Zealand law, financial institutions in this country would, unless certain exceptions applied, have to pay a 30 percent withholding tax on certain US income. This financial cost would undoubtedly be passed on to a broad range of New Zealand consumers.
Most New Zealand banks receive some US income. For instance, US Treasury bonds play an important role in setting global interest rates, and are often used by banks to reduce their exposure to interest rate risk.
If New Zealand did not pass a law to allow FATCA reporting, banks and other financial institutions in this country may be unable to comply with FATCA without breaching the privacy principles relating to the collection and disclosure of client information.
If New Zealand did not negotiate an IGA with the US, the effect on American citizens and green card holders resident in New Zealand would be that it would be easier for them to avoid meeting their obligations to pay tax in the United States.
However, a significant portion of these tax obligations can be discounted by tax paid in New Zealand under the US-New Zealand double taxation agreement.
For these reasons, the Privacy Commissioner has not opposed the negotiation of the FATCA IGA with the US, and the amending tax law to implement the IGA. …..”…………..
In Canada the Privacy Commissioner of the day commissioned a study, which was then later presented to our Parliament by its author and ignored by the party in power:
https://www.priv.gc.ca/resource/cp/2013-2014/p_201314_02_e.asp
The ruling party in power – the Conservatives of Stephen Harper ignored the report commissioned by the then Privacy Commissioner, the objections of our leading Canadian constitutional law scholar Peter Hogg http://elizabethmaymp.ca/wp-content/uploads/peter_hogg_fatca.pdf , and of opposition parties ex. https://youtu.be/slqAkW_eeUA https://youtu.be/YxJf_Lk-yig https://youtu.be/ANqVaEpRi_4 https://youtu.be/T8NjUpngfxE https://youtu.be/2c7KZFpqQj8 https://youtu.be/6goDRURTMmg https://youtu.be/fT2nnMFgUFk
In Canada, the most recent Privacy Commissioner didn’t even see fit to respond to complaints about FATCA:
http://isaacbrocksociety.ca/2015/08/22/privacy-commissioners-information-office-says-dont-bug-us-in-disappointing-response-to-questions-about-canadian-privacy-rights/
That was despite a provincial organization sending this:
Here is what FIPA the BC Freedom of Information and Privacy Act Association submitted to the Ministry of Finance re FATCA
https://fipa.bc.ca/submission-ministry-of-finance-consultation-on-fatca/
‘ Submission: Ministry of Finance consultation on FATCA’
March 11, 2014 • IN CATEGORIES: Policy Submissions and Letters Privacy
“FIPA’s submission to a consultation by the federal Ministry of Finance on the implementation of the American Foreign Account Tax Compliance Act (FATCA) in Canada. We highlighted the damage this would do to privacy rights as Canadians living in the US, and Americans living in Canada could have their financial information identified for sending to the Internal Revenue Service in Washington DC.”
Download submission
https://fipa.bc.ca/wordpress/wp-content/uploads/2014/03/MoF-consult-sub-signed-Mar-10-2014.pdf
They had to obtain information via an FOIA request in order to write the report.
FIPA states that it is:
” …..a non-partisan, non-profit society that was established in 1991 to promote and defend freedom of information and privacy rights in Canada. Our goal is to empower citizens by increasing their access to information and their control over their own personal information. We serve a wide variety of individuals and organizations through programs of public education, public assistance, research, and law reform. We are one of very few public interest groups in Canada devoted solely to the advancement of freedom of information (FOI) and privacy rights.”
http://isaacbrocksociety.ca/2015/08/22/privacy-commissioners-information-office-says-dont-bug-us-in-disappointing-response-to-questions-about-canadian-privacy-rights/comment-page-2/#comment-6439258
Our current Privacy Commissioner for Canada – appointed by the very same Conservative government that signed us down the river to the south, has what I think is a serious conflict of interest, and I think the Harper Cons appointed him precisely because:
“…Before he became Canada’s privacy commissioner, Therrien practiced law at the Department of Justice—a department in which he’s worked since he took the bar exam in 1981. While there, he worked in various capacities, including as senior general counsel and director of Citizenship and Immigration Legal Services and later, as assistant deputy minister in the Office of the Assistant Deputy Attorney General. In that capacity, Therrien co-led the team responsible for negotiating the privacy principles on data-sharing between the U.S. and Canada under the “Beyond the Border” accord.
That relationship with the government—one in which Therrien was tasked with helping it obtain and share data with a neighbor…”…
https://iapp.org/news/a/canadas-new-privacy-commissioner-human-rights-run-in-my-blood/
https://iapp.org/news/a/harper-pick-for-privacy-commissioner-may-not-be-the-best-fit
http://www.cbc.ca/news/politics/pm-s-pick-of-daniel-therrien-as-privacy-watchdog-alarms-ndp-1.2657639
So in Canada we currently have a Privacy Commissioner who seems to have been chosen for being predisposed to aid in the undermining of our civil and human rights in betrayal of Canadian citizens and residents to a predatory foreign government – colluding with the US to enable their extraterritorial demands.
@ badger
Trudeau backed Harper’s choice of Daniel Therrien so we are not likely going to get a change in that department anytime soon.
http://www.cbc.ca/news/politics/liberals-ndp-disagree-on-daniel-therrien-pm-s-choice-for-privacy-job-1.2658481
Though far from a perfect solution, perhaps the U.S. would agree to allow a foreign income exclusion at the same level as the current FEIE but broaden it to ALL forms of income, not just earned income…this would bring relief to people with passive income such as retirees or those on welfare support.
They could also increase the allowed amount of mudual funds that would be relieved from all the complex PFIC calculations and thus help to reduce compliance costs. I believe the threshold is currently just $25000 but could be raised to perhaps $250000 to offer relief to those with more realistic but still relatively modest assets…thus, the IRS would still be able to get tax out of the wealthier Expats.
Don’t get me wrong, I realize this is still far from an ideal solution but am just thinking it could be a step in the right direction and be a compromise that more Expats could live with.
I’m only suggesting this possible compromise because I believe the US will refuse to budge on CBT, especially in the near future. They could still use CBT in efforts to deter the super rich from leaving, etc. I, of course, hope and pray that CBT will ultimately be abolished and replaced with an RBT system…. I’m proud of John and Trish for their efforts but am concerned that it could diffuse efforts towards the more immediate threats that FATCA could cause.
@Monaliasa1776 – While your solution would exclude taxation apart fr’om the rich, the IRS would still require you spending hours filling in their silly forms to claim the exemption. In short they’d still know everything about you financially and still have the risk the US Congress could change the rules.
The only solution is if you’re an EU citizen and resident in the EU, NO FATCA reporting – full stop.