Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Issues regarding US persons abroad 176 Comments

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. Me, too. Though I’m not a member of FB (I just lurk there). This is what I just saw: It says 12 comments. But I can only see 2 comments (each has one reply). Guess they’ll be pulling these soon too?

    (1) Elizabeth Bland ACA, why are you censoring comments on here?
    John Hanson Test

    (2) John Hanson Can anybody see this?
    Suzanne Iclef Herman I can, but you are my FB friend.

  2. @Pacifica777

    John thinks it might be a FB problem. Maybe Elizabeth’s gotten ACA’s attention with her comment 🙂

  3. @ iota… I will need to respectfully disagree with you about the revenue offset. It is a run on other nations treasuries. I think they knew/planned it from the very inception. Why else the insane fines for individuals who were minnows? I think they only came up with the Streamline Program when they knew that there would be lawsuits, people started pushing back and they started getting bad press from the likes of people like Robert Wood. Mr. Obama promised 18 months before he left office help for Accidental Americans, then we never heard it mentioned again.

  4. @Ann #! – Regarding the Streamlined Procedures – I may be mistaken but it’s my impression the IRS was caught on the hop when frightened non-criminals who had just had the shock of their lives and heard for the first time that they were expected to be paying US taxes, began entering OVDP in the hope of avoiding prosecution. Not only attracting criticism of the IRS but also making it harder to pick out and process the ones who the OVDP was aimed at.

    Hence the Streamlined Procedures, filtering off the newly-terrified (still potentially good for a penalty or three) into a different stream. I agree the bad publicity contributed to this.

    “Mr Obama promised 18 months before he left office help for Accidental Americans, then we never heard it mentioned again.”

    Could you point me to a quote of what he said?

  6. @iota

    We often hear from homelanders that “ignorance of taxes is no excuse”. The fact that Streamlined was created contradicts this. Although non-residents aren’t forgiven the tax and interest on the tax, ignorance does forgive the penalties associated with a failure to file and FBAR penalties.

    US residents not so lucky, at least as far as FBAR penalties go under Streamlined – something I’m sure homelands would also like to see applied to non-residents for our “ignorance”.

  7. Oh yes, thanks Pacifica, I remember now.

    To me, that sounds like a President who’s recently been warned that trying to enforce CBT, tax-citizenship, or the exit tax on an Accidental could risk defeat in court, if challenged. ICBW

  8. @Bubblebustin – “We often hear from homelanders that “ignorance of taxes is no excuse”. The fact that Streamlined was created contradicts this. Although non-residents aren’t forgiven the tax and interest on the tax, ignorance does forgive the penalties associated with a failure to file and FBAR penalties.”

    Indeed. Not sure it’s anything to do with forgiveness – more likely a calculation that there’s more to be squeezed out of “bringing them into compliance” and than applying penalties.

    “US residents not so lucky, at least as far as FBAR penalties go under Streamlined – something I’m sure homelands would also like to see applied to non-residents for our “ignorance”.”

    US residents don’t need to be coaxed into compliance as their money can just be confiscated.

    I don’t think most US-resident USCs have any opinion at all about CBT. Most probably don’t know it exists. I certainly didn’t, when I was a US-resident USC.

  9. @ iota … I believe that it was an article from Forbes maybe by Robert Wood that quoted him regarding the 2016 budget proposal. I read it with great interest because I personally know several Accidental. Although I have my CLN, I am still following threads as I have a sibling who isn’t dual, but also hasn’t lived in the US since the age of 7. My sibling would like to be compliant, but has a business. The sibling isn’t eligible for the streamline program.

  10. @Ann #! – I also have Accidental family members but fortunately not US-born, so they’re not touched by FATCA.

    I’d be interested to see the Forbes article if you come across it again.

  11. “We often hear from homelanders that “ignorance of taxes is no excuse”.”

    Well, we can toss back in their faces. “Secession from the British Crown…due to ignorance of the statutes that governed the 13 British Colonies. Where’s the taxes owed to Great Britain for the past 370+ years then?”

