Cross posted from RenounceUScitizenhip
The following video is of particular interest.
Where it came from – 2009 – Obama describes his justification for what is to become FATCA
Obama Goes After Overseas Tax Cheats AKA U.S. Citizens Abroad – See the following video which was uploaded in May 2009. Obama says taxes are an obligation of “citizenship“. Obama lauds the work of Levin and Rangel (at this point they are the future architects of FATCA). The whole video (where “First Tax Cheat Geithner” introduces Obama) is interesting. Note in particular the video starting at 7:30 where Obama provides his justification for what is to become FATCA.
How it came about – 2010 – The Hire Act (which included FATCA) was enacted.
It is important to note that FATCA was legislation which was unrelated to the principal purpose of the Hire Act. It was “slipped in” at the last minute. It is likely that few legislators knew what they were signing when FATCA was signed into law. FATCA was “Trojan Horse” legislation at its finest. But, FATCA is many other things including:
FATCA is a creator of jobs
FATCA has created new and lucrative work for accountants and lawyers. (An NYU tax professor recently referred to FATCA as “The gift that keeps on giving“.) It has been a boon to the education industry – it will be soon be possible to receive a certification in FATCA compliance.
FATCA is a form of Capital Control
President Kennedy said that the U.S. government has never had to erect a wall to keep our people in. That was then. This is now.
FATCA is an attack on the sovereignty of other nations
Why should foreign banks do what the IRS wants?
FATCA – through Form 8938 – is an attack on U.S. citizens living abroad
This is the primary purpose of this post.
FATCA needs to be understood as legislation which is aimed at foreign financial institutions and U.S. persons with foreign assets. Almost all of the FATCA discussion has been about the effect of FATCA on foreign financial institutions. Form 8938 is the part of FATCA aimed at U.S. persons. It has received very little analysis until now. FATCA mandates form 8938 which allows the U.S. government to impose massive penalties and force people to disclose their assets to the government.
What it means – FATCA Form 8938: – Form Nation’s most deadly and profitable form – An Analysis
FBAR Scholar Hale Sheppard has written a comprehensive article on FATCA Form 8938 and what it means for U.S. citizens living abroad. The reasons why this article are important have been well articulated by Just Me. You will find the article on the ACA site. The following comment about Mr. Sheppard’s analysis is deserving of a post on its own:
Bless you @Just Me for making this available to us.
The Hale Sheppard article is well worth reading. He makes the complexities more comprehensible (though still hard for the layperson to fully grasp) and explains the size of the jeopardy – even for inadvertent errors – very clearly. If this isn’t killing an international taxpayer gnat with a ton weight, then it is hard to see how it could get worse – short of just summarily executing any US citizen abroad and seizing their entire assets like a despot might. Basically, after you read this, to me, (if you were in any doubt at all still up to now), the hazard of remaining a US citizen and living abroad is unsupportable. The hazards that 8938 imposes so far exceed that of the FBAR, and it looks so much more intricate in its design, that there will no doubt be many many more innocents caught unaware, taxpayer and preparer alike – which the IRS and Congress and the GAO are very well aware of (and Sheppard notes). They have deliberately chosen not to do anything about it, even in the face of professional feedback alerting them to the substantial risks that have been created for those required to file it, and their preparers.
It is so far in the opposite direction of what the Taxpayer Advocate has advised in terms of complexity and making compliance readily achievable for the average person. No talk of the tax code being tackled for reform will probably ever touch this one – as it is designed for maximum penalty revenue generation – and the provisions allow the IRS to take away any safeguards that may even usually exist in terms of SOL, etc. The penalties are layered, draconian and confiscatory. And, again, this is entirely the case without any actual US tax assessed or owed. The assets reported and penalized are – just like the FBARs, entirely post-tax, legal and most often may have zero US source or connection. So the damage will be done to the innocent and the otherwise compliant, and recourse is either not available, or would come with such complexity and cost as to completely obliterate an individual and their household – a thousand times more in scale than what we currently face. Sheppard notes that not only would any attempt at any recourse require considerable money and time to mount a defense, but that it would involve several venues – not just Tax court.
The US has gone utterly insane, and there is no recourse but to remove oneself. Imagine an annual government mandated lottery, where every year, you are forced to participate in a ritual imposed by a despot far far away, and you can never know what they will do to make the jeopardy harder and harder to avoid, (often to be applied retroactively), even if you are trying to follow the rules and be compliant. Any normal life event – operating a business, getting a loan or mortgage, inheriting from family, etc. could tip you over the reporting threshold – especially as with age, if lucky, your wages, and savings increased – even slowly. The peak of the jeopardy will come when you are a senior, and have less ability to cope with your own affairs, and the most savings at stake. So, eventually someone else might also be exposed to the jeopardy – on your behalf. If you’re both deemed US taxable persons – that is two or more people at direct risk, plus both family’s assets. Don’t even understand how this affects even modest estates, but it can’t possibly be good.
