Category Archives: Book Of Forms

Part 1: Mr. FBAR’s Civil Penalty – 5321(a)(5): Evolution – The Wonder Years, Those Teenaged Years, Young Adult, To Mature Thug

This Is Post 1 in a series of posts describing the statutory and regulatory history of Mr. FBAR.

These posts are organized on the page “The Little Red FBAR Book“.*

Introduction – Toward An Understanding Of Bittner, Roth And The Road To The Supreme Court

For Good And For Evil:

The late Charles W. Adams was the author of For Good And Evil: The Impact Of Taxes On The Course Of Civilization. The title is descriptive of the content. At the end of the book Mr. Adams summarizes 27 lessons that can be learned from the past. The principle summarized in lesson 11 reads:

If liberty is to defended with success against the dominance of the state, then financial privacy must be preserved. Banking privacy is one of the cornerstones of liberty, having its roots in the early principle of English law that a man’s castle (primarily his treasury) is beyond the surveillance of the King.

Whatever its origins, the FBAR has evolved into an assault on financial privacy and part of the growing trend of civil forfeiture. To put it simply the civil FBAR penalty found in USC 31 5321(a)(5) – enacted in the American Jobs Creation Act of 2004 – is being used as a vehicle for asset confiscations. In some cases (Toth) the confiscation is taking place under the guise of the “willful” penalty without a sufficient factual finding of willfulness. In other cases (Bittner) the confiscation is taking place under the guise of a “non-willful” penalty by imposing multiple penalties based on the number of accounts rather than a single penalty based on the failure to file the form itself. In each case the penalties are imposed under USC 31 5321(a)(5) which was enacted in 2004 as part of the American Jobs Creation Act.

This is Part 1 of a series of posts for the purpose of understanding the evolution of Mr. FBAR and the civil penalty regime. The purpose of Part 1 is to trace the legislative history of Mr. FBAR and the evolution of the penalty regime found in 31 USC 5321(a)(5).

“From Here To There Eventually” – The Life Of Mr. FBAR

There are four distinct periods to Mr. FBAR’s life …

Period 1: Birth October 26, 1970 – Public Law 91-507 – The “Wonder Years” – Currency and Foreign Transactions Reporting Act – See Appendix A

October 26, 1970 – Public Law 91-507 – Currency and financial Reporting Act – 201 on – page 5
https://www.govinfo.gov/content/pkg/STATUTE-84/pdf/STATUTE-84-Pg1114-2.pdf

STATUTE-84-Pg1114-2

Penalty Status for individuals: Only criminal penalties for willful violation of the statute

§ 209. Criminal penalty
Whoever willfully violates any provision of this title or any regulation under this title shall be fined not more than $1,000, or imprisoned not more than one year, or both.

§203. Definitions and rules of construction
(i) References to this title or any provision thereof include regulations issued under this title or the provision thereof in question.

Note that the penalties (criminal) are imposed for violating either the statute or a regulation made under the statute!

Period 2: Teenager September 13, 1982 – Public Law 97-258 – Those Teenage Years: Joining His Friends In The Title 31 Sandbox – See Appendix B below

September 13, 1982 – Public law 97-258 – Creation of Title 31 – See page 121
https://www.govinfo.gov/content/pkg/STATUTE-96/pdf/STATUTE-96-Pg877.pdf

STATUTE-96-Pg877

The purpose of this law was to consolidate a number of statutes into USC 31. The 1970 “Currency and Foreign Transactions Reporting Act” was one of the statutes brought under the umbrella of USC 31. (Note the under the “Currency and Foreign Transactions Reporting Act” any violation of the law would include a violation of any regulations made pursuant to the law. This is NOT the case for USC 31. This point will be developed in more detail later.)

Penalty Status: Only criminal penalties for willful failure to file an FBAR. Although the 1982 statute introduces civil violations for some violations of Title 31, the statute did NOT legislate a civil penalty for FBAR violations. It did NOT create 5321(a)(5) which was created in the 1986 amendments.

