Read below the sorry situation “Caroline” finds herself in.
The tax attorney Max Reed suggests three options: 1) Obtain a CLN; 2) Do nothing; OR 3) Catch up on U.S. tax returns and renounce (i.e., NOT relinquish) citizenship. How do you suggest a tax attorney should advise Caroline?
Tax attorney Max Reed opines and three attorneys (John Richardson, Virginia La Torre Jeker, Michael Miller), PLUS Shovel AND USCitizenAbroad comment on whether a foreign (U.S.) “tax-citizenship” law that might or might not impact on Canadian Caroline is retroactive.
The case of “Caroline”:
In advisor.ca there is an article by Max Reed with commentaries about whether a foreign U.S. (At present, the U.S. is considered by the United Nations to be a country foreign to Canada) tax-citizenship law should be applied retroactively to a Canadian. Read the entire article and commentary on an issue that has often been discussed on Brock.
Max Reed cites the example of a “Caroline”, a Canadian who relinquished U.S. citizenship in 1978 and has no CLN (Certificate of Loss of Nationality). Her bank sends her a FATCA letter and says that it will report her to the IRS unless she comes up with a CLN.
“In September 2016, she goes to the U.S. State Department to get a CLN to document her loss of U.S. citizenship in 1978 [good idea?]. But what is the exact date of Caroline’s loss of U.S. citizenship for both U.S. tax and immigration purposes?”
Max Reed provides a “common sense” view in the article and also, below, what he feels is a “literal reading” of a 2008 U.S. law:
“The literal approach is based on a strict reading of the law. Since 2008, U.S. tax law has set the date that a person loses U.S. citizenship as the earlier of the date that he applies for a CLN at the Department of State or the date the CLN is issued… Under the literal approach, because Caroline never obtained a CLN, she remains a U.S. citizen until her State Department visit in September 2016. This means she would have had tax obligations to the U.S. government for the previous 38 years – despite losing her citizenship for immigration purposes in 1978…”
Virginia La Torre Jeker comments:
“The collective view of several distinguished US tax professionals is that the current version of the expatriation provisions as spelled out in Internal Revenue Code Sections 877A and 7701(a)(50) as enacted by the HEART Act must have prospective application only… If a later Congress had intended the “surprising result” of retroactivity when passing the 2008 expatriation laws, it would no doubt have spelt this out very clearly….
John Richardson:
“1. What you describe as the “literal” approach is based on reading the exact words of Internal Revenue Coce S. 877A. S. 877A(g)(4)in its opening language addresses those who are “citizens”. Not past citizens. It reads: “A citizen shall be treated as relinquishing his United States citizenship on the earliest of—”
What it means to be a U.S. “citizen” is not defined in the Internal Revenue Code. It is defined only in the Immigration and Nationality Act. Internal Revenue Code S. 877A came into force in June of 2008. Therefore, it seems reasonable to assume that if one was not a U.S. “citizen” under the Immigration and Nationality Act in June of 2008, then S. 877A(g)(4) should not apply to that person. To put it another way: the “literal approach” would/should lead to the conclusion that Caroline, who became a Canadian citizen in 1978, was not a U.S. “citizen” for tax purposes in June 2008.
2. Prior to 2004 there was no provision in the Internal Revenue Code that allowed for one to be a “tax citizen”, if one had relinquished U.S. citizenship under the nationality laws. In other words, if NOT a citizen under the nationality laws then NOT a taxpayer. This means that those who relinquished U.S. citizenship prior to 2004 under the nationality laws, were not subject to taxation under the Internal Revenue Code. The 2004 law (that created the “tax citizen”) specifically stated that the creation of the “tax citizen” under the Internal Revenue Code was prospective only. It seems unlikely that the enactment of S. 877A in 2008 would have changed what was clearly a prospective concept to a retroactive application.
Therefore, whether one takes the “literal approach” or the “common sense” approach, the notion that Caroline, who relinquished U.S. citizenship in 1978, owes U.S. taxes, is hard to justify under the law.”
