Category Archives: Issues regarding US persons abroad

by Carol Tapanila & Tricia Moon
 
S. 877A of the Internal Revenue Code – “One picture/statute – Two contradictory ways of seeing it”
 
Note: This post will be best understood by reading the following two sections of the Internal Revenue Code:
 
S. 7701(1)(5) Definition – Termination of United States Citizenship

S. 877A(g)(4) – Tax responsibilities on Expatriation
 
Do you see a “Young Woman” or an “Old Woman”, or can you see both?
 

 
If you can’t see both, watch this video!

 

The question: I lost U.S. citizenship years ago. Can the U.S. still tax me?

Nothing paralyzes a relinquished expat more than the notion of having their citizenship “restored” automatically (without their consent). For those who relinquished decades ago but who do not have CLN’s, this is becoming a major issue. How incredibly frustrating to have been warned/admonished decades ago by consular staff who failed to include the information that one “perhaps should” appear at the consulate, file forms and get a CLN. In fact, under the INA (“Immigration and Nationality Act“), neither notification NOR a CLN was required to relinquish U.S. citizenship.  And in the same spirit of the government’s complete lack in taking responsibility for due diligence in advising of tax and reporting requirements before the hideous spectacle of OVDP/OVDI, once again we are the ones bearing the brunt of the problem. As usual Americans abroad are faced with both (1) “ignorance” of the law because they never knew or heard  about it AND (2) Ignorance of the law because the law cannot be understood.

(1)  Ignorance of the law because nobody ever heard about the law: As far as “ignorance of the law is no excuse,” have a listen to this short, incredibly simple and completely clear explanation of why the government should not get away with this. Really, can the U.S. take away the “Stop Sign” and then fine people for not stopping?

Story of the Stop Sign
“Mike” interviewed for Senate Finance Committee submission
(@ 01’35” total- 02′ 15″)

 
(2) Ignorance of the law  because the law (S. 877A rules) cannot be understood: This frustration is captured by “Homelander_Not” in the following comment on Robert Wood’s blog

My comment on “20 Really Stupid Things In The U.S. Tax Code” @Forbes: http://t.co/E2J7W4Fyu3

— Homelander NOT (@Homelander_NOT) December 16, 2014

About the “Exit Tax” (S. 877A rules) – Do the rules apply prospectively only from June 16, 2008? Do they apply retrospectively to those who relinquished U.S. citizenship by becoming Canadian citizens in the 1970s?
 
The statute itself is said to be poorly written. Both sides of the fence can be quoted as saying it is/isn’t retroactive by the “plain language” of the statute. This is extremely confusing and unsettling; how is one to know who to believe? Is there even an answer to this important question?

Since Treasury/IRS have not, at this point, chosen to offer guidance, we are left with many very competent lawyers who do not read the statute in the same way. As long as the IRS remains quiet on these issues, the ways in which these advisers lead their clients become a secondary way of “making the law.” The longer the IRS is silent, the more the law is “established” by the compliance industry. (And this now includes the banks, who have no business being the arbiters of U.S. indicia determining U.S. Person-hood (or not)). The question then becomes, why should one point of view be any more (or less) compelling than another? There are many different perspectives on this issue. Why should one point of view be preferred to another?

As Homelander_NOT formulates the question:
 

A major concern is that people who relinquished their citizenship decades ago are being told they must formally renounce at a consulate, they must file taxes and so on. The same thing is happening with “border babies” and other types of “Accidental Americans.” The fact is, citizenship law is complex. What is true for someone renouncing today is not necessarily the same for people who have a different situation outside of simple dual-citizenship. And yet, if you read what the compliance industry is saying, this is “it” – you must become compliant, file 8854 and pay that outrageous $2350.

 
We would add that those who renounce U.S. citizenship today are (assuming they are “covered expatriates”) subject to the draconian U.S. “Exit Tax” rules which could trigger significant confiscation of your retirement assets. See examples here.

So, what do the lawyers suggest? Remember that the law is NOT clear and these are the perspectives of the individual lawyer.

The S. 877A “Exit Tax” rules took effect in June 2008. Could they really be understood to apply to people who relinquished U.S. citizenship before the “Exit Tax” rules even existed? Some lawyers say “YES.” Some lawyers say “NO.” Some lawyers say “NOT SURE.” Some lawyers say: “What? I don’t understand the question.”
 
