Tag Archives: accidental Americans

American expats urged to comment on State Dept fee reduction plan by 1st Nov deadline

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October 29, 2023 By Helen Burggraf – American Expat Financial News Journal

Advocates for fairer tax treatment of American expats by their government, including both the Republicans Overseas and Democrats Abroad, are urging such expats not to hesitate in posting comments on a U.S. State Department proposal to lower the fee currently charged those seeking to renounce their U.S. citizenships, the deadline for which expires in less than three days. 

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Report Of Members Of The PETI Committee Of The EU Parliament Of Their July 2022 FATCA Visit To Washington

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Prologue

July 2022 – A FATCA Delegation Goes To Washington, DC

This post is to document a small part of the practical impact of the US citizenship taxation regime. It is a continuation of a series of posts exploring what US citizenship taxation is and how it impacts people who live outside the United States and the countries where they live.

The first post – “Toward A Definition Of Citizenship Taxation” – concluded that the only practical and contextual meaning of citizenship tax is:

Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!

The second post – “Should tax residency Be Based On The “Circumstances Of Your Birth” Or The “Circumstances Of Your Life”?”

The US claim of tax residency is based on the “circumstances of their birth”. The “push back” from those impacted is based on the “circumstances of their life”.

Combining the themes of the first two posts we see that:

The United States claims the right based on and only an individual’s “circumstances of birth” to impose regulations and taxation on that individuals’s income earned outside the United States when his “circumstances of life” are such that he lives outside the United States.

Or to describe it slightly differently:

The United States claims the right based on and only an individual’s “circumstances of birth” to impose taxation on the non-US source income of people when their “circumstances of live” are that do NOT live in the United States.

Or maybe …

The United States claims the right based on and only an individual’s “circumstances of birth” to regulate, penalize and tax those individuals when they no longer live in the United States. This includes imposing tax on the non-US source income of people who do NOT live in the United States.

It is very difficult to arrive at a succinct and simple description of what tax and regulation of individuals based on a a “U.S. birthplace” means.

The effect of claiming these nonresidents as US tax residents results in a massive interference (because of the punitive US tax treatment of non-US assets and income sources) in their ability save, invest and carry on businesses in their country of residence AND their ability (because of FATCA) to access bank accounts in their country of residence.

Categories of problems caused by this US extra-territorial claim of tax residency include (but are not limited to):

1. Direct taxation of non-US source income earned by nonresidents

2. Expensive and penalty compliance requirements which interfere withe the ability to manage the financial/retirement planning options in their country of residence

3. The ability to open and maintain basic bank and investment accounts

The problem of bank account access

The European Delegation visiting Washington, DC in July of 2022 was concerned with and ONLY with access to bank and financial accounts. Significantly and disappointedly the delegation expressed no objection to the U.S. extra-territorial tax policies that “claim” European residents as tax residents of the United States.

Banking Access Problems Of European Residents Who Are US Citizens

The perception in July of 2022

On July 18 to 22 of 2022, a delegation from the PETI Committee of the European Union made a visit to Washington, DC to discuss “FATCA Concerns” with US Treasury and certain members of Congress. An excellent report on the meeting was written by Helen Burggraf in the American Expat Financial News Journal. On January 25, 2023 those members delivered a live report to the European Parliament of the visit.

The perception in January of 2023

The following video – January 25, 2023 in which the delegates report on their trip to Washington to the PETI Committee is worth watching.

https://multimedia.europarl.europa.eu/en/event_20230125-0900-COMMITTEE-PETI_vd?start=20230125080941&end=20230125111858

The members discuss:

– how they experienced the meetings

– the necessity of continuing to work on the “European FATCA” problem

– the general attitude of their American hosts towards the FATCA problem (in some cases outright denial).

I would say that the sentiment was “cautious optimism”.

(The article by Stephen Gardner referenced in the above tweet continues additional commentary.)

The video also includes the thoughts of “Prof Carlo Garbarino – Bocconi University, Milano, Italy” who prepared the following report titled: “FATCA LEGISLATION AND ITS APPLICATION AT INTERNATIONAL AND EU LEVEL: – AN UPDATE”

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John Richardson – Follow me on Twitter @Expatriationlaw

State Department Announces Intention To Reduce Fee To Issue Certificates Of Loss Of Nationality From $2350 To $450

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Introduction And General Context

On Friday January 6, 2023 the State Department announced its intention to reduce the administrative fee for issuing CLNs (“Certificates Of Loss Of Nationality”) for US citizenship relinquishments from the current $2350 to $450. Notably in 2015 the State Department increased the fee from $450 to $2350.

