Category Archives: Issues regarding US persons abroad

US income tax applies to persons due to their having citizenship (or permanent resident status).  Canadian foreign ownership property taxes are the reverse, being applied to non-citizens (and non-permanent residents).  These Canadian taxes are currently arousing ire with some in the US, as reported in this article by John Richardson. (Posted with permission.)

Introduction

You can see the complete twitter thread here.

A recent post describes how various Canadian Underused and Vacant property taxes might apply to unsuspecting U.S. residents (Toronto, Vancouver and Ottawa) and U.S. citizens (Canada’s Underused Property Tax).

Taxes that apply to ALL owners of property

The Toronto, Vancouver and Ottawa taxes apply to ALL owners (regardless of citizenship or residence) of residential property. Although these taxes apply to all owners, some U.S. citizen/residents have argued that they are disguised taxes on being American. The broad scope of these taxes makes them difficult to challenge. (continued, see lower left)

John Richardson considers the question “Should Tax Residency be Based on the “Circumstances of Your Birth” or the :Circumstances of Your Life?” (posted with permission)

Panel session – US Expat Tax Conference from Deborah Hicks on Vimeo.

Should taxation be based on the “circumstances of your birth” or the “circumstances of your life”? President Obama doesn’t think (apparently) that the “circumstances of your birth” birth should determine the “outcome of your life”. Should the “circumstances of your birth” determine your tax residency?

This is a second post exploring what is the true meaning of U.S. citizenship-based taxation. In an earlier post – “Toward A Definition Of Citizenship Taxation” – I explored the contextual meaning and effect of U.S. “citizenship taxation”. The only “contextual effect” and “practical meaning” of U.S. citizenship taxation may be described as:

Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!

That’s amazing stuff! Most countries believe that they are sovereign and that includes sovereignty over matters of taxation. Yet, any country that is a party to a U.S. tax treaty has actually agreed that a subset of the treaty partner’s tax residents are ALSO U.S. tax residents! Although nobody questions the right of the United States to prescribe its own definition of tax residency, few would agree that the United States has the right to claim the residents of other countries as U.S. tax residents. Yet, this is what the U.S. citizenship taxation regime means. This U.S. extraterritorial claim of taxation is at the root of the FATCA administration problems and at the root of the the events that led to Treasury Notice 2023-11 (released on December 30, 20220).

The first post explained the meaning and effect of U.S. citizenship taxation. This second post is to argue that U.S. citizenship taxation is taxation based on “the circumstances of your birth” rather than the “circumstances of your life”.

John Richardson explores the concept that the term “citizenship tax” is abstract and meaningless without context” in an article entitled “Toward a Definition of US Citizenship Taxation.” (posted with permission)

Prologue

The term “citizenship tax” is abstract and meaningless without context. What does it really mean? In this short post I attempt to describe the defining aspect of US tax residency in simple terms.

Bottom line:

The ONLY contextual meaning of taxing based on citizenship is that it allows the US to impose tax on income earned outside the United States by people who live outside the United States.

Here is why … (continued see lower left)

An analysis of a recent FACTA enforcement development by John Richardson (posted with permission).

Welcome To 2023 – A Year Of Heightened FATCA Enforcement

On December 30, 2022 US Treasury released Notice 2023-11. The broad purpose of the Notice is to prescribe conditions that would allow non-US banks to temporarily avoid a designation of “significant non-compliance” under the FATCA IGAs. It is important to note that Notice 2023-11 is NOT simply a “stay of execution”. It is a “stay of execution” that is conditional on both non-US banks and their governments participating in a significant escalation of FATCA enforcement on US citizens who live outside the United States.

The purpose of this post is to comment on and analyze the provisions of Notice 2023-13 which strongly incentivize non-US banks to purge themselves of existing US citizen clients. In Part 2 I will explain why I believe that non-US banks may be forced to close the accounts of all their US citizen customers.

Prologue And Summary Of The Issue

Through a combination of FATCA (“Foreign Account Tax Compliance Act”) found Chapter 4 of the Internal Revenue Code and the FATCA IGAs (the mechanism for countries to comply with FATCA) the United States has created conditions where US citizen customers are a burden and risk to non-US banks. These provisions have created conditions that threaten punitive financial sanctions on non-US banks who cannot notify the IRS of a US citizen’s Social Security Number. Generally this is because the US citizen has lived abroad for many years and does NOT have a SSN. This situation has created worry for the banks and for their US citizen customers. The fact that the US citizen does NOT have a SSN is NOT relevant to the reporting obligation imposed on the bank. To be clear: The FATCA IGAs mean that non-US banks can easily be in “significant non-compliance” for the failure to comply with something that is impossible to comply with. (continued – see lower left)

Declaration of R. Bitter

Notice of Intent to Pursue Rulemaking to Reduce Fee Amount

Thanks to Mr. A for writing this letter and posting it as a comment, originally on the ADCS thread.