“Fools jump in where angels fear to tread”

Few lawyers have demonstrated the courage to address this issue at all. Recently, the lawyers mentioned in this post have put forth their ideas on the subject. The difficulties involved in understanding the complexities can lead to quite a state/level of uncertainty. It is only natural to feel fearful when something is not grasped. It must be remembered that at this point NO ONE “knows.” Each person has to take responsibility for making the effort to become familiar with all the information out there and apply it to his/her situation as best one can before making a decision/taking action/going with any particular adviser. Ask your adviser why he/she interprets the S. 877A rules in the way that they do. Remember, that your choice of adviser will help shape the law! After you have read these points of view, please vote in the poll at the bottom of this post.

There appear to be at least three different perspectives:

1. No, the S. 877A “Exit Tax” rules do NOT have retroactive application because they cannot be reasonably interpreted to mean that they have retroactive application.

2. No, the S. 877A “Exit Tax” rules do NOT have retroactive application because the “plain language” of S. 877A says they they do NOT.

3. Yes, the S. 877A “Exit Tax” rules DO have retroactive application because the “plain language” of S. 877A says that they do.

Exercise: Can you decide which lawyers have which perspectives? You will probably have to read their individual posts/articles to fully understand their position. Some may have more than one perspective. Check your answers at the end of this post.

John Richardson B.A., J.D.  in his post: Are You or Have You Ever Been a U.S. Tax Citizen?”  introduces the problem. In a separate post he offers his thoughts on “The Plain Language of S. 877A – To Whom Does It Apply“.  This matters because if S. 877A applies, then the “Exit Tax” rules apply.

The interpretation of “retroactive confiscation” includes the following three fantastic assumptions: 1. Fantastic – The idea that the U.S. Congress (remember that’s where the law comes from) intended to retroactively confiscate the retirement assets of former U.S. citizens (living outside the United States) is fantastic. 2. More Fantastic – The idea that the retroactive confiscation of wealth could have been intended without that specific intention clearly conveyed in the statute (which was buried in a section of the “HEART Act”) is more fantastic. 3. Most Fantastic – The idea that a former U.S. “citizen” should have to consult a lawyer to determine whether the law (which nobody would even imagine exists) should be interpreted as confiscation of (“post U.S. “Citizen”) assets is the most fantastic.

Virginia La Torre Jeker J.D. Part I: Living in the Past: Citizenship “Relinquishments” – Am I Still a US “Tax Citizen”? Part II: Living in the Past: Citizenship “Relinquishments” – Am I Still a US “Tax Citizen”? Part III: Living in the Past: Citizenship “Relinquishments” – Am I Still a US “Tax Citizen”?

Today’s Part III of the post also sets forth the premise that the manner in which legal professionals interpret a particular law will impact how that law is interpreted by other professionals, which in turn will help shape the future evolution of that law. With that as the touchstone, prudence is advised when it comes to interpreting the backward reach of the relevant Internal Revenue Code Sections — Section 877A and 7701(a)(50). Caution is necessary lest the tax professionals, themselves, create a situation where one professional blindly follows the next resulting in a scenario where, without the requisite aforethought and due consideration, the provisions come to be applied retroactively.

Michael J. Miller Expats Live in Fear of Malevolent Time Machine    COMMENTS ON THE TAX STATUS OF CERTAIN EXPATRIATES These Comments address the need for guidance regarding the tax status of individuals who expatriated on or before June 3, 2004.

For persons whose CLN shows a loss of citizenship date that is on or before June 3, 2004, section 877A should not apply. Even if the CLN is received today. I’ve discussed this with people at the IRS and they’ve informally stated that they agree.
***
Furthermore, since the 2004 Act quite deliberately included a “grandfather rule” for individuals who expatriated (within the general meaning of that term) on or prior to June 3, 2004, it’s extraordinarily difficult to imagine that the 2008 Act would have been intended to reverse that treatment.

Roy A Berg, JD, LL.M (U.S. Taxation), TEP FATCA, Cure for US Place of Birth  
Exhibit 1 Explanation of Reason Account Holder Does Not Possess a Certificate of Loss of Nationality Despite Having Relinquished U.S. Citizenship This is a very-well drafted suggestion for FFI’s to accept in lieu of a CLN.

