USA affirms position that #accidentalAmericans have two choices: 1. Pay to enter the US tax system or 2. Pay to renounce. Bottom line: If "Born In The USA" then you must "Pay The USA": "Treasury Offers Little Wiggle Room on Foreign Bank Reporting (1)" https://t.co/Z7el7P5RII
— U.S. Citizen Abroad (@USCitizenAbroad) March 31, 2020
Part A: Background
On March 3, 2020 I wrote a post on Brock, which was based on the problem of FATCA IGAs requiring banks to include US Social Security numbers, in their FATCA reporting.
Basically there is a tension between:
On the one hand the banks are required to include the Social Security Numbers of their US clients. On the other hand, many people who are “technically” US citizens don’t have Social Security numbers.
This is a problem that has long been in the making. My March 3, 2020 post described the problem and referenced the work of CBC reporter Elizabeth Thompson’s reporting on this problem. The post also included a background/summary of the events leading to the problem (which has been included in this post as an Appendix*).
US Treasury has said very little about this issue.
Described by Helen Burggraf as …
The U.S. Treasury is continuing to maintain its silence with respect to the issues European banks have been struggling with for months over their perceived need to report to the U.S. – under the tax evasion law known as FATCA – government tax information details on certain of their American account-holders that they don’t have, European banking sources, expat groups and others report…
This is in spite of the fact that so-called “accidental Americans” in Europe are continuing to have their non-U.S. bank accounts frozen in cases where their banks say they have failed to provide “Tax Information Numbers” (TINs, typically Social Security numbers) as the banks say FATCA requires them to have as of the end of last year, according to sources in the accidental American community.
More from Helen Burggraf here and particularly here.
Part B: The Problem Addressed – An Exchange Of Letters
December 3, 2019 – Letter to US Treasury: “Delegations will find in Annex a letter by the Finnish EU Presidency of the Council to the US Secretary of the Treasury on FATCA, as agreed by the Council High Level Working Party on Tax issues.”
In order to understand the context of Mr. Harter’s letter, it’s important to read the December 3, 2019 message from Europe. In general the letter is complaining about the application of FATCA to European banks and European citizens who are residents of Europe …
March 20, 2020 – “L.G. “Chip” Harter – Deputy Assistant Secretary (International Tax Affairs) – U.S. Department of the Treasury Responds” …
As reported by Bloomberg, in a letter written to representatives of the EU, Government of Finland, Government of France and Government of the Netherlands, Mr. Harter addressed the following three questions, about the the FATCA IGAs, and provided the following three answers.
1. Do the compliance obligations of European banks include the obligation to provide the United States with the Social Security numbers of U.S. citizen account holders?
Yes
2. What are the U.S. tax obligations of European residents who are considered to be U.S. citizens?
As long as someone is a U.S. citizen under U.S. law, that person is subject to U.S. worldwide taxation and must comply with all applicable/relevant laws. If they don’t like it they can renounce. (The letter also references the generous “Relief Procedures For Former Citizens” which were announced by the IRS on September 6, 2019.)
3. Will the United States provide reciprocity as it is required to under the FATCA IGAs?
The United States takes it obligations of FATCA reciprocity very seriously and will work toward reciprocal information exchange.
In summary, with respect to Accidental Americans, the letter seems to say:
You can either buy your freedom for the $2350 renunciation fee or you can file U.S. taxes. But, make no mistake. You must pay.
To put it another way:
We own you. You can pay us by renouncing or you can pay us through taxation and the associated compliance costs.
I encourage you to read Mr. Harter’s letter yourselves.
