reposted from citizenshipsolutions dot ca
UPDATED July 6 afternoon. Some text additions and I have clarified that the author of this post is John Richardson, B.A., LL.B., J.D. (Of the bars of Ontario, New York and Massachusetts), Toronto citizenship lawyer and Co-chair of the Alliance for the Defence of Canadian Sovereignty and the Alliance for the Defeat of Citizenship Taxation.
On the question of: What is a citizen?" https://t.co/ixtT45z3MB – suggests membership, rights, obligations, etc.
— Citizenship Lawyer (@ExpatriationLaw) July 4, 2016
It is widely understood that the United States Internal Revenue Code requires that “U.S. citizens” are subject to U.S. taxation wherever they may live in the world. Although this is true, Subtitle A (Income Taxes) of the Internal Revenue Code:
- Does NOT explicitly say that U.S. citizens are subject to
U.S. taxation on their world income wherever they reside;
- Does NOT explicitly define the term “citizen” or “U.S.
citizen”. (This contrasts with the the terms: “U.S. Person”,
“Permanent Resident”, “Substantial presence”, etc. that ARE
explicitly defined in the Internal Revenue Code here and
here. This means that the starting point for
the definition of “U.S. citizen” is in the 14th Amendment of the
Constitution and the United States Immigration and Nationality
(Interestingly it appears that only the “Estate Tax” provisions in Subtitle B of the Internal Revenue Code (Internal Revenue Code S. 2001) specifically impose tax liability on the “taxable estate of every decedent who is a citizen or resident of the United States”.)
Some thoughts on each of these points …
Q. Who (according to the Internal Revenue Code) is subject to U.S. taxation on world income?
A. S. 1 of the Internal Revenue Code states that taxation is imposed on: “individuals”, “heads of household”, “estates”, “trusts”, etc. Note that the word “individual” is broad enough enough to include “citizen” but is NOT restricted to “citizen”. Put it another way: The Internal Revenue Code of the United States presumes that ALL individuals throughout the world are subject to U.S. taxation. Yes, it’s true …
Note that S. 1 of the Internal Revenue Code also defines which filing status one should use. (“Single”, “Head of Household”, “Married Filing Separately”, etc.) It also prescribes different rates of taxation for different filing statuses. Note that the most punitive status is “married filing separately” – which actually imposes a “hidden tax” – and is commonly used by Americans abroad.
U.S. citizens are subject to taxation on their world income because they are “individuals”.
The Internal Revenue Code does NOT define the meaning of “citizen”!
S. 7701(a)(50) creates the concept of the “tax citizen“. It doesn’t define who is a citizen, it merely states that, citizenship is not lost for tax purposes until the individual meets the requirements of Internal Revenue Code S. 877A(g)(4). Specifically S. 7701(a)(50) reads:
(50) Termination of United States citizenship
(A) In general
An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).
Whoa!! How does any individual in the world escape U.S. taxation?
We look to S. 2 of the Internal Revenue Code which it title:
“Definitions and Special Rules”
S. 2(D) reads:
(d) Nonresident aliens
In the case of a nonresident alien individual, the taxes imposed by sections 1 and 55 shall apply only as provided by section 871 or 877.
In other words, if you are a “nonresident alien” you are taxable only on income connected to the United States. (By the way, S. 55 is the Alternative Minimum Tax. To see if you are required to pay it, see the Alternative Minimum Tax Assistant from the IRS.)
So, what’s a “nonresident alien”? Where is “nonresident” alien defined?
The answer (since January 1, 1984) is found in S. 7701(b) of the Internal Revenue Code. This section of the Internal Revenue defines the circumstances under which an “alien” has sufficient ties to the United States to move (or be
converted) from being a “nonresident alien” to being a “resident alien”.
I wrote an extensive post on this question here.
But, the starting point in the definition of “nonresident alien”
Internal Revenue Code S. 7701 (b) definition of resident alien and nonresident alien
(1) In general For purposes of this title (other than subtitle B) (JR NOTE: SUBTITLE B IS THE ESTATE AND GIFT TAX SECTION) —
(A) Resident alien An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii), or
(i) Lawfully admitted for permanent residence Such individual is a lawful permanent resident of the United States at any time during such calendar year.
(ii) Substantial presence test
Such individual meets the substantial presence test of paragraph (3).
(iii) First year election
Such individual makes the election provided in paragraph (4).
(B) Nonresident alien
An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).
