Category Archives: reductio ad absurdum

Karen, on her fixthetaxtreaty.org blog, just posted the sad stories of Australians Shaun and Mary, who did their best to be tax compliant with a foreign country (United States) and then ended the relationship by renunciation of U.S. tax citizenship.

The emotional and financial damage done to these Australians was a direct result of their decision to enter or maintain tax compliance, to the best of their ability, with a foreign state.

We have heard similar stories before, but are there any lessons to learned regarding, for example, whether citizens-permanent residents of countries outside the U.S should ever enter into “IRS tax compliance”?

If Shaun and Mary could go back in time, would they still have entered into the IRS tax system? Is $50k plus emotional distress (post-traumatic stress; stress exceeding that of chemotherapy) a reasonable tradeoff for the renunciation of, divorce from, US tax-citizenship?

What would they now recommend Australians to do in the same situation?

For those persons abroad who do want to become IRS compliant, how could they ever find a trustworthy tax compliance expert? Can tax compliance persons purporting to be cross-border experts be taken to task for their incorrect advice? Does this ever happen?

Is it really possible for any human living outside the U.S. to become IRS tax compliant?

Is it ever ethical (e.g., in this post) to advise the unknowing of their tax “obligations” to a foreign state and by doing so cause them harm?

USCitizenAbroad comments: “It is painfully obvious that Shaun would have been far better if he had NEVER entered the U.S. tax system. This is hindsight. He could never have understood where this was going…” and “…this story is a sad sad reminder that those who have been most hurt by the predatory and immoral practice of U.S. “place of birth taxation” are the ones who tried hardest to comply…”

Karen says: “…the majority of the people profiled on the Our Stories page have already renounced/relinquished. Those that haven’t yet renounced likely will, eventually.* From all the people I’ve spoken to here – including some who are not comfortable sharing their story (even anonymously) – the ones who suffered the most were the ones who tried hardest to comply…”

Shaun’s Story:

I have lived solely in Australia for 3 decades. I kept my US Citizenship thinking that there was no drawback from doing so. I was told I had to continue to file US Tax returns and I would just send the US based CPA my Australian Tax Return & they would send me a huge document saying “No Tax Due” & I would sign it. It was incomprehensible to me how the Australian Tax return was converted to the IRS Tax return. I just thought I would never owe anything due to the tax paid in Australia.

This went on for many years until one year the USA Accountant said I had a huge Tax bill. I couldn’t understand this as all of my US Returns never owed a cent, but it seems that they had been preparing my returns incorrectly and all my deductions in Australia were not deductions in the USA. This was the start of my long intense problem that lasted from for several years

I was never told by the USA CPA that my Self-Managed Superannuation account here in Australia was not considered by the IRS as SUPER, it was considered a Foreign Trust and hence had been reported incorrectly; so all of my Super Savings here & interest income in it was treated by the USA as STRAIGHT INCOME and taxed as such going back 8 years. I lost all the benefit of my Super Savings. Then because the US CPA didn’t fill out the single page Foreign Trust Form the IRS Penalised me 30% of the total amount of my Super Balance. I had hired very good tax lawyers in the USA to handle all my dealings with the IRS & instead of getting me a fair result they were predatory in their billing & let things drag on & on.

The other large issue was all of the money I gave to Charities in Australia over the 8 years were not allowed my US Tax returns because “They were not recognised as USA Approved Charities”. This is another issue that the US CPA never advised me about. So between losing my SUPER & my Charitable deductions I owed a huge sum to the IRS, then add on USA Tax Lawyers & Australian Tax Lawyers fees.

I was so distraught ( I was also being treated for a blood cancer at this time ) I decided to give up my USA Citizenship & all the hassles that entailed. The day I had to give that final statement I was in tears at the counter at the US consulate in Sydney, I felt I had been betrayed & abused by the US. Then I had to file the final IRS form 8854 which again looks at all your assets as Capital Gains at the value the day you gave up your citizenship.

This whole situation was like having a second full time job, the lawyers who were supposed to help & protect you become part of the problem. If I could have chosen between Chemotherapy & dealing with this legal situation, I would have chosen Chemotherapy because at least you would know when the end would happen & the worst thing would be that you could die. With the legal matters months turn to years & I felt totally helpless that it would be resolved before I died.

I made one mistake & was willing to take responsibility for that & I did but all the above things I mentioned were so unfair that I couldn’t cope with it.

So I feel a huge responsibility to help publicise this situation so that other people don’t suffer as I had to for nearly 5 years. Australia is supposed to be the USAs’ best friend; how can best friends treat each other like this?

