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
@WhatAmI
That reference above was from page 40…
@ ozteddies
Hello from Canada – thanks for the kind words and comments. By sharing details of your situation there, you are providing a valuable service to the Canadians caught up in this mess. Thanks for reaching out!
There is natural affinity between Canada & Oz. Many Australians take advantage of the opposite winter seasons to work in Canada’s ski industry. As avid skiers, we enjoy meeting Aussies working the ski slopes everywhere from Whistler to Banff to Collingwood. They are a friendly and fun loving crew; we always make a point of welcoming them and chatting about similarities between our great countries.
In view of your comments on the humor regarding citizenship of your “future children”, and your welcome openness about being a same-sex couple….
There are essential lessons US-born Canadians should take from the gay rights movement!
While gays remained in the closet to avoid discrimination, they were powerless. In Canada, gay rights and eventually gay marriage were advanced when Delwin Vriend, on staff at an Alberta school, heroically came out. He lost his job over it – and took a discrimination case to the Supreme Court of Canada. His victory there in 1998 was turning point for gay rights in Canada and established sexual orientation as prohibited grounds for discrimination.
Untold thousands of US-born Canadians are being forced to conceal their birth-place nationality due to fear of discrimination by their banks, brokerages and insurance companies. Unless they assert their equality rights as Canadians they will be a hidden oppressed minority.
@RMA – thanks very much for the link. I have read it and the crux of the argument is yes you ought to file as you don’t know what Uncle Sam might do next… I appreciate the point but firstly I am very resentful of having to cough up for accountants for filing all of these past five years (the same for the declaration of various bank accounts) and secondly there is no guarantee of fines not being imposed, indeed no guarantee of the tax you paid in your home country being taken into account. Also, how long does it take ? All rather Kafkaesque. Still, on this forum I am preaching to the converted…
I think the main point is if a return (tourist) trip to t he US is made on your other passport, will you pop up as a expatriate who dodged taxes ? The only burning issue is having your place of birth showing up to be in the US, and I can’t see how you can avoid that.
@David…you pretty much have the facts. AFAIK, today, the IRS doesn’t share info with the CBP. Especially civil information. I don’t think CBP/DHS cares unless they saw a criminal arrest warrant in their computer about your status vis-a-vis the IRS, and that would only happen if you were referred to DOJ tax by IRS-CID.
That could change in the future
@David
If the IRS really wanted better compliance they would allow all USP’s abroad who could prove reasonable cause to begin filing on a ‘go forward’ basis. This doesn’t eliminate the 5 years of compliance necessary for renunciation, but it does at least allow for better tax planning for the next five years you’ll be in the system.
@David –
The only real downside to this strategy, as far as I can tell, is the potential for permanent exile if some version of the Reed Amendment eventually becomes law. This may or may not matter to you – hard to tell from here.
Hogden puts it succinctly –
“In short, I think you could be a covered expatriate, and you keep yourself and your money out of the United States for the rest of your life, then you can be a happy goat.”
The Out in a Blaze of Glory strategy may attract unwelcome attention from the IRS, but if you and your assets are out of their reach, you may not care.
My issue with Out in a Blaze of Glory is: If you have so little connection to the US that you are willing to live with a grumpy IRS and the possibility of lifetime exile, why are you bothering with any level of compliance at all?
@ A broken man on a Halifax pier … thanks very much for your reply to this one. The problem I am facing is that it is becoming difficult to have a bank account outside of the US (Switzerland) when the bank knows your birth place (a relatively recent development, before a blind eye was turned), furthermore future (short) trips to the US might be necessary.
Presumably then the Reed Amendment (or its spawn) could be applied retroactively ? I don’t suppose anyone can tell so far.
@David –
There’s always the chance that something along the lines of the Reed Amendment will become law (actually it already is law, but passed in a way that makes it unenforceable.) If there are a couple of legislators with an idée fixe on the subject and no serious opposition, some version of it will probably eventually become law at some point. The simplest target would be covered expatriates. My solution to all of this, FWIW, was to file five years of fairly basic returns and renounce.
Thanks for the interesting document. Though it is titled “Income Tax Compliance by U.S. Citizens and U.S. Lawful Permanent Residents Residing Outside the United States and Related Issues,” it is of interest to me in that my son and I were “unknowing” citizens as I believed that I had relinquished my US citizenship when I became a Canadian citizen in 1975, as I was warned. I also believed that my children, born in Canada, were ONLY Canadian citizens. I did not register either of them with the US. My son has also never lived in the US, has never had any benefit from the US, has never had a social security number nor filed a US tax return. I take the position, then, that for him to know that the US considers him a US citizen, I (as his Parent and Trustee) would have to advise him of that. As a Parent, Guardian or Trustee cannot renounce US citizenship on behalf of a developmentally delayed or otherwise mentally incompetent individual, even with a court order, a Parent, Guardian or Trustee will then not be able to advise him that the US considers him a citizen of their country — for NO BENEFIT to him. I will say that I am absolutely sure that the U.S., being the democratic nation with strong human rights practices will in no way want to entrap my son (or any like him) into US citizenship for no benefit to him (only the consequence and administrative expense of having to file US tax returns year after year with nothing that would be owed to the US).
