USA affirms position that #accidentalAmericans have two choices: 1. Pay to enter the US tax system or 2. Pay to renounce. Bottom line: If "Born In The USA" then you must "Pay The USA": "Treasury Offers Little Wiggle Room on Foreign Bank Reporting (1)" https://t.co/Z7el7P5RII
— U.S. Citizen Abroad (@USCitizenAbroad) March 31, 2020
Part A: Background
On March 3, 2020 I wrote a post on Brock, which was based on the problem of FATCA IGAs requiring banks to include US Social Security numbers, in their FATCA reporting.
Basically there is a tension between:
On the one hand the banks are required to include the Social Security Numbers of their US clients. On the other hand, many people who are “technically” US citizens don’t have Social Security numbers.
This is a problem that has long been in the making. My March 3, 2020 post described the problem and referenced the work of CBC reporter Elizabeth Thompson’s reporting on this problem. The post also included a background/summary of the events leading to the problem (which has been included in this post as an Appendix*).
US Treasury has said very little about this issue.
Described by Helen Burggraf as …
The U.S. Treasury is continuing to maintain its silence with respect to the issues European banks have been struggling with for months over their perceived need to report to the U.S. – under the tax evasion law known as FATCA – government tax information details on certain of their American account-holders that they don’t have, European banking sources, expat groups and others report…
This is in spite of the fact that so-called “accidental Americans” in Europe are continuing to have their non-U.S. bank accounts frozen in cases where their banks say they have failed to provide “Tax Information Numbers” (TINs, typically Social Security numbers) as the banks say FATCA requires them to have as of the end of last year, according to sources in the accidental American community.
Part B: The Problem Addressed – An Exchange Of Letters
December 3, 2019 – Letter to US Treasury: “Delegations will find in Annex a letter by the Finnish EU Presidency of the Council to the US Secretary of the Treasury on FATCA, as agreed by the Council High Level Working Party on Tax issues.”
In order to understand the context of Mr. Harter’s letter, it’s important to read the December 3, 2019 message from Europe. In general the letter is complaining about the application of FATCA to European banks and European citizens who are residents of Europe …
March 20, 2020 – “L.G. “Chip” Harter – Deputy Assistant Secretary (International Tax Affairs) – U.S. Department of the Treasury Responds” …
As reported by Bloomberg, in a letter written to representatives of the EU, Government of Finland, Government of France and Government of the Netherlands, Mr. Harter addressed the following three questions, about the the FATCA IGAs, and provided the following three answers.
1. Do the compliance obligations of European banks include the obligation to provide the United States with the Social Security numbers of U.S. citizen account holders?
2. What are the U.S. tax obligations of European residents who are considered to be U.S. citizens?
As long as someone is a U.S. citizen under U.S. law, that person is subject to U.S. worldwide taxation and must comply with all applicable/relevant laws. If they don’t like it they can renounce. (The letter also references the generous “Relief Procedures For Former Citizens” which were announced by the IRS on September 6, 2019.)
3. Will the United States provide reciprocity as it is required to under the FATCA IGAs?
The United States takes it obligations of FATCA reciprocity very seriously and will work toward reciprocal information exchange.
In summary, with respect to Accidental Americans, the letter seems to say:
You can either buy your freedom for the $2350 renunciation fee or you can file U.S. taxes. But, make no mistake. You must pay.
To put it another way:
We own you. You can pay us by renouncing or you can pay us through taxation and the associated compliance costs.
I encourage you to read Mr. Harter’s letter yourselves.
The letter clearly states and assumes, that a principal purpose of FATCA, is to enforce U.S. worldwide taxation on residents of other countries who, are defined as U.S. citizens. See specifically the full paragraph at the bottom of page 1 and second to last paragraph on page 2. Excerpts of the letter are quoted by International Advisor – specifically their article takes note of:
“Fatca was enacted to provide the Internal Revenue Service (IRS) with additional tools to identify gaps in and reinforce our systems of voluntary compliance of US taxpayers with respect to non-US financial accounts or substantial investments in or ownership of certain passive non-UK entities,” said Chip Harter, deputy assistant secretary for international tax affairs, in the letter dated 12 March 2020.
“The Treasury department and the IRS have provided extensive relief to [foreign financial institutions (FFIs)] with US customers that have not provided a [tax identification number (Tin)] to the FFI.