Michael Miller:
“…But, just to provide a taste, it’s interesting to note that even the so-called common sense approach is very easy to square with a literal reading of the statute.
If you start with the proposition that, prior to 2004, anyone who relinquished citizenship for nationality purposes also ceased to be a citizen for tax purposes, and add in that the 2004 legislation expressly grandfathered those persons, then you have to start your consideration of the 2008 legislation (including, in particular, IRC section 7701(a)(50), with the understanding that Caroline had ceased being a citizen for tax purposes in 1978.
With this in mind, the question is what do we make of IRC section 7701(a)(50) which says, in pertinent part, that “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)” Well, Caroline didn’t need to cease to be treated as a citizen at any time when this statute was on the books, because she ceased to be a citizen in 1978. Therefore the common sense approach dovetails with the language of the statute once it’s understand that, by saying what’s needed for an individual to cease being a citizen for tax purposes, the statute should have no impact on someone — like Caroline — who has already ceased being a US citizen.
And, above and beyond that, it’s important to understand what the contrary interpretation would mean. Since Carolyn had long since ceased being a citizen for nationality and tax purposes when IRC sec. 7701(a)(50) was enacted, the so-called literal approach would have to affirmatively restore citizenship that had previously terminated in order for this provision to apply — which is clearly absurd. Therefore, since marketing is everything, I would choose to characterize the competing interpretations as the absurd one and the non-absurd one.”
— Shovel notes:
“Anyone who relinquished before 2004 and is thinking of filing U.S. taxes (or is being told to file as part of a current tax citizenship expatriation) needs to read these instructions from the IRS carefully.
“2015 Instructions for U.S. Form 8854″
“Initial and Annual Expatriation Statement”“Purpose of Form”
“Form 8854 is used by individuals who have expatriated on or after June 4, 2004.”
https://www.irs.gov/pub/irs-pdf/i8854.pdfThe IRS itself here plainly says that if you expatriated before June 4, 2004, Form 8854 is not for you. Throw it in the garbage. Do not read on and get yourself entangled in the mumbo-jumbo rules that apply only to those who expatriated on or after that date.
But they’re only to happy to take you and your money if you don’t know how to read.”
USCitizenAbroad:
“The question asked by Stephen Kish is how should Caroline be advised. Mr. Reed proposes two interpretations of S. 877A which he calls the “literal approach” and the “common sense” approach. One problem of reading articles written by the tax compliance community is, that by focusing on the theoretical, they minimize the “real life” consequences to the people they advise. So, what are the “real life consequences?” The “literal approach” results in the destruction of your life. The common sense approach means that you still have a life. (Which do you think is the better approach?)
Here is why.
Rather than frame the issue as “the literal approach” vs. the “common sense approach”, the issue should be framed as:
Approach 1 – Your Life Is Over: Under this “literal” interpretation of S. 877A, you poor dumb former American will have to turn your life savings over to the IRS (and pay the adviser to help you do this) because you did not go out and obtain a CLN. It doesn’t matter that a CLN was not required by law. It doesn’t matter that you didn’t know what one was. It doesn’t matter that the U.S. Government was threatening you with the loss of your U.S.citizenship if you became Canadian. It doesn’t matter that in some cases the U.S. was denying entry to the USA to those who had become Canadians. What matters is ONLY that this is what the statute says NOW!!!!!!! So, you better step right up and turn your life savings over to the IRS.
Approach 2 – It’s Your LIfe! Why don’t you keep it!: Let some “common sense” prevail. You were one of the smart ones. Because you relinquished U.S. citizenship – according to the clear laws of the USA in the 1970s – you are not affected by this new law. The only people affected by this new law are the “dumb bunnies” who decided it was a good idea to be a U.S. citizen AND were U.S. citizens when this law took effect on June 16, 2008. I don’t think you should draw attention to yourself. You might want to document the circumstances that led to your becoming a Canadian citizen in 1978. When documenting those circumstances, you probably should make it clear that you were intending to relinquish U.S. citizenship. But, either way you have to sleep. So, you might as well – Sleep well!. There is no good reason to turn your assets over to the IRS and pay your adviser to help you do it.A fair reading of the legal commentary on this issue appears to be:
One group of lawyers (including the three who commented on this article) do NOT believe that the “literal” (or as Michael Miller says, the “absurd”) approach is correct.