From page 39, on, portions that interest me are:
@Calgary411
You are welcome…
I just got a reply from Kevin Schoom asking if he could share my story with the CRA… (OK’d)
also gave him a link to the 1998 Treasury Report…
WONDERFUL, Benedict Arnold be me. That is great news. Your story is very important and I hope the Canadian Government will take full note of it. Thanks so very much for sending it to Kevin Shoom.
@Benedict Arnold be me,
Thank you for providing that link to the document
http://www.treasury.gov/press-center/press-releases/Documents/tax598.pdf
Despite its serious nature for U.S. expats, it contains statements which are hilariously indicative of lack of comprehension on the part of congresspeople and IRS officials about how US citizens living abroad think. One example, from pages 3 and 4:
“Nearly 50% of the returns filed by overseas citizens or resident aliens report no tax liability, primarily as a result of sections 911 and 901 of the Code. In addition, even among those overseas citizens or resident aliens who have been found by IRS not to have filed returns, the provisions of sections 911 and 901 still may operate to eliminate or reduce significantly the amount of U.S. tax owed.
“For example, in one IRS compliance initiative, which the Government Accounting Office (the “GAO”) studied in a 1993 report,Tax Administration: IRS Activities to Increase Compliance of Overseas Taxpayers (the “1993 GAO Report”), out of 176 overseas taxpayers that IRS contacted who hadn’t filed returns, only one owed U.S. taxes, totaling $9,595. Similarly, in another initiative, only $2,126 was owed from a group of 140 delinquent filers, and in a third only $5,345 was owed from a group of 62 overseas nonfilers. See1993 GAO Report, at 9-10. Although these samples are clearly too small for any definitive general conclusions to be drawn from them, Treasury believes the samples do indicate that with respect to U.S. taxpayers working overseas, a taxpayer’s failure to file a U.S. tax return does not necessarily indicate that the taxpayer is not paying the taxes he or she owes to the United States.”
Duh! Is it any wonder that expat citizens stop spending the time and money to file tax forms year after year when they end up owing the U.S. nothing?
And there’s this from page 14:
“For example, an individual who was born outside the United States and has never even visited the country may, nevertheless, be a U.S. citizen by reason of his parents’ U.S. citizenship.
Such a person may not even know that he is a U.S. citizen and thus likely [sic] will not know
of his obligation to file a U.S. tax return.” — I would say “extremely likely” 🙂
Doesn’t that make anyone in the U.S. government wonder why such a person should even have an obligation to file a U.S. tax return?
Finally, does anyone know if and where the Demographic Study of Overseas Compliance describe in page 7 was published?
Sorry for the errors in formatting my last comment. I wish I could edit it. The italics were meant to be on my comments only, not on the second quote. The last line should be
“described on page 7 was published?”
AnonAnon
This might be it…
http://www.gpo.gov/fdsys/pkg/GAOREPORTS-GGD-98-106/html/GAOREPORTS-GGD-98-106.htm
Not my field of expertise…
@AnonAnon
you might like this..in that link…
In the 1960s and 1970s, U.S. citizens residing abroad and applying
for passports or registering at U.S. consular posts abroad were
asked to complete an IRS Form 3966: Identification of U.S. Citizen
Residing Abroad. U.S. citizens were asked to voluntarily provide
their foreign mailing address, occupation, date of last filed tax
return, and other identifying information. When they learned that
completing the form was voluntary, many citizens declined to do so.
For this reason, and because some complained that the form
constituted an invasion of their privacy, IRS discontinued the form
in 1979.
Thanks, Benedict Arnold,
In that report and the one you provided the link for earlier, several things are documented that have long been understood intuitively by those of us here at the Isaac Brock Society:
1. The US has only vague estimates of how many of its citizens reside outside the country. To track them, they rely on passport applications and visits of those citizens to consulates, but passports are documents for travel abroad, not residence abroad and the State Department does not maintain official records of country of residence or postal addresses outside the US. Many US citizens who have been living outside the US for extended periods of time have dropped all contact with the US. If they are dual citizens, many have presumably been traveling on passports of the countries in which they reside.
