This post appeared on the RenounceUScitizenship blog.

US Homelanders use SD Dynasty trusts http://t.co/ukdt9Z1IOf but #Americansabroad punished for #TFSA Foreign Trusts http://t.co/yLO6bF9rbM

— U.S. Citizen Abroad (@USCitizenAbroad) December 28, 2013

Do as I say! Not as I do!

It’s official. As we end 2013 and begin 2014 it’s clear that the administration of Barack Obama  has distinguished itself as becoming the most hypocritical joke in the world. For those seeking additional insight on this point, I recommend “Sangeeta Richard is proof of failed American reciprocity“. Although this article is written in the context of the recent U.S. arrest of an Indian diplomat in New York, the implications spread far and wide.

The fallout over the Indian consular officer,  Devyani Khobragade, whom the US Marshals humiliated through strip and cavity searching her despite her immunity (we learn now that it is full UN immunity!), has much greater interest for the Isaac Brock Society than perhaps we realize.  It demonstrates the US’s stance towards other nations as being one of, “Do as I say, not as I do.”  I.e., the US has become monstrous bully and hypocrite.   When citing diplomatic protocols in his defense of accused murderer Raymond Allen Davis (see video of Obama’s plea), President Obama emphasized the concept of reciprocity.  Yet now his administration violates the very principles that he iterated in that press conference by treating Devyani Khobragade with disrespect and by indicting her for Form Crime.

U.S. Hypocrisy – It’s the FATCA of the Matter

The U.S. wants to end the practice of U.S. taxpayers investing their capital in other countries, while at the same time allowing non-resident aliens to use the U.S. as a tax haven. The U.S. expects the rest of the world to report on the financial activities of “U.S. persons” (a “creeping” and “creepy” definition). FATCA IGAs do NOT REQUIRE  the U.S. to reciprocate by imposing reporting requirements on U.S. banks. (Bankers associations in Florida and Texas have sued to prevent any POSSIBLE rule requiring the disclosure of the account information of non-resident aliens.) Furthermore, as reported by James Jatras of RepealFATCA.com:

In a letter to U.S. Treasury Secretary Jack Lew, Congressman Bill Posey (R-Florida 8th), a key member of the House Financial Services Committee, has turned thumbs down on Treasury’s public claims that the U.S. will impose on American domestic financial institutions the “equivalent” of FATCA’s ruinous reporting requirements on foreign financial institutions (FFIs). It’s now clear that is not going to happen.

Yet, the U.S. continues to acquiesce (if not actively promote “Tax Haven USA”)  in the U.S. as a tax haven for the taxpayers of other countries.

Perhaps the real purpose of FATCA is to “wipe out competition” in the business of “tax haven administration”. “Do as I say, not as I do!” The U.S. clearly does not like competition.

Tax haven USA stands supreme!

Don’t understand how the U.S. could be a tax haven? Here is an explanation from Tax Haven USA:

Most financial experts agree that the United States is a primary location for international business. The presence of good banks, advanced infrastructure, a consistent legal system and a stable government are all characteristics of the United States that are taken for granted.

However, many people do not realize the enormous tax benefits given to “non-resident aliens” making passive income in the United States, or earning income outside the United States and simply using the USA as their own personal “offshore tax haven.”

The United States does not tax non-resident aliens for most interest income or dividend income derived from the United States. There is zero capital gains on profits from investments for non-resident aliens. There is zero tax on income earned outside the USA. Only active United States derived income is taxed. Also, various tax treaties give a United States company certain tax advantages when doing business outside the USA.

 

The U.S. has destroyed the Swiss banking industry.  The U.S. has also destroyed innocent Americans abroad who happened to live in Switzerland.  As a result, the U.S. stands supreme as the world’s number tax haven. Non resident “aliens” are free to deposit their money in U.S. banks, allow the capital to grow, unknown to the governments of the host country. Hmm … Is this a double standard? Is this “hypocrisy”? As the world’s biggest tax haven, the U.S. (if it isn’t already) will also be the world’s number one facilitator of tax evasion tax haven (or is that avoidance)!

