FATCA: Citizenship-Based Taxation, Foreign Asset Reporting Requirements and American Citizens Abroad
By Andrew Grossman
Andrew Grossman is a retired U.S. Foreign Service Officer who served in Seoul, Abidjan, London, Tehran, Algiers and Geneva. He holds the degrees of B.A. in Economics (Clark), LL.B. (Columbia), M.A. in L.I.S. (University College London) and of Licencié en droit européen et international, Maître & Docteur en droit (Louvain-la-Neuve) and is a member of the New York Bar. He now lives in Switzerland, where he writes on private international law issues, especially in the fields of nationality and tax. Among his publications are "Conflict of Laws in the Discharge of Debts in Bankruptcy", 5 Int'l Insolvency Rev. 1 (1996), "Nationality and the Unrecognized State", 50 Int'l & Comp. L.Q. 849 (2001), "Birthright citizenship as nationality of convenience", Proceedings, Council of Europe, Third Conference on Nationality, Strasbourg, Oct. 11-12, 2004; and "'Islamic land': Group Rights, National Identity and Law", 3 UCLA J. Islamic & Near E.L. 53 (2004). His previous work in this series is "Finding the Law: the Micro-States and Small Jurisdictions of Europe" and "A Research Guide to Cases and Materials on Terrorism". He has begun a project analyzing the limits of national autonomy in matters of nationality under European law.
Published April 2018
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Table of Contents
- 1. Introduction
- 2. Population
- 3. Citizenship and Nationality
- 4. Taxation Matters
- 4.1. General
- 4.2. Extraterritorial Reach of the IRS
- 4.3. Passive Foreign Investment Companies (PFIC)
- 4.4. Enforcement and Partial Abatement Matters
- 4.5. FATCA, Know Your Customer (KYC), Anti-Money Laundering (AML) and Foreign Financial Institutions (FFIs): Denial of Financial Services Abroad to "U.S. Persons"
- 5. Miscellany
- 6. Extraterritorial Reach of the IRS
- 7. Bibliography
- 8. Further Law Review Articles on FATCA Published between 2013 and 2017
- 9. Federal Cases Mentioning "FBAR"
- 10. Origins of FATCA: Banks Alleged to be Involved in Tax Evasion; Substantial Penalties
- 11. "Covered Expatriates" and Estates, Trusts and Gifts
- 12. Tax Discrimination Cases, Human Rights and Other Issues Peripheral to the FATCA Question
- 13. Implications for the Future
- 14. Conclusion
This bibliographic essay collects scholarly, government and professional sources in an effort to show how court-ordered human-rights based decisions and legislative responses in U.S. nationality law, coupled with an American notion of nationality as “allegiance” and accidents of history in matters of taxation and a longstanding principle of "citizenship-based taxation", have led to anomalous tax and reporting obligations for American citizens abroad. An already expansive nationality law based both on jus soli and jus sanguinis, and Supreme Court decisions seemingly presuming it to be always and everywhere a valuable right, has made its divestiture more difficult. Assimilation by many in the body politic of renunciants, expatriates and "accidental Americans" to "tax dodgers" has infected the political discourse and made a solution more difficult.
Notoriety of a few cases of wealthy emigrants renouncing citizenship to avoid tax  led to the introduction of exit taxes by the Congress. As enacted, the exit tax is capricious with anomalous results depending on status at birth, place of residence and amount and source of wealth. Subsequently, beginning with Senator Alphonse D’Amato and the Swiss Banks gold litigation and ending with settlements for Swiss and other banks that promoted secret foreign accounts to Americans resident in the United States, the Congress enacted disclosure and reporting statutes. More recently new legislation greatly strengthened enforcement of foreign account (FBAR) reporting rules under the Bank Secrecy Act of 1970, 31 U.S.C. § 5314, Internal Revenue Manual 4.26.16. By threatening foreign banks and countries with effective exclusion from U.S. financial markets, enforcement was "privatized" via Intergovernmental Agreements (IGAs) calling for foreign financial institutions and foreign tax authorities to report accounts of U.S. Persons directly to the IRS. See: UK-US Automatic Exchange of Information Agreement — Complete list of country agreements — IRS general FATCA information for governments
(See Senator Schumer's comments in support of his proposed EX-PATRIOT Act, S. 3205, to raise taxes and impose entry bans on targeted former citizens and permanent residents: Congressional Record, May 24, 2012. Tim Worstall, "Eduardo Saverin's Current Tax Saving: $67 Million. And It Could Be a Tax Loss in the End" Forbes, May 17, 2012; Merrill Matthews, "In Praise of Eduardo Saverin's Ta Avoidance", Forbes, May 23, 2012. The Bill died in committee. It would have imposed special taxes on a subset of covered expatriates with a ten-year lookback period. The failed Bill is mentioned here to show how the Congress has targeted the entirety of the U.S. expatriate population, and domestic owners of foreign financial assets with obscene fines for noncompliance: collateral damage of legislators' reaction to an unknown number of tax avoiders and tax evaders, the fines not necessarily reflecting whether there was any tax revenue loss, or the source of the overseas funds. Compare Guardian, Aug. 24, 2016, "Treasury proposal may fine tax evaders up to 200% of amount owed" but such U.K. fines would be on unpaid tax, not on penalties for nondeclaration of assets, and the tax is residence-based, not citizenship-based. The U.K. does have recapture rules for taxpayers it deems have claimed residence abroad while retaining substantive ties to the U.K.)
