cross-posted from citizenshipsolutions by John Richardson
Update January 2018: This post has been updated with some new links and discussion.
Prologue – The “Story Of The Century
200,000 Saudi US citizens liable to pay taxes | Arab News — Saudi Arabia News, Middle East News: http://t.co/lPmRfQ5gf5 via @Arab_News
— John Richardson – U.S. Citizenship Lawyer (@ExpatriationLaw) November 3, 2014
Since July 1, 2014, the United States via threats threats of the FATCA Sanction, has begun a “world wide hunt” for people born in the United States
(or are otherwise deemed to be “U.S. tax subjects”). A compilation of my posts describing the mechanics, effects and costs of FATCA and the FATCA IGAs is available in “The Little Red FATCA Book“. FATCA has spawned litigation against both the U.S. and Canadian Governments. A discussion of the “Alliance For The Defense Of Canadian Sovereignty” FATCA lawsuit against the Government of Canada is available here. Some thoughts on the “U.S. FATCA Legal Action” lawsuit against the U.S. Government are here. Both lawsuits have been vigorously defended by the respective Governments. The U.S. lawsuit may have reached the end of its viability (lack of standing and various procedural issues). The Canadian lawsuit continues.
With respect to those “Born In The USA”, the U.S. legal “claim of tax jurisdiction” is two-fold:
1. Those born in the United States (unless they have relinquished U.S. citizenship” for both tax and nationality purposes) are U.S. citizens.
2. Citizens of the United States are subject to the provisions of the Internal Revenue Code regardless of where they live in the world. The Internal Revenue Code (“IRC”) includes but is not limited to the obligation to pay taxes according to U.S. tax rules. The “IRC” also includes a wide range of “penalty laden reporting requirements“. The “IRC” also strongly discourages (through penalties and sanctions) participation in non-U.S. pension plans, non-U.S. investments (including non-U.S. mutual funds), the use of “non-U.S. business corporations” and (incredibly) non-U.S. spouses. (Even the divorce of a U.S. citizen and non-citizen is likely to be significantly more expensive.) As a result, the “extra-territorial application of the “IRC”) has the effect of exercising U.S. “control” over the lives of it’s citizens who do NOT live in the United States. Therefore, it is clear that the “extra-territorial” application of the “IRC” both (1) imposes the full force of the “IRC” on the resident/citizens of other countries and (2) has the effect of imposing the U.S. cultural values mandated in the “IRC” on those other countries. One can identify a list of the “10 Commandments” which are imposed on Americans abroad in an FBAR and FATCA world.
(Note that with the exception of U.S. citizens and “permanent residents”, as per Internal Revenue Code Sec. 7701(b), an actual physical connection to the United States is required to establish U.S. tax residency.)
As the article referenced in the above tweet makes clear, many people “claimed” by the United States as “tax residents”have never had any connection to the United States except that they were born there. The article includes:
Awad Al-Zahrani, whose son has US citizenship, said he would give it up.
“My son got the passport since he was born there while I was studying in the country back in 2000. At the time, the Saudi embassy had told me that it would not be a problem for him to hold two passports. Now that we have to pay taxes, though, we’ll be giving the US passport up.”
Abdulrahman Al-Habib, head of journalism studies at KAU, argues that Saudis who were born in the US should be exempt from paying taxes.
“We should establish a unified center to help Saudis clear their former tax registers,” he said.
US Consul-General Todd Holmstorm,however, confirmed that US citizens should pay income tax and called on their international counterparts to help them eliminate tax evasion.
“The tax law is designed to combat evasion through increasing transparency in the financials of US taxpayers,” he said.
Mr. Holmstorm’s bio indicates that his career has had a Canadian connection in Ottawa, Canada. His comments in the above article imply that he believes that those (1) born in the U.S. who (2) do not live in the U.S. and (3) do not pay taxes to the U.S. are guilty of “tax evasion”. Strong language indeed. Yet, these are his words which clearly reflect the attitude and policy of the U.S. Government.
Mr Al-Zahrani’s son will be turning 18 this year. I guess he’ll have to renounce like the rest of us.