§ 5321. Civil penalties

(a)(1) A domestic financial institution, and a partner, director, officer, or employee of a domestic financial institution, willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315) is liable to the United States Government for a civil penalty of not more than $1,000. For a violation of section 5318(2) of this title or a regulation prescribed under section
5318(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.
(2) The Secretary of the Treasury may impose an additional civil penalty on a person not filing a report, or filing a report containing a material omission or misstatement, under section 5316 of this title or a regulation prescribed under section 5316. A civil penalty under this paragraph may not be more than the amount of the monetary instrument for which the report was required. A civil penalty under this paragraph is reduced by an amount forfeited under section
5317(b) of this title.
(3) A person not filing a report under a regulation prescribed under section 5315 of this title or not complying with an injunction under section 5320 of this title enjoining a violation of, or enforcing compliance with, section 5315 or a regulation prescribed under section 5315, is liable to the Government for a civil penalty of not more than $10,000.
03) The Secretary may bring a civil action to recover a civil penalty under subsection (aXD or (2) of this section that has not been paid.
(c) The Secretary may remit any part of a forfeiture under section 5317(b) of this title or civil penalty under subsection …

The criminal penalties for FBAR violations continue …

§ 5322. Criminal penalties

(a) A person willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315) shall be fined not more than $1,000, imprisoned for not more than one year, or both.
(b) A person willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315), while violating another law of the United States or as part of a pattern of illegal activity involving transactions of more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 5 years, or both.
(c) For a violation of section 5318(2) of this title or a regulation prescribed under section 5318(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

Note that the penalties (civil or criminal) are imposed for violating either the statute or a regulation made under the statute!

Period 3: Young Adult – October 27, 1986 – Public Law 99-570 – The First Civil Penalty For The “Willful Failure” To File Mr. FBAR – See Appendix C

October 27, 1986 – Public Law 99-570 – Creation of 5321(a)(5) Civil Monetary Penalty for Violation of 5314 – See page 26

https://www.govinfo.gov/content/pkg/STATUTE-100/pdf/STATUTE-100-Pg3207.pdf

Civil Penalty 1986 STATUTE-100-Pg3207

Penalty Status: Criminal penalties for willful violations continue. The first civil penalty under 5321(a)(5) for willful violations of USC 5314 is created.

(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—

(A) PENALTY AUTHORIZED.—The Secretary of the Treasury may impose a civil money penalty on any person who willfully
violates any provision of section 5314.

Note that the civil penalties imposed under USC 5321(a)(5) are imposed only for violating the statute. There is no mention of a penalty for violation of the regulation made under the statute! (The criminal penalty under USC 5322 is imposed for violation of either the statute or the regulation made under the statute.)

Period 4: Mature Thug – October 22, 2004 – American Jobs Creation Act – “Form Crimes On Steroids” – The Creation Of The Non-Willful Civil FBAR Penalty See Appendix D

October 22, 2004 – Public Law 108-357 – American Jobs Creation Act October 22, 2004 – see page 170 – Creates Nonwillful Civil FBAR Penalty – See Appendix D

https://www.congress.gov/108/plaws/publ357/PLAW-108publ357.pdf

PLAW-108publ357

Penalty Status: Civil penalties for both willful and non-willful violations of 5314. Criminal penalties for willful violations.

(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—

(A) PENALTY AUTHORIZED.—The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.

(B) AMOUNT OF PENALTY.—
(i) IN GENERAL.—Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.
(ii) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed under subparagraph (A) with respect to any violation if—
(I) such violation was due to reasonable cause,
and
(II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.

(C) WILLFUL VIOLATIONS.—In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—
(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
(I) $100,000, or
(II) 50 percent of the amount determined under subparagraph (D), and (ii) subparagraph (B)(ii) shall not apply.

(D) AMOUNT.—The amount determined under this subparagraph is—
(i) in the case of a violation involving a transaction, the amount of the transaction, or
(ii) in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to violations occurring after the date of the enactment
of this Act.

