Category Archives: citizenship based taxation

The State Department Should Allow For US Citizenship Renunciations To Take Place By Video

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This post has been co-authored by Diane Gelon* (see “Reflections Of An Expatriation Lawyer“) and John Richardson

Prologue

In September of 2021 the Paris based “Accidental Americans Association” filed a lawsuit against the US State Department. The lawsuit was brought in an attempt to force the State Department to allow individuals to renounce their US citizenship. (A prior lawsuit by the “Accidental Americans Association” was based on the excessive $2350 renunciation fee.)

The lawsuit is evidence of the extreme frustration that many Americans abroad are experiencing because they (1) are unable to renounce US citizenship and (2) justifiably feel that they are prisoners of the circumstances of their birth.

It was recently announced that “The US Department of State (DOS) is suspending in-person interview requirements at local consulates for a year for numerous non-immigrant work visa categories and their families (spouse and dependent children“. In London the US Embassy is conducting telephone meetings to deal with Social Security issues. (Prior to Covid this would have required an in person meeting at the Embassy.) The State Department is clearly reducing the number and kinds of services that require “in person” Consulate visits.

The purpose of this post is to argue that renunciations of US Citizenship need not take place through in person interviews at a US Embassy or Consulate. Rather renunciations of US citizenship can and should take place through video conferencing. The backlog in processing renunciations is explained as being related to the Covid-19 pandemic. A response to the pandemic has been that more and more legal proceedings are taking place through video conferencing. Both Canada and the UK (and certainly other countries) are conducing citizenship ceremonies by video, entire court cases are held via video conferencing, and documents can be witnessed and certified by video. We have discussed various aspects of this issue with each other over a long period of time as well as benefiting from discussions with Dubai based lawyer Virginia La Torre Jeker and Esquire Founder Jimmy Sexton.

There is no law that requires that renunciations of US citizenship take place inside a US Consulate or Embassy!

This post is composed of the following seven parts leading to the following conclusion:

Americans abroad and their representatives should pressure the State Department to use their statutory authority to allow renunciations by video conferencing. The State Department has the statutory authority to do so. The fact that the State Department does not currently allow renunciations through video conferencing doesn’t mean that it cannot allow renunciations through video conferencing!

Part I – Introduction: Why Americans Abroad Are Renouncing US Citizenship
Part II – An appointment to renounce US citizenship is hard to find
Part III – Why there is NO legal requirement that renunciation appointments must take place inside a US Embassy or Consulate
Part IV – The State Department website does not specifically state that renunciations must take place inside the US Consulate or Embassy
Part V – Americans abroad and their organizations must push the Biden administration to allow renunciations of US Citizenship through video conferencing
Part VI – Interesting Bobby Fisher anecdote supporting the view that renunciations are not required to take place inside US Consulates
Part VII – Diane Gelon and John Richardson update their November 29, 2020 podcast with a December 29, 2021 podcast

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The Beyer “Tax Simplification For Americans Abroad Act”: A First Look

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Updates November 22, 2021:

1. I have also written a post on the SEAT site which compares (in a general way) the Beyer Bill of 2021 to the Holding Bill of (2018). Any attempt to solve this problem through amending the FEIE actually has the effect of strengthening citizenship based taxation.

2. With respect to the 402(b) exclusion:

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Update – Podcast November 24, 2021

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Introduction

On November 19, 2021 a post on the Democrats Abroad site introduced Congressman Beyer’s “Tax Simplification For Americans Abroad Act”. The Bill has been introduced as HR6057. I just saw this a few hours ago. Therefore, this post is necessarily a summary of my first impressions. It is likely that this will evolve and be updated over the next few days.

For those who do not want to read this relatively long post, the following excerpt provides an executive summary:

The Beyer Bill does NOT end US “citizenship-based taxation” and does NOT enact “residence-based taxation” as understood in the rest of the world. That said, the Beyer bill is intended to provide administrative (less to do) and substantive (less to pay) relief to middle class Americans abroad as long as they are not “entrepreneurs abroad” who carry on business through a CFC. “Entrepreneurs abroad” continue to be presumptively GILTI. If I am reading this correctly, GILTI income appears to NOT be included in the expansion of the scope of 911. Furthermore, the bill appears to provide conflicting directives on some “foreign pensions” (specifically excluding 402(b) pensions from the proposed new 911 exclusion while generally allowing foreign pensions generally to be excluded). It is my understanding that many Australian residents treat employer Superannuations as 402(b) pensions under the Internal Revenue Code.)

Like all “carveouts” the proposal purports to provide relief to a narrowly defined group of Americans abroad. In addition (this cannot be overemphasized) the bill retains US citizenship-based taxation. It should be clearly understood that ANY attempt to provide relief through expanding the FEIE (including the 2018 Holding bill) necessarily assumes the continuation of citizenship-based taxation.

