Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Issues regarding US persons abroad 9 Comments

Cross posted from the RenouceUScitizenship blog.

A FATCA fairy tale …

A “Bed Time story” explaining why FATCA does not matter in the least for those it was supposedly intended to target!

Once upon a time in America –
There were some homelanders who didn’t pay their fair share!

Most of the taxes were paid by higher income earning homelanders!

Unless you were a “super wealthy” homelander in which case you could create your own special tax system and pay the lowest taxes of all!

Which created many revenue shortfalls.  So Congress passed laws to benefit Homelanders and forced Americans abroad to pay for those benefits, by including “Revenue Offsets” in those laws.



The President asked:

“Mirror, Mirror on the wall.  What’s the greatest “Revenue Offset” of them all?”

The Face In The Mirror Answered:
The greatest “Revenue Offset of Them All” is FATCA. FATCA is the “gift that just keeps on giving”.

And the President signed FATCA and  sent the IRS to hunt Americans abroad with the greatest “Revenue Offset Provision Of Them All”

How tax complexity hides evil and injustice …

In my last two posts, here and here, I discussed the “problem” (if it is one) of how some U.S. corporations avoid U.S. taxation through strict compliance with U.S. laws. For U.S. corporations there is “good news” and there is (mostly) “bad news”.

First the “good news” – The “good news” is that U.S. tax law is so complex that clever lawyers can exploit the “loopholes” (well at least according to Homelander politicians).

Now the “bad news” – The “bad news” is that U.S. tax law is so complex that clever lawyers have to exploit the “loopholes” (well at least according to the company lawyers.

It’s the complexity stupid! U.S. tax law is so complex that few people know what is required of them. U.S. tax law is so complex that in some cases the IRS doesn’t understand what is going on. According to a recent post at least one commentator believes that the IRS does NOT understand the rules of international tax that apply to Americans abroad.

Exploiting complexity, how the super rich avoid paying the same rate of tax that you do …

The impetus for this post is an article that appeared on December 29, 2015 in the New York Times:

For The Wealthy, a Private Tax System that Saves Them Millions by Noam Scheiber and Patricia Cohen. This really is a must read. It certainly explains the conditions that probably gave rise to the U.S. Exit Tax (See S. 877A of the Internal Revenue Code).

The general message in the article is that those who can afford expensive accountants and lawyers can turn the complexity of the tax code to their advantage. In other words, the payment of taxes is just a game, that only those who can’t afford good lawyers are required to pay play. (Lest anybody think that I sound like the people at “Tax Justice Network”, I wish to make it clear that a am a right wing Conservative. I believe in freedom. I believe in democracy. I believe in personal responsibility. I also believe in a just system of laws.)

The U.S. tax system is NOT about paying your fair share. It’s about being subject to the same rules as everybody else. You see, when some people are able to opt in to a “private tax system” (for example: “I’ll have a Geithner“), well that means that not everybody is playing by the same rules.

Let’s pause our program for a moment and take a trip down memory lane.

And now back to our regular programming …

But, hey that’s what complexity does. It obscures the rules. Once the rules are obscured, it’s impossible for people to play by the same rules. The game is no longer about playing by the same rules. The game is about understanding the rules. Once the rules become too voluminous, there are no more rules. Too many laws are equivalent to having no laws.

Charles W. Adams makes the point better than anybody in his book “Good and Evil” – Taxes and Civilizations.

I strongly recommend this article by Noam Schieber and Patricia Cohen in its entirety. To whet your appetite, here is an excerpt:

Organizing one’s business as a partnership can be lucrative in its own right. Some of the partnerships from which the wealthy derive their income are allowed to sell shares to the public, making it easy to cash out a chunk of the business while retaining control. But unlike other publicly traded corporations, they pay no corporate income tax; the partners pay taxes as individuals. And the income taxes are often reduced by large deductions, such as for depreciation.

For large private partnerships, meanwhile, the I.R.S. often struggles “to determine whether a tax shelter exists, an abusive tax transaction is being used,” according to a recent report by the Government Accountability Office. The agency is not allowed to collect taxes directly from these partnerships, even those with several hundred partners. Instead, it must collect from each individual partner, requiring the agency to commit significant time and manpower.

