Liberty and justice for all United States persons abroad

The Isaac Brock Society

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J-bnn
Reposted from the citizenshipsolutions blog
“Guest post by
John Richardson – “Citizenship Solutions”

FATCA Hearings in Washington, DC – April 26, 2017
 
 
 
 

Beginnings – It all began in July 2016

The purpose of this post is NOT to describe the hearing in detail (that has already been well done), but rather to provide my overall (and perhaps broader) impressions based on actually having attended the hearing.

The April 26, 2017 FATCA hearing in Washington was long in the making.
Its genesis was rooted in a meeting that took place in July of 2016 at the Republican National Convention. The planning and preparation involved the efforts and consistent cooperation (weekly meetings since August) of a number of people in different countries and on different continents. It was a privilege to have been part of this group. A list of the people who worked on making the hearing happen – the “FATCA prep team” – is described here. Those efforts culminated in what some witnessed “in real time” on April 26, and what thousands more will see (thanks to Youtube) in days to come.

The hearing has already been documented IN DETAIL and discussed in various places IN DETAIL, with the best commentary coming from posts at the Isaac Brock Society here and here and various Facebook groups here, here, here and here. (An example of ridiculous commentary is here.) When I say “commentary” I mean NOT ONLY the posts, but the rich and insightful comments. Seriously, this collection of “digital experiences” really is “History In The Making!”

Thinking about FATCA, What is it anyway?

I have written numerous posts about FATCA – “The Little Red FATCA Book” which you will find here. An explanation of how the Meadows “Repeal FATCA” bill would actually work is here.
Basically, FATCA is the collective effect of a number of amendments (including the creation of a new Chapter 4 of Subtitle A of the Internal Revenue Code – which has made largely irrelevant by the FATCA IGAs) which are designed to identify, attack and impose sanctions on:

A. FATCA: Non-U.S. banks and other financial institutions

Forcing them to “hunt down” the financial accounts and entities (examples include mutual funds, corporations, trusts and some insurance policies) owned by “U.S. persons”. The goal is to “turn them over” to the IRS.

This imposes enormous compliance costs on non-U.S. banks. The obvious effect is that they will not want U.S. person customers. Would you? Interestingly the focus of the witnesses
(Mr. Crawford and Mr. Kuettel) was primarily on the denial of basic access to financial and banking services.

Although important, this is only one half of the equation. What happens when “U.S. persons” learn (the vast majority had no idea) that they are subject to U.S. taxation?

B. FATCA: “U.S. Persons” with non-U.S. financial assets and bank accounts

It is not possible for “U.S. citizens” to BOTH: be U.S. tax compliant and live a productive life outside the United States, when they are also subject to the tax laws of other nations. (Digital nomads are the exception.) The reason is that U.S. citizens living outside the United States are living under a system where:

  1. They are presumed to live in the United States (which they
    don’t); and
  2. Their assets (which are local to them) are presumed to be
    “foreign” to the United States.

If you don’t understand (or don’t believe) why this is true, you will find an explanation here.

Just remember:

“When In Rome, Live As A Homelander” and do NOT “Commit Personal Finance Abroad!” (It’s UnAmerican)

Although a major effect of FATCA is to subject Americans abroad to a very special set of tax rules (think PFIC, foreign pension, CFC, and a crushing burden of forms that impact ONLY Americans abroad), there was NO witness that even alluded to this as one of the effects of FATCA. (FATCA is the enforcer of the uniquely American policy of “taxation-based citizenship”). There was also no witness that described how a “FATCA letter” can lead to absolute financial ruin for honest taxpayers, who have made a life outside the friendly borders of the United States of America. There was no witness who explained the confiscatory effects of entering one of the IRS “Amnesty – Ministry of Love” programs.

This had the effect of making it seem as though FATCA (in terms of the effect on Americans abroad) was just a simple “disclosure- Form 8938 issue. Nothing could be further from the truth.

If it were not for “taxation-based citizenship”, FATCA would be no more or less a problem for Americans abroad than it would be for Homelanders (which doesn’t mean it is not a problem). Unfortunately, the hearing did not provide evidence on this point.

(This is NOT a criticism. But, just imagine if there had been witnesses who had been
identified as a “U.S. Person” because of FATCA, did NOT know about “taxation-based citizenship” and then were forced into the “Offshore Voluntary Disclosure Program“. Now that would have been a story …!)