“Further, the development of the Fatca [model intergovernmental agreements (IGAs)] established an alternative path for FFIs to comply with Fatca, removed legal issues that had been raised in connection with Fatca and provided simplifying rules for FFIs to document and report information,” he added.
Part C: Reaction From Accidental Americans In Europe
The purpose of #FATCA is to enforce Citizenship Based Taxation on all those whom the United States considers to be U.S. taxpayers. This is a far cry from the original idea of tracking down fraudsters who were hiding money overseas. The proof is in the TaxJusticeNet’s latest ranking.
Fabien Lehagre – Twitter March 31, 2010
As reported by International-Advisor Mr. Harter neither understood nor acknowledged the impact that FATCA has had on European citizens – claiming that he had received only anecdotal information about the issue.
IA reached out to Fabien Lehagre president of the Accidental American Association, who believes the issue is much bigger than that.
He said: “Chip Harter is well aware of the problems encountered by accidental Americans, which are far from being anecdotal since they have been covered by the media around the world for five years now.
“It is clear that the objective of the American tax administration is not to fight against tax fraud but to collect money from citizens who had the misfortune of being born on American soil.
“Given the position of the United States in the latest ranking of the Tax Justice Network, I find it rather ironic to say that the United States is the leader in the fight against tax evasion.”
A recent letter from Mr. Lehagre to Secretary Pompeo concerning the difficulty of renouncing U.S. citizenship is here:
Part D: How Do You Interpret This?
I look forward to your comments about this letter and what those contents imply.
* Appendix- About the background to this – from the March 3, 2020 post
1. Article 2 of the Canada U.S. FATCA IGA includes an obligation to report the U.S. Social Security Number of the U.S. Person. Here is what Article 2 of the IGA says:
Obligations to Obtain and Exchange Information with Respect to Reportable Accounts
1. Subject to the provisions of Article 3 of this Agreement, each Party shall obtain the information specified in paragraph 2 of this Article with respect to all Reportable Accounts and shall annually exchange this information with the other Party on an automatic basis pursuant to the provisions of Article XXVII of the Convention.
2. The information to be obtained and exchanged is:
a) In the case of Canada with respect to each U.S. Reportable Account of each Reporting Canadian Financial Institution:
(1) the name, address, and U.S. TIN of each Specified U.S. Person that is an Account Holder of such account and, in the case of a Non-U.S. Entity that, after application of the due diligence procedures set forth in Annex I, is identified as having one or more Controlling Persons that is a Specified U.S. Person, the name, address, and U.S. TIN (if any) of such Entity and each such Specified U.S. Person; …
2. Early on the implementation of the IGAs it became clear that many people deemed by the United States to be it’s taxable property (AKA tax residents of other countries who were born in the United States) didn’t have a U.S. TIN (Social Security number). Why would they? They didn’t consider themselves to be American and were tax paying citizen/residents of other countries. But, why let a does of reality interfere with the FATCA myth?
3. The banks were scared of FATCA noncompliance and realized that they now would be in breach of their FATCA obligations by not providing a U.S. Social Security number to the CRA (and therefore the IRS).
4. U.S. Treasury in an act of unprecedented kindness, wisdom and understanding gave non-U.S. banks until December 31, 2019 to provide U.S. Social Security numbers.
5. Oh My God! Time flies. It is now 2020. The Treasury grace period and is over. U.S. Social Security numbers must be provided or the banks will be “non-compliant”. This is a worldwide problem with most of the publicity coming out of the Netherlands where (as reported) banks are closing the accounts of Dutch residents with a tint of “U.S.Ness”.
6. As some commenters have noted, an non-compliant (bad, bad, bad) bank actually has 18 months to cure the non-compliance from the date of notification of non-compliance by U.S. Treasury. Interestingly, in October of 2019 the IRS made clear that the failure to supply the Social Security Number after December 31, 2019 would NOT necessarily trigger a notice of non-compliance from the IRS. But, the problem is that nobody really trusts U.S. Treasury and the IRS. (An excellent post summarizing the problem from Dr. Karen Alpert is here.)
7. As a result, there is heightened pressure, coming from non-U.S. financial institutions to force those pesky people (who chose to be “Born In The USA”) with a Social Security number (even though they don’t have one).
8. It appears that consciousness of this new problem (like the recent virus coming from China) is beginning to spread around the world. The most recent spread of consciousness appears to be in Canada itself.
In any event, a very important question in the life of an individual is now:
“Are you or have you ever been an American citizen?”