The precise language found in the Declaration of Assistant Secretary For Consular Affairs Reena Bitter was:

3. Under 31 U.S.C. 9701, 22 U.S.C. § 4219, and Executive Order 10718, the Department has the authority to establish fees to be charged for official services provided by U.S. embassies and consulates. The Department intends to pursue rulemaking to reduce the fee for processing CLN requests from the current amount of $2350 to the previous fee of $450, as set in 75 FR 36522 on June 28, 2010. The Department will consider any necessary changes to this fee, as appropriate, in a future rulemaking.

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The reduction was announced in conjunction with a lawsuit launched by the Association Of Accidental Americans arguing that the $2350 renunciation fee is unconstitutional. The announcement and general context is described in the article at the American Expat Finance News Journal.

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Those wishing to better understand the lawsuit might be interested in a 2020 podcast I did with the lawyer Marc Zell.

Should you delay your renunciation until the new fee is in effect?

On January 9, 2022 there was a live hearing in Washington, DC exploring issues related to the lawsuit. During the hearing the Judge questioned the State Department lawyer about the plans to reduce the fee from $2350 to $450. It is apparent that:

1. There is no clear date on which the reduced fee will take effect.

2. There is no evidence that those who paid $2350 will be entitled to any kind of refund.

In many countries the waiting list to renounce or relinquish US citizenship continues to be long. Some of those waiting are dangerously close to being “covered expatriates” (based on the net worth test). “Covered expatriates” are generally subject to the 877A expatriation tax rules.

In most cases, those seeking to renounce US citizenship are probably best to avail themselves of the opportunity to renounce regardless of the fee on their renunciation date.

John Richardson – Follow me on Twitter @Expatriationlaw

August 29 Letter From US Treasury To Dutch Government Reinforces Commitment To Impose US Citizenship Tax On Dutch Residents

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The world as of September 2022 … The following tweet (which generated a very lively discussion) references a letter sent by US Treasury to the Dutch Government.

The letter includes statements that bear on:

– the Dutch banks and their FATCA obligations

– FATCA

– Citizenship taxation

– the US commitment to imposing US taxation on Dutch residents who happen to be US citizens.

The main point of the letter seems to be to give the Dutch banks a “Blessing From Their US Overlords” that a notice of FATCA non-compliance will not presumptively follow from allowing US citizens (who live in the Netherlands) to have basic depository accounts (to receive pay and pay bills).

But, let’s get real. Under no conceivable interpretation of the FATCA IGA could the fact of having US citizen customers (with or without SSNs) cause the Dutch banks be in noncompliance with their FATCA obligations.

The Dutch banks simply do NOT want to deal with US citizen clients.

This sentiment is entirely reasonable and is a natural consequence of US regulatory overreach. The letter from Treasury is asking that the Dutch banks accept the worst of both worlds. First, to allow Dutch residents, who happen to be US citizens, to have a bank account at a bank of their choosing. Second, to behave in a way that is contrary to the business interests of the bank (as having US citizen customers certainly is). The arrogance displayed in Treasury’s letter is sufficient reason to be wary of having US citizen clients period.

The FATCA IGAs don’t require the Dutch banks to close “US Accounts”

1. As per the clear terms of the US/Netherlands FATCA IGA, Dutch banks are perfectly free to exempt all “depository accounts” with balances of less than $50,000 USD from FATCA obligations.

2. Even if the Dutch banks were in breach of FATCA obligations, the breach is of no consequence unless US Treasury (A) notifies the Netherlands of that non-compliance and (B) gives them 18 months to cure the noncompliance. (It’s perfectly obvious that Treasury can simply issue a proclamation that residents of the Netherlands are exempt from FATCA. But, history indicates they are not willing to do this!) In other words: FATCA noncompliance is not the problem. It’s Treasury’s reaction to FATCA noncompliance that is the problem.

Therefore, it’s clear the reluctance to have US citizen customers is not principally motivated by a concern of FATCA noncompliance. It’s because the US Government has ensured that US citizens are “toxic (taxic) carbon life forms” and it’s better to avoid them. The “toxicity” (taxicity) is caused by US citizenship taxation – specifically the US attempt to impose worldwide taxation on US citizen Dutch residents who live and pay tax in the Netherlands. In other words: the problem is caused by US citizenship taxation and not by FATCA.

