Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two
Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
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NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part One
@UnforgivenToo&CEB
http://blogs.angloinfo.com/us-tax/2015/11/21/gifts-from-former-americans-beware-the-trojan-horse/
Thanks @heidi. I had actually seen this law already, and warned the person involved about this aspect of the issue. I think that since this article you cited was published last year, 2801 has since come into force,
no? I’m not sure that the consequences have sunk in yet to the people affected by it. Many times with toxic government regulations, the affected citizenry seem so preprogramed to think that “If the government do it to you, it must be just and right,” they don’t believe just how injurious these things can be. I mainly email with this person, and haven’t seen him/her in person for a while. The next time I do, I’ll be sure to point out the excellent example in this article.
The applicability of the law to someone who made most of the questioned inheritance after expatriating makes this law a clear candidate for constitutionality review. Should this law fall, the whole house of cards should fall in due course thereafter. One day, someone’s going to make a made-for-TV movie about the atmosphere of collective arrogance and illegality with which the US Congress operate. It will likely have as much following as those made-for-TV movies about Goebbels and his crowd.
The proposed law from Rep. Meadows HR 5935 has as a goal to “repeal the violation of sovereign nations’ laws and privacy matters.” The text of the law seems only to do with FATCA, and I’ve identified several sections in the law that simply don’t make sense. I didn’t review it to the end, but I suspect there may be more — the law is written in terms of ‘modify this existing regulation,’ ‘delete this chapter (or section)’ and then other sections make reference to the deleted sections (!). Other governments have taken to presenting the modified sections of existing laws showing deletions in strikeout type and additions in italics — I wonder why Congress work in this antiquated, inefficient way.
But my point is, if the goal of this law is to “repeal the violation of sovereign nations’ laws and privacy matters,” then there are other US regulations that may be affected by the intent of this law beyond those incorrectly cited in the body of the law itself.
Unforgiven Too – “I scanned through the document you linked, and it looks as though there is the loophole or two as well as a few traps. I will read it through a bit more thoroughly over the next couple days and maybe post a juicy bit or two (or I might just get mad and just forget it).
But I do have to ask who writes these things. How can they think up such complicated rule books and not take the time to consider how this would work in reality.”
U Too – I haven’t read it but I’m not surprised to hear it’s convoluted. It’s obviously always going to be unfair to try to scare parents away from renouncing by threatening their children. The regulations are bound to end up incomprehensible when what they’re trying to do makes no sense either morally or economically.
Phil Hodgen says:
http://hodgen.com/gifts-bequests-inheritances-and-expatriation/
Fortunately, the experience of others seems to suggest the IRS isn’t likely to waste time and money trying to gather evidence to prove “covered expatriate” status unless they expect to be able to collect (not just demand, but actually collect) a very large payoff. They can’t afford to waste a lot of time on low-value cases that are really difficult to prove and even more difficult to enforce. I imagine their ideal case is a fully compliant very rich renunciant, with lots of US assets/income and with the tax affairs being handled by a tame IRS-dependent “professional” who knows the location of every last penny and will happily share their knowledge with the IRS without waiting to be asked.
@CEB – “I think that since this article you cited was published last year, 2801 has since come into force, no?”
Have you seen anything to that effect? Have the final regulations been published? Nothing comes up for me in a google search.
@iota
Isn’t it the case that 2801 is already ‘in force’ and has been since 2008, and it is only its application that is currently merely deferred?
@Watcher – I don’t understand the distinction you’re drawing. The “proposed regulations ” say :
“These proposed regulations affect taxpayers who receive covered gifts or covered bequests on or after the date these regulations are published as final regulations in the Federal Register. “
I don’t see how 2801 can be said to be “in force” if the regulations which have been proposed for its enforcement don’t yet affect anyone.
@iota
But the ‘proposed regulations’ also say: “Section 9 of Notice 2009–85 further provides that satisfaction of the reporting and tax obligations under section 2801 for covered gifts or covered bequests received on or after June 17, 2008, is deferred pending the issuance of separate guidance by the IRS. … The Treasury Department and the IRS recognize that taxpayers have had to defer their tax reporting and payment obligations with respect to covered gifts and covered bequests received after the effective date of section 2801 (as described in Notice 2009–85). Thus, there may be circumstances under which a taxpayer who received a covered gift or covered bequest in a year prior to the issuance of final regulations may have difficulty in complying with the deferred filing and payment requirements with respect to those receipts. A taxpayer who establishes that such failure in this regard is due to reasonable cause and not to willful neglect will not be subject to the section 6651 penalties for failure to file or pay. The determination of whether an exception to the other penalties applies will be made on a case-by-case basis.”
That looks a lot to me like the IRS thinks it can retroactively enforce 2801 on gifts made before the regulations are finalized. Whether it can (and will) remains to be seen, but the implication is there. Perhaps we’re just differing on the semantics of ‘in force’?
