Category Archives: Issues regarding US persons abroad

You (Canadian and International donor-supporters, witness volunteers and plaintiffs, Isaac Brock Society and Maple Sandbox who let me post on their websites) are all major investors in our Canadian FATCA IGA legislation lawsuit. The pace must seem very slow to you, but we do move forward. Here is a brief update:

This link provides the letter (a “status report“) our Vancouver litigator Joe Arvay sent to the Case Management Judge responsible for the “supervision” of our litigation in Canada’s Federal Court.

Below I also mention briefly what the upcoming Constitutional-Charter trial is about — our “Claims”, and what Government thinks of our Claims.

— The key points in our June 3 2016 status report:

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This was originally posted by Lynne Swanson on Maple Sandbox as “CRA Response (Sort Of) on FATCA ATI & Order Paper Questions”

For me, the key message is that CRA refused to answer key questions on the September 2015 FATCA turnover that were raised in a Parliament. Lynne says below for example: “And of course, CRA won’t tell us how many or types of records they received from IRS–citing confidentiality and secrecy requirements of the Treaty.”

The questions asked were:

Q-1072
– April 18, 2016 – Mr. Dusseault (Sherbrooke} – With regard to the exchange information between Canada and the United States {US) under the Foreign .Account Tax Compliance Act (FATCA): (a) how many individuals were reported in total and broken down by (i) Canadian citizens (ii) permanent residents of Canada, (iii) temporary residents of Canada; (b) how many individuals were reported, broken down by (i) individuals with Canadian addresses, (ii) individuals with US addresses, (iii) individuals with addresses in other countries; (c) how many accounts were reported, in total and broken down by (i) bank accounts {ii) credit union accounts, {iii) investment accounts, (iv) insurance accounts, (v) other types of accounts; {d) with respect to {c)(iii)~ what types of insurance accounts were reported; (e) With respect to (c}(v), what other types of accounts were reported; (f} of the accounts reported. how many were (i) under $50,000 US, (ii) between $50,000 and $1,000,000 US, (iii) over $1,000,000 US; (g) of the accounts reported, how many were (i) Registered Retirement Savings Account accounts (ii) Registered Education Savings Account accounts,(iii) Registered Disability Savings_Account accounts, (iv) Tax Free Savings Accounts accounts ;(h) of the accounts reported, how many were held jointly with one or more non US persons. broken down by type of account and indicating the type of relationship between the Joint account holder and the us person if it is known; (i) how·many accounts of organizations were reported to the IRS because a US person had signing authority, interest in; or other connection to the organization; (j) of the accounts that were reported. how many were (i) business accounts, (ii) professional accounts, (Iii) charitable or non-profit organization {iv)connected to other organizations, broken down by type of organization; (k) what agency. organization and individuals was the information provided to; (l) what measures were taken to ensure this information wlll not.be provided to any other agency, organizatiqn and indivlduals; (m) what measures were taken to ensure that information transmitted wil not be subject to identity theft. fraud, other criminal activities, or breach of privacy; (n) how many records did Canada receive from the US, in total and broken down by (i) individuals who live in Canada, (ii} individuals who live in the us, (iii) individuals who live in other countries, broken down by country; (o) how many accounts did Canada receive information about; (p) What type of information was in the records Canada received; (q) did Canada receive information regarding (i) income fr~m the accounts (ii) total assets in accounts (iii) account balances (iv) transactions. deposits and withdrawals, (v) account numbers, (vi): names of account holders, (vii) Social Insurance Numbers, (viii) other related information; (r} what type of information did Canada receive that was not provided by the us prior to the FATCA Intergovemmental Agreement and (s) when did Canada.receive the information?

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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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