cross-posted from citizenshipsolutions
by John Richardson
Wisdom of “Three Monkeys” explain why: Although there is little support for “citizenship-based taxation” repeal is difficult
Supporter of CBT, is more like supporter and citizen of U S A !
Who does not know about CBT as applied to residents of other countries.
— JC Double Taxed (@JCDoubleTaxed) July 29, 2017
The uniquely American practice of “imposing direct taxation on the citizen/residents of other nations” (“citizenship-based taxation”) has NO identifiable group of supporters (with the exception of a few academics who have never experienced it and do not understand it).
The Uniquely American practice of imposing direct taxation on the citizen/residents of other nations has large numbers of opponents (every person and/or entity affected by it). In addition to the submissions of Jackie Bugnion, “American Citizens Abroad“,
“Democrats Abroad“, Bernard Schneider there is significant opposition found in the submissions of a large number of individuals. It is highly probable that the submissions come from those who are attempting compliance with the U.S. tax system.
The “imposition of direct taxation” on the “citizen/residents of other nations” evolved from “citizenship-based taxation”. “Citizenship-based taxation” was originally conceived as a “punishment” for those who attempted to leave the United States and avoid the Civil War. I repeat, it’s origins are rooted in PUNISHMENT and PENALTY and not as sound tax policy.
In 1924, the U.S. Supreme Court in Cook v. Tait upheld the U.S. practice of “citizenship-based taxation”. This means only that (assuming the validity of the decision almost 100 years later), the U.S. has the right to impose “punishment and penalty” (Justice McKenna actually said that “government by its very nature benefits its citizens”) in the form of “citizenship-based taxation”. This does NOT mean it’s a good idea to do so. Cook v. Tait should be considered in terms of (1) the evolution of citizenship and (2) the evolution of taxation.
The United States has (at least in theory) been imposing direct taxation on Americans abroad (who are mostly the citizen/residents of other
countries) for over 100 years. During this period, there has been no serious discussion about ending this unfair and destructive practice.
See the following article in the New York Times (from the Titanic era) – March 7, 1914.
The United States has “gotten away with this” for so long because there was no attempt to inform about or enforce it until the election of Barack Obama. The Obama era will be remembered for FATCA and the attempt to enforce “citizenship-based taxation”. U.S.
“citizenship-based taxation” is now being used to attack the sovereignty of other countries and transfer capital from those countries to the United States.
Because few knew about “citizenship-based” taxation, there was historically very low compliance and little or no attempt at IRS enforcement, on “nonresident Americans”.
Anecdotal evidence suggest that there is still low compliance and few attempts at IRS enforcement on “nonresident Americans”.
Why is it so difficult to get this horrible law (that is damaging to everybody except members of the “tax compliance” industry) repealed?
The wisdom of “The Three Monkeys” explains why.
The Three Wise Monkeys explains why the repeal of "citizenship-based taxation" is a difficult task https://t.co/bXtgPq5ujM pic.twitter.com/bkUFZlwpjB
— Citizenship Lawyer (@ExpatriationLaw) July 29, 2017
“See no evil”: Few people even know about U.S.
“citizenship-based taxation”. What you can’t see you can’t know.
1. Almost NOBODY (including – some but not all – U.S. based tax
professionals) even knows that the U.S. imposes taxation based U.S.
citizenship (which is conferred by a U.S. place of birth”). It is simply unknown to the overwhelmingly majority of Americans (how could their country do something as stupid as this?). For a country where citizens are defined primarily as taxpayers (“taxation-based citizenship”), there is little attempt to educate the masses.
2. Citizenship-based taxation is NOT explicitly required anywhere in the Internal Revenue Code. It’s true. The Internal Revenue Code mandates taxing “individuals”
and taxing “nonresident aliens” (“nonresident aliens on U.S.
source income only). (This suggests that “nonresidents” are NOT required to pay tax to the USA.) It is ONLY through “Treasury regulation”, that “individual” is defined as “citizen or resident”. I kid you not. Read the Internal Revenue Code yourself.
3. Those who do know that the U.S. imposes taxation based on “citizenship” often, equate “citizenship” with “residency”. They think
“citizens are residents” and that “residents are citizens”
On April 26, 2017 at the FATCA hearings in Washington, D.C., Representative Connolly said:
“All countries tax their citizens” when he really meant “All countries tax their residents”.
In other words, the U.S. population and Congress actually believe the United States has “residence-based taxation”! Well, everybody knows that “U.S. residents” are subject to U.S. taxation. But few know (and it would never occur to them), that U.S. citizens who establish residence in another country, are still required to pay taxes to the United States!
“Hear no evil”: Those who know about “citizenship-based taxation” don’t know how CBT actually operates – by subjecting people who live in a “foreign country” to the Internal Revenue Code – as though they live in the United States.