Note that the civil penalties imposed (whether civil or criminal) under USC 5321(a)(5) continue to be imposed only for violating the statute. There continues to be no mention of a penalty for violation of the regulation made under the statute! (The criminal penalty under USC 5322 is imposed for violation of either the statute or the regulation made under the statute.)

John Richardson – Follow me on Twitter. @Expatrationlaw

Appendix A – 1970 Statute

Chapter 4.—FOREIGN TRANSACTIONS
Sec.
241. Records and reports required.
242. Classifications and requirements.

§241. Records and reports required

(a) The Secretary of the Treasury, having due regard for the need to avoid impeding or controlling the export or import of currency or other monetary instruments and having due regard also for the need to avoid burdening unreasonably persons who legitimately engage in transactions with foreign financial agencies, shall by regulation require any resident or citizen of the United States, or person in the United States and doing business therein, who engages in any transaction or maintains any relationship, directly or indirectly, on behalf of himself or another, with a foreign financial agency to maintain records or to file reports, or both, setting forth such of the following information, in such form and in such detail, as the Secretary may require:

(1) The identities and addresses of the parties to the transaction or relationship.
(2) The legal capacities in which the parties to the transaction or relationship are acting, and the identities of the real parties in interest if one or more of the parties are not acting solely as principals.
(3) A description of the transaction or relationship including the amounts of money, credit, or other property involved.
t>isciosure. ^j^^ ]^Q persou required to maintain records under this section shall be required to produce or otherwise disclose the contents of the records except in compliance with a subpena or summons duly authorized and issued or as may otherwise be required by law.

§242. Classifications and requirements

The Secretary may prescribe:

(1) Any reasonable classification of persons subject to or
exempt from any requirement imposed under section 241.
(2) The foreign country or countries as to which any requirement imposed under section 241 applies or does not apply if, in
the judgment of the Secretary, uniform applicability of any such requirement to all foreign countries is unnecessary or undesirable.
(3) The magnitude of transactions subject to any requirement imposed under section 241.
(4) Types of transactions subject to or exempt from any requirement imposed under section 241.
(5) Such other matters as he may deem necessary to the application of this chapter.

Appendix B – 1982 Statute Creating Title USC Title 31

SUBCHAPTER II—RECORDS AND REPORTS ON MONETARY
INSTRUMENTS TRANSACTIONS

§5311. Declaration of purpose
It is the purpose of this subchapter (except section 5315) to require
certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.
§ 5312. Dennitions and application
(a) In this subchapter—
(1) “financial agency” means a person acting for a person
(except for a country, a monetary or financial authority acting
as a monetary or financial authority, or an international financial institution of which the United States Government is a
member) as a financial institution, bailee, depository trustee, or
agent, or acting in a similar way related to money, credit,
securities, gold, or a transaction in money, credit, securities, or
gold.
(2) “financial institution” means—
(A) an insured bank (as defined in section 3(h) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(h)));
(B) a commercial bank or trust company;
(C) a private banker;
(D) an agency or branch of a foreign bank in the United
States;
(E) an insured institution (as defined in section 401(a) of
the National Housing Act (12 U.S.C. 1724(a)));
(F) a thrift institution;
(G) a broker or dealer registered with the Securities and
Exchange Commission under the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.);
(H) a broker or dealer in securities or commodities;
(I) an investment banker or investment company;
(J) a currency exchange;
(K) an issuer, redeemer, or cashier of travelers’ checks,
checks, money orders, or similar instruments;
(L) an operator of a credit card system;
(M) an insurance company;
(N) a dealer in precious metals, stones, or jewels;
(O) a pawnbroker;
(P) a loan or finance company;
(Q) a travel agency;
(R) a licensed sender of money;
(S) a telegraph company;
(T) an agency of the United States Government or of a
State or local government carrying out a duty or power of a
business described in this clause (2); or
(U) another business or agency carrying out a similar,
related, or substitute duty or power the Secretary of the
Treasury prescribes.
(3) “monetary instruments” means—
(A) United States coins and currency; and
(B) as the Secretary may prescribe by regulation, coins
and currency of a foreign country, travelers’ checks, bearer
negotiable instruments, bearer investment securities,
bearer securities, stock on which title is passed on delivery,
and similar material.
(4) “person”, in addition to its meaning under section 1 of title
1 use 1. 1, includes a trustee, a representative of an estate and, when the
Secretary prescribes, a governmental entity.
(5) “United States” means the States of the United States, the
District of Columbia, and, when the Secretary prescribes by
regulation, the Commonwealth of Puerto Rico, a territory or
possession of the United States, or a military or diplomatic
establishment.
(b) In this subchapter—
(1) “domestic financial agency” and “domestic financial institution” apply to an action in the United States of a financial
agency or institution.
(2) “foreign financial agency” and “foreign financial institution” apply to an action outside the United States of a financial
agency or institution.