Note that the following updated sentence reflects a change from the original sentence to reflect the comment below

Nevertheless, the threat of bank account closures and the need to respond to the immediate harmful effects of US citizenship taxation (including FATCA), have caused many Americans abroad including accidental Americans in the Netherlands, France and elsewhere to concentrate on the effects of citizenship taxation (FATCA) rather than on citizenship taxation itself. (See the comment below …)

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Biden 2023 Green Book: Six Ways The Proposals Would Affect Americans Abroad

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Update April 13, 2022 …

Here is yet a seventh way – the treatment of gifts as capital gains – that the Biden Green book would impact Americans Abroad

Introduction

As long as the United States employs citizenship taxation any proposed changes to the US tax system will have an impact (some intended and some unintended) on Americans abroad.

The Biden Green Book for fiscal year 2023, released on March 28, 2022, contains a number of proposals to both increase tax rates and increase the tax base by increasing the number of activities that are taxable events. Generally the proposals include a number of provisions to create and enhance taxation on both income from capital and capital itself. These provisions continue to generate discussion in the mainstream media including: The New York Times, Washington Post and Wall Street Journal. This is certain to generate much discussion in the tax compliance community.

The 2023 Green Book is available here.

Much will be written about how the proposals would affect resident Americans. Far less will be written about how the proposals would affect Americans abroad. The US rules of citizenship taxation steal from Americans abroad (and the countries where they reside) in hundreds of ways. Some are intended and foreseeable. Others are the unintended consequences that result from tax changes that apply to people who are not considered in the political process.

Significantly the Green Book does not suggest a move away from US citizenship taxation toward resident taxation as embraced by the rest of the world. In their totality, the proposals (particularly those that create income realization events when a gift is made) suggest a worsening of the situation for Americans abroad. That said, one proposal “might” (depending on Treasury) allow for the relaxation for the 877A Exit Tax rules, for a narrow group of Americans abroad under certain circumstances.

The purpose of this post is to identify six ways (and I assure you that there are more) that the Green Book would impact Americans abroad. The “Group Of Six” includes:

1. Raising The Corporate Tax Rate To 28 percent – Creating Subpart F Income and Making More Americans Abroad GILTI – Page 2

Verdict: This will have the effect of increasing the number of Americans abroad subject to taxation on income earned by their small corporations but not received by them personally.

2. An increase in the Corporate rate would increase the GILTI rate (suggesting to 20 percent) – Page 2

Verdict: More Americans abroad will be GILTI and will possibly (depending on a combination of country specific factors and their specific circumstances) be subject to GILTI taxes at a higher rate).

3. Reducing Phantom Gains And Losses: Simplify Foreign Exchange Rate And Loss Rules For Individuals And Exchange Rate Rules For Individuals – Page 90

Verdict: This in interesting. While reinforcing that Americans abroad are tethered to the US dollar it does suggest a recognition of the unfairness of how the phantom gain rules harm the purchase and sale of residential real estate outside the USA). Imagine how this would interact with the proposed rules converting gifts to taxable capital gains?

4. Strengthening FATCA: Provide For Information Reporting by Certain Financial Institutions and Digital Asset Brokers For the Exchange Of information – Page 97

Verdict: This is an attempt to reinforce the core principles of FATCA which are about the identification of US citizens outside the United States.

5. Expatriation – The Stick: Extend The Statute Of Limitations For Auditing Expatriates To Three Years From The Date From Which 8854 Should Have Been Filed (Possibly Forever) – Page 87

Verdict: This is theoretically very bad. It means that those who renounce without filing Form 8854 would be subject to a lifetime of risk. Practically speaking these provisions are not understood on the retail level. Hence, I doubt this will influence many people.

6. Expatriation – The Carrot: Exempting Certain Dual Citizen Expatriates From The Exit Tax – Page 87

Verdict: This is good news for the narrow group of people impacted by this – mainly “Accidental Americans”. It is bad news for the rest because the existing rules will continue to apply to those “who are left behind”.

I assure you that the Green Book contains a large number of ways that Americans abroad will be impacted. I will leave it to others to add to this list.

The principle is:

Citizenship taxation can steal from Americans abroad at least a thousand ways. If you can understand even one hundred of them you are doing well!

