79 thoughts on “Are Green Card holders resident outside the USA “US persons” under the #FATCA IGA?”

1. “Dear Queen,
   Enclosed is my expired passport. Please note I visited your lovely country on a few trips.”

   You live in her lovely country. That’s how you got to be her humble servant in the first place.

2. Excellent reasoning about the Residency Article of US – Canada Tax Treaty. But you did not mention that the tax treaty applies to federal and Canadian income tax purposes only! The tax treaty takes no superiority over any other law of either the USA or Canada.

   Article II(1) of the treaty clearly reads that This Convention shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.
   Thus, the tax treaty has nothing to do with any other non-tax related laws, such the INA or the Bank Secrecy Act of 1970.
   Further, Treas. Reg. § 301.7701(b)-7(a)(2) clearly states that in an event of dual-resident taxpayers, the computation of income alone should be made in accordance with the rules stipulated in the tax treaty document. So far so good! No one argues about it!

   However, under Treas. Reg. § 301.7701(b)-7(a)(3) Generally, for purposes of the Internal Revenue Code other than the computation of the individual’s United States income tax liability, the individual shall be treated as a United States resident.

   Therefore, for example, the individual shall be treated as a United States resident for purposes of determining whether a foreign corporation is a controlled foreign corporation under section 957 or whether a foreign corporation is a foreign personal holding company under section 552. In addition, the application of paragraph (a)(2) of this section does not affect the determination of the individual’s residency time periods under § 301.7701(b)-4.

   I do not see how the tax treaty affects the FBAR reporting requirements which are imposed under the Bank Secrecy Act of 1970 or the FATCA IGA reporting requirements which are based on the residency determination under US Immigration and Nationality Act (INA). Both laws have nothing to do with the imposition of tax under Title 26 of the USC.

   Obviously, someone within the CRA decided that determination of residency under a pure income tax related agreement takes precedence over the Bank Secrecy Act and the Immigration Laws. The recommendation provided by CRA is a judicial nonsense!

3. @Histro

   Great comment.

   1. Agree that the tax treaty has nothing to do with FBAR or anything else that is NOT related to Title 26. That said, FATCA is Chaper 4 of Title 26 and the FATCA reporting requirements on individuals are prescribed in Title 26.

   2. The Canada U.S. FATCA IGA makes it clear that the definition of residence is interpreted in accordance with the provisions of the Internal Revenue Code (Title 26).

   3. The Internal Revenue Code defers to the Treaty.

   4. Article IV of the Canada U.S. Tax Treaty “deems” the dual resident Green Card Holder to be a resident of Canada. In other words, the Green Card holder IS a resident of Canada and is NOT a resident of the USA.

   Now, with respect to your comments about the regulations, etc. You make some interesting points.

   5. Interestingly, the regulations do NOT say that for the purposes of information reporting that the person IS a resident of the United States. Rather that the person is “treated as” a resident of the United States. In other words, the reg does NOT seem to convert a non-resident into a resident. What the reg does (for information reporting) is to TREAT someone who is a non-resident AS a resident.

   (In addition, one might ask whether the regs you cite which require the reporting and not the payment of tax are even consistent with the treaty?)

   6. The FATCA IGA describes the “due dilligence” requirements of the banks. It has NOTHING to do with the requirements of the Green Card holder vis-a-vis the U.S. tax system. In other words, the obligations of the banks and the Green Card holder are not related to each other.

   7. Therefore, I can see how the Canada Revenue Agency could legitimately take the position that for the purposes of bank due dilligence, that a Green Card Holder who is a Canadian resident is NOT a “U.S. Person” for the purposes of bank due dilligence under the FATCA IGA. This has no bearing (as you point out) on the Green Cards holders IRS reporting requirements.

   8. Obviously the Tax Treaty has no bearing on any State tax requirements.

4. Thanks for the comment. I suppose the same reasoning was used by the CRA in making the recommendation. So, let me elaborate a bit to show why the CRA recommendation resemples a drowning man clutching at a straw.

