Tag Archives: FATCA

Part 1 – Notice 2023-11: The Carrot, The Stick And Heightened FATCA Enforcement On Overseas Americans

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Welcome To 2023 – A Year Of Heightened FATCA Enforcement

On December 30, 2022 US Treasury released Notice 2023-11. The broad purpose of the Notice is to prescribe conditions that would allow non-US banks to temporarily avoid a designation of “significant non-compliance” under the FATCA IGAs. It is important to note that Notice 2023-11 is NOT simply a “stay of execution”. It is a “stay of execution” that is conditional on both non-US banks and their governments participating in a significant escalation of FATCA enforcement on US citizens who live outside the United States.

The purpose of this post is to comment on and analyze the provisions of Notice 2023-13 which strongly incentivize non-US banks to purge themselves of existing US citizen clients. In Part 2 I will explain why I believe that non-US banks may be forced to close the accounts of all their US citizen customers.

n-23-11

Prologue And Summary Of The Issue

Through a combination of FATCA (“Foreign Account Tax Compliance Act”) found Chapter 4 of the Internal Revenue Code and the FATCA IGAs (the mechanism for countries to comply with FATCA) the United States has created conditions where US citizen customers are a burden and risk to non-US banks. These provisions have created conditions that threaten punitive financial sanctions on non-US banks who cannot notify the IRS of a US citizen’s Social Security Number. Generally this is because the US citizen has lived abroad for many years and does NOT have a SSN. This situation has created worry for the banks and for their US citizen customers. The fact that the US citizen does NOT have a SSN is NOT relevant to the reporting obligation imposed on the bank. To be clear: The FATCA IGAs mean that non-US banks can easily be in “significant non-compliance” for the failure to comply with something that is impossible to comply with.

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“Bear Necessities”: Argentina US #FATCA IGA Confirms No Obligation Of Reciprocity On US

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The Readers Digest Version: A Tweet By Tweet Explanation

Prologue – Argentina December 5, 2022

The State Department website featured the following announcement:

On December 5, Ambassador Marc Stanley and Argentine Minister of Economy Sergio Massa signed an Intergovernmental Agreement (IGA) to facilitate implementation of the U.S. Foreign Account Tax Compliance Act (FATCA). The IGA advances the shared objective of improving international tax compliance. The United States enters into bilateral FATCA IGAs with foreign jurisdictions to provide for the implementation of FATCA through domestic reporting and automatic exchange of information.

This IGA will enable the reciprocal exchange of certain financial account information between the United States and Argentina, while ensuring appropriate data protection. The United States enacted FATCA in 2010 to combat offshore tax evasion. There are currently 113 FATCA IGAs in effect between the United States and foreign jurisdictions.

Note the inclusion of the word “reciprocal”. Describing an agreement as reciprocal does not make it reciprocal. The US Argentina FATCA IGA is a reminder of how one-sided and unequal these FATCA IGAs really are. The reason for the inequality is that the United States imposes “citizenship taxation” and Argentina (like the rest of the world) imposes “residence taxation”. Therefore, the terms of the FATCA IGAs reflect the attempts of the United States to use its system of “citizenship taxation” to claim the residents of OTHER countries as US tax residents.

Detailing The Inequality Of The US Argentina FATCA IGA

or read the Threadreaderapp version here.

In the spirit of bringing an exciting end to 2022, the United States and Argentina have entered into a FATCA Intergovernmental Agreement. The Model 1 FATCA IGAs are not and were never intended to impose reciprocal exchange of information obligations on the United States. Not only does the US get far more than it gives, but the definition of “reportable accounts” reflects the difference between a US tax system based on citizenship and an Argentine tax system that is based on “residence”. One result is that under the FATCA IGAs information flows from a country (Argentina) where the US citizens are likely to live to a country (the United States) where the US citizens reported on do NOT likely live. On the other hand, the agreement clearly states that the US will send information (what little it is obligated to send) from a country where the person does NOT live (the United States) to a country where they do live (Argentina). An important effect of the FATCA IGAs is they assist the United States in claiming the tax residents of other countries (in this case Argentina) as US tax residents as well. This is one of many respects in which the FATCA (“Foreign Account Tax Compliance Act”) is different from the CRS (“Common Reporting Standard”).

