Category Archives: Little Red FATCA Book

Be Careful Of Faulty Logic Claiming FATCA And The CRS Are Similar: Seven Ways They Are Not

Prologue

For those more interested in logic than in FATCA, you will find a discussion of the logical fallacy here.

Introduction

Last week I participated in a group discussion about FATCA and its effect on Accidental Americans. It’s difficult to have a discussion about FATCA that doesn’t include the CRS (“Common Reporting Standard”). Neither FATCA nor the CRS is well understood. That said, an introduction of the CRS into a discussion about FATCA detracts from a consideration of how FATCA impacts Accidental Americans (and others). Furthermore, there is a generalized assumption that the CRS is a positive development. Associating FATCA with the CRS enhances the “illusion” that FATCA is also a positive development.

In part, the discussion assumed that:

– FATCA (U.S. “Foreign Account Tax Compliance Act”) and the OECD CRS (“Common Reporting Standard“) were similar kinds of information exchange agreements; and

– To attack/criticize FATCA would be to criticize and have the effect of weakening the CRS.

These are absurd claims which are based on faulty logic. The faulty logic is that because FATCA and the CRS overlap in one aspect that they are functionally equivalent in intent, effect, purpose and other aspects. The argument appears to be based on the following reasoning:

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The FATCA IGAs Do Not Impose An Obligation Of Reciprocity On The United States

Introduction – The Question

Over the past few months, in unrelated contexts, I have heard the question asked:

Is FATCA reciprocal?

For example the Judges hearing the appeal in the ADCS FATCA Canada lawsuit asked (clearly assuming that it did) whether the FATCA IGAs imposed reciprocal obligations on the United States. Surely it must, they assumed. Recently the head of a FATCA fact finding mission asked in a meeting of individuals the same question. In neither case was a clear “yes or no” answer provided. Some participants were adamant that there WAS reciprocity. Others were adamant that there was no reciprocity. Some simply didn’t know. This post is an attempt to analyze the facts as they pertain to FATCA, consider whether the FATCA IGAs prescribe reciprocity of obligation and ultimately explain why there is NO meaningful reciprocity of obligation.

Some Important FATCAoids

The 2010 Statute

FATCA was signed into law by President Obama on March 18, 2010. The general provisions are found in Chapter 4 – Sections 1471 – 1474 of the Internal Revenue Code. The statute is coercive and is a US demand, under threat of sanction, that non-U.S. banks deliver information, about the bank accounts of residents of their country, to U.S. Treasury. The statute contemplates a one way flow of information to the United States without ANY reciprocity from the United States. (Any discussion of “reciprocity” must take place within the context of the FATCA IGAs.)

The 2014 Implementation Of FATCA Via The IGAs

The implementation of FATCA (via the FATCA IGAs) began (in many countries) on July 1, 2014. Because the statute does obligate the United States to provide any information to other countries, any obligation of reciprocity must be found in the IGAs.

Non-U.S. countries are required – pursuant to the FATCA IGAs – to transfer information about the holders of local financial accounts in their country to the United States of America. Notably the vast majority of account information transferred to the United States is information about accounts held by tax residents of the transferor country. In other words: pursuant to the FATCA IGAs, account information is transferred about accounts located in a country where the account holder actually lives to a country where the account holder does NOT actually live! To put this in context, imagine the following scenario:

