Time for #Americansabroad forced to renounce citizenship to pursue legal remedies in US courts

This post is motivated in part by Robert Wood’s latest post titled:

Record Numbers Renounce U.S. Citizenship – And Many Aren’t Counted

Of course Mr. Wood’s article is based on “Official Relinquishments”. As explained by FromPatriotToExpatriate in a comment to Mr. Wood’s post:

Robert:

As always, thank you for keeping this issue “front and center”.

Thank you also for suggesting (this is unquestionably true) that the number of “reported renunciations” is well below the reality. The “reported renunciations” are based on those who are seeking a CLN based on the conditions of S. 349 of the Immigration and Nationality Act. In other words, they go to a U.S. consulate and either:

1. Formally renounce; or
2. Inform the consulate they have previously committed a relinquishing act.

In either case, they are asking the consulate to help them obtain – what is the most sought after document in the world today – that is a certificate of loss of U.S. nationality (CLN). Furthermore, some are paying “big money” to achieve this. There is NO QUESTION that the numbers of those actively seeking the CLN are under-reported.

But, as one commenter has correctly suggested, the number of Americans who are actively seeking the CLN, is very small relative to the people who have simply “unofficially relinquished their U.S. citizenship” by taking the position that:

A. They are no longer U.S. citizens in their minds and hearts.

B. They are willing to never return to the United States.

C. They will simply live life attempting to “hide their U.S.ness”

This is by far the largest number and at the end of the day, this is the greatest tragedy.

The very rich and the very poor can afford to formally relinquish. The “middle class” can’t afford to come into tax compliance or if they are in tax compliance, they can’t afford the “Exit Tax”. The simple truth is that a person who owns a “mortgage free” house in most major cities coupled with any attempt to save for retirement, means they will exceed the two million threshold on paper. In other words, for the middle class to officially “relinquish citizenship” means they will have to turn their retirement assets (which were never earned in the U.S.) over to the IRS.

So, that’s the deal. Barack Obama promised “change we can believe in”. What he delivered was “change we could never imagine”.

Also, Americans abroad have traditionally been good ambassadors for America. Obviously, that is no longer so. In fact many Americans abroad are now very “anti-American”. In a world where the U.S. is widely disliked, where it’s official ambassadors are distrusted and ridiculed, the U.S. needs all the “unofficial ambassadors” it can get. In the past the U.S. has had benefited from its citizens abroad – who have (on the whole) been loyal and patriotic citizens.

Finally, although Homeland Americans don’t care about this, if they paid attention, they would see how the U.S. government has put an “iron curtain” around the U.S.

This is how we treat those who have already left the U.S. This is what will happen to you if you leave the U.S.

 

Perceptions of U.S. citizenship abroad – How you will be treated if you leave the U.S.

It’s clear that for Americans abroad, President Obama’s “Change We Can Believe In” has meant that U.S. citizenship has become a frightening and horrifying experience. Here are some recent comments that encapsulate the experience:

This comment comes from Deckard1168:

Here’s a great comment that was just added to the article – bravo to the author!

FromPatriotToExPatriate

Happy New Year Robert and thanks for keeping the discussion of these issues “active”!

Your message:

“Whatever you do, vet your facts carefully and get some objective professional advice. Try to get your situation resolved in a way that makes sense for your facts, risk profile, and pocketbook. It’s a new and open world.”

The reality for most Americans abroad is that there is nothing they can do. They are just ordinary people whose lives have unfolded in such a way that they are American citizens who just happen to live outside the United States. They are law abiding in their country of residence. They have saved for retirement using the vehicles at their disposal in their country of residence. Their very conscientiousness has resulted it their having acquired assets that the U.S. will tax in a punitive way. For example non-U.S. mutual funds and some pension plans are subject to so taxes that amount to confiscation. Very very few of these people even knew they had to file U.S. taxes. Of the few who knew they had a filing requirement, almost NONE could even imagine the extent of the requirements.

Furthermore, there are very very few (numerically and as a percentage) tax preparers, CPAs and lawyers who understand these rules. It is (as you well know) a very specialized area.

