Liberty and justice for all United States persons abroad

The Isaac Brock Society

ACA Global Foundation Video: 21st Century Taxation of Americans Abroad: CBT vs. RBT Toronto May 2, 2014

Posted on by Posted in Issues regarding US persons abroad 64 Comments


 

Video also Here

 
“Revisiting the Tax Treatment of Citizens Abroad:Reconciling Principle and Practice” M.Kirsch
 
“THE END OF TAXATION WITHOUT END: A NEW TAX REGIME FOR U.S. EXPATRIATES”
SSRN-id2186076_Schneider
 
Bernard Schneider- April 15, 2013 letter to the Ways and Means Committee
B.Schneider2-Ways&Means
 
With thanks to Embee for the articles
 

64 thoughts on “ACA Global Foundation Video: 21st Century Taxation of Americans Abroad: CBT vs. RBT Toronto May 2, 2014”

  1. If this is the discourse among academics in the U.S. then it’s no wonder congress doesn’t get it. They are not talking to us, they’re listening to people unaffected.

    I too want to see the full meeting.

  2. @calgary,
    Any debate of US CBT must address the clearly involuntary and clearly unethical issue of those bound from birth by accident of birthplace or parentage who will never be allowed by US law to renounce/relinquish, and who the US refuses to let be freed by proxy – through legally recognized parents/guardians acting on their behalf.

    There is no actual or meaningful “participation” in the “US community” if one not only lives outside it but also does not have the capacity or autonomy to conceptualize citizenship, to vote, or to obtain a US passport on one’s own volition. If one cannot conceptualize or comprehend citizenship, or the rights, duties and obligations it entails, including taxation, etc. then the whole argument about voluntary exercising of ‘benefits’ or meeting ‘obligations’ is moot. However, being legally incompetent and lacking comprehension does not and should not strip someone of any inherent rights.

    The vulnerable are being preyed upon by the US. And whether it continues as a sin of ommission (omitting to act to right the wrong) or commission (actively choosing to continue to inflict harm regardless), the result is the same. The US and US extraterritorial citizenship/parentage/birthplace taxation of persons with no US residency and NO economic connection is simply an indefensible and ethical wrong. Who amongst these US academics and lawyers will speak for those who have no voice?

    Why is that not an issue worth noting? Why isn’t it being written about?

    I can’t take seriously academics debating US extraterritorial CBT unless they acknowledge that very glaring and obvious fact. There is no acceptable rationale for taxing and burdening the vulnerable outside the US.

    It is just an exercise in UScentric egoistic self-congratulatory wanking if the debate over CBT doesn’t address the actual nitty gritty realities of the considerable harm that US extraterritorial CBT and enforcement is actively causing to innocents, minors as well as the rest of us abroad.

  3. @Badger Well said.

    On the legal wish list: class action by alien family members against the US Government for damages due to CBT ripping at the family financial unit as a result of a US person being a member of the family.

  5. Kirsch thinks CBT is acceptable if it can be administered humanely. How he can condone it while it’s clearly not being administered humanely and facing so many impediments to EVER being administered humanely, makes his vision of CBT purely HYPOTHETICAL (let alone being based on any model of success).

    Kirsch’ dreams of CBT’s success are like dreams of Utopia – only sought after to the degree that they’re unattainable. Yet for those who like to tinker with broken things in an attempt to fix them, his message will resonate. For instance his message to fix the problem by making fewer people American citizens. Since when does abuse end by killing the victim?

  6. @Atticus

    We’d get the impression from Kirsch that taxation GIVES value to citizenship – which it does not!

  7. An oft-repeated comment I made last year began with this:

    Please, let’s all cut the crap, shall we? Especially those apologists for CBT who treat it like some esoteric academic exercise, the same way supposedly learned men, who should have known better, once opined about eugenics.

    Take a wild guess who I was referring to.

  8. @Atticus @Deckard

    These brutes who are allowed to pontificate and make apologies for the policies that cause so many Americans to renounce are nothing short of nauseating.