Interesting comments, as usual, from ACTEC, including for example this about the relevance of tax treaties:
http://www.actec.org/assets/1/6/ACTEC_Comments_re_2801.pdf
@ Iota & all.
It will affect those US benefactors receiving estates from deceased covered expats, whom were deemed covered when the law came into effect June 2008.
Surely all it takes is a question on 3520, which has to be filed by any US person receiving a foreign gift or estate.
1.Was the deceased person ever a US citizen?
2. If yes. Was the deceased deemed to be a covered expatriate?
Surely any gift, or estate bequeathed over $10,000, received into a US beneficiaries bank account will trigger questions, especially if a 3520 has not been filed.
@ Watcher
Thanks for that. It seems that the IRS are hedging their bets.
I guess I will have to die before my spouse, for my US kids to inherit, failing that, if my kids insist on staying American, I think I will find some elephants or Gorillas to benefit ..if they are still around.
@Watcher – “Perhaps we’re just differing on the semantics of ‘in force’?”
If I had reason to be concerned about these regulations, I would ignore any possible IRS hopes of being able to collect on backdated demands and just take it at face value, that it applies to gifts after the publication of the final regulations. No point worrying about whether rules might apply retroactively when (a) the final rules aren’t yet known and (b) the goal is to avoid being hit in first place. (IMO, but then I’m not affected.)
@Heidi – worth having a look at the ACTEC comments 4(a)(1).
@ Iota
Why would the demands be ‘backdated demands?”
If you are deemed covered when renouncing, all the IRS has do is wait until you die (future)and collect from your US heirs. Stateside it’s easy to track and collect through 3520, and outside the US the IRS has FBAR and FATCA. Perhaps a few covered estates will have been lost in the meantime from those who have already died. But there is gold in those far hills 🙂
@iota
Sure. But it is incorrect to say that section 2801 is not ‘in force‘. It is enacted law whose enforcement is currently either deferred or — perhaps, but seems unlikely to me — not effected until some later date. The IRS has actually made it pretty plain that they will expect recipients of gifts made since Jun 2008 to retroactively comply with the regulations once they have been issued.
My guess is that the IRS is as well aware as the rest of us of the lunacy of this piece of US tax nonsense, and are stalling in the hope that somebody in congress comes to their senses and fixes it before it causes the damage predicted. My second guess is that any expectation that congress might come to its senses these days is an utterly forlorn hope.
@Watcher – I think we’re looking at it from different points of view, that’s all. As I said, I’m not affected by Section 2801, and nor is my family. If I were labelled “covered” by the US, and also had US citizen children who wanted to continue as compliant US citizens, I might well see it differently. Those of you who are so affected have my sympathy.
@ Watcher and Iota
Can’t find any reports on the proposed Jan 2016 meeting.
But this is from an Interpretation from Journal of accountancy
http://www.journalofaccountancy.com/news/2015/sep/taxation-of-gifts-from-expatriates-201512991.html
“Effective date The tax will be reported and paid on new Form 708, which the IRS has not yet issued and which it said it will issue once these proposed regulations are finalized. After the final regulations are published, taxpayers will be given a reasonable time to file the form for covered gifts or bequests received on or after June 17, 2008. Interest will not be imposed on these payments until the due date specified in the final rules has passed. – See more at: http://www.journalofaccountancy.com/news/2015/sep/taxation-of-gifts-from-expatriates-201512991.html#sthash.YxGg179h.dpuf”
They are looking for backdated interest too!!
@ Watcher
On past form, they will carry on regardless
@Heidi – “Why would the demands be ‘backdated demands?”
Because the recipient of the gift is supposed to have paid the tax at the time the donor contracted themselves to give it – i.e., at the time the will was made.
But I just don’t think these details are the main problem with Section 2801. The real problem is that it tries to black ail the parent by threatening to hurt the child. Loopholes and inconsistencies are useless if you’re faced with a child who is attached to their US citizenship, has been brought up to abide by the law, and doesn’t yet understand the complexities of citizenship-based taxation as administered by a superpower with a Manichean worldview.
@ Iota.
Usually the tax is paid on the estate on death, not by the beneficiaries . I think the US must be unique in this respect. But it looks like they intend collecting backdated to 2008 + interest.
I am a great believer in giving kids the best start in life as possible, love, ethics and education, then it’s up to them to make their own way. I can think of many worthwhile causes that can benefit should I have anything left to leave.
I just cannot fathom the stupidity and small mindedness of those so called leaders of the free world!
I was being a bit sarcastic (“Galgenhumor”) when I wrote my comment an September 12, 2016 at 5:47 pm http://isaacbrocksociety.ca/renunciation/comment-page-269/#comment-7663071.
Now that I have found the right section, I see I wasn’t that far off:
“Do they demand that any US person getting money from another person require that they reveal their citizenship and provide self-certification that they were never a US person and if they were that are not covered…”
§ 28.2801–7 Determining responsibility under section 2801.