Under a literal interpretation of current law Mr. Maple Leaf’s U.S. citizenship is terminated for nationality purposes in 1981. However under HEART, termination of his U.S. citizenship for tax purposes is determined under section 7701(a)(50)(A), which sends us to section 877A(g)(4). Under section 877A(g)(4), Mr. Maple Leaf’s U.S. citizenship is lost on the earlier of: 1. The date in 2015 on which he submitted a statement that confirmed a prior expatriating act (i.e., becoming naturalized in and formally declaring allegiance to Canada); or 2. The date in 2016 on which his CLN was issued. Because his submission to the Department of State antedated the issuance of the CLN, his tax-citizenship terminated in 2015. Thus, Mr. Maple Leaf is liable for tax and reporting obligations from 1981 through 2015. Further, since Mr. Maple Leaf and the Department of State did not concurrently consider his U.S. citizenship to have terminated, he will not be relieved of tax obligations under D’Hotelle de Benitez Rexach or Revenue Ruling 92-109 until 2015.

Mr. Berg’s interpretation of “retroactive application” is strongly supported by California tax lawyer Patrick Martin.

______________________________________________________

A discussion among Roy Berg, Michael Miller and Patrick Martin …

Okay, you have had the opportunity to read what various lawyers say when they WRITE in a non-interactive way. Interestingly, a recent interactive DISCUSSION on this topic took place on a blog between three of the lawyers mentioned above. The discussion demonstrates the total lack of agreement. You can read the comments here. What do  you think?

______________________________________________________

Possible answers to which lawyers have which perspectives?

1. No, the S. 877A “Exit Tax” rules do NOT have retroactive application because they cannot be reasonably interpreted to mean that they have retroactive application.

Michael Miller, Virginia La Torre Jeker, John Richardson

2. No, the S. 877A “Exit Tax” rules do NOT have retroactive application because the “plain language” of S. 877A says they they do NOT.

Virginia La Torre Jeker, John Richardson

3. Yes, the S. 877A “Exit Tax” rules DO have retroactive application because the “plain language” of S. 877A says that they do.

Roy Berg, Patrick Martin

________________________________________________________
 
Conclusion – if there is one …

The application of the S. 877A rules is so unclear that, as was previously reported at the Isaac Brock Society,  the American Bar Association has asked the IRS for a ruling on the correct interpretation.

What do you think? Do you see how the interpretation of the S. 877A rules can be seen as both the “young woman” and the “old woman”?

The message is: Caution is warranted!

You should take whatever step (or not) that you are most comfortable with. The interpretations of the lawyers/accountants, etc. are just that – their own interpretations. Hopefully, the IRS will answer the American Bar Association. Till then: Good luck. You are in uncharted terrain.

cross-posted from the Alliance for the Defence of Canadian Sovereignty blog

Prologue: Prime Minister Pierre Trudeau speaking to the Washington, DC Press Club – 1969

"Living next to you is in some ways like sleeping with an ele…" http://t.co/DSqiLVzl8I https://t.co/jMYjBiBMkZ via @shareasimage

— Citizenship Lawyer (@ExpatriationLaw) May 5, 2015

________________________________________________________________

The Elephant Today: FATCA, FBAR and U.S. Citizenship Taxation – How “even-tempered” is the beast?

I have been watching with interest a recent discussion at the Isaac Brock Society about U.S. citizenship taxation. Much of the discussion was focused on whether the Alliance For The Defence of Canadian Sovereignty  should initiate a lawsuit against U.S. citizenship taxation. (This post is NOT to comment on that specific question.) Interestingly, much of the discussion centered around the question of whether,  U.S. citizenship impacts on Canada’s Sovereignty. Some commenters believe it DOES impact on Canada’s sovereignty. Others believe U.S. citizenship taxation does NOT impact on Canada’s Sovereignty. I use the word “impact” to mean “effect” and NOT “intent”.

What if one were to ask the question this way:

Can one country forcibly impose taxes on the residents of another county? If so, does the imposition of those taxes burden the sovereignty of that other country?

Does U.S. citizenship taxation impose either direct or indirect taxes on Canadian citizens resident in Canada? If so, does the U.S. taxation of Canadian citizens resident in Canada  interfere with Canada’s sovereignty? Remember that FATCA is a deliberate attempt by the United States to enforce U.S. tax law on Canadian soil.

Let’s review some basic principles that are NOT in dispute.

Continue reading →

cross-posted from Alliance for the Defence of Canadian Sovereignty

Greetings:

On behalf of the ADCS Board of Directors, and on behalf of ALL those affected by the injustices of FATCA and U.S. “place of birth taxation”:

1. I thank you for your continued support. Once again you have met the funding goal.

2. I congratulate you for being the one group of people in the world that has the courage to “stand up” to FATCA.

3. I acknowledge that your funding is coming from people ALL around the world. Canada may be the “battle ground”. But, all peoples and countries have an interest in stopping FATCA.

