Man is an animal suspended in webs of significance that he himself has spun...

Tuesday, September 9, 2014

FATCA/CBT: See You in Court

It's been four years since the Foreign Account Tax Compliance Act was passed by the US Congress and signed into law by President Obama.  The collateral damage caused by this law and the unique US citizenship-based taxation system on Americans abroad has been reported to the US government through countless letters, testimonials and face-to-face interviews over the course of several years now.

In spite of all this advocacy, these efforts to get the US government to do something on behalf of the 7 million Americans abroad have come to nothing.  There are so many proposals on the table which range from mitigating FATCA ("same-country exception")  to replacing the current citizenship-based taxation system to a residence-based one, to a proposal to create a commission that would at least look into some of these issues.  Not one of these initiatives (even the modest ones) has moved forward.

It looks more and more like the hard work, goodwill and patience of Americans abroad is being met with indifference on the part of the US government.  Recently, in a stunningly stupid move,  they raised the fee to renounce US citizenship 422% which has offended even the Americans abroad who don't wish to renounce.

So it's not surprising that those who consider themselves to be the  FATCA/CBT collateral damage have decided that trying to get the US government to act is something of a lost cause and they are turning to the home and host country courts and international organizations for relief.

I think they are right.  Look, it took 5 years for the US government to come up with a better alternative to OVDP/OVDI for the "non-willful non-compliant" (those US citizen taxpayers abroad who are part and parcel of the 99% whose only crime was ignorance).  Today, there is no sign whatsoever that the agencies and lawmakers plan on lifting so much as a pinkie finger to address the collateral damage to Americans abroad caused by FATCA or that they are even contemplating changing the US tax system.   And the signals that the US government is sending out right now to US citizens living overseas looks very much like (in the words of Phil Hodgen)  "the beatings will continue until morale improves."

So, in my view, they are right and our best chance for change is the courts and international organizations.  What do we have so far?


And in a development that I heard about yesterday, a new court case is in the works on behalf of those "Accidental Americans" who now face the horrendous cost of getting rid of a citizenship they didn't know they had and don't want.  The right to expatriate enshrined in international law is meaningless when a country puts a price tag on it that is outside the reach of all but the most affluent.
Here is their press release (English and French versions) and please feel free to copy it and spread it around as widely as possible.

Alliance for the Defence of Canadian Sovereignty Retains Washington D.C Attorney to Change U.S. Expatriation Policies Applied to Canadian Citizens Resident in Canada

Today, the Alliance for the Defence of Canadian Sovereignty (ADCS-ADSC) retained Jim Butera, a Washington D.C. attorney with Jones Walker LLP. Mr. Butera will explore legal options to reverse practices of the United States government preventing Canadian citizens who are “Accidental Americans” from freeing themselves of U.S. citizenship and obligations.

Accidental Americans include those born in the U.S. but who left the United States at a young age to live permanently in another country. Although they have no meaningful ties to the U.S., they are claimed as “U.S. citizens” and subject to lifetime taxation on their non-U.S. income. Accidental Americans not compliant with the Internal Revenue Service (IRS) are considered by the U.S. to be “tax cheats” not paying their “fair share”.

Many Americans ask: “Why don’t these people who don’t want to be U.S. citizens just renounce their citizenship?” The answer is that the U.S requires a variety of fees (expatriation penalties) to be released from U.S. citizenship and its obligations. Many cannot afford these different citizenship penalties which include the requirement to pay the professional costs of five years IRS compliance and the possibility of an onerous exit tax (designed to compensate the U.S. for losing the right to tax “Accidental Americans” in perpetuity). In addition, a new penalty is the increase in renunciation fee from U.S.$450 to U.S.$2,350, making it difficult for many Canadians to afford the cost of renunciation.

Kathleen is a Québécoise born in the U.S. to a French-Canadian mother and American father who left the U.S. at the age of three. She says ”I know I can’t possibly plan for my retirement in Quebec while following these U.S. tax laws” and hopes to be able to pay the costs to renounce her citizenship. A middle class mother of three, she had to pay a tax expert to calculate the cost to renounce obligations to the IRS. “The cost will be at least one full year of income that I could have used for my retirement, and may be a lot more” says Kathleen.

