Not applicable to adult emigrants. No other proposals to simplify income taxes for individuals who don’t live in the United States. No help with the insane reporting requirements on foreign retirement & medical & disability savings plans. Some people may hope it’s a start from an administration which up until now has been totally deaf to the “special concerns and issues of Americans abroad” which the president claimed he would address when he was campaigning for our votes. Others will take it as what it appears to be at face value: a chance to get out while the getting is semi-good. At page 282 of the “Green Book” (all links added by me):
Individuals who became citizens of both the United States and another country at birth may have had minimal contact with the United States and may not learn until later in life that they are U.S. citizens. In addition, these individuals may be citizens of countries where dual citizenship is illegal. Many of these individuals would like to relinquish their U.S. citizenship in accordance with established State Department procedures, but doing so would require them to pay significant U.S. tax.
Under the proposal, an individual will not be subject to tax as a U.S. citizen and will not be a covered expatriate subject to the mark-to-market exit tax under section 877A if the individual:
1. became at birth a citizen of the United States and a citizen of another country,
2. at all times, up to and including the individual’s expatriation date, has been a citizen of a country other than the United States,
3. has not been a resident of the United States (as defined in section 7701(b)) since attaining age 18½,
4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
5. relinquishes his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen, and
6. certifies under penalty of perjury his or her compliance with all U.S. Federal tax obligations that would have applied during the five years preceding the year of expatriation if the individual had been a nonresident alien during that period.The proposal would be effective January 1, 2016.
This didn’t appear to be covered in the table of revenue estimates. Correction: As Tim points out, the revenue estimate is in the summary tables file on the White House/OMB website, rather than the Treasury website. They estimate it would cost $400 million over ten years, with more than half of that coming in the first three years as people scramble to take advantage of the offer.
Details of revenue estimates
| Deficit increases (+) or decreases (-) in millions of dollars | Totals | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Heading | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2016 – 2020 |
2016 – 2025 |
| Provide relief for certain accidental dual citizens | ……… | 60 | 103 | 55 | 23 | 24 | 25 | 26 | 28 | 29 | 30 | 265 | 403 |
I am quite interested to know the underlying number of relinquishers OMB used make these estimates (and for that matter, whether they have offset those estimates by the $2,350 fee that many accidentals are going to have to pay because they only qualify for renunciation and no other method of giving up citizenship). I assume that the estimates for ongoing deficit increases past 2018 are attributable to one-time losses of revenue from additional relinquishers,rather than ongoing loss of revenue from the initial group of relinquishers.
For example, they may be using the utterly false (and late again for this quarter) Federal Register relinquishment numbers and assuming that all of them would qualify for Obama’s plan. (That would also mean they’re assuming that no non-accidental Americans have ever given up citizenship because of the FATCA mess that Obama signed into law — clearly an incorrect assumption.) In that case they would be saying that in 2020 they’re expecting an average annual revenue loss of $8,000 per person, rising to $10,000 per person by 2025.
If OMB understands that only a small proportion of recent relinquishers qualify for Obama’s plan, then they’re trying to claim that the revenue loss per person would be much higher — which I don’t think is supportable. On the other hand, they may also understand that the actual number of relinquishers is higher and that only a small proportion of them will qualify for Obama’s plan. Though given the dubious earlier models of the effect of cancelling the FEIE, I get the sense that the government does not have this much of an in-depth understanding of emigrant tax issues.
Treatment of businesses owned by American emigrants
Another small mercy: the proposed 19% minimum tax on foreign earnings only applies to CFCs owned by “entities taxed as domestic C corporations” — finally, an implicit acknowledgement that some owners of CFCs are human emigrants rather than multinational corporations. Unfortunately the 14% tax on “previously untaxed” foreign earnings does not appear to include that same acknowledgement.
Will not affect ADCS lawsuit
Update, 6 February: Stephen Kish has already spoken with Mr. Arvay about the Obama budget proposal, and states:
Some you have expressed concern that should the Obama budget proposal, if ever enacted, provide some relief to duals-at-birth, like our two Plaintiffs Ginny and Gwen, this could mean trouble for our lawsuit — because both Plaintiffs are duals-at-birth. Apparently, Canada’s Mr. Roy Berg himself, a U.S tax compliance professional, is mentioned in an article (which I have not seen) which states that should the tax code on duals-at-birth change for the better, this might “spell the death-knell” to our Canadian lawsuit.
Please do not worry. The Arvay team has been quite aware of the issue of specific characteristics of plaintiffs from the very beginning.