Once again, the funding goal has been achieved by “small donors” with “big commitments and big dreams”. There has NOT and (I suspect WILL NOT) be a “deep pockets” donor. But, that’s okay. I would not want the financial viability of your lawsuit dependent on the decisions of a small number of people. From the beginning, I have been completely confident that the funding is guaranteed precisely because of the large base of our funding. As we move further along, and more people learn of FATCA, I predict that the funding will become easier and easier. I would rather have smaller donations from a large group of people than larger donations from a small group of people.
Continue reading →

Dear Supporters,

Many of you probably predicted that I would not be saying this today, but this message is not a dream: You came up with yet another $100,000 payment — now making a total of $400,000 provided to the Arvay team.

In the last twelve days you actually donated more than $40,000 — an amazing achievement for small donors. This accomplishment proves to all those people who want us to fail — that we are very determined.

You gave until it hurt and then you gave a lot more. It’s hard not to get teary-eyed over the generosity of our supporters, who have come through every time.

We know that the pace of your litigation is painfully slow, and this is unfortunately as expected. The Government will continue to do its best to slow down the process, but we now have the assistance of a case management judge to help keep the process moving more fairly.

We filed in August 2014 and it has taken a very long time (one year) before we are finally into a (summary) trial (August 4-5, 2015). We cannot predict the outcomes of this trial, based on only part of our arguments and, with your continued support, we will prepare for all possibilities.

[Happy birthday Gwen!]

Thank you for your trust,

Stephen Kish,
ADCS-ADSC Chair,

— on behalf of Plaintiffs Ginny and Gwen, their families, and the ADCS-ADSC Directors

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Chers amis et donateurs,

Certains d’entre vous avaient probablement pensé que je ne pourrais pasvous annoncer une si bonne nouvelle aujourd’hui. Mais voilà : ensemble, nous avons réussi à ramasser un autre montant de 100 000 $, ce qui fait un total de 400 000 $ à remettre à l’équipe de MeArvay.

Dans les 12 derniers jours seulement, vous avez donné plus de 40 000 $, un exploit tout à fait extraordinaire pour des « petits donateurs ». À tous ceux qui souhaitent nous voir échouer, cette réussite prouve que nous sommes des plus déterminés. Et que nous réussirons.

Vous avez donné jusqu’à ce que ça fasse mal, puis vous avez donné encore. Difficile de rester insensible devant une si grande générosité.

Nous sommes bien conscients du fait que notre litige avance de façon péniblement lente. Malheureusement, tout ça est normal. Le gouvernement continue à ralentirle processus, mais on nous a maintenant attitré un juge responsable de la gestion de notre dossier qui veillera à ce que le processus progresse de façon plus juste.

En août 2014, nous avons engagé une poursuite contre le gouvernement canadien. Près d’un an plus tard, nous avons enfin la date pour notre procès sommaire : les 4 et 5 août 2015. Impossible de prévoir le dénouement de ce procès, basé uniquement sur une partie de nos arguments juridiques. Mais avec votre appui, nous serons prêts pour toutes les possibilités.

(Bonne fête, Gwen !)

Au nom de nos deux plaignantes, Ginny et Gwen, de leurs familles et des directeurs de l’ADCS-ADSC, je vous remercie de votre confiance.

Stephen Kish,
Président de l’ADCS-ADSC

Continue reading →

UPDATE: JUNE 14, 2015

from JakDak:

http://blogs.rollcall.com/topic-a-tax-finance/tax-reform-moves-to-back-burner-but-debate-remains-active/

The Senate Finance Committee chairman, Senator Orrin Hatch (R-UT), has established working groups to study different aspects of the tax system. These working groups are scheduled to report back to the committee by June 26.

http://www.mwcllc.com/updates/articles/2015/6/tax-policy-update-june-9-2015.aspx#Comprehensive_Tax_Reform

Tax Policy Update
June 09, 2015

[Interesting: NUMBER OF THE WEEK: 61. The number of countries that have signed on to implement the OECD’s multilateral agreement for the automatic exchange of tax information, in conjunction with the ongoing Base Erosion and Profit Shifting (BEPS) project. Although the U.S. has committed to implement the standard, it has not yet signed onto the formal agreement (the “multilateral competent authority agreement”), which lays out in detail what information will be exchanged, the timing and method of exchange, and how signatories will work together to ensure compliance. Signatories to the agreement will begin exchanging information as early as 2017. Additionally, the OECD released on June 8 its “Country-by-Country Reporting Implementation Package” developed under the BEPS Action Plan. Under the plan, which the Treasury Department has said it will implement for the 2016 fiscal year, multinational companies are required to aggregate and report information annually regarding where they do business, the global allocation of income, and amount of taxes paid, along with other information that will allow taxing authorities to more closely examine multinationals’ tax practices. The release of the package coincides with the 2015 OECD International Tax Conference in Washington, D.C., this week where OECD representatives are expected to review and discuss key initiatives under BEPS.]

