Liberty and justice for all United States persons abroad

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Author Archives: Eric

Emigrants from the United States should not take the advice of U.S. immigration lawyers

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In a post last week, I pointed to a San Buenaventura/Santa Barbara immigration lawyer who goes around on Yahoo! Answers scaring would-be renunciants with tall tales about how they’ll be banned from the United States. But he’s hardly the only immigration lawyer giving bad advice to emigrants, merely the most malicious one. These “answers” sites are full of answerers whose worldview is professionally skewed by their daily diet of people who want in to the United States; they are not qualified to give any advice to people who have got out, regardless of their good intentions — in particular due to the potential tax aspects of the situation. Some are merely not well-informed of those tax consequences; others — especially migration consultants in China — deliberately seek to downplay the tax consequences in order to move as many clients as possible through the door.

In the latest iteration of this recurring problem, a Canadian man asks over on JustAnswer.com whether he should get a U.S. passport or renounce U.S. citizenship:

I have been a landed immigrant since March, 1970 and a Canadian Citizen since 1978, having come here from the US. I did NOT renounce my US Citizenship but would like to know what the ramifications are to me as a Canadian citizen, if I choose to do so now,as I am now being pressured to get a US passport. I travel to the states once per year for pleasure and have had no difficulty using my Canadian passport for the past 15 years. I have no desire whatsoever to move back. I have never earned money in the states since coming to Canada and have no criminal record. Are there any negative aspects to renouncing?

He signs off with his real name, which I have omitted here because I do not want this post to be a Google hit for his name without his consent.

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John Paulson, Puerto Rico, and U.S. Persons abroad

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As you’ve probably seen on Bloomberg or elsewhere by now, billionaire investor John Paulson is reportedly considering a move from New York to Puerto Rico in order to save on taxes. As Business Insider helpfully summarises, unlike U.S. persons abroad not only will he be able to avoid U.S. federal taxes entirely, but Puerto Rico will not charge him any local income tax on his investment gains either — making Puerto Rico the only place in the Solar System where a U.S. citizen can move and owe no tax whatsoever.

Puerto Ricans deflect the criticism of their plucky little island’s unique tax status by claiming that they have to pay U.S. federal taxes on income from the mainland. But, as Business Insider fails to make clear, “income from the mainland” is determined under the rules of 26 CFR 1.937-2(f) — which means that a U.S. citizen who has lived in Puerto Rico for 10 years and sells the stock of a mainland corporation is deemed to have “income from sources within a possession” and not from within the mainland United States — and thus thanks to 26 USC § 933, owes no U.S. federal capital gains tax. (See IRS Publication 1321 if you’d like an official non-legalese summary of the regulations.) This is a far better deal than the so-called “foreign earned income loophole” that Americans abroad get, which only allows exclusion of wage income — not investments, pensions, local unemployment benefits, nor childrens’ disability benefits.

The other common excuse given by Puerto Ricans for their enormous tax breaks is that they get far less benefit from U.S. federal spending than any of the fifty states — for example, with regards to Medicaid or educational funding. Of course, Americans abroad pay both U.S. and foreign taxes on all our income with more complicated forms than any Homelander or Puerto Rican has ever seen, and we get squat from Medicaid or Medicare or U.S. educational funding — instead we get those “great embassy services” and a vague promise that the U.S. Navy will come save us when we get into trouble. Apparently Puerto Rico has no puertos at which the Navy can dock in the event of a disaster, unlike landlocked Paraguay.

Getting a U.S. residence visa after giving up citizenship

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Most of us here have little interest in going back to live in the U.S., but others who are considering giving up U.S. citizenship may be worried about whether they’ll be able to get back into the country in case their career takes them there in the future, or to care for aging relatives, or for any number of other reasons, either temporarily or permanently.

Though there are some cases which may show evidence of the USCIS trying to retaliate against renunciants when it comes to visas and treatment at the border, there are also many examples of ex-citizens both low-profile and high-profile who have managed to return to live in U.S., among them naturalised Japanese citizen Arudou Debito (the former David Aldwinckle, now an affiliate scholar at the East-West Center in Honolulu), Taiwan constitutional court judge Chen Be-yue (who renounced in 1996 and then got a green card in 2008 through her U.S.-born daughter, though she wisely cancelled it again the following year), and Fred Alger (who came back on an H-1B visa to rebuild Alger Asset Management after all its employees were killed in the WTC attacks).