§ 5314. Records and reports on foreign Hnancial agency transactions
(a) Considering the need to avoid impeding or controlling the
export or import of monetary instruments and the need to avoid
burdening unreasonably a person making a transaction with a
foreign financial agency, the Secretary of the Treasury shall require
a resident or citizen of the United States or a person in, and doing
business in, the United States, to keep records, file reports, or keep
records and file reports, when the resident, citizen, or person makes
a transaction or maintains a relation for any person with a foreign
financial agency. The records and reports shall contain the following
information in the way and to the extent the Secretary prescribes:
(1) the identity and address of participants in a transaction or
relationship.
(2) the legal capacity in which a participant is acting.
(3) the identity of real parties in interest.
(4) a description of the transaction.
(b) The Secretary may prescribe—
(1) a reasonable classification of persons subject to or exempt
from a requirement under this section or a regulation under
this section;
(2) a foreign country to which a requirement or a regulation
under this section applies if the Secretary decides applying the
requirement or regulation to all foreign countries is unnecessary or undesirable;
(3) the magnitude of transactions subject to a requirement or
a regulation under this section;
(4) the kind of transaction subject to or exempt from a
requirement or a regulation under this section; and
(5) other matters the Secretary considers necessary to carry
out this section or a regulation under this section.
(c) A person shall be required to disclose a record required to be
kept under this section or under a regulation under this section only
as required by law.

§ 5321. Civil penalties
(a)(1) A domestic financial institution, and a partner, director,
officer, or employee of a domestic financial institution, willfully
violating this subchapter or a regulation prescribed under this
subchapter (except section 5315 of this title or a regulation prescribed under section 5315) is liable to the United States Government for a civil penalty of not more than $1,000. For a violation of
section 5318(2) of this title or a regulation prescribed under section
5318(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a
violation occurs or continues.
(2) The Secretary of the Treasury may impose an additional civil
penalty on a person not filing a report, or filing a report containing
a material omission or misstatement, under section 5316 of this title
or a regulation prescribed under section 5316. A civil penalty under
this paragraph may not be more than the amount of the monetary
instrument for which the report was required. A civil penalty under
this paragraph is reduced by an amount forfeited under section
5317(b) of this title.
(3) A person not filing a report under a regulation prescribed
under section 5315 of this title or not complying with an injunction
under section 5320 of this title enjoining a violation of, or enforcing
compliance with, section 5315 or a regulation prescribed under
section 5315, is liable to the Government for a civil penalty of not
more than $10,000.
03) The Secretary may bring a civil action to recover a civil
penalty under subsection (aXD or (2) of this section that has not been
paid.
(c) The Secretary may remit any part of a forfeiture under section
5317(b) of this title or civil penalty under subsection (aX2) of this
section.

