UPDATE: December 23, 2014
Stephen Kish says:
The Republicans may or may not introduce legislation to kill citizenship-based taxation during the next two years. Even if introduced, it is uncertain whether such legislation will be successfully passed into law.
An alternative approach is litigation. However, a lot of money will be required to sue in U.S. federal court with a citizenship-based taxation constitutional challenge.
The ballpark estimate I have received for the legal cost is about $200k.
If there are any potential donors who might consider funding a significant portion of the legal cost for such a court challenge please contact me at: http://www.adcs-adsc.ca/ContactADCS.html.
Chair, Alliance for the Defence of Canadian Sovereignty
Shadow Raider says in a recent comment:
@all, I want to believe that Republicans Overseas are being honest, but they are way too focused on FATCA. I can’t help thinking that they are doing this more for the banks and wealthy US residents with actual foreign bank accounts, and using Americans abroad as an excuse. But I wouldn’t be surprised if they are just misinformed and disorganized, as Republicans usually are. I’m not sure.
I’m still against FATCA even for US residents, because it’s disproportional, unilateral, ineffective and unnecessary. But to me CBT is worse. My main constitutional argument is based on discrimination, and I have also written one based on the general power to tax. The courts could easily rule against either one, but I think the discrimination argument is stronger.
Addition of very relevant USCitizenAbroad addition:
Excellent 14th amendment arguments. A long time ago I wrote a post on the issue of “citizenship classifications” and the 14th amendment. You will find the complete post here:
(This is part of the series of Cook v. Tait posts which are listed at the beginning of this post:
Citizenship and Equal Protection
I note that in your argument you say suggest that the standard of review is “rationally related”. I don’t think that is correct. I believe that the appropriate standard of review for “citizenship classifications” is “strict scrutiny”. In any case, you might find this part of the post (in particular) to be of interest:
As Bernard Schneider notes:
“The difference between the tax imposed on nonresidents and that imposed on expatriates constitutes part of the “citizenship penalty” paid by U.S. persons abroad.”
Why should U.S. citizens abroad be compared to “Homelanders” instead of non-resident aliens? Shouldn’t this trigger 14th amendment scrutiny?
Equal Protection and the Standard of Review
Obviously Congress has the right to make laws. Obviously the Supreme Court has the right to invalidate laws that violate the constitution. The problem facing all lawyers considering an “equal protection” challenge is the question of:
“How much will the court allow congress to get away with? How much will the court defer to Congress? The problem facing any lawyer is how to get the attention of the court. How can the lawyer get the court to actually consider whether there is a violation of “equal protection”? The answer depends largely on the kind of classification involved.
When will the court intervene? At the risk of oversimplification, the court has identified the following standards of review.
– Rational Basis: “turn a blind eye” – all Congress to do what it wants
– Intermediate Scrutiny: “wink” – take a brief look, but then allow Congress to do what it wants
– Strict Scrutiny: “take a good look” – make Congress justify what it is doing
The question is: what set of facts will trigger which level of scrutiny.
Citizenship Classifications and the Equal Protection Clause of the 14th Amendment
The law of equal protection and citizenship is complicated by the facts of each case. Here is a primer on citizenship and equal protection. The vast majority (if not all) of the reported cases deal with discrimination based on citizenship where the non-U.S. citizen is claiming discrimination. That said, the cases are about discrimination based on citizenship. When it comes to non-U.S. residents, the United States is discriminating based on citizenship: in this case against its own citizens! It seems strange that a non-citizen would get a benefit (lower taxes than a U.S. citizen). Therefore, the tax treatment of U.S. citizens abroad arguably violates the equal protection clause of the U.S. constitution.
Citizenship classifications – Standard of Review
Finally, “citizenship classifications” are regarded as particularly offensive and will be subjected to a probing level of analysis. The justification for this “probing analysis” was given by Justice Harlan in an old Supreme Court decision of Carolene Products.