You have a neighbour in a Canadian small town, who earns his income in Canada and pays tax on that income to Canada. That income is deposited into a bank account at a branch located in his community. That neighbour may be having his bank account information transferred to the United States. How could this be you ask? Surely this must be a mistake? The answer is “No it is not a mistake”. It’s the result of Canada enacting a U.S. law (“FATCA”) on Canadian soil. Pursuant to that FATCA law (described in numerous CBC articles), the transfer of account information is required because your neighbour was either born in the United States or was born in Canada to a U.S. citizen parent. So what you ask? Surely the circumstances of a person’s birth shouldn’t mean that a country where they don’t live has access to their banking information in the country where they do live? Wrong again. It’s about tax residency and about the U.S. unique definition of tax residency. You see, the United States defines any U.S. citizen as a tax resident of the United States (regardless of where that citizen lives). By defining “tax residency” in terms of citizenship, the United States is claiming that the tax residents of other countries are U.S. tax residents. U.S. citizens are subject to all (tax, forms and penalty) the provisions of the U.S. Internal Revenue Code. But wait you ask! My neighbour lives in Canada, pays tax in Canada and is a tax resident of Canada! (In fact the FATCA IGAs allow the United States – by tying the definition of U.S. citizen to U.S. law – to define ANY individual in Canada as a U.S. tax resident.) Yes, it’s true. Pursuant to the FATCA IGAs the United States is claiming Canadian tax residents as U.S. tax residents. This means that the United States is claiming the right to impose U.S. taxation on the Canadian employment income, earned by residents of Canada, which is already taxed in Canada. Yes it’s true.

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@ADCSovereignty #FATCA Appeal – March 30, 2022 – Reporting On The Hearing In Twitter Time

As reported by American Expat Finance and the Isaac Brock Society, the ADCS-ADSC.ca FATCA appeal was heard on March 30, 2022.

As I watched the hearing I tweeted my thoughts. Win, lose or draw the goal is to get the case before the Supreme Court of Canada. Therefore, today’s appeal should be seen as an important step down that road.

I suggest that you:

1. Read this summary of the ADCS FATCA lawsuit to understand the context

2. Read this article from a Canadian law firm which references the FATCA lawsuit

3. Read the article at American Expat Finance

4. Click on the link below to see my thoughts and observations as the hearing unfolded.

https://threadreaderapp.com/thread/1509210940167892997?refresh=1648676869

In addition, a bit more history on this lawsuit …

John Richardson – Follow me on Twitter @Expatriatonlaw

The Story of US Citizenship Taxation and FATCA: Documenting The Issues

Few US residents are aware of US citizenship-based taxation and FATCA. Legislative change will be aided by educating US residents and politicians about US citizenship-based taxation, FATCA and how they interact.

Citizenship-based taxation and FATCA are difficult to explain in short clips. It’s simply too difficult. At it’s core:

Citizenship-based taxation is a form of taxation where the USA imposes direct taxation on income earned outside the United States by individuals who do not live in the United States. FATCA is the law that is the enforcement tool for citizenship-based taxation.

In order to provide a summary of resources which can be used to better explain US citizenship-based taxation and FATCA, I have compiled the following resources.

https://www.linktr.ee/fatca

Please circulate this link widely!

John Richardson – Follow me on Twitter @Expatriationlaw

A Simple Regulatory Fix For The FATCA problems of Accidental Americans and other dual citizens from birth

Update – Podcast July 17, 2022

Prologue

It is clear that the US extraterritorial tax regime, which imposes taxation on the non-US source income of US citizens living outside the United States, is an outrageous violation of the sovereignty of other nations. It is also an extreme injustice inflicted on US citizens living outside the United States. The US has successfully exported the extraterritorial tax regime to the world through a combination of (1) The US Internal Revenue Code (2) the FATCA IGAs (hunting down US citizens) and (3) the saving clause in US tax treaties (Country X agrees that the US can impose tax on any individual who has been identified as a US citizen and is tax resident of Country X). To understand the interplay between (1), (2) and (3) above see the following article I wrote for the American Expat Finance News Journal.

The three groups most visibly impacted by the US Extraterritorial tax regime (in different ways) and its enforcement outside the United States include:

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About #FATCA and @Citizenshiptax: Here is the @DemsAbroad Interview with @TulsiGabbard on January 15, 2020

With respect to U.S. FATCA and Citizenship-based taxation, her answers were:

1. FATCA: She would direct Treasury to take the necessary steps to alleviate the problems that Americans abroad experience with banking access.

