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Archive for FATCA

The United States Imposes A Separate And Much More Punitive Tax On U.S. Citizens Who Are Residents Of Other Countries

John Richardson - The United States Taxes Citizens Who Reside In Another Country

On February 28, 2019 TaxConnections kindly posted my first post comparing the way that 19th Century Britain and 21st Century America Treated Its Citizens/Subjects. The post received a great deal of interest resulting in more than 120 comments (largely reflecting the frustration of Americans abroad and accidental Americans).

The purpose of that post focused largely on citizenship and the fact that the United States imposes worldwide taxation on U.S. citizens who are tax residents of other countries and do NOT live in the United States. What that post did NOT do was to focus on HOW the Internal Revenue Code applies to U.S. citizens who do NOT live in the United States.

The Bottom Line Is:

The United States is in effect imposing a separate and more punitive tax system on its citizens abroad. Strange but true. The purpose of this post is to explain how that works and to provide specific examples.

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Expatriates Are Very Upset With The United States IRS: 120+ Comments Educate You Why

John Richardson On Expatriate Taxes

We continue to receive commentary on the article written by TaxConnections Member John Richardson of Citizenship Solutions. His blog post on USA Of The 21st Century Is Like Britain In The 19th Century has hit a nerve with many expatriates around the world. The blog post and the 120+ comments that follow explain what is happening to those who happened to be born here but do not live in the United States. There is more to learn that will leave you at the edge of your seats so stay tuned to this post.

Read this post that has 120+ comments and growing by the day and please forward to expatriates you know to add commentary.

https://www.taxconnections.com/taxblog/the-usa-of-the-21st-century-is-like-britain-in-the-19th-century/#.XH3XiKJKiJB

Please add your commentary below to continue to educate others on the consequences of United States FATCA tax laws on your life.

Written By TaxConnections CEO, Kat Jennings

 

WOW! A Big Reaction To The Article Posted Yesterday Called “USA Of The 21st Century Is Like Britain In The 19th Century”

John Richardson About Americans Citizens Abroad

Yesterday, we posted an article called The USA Of The 21st Century Is Like Britain In The 19th Century written by John Richardson of Citizenship Solutions in Canada. John is an internationally recognized expert on the subject of dual citizenship and accidental Americans. The post created a significant amount of reaction and response which I want to bring to your attention today. It is important to understand the impact of U.S. tax laws and how they are affecting Americans who moved long ago to another country, or may have just been born here but do not reside in the United States.

It is a great article and the commentary continues to highlight the issues faced by many. You can read the article and the comments at this link:

https://www.taxconnections.com/taxblog/the-usa-of-the-21st-century-is-like-britain-in-the-19th-century/#.XHkuBqJKiJA

Your comments are welcome to continue enlightening the world.

Kat Jennings, CEO TaxConnections

 

The USA Of The 21st Century Is Like Britain In The 19th Century

John Richardson And FATCA

In 2018 Professor Lucy Salyer of the University of New Hampshire published “Under the Starry Flag” – a book largely about the 1868 Expatriation Act. The book describes a period in American history where Britain treated its “subjects” as having perpetual loyalty to the British Crown. To put it simply: One could NOT emigrate to America and expatriate. No matter what one did, those who were born British Subjects were destined to die British Subjects.

The above tweet links to an interview of Professor Lucy Salyer conducted on February 9, 2019. The interview is about Professor Salyer’s new book “Under the Starry Flag”. It is a fascinating (brilliantly researched) work. The publisher describes the book as:

The riveting story of forty Irish Americans who set off to fight for Irish independence, only to be arrested by Queen Victoria’s authorities and accused of treason: a tale of idealism and justice with profound implications for future conceptions of citizenship and immigration.

In 1867 forty Irish American freedom fighters, outfitted with guns and ammunition, sailed to Ireland to join the effort to end British rule. Yet they never got a chance to fight. British authorities arrested them for treason as soon as they landed, sparking an international conflict that dragged the United States and Britain to the brink of war. Under the Starry Flag recounts this gripping legal saga, a prelude to today’s immigration battles.

