Croatia Agrees To Allow The US To Impose Tax, Forms And Penalties On Its US Citizen Residents

Big News – December 2022

On December 7, 2022 a US Treasury Press Release included:

December 7, 2022
WASHINGTON — In a ceremony held at the U.S. Department of State today, Under Secretary of State for Economic Growth, Energy and the Environment Jose W. Fernandez and Croatia’s Minister of Finance Dr. Marko Primorac signed a comprehensive income tax treaty between the United States and Croatia. The new tax treaty is the first of its kind between the United States and Croatia.

“I am honored to sign the U.S.-Croatia income tax treaty with you today, Finance Minister Primorac,” said Under Secretary Fernandez. “We look forward to taking this monumental step towards further strengthening trade and commercial ties between the United States and Croatia.”

“The Treasury Department is pleased to conclude this new tax treaty with Croatia. It is the first comprehensive tax treaty that the United States has signed in over ten years and reflects our current tax treaty policies and is a milestone in the Treasury’s efforts to expand the U.S. tax treaty network. We appreciate the collaboration Croatia showed throughout the negotiations,” said Lily Batchelder, Assistant Secretary (Tax Policy).

The new tax treaty closely follows the U.S. Model income tax treaty. Key aspects of the new treaty include:

Elimination of withholding taxes on cross-border payments of dividends paid to pension funds and on payments of interest;

Reductions in withholding taxes on cross-border payments of dividends other than those paid to a pension fund, as well as royalties;

Modern anti-abuse provisions intended to prevent instances of non-taxation of income as well as treaty shopping;

Robust dispute resolution mechanisms including mandatory binding arbitration; and
Standard provisions for the exchange of information to help the revenue authorities of both nations carry out their duties as tax administrators.

The new tax treaty will enter into force after the United States and Croatia have notified each other that they have completed their requisite domestic procedures, which in the case of the United States refers to the advice and consent to ratification by the U.S. Senate.

The text of the treaty document can be found at: https://home.treasury.gov/system/files/131/Treaty-Croatia-12-7-2022.pdf

Treaty-Croatia-12-7-2022

Of particular note in Treasury’s announcement is:

“The Treasury Department is pleased to conclude this new tax treaty with Croatia. It is the first comprehensive tax treaty that the United States has signed in over ten years and reflects our current tax treaty policies and is a milestone in the Treasury’s efforts to expand the U.S. tax treaty network. We appreciate the collaboration Croatia showed throughout the negotiations,” said Lily Batchelder, Assistant Secretary (Tax Policy).

The new tax treaty closely follows the U.S. Model income tax treaty.

Treasury’s announcement focuses on the mutually beneficial aspects of the US Croatia tax treaty. Notably Treasury’s announcement fails to comment on the inclusion of the enhanced “saving clausewhich is identical to the following provision in the 2016 US Model tax treaty.

4. Except to the extent provided in paragraph 5 of this Article, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article 4 (Resident)) and its citizens. Notwithstanding the other provisions of this Convention, a former citizen or former long-term resident of a Contracting State may be taxed in accordance with the laws of that Contracting State.

5. The provisions of paragraph 4 of this Article shall not affect:
a) the benefits conferred by a Contracting State under paragraph 3 of Article 7 (Business Profits), paragraph 2 of Article 9 (Associated Enterprises), paragraph 7 of Article 13 (Gains), subparagraph (b) of paragraph 1, paragraphs 2, 3 and 6 of Article 17 (Pensions, Social Security, Annuities, Alimony and Child Support), paragraph 3 of Article 18 (Contributions to Pension Funds), and Articles 23 (Relief From Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement Procedure); and
b) the benefits conferred by a Contracting State under paragraph 1 of Article 18 (Contributions to Pension Funds), and Articles 19 (Government Service), 20 (Students and Trainees) and 27 (Members of Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of, nor have been admitted for permanent residence in, that Contracting State.

