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!”
@ USCitizenAbroad
Norman may nitpick but your analysis of Caroline’s dilemma Is really, really good. Caroline will not get any advice from me because I’ve made too many mistakes to be credible.
Despite my rhetoric in using the word “liar”, I also agree with the basic opinions of … hmm, by the way, why hasn’t s/he renounced yet … USCitizenAbroad. No matter what Caroline does, the US might continue to abuse her, so there’s no reason for Caroline to help them make it worse.
@USCitizenAbroad
Get real. CBT was introduced by a Republican president (Lincoln). If the Republicans were serious about getting rid of it they have had multiple opportunities to do so over 151 years when Republicans have controlled the White House and both houses of Congress. Most recently when Bush 2 was president during the 2003-2007 phase. Republican promises to get rid of it now are just posturing for the overseas vote.
I will say it again: Rand Paul strikes me as a man of principle and he might have actually acted on the platform of the GOP. But if you are counting on Trump to honor the platform of a party he is clearly at war with–I think you are sadly mistaken and aligning yourself with a very dangerous man who does not have your best interests at heart. Remember, he misrepresented Canada during the last debate.
“Remember, he misrepresented Canada during the last debate.”
I thought the House of Commons had a monopoly on misrepresenting Canada. How are they taking this competition?
And more to the point: there is ZERO chance that if Sir Isaac Brock were alive today that he would be a Trump supporter.
@Norman Diamond
Clearly the Canadian House of Commons is the leader when it comes to misrepresenting Canada. Trump merely dabbles in the art.
@Norman Diamond
Thanks for your series of comments – much appreciated.
Tell you what.
If you can manage to organize their thoughts into ONE coherent post so that I can understand what you are saying, including the part about “liar”: I would be happy to respond.
Dash1729
Still having trouble understanding your point. Is it that you want people to take out banners saying:
“I or We don’t support Donald Trump!”
Why would individuals or groups that do NOT support individual candidates do this?
The problem with not voting for Donald Trump is you aren’t voting for the GOP platform, and as it relates to Americans abroad.
Thing is, Donald seems intent on “unshackling” himself from the GOP. I’d hate to think that I’d held my nose and voted for him, just to have him do nothing for us in the end. The prospect sickens me actually.
Is the Donald too much of a loose cannon to support the Republican platform?
http://www.theblaze.com/stories/2016/10/11/shackles-off-trump-suggests-hes-about-to-go-off-script/?utm_source=Sailthru&utm_medium=email&utm_campaign=Firewire%20Morning%20Edition%20Recurring%20v2%202016-10-12&utm_term=Firewire_Morning_Test
‘If you can manage to organize their thoughts into ONE coherent post so that I can understand what you are saying, including the part about “liar”: I would be happy to respond.’
My use of the word “liar” was rhetorical in responding to this:
=(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.=
As you observed, and as we already knew, if you turn over all your assets to the IRS, there is absolutely no certainty that you will never have US tax problems again.
“I’d hate to think that I’d held my nose and voted for him, just to have him do nothing for us in the end.”
Which country’s politics are you talking about again?
@USCitizenAbroad
The problem is that they DO support Donald Trump. The US allies of IBS and ADSC-ADCS DO support Trump. For example Bruce Ash, Solomon Yue, and Rand Paul. All allies in whom I placed my faith in the past. All of whom have slithered into the sewer with Donald Trump in recent months. The only silver lining is that to the best of my knowledge Bruce Ash is NO RELATION. The issue isn’t one of getting people who already hate Trump to proclaim it in public. The issue is that many of IBS’ strongest allies DO support Trump. They love the guy. I’m having a hard time with that.
I should probably correct an earlier statement of mine. Rand Paul WAS (past tense) a man of principle. That was back when he was his father’s son. Sadly, however, today Rand is little more than Trump’s sewer bitch.
@USCitzen Abroad
“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.”
You raise an intriguing point. Does a Supreme Court decision automatically change the existing law .It took 18 years to finally have the intent added to the law officially. And why so long! You stand by the Supreme Court. I stand by the law of the day. Who is right ?
Very valid point of contention. Better than the Trump-Clinton mudfest which really is a meaningless point of discussion on this site as neither have any interest in expats or their problems.
Thanks for indulging me,
@Robert Ross
The 1980 U.S. Supreme Court decision in Vance v. Terrazas confirmed the 1967 Afroyim decision, making it clear clear that the principle of the requirement of intent was retroactive.
