Liberty and justice for all United States persons abroad

The Isaac Brock Society

Monthly Archives: February 2017

Is President Donald Trump leading to renunciations of United States citizenship?

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The current media narrative is anti-Trump 24-7. He is bad. And of course all those celebrities and other people are waiting in line to flee the country and renounce their citizenship. So I was contacted by a reporter of a well-known news network who is writing an article on people who are renouncing their USA citizenship because of Donald Trump. He asked me:

  1. If there has been an increase of traffic to isaabrocksociety.ca since the November election.
  2. If anyone had contacted us with questions about renouncing directly linked to Trump.

Here is my response:

There has been no uptick in traffic to our website, and no one anti-Trump has contacted me in my function at Isaac Brock.  I do not predict an uptick in renunciations over Trump. People are renouncing for practical reasons. Anti-Trumpism is fanatical, but Trump has not so far caused real problems for American citizens. FATCA, citizenship taxation, the Obama enforcement of FBAR, CBT and FATCA, and the compliance condors have created real problems for so-called “Americans” abroad–especially those of us who are little older and more established financially. Trump just seems to make some American citizens really angry but has not yet substantially harmed them (at least I do not know of concrete examples).

I had one person contact me on behalf of someone who owns property here in Canada, wanting to know the tax implications of moving to Canada and how one might transfer bank assets.  This person was not asking about renunciation of citizenship–just the tax implications of moving to Canada (and how to move assets). She did not know I run the Isaac Brock Society. I know her from Facebook for other reasons.

I see that one of the problems with the shrill anti-Trump narrative in the mainstream press and social media is that the wrongs done against expats have been completely ignored. When I talk about the wrongs that Obama did, I am scorned.

Trump may eventually reverse FATCA, but I do not hold out hope. Nevertheless, in the current persecution of expats Trump only continues the demonic policies of his predecessor.

Here is a reminder of why Peter Dunn relinquished his USA citizenship:

What do you Think of the Penalties in These Three Cases of Unreported FBARs ?

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Ty Warner

Ty Warner
Ty Warner, founder/owner of the Beanie Babies line, was sentenced in July 2015 for tax evasion.The panel of three U.S. District Court judges gave him 2 years of probation and 500 hours of community service. The sentencing guidelines ranged from 46 months up to a maximum of 57 months. He agreed to pay back taxes and interest of $16 million as well as a $53.5 million penalty (the full FBAR penalty of 50% of the balance of the highest account-$107,000,000). According to Melissa Harris (author of this article that appeared in the Chicago Tribune, July 15, 2015) Warner’s sentence was “a punishment that reduces evading millions in taxes to a speeding ticket,” and that the sentence “flies in the face of both reason and justice”.

Warner had an estimated net worth of $2.5 billion, and was the 209th richest American.   According to Janet Novak of Forbes:

He admitted that around Jan. 31, 1996, he flew to Zurich and deposited about $80 million at UBS AG, instructing that no account statements be sent to him in the U.S., and that he kept the account secret until November 2007. During that period he failed to report at least $24.4 million in interest income on the account to the Internal Revenue Service, evading at least $5.6 million in taxes. He also failed to file with the Treasury the required annual “FBAR” report on his foreign accounts

What beggars belief is that Mr. Warner never provided any explanation for:

  • why he opened the account
  • the origin of the funds
  • audits of his books & records show the funds did not come from his company
  • his personal domestic accounts showed no signs of the origin of the funds

In fact the evidence suggested that the funds may have been pre-tax payments of some sort. To this day, the extent of his willful tax evasion is in reality, unknown.

So why did Mr. Warner get off so lightly? Was it because his lawyer Mark Matthews used the Olenicoff Defense?
Was it because his creation, the Beanie Babies line of stuffed toys, was just too cute for anyone to believe he was guilty of such evasion?

Peter Henning a Wayne State University Law School Professor and co-author of ‘Securities Crimes ”said in an interview, “I don’t want to say anything goes,….Clearly you can’t consider race or wealth. But you are looking at character. That is something judges can take into account. The question is how much should it weigh into the decision?”