This represents a significant expansion of the “saving clause” to allow the US to impose US taxation NOT only on its” residents (as determined under Article 4 (Resident)) and its citizens” but also on “a former citizen or former long-term resident” which may are permitted to be subjected to any relevant future provisions of the Internal Revenue Code.

From the perspective of Croatia, the “saving clause” found in Paragraph 4 of Article 1 means:

4. Except to the extent provided in paragraph 5 of this Article, this Treaty shall not affect the taxation by the United States of its residents (as determined under Article 4 (Resident)) and residents of Croatia who happen to be US citizens. Notwithstanding the other provisions of this Convention, a former US citizen or former long-term US Green Card holder who is a resident of Croatia may be taxed by the United States according to the Internal Revenue Code.

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To TFSA Or To Not TFSA, Whether Tis Better For A US Citizen Living In Canada To Open A TFSA Or Not

Introduction And Purpose

As the article referenced in the above tweet makes clear, a very small percentage of Canadians can expect their retirements to be funded by pensions. The message is that individuals have an obligation to themselves and to their families to engage in responsible financial and retirement planning. The tax laws in every country have provisions in their tax codes to facilitate this planning. Almost all of these planning vehicles are based on “before tax” advantaged vehicles (RRSP or Conventional IRA) or “after tax” vehicles (TFSA or ROTH IRA) which allow for tax free growth.

I am frequently asked by Canadian residents who are US citizens whether they should open a TFSA (“Tax Free Savings Account”) in Canada. The purpose of this post is to discuss this very issue. As usual there is no “one size fits all answer” that is correct for everybody. In order to analyze this question I am joined by Oliver Wagner of “1040 Abroad” who has provided his thoughts, experience, commentary and some sample tax US tax returns which illustrate the various principles.

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Part 2 – Would A Move To Residency-based Taxation Solve The FATCA Problem For Americans Abroad Created By The FATCA IGAs?

Purpose Of This Post – The “Readers Digest” Version

FATCA is administered through the FATCA IGAs (international agreements) and not through the U.S. Internal Revenue Code (domestic law of the United States). the FATCA IGAs do NOT include a provision to change the meaning of “U.S. Person”. Rather the meaning of “U.S. Person” is permanently defined as a “U.S. citizen or resident”. There is no provision in the IGA to change this definition. Therefore, the IGAs are written so that they will ALWAYS apply to U.S. citizens regardless of whether the U.S. continues citizenship taxation.

In effect, implementing FATCA through the IGAs has had the practical impact that:

– the FATCA partner country has changed its domestic laws to adopt the provisions of the FATCA IGAs which are intended to impose specific rules on “U.S. Persons” who are defined as “U.S. citizens or residents”

– those domestic laws reference the FATCA IGAs which contain no provision to change or adapt the meaning of “U.S. Person” which means that discrimination against “U.S. citizens” is permanent.

– resulting in a situation where the FATCA partner country is obligated under its own domestic law to target “U.S. citizens” for special treatment!

Note that this is irrelevant to how the United States defines tax residency! A move to residence-based taxation will not change this basic fact.

Bottom line: The United States has forced other countries to permanently discriminate against U.S. citizens. Because the discrimination is enshrined in the FATCA IGAs, the United States has effectively created an extra-territorial jail for its own citizens, forced other countries to lock U.S. citizens up and effectively thrown away the key!!

#YouCantMakeThisUp!

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Introduction And Background On FATCA

FATCA has created many difficulties for Americans abroad. It has caused great anxiety, created an awareness of US citizenship taxation, expanded the US tax base into other countries and resulted in a growing number of Americans renouncing US citizenship. Because the US employs citizenship taxation, FATCA has created a situation where information flows from a country where Americans abroad live (for example Canada) to a country where they do not live (the United States). Any suggestion that FATCA and the CRS (“Common Reporting Standard”) are some how equivalent is wrong. Many of the differences between FATCA and the CRS are explained here. Finally, neither the FATCA IGAs nor FATCA as defined in the Internal Revenue Code (Chapter 4) impose any obligation of reciprocity on the United States. This has had the consequence of (1) the United States not providing information about accounts held by the tax residents of those countries in the United States while (2) demanding information about the accounts held by US citizens in those other countries. In other words: the combination of the US FATCA law coupled with the US refusal to adopt the CRS has supercharged the United States as a significant tax haven! All of this has had a considerable and life altering impact on US citizens who live, work and engage in retirement/financial planning outside the United States.