Dear Ms O’Brien,

You are quoted in a recent article in the The Lawyer’s Daily (“Federal Court of Appeal dismisses Charter challenge to CRA-IRS agreement to share banking info”, Oct. 4/22) as describing the appellants as “US citizens who happen to live in Canada”.

That may be one way to describe them, but it is distorted and misleading. What if the appellants are also Canadian citizens? What if they have lived in Canada for most or all of their adult lives? What if they have no meaningful connection to the US?

Should their US place of birth and (imposed) US citizenship take precedence over their Canadian citizenship?

People with these personal circumstances are a significant part of the group that the FATCA Charter challenge represents, and are more accurately described as “US born Canadians who live in Canada”.

Approximately 20% of Canadians were born outside of Canada. Should this minority of Canadians have their Charter rights violated just because they were not born in Canada? The Canadian government did not believe so when Eritrea tried to tax Canadians of Eritrean origin several years ago. The Harper gov. expelled an Eritrean diplomat from the country. And yet when the USA is the offender it is allowed.

https://www.cbc.ca/news/politics/eritrean-diplomat-ordered-out-of-canada-after-tax-on-ex-pats-1.1309691

Eritrean diplomat ordered out of Canada after ‘tax’ on ex-pats
Foreign Affairs Minister John Baird has ordered Eritrea’s consul general, Semere Ghebremariam O. Micael, to leave Canada by June 5, and said whoever replaces him must be prepared to play by the rules.
http://www.cbc.ca

FATCA violates sections 7, 8 and 15 of the Charter. And yet the perceived risk to our banking system (threat of 30% penalties on US source income to Canadian banks) is the reason that the Court has ruled against the appellants. The financial and economic power of the US takes precedence over the Charter rights of Canadian citizens living in Canada.

You acknowledge that the US is an “outlier in international taxation” with its system of taxation on the basis of residence and citizenship. Yet you are silent on the injustice of this citizenship taxation. Would you wish to have your personal private financial account information reported to a foreign tax service purely on the basis of your place of birth? Would you pay taxes (and accounting fees) on your Canadian earned and taxed income to a foreign country just because you were born there?

You call FATCA a “valid US law that has a legitimate purpose”. This is true when trying to prevent tax evasion by US citizens who reside in the USA. It is an unjust law when applied to citizens and residents of other countries. “Offshore” financial accounts for US residents are local accounts for residents of other countries.

Yet the most that you can do is suggest that FATCA may amount to “extraterritorial overreach”.

Look at the public uproar that forced StatCan to back down on its plan to collect data from some bank accounts anonymously.

https://financialpost.com/news/fp-street/statistics-canada-overreached-with-banking-info-collection-plans-privacy-czar

And yet the Court and people like yourself feel that FATCA account reporting of a minority of Canadian citizens/residents is not unconstitutional. You must be more forthright and honest, and admit that FATCA is unconstitutional for Canadian citizens living in Canada (who also may happen to be US citizens), but when it comes to American economic power and extortion, Charter rights are overridden.

Yours Sincerely,

As the holiday season approaches, we’re getting together for dinner and drinks on Tuesday, December 6^th, 6 pm, at The Lieutenant’s Pump pub, 361 Elgin Street (two blocks North of Gladstone).  Good food and drink and, important for us, it’s a good place for conversation, quiet early in the week and comfortable.  Hope you can join us!   Please RSVP by leaving a comment or e-mail pacifica.isaacbrocksociety@gmail.com

The site went down Friday night due to an accident during routine maintenance with repair complicated by a software incompatibility. Thanks to our webmaster for a great job getting us back on line. Thanks also to everyone who e-mailed to make sure we knew the site was down and/or expressing concern, and welcome back to all!

Stop American Extraterritorial Taxation is collating letters which people wrote to US Congressmen/women or Senators, in order to document and provide evidence of the difficulty of motivating Congressional representatives to acknowledge, understand and respond to the issues facing US citizens who live permanently outside the United States.  This Book of Letters will aid SEAT in their continued efforts for legislative, regulatory and/or judicial changes to Citizenship Based Taxation.

To participate:

1. Find your letters to your representatives. Please prepare them in a word file (deleting your name and address if you wish).

2. Find the response from your representative. Please delete any information that identifies you.

3. Please email both attachments to: letters at seatnow dot org

As Summer draws to a close in Canada and we await the Federal Court of Appeal’s decision in the ADCS lawsuit (Deegan v. Canada – file no. A-370-19), Anti-CBT and Anti-FATCA lawsuits in several countries, particularly Bittner v. US at the US Supreme Court, are featured in two recent articles.

Both Helen Burggraf in “American expat campaigners laying groundwork for citizenship-based tax challenges” and Andreas Kluth, in “Next, the Supreme Court Decides How to Punish US Expats,” report on FATCA lawsuits currently underway in Canada, France, Netherlands and the UK, with focus on the US challenge, along with illustration and analysis of the difficulties CBT/FATCA  are causing people worldwide.