2. As amended in 1986, the Internal Revenue Code requires passport applicants to provide their SSNs under penalty of a $500 fine, but that provision is not enforceable because the State Department does not deny passports to citizens who do not provide their SSNs — or, at least, did not do so as of the date of the study (1998).
3. The IRS has no clear idea of how many US citizens residing outside the country have not been filing tax returns, how much tax they would actually owe (based on small sample studies, it would be little or none on average), or how to track them.
So one can conclude that the entire citizenship-based taxation system operated by the US, as it applies to citizens living outside the US, is based on gross ignorance. The sane, simple, efficient course for the US would be to change to a residence-based taxation system as used in the rest of the world. Nevertheless, and again based on almost total ignorance of the revenue results, costs, and other consequences, the US is trying to enforce its citizenship-based taxation system by adopting initiatives like OVDI, FATCA, tighter passport requirements, and enforcement of penalties for non-reporting, to more completely track and control the activities of it citizens wherever they reside in the world. What arrogant stupidity!
@Benedict Arnold be me
Another interesting find. I’m having a hard time understanding if it’s good or bad for our cases. I do see that parts of the document are _proposals_ for changes. I don’t know if they were enacted.
On page 36 it talks about proposed changes that separate the date the DoS considers loss of citizenship and when the IRS consideres it. Of course, it’s in the IRS’s favour.
This is really interesting: they equate taxes due to years when a person is eligible for US government protection:
A person who doesn’t even know they’re a US citizen would not go seeking help from the US government, and being outside of the US without a US passport I imagine they couldn’t get any help even if they asked.
From page 27 of documnet tax598.pdf:
@AnonAnon
i renewed my US passport without a SSN about a year and a half ago. I didn’t have one at the time and filled in the spaces with a series of “0”‘s as recommended by some information I found on the internet. I believe you can run into problems and be fined only if you have a SSN and don’t enter it on the passport application.
““………Nearly 50% of the returns filed by overseas citizens or resident aliens report no tax liability, primarily as a result of sections 911 and 901 of the Code. In addition, even among those overseas citizens or resident aliens who have been found by IRS not to have filed returns, the provisions of sections 911 and 901 still may operate to eliminate or reduce significantly the amount of U.S. tax owed.”…….
and,
“…Treasury believes the samples do indicate that with respect to U.S. taxpayers working overseas, a taxpayer’s failure to file a U.S. tax return does not necessarily indicate that the taxpayer is not paying the taxes he or she owes to the United States.”….. http://www.treasury.gov/press-center/press-releases/Documents/tax598.pdf – dated 1998.
Funny, that is not the angle the IRS chose to take AFTER they were handed the fbar NON-wilfull penalty and enforcement powers, and saw the vast potential of confiscatory FBAR penalties (and threat) DESPITE many expats still owing NO US taxes. The IRS realized that they could generate revenues from those abroad – despite the FEIE and tax credits, even where they could not assess any actual US tax, and also leverage their extortionate threats via the FBAR.
Please explain then GAO, IRS and TIGTA why you are so concerned NOW about quiet disclosures – which are NOT illegal, and cite the possibility that some expats are thereby potentially not paying taxes, fines AND penalties. Is it really the US TAX (zero or piddly in several of the OVDI cases we’ve heard from), OR IS IT REALLY THE FBAR Fundraiser they’re most concerned about and loathe to lose out on? The US tax recovered could be zero or merely de minimis, but because all of us living outside the US must have bank accounts and savings, the draconian (and possibly unconstitutional) FBAR is of concern for many/most – and reap many times the amount the US could ever claim as actual ‘tax’. You can have zero income or taxable income so low as to not require the filing of a 1040 and be zero US taxable – yet STILL be an IRS target based only on the mere existence of your (or your employer’s or someone else’s ) legally, post-tax and registered savings held ‘abroad’ where you actually live.
What LEGITIMATE government and taxing authority relies MORE heavily on penalty revenue than actual taxes that can be assessed? AND, given that all those living outside the US must bank and save, but those in the US can choose to bank only in the US, it is a method of levying revenues in a discriminatory manner from primarily those outside the US – who also have no effective representation or power. I’d like to see some of those tax scholars justify a revenue pool designed to come PRIMARILY from penalties levied on mostly post-tax legal assets, vs. tax levied based on income or earnings. Particularly when the aggregate threshold for FBAR reporting was set decades ago (since 1970) at 10,000., which in today’s dollars, 43 years later, would see so many more of us exempted from reporting. (see Hale Shepard ‘EVOLUTION OF THE FBAR: – Houston Business and Tax Law Journal
http://www.hbtlj.org/v07p1/v07p1_sheppard.pdf
by HE Sheppard – 2006 )
The IRS and Treasury sees us as a potential gold mine for layered FBAR and FATCA form 8938 penalties (as well as the other advantages that the 8938 confers to the IRS).