   1.The definition of a U.S. person under the FATCA IGA with Canada is given in Article 1(ee) of the IGA. Article 1(ee)(1) states that a U.S. person includes a US citizen and a US resident. The flush sentence of Article 1(ee) states that: This subparagraph 1(ee) shall be interpreted in accordance with the U.S. Internal Revenue Code.

   2. Section 7701(b)(6)(A) of the Internal Revenue Code reads: an individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws

   Two important conclusions are drawn:

   1. The FATCA IGA does not say that Article 1(ee) shall be interpreted in accordance with the U.S. – Canada Income Tax Treaty. Do you see the difference?

   2. Even if we discharge the language in Article 1(ee), Title 26 alone does not contain the definition of a lawful permanent resident. Instead, Title 26 is the middleman.It directs the reader to the immigration laws of the United States. And the immigration laws of the United States are in Title 8.

   So the chances to circumvent the IGA reporting requirement by a reliance on a purely tax-related treaty are so remote that is not worthy even consider them.

5. Obviously the word resident means exactly as it should to the CRA. To the IRS, however, it means what it should and exactly the opposite, both at the same time. One of these agencies needs to give their head a shake … and it’s not the CRA. You can tangle yourself up in tax codes and treaty regs all you want but current green card holders residing in Canada and past holders of green cards (officially or otherwise abandoned) residing in Canada will NOT be fessing up to any USness at their Canadian banks … nor should they.

6. I agree they should not be, EmBee, but Green Card holders still have more privacy rights under the IGA than a Canadian citizen when the the GC holder may only have permanent residency in Canada.

7. @ Bubblebustin
   Maybe the only rights we have are the ones we dare to take for ourselves. Governments have not been good at bestowing rights or protecting them afterwards.

8. @Histrow

   I understand your argument. Clearly the IGA directs that the interpretation of “U.S. Person” is n accordance with the Internal Revenue Clearly the the definition of resident (Green Card Holder) comes from the INA.

   But, the Internal Revenue Code also contains:

   S. 894 that states that the Internal Revenue Code is to be applied with due regard to any treaty obligation of the United States that applies to the taxpayer; and

   S. 7852(d) which generally makes it clear that legislation may be intended to override treaties and other legislation not.

   In addition, if you look at page 6 of Publication 519 (which is what I think you are looking at) you will see that it is the view of the IRS that, in the case of “dual resident taxpayers” that the Internal Revenue Code will NOT override the treaty – the treaty definition prevails.

   To put it another way:

   the combined effect of these things leads to the conclusion that it is the Internal Revenue Code that ultimately mandates that the Green card holder is deemed to (1) be a resident of Canada and (2) is NOT a resident of the U.S. It is this reasoning that (I think allows the Canada Revenue Agency) to conclude that Green Card Holders living in Canada are NOT “U.S. residents” for the purposes of FATCA reporting by banks. This is irrelevant to and independent of the IRS statements that Green Card holders still have reporting requirements because they are TREATED as residents. (Interestingly in most cases Green Card Holders who are NOT U.S. residents because of treaty tie breaker provisions are no longer required to file form 8938 and 8621).

9. Well, let’s go over the rules again, assuming the following thesis:

   “To what extent a Canadian citizen and resident (determined under Canadian law), who is also a U.S. permanent resident (determined under the US laws) can rely on the Residency Article of the US-Canada Income Tax Treaty to rebut the FATCA IGA reporting requirements?”

   Despite the genuine faults of the above thesis, let’s see how the law works in this situation.

   1. What is the FATCA IGA? It is a bi-lateral agreement between Canada and the United States that requires automatic exchange of financial information from Canada to the United States. The IGA definition of a US Person makes it clear that the determination of residency is made under the Internal Revenue Code. The IRC defines a U.S. person as a lawful permanent resident under the Immigration Laws.

