I haven’t competely reviewed everything in here but I wanted to get it posted as soon as possible. It is NOT necessarily all good news. Post will be edited accordingly as I figure out more.
A couple of additional comments:
This revenue ruling says NOTHING about FBAR and I am not even sure how an additional FBAR related ruling would even be created.
Second, If I can find out whether this ruling is still valid I think it something anyone in OVDI/OVDP should be bringing up to their examiner even in situation “D”(i.e. US Citizen overseas that has never committed a relinquishing act). There is another revenue ruling tied to situation “D” that I am going to try to link to also.
Third, I have a distinct feeling with the exception of FBAR related matters whatever the service is going release in September will be a re-heated version of this twenty year old ruling.
Tim, what disturbs me about this is:
“Prior to November 14, 1986, the Immigration and Nationality Act did not
expressly state the requirement that an expatriating act be performed with the
intention of relinquishing United States citizenship.
and Nationality Act, section 349, 8 U.S.C. section 1481 (1982) (amended 1986 and
1988). On November 14, 1986, the Immigration and Nationality Act was amended to
expressly state this requirement. Immigration and Nationality Act Amendments of
1986, Pub. L. No. 99-653, section 18(a), 100 Stat. 3655, 3658 (1986). This
amendment was made applicable to actions taken before, on, or after November 14,
Not having read all of the above, it still strikes me that the US will simply continue to ignore the fact that it failed to establish a procedure and as such, does not have the right to force anyone to accept their “retroactively restored USC.”
Thanks much, Tim! Definitely an important ruling.
NobleDreamer, I think it’s saying that even if the person did not intend to relinquish the citizenship, but even just thought they had lost it and acted accordingly, they may be granted relief.
I think I’m like Person ” “C” in that I did not get a CLN, except she “did not intend to relinquish her
citizenship when she performed her expatriating act,” whereas I did. United States
On the penultimate page, referring to Person “C” “Relief may be granted if the person acted in a manner consistent with a good faith belief that they had lost United States citizenship by, among other things, not affirmatively exercising any rights of United States citizenship in the period when they did not file federal tax returns as United States citizens.”
A bit confusing but I think I qualify under B. It depends on the line about “B’s expatriating act was reported to the Department of State.” I performed the expatriating act in 1973 but only “reported” it in 2012 when I filed the forms for an evaluation of relinquishment. Will this qualify as “…applied to have his United States citizenship reviewed.”? If so it would be a catch 22.
I think the straightforward I am B and off the hook applies.
My sense “B” refers to a scenario where you obtained a CLN back in 1973 but later under the changes in the INA wished to have your US nationality reinstated. None of the scenarios listed other than “D” are truely directly applicable to the present day circumstances. It just gives you an idea of what they have thought in the past.
The other issue is all of this is pre-Exit Tax. So how this all fits with current law and policy is still unclear. The implication is that if you did obtain a CLN in the past and latter were able to have it cancelled your tax obligations would only start after the date it was cancelled and you were re-instated as a US citizen. Remember Person A and Person B both had their original relinquishing acts reported to the State Dept(and in theory were issued a CLN although as everyone knows that is a bit of an unknown) other than Schubert there is no one else who appears to be in that same type of clear cut position. One thing I would like to know is that when issuing CLN’s how does the State Department know whether they have already issued one say back pre-1980.
To the extent that this means anything it is good news. Here are the pieces of good news:
1. If you performed the expatriating act prior to 1986, because S. 349 required only that the expatriating act be performed voluntarily, you have presumptively lost your citizenship. People who had lost their citizenship had the right to apply to have it restored. Now, what is interesting is that, this says that the requirement to file taxes only begins from the point that it has been restored. This is quite interesting because it seems to acknowledge that for the period between your relinquishment and the date of restoration, you were NOT a citizen, and therefore have no tax liability for that period of time. Note also that situation 2 makes clear that if you lost your citizenship and did NOT apply to have it restored, you are NOT liable for taxes.