To put it simply: the FATCA IGAs have the effect of expanding the US tax system into the FATCA partner country (in this case Argentina).

Summary …

For the “Bare Necessities” click on the following tweet …

Those interested in a more detailed discussion of why the FATCA IGAs are not reciprocal are invited to read the discussion here.

John Richardson – Follow me on Twitter @Expatriationlaw

John Richardson – Information Session – London, UK – Thursday Oct. 13/22 – 19:00 – 21:00

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Attention!! Date, time and location updated!! – Thursday Oct. 13/22 – 19:30 – 21:30 – New location! See here.

___________________________________________________________

John Richardson – Information Session – London, UK – Thursday Oct. 13/22 – 19:00

What: John Richardson informal information and discussion session for those impacted by US extraterritorial overreach

When: Thursday October 13, 2022 – 19:00 – 21:00

Where: Pret A Manger – Directly Across From Russell Square Tube (careful to choose the correct Pret)
40 Bernard Street, London, WC1N 1LE
https://www.pret.co.uk/en-GB/shop-finder/l/london/40-bernard-street/284

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Federal Court Of Appeal Upholds Trial Decision Ruling Canada/US FATCA IGA Is Constitutional

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Circa 2014

In June of 2014 the plaintiffs in the ADCS (“Alliance For The Defence Of Canadian Sovereignty”) lawsuit launched their legal challenge to the constitutionality of the Canada US FATCA IGA. The proceedings have gone through a Federal Court hearing in 2015, a second Federal Court hearing in 2019 and the Federal Court Of Appeal hearing in 2022. It has been a “long haul” and the plaintiffs (Ginny, Gwen and Kazia) – true unsung heroes in life – deserve the thanks of all Canadians.

On September 21, 2022 the Federal Court of Appeal dismissed the appeal from the trial decision (which ruled against the plaintiffs).

In other words, the US FATCA law continues to be endorsed by the Canadian courts as being the law of Canada too.

Every human being is a minority somewhere. US citizens living outside the United States are a minority wherever they live. Furthermore, because of FATCA (the tool to enforce citizenship taxation) they will ALWAYS have fewer rights than others in their country of residence. What is astounding is that the United States is ensuring that it’s own citizens are subject to discrimination! Such are the effects of citizenship taxation.

The advancement and protection of the rights of minority groups is always a marathon and not a sprint. It requires the relentless dedication to the goal of achieving justice. At this moment I would like to recognize and thank Patricia Moon, Carol Tapanila and Stephen Kish for their tremendous efforts, personal sacrifices and focus on this cause.

It’s also important and appropriate to recognize the support of the hundreds of anonymous people who contributed financially (in some cases their pension payments) and in other cases their encouragement that this legal challenge was necessary.

The next decision is whether to seek leave to appeal to the Supreme Court Of Canada.

I will write more about this in the next few days. What follows is a copy of the decision.

A-370-19_20220921_R_E_O_OTT_20220921132516

Those wishing to better understand the history, purpose and progression of this lawsuit might go here:

https://adcsovereignty.wordpress.com/the-summary-trial-book-of-posts/

John Richardson Follow me on Twitter @Expatriationlaw

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

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

The letter includes statements that bear on:

– the Dutch banks and their FATCA obligations

– FATCA

– Citizenship taxation

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

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

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

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

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

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

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

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

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

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

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

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The Weaponization Of Citizenship: From “You Are NOT American” to “You ARE American”

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Recommended Reading For Americans Abroad

I recently came across the book “You Are NOT American” by Professor Amanda Frost. I read very few books from beginning to end. This particular book I read twice. The subtitle of the book is “Citizenship Stripping From Dred Scott To The Dreamers“. Ms. Frost documents the struggles of those unlikely people who were conscripted into the an internal struggle – invisible to all except those affected – in the United States. I think of this struggle as the “weaponization of citizenship”. Historically this struggle has resulted from the attempts of the United States to reconcile its ugly history of slavery with its beautiful aspirations of freedom. The book is well researched and Ms. Frost was able to tell the stories of the principal “warriors”, bringing them to life in a way that humanized them. Although each person/warrior was the public face of a legal issue (many of their cases were heard by the Supreme Court Of The United States) we learn and understand the facts and circumstances that brought them to the court. While reading the book, I could feel the pain, the frustration and the injustice. We learn how the laws of the day impacted the people of the day. This knowledge comes from Ms. Frost digging into the archives and finding many original sources. The footnotes constitute a “treasure trove” of information akin to reading old newspapers. The book tells the story of “citizenship stripping” as a commentary on American history, culture and values in a broader sense.
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Part 1 – For Americans Abroad: Ending FATCA Would Not End Citizenship Tax, But Ending Citizenship Tax Would End FATCA Under The Internal Revenue Code