   2. What is the Tax Treaty? It is another bi-lateral agreement between Canada and the United States and according to Article II(1) it applies only to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

   3. Is there imposition of any income tax on any person when the FATCA financial information exchange is sufficed? NO.

   4. When is the income tax imposed? When the tax return is filed.

   5. When the tax treaty definition of a resident comes into play? When the tax return is filed.

   6. When tax treaty benefits are claimed? When the tax return is filed.

   7. Is a Green Card allowed to claim tax treaty benefits? Yes, of course!

   8. Which Regulation describes Green Card holders claiming tax treaty benefits? Treas. Reg. 301.7701(b)-7

   9. How the tax treaty benefits are claimed by a Green Card holder? The Green Card holder files a non-resident alien income tax return on Form 1040-NR, attaches Form 8833 explaining that a tax treaty based position has been made.

   10. What does the Regulation say about the requirement to file FBAR, 5471, 8938, 8621, 3520 and all other forms that have no effect on the computation of the individual’s income tax liability? Treas. Reg. 301.7701(b)-7 explicitly states that the forms are required!

   11. What are the consequences of filing Form 1040-NR and Form 8833? The answer is “The filing of a Form 1040NR by an individual described in paragraph (a) of this section may affect the determination by the Immigration and Naturalization Service as to whether the individual qualifies to maintain a residency permit.”

   12. Can a tax treaty definition of a resident override the FATCA reporting requirement? Nope. The tax treaty applies only when there is an imposition of any income tax on any person. The FATCA exchange has no immediate effect on the determination of the individaul’s tax liability. The tax treaty does not apply at all!

   13. What is the effect of the tax treaty residency article on FATCA? Zero to none!

   Finally, the Canadian government has also signed FATCA-like information exchange agreements with 86 more countries. Including the EU, all OECD countries and some 30 more! The FATCA like agreement is called “Standard for Automatic Exchange of Financial Account Information in Tax Matters.” Canada is about to start providing financial information on or after September 2018. The list of countries is growing year after year. More information here: http://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/MCAA-Signatories.pdf

   Those interested may take a peek on the definition of a Reportable Person under Section VIII D(3) of the Standard to find out that the determination is made by the laws of the partner jurisdiction requesting the financial information, not by the laws of the country that is providing the information.

   So all the mumbo-jumbo about repealing FATCA or taking the tax treaty definition of a Resident instead the one required by the Partner jurisdiction is nothing more but smoke and mirrors!

10. “4. When is the income tax imposed? When the tax return is filed.
    5. When the tax treaty definition of a resident comes into play? When the tax return is filed.
    6. When tax treaty benefits are claimed? When the tax return is filed.”

    All three of these are wrong. Tax is imposed long before a return is filed, and even when a return is not filed. Treaty benefits can be claimed long before tax is imposed (e.g. suppose 5 years in the future this stock starts paying a dividend, then withholding should be taken at the treaty rate not 30%).

11. Hi Norman,

    Do you see the difference between claiming a tax treaty benefit as a “non-resident alien” and claiming tax treaty benefits as a “dual-resident taxpayer?” As I said Treas. Reg. 301.7701(b)-7 is the section that you need to check. Find the text and 4 examples here: https://www.law.cornell.edu/cfr/text/26/301.7701(b)-7

    To sum it up, if a Green Card holder takes the position that s/he is not a resident of the United States under a tax treaty, the person is requried to compute income tax liability on a timely filed Form 1040NR and 8833, attach all other statements that are not covered by a treaty, such 5471, 3520, 8621, etc, which may result in an expatriation under IRC 877 or IRC 877A.

    And when the FATCA exchange takes place no tax is imposed. The FATCA has nothing to do with the determination of your final income tax liability under a tax treaty or otherwise.

12. @Histrow

    Great comment and you are (I believe) more or less correct in your analysis of how the treaty would impact the Green Card Holder with respect to the U.S. Government.

    First, a bit of an aside …

    I am not positive that in every case a Green Card Holder is required to specifically file Form 1040NR and Form 8833 to make use of the Treaty. It would be interesting if you could explain that in a more substantive way (although it remains a bit of an aside). Is it your view that in ALL cases in order to take advantage of the Treaty Tie Breaker that the person must file 1040NR and Form 8833? What if there is no reportable income – the person has no income in either country and has nothing that would trigger any of the form (5471, 3520, etc.) requirements?