Summary: Once again this shows how all proposed changes to US tax law impact Americans abroad in a world of citizenship taxation. There is nothing in this that suggests a move toward residence taxation. There are few crumbs which might make citizenship taxation easier to live with (example relaxing phantom gains). But, on balance these provisions are a “doubling down” on the problems of citizenship taxation. The provision to allow easier expatriation for “Accidental Americans” does nothing to make life easier for the rest.

If you have seen enough you can stop here. For those who want more of the details and explanation, continue on …

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

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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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Toward An Explanation For Why Some Americans Abroad Oppose Changes To Citizenship Taxation

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Prologue

This is the fourth of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. The third post was “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“. This fourth post explains why some Americans Abroad actually OPPOSE changes to citizenship-based taxation.

My last post discussed those who were complacent about citizenship-based taxation. In other words people who are actually indifferent. Their indifference contributes to the difficulty in cultivating a strong movement in support of pure residence-based taxation.

The purpose of this post is to discuss those who actually support the current system of citizenship-based taxation because they fear any change will harm them. They are NOT indifferent. They support the current system fo citizenship-based taxation.
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Does the US provide #Americansabroad any benefits? Shouldn’t US #expats who find US @taxationabroad onerous just renounce their US citizenshp?

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On May 30, 2020 the following question appeared on Quora and prompted some interesting answers and discussion:

As a defender of American “freedom”, how do you justify the fact that US citizens have to pay taxes to the US even if they live and work abroad (even if they have never been to the US but got their citizenship through their parents)?

I along with others attempted to answer the question. Here is my answer.

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Some of the most interesting analysis comes from the comments to the answers. See the following answer and comment. I have turned David Johnstone’s comment into a post.

One of the answers to the question included the suggestion that:

If someone lives and works abroad as an American citizen, he or she must be enjoying SOME benefits or they would logically renounce their US citizenship instead of paying US taxes. That would be a good solution for anyone facing this question. Just go!

David Johnstone responds to this answer with the following comment:

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Exercising broad regulatory authority, US Treasury has clarified the meaning of “resident” for #FBAR Purposes

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Introduction – Looking For Mr. FBAR

What’s new?

I haven’t written a post about Mr. FBAR for quite some time. But, a post about the recent Boyd case at Tax Connections, by Darlene Hart got me thinking about FBAR again. For those interested – where the IRS successfully argued that it was appropriate to impose penalties on each individual account – here is the case:

HBe

And for a hint at the commentary:

Those who know little about Mr. FBAR might find this introduction to FBAR – although written in 2012 – helpful. Incidentally, it’s pretty obvious that Russia’s Foreign Bank account reporting laws were based on an admiration of Treasury’s success with the FBAR rules.

The purpose of this post

The purpose of this post is to explain:

1. The Congressional FBAR statute – Title 31 Section 5314 – which delegates to Treasury the responsibility of determining ALL aspects of FBAR administration including:

– who is subject to FBAR reporting

– the financial thresholds that trigger reporting

2. It is NOT the Congressional FBAR statute that defines the absurdly low $10,000 threshold for reporting. Rather it is Treasury. Although FBAR penalties are now indexed to inflation, the FBAR reporting threshold remains at $10,000. To put it simply: through inflation, Treasury has found a way to increase both the number of FBAR violations and the penalties associated with those violations. (There is a reason it’s called “The FBAR Fundraiser”).

3. It is not Congress that imposes the FBAR requirement on Americans abroad. It is Treasury. In fact, Treasury has recognized that they it has the right to exempt Americans abroad from the FBAR requirements, but has refused to do so. To be specific, Treasury’s 20111 statement found on page 10327 (middle column) was without explanation:

With respect to the comments raised by United States persons living abroad, FinCEN does not believe that an exemption is appropriate simply because a United States person chooses to live outside of the United States.

Treasury offered no reason for this decision.

Commentary on this decision at the Isaac Brock Society may be read here.

4. Treasury has by regulation “tinkered” with the meaning of “resident” over the years. I note that in 2012 (as explained by Phil Hodgen and others) the meaning of “resident” was not defined by statute. Rather, it is through Treasury regulations, that the word “resident” is given meaning. By 2017 Treasury had adopted the statutory meaning of resident used in the Internal Revenue Code (Section 7701(b)). (By expanding the definition of “United States” to include possessions and territories, it appears that Treasury has expanded the penalty base to include U.S. “Nationals”.) The FBAR statute is found in Title 31. The Internal Revenue Code is Title 26. There is neither a requirement nor a reason why Treasury should have used the definition of “resident” in Title 26 as the the meaning of “resident” in Section 5314 of Title 31. There are many different ways of defining “resident”. For example, for U.S. Estate and Gift Tax purposes, “residency” is defined in terms of domicile …