“We want to change U.S. policies that could force into bankruptcy innocent Canadians, like Kathleen, who want to free themselves of U.S. citizenship that was imposed without consent. Submissions to Congress have had no effect. That’s why we are exploring legal options” says Stephen Kish, ADCS-ADSC Chair.
Contact: Dr. Stephen Kish, Chair, Alliance for the Defence of Canadian Sovereignty
(www.adcs-adsc.ca) Information@adcs-adsc.ca

L’Alliance pour la défense de la souveraineté canadienne retient les services d’un avocat américain dans le but de changer les politiques d’expatriation qu’imposent les États-Unis aux citoyens canadiens habitant au Canada

Aujourd’hui, l’Alliance pour la défense de la souveraineté canadienne (ADCS-ADSC) a retenu les services d’un avocat de Washington D.C., Jim Butera, de la firme Jones Walker LLP. M. Butera examinera les options légales susceptibles de renverser les politiques américaines empêchant les citoyens canadiens qui sont aussi des Américains « par accident » de se libérer de leur citoyenneté américaine et ainsi de toute obligation envers les États-Unis.

Le titre « Américain ‘‘par accident’’ » s’applique aux personnes nées aux États-Unis, mais qui ont quitté ce pays en bas âge pour s’établir de façon permanente dans un autre pays. Malgré le fait que ces gens n’entretiennent aucun lien avec les États-Unis, ils sont des citoyens de ce pays et doivent par conséquent payer des impôts à vie sur des revenus entièrement gagnés à l’extérieur des États-Unis. Les Américains « par accident » qui ne se conforment pas au système de taxation américaine sont considérés comme des fraudeurs qui ne paient pas leur « juste part ».

Plusieurs Américains demandent : « Pourquoi les personnes qui ne veulent plus de leur citoyenneté américaine n’y renoncent-elles tout simplement pas ? » La réponse est que les États-Unis leur imposeraient des frais (des pénalités d’expatriation) en échange de leur libération. Plusieurs n’ont pas les moyens de répondre à toutes les exigences du gouvernement américain, qui incluent des frais comptables pour la production de cinq années de déclarations de revenus à l’IRS et la possibilité de
subir de lourdes pénalités pour leur droit de sortie mises en place pour indemniser les États-Unis pour la perte du droit de taxer ces personnes à perpétuité. De plus, une nouvelle pénalité entrera en vigueur, empêchant certainement un grand nombre de Canadiens de renoncer à leur citoyenneté américaine : les frais de renonciation passeront de 450 $ à 2 350 $ US.

Kathleen, une Québécoise née aux États-Unis d’une mère canadienne-française et d’un père américain, s’est établie au Canada à l’âge de 3 ans. « Je sais qu’il m’est impossible de planifier ma retraite ici tout en répondant aux lois américaines», dit-elle en espérant pouvoir payer les frais associés à la renonciation. Cette femme de classe moyenne, mère de trois enfants, a dû avoir recours aux services d’un fiscaliste pour estimer les coûts d’une probable renonciation. « Il m’en coûterait
l’équivalent de revenus nécessaires pour une année de retraite, et possiblement plus », ajoute-t-elle.

« Nous voulons changer les politiques américaines qui pousseraient plusieurs citoyens canadiens vers la faillite, des citoyens sans histoire, comme Kathleen, qui voudraient se libérer de cette citoyenneté américaine qui leur est imposée sans leur consentement. Des soumissions présentées au Congress n’ont rien changé, c’est pourquoi nous explorons la voie légale », dit Stephen Kish, président de l’ADCS-ADSC.

Pour plus d’informations : Dr Stephen Kish, président de l’Alliance pour la défense de la souveraineté canadienne, Toronto, Canada (www.adcs-adsc.ca) Information@adcs-adsc.ca

14 comments:

Anonymous said...

Victoria - FYI the link for the Human Rights complaint points to the wrong place.