    Back to the discussion we are actually having

    The FATCA IGA has to do with the due dilliigence requirements imposed on the banks. The FATCA IGA has nothing to do with requirements imposed on the individual through FATCA (8938 and that sort of stuff).

    What you seem to be saying is:

    Because the tax treaty does NOT exempt individual Green Card Holders from their obligations under the Internal Revenue Code that banks cannot rely on the definition of residence in the treaty to determine their due diligence requirements vis-a-vis individuals. These are two separate issues. I do understand what you are saying, but I also think that the position of the Canada Revenue Agency is rational (and likely correct) in this context.

    There is no inconsistency between:

    1. A bank looking to the Internal Revenue Code which then directs the bank to have “due regard” for the tax treaty

    2. Using the provision of Article IV (which is a mandatory provision – note the word “shall”) to then determine that the individual is NOT a tax resident of the United States.

    3. What the Treasury regs do in conjunction with their treatment of Green Card Holders is a different issue and not relevant to the determination of residence. It is only relevant to how US Treasury treats certain people who are NOT residents but are treated as residents for certain purposes.

    In summary, could you please direct your analysis to this question:

    Is there a reason why the following cannot be true at the same time?

    A. For the purposes of the due dilligence provisions of the FATCA IGA (imposed on the banks) a Green Card Holder is NOT a resident of the USA; and

    B. For the purposes of the Internal Revenue Code and associated regs that a Green Card Holder can be treated as U.S. resident for certain other purposes?

    They are two separate issues. There is no reason why a residency determination made by the banks for their due dilligence obligations is the same as a residency determination by an individual for information reporting.

    Please do NOT repeat your same points which I agree are correct. It’s just that I am not sure that your correct points compel the conclusion that for bank due dillegence purposes under the FATCA IGA that Green Card Holders are “U.S. residents” under the IRC.

    Thanks again for your great comments.

13. Under the US Tax Code, individuals are either residents or non-residents for tax purposes (exception applies only for the first and last years of residency). Residents file on 1040 and non-residents on 1040-NR. If you take the position that you are not a resident of the United States under a tax treaty tie-breaker rule, the Form you must file is 1040-NR.

    Further, there are “consistency rules” that preclude an individual from taking a tax treaty position for one benefit and simultaneously opt out of the tax treaty for another benefit. The consistency rules require you to either adopt the tax treaty in its entirety or restrain from taking any tax treaty based position at all.

    For example, you cannot take the 0% tax treaty rate on interest income and at the same time opt out of the 15% tax rate on dividends. In a similar vein, you are not allowed to identify yourself as a non-resident alien on one form and as a resident on another, just because it serves you better. In short, it is a take it or leave it situation. If a dual-resident taxpayer elects to take the tax treaty, the form to file is 1040-NR plus 8833. That’s what Treas. Reg. 301.7701(b)-7 states, not me.

    In a hypothetical situation a person has no income at all, then what kind of tax treaty benefits were are talking about? I’ll say it again. The tax treaty applies only when there is a need to lessen the burden of a double economic or jurisdictional taxation. If you have no potential double tax situation or no taxes have been levied in either country, there is no tax treaty position to take.

    In terms of the FATCA IGA requirements imposed on FFEs. The banks are required to apply a reasonable due diligence in identifying US reportable accounts. A bank that follows the due diligence requirements is granted a “safe harbor” from the imposition of any penalty.

    Part of the due diligence requirements include a self-certification of the account hold that s/he is not a US person as defined in IGA. The self-certifications is made under penalties of perjury on a form containing information identical to the W-9/W-8 withholding certificates.

    If you self-certify that you are not a US person and provide supporting documents in line the self-certification (Canadian passport, SIN, Canadian address and phone number, etc.), the bank will accept it. And the bank would be safe because the bank followed the due diligence requirements.