FATCA And Citizenship Taxation

There has been considerable discussion about how FATCA interacts with US citizenship taxation and what can be done to mitigate the effects of FATCA on the community of Americans abroad. There is an obvious correlation between the enactment of FATCA and renunciations of US citizenship. What is the solution? If the United States severed “citizenship” from its definition of tax residency (abolishing citizenship taxation) would that solve the FATCA problem for Americans abroad?

Severing citizenship from US tax residency – how would FATCA continue to apply to Americans abroad?

In Part 1 I considered the question of whether a move from citizenship taxation to residence based taxation would end the FATCA problems for Americans abroad under the Internal Revenue Code. I concluded that severing citizenship from tax residency would solve the FATCA problem for Americans abroad in the Internal Revenue Code. The problem is that FATCA is NOT administered through the Internal Revenue Code. FATCA is administered through the FATCA IGAs (“Inter-governmental Agreements”). It’s important to understand that implementing FATCA through the FATCA IGAs has meant that:

1. The FATCA IGAs (agreed to by both the United States and the partner country) have replaced the Internal Revenue Code (a US law made by and only by the United States) as the vehicle through which FATCA is implemented; and

2. The partner country has enacted the terms of the FATCA IGA as the domestic law of that country.

To put it simply, the use of the FATCA to implement FATCA has meant that other countries (at the request of the United States) have adopted laws for the express purpose of identifying US citizens, reporting their financial accounts to the IRS and ultimately discriminating against US citizens by not allowing them access to financial services! In 2008, Candidate Obama defined his vision as “Change You Can Believe In”. He neglected to say that the change included the United States forcing other countries to change their domestic laws to punish US citizens who live in their country!

In this post – Part 2 – I consider whether a move to residence taxation would end the FATCA problem for Americans abroad as it is defined in the FATCA IGAs. I conclude that it would NOT end the FATCA nightmare caused by the FATCA IGAs.

Therefore, a move to residence taxation would NOT end the FATCA nightmare for Americans abroad.

This issue is explored in the following four parts:

Part A: A Move To Residence-based Taxation Under The Internal Revenue Code Would End The Application Of FATCA To Americans Abroad Under The Internal Revenue Code
Part B: A Move To Residence-based Taxation Under The Internal Revenue Code Would NOT End The Application Of FATCA To Americans Abroad Under The FATCA IGAs
Part C: The FATCA IGAs Have Been Legislated As Domestic Law In The FATCA Partner Countries
Part D: What Amendments To The IGAs Would Be Required If The U.S. Severed Citizenship From Tax Residency?

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Some US Citizens And Green Card Holders Resident In Belgium Are Excluded From Benefits Under The Tax Treaty Available To US Citizen Residents

Prologue

I was recently alerted to a provision in the US Belgium Tax Treaty (a similar but not identical provision also appears in the US UK Tax Treaty – which I have explored in this earlier post.). Normally all US Citizens and Green Card holders are defined as “US Residents” under US tax treaties. The US Belgium Tax Treaty (and the US Uk Tax Treaty) contain an interesting exception to the general principle that US citizens and Green Card holders are “US Residents” under the Tax Treaty. Think of it as a “residency carve out”. The purpose of this post is to describe this “carve out” and explore the (some) practical implications of what this means. Interestingly it is one more example of how the US tax treatment of Americans abroad depends on their country of residence.