  12. Seen on Twitter: long-form post from a KPMG guy about the hearing and FATCA repeal. Of course since it’s KPMG he only cares about the impact on institutional clients.
    https://www.linkedin.com/pulse/fatca-age-tax-reform-russell-crawford

    So, what does all of this mean in the context of tax reform? US tax reform is intended to be pro-growth and to significantly simplify a very complex tax code. Repealing FATCA should reduce compliance costs but, as noted above, most of those costs are borne by non-US financial institutions. Those institutions may actually have a cost advantage relative to US financial institutions who will continue to have disclosure obligations (under other rules of the tax code). Repealing FATCA would definitely simplify things for non-US financial institutions. However, for others who have already climbed the FATCA learning curve, it is questionable whether a repeal of FATCA would make their lives any easier. Additionally, given that virtually every advanced nation will be implementing the CRS, will the US be able to escape some form of automatic exchange of information?

    For those who don’t want to log in to LinkedIn, here’s the archived version: https://archive.is/AWB0j

  13. Can someone please post for me the link to Congressperson Maloney’s bill:

    “OVERSEAS AMERICANS FINANCIAL ACCESS ACT”

    I am trying to access the long detailed text of the entire bill.

  17. Stephen Kish – As you now see, the bill is not “long and detailed”. It appears to leave implementation entirely up to IRS regulations (and we all know how well that works). How are banks to know whether a person qualifies as a bona fide resident under the provisions of what is, to them, a foreign law (quite possibly in a foreign language)? I can’t see why any bank would elect to apply this exemption (and the bill does make this entirely optional for the bank).

  18. Canada has a similar system, from what I hear. That is to say, Canadians residing outside of Canada have to prove their overseas residence to the Canadian tax office.

  19. “Canadians residing outside of Canada have to prove their overseas residence to the Canadian tax office.”

    But we don’t have to prove it to banks. Even Canadian banks, when they used to pay interest on accounts, correctly withheld 10% Canadian income tax (the treaty rate) when seeing my address in Japan.

  20. I just read the text of Carolyn Maloney’s bill. Truly, I have no idea what it says. Nothing was stated in plain English as to which “certain” individuals or accounts are “qualified” for exemption from reporting. I think it’s criminally nuts that legislation cannot be written so that ordinary folk, whose lives and livelihoods hang in its balance cannot understand what it says.

  21. @MuzzledNoMore

    Maloney’s proposal is short on detail because that’s where the devil lies. Someone at the recent FATCA impact hearing suggested that non-US residents with foreign bank accounts (or in our case residents with local accounts outside the US) could apply to the IRS for a certificate to show their bank which would allow the bank to apply the SCE exemption to the account holder. This would take the responsibility of determining residence off the FFI and on to the US, where it rightly belongs.

    One wonders how much that little detail would cost the IRS.

  22. Oh, I think the IRS would come up with a gotcha to defeat the purpose and provide another opportunity to fine would-be certificate-obtainers $10,000 or so. Don’t you?

  23. @iota, re;
    “Oh, I think the IRS would come up with a gotcha to defeat the purpose and provide another opportunity to fine would-be certificate-obtainers $10,000 or so. Don’t you?”

    For sure, because at root they will assume – as they have with FBAR and FATCA, etc. – without cause – that
    those ‘abroad’ with local (non-US) legal accounts are all moneylaunderingtaxevadinghumantraffickingterrorfundingdruglordcannibals. And the IRS always chooses to penalize and torment those attempting compliance in good faith by piling on layers of incomprehensible complexity – just in case. And never turns down an opportunity to create another layer of punishment as an opportunity for them to invent and levy penalties and create revenue that way even when no actual US tax was owed.

    As I’ve said before here, the IRS preferred approach is to subject ordinary people to their equivalents of a trial by ordeal
    https://en.wikipedia.org/wiki/Trial_by_ordeal , where even the innocent cannot escape entirely unscathed or sometimes, even emerge alive. Apparently, subjecting masses of minnows outside the US to torment and annual ordeals is supposed to somehow identify and land US homeland whales.

  24. @badger – indeed. A form is born. Complete witi PoP jurat. Explain in detail why you are applying for this certificate. Wilful applications carry a minimum penalty of $10,000 or 150% of your annual income, whichever is the larger.

    Send three copies marked “I am a tax cheat” in red across the top margin.

  25. @iota @badger

    If your scenarios weren’t so close to reality, I’d think you were being funny.

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