This is where Mr. Warner hit the jackpot. He received 70 letters of support from friends, employees and recipients of his charity, actions which had nothing to do with the charges and only someone with money could do.

U.S. District Judge Charles Kocoras (of the panel) based his sentence on:

…..a reading of 70 letters, Kocoras found that “Mr. Warner’s private acts of kindness, generosity and benevolence” were “overwhelming,” with many occurring before he was under investigation and, in Kocoras’ words, motivated by “the purest of intentions.” Most were done “quietly and privately.” The judge concluded: “Never have I had a defendant in any case — white-collar crime or otherwise — demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner.”

So a man guilty of many years of tax evasion, who did not even account for the origin of the account nor any records of it, received an incredibly light sentence based upon support from his family, friends and beneficiaries of his kindness. Where is the law here?
 

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In four years, about 1% of diaspora non-filers chose to come into compliance through Streamlined: IRS

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On Thursday, the IRS released their “Dirty Dozen Tax Scams” for 2017, among which they listed “unreported offshore accounts”. They go into more detail in IR-2017-35:

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.

In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Works of the U.S. government are not objects of copyright, which is a boon for stenographers who mislabel themselves as “journalists”: they can just cut-and-paste the U.S. government’s viewpoint on the issues into their magazines without thinking about it, or attempting any analysis.

Anyway, US$450 million is an average of about US$9,400 per Streamlined participant. Not as big as the $13,000 per head they extracted from minnows with two-digit annual tax deficiencies under the 2009 OVDP, but still a sizeable sum from the perspective of the individual.

I’m sure there’s some poor deluded souls in the IRS and the Joint Committee on Taxation staff who are salivating at the thought of getting nine grand per head out of the rest of the millions of diaspora non-filers too — that might help them turn those mythical FATCA revenue estimates into reality. If that’s their aim, however, then forty-eight thousand over four years is a rather slow start.

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Poll: Is it common for #Americansabroad to have a higher U.S. income tax bill than a comparably situated Homelander?

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Reblogged from the Renounce U.S. Citizenship blog.

Imagine the following two people:

We are comparing “Homelander Ted” to “Expat Benedict Arnold”.

Assume that “Homelander Ted” lives and works in the Homeland and purchases in ONLY U.S. dollars. He would not consider using any other currency.

Assume the Expat Benedict Arnold” (having escaped from the Homeland) lives and works in Canada and purchases in ONLY Canadian dollars. He would NOT consider using any other currency.

Assume that each of “Homelander Ted” and “Expat Benedict Arnold” own a home in their respective countries of residence, have employment income, engage in personal finance which includes retirement planning. “Homelander Ted” commits “personal finance” ONLY in the Homeland. “Expat Benedict Arnold” commits “personal finance abroad”.

Assume that “Homelander Ted” and “Expat Benedict Arnold” have financial situations that are comparable in their respective countries of residence.

To be specific both of them:

1. Have a principal residence in that they have owned for more than two years and that was sold on November 30 of the year. Assume further that there was NO capital gain measured in local currency. Assume that the sale included a discharge of an existing mortgage and that interest was paid on the mortgage up to the November 30 sale. Assume further that they each carry a “casualty” insurance policy on the property.

2. Have employment income and have pensions provided under the terms of their respective employment contracts.

3. Have and use mutual funds as a retirement planning vehicle.

4. Have a 401(k) plan in the USA and an RRSP in Canada.

5. Have spouses and must consider whether to use the “married filing separately” or the “married” filing category. “Expat Benedict Arnold” is married to an “alien”.

6. Give their respective spouses a gift of $500,000 on January 1 of the year.

 

U.S. Tax owing – versus TAX MITIGATION PROVISIONS

Assume further that each of “Homelander Ted” and “Expat Benedict Arnold” each prepare a U.S. tax return. Imagine that the Internal Revenue Code does NOT have (TAX MITIGATION PROVISIONS) either the Foreign Earned Income Exclusion (Internal Revenue Code S. 911) or the Foreign Tax Credits (Internal Revenue Code 901). Imagine further that there is no U.S. Tax Treaty that mitigates tax payable to the USA under these circumstances.