§ 5322. Criminal penalties
(a) A person willfully violating this subchapter or a regulation
prescribed under this subchapter (except section 5315 of this title or
a regulation prescribed under section 5315) shall be fined not more
than $1,000, imprisoned for not more than one year, or both.
(b) A person willfully violating this subchapter or a regulation
prescribed under this subchapter (except section 5315 of this title or
a regulation prescribed under section 5315), while violating another
law of the United States or as part of a pattern of illegal activity
involving transactions of more than $100,000 in a 12-month period,
shall be fined not more than $500,000, imprisoned for not more than
5 years, or both.
(c) For a violation of section 5318(2) of this title or a regulation
prescribed under section 5318(2), a separate violation occurs for each
day the violation continues and at each office, branch, or place of
business at which a violation occurs or continues.

Appendix C – 1986 – Introduces 5321(a)(5) – Willful failure to file an FBAR

(c) SEPARATE CIVIL MONEY PENALTY FOR VIOLATION OF SECTION
5314.—Section 5321(a) of title 31, United States Code, is amended by
inserting after paragraph (4) (as added by subsection (a) of this
section) the following new paragraph:
“(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
“(A) PENALTY AUTHORIZED.—The Secretary of the Treasury
may impose a civil money penalty on any person who willfully
violates any provision of section 5314.
“(B) MAXIMUM AMOUNT LIMITATION.—The amount of any civil
money penalty imposed under subparagraph (A) shall not
exceed—
“(i) in the case of violation of such section involving a
fi transaction, the greater of—
-it ? ? “(I) the amount (not to exceed $100,000) of the transaction; or
“(II) $25,000; and
(ii) in the case of violation of such section involving a
3;?-; failure to report the existence of an account or any identify-
. ing information required to be provided with respect to
s Obig a I f such account, the greater of—
,i>Ki “(I) an amount (not to exceed $100,000) equal to the
balance in the account at the time of the violation; or
“(II) $25,000.”.

Appendix D – Replaces 5321(a)(5) – Introduces Non-Willful Civil Penalty For Failure To File FBAR

SEC. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.

(a) IN GENERAL.—Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION VIOLATION.—
‘‘(A) PENALTY AUTHORIZED.—The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
‘‘(B) AMOUNT OF PENALTY.—
‘‘(i) IN GENERAL.—Except as provided in subparagraph (C), the amount of any civil penalty imposed
under subparagraph (A) shall not exceed $10,000.
‘‘(ii) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under subparagraph (A) with respect
to any violation if—
‘‘(I) such violation was due to reasonable cause,
and
‘‘(II) the amount of the transaction or the balance in the account at the time of the transaction
was properly reported.
‘‘(C) WILLFUL VIOLATIONS.—In the case of any person
willfully violating, or willfully causing any violation of,
any provision of section 5314—
‘‘(i) the maximum penalty under subparagraph
(B)(i) shall be increased to the greater of—
‘‘(I) $100,000, or
‘‘(II) 50 percent of the amount determined
under subparagraph (D), and
‘‘(ii) subparagraph (B)(ii) shall not apply.
‘‘(D) AMOUNT.—The amount determined under this
subparagraph is—
‘‘(i) in the case of a violation involving a transaction, the amount of the transaction, or
‘‘(ii) in the case of a violation involving a failure
to report the existence of an account or any identifying
information required to be provided with respect to
an account, the balance in the account at the time
of the violation.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to violations occurring after the date of the enactment
of this Act.

Treasury exempts applicable “tax-favored foreign trusts” from the Form 3520 (and therefore Form 3520A) requirement

Introduction – A small step for forms, one giant leap for “formkind”

It’s true. Many Americans abroad may no longer be required to file Form 3520 and Form 3520A to report their lives abroad! Early indications appear that many Americans will (assuming their retirement vehicle does qualify as a trust) not be required to report on Form 3520. This new initiative from Treasury a positive step in the right direction.

I have long thought that Treasury could solve many of the problems experienced by Americans abroad. Here is a wonderful example of Treasury taking the initiative to clarify the obvious:

Americans abroad do NOT use non-U.S. pension plans and non-U.S. tax-advantaged investing accounts to evade U.S. taxes. Hence, there is NO reason for the Form 3520 reporting requirement. This is an example of the tax compliance industry sitting down with Treasury, explaining a problem and getting a resolution. I suggest (and hope) that the same can be done for PFIC (Form 8621), Small Business Corporations (Form 5471) and other penalty-laden forms.