Blaze said...

Message to U.S.Treasury: Don't mess with Canadians. Not a myth.

USCitizenAbroad said...

These court proceedings against FATCA and related issues are welcome developments. I believe that there are more to come and that we are in the "early stages".

FATCA is he enforcement tool for the "uniquely American invention" of what is referred to as "citizenship-based taxation". "Citizenship-based taxation" is a tax system where the U.S. is actually claiming the right to levy taxes on:

1. Residents of other countries; on

2. Income and property not connected to the United States (unless you accept the position that U.S. citizens are nothing but the property of the United States of America.)

In any case, "citizenship-based taxation" allows the U.S. to impose a permanent tax on the capital and economies of other nations. It is for this reason that it must come to an end. Put it another way:

for a country to allow the U.S. to tax people who live in that country (in most cases the U.S. tax subject is also a citizen of that 2nd country) is an assault on the sovereignty of that country. (I would add that "Cook v. Tait" itself suggests that U.S. tax practices cannot impair the sovereignty of other nations.)

Therefore, I expect that there will be opposition to U.S. tax practices from other other countries.

In any event I full expect (at least) the following three additional legal proceedings:

1. A European based citizen's lawsuit against the countries who have collaborated with the U.S. on FATCA (this will be similar to the Canadian ADSC-ACSC.ca case).

2. A lawsuit challenging the constitutionality of various aspects of CBT in the U.S. courts (this could be raised as a defense against the IRS);

3. Complaints launched by Foreign Governments against the U.S.

It is important to note that the fight against FATCA and CBT are in the early stages. People must be patient and take a long term view.

At a minimum I expect that FATCA will be seen as the catalyst that brought U.S. citizenship-based taxation to an end.

In any event, when it comes to the lawsuits:

You ain't seen nothing yet!

Victoria FERAUGE said...

Yikes! Thank you for the heads up.

OK, just fixed the link.

@Blaze, LOL! Oh yes, definitely NOT a myth.

@USCitizenabroad, I think you're right and there is more to come. And thank you for pointing out areas where litigation is likely.

Anonymous said...

Sad state of affairs after so much anguish and suffering to see how little anybody in power cares.
But I think that in order to show how little it has to do with so called "tax cheats" the letter Marilyn wrote to Obama should be included to actually show how impossible CBT is even for those who were tax compliant.

bubblebustin said...

That sums it up very nicely, Victoria. thank you. Going to tweet and FB it now...

Anonymous said...

Great post, Victoria.
I think another "victory" that should be highlighted is that win in court from that Swedish or Danish citizen who took his bank in court for closing his account.
I can't find the link, but that is great jurisprudence. It should be more publicized.

No No Fatca said...

The best thing is we can do is to vote for Rand Paul and Mitt Romney for president and they will throw this stupid thing out in a NY minute.

Joe said...

Thanks you for posting about FATCA. This law made us closer to the Orwellian state...there is no more freedom. The original,bold, free and brave America is disappearing fast. Big brother assuming everyone is hiding somethings...and Big Brother wants to know where you keep your assets. If you dont obey Big Brother, you are a criminal.

Anonymous said...

Robert Wood of Forbes now has this excellent article Canadians Attack U.S. Expat Rules, Decrying 'Accidental Americans''about the fight for a more humane route to expatriation for 'Accidental Americans':
http://www.forbes.com/sites/robertwood/2014/09/09/canadians-attack-u-s-expat-rules-decrying-accidental-americans/

It highlights the injustice of those who were born in the US, but who left as babies or children and live as citizens and legal residents of another country - doomed by US CBT to be a US tax subject lifelong - and effectively prevented from renouncing due to the now 2350. US fee, and the high compliance costs and risks the US has invented to keep people taxable subjects for life (and beyond).

We tried reason, and were ignored. The US response? Hike the fee exponentially - which for the low and middle income person and family could be equivalent to a month of salary to be free of a life of USextraterritorial double taxation, punitive treatment of our legal local savings, and other forms of life control, slander and abuse by the US Treasury/IRS and total lack of any meaningful political representation or recourse in the US.

