Category Archives: Issues regarding US persons abroad

cross-posted from Citizenshipsolutions dot ca

Muhammad Ali, draft resistors, loss of US citizenship, the “Rumble In The Jungle” and a… https://t.co/u0cmHL3r2c pic.twitter.com/m8jeNLkick

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) June 5, 2016

Introduction – RIP Muhammad Ali

Like many I was saddened to learn of the death of Muhammad Ali. (One of
my profitable ventures was betting on
Ali in his 1974 fight with Foreman.) Most of the media discussion of Ali’s death focused on his boxing career. There was far less attention paid to Ali’s refusal to
accept induction into the U.S. military. This refusal led to his being
stripped of his boxing license (why anyone would need a license to box
is beyond me) and interestingly the revocation of his U.S. passport (if
you can’t box in America we will prevent you from boxing outside
America). Hmmm, does that passport revocation remind you of any
recent events or any past events?

Ali made the reasonable point that he was being asked to go to Viet Nam
to defend the rights of the South Vietnamese people who were being
denied their rights, at the same time that Black Americans were denied
their rights in America. Muhammad Ali provided inspiration to Dr. Martin Luther
King. Fast forward to 2016: President Clinton (a man who also
avoided military service in Viet Nam) will deliver
one of the eulogies (I hope he mentions the “draft resistor” aspect of
https://twitter.com/HistoricalPics/status/739021640806346752

Draft Resistors in Canada in the 60s and 70s – The use of
“citizenship” as a mechanism to control the people
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cross-posted from CitizenshipSolutions dot ca

Dual citizenship, the lack of definition of “Citizen” in the “Savings Clause” of U.S. Tax Treaties and why this is important

The lack of Definition of “citizens” in the “Savings Clause” of U.S. Tax Treaties and why it is important https://t.co/sF7Raa4aib

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) May 29, 2016

Introduction …

This is a “follow up” to my first post about the “Savings Clause” in the Canada U.S. Tax Treaty. The purpose of that first post was to demonstrate that pursuant to the “Savings Clause”, the Government of Canada has agreed to allow the United States to impose direct taxation on some Canadian citizens who are resident in Canada. The post generated a fascinating discussion about the “Savings Clause” and was widely discussed at the Isaac Brock Society. A subsequent post at the Isaac Brock Society provided greater detail about exactly how, and in what respects, the Government of Canada has agreed that the United States can impose direct U.S. taxation on some Canadian citizens and residents. One obvious conclusion from this discussion is reflected in the comment that:

Next time someone tells me that the tax treaty relieves double taxation, I’ll tell them that it causes it. We have RDSP’s and RESP’s to prove it.

I absolutely agree. Although there are a few specific areas where the Tax Treaty mitigates against double taxation, for the most part, because of the Savings Clause, the U.S. Canada Tax Treaty, does NOT prevent double taxation. By ensuring U.S. taxation of Canadian residents and citizens, the U.S. Canada Tax Treaty guarantees double taxation!

It’s a myth that the tax treaty prevents double taxation. As John F. Kennedy said in his
commencement address at Yale University on June 11, 1962:

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What concessions does your country make, (as a Treaty Partner of the United States of America), that causes your life to be miserable?

What Canada Allows by Signing the 'Savings Clause' in the US-CDN Tax Treaty https://t.co/k4bOjkmavK You have to read it to believe it!

— U.S. Expat Canada (@USExpatCanada) May 28, 2016

 
From the Cook v Tait Book , our much-missed friend , Roger Conklin references a timely paper by Reuven Avi-Yonah , “The Case Against Taxing Citizens”:
 

Finally, we could give up on the “savings clause” in our tax treaties, which we insist upon to enable us to tax nonresident citizens but which we may well have to pay a price for in treaty negotiations.  

 
“..may well have to pay a price for in treaty negotiations…” – USCitizenAbroad explains WHY:

This is one of those comments that just has to be a post on its own. Bravo USCitizenAbroad!
 
*******

@All

Great comments to this post.