The wealthy can also avail themselves of a range of esoteric and customized tax deductions that go far beyond writing off a home office or dinner with a client. One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax. The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.

Many of these maneuvers are well established, and wealthy taxpayers say they are well within their rights to exploit them. Others exist in a legal gray area, its boundaries defined by the willingness of taxpayers to defend their strategies against the I.R.S. Almost all are outside the price range of the average taxpayer.

Among tax lawyers and accountants, “the best and brightest get a high from figuring out how to do tricky little deals,” said Karen L. Hawkins, who until recently headed the I.R.S. office that oversees tax practitioners. “Frankly, it is almost beyond the intellectual and resource capacity of the Internal Revenue Service to catch.”

The combination of cost and complexity has had a profound effect, tax experts said. Whatever tax rates Congress sets, the actual rates paid by the ultra-wealthy tend to fall over time as they exploit their numerous advantages.

From Mr. Obama’s inauguration through the end of 2012, federal income tax rates on individuals did not change (excluding payroll taxes). But the highest-earning one-thousandth of Americans went from paying an average of 20.9 percent to 17.6 percent. By contrast, the top 1 percent, excluding the very wealthy, went from paying just under 24 percent on average to just over that level.

“We do have two different tax systems, one for normal wage-earners and another for those who can afford sophisticated tax advice,” said Victor Fleischer, a law professor at the University of San Diego who studies the intersection of tax policy and inequality. “At the very top of the income distribution, the effective rate of tax goes down, contrary to the principles of a progressive income tax system.”

Think of it. While the wealthiest homelanders pay a lower percentage of tax than most middle class Americans, and Warren Buffett paying a lower rate of tax than his secretary, the Obama administration is “hunting Americans Abroad” via FATCA and CBT. You just can’t make this up.

That said, Americans abroad have already left America. Many of them are citizens of other nations. Unless those homelanders can buy a second citizenship they are stuck in America (for which they are compensated with lower tax rates). Should they try to renounce their citizenship, they will face the full wrath of the S. 877A Clinton Exit Tax. Somehow this reality reminds me of something Winston Churchill once said:

In closing – Good night, sleep tight and don’t let the FATCA fairies bite …

Note that the problems for both Americans abroad and for homelanders are the result of the country being ruled by a dysfunctional Congress and an archaic Internal Revenue Code. This isn’t even a “offshore problem”. Tax reform is a no brainer. Congress is either NOT listening, can’t listen or will only listen to a certain (wink wink) group of people!

9 thoughts on “While some Homelanders have a private tax system – USA imposes FATCA and CookvTait on #Americansabroad”

  1. I think you folks are going about this the wrong way. The Nazis did not give up power because they decided one day they should stop being mean and start being nice, nor will the United States of Pindostan voluntarily give up its claim to be the global terrorist dictatorship.

    If Canada does recognise the principle that third-world foreign governments can tax Canadian citizens resident in Canada, then at a minimum it should ensure that there are some due process protections for those Canadians. To wit:

    a) Any foreign agent who collects or attempt to collect tax from Canadian citizens and or residents must register with the Canadian government. Failure to register shall be a serious crime, even if it is not accompanied by any other crime. (Modelled on FBAR)

    b) Such agents must adhere to a strict code of conduct, with heavy fines and jail time for violations. (Modelled on many aspects of the US tax code, FBAR, and FATCA requirements)

    c) Mandatory jail time for foreign agents who collect taxes that are used to commit acts of terrorism, genocide, war crimes, or other crimes against humanity. (Modelled on “material support for terrorism” provisions in US Patriot Act)

    If you get your MPs to support measures such as these, and enact them into law, then you’ll be speaking a language the Pindosi understand. I would simultaneously upgrade you defence capabilities, although I have a feeling you’ll need to do that anyway – the day is coming when, as in 1939-1945, the entire world will have to unite to fight a brutal, oppressive dictatorship, but this time, that dictatorship won’t be in Europe.

  2. I treat anyone who talks about people paying their “fair share” with a great deal scepticism. It usually comes from those who like to spend more than their’s.