@BB I think he can get an exception as a dual born citizen. Many HK dual born renounced in 2010 to get rid of the most toxic passport in the world. I watched while they renounced thinking I would hold on to it but now I am thinking about mines.
Trump is apparently now talking about denying US citizenship to babies born in the US if it can be shown that their mother traveled to the US for the purpose of giving birth. (So-called “birth tourism” but who knows, maybe he’d be doing them a favor by saving them $2350.)
If he gets his way, it would result in the inane situation where US citizenship would be denied to some people who were born in the US and want US citizenship, while at the same time US citizenship is being forced upon other people who were born in the US but don’t want US citizenship. It just continues to get weirder and weirder.
Intentions again. Mindreading.
Will the baby be deported as an illegal immigrant I wonder? It won’t have a visa, and it may prove tricky trying to refuse entry to the US.
Rather than do that and raiding birth tourism hotels (which both are really for show), they should just go on a campaign to make everyone aware of CBT.
I recently contacted one birth tourism place in Texas – they knew nothing about CBT, America’s best kept dirty little secret.
@Harrison,
Wouldn’t the only exception / exemption the son would get from the US law is *not being deemed a Covered Expatriate* even if he paid over the prescribed amount of US income tax for the year before expatriation and net worth over $2 million* and the filing of that last form, 8854, to indicate the exemption? If he didn’t renounce, he would still have that yearly US *obligation* of filing US tax returns and the cost of the US tax and reporting compliance administration to do that as long as he has not renounced that US citizenship? If not, wouldn’t the US-born son be the *US tax evader* US Consul-General Todd Holmstorm defines?
What about the child of a non-citizenship-transmitting USC mother who rushes back for the sole purpose of giving birth to a little USC rather than an Alien?
I’d wager a week’s supply of Big Macs that The Donald has never heard of the 14th amendment, and a week’s supply of Coke & Fries that were it explained to him he’d not give a hoot. As for birth tourism, I’m pretty sure some people are considering, or actually implementing, birth exile. Getting the kid a foreign birthplace!
All “things” that are imposed to stop people protecting their savings and banking where they choose to are inherently evil. Here is another example why things like FATCA are evil:
https://www.msn.com/en-us/money/markets/venezuelas-cash-crisis-you-cant-get-dollar1-from-a-bank-i-tried/ar-AAuOr7I?li=BBmkt5R&ocid=spartandhp
Yup, and to add to the confusion, in view of the fact that different countries have vastly different rules regarding transmission of their citizenship via parentage, its entirely possible that a birth tourism baby could be born stateless. To which country would ICE then deport such a baby? Could they deport such a baby?
However, there is a simple solution. Require a pregnancy test for all female aliens who apply for a visa. On second thought, delete that. There is nothing the US government can do that surprises me anymore; no point giving them any ideas.
maz57: “If [Trump] gets his way, it would result in the inane situation where US citizenship would be denied to some people who were born in the US and want US citizenship, while at the same time US citizenship is being forced upon other people who were born in the US but don’t want US citizenship.”
Isn’t the solution obvious? Allow US citizenship to be bought and sold. Don’t they believe in capitalism?
“Birth exile” – That should be for non-USCs who are in the US temporarily but don’t want to taint their children once they go home.
@Zia’od
I’ll bet “Lil Donny” would love the idea of selling US citizenship to wealthy people. Perhaps rather than banning birth tourism, they should explore allowing it but charging a hefty fee for the privilege.
But seriously, wouldn’t it be nice if I could give my unwanted US citizenship to an illegal who could really use it?
Mr Al-Zahrani’s son as stated here was not born to an illegal alien. His father was here on a student visa which is quite legal. These are not illegal aliens on a mission to give birth in US. They were students here on a legally acquired visa. I have no sympathy for illegals or even tourists having their children in USA to get an easy passport for their children. As you can read on Chinese newspaper too that many Chinese couples also came here to give birth to their child in USA and now regretting it due to this taxation mess. I bet there would be a lot of renunciations in China too after these children reach 18 years of age as it has been for Mideast children who have been advised by Attorney Phil Hodgen who was in Saudi and Mideast countries for the past few years advising his clients how to divorce US properly.