  9. If these benefits are so great such as the ability to vote, why not ask for unemployment, health care, old age pensions, welfare and the list goes on. I bet the US wouldn’t put those benefits on their list for expats. No, you leave and you get nothing. Pay our taxes and we’ll give you greatest opportunity in the world…vote!
    Such a ridiculous high cost price for a vote when all is said and done. Are we stupid?

  10. Our vote, Ann — with the US electoral voting system, does our vote mean anything at all?

    Yes, are we stupid?

  11. Voting is not a benefit of citizenship, it’s a duty for those who consider themselves citizens. If voting’s so important to Kirsch, maybe he should include people who’ve never voted to relinquish in the same way he and Obama propose accidentals be allowed to.

  12. Thank you badger. I’ve just written this and don’t have time to look at it as I’m out of the door for an appointment:

    From Phil Hodgen this week and my thanks, as always , to badger for asking it.

    This Week’s Expatriation Question
    Commenter badger on the blog suggested this topic:

    Could you follow up with your always insightful and informative comments – this time on the related situation of those living (and many born) entirely abroad – who are prevented (lifelong) by US law from expatriating or being expatriated (by a parent or guardian) because they are deemed legally incompetent to understand citizenship and thus to voluntarily renounce or relinquish it? They therefore are bound forever as US taxable citizen persons abroad – with all the pain and burdens that entails.

    This is very important – in order for families to arrange for ALL family members to renounce and have the same non-US status for simplicity sake, and to protect their legal, local, non-US disability grants, benefits and savings (ex. Canadian Registered Disability Savings Plans RDSPs) from punitive and unjust US extraterritorial taxes, FBAR, and 3520/A burdens imposed on the funds provided by non-US taxpayers, parents and governments in order to provide for the wellbeing and support of those who cannot provide for themselves – due to chronic or congenital physical, neurological, psychological or intellectual impairments which make them unable to care for and support themselves.

    Short Answer
    Yes, this is a problem that I have seen a few times (always with Canadians) and I don’t know what to do about it. This requires changes to the law on the citizenship side of the equation.

    I suspect in the past most people in this position simply ignored the U.S. tax stuff. Now that Mr. FATCA has come to town, this may be impossible. But it strikes me as being the least bad solution to the problem. Not that I’m saying you should deliberately break the law. I will invoke Richard Nixon’s quote (mythical, perhaps): you could do that, but it would be wrong.

    The Law
    The problem comes about because of the law about citizenship and the requirements for giving it up.

    The law requires a finding of “intent” by someone relinquishing U.S. citizenship. Mental incompetence means it is not possible for the individual to have that intent.

    The State Department’s Foreign Affairs Manual, 7 FAM 1291, says (emphasis added):

    1. Because loss of U.S. nationality occurs only when a would-be renunciant or person signing a statement of voluntary relinquishment has the legal capacity to form the specific intent necessary to lose U.S. nationality, cases involving persons with established or possible mental incapacity require careful review. This includes mental disability, mental illness, developmental impairment, Alzheimer’s disease, and similar conditions. It may also include cases of substance abuse.
    2. A formal finding of mental incompetency by a court of competent jurisdiction, whether in the United States or abroad, precludes a finding that an individual has the requisite intent.
    The Foreign Affairs Manual, at 7 FAM 1291(e), gives us a ray of hope (emphasis added by me):
    Parents, guardians and trustees cannot renounce or relinquish the U.S. nationality of a citizen lacking full mental capacity: A guardian or trustee cannot renounce on behalf of the incompetent individual because renunciation of one’s citizenship is regarded, like marriage or voting, as a personal elective right that cannot be exercised by another. Should a situation arise of the evident compelling need for an incapacitated person to relinquish citizenship, you are asked to consult CA/OCS/L for guidance.

    No Hope, I Think
    But I think the hope is misplaced. It’s a “shovel snow in hell in the summertime” mission. In summary, the State Department says:

    • If a court anywhere finds the individual to be mentally incompetent, it is game over. The “intent” required by law to relinquish citizenship will simply not exist. [7 FAM 1291(e)].
    • No one else can exercise that power for the individual. [7 FAM 1291(e)].
    • Voluntary relinquishment of U.S. citizenship requires “careful review” [7 FAM 1291(a)] and you are invited to make a Federal case out of it if there is an “evident compelling need” [7 FAM 1291(e)] for the incapacitated person to relinquish citizenship.