But, we must be fair to homelanders!

But, if you think that only “non-resident aliens” benefit from “TaxHavenUSA” you would be wrong. I came across a fascinating article describing “home grown” tax havens in the USA that are specifically designed for Homelanders. Yes, it’s true. (Why should non-resident aliens get all the fun?)

Trusts: Sacred instruments of tax AVOIDANCE for Homelanders

Moguls rent South Dakota addresses to avoid tax forever

This story is fascinating for three reasons:

1. It demonstrates how U.S. property law is still a function of the 16th century common law of England

2. It demonstrates how the U.S. legal system is driven NOT by substance but by technicalities

3. It demonstrates more incredible unfairness to Americans abroad.

Readers digest version:

Since South Dakota has abolished the common law rule against perpetuities and has no income tax (meaning the trust income will not be taxed), one can create a South Dakota trust where a gift never actually takes place – thus avoiding the gift/estate tax.

Bottom line: if you want to preserve capital create a trust in South Dakota.

The process and rationale are described in the article as follows:

Because the estate tax is imposed on large fortunes at death, McDowell wrote, wealth that’s big enough to last for generations will have to contend with multiple tax bills. A father pays the tax when he leaves his money to his children, who pay again when they pass it down. Each generation faces a toll. The current rate is 40 percent.

McDowell’s solution was for the father to establish a never-ending trust that pays each generation of heirs only what they spend, while the rest of the money grows. In 1993, when McDowell was writing, that wasn’t possible in 47 of the 50 states because of an ancient rule limiting the duration of trusts to the lifetime of a living heir, plus 21 years. The concept has been a part of Anglo-American jurisprudence since a case decided by England’s Lord Nottingham in 1681.

Fortune Shield

South Dakota repealed that rule in 1983, and unlike Idaho and Wisconsin — the other two states without the provision — it had no income tax. So, McDowell wrote, a trust set up here could shield a big fortune from taxes for centuries, escaping tax bills as it hands out cash to great-great-great-grandchildren and beyond.

Over dinner at a Sioux Falls restaurant this month, McDowell elaborates on the idea. He has curly gray hair and a quick laugh, and he’s wearing an open collar under a quilted winter vest. He’s known around town for making the one-mile trek to his office on a fat-tire bicycle, even in December.

“I like to equate it to the wine in this glass,” McDowell says, covering his Cabernet with his right hand. “Here you’ve filled it to the rim and push it downstream to the next generation. You can sip from it, you can have the equivalent of outright ownership, but you don’t own it under the law. Your children — they too will have the opportunity to sip from it.” He cups his hands as if to cradle the precious liquid.

These damn Homelanders – They just don’t pay their fair share!

It’s clear that Homelanders have a “God given right to avoid taxes”. It’s also why Homelanders do NOT pay their fair share of U.S. taxes. They may or may not pay their lawful share. But, they don’t pay their fair share. The proof is simple. The cost of running the U.S. government far exceeds what Homelanders pay in tax. A five year old running a lemonade could understand this principle.

So, the obvious solution is:

Since Homelanders don’t pay their fair share, the U.S. must  get the rest of the world to pay for Homelanders!

Let’s use the fact that U.S. citizens live in other countries. Now, let’s impose a tax on that countries because they are “harboring U.S. citizens” – the property of the United States.

With FATCA, the United States of America officially serves notice on the rest of the world that:

1. The United States will NOT tolerate competition in the creation and administration of tax havens; and

2. Those countries found harboring U.S. citizens (FATCA is the modern day equivalent of the Fugitive Slave Act) must pay tribute to the U.S.!

FATCA is to enforce U.S. citizenship-based taxation. Citizenship-based taxation results in the U.S. levying a direct tax on any country that has resident U.S. citizens. To understand how this principle works consider:

U.S. CBT forces any country, that has U.S. citizens as residents, to pay tribute to the U.S. This is because the U.S. has rules of taxation that are different from the rules in other countries. These rules mean that U.S. citizens in Canada WILL be paying U.S. tax. (The truth is that with Obamacare many many more U.S. citizens abroad may be paying tax to the U.S.) They will be subjected to the expensive filing requirements.