“Mr Al-Zahrani’s son as stated here was not born to an illegal alien. His father was here on a student visa which is quite legal. These are not illegal aliens on a mission to give birth in US.“
Of course. But if Trump has his way, a baby born to a student on a legal visa would arrive in the US with no citizenship and no visa and no entitlement to be in the US.
Thus demonstrating the stupidity of Trump’s proposal.
It’s a bit like the wall proposal though – probably not going to happen.
Plaxy. For Trump to make this a law to deny US citizenship to children of illegal and legal aliens it would require a change in US constitution which might be possible with the right majority vote. I doubt a wall would be possible due to just logistics involved here but a change in constitution is possible without budgetary involvement. They have brought amendments in the past to the constitution. I simply don’t care anymore. I just don’t agree with CBT due to national origin discrimination by financial institutions around the world these days. Brokerages and banks have denied my account due to my passport.
“For Trump to make this a law to deny US citizenship to children of illegal and legal aliens it would require a change in US constitution which might be possible with the right majority vote. I doubt a wall would be possible due to just logistics involved here but a change in constitution is possible without budgetary involvement.”
Not possible without votes from other parties though. Remnants of democracy survive.
“All “things” that are imposed to stop people protecting their savings and banking where they choose to are inherently evil. Here is another example why things like FATCA are evil:”
Yes, and as some governments get increasingly broke, their tendency to view other people cash as their own increases.
Of course, fairly recent trends around AML and KYC are only about preventing fraud and money laundering, not about knowing where every penny is in case you want it.
Of course, FATCA is only about preventing tax evasion, absolutely not about keeping your citizens (property) and their money where you want them.
Honestly, todays world is beginning to scare me.
@Mike. FATCA is all about the control of a govt to control where you should be banking and keeping your bank accounts. If enough banks and brokerages are scared of US compliances it means US govt wants to control where you are keeping your money at. They want to have an absolute control of you and your assets. It’s all about control not anything else and it should be regarded as such. Looking at all the denial from banks and brokerages and being escorted out of some banks politely to take my business elsewhere is all about control. The US govt will say anything that they can’t help it if international banks and brokerages are denying you based on your passport only . But inside they are laughing at the unreasonable and absolute control they are having.
As usual, Trump didn’t know what he was talking about when he made his comments about denying US citizenship to certain persons born in the US. Trump doesn’t understand the Constitution and besides its virtually impossible to amend the Constitution nowadays given the perpetual Congressional stalemate. Its not going to happen.
My comments were intended more as a “thought experiment” wondering what the consequences might be if they actually tried to implement another of the rash Tweets by the Trumpster.
They could bypass the constitution and make the baby an offer it couldn’t refuse: deportation, incarceration, or renunciation:
https://www.nytimes.com/2017/12/20/us/politics/american-detainee-saudi-arabia.html
A smart infant will always choose number 3.
@Plaxy
“Of course. But if Trump has his way, a baby born to a student on a legal visa would arrive in the US with no citizenship and no visa and no entitlement to be in the US.”
Foreigners reproduce all the time in countries where they are legally resident but the baby is not entitled to citizenship. We did just that in Germany. When it happens you go and get your birth certificate, then you add the child to your residence permit as a dependent, then you go round to your consulate and start the paperwork for citizenship. Actually certifying citizenship can be a bit of a process so they will issue a temporary passport if you need to take the offspring home for a Christmas viewing.
“Foreigners reproduce all the time in countries where they are legally resident but the baby is not entitled to citizenship. We did just that in Germany. ”
I knew I shouldn’t have forgotten those [tongue-in-cheek][/tongue-in-cheek] tags.
@ Harrison
Luckier Chinese moms birthed their babies in Canada. I know because I registered some of those births. The delivery costs were lower here than in the USA and those babies haven’t grown up with a USC-tax millstone around their necks. Actually, because of the lower delivery costs, we had some US moms birthing here too.
“lower delivery costs”
Now was that UPS, FedEx, or Purolator?