SPOILER ALERT: Comprehensive Tax Reform Unlikely in 2015. In an interview last week, Senate Majority Leader Mitch McConnell (R-KY) outlined a busy legislative agenda between June and August recess: passing a highway bill, cybersecurity legislation, No Child Left Behind, and the Toxic Substances Control Act. Tax reform, however, is conspicuously missing from the list. “We’re certainly not going to be able to be doing big, comprehensive tax reform with this president,” McConnell said. Tax reform optimists have been eyeing the highway reauthorization bill as a potential vehicle to move a limited set of tax reform measures, but according to McConnell, the bill might instead be better suited to pick up a different legislative passenger—the reauthorization of the Export-Import Bank. McConnell believes the highway bill would provide the best opportunity to reauthorize the bank, which is set to expire June 30.

The inability of the Senate Finance Committee Tax Reform Working Groups to meet their original May 31 deadline to report recommendations to Chairman Orrin Hatch (R-UT) and ranking member Ron Wyden (D-OR) only adds to the general pessimism. The international tax working group may offer the only glimmer of hope, with reports that it has made the most progress in hammering out detailed recommendations. The working groups are now aiming to deliver their reports before Congress departs for the July 4th recess.

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UPDATE: MAY 25, 2015

Em’s comment to JakDak:

I’m not sure of the where for the SFC recommendations but the when has been delayed:

http://thehill.com/policy/finance/242916-senate-tax-reform-groups-get-more-time

The Senate Finance Committee’s leaders are giving tax reform working groups some more time to formulate their recommendations.

Finance Chairman Orrin Hatch (R-Utah) and the panel’s top Democrat, Sen. Ron Wyden (Ore.), had hoped for recommendations by the end of May.

But in a statement Thursday, the two senators said that the working groups made it clear that they needed extra time to do the job right. The panel will set a new deadline after lawmakers return from next week’s recess.

“It is our hope these bipartisan working groups will use this extended time to finalize their recommendations for tax reform and produce in-depth analyses of options and potential legislative solutions,” Wyden and Hatch said in a statement.

etc.

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Shadow Raider says
April 29, 2015 at 6:39 pm

The Senate Finance Committee just released the comments sent by the public on tax reform. As expected, there are lots of comments about CBT and FATCA.

http://www.finance.senate.gov/newsroom/chairman/release/?id=3b14e94b-69f9-41e2-9fd3-7d191971b7ee

 

Hatch, Wyden Release Public Input on Bipartisan Tax Reform

Over 1,400 Submissions Made to Working Groups

WASHINGTON – Finance Committee Chairman Orrin Hatch (R-Utah) and Ranking Member Ron Wyden (D-Ore.) today released over 1,400 submissions from stakeholders on how to best to overhaul the nation’s broken tax code.  In March, the Committee sought input from the public in an effort to provide additional data and information to the Committee’s bipartisan tax working groups, which are currently analyzing existing tax law and examining policy trade-offs and available reform options within each group’s designated area.

“We thank the stakeholders and public who provided us with this valuable data and input,” Hatch and Wyden said. “These submissions have equipped us with the ability to better evaluate how reforming the tax code will affect both American families and business of all kinds.  As our bipartisan groups work towards producing substantive recommendations on how to reform the tax code, they will now be able to consider these valuable ideas.”

All comments received by the Committee that met submission requirements were made public.

Submissions can be found below. Total submissions to each bipartisan tax working groups are as follows:

Individual Income Tax – 448

Business Income Tax – 332

Savings & Investment -128

International Tax – 347

Community Development & Infrastructure – 207

Each of the five bipartisan working groups is currently working to produce findings on current tax policy and legislative recommendations within its area, with the goal of having recommendations from each of the five working groups completed by the end of May.

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Thanks, Shadow Raider, for alerting all here.  There will be many Brockers reading, starting with the submissions (not all by individuals) to International Tax.