The purpose of this post is to highlight:

• who are the targets of the “FATCA inquisition” under the FATCA IGA; and
• who will not turn up in the “FATCA inquisition” under the FATCA IGA.

There are four parts to this post:
Part A – Who is a “U.S. Person” and how are they defined?
Part B – The FATCA IGA doesn’t hunt ALL U.S. persons. It is designed to hunt primarily for people who were “Born In The USA”
Part C – But, those “Born In The USA” may not actually be U.S. citizens or may have NO connection to the United States – Meet Tina
Part D – The FATCA IGA has been interpreted by the Canada Revenue Agency to NOT hunt “Green Card Holders” resident in Canada
Part A – Who is a “U.S. Person” and how are they defined?
If the purpose of FATCA is to hunt for “U.S. Persons”, “U.S. person” includes “U.S. citizen”, and the FATCA IGA’s state that “U.S. Citizen” is defined under the Internal Revenue Code, we must ask:
Who does the Internal Revenue Code define as a “U.S. Person”. The definitions are found in S. 7701 of the Internal Revenue Code.
S. 7701
(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—
(1) Person
The term “person” shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
(30) United States person The term “United States person” means—
(A) a citizen or resident of the United States,
(B) a domestic partnership,
(C) a domestic corporation,
(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and
(E) any trust if—
(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
(ii) one or more United States persons have the authority to control all substantial decisions of the trust.
(50) Termination of United States citizenship
(A) In general
An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).
(B) Dual citizens
Under regulations prescribed by the Secretary, subparagraph (A) shall not apply to an individual who became at birth a citizen of the United States and a citizen of another country.
(b) Definition of resident alien and nonresident alien
(1) In general For purposes of this title (other than subtitle B)—
(A) Resident alien An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii), or (iii):
(i) Lawfully admitted for permanent residence
Such individual is a lawful permanent resident of the United States at any time during such calendar year.
(ii) Substantial presence test
Such individual meets the substantial presence test of paragraph (3).
(iii) First year election
Such individual makes the election provided in paragraph (4).
(B) Nonresident alien
An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).
(3) Substantial presence test
(A) In general Except as otherwise provided in this paragraph, an individual meets the substantial presence test of this paragraph with respect to any calendar year (hereinafter in this subsection referred to as the “current year”) if—
(i) such individual was present in the United States on at least 31 days during the calendar year, and
(ii) the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier determined under the following table) equals or exceeds 183 days:
In the case of days in: The applicable multiplier is:
Current year 1
1st preceding year 1/3
2nd preceding year 1/6
(B) Exception where individual is present in the United States during less than one-half of current year and closer connection to foreign country is established An individual shall not be treated as meeting the substantial presence test of this paragraph with respect to any current year if—
(i) such individual is present in the United States on fewer than 183 days during the current year, and
(ii) it is established that for the current year such individual has a tax home (as defined in section 911(d)(3) without regard to the second sentence thereof) in a foreign country and has a closer connection to such foreign country than to the United States.
(6) Lawful permanent resident For purposes of this subsection, an individual is a lawful permanent resident of the United States at any time if—
(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, and
(B) such status has not been revoked (and has not been administratively or judicially determined to have been abandoned).
An individual shall cease to be treated as a lawful permanent resident of the United States if such individual commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country, does not waive the benefits of such treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment.
The Internal Revenue Code mandates that “U.S. Persons” are subject to U.S. taxation. “U.S. Persons” include both individuals and entities.
Individuals – include U.S. Citizens, Green Card Holders and those who meet the “substantial presence” test.
Entities – include a trust, estate, partnership, association, company or corporation.
Part B – FATCA doesn’t hunt ALL U.S. persons. It is designed to hunt primarily for people who were “Born In The USA”

Here is why …
In a recent paper McGill Professor Allison Christians notes that:

Perhaps surprisingly, FATCA’s identification method does not align with the statutory construction of the US Person population described above/ The misalignment is evident when comparing the three US Person categories to the FATCA indicia meant to alert financial institutions to the possible existence of a US Person. The misalignment continues to the verification phase, where taxpayers are asked to furnish various negative proofs of their status as US Persons, as Tina was asked to do. By examining the identification and verification processes, we begin to get a sense of the population actually being targeted by FATCA to enforce US taxation and financial reporting requirements on nonresidents.
FATCA has financial institutions searching for US Persons by looking for the following “indicia” of status:
1. account holder is identified as a US citizen or resident;
2. birthplace in the United States;
3. a US telephone number;
4. a US residence or mailing address;
5. standing instructions to transfer funds to a US based
account;
6. Indications of a power of attorney over the account to a
person with a US address;
7. a “care of” or hold mail address as the sole address.
In addition, where indicia are not present, a “responsible officer” must certify as to any knowledge of an account holder’s status as a US Person, and must monitor its accountholders for possible changes in circumstances.38 Other than the first factor on the list, the FATCA indicia do not align with the three categories of US Person as defined by § 7701.
…
2. Citizenship
“Citizens” are the second category of US Person described above. Only two of the indicia have any direct bearing on one’s status as a citizen, namely, the account holder’s identification as such, and her birthplace in the United States. The first of these indicia confirms the voluntary nature of the nonresident citizen’s acquiescence to her status. Announcing oneself as a US citizen to a non-US bank seems to be the clearest indication that the account holder is in fact a US citizen and therefore a US Person for tax purposes.44
Birthplace in the United States, however, highlights a major difficulty in imposing citizenship taxation. A person born within the territory of the United States is usually entitled to birthright citizenship, with few exceptions. 45 That is why Tina is automatically a citizen, without any independent action on her part or that of her parents. However, the definition of a citizen in US law is complex and is subject to widespread misunderstanding by those who receive the status by birthright but have never lived permanently in the country. 46 Moreover, citizenship can be changed by the individual through relinquishment 47 or renunciation.48 In the past, it was possible for a person to relinquish her citizenship automatically upon naturalization in another country.49 However, the US Supreme Court rejected this position and reinstated citizenship once thought lost.50 Today, the individual must display intent in order to lose citizenship status.51
The interplay of these immigration rules with taxation on the basis of citizenship is subject to intense debate and certainly exceeds any scope of common wisdom.52 In the past, expatriation would have automatically negated a person’s citizenship status for tax purposes; at present, it does not.53 Indeed, the definition of citizen for tax purposes is potentially circular in the application.54 These complications attending to birthright citizenship are sufficiently detailed and specific to the individual that they create legal uncertainty that is not answered in the tax law, let alone in FATCA indicia.
pages 15 – 17
SSRN-id2717367

Part C – But, those “Born In The USA” may not actually be U.S. citizens or may have NO connection to the United States – Meet Tina

Meet Tina: @TaxPolBlog describes the perverse effects of when the USA levies taxes on the citizens of other nations https://t.co/H7VeHQ13Pe

— Citizenship Lawyer (@ExpatriationLaw) January 26, 2016

Allison Christians is the H. Heward Stikeman Chair in Tax Law at McGill University in Montreal, where she writes and teaches in the area of national and international tax law and policy. You can follow her on the Tax, Society & Culture blog at taxpol.blogspot.com or on Twitter (@taxpolblog). She delivered the following speech at the International Conference on Taxpayer Rights in Washington on November 18.

* * * * *

I would like to tell you a story about the taxpayer’s right to know what the law requires of her and to have the law administered fairly. This is just one story based on things happening now, but it is a common story. I’m telling this story instead of giving an exposition on the underlying legal texts because sometimes the rules are too complicated and too technical for anyone to really understand, even tax lawyers. Moreover, reading the law itself doesn’t explain what isn’t written on the books, which can matter more in how things play out in human terms. As you will see, the implementation of the law gives rise to a taxpayers’ rights issue — one that wouldn’t be clear from reciting the law alone.
The story I am going to tell you is about a woman named Tina. She’s Canadian. She is 62. Tina is nearing retirement age and has been a cautious and diligent person all her life, carefully saving for her old age following the textbook investment advice that tells us we should invest in low-load pooled investment vehicles — mutual funds — and hang onto them for the long term.
Tina isn’t buying and selling investments, following market trends, or taking risks. She doesn’t have time for that. Tina is married with two kids and lives in the family home she bought with her husband some 30 years ago. She’s hanging in for slow and steady, reliable, low-risk growth, planning for retirement in Canada. As a child, Tina occasionally took a trip down to the United States. Visiting Florida in February is still a tempting prospect, given the harshness of Canadian winters, but Tina has only dreamed of that kind of vacation so far. She is careful with her money, plans to live on her savings, and doesn’t want to burden her kids.
One day, Tina finds the following letter in her mailbox. It’s from her neighborhood bank where she has been banking all her adult life, where she has her checking and savings accounts.
Read Tina’s story and the story of all Tina’s at Tax Analysts.

 
Part D – The FATCA IGA has been interpreted by the Canada Revenue Agency to NOT hunt “Green Card Holders” resident in Canada

Are Green Card holders resident outside the USA "US persons" under the #FATCA IGA? https://t.co/sa03eQb0PR via @ExpatriationLaw

— Citizenship Lawyer (@ExpatriationLaw) April 20, 2016

See the post referenced in the above tweet.
 

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