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Introduction

Americans Abroad are crumbling under the weight of the application of US citizenship taxation to their “every day lives”. Pursuant to America’s “citizenship taxation regime”, the United States is actually imposing a more punitive and more penalty laden reporting regime on US citizens who do NOT live in the United States than on those who do live in the USA.

Think of it:

For every other country in the world, if one ceases to be a resident of the country and establishes residence in another country, one ceases to be taxed by the first country. US citizens who move from the United States: (1) not only continue to be subject to US taxation, but (2) are “subject(s)” to a more punitive taxation than if they remained in the United States!

In 2010 President Obama signed FATCA into law. The effect of FATCA was to (1) institute a “world wide search” for US citizens living outside the United States and (2) to create significant public awareness of US citizenship taxation. I have previously argued that the effect of FATCA was to expand the US tax base into other countries.

FATCA applies to Americans abroad because and only because of US citizenship taxation (the rule that says that Americans abroad are treated as US tax residents even if they don’t live in the United States). Because FATCA created awareness of US citizenship taxation many people have trouble understanding the difference between US citizenship taxation and FATCA. It is understandable that many believe that FATCA and citizenship taxation are the same.

How to understand how/why citizenship taxation is different from FATCA:

1. US citizenship taxation is the rule that says that all US citizens regardless of where they live are subject to all the provisions of the US Internal Revenue Code. These provisions include taxation, reporting penalties and of course full US taxation on all income earned earned while they are living outside the United States. Many US residents do NOT end up actually owing any US tax. Similarly, many US citizens living outside the United States do NOT end up owing any US tax.

2. FATCA is part of the Internal Revenue Code. Because the Internal Revenue Code applies to all US citizens, FATCA (as part of the Internal Revenue Code) applies to all US citizens (including US citizens living outside the United States). Generally FATCA is a provision to require non-US financial institutions to identify their US citizen customers and report their identity to the Internal Revenue Service. FATCA also imposes additional “reporting requirements” on US citizens (including those who live outside the United States) who have non-US bank and financial accounts.

Ending FATCA Would NOT End Citizenship Taxation, But Ending Citizenship Taxation Would – Under The Internal Revenue Code – Likely End The Application Of FATCA To Americans Abroad

The US Internal Revenue Code applies to ALL “individuals”. Because US citizens are “individuals”, the Internal Revenue Code applies to US citizens wherever they live. FATCA is just one part of the Internal Revenue Code. Even if FATCA were repealed the Internal Revenue Code would continue to apply to all US citizens AND its discriminatory impact on Americans abroad would continue.

But, if the United States ended citizenship taxation by severing citizenship from US tax residency (people can no longer be taxed by the United States just because they are a US citizen) the application of FATCA to US citizens abroad would (under the Internal Revenue Code) likely end.

Here is why – some technical “mumbo jumbo” for those interested

1. The Existing Statute Which Under The Citizenship Tax Regime: IRC 1471 (the operative FATCA section) refers to IRC 1473 for the definition of “Specified United States Person” which is defined partly in terms of “United States Person”. The point is that by ceasing to be a “United States Person”, one ceases to be a “Specified United States Person” for FATCA purposes.

The sequence of reasoning under the existing Internal Revenue Code is:

1. If “United States Account” then FFI has FATCA reporting obligations (1471(b)).

2. If account held by “specified United States Person” then “United States Account” (1471(d)(1)

3. If individual “United States Person” then “specified United States Person” (1473(3)).

4. If US citizen or resident then “United States Person” (7701(a)(30)).

The key point is that if an individual is a “US Citizen” (or resident) the FFI must treat the account as a “United States Account”. A “United States Account” exists if and only if there is a US citizen or US resident which triggers the sequence of 1. Becoming a “US Person” and 2. Then becoming a “Specified United States Person” 3.Then becoming a “United States Account” and 4. As a “United States Account” subjecting the FFI to reporting obligations.