– Shaun”

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Our lawsuit claims that the legislation that enables the FATCA IGA “agreement” between Canada and United States violates Canada’s Charter of Rights and Constitution.

In this phase of the litigation, which little advances the lawsuit, the Canadian Government has asked, in a Motion, the Federal Court to compel the Plaintiffs to provide much additional private financial information. Our Vancouver litigators have had to spend time responding in a very lengthy document that such a request is unreasonable.

Personally, I am disappointed that our litigators have had to spend any time responding to the Government Motion.

Here is the “Overview” to the March 9, 2017 reply to the Government from Plaintiffs Ginny, Gwen, and Kazia:

“OVERVIEW [from pages 28 and 29 of Plaintiffs’ reply to Government Motion]:

1. More than two years after this constitutional and Charter challenge was initiated and its basis made clear to the defendant federal government ministries, the government is now asserting that it requires vast and invasive disclosure of private financial information concerning the Canadian citizen plaintiffs who have taken on the task and public responsibility of challenging highly problematic legislation on constitutional grounds.

2. The government’s motion is more than a mere fishing expedition. The effect of its application for such vast disclosure, if successful, could be to discourage Canadians from advancing precisely the sort of constitutional challenge being advanced in this proceeding.

The plaintiffs respectfully submit that the Court should not permit the government to require private citizens to comprehensively disclose years of private financial information as a precondition to challenging legislation on constitutional and Charter grounds.

This is especially so in the circumstances of the government’s present motion which, as set out below, completely fails to advance any reasonable theory as to how the documents it seeks are relevant to the plaintiffs’ challenge.

3. The government misleadingly glosses over the extremely remote nature of its theory as to the relevance of the disclosure it seeks. Put simply, the defendants [Mr. Justin Trudeau’s Attorney General and Minister of National Revenue] assert that, since Canadian financial institutions could be subjected to a 30% withholding tax on their operations in the United States if the impugned legislation is struck down as a result of the plaintiffs’ challenge, the plaintiffs must comprehensively disclose several years of their financial history on the tenuous and highly speculative theory that those financial institutions could pass on the costs of such a withholding tax to the plaintiffs in some unspecified and unquantified manner.

Among other things, this theory ignores the obvious fact that financial institutions – even when they face a new cost such as a foreign withholding tax – are obviously not automatically permitted to directly deduct amounts from their clients’ accounts in order to cover such costs.

4. As the government openly admits in, among other places, paragraph 16 of its Written Representations, its theory rests on the notion that debits in the plaintiffs’ bank accounts “may be increased” if the aforementioned withholding tax were imposed; while the plaintiffs’ financial holdings “could be devalued”. The who, what, where, and how of such speculative “increases” and “devaluations” are not explained. Suffice to say, these ideas require highly speculative and remote assumptions about how Canadian financial institutions and the U.S. government would react if the impugned legislation were struck down.

5. As for the government’s demand for particulars, the plaintiffs submit that this is simply a delay tactic as demonstrated by, among other things, the extreme lateness of the government’s motion. Not only is the government seeking particulars long after pleadings have closed (and indeed more than two years after receiving the plaintiffs’ original claim), but the particulars sought are, in substance and to the extent that have not already been provided by the plaintiffs, requests for evidence which the government will have the opportunity to request through discoveries.

It is trite that requests for particulars are an inappropriate means of seeking to obtain evidence from an opposing party. The pleadings are intended to illustrate the case to be met; not how it will be proven. In any event, it is extremely rare for particulars to be sought, let alone granted, where, as here, more than two years have passed since the relevant pleading was served and discoveries are contemplated to take place soon.

There are no exceptional circumstances that could justify the government’s delay.“

[The above is part of a 216 page document containing much legalese and private financial information of the Plaintiffs.]

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Read below the sorry situation “Caroline” finds herself in.

The tax attorney Max Reed suggests three options: 1) Obtain a CLN; 2) Do nothing; OR 3) Catch up on U.S. tax returns and renounce (i.e., NOT relinquish) citizenship. How do you suggest a tax attorney should advise Caroline?

Tax attorney Max Reed opines and three attorneys (John Richardson, Virginia La Torre Jeker, Michael Miller), PLUS Shovel AND USCitizenAbroad comment on whether a foreign (U.S.) “tax-citizenship” law that might or might not impact on Canadian Caroline is retroactive.

The case of “Caroline”:

In advisor.ca there is an article by Max Reed with commentaries about whether a foreign U.S. (At present, the U.S. is considered by the United Nations to be a country foreign to Canada) tax-citizenship law should be applied retroactively to a Canadian. Read the entire article and commentary on an issue that has often been discussed on Brock.