A second group of lawyers thinks that the “literal” approach MIGHT be correct. But, they aren’t really sure. Even though they are not sure, for reasons known only to them, they usher clients into turning their assets over to the IRS. Hmmmm, …
Given the existing commentary and lack of certainty (on the part of those who recognize the “literal approach”), what I can’t understand is:
1. How any adviser could possibly advise a client that the “literal” approach is correct (turn your assets over to the IRS). Yet, we know that a very large number of people are being advised to do just that. (Note that, since June 16, 2008 a CLN is most certainly required lose U.S. tax subjectness. But NOT before.)
2. How any client, given the existence of conflicting views, could possibly allow themselves to be guided into accepting that they should turn their assets over to the IRS. (Actually I know the answer. It’s because there is ONLY one certainty in life. If you turn over all your assets to the IRS, then you will never have tax problems again. But, you won’t have a life either and then you will have a different set of tax problems.)
This reality notwithstanding:
There is/are a large number of people who clearly relinquished U.S. citizenship many years before the current laws, who have allowed themselves to be guided into the “literal appraoch” – turning their assets over to the IRS.
Conclusion: The result that you get will be determined by your choice of adviser. Think about it!”
I think that some contributors above should remember from some previous postings that any pre1986 relinquishments did not require any proof of intent but were automatic as per 1952 INA 349a . We went tnrough this already with Ms Patricia Moon.
I wish Mr Reed woul pick another year like 1987 or 1907,so they can tax your dead ancestors.
@Patricia Moon
From my limited readings, retroactive law changes come with the option of accepting a change or not.Accepting would require a simple procedure such as pledging allegiance for reinstatement of lost citzenship. I am refering to naturalization laws only. Is that correct.
@Stephen Kish
I think you and the rest of the folks associated with ADSC-ADCS have a lot of soul searching to do as to why you are continuing to support a presidential candidate as misogynist as Donald Trump.
I will admit that for a long while I was the Republican precinct committee officer (PCO) for my precinct in Washington state. I had hoped in that role to support Rand Paul was nominated. But I cut my ties when this asshole Trump was nominated. I suggest it is time for you to do the same. You need to find another path to victory that doesn’t involve allying with a Trump led Republican party.
I don’t believe I have ever supported either of the candidates. In particular, since I do not place much faith in election promises, I did not expect the Republican platform would be implemented, should they win the election.
While many people here have expressed support for Trump bc of the platform, that does not constitute ADCS doing so. As far as I am aware, we did not agree on one nor did we decide to support or promote anyone in terms of the election.
Dash,
I am one of *the folks associated with ADCS-ADSC* and have no soul-searching to do regarding Trump. We have NEVER as an organization made any endorsement for either of the two main US Presidential candidates. Any such would be determined only as an individual, not as ADCS-ADSC. Speaking for myself, I am so very grateful that I now have a CLN to say that I am no longer considered a USC and cannot vote in the upcoming election of a foreign country. Before my official renunciation (not the one I considered had happened in 1975 when I became a Canadian citizen and was *warned* that I would thereby lose my USC), voting in a one and only US election since being in Canada since 1969 was the single worst thing I ever did, bar none!
I haven’t commented here in a while but even beyond our ADCS lawsuit I am increasingly getting the feeling that the Justice Department of Canada is totally rotten to the core.
http://www.theglobeandmail.com/news/politics/liberals-will-not-grant-moratorium-on-citizenship-revocation/article32309581/
http://www.cbc.ca/news/politics/mccallum-moratorium-citizenship-hearing-1.3791708
“You, minister, have acknowledged that this process needs to be fixed, and yet your department officials continue to issue revocation notices to Canadians on these grounds,” said independent Liberal Sen. Art Eggleton.