As reported by one commenter:
The idea of the “discrete and insular minority” originated in the now famous footnote four of the opinion in UNITED STATES V. CAROLENE PRODUCTS COMPANY (1938). Justice HAR- LAN F. STONE, writing for only a plurality of the Court, queried—without answering the question—“whether prejudice against discrete and insular minorities may be a special condition, which tends seriously to curtail those political processes ordinarily to be relied upon to protect minorities, and which may call for a correspondingly more searching judicial inquiry.” In the wake of the Court’s about-face in 1937, Justice Stone was serving notice that the Court might not accord the same deference to statutes directed at “discrete and insular minorities” that it would to statutes directed at ECONOMIC REGULATION.
The Court made little use of the concept until the early 1970s, when it began to delineate the class characteristics of such groups. Included were groups that had been “saddled with such disabilities, or subjected to such a history of purposeful unequal treatment, or relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.” Although race, nationality, and alienage seem to have been firmly established as class characteristics of the “discrete and insular minority,” the Court has refused to extend such class status to illegitimates,
It is quite obvious that U.S. citizens abroad are in a position of “political powerless”. That they need protection from the “majoritarian political process”. (I recently suggested in a blog post that U.S. citizens abroad need a lobbyist or two in Washington.)
Why, among the group of non-U.S. residents, should U.S. citizens be singled out for punitive treatment? Of course, that assumes the purpose of the tax is to raise revenue for government services. But then again, maybe the taxation of U.S. citizens abroad is, as Roger Conklin says, a punishment for leaving the Homeland – a kind of “sin tax.“
U.S. Citizenship Abroad and the “Equal Protection”
U.S. citizens abroad compared to Homlanders:
In this case it’s clear that U.S. citizens abroad are discriminated against only they have chosen to live outside the “Homeland”. This results in discrimination only for the sake of discrimination. Surely this would violate the “equal protection clause”.
U.S. citizens abroad when compared to non-resident aliens?
This is an example of what Bernard Schneider calls the “citizenship penalty”. A penalty based on citizenship would violate the equal protection.
The substance, form and administration of U.S. tax laws as applied to U.S. citizens abroad violates the 14 amendment. Whether they are compared to “Homelanders” (discrimination based on residence) or to “Non-resident aliens” (discrimination based on citizenship) they are discriminated against. i
To repeat Bernard Schneider:
“The difference between the tax imposed on nonresidents and that imposed on expatriates constitutes part of the “citizenship penalty” paid by U.S. persons abroad.”
Discrimination based on citizenship is subject to a very high standard of scrutiny under U.S. constitutional law. It is doubtful that this kind of discrimination could pass constitutional muster.
I read your constitutional argument against CBT:
CBT configures discrimination based on citizenship, because a nonresident citizen is taxed very differently from a nonresident alien solely due to citizenship, all other circumstances being the same.
Nice. This answers the “horizontal equity” arguments in favor of CBT: the proper comparison for a US citizen abroad is not to a US person inside the US, but to a Non-Resident Alien.
I like it.
I think your constitutional argument is awesome. I also agree with you about being suspicious that RO and the Bopp team are too focused on FATCA when we all know that CBT is the real problem for non-resident Americans. US banks will fight against reciprocity and use expats as part of their argument against FATCA.
I am very much in favour of allying with RO against FATCA and FBAR but if the Bopp team is sincere about wanting to help expats they will include CBT as part of their portfolio.
Be that as it may, I think you are definitely on the right track, especially with the comparisons made with residents of Puerto Rico, Samoa, Virgin Islands etc.
I would only expand more on the lack go benefits expats are able to receive such as unemployment insurance and food stamps. I would also go into taxation without congressional representation. Granted, Wash DC residents have taxation without representation but they have unimpeded access to and use of all public goods and services that congress spends tax money on, i.e. US highways, roads, dams, bridges, schools, hospitals, fire, police, courts, national parks, power grid etc. In other words, Cook vs Tait needs to be torn to pieces.