I think it’s worth being very specific about what the Savings Clause means for Canadian citizens/residents, who are subject to the full force of Canada’s “low tax” (I am kidding) system. By agreeing to the “Savings Clause” the Government of Canada has:

agreed to allow the United States to impose U.S. taxation, according to the rules of the U.S. Internal Revenue Code (which treats all Canadian assets as foreign and subject to special rules of taxation, reporting and penalties), on:

– those Canadians, which the U.S., in it’s sole discretion defines as U.S. citizens. (You will note that “citizen” is not defined in the Treaty anywhere. You will also note that under the FATCA IGA , “U.S. Person is defined under the terms of the Internal Revenue Code which allows the U.S. to define a U.S. person anyway that it chooses to do so)
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OTTAWA ON – Thursday, June 2 2016
Informal Meeting available 6:30 – 8:30 pm; Details TBA

We would like to hold a meeting in Ottawa next week. Please email if you are interested, no later than Tuesday, 5 pm EDT.
nobledreamer16 at gmail dot com

When: Thursday,June 2, 2016 6:30 – 8:30 pm
Where: TBA
Admission: $20 payable in cash at the door
Who: John Richardson, B.A., LL.B., J.D. (Of the bars of Ontario, New York and Massachusetts), Toronto citizenship lawyer and Co-chair of the Alliance for the Defence of Canadian Sovereignty and the Alliance for the Defeat of Citizenship Taxation. citizenshipsolutions.ca

Information presented is NOT intended or offered as legal or accounting advice specific to your situation.

Why am I getting letters from my bank all of a sudden?

The “FATCA Hunt” – the hunt for U.S. persons (whatever that is) began on July 1, 2014 which was “Canada Day”. Although both the definition of “U.S. person” and whether one meets the definition is not always clear, the search has begun. The level of FATCA awareness has begun. Some organizations are actively warning people that “U.S. Personness” matters. The purpose of the warning is presumably to encourage people to ”come clean” and deal with their U.S. tax situations. In some cases, there is no particular warning – just a letter indicating that they are suspected to be a “U.S. person”. Often one must prove to the institution sending the letter that one is not a U.S. person.

What individuals are U.S. taxpayers? Who is a U.S. citizen?

There are individuals that the U.S. government would define as “U.S. citizens” who:

• do NOT agree that they are U.S. citizens because they have performed a “relinquishing act” under applicable U.S. laws;
• do NOT even know that they may be U.S. citizens because they have never lived in the United States
• are citizens and residents of countries that do NOT allow multiple citizenships

To put it another way: one’s status as a U.S. citizen is NOT always clear.

I have never heard of these requirements! What determines the income that must be reported to the IRS? What “Information Returns” are required to be reported to the IRS?

• FBAR (Now called FinCen 114)
• FATCA 8938 – Report of Specified Foreign Assets
• 5471 – Information return for Foreign Corporation
• 3520 – Information return for a “Foreign Trust”
• 3520A – related to the 3520
• 8621 – for mutual funds
• 8965 – for exemption regarding ACA (“Obamacare”)

I am only a snowbird! Why does this affect me?

• Substantial Presence Test
• Form 8840 Closer Connection Exception Statement for Aliens
• Caution: Streamlined Programs & 35 day rule – Catch 22

What are the ways I can become compliant?

• Offshore Voluntary Disclosure Program – AKA “OVDP – Not appropriate for the vast majority of people
• Streamlined Compliance – A pre-packaged way to “clean up” past compliance problems
• Obeying the law – filing amended tax returns outside the “IRS Created” programs
• Delinquent FBAR Submission Procedures

What costs are involved in renouncing U.S. citizenship?

• The costs of a total of 6 years (5 years prior the year of renuncation plus the year of renunciation) of tax compliance and information returns
• The cost of any back taxes and penalties
• A $2350 administrative fee
• Possibility of having to pay an “Exit Tax” (which can be the biggest problem)

cross-posted from CitizenshipSolutions dot ca

The use of the "savings clause" to invade other nations. It's the weaponization of citizenship! pic.twitter.com/wacQ0zZwLI

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) May 26, 2016

Introduction …

"Savings Clause" guarantees right of the USA to impose double taxation on the residents + citizens of other nations https://t.co/ylsc8KPza7

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) May 26, 2016

It is commonly believed that U.S. Tax Treaties are for the purpose of preventing “double taxation”. In general, US Tax Treaties do NOT prevent double taxation with respect to Americans abroad. For Americans abroad, double taxation is mitigated (but not prevented) by through Internal Revenue Code S. 901 (foreign tax credits) and Internal Revenue Code S.
911 (Foreign Earned Income Exclusion).