Today Mr. Arvay also has confirmed with me, yet again, that our legal strategy is not limited to the specific characteristics of the two plaintiffs, that additional plaintiffs can be added to the lawsuit should this ever be necessary, and that our aim has always been to include affidavits from people who span a range of differing characteristics.
I don’t see how I misused the word “naturalized” in conjunction with “someone attempting to” when it’s actually synonymous with “getting/obtaining/acquiring” citizenship, IMO. Semantics. Yes, you agree with me that it would be completely unfair if the Obama proposal eliminates duals from being able to claim citizenship from birth in other countries when their registration was made as adults, and I with you that contrary to what Virginia’s saying, citizens at birth cannot be naturalized as citizens of the same country.
@Anne. Thanks for the clarification. Yes, it seems the RBA is different “proof”. For humor sakes, we can quote Jean Cretien and say a proof is a proof, sometimes you have good proof and bad proof. I wonder what “proof” will satisfy the US government under this proposal. I would tend to think a certificate would be what they need rather than an RBA…. not sure…
@NativeCanadian
We also have our citizenship certificates, but I believe the RBA is more solid “proof” that we acquired Canadian citizenship at birth.
@Bubblebustin,
Please bear with me, I think we’re getting close!
Several people are posting the fear that this provision is particularly restrictive in its definition of “citizen since birth”, but I don’t see it. I’ve lost track if it’s all because of the wording of Virginia’s blog post or if people are getting this idea from the text of the proposal?
The wording in the proposal:
1. became at birth a citizen of the United States and a citizen of another country,
is pretty much identical to the question on Form 8854:
3 Did you become at birth a U.S. citizen and a citizen of another country…
I don’t see anything in the proposal that makes me fear this proposal is in any way more restrictive than the dual-citizen exemption from the net worth and tax liability questions (for exit tax determination) in Form 8854. For Form 8854, nobody that I recall has ever questioned a RoBA or other certificate obtained later in life as not being adequate. I think drawing the connection to Form 8854 is appropriate, since the proposal is tax law and half of the requirements come directly from Form 8854.
@Bubblebustin, I think semantics are important in this discussion. We know how newcomers are often confused between renunciation and relinquishment, and we always reply that renunciation is just one of several ways to relinquish US citizenship. In exactly the same way, “naturalization” is just one of several ways to “get/obtain/acquire” (Canadian) citizenship as is clear in the link that I gave. Getting it from a parent (RoBA) or grandparent is another, completely different way. Therefore, and importantly, “naturalizing” is absolutely NOT synonymous with “getting/obtaining/acquiring” citizenship.
All of which leads again to the strange updated wording in Virginia’s blog. Thanks for asking her for further clarification!
I see above that I keep missing up my bold tags. Sorry!
The problem is that the U.S.’ INA defines naturalisation very broadly. 8 USC 1101(a)(23): ‘The term “naturalization” means the conferring of nationality of a state upon a person after birth, by any means whatsoever.’
My guess: a person who was a citizen of X at birth under the statute in effect at the time of the birth is fine; the registration doesn’t confer nationality on the person after birth, rather the person is already a citizen and the registration is just an interaction between a citizen and a government of a country of pre-existing citizenship, asking for some identity documents to which only citizens are entitled.
I think that two categories of people may have problems:
1. A citizen of a country which does not confer citizenship on babies born abroad until registration, or which says people born abroad are only a citizens from the moment they take an action to which only citizens are entitled.
2. A citizen who was declared by retroactive legislation to be a citizen at birth. Because the legislation operated to confer nationality on the person and the legislation was passed after birth, State might regard that as naturalization. When the U.S. itself conferred nationality on people in its various colonies by legislation, they called it “collective naturalization”. That term survives in the section header to 8 USC, Chapter 12, Subchapter III, Part I.
FWIW, this area of U.S. law is very murky, e.g. https://en.wikipedia.org/wiki/Natural-born-citizen_clause#John_McCain
Note that the US has specifically done the retroactive thing as well:
From :7 FAM 1133.4 Children Born Out of Wedlock On or After December 24, 1952
http://www.state.gov/documents/organization/86757.pdf
I like this part: “In 1988, however, Congress retroactively added effective dates
to the INAA as if they had been included in the INAA as originally enacted.”