The question is how much tax “Expat Benedict Arnold” would be required to pay the U.S. Government if there were no TAX MITIGATION provisions.

How likely is that without the TAX MITIGATION PROVISIONS that the “Expat Benedict Arnold” would be required to pay HIGHER U.S. taxes than “Homelander Ted”. In other words:

Does the Internal Revenue Code:

First, impose higher taxes on “Expat Benedict Arnold” for the crime of committing “personal finance abroad“?

Second, mitigate those higher taxes through one of the TAX MITIGATION PROVISIONS described above?

Are U.S. Taxes (not including foreign taxes) actually higher for Americans abroad than for Homelanders?

Please consider the questions (without considering tax paid by “Expat Benedict Arnold” to Canada) in the following poll:

How does the U.S. tax bill of an American Abroad compare to the U.S. tax bill of a comparably situated Homelander?
(polls)

 

American Citizens Abroad wants your comments on its new February 7 2017 proposal, especially the “departure tax” provisions, to “replace” (?) U.S. citizenship-based taxation

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This February 7 2017 American Citizens Abroad (ACA) document appears to supersede and replace previous ACA proposals to “replace” U.S. citizenship-based taxation.

It also includes a side by side comparison with the Republicans Overseas territorial tax proposal (I am unsure of the accuracy of the comparison). There is NO comparison of ACA plan with relative merits of renunciation or “doing nothing”.

ACA ASKS FOR YOUR COMMENTS, primarily on the mechanics of the departure tax provision.

You can send your comments

— to info@americansabroad.org

— and post on the ACA FB site (https://www.facebook.com/americancitizensabroad)

— and can copy your comment on this Brock website.

Here is the ACA departure tax component of the proposal:

“Departure Tax Provision

— General Rule. Individuals who obtain a Departure Certificate and meet the threshold test of current section 877 (Expatriation to Avoid Tax), would be subject to tax on income as if property was sold on the day before the date of the Departure Certificate. The concern is that if there is not some form of Departure Tax, individuals could accumulate wealth while being a US citizen living in the US, and then avoid any US tax by simply moving abroad. Not only might this be the wrong result from a tax policy standpoint, it would greatly increase the revenue costs of instituting RBT. [Comments on this subject would be appreciated.]

Threshold tests for application of the Departure Tax would be the same as those in section 877, except the $2 million or more figure in section 877(a)(2)(B) would be increased to $5 million and US real estate subject to FIRPTA rules would be excluded. Rules similar to those in sections 877 and 877A would apply to [e.g., CANADIAN, AUSTRALIAN, UK, FRANCE-sourced!] pensions and other forms of deferred compensation. [Comments on this subject would be appreciated.]

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FEBRUARY 13 2017 UPDATE ON CANADIAN FATCA IGA LEGISLATION LAWSUIT IN CANADA FEDERAL COURT: Government response to Plaintiffs’ request for details on FATCA accounts turned over to IRS and CRA

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— Still expecting that the Constitutional-Charter trial will take place in 2017. Date however, still uncertain and will depend on how Motions are decided by the Court.

— The Government lawyers have now asked the Court, by way of a formal motion, to compel the Plaintiffs to provide certain additional documents and our lawyers will be resisting the motion.

One of our Plaintiffs, Ginny, comments on the Motion to compel more documents from Plaintiffs: “They are asking for more answers from the plaintiffs which we and our lawyers deem unnecessary and pedantic, let alone not legally relevant. For instance, here’s a little example. They really want to know my credits and debits from my chequing account? Sure, I could tell them the whole unabashed truth under oath… The debits are the usual household monthly expenses of the average family with one exception. Barclay,the greatest dog on earth eats a lot and is rather spoiled and gets more haircuts per year than I do. In the last few days of the month, we hold our breath and hope we make it to the end without going into overdraft. And so my question to them is: how is this relevant to your [Charter] section 1 argument?…Why can they not tell us whose banking account information has been turned over to the IRS via the CRA, whether over or under the >50K aggregate [see Plaintiffs’ questions and Government “responses” below in link]. We’d like that on the record, whereas I can bet the farm that the average Canadian does not care what Barclay’s food costs are.”