My point is this

Individuals and groups attempting to achieve justice for Americans abroad, Accidental Americans, Green Card Holders and all “U.S. Persons” would be advised to focus their efforts on U.S. Treasury. Yes, the lobbying of Congress should continue. But, meaningful change can be achieved without Congress even being aware of it. U.S. Treasury has the authority and ability to fix the FBAR related penalty and reporting injustices imposed on Americans abroad. But, FBAR is just the beginning. Almost all of the problems of Americans abroad can be fixed by Treasury.

This is the first of a series of posts in which I will explain how Treasury can solve almost all of the problems inflicted by the U.S. Government on Americans abroad.

John Richardson – Follow me on Twitter @Expatriationlaw

Appendix – For those who want to better understand the technicalities: Let me explain you …

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A public service announcement during this Holiday Season: Uncle Sam Is Demanding Retired Accidental Americans for Their Life Savings

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Uncle Sam Is Demanding Retired Accidental Americans for Their Life Savings

(Some Holiday Season wisdom sent to me from an anonymous source)

Meet one of the most fascinating anomalies of our time, the accidental American. That is to say, folks who were born in the United States but who were not raised there. Whether you identify as an American or not, Uncle Sam is itching to take your money. Here’s what you need to know about being an accidental American, apologies in advance for the inconvenience.

Breaking it Down, Prepare to be Outraged, You Should Be

You might want to brace yourself for the inevitable frustration that will ensue. Picture this, you’ve lived in Spain for most of your life and were born in the United States. You’re about to retire and are getting excited about getting the chance to wind down, relax, and spend more time with your family. Unfortunately, Uncle Sam sees your retirement as his cue to come knocking on your door demanding money.

Uncle Sam Wants to Turn Your Life Savings Into Back Taxes

The money that you worked the better years of your life to accumulate is something to be proud of as a productive citizen. Uncle Sam, less affectionately known as the IRS, is determined to drain your life savings. The U.S. government will tell you that you owe money to them for back taxes. Any rational mind will readily surmise that these claims and demands are as fanciful as they are unfair.

We aren’t talking about a few hundred Euros here. You could easily owe tens of thousands of dollars to the U.S. government for no reason other than having been born in the United States of America.

Unfortunately for all of us retired accidental Americans, Uncle Sam couldn’t care less over the reasoning. The cold hard fact is that America is a business. President Calvin Coolidge spoke some of the most honest words ever uttered by a politician when he said, “The business of America is, business.” That’s it plain and simple. When Uncle Sam comes gunning for your savings, don’t ask him why he’s doing it, it’s just business.

You Are Not Alone

As an accidental American, you are not alone. There are thousands of people who are suffering from the same injustices. Through arrogance, greed, delirium, or all three, the U.S. government is helping itself to the savings of people around the world.

The IRS is an ever-hungry machine that is intent on strangling every red cent out of people that it possibly can. Given the lofty powers awarded to it by way of the U.S. government, they can be a scary bunch. However, staying informed on the monstrous policies that you’re unfairly expected to comply with is always a good idea. The U.S. government has deliberately made it as difficult and as painful as possible to preserve your savings from the ravages of Uncle Sam’s insatiable fiscal desires.

Over the years, governments have been driven to squeeze citizens of their savings. Some governments are fair when it comes to this. The disturbingly innovative voraciousness of the U.S. government’s mechanisms for sucking money out of its citizens is highly concerning. Of course, that voraciousness extends to accidental citizens around the world.

Stay Informed and Stay Angry

It’s always advisable to stay informed on these matters so that you can at least anticipate the damage before it hits you. Unfortunately all staying informed is going to do is let you know what to expect and be a bit proactive about it. The policies themselves aren’t changing and they have shown no signs of doing so any time soon. Why should they? The U.S. government is making a killing by raking in all of that money from accidental Americans.

Skimming from their life savings is a cash cow that will be hard for Uncle Sam to give up. That’s why you should be upset. The IRS is actively targeting your life savings and will use unrelenting bureaucratic forces to get a chunk of it. You have a right to be upset, no one should have to dole out so much of their hard earned money because of a fanciful design in policy.

(Some Holiday Season wisdom from an anonymous source)

John Richardson – Follow me on Twitter @Expatriationlaw