2. The situation in “3”is a little harder to interpret, but it seems to say that the payment of tax is not required because the person performed the expatriating act, without intending to retain U.S. citizenship. Now, I read this a couple of times. This does NOT say that loss of citizenship is dependent on a CLN or the IRS or State Department knowing about the expatriating act. It just comments, that in this case the state dept, did NOT make any determination with respect to loss of citizenship. A determination by the State Dept is irrelevant. What is relevant is the issue of intention at the time of the expatriating act. Most of the comments are related to how to determine intention.
3. The ruling just confirms that if you are U.S. citizen you are required to file tax returns.
So, all in all, this seems to me to be very helpful.
There is no mention of B asking for reinstatement of citizenship. As a matter of fact it states specifically that B has lost citizenship and never asked for it to be reviewed. That’s on page 2. On page 6 it says B is *not* taxable. On page 7 it says B *may* ask for a review and have their relinquishment vacated. I am definitely not going to do that.
Yes I agree on B. The situation on B though is that CLN was issued back in 1979. I don’t know anyone other than Schubert that has a CLN from that time period. Most Brockers are in something closer to category C although significantly as they had the “intent” to relinquish citizenship not just that they were “judged” to have done so(and generally have not been in contact with the State Department since).
Remember though this is all pre “Exit Tax.”
What is the relevance of it being prior to the “Exit Tax”?
Yes. That’s why it is a bit confusing. B’s CLN was issued back in 1979. However, when my CLN comes through I certainly expect it to say I performed the expatriating act back in 1973. Regardless of the fact that I asked for it in 2012 it should have the 1973 date on it making me a B.
I’m keeping my fingers crossed on that.
*”C’ did NOT intend to relinquish her citizenship. Therefore if she applied to get it back, it would be granted and from then on she would be liable.
this is not the same as most Brockers who did intend to relinquish or never wanted it in the first place. If you performed a relinquishing act long ago, don’t apply for reinstatement and don’t worry about taxes.
Further to my above comment, I guess I should clarify that I relinquished intentionally but did not apply for a CLN the same year I relinquished, as B did, but I did apply for it in 2012. Under B or C, they’re saying the person is not liable for taxes during years in which they are not a USC … which for me would be from 1979 (the date I was told would appear on my CLN) through the rest of my life.
I found this ruling re C interesting because it indicates that the determinative factor and date is the act itself, not the existence of a CLN. And that if this applied even to one who did NOT intend to relinquish, seems it most certainly would apply to one who did so intend, even without A & B in the mix, making it a very strong statement. Although, as Tim points out, we are not certain of the weight this ruling has today … hopefully lots.
Not sure if this information is pertinent to above discussion but for what it is worth I will add this info.
I have a friend from my University of Toronto days who came to Canada in 1961 as a student. She became a Canadian in 1973; by this time she was a single mother of two boys. In the early 90’s, she was told by an American friend that they had read that she could ‘get back’ her U.S. citizenship. She applied on the basis that she had not really ‘intended’ to relinquish but had only done so in order to obtain a job with the Ontario government and as a single mother, she needed the job. Her citizenship was re-instated. She also at that time applied for and was granted a U.S. passport. She was told she needed to file tax returns going forward as she had not been a U.S. citizen between 1973 and 1992.
The problem I have is the way I reading Person “B” is that if that person reinstated their citizenship in lets say in 1995 they would still be obligated to file for 1993 and 1994. So while the US may come out with a similar revenue ruling in the future I don’t think this one has much applicability to present other than giving a clue as to what the past mindset has been. As I mentioned before it also says NOTHING about FBAR and don’t get “too” excited about this yet.
The case of your friend from Toronto would definately fit in with this guidance.
I am increasingly coming to the understanding that relinquishments are a MAJOR problem even in the present day and could possibly even be a loophole to the present day exit tax. One of the issues as the term citizen is not defined that well in most US tax treaties thus the applicable definition is probably that of the INA not the IRC.
Hmmm… It doesn’t say B applied for a CLN at all. It says B’s expatriating act was reported to the State Department. Could have been by anybody. That happened to a friend of mine who had an official inform the state department because he didn’t like draft dodgers.
