Expatriation generates a "reporting" frenzy! Report Early! Report Often! Report Everything! But, who is required to report what and to whom? What is the statutory basis for the reporting? What about Green Card holders? https://t.co/dAH1ihnpi7
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 1, 2023
The American Expat Financial News Journal reliably reports information about the “Name and Shame List”. The report generally includes information about the number of people on the list and people who are reported more than once. The report often attempts to determine whether those on the list are citizenship relinquishers or green card abandoners.
The purpose of this brief post is to explain the statutory basis for the reporting obligations, identify the relevant statutes and clarify some common misconceptions.
A summary of the analysis is that:
1. All individuals renouncing (whether “covered expatriates” or not) US citizenship during the relevant period are to be included on the “Name and Shame List”.
Renunciation of U.S. Citizenship triggers a “Reporting Frenzy”!
It’s simply unbelievable. The renunciation of U.S. citizenship triggers more reporting obligations on the part of individuals and government agencies than anything else. More than birth. More than death. More than marriage. More than bankruptcy. More than conviction of a crime (probably). It’s unbelievable.
The purpose of this post is to “slice and dice” what those reporting obligations are.
The rules governing information reporting when one relinquishes U.S. citizenship are found in Internal Revenue Code 6039G. They impose reporting obligations on “some” individual relinquishers (“covered expatriates”), the State Department whenever a Certificate of Loss Of Nationality has been issued and on U.S. Treasury. (I will comment separately on the situation of Green Card holders at the end of this post.) Most of this is summarized in the following two tweets. But, because this is so confused, I am going to take the time to parse the statute.
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 24, 2019
It’s all in Internal Revenue Code – 6039G Note that Section 6039G is found in Subtitle F which is the – “Procedure and Administration” – part of the Internal Revenue Code. In other words, it deals only with information reporting. It does NOT impose taxation. Interestingly, Section 6039G imposes reporting requirements on individuals, the State Department, U.S. Treasury (and in the case of Green Card holders) the Immigration authorities.
That pretty much sums it up. For those who want to understand the analysis …
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 25, 2017
Well he won the lottery. Specifically he won the “Green Card” lottery. He and his wife came all the way from an Asian country to “Live The Dream” – specifically the dream of living in the United States of America.
He spoke English. His wife did not speak English. He believed in strict compliance in the law. His wife relied on him to ensure her compliance with the law.
As a Green Card holder he was vaguely aware that he could be deported if he were convicted of certain kinds of offenses. But, mainly he believed in compliance with the law for its own sake.
As a Green Card holder and as a U.S. resident he was subject to laws that were never explained to him. He didn’t realize that he was taxable on his WORLD income (including a small pension that he received from his country of citizenship).
In 2009 the “Offshore Jihad” began. He didn’t think of himself as having “offshore accounts”. After all, he was a just citizen of another country. Surely it could NOT be criminal to have a bank account in his country of origin. Did he have to report his small foreign pension to the IRS? That pension was in no way related to the United States of America? And then he learned about the alphabet soup of “reporting requirements” – Mr. FBAR, Uncle FATCA, etc. He began to learn what the “reporting requirements” were. But, the penalties (as least described) were certain. He could not believe the extent of the penalties.
It was at this moment that his “Oh My God” moment began. He was confused and mentally disorganized. At that moment, all of his life assumptions were reversed. Assumption 1: He had always believed that he was a good, moral “law abiding” person. How could it be that he was NOT in compliance with the law. He had no reason to believe that the reporting requirements would even exist. Welcome to the United States of America where any involvement with anything “foreign” makes you a presumptive criminal. Assumption 2: He had always believed that the United States was a “just nation”. How could the United States threaten to impose such penalties on a person in his situation?
Welcome to the United States of America where justice is NOT the norm. What’s a poor “Green Card” holder to do?
He was ill prepared to deal with the situation in which he found himself.
He strived to learn what he could. The IRS would not answer his questions – suggesting that he go to a “tax professional” The “tax professionals” gave him different, conflicting and contradictory answers.