See:
Terrazas
https://supreme.justia.com/cases/federal/us/444/252/case.html
Afroyim
https://scholar.google.co.th/scholar_case?case=2521246303796542623&hl=en&as_sdt=6&as_vis=1&oi=scholarr&sa=X&ved=0ahUKEwjJmZLIz9vPAhWEtpQKHcUCCUMQgAMIGSgAMAA
Basically the State Department was ignoring the principle in Afroyim and Congress never got around to changing the statue to make it accord with the constitutional principle enunciated by Justice Black for the majority in Afroyim.
Justice Black’s decision in Afroyim included:
I’ve no argument with you here except to say that A vs K had more to do about involuntary revocation of citzenship and that V vs D had to do about individual’s intent to loss versus the government’s assumption of the intent to loss which they applied through 1986 with some modifications using a uniforn letter of loss of nationality in some cases.
I preferred the governments take as it divested me of an unwanted citzenship.
However ,as you wrote , State chose to ignore the the SC interpretation . So, was State acting illegally through all those years and why didn’ t Congress amend the law before 1986..
From what I understand,The Courts merely interpret the law and don’t make or change the law ,and here is where the dark gray area begins.
Thanks for your info and input,
@USCitzenAbroad
I’m curious about repealed or amended laws appplied retroactively .How does that work?Does one have a choice of box A or Box B or no choice ?
These cases involve people who wished to retain their US citizenship; not ditch it. State didn’t really accept the Afroyim v Rusk decision until forced to do so by Vance v. Terrazas
Even after Terrazas, a person had to prove conclusively that they hadn’t intended to lose US citizenship AND that they hadn’t benefited from or acted upon their other citizenship. For example if someone born in the US, who subsequently became Canadian, used a Canadian passport or voted in Canada State would maintain that they had forfeited their US citizenship. That’s why DS 4079 is so convoluted and confusing. By the way Terrazas lost his case and his US citizenship. Rusk and Vance were secretaries of State.
State really didn’t change until 1986 when the law was changed by congress. It is truly ironic that State has reversed direction 180 deg. Before they tried to deprive people of citizenship. Now they won’t let go. Maybe they need the $3000. It would fund the dep’t for a pico second.
Not so.
After the 1986 change in the statute:
The evidentiary standard is found in S. 349(b) of the Immigration and Nationality Act:
making it clear that that in cases where the State Department was alleging loss of citizenship:
1. The burden of proof was/is on the government; and
2. The standard is NOT “conclusively” but based on a “preponderance of the evidence”.
Prior to 1986 based on the Terrazas decision where the court ruled that:
After the Terrazas decision it was much harder for the State Department to succeed in stripping people of their citizenship. State was frequently overruled by their own “Board of Appellate Review”. This is why (I suspect that the adopted an “administrative standard of proof” in 1990 t the effect that, in most cases, people committed expatriating acts with the intention of retaining U.S. citizenship.
Not so. We were there. In 1981 a US consul in Canada said to us (upon renewal of an American passport) “if you take advantage of your Canadian citizenship, you will have relinquished your US citizenship”
They didn’t really accept dual citizenship until 1986. To them the law wasn’t clear enough. They didn’t care about the preponderance of evidence. Unfortunately, when dual citizenship became toxic, their acceptance of dual citizenship was applied retroactively.
However this is ancient history and has little relevance today.
@DoD
You are describing what was happening in one consulate/embassy. That is the reason why there existed an appellate body called “The Board of Appellate Review” which basically restored citizenship to those who were wrongfully issued CLNs. Their citizenship was restored on the basis of the legal principles in my previous comment One can’t even say that the approach of any individual employee represented the views of the State Department, let alone was a correct application of the law of the land.
@DoD
@USCitzenAbroad
Just to add that the State’s assumption of citzenship loss didn’t originate just at a unique consulate.Just refer to the uniform letter of loss of citzenshiip which informed the recipient that he/she had become Canadian citzens and risked losing their US citzenship if they didn’ t communicate with the consulate within 60 days, and that letter didn’ t come from just one unique consulate.Also ,there was a incongruity left by the SC .On the one hand,you couldn’t strip away US citzenship and on the other hand,what to do about dual citzenship.I believe even accidentals could have lost their duality by violating some retention laws.
Sorry ,I erred , the SC has/had supported multiple citzenships in the past.
@DoD
@Robert Ross
You are focusing on the conduct of the State Department which is not and has never been the law.