Just when you think the US tax treatment of Americans abroad couldn’t be worse, the US never ceases to amaze. Seriously, this is the tax treaty version of “Shock and Awe”! It demonstrates that any general discussion about tax treaties is, well just “general”. One must always understand the specific provisions of the specific treaty. Before, anybody gets overly upset, no need to worry. Even those US citizens who do get the benefits of the US Belgium tax treaty don’t (because of the “saving clause”) get much. Nevertheless, the US Belgium Tax Treaty affords a good opportunity to read tax treaties carefully. It also provides a good reminder that the “saving clause” excludes US citizens from most benefits of the tax treaty (even when US citizens meet the residency requirements of the treaty). Finally, this analysis reinforces how carefully tax treaties must be read. Does a provision talk about “citizens”, “nationals”, “residents” …?

The Readers Digest Version Of This Post

US citizens and Green Card holders are US tax residents wherever they live in the world. Most US tax treaties define citizens and Green Card holders as US tax residents. Yet, there are some treaties that “may” not define “US Persons Abroad” as “residents of the United States”. The treaties that “may not” define Green Card holders and citizens as “residents of the United States” include Belgium and the UK. It appears that Green Card holders are the biggest losers. That said, the Belgium and UK tax treaties demonstrate that “US Persons Abroad” may receive fewer tax treaty benefits than resident Americans. Significantly this means that there are certain US tax treaties that actually discriminate against US citizens and Green Card Holders who live outside the United States without a residential nexus to the United States.

Although perhaps enacted without considering the impact on “US Persons Abroad”, this demonstrates (yet again) how attempts to curb certain abuses create negative consequences for Americans abroad because and only because of citizenship taxation. We have seen these consequences in conjunction with the 877A Exit tax rules, the PFIC rules, Subpart F, the Transition Tax, GILTI and now “treaty shopping”.

Surely, this is one more example of the clear principle that US citizens abroad are subjected to a more punitive tax system than resident Americans.

It is absolutely essential that the United States end citizenship taxation and transition to residency based taxation that completely severs US citizenship from US tax residency..

For those who want to better understand this …

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Americans Abroad With Local Investments That Are “Foreign To The US” Live Under The Sword Of Damocles

Prologue – The “Take Away” And Summary For Americans Abroad

The general message is contained in the above twitter thread. Americans abroad are likely to have financial involvements with a number of different kinds of “entities” that are “local” to them and “foreign to the United States. Examples may include: pension plans, tax advantaged savings plans, small business corporations and more. The descriptive title of these “entities” is irrelevant to their classification under US tax rules. What an individual understands to be a foundation, trust, corporation, pension or anything else could be classified under US tax rules in in a number of different (and unexpected) ways. The US classification for tax purposes will be determined by the “facts and circumstances” and characteristics of the entity. Furthermore, the classification will determine BOTH (1) how the entity is subject to US taxation and (2) the specific reporting requirements (and potential penalties) that apply to that entity.

(It is important for Americans abroad to understand the risk that income earned by the “foreign to the US” corporation or trust (but local to them) may be deemed to have been earned by the individual. This may be true even when that income has not been received by the individual. This is the consequence of Subpart F, GILTI and the Grantor trust rules. These specific topics will be left for separate posts.)

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Financial Planning For Americans Abroad and By Americans Abroad

Prologue

In the 21st century it has never been more true that:

On the one hand responsible money management, investing and financial planning is a necessity.

On the other hand Americans abroad have been severely disabled from those essential activities by the US tax system.

US citizens presumptively do NOT benefit from tax advantaged financial planning options outside the United States. The circumstance of US citizenship makes participation in non-US pension plans difficult. The PFIC regime operates to make even investing in non-US mutual funds a difficult proposition. Those Americans abroad who attempt to create private pension plans by using small business corporations will likely find that the CFC, Subpart F and GILTI rules make this difficult.

It’s entirely understandable that many Americans abroad have lost their incentive to care financially for themselves and their families.

