TaxConnections


 

Testimony: Letter From Father To Senate On FATCA Regarding Disabled Son



John Richardson, Tax Advisor

Attention House Ways and Means Committee Members:

I am sending you this submission not as a person who is still a U.S. citizen nor as a person who is attempting to in any way regain his U.S. citizenship. Rather I am sending this to represent the interest of my disabled son who is a U.S. citizen and who is denied the right to renounce his U.S. citizenship because of his disability.

Not only is he not permitted to renounce his citizenship, but I am not permitted to renounce for him because U.S. law requires that the person renouncing be able to understand the gravity of the act. All of which I find rather ironic because while U.S. law requires such understanding when it comes to renouncing, it does not require the same level of understanding when it comes to tax liabilities. This clearly shows how self serving the law is for the U.S. government.

Let me start off by saying that the decision that was handed down in the Cook vs. Tait ruling of 1924 was one that was made not on reason, but on the basis of emotion. If you read the judgment for yourself, you will see that the basis of the judge’s decision did not rest on any principles of tax law, but on positing some kind of inviolable mystical union between the State and the citizen.

Laws that find their basis in emotion are not laws that can stand. The reason that I can confidently say that this judge was in error is because his judgment demonstrates absolutely no understanding of what forms the basis of tax law. The basis of tax law is not found in the status of the individual in relationship to the government of citizenship, but rather is forged in the relationship that the individual has with the government’s treasury.

In other words the issue here is, does the citizen under consideration have an account with the treasury of his government of citizenship? The only way in which to address this fundamental question is to determine whether or not the citizen is an account holder with his government’s treasury.

There are only two ways in which a citizen can become an account holder with his government’s treasury-passive and/or active:

  1. A citizen becomes a passive account holder by receiving benefits from the treasury. These benefits can be composed of direct financial payments, favorable tax treatments that are attached to his holdings of the treasury’s debt notes-cash, and the reception of services which are valued in the currency of his government of citizenship.
  2. The other way to be an account holder with your government’s treasury is by being an active account holder. An active account holder is one who receives compensation for his/her services or products in the non-interest bearing public debt (cash) instruments of his government of citizenship. So receiving wages in exchange for labor, or capital gains in return for investment, would qualify here.

In the end all people who are citizens fall into both categories, but only as long as they are residents. U.S. citizens who are not residents cannot be account holders with the U.S. treasury because they do not receive passive or active benefits from the Federal Reserve. Unless those U.S. citizens have a financial account within the U.S. Their passive and active accounts are strictly with the government of their country of residence.

To maintain that the U.S. government can rightfully tax individuals on the basis of U.S. citizenship is to believe in what amounts to nothing less than, taxation of the person. In other words U.S. citizenship based taxation is taxation that is based only on an individual’s existence. Any taxation powers that are exercised without regards to the person having an account with the treasury is a denial of the individual’s right of movement and is therefore a case of forcible confinement. The U.S. person is in a U.S. Treasury prison that has no walls and thus gives the illusion of freedom to the world.

How, you may ask, is the U.S. denying freedom of movement? The U.S. denies freedom of movement by refusing to acknowledge the individual’s act of leaving the country. The U.S. does in in a distorted way acknowledge the legitimacy of residence as the sole basis of establishing a taxation relationship. The way that the U.S. resolves the fact of U.S. emigration and attempts to bring its taxation policy into harmony with international practice is with its policy of citizenship based taxation is by forcefully confining every U.S. person to forced residence in Washington D.C.

This is how the U.S. can write into its taxation agreements with other countries the oxymoron statement, that the U.S. person has TWO tax residences. One with the country of physical residence and an abiding virtual residence within the U.S. Now of course the people at the IRS will be quick to point out that any U.S. person who does indeed reside abroad can fill out form 2221 and establish that he/she does have a bonafide residence in another country.

However, it is because U.S. residence is by default imposed upon every U.S. person that the U.S. person is burdened with having to PROVE that he/she is not resident in the U.S. In other words the U.S., unlike every other country in the world, makes it the responsibility of the individual to prove each year that he/she has not resided in the U.S. during the last tax year. Not only that but the validity of this proof does not rest upon simply having been out of the country for 183 days of the year, as is required by a visitor to the U.S. who wants to avoid U.S. taxation.

In other words under U.S. tax law the U.S. person receives worse treatment than does a none U.S. person. And this is all because U.S. persons are forcefully and therefore criminally confined to American residence and are assumed to be full year U.S. residents unless they prove otherwise. But the level of proof that is required exceeds more than half of the days in a calendar year. Which is the maximum number that is expected of anyone else by any other country in order for a person to be deemed a tax resident.

Once we have established that the only two ways in which a taxable relationship between the individual and the state can be established is through passive receipt of benefits that are denominated in the country’s currency or actively through wage and/or investment gains and that residency is the only element that these two categories have in common then it becomes clear that citizenship based taxation is a fiction.