— See the (amended) Claims of the Plaintiffs and the now published as affidavit last response of Government to the Claims.

Note the changes (underlined) from original response on page 137 (14) in which Government denies Constitutional violations and now argues that “To determine whether any Charter rights or constitutional principles, written or unwritten, have been infringed unjustifiably by such alleged enforcement requires a factual matrix where the US has actually attempted to recover, in Canada, taxes or charges against a particular individual residing in Canada.”

Note also that Government has now DELETED on page 139 (16) its previous statement: “Furthermore, the defendants deny that there exists a principle of fundamental justice that foreign tax debts are not enforceable in Canada.”

— See the many questions asked by Plaintiffs to Government detailing the type etc. of FATCA information provided by Canada to United States and by U.S. to Canada, response of Government, and Objections raised by Government to Plaintiffs’ question.

I was particularly interested in knowing details on the bank account information that flowed from Canadian accounts in U.S. to Canada as part of the so-called “reciprocal” FATCA agreement — a key justification, in addition to promise of economic sanction for non-compliance, for Canada to “agree” to the FATCA IGA.

Government response to the request for information on the reciprocal bank data are: “On the advice of counsel. I am unable to answer” with the attached objection: “The Defendants object to Q. #4 and refuse to answer it because doing so may require disclosing sensitive information or potentially injurious information as those terms are defined in s. 38 of the Canada Evidence Act, R.S.C. 1985, c. C-5.”

[Also, I wanted to know: “…how many of the persons associated with those accounts had already been reported by the United States to Canada for tax purposes…? See the answer in link to this question…]

— Still seeking Exit tax witness. Supporter suggests (and I agree) that anyone who took measures to reduce asset worth to avoid exit tax would be considered…

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The Beyond the Border Action Plan & the U.S. National Defense Act-A Disaster Waiting to Happen?

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UPDATE MON FEB 13, 2017

The NYT reports today about the meeting of President Trump and Prime Minister Trudeau including a possibly relevant statement to this post:

He (Mr. Trump) said the two leaders had spoken privately about “doing some cross-border things that will make it a lot easier for trade and a lot better and a lot faster.” They issued a joint statement pledging to continue border security programs that began under Mr. Obama, and reaffirming their commitment to NATO, an alliance that Mr. Trump had previously questioned.

 

Earlier today I noticed a tweet that brought this on-going development to mind:

While this particular area may not directly impact expatriates resident outside of North America, it represents another area where information-sharing trumps privacy. In the case of Canada and the United States, an entirely new situation, shared policing on the opposite country’s soil, makes an awful lot of us more angry and nervous at being so vulnerable to the heavy-handed approach of the U.S. when it takes to protecting (enforcing) its interests.

The tweet references this article which defines new pre-clearance procedures at airports and outlines the following items of concern:

  • Canadian permanent residents could find themselves in the same straits as some U.S. green card holders in the first days of President Donald Trump’s travel ban.
  • Canadians who may change their minds about entering the U.S. can be held for further questioning by U.S. agents (in Canada)
  • U.S. agents can strip-search Canadians (in Canada)
  • U.S. officers are allowed to carry sidearms while on duty in Canada, if they’re working in an environment where Canada Border Services Agency

The United States has already passed legislation and Canada has before the parliament Bill C-23

Any Canadian would likely be outraged at the idea of U.S. officers having power over them on Canadian soil. Particularly because Canadian sensibilities are very different from the heavy law-and-order approach of the United States. One might wonder, how on earth did we get here?