The letter clearly states and assumes, that a principal purpose of FATCA, is to enforce U.S. worldwide taxation on residents of other countries who, are defined as U.S. citizens. See specifically the full paragraph at the bottom of page 1 and second to last paragraph on page 2. Excerpts of the letter are quoted by International Advisor – specifically their article takes note of:
“Fatca was enacted to provide the Internal Revenue Service (IRS) with additional tools to identify gaps in and reinforce our systems of voluntary compliance of US taxpayers with respect to non-US financial accounts or substantial investments in or ownership of certain passive non-UK entities,” said Chip Harter, deputy assistant secretary for international tax affairs, in the letter dated 12 March 2020.
“The Treasury department and the IRS have provided extensive relief to [foreign financial institutions (FFIs)] with US customers that have not provided a [tax identification number (Tin)] to the FFI.
“Further, the development of the Fatca [model intergovernmental agreements (IGAs)] established an alternative path for FFIs to comply with Fatca, removed legal issues that had been raised in connection with Fatca and provided simplifying rules for FFIs to document and report information,” he added.
Part C: Reaction From Accidental Americans In Europe
The purpose of #FATCA is to enforce Citizenship Based Taxation on all those whom the United States considers to be U.S. taxpayers. This is a far cry from the original idea of tracking down fraudsters who were hiding money overseas. The proof is in the TaxJusticeNet’s latest ranking.
Fabien Lehagre – Twitter March 31, 2010
As reported by International-Advisor Mr. Harter neither understood nor acknowledged the impact that FATCA has had on European citizens – claiming that he had received only anecdotal information about the issue.
IA reached out to Fabien Lehagre president of the Accidental American Association, who believes the issue is much bigger than that.
He said: “Chip Harter is well aware of the problems encountered by accidental Americans, which are far from being anecdotal since they have been covered by the media around the world for five years now.
“It is clear that the objective of the American tax administration is not to fight against tax fraud but to collect money from citizens who had the misfortune of being born on American soil.
“Given the position of the United States in the latest ranking of the Tax Justice Network, I find it rather ironic to say that the United States is the leader in the fight against tax evasion.”
A recent letter from Mr. Lehagre to Secretary Pompeo concerning the difficulty of renouncing U.S. citizenship is here:
Part D: How Do You Interpret This?
I look forward to your comments about this letter and what those contents imply.
_____________________________________________________________________________________________
* Appendix- About the background to this – from the March 3, 2020 post
1. Article 2 of the Canada U.S. FATCA IGA includes an obligation to report the U.S. Social Security Number of the U.S. Person. Here is what Article 2 of the IGA says:
Article 2
Obligations to Obtain and Exchange Information with Respect to Reportable Accounts
1. Subject to the provisions of Article 3 of this Agreement, each Party shall obtain the information specified in paragraph 2 of this Article with respect to all Reportable Accounts and shall annually exchange this information with the other Party on an automatic basis pursuant to the provisions of Article XXVII of the Convention.
2. The information to be obtained and exchanged is:
a) In the case of Canada with respect to each U.S. Reportable Account of each Reporting Canadian Financial Institution:
(1) the name, address, and U.S. TIN of each Specified U.S. Person that is an Account Holder of such account and, in the case of a Non-U.S. Entity that, after application of the due diligence procedures set forth in Annex I, is identified as having one or more Controlling Persons that is a Specified U.S. Person, the name, address, and U.S. TIN (if any) of such Entity and each such Specified U.S. Person; …
2. Early on the implementation of the IGAs it became clear that many people deemed by the United States to be it’s taxable property (AKA tax residents of other countries who were born in the United States) didn’t have a U.S. TIN (Social Security number). Why would they? They didn’t consider themselves to be American and were tax paying citizen/residents of other countries. But, why let a does of reality interfere with the FATCA myth?
3. The banks were scared of FATCA noncompliance and realized that they now would be in breach of their FATCA obligations by not providing a U.S. Social Security number to the CRA (and therefore the IRS).
4. U.S. Treasury in an act of unprecedented kindness, wisdom and understanding gave non-U.S. banks until December 31, 2019 to provide U.S. Social Security numbers.
