US Tax Laws Pushing Americans to Expatriate; OVDI “Arbitrary and Capricious” – An Interview With Bill Yates – Former Attorney, Office of Associate Chief Counsel (International), IRS

TaxConnections Picture - AgentToday’s blog post is a continuation of the interview that provides valuable insight from Willard (Bill) Yates, who recently retired from the Office of Associate Chief Counsel (International), Internal Revenue Service after 31 years of service. During his tenure as a Chief Counsel Attorney, Bill was the recipient of 10 awards, including the Albert Gallatin Award, Treasury’s highest career service award. The Gallatin is awarded only to select federal employees who served twenty or more years in the Department and whose record reflects fidelity to duty. Bill received the Gallatin award for his work throughout his IRS career, including his work on implementation of some of the compliance requirements of the Foreign Account Tax Compliance Act (FATCA).

Most of Bill’s career at IRS focused on offshore compliance, including his participation in a massive overhaul of outdated foreign trust reporting requirements Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts and Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner). Bill was the principal drafter of the regulations under section 679, Foreign trusts having one or more United States beneficiaries, Notice 2003-75, RRSP and RRIF Information Reporting and Notice 2009-85, Guidance for Expatriates Under Section 877A.

Our focus for this series will be on Bill’s comments on the American Citizens Abroad working paper titled, RBT, Residence Based Taxation: A Necessary and Urgent Tax Reform (RBT Proposal), which recently was submitted to the International Tax Reform Working Group of the House Ways and Means Committee.

In general, the RBT Proposal offers an alternative to citizen-based taxation (CBT).

La Torre Jeker: Bill, please give us your general impression of the RBT Proposal.

Yates: At the outset, from a compliance standpoint, it makes a lot of sense because RBT would be “enforced,” so to speak, here in the United States through withholding at source.

Americans living abroad would be taxed on the same basis as non-resident aliens, primarily through a system of withholding taxes on passive U.S. source income (dividends, rents, pensions, etc.) and capital gains taxes on U.S. real estate; income earned in the United States would require filing a 1040NR. Americans abroad would remain subject to U.S. estate taxes on U.S. situs assets, including real estate and securities. The RBT Proposal provides extensive and comprehensive anti-abuse measures together with a precise transition roadmap.

In addition, two of benefits of RBT listed in the RBT Proposal stand out.

• increase Treasury tax receipts by an estimated $30 billion over ten years, whether RBT is drafted as a voluntary program or the default tax system; . . .
• liberate overseas citizens from a legislative straightjacket caused by the toxic combination of 
citizenship-based taxation, FATCA and FBAR reporting requirements.

An increase in tax receipts of $30 billion over ten years, is very impressive, and more importantly, critical if RBT is to be “sold” to Congress. Obviously, Congress is very much focused on “show me the money,” these days.

The second benefit addresses a concern that many of us in the office shared. It was very common around April 15th of each year to hear attorneys complaining about having just filed their tax returns and how difficult the process had been. And, it wasn’t at all unusual to hear someone remark, “just imagine what people living overseas are going through. What a mess. It must cost people a fortune to have their taxes done.” I don’t think anyone ever assumed that a U.S. taxpayer living overseas could possibly figure out how to do his/her own return.

La Torre Jeker: The RBT Proposal also talks about FATCA’s onerous compliance requirement resulting in foreign banks either refusing US customers, dropping current account holder and even causing many Americans and green cardholders to expatriate. Did you know about that?

Yates: Oh, yes. We knew. We even received a letter from a U.S. taxpayer who’s foreign bank account had been closed without an explanation from the bank. The taxpayer wanted to know why. Eventually, a response went out to the effect that we simply didn’t know why the bank closed the individual’s account. Politically, that’s all we could say.

As for expatriations, I received lots of calls from practitioner friends of mine all over the world telling me that Americans are getting out. We even heard that the wait list to make an appointment to expatriate at some U.S. consulates was over one-year long.

La Torre Jeker:  This may be a little premature, but what did you think about FATCA from a policy standpoint at that time?

Yates: I thought it was bad policy. We shouldn’t be pushing U.S. citizens towards expatriation. But, having said that, I was less sympathetic towards foreign banks.

La Torre Jeker: Why?

Yates: First, the National Office sent me out to San Francisco to listen to what the LGT informant had to say. What it turned out to be was a series of well organized presentations detailing how LGT operated. It was really disgusting. The informant told us that Liechtenstein bragged that it had the toughest money laundering laws in the EU. He told us that LGT always asked prospective clients where the money came from. For example, he told us that one individual explained that he had made $50 million raising rodeo bucking horses in Florida

La Torre Jeker: So?

Yates: Everyone in the room who knew me turned and looked at me. I’ve been involved in horses since I was five. Believe me, no one makes $50 million raising bucking horses. That is patently ridiculous. What it shows is that LGT would accept any explanation regarding the source of a prospective client’s funds or assets. Then, the UBS scandal broke. That’s when things really got ridiculous.

La Torre Jeker: How?

To be continued…

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.


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