There is NO country in the world that has a tax system as complex as the U.S. system. And if citizenship-based taxation isn’t bad enough, to impose exactly the same rules on Americans abroad is practically criminal.

So, the reality is that there is no way that most “non-compliant” Americans abroad, can afford to come into compliance. Why?

1. In many cases the tax liability will be tantamount tp the confiscation of their retirement assets;

2. They can’t afford the professional fees to do so; and

3. These professional fees must be paid whether tax is owed or not.

You present four logical options for what people can/should do. The truth is the “most” that “most of them” can do is try to be compliant on a going forward basis. I suspect very few will even make that effort. Even Nina Olsen of TaxPayer Advocate agrees that tax compliance for U.S. citizens abroad is very difficult (if not impossible).

Furthermore, the IRS is of little help. As you point out, the one attempt to help Americans abroad is Streamlined Compliance. As you also point out this is a narrow program. Something more is required. Furthermore, it appears to be designed to entice those who have made NO effort to be compliant into compliance. This appears to be more for the IRS benefit than for the taxpayer. What is ALSO needed is a reasonable program to allow those who have attempted compliance but failed (which is everybody else) to fix their problems without fear of penalty.

Bottom line is this:

For most Americans abroad the system is so bad that it’s not clear whether “compliance” or “non-compliance” is the worse situation.

Finally, if anybody is reading/paying attention, the U.S. government should know that it has absolutely, completely and irrevocably destroyed the lives of U.S. citizens abroad. For those who have been harmed by this (and there are many more to come) they will never forget the day that they learned of these problems. When it comes to renunciations of U.S. citizenship – you haven’t seen anything yet. In fact, of those coming into compliance, many are doing it for the SOLE reason of aiding in the renunciation process.

Consider this:

The U.S. has OVDP which is an amnesty program for criminals.

The U.S. has NO amnesty program for U.S. citizens abroad who have had no criminal intent.

What kind of country treats its criminals better then non-criminals?

I would be interested in your answer to the following question:

Why is the U.S. government doing this to its citizens abroad?

As some of the comments have suggested:

We are seeing the end of U.S. citizenship abroad.

Thanks again for keeping the awareness and discussion going!

This comment comes from Edelweiss:

The risk/reward of being a US citizen abroad is almost exclusively risk and no reward. The best analogy I can give is that you live your life permanently with your neck in a guillotine while wearing a metaphorical financial straightjacket. I for one refuse to live my life where the IRS can drop the blade on me based on some obscure rule that applies only to US citizens abroad. Nor will I allow the government of a country I haven’t lived in for 15 years to impact every single decision I can make in my financial life.

Each year, I subjected myself to a penalty regime that would bankrupt me many times over, paid $3,000-$5,000 in tax prep fees and spent about 200 hours tracking, compiling, calendarising (since the local tax year is not a calendar year), translating to USD, checking, double-checking and filing. All that for a US tax liability of zero in 2013. By comparison, my local tax return (which uses precisely the same three sources of income) took less than 2 hours all-in. I even went so far as to pay my US based accountant to count the number of “accounts” I had for FBAR purposes so that I could tick the 25 accounts and over box and be extra confident that the number of accounts I entered on the form was correct. You spend money on silly things when the prospect of getting it wrong is potential financial ruin.

As if the decision wasn’t easy enough, the provider of my main investment account decided that they would become FATCA compliant by implementing the FATCA required client onboarding procedures but not implementing any of the FATCA reporting procedures. Makes sense since the vast majority of FFIs would never be able to recoup the cost of full FATCA implementation from 0.1-0.3% of their customer base. I live in a country of 65 million and there is one (ONE!) online investment account provider who will take US citizens (and another one who says they will but haven’t updated their terms and conditions). As for the rest, if the IRS asks, they will simply say they don’t have any US citizen customers. Problem solved. My provider amended their customer terms and conditions such that it was a breach of the agreement to be a US citizen. Any US citizen discovered on their books would suffer an immediate account freeze and possibly also a forced liquidation of the entire account (confirmed via email since I didn’t want to speak to them by phone for obvious reasons). Do you choose your money or your citizenship?