5. Oh My God! Time flies. It is now 2020. The Treasury grace period and is over. U.S. Social Security numbers must be provided or the banks will be “non-compliant”. This is a worldwide problem with most of the publicity coming out of the Netherlands where (as reported) banks are closing the accounts of Dutch residents with a tint of “U.S.Ness”.
6. As some commenters have noted, an non-compliant (bad, bad, bad) bank actually has 18 months to cure the non-compliance from the date of notification of non-compliance by U.S. Treasury. Interestingly, in October of 2019 the IRS made clear that the failure to supply the Social Security Number after December 31, 2019 would NOT necessarily trigger a notice of non-compliance from the IRS. But, the problem is that nobody really trusts U.S. Treasury and the IRS. (An excellent post summarizing the problem from Dr. Karen Alpert is here.)
7. As a result, there is heightened pressure, coming from non-U.S. financial institutions to force those pesky people (who chose to be “Born In The USA”) with a Social Security number (even though they don’t have one).
8. It appears that consciousness of this new problem (like the recent virus coming from China) is beginning to spread around the world. The most recent spread of consciousness appears to be in Canada itself.
In any event, a very important question in the life of an individual is now:
“Are you or have you ever been an American citizen?”
I kind of see this as an acknowledgement that their efforts to bully wealth out of innocent people through the taxation system were failing miserably. So go to plan B. Extort the money through renunciation fees. I’m sure their calculations have shown them this will be much more lucrative, and still let them think that thy really are in charge.
Now as for the compliance condor industry, there may be some unhappiness there. But to %^#$ with them.
Well at least the renunciation cost has been reduced to $1150 for anyone will to file a 2019 return to receive a $1200 stimulus check.
And nobody seems able to address the issue or renunciation appointments being unavailable quite some time cue to Covid. Possibly 12-24 months in the worst-case timelines.
Three thoughts:
1. @PierreD. If your theory was right the Consulates would be booking as many renunciation appointments as they possibly could. Instead, they are still intentionally restricting them. I don’t believe they are even capable of thinking that clearly or being that organized.
2. “……reinforce our systems of voluntary compliance….” In other words, voluntarily comply or we will force you to voluntarily comply. Its obvious that the kool-aid drinkers have over-dosed and lost their minds.
3. “The United States takes it obligations of FATCA reciprocity very seriously and will work toward reciprocal information exchange.” How comforting to hear that after 10 years they are still working on it. The whole reciprocity thing is a pathetic joke.
Lafayette G. “Chip” Harter is just the most fantastically preppie name, isn’t it? He could’ve been a snotty villain from Animal House…
Seriously though, this is the sort of anodyne bureaucratic response you’d expect. No surprising news here. Chip, doubtless clad in a Brooks Brothers suit, is not going to come out and say that Accidental Americans needn’t bother obtaining SSNs and filing US tax returns. (Since it is still US law, and presumably also the official position of the US government, that all US citizens must either file US tax returns or renounce US citizenship to end this obligation, should we be terribly disappointed that Chip did not claim otherwise, on Treasury Department letterhead no less?)
What’s notable to me is what the letter doesn’t say: that the IRS intends to actively take steps to sanction banks that fail to report TINs for all US person customers. Our fraternity brother just sort of waffled and punted on that one.
“Anodyne.” Hey, I had to look that one up. I think I have heard the word before but I had no clue what it meant. Always good to learn a new word.
With respect to what the IRS intends to do or not do: What is actually important is what the scaredy-cat foreign banks think the IRS might or could do (to them). Its the banks that are doing the damage, not the IRS.
But I think all of this is now going to be on hold for the duration. Officials around the world are totally focused on COVID19, not FATCA issues.
Agreed, we’re only still talking about this stuff because we’re stuck at home with no better way to pass the time.
Glad to hear that I used “anodyne” correctly. I was worried for a second there.
Of course the issue for many is they cannot comply or renounce.