I believe that is why they were not so concerned about us before, but now are. NOW, they have the non-willful penalty, and NOW they have the powers of enforcement of the FBAR, plus the FATCA form 8938 ‘Son of FBAR’ and potentially the FATCA IGAs signed by collaborators in our home countries.
This is why they will not come clean under the FOIA to detail how much of the OVD revenue was from actual US tax owed, and how much came from penalties levied for mere non-reporting of our legal local ‘foreign’ bank accounts.
As they say, to the IRS and Treasury, the best FBAR is the unfiled FBAR – because the unfiled FBAR can generate penalty revenue that cannot be levied on our excluded income and earnings.
@ badger
“… the best FBAR is the unfiled FBAR …”
This is so true from the perspective of the IRS. However, at the risk of bringing down a curse upon myself, I will venture to say that my unfiled FBAR has an advantage for me, for the moment at least. They don’t know how much I’ve got and where I put it even though I’m sure the NSA can tell them anytime they ask. If I get enough lead time I will be able to extract what I’ve got from where it is and add another monkey wrench into their asset seizing aspirations (i.e. sheer scumbaggery thievery) … I hope. I am a Canadian and no matter what they think their hold on me might be, my personal banking information will not go to Mordor Over the Border (the MOB) — not of my own volition anyway.
@WhatAmI
You seem to be missing the big picture…This Treasury Document clearly shows how the IRS and the DOS have conflicts in determining who is and who isn’t a US Citizen subject to taxation…and how to interpret the unique situations as per pages 39 and 40…
The lead letters refer to :
“The enclosed report also reviews the process through which the Department of State determines when citizenship has been lost, and discusses possible changes to that process in light of its significance for tax purposes”
The author is obviously an enlightened individual from TAX POLICY with an understanding of conflicts between DOS’ and IRS’ take on things,..and this was back in 1998 long before the current FATCA situation…
I PARTICULARLY LIKE THIS RECOMMENDATION at the end…:
Consideration should also be given to modifying the basis for U.S. taxation of individuals.
As discussed in Part IV, supra, the current definition of individuals subject to U.S. taxation may be
subject to manipulation by tax-motivated expatriates, on the one hand, and may, on the other hand,
include some individuals who for reasons of administrative efficiency and fundamental fairness should be excluded.
@Benedict Arnold be me
Who could argue with such a rational and humane argument?
@Benedict Arnold be me
BTW, I’m quoting page numbers by what’s on the bottom of the document pages, not the PDF file pages…
I think I’m understanding the document, but I’m not sure what points you are making about it. Do you see anything that helps our cases? I don’t think I do, but it’s hard to understand much significance from a 1998 document which was 25 years after I was told I’m not a USC.
As for the age of 18.5, this document and the others mention that a person can retain their USC by re-claiming it between 18 and 18.5, but (unfortunately) it doesn’t say that the failure to re-claim it during that small window is in itself a relinquishing act. It undoes a previous relinquishing act. It surely confirms that 18 is deemed old enough to make citizenship decisions. That was a question we had (18? 21? 22? 25?).
This document points out that the conflict in the definitions of loss of citizenship allows people to cheat the IRS:
and then it goes on to give an example, including why they consider it cheating:
It goes on to suggest a way to fix this is to change citizenship law to not back-date the loss of nationality. This is to the advantage of the IRS as they would plug the hole and collect back-taxes.
The alternative suggestion is to change tax law to ignore the DoS and have the IRS consider the loss of citizenship as the date that a person comes foreward to ask for a back-dated CLN, which has the same effect as the previous suggestion.
Their recommendation seems to be to make sure the IRS can set the loss of citizenship as late as possible so they can collect the most taxes.
As for many of us, since we never had US passports, or at least not after becoming Canadian citizens, we couldn’t have ever cheated the system in the way the describe in their example. But of course, we’re damned by their “improvements” to catch the cheaters.
Lastly, if I’m understanding the bottom of page 6, it looks like the birth of the Exit Tax:
@WhatAmI
Where oh Where have you seen any reference to a MINOR commiting a potentially expatriating act?
(a U.S. citizen who commits a potentially expatriating act prior to his or her
eighteenth birthday is not deemed to have lost citizenship if he or she asserts a claim to U.S.
citizenship within six months after attaining the age of eighteen).
I was told in no uncertain terms that I had not; since one had to be 18…even though I had Certificate of Canadian Citizenship (ie naturalization in a foreign country) at the age of 10…
Doesn’t that make you wonder how Treasury can see reality while the DOS doesn’t?