A recent article in the Korea Times, a Korean diaspora newspaper published in North America, gives us many more examples of Korean Americans who gave up their U.S. citizenship to try their hand at politics in South Korea, then returned to the U.S. when things didn’t work out. I’ve translated it below.

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FBI statistics say 478 renounced U.S. citizenship in February 2013

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The FBI has released the latest monthly report on the number of records in NICS, the National Instant Criminal Background Check System. Alongside hundreds of thousands of records of convicted criminals and the mentally ill, NICS now contains 21,308 records of people who have formally renounced U.S. citizenship, up from 20,830 last month.

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Not just FEIE cuts: Homelanders propose more tax hikes on U.S. Persons abroad

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February saw a massive number of legislative attacks on American emigrants and their children by ignorant or malign (un)Representatives which are only now coming to light as the Government Printing Office finishes typesetting and publishing the hundreds of pages of proposed laws. We’ve already discussed the various recent bipartisan attempts to repeal the Foreign Earned Income Exclusion, but another frequent theme is increasing the tax and compliance burdens on so-called “Controlled Foreign Corporation owners” and “outsourcers”, including people who have lived outside the U.S. all their lives but got the inherited genetic disease of U.S. citizenship from their parents. So here’s an overview of the latest proposals to make your life more difficult, whether you’re an employee or a boss.

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Children of immigrants to America denounce children of immigrants to Canada as tax “loophole” abusers

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The Government Printing Office has finally published the 284 pages of the Congressional Progressive Caucus’ bill we discussed earlier this month. For those who don’t recall, this bill includes provisions, as the CPC put it, to “Close Exclusion of Foreign-Earned Income Loophole”. I won’t bother quoting this bill at length since there’s nothing surprising in its the contents (aside from the hilariously non sequitur title: “Smarter Approach to Nuclear Expenditures Act”), but the list of sponsors is rather interesting in one regard: a third of them are children or grandchildren of immigrants.

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Renunciant wins FOIA case over Trusted Traveler Program card denial

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Via Courthouse News, we learn of the story of Robert Darnbrough, a Canadian who renounced U.S. citizenship in 2003, and was later denied a Nexus border crossing card by U.S. Customs & Border Protection. Darnbrough filed a Freedom of Information Act request with the State Department in February 2011, which then released some documents to him in November that year. However, they did not deliver information contained in the Consular Lookout and Support System (CLASS), claiming that 8 USC 1202(f) (confidential nature of records) allowed them to withhold it under FOIA Exemption #3.

Darnbrough filed suit against the Department of State in October 2012 to force the release of the records. Judge Emmet G. Sullivan of the U.S. District Court for the District of Columbia ruled in his favour on Wednesday, stating that “that government cannot rely on Section 1202(f) to withhold information that was not gathered, used, nor is being used to determine an actual past or pending visa application”. There seem to be two pieces of information in CLASS about Darnbrough: some biographical data, and comments about his renunciation and the reason for his Nexus card denial.

If Darnbrough chooses to make public the reasons for that denial, we could learn whether it was related to his renunciation. However, Darnbrough doesn’t seem to be seeking public attention, either back in 2003 when he renounced, or now. I highly doubt he’s a covered expatriate either; he apparently works as an insurance agent in Sasketchewan. Nevertheless he’s in the Federal Register list for Q1 2005, two years after his renunciation. This fits the pattern observed earlier: the Federal Register has a near-perfect record for publishing names of ex-Americans before 2006 — no matter whether they’re rich or poor, public or private — but a far worse record afterwards.

Update, 9 June 2014: yesterday I stumbled across a paper from Joel Paget of Ryan, Swanson & Cleveland PLLC, apparently the lawyer who represented Mr. Darnbrough in this case. It was written in September 2012, before the above ruling, but I reproduce the relevant portion here anyway, as it may be of particular interest to people in Vancouver:

Since the enactment of this provision [i.e. the Reed Amendment] in 1996 there have been no implementing regulations. In checking with other immigration attorneys around the U.S. who practice in the citizenship and taxation area there have been only two reported cases where there has been enforcement of the provision by the U.S. Customs and Border Protection Service. Both cases were in Vancouver, B.C. The reason there has been little enforcement is the inability of the government agencies to agree on how it should be enforced. One of the overriding concerns is over the privacy of U.S. tax files. Nevertheless, the law is still there. A person who is renouncing should be able to explain the reasons for renouncing, assuming they are not related to tax-avoidance.