U.S. Tax Treaties include a “savings clause” (found in different sections of different treaties) that:

1. Guarantee the right of the United States to impose taxation on its citizens who are residing in other nations; and

2. Guarantee the right of the United States to impose taxation on its citizens as though the treaty didn’t exist.

Note that these “U.S. citizens” may (and in many cases are) citizens of their country of residence.

Those countries that have signed FATCA IGAs have effectively agreed to assist the United States in imposing taxation on their own citizens and residents. This will allow the United States to legally transfer capital out of the signatory country to the United States Treasury (for better use).

May 2016 – Elazar Cole and the “Savings Clause” …

On May 16, 2010, the U.S. Tax Court in the decision of – Elazar M. Cole v. Commissioner of Internal Revenue, T.C. Summary Opinion 2016-22 (May
2016) – confirmed the principle that a U.S. citizen cannot (as a general
principle) use the Tax Treaty to prevent U.S. taxation.

The decision is here
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When Brock started, one of the major issues was that we questioned what we were being told; not just by the U.S. government but specifically, by the tax lawyers and accountants. It became painfully clear that many simply did not know what they were saying; some did not have direct cross-border experience and others simply repeated what their colleagues were saying. Sometimes they could not quite believe we would question their judgement or not be scared into believing what they said. Some of the concepts were fairly mundane while others, such as 877A being retroactive, were overwhelming. The story about PFICs is unbelievable and the application of interest etc, goes back to 1986.

When I first saw this, I thought of making a post just from Tom Paine’s longest answer. After thinking about it, I decided it would have more impact if seen in the context it was offered.I find it quite telling that after the initial question was asked, this person offers themself as an expert and seems to assume being a CPA/CA is ample proof of that. Tom Paine’s first comment clearly indicates he knows what he is talking about. Notice how the compliance person does not pick this up right away. And the contrast between: “The IRS considers TFSA’s ….” to “The IRS hasn’t given any gudiance…” But then THIS… “TFSA’s have that “wary” factor (i.e., “the IRS doesn’t say so but you better be sure and do it this way”). When that isn’t enough, relies upon Phil’s post. If this person was a specialist and really understood what a foreign trust was, wouldn’t one expect some clear explanation to indicate it? Would you be willing to pay this person $500 for a 3520A and another $500 for a 3520 ($500 being a standard starting fee for extra forms…). After Tom Paine’s last statement, there were no further comments from the CPA/CA.

A conversation on Facebook about TFSA’s

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Whereas, since the close of the last administration, the Legislature and Executive Branch, claiming a power, of right, to bind the people of American nationality by statutes in all cases whatsoever, hath, in some acts, expressly imposed taxes on them, and in others, under various presences, but in fact for the purpose of raising a revenue, hath imposed rates and duties payable in these colonies, established a board of commissioners, with unconstitutional powers, and extended the jurisdiction of courts of admiralty, not only for collecting the said duties, but for the trial and extra-judicial judgements and penalty assessments of causes merely arising within the body of a county:

And whereas, in consequence of other statutes, judges, who before held only estates at will in their offices, have been made dependant on the executive alone for their salaries, and standing armies of lawyers and accountants kept in times of peace: And whereas it has lately been resolved in Congress, that by force of a statute, made in the 1st year of the reign of President Obama, colonists may be transported to U.S.A., and tried there upon accusations for treasons and formcrimes and misprisions, or concealments of treasons committed in the colonies, and by a late statute, such trials have been directed in cases therein mentioned:

And whereas, in the last session of Congress, a statutes was made; one entitled, “Foreign Account Tax Compliance Act;” another entitled, “An act for the Revocation of Passports by the Executive Branch by Decision of the Executive Branch;” and another unconstitutional foreign agreement IGA was then made, “for Enforcing the FATCA through coercion of Foreign Governments.” All which statutes and executive agreements are impolitic, unjust, and cruel, as well as unconstitutional, and most dangerous and destructive of American colonist’s rights:

And whereas, assemblies have been frequently dissolved, contrary to the rights of the people, when they attempted to deliberate on grievances; and their dutiful, humble, loyal, and reasonable petitions to the executive and legislature and judicial for redress, have been repeatedly treated with contempt, by his executive’s ministers of state:

The good people of the several colonies about the world, justly alarmed at these arbitrary proceedings of congress and administration, have severally elected, constituted, and appointed deputies to meet, and sit in general Congress, in the embassies in our cities, in order to obtain such establishment, as that their religion, laws, and liberties, may not be subverted: Whereupon the deputies so appointed being now assembled, in a full and free representation of these colonies, taking into their most serious consideration, the best means of attaining the ends aforesaid, do, in the first place, as Americans, their ancestors in like cases have usually done, for asserting and vindicating their rights and liberties, DECLARE,

That the inhabitants of the American colonies throughout the world, by the immutable laws of nature, the principles of the American constitution, and the several charters or compacts, have the following RIGHTS:

Resolved, N.C.D. 1. That they are entitled to life, liberty and property: and they have never ceded to any foreign power whatever, a right to dispose of either without their consent.