To top it off, I think it needs to mentioned how the creation of America is the direct result of Great Britain enforcing citizenship based taxation on its expats in America. Moreover, the intended purpose of citizenship based taxation during the civil war was to punish people for leaving. I really think the argument needs to include some historical and national perspective beyond only court cases.
Once again, awesome argument. I wonder if it can be launched without having to pay all these high retainer fees like ADSC has to pay in Canada.
Is there a good reason why the general power to tax argument cannot be combined together with the discrimination argument?
The constitution reads:
“The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
1.) Pay the Debts: Expats don’t use the public goods and services that are paid for with Debt.
2.) Provide for Common Defence: Expats don’t live within US borders and therefore not within the territory that is being commonly defended. If expats are ever evacuated by the US they have to pay for it directly anyway.
3.) General Welfare: Expats are not eligible for medicare, medicaid, unemployment insurance, welfare and food stamps.
So what then is the reason for taxing them other than punishment for leaving a la Abraham Lincoln’s decree against civil war refugees?
Prior posts by Petros and USCitizenAbroad regarding Shadow Raider’s great work:
Shadow Raider explains the difference between US “nationality” and US “citizenship”
Bulletin from Shadow Raider – You will want to read this
Shadow Raider is rewriting the United States Internal Revenue Code
Yes yes yes. Agreed – as a UK/US dual, I sent $$ to the Canadians. Bless them. I wish the UK duals would show some attitude and get something like that together, even unto the European Court of Human Rights. As for expenses, if there are 7.6 million US citizens abroad, that’s less than $1 per person.
Thank you for the donation and the support and the blessing @HELP. The challenge is taking place in Canada, but has important significance for other countries too. I am hoping that a challenge inspired by the Canadian one will start in the European Court as well.
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I recommend that everyone read this post by USCitizenAbroad;
and the essay that it cites;
as well as the recent book by Glen Greenwald – which is a must read.
Remember that Canada is part of the ‘Five Eyes’ along with the US;
“….Eighteen months ago National Security Agency cyber spy Edward Snowden shocked the world when he emerged from the shadows to reveal the biggest government surveillance program mankind has ever known.
By collecting bulk data on phone calls, emails and other social media communications, the U.S. government was essentially monitoring the private lives of pretty well everybody with a phone and/or Internet connection. Americans, Canadians, Europeans, Asians – it didn’t matter. We had all come under suspicion.
Boosted by a decades-old intelligence gathering and sharing agreement called the “Five Eyes” – U.S., Canada, Britain, Australia and New Zealand – there was every reason to believe that not only was the U.S. sharing this information with its partners, but also these countries were watching their citizens with similar vigor….”…. http://o.canada.com/news/cyber-spying-thrives-as-mankind-bids-farewell-to-a-private-life
Read the comments by the ACLU about the NSA;
“…the ACLU, which filed a lawsuit to access the reports, said the documents shed light on how the surveillance policies of NSA impact Americans and how information has sometimes been misused.
“The government conducts sweeping surveillance under this authority -— surveillance that increasingly puts Americans’ data in the hands of the NSA,” Patrick C. Toomey, staff attorney with the ACLU’s National Security Project, said in an e-mail.
“Despite that fact, this spying is conducted almost entirely in secret and without legislative or judicial oversight,” he said….”
See the ACLU NSA archive of documents here:
and related materials
NSA records at the Guardian:
Remember that the FATCA-natics intended for FATCA to go far further than the collection of information related to the assessment of potentially taxable interest earned, and assets held in legal local bank accounts owned by those deemed to be US ‘taxable persons’ and citizens living outside the US. Carl Levin directly urges that FATCA go far further, in this now infamous letter ‘FATCA COMMENT LETTER SUBMITTED BY
SENATOR CARL LEVIN’ January 11, 2012; http://bsmlegal.com/PDFs/CarlLevin.pdf
“…Finally, one additional issue is critical to successful implementation of FATCA’s disclosure obligations: treating FATCA offshore account information as non-tax return information to ensure its accessibility to law enforcement and national security communities combating crimes other than tax evasion.