    I have not seen this happen. The door is cracked ever-so-slightly open. There may be some situations with mental incompetence where it might be possible to persuade the State Department to allow a renunciation. But the flat statement of 7 FAM 1291(b) — if a court said you are mentally incompetent, then game over — tells me that the opportunities are limited.

    What To Do? My “Least Bad” Idea Number 1
    What can you do in a situation like this? What happens if you have a disabled child and you need to make financial arrangement? Renunciation of U.S. citizenship is out of the question.

    I think the least bad solution is to find someone to hold money and take care of the disabled child’s welfare. That arrangement can be that of a trustee (triggering a metric ton of paperwork, expense, and agony courtesy of the IRS) or it can be gifts from the goodness of that person’s heart.

    You are trying to create an arrangement by which the person helping the disabled child is not a trustee, but will have the ability (and the moral integrity) to use the money in the way you would like it used. Note that you have now exchanged a tax risk for another risk entirely.

    That’s not an easy decision to make. Nor is it easy to find utterly trustworthy people who will help like this.

    This means that government-sponsored plans such as the RDSP are out of the window. This would raise the visibility of the beneficiary as a U.S. person, which in turn would wake up Mr. FATCA. Game over.

    It also means that income on this money held for the benefit of the disabled child will be taxable rather than tax-free. And there is the complexity of getting money from your trusted friend to its intended use. That might trigger gift taxes in your country.

    My “Least Bad” Idea Number 2
    Weigh all of that against the compliance cost of dealing with the IRS. It may be better to simply set up a trust (or use an RDSP and forego the possibility of tax-exemption on income) and distribute the income to the disabled beneficiary every year.

    You do this because (1) you figure that the income every year will be overall small enough to create minimal U.S. income tax; and (2) this strategy eliminates the accumulation distribution tax problems on accumulated income inside foreign trusts.
    You would set up the system so the U.S. tax paperwork would be as robotic as possible, in order to keep overhead down.
    This strategy probably plays hell with the disabled person’s ability to qualify for government benefits, and adds some thousands of dollars of overhead every year for accounting, tax return preparation, etc.

    What Would Paul Biegler Do?
    I do not suggest breaking U.S. tax law. I’m no Paul Biegler.

    Routine Disclaimer
    I am not your lawyer, and this is not legal advice to you. If you need help, please hire someone who can advise you.

    ********************

    Says I:

    With US Citizenship-Based Taxation, no one, NO ONE, should ever be entrapped into its consequences, especially someone who has and has never had any connection to the US. It should be a CHOICE / a CLAIM by the person involved to make such a claim knowing all of the benefits as well as the consequences. If there is NO CLAIM, that US citizenship which has all of the US Citizenship-Based Taxation consequences should be NULL & VOID. That just makes common and moral sense to me. Can it not make sense to the USA lawmakers? Will the Senate Finance Committee tell me why anyone with a *mental incapacity* should be entrapped into such a toxic situation?

    IF a guardian/trustee can act on a naturalisation for a mentally disabled person to become a USC then it makes equal sense for a guardian/trustee to undo same.

    …contrary to what I have been told by Department of State, Legal and similar advice by a Washington, DC immigration / nationality lawyer:

    Here is the advice I got from US Department of State, Legal: https://isaacbrocksociety.ca/2014/06/01/its-time/comment-page-72/#comment-3097016

    From: Kavaler, Howard
    Sent: Wednesday, May 07, 2014 9:55 AM
    To: caroltapanila
    Subject: RE: Question re US Citizenship never registered with the US

    Ms. Tapanila:

    If your son was born in Canada to two U.S. citizens, at least one of whom had a residence in the United States prior to his birth, your son is a U.S. citizen pursuant to Section 301(c) of the Immigration and Nationality Act. Your understanding of U.S. citizenship law is absolutely correct. U.S. citizenship is a status that is personal to the U.S. citizen and may not be renounced by a parent or a legal guardian. If your son seeks to renounce his citizenship, it will be incumbent upon him to demonstrate that (a) his action in renouncing his U.S. citizenship is the product of his own free will and (b) that he fully understands the consequences attendant to the relinquishment of his U.S. citizenship.