4. “Citizenship-based taxation” is discussed ONLY by academics. I have yet to see A SINGLE paper written by a U.S. based “academic” who understands or even mentions the “Alphabet Soup” list of problems faced by Americans abroad which include: FBAR, FATCA, CBT, PFIC, CFC and Forms 5471, 8621, 8938, 3520/3520A, etc. At most they have some “vague idea” that “citizenship” should include the requirement to pay U.S.
taxes. They do NOT discuss this issue in practical terms that hint at what it really means.
In other words: Those who know of or advocate citizenship-based taxation simply do not understand the problems that it causes.
5. Those who support or tolerate “citizenship-based taxation”, see the problem in terms of Americans leaving the United States (if they have the “wherewithall”) and NOT as Americans leaving the United States and then having becoming subject to BOTH the U.S. tax system and the tax system of their country of residence. In many cases they don’t even seem to understand that all countries require you to pay tax if you live there! In other words, they see this as a “mobility issue” and NOT as “trying to live your life issue outside the USA issue”.
(This is why it is ESSENTIAL that this deplorable state of affairs NOT be described as “citizenship-based, taxation” but be described as “taxing the residents of other
6. “Expatriate taxation” is a narrow and highly specialized area of practice. It is complex and has a long “learning curve”. It is therefore not surprising that many U.S. based tax professionals do NOT understand its practical implications. Many of them do not have the skills to inform and advise Americans abroad.
“Speak no evil”: It is almost impossible to get anybody to “listen to” and “speak about” the problem. It is hard to get the attention of Congress
7. Those impacted by CBT (“Homelanders abroad” and the “citizen/residents” of other nations) do not have political representation in the United States. (Of course it is questionable whether Homeland Americans have political representation either. Such is the reality of a two-party system that dominates the political process.) For the most part, legislative change in the USA is accomplished ONLY through “lobbying” and “money”.
Bottom line – U.S. legislators fall into two
First, those who don’t know what CBT is – that the U.S.
is imposing taxation on “Homelanders abroad” and the “citizen/residents of other countries”; and
Second, those who are not “paid to care” whether the U.S. is imposing taxation on “Homelanders abroad” and the “citizen/residents of other countries”.
8. The U.S. political system makes it difficult to pass any law. This means that it is both hard to pass new laws and hard to get rid of old bad laws.
9. Congress and Treasury are completely indifferent to “Homelanders abroad” and the “citizen/residents” of other countries. (Indifference being one of the worst forms of abuse.) Therefore, when Congress makes a law or Treasury makes a regulation there is NO consideration given to the effects on persons outside the United States. This indifference would be reasonable if U.S. tax laws did NOT have “extra-territorial application”. But, the indifference is unreasonable when U.S. tax laws do have “extra-territorial application”.
10. The “tax compliance community” is uniquely positioned to advocate for the repeal of “citizenship-based taxation”. Yet it does not do so.
(The repeal of “citizenship-based taxation” would hurt their business
interests.) I am not aware of any tax professionals who have or are actively lobbying for (not even letters to House Ways and Means in 2013 and Senate Finance in 2015) for a move to “residence-based taxation”.
Perhaps “clients” should pressure their “tax professionals” to lobby (either individually and/or through their professional associations) for the repeal of U.S. “extra-territorial taxation”.
Is a Congressional change in the law really needed?
11. The Internal Revenue Code authorizes and requires a large number of Treasury Regulations. I believe it is possible for Treasury to end “citizenship-based taxation” by simple regulation.
Meanwhile the only rational response to this deplorable state of affairs is captured in the thought that:
“All roads lead to renunciation!”
Excellent summary of affairs. Can one get any clearer?
I was particularly bowled over by the article from 1914. They say the exact same thing as we do! What worries me is then as well as many times in the past AND now, those very same miserable facts and complaints fall on deaf ears. And all the “wording” is like a scam to extract cash from poor victims with some sort of fake justification – like duping the public.
One just wonders if they will EVER do the right thing. I keep being reminded of Sophie`s words too: “THIS IS BULLSHIT.” ( How is that for a nice and appropriate word- LOL)
‘The uniquely American practice of “imposing direct taxation on the citizen/residents of other nations” (“citizenship-based taxation”) has NO identifiable group of supporters (with the exception of a few academics who have never experienced it and do not understand it).’
A much bigger exception is a huge number of homelanders who have never experienced it and do not understand it.
A medium sized exception is a number of politicians and bureaucrats who have never experienced it but do understand it and have eyes lit up seeing all the penalties they can collect.
‘“Citizenship-based taxation” was originally conceived as a “punishment” for those who attempted to leave the United States and avoid the Civil War. I repeat, it’s origins are rooted in PUNISHMENT and PENALTY and not as sound tax policy.’