(JR NOTE: S. 7701(A)(30) DEFINES A “U.S. PERSON” AS BEING A “CITIZEN OR RESIDENT. SO THIS SEEMS TO EQUATE NONRESIDENT ALIEN WITH NOT BEING A “U.S. PERSON)
Two ways of converting the “nonresident alien” to the “resident”
1. “Green Card” – Most of the focus of S. 7701(b)(6) is on Green Card Holders. A “Green Card” is a “permanent resident” VISA and is valid only as long as the person intends to reside permanently in the United States. This is both a matter of Immigration law and a matter of tax law (the Internal Revenue Code).
2. “Substantial presence test” – be very careful with this. The question is how many days is one entitled to spend in the United States each year before being treated as a “resident” for tax purposes. (I have seen people enter the United States on various “work related visas but then stay long enough to meet the “substantial presence” test.)
An IRS perspective is here:
Determining Alien Tax Status https://t.co/MqeFNVOheq – Are you or are you NOT a "non-resident alien"?
— Citizenship Lawyer (@ExpatriationLaw) July 3, 2016
The bottom line is that …
Every individual in the world is subject to full U.S. taxation on his/her world income unless he/she is a “non-resident alien”.
Think of it!!
Is it a matter of ineptness which led to this poorly worded set of code?
Or is it crafty, cunning, deliberately-vague intentional snare?
I expect it is originally ineptness. However, given the number of problems, inaccuracies, misapplications etc, involved when dealing with U.S. citizens abroad, there is no other conclusion that the government’s indifference is willful.
The Internal Revenue Code is a crazy quilt of provisions that almost fit together (but not quite). While the tax code may have been sensible (and simpler) when originally written, it is now incomprehensible and convoluted. You have a never-ending cycle of tax lawyers finding loopholes and Congress writing provisions to plug the holes (often unintentionally opening another loophole in the process). Then you have other Congress critters writing pork-barrel provisions to assist large donors in their electorate. All in all, it’s amazing that anyone can figure out what tax they owe. Congress’ inability to enact wholesale tax reform is legislative malpractice. They don’t fix CBT, because they don’t care about expats who don’t vote or donate big $$$ to their campaigns.
It’s just another example of US solipsism. I was going to say “exceptionalism”, but it’s worse than that. While writing the tax code US lawmakers just forgot that other countries exist.
Your statement that the IRC does not explicitly define citizenship is technically correct. It is also misleading. When the IRC was codified in 1939, the Secretary of Treasury was given an order to issue all needful regulations. That mandate is now found at 26 USC 7805. The needful regulation of the Secretary, Treasury Regulation, 26 CFR 1.1-1(c) explicitly defines citizenship in terms of the 14th Amendment and it included the term subject. 26 CFR 1.1-1(a) explicitly states that the tax imposed by section 1 of the IRC imposes the tax on citizens and residents. It does not list any other type, class or category of person upon the tax may be imposed by force.
The supreme court in US v Wong Kim Arc goes into detail about how the 14th Amendment is to be interpreted, and it makes quite clear as to what are the limits of jurisdiction and sovereignty. The question you must address is (if you are to be deemed competent to give advice to expats) what is the legal mechanism that extends US sovereignty outside of the geographic territory over which it is sovereign for the purpose of “income” taxation? Particularly I want to know how I, a “person” born in the sovereign state of California, can be completely subject to the political jurisdiction of the United States owing it direct and immediate allegiance arising out of the protection the United States affords me and at the same time be a naturalized national of the Republic of Panama other than by brute, tyrannical force.
Otherwise you are misleading your readers.
The US’ sovereignty extends only as far as another country’s desire to sacrifice it’s own.
The Canadian Bankers Association successfully pressured our Canadian government to sacrifice it’s sovereignty (its own citizens) to avoid sanctions (brute, tyrannical force) imposed upon them by the US government.
The US needs to start learning a few valuable lessons about jurisdiction. Thankfully we have a few ladies who are willing to help us reclaim Canada’s sovereignty. Those three ladies have more balls between them than the entire Canadian House of Commons, past and present. Wish them well.
Welcome to Brock. This is a site where we focus on questioning concepts and ideas that are commonly assumed to mean only what we are told by tax lawyers, accountants and governments. We most definitely are challenging the idea that jurisdiction of the United States may extend to those who live outside its borders. This means we do not accept that our countries of residence have no say in the matter. We are intent upon finding ways to demonstrate this.
With regard to your statement “(if you are to be deemed competent to give advice to expats)”, I have updated this post to make clear that I am not the author of this post.
I am curious, are you wanting to find a legal demonstration that would free you from the situation you describe?
Roy actually opens a very interesting argument. Given that 26 USC 7805 authorizes the Treasury Secretary to make regulations, it would seem the Secretary could then define that non-resident Americans/Americans abroad/expats, however you want to define us, would be excluded from the definition of citizen and resident. As many of us are citizens of other countries, naturalized, etc, the general concept of citizen doesn’t cover what is involved in that. And the U.S. clearly has never approved of the idea of dual citizenship.