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So You Have Received A Bank Letter Asking You About Your Tax Residence For Common Reporting Standards (CRS) Or Foreign Accounting Tax Compliance Act (FATCA) Part 4

John Richardson - Part IV

Part F – A “U.S. citizen” cannot use a “tax treaty tie breaker” to break U.S. “tax residence”. How then does a “U.S. citizen” cease to be a “U.S. tax resident”?

  1. I am a U.S. citizen. I do not live in the United States. I live in Canada. I am a Canadian citizen. How do I stop being subject to the all of the FBAR and other reporting rules, tax rules (including PFIC),  life restrictionsand inability to effectively invest and plan for retirement imposed by the Internal Revenue Code?
  2. Yourelinquish U.S. citizenship. Please note that a “renunciation” is one form of “relinquishment”. In general, the date of relinquishment of U.S. citizenship is more important than the form of relinquishment of U.S. citizenshipA Certificate of Loss of Nationality (“CLN”) may or may not (depending on the date of relinquishment) be necessary to cease to be subject to U.S. taxation.
  3. In simple terms, where do I get information about the process of renouncing U.S. citizenship?
  4. You can start here.
  5. What are the tax consequences of relinquishing or renouncing U.S. citizenship?
  6. The Internal Revenue Code describes the tax consequences of relinquishing/renouncing U.S. citizenship. See Internal Revenue Code S. 877A (the “Exit Tax” rules).

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So You Have Received A Bank Letter Asking You About Your Tax Residence For Common Reporting Standards (CRS) Or Foreign Accounting Tax Compliance Act (FATCA) Part 2

Part B – The Combined FATCA/CRS Letter

This letter is particularly worrisome for Canadian residents (whether Canadian citizens or not) who were either born in the United States or are (otherwise) U.S. citizens or U.S. permanent residents (AKA Green Card Holders). Could this mean that they would be required to apply for a U.S. Social Security number?

What follows is a sample of a letter …

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FATCA Historical (R)evolution:  The War On U.S. Criminals With Foreign Bank Accounts; A Subsidiary Of The Wars On Everything Else (Part II) Updated

FATCA has been used primarily as a tool to increase foreign bank and financial account reporting by establishing a worldwide-financial-industry informant system.  The tool of FATCA has increased reporting, but nearly all the money collected is FBAR penalty revenue, which disproportionately harms benign actors.

In FACTA Historical (R)evolution Part I, I argued that in light of JCTX-5-10,[1] Congress failed to engage in the due-diligence necessary to reasonably relate FATCA to the collection of tax revenue lost through “tax schemes” and “tax evasion” by U.S. persons with foreign financial institution accounts.  The U.S. Congress is a legislative fact-finder charged with determining whether evidence as presented negates a legislative policy-purpose.  If the policy underlying a piece of legislation is negated, then the purpose of the legislation is no longer tied to the policy-purpose.  In this case, JCTX-5-10 offered a direct answer to the question of how much revenue would be generated by FATCA.  Therefore, Congress knew FATCA would collect less than one-half of one-percent of what it was supposed to collect.[2]  Congress also knew that even after ten-years, FATCA would fail to pay for HIRE.  Bluntly, the stated policy-purpose for FATCA could not be achieved by FATCA.  So, why was it enacted and why does it remain the law?  FATCA has been used primarily as a tool to increase foreign bank and financial account reporting by establishing a worldwide-financial-industry informant system designed to curtail the use of secret foreign bank accounts for illegal purposes, including tax evasion, securities manipulation, insider trading, evasion of Federal Reserve margin limitations, storing and laundering funds from illegal activities, and acquiring control of U.S. industries without detection by the SEC.[3]

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FATCA Historical (R)Evolution: Legislative History Reveals That FATCA Had Little To Do With Collecting Tax Revenue From U.S. Persons Evading Tax Through Offshore Bank Accounts (Part I)

Prior to the enactment of FATCA, Congress and the Executive were in possession of concrete-evidence revealing FATCA would fail to collect any meaningful amount of tax-revenue from U.S. persons evading tax through offshore financial center holdings.  Congress should have halted enactment of HIRE – if in fact, FATCA’s purpose was to collect tax-revenue from offshore tax evasion by U.S. persons.