—
Also see: Retroactive Citizenship Laws in the United States
http://www.apsanlaw.com/law-161.Retroactive-Citizenship–and-Reclaiming-Lost-Citizenship-Laws-of-the-United-States.html
http://www.avvo.com/legal-guides/ugc/retroactive-citizenship-laws-in-the-united-states
From Virginia in response to my question: “Can you tell me under what circumstances someone can naturalize through a parent or grandparent? In Canada, someone attempting to naturalize through a parent or grandparent will receive a document saying they were a citizen at birth.”:
“Hi – I am not an immigration lawyer & have no knowledge of the immigration laws for any country. I did not know Canada treated those naturalizing thru an ancestor as having attained the Can cit at birth. That is very interesting and I wonder how that might work under the Proposal. I would think it should “work”, but who knows! You can try to research Ireland, for example. I understand, they permit naturalization thru grandparents, for example. See if you can find whether the person is treated as obtaining the cit “at birth” under Irish law. I think the benefit is usually that the person does not have to reside in the country as would be required for any other person wishing to naturalize.”
Ok, from what I’m starting to see, depending on how a country designates the way it’s citizens confer citizenship to a descendant, that citizenship will either be a naturalization or “at birth”. Canada has chosen “at birth” while others have made it upon registration. How the US will see it is another matter altogether though. From what I know about the US, they probably won’t bat an eye to anyone else’s designation and call them all naturalizations.
Does anyone know how Ireland designates its citizens by descent – at birth, or upon registration?
@ Bubblebustin
About Irish citizenship http://www.citizensinformation.ie/en/moving_country/irish_citizenship/irish_citizenship_through_birth_or_descent.html
In general it would seem the Ireland gives citizenship at birth to those born abroad to a parent who was an Irish citizen born in Ireland , others are granted citizenship as of the time of registration. Some exceptions.
Sweden is discussing that today, and the leaders say that they don’t give a flying fire truck about people that “choose” to be citizens.
This is standard talking points developed by Dick Harvey and jammed in via the ambassador corps.
Never mind that they are implementing USA law inside their country, they say it’s not their problem.
http://www.svt.se/nyheter/regionalt/vastnytt/hon-valjer-sjalv-att-vara-medborgare
hon-valjer-sjalv-att-vara-medborgare means “she herself chose to be ctizen”
Obama’s proposal is to take away anything where “choice” isn’t applicable, so as to dampen resistance. Chicago politics.
There will be more tonight & tomorrow on the Swedish news. Maybe it will be English texted, we shall see.
At the same time, the government hangers-on enlisted the BBC propaganda team to dig up 7-yr old ICIJ theft of the private data of 100,000 bank accounts around the world and play it over and over again today, ad infinitum.
@heartsick
Thanks. Ireland’s citizenship rules seem extremely complicated compared to Canada’s. Item of note is being born on Irish soil doesn’t necessarily make you a Irish citizen, yet several generations of people never having set foot in Ireland can (at least I think they can – not going to read the entire act, as I have no personal connection to Ireland).
All of this trying to figure out how each different country’s citizenship laws mesh with this proposal is going to be a royal pain. It would be SO much simpler, and fairer, if the proposal applied to every ‘US person’ who left USA as a child, and has since acquired citizenship of their country of residence.
In a sense, all such individuals are just as innocent as the ‘born dual’ Americans where “born dual” means something different depending on which country the ‘US person’ who left USA as a child, is a citizen of.
This would also do away with the passport issue.
@WhiteKat
Agreed!
Since the wording of Point #1 about born-dual is identical to the wording in Form 8854, and we’ve never had this discussion or fear about qualifying for the Form 8854 exemption for being a covered expat, why are we concerned here and now? I’ve lost track!
@Veritas
I do remember you, because whenever I see your name I think of “in vino veritas” 🙂
I suspect that many Conservative will be single issue contributors in this case, and besides that, jumping the Harper ship is becoming all the rage now.
@WhatAmi
When I wrote this question to Virginia, “In Canada, someone attempting to naturalize through a parent or grandparent will receive a document saying they were a citizen at birth.” I should have put “naturalize” in quotations as I was using her choice of words, not mine.
@WhiteKat
Well if the US refuses to recognize citizens of other countries as dual citizens “at birth” because they hadn’t registered until adulthood, that would sure create a double standard, wouldn’t it? The US claims their citizens born abroad at birth even though some may have registered later in life, but the US will refuse to recognize the same for other countries?
BTW, not registering your child’s birth abroad won’t make a difference to the child’s status if the US wants to claim him/her.
@Mark Twain
“Obama’s proposal is to take away anything where “choice” isn’t applicable, so as to dampen resistance. Chicago politics.”
This is exactly the reason why the Canadian lawsuit needs to include plaintiffs who were born in the US and emigrated to Canada and naturalized as adults.
Did someone say somewhere along the way (recently) that there’s a window for non US born children born to a tainted parent to get rid of their taint between the ages of 18 and 18.5 without facing the US$2350 fee.
I have 2 children approaching this, and I need to know if this is true. Or….should I continue to ask my US based family (when asked what gift to give to my children for Christmas/Birthdays) for donations to their “US citizenship renunciation fund?”