After you read this article – and see the many sources Sheppard had to consult to put this together, ask yourself, what sane individuals could possibly think that those of us abroad can fully comprehend these rules, and comply without error? There will no doubt be additional complexity and contradictions added as time goes on, and the reporting thresholds could be lowered at any time if Congress so chooses.
Given too that the situation of the non-US spouse is jeopardized when the US taxable person is jeopardized, that makes joint assets even more at risk. And even if there weren’t joint assets, a life-altering debt for one is a life-altering debt for the whole household. Again, all this is the case without even one cent of US tax actually owed – on already taxed assets – reported in full to the countries where we live.
No US citizen resident faces this scale of reporting and jeopardy.
I encourage you to read Mr. Sheppards’s analysis and then see if you agree with the above comment. I suggest:
1. There will be no possibility of being compliant without engaging expensive “cross border professionals“. U.S. citizenship is now impossibly expensive to retain.
2. There will be fewer and fewer cross border professionals who will even be willing to risk being involved in all this.
3. The IRS is requiring that tax preparers be licensed which will also reduce the number of U.S. tax preparers.
4. Those professionals who will take this work on will become more and more expensive. Many of you will simply not have the money to remain compliant even if you wanted to.
5. My belief is that the “end game” is to compile a registry of the assets of U.S citizens abroad and then confiscate them or their value (or what is left after the penalties have been levied).
6. In my opinion, you should renounce your U.S. citizenship at the earliest opportunity. It’s no wonder that renunciations are soaring under the Obama administration.
As I write this, I wonder how this can even be happening. The U.S. government has launched a vicious, unprovoked and unprincipled attack on U.S. citizens abroad. Why? I simply can’t understand it.
Some of these sentiments captured as tweets:
#FATCA Form 8938: “The ONLY reasonable option available to U.S. citizens abroad is to renounce and renounce quickly.” isaacbrocksociety.ca/2012/07/14/fat…
— U.S. Citizen Abroad (@USCitizenAbroad) July 15, 2012
@aaforobama #FATCA Form 8938: “No US citizen resident faces this scale of reporting and jeopardy.” Even @demsabroad should vote Romney.
— U.S. Citizen Abroad (@USCitizenAbroad) July 15, 2012
@aaforobama #FATCA Form 8938: “The US has gone utterly insane, and there is no recourse but to remove oneself.” isaacbrocksociety.ca/2012/07/14/fat… #FBAR
— U.S. Citizen Abroad (@USCitizenAbroad) July 15, 2012
#FATCA Form 8938: The assets reported and penalized arepost-tax, legal andmay have zero US source or connection. isaacbrocksociety.ca/2012/07/14/fat…
— U.S. Citizen Abroad (@USCitizenAbroad) July 15, 2012
In closing …
Stop citizenship-based taxation and repeal FATCA!
All U.S. citizens abroad should use the 2012 election to draw attention to the unfairness of citizenship-based taxation!
At 09:40 on the video: “…slipped into our tax code by lobbyists and special interests…“
No. The tax code is written into law by congress. Some lawmakers are venal and easily bought, while that those that aren’t (if there are any) don’t read the laws written by others before passing them. These are problems with congress. And I didn’t notice any mention of a commitment to start cleaning up congressional corruption.
In effect, both FBAR and FATCA made it criminal to live abroad retroactively to US persons. How could any democratic country do this? I hope, IRS offer a method to relinquish US citizenship to people who have been living abroad for a decade or more and have very little or no US sourced income.
*I am not concerned about FATCA and FBARS. You know, I will be sending every year my FBARS (lots of work) and FATCA will only confirm this. What concerns me are the penalties for not starting the FBARS in 2003 for lack of knowledge about them. Worse yet the draconian penalties for people who want to comply and start filing them. This is very unfair and I hope it will change. Just common sense.
He started talking about Americans hiding money offshore, and then talks about about “offshore Americans” as if they are the same thing. It is this sort of fuzzy language that contributes greatly to this whole mess.
Notice how (probably reasonable) concerns about Americans hiding money offshore (which would be interpreted by the average resident American as being about the ultra rich Americans living in in the US with Swiss or Cayman Island accounts, aka whales) gets morphed into “offshore Americans” (us) which actually doesn’t even include the whales.