Could it not be a curious thing that the 14th Amendment is not mentioned directly, as the source of the definition of citizenship?
“Is it a matter of ineptness which led to this poorly worded set of code?
Or is it crafty, cunning, deliberately-vague intentional snare?”
“While writing the tax code US lawmakers just forgot that other countries exist.”
No they knew, and they intentionally made things harder for us (as in another comment ‘They don’t fix CBT, because they don’t care about expats who don’t vote or donate big $$$ to their campaigns.’).
‘When the IRC was codified in 1939, the Secretary of Treasury was given an order to issue all needful regulations. That mandate is now found at 26 USC 7805.’
Thank you for that clarification. I wondered how to establish a connection between some CFRs and the law. 26 CFR 601.101, 601.103, and 601.106 state which IRS officials and which IRS appeals office are supposed to administer US tax law for non-residents, and since IRS officials are violating those regulations wholesale, it’s good to see which statute is being violated as well.
I guessed an address for the IRS’s Director, Foreign Operations District. My registered letter was signed for (USPS as usual violated USPS International Mail Manual section 753.1 by refusing to complete and return the AR card, but in response to postal inquiries they sent a fax of the signature). The Director, Foreign Operations District, ignored my letter as most of my letters to the IRS have been ignored.
I guessed an address for the Washington, D.C. Appeals Office of the Mid-Atlantic Region, but my guess was wrong and my registered letter was returned as undeliverable. Three letters to the Washington, D.C Appeals Office of the Mid-Atlantic Region addressed c/o three other IRS offices were signed for though again USPS refused to return the AR cards (not even returning blank ones like they do sometimes).
But shortly after that the IRS sent a letter. It seems that a fax which I sent 2015-09-15 reached them 2016-02-04 and they figured out the answer on 2016-06-23. They ignored the change of address which I sent 2016-01-12 on Form 8822, but Japan Post forwarded it and it reached me 2016-07-06. My appeals office is in Florida. So I will send a letter there, but Florida is an interesting location for the Washington, D.C. Appeals Office.
‘The question you must address is (if you are to be deemed competent to give advice to expats) what is the legal mechanism that extends US sovereignty outside of the geographic territory over which it is sovereign for the purpose of “income” taxation?’
The US’s 14th Amendment guarantees US citizenship to some people, as you observed in a US Supreme Court case. Congress gives US citizenship to more people, for example residents of Puerto Rico and Guam but not American Samoa or the Philippines (there are still Filipinos who were born under US sovereignty), and people born in other countries to one or two US parents, etc. Congress could stop giving those other citizenships immediately, though of course they can’t cancel citizenships of people who already hold it due to having been naturalized (by laws existing at the time of their birth).
Historically courts used to consider that the US was constituted by the US constitution, so the US was bound by the US constitution, and the US didn’t have power to abuse anyone anywhere in the world. Later courts decided that US citizens or US persons are protected by the US constitution so the US does have power to abuse non-US persons outside of the US. Plurals start to matter; for example a non-resident alien in Mexico isn’t part of the “people” and has no Fourth Amendment right against unlawful search and seizure by US forces in Mexico, but the same non-resident alien in Mexico is a “person” and therefore does have Fifth Amendment rights (this is obsolete too now since the Fifth Amendment was repealed, but it was the situation for a while in US courts). Also if a US citizen goes to Mexico then the US citizen retains Fourth Amendment rights in Mexico and if a Mexican illegally immigrates to the US then the Mexican gains Fourth Amendment rights in the US, which makes me wonder if a non-resident alien in Mexico wants to gain Fourth Amendment rights then should he illegally immigrate to the US and then return to Mexico before US forces break into his house?
Meanwhile, non-resident US citizens can renew passports at US embassies, and some even get to vote for US national offices, so some degree of US sovereignty seems to be fairly well established.
Then there’s the infamous Saving Clause. In case of any doubt that the US has the right to abuse US persons residing in other countries, other countries sign treaties allowing the US to do exactly that. They’ve been doing this for decades, before FBAR and FATCA and all the other multiplications of the abuse.
However, I do wonder if court decisions overthrowing the US constitution, such as allowing the US to drone US persons in other countries, means that the US constitution is really overthrown. Even with a Saving Clause, if the US constitution no longer provides a Fifth Amendment to a US person in another country, maybe it no longer provides a Sixteenth either. I never disputed the Sixteenth Amendment; on the rare occasions when I owed money to the US I overpaid and used to get refunds (before Monica Hernandez and cohorts embezzled the withholding). But after seeing courts overthrow the constitution, now I do wonder.