His greatest frustration was that he could NOT completely understand what was expected of him – although he did understand the threat of penalties, penalties and more penalties.
He eventually decided that he had to move back to his home country. He did this NOT to escape U.S. taxation, but because:
He could not completely understand what was required of him to be U.S. tax complaint; and
He was worried that he would die and leave his wife in a situation where she would not know how to be U.S. tax compliant.
In order to prepare for leaving he:
entered the streamlined program (domestic version) and “back filed” for 3 years
stayed in America for two more years so that he could certify the “five years of tax compliance” when he handed in the I-407
even filed the “Sailing Permit” (The 1040C) that is required of ALL aliens (resident or nonresident) when they leave the United States
He in now trying to file his final return and 8854. Fortunately he will not be subject to the S. 877A Exit Tax. He is currently focusing on staying alive long enough to complete his U.S. tax filings. He feels that it is important that he NOT die and leave the U.S. tax compliance problem to his wife. His emotional state:
Like many he is living in a state of fear. I pointed out to him that he was a small insignificant person and that nobody in the U.S. Government cared about him. He thanked me for telling him that “nobody in the U.S. Government cared about him”. He said that it was the first time in his life that he felt good that nobody cared about him. Epilogue:
One more day. One more life ruined. One more person chased out of America because of the Internal Revenue Code.
His greatest wish is that he lives long enough to file Form 8854 to log him and his wife out of America.
Nobody, but nobody should move to America without reading the fine print!
#YouCantMakeThisUp! John Richardson
The primary story is of a U.S. professor who pleaded guilty to an FBAR violation and was subjected to a 100 million FBAR penalty. Notably the “tax loss” was 10 million dollars and the FBAR penalty was 100 million dollars. It appears that Mr. FBAR is becoming an important tool in the arsenal used by the United States Treasury.
The more interesting (for the purposes of expatriation) was the role that a “false Form 8854 “Expatriation Statement”) may have played in the guilty plea.
The story has been reported at the following two sources:
U.S. Professor to Pay $100 Million Tax Penalty Over Swiss Accounts https://t.co/Jb88OZlhR1 via @WSJ – about not paying his "fair share"
What is most interesting is the description from the Department of Justice site which includes:
Horsky directed the activities in his Horsky Holdings and other accounts maintained at the Zurich-based bank, despite the fact that it was readily apparent, in communications with employees of the bank, that Horsky was a resident of the United States. Bank representatives routinely sent emails to Horsky recognizing that he was residing in the United States. Beginning in at least 2011, Horsky caused another individual to have signature authority over his Zurich-based bank accounts, and this individual assumed the responsibility of providing instructions as to the management of the accounts at Horsky’s direction. This arrangement was intended to conceal Horsky’s interest in and control over these accounts from the IRS. In 2013, the individual who had nominal control over Horsky’s accounts at the Zurich-based bank conspired with Horsky to relinquish the individual’s U.S. citizenship, in part to ensure that Horsky’s control of the offshore accounts would not be reported to the IRS. In 2014, this individual filed with the IRS a false Form 8854 (Initial Annual Expatriation Statement) that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years.
Horsky also willfully filed false 2008 through 2014 individual income tax returns which failed to disclose his income from, and beneficial interest in and control over, his Zurich-based bank accounts. Horsky agreed that for purposes of sentencing, his criminal conduct resulted in a tax loss of at least $10 million. In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed false FBARs for 2012 and 2013.
The point is that the false Form 8854 (used primarily to provide information about whether one is a “covered expatriate” and to calculate the Exit Tax) was used as evidence of part of a conspiracy to evade taxes. This is an interesting use of the Form 8854, which is primarily an “information return”.
Obviously this a “general interest” post with extremely unusual circumstances. But, it is an example of how associations with others, in the “Wide and Wonderful World of U.S. Tax Forms” can become a problem. This is also a reminder the “information returns” DO matter!