It is “taxation-based citizenship” that makes the effects of FATCA so hard on Americans abroad! In 2011, I remember thinking:

The United States can have either FATCA or it can have “taxation-based citizenship” but it CANNOT have both!

My perception of the hearing itself …

It was clear that some members of the panel had NO idea what the purpose of FATCA was. There were suggestions that FATCA was enacted to combat terrorism, drug dealing, organized crime, human trafficking and who knows what else. The truth is that FATCA was a “revenue offset”
provision to the HIRE Act and few Congressmen even knew that FATCA was part of the legislation. This has resulted in a discussion of FATCA
that:

  • fails to ask “what was the intent of FATCA”; and
  • often asks “what can we use FATCA for and the information received from FATCA for”?

(With regard to the “intent” and “purposes” of FATCA much can be gleaned from the
definitions in the FATCA IGAs.)

It’s as though FATCA is a law that is in search of a purpose!

I encourage everybody to invest the two hours in watching the live video. While watching the video try to imagine that you had no preconceived notions about FATCA. Try to imagine that you were learning about FATCA for the first time (which I believe was the case for various committee members). In fact, my impression is that ONLY Mark Meadows had educated himself about the basics of FATCA and its effects on Americans abroad.

Had it not been for Mark Meadows, the hearing would have been:

“Two ships (pro and anti-FATCA) passing in the night.”

The “opening statement” …

As you know, the hearing opened with a compelling video of Donna Lane Nelson (author of the first FATCA novel) and reluctant renunciant of U.S. citizenship) explaining (among other things) how FATCA forced her to end her requirement to pay taxes to the United States.

Rick Adams, (spouse of Donna Lane Nelson) who attended the hearing and participated in the “door knocks” (the day before) shares his impressions of “being there” in two blog posts referenced in the following tweets:

 

 

Ship Number 1: FATCA Opposition – Mr. Bopp and crew mates (Crawford and Kuettel)

 
Jim Bopp (lawyer in Crawford v. U.S.
Treasury) did a solid job of outlining how FATCA is a draconian law, that presumes that every person with a “non-U.S. bank account”, is presumed to be a criminal. He explained why this was unconstitutional, etc. He outlined the general theory and principles leaving Mark Crawford and Daniel Kuettel to explain the details of how FATCA has specifically impacted their lives.

All three witnesses (Mr. Bopp, Kuettel and Crawford) did an outstanding job. That said their testimony was limited to the access to “banking and financial services” aspect of FATCA. There was no evidence provided on the aspects of FATCA that are aimed directly at Americans abroad (mutual fund disclosure rules, form 8938, etc.)

Further commentary from the crew of Ship 1: Press Conference – Post FATCA Hearing

Ship Number 2: FATCA Support – Wayne State Law Professor and Carl Levin Protégée Elise Bean

Reactions to Professor Bean have been widely discussed. I see no need to comment further on her testimony.

Here is a video that does a good job of breaking down many of her comments:

It was discouraging that Ms. Bean could not see FATCA from anything but a “Homelander Perspective”, with seemingly no awareness of the broader implications of FATCA.

The Moderator: Representative Mark Meadows – Getting The “Two
Ships”: To Stop And Communicate

All of the witnesses played their roles well (including Ms. Bean who was given the thankless job of defending the indefensible). But, Mr. Meadow’s performance eclipsed the performance of all others. He guided the hearing well. He forced each “Ship” to address the concern of the other. The hearing ended with his request that:

Each witness provide three suggestions to improve the FATCA situation.

This is incredible!

Anybody who understands anything about FATCA understands that the effects of FATCA are so devastating to Americans abroad because of “taxation-based citizenship”. If there were no “taxation-based citizenship” then the specific problems experienced by Americans abroad would (for the most part) cease to exist.

Therefore, ALL witnesses (and perhaps others) should use his invitation to argue for:

“The end of taxation-based citizenship”.

(We have a Congressman who wants to hear and is listening to the story!)

Whether this is done through a move to pure residence based taxation, territorial taxation or some combination the point is that:

The abolition of “taxation-based citizenship” would be a solution to all the problems that the FATCA hearing was convened to address. (The abolition of “taxation-based citizenship” would NOT be an admission that FATCA was constitutional. But, if the definition of “U.S. Person” did NOT include “Americans abroad”, that would address many of the specific problems that the FATCA hearing was convened to explore.