The message is clear:

When it comes to investing, financial planning and retirement planning US citizenship is presumptively a disability!

That said, it’s essential that US citizens do NOT allow the US extra-territorial tax regime to cause them to NOT engage in retirement and financial planning! They must adopt a “can do” attitude and understand that even with the disability of US citizenship, they can – with the proper advisors – invest for retirement like the citizens of all other countries. In fact, those who are successful, can take pride in the fact that they succeeded NOT because they were American but in spite of being American! Those who are successful can proudly and defiantly say:

“I’m American, but I’m gonna invest for retirement anyway!”

For Americans abroad investing and retirement planning requires a positive mindset and often a competent advisor.

At a minimum, Americans abroad need financial advisors who understand what it means to be an American abroad.

Creveling and Creveling – Financial Planners For Americans Abroad By Americans Abroad

Investment advisors for Americans abroad is a growing industry. I recently had the opportunity to meet and talk with Peggy Creveling, who is one of the two Crevelings who is part of Creveling and Creveling a Thailand based financial planning firm. Investing and financial planning is a “long term” commitment in the same way that health and fitness is a long term commitment. Most people need a mentor and motivator. This requires that they meet the right kind of mentor who will guide them toward their specific goals.

As part of my podcast series for the American Expat Financial News Journal I had the opportunity to meet and chat with Peggy Creveling. This resulted in the following two podcasts:

Part 1 – From growing up in Ohio to West Point to Thailand – The Making Of A Financial Planner
https://americanexpatfinance.com/podcasts/35-basic-financial-fundamentals-that-makes-all-the-difference-for-americans-who-live-abroad-3

Part 2 – Thinking about financial planning and investing – the difference between investing and speculating
https://americanexpatfinance.com/podcasts/36-thoughts-on-financial-planning-for-u-s-expats-part-2

Bottom line: Americans abroad really need to commit to investing and financial planning. You are likely to find the insights and thoughts of Peggy Creveling to be helpful!

John Richardson – Follow me on Twitter @Expatriationlaw

Afroyim v. Rusk – A New Perspective: Do The Specific Rules Of US Citizenship Taxation Result In The Forcible Destruction Of US citizenship?

Prologue

The United States of America is the ONLY country in the world that both:

1. Confers citizenship by birth inside the country; AND

2. Imposes worldwide taxation and regulation based on citizenship.

Therefore, it is reasonable to conclude that:

US citizenship is the world’s only true “taxation-based citizenship”.

Afroyim – Should extending constitutional status to US citizenship be understood as a new gift or exacerbating an old curse?

US Citizenship Stripping Before 1967 – The Significance Of Afroyim

The US government was stripping US citizens of their citizenship if they committed various “expatriating” acts. This was codified in statutes that mandated that certain kinds of conduct would result in the loss of US citizenship. At various times the expatriating conduct included (but was not limited to): naturalizing as a citizen of another country, voting in a foreign election, serving in the armed forces of a foreign country and even marrying a non-citizen.

US Citizenship Stripping After 1967 – Afroyim

The 1967 US Supreme Court decision in Afroyim clarified that Congress lacked the power to strip US citizens (who were born or naturalized in the United States) of their citizenship. The Afroyim ruling clarified that:

1. US citizenship belonged to the citizen and could be lost by the citizen only if the citizen voluntarily relinquished US citizenship by voluntarily committing an expatriating act with the intention of relinquishing US citizenship; and

2. Congress cannot enact laws or engage in practices that result in the forcible destruction of citizenship.

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11 Key Moments In The Supreme Court’s Engagement During The Bittner #FBAR Fundraiser Argument

Introduction

On November 2, 2022 the Supreme Court of the United States heard the appeal in the case of:

ALEXANDRU BITTNER, Petitioner, v. UNITED STATES, Respondent

On November 2, 2022 the Supreme Court Of The United States heard the Bittner case. The issue was whether in the context of a non-willful FBAR penalty:

1) The government is restricted to imposing one penalty based on the failure to file one FBAR; or

2) The government is authorized to impose one non-willful penalty for each of the accounts that should have been reported on the single FBAR form.