Now of course the American legislator will ask, how is it that America is able to take in tax revenues from none resident U.S. persons if citizenship based taxation is wrong? The answer is that the tax revenues from none resident Americans is not derived as a consequence of the legitimacy of citizenship based taxation but because of IRS intimidation.

Threats and penalties can make people comply with lots of things that are wrong, but it doesn’t make them right. Now that we have seen that taxes are paid because of the individual’s relationship with a given treasury and that the non resident U.S. person can only be taxed by the U.S. to the extent that he/she has a relationship with the treasury then that means that whatever U.S. taxes are being remitted from overseas are actually being paid from the treasuries of other nations.

In other words, citizenship based taxation of non-resident U.S. persons is theft by the U.S. treasury from the treasuries of other nations. This is because the non resident U.S. person must convert his/her account holdings with a none U.S. treasury and is forced under duress to open an account with the U.S. treasury. All the while he/she is receiving no active or passive benefits.

This means that his/her payments are not in his/her best interest and are nothing less than acts of extortion on the part of the U.S. The U.S. Congress cannot spend through the tax code when it establishes the Foreign Earned Income Exclusion or the Foreign Tax Credit because the Congress can only affect the tax liability of people who have accounts with the U.S. Treasury. Since non resident U.S. persons do not have accounts with the U.S. Treasury, the truth is that they do not exist.

In other words they have the same status with the U.S. Treasury as does their next door neighbor. Which is to say that there is no relationship at all. My illustration of how U.S. citizenship based taxation negatively impacts my disabled son will be illustrative of how citizenship based taxation negatively and wrongfully impacts the lives of every none resident U.S. person.

In Canada there is a program called the, Registered Disability Savings Plan (RDSP) which the government of Canada has established under its tax code and administers through Revenue Canada, that allows a disabled person to save for his/her old age. It is like a retirement plan for the disabled. Now all of the funds for this plan are paid for with Canadian dollars and the government of Canada augments the individual’s contribution to the plan by making a yearly contribution to those whose contributions meet the required level.

Now according to U.S. taxation law these plans are illegal for any U.S. person to hold because they categorized as trusts. As a trust they are liable to onerous and expensive reporting rules on forms 3520A/3520. Not only that, but because these funds can only be invested in mutual funds they are considered illegal because foreign mutual funds are considered to be Passive Financial Investment Corporations and U.S. persons are not allowed to invest in these financial instruments. The tax treatment that these mutual funds receive also results in wiping out any gains that are received and the expense for paying a U.S. tax preparation specialist to complete the forms also negatively impacts the gain and can actually eat up a significant portion of the capital that was used to invest in this financial instrument.

The question is how is it that the U.S. treasury believes that it can have any right to determine what it is that a none resident U.S. person can do with the treasury instruments of another country? This would be like the U.S. telling none resident U.S. persons that they must observe U.S. rules of the road when they drive their cars in another country.

Tax law isn’t a special exception that makes the idiocy of this extraterritorial reach of the U.S. government acceptable. The U.S. has no vital interest in the relationship between the non resident U.S. person and the treasury of his country of residence. What it all comes down to is that there is absolutely no benefit to my son in maintaining his U.S.citizenship. He is actually better off to lose it because then he would be able to access a government benefit that he would never have in the U.S. Which is something that he could do if it weren’t for the fact that his very disability is the grounds for denying to him the freedom of exercising the same right to renounce that is available to a none disabled U.S. person.

Does America really live in fear of the possibility that its citizens could be better off living somewhere else?

Is America’s answer to that fear to use the tax code to make sure that such a thing never happens?

Is America content to rob the treasuries of other nations, by way of false argument that was made 98 yrs ago by a man who had no understanding of the principals of taxation and did not base his ruling on those principals?

I would also like to point out that taxation is inherently territorial and not international. I base this on the fact that taxation is a levy on the economic activity that is conducted under the auspices of a given government’s treasury. In other words what is not being taxed is the individual but the individual’s economic activity and the degree to which his/her activity is successful. In the end though it is all a territorial on the country’s economic activity. As such it is a measure of the ability of the legislature to manage its economy and its treasury’s ability to measure the nation’s credit.

There is nothing that the U.S. government can do to influence the value of the government of my country of residence to manage its economy and treasury. Once I leave the U.S. treasury system I no longer exist.

A last question that someone may have is, what happens then with foreigners who invest in America? Don’t they have accounts with the U.S. treasury? I would reply to that question by saying, no.

A foreigner who takes the treasury non-interest bearing publicly circulating treasury notes of his/her country of residence and converts them into U.S. treasury notes is making a loan to the U.S. Treasury. The ultimate end of those holdings is that they must be repatriated to their treasury of origin so that tax settlements can be made with that treasury. So the foreign investor is not an account holder with the U.S. Treasury, but is rather, a lender.

Thank you for your time.

Sincerely,

Julian Ross Hudson

Original Statement on April 9, 2015
United States Senate Finance Committee
International Tax

Have a question? Contact John Richardson 

Your comments are welcome!

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

Meet Tax Experts At TaxConnections...