  3. The IRS and US DOJ both fail to understand rules published by the IRS.

    When an amount of earned income is excluded by Form 2555, rules in at least 4 IRS publications say that the same amount must be excluded from the amount of income used for foreign tax credit in the general category Form 1116 line 1. Some later lines on Form 1116 exclude the proportion of tax paid in the country where earned. Other later lines do not exclude the FEIE amount which was excluded from line 1. These rules are designed to prevent “double dipping” of two benefits on the same chunk of income.

    In Tax Court the IRS complained that on the general category Form 1116 line 1 I excluded the amount which was excluded by FEIE. The IRS wanted me to double dip. But 4 of my exhibits were IRS published rules and the IRS admitted that my failure to double dip obeyed the rules.

    In Court of Federal Claims the DOJ complained that on the general category Form 1116 line 1 I excluded the amount which was excluded by FEIE. The DOJ wanted me to double dip. I let it slide that time.

    So if I understand correctly, after that Court of Federal Claims ruling, affirmed by Court of Appeals for the Federal Circuit (though they did not address that particular issue), double dipping is now required.

    Though you have to have around three times as much earned income as I had at the time in order to benefit from it. In my case, with earned income well below the FEIE limit and $0.00 of foreign tax credit, I don’t benefit from the new rule.

    Someone please let me know when the IRS updates their publications to comply with the court.

  4. Well, I only paid my fair share one year, when a retirement bonus received preferential tax treatment in the country where earned but it pushed my earned income over the FEIE limit and made me pay part of it to the US.

    One other year I paid more than my fair share. Capital gains exceeded my standard deduction and exemption, but they shouldn’t have, but I hadn’t figured out how to do a fair declaration. Well, now we’re getting into an area where the IRS and Tax Court obey US Supreme Court but the DOJ and other courts don’t obey.

    Other years were zero, though that’s just the legal amount. For some years I’ve still paid more than my fair share because Monica Hernandez and cohorts stole the withholdinig and the IRS is still relying on its altered records.

  5. In theNYT article

    http://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html

    this is what they say about FATCA:

    “President Obama has made fighting tax evasion by the rich a priority. In 2010, he signed legislation making it easier to identify Americans who squirreled away assets in Swiss bank accounts and Cayman Islands shelters.”

    “Signed legislation” is underlined and links to

    https://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

    I was a little surprised not to see comments from Brockers about this in the article, which allowed comments.

  6. Totally agree with Freedom Fighter
    The corporate federal reserve financial mafia who the IRS collects taxes for are behind FATCA.

    But there is a lot worst than the IRS and FATCA today since the G20 meeting in november 2014 that concerns all citizens read on :

    A Crisis Worse than ISIS? Bank “Bail-Ins” Begin…”Your Life Savings Could be Wiped out in a Massive Derivatives Collapse”.
    http://www.globalresearch.ca/a-crisis-worse-than-isis-bank-bail-ins-begin-your-life-savings-could-be-wiped-out-in-a-massive-derivatives-collapse/5498376

    Protect your savings, buy gold coins and hide them well from the crooks that own the banking system.

  7. U.S. Person Abroad, I very much appreciate the work you put into tracking the above material across various websites. First-rate journalistic work. Thank you!

    A bit of Holiday humour on the legislative end of this problem (which results in the poaching of USPs abroad.
    As an aside, Dan works with Congress to cut down on govt. waste. He often complains about corruption):

    http://freedomandprosperity.org/2015/blog/uncategorized/a-libertarian-night-before-christmas/

  8. Retrying because it seems this failed to post.

    The full text is worth reading. This is an incredible article, except for one sadly familiar exception.

    “Inside the Secretive World of Tax-Avoidance Experts”
    http://works.bepress.com/brooke_harrington/36/
    Full text:
    http://www.theatlantic.com/business/archive/2015/10/elite-wealth-management/410842/

    I think she ignored my e-mail.

    From: Norman Diamond
    To: Elisabeth Brooke Harrington
    Date: 2015-10-31 15:00
    Subject: Wealth managers are not responsible for 99% of record highs

    Good day. 99% of your article “Inside the Secretive World of Tax-Avoidance Experts” was enlightening. You are so close to 100%, maybe you can make matters better by doing a sociological study on the following topic.