The abolition of “taxation-based citizenship” could (in general) be accomplished in either (or both of two ways):

  1. Congressional Fix: Amend the Internal
    Revenue Code so that “U.S. citizenship” was NOT a sufficient
    condition for taxation (presumably
    making residence the
    condition for taxation    ); or
  2. Treasury Fix: Amend the Treasury
    regulations     under Internal Revenue Code S. 1 so that
    “Americans abroad” were NOT defined as “individuals” for the
    purposes of taxation.

(Note that “1” and “2” above are not intended to be precise or exhaustive. My point is that this can be achieved through either Treasury regulations or through amendments to the Internal Revenue Code.)

It is after all “Tax Reform Season1” What Mr. Meadows has done has been to say:

Q. How can we fix this?

A. We end “taxation-based citizenship” – the “U.S. taxation” of Americans abroad!

All individuals and groups representing Americans abroad should work together on this!

Speaking of groups representing Americans abroad. Who did make it into the video? Those attending the hearing included (but are not limited to)…

In addition to the complete FATCA hearing Prep team (see here, here, and here), it was interesting to see that the following were curious enough to appear on April 26, 2017, in that particular room at the appointed time:

Democrats Abroad – Although much maligned, it was interesting to see that

– Katie Solon – International Chair of Democrats Abroad – attended the hearing;

–Joe Smallhoover A man with a long history of involvement with Democrats Abroad (and current Chair of Democrats Abroad France) was in attendance

(I find this interesting given DA’s long support of FATCA.)

AARO – Lucy Stensland Laederich and Paul Atkinson and Tim Ramier of AARO’s board were in attendance.

ACA – Charles Bruce – legal counsel for ACA (and likely principal architect of the ACA RBT proposal) was in attendance.

FAWCO – I believe but am not certain that a representative attended.

James Jatras of Repeal FATCA fame.

Although the FATCA hearing was an achievement of Republicans Overseas and the FATCA Prep team, it clearly attracted wide interest from the various groups that focus on “Americans Abroad issues”.

(Regrettably, there was NOBODY there to represent the interests of “accidental Americans” and “long term resident/dual citizens of other nations and those who never dreamed they were considered to be U.S. citizens, but have lived with the frightening experience of learning they may be considered to be U.S. citizens. But, why should anybody have represented them? They are subject to U.S. laws but have no access to the U.S. political process. To put it another way:

Those who are the most affected had the least representation!)

Although, there has been tension among these various groups, it’s time to “come together” with a unified voice and message that:

In this season of tax reform, it’s time for the USA to join the world and adopt taxation policies that allow its citizens to leave the United States and live productive meaningful lives.

(All of the research has been done and hundreds (if not thousands) of people have explained their story See here and here for examples.)

Believe me:

  • the United States of America will benefit from these policies
  • Americans abroad will benefit
  • the IRS will benefit (I have always thought the IRS is probably the biggest victim of these
    insane U.S. tax policies

and

people will no longer be forced to renounce U.S. citizenship!

And what of the FATCANatics? Would they support residence-based taxation?

In my view, it is entirely reasonable and possible to both SUPPORT FATCA and oppose “taxation-based citizenship”. At the hearings, Professor Bean was clearly supportive of FATCA (even wanting to extend it to Homelanders), but she did NOT (in the hearing proper) reveal her views on “taxation-based citizenship”.

Interestingly, Rick Adams (in his description of the hearing) reported that:

Ms. Bean was standing with the ACA rep, and surprisingly, when I said the real problem was citizen-based taxation (CBT) … or as I prefer, taxation-based citizenship … and that we need to abandon CBT and adopt RBT — Residency-Based Taxation — which is the way every other civilized country in the world administers taxes, SHE AGREED!
That’s right, Ms Bean, oppressor of expats, said she is for RBT instead of CBT. Now, she may recant later, or say I misheard her, but then again maybe she did absorb some of the pain she and her compadres have inflicted on innocents.

Concluding thoughts …

The purpose of the hearing was to explore the unintended consequences of FATCA. I believe that the hearing did a good job of achieving this goal.
But, the best thing to come from the hearing is the opportunity to:

Make the case to Congress that the time has come to end the destructive practice of U.S. taxation-based citizenship.

It’s time for ALL groups and individuals (including Ms. Bean) to work together to achieve this goal!

The hearing illuminated why:

The United States can have either FATCA or it can have “taxation-based citizenship” but it CANNOT have both!