Resolved, N.C.D. 2. That our ancestors, who first settled these colonies, were at the time of their emigration from the mother country, entitled to all the rights, liberties, and immunities of free and natural- born subjects, outside the realm of U.S.A..

Resolved, N.C.D. 3. That by such emigration they by no means forfeited, surrendered, or lost any of those rights, but that they were, and their descendants now are, entitled to the exercise and enjoyment of all such of them, as their local and other circumstances enable them to exercise and enjoy.

Resolved, 4. That the foundation of American liberty, and of all free government, is a right in the people to participate in their legislative council: and as the American colonists are not represented, and from their local and other circumstances, cannot properly be represented in the American congress, they are entitled to a free and exclusive power of legislation in their several provincial legislatures, where their right of representation can alone be preserved, in all cases of taxation and internal polity, subject only to the negative of their sovereign, in such manner as has been heretofore used and accustomed: But, from the necessity of the case, and a regard to the mutual interest of both countries, we cheerfully consent to the operation of such acts of the American Congres, as are bonfide, restrained to the regulation of our external commerce, for the purpose of securing the commercial advantages of the whole empire to the mother country, and the commercial benefits of its respective members; excluding every idea of taxation internal or external, for raising a revenue on the subjects, outside of America, without their consent.
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If it was possible for men, who exercise their reason to believe, that the divine Author of our existence intended a part of the human race to hold an absolute property in, and an unbounded power over others, marked out by his infinite goodness and wisdom, as the objects of a legal domination never rightfully resistible, however severe and oppressive, the inhabitants of these colonies might at least require from the Congress of U.S.A. some evidence, that this dreadful authority over them, has been granted to that body. But a reverance for our Creator, principles of humanity, and the dictates of common sense, must convince all those who reflect upon the subject, that government was instituted to promote the welfare of mankind, and ought to be administered for the attainment of that end. The legislature of the United States of America, however, stimulated by an inordinate passion for a power not only unjustifiable, but which they know to be peculiarly reprobated by the very constitution of that kingdom, and desparate of success in any mode of contest, where regard should be had to truth, law, or right, have at length, deserting those, attempted to effect their cruel and impolitic purpose of enslaving these colonies by violence, and have thereby rendered it necessary for us to close with their last appeal from reason to resistance. – Yet, however blinded that assembly may be, by their intemperate rage for unlimited domination, so to sight justice and the opinion of mankind, we esteem ourselves bound by obligations of respect to the rest of the world, to make known the justice of our cause.

Our forefathers, inhabitants of the island of the United States of America, left their native land, to seek on these shores a residence for civil and religious freedom. At the expense of their blood, at the hazard of their fortunes, without the least charge to the country from which they removed, by unceasing labour, and an unconquerable spirit, they effected settlements outside the distant and unhospitable wilds of America, then filled with numerous and warlike barbarians. — Outside of America, societies or governments, vested with perfect legislatures, have always existed under sovereign charters, and an harmonious intercourse has always existed between the colonies and the republic from which they had departed. The mutual benefits of this union became in a short time so extraordinary, as to excite astonishment. It is universally confessed, that the amazing increase of the wealth, strength, and navigation of the realm, arose from this source; and the minister, who so wisely and successfully directed the measures of United States in the multiple late wars, publicly declared, that these colonies enabled her to triumph over her enemies. –In the middle of these nonending wars, it pleased the executive to make a change in his counsel’s assignment. — From that fatal movement, the affairs of the United States empire began to fall into confusion, and gradually sliding from the summit of glorious prosperity, to which they had been advanced by the virtues and abilities of one man, are at length distracted by the convulsions, that now shake it to its deepest foundations. — The new ministry finding the brave foes of United States, though never defeated, yet still contending, took up the unfortunate idea of granting them a hasty peace, and then subduing her faithful friends.
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