For example, let’s imagine that a US citizen has ten accounts that are “foreign” and he fails to file an FBAR form. Is the penalty based on the failure to file the form itself (one form means one $10,000 penalty)? Or may the government impose a penalty based on the failure to disclose each of the accounts on the FBAR form (10 times $10,000 = $100,000)?

Mr. Bitter is/was a dual US Romanian citizen who was living in Romania during the years that the FBAR penalties were imposed. According to the closing comments of his lawyer, Mr. Bittner (while living in Romania) had filed US tax returns for years that he had a business connection to the United States (apparently investing in a relative’s business in California). In other words, there is some evidence that Mr. Bittner was not fully aware that as a US citizen, his US tax and reporting obligations applied even when he did not live in the United States. In any case, Mr. Bitter argues that he should have received one $10,000 penalty for each of the five years ($50,000). The government imposed penalties of 2.7 million dollars based on a failure to report 52 accounts.

On Wednesday November 2, 2022 the Supreme Court of the United States heard argument on the “per account vs. per form” issue.

A transcript of the arguments is here:

http://citizenshipsolutions.ca/wp-content/uploads/2022/11/21-1195_5i36.pdf

A post describing the background and some initial discussion is here.

The briefs are available here.

Purpose of this post

The purpose of this post is to identify the questions and dialogue with counsel that suggest which areas the Justices found most important, interesting and troubling. Although one cannot predict the outcome, the dialogue suggests the following three broad themes and areas of concern:

First: Many of the Justices had difficulty agreeing (based on the plain text of 5314) with the Government’s claim that it can impose a separate FBAR penalty based on and only on a failure to report each account. Justices Jackson, Gorsuch and Thomas appeared to be the strongest advocates of this position. (Justices Kagan and Sotomayor comprised the most vocal opposition.)

JR Comment: The issue is whether the Justices will decide the case based on what the statute actually says (which favors the per account interpretation) or based on what they think Congress “might have intended” in the complete legislative scheme. The legal arguments for the “per form” penalty were compelling.

Second: A number of the Justices were clearly troubled by the their view that the “per form” penalty would mean that all non-willful FBAR penalty violators would be assessed penalties based on the “form”. Basing the penalty on and only on single form, would mean that a $10,000 penalty would be the maximum non-willful penalty regardless of the facts. Should a person who fails to report one simple checking account be assessed the same penalty as someone with millions of dollars and multiple accounts? Justices Roberts and Kagan seemed particularly focussed on this issue. (See the audio clip of Justice Roberts below.)

JR Comment: Interestingly the hearing did not discuss (in the question and answer) that non-willful violators can be assessed ZERO penalties. My impression was that the argument proceeded on the basis that the $10,000 penalty was the default penalty for the failure either file the form or report the account. The default penalty is NOT $10,000. The language of 5321(1)((5) includes: “Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000. Neither the assessment of penalties NOR the $10,000 penalty is automatically assessed. My point is that the statute does allow for the calibration of penalties based on the facts of the case.

Third: The court expressed concern over whether “reasonable cause” really was a defence to a civil non-willful penalty assessment. Presumably if “reasonable cause” were a defence, it would serve the purpose of appropriately calibrating penalties. See the clips of Justices Alito, Gorsuch and Jackson below. The concern appeared to be: Does the “reasonable cause” defence work in practical application?

JR Comment: Does the existence of “reasonable cause” make it easier for the Justices to rule that a “per account” penalty may be permitted? Alternatively were the Justices simply concerned by the draconian potential of the penalties?

These are the three “pieces of the puzzle” that I expect will inform the decision.

The complete audio of the hearing is available here:

And a version from C-span (that picks up the audio from some protestors) is here:

https://www.c-span.org/video/?523324-1/bittner-v-united-states-oral-argument

I have included the statutory provision as *Appendix A below.