He asked if McCallum would order his department to immediately cease applying the law until those facing revocation of their citizenship are entitled to a hearing and an appeal process.
“The short answer to that question is no,” McCallum initially responded.
He agreed that everyone should have a “proper right to appeal” and professed hope that the Senate would amend Bill C-6 to provide for that.
While I watch as little coverage of the US “election” as I can manage (its impossible to totally ignore because our Canadian media seems to be enthralled by the circus) every bit I do accidentally watch just makes me think they’re filming a sequel to Dumb and Dumber. Only one thing is for certain; whatever the outcome, neither candidate will lift a finger to improve the situation for expats.
If you want to live a life outside of the US, shedding US citizenship ASAP is the only sure way to end the agony.
Interesting. Apparently “Republicans Overseas” has no actual affiliation with the Republican Party and exists solely to challenge FATCA. For reasons unrelated to Trump, and predating Trump’s candidacy, I feel a bit deceived.
But the main question is: if Republicans Overseas is basically an anti FATCA organization, why continue to use the name of a political party that has nominated someone like Trump? The anti FATCA fight is a noble fight. But there is nothing noble about the Republicans under Trump. Why continue to use the Republican name?
@Dash – as I understand it (courtesy of google, wikipedia, etc), Republicans Overseas is a Republican organization, set up by members of the RNC, but without formal ties to the Republican Party in order to qualify as a super PAC type organization. They haven’t just latched onto the Republican name.
I don’t know if Republicans Overseas would have a collective view on Trump. Jan Halper-Hayes, former RO chair, previously called him “psychologically unbalanced” (http://www.bbc.co.uk/news/world-us-canada-36963984), but stated today on the BBC that she will nevertheless be voting for him (http://www.bbc.co.uk/programmes/b07x18wc, about 1 minute in).
Despite the gloomy times, I hope everyone celebrating our Canadian Thanksgiving enjoy today or enjoyed sometime this past weekend the chance to get together with family and/or friends to share a table laden with some awesome good food. Giggle and gobble. Have some fun! My best wishes to you all.
I think ADSC-ADCS needs to take a stronger, more unequivocal, stand against Trump than Jan Halper-Hayes is apparently willing to do. If you have to ally with that guy you do not deserve to win.
And also–if the sole purpose is to oppose FATCA–I’m sure there are many Democrats Overseas who feel the same way. Why align yourselves with a man who has expressed such evil views?
You need to distance yourselves far, far more strongly.
“if the sole purpose is to oppose FATCA”
and oppose CBT and oppose disproportionately onerous form filing
then our informal discussions should not be imposed on ADCS-ADSC.
Sure Trump is as bad as Clinton’s husband, and Trump’s crimes are as bad as Clinton herself. Unless a third party wins, the next oval office should be built in a jail cell. But that’s not ADCS’s job.
Pence just struck out swinging.
@Dash: Who from ADCS has expressed support for Trump? I don’t recall anyone from ADCS publically backing, promoting, or campaigning for Trump. In fact, aside from John Richardson, I don’t believe any of the ADCS board or officers are even eligible to vote in the upcoming US election (they aren’t US citizens). My personal feelings aside (I think Trump is insane– in a severe Axis II DSM V sort of way), as a supporter of ADCS, I do not see a need for the ADCS board to denounce Trump. Am I missing something?
@BC Doc
Because Stephen Kish is a plaintiff in a Republicans Overseas led lawsuit and within the last hour Republicans Overseas has posted a message on its FB page supporting Trump. Unless you distance yourself from this guy Trump you will not win this battle.