This comment comes from Anne Frank:

One last relinquishment comment: I have to bite my lip every time I see a survey asking “why people are renouncing”. Be honest – there is only ONE reason to renounce or relinquish and we all know it: the ridiculously burdensome web of filing obligations associated with the CBT lunacy. We all know that USUALLY little tax actually results (although the anomalies – many of which can arise through ignorance such as non-resident trusts can be ruinous even for the middle class). It may not be the actual tax bill per se, but the constant threat of ruinous penalties, the prospect of hundreds of hours per year as an unpaid form-slave of the IRS – all of it makes the idea of staying as a dues paying member of the club unthinkable. I know people who happily collect second passports from other “homelands” through their parents or even grandparents in Europe. They think it is great that maybe, some day, if they want, they could use that passport to live or work in Europe some day. They probably never will (and at this stage in most of their lives, maybe it is time to admit it!), but it is a “nice to have”. Alone among potential 2nd passports, the US demands to be first in your heart or it will turn to acid in your hands. There is but one reason to shred the damned thing: it is a ticket to perpetual slavery. If it weren’t, I’m sure that most of the relinquishers would gladly take it back. We all have/had lots of reasons for taking up citizenship in the place where we live and have made our homes. Those reasons did not usually preclude keeping a link to the US as well save and except the toxic by-product of keeping that link. I think the press articles I have read have tiptoed around that hard fact. Without CBT, there would be no more than a handful of renunciations every decade, let alone every year. Uncle Sam needs to spend some quality time looking in the mirror.

Holding the U.S. Accountable – Legal Options

My sense is that the Expat Community has decided that that the U.S. has had time to change its treatment of its citizens abroad. With the advent of FATCA things are getting worse. So far, the following two legal challenges to “U.S. citizenship abroad” issues have been announced and are certain:

1. A group of Canadians of U.S. origin are launching a challenge against the Harper Government for agreeing to IGA, which will require implementing legislation, which is alleged to violate the Canadian Charter of Rights and Freedoms.

2. Republicans Overseas has announced that it is challenging various aspects of FATCA in the U.S. courts.

3. The question has been raised and it’s time to explore a lawsuit against the U.S. government in the U.S. courts. This lawsuit would be based on the horrible, inhumane and horrible treatment by the U.S. government of it’s citizens who choose to live outside the United States. Robert Wood points out that the U.S. government doesn’t care about the pain suffered by expats. Mr. Wood comments:

Not only do I not think exits were intended by FATCA, but I don’t think the U.S. government views this is a sad or unfortunate phenomenon. I’m afraid that many Americans too may react with a kind of “good riddance” response. But as you are clearly aware, the issues are more complex than this.

The time has come to consider a legal challenge, against the United States directly, in the U.S. courts, on the constitutionality of the the treatment of U.S. citizens abroad. The simple fact is that U.S. citizens abroad are being forced to renounce their U.S. citizenship. I have written dozens of posts explaining why U.S. citizens abroad are forced to renounce U.S. citizenship. This includes the whole Cook v. Tait series of posts. Of these the most significant post in terms of the constitutionality of of the taxation/treatment of U.S. citizens abroad is Cook v. Tait 12 which talks about 14th amendment issues. Some of these issues are captured in the following comment from the Isaac Brock Society:

If this fellow from Republicans Abroad is serious (and he certainly appears to come from a serious firm), he should go after the whole rotten edifice and not merely its most recent excresence.