The United States Congress used estimates from the Joint Committee on Taxation (JCT) as the foundation for supporting the Foreign Account Tax Compliance Act (FATCA), contained in the Hiring Incentives to Restore Employment Act (HIRE).

HIRE was a tax expenditure designed to encourage U.S. small business to hire new employees.  HIRE included two tax expenditures of note: a payroll tax exemption to employers and a one-thousand dollar tax credit for employers hiring employees between February of 2010 and January of 2011.[1]  FATCA was included in HIRE because the tax revenue collected from FATCA was supposed to offset the tax expenditures authorized by HIRE.[2]  The tax revenue FATCA was said to be targeting was from U.S. persons with foreign bank accounts who were evading tax.

In July of 2008, and around the time of the UBS scandal and the Global Financial Crisis the U.S. Senate Permanent Subcommittee on Investigations held a hearing and issued a report entitled “Tax Haven Banks and U.S. Tax Compliance”.[3]  The underlying justification for FATCA as a substantial revenue raiser rested on a single statement found in a footnote in the 2008 hearing report:  “Each year, the United States loses an estimated $100B in tax revenue due to offshore tax abuses.”[4]  In a 2009 follow-up report, the Ways and Means’ Subcommittee on Select Revenue Measures held a hearing entitled:  Banking Secrecy Practices and Wealthy Americans.  During this hearing, the Senate increased the U.S. tax revenue loss-estimate by 50 percent stating: “Contributing to the annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150B each year.”[5]  The estimates entered into the record during these hearings measured the offshore tax gap, or the amount of tax revenue[6] that would be collected if offshore tax evasion by U.S. persons holding foreign bank accounts was ended.  One month, before HIRE was signed into law by President Obama, new evidence revealed the offshore tax gap was nowhere near as large as previously thought.

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IRS Rules: FATCA Reporting For U.S. Taxpayers

IRS, U.S. Citizens Reporting Foreign Assets, TaxConnections

The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The Treasury Department and the IRS continue to develop guidance concerning FATCA. For current and more in-depth information, please visit FATCA.

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets (as described below). This FATCA requirement is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1).

FATCA will also require certain foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The reporting institutions will include not only banks, but also other financial institutions, such as investment entities, brokers, and certain insurance companies. Some non-financial foreign entities will also have to report certain of their U.S. owners.

Therefore, if you set up a new account with a foreign financial institution, it may ask you for information about your citizenship. FATCA provides special (and lessened) reporting requirements about the U.S. account holders of certain financial institutions that do not solicit business outside their country of organization and that mainly service account holders resident within it. In order to qualify for this favorable treatment, however, the local foreign financial institution cannot discriminate by declining to open or maintain accounts for U.S. citizens who reside in the country where it is organized.

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Supreme Court Decision Further Confirms FATCA Is Here To Stay

One of the key pieces of legislation used by the U.S. government in its effort to combat tax evasion abroad is the Foreign Account Tax Compliance Act (FATCA). To the surprise of many, FATCA remained completely untouched by Trump’s sweeping tax reform passed late last year.

A recent decision by the Supreme Court further evidences that FATCA likely will not be repealed or amended any time soon. Last month, a legal challenge to FATCA was thwarted when the United States Supreme Court refused to review the Sixth Circuit Court’s decision affirming a lower court ruling which dismissed the case brought against FATCA.

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Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets

The implementation of FATCA and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments.  Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

  1. Offshore Voluntary Disclosure Program;
    Note: The Offshore Voluntary Disclosure Program (OVDP) is closing. Refer to the OVDP FAQs for an outline of the sunset provisions.
  2. Streamlined Filing Compliance Procedures;
  3. Delinquent FBAR submission procedures; and
  4. Delinquent international information return submission procedures.

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