Again–the primary support for the anti FATCA fight is outside the US. Trump (regrettably) does enjoy some (thankfully dwindling) support in the US. He has virtually none outside the US. If you cannot vote in the US and oppose FATCA you need to distance yourself from organizations like Republicans Overseas that continue–even, literally, at this hour–to support Trump. If you can’t see your way clear to FORCEFULLY cutting ties with this guy you do not deserve to win.
@Robert Ross
You write:
This is not true. Expatriating acts prior to 1986 did NOT automatically result in loss of citizenship. Since the 1967 Supreme Court decision in Afroym v. Rusk, relinquishment of U.S. citizenship has required an “intent to relinquish”. What happened was that Congress never bothered to amend the law – incorporating the requirement of intent – until 1986.
But, I don’t think this means that the 1986 change in the law is irrelevant. I think the fact that the statute did NOT require “intent to relinquish” will make it easier for those who performed an expatriating act prior to 1986 to take the position that they assumed the expatriating act would result in loss of citizenship. If someone believes that the expatriating act would result in loss of citizenship, this would make it easier to prove the “intention” to relinquish based on the expatriating act performed.
@Dash1729
I must confess I don’t understand your reasoning at all. As far as I can see there is no “institutional support” for any political candidate or even any political party.
There is however support for and against the positions of both the Democratic and Republican parties. This is not the same as support for any candidate.
To put it simply:
The Democratic Party supports laws and policies that have destroyed Americans abroad and is forcing them to renounce their U.S. citizenship. These laws and policies include, but are not limited to: FATCA, CBT, OVDP, The FBAR Fundraiser, and The Exit Tax. The Democratic Party “by its very nature” – through it’s “change you can believe in policy” – is hostile to Americans abroad.
The Republican Party supports the repeal of FATCA and the abolition of citizenship-based taxation.
Therefore, no rational American abroad would vote for the representative of the Democratic Party (no idea who that is).
Therefore, every rational American abroad would vote for the representative of the Republican Party (no idea who that is).
Returning to the purpose of this post:
The question asked by Stephen Kish is how should Caroline be advised. Mr. Reed proposes two interpretations of S. 877A which he calls the “literal approach” and the “common sense” approach. One problem of reading articles written by the tax compliance community is, that by focusing on the theoretical, they minimize the “real life” consequences to the people they advise. So, what are the “real life consequences?” The “literal approach” results in the destruction of your life. The common sense approach means that you still have a life. (Which do you think is the better approach?)
Here is why.
Rather than frame the issue as “the literal approach” vs. the “common sense approach”, the issue should be framed as:
Approach 1 – Your Life Is Over: Under this “literal” interpretation of S. 877A, you poor dumb former American will have to turn your life savings over to the IRS (and pay the adviser to help you do this) because you did not go out and obtain a CLN. It doesn’t matter that a CLN was not required by law. It doesn’t matter that you didn’t know what one was. It doesn’t matter that the U.S. Government was threatening you with the loss of your U.S.citizenship if you became Canadian. It doesn’t matter that in some cases the U.S. was denying entry to the USA to those who had become Canadians. What matters is ONLY that this is what the statute says NOW!!!!!!! So, you better step right up and turn your life savings over to the IRS.
Approach 2 – It’s Your LIfe! Why don’t you keep it!: Let some “common sense” prevail. You were one of the smart ones. Because you relinquished U.S. citizenship – according to the clear laws of the USA in the 1970s – you are not affected by this new law. The only people affected by this new law are the “dumb bunnies” who decided it was a good idea to be a U.S. citizen AND were U.S. citizens when this law took effect on June 16, 2008. I don’t think you should draw attention to yourself. You might want to document the circumstances that led to your becoming a Canadian citizen in 1978. When documenting those circumstances, you probably should make it clear that you were intending to relinquish U.S. citizenship. But, either way you have to sleep. So, you might as well – Sleep well!. There is no good reason to turn your assets over to the IRS and pay your adviser to help you do it.