(a) Responsibility of recipients of gifts and bequests from expatriates. It is the responsibility of the taxpayer (in this case, the U.S. citizen or resident receiving a gift or bequest from an expatriate or a distribution from a foreign trust funded at least in part by an expatriate) to ascertain the taxpayer’s obligations under section 2801, which includes making the determination of whether the transferor is a covered expatriate and whether the transfer is a covered gift or covered bequest.
…or else either automatically”withhold” taxes from that money for the IRS or refuse to take it?
(b)(2) Rebuttable presumption. Unless a living donor expatriate authorizes the disclosure of his or her relevant return or return information to the U.S. citizen or resident receiving the gift, there is a rebuttable presumption that the donor is a covered expatriate and that the gift is a covered gift. …
I have to give them one thing, they are consistent and by that predictable: just choose the most onerous way of doing something, crank it up to 11, add a dash of hypocrisy and a pinch of hate: see here a new US tax law. All you need now is to publish it by burying it under a rock in the AZ desert (like they did FBAR).
I guess it’s down to lying to him and hoping the IRS doesn’t ever put my name on the official list, because (b)(1) seems to give the impression he has to check with them (but can not hold them to a false negative).
Or I could just try to talk some sense in that boy (don’t know where he got that stubborn streak).
As far as I’m concerned I’m out of this topic.
One last thought to Sec. 2801:
The law exists as a threat of possible punishment for those who want to leave the system. However, they have been dragging their feet about actually implementing regulations to enforce it. Why, with all that “tax revenue” laying there to be stolen?
I don’t think they will ever actually enforce this, because the only possible use of the law is as a deterrent to scare people into staying in the system. Once out, despite the law, who gets punished? Not the escapee. They are already giving someone their money, or dead (can’t really punish a corpse, can you? Leave it to them to try anyway).
It’s the Homelander beneficiaries which are punished and it is money on its way into the system that is siphoned off.
People with US coveredship are deterred from letting their money from being exposed to this and react by either encouraging their beneficiaries to leave the system, too, or by seeing to it that the money goes elsewhere, out of their reach. Both are, in their view, counterproductive.
Then there’s all the Homelanders, who, until now, are uninformed about the injustice of CBT and it’s consequences, which now must jump through the same kind of hoops we must and having money taken from them unfairly by a corrupt government trying to punish a human right every time they get a gift or bequest from a foreign person. Or they start noticing that their relatives are striking them from their wills (Why did Aunt Heidi leave all her money to the Toronto Zoo, instead of me, her favorite nephew?)
This would definitely raise Homelander awareness and sensitivity to a level they do not want.
They may be mean and hateful, but I don’t think they are stupid enough to actually enforce this. However, I may be wrong. When one looks closer at their past actions…
@admins
This started off as a question, but my last comment should probably go somewhere else (I wouldn’t know where, though). Please move it there, if need be.
Thank you.
@UnforgivenToo
I hope you are right but somehow I doubt it.
Those fools always seem to shoot from the hip without consideration of the aftermath whether its finance or war.
‘Look at all that covered money escaping our grasp, we will get it back somehow’.
Then there is always the punishment element, it’s always the stick, never the carrot.
Unforgiven Too – “I guess it’s down to lying to him and hoping the IRS doesn’t ever put my name on the official list, because (b)(1) seems to give the impression he has to check with them (but can not hold them to a false negative).”
Sorry to say this, but…
Unfortunately, though there’s a good chance in the normal run of things that they’ll never notice that you haven’t filed an 8854, if the question isn’t drawn to their attention, if it is drawn to their attention, say by your son following the rules and checking with them, then they’re almost sure to go looking for your 8854. They’ll want to tax the gift, if possible, and they can only tax it if you’re a covered expatriate, so from their point of view this is easy revenue, just waiting to be claimed if they can nail you as covered.
The NY City Bar sent the IRS some comments on the proposed regulations, and one of the issues mentioned is this very point: how the recipient can determine whether the donor is a covered expatriate. I would guess that this is one of the sections that will be revised and made watertight as a result of the comments received in the consultation. See http://www.nycbar.org/member-and-career-services/committees/reports-listing/reports/detail/comments-to-proposed-regulations-irs-reg-112997-10-guidance-under-section-2801-regarding-the-imposition-of-tax-on-certain-gifts-and-bequests-from-covered-expatriates and click on “View Report” to see the NYCBar’s suggestions. They’re not nice.
It’s looking like all renunciants should be very careful about over-threshold gifts to US citizen family members, unless they’re confident that they’ve made a clean exit and can’t suddenly find themselves reclassified as covered.
@iota & unforgiventoo
If the US children are not living in the US snd the estate they inherit is not situated in the US, then they do not have to fill in any US estate forms (unless the executors are cogniscent of asking the ‘are you a US person’ question).But I guess if the reason they want to keep their US passports is to travel or work there freely, then they would need to be IRS compliant and diligently send their fbars and their foreign asset reporting and that is where the problem would arise.
I think it is important to make all US infected kids aware of the problem so they can make informed choices. Maybe eventually they will see sense.