    The real question is: “Are you safe from self-certifying under penalties of perjury that you are not a US person?” Well, I do not think so.

    And even if you are safe to do so, then: “What happens when the tax season comes?” Are you going to file a tax return as a resident or non-resident? Or file no tax return at all? What are the consequences and the implications that arise? These are the questions that deserve consideration.

14. Hristo, as much as I appreciate your comments, what I learn from you is that I made a really stupid mistake in my life by marrying someone born in the USA, and I made an even more stupid mistake in getting a green card once (lived there for less than 3 years and happily left) and not following proper protocol in ridding myself of it. Who knew?
    Do you wonder why so many of us feel that “USness” is a form of cancer? In my circle of friends and neighbours, there are numerous immigrants from countries such as the UK, France, Germany, Poland, Italy, India, Singapore, Ireland etc, and absolutely none of them have anything remotely similar to “US cancer.” They are the truly FREE people.
    But, of course these places are NOT the (exceptional) USA, and well, the law is the law and it MUST be obeyed……
    But I DO thank you for your valuable participation in our IBS discussions.

15. This is all interesting hair splitting, but if I were a Canadian resident who also happened to hold a US green card I would be quite happy to follow the CRA’s advice and not identify myself to my bank as a US person. Without a US birthplace there is no way the bank would ever even suspect (let alone positively identify) someone as a US taxable person unless that person volunteered the information.

    What the US government considers such a person to be is not relevant; this is Canada. Heck, I DO have a US birthplace and I have had absolutely no problems. I’m simply very careful what information I disclose and to whom. All of these laws (CBT, FATCA, and the IGA) are specifically designed to screw innocent people; there is no need to feel guilty by doing whatever is necessary to circumvent them. There is no mechanism on either side of the border to enforce any of this crap.

16. @ maz57
    BINGO … don’t fess up to a US taint, just as the CRA advises.

17. ‘Do you see the difference between claiming a tax treaty benefit as a “non-resident alien” and claiming tax treaty benefits as a “dual-resident taxpayer?”’

    Sorry, I missed that point.

18. “Under the US Tax Code, individuals are either residents or non-residents for tax purposes (exception applies only for the first and last years of residency).”

    I’ll take issue with this one now. When a US non-resident citizen treats their US non-resident alien spouse as a US resident for tax purposes (since US law grossly penalizes the status of married filing separately), a definition treats the US non-resident citizen as a resident of the District of Columbia for some purposes but does not do the same to the spouse. The citizen gets one combination of residence and non-residence and the alien gets a different combination.

    The IRS still harrasses my wife, who never resided or worked or invested in the US and never had any US sourced income or US withholding. I’ve figured out what kind of petition she has to file in US Tax Court. But no US circuit court would have jurisdiction over her, and she has the right to one round of appeal, so I’m wondering if appeal would be directly from US Tax Court to US Supreme Court.

    I think that wouldn’t happen to dual residents though.

    I don’t know of any treaty provision that would prohibit the IRS from penalizing and harrassing a person, whether or not a US non-resident alien (or partly so), for signing an illegally honest declaration on a US tax return.

    “For example, you cannot take the 0% tax treaty rate on interest income and at the same time opt out of the 15% tax rate on dividends.”

    During the reign of a former US – Canada tax treaty, the IRS opted out of a treaty article that limited the US tax rate on some kind of US sourced investment income paid to residents of Canada. At the same time the IRS opted into a different treaty article that allowed the US to tax some of those same residents of Canada in the same manner as if most of the treaty didn’t exist, but the article limiting US tax on investment income was described as still existing and did not authorize the IRS to opt out of it.

19. @Histro

    You write:

    Further, there are “consistency rules” that preclude an individual from taking a tax treaty position for one benefit and simultaneously opt out of the tax treaty for another benefit. The consistency rules require you to either adopt the tax treaty in its entirety or restrain from taking any tax treaty based position at all.