Laughably, a few months ago I was told by a US border official (after spotting my wife’s unfortunate birthplace in her CDN passport) that I should go to a consulate and register my kids because this would “open up a whole new world for them.” (I gave no response)
@ PierreD,
I don’t know about that (doesn’t mean it’s not the case, of course). FWIW, the only thing I know about the 18 to 18.5 window is that they can avoid covered status. 877A(g)(1)(B)(ii). But if they’re dual at birth, they can avoid covered status through 877A(g)(1)(B)(i) anyway.
@PierreD
From another USC in Canada who’s daughter was born in the US:
They have six months once hitting age 18 to renounce without worrying about filing anything b/c assumption is they have nothing.
Duals who acquired citizenship at birth or as part of a family naturalization can’t claim relinquishment at all the way the rules are written.
Those who acquired [non-US] citizenship as teens might be able to make a case that they participated in their ceremony with intent to relinquish but I haven’t heard of it being tried at this point.
And they would have had to be older than 14 – probably 16 – to make a case.
Once kids are close to done with high school, in their last year or two, they could try going to the consulate already. In countries where kids graduate high school at 16 or 17, it should be easy to make a case that they are capable of knowing their own minds – though they could still get hassled.
If I were Pierre, I would get my kids to the consulate sooner rather than later, but if they were duals from birth, it will be costly b/c there is no way around renouncing for them. Unfair, but the US is clearly hoping to keep kids b/c of the steep cost to them and parents at a time in their lives when they money represents the cost of a university course or two.
@PierreD, @Bubble bustin
I’ve always wondered what’s the best way and time for somebody approaching 18 to renounce, and what the tax obligation might be. @Bubblebustin, do you have any links to the law you quoted?
Over a year ago @BenedictArnoldBeMe’s naturalization as a Canadian while a minor (I forget the age…13?) was denied as an expatriating act because he was a minor and that was disallowed in the 1986 (or 1978?) law changes (but still valid at his time! grrrr!). (He later succeeded with a government employment claim.)
The reverse of your question: A USC who loses USC as a minor for INA 349 reasons has 6 months after age 18 to reclaim their USC.
@Bubblebustin
Re: “Duals who acquired citizenship at birth or as part of a family naturalization can’t claim relinquishment at all the way the rules are written.”
I don’t get this. Persons born dual can relinquish by government employment or military service. (Immigration and Nationalities Act, s. 349(a)(3)(4). Or are you referring to some particular circumstances in addition to having been born dual?
Here’s something from Phil Hodgen on the subject of those between 18 and 18-1/2 years of age: http://hodgen.com/expatriation-between-age-18-and-18-12/.
@calgary411
Excellent! I had found Phil’s blog about “expatriation-by-minors-possible-but-difficult” but missed finding this one. Thanks!
However, it doesn’t match what @Bubblebustin said. I only read Phil’s blog, not the IRS code that he links to. Phil said the 18-yr-old will not be a covered expat (regardless of wealth), but:
This is what I’ve been forwarded:
“there are two main exceptions to the exit tax regime for US citizens looking to renounce and not be considered Covered Expatriates. The first exception is largely limited to dual citizens who live in the country of their other nationality. The second is even narrower and is limited to citizens who did not live in the US for more than ten years before the age of eighteen and a half. As minors are generally not allowed to renounce their US citizenship, it effectively allows only a six month window for such individuals to avoid the imposition of § 877A’s exit tax regime. The following are the two exceptions to § 877A’s exit tax regime:”…
http://www.moodysgartner.com/renouncing-your-us-citizenship-new-law-may-keep-you-out-forever/
@pacifica
I’m sorry I can’t answer that.
@ Bubblebustin,
Thanks anyway. Sorry, I only realised now that you were quoting someone.
@Bubblebustin,
OK, the link to the Moody’s article agrees with Phil Hodgen’s: a person who renounces between 18 and 18.5 is exempt from the exit tax but they still must certify 5 years of tax compliance (which could mean back-filing). If they don’t certify this compliance on Form 8854, then they will be a covered expat and be subject to the exit tax.
Having said all that, a person that young probably doesn’t have a lot of income, and may well be under the IRS filing threshold. Some people who have renounced and have been under the filing threshold filed anyway, just to make sure they never hear from the IRS again. Others who were under the threshold and hadn’t been filing figure that’s legal and they just say YES to the certification. I’m not sure if we’ve ever had a legal opinion on this detail.
@Bubblebustin
I didn’t realize you were quoting another person either! I thought the “other USC in Canada who’s daughter was born in the US” was referring to yourself!