It’s still rooted in punishment and penalty, and next year it will still be rooted in punishment and penalty.
‘Citizenship-based taxation is NOT explicitly required anywhere in the Internal Revenue Code’
Yes it is.
‘The Internal Revenue Code mandates taxing “individuals” and taxing “nonresident aliens” (“nonresident aliens on U.S. source income only). (This suggests that “nonresidents” are NOT required to pay tax to the USA.)’
No, you quoted enough of it to show it suggests that “nonresident aliens” are not required to pay tax to the USA (except on US source income). It explicitly does not extend that to all “nonresidents”. They intended to punish and penalize nonresident citizens and they continue doing it intentionally.
‘Representative Connolly said: “All countries tax their citizens” when he really meant “All countries tax their residents”.’
We don’t know if his lie was intentional or not. We can be sure that a misrepresentative wouldn’t hesitate to lie if a lie would benefit his intended result, just as a president wouldn’t hesitate to lie, a US attorney wouldn’t hesitate to lie, and a judge wouldn’t hesitate to lie. Brockers know that all countries tax their residents, but we’d better not think Connolly meant to say that.
It all boils down to money. If the USSA was losing money because of this, it would be railroaded into the repeal process and done by the end of the year. The fact is that they pulled this out in 2010 knowing that they would “blindside” any person born in the USSA and the good law abiding people would pay up. The one thing that stunned me however, is how stupid the rest of the world was to comply and throw their own people to the wolves. This proves that you all have to fight for yourselves and even break these unjust laws to protect yourselves and your families. Would you say that at least 90% of the people affected by this are still in hiding and possibly using fake ID’s etc. just to live law abiding lives in their countries??
I, too, was stunned by the 1914 NYT article. The US has been shedding citizens over this damnable tax policy for over 100 years. Is the end finally in sight? Do we dare to hope?
“Representative Connolly said: “All countries tax their citizens” when he really meant “All countries tax their residents”.”
To many Americans it’s questionable whether anyone truly remains a US citizen when they choose to take up residence in another country. You can’t really believe you are American if you refuse to take up residence in greatest nation on earth, can you? By virtue of leaving you’ve already renounced in their minds, the rest is formality. Why do you think these border personnel don’t grill you for having renounced when you cross? It’s exactly as it should be for them and so many others. You are a guest now.
We are disposable – but of course not before paying a hefty fee, just to make sure we know what we are really giving up.
It’s so childish.
“To many Americans it’s questionable whether anyone truly remains a US citizen when they choose to take up residence in another country.”
Then it ought to be easy to repeal CBT.
You’d think, ND, but I doubt most homelanders are even aware of CBT and assume that with taking residency outside the US all responsibilities, as well as rights disappear.
When they hear that keeping our citizenship involves paying US taxes, it seems like the right thing to do considering they too as Americans have to pay taxes. The fact that people are renouncing in record numbers because of taxatation, or at least the responsibilities associated with it just confirms this in the homelander mind.
That’s why we hear vindictive phrases such as “don’t let the door hit you on the way out”.
That’s the problem with the term “Citizenship Based Taxation”, its loaded with all kinds of things associated with citizenship – such as duty and patriotism.
NRDT. Non-Resident Double Taxation, might be a better description.
Nah, this article, website and comments regularly repeats ‘facts’ that aren’t. There are a no. of countries that do similar tho not with the arrogance and don’t give a damn whether it’s right or not attitude of the US politicians.
One outstanding example – Japan. Now Japan gets a pass in the west based on an image that is not real of a lovely kind, polite land full of safety. It is not – while it’s a comfortable place the society is built on xenophobia and Japanese first, and why would anybody else even if they pay taxes and contribute, expect rights?
You wanna learn about Japan’s tax system? Here goes.
If you live 5 yrs in Japan out of the last 10 then hey presto, you are automatically a ‘Permanent Resident for Tax Purposes’. Sounds good, eh, PR? No, absolutely no way. It just means that you have no rights to PR which is handed out sparingly and not even foreigners who lived there 10 yrs in a row and paid into everything and always work, can be in any way certain they will receive PR and the limited rights it gives in Japanese society.
No sir – you are only PR after those 5 years so the Japanese govt and system can screw you out of your money abroad. Your family member dies? The Japanese tax agency thinks it has the right to take a cut of that income. Even though the money has not been brought into Japan.
As the fake PR status works, you have to give all your income details from your home country to the tax agency in Japan and they will decide if they take a cut of money that was never brought into Japan, was not earned in Japan, and even money that was part of your savings as a teenager or whatever.
I’m with you folks all the way on FATCA but stop giving a racist society like Japan a pass.