Max Reed cites the example of a “Caroline”, a Canadian who relinquished U.S. citizenship in 1978 and has no CLN (Certificate of Loss of Nationality). Her bank sends her a FATCA letter and says that it will report her to the IRS unless she comes up with a CLN.

“In September 2016, she goes to the U.S. State Department to get a CLN to document her loss of U.S. citizenship in 1978 [good idea?]. But what is the exact date of Caroline’s loss of U.S. citizenship for both U.S. tax and immigration purposes?”

Max Reed provides a “common sense” view in the article and also, below, what he feels is a “literal reading” of a 2008 U.S. law:

“The literal approach is based on a strict reading of the law. Since 2008, U.S. tax law has set the date that a person loses U.S. citizenship as the earlier of the date that he applies for a CLN at the Department of State or the date the CLN is issued… Under the literal approach, because Caroline never obtained a CLN, she remains a U.S. citizen until her State Department visit in September 2016. This means she would have had tax obligations to the U.S. government for the previous 38 years – despite losing her citizenship for immigration purposes in 1978…”

Virginia La Torre Jeker comments:

“The collective view of several distinguished US tax professionals is that the current version of the expatriation provisions as spelled out in Internal Revenue Code Sections 877A and 7701(a)(50) as enacted by the HEART Act must have prospective application only… If a later Congress had intended the “surprising result” of retroactivity when passing the 2008 expatriation laws, it would no doubt have spelt this out very clearly….

John Richardson:

“1. What you describe as the “literal” approach is based on reading the exact words of Internal Revenue Coce S. 877A. S. 877A(g)(4)in its opening language addresses those who are “citizens”. Not past citizens. It reads: “A citizen shall be treated as relinquishing his United States citizenship on the earliest of—”

What it means to be a U.S. “citizen” is not defined in the Internal Revenue Code. It is defined only in the Immigration and Nationality Act. Internal Revenue Code S. 877A came into force in June of 2008. Therefore, it seems reasonable to assume that if one was not a U.S. “citizen” under the Immigration and Nationality Act in June of 2008, then S. 877A(g)(4) should not apply to that person. To put it another way: the “literal approach” would/should lead to the conclusion that Caroline, who became a Canadian citizen in 1978, was not a U.S. “citizen” for tax purposes in June 2008.

2. Prior to 2004 there was no provision in the Internal Revenue Code that allowed for one to be a “tax citizen”, if one had relinquished U.S. citizenship under the nationality laws. In other words, if NOT a citizen under the nationality laws then NOT a taxpayer. This means that those who relinquished U.S. citizenship prior to 2004 under the nationality laws, were not subject to taxation under the Internal Revenue Code. The 2004 law (that created the “tax citizen”) specifically stated that the creation of the “tax citizen” under the Internal Revenue Code was prospective only. It seems unlikely that the enactment of S. 877A in 2008 would have changed what was clearly a prospective concept to a retroactive application.

Therefore, whether one takes the “literal approach” or the “common sense” approach, the notion that Caroline, who relinquished U.S. citizenship in 1978, owes U.S. taxes, is hard to justify under the law.”

Michael Miller:

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As a solution to the problems caused by FATCA, American Citizens Abroad (ACA) proposes that FATCA be tweaked by imposing on “US citizens” abroad a “Same Country Exemption with mandatory IRS compliance” (SCEWMIC). SCEWMIC is likely to make the unjust FATCA law even more harmful.

Go to the links below for info and also read: “Why ACA supports Same Country Exemption (SCE) rather than repeal of FATCA, and why SCE will work to correct banking lockout by Foreign Financial Institutions.”

If you don’t like SCEWMIC then tell ACA exactly what you think in an email.

E-mail Mr. Charles Bruce, ACA Legal Counsel, at info@americansabroad.org

You can ALSO comment at ACA’s FB site: https://www.facebook.com/americancitizensabroad

[OF COURSE, you can argue that an email to Mr. Bruce, or to ACA, will not change their minds on SCE, but are you really so certain that when an organization claiming to represent “YOU” makes a bad proposal that will cause you harm — the best way to proceed is to remain silent and not confront that organization? Those who feel that all U.S. laws are irrelevant should not read further.]