A fair reading of the legal commentary on this issue appears to be:
One group of lawyers (including the three who commented on this article) do NOT believe that the “literal” (or as Michael Miller says, the “absurd”) approach is correct.
A second group of lawyers thinks that the “literal” approach MIGHT be correct. But, they aren’t really sure. Even though they are not sure, for reasons known only to them, they usher clients into turning their assets over to the IRS. Hmmmm, …
Given the existing commentary and lack of certainty (on the part of those who recognize the “literal approach”), what I can’t understand is:
1. How any adviser could possibly advise a client that the “literal” approach is correct (turn your assets over to the IRS). Yet, we know that a very large number of people are being advised to do just that. (Note that, since June 16, 2008 a CLN is most certainly required lose U.S. tax subjectness. But NOT before.)
2. How any client, given the existence of conflicting views, could possibly allow themselves to be guided into accepting that they should turn their assets over to the IRS. (Actually I know the answer. It’s because there is ONLY one certainty in life. If you turn over all your assets to the IRS, then you will never have tax problems again. But, you won’t have a life either and then you will have a different set of tax problems.)
This reality notwithstanding:
There is/are a large number of people who clearly relinquished U.S. citizenship many years before the current laws, who have allowed themselves to be guided into the “literal appraoch” – turning their assets over to the IRS.
Conclusion: The result that you get will be determined by your choice of adviser. Think about it!
”
The Republican Party supports the repeal of FATCA and the abolition of citizenship-based taxation.
Therefore, no rational American abroad would vote for the representative of the Democratic Party (no idea who that is).
Therefore, every rational American abroad would vote for the representative of the Republican Party (no idea who that is).”
If I still had a vote and chose to use it, I would definitely be voting Democratic. FATCA is not the only issue being contested in the U.S. election, and personal self-interest is not the only factor in a rational choice.
The Republican Party is tearing itself apart. God only knows what power it will have to do anything about anything once this dire election is finally over. I doubt if FATCA is going to be top of the worry list for the ones who survive.
@Iota
It would be interesting to see how you voted if you were IN FACT still an American. You are no longer subject to these laws and therefore have the luxury of a degree of objectivity that others may not have. For those who are currently burdened with the problems of CBT, FATCA, etc. what you call “self interest” is actually a “matter of survival”. As a general principle you are correct that “self interest is not the only factor in a rational choice”. But, if the “self interest” is one’s very survival …
The Democrats have made it very very clear that they are in full support of the present policies.
@USCitizenAbroad – more than likely I wouldn’t vote at all, as my state of registration was New York, which is not a swing state, hence my vote wouldn’t affect the outcome.
In any case, I wouldn’t ever be tempted to vote Republican. FATCA/CBT wouldn’t come into it, for me. I don’t believe for a minute that the Republicans would (or could) repeal FATCA. They stuck in that bit about “calling for” the repeal of FATCA and “calling for” a switch to CBT (in my admittedly cynical view) because it commits them to nothing and might pick up a few votes.
As I see it, the most likely road to change in respect of FATCA/CBT is the long awaited reform to international taxation. If there’s a shift to territorial basis for corporation tax, that might bring a rethink about FATCA/CBT also. Who knows….
“2. How any client, given the existence of conflicting views, could possibly allow themselves to be guided into accepting that they should turn their assets over to the IRS.”
Because they get letters from their banks, experts tell them to bend over and “volunteer”, and the International Revenue gladly Services them.
“(Actually I know the answer. It’s because there is ONLY one certainty in life. If you turn over all your assets to the IRS, then you will never have tax problems again.”
Liar. And you know that this is a lie; here’s why:
“But, you won’t have a life either and then you will have a different set of tax problems.)”
Yup.
I overpaid the settlement that the IRS wrote for my illegal honesty on US tax forms, the IRS reneged on the settlement, the IRS and courts still rob me of the withholding that was probably embezzled by Monica Hernandez, and the IRS even continues to harrass my wife who never was a US person. If you turn over your assets to the IRS, they’ll come back for more and more and more.