If the US were serious about attempting to apply CBT world-wide, then it would be incumbent upon them to make a serious effort to apply it in such a way as not to discriminate unduly. A very short survey of the reporting requirements, investment prohibitions etc. that serve to make it virtually impossible to live outside the US and be in compliance without suffering massive inconvenience and detriment relative to similarly situate homelanders ought to make a compelling case that THIS CBT edifice does not pass constitutional muster has affording expats equal protection of the law. There are lots of people on this Board that could put together a list of such unfair impositions in their sleep. Homelanders are not required to report on all of their financial assets including routine chequing accounts where they live. Homelanders are not required to pass along their employer’s financial data to a foreign government if they happen to be a signing officer at the bank. Homelanders are allowed to save for their retirement, obtain significant tax benefits on the purchase of a home (if not its sale as in Canada), save for retirement, belong to their employer’s pension plans, save for their children’s education etc and are not subject to crippling threats of penalties for failing making mistakes in filing returns. Homelanders are not required to conceal their nationality if they go into business with a neighbour lest their partner eject them from the business for sending the businesses’ financial data abroad and making it subject to discriminatory restrictions and risk. Even a cursory run through the minefield of IRS and Treasury reporting and filing obligations associated with an AVERAGE life outside the United States ought to satisfy even the most blinkered Homeland judge that the rules and regulations applicable to those living outside the US trying to live a normal, average life are vastly more oppressive, intrusive and restrictive than those applicable to a similarly situated homelander. When the US determines to apply its laws extraterritorially to its own citizens, it must be mindful of the Afroyim injunction that Congress can make no law stripping an American of citizenship against his or her will (derived from the 14th Amendment),. 4th Amendment rights to be secure against unreasonable search and seizure (mandatory disclosure of shareholdings and accounts in one’s own hometown without reasonable cause or connection to a harm – homelanders don’t do so and are not presumed guilty of tax evasion just for opening a bank account, setting up a routine estate planning trust or going into business as an entrepreneur), the 8th Amendment rights to be secure from cruel and unusual penalties (again – non-disclosure penalties that are potentially multiples of asset values without regard to any actual tax owing or evaded) and of course the equal protection of the laws (14th) since the whole tax edifice protects the reasonable right of homelanders to earn a living and make provision for their families while imposing very serious limitations and restrictions on that basic right to the means by which US citizens residing outside the US are able to do that same thing. If taxation is justified based on citizenship, then the tax edifice should make no distinctions other than as are strictly necessary based on residency. This entire edifice has clearly been established with a presumption that non-resident citizens are guilty of something – if not treason, than money laundering) – and need to be strictly controlled in a manner that is a quantum leap more restrictive and oppressive than the impositions society makes upon homelanders. That is BEFORE one even begins to assess the fact that the edifice of laws and programs FUNDED by those taxes is almost universally residence based (from food stamps to medicare to roads and bridges).

FATCA is just the straw that broke the camel’s back. The fact that thousands of Americans are renouncing and the quasi-totality of Americans living abroad are engaged in civil disobedience (if you consider the US has jurisdiction in the first place) is pretty convincing evidence that the US has utterly failed in meeting the constitutional prerequisites for assuming jurisdiction to tax non-resident citizens. My “civil disobedience” statement is based on the fact that the US only receives “international” tax returns or forms claiming the foreign tax credit or earned income exclusion from about 250,000 tax payers – a number which is a tiny fraction of the 7 or more million potential taxpayers whom the US should in theory be hearing from each year.

Cook v Tait refers to bi-lateral obligations. I think people have mistakenly assumed that they have to measure benefits- bridges, roads etc as a basis for taxation. I think it can be argued the MINIMAL obligation of the US if it wishes to assume the right to tax non-resident citizens, it must assume the burden of doing so in a manner which is not an indirect attempt to force them into relinquishment and a tapestry of regulations the aggregate impact of which is to deny them equal protection.

One could have more fun with the arguments in looking at the destination of income tax revenues. Why should entitlement to Obamacare, foodstamps, Medicare and the like be based on residence if non-residents and residents are intended to contribute on an equal footing? I dare say that one would be hard pressed to find an instance of even a dollar of expenditure unambiguously allocated to provide services to US citizens resident abroad. Consular services are primarily intended to assist VISITORS and not residents (as well as to promote American business interests). If they happen to have the odd bit of utility to resident citizens, it is an accident not by design.

If the fellow is going to make a serious stab at FATCA because it is causing Americans abroad to be turfed by their bankers and brokers, he should take a stab at the disease, not merely its most recent symptom.

I wish the fellow the best of luck, but I am not holding my breath!

 

 

 

 

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