2. Citizenship-based taxation: Bear in mind that the DA question always includes (1) a recognition that revenue neutrality is possible and (2) that any remedial legislation must be carefully constructed to “prevent abuse” (whatever that means). Ms. Gabbard said:

– in principle she believes in a move to residence-based taxation

– it must be constructed in such a way that the wealthy don’t leave the USA to avoid U.S. taxation

– it MUST be revenue neutral

Part 2: Because banks and people are not the same: @RepMaloney #FATCA amendments require foreign banks but NOT individuals to report custodial accounts

Introduction:


FATCA imposes obligations on both foreign banks (report on individuals to the IRS – Internal Revenue Code Section 1471) and obligations on individual Americans abroad (report foreign assets to the IRS – Internal Revenue Code 6038D).
Depository vs. Custodial Accounts
In general a “Depository” accounts is a basic day-to-day bank account (checking, savings, etc.)
In general a “Custodial” account is a brokerage or other account that holds assets for management.
The Maloney bill addresses these obligations (with respect to the reporting of “Custodial” accounts) differently.
The Maloney bill and foreign banks – Section 1471 Amendments – custodial accounts are reportable
Representative Maloney’s H.R. 4362 – “Overseas Americans Financial Access Act” – includes relief provisions for both foreign banks AND for individual Americans abroad.
My previous post discussed how the Maloney bill impacts the reporting requirements of foreign banks. Notably the Maloney bill relaxes the reporting requirements for foreign banks ONLY with respect to depository accounts.
The Maloney bill and individuals – Section 6038D Amendments – custodial accounts not reportable
It appears that the Maloney bill would relax the Form 8938 reporting requirements for individuals with respect to BOTH depository and custodial accounts. Although not a model of clarity, it means that (as a general principle) Americans abroad would not be required to report their local (foreign to the USA) accounts (depository or custodial) to the IRS. This is a variant of what has been called FATCA SCE (“Same Country Exemption”).
Bottom Line: Foreign banks and Americans abroad do NOT get the same treatment under the Maloney bill. Is this an oversight? Is it careless drafting? Is it deliberate?
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Technical analysis (of interest to few people) follows:
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December 31, 2019 and US Born individuals living outside the USA without having a Social Security Number

Introduction – “The Little Red FATCA Book”

More at:

The Two Ugly Faces of FATCA – One for foreign banks and another for US persons

The Obligations of the banks under the IGA

These obligations are described in the FATCA IGA entered into between the United States and the other country. In general the IGA requires non-U.S. banks to “Review, Identify and Report” on U.S. citizens.

The Obligations of the individual taxpayer under IRC 6038D – Form 8938
The mandatory reporting which takes place on Form 8938 is mandated Internal Revenue Code 6038D.

Non-US AKA “Foreign Banks” – The Problem of US Born customers who do NOT have a US Social Security Number are they in danger of their bank accounts being closed?

Those accused of being U.S. citizens who are NOT U.S. citizens have the opportunity to “self-certify” they are NOT U.S. citizens

The Possibility of being “Born In The USA” but NOT being a U.S. citizen

The Possibility of being “Born Outside The USA”, acquiring U.S. citizenship at birth but NOT being a U.S. citizen today

Looks like being “Born In The USA” may not be a great thing!

John Richardson – Follow me on Twitter @ExpatriationLaw

Part 11 in series: The Emotional Toll of US Non-Resident Taxation and Banking Policies – “I Feel Threatened by My Very Identity”

Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.

Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).

You will find Part 1 to Part 10 of this series of posts here.
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Psychological harm and the pain of living as an American abroad – Why this next series of posts is important

I began this “Citizenship Solutions blog” in 2014. The blog included a page (not very visible) called:

“Emotional counselling for those threatened by the FATCA Roundup”

The comments (occasional as they may be) are significant. The comments include a “ping back” to a discussion of great interest which took place at the Isaac Brock Society.