    Of course this is true. But there are obligations on banks that are separate and distinct from obligations on individuals. Banks have be consistent with their behavior and individuals must consistent with their behavior. But, banks and individuals are not bound by he same standards of behaviour. Your statement about consistency above is correct in so far as it bears on the obligations of the individual.

    You also write (apparently):

    ‘Do you see the difference between claiming a tax treaty benefit as a “non-resident alien” and claiming tax treaty benefits as a “dual-resident taxpayer?”’

    Of course there is a difference. But again it has nothing to with the due diligence rules on the banks imposed by the IGAs.

    Let’s try it looking at it from this perspective.

    Let’s say we have an individual criminal who happens to be U.S. person. This criminal U.S. person is required to do all kinds of things and refrain from doing all kinds of things.

    Let’s say we have a police offerer (for example a bank). The police officer/bank is required to hunt for the criminal according to Police rules and not criminal rules. In this case the bank is able to use the treaty definition of residence (because the Internal Revenue Code tells it to) to determine whether to hunt for this specific criminal But, this has nothing to do with what the criminal does or does not have to do.

    The rules of the IGA can reasonably be interpreted to exempt from the hunt:

    Green Card Holders residing in Canada, citizens who were born outside of the USA, those who meet the substantial presence test, etc. I am NOT saying that these groups are NOT U.S. persons. I am just saying that the FATCA IGAs go after only those unfortunate souls who were born in America (unless of course somebody goes in and boasts about being a USP.

20. @ USCitizenAbroad
    So someone who was born in the USA is an unfortunate soul but someone who was born in Canada but deemed to be a “US person” by the USA is presumed to be a criminal?

21. @Embee

    So someone who was born in the USA is an unfortunate soul but someone who was born in Canada but deemed to be a “US person” by the USA is presumed to be a criminal?

    No, people “Born In The USA” are by virtue of this circumstance of their birth presumed to be a “Tax cheat By Birth” (and therefore a criminal).

    U.S. laws will attempt to extend the presumption of criminality to those who are too closely associated with “U.S. Persons” to be ignored. So, to respond to your comment, U.S. law operates in the following three rules.

    1. All those “Born In The USA” are criminals

    2. Some (bearing in mind that some could include “all”) of those born outside the USA are criminals

    3 Some born outside the USA are not criminals.

    In fact, the above three statements should become a constitutional amendment.

    2. Some but

22. ‘Do you see the difference between claiming a tax treaty benefit as a “non-resident alien” and claiming tax treaty benefits as a “dual-resident taxpayer?”’

    “Of course there is a difference. But again it has nothing to with the due diligence rules on the banks imposed by the IGAs.”

    Hristo Ivanov was replying to my mistake on a matter which didn’t involve due diligence rules on banks. I made a mistake and he/she corrected me. Please don’t confuse that with the matter of due diligence rules on banks.

    Also please don’t confuse CRA’s advice to individuals (about what a certain category of individuals can tell their banks) with due diligence rules on banks.

23. ‘So someone who was born in the USA is an unfortunate soul but someone who was born in Canada but deemed to be a “US person” by the USA is presumed to be a criminal?’

    Regardless of place of birth (despite place of birth being an indicator for FATCA), the presumption of criminality derives from living anywhere among approximately 190 countries other than the US while having US taint.

24. I’ve read that everyone living in the USA breaks one or more federal, state or municipal laws on a daily basis, due to the huge number of laws on the books and the inevitable obscurity of so many of those laws. So in or out of that country you are at risk of being labled a criminal. And if the US government or rogue agencies within it (like the CIA) arbitrarily deems you to be a terrorist (more likely it’s dissidents they’re after) then they can execute you without charge or trial and do this with complete anonymity, without recourse for error. I think we know who the REAL criminals are.

25. @Norman

    Also please don’t confuse CRA’s advice to individuals (about what a certain category of individuals can tell their banks) with due diligence rules on banks.

    You are making a logical distinction that has no meaning in reality. When the CRA tells Green Card Holders that they don’t have to report/identify as “U.S. Persons” they are also telling the banks that they need not treat Green Card Holders as “U.S. Persons”.