CanadianBorderc

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CDN with @dualcitizenship spends $3000 per year to make retirement planning more difficult

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The above tweet references an article in the Financial Post describing the challenges of this couple in planning for retirement. With reference to the U.S. citizenship problem the article includes:

Harold and Tess have tax complications due to Tess’ American citizenship. Tax treaties and government agreements require her to file a U.S. tax return. …

Tess pays no U.S. income tax but she has a $3,000 annual accounting costs to comply with American law.

One is left with the impression that U.S. citizenship is a tax filing problem only.

Please comment on what advice you might give to Harold and Tess about Tess’s American citizenship and how it relates to retirement planning as a Canadian citizen living in Canada.

2,365 names of ex-U.S. citizens in latest published expatriates list

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The Quarterly Publication of Individuals, Who Have Chosen to Expatriate for Q4 2016 has been placed on public inspection for printing in tomorrow’s Federal Register, ten days later than required by law. The IRS gave 2,365 names in this list, making it the largest they’ve ever published. We had a total of 5,411 published expatriates in 2016 (1,158 in Q1, 509 in Q2, and 1,379 in Q3). That’s slightly larger than the 5,321 federal additions to the “Renounced U.S. Citizenship” category in the FBI’s NICS gun control database last year. However, NICS only includes 8 USC § 1481(a)(5) renunciants, whereas the Federal Register is supposed to include relinquishers under other paragraphs of 1481(a) as well.

How many non-renunciant relinquishers are there? We’re not sure. In January, the State Department published updated Paperwork Reduction Act estimates stating that about 600 people per year file Form DS-4079, “Request for Determination of Possible Loss of United States Citizenship”. After the Foreign Affairs Manual update two years ago, DS-4079 is no longer used for renunciation cases, so that gives a lower bound on the number of 1481(1) to (4) relinquishers. The tens of thousands of people who abandon green cards each year definitely aren’t in the IRS list either, even though it misleadingly claims that “[f]or purposes of this listing, long-term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United States who lost citizenship”.

The list is not only incomplete, but slow to include names; for example, Rachel Heller, who renounced all the way back in November 2015, didn’t show up until this quarter. Brockers who gave up citizenship as recently as August of last year did get their names published, but Japanese politician Kimi Onoda, who renounced in October 2016, is not included in the current list. In other words, we are not yet seeing the impact of the U.S. election results. The sudden growth in the list has some other cause.

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Nigel Green Launches Campaign to Repeal Obama-Era FATCA Law

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“Trump must show his mettle and reverse a fatally flawed, misguided law“

NEWS PROVIDED BY
Campaign to Repeal FATCA
Feb 07, 2017, 10:26 ET

Excerpts:

WASHINGTON, Feb. 7, 2017 /PRNewswire-USNewswire/ — Nigel Green, founder and CEO of deVere Group, one of the world’s largest independent financial organizations, has launched a Washington, DC-based lobbying and media campaign to repeal the Foreign Account Tax Compliance Act, or FATCA.

With Obama in the White House doing away with FATCA was virtually impossible, despite repeal bills introduced by Sen. Rand Paul (R-KY) and Rep. Mark Meadows (R-NC). “FATCA is a textbook example of a bad law that doesn’t achieve its stated purpose but does manage to unleash a host of unanticipated destructive consequences,” states Sen. Paul.

As his co-leader of the Campaign to Repeal FATCA, Green has turned to former U.S. diplomat and longtime Senate leadership staffer Jim Jatras of the media and government relations firm Global Strategic Communications Group (GSCG). Jatras, a leading authority on FATCA, edits the online publication www.RepealFATCA.com, which is dedicated to getting rid of what he calls “the worst law most Americans have never heard of.“

On Green’s initiative, Jatras is assembling a team of experienced DC professionals to push the repeal effort over the top. “Nigel’s deciding to step up to the plate is just tremendous,” says Jatras. “Billions of dollars have been wasted worldwide complying with FATCA, billions of words have been written complaining about it. Now it’s time for action. When that tax bill gets to President Trump’s desk, we want FATCA repeal in it.”

For more information on FATCA and the Campaign to Repeal FATCA, contact GSCG, below.

RepealFatca.com

Twitter @RepealFatca