So… here’s what you would have to do to make the SCEWMIC election:

“…An individual would complete the election on a 1-page, front and back, IRS form providing the individual’s name, address, Taxpayer Identification Number [Everyone has one?], and country of residence, and listing the “Same Country” accounts (name and address of bank and name, number and type of account, i.e., depository, custodian, etc.). The individual would certify that this information is correct. Also, the individual would state that he or she is a resident of X foreign country and the bank(s) are licensed and regulated under the laws of X country of residence (the same country where the individual is a resident). One copy of the election would be given to the bank; a second would be attached to the individual’s federal income tax return; a third would be retained by the taxpayer [NOTE TRANSITION IN PARAGRAPH FROM “INDIVIDUAL” TO “TAXPAYER”]. Instructions would be included on the form. Taxpayers would be warned that filing the election does not excuse them from having to report any income on the account on their tax return or from having to file an FBAR, provided in both instances they meet the applicable thresholds…”

Mr. Bruce explains to Bob Stack at Treasury why the ACA proposal is a really good deal for the IRS:

“In addition to benefiting American citizens abroad and foreign banks, the “Same Country” exemption will benefit the IRS. Americans abroad, in order to get the benefit of greater access to banking services, will need to come forward and file their US tax return, with the “Same Country” election attached. This will help address the nagging problem of noncompliance.”

Read Mr. Bruce’s letter to Treasury and ACA’s SCEWMIC HERE and HERE.

— and take a few minutes to email your thoughts to Mr. Bruce…

Here are two responses just received from ACA regarding SCE concerns:

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This post was prompted by an article written by a Los Angeles tax law firm.

The background is that there are about nine million or so people living outside the United States who are deemed by the United States to be U.S persons. Most of these persons are IRS non-compliant. Some of these persons believe that it is illogical for them to comply with the IRS.

The article points out (correctly) that many of these IRS non-compliant persons, as they age, will develop in old age some disabling cognitive impairment, and therefore will need another person (e.g., conservator, tax attorney) to handle their financial affairs.

The individual having enduring/continuing power of attorney over the person’s finances could be a spouse, relative, close friend, attorney, or professional company. It is likely that this person will instruct a tax lawyer or accountant to handle the tax filings.

What happens when the tax attorney/Conservator in Canada, UK, Australia, whatever, discovers that their cognitively impaired client has a U.S. taint but is IRS non-compliant?

What is the obligation of the tax attorney to the client — or to the U.S. IRS? Will the attorney be guided primarily by fear of personal liability? What is your guess? Will the attorney pursue a Streamlined or perhaps an OVDP “defence” on your behalf? How will the assessment of your state of mind prior to cognitive impairment re: “willfulness” be conducted? What happens if no evidence can be found “proving” non-willfulness? How much cost will all this entail to the cognitively impaired who must live off their retirement savings in an assisted living or nursing home? Can the tax attorney ethically justify bankrupting the savings of a cognitively impaired client to satisfy a tax law imposed by a foreign country?

Given that there is potential liability (in the eyes of the United States) for BOTH the person having power of attorney over the cognitively impaired person’s finances AND the person doing the tax filings, what is the “REALISTIC” solution to get out of this mess? Readers have suggested:

— Renounce while cognitively intact if you can somehow afford the cost “and just be done with the problem” [USCitizenAbroad]? Free yourself now.

— Instruct the person having enduring power of attorney NOT to pay taxes to a foreign government? [This may be problematic. The Conservator may in future worry about personal liability re: U.S. and it is likely that some (many? most?) tax attorneys/accountants will refuse to participate in the tax filings if they have knowledge that the individual is an IRS non-compliant US person].

— Attach a self-generated CLN to the POA instructions (Rebecca’s interesting suggestion)?

— Every individual in the world takes out an insurance policy modeled on Obamacare which would insure them and their estate against the possibility of their being deemed to be a U.S. citizen [USCitizenAbroad]; and/or

— No person who is suspected of possible “USness” will be entitled to have an executor [or Conservator][USCitizenAbroad].

Other solutions?

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While reading through U.S. Department of State (DOS) form DS-4081 I noticed that the renouncer is required to make (or not make by ticking off a “do not choose” box) to DOS a “written explanation of my reasons for renouncing/relinquishing”.

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I just noticed a comment from EmBee, who passed on to Brock a Maple Sandbox comment from “Anthony”, apparently a “Canadian lawyer”.

— Anthony actually says that the U.S. is planning to have homes of U.S.-tainted Canadian citizens FBAR’d (annual resale values etc. reported). Nonsense? Just a scare tactic?

If true, would this be that final straw that finally pushes affected, previously FBAR-obedient and quietly compliant Canadians into mass resistance, self-certification-without-permission-renunciation, and high anger?

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