It is the same fuzzy language which confuses “citizen” and “resident” I bet the average US resident doesn’t even think about the difference, if they are even aware such a difference exists.
Much as I would like to think this is all just mindless sloppiness, it’s hard to believe that the people formulating these rules, who ought to be well versed in the fine legal definitions of words, don’t know the difference.
Go ahead. Vote for him :-(. Like Jews, vote for Hitler, it will “mellow” him.
The US is one of the biggest tax havens in the world. When they talk about other countries as tax havens, why don’t they tell resident Americans that their own country provides a tax haven for others?! Why don’t they start by cleaning things up in their own country and not allow “non-resident aliens” to hide money in the US? I’ll be curious to see if US banks will actually go along with some of the reciprocity ideas being proposed in conjunction with FATCA.
Also, Obama and Geitner talk about “simplifying” (!!!!) the tax code and making it more “fair and balanced.” What a joke!!
Honestly, it’s beyond the pale to see Geitner, Shulman, and Obama stand up there looking so sanctimoniously as they present these ideas which we now know have caused such heartache and havoc to ordinary Americans and for some of us, also at great financial cost.
In another thread the fellow from the WSJ compared renouncing US citizens to the East Germans who tried to get over the Berlin Wall. He said there were only a few a year, but it was an indication of just how bad things were in East Germany that some people would risk their lives to leave. I found that comment fascinating.
Does anyone know when financial institutions are expected to begin withholding US sourced funds from their customers under FATCA?
I believe it’s Jan 1, 2015 now.
You may not be aware of this, but the International Revenue Service (IRS) is doing exactly this, with the imposition of DATCA. You will have to go back into our archives, but read through all the articles and comments, but you will see that this process is well underway. There is some minor protests by the Florida Bankers Association and the Florida Congressional Delegation, Dems and Reps…
DATCA is not DEAD!
Comments from Domestic US Financial industry on “DATCA” (Hint: they hate it)
They are trying to force us all “home”, but I don’t know why. Trouble is, I am home already and I don’t want to go back there.
This just makes me sad and a bit fearful of the future.
It’s painfully obvious that the US government doesn’t value us for anything other than tax revenue.
@bubble, the money they are taking is just a bonus. we are the lambs to sacrificed in the Obama quest for re-election. they don’t care about what happens to us one way or other. if we renounce, “good riddance and thanks for contributing your retirement savings and your “disloyalty” for use in our media message to mislead in-country Americans”.
We don’t matter. We are collateral damage. Ask the Iraqi’s or the Afghans about how little the American govt cares about the side-effects of war.
I always intended to become a citizen of my new home but I was fuzzy on giving up American citizenship. I am not fuzzy about that anymore. I am clearly unwanted. I will leave at the first opportunity now. I am not a criminal or a traitor nor am It a slave. I am a free person.
your reaction is a healthy one…the real story may one day be told in the context of the many shameful ones throughout US history: How the US government caused so many of its best to renounce all ties to US personhood.
@bubblebustin, and @Ann,
re; “It’s painfully obvious that the US government doesn’t value us for anything other than tax revenue“. Exactly, and that tax revenue, and the assets that it is assessed on are actually assets that belong to other countries.
They are generating US tax revenues which are to be used for the exclusive benefit of only those who actually reside inside the US, but which taps into the non-US assets of other sovereign nations. These assets originate inside other countries – they were generated and are held there. Those born duals, or naturalized as such, owe first allegiance to the non-US country where they live. The US claims the right for US laws to override our local laws outside its borders – and to operate without restraint inside sovereign nations where we live. IRS penalty revenues, when assessed in situations where there is zero US source income, and zero US tax owed, resulting in zero tax loss to the US, is tribute extracted entirely from assets that belong to the other country where the person was born, resides and holds non-US citizenship.
With this trend of stepped up US enforcement and uber-penalty regimes, other countries need to wake up and see that the US is hellbent on sucking as much out of other national economies as possible – using extraterritorial citizenship as a method to extend tentacles into other sovereign countries – through the agency of the laws it enacts on the bodies of US deemed taxable ‘persons’. They have amply demonstrated that they recognize no bounds or limits on what they will impose – without regard to international law, justice or ethics.
What can you say to a country who just insists – whatever I say is the law, and US law is the only law. My law is however I define it, even retroactively, punitively, discriminatory or contradictory if I choose. I owe my citizens abroad no duty of care. No matter where you are; I own you and your children for life – and beyond. And if you don’t like it, too bad, I’ll bankrupt you through fines, or through attrition, because it might just be cheaper to give in and comply, to avoid the expensive professional fees to oppose me, because might makes right. I make laws under FATCA that negate any usual limits – and keep returns open forever. I can treat you more punitively that those inside the US.