    …which agrees with the information from an immigration / nationality lawyer in Washington, DC, to confirm this son’s US status and give possibilities for his renunciation. The result was that her children were US citizens from the moment of their births. The following is information from that lawyer based on his conversations with the US Department of State:

    DOS persons have “sympathy” for such cases. However, the developmentally disabled person will have to have FULL understanding of what he’s doing; if any question of lack of comprehension and grasping meaning and importance of ramifications, they could NOT approve such a case. From DOS point of view, US citizenship is precious and they have therefore established fundamental requirements for “compelling reason”. Even though there is the risk that a person’s financial resources could run out before his/her life was over, they will never approve a renunciation for financial / economic reasons. DOS has NEVER had such a renunciation case approved due to “compelling circumstances”. Ms. Tapanila could sue but persons he talked with at DOS are SURE no one would ever win such a case as the courts view the discretionary action that DOS has would take precedence.

    Am I just a hard-headed old lady who is disregarded or will the Senate Finance Committee take this egregious collateral damage into account? No one, NO ONE, should have to work around this problem. The problem should be resolved with just law that will affect anyone with some mental incapacity.

    If the US cannot change to Residence-Based Taxation to fix this, then at least do something about anyone ever being entrapped into the consequences of US citizenship-based taxation.

    PLEASE!

  13. Excellent remarks, Badger and all!!

    I had to laugh when he talked about voting being of value. Yes, for home landers it is. If were of value to expats there would be no CBT quite obviously. It’s clear expats votes do not count for a damned thing. They have no voice and whose number do they call when they want to address a problem? Who do they email because they cannot email a congress person or senator when all the menus do not include anyone outside the U.S. and even when you can they do not respond to expats. Who here has ever got back a letter? If you did get back a response was it a form letter? I’ve never once heard of anyone getting any response except a form letter and that was only one person.

    Citizenship is a birth right and to say otherwise is a human rights violation. The U.S. places a dollar value on citizenship. Therefore only the wealthy need apply. It’s citizenship laws and tax laws are inhumane. THAT is why the rest of the world does not do things that way. Kirsch has jumped through hoops and ignored some facts in order to hold his position and I got the impression his position was from a purely emotional stand point. Good for him. He has choices. We don’t.

    He did seem to feel that it is perfectly fine to give up citizenship. In a gentler way he was saying “Well, if this harms you too much you can get out.” except some can’t and some don’t want to.

  14. Kirsch admits that the current way CBT is being administered is unacceptable, but must also know that in order for it to be acceptable to Americans abroad the compliance burdens would have to be reduced to the point where it would be not worth their while to enforce CBT.

    Catch-22.

  17. @Atticus:

    Great comments!

    Perhaps instead of referring to the US as having “Citizenship Based Taxation” (CBT), we should refer to it as having a “Citizenship Tax” (CT) as that’s really what it is. Citizenship Based Taxation has a more palatable connotation for academics such as Professor Kirsch as well as Homelanders. Shortening the term to CT creates a liguistic association with Poll Tax, another injustice and human rights violation from American History. I may play around with this on Twitter…

  18. How do Americans abroad feel paying a mandatory Homeland Tax? Isn’t that what it really is since we as non-residents receive little if any benefits from it?

  19. Just sent to me by another Brocker (and I did see reference to this somewhere, likely here): Washington Post, March 3, 2015: “Yes, the State Department can jump on a problem and fix it in record time”

    In Washington, beleaguered by red tape and bureaucracy, even the simplest of tasks can take forever. So the fact that the State Department was notified of an issue and fixed it within two months is, well, quite extraordinary.

    Manhattan immigration attorney Reaz H. Jafri, a partner at Withers Bergman, wrote to the State Department in December after several clients who wanted to renounce their U.S. citizenship had to give up their passports in the interim and then were not able to travel. They were, as Jafri put it, “in no man’s land.”