The first reported case of denial of entry was at the Vancouver, B.C. International Airport by the USCBP. The refusal to allow entry was based on the person having renounced his U.S. citizenship for tax reasons. Because the renunciation was made before Section 212(a)(10()E) was enacted in 1996, the USCBP reversed its position after being presented a legal brief by the person’s attorney.

The second reported case is one I am currently litigating in the Federal District Court in the District of Columbia. The person was denied a NEXUS card at the downtown Vancouver, B.C. office of NEXUS on the basis that he had renounced his U.S. citizenship. The expatriation was after Section 212(a)(10)(E) was enacted in 1996. The USCBP placed information in his file that appears in the Lookout Book used by the U.S. Department of State and the USCBP. He was subsequently denied entry into the U.S. The Department of State refused to release any documents until the lawsuit was filed. The DOS has released a copy of his whole file, except for the information provided by the USCBP from his NEXUS interview. A Motion for Summary Judgment has been filed and we are waiting for the judge to rule on the motion.

While these two cases are local to the Vancouver, B.C. airport and Vancouver, B.C. NEXUS office, the viewpoint of these officers who are from different divisions within the USCBP may infect other USCBP Ports of Entry with their viewpoint. All the USCBP offices share the same Lookout Book. The information that on e officer puts into a person’s computer file stays there for everyone in Department of State and USCBP systems to read until that officer or the supervisor removes it.

Foreign asset reporting before FBAR and FATCA: “loyalty questionnaires” for World War II Japanese American internees

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Field workers and WCCA sign Seventy-one years ago today, Franklin Roosevelt signed Executive Order 9066, paving the way for the internment — without due process of law, nor the consent of the legislature — of 120,000 people of Japanese descent.

Most of us are familiar only with modern-day attempts to get Americans to report non-US accounts and investments: the controlled foreign corporation laws of the 1960s, followed by the Bank Secrecy Act of 1970, and today’s FATCA. But three decades before TD F 90-22.1 and seven decades before Form 8938, there was WRA 126, “Application for Leave Clearance”, which had to be filed by any Japanese American seeking to leave a War Relocation Authority internment camp. This form is most famous for its questions about swearing allegiance to the United States, serving in the U.S. military, and foreswearing allegiance to Japan — earning it the “loyalty questionnaire” nickname, but it also asked about more prosaic matters:

15. Foreign travel (give dates, where, how, for whom, with whom, and reasons therefore).

22. Give details of any foreign investments.
(a) Accounts in foreign banks. Amount. Bank. Date account opened.
(b) Investments in foreign companies. Amount. Company. Date acquired. Contents.

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Sharp uptick in names missing from Federal Register “published expatriates” list after 2006

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Wikipedia’s list of public figures who gave up U.S. citizenship from the 1930s to the present day has reached nearly 100 entries. This list is far from complete — hopefully friends of Isaac Brock from around the world can suggest some additions, as right now it’s heavily weighted towards entries from the Caribbean and from East Asia. However, it is large and diverse enough for us to make some interesting observations.

From 1994 to 2006, I can confirm only a single report that a public figure in Wikipedia’s list gave up U.S. citizenship but did not appear in the Federal Register or the 1995 Joint Committee on Taxation report before it: South Korean actress Han Ye-seul. After 2006, however, the reports of public figures who gave up U.S. citizenship without ever appearing in the Federal Register start expanding rapidly. 2006 was an interesting year in other respects as well: it was the first year in which the number of “published expatriates” ever showed a significant decrease.

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FBI says three thousand renounced US citizenship last quarter, but IRS claims it was just 45

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After a lengthy (and illegal) delay, the latest Quarterly Publication of Individuals, Who Have Chosen To Expatriate, as Required By Section 6039G will be printed in the Federal Register for Thursday, 14 February 2013.

It contains forty five names. This brings 2012’s total number of “published expatriates” to 932, or little more than half of the number seen in 2011.

Journalists who may write about this list in the next few days should be warned against misinterpreting it as a complete list of people who turned in their U.S. passports last year. The Federal Bureau of Investigation tells us that 4,385 Americans renounced citizenship in 2012, and another 167 in January 2013 alone — and that number does not even include people relinquishing citizenship or abandoning long-held green cards, both acts which should result in one’s name appearing in the Federal Register. I am aware of more than a dozen public figures who have given up U.S. citizenship in the past year, almost all for the purpose of running in non-U.S. elections, but only four of their names have been published. South Korea recorded 2,158 of their citizens giving up U.S. passports or green cards in 2011, and numerous anecdotal reports from Washington and from Seoul suggest that this “reverse migration” accelerated rather than slowed in 2012.