Yes, this announcement from Treasury in the form of RP 20-17 is a great achievement. Although it certainly doesn’t solve all the problems, it’s:

A small step for forms, one giant leap for “formkind”

The background to this problem – It starts in 1996 (same year as the beginning of the Exit Tax)…

Since 1996 Internal Revenue Code 6048 has required extensive reporting of almost any interaction with a foreign trust. Treasury has required that the reporting take place on Forms 3520 and 3520A. The forms are complex and subject to the draconian penalty regime described in Internal Revenue Code Section 6677. In order for an entity to be a foreign trust, it must be a trust. A “trust” for IRS purposes is defined by the Treasury Regulations as:

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To be FORMWarned is to be FORMArmed! The easiest way to receive a Form 3520A penalty would be to file a Form 3520

There is evidence from both tax practitioners and from individuals that Americans abroad are suffering from a “Form 3520A” penalty epidemic. Some of the best discussion of both the scope and technicalities of this problem may be found at Tax Connections. See particularly the posts here, here and here. (Mr. Carter’s original post was also reproduced at American Expat Finance.) The posts have attracted commentary from a number of tax professionals. The IRS Taxpayer Advocate has been invited to intervene.

“Tax Compliant” Americans Abroad are just a penalty waiting to happen!

Americans abroad are potentially required a very large number of IRS forms.

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Considering renouncing US citizenship? Meet a person who I suggested NOT commit #citizide


For most U.S. citizens attempting to live outside the United States (in compliance with U.S. laws), their days as U.S. citizens are coming to an end. Those who have ignored the fiscal demands required of Americans abroad (meaning they have not entered the U.S. tax system) will be able to retain U.S. citizenship for the foreseeable future. But, for those who do file U.S. taxes and attempt to comply with the outrageous demands of the United States (FBAR, forms, PFIC, Transition Tax, GILTI, Subpart F and more), they experience life like this:
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Part 9: Responding to the Sec. 965 “transition tax”: From the "Pax Americana" to the "Tax Americana"


This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
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13 Reasons Why I Committed #Citizide: (Inspired by the television series, 13 Reasons Why)

Update – November 2, 2018 to include – “Retain or Renounce” Information session held in Brisbane Australia on October 25, 2018


Introduction – Guest post by a perfectly ordinary person who renounced U.S. citizenship for perfectly ordinary reasons


In a recent submission to Senator Hatch  I argued that what the United States thinks of as “citizenship-based taxation”, is actually a system where the United States imposes U.S. taxation on the residents and citizens of other countries. That submission included:

On July 4, 2017, Americans living inside the USA celebrated the “4th of July” holiday – a day that Americans celebrate their independence and freedom.
On that same day, I had meetings with SEVEN American dual citizens, living outside the United States. This “Group of Seven” were in various stages of RENOUNCING their U.S. citizenship. Each of them was also a citizen and tax paying resident of another country. They varied widely in wealth, age, occupation, religion, and political orientation. Some of them have difficulty in affording the $2350 USD “renunciation fee” imposed by the U.S. Government. Some of the SEVEN identify as being American and some did NOT identify as being American. But each of them had one thing in common. They were renouncing their U.S. citizenship in order to gain the freedom that Americans have been taught to believe is their “birth right”.