The statute is written so that “United States Accounts” that are reportable. By changing the definition of “US Person” one changes whether an account is a “United States Account”. If Congress were to amend the definition of “United States Person” to include “All Blue Eyed Individuals” then accounts held by “Blue Eyed Individuals” would become United States accounts and therefore subject to FATCA reporting.

Bottom line: The disclosure obligations of FFIs applies to “United States Accounts”. Accounts held by “United States Persons” are “United States Accounts”. But any change in the definition of “United States Person” will change the characteristics/definitions of “United States Accounts”. Congress controls the meaning of “United States Account” by controlling the definition of “United States Person”.

2. A Proposed Statute Pursuant To Which The US Transitions To Residence-based Taxation: As part of ending citizenship taxation IRC 7701(a)(30) would be amended to exclude “citizen” from the definition of “United States Person”:

(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.

By changing the definition of “United States Persons” to be “residents” the FATCA obligations imposed on FFIs would be determined under the following sequence of reasoning:

1. If “United States Account” then FFI has FATCA reporting obligations (1471(b)).

2. If account held by “specified United States Person” then “United States Account” (1471(d)(1)

3. If individual “United States Person” then “specified United States Person” (1473(3)).

4. If US resident then “United States Person” (7701(a)(30)).

A change to the definition of “United States Person” which defines a “United States Person” as a “resident” would mean that FFIs would no longer be required to disclose accounts held by US citizens but only by US residents.

Conclusion

Ending “citizenship taxation” AKA “severing US citizenship from US tax residency” should solve the FATCA problem for Americans abroad. That said, ending FATCA for Americans abroad would leave the citizenship taxation problem intact!

Ending FATCA would solve “A problem” for Americans abroad. Ending “citizenship taxation” would solve “THE problem” for Americans abroad! At, least under the Internal Revenue Code.

In Part 2, I will explore why ending citizenship taxation under the Internal Revenue Code would NOT solve the FATCA problem for Americans abroad under the FATCA IGAs!

John Richardson – Follow me on Twitter @Expatriationlaw

Appendix – How Severing Citizenship From Tax Residency Would Impact The FATCA IGAs

The definitions section of the Canada US FATCA IGA (see page 7) includes:

ee) The term “U.S. Person” means

(1) a U.S. citizen or resident individual,
(2) a partnership or corporation organized in the United States or under the laws of the United States or any State thereof,
(3) a trust if
(A) a court within the United States would have authority under applicable law to render orders or judgments concerning
substantially all issues regarding administration of the trust, and
(B) one or more U.S. persons have the authority to control all substantial decisions of the trust, or
(4) an estate of a decedent that is a citizen or resident of the United States.

This subparagraph 1(ee) shall be interpreted in accordance with the U.S. Internal Revenue Code.

For the full text of the US Canada FATCA IGA see:

FATCA-eng

Assuming citizenship were severed from US tax residency, either:

1. The definition of “U.S. Person” would require amendment to exclude “U.S. citizen” in (1); and/or

2. The FATCA IGA would simply be interpreted to exclude “U.S. citizen” from the definition of U.S. tax residency.

In other words, the IGAs might require amendment to ensure that its provisions are not triggered by and only by a finding of U.S. citizenship.

Be Careful Of Faulty Logic Claiming FATCA And The CRS Are Similar: Seven Ways They Are Not

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Prologue

For those more interested in logic than in FATCA, you will find a discussion of the logical fallacy here.

Introduction

Last week I participated in a group discussion about FATCA and its effect on Accidental Americans. It’s difficult to have a discussion about FATCA that doesn’t include the CRS (“Common Reporting Standard”). Neither FATCA nor the CRS is well understood. That said, an introduction of the CRS into a discussion about FATCA detracts from a consideration of how FATCA impacts Accidental Americans (and others). Furthermore, there is a generalized assumption that the CRS is a positive development. Associating FATCA with the CRS enhances the “illusion” that FATCA is also a positive development.