“They can renounce their citizenship” is the sort of comment you expect to hear from a pig-ignorant American who has never left his state and would rather die than lose his own citizenship, and here we have it from “Chip”.
The vast majority of US citizens could not renounce their citizenship if their lives depended on it, lack of another citizenship being the first and most obvious hurdle, being unable to go back and take care of a dying loved one a less obvious one.
According to Chip a lifetime of US persecution, local discrimination and forever looking over your shoulder are a price of leaving the “land of the free” or you can do the impossible and renounce, and it usually is as near to impossible as makes no difference.
The more this issue gets attention, the more the US government seems determined to get to US citizens abroad. I for one would not be content to just believe that the USA will never push this issue to the point you wake up to find the IRS in your local bank account.
US tax compliance is “voluntary” in the sense that you have to fill out the form yourself, rather than just sign a form that the government gives you. The purpose of this is to keep professional tax preparers employed (they lobbied). From time to time some tax protester adds “under duress” to his 1040 signature, but the courts treat this as a frivolous filing. Similarly, if an embassy official asks a would-be renunciate if they are acting under coercion, they don’t want to hear broad complaints about government policy.
This post was reposted on Facebook. Some interesting comments …
Response:
Mr. Harter’s letter makes it abundantly clear that the United States claims the right to control the lives of people, who reside in and are citizens of other countries, who neither identify as U.S. citizens nor want to be U.S. citizens, based solely on the fact that they were born in the United States. This is 2020. Clearly, the American view of what citizenship means is rooted in the 1920s (an era when individuals had fewer rights). To a large extent the American view is an extension of the 1700s, when other forms of coercive control over the lives of individuals were popular.
In a real sense, Mr. Harter’s letter is more significant than citizenship-based taxation. It’s more significant than FATCA, It’s more significant than the IGAs. It’s a clear statement from U.S. Treasury that individuals defined by the United States has “U.S. Persons” are owned lock, stock and barrel by the United States. It’s also a clear statement that the United States does not regard the individual’s residence or other citizenships to be relevant.
1. Governments MUST start standing up for their own citizens.
2. As Mike said in his comment:
I propose a new term. Let’s call it “citizenship deletion”. What needs to happen is that individuals must find a way to free themselves from “U.S. Person” status – delete the most toxic citizenship the world has even known – in a way that does NOT require the consent of the U.S. Government, filing taxes with the U.S. government and does not require outrageous fees.
Does anyone really want the US to reciprocate? Sire, use the fact that they are not in an effort to get countries to stop sending our info to the US, but do really want the US to do the same?
@JapanT. No need to worry because they never will. Reciprocation might impair the US’ status as world’s biggest tax haven. Gasp, a US bank sending customer information to a foreign government? It will never happen because it would be a violation of their customer’s privacy rights, or would be un-American, or too expensive for the banks, or would require an act of Congress, or they are exceptional, or any number of other excuses. There is nothing the US likes better than money, especially other people’s money.
Fortunately, “citizenship deletion” does exist in Canada, today. The instructions are very simple:
(1) open your bank account with a drivers license as identification
(2) answer “no” to any questions about US citizenship or tax residency
Residents of other countries are not so lucky, alas.
While not the same amount of info, Treasury Department rules now require some data sharing. The Bankers Associations of Texas and Florida have failed in their court challenge to these rules. Not full reciprocity but some level of it is already in the regs.. Not sure it has already begun, but the regs are written and already survived a legal challenge.
Whenever anyone here in Canada tries to discover how much data the CRA (Canada Revenue Agency) has received from the IRS in exchange for the approximately 900,000 records (latest figures) the CRA has sent South, they decline to provide any information.
That strongly suggests that the answer is zero and they are embarrassed to admit what a lopsided deal they signed. If they had gotten anything they would say so. Congress could enact the requisite legislation and end the court battles if they wanted to. So far, its been crickets. They are quite happy with the status quo.