On August 2, 2017 posts at the Isaac Brock Society and numerous other sources, reported that that there were 1759 expatriates reported in the second quarter report in the Federal Register. The number of people renouncing U.S. citizenship continues to grow.
Now on to the guest post by Jane Doe, which is a very articulate description of the reasons why people living outside the United States feel forced to renounce U.S. citizenship.
John Richardson
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Whether through regulation or legislation #FATCA Same Country Exemption won't work

In the beginning there was Facebook …


and from a second Facebook group:


 
Introduction: If you were to REPEAL FATCA
A previous post discussing the what exactly is meant by FATCA and the Mark Meadows “Repeal FATCA” bill, described:
FATCA is the collective effect of a number of specific amendments to the Internal Revenue Code which are designed to target both (1) Foreign Financial Institutions and (2) Those “U.S. Persons” who are their customers.
1. There are “Three Faces To FATCA” which include:
– Face 1: Legislation targeting Foreign Financial Institutions (Internal Revenue Code Chapter 4)
– Face 2: The FATCA IGAs (which for practical purposes have replaced Chapter 4)
– Face 3: Legislation targeting individuals (primarily Americans abroad who commit “Personal Finance Abroad – While Living Abroad” – Internal Revenue Code 6038D which mandates Form 8938)
2. The amendments to the Internal Revenue Code that would be necessary to reverse the sections of the Internal Revenue that created FATCA.
Legislative FATCA vs. Regulatory FATCA
The sections of the Internal Revenue Code that comprise “FATCA” are surprisingly few.
FATCA Face 1: Internal Revenue Code S. 1474(f) gives Treasury broad authority to make “FATCA regulations”.
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Green card holders: the "tax treaty tiebreaker" and eligibility for Streamlined Offshore

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

This is another in a series of posts on the “tax treaty tiebreaker” (which is a standard provision in most U.S. tax treaties). “Tax treaty tiebreakers” are rules that are used to assign a person’s “tax residency” to one country when an individual is a “tax resident” of both countries. In the context of U.S. tax treaties, “treaty tie breaker” rules are used when an individual is both:

1. A “U.S. person” for tax purposes (U.S. citizen or U.S. resident); and

2. A “tax resident” of another country.

It is very common to use tax treaties to assign “tax residency” to a country when an individual is  a tax resident of more than one country.
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Green card holders, the "tax treaty tiebreaker" and reporting: Forms 8938, 8621 and 5471

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)
B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

Now, on to the post.

The “Treaty Tiebreaker” and information reporting …

The Internal Revenue Code imposes on “U.S. Persons” (citizens or “residents”):
1. The requirement to pay U.S. taxes; and
2. The requirement to file U.S.forms.

All “U.S. Persons” (citizens or residents) are aware of the importance of “Information Returns” AKA “Forms” in their lives.
What is a U.S. resident for the purposes of taxation?

This question is answered by analyzing Internal Revenue Code S. 7701(b). If one is NOT a U.S. citizen, a physical connection to the United States (at some time or another) is normally required for one to be a “tax resident” of the United States..

What happens if one is a “tax resident” of more than one country?

The “savings clause” ensures that U.S. citizens are the only people in the world who have no defence to being deemed a tax resident of multiple countries. U.S. citizens (“membership has its privileges”) are ALWAYS tax residents of the United States. U.S. citizens who reside in other nations, may also be “tax residents” of their country of residence.

In some cases, a U.S. “resident” (which includes a Green Card holder) may be deemed to be a “nonresident” pursuant to the terms of a U.S. Tax Treaty. A Green Card holder “may” be able to use a “Treaty Tiebreaker” provision to be treated as a “nonresident”.

Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)
B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

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Is Form 8938 required by "Green Card Holders" who are nonresidents by "treaty tie breaker"? – Any exemption is the result of "IRS grace"

Summary:


The context: Form 8938 was created by the IRS to meet the reporting requirements mandated by Internal Revenue Code S. 6038D. S. 6038D was mandated by S. 511 of the HIRE Act.
On March 18, 2010 President Obama signed the HIRE Act into law. The HIRE Act had two targets. The first target was the Foreign Financial Institutions that were willing to do business with U.S. citizens. The second target was Americans citizens who attempted to do business with any “non-U.S. bank or other financial institution.
The first target – Foreign Financial Institutions: The HIRE Act introduced Chapter 4 of Subtitle A – AKA FATCA – into the Internal Revenue Code. Pursuant to Chapter 4 Foreign Financial Institutions are threatened with a 30% sanction for failing to “Review, Identify and Report” those who the U.S. claims as “U.S. persons“. The Canadian FATCA lawsuit, launched by the Alliance For The Defence of Canadian Sovereignty, is related to the reporting requirements imposed on the banks.
The second target – American citizens attempting to use Foreign Financial Institutions outside the United States: The second group is composed of “individuals” who are required to disclose information to the IRS. The HIRE Act imposed extraordinary reporting requirements on Americans abroad. The most visible – Form 8938 – is an intrusive form that is aimed at targeting “individuals”. The term “individuals” means every human life form on the planet.  The U.S. based “FATCA Legal Action” lawsuit (which was condemned by Democrats abroad), is a lawsuit that is primarily intended to attack the requirements imposed on individual Americans abroad.
Internal Revenue Code Section 6038D and “Foreign Asset Disclosure”
A previous post discussed the interaction among: the Internal Revenue Code, tax treaty tie breaker rules and whether a Green Card Holder is a U.S. resident for FATCA purposes. This post is to discuss the form 8938 requirement and how it applies to Green Card Holders (resident aliens) who are deemed by treaty to be “nonresidents” under a treaty “Tie Breaker” rule.
The statute – Internal Revenue Code Section 6038D – gives the “Secretary” (meaning IRS) the right to create specific exemptions. “Nonresident aliens” is one group that the IRS is allowed to specifically exempt from the form 8938 requirement. Green Card Holders are statutory “resident aliens” under S. 7701(b) of the Internal Revenue Code. Yet, in some cases “Green Card Holders” can be treated as “nonresident aliens” pursuant to a tax treaty.
What is a “Treaty Tie Breaker” rule?
It’s possible for a person to be treated as a “tax resident” of two countries. In this case a Tax Treaty can be used to determine in which country the person is a “tax resident”. For example Section 2 of Article IV of the Canada U.S. Tax Treaty says:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and
(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

(Note that the “Treaty Tie Breaker” rules are available to “Green Card” holders. The treaty “savings clause” prevents U.S. citizens from being treated solely as a resident of Canada.)
So, what do the IRS regulations say?
On December 29, 2014 the IRS removed the temporary regulations (which are described here) and issued final Form 8938 reporting rules. The final regulations, which took effect on December 29, 2014 (making them applicable for years 2014 and onward), make it clear that Green Card Holders, who pursuant to a treaty tie-breaker provision, are treated as “nonresidents” (nonresident aliens) are NOT required to file Form 8938.
Specifically, the IRS confirms that:

1. Dual resident taxpayers
A comment recommended an exemption from the section 6038D reporting requirements be included for an individual who is a dual resident taxpayer and who, pursuant to a provision of a treaty that provides for resolution of conflicting claims of residence by the United States and the treaty partner, claims to be treated as a resident of the treaty partner. In such a case, a dual resident taxpayer may claim a treaty benefit as a resident of the treaty partner and will be taxed as a nonresident for U.S. tax purposes for the taxable year (or portion of the taxable year) that the individual is treated as a nonresident. The final rule adopts this recommendation for a dual resident taxpayer who determines his or her U.S. tax liability as if he or she were a nonresident alien and claims a treaty benefit as a nonresident of the United States as provided in § 301.7701(b)–7 by timely filing a Form 1040NR, “Nonresident Alien Income Tax Return,” (or such other appropriate form under that section) and attaching a Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).” The Treasury Department and the IRS have concluded that reporting under section 6038D is closely associated with the determination of an individual’s income tax liability. Because the taxpayer’s filing of a Form 8833 with his or her Form 1040NR (or other appropriate form) will permit the IRS to identify individuals in this category and take follow-up tax enforcement actions when considered appropriate, reporting on Form 8938, “Statement of Specified Foreign Financial Assets,” is not essential to effective IRS tax enforcement efforts relating to this category of U.S. residents.

Why this makes sense …
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