    In February, he received an e-mail that State’s Foreign Affairs Manual had been revised to instruct diplomats that a U.S. passport can be returned to the “intended expatriate” if she or he needs to travel to the United States before the “loss of nationality case is approved.”

    “I’ve been practicing law for 23 years, I’ve never seen the government move so fast and so efficiently,” he said. “It amazes me that no one ever brought it up … the merits to our position were so logical. So they went ahead and changed it.”

    So, come on, Senate Finance Committee and the US Department of State, put your heads together and fix what is wrong with the collateral damages wrought by the US Citizenship-Based Taxation that your country practices. You can do it — we know you can. Why won’t you?

  20. @Calgary411
    Part of it is that nobody thinks about intellectually disabled people as potential taxpayers.
    I read Kirsch 2007 today (it’s lent 🙂 ) and think I know where he is coming from, but the philosophy of citizenship he is using just doesn’t work with jus solis citizenship or long-term overseas residence (and the theoretical perspective he’s coming from has a real blind spot about people who lack the time, money, and capacity for active participation in politics).

  21. @BC_Doc

    The catchiest I can come up with is the re-entry tax. Other variations would be right to reside tax or right to return tax.

    Americans only live in America. The re-entry tax is the tax you pay to the US to be able to live outside the US. But eventually you will realise the error of your ways and “come home”. Because America is a far greater country than any other, the right to return to America is more valuable than the right to return to any other country and therefore you must pay for this.

    You pay the re-entry tax until you “come home” or until you get tired of paying the re-entry tax and want to give up your re-entry right. At this point, they slap you with the exit tax.

    A different analogy in a different context for those who think there is a new Berlin Wall: think of US citizens abroad as being part of a work release program. Your work release earnings are taxed. At the end of your shift you go back. If you want your freedom, you pay the exit tax.

  22. @calgary411: My first thought is, that might be illegal (unless they are trying to claim that an ex-citizen owes “allegiance” to the US even after renunciation):
    https://www.law.cornell.edu/uscode/text/22/212
    http://www.state.gov/documents/organization/86773.pdf

    No passport shall be granted or issued to or verified for any other persons than those owing allegiance, whether citizens or not, to the United States.

    Perhaps a U.S. passport held by a person who already renounced citizenship does not meet the U.S. law definition of a passport anyway, so maybe this is legal in some weird roundabout way
    https://www.law.cornell.edu/uscode/text/8/1101#a_30

    The term “passport” means any travel document issued by competent authority showing the bearer’s origin, identity, and nationality if any, which is valid for the admission of the bearer into a foreign country.

    Basically this looks to me like State trying to pretend to be “reasonable” to renunciants (in the face of other well-known evidence of their unreasonableness) and failing hard.

  23. I can agree with what you say, Eric. Isn’t that why the passport is (was) taken from us — we are no longer US citizens as of the date of renunciation even though it had to have the final blessing of those in Washington, DC. There is to be a record at the border even if we don’t have the CLN in hand and we now would have our itty, bitty US$2,350 receipt for renunciation as proof. A pretty unstable time for travel though.

    Basically this looks to me like State trying to pretend to be “reasonable” to renunciants (in the face of other well-known evidence of their unreasonableness) and failing hard.

  24. @Eric, @calgary411,

    Do they do this for relinquishers, too? This would seem to potentially set up a trap for being denied relinquishment.

  25. IRS is not operating the International Data Exchange website. When you go to the link, an IRS disclaimer comes up warning you that you’re leaving the IRS website and going to one run by a private business.

    http://www.irs.gov/Businesses/Corporations/International-Data-Exchange-Service
    http://apps.irs.gov/app/scripts/exit.jsp?dest=https://www.ides-support.com/
    http://www.accountingtoday.com/news/irs-watch/irs-opens-fatca-international-data-exchange-gateway-73801-1.html

    All this data encrypted or not is going to be accessible by third parties with subject to the temptations of bribes, or backhanders to obtain a ‘US person’s’ data if not external hackers.

    Prediction: There will be a FATCA data scandal and the US Government’s reaction will simply be tough luck.

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