This post is composed of the following four parts:

Part A – The General Purpose

Part B – General Impressions

Part C – The relevant modifications to IRC 911 Foreign Earned Income Exclusion

Part D – Tentative conclusion

* Appendix – The text of 911 with the proposed changes

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How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries

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This purpose of this post is to continue the general theme of focusing on the difference between what a law says and what the law means in application and effect. Yesterday’s post (The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA) focussed on the role that the 2010 US FACTCA law played in in facilitating the rise of Tax Haven USA. (To be clear, I am not saying that FATCA was the sole cause.) That said, the unwillingness of the USA to sign the CRS (“Common Reporting Standard”) has also played a role in the growth of the US as a tax haven.

Many believe that FATCA is just the US version of the CRS. Because of this belief the US has received little or no resistance to its refusal to join the CRS. This belief that FATCA and the CRS are fundamentally the same is wrong. They are very different.

The purpose of this post is two-fold.

First, to explain how/why FATCA is very different from the CRS.

Second, to explain how FATCA is used to export the “original sin” of US citizenship-based taxation into other countries. To put it simply FATCA assists the United States in capturing the tax residents of other countries and subjecting them to direct US taxation.

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Toward a definition of residence-based taxation for Americans abroad

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Introduction

The discussion of tax reform for Americans abroad is increasing in intensity. Whether through amendments to the Internal Revenue Code or a “Regulatory Fix To Citizenship-based Taxation“, Americans abroad are in desperate need of change. The US tax system as it impacts Americans abroad is forcing renunciations of US citizenship.

The language in the discussion for change reflects a desire (on the part of individuals and organizations) to move from the US system of “citizenship-based taxation” to a system of “residence-based taxation”. Various individuals and groups describe the goal using the language of “residence-based taxation” AKA RBT. It would be a mistake to assume that RBT means the same thing to different people. The purpose of this post is to describe definitions of RBT and and how those definitions may be defined for different individuals or groups.

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US Senate Finance Hearing Affects Americans Abroad AKA Mini-Multinationals – Action Needed!

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Introduction

The background: The US Senate Finance Committee has begun hearings for the purpose of discussing further reform of the rules of International Tax. These reforms would appear to include raising the GILTI tax and raising US corporate tax rates in general. Each of these would have a massive negative effect on Americans abroad. The reasons are detailed in the rest of this post.

Bottom line: Americans abroad need to send their views (presumably objections) to the Committee. The rest of this post provides the background, SEAT’s understanding of the issue and templates individuals can use to email Senate Finance.

Please forward this post to anybody who you believe would be affected by this (anybody who runs a small business through a corporation.)

Okay ….

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Elizabeth Warren’s “Ultra-Millionaire Tax Act of 2021”: Coming Soon To A Neighbour (and maybe a nonresident spouse) Near You

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The Contextual Background – Elizabeth Warren – January 28, 2021

Excerpts from a recent CNBC interview (see the following link for context) …

https://www.cnbc.com/2021/01/28/first-on-cnbc-cnbc-transcript-senator-elizabeth-warren-d-mass-speaks-with-cnbcs-closing-bell-today.html

WARREN: Based on fact, the wealthiest in this country are paying less in taxes than everyone else. Asking them to step up and pay a little more and you’re telling me that they would forfeit their American citizenship, or they had to do that and I’m just calling her bluff on that. I’m sorry that’s not going to happen.

WARREN: Look, they want to use American workers. They want to use American highways. They want to use American police forces. They want to use American infrastructure, but they just don’t want to help pay to support it. And that’s the trick, a wealth tax needs to be national because you can still get advantages, if you move from state to state. But the idea behind wealth tax is you have to pay it if you’re an American citizen. It doesn’t matter whether you live in Texas or California or even whether you move to Europe or South America. If you want to keep your American citizenship, you pay the wealth tax and it doesn’t matter where you put your assets. You can try to hide them in the Cayman Islands, you can try to put them up in Switzerland, but it doesn’t matter, you still pay the two-cent wealth tax. And here’s the nice thing about that, you know, a lot of the wealth is quite visible and easy to see, it’s right there in the stock market. A two-cent wealth tax changes this country fundamentally because it means we say as a nation, we are going to invest in the next generation. We’re going to invest in creating opportunity not just for a handful at the top, we’re going to create opportunity for all of our kids. That’s how we build a strong future in this country.

Prologue: For Whom The Tax Tolls – What Is An “Ultra” Millionaire?

One dictionary definition of “Ultra” includes:

ultra noun [C] (PERSON)

usually disapproving

a person who has extreme political or religious opinions, or opinions that are more extreme than others in the same political party, etc.:

Soon the ultras on the right of the party will resume their criticism of the prime minister.