I have included the regulations as **Appendix B below.

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November 2, 2022 Supreme Court FBAR Case: ALEXANDRU BITTNER, Petitioner v. UNITED STATES Respondent – No. 21-1195

Here is the audio recording of the November 2, 2022 Bittner FBAR hearing …

On November 2, 2022 the Supreme Court Of The United States heard the Bittner case. The issue was whether in the context of a non-willful FBAR penalty:

1) The government is restricted to imposing one penalty based on the failure to file one FBAR; or

2) The government is authorized to impose one non-willful penalty for each of the accounts that should have been reported on the single FBAR form.

For example, let’s imagine that a US citizen has ten accounts that are “foreign” and he fails to file an FBAR form. Is the penalty based on the failure to file the form itself (one form means one $10,000 penalty)? Or may the government impose a penalty based on the failure to disclose each of the accounts on the FBAR form (10 times $10,000 = $100,000)?

Mr. Bitter is/was a dual US Romanian citizen who was living in Romania during the years that the FBAR penalties were imposed. According to the closing comments of his lawyer, Mr. Bittner (while living in Romania) had filed US tax returns for years that he had a business connection to the United States (apparently investing in a relative’s business in California). In other words, there is some evidence that Mr. Bittner was not fully aware that as a US citizen, his US tax and reporting obligations applied even when he did not live in the United States. In any case, Mr. Bitter argues that he should have received one $10,000 penalty for each of the five years ($50,000). The government imposed penalties of 2.7 million dollars based on a failure to report 52 accounts.

On Wednesday November 2, 2022 the Supreme Court of the United States heard argument on the “per account vs. per form” issue.

The above podcast contains the audio file of the live arguments.

A transcript of the arguments is here:

http://citizenshipsolutions.ca/wp-content/uploads/2022/11/21-1195_5i36.pdf

A recording from C-span is here:

https://www.c-span.org/video/?523324-1/bittner-v-united-states-oral-argument

The following twitter thread reflects my impressions while listening to the arguments …

https://threadreaderapp.com/thread/1587807427327655937.html

Earlier podcasts discussing this case are included as an *Appendix to this post.

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How US Tax Treaties And The “Saving Clause” Prevent Countries From Establishing Retirement Programs For US Citizen Residents

Prologue – The Circumstances Of Your Birth Should Not Determine The Outcome Of Your Life …

The above tweet references a “human interest” story where US citizen children are denied benefits in their country of residence that are available to all people who are NOT US citizens.

The description includes:

New Zealand children born to parents’ who are citizens of the United States face a difficult KiwiSaver choice: Give up your US citizenship, or face a KiwiSaver tax compliance bill of $750​ or more a year courtesy of the US taxman.

A petition has been started at Parliament asking MPs to change the KiwiSaver Act to allow people with KiwiSaver accounts facing the unreasonable demands from US tax authorities to close their KiwiSaver accounts.

The issue surfaced as a result of the plight of Auckland dual national Kira Bacal and her four New Zealand-born children, Harper, 13, Rowan, 10 and twins Malachi and Elias, 8.

It appears that the poor (New Zealand born) Bacal children are finding that the US (or at least US tax preparers in New Zealand) consider their KiwiSaver to be a possible vehicle for US tax evasion! Not only is the KiwiSaver a “trust”, but it’s a “foreign trust” which comes with all kinds of penalty laden reporting obligations and no tax advantages. An excellent analysis of the US tax implications of the New Zealand KiwiSaver is here. The story is somewhat comical in that one gets the feeling that the blame should be placed on New Zealand (and not the United States) for New Zealand’s failure to legislate special exceptions for US citizens living in New Zealand.

So what! They’re Americans and therefore they deserve it (you say)!

A previous post explained that for Americans abroad, changes in the laws of their country of residence can change their tax relationship with the United States. The purpose of this post is to expand on that theme by demonstrating that:

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