Although FATCA is structured to address offshore tax abuse, offshore account information has significance far beyond the tax context, affecting cases involving money laundering, drug trafficking, terrorist financing, acts of corruption, financial fraud, and many other legal violations and crimes. Given the importance of offshore account disclosures, FATCA guidance and implementing rule should create account FATCA forms that are not designated as tax return information but, like FBARs, may be provided to law enforcement, regulatory, and national security communities upon request….”…
And, FATCAfather Richard ‘Dick’ Harvey also posits that FATCA may be more palatable if it is marketed as a tool that goes beyond assessment of taxes; ‘Dick’ Harvey says; “…In pursuing that goal, the tax arms of government should consider further joining forces with the anti-terrorist-financing/money laundering arms of government.
The goals of each arm of government are similar,12 and it may be easier politically to justify detailed customer due diligence if it is being done for a joint purpose (that is, both tax reasons and anti-terrorist-financing/money-laundering reasons). …”” August 9, 2012 FATCA — a Report From the Front Lines, J. Richard Harvey published in Tax Analysts http://www.taxanalysts.com/www/features.nsf/Articles/7FE9806866554F5985257A5500712E6D?OpenDocument
So, in light of the Levin letter, this provision of the Patriot Act is particularly interesting:
“…Section 215 of the Patriot Act authorizes the government to obtain “any tangible thing” relevant to a terrorism investigation, even if there is no showing that the “thing” pertains to suspected terrorists or terrorist activities. This provision is contrary to traditional notions of search and seizure, which require the government to show reasonable suspicion or probable cause before undertaking an investigation that infringes upon a person’s privacy. Congress must ensure that things collected with this power have a meaningful nexus to suspected terrorist activity or it should be allowed to expire…”
FATCA and the activities of the NSA and the provisions of the Patriot Act are all part and parcel of the assault on human and civil rights – much of which is being turned against the very citizens whose civil and human rights that the US and Canada are sworn to uphold.
“…FATCA’s issues run parallel to the surveillance state publicly revealed in Edward Snowden’s NSA leaks…”
In re-reading my comment above, I think I haven’t made my purpose and the relevance to this thread clear. In inserting the long comment above, which mostly addresses FATCA rather than CBT, in this thread about US extraterritorial CBT (as applied to the globe, based solely on a long ago birthplace, or parentage, or an expired greencard, and no other justifiable ‘economic connection’) I meant to show how CBT – which may very well not be constitutional, has morphed into FATCA as one offshoot of the US worldview that brought us the NSA abuses – FATCA is deliberately designed to increase surveillance of all those outside the US deemed to be ‘US taxable persons’ under CBT. Unconstitutional extraterritorial CBT is the very shaky rationale being offered to the world as to why our local, legal, personal data should be confiscated extraterritorially by a foreign power. One of its flaws was that it could not be readily enforced extraterritorially – hence FATCA.
FATCA extends the unconstitutional extraterritorial CBT into what USCitizenAbroad and others here have called ‘life control’.
CBT is the poison tree – we can see robust evidence of that by the poisonous harvest it is producing – via FATCA ‘son of FBAR’.
If US CBT can be shown to be unconstitutional and chopped down, then the tree no longer lives to produce fruit. But in the interim, we are resisting the importation of the poisonous fruit into our homes and home countries outside the US.
I think it is important to see the connections between the uncontrolled and unconstitutional excesses of the NSA and the uncontrolled excesses of CBT and FATCA as applied outside the borders of the US.
Wow — another keeper comment! I’m sure you are aware that just as the PATRIOT act was all written and ready to go before the 9-11 event was used to “justify” its passage, there is an i-PATRIOT act for the internet which is written and ready to go when they come up with an internet event to “justify” its passage. That’s why it’s so important for us to learn what we can, while we can. We can only hope the clever ones will be able to devise a workaround to enable us to continue to communicate with each other, despite all government restrictions.