    You wrote:
    “And thanks to the expanding number of practitioners, U.S. citizenship renunciations are at an all-time high, and growing.”

    Perhaps thanks to the expanding number of practitioners 1% of US citizenship renunciations might be at an all-time high and growing, but those of us in the other 99% are at an all-time high for rather unbearable reasons with no thanks to wealth management practitioners.

    Please start by reading the IRS’s report to Congress on 2011-12-31, http://www.taxpayeradvocate.irs.gov//userfiles/file/TAS_arc2011_execsummary.pdf
    Page 14
    Analysis
    Globalization has driven millions of individual taxpayers and hundreds of thousands of small and medium-sized businesses to seek economic opportunities abroad. it also has increased competition among tax administration agencies for tax bases and sources of revenue. For this reason, 40 economies made it easier to pay taxes last year. However, a recent World Bank report ranks the United States 66th in the areas of time spent to comply withtax obligations and 62nd in the ease of paying taxes among 183 countries surveyed. The complexity of international tax law, combined with the procedural burden on international taxpayers, creates an environment where honest taxpayers who are trying their best to comply simply cannot. For some, this means paying more U.S. tax than is legally required, while others may be subject to steep civil and criminal penalties. Some U.S taxpayers abroad find the tax requirements so confusing and the burden of complying with them so great that they give up their U.S. citizenship.
    Page 17
    Analysis
    Many U.S. taxpayers abroad are confused by the complex legal and reporting requirements they face and are overwhelmed by the prospect of having to comply with them. Some are even renouncing their U.S. citizenship for that reason; about 4,000 people did so in fiscal years (Fys) 2005 to 2010. renunciations increased more than tenfold from 146 in Fy 2008 to 1,534 in Fy 2010, with 1,024 renunciations in the first two quarters of Fy 2011 alone.

    Please continue by reading some articles by Forbes contributors Robert Wood and Kelly Phillips Erb.

    Please continue by reading discussions at http://isaacbrocksociety.ca/ Please feel free to ignore my postings there. A number of other innocent victims have been posting longer and more competently. Some of them have tales sadder than mine.

    The reason why renunciations hit all-time highs is because the US penalizes us in the same way that it penalizes the 1% that you reported on. We pay taxes in the countries where we live, we owe $0.00 in US taxes because tax rates in our home countries are higher than they would be in the US, we work where we live, we have earned income in our home countries lower than the US limit of foreign earned income exclusion, we have bank accounts where we live, some of us own houses where we live, some of us have mortgages where we live, etc. The US penalizes us for having normal lives.

    We already get enough grief from Americans calling us all tax evaders, when not getting penalized for living normal lives, when not getting rejected for jobs that would have signing authority on employers accounts, when not getting rejected for mortgates. Please don’t add your contribution to the popular misconception that we’re wealthy tax evaders.

    A bigger mistake is made by people who do try to be compliant, filing massive forms while owing $0.00 in US taxes, while not knowing that it is often illegal to tell the truth on a US tax form — well, the IRS’s Taxpayer Advocate already mentioned that to Congress.

    Perhaps you don’t believe it yet because it hasn’t happened to you yet. If you’re a US citizen living in Denmark, your turn will come.

    You could make a highly valuable contribution if you study us 99% next.

    Yours sincerely,
    Norman Diamond
    Canadian citizen living in Japan
    Former dual Canadian and US citizen living in Japan

  9. The Marxist Income Tax lends itself to evasion unless you are honest and then it is so complicated that nobody gets it right. There are more words in the tax code than in the Christian Bible and the code is harder to read and understand.
    We really need to go back to the founders idea of a sales Tax on all new goods sold, that way even the pimps and others criminals would pay as they spend and the overseas citizens could live their lives without fear of the Jackbooted IRS. The latest is they port of entry officials will check to see if you are tax compliant and confiscate your passport or revocation if you aren’t compliant.
    I am a proponent of the FairTax and until we do it there will just be more hardship and strife.
    Congress wants the issue and also wants the campaign funds they get to give special tax breaks to the people with money to contribute to their funds.

Leave a comment

Your email address will not be published.

%d bloggers like this: