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Author Archives: Eric

1,100 names in late-as-usual IRS list of certain ex-citizens

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The Quarterly Publication of Individuals Who Have Chosen to Expatriate for Q1 2018 has just been placed on public inspection for printing in Tuesday’s Federal Register, eight days later than required by 26 USC § 6039G(d). This is the seventh quarter in a row in which the IRS has been late with the list.

This quarter’s IRS expat honour roll has the names of 1,100 people who gave up US citizenship, by my count. (Andrew Mitchel counted 1,099. My initial count was 1,102, because I accidentally counted two very long names as four entries.) Meanwhile, the number of records in the “renounced US citizenship” category of the FBI’s National Instant Criminal Background Check System (NICS) increased by precisely 1,100 during the first three months of the year, from 42,693 to 43,793. (The FBI added another 341 records in April, bringing the total to 44,134.)

The IRS list is known to be incomplete. It’s supposed to be much larger than the NICS list, not exactly the same size, let alone smaller. Per regulations, NICS only contains people who terminated their US citizenship by swearing an oath of renunciation at a US embassy or consulate. In contrast, the IRS’ list is supposed to have the names of all people who obtained Certificates of Loss of Nationality from the State Department, either by swearing an oath of renunciation or by reporting any other relinquishing act specified in 8 USC § 1481(a). The preamble of the IRS list even misleadingly implies that it includes some of the tens of thousands of people who give up their green cards every year.

Demonstrating the point, this quarter’s IRS list still failed to include some public figures who gave up US citizenship more than a year ago, including Japanese legislator Kimi Onoda and Ghanaian Deputy Minister of Finance Charles Adu Boahen. However, Homelanders and their chieftains don’t care about that. They’re dissatisfied with NICS instead, so there’s some provisions in the new spending bill imposing penalties on heads of upstream agencies, including the State Department, if they fail to certify semi-annually that they’re providing NICS with all the records they should be. More about that below.

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Late, incomplete Federal Register expatriates list finally placed on public inspection

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No time for a detailed analysis, but the Quarterly Publication of Individuals Who Have Chosen to Expatriate for Q4 2017 has just been placed on public inspection for printing in Friday’s Federal Register, ten days later than required by law.

I count 685 names in this list, bringing the total of “published expatriates” for 2017 to 5,133 individuals. In contrast, NICS added 1,017 people to the “Renounced U.S. Citizenship” category from October to December of last year, and another 353 in January. This quarter’s Federal Register list still does not include some public figures known to have given up US citizenship more than a year ago, including Japanese legislator Kimi Onoda and Ghanaian Deputy Minister of Finance Charles Adu Boahen.

Federal Register vs. NICS statistics, 2017
First quarter Second quarter Third quarter Fourth quarter
Month,
year		 Addi-
tions		 Month-end
total		 Month,
year		 Addi-
tions		 Month-end
total		 Month,
year		 Addi-
tions		 Month-end
total		 Month,
year		 Addi-
tions		 Month-end
total
Jan 2017 377 38,380 Apr 2017 460 39,947 Jul 2017 329 41,001 Oct 2017 284 41,960
Feb 2017 344 38,724 May 2017 381 40,328 Aug 2017 326 41,327 Nov 2017 427 42,387
Mar 2017 763 39,487 Jun 2017 344 40,672 Sep 2017 349 41,676 Dec 2017 306 42,693
Q1 total 1,484 Q2 total 1,185 Q3 total 1,004 Q4 total 1,017
82 FR 21877 1,313   82 FR 36188 1,759 82 FR 50960 1,376 83 FR 5xxx 685
Annual totals for 2017 Fed. Reg. 5,133 NICS 4,690

Fundamentally, nothing much has changed. After all the broken promises about how tax reform would save us, it just turned out to be another bonanza for accountants and lawyers. The IRS still can’t publish a simple list of names in a timely fashion. Trump and Tillerson’s underlings continue to spout the same insulting excuses as Obama and Kerry’s underlings did for the $2,350 rip-off.

People who can’t hide from this whole mess continue to face absurd wait times for appointments and CLNs (made worse by ongoing chaos in the State Department), while those who are able to hide have even stronger reasons to keep on hiding.

National Taxpayer Advocate sees titanic growth in “offshore” penalties, suggests Congress re-arrange deck chairs

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TaxProf Blog informs us that National Taxpayer Advocate Nina Olson’s 2017 Annual Report to Congress has just been released. The latest report contains similar criticisms of diaspora abuse and suggestions for improvement which the IRS & Congress ignored last year and every previous year since 2012 2011. Criticisms of FATCA and mailing delays have been condensed and toned down since last year. Criticisms of passport revocation have been expanded. That stuff is more or less business as usual; see below the fold for details.

However, there’s one new section which makes this worth a separate post: discussion of penalties for not filing international information returns (Vol. 1, p. 314). Ms. Olson managed to get her hands on some interesting data and examples: in particular, she found out that the IRS collected nearly twenty-three times as much in penalties on failure to file Form 3520 in 2016 as in 2013. (I wonder how much of this came from those 48,000 “Streamlined” participants.)

Figure 1: Growth in penalties for failure to file
international information returns since 2013
Form1 Legal basis
for penalty		 Penalty type Net penalty after abatement Growth in
penalty
revenue1
2013 2016
5471 (Cat. 4)
8865 (Cat. 1)		 § 6038 Initial $7,587,151 $20,364,300 168%
Continuation $3,576,416 $35,991,336 906%
5471 (Cats. 1/2/5)
8865 (Cats. 2/3/4)		 § 6679 Initial $30,000 $60,000 100%
Continuation N/A2 $2,671,935 N/A
3520 § 6677 Initial $30,800,327 $702,187,004 2,180%
Continuation N/A2 $6,645,580 N/A
Total penalties
(comparable categories only)3		 $41,993,894 $758,602,640 1,706%

Adapted from Figure 2.7.1, “International Penalties Assessed and Abated in the Aggregate in FYs 2013 and 2016”. Penalties from Form 5472 are excluded. Notes:

1. Form name and penalty growth not in original; any errors in those columns are my own.
2. Original does not list continuation penalties under 26 USC § 6677 or 6679 for year 2013.
3. “Comparable categories” excludes continuation penalties under 26 USC § 6677 or 6679 for year 2016. Total revenue in 2016 including those penalties was $767,920,155.

The actual recommendations in the new section are uninspiring. Ms. Olson doesn’t comment on the growth in penalties, nor inquire as to the reasons behind it. Nor does she suggest reversing the massive hikes in statutory level of those “offshore” penalties over the past two decades, which have left members of the diaspora in fear of bankruptcy for foot-faults on paperwork about local assets (while Homelanders with similarly-situated local assets face penalties proportionate to actual tax, or even no penalties at all because no equivalent paperwork exists for them). She only asks Congress to give the IRS consistent authority to waive penalties for reasonable failures to file — right now, they can waive “continuation” penalties for some forms but not others. All well and good, except they’re barely using the penalty abatement authority they have anyway.

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1,376 published expatriates in Q3 2017 Federal Register list of people giving up US citizenship

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The Quarterly Publication of Individuals Who Have Chosen to Expatriate for Q3 2017 has just been placed on public inspection for publication in Thursday’s Federal Register, three days later than required by law. By my count, this list contains the names of 1,376 people who renounced or otherwise relinquished US citizenship under any paragraph of 8 USC § 1481(a), as compared to 1,004 people who renounced US citizenship (under 1481(a)(5) only) added to the FBI’s National Instant Criminal Background Check System (NICS) in July, August, and September.

Following Q3 & Q4 2016, this is only the second time since 2011 that we’ve had two quarters in a row of Federal Register numbers being significantly higher than NICS numbers, the way they should be every quarter. Even then, the Federal Register list is far from complete: contrary to some media reports, it’s basically impossible that the list includes people who give up their green cards, and no one has ever identified a single green card abandoner in the list, despite the message at the top claiming that “long-term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United States who lost citizenship”.

The people named in this list probably completed the State Department’s painfully slow and expensive formalities to apply for a Certificate of Loss of Nationality around mid-year at the latest, but that’s just a guess. I can confirm that one name in this quarter’s list belongs to a man known to have relinquished in April 2016 or earlier. For the US government, that’s positively speedy — last quarter’s list had relinquishers from 2013 and 2014.

As always, after the jump you can find discussion of recent media reports about relinquishers, as well as a table of past NICS and Federal Register statistics.

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1,759 published expatriates in Q2 2017 Federal Register list

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Apologies for not posting in a while. The Quarterly Publication of Individuals Who Have Chosen to Expatriate for Q2 2017 has just been placed on public inspection for publication in Thursday’s Federal Register, four days later than required by law.

By my count, this list contains the names of 1,759 people who renounced or relinquished US citizenship under any paragraph of 8 USC § 1481(a), as compared to 1,185 renunciants (under 1481(a)(5) only) added to NICS in April, May, and June (update, 4 August 2017: and another 329 in July). The number of names in the Federal Register continues to show an upward trend, with the four-quarter moving average rising by 48% from 1,026 a year ago to 1,517 as of this quarter.

Homeland pundits continue to misunderstand what’s driving these numbers: witness this Orlando Sentinel op-ed, which tries to blame the Q4 2016 spike on Trump’s election and other issues which are of great interest to Homelanders but are hardly the centre of attention for citizens of other countries who have lived abroad most of their lives. In fact, it wasn’t until this quarter’s list that we finally started seeing names of people who verifiably gave up US citizenship since Trump’s win — for example Chris Hart, who became a citizen of Japan sometime around March, and whose name shows up at page 15 of the public inspection PDF. However, this quarter’s list also contains names from other Certificates of Loss of Nationality which took as long as four years to finish working their way through the system.

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U.S. source-of-interest rules, part one: how the U.S. does residence-based taxation (very badly, with lots of traps)

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Image of CN Tower
The firm which designed the CN Tower couldn’t get correct U.S. tax advice. What do you think your chances are on a ground-floor budget? (Photo: Local Hero/Wikimedia Commons)

On Twitter, Andrew Grossman mentioned Housden v. Commissioner, 63 T.C.M. 2063 (1992). Mr. Housden, a partner of famous Canadian architecture firm WZMH, got a loan from the Royal Bank of Canada. He later moved to the U.S. to operate a WZMH subsidiary, and made some payments on the loan from 1980 until 1983 — meaning that RBC earned interest income “from sources within the United States” within the meaning of 26 USC § 871(a)(1).

The U.S. Tax Court ruled that when an individual resident of the United States has borrowed money from a non-U.S. bank, the individual is supposed to be the withholding agent for the 30% tax on interest income earned by the bank under § 871(a). So Housden had to pay that 30% out of his own pocket and try on his own to get it back from RBC. The only relief for Housden was that he didn’t get hit with penalties for underpayment or failure to file required forms, since two famous nests of compliance condors — first Deloitte, later the now-defunct Laventhol & Horwath — failed to warn him about his withholding obligations until he was already being audited.

Brockers with local mortgages or credit cards are probably about to panic upon reading this. Fortunately, the IRS suggested in 1992 regulations that an individual interest payor should probably only be considered a “resident of the United States” if the individual meets the substantial presence test (SPT), regardless of citizenship. As Phil Hodgen pointed out two years ago, the IRS confirmed this view in (non-precedential) Chief Counsel Advice in 2012. So if you have lived in another country for your entire adult life, IRS lawyers do not seem to think they can reasonably interpret § 871 or its regulations to grab 30% of all your mortgage payments.

In other words, this is a tiny island of residence-based sanity in the citizenship-based “Internal” Revenue Code — well, almost. Nothing involving the U.S. tax system can ever be as simple as it sounds.

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1,313 published expatriates in Q1 Federal Register honour roll; 1,484 renunciants added to NICS for same period

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The Quarterly Publication of Individuals Who Have Chosen to Expatriate for Q1 2017 has just been placed on public inspection for printing in Wednesday’s Federal Register, ten days later than required by law. This quarter’s list contains 1,313 “published expatriates”, in contrast to the FBI’s NICS gun control database which counted 1,484 renunciants for the first three months of the year (and another 460 in April).

NICS only includes people who renounce citizenship under 8 USC § 1481(a)(5). In other words, it is supposed to cover a smaller population than the Federal Register list, which includes § 1481(a)(1) – (4) relinquishers as well. So it’s clear that not all ex-citizens get their names published in the Federal Register, though there seems to be neither rhyme nor reason behind that long-standing phenomenon — (a)(5) renunciants & (a)(1) relinquishers, rich & poor, covered & uncovered expatriates, and filers & non-filers of 8854 alike are among both the published and the unpublished.

All we can say for sure is that either the State Department is not forwarding some CLNs to the IRS, or the IRS is not publishing the names from all the CLNs they receive. (Given that State should be forwarding CLNs to both the FBI and the IRS, and the FBI clearly have been receiving CLNs, I’d guess that the problems are the IRS’ fault.) It’s clearer why tens of thousands of people who abandon their green cards each year don’t show up in the list either: USCIS isn’t providing the IRS with the information they need about those folks, as we’ve discussed in more detail previously.

We still can’t tell whether the U.S. election results are having any effect on the numbers, because it’s not clear when the people named in this quarter’s list actually went and paid that $2,350 to the U.S. government — I’m not having much luck matching the names in this quarter’s list to media reports. One person in this quarter’s list is known to have relinquished in June 2016, but I can’t find any others who have previously spoken with the media about giving up U.S. citizenship. If you know the date anyone in this quarter’s list (whether yourself or a public figure) had their final appointment at the consulate, please leave a comment.

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FATCA reciprocity watch: it doesn’t matter whether the Form 5472 filing requirement for single-foreign-member LLCs survives Trump’s regulatory review

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As TaxProf Blog and others noted at the time, a few weeks Trump signed Executive Order 13789, setting a deadline of 20 June for Treasury Secretary Mnuchin and his people to:

… review all significant tax regulations issued by the Department of the Treasury on or after January 1, 2016, and, in consultation with the Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, identify in an interim report to the President all such regulations that:

(i) impose an undue financial burden on United States taxpayers;
(ii) add undue complexity to the Federal tax laws; or
(iii) exceed the statutory authority of the Internal Revenue Service.

Unfortunately for beleaguered U.S. Persons abroad, that time frame does not include the original FATCA regulations released in 2014, and the scope does not include past refusals to use clear statutory authority to issue new regulations to excuse us from incomprehensible “offshore” information forms with obscene fines.

For foreigners investing in the U.S. it’s better news: the Trump/Mnuchin review might repeal the Form 5472 filing requirement for single-foreign-member LLCs (proposed on 10 May 2016, 81 FR 28784; finalised on 13 December 2016, 81 FR 89849). That requirement was widely seen as a tiny, halting step towards imposing genuine FATCA reciprocity on inbound investors who were trying to remain anonymous. But even if it doesn’t get repealed, it’s no big deal: the Obama administration left plenty of loopholes to make sure that foreigners can keep hiding their identities from both the U.S. government and their own governments.

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99.999% of this country’s citizens didn’t renounce during Q1, proving that it’s nearly perfect

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By which of course I’m referring to Vietnam, where media reports state that 1,077 people renounced Vietnamese citizenship during the first quarter of 2017, while by counting notices in the official gazette I came up with a somewhat higher figure of 1,382. Since Vietnam’s population is roughly 92.7 million, I guess we can say, using FATCA-natics’ logic, that 92,698,618 people chose not to renounce their citizenship and so Vietnam is 99.999% perfect, right?

Sarcasm aside, Vietnamese nationality law and bureaucracy have several praiseworthy aspects. First, there are a few provisions which try to prevent “accidental citizenship”, meaning that some of the diaspora can avoid going through renunciation procedures in the first place (though as one case from the United Kingdom demonstrates, these provisions haven’t always worked very well). They even issue certificates of non-citizenship to people who never had Vietnamese nationality but need to convince other disbelieving governments or private institutions of that fact.

For those who do need to renounce, Vietnam does things relatively efficiently. The Vietnamese embassy in DC says that they accept renunciation forms by mail. The law requires them to respond to an application for renunciation within 60 working days. And the Vietnamese government managed to issue a press release about their Q1 renunciation statistics less than four weeks after the end of the quarter.

In contrast, the U.S. State Department’s unilateral demand for in-person renunciation appointments, and strict rationing of those appointments, makes the waiting list ten months long in some places. You might wait more than a year after that to get your Certificate of Loss of Nationality. They certainly don’t issue certificates of non-citizenship. And while 26 USC § 6039G(d) requires the U.S. government to publish a list of renunciants within 30 days after the end of each quarter, there was nothing relevant in Friday’s Federal Register and nothing scheduled for Monday’s either.

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Reviewing the Unintended Consequences of the Foreign Account Tax Compliance Act: video and summary of hearing

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Thank you to all those who worked so hard to make this hearing a reality, and in particular to witnesses Daniel Kuettel and Mark Crawford for putting a human face on the FATCA disaster. Here’s a brief overview of what happens during each section of the hearing. Longer and more detailed notes after the jump. See also the official webpage for the hearing.

Time Summary Details
14:36 Quick introduction by Rep. Mark Meadows (R-NC-11)
Meadows is the chairman of the Subcommittee on Government Operations
15:32 Testimony by Sen. Rand Paul (R-KY)
Mentions that FATCA gathers far more information on foreign accounts than Form 1099 does on domestic accounts (I’ll call this “8966 vs. 1099” for short). States that he hopes to get FATCA repeal done as part of tax reform.		 Link
23:07 Opening statement by Meadows
Mentions poor return-on-investment from money spent on enforcing FATCA.		 Link
27:45 Video by Donna-Lane Nelson
Discusses her renunciation. Mentions that she’s a lifelong Democrat and not rich.		 Link
30:45 Meadows continues opening statement
31:30 Opening statement by Rep. Gerald Connolly (D-VA-11)
Connolly is the ranking member of the subcommittee. Makes incorrect statement that most countries tax worldwide income of citizens. Notes FATCA implementation difficulties.		 Link
37:00 Introduction and swearing-in of witnesses
38:30 Testimony by James Bopp
Lawyer for Republicans Overseas. Mentions Democrats Abroad survey showing FATCA’s effects, and that U.S. is one of only two countries which tax citizens abroad. See written submission.		 Link
44:50 Testimony by Mark Crawford
American businessman in Europe. Mentions how Same-Country Exception (SCE) would not have solved his business banking issues. See written submission.		 Link
50:10 Testimony by Daniel Kuettel
Ex-American who renounced to save his mortgage. Mentions that his daughter will eventually face the same choice he did, of having U.S. citizenship or having a normal life where she lives. See written submission.		 Link
54:00 Interstitial remarks by Crawford and Connolly Link
55:30 Testimony by Elise Bean
Former Carl Levin counsel. Says Forms 8966 and 1099 are equivalent, and that the number of citizens renouncing is not a concern because more immigrants are naturalising. See written submission.		 Link
1:03:50 Meadows questions Bean
Asks about U.S. banks’ views of FATCA reciprocity, if revenue from OVDP was taxes or penalties, if suspicion of wrongdoing is sufficient justification for FATCA.		 Link
1:10:30 Connolly questions Bean
Asks about FATCA implementation difficulties. Bean denies that FATCA is the problem, pointing instead to CBT and the lengthy renunciation process.		 Link
1:15:50 Connolly asks Bopp for response to Bean
Bopp says that FATCA is causing problems for large numbers of people, not just renunciants; rebuts Bean’s earlier point about 8966 vs. 1099; notes that penalties are not tax penalties but FBAR penalties.		 Link
1:17:34 Recess
Microphones left on, pick up some chatter at 1:22:00 regarding the Democrats Abroad survey.
1:54:53 Hearing resumes
1:55:25 Rep. Jody Hice (R-GA-10) questions Bean
Asks Bean how much revenue is lost to offshore tax evasion, how much FATCA recovers; Bean not familiar with JCT $870 million recovery estimate. Hice expresses concern at such poor results for potentially law which has both Fourth Amendment and separation-of-powers issues.		 Link
1:59:45 Hice questions Bopp
Asks whether FATCA should be repealed or modified. Bopp responds proposed fixes (probably means SCE) don’t solve problems. Kuettel and Crawford also support repeal. Bean supports modification.		 Link
2:00:59 Statement by Rep. Carolyn Maloney (D-NY-12)
Mentions membership in Americans Abroad Caucus, concerns about terrorism financing, disappointment at Treasury’s non-response to SCE (actually, Treasury said no). Notes she has introduced a bill to require SCE implementation.		 Link
2:08:53 Rep. Eleanor Holmes Norton (D-DC) questions Bopp and Bean
Asks Bopp about SCE; Bopp says SCE will not relieve burdens. Asks Bean whether repealing FATCA and joining CRS would get same information; Bean unsure. Criticises Bopp, Crawford, and Kuettel’s call for repeal.		 Link
2:16:00 Meadows questions Bopp and Bean
If nothing else, watch this. Meadows comes to the conclusion, based on Bean’s statements regarding 8966 vs. 1099, that FATCA was intended to circumvent the protections of the subpoena process.		 Link
2:27:07 Maloney questions Kuettel about SCE
Kuettel responds that SCE would not have solved his problems because “the damage has already been done”, the banks are terrified of America, and that SCE still puts a burden on the banks themselves.		 Link
2:31:10 Closing statement by Meadows
Rebuts remarks by Democratic members stating that FATCA addresses terrorism financing, noting that a Hezbollah sanctions bill he sponsored used different tools. Asks each witness to give him three suggestions for modifying FATCA if there is not bipartisan support for repeal.		 Link

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