Inheriting the US chattel status from a parent just recreates more US taxpayers abroad. It may have been a situation that other countries could afford to ignore when there wasn’t much of an actual impact, but now, any dollars that a citizen sends to the US, is a dollar not spent at home. And the penalty regimes under FBAR, and super-FBAR FATCA far exceed any actual ‘income tax’ that could ever be owed given current FEIE and Foreign tax credits. So they had to invent something that was not dependent on actual US taxable income, and which could be assessed on already post-tax or exempt assets. How else to explain why even compliant, legal, post-tax, government-registered Canadian assets are to be reported annually in minute detail to the US? There is no other logical explanation – there is no evidence of money laundering, or any criminal activity. There is nothing hidden about what we own. Canada knows what we have. Canada has access to all of our domestic asssets and accounts. We’re taxed fully by 3 levels of government here.
Canada might rationalize that at least they’ll get their Canadian taxes paid first and extracted directly at source, but the US penalty structures are so extreme and confiscatory, that they can result in people losing the bulk of their post-tax Canadian assets – in order to pay fines directly to disappear into the gaping maw of the US domestic deficit – even with zero US tax owed.
If those in Canada cannot buy mutual funds, TFSAs, RESPs, RDSPs, PRPPS, etc. because of the punitive treatment of them by the IRS, multiply that by the million or more that will be changing their banking and saving behaviour to minimize risk. And not able to save or invest like their compatriots in either country. Look at the changes already in the behaviour of the banking sector – as evidenced by the CBA.
If those in Canada won’t go into business with someone who has to report joint accounts to the IRS, that changes entrepreneurial behaviour in portions of the Canadian economy.
Should Canada let the US have that much direct influence over potentially a million or more participants inside its domestic economy? And their families, and their businesses, and their banks, and their other activities (holding or giving Power of Attorney for Finances, willing estates to a non-US spouse or beneficiary, volunteering as a treasurer for a church or other charitable group, holding co-signing powers on work accounts, selling a primary residence (US taxes for capital gains), taking out a student, car or house loan (increases balance in account temporarily – adding to FBAR aggregate for reporting threshold), etc.
Maybe the Canadian federal governments of the past felt that any potential loss through US extraterritorial claims on those inside Canada was too small to bother over when other things like trade agreements were on the table, but the trend is obvious – US extraterritorial overreach knows no bounds and recognizes no impediments – whether it be our local laws, or its own. There is no one to rein them in. There will never be true reciprocity or equal mutual benefit. This isn’t a free and equal collaboration among nations.
Those who can get compliant and have no other obstacles, can renounce, and can leave that burden behind them. But what about their existing children? They can’t leave it behind them till years or more than a decade in the future. Waves of US citizens will continue to be created abroad depending on their parents’ past citizenship, residence and circumstances. It could be potentially at least 18 years or more from now before a family might be entirely free of the US citizenship burden. And those without the capacity to be judged capable of forming the intent to renounce will never be allowed by the US to leave – at least by current law. This includes seniors and others with diminished capacity (ex. dementia) as well as those with significant intellectual or mental health disabilities.
I’m trying to write a bill to change the US citizenship-based taxation to a residence-based system, and I’m hoping to send it to a member of Congress for introduction with the help of ACA. I’ve been reading the Internal Revenue Code and making notes on all sections that would have to be changed. I have found some interesting things so far:
1. Some parts of the code really tie citizenship to taxation, and not just US citizenship. There is a provision that allows the president to double the tax rates on citizens of countries that subject US citizens to “discriminatory or extraterritorial taxes”. No mention on residence. I don’t think this provision has ever been used, but it’s there.
2. A few parts of the code surprisingly apply the concept of residence-based taxation. For example, the earned income credit can only be used if the person’s “principal place of abode” is in the United States.
3. The territories of the United States are an interesting case. A US citizen residing in a territory can exclude from US taxation any income sourced in the territory (no limit and not just earned income), and if any income sourced outside the territory is below the exemption amount, no US income tax return has to be filed at all. The worldwide income is taxed by the territory where the person lives. The estate tax does not apply to those who were born in the territory and reside there, but applies to those born in the US who later move to a territory (I find this rule incredibly discriminatory.) The FBAR does not consider bank accounts in the territories as foreign accounts so they do not have to be reported.