Other examples of paying tax to the U.S. include:

– Subpart F income (applies to many who own Canadian corporations – professionals tax note)

– Sale of principal residence

– Taxation of Mutual funds as PFICs (those who are aware of this are also aware of the extent of the confiscation)

When this tax is paid to the U.S., this is Canadian money, Canadian working capital that is simply extracted from the Canadian economy and taken to the U.S. This is very very bad for Canada and very very good for the U.S. Frankly, it’s out and out theft. It can be EXPLAINED but not justified only on the theory that the U.S. government has a property right in in its citizens. Those wishing to understand the economics of this do a Google search on “multiplier effect of increasing money supply”.

I can see a day when some country will argue that U.S. CBT is a violation of international law. Does one country have the right to levy a tax on another? Does one country have the right to force another country to pay tribute to it?

Therefore, CBT in general, and U.S CBT in particular, is a way of carrying on economic warfare against other countries. Those who doubt this, need look no further than to what is going on Switzerland right now. The reason why ordinary Swiss Banks have entered Category 2 (pleaded guilty to assisting U.S. citizens to evade U.S. taxes) is because they can’t be sure that U.S. citizens resident in Switzerland have paid their U.S. taxes. This is at a huge cost to the economy and psyche of Switzerland. U.S. citizens are the problem.

Trusts: Sacred instruments of tax evasion for Americans abroad (What’s good for the Homelander is NOT good for the American abroad)

While Homelanders use trusts to avoid tax, Americans abroad who invest in retirement planning vehicles trusts in their home countries will have have those trusts deemed to be sacred instruments of tax evasion! U.S. citizens in residing in Canada who are considering TFSAs take note. To understand why TFSAs are a problem for U.S. citizens in Canada:

Under no circumstances should a U.S. citizen invest in a TFSA. I came across a TFSA video on the Globe web site (it’s only one minute you can view it now) that suggests that TFSAs might be a good investment for U.S. citizens in Canada. The video is full of half truths and IMHO is wrong. As discussed in some of  the comments, the reporting costs and potential for penalties for investing in a TFSA (not to mention the LCUs) are so extreme that you should run. This comment is particularly succinct:

As the “Interested Layman” stated below. TFSAs are only recognized as Trusts. As a trust form 3520A is supposed to be filed by March 15. (I know that is before US income filing is due). Then form 3520 when you file your US income tax. Fun, fun, fun! Just adding the income to your income tax is not what they want. My US tax accountant would not do my income tax unless I filed this form and back-filed it for years 2009 and 2010 (TFSA started in 2009). The IRS fine for not filing these forms is $10,000 or 35% of the account.

Next any Dual (like myself) or US citizen living in Canada who has opened a RESP must also file the same forms. Unlike RRSPs an RESP is recognized as a TRUST and also is taxed by the IRS. I know individuals who have paid the accountant more to file the forms then they have in the RESP account. Fun, Fun, Fun!

Now for the rant!
I find it very interesting that the IRS insists on pursuing law abiding citizens as if they are criminals. One of the reasons for the Revolutionary war was to keep King George from taxing the colonies. Very ironic. Canada only taxes by residency. The US taxes by birth. Once a citizen always a citizen. You pay tax no matter where you reside.

If you want to give up your citizenship you have to pay all taxes you are deemed to owe. This means if you own a business or a home, you have to pay the taxes on unrealized capital gains on them to be free.

I left the US 40 years ago. I received no money from the US. I could not write off mortgage interest on my home to pay for it. Now if I sell my home I will be tax liable to the US for taxes on the Capital gains? Damn!

This would be funny if it weren’t so pathetic.

U.S. citizens abroad might consider Expatriation – getting out  while the getting out is semi-good!