I conclude my observations from sitting in the hearing room!

In the event that “taxation-based citizenship” is not resolved, well:

John Richardson

176 thoughts on “Impressions of the @RepMarkMeadows April 26/17 #FATCA Hearing in Washington, DC – Opportunity to make case to end “taxation-based citizenship””

  1. @MuzzledNoMore

    One of the details of your letter finally struck home: FATCA would indeed be so much more efficient if it only targeted residents.

    One of the imbecilities of FATCA is that it sends millions upon millions of records to the IRS who are totally unable to use them except when they target specific people. People like Bean do like that because when they have a suspicion, they can search the database and, eventually, find some interesting information. It’s very easy but it is such a waste for a database that cost at the absolute minimum 100 Billion dollars of other people’s money to build.

    If limited to Residents, they could automatically enquire why those residents needed the accounts abroad and whether they thought of including their income in their returns.

  2. @iota

    Yes, we should be grateful for small mercies. Anything that advertises our plight to the White House is good.

    Well let’s hope they include “simplified renunciation” in the package in case they misunderstand us again.

  3. @ABN As long as punitive penalties exist for a class of US Person then there are issues. Also pointed out a resident one year may not be a resident the next so ongoing checking would be required.

    Because of the unreasonable penalties FATCA needs to be repealed. That may not be enough in some countries with the damage already done.

  4. Proposals

    * Shift to territorial/residence based taxation for individuals.

    * Repeal FATCA.

    * Limit FBAR requirement only to U.S. residents.

    * Outlaw barring of financial services to U.S. persons based on an overseas address by U.S. based financial institutions.

    * Allow Americans who had renounced U.S. citizenship because of FATCA opportunity to regain citizenship at $0 cost.

    * Provide all U.S. designated U.S. persons resident overseas, including those considered “accidental”, opportunity to renounce U.S. citizenship/terminate a Green Card at $0 fee and $0 tax requirement, and with no requirement to obtain a social security number if they do not have one.

    * Respect sovereignty of other nations with following tax treaty changes: state that U.S. persons tax resident in another nation shall not also be considered a tax resident in the U.S. except in transitional circumstances; exempt foreign pensions from U.S. tax. Additionally, if one moves from a country to the U.S. then their holdings in their country of origin should not be taxed punitively.

  5. It is a testimony to US hegemony (= that of the almighty dollar) that apparently only the US can be counted on to right its wrongs. Neither Canada nor Trinidad and Tobago nor of course the UE, or any country really, could be counted upon to do anything but lay down, submit meekly and say thank you for the IGA, yes I’ll forward my people’s account info promptly. And in the US, with all its sophistication, it will take the Freedom Caucus and President Trump to solve the problem. Let’s hope they do. Probably best to get some bipartisanship (if at all possible, but not through too much compromise) if we don’t want the next regime to reinstate this mess with a vengeance.

  6. Barbara and EmBee: Thank you for your kind words. I wish I could send a hard copy with my real signature to Congressman Meadows but I can’t. I am under certain “privacy constraints” at home and one of them is any direct contact on this subject with anyone in the United States, especially a member of the government. However, I would be delighted if anyone else wished to use my letter as their own and send it on my behalf and theirs. Use it as a template; make whatever changes you want; whatever. I just hope it’s message gets through. I hope a LOT of messages can make it to those who need to hear them before May 4!

    I also heartily endorse JC’s list!

    My moniker is a bit of a misnomer. It should be “Still Somewhat Muzzled”. At least I can participate with all of you! 🙂

  7. @MNM

    Thank you for the letter. I’d like to point out that Mr Meadows said that FATCA is also an infringement on resident American’s privacy rights during the hearing.

    @FredB

    My former MP here in Canada went so far as to write that he was “thrilled” with the FATCA IGA, later blaming a staffer for the poor choice of words.

  8. Ms. Bean seems to think that because she has lived her life “under that regime” meaning some idea of similarity to FATCA,(whatever that is supposed to mean) so should the rest of us………

  9. @ MuzzledNoMore… Very good point, never thought of it myself…why are US citizens abroad targeted? If this is truly about tax evasion, then they only need the names of US citizens residing stateside. It would much more cost effective as they would use less resources. BUT it’s not about tax evasion at all. It’s totally about a revenue offset provision to the Hire Act as pointed out by Patricia in this article. I HAVE SAID ALL ALONG THAT IT WAS A RUN ON OTHER NATIONS TREASURY. It’s very scary that the people who run government and SHOULD be knowledgeable about every bill passed didn’t:
    A. take the time to read the bill and ask questions OR
    B. are just plain lying about the purpose of the bill and attempting to cover up OR
    C. decided not stick up for the little guy even though they understood the bill and voted along party lines.