In part, the discussion assumed that:

– FATCA (U.S. “Foreign Account Tax Compliance Act”) and the OECD CRS (“Common Reporting Standard“) were similar kinds of information exchange agreements; and

– To attack/criticize FATCA would be to criticize and have the effect of weakening the CRS.

These are absurd claims which are based on faulty logic. The faulty logic is that because FATCA and the CRS overlap in one aspect that they are functionally equivalent in intent, effect, purpose and other aspects. The argument appears to be based on the following reasoning:

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The FATCA IGAs Do Not Impose An Obligation Of Reciprocity On The United States

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Introduction – The Question

Over the past few months, in unrelated contexts, I have heard the question asked:

Is FATCA reciprocal?

For example the Judges hearing the appeal in the ADCS FATCA Canada lawsuit asked (clearly assuming that it did) whether the FATCA IGAs imposed reciprocal obligations on the United States. Surely it must, they assumed. Recently the head of a FATCA fact finding mission asked in a meeting of individuals the same question. In neither case was a clear “yes or no” answer provided. Some participants were adamant that there WAS reciprocity. Others were adamant that there was no reciprocity. Some simply didn’t know. This post is an attempt to analyze the facts as they pertain to FATCA, consider whether the FATCA IGAs prescribe reciprocity of obligation and ultimately explain why there is NO meaningful reciprocity of obligation.

Some Important FATCAoids

The 2010 Statute

FATCA was signed into law by President Obama on March 18, 2010. The general provisions are found in Chapter 4 – Sections 1471 – 1474 of the Internal Revenue Code. The statute is coercive and is a US demand, under threat of sanction, that non-U.S. banks deliver information, about the bank accounts of residents of their country, to U.S. Treasury. The statute contemplates a one way flow of information to the United States without ANY reciprocity from the United States. (Any discussion of “reciprocity” must take place within the context of the FATCA IGAs.)

The 2014 Implementation Of FATCA Via The IGAs

The implementation of FATCA (via the FATCA IGAs) began (in many countries) on July 1, 2014. Because the statute does NOT (IRC 1471 – 1474) obligate the United States to provide any information to other countries, any obligation of reciprocity must be found in the IGAs.

Do Bilateral Obligations Mean Reciprocity?

Non-U.S. countries are required – pursuant to the FATCA IGAs – to transfer information about the holders of local financial accounts in their country to the United States of America. Notably the vast majority of account information transferred to the United States is information about accounts held by tax residents of the transferor country. In other words: pursuant to the FATCA IGAs, account information is transferred about accounts located in a country where the account holder actually lives to a country where the account holder does NOT actually live! To put this in context, imagine the following scenario:

You have a neighbour in a Canadian small town, who earns his income in Canada and pays tax on that income to Canada. That income is deposited into a bank account at a branch located in his community. That neighbour may be having his bank account information transferred to the United States. How could this be you ask? Surely this must be a mistake? The answer is “No it is not a mistake”. It’s the result of Canada enacting a U.S. law (“FATCA”) on Canadian soil. Pursuant to that FATCA law (described in numerous CBC articles), the transfer of account information is required because your neighbour was either born in the United States or was born in Canada to a U.S. citizen parent. So what you ask? Surely the circumstances of a person’s birth shouldn’t mean that a country where they don’t live has access to their banking information in the country where they do live? Wrong again. It’s about tax residency and about the U.S. unique definition of tax residency. You see, the United States defines any U.S. citizen as a tax resident of the United States (regardless of where that citizen lives). By defining “tax residency” in terms of citizenship, the United States is claiming that the tax residents of other countries are U.S. tax residents. U.S. citizens are subject to all (tax, forms and penalty) the provisions of the U.S. Internal Revenue Code. But wait you ask! My neighbour lives in Canada, pays tax in Canada and is a tax resident of Canada! (In fact the FATCA IGAs allow the United States – by tying the definition of U.S. citizen to a definition in the Internal Revenue Code – to define ANY individual in Canada as a U.S. tax resident.) Yes, it’s true. Pursuant to the FATCA IGAs the United States is claiming Canadian tax residents as U.S. tax residents. This means that the United States is claiming the right to impose U.S. taxation on the Canadian employment income, earned by residents of Canada, which is already taxed in Canada. Yes it’s true.

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