Note that this was written in 2008 …
@Badger Re: your 24 Dec post here on right to assembly, participation in community organisations, and FBAR party stopper. I consider this among the Badger classics and should be included in the Book of Badger. I’ll cite you when I requote.
@Embee, thanks for that valuable information about the i-Patriot Act and JC, thanks for your comments. Re citation, the issue of the FBAR impact on our right to participate in voluntary, charitable, professional or employment activities/roles has been discussed before here at IBS by several people over the years – some grappling with whether and how to report on their voluntary or professional or employer accts. This thread about Shadow Raider’s efforts reminded me of how offensive and draconian an effect the FBAR has on even the non-financial part of our everyday lives, and the post by USCitizenAbroad about the NSA reminded me that the US seeks to control far more than only our income and assets. It seeks to control aspects of life that have absolutely nothing to do with the assessment of taxes. Surely that is unconstitutional and unwarranted – as well as being grossly extraterritorial. One wonders whether groups of US expats abroad who know about FBAR have additional trouble finding people willing to take on the Treasurer or fundraiser or Board roles because of the additional potential liability that creates for them personally.
@badger, it is actually worse.
Many charity and social organizations operate under what the US would call a business entity structure. It looks like according to the US a corporation.
If you are an officer/director/member of such a charity/social group then there is another IRS form that you need to file!! For the life of me I can not remember the form number.
There was some guy in Germany who was going to be a director of some sports club charity and it turned out that this volunteer non-paid involvement would entail a slew of IRS forms.
I don’t know what the form would be either. This page (3) might be related? http://www.spcwa.com/wp-content/uploads/2013/01/SCDI_CorporateComparisons2013.pdf
@George, that is an interesting point about the case you raise re further potential liability and reporting form/s. US extraterritorial tax and financial reporting is just chock full of gotchas, and pitfalls for the unwary.
Ironically, that is why it is such a threat to honest expats living outside the US – who have satisfied their own local government and laws, and are not seeking to hide anything – just conduct normal lives like their fellows and neighbours. We were unwary because we had nothing to hide – we just sought to have the same rights and freedoms as our local neighbours do – outside the US. We just seek to have the same freedoms that US residents do. Neither of those groups are forced to accept FBAR liability to participate in the life of our voluntary, professional and charitable communities. The US is criminalizing certain employment by those deemed US ‘taxable persons’ outside the US. For example, church ministers in the US do not incur an FBAR liability based on being in charge/co-signatories on their congregation’s local funds.
Who would ever think that joining a benign local organization as a minister, a Board member or treasurer, or fundraising or working for a voluntary, professional, or charitable organization could be criminalized by an external State located elsewhere in the world who aggressively asserts the right to data based on the citizenship of the person holding the position rather than the location and incorporation of the group/entity? It is absurd and offensive for the US to assert that a NON-US softball league, Girl guides, church, school fundraising committee, etc. located outside US borders is of legitimate, legal and constitutional interest to the US simply because a co-signatory was born on US soil or had a US parent. – or an expired greencard.
Probably no-one will ever raise the right to participate fully in our local community and associations as a constitutional issue in the US, but it is one of the several compelling reasons why I could not continue as a US citizen. The US forced me to expatriate myself in order to have any normal life in my home country of Canada.
@all, I see that I am using the metaphor of poisoned fruit/tree incorrectly as it is really a specific legal concep ( http://en.wikipedia.org/wiki/Fruit_of_the_poisonous_tree ), but I liked it as a general image of the relationship between CBT, FBAR, and “son of FBAR” aka FATCA, since nothing good can come of those three, and the unconstitutional intent, method, and harvest of expat’s legal local data on their legal local accounts and assets has poisoned our relationship with the US.
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