Since it was reported in 1979 the CLN was issued and dated in 1979. I see no reason why, if the state department is notified in 2012, a CLN can not be dated 1973 (we know all the ones issued to IBers so far have been) therefore making anyone in this situation a B.
I hear you, Tim. My thinking on this is if you never reinstated your citizenship, you remain a non-citizen both before and after 1992. However, I do get it that there’s been some legislative and policy changes over the years, and I can’t predict that a decision-maker would interpret it as I do. Overall, I think it bodes well. I liked seeing recognition of the fact that citizenship ends when it ends, as a Dept of State employee tried to convince me that it was too late to get a CLN (which I knew wasn’t true, and that matter’s been taken care of, but it was a pretty unbelievable and unpleasant situation to have been in.)
I also would like to thank you for bringing this ruling to our attention.
Wouldn’t it nice ( do I hear a song there?) if the IRS were to issue a clear and unambiguous revision of the ruling that would answer the questions we, lawyers and accountants are asking about the IRS’ position on relinquishment.
One thought- perhaps the ruling can be sent to the Canadian Finance department with a request that they ask the IRS for an update.
I agree with your interpretation of B, with the caveat this the ruling is 20 years old and may not be the way the IRS sees things now.
The assumption from what I read though is anyone who “notified” State back pre 1986 would have had a CLN issued. I don’t happen to believe this was necessarily always the case in reality but that is the assumption they are going on. I suspect there is beginning to be a realisation on some in the US Government this is a very complex are of the law.
If it is an established fact that somebody was either born or naturalized in the U.S. then what the INA and the IRC say about the definition of citizenship is irrelevant. The 14th amendment makes it clear that the U.S. government cannot take your citizenship without your consent. This is what the constitution says. The whole point of a constitutional right is that once citizenship has been established the government cannot redefine it.
The one area where the government has input is on the conditions for acquiring citizenship if one was not born in the U.S. Therefore, insofar as either the INA or the IRC define citizenship then what they say is irrelevant.
Now the use of he word “citizen” in the IRC can be changed to something else. But as long as it based on citizenship-based taxation, and the word “citizen” is used the IRS is bound by that meaning.
Furthermore, the ruling to which you refer makes it clear that the IRS is using Supreme Ct, 14th amendment principles to determine citizenship.
I don’t know if the state department sent a CLN to everybody they found out had committed an expatriating act. I do know that my friend got one within two months of becoming a Canadian citizen and he didn’t inform state of the fact. In those days they seemed to be looking for ways to take away citizenship sort of a punishment I guess as compared to today when you have to almost beg them to let you go.
Yes, state sees citizenship and expatriating acts very differently now from what it did forty years ago so the IRS probably does also. Have their printed instructions kept pace or have they been willing to put their policies on paper is a good question. Finding this document, however, is a good step to see what they have that’s newer and what justification they have for changes, if any.
The U.S. government has always used the notion of citizenship to punish people. You are right:
In the old days they would strip people of their citizenship to punish them.
Today they argue that you are a U.S. citizen in order to punish you.
The solution: don’t be a U.S. citizen.
There is another problem that has been unaddressed and that is what is the governing definition of “citizen” for purposes of the US Canada Tax Treaty “Savings Clause” as there is no definition in the treaty. Should the treaty be judged in terms of the definition in the INA or the IRC. Note: The 1996 Exit Tax law attempted to override all treaties for a period of ten year until 2006 while certain changes were negotiated(like the definition of citizen) with other countries such as Canada. However the US Treasury was only partially sucessful in those changes and thus both HEROES and HEART were ennacted without any specific treaty override provisions.
It is my understanding that to receive a back dated CLN you must indicate and evidence “intention” both in the present and in the past when the relinquishing act took place.
Ain’t that the truth!
Similar to Dan’s analogy at http://isaacbrocksociety.ca/2012/07/10/dr-nancy-snyderman-and-donny-deutsch-welcome-to-ibs-wall-of-shame/
Thought I had done that in 1973. Trying hard now. Really looking forward to that CLN.