  10. I’ll add to point 1: RBT as practiced by all other nations of the OECD.

    Point 6: need to add in regards to those with mental incapacity : @Calgary411

  11. @MuzzledNoMore: Today I will send your letter to Rep. Meadows under my name, with a few trivial amendments. He’ll get a pretty “foreign” (local to me) postage stamp as part of the deal. I do want him to know that people around the world were tuned in to him and support him.

  12. ‘I am under certain “privacy constraints” at home and one of them is any direct contact on this subject with anyone in the United States, especially a member of the government.’

    Notice to all persons located in the United States:

    You shall not read anything posted by Still Somewhat Muzzled.

    If you wish to read something posted by Sill Somewhat Muzzled, you shall visit Canada or Mexico or international waters or Hong Kong or Cuba or outer space or any place outside the United States, and then you may read to your heart’s content.

    If you wonder why, well you have to keep wondering, because you’re not allowed to read Muzzled’s sentence that I quoted at the beginning of this comment.

    Happy Muzzled’s Day.

  14. FATCA unveiled an underlying situation that had been puttering along for a while. Many people where applying RBT naturally (I was)

    Note that CBT can make sense when very specifically and narrowly applied: French citizens cannot escape income tax when they move to Monaco for instance. It certainly makes no sense generally.

    FATCA just revealed CBT. When you force application of an un-applicable rule the system crashes.

    I wouldn’t read too much malevolence into it. Just plain ole American exceptionalism gone amok.

  15. @Fred(B):

    “FATCA just revealed CBT. When you force application of an un-applicable rule the system crashes.”

    Well put.

    “I wouldn’t read too much malevolence into it. Just plain ole American exceptionalism gone amok.”

    Or no more than the standard level of malevolence/hostility shown every day by Americans towards their fellow citizens.

  16. @Ann #1:

    “… it’s not about tax evasion at all. It’s totally about a revenue offset provision to the Hire Act as pointed out by Patricia in this article.”

    FATCA didn’t start out as a revenue offset provision. It was incorporated into the H.I.R.E. Act in order to get it through Congress. See https://www.govtrack.us/congress/bills/111/hr2847

    FATCA was dreamed up as a way to catch US-resident Americans who were not reporting and paying tax on money deposited in non-US accounts. They probably never even thought about how it would affect ordinary US citizens living outside the US.

  17. @Iota: “They probably never even thought about how it would affect ordinary US citizens living outside the US.”

    And when they realized that it had ensnared millions of fellow citizens there was a prompt bipartisan effort to address the root of the problem and a simple version of RBT was swiftly passed into law by president Obama, who proclaimed “when my mother moved to Indonesia we didn’t have to worry about opening bank accounts and reporting them to the Financial Crimes Enforcement Network. There is no reason we should continue to harm the millions of patriotic Americans abroad who act as our informal ambassadors every day. This infamy stops now.” Or not.

  18. @Fred – putting the sarcasm aside for a minute – isn’t it more likely that that light-bulb moment never came, and for most, still hasn’t?

  20. @Bubblebustin – yes, it seemed to me that for some the lightbulbs began to light up when the FATCA repeal was included in the Republican platform.

    They’re not going to turn around and admit publicly that they didn’t think it through. Politicians don’t often do that, especially in America where acknowledging facts is regarded by much of the population as a sign of weakness. But there does seem to have been a shift of tone in the articles defending FATCA, since the hearing. More defensive, more evasive. Unless I’m imagining it.

  21. @iota

    Unless I’m also imagining it, the FATCAnatic’s articles are taking on a more desperate tone. But then I may be just assuming that knowing that the attack against FATCA has taken on some legitimacy with lawmakers.

    We see them for their true colours when the only thing keeping some expat support groups from supporting FATCA repeal is nothing more than partisanship.

  22. “I have wondered at times what the Ten Commandments would have looked like if Moses had run them through the U.S. Congress.” (Ronald Regan

  25. Oops! It’s not “IRS Facebook”, but “it’s Facebook”. Figures mine autocorrects to IRS 🙁

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