On August 20, 2019 Forbes reported that Elizabeth Warren had a net worth of approximately 12 million USD. A large part of these assets are her pensions. But apparently her proposed wealth tax doesn’t apply (it’s unclear to what extent it would apply to pensions) to her. At a minimum, the proposal applies ONLY to “Ultra” millionaires (at least today).

Elizabeth Warren Introduces Wealth Tax – Version 1

On or about March 1, 2021, Senator Warren introduced her proposed “ULTRA-Millionaire Tax Act Of 2021”. Given that the threshold is $50 million USD, it appears that the Senator, although a millionaire, is not an “ULTRA” millionaire. There is nothing in the proposed act that suggests the plan is indexed to inflation. Even if the threshold is NOT lowered (which it will most certainly be), the inevitability of inflation will ensure that more and more people are ensnared by it. In the same way that the late Senator Kennedy referred to the 877A Exit Tax as the billionaire’s tax (when it applied to everyday people), over time, the wealth tax will become the millionaires’ tax that will be applied to (by the standards of today) thousandaires.

Now, I don’t believe that this is going to become law soon. But, all confiscatory taxation, starts as an idea that germinates, until enough politicians (who would not personally be impacted) are used to the idea and then it will become law. Tax laws have the potential to become law through either accident (a revenue offset measure which nobody reads) or by design (stated purpose of the legislation). This is exactly what happened with the S. 877A expatriation tax (a revenue offset provision).

Part A – The Evolution of Taxation From Taxation Of Income (Sharing Of Income) To Taxation On Wealth (Taking Of Assets)

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A simple regulatory fix for the problem of US citizenship taxation

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Background

In 2016 I first made the suggestion that citizenship-based taxation could be changed through Treasury regulation. In October of 2020 John Richardson, Dr. Karen Alpert and Dr. Laura Snyder completed a paper titled “A Simple Regulatory Fix For Citizenship Taxation”. The idea advanced is that:

Although Congress and the Internal Revenue Code created the problem of “citizenship-based taxation”, Treasury has the authority and moral duty to fix the problems of citizenship-based taxation.

Discussion

In 1924 the Supreme Court of the United States considered U.S. citizenship-based taxation in the case of Cook v. Tait. Of course in 1924, the laws of both citizenship and taxation were very different. I have previously explored the evolution of citizenship, taxation and citizenship-based taxation.

The article has received fairly wide distribution (including in the academic community).

Abstract

This article explains the simple regulatory actions that United States Department of the Treasury can take that would, in the absence of legislative change, improve the lives of Americans living overseas and permit the IRS to better focus its limited resources to more effectively administer the U.S. tax system.

The article can be read at SSRN here.

The 2020 article can be at Tax Notes here.

I welcome your comments.

John Richardson – Follow me on Twitter @Expatriationlaw

Citizenship Matters With @RonanMaCrea Part 2: The Nature Of Citizenship In A Global World

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Introduction

This is a continuation of my discussion with Ronan McCrea on “citizenship matters”. My first discussion with Ronan McCrea focused on issues surrounding “citizenship by descent”. This second podcast focuses on the nature of citizenship.

The questions included:

What does citizenship mean?

What are the rights of citizenship?

What are the obligations of citizenship?

What are the different ways of acquiring citizenship?

What obligations to citizens living abroad have to their fellow citizens living at home?

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Americans Abroad And Voting Part 1: How To Vote In The November 3, 2020 US Election

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Introduction – Democracy Is Not A Spectator Sport

The 21st century has been notable for an evolving assault on representative democracy.

Examples include:

1. The rise of the head state who is to serve for life.

2. An unhealthy mass of power in the hands of political parties in general and small parts of the party in particular. Does the individual/local representative (Congressman or MP) even matter?

3. A sentiment that individual votes no longer matter or that they are no candidates worth voting for.

Variants of these themes are being played out all over the world.

In general, politicians operate on the principle that:

“The business of the public is none of the public’s business.”

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China does not have and is not moving toward US style citizenship-based taxation

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Readers Digest Version: The Bottom Line Is …

As reported by American Expat Finance, which discusses an interview with Dr. Bernard Schneider of Queen Mary …

You can listen to the podcast …

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The Longer Version: “Tax Residency” Based Information Exchange In The 21st Century

The 21st Century has ushered in FATCA, CRS, voluntary disclosure programs and a general awareness of taxation. Many people have been subjected to the FATCA inquisition (“Are you or have you ever been a US citizen?) or a CRS motivated inquiry about “tax residence” (“List all countries where you are a tax resident.”)

In the 21st, the “citizenship by investment industry” is booming. There are many opportunities to acquire (through investment programs) “permanent residency” in a county. (I will refer to these programs collectively as “economic migration”). The value of these “economic migration” programs, to a specific individual, is largely determined by considerations of tax residency.

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