Origins of the psychological torment of those targeted by the extra-territorial application of U.S. tax and banking laws

The campaign of Barack Obama will be remembered by the slogan “Change You Can Believe In”. For Americans abroad the election of Barack Obama was the beginning of a nightmare that they will never forget. Although U.S. citizenship- based taxation had always been the law in theory, it was never applied in practice. This changed with the Obama administration in three ways:

First, a toxic mix of Obama’s IRS, the tax compliance industry and the media worked to create an environment where individuals living outside the United States were led to believe, that the U.S. was enforcing U.S. citizenship-based taxation on Americans abroad. During the summer of 2011 innocent Americans abroad (some who had relinquished U.S. citizenship years earlier),were ushered into the OVDI program.

Second, the rollout of FATCA enlisted banks in the process of searching for U.S. citizens living abroad, who were not filing U.S. taxes.

Third, many Americans experienced their “Oh My God” moment where they learned about U.S. extraterritorial tax policies. For many the “Oh My God” moment permanently changed their perceptions of themselves. One day they were proud Americans. The next day they were threatened by the fact that they either were or had been U.S. citizens. Furthermore, they became (or at least believed) that they were a threat to their non-U.S. citizen families.*

The simple truth is that U.S. citizens are terrified of the U.S. Government. The vast majority of Americans abroad were not (and are still not) filing U.S. taxes. Their failure to file was because, they didn’t know that they were required to. Those individuals who were financially responsible and compliant with the tax laws where the live, were most impacted emotionally. They couldn’t believe that they had done something wrong. After all, they had lived their lives “trying to do the right thing”. The realization that they were not compliant with U.S. laws evoked a range of very damaging emotions. They experienced a range of emotions that they had never experienced before.

The emotions experienced were somewhere between “anger” at one extreme and “fear at the other extreme”. The experience of either too much fear or too much anger is a dangerous thing. The best an individual can hope for is to live life somewhere between fear and anger. It’s important to understand how intense and how damaging the psychological impact of the experience of being criminalized by the U.S. Government, has been and continues to be.

Laura Snyder discusses the “emotional toll of U.S. non-resident taxation and banking policies

Laura Snyder has written (in addition to her original four posts) a series of five posts describing and exploring “The Emotional Toll of US Non-Resident Taxation and Banking Policies. Part 10 of this series (comments of Nando Breiter) was a prologue to Ms. Snyder’s five posts.

Now, over to Laura …
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Thoughts on the @ADCSovereignty #FATCA Trial 1: 2015 interview with @AliBrunet underscores which people are primarily affected by FATCA in Canada

What the Canada U.S. FATCA IGA is NOT about

Canada’s FATCA IGA is NOT about information exchange. The United States does NOT exchange information under the FATCA IGAs.

Canada’s FATCA IGA is not about residency. After all the purpose of FATCA is to transfer information from a country where the person DOES actually reside (and is a tax resident) to a country where the person does NOT actually reside (but is deemed to be a tax resident).

What the Canada U.S. FATCA IGA IS about

Canada’s FATCA IGA IS about the Government of Canada surrendering its citizens to the United States (effectively stripping them of their rights as Canadian citizens).

Canada’s FATCA IGA is about assisting the United States in imposing worldwide taxation on Canadian citizens who actually live in Canada, are tax residents of Canada and pay full taxes in Canada. Transition Tax anyone? Do you feel GILTI today? What were you thinking by buying that Canadian mutual fund in Canada?
Canada’s FATCA IGA is NOTHING like the OECD Common Reporting Standard. In simple terms, under the CRS information is transferred from a country where the person does NOT live to a country where he does live.

Yes, Canada’s lawyers spent the week of January 28, 2019 to February 1, 2019:

1. Denying each of these obvious points; and
2. Arguing that Canada that Canada has a constitutional right to betray its citizens by turning them over to the United States.

Post 1 – February 17, 2019:

The U.S. claim of lifetime tax jurisdiction based ONLY on the fact of having been born in the United States

This is based on a post from March of 2015 which was about the number of so called “Accidental Americans” in the Eastern Townships of Quebec.

Let’s start by listening to the CBC interview with Ali Brunette.

Question:

Do these life long residents of the Quebec Eastern Townships (great ski country) seem like U.S. tax evaders to you?