I hope something can also be done for those whose children or dependents deemed legally incompetent are not allowed by US law to renounce. If one member remains bound, that is a whole family affected.

badger

Anonymous said...

@Anonymous
I think that you are thinking about the Binckbank case from the Netherlands. Oddly, that one doesn't seem to have had much effect on bank policies even in the Netherlands, since ING continues to discriminate. After BNP Paribas, the banks seem to be more worried about U.S. fines than anything else.

Here's one from Allison Christians:
http://taxpol.blogspot.co.uk/2014/04/netherlands-bank-prohibited-from.html

The comment about how FATCA is being misinterpreted now as a crackdown on Americans resident overseas is an interesting one. Over the years, the targets have gradually gone downmarket and the rationale has shifted a lot. Also interesting that Christian's readings of the IGAs suggest that only deemed compliant institutions are required not to discriminate under the IGAs.

Anonymous said...

Fatca, the worst law by the worst President.

Anonymous said...

Education and disability savings accounts are subject to FATCA and to the FBAR, as well as US double extraterritorial taxation. Minors and those deemed legally incompetent are not allowed by the US to renounce (some potential exceptions for older minors who can demonstrate to consular satisfaction their maturity to renounce).

FINCEN on its website states that CHILDREN should file their own FBARs - check the instructions.

So, our children living abroad who the US claims as 'taxable person' solely based on US parentage or a US birthplace are automatically and routinely subjected to registering their birthday savings accts and education savings with a US agency whose mandate is to investigate serious financial crimes like terrorist funding, drug kingpins, money laundering, organized crime, and fraud.

That is an insult that those outside the US should not be expected to bear as a cost of having US citizenship - especially those who like minors and those deemed legally incompetent to renounce are deemed by the US to be not mature or mentally competent to understand citizenship enough to renounce, but FINCEN treats as legally competent and mature enough to be criminals and to file their own FBARs.

There are no words to describe how we feel about the US because of this harmful egregious treatment of ourselves and the vulnerable.

It is abusive.

Senator Schumer supports the creation of a tax free disability savings plan for those living inside the US, but supports the US extraterritorial taxation and confiscation of the equivalent for those children and dependents living OUTSIDE the US

http://www.silive.com/news/index.ssf/2014/09/schumer_backs_bill_for_tax-fre.html

http://www.autismspeaks.org/news/news-item/sen-schumer-and-autism-speaks-push-passage-able-act

What of those children who need the very same supports outside the US, whose parents just want Senator Schumer and the US to leave them alone, let them be expatriated, and stop calling them and their families 'tax cheats'?

This is why I despise the US now. There is no end to the hypocrisy and the hurt they are causing us abroad.

This is why I will give whatever small amounts I can to make the court case succeed.

Anonymous said...

It is time to become familiar with real U.S. history.Over the last 200 year The United States of America has declared bankruptcy five times. In 1871 so that the European bankers could underwrite the recovery of our banking system, they demanded that we become a legal entity. Thus was born The United States Incorperated. To colateralize the loans to the United States Incorperated those European Bankers demanded the ownership of the people of America. That is why those European Banks are the title holders of your Birth Certificate. You do not own your birth certificate, you can only receive from your County Government a CERTIFIED COPY of your Birth Certificate. Back to this FACTA issue, The United States Incorperated needs to hold onto all their Birth Right Citizens and their taxability to satisify the European Bankers that OWN YOU. They have title to you as a human being and the taxable revenue that you produce, they are not about to let you go and become a part of something of a Country that does not have a requirement to repay the loan to the United States Incorperated. In 1933 FDR did not call it a bankruptcy of our government, but for the fifth time it technically was and gold was revalued during the period when all citizen were required to turn in all of their gold which then was valued at $ 16per ounce to $ 32 per ounce day later.
Our government has been lying to us for a very long time, we are no longer soverign citizens of our Original Constitution, we are slaves of the European Bankers which is 60% controlled by Vatican City and 40% by the City of London.