My main goal is to eliminate the use of citizenship everywhere in the Internal Revenue Code, replacing it with the concepts of place of abode, substantial presence and residence in a territory, which already exist in certain cases there. There are already some exceptions in the code to consider the place of residence for the military, government employees, students, and people with ties to different places, so these people would not be negatively affected by the change. The Internal Revenue Code is very long, about 8000 pages, but little by little I’m getting there. I also intend to replace the use of citizenship with residence in the two sections of Money and Finance that deal with reports like the FBAR. Finally, as taxation would be based on residence and not citizenship, the Reed amendment would no longer make sense, so I would eliminate it in Aliens and Nationality.
Even if in the end my bill is not considered by Congress, at least I’ll have become an expert on US tax law.
Wow! That is a mission to be praised, or is it mission impossible? Some might question your sanity for the attempt, but I am impressed that someone would take that on. A lot of interesting details in what you just provided. You obviously have the skills for the endeavor, and nothing ventured, nothing gained! Good ole Dick Harvey decided to write a FATCA bill, and look what that got us! So, maybe you can undo it with a Residency based Tax Code. You never know! Thanks for sharing the effort.
@Just Me, Thanks for your comment. What I think is insane is the treatment by the US toward its citizens abroad. I don’t have any formal education or experience in law or accounting, my “skills” are simply the patience to actually read the laws and rules, something that many supposed professionals don’t do. Today it’s easier because it’s all widely available online. It just takes a lot of time because the code is too long, but it’s not impossible.
“All that is necessary for the triumph of evil is that good men do nothing.”
@ Shadow Raider, your point #1 was very interesting, re double taxation.
Huge adventure to try and read the code in the context of trying to change things, by rewriting provisions to change to residence based system only. Admire your strength of purpose. Herculean task!
*I keep wondering if these professionals creating all these rules, demands and penalties for Americans who live and work abroad are aware of the consequences of their behavior on innocent people. Or, perhaps they are only seeing money?
From my preliminary analysis, there are 293 sections of the US Code relevant to the issue. I have checked and written notes on 36. At this pace, I estimate I should finish in about 2 months.
Some other interesting facts. As many already know, Eritrea is the only country besides the US that taxes its citizens abroad, but at a tax rate of 2%. The last country that abolished citizenship-based taxation was the Philippines, effective in 1998, but even before then the tax rates applied to nonresident citizens were 1% to 3%. Mexico also used to tax its citizens abroad but it changed to a residence-based system in 1981, over 30 years ago. The US is really alone in its taxation system.
The following statement shows Obama’s thinking:
‘If you’ve got a business, you didn’t build that’: Obama says the wealthy AREN’T responsible for their own success.
Read more: http://www.dailymail.co.uk/news/article-2174160/Obama-says-wealthy-ARENT-responsible-success.html
Next think he would say to expats is: ‘If you’ve got money, you didn’t earn that’. ‘If you’ve inherited money from foreign parents, that money belongs to IRS’.
Obama is destroying a great nation. The USA became great because of its leaders understood risk-taking, hard work and entrepreneurs and try to help them by giving them credit when due and get out of their way.
It is a two-way partnership between businesses and government. Government provides environment for people to succeed and people pay taxes for government to function.
In this statement Obama is trying to take credit for government directly and indirectly for himself by insulting the very partners paying his salary. It clearly shows his ignorance about the free market economy and capitalism.
@Bharat Yeah, and that sort of Obama-esque thinking discourages building businesses. Despite American corporatism, a lot of previous American prosperity and innovation was built on small entrepreneurs with good intentions and innovative ideas. Discouraging small business will just mess up the enonomy even more.
@Shadow Raider: Burma also used to have taxation of overseas citizens. They ended it earlier this year:
What’s even more amusing is the context in which they decided to end it: the junta has apparently decided it had better open up, join the modern world, and create a functioning economy before they get overthrown by their own people or turned into a puppet of one of the great powers. So the top priority on their list was to eliminate backwards 19th-century policies and demonstrate that they’re a responsible member of the international community …
Ooops, wrong link: http://www2.irrawaddy.org/article.php?art_id=22805&Submit=Submit
@shadow raider, an enormous undertaking indeed, but wouldn’t it be easier and more practical to have the the rest of the world’s countries become territories of the US? They can start by handing their banks over to the US…
@baharat, I saw that video yesterday too…he’s no doubt pandering to his base. I also thought of ConfederationH’s conceptions about Obama. It’s interesting how his base may just grow, the worse things get in the US.
@Eric, Thanks for the link. I guess the list of countries with citizenship-based taxation from a US congressional report in 1995 wasn’t exhaustive, or maybe Burma didn’t have that policy at the time. I’ll try to see if there are other countries.