FATCA (the Foreign Account Tax Compliance Act), a component of the HIRE Act of 2010, mandated these IGAs and enhanced enforcement of reporting obligations. Whether or not foreign financial assets give rise to income and whether or not U.S. tax is due, failure to file timely declarations to the IRS invokes draconian penalties of the order of $10,000 per tax form per year, much more in cases of noncompliance deemed "willful" (defined and discussed in commentary and case law below). That these laws were little publicized in the past has not prevented them from being enforced; the FBAR itself has a statute of limitation but absconding abroad or failure to file other forms can allow indefinite civil and criminal IRS action (see below).
This essay begins with the evolution of American nationality law and then covers the tax issues as just discussed, with links to all recent reported court judgments and law review articles that could be located in LEXIS, RIA Checkpoint and online in December 2017 and January 2018. It is intended to set out the basic comparative-law and conflict of laws issues, and the U.S. notion of worldwide primacy of its claims to allegiance and its claims to impose tax on those who fall within the scope of its definition of "U.S. Person". Exceptions relate to particular statutory and country-by-country tax-treaty derogation. While the obligation of American citizens and legal residents, wherever situated, to pay tax and to declare foreign financial assets have existed (since 1913 in the first case, and since 1971 in the second), it is only in recent years that aggressive action has been taken by the Congress and by U.S. Government agencies to ferret out, and to punish, noncompliant taxpayers.
There remains a tension between U.S. claims against so called "accidental Americans" holding also a foreign nationality and residing in that other country, and with claims against U.S. residents holding unreported assets financial abroad. The law does not distinguish between the two, but practicality of enforcement, except to the degree that foreign financial institutions (FFIs) are excluded or discouraged from doing business with such persons by costly reporting obligations or heavy fines and crippling withholding tax. The linked cases, articles and reports highlight the issue and the statistics of citizenship renunciation suggest one result. Even among "accidental Americans there is a division: among those who can plausibly deny U.S. status because, born abroad, their existence has never been recorded with any U.S. consular office or tax agency (and perhaps whose American parent(s) qualifying residence or presence is subject to doubt) and those born on American or U.S. territory soil, flagged for attention if that fact is known.
Note that this bibliographic essay is not, itself, intended as legal advice. In additional to background on the problems delineated by its title it collects links to primary and secondary law and commentary and to some degree to comparative law and conflict of laws sources. Law librarians, lawyers, students and academics will know what authority to give each of these. Only where issues have not, or not yet, been addressed, regarding chiefly "accidental", reluctant or doubtful U.S. Persons abroad, does this essay set out (or speculate on) questions that clients and their professional advisors — and scholars — will want to examine. Where the essay strays from the subject this is for cultural context: to suggest that "citizenship" in American practice has several meanings that judicial decisions have had unintended consequences, and that the origins of particular provisions of tax law, too, have largely affected persons other than those originally targeted. It is also by way of analogy to illustrate possible solutions to unsettled points of nationality and tax law.
The research for this essay was carried out at the law libraries at Boalt Hall, the San Francisco Public Library, the Swiss Institute of Comparative Law and University College London. I am grateful to those libraries and their librarians for their assistance.
U.S. citizens abroad: without any conviction or particular evidence, the U.S. Department of State now estimates the number of its citizens abroad as 9 million. In 2004 its estimate was 3.2 million, in 2008 4 million , in 2012 6.3 million and in 2013 6.8 million. As these numbers are generated to justify consular assets and budget they may be self-serving; no basis for their calculation is offered. Unlike citizens of some other countries, Americans are under obligation to register residence or domicile with civil authorities. Only a few countries publish population data by country of origin (Swiss data); even in the United States the issue is contentious (decennial census; community survey). Published IRS data for 2015 show the following numbers of tax returns filed from "other areas", which would include military postal addresses, U.S. outlying territories subject mainly to "mirror taxes", and foreign countries:
Number of single returns
Number of joint returns
Number of head of household returns
Infants, the low paid, and unemployed persons with foreign financial assets under $10,000 are unlikely to be represented in those numbers unless married to a U.S. citizen filing a joint return.
U.S. nationality law has changed substantially in the 20th and 21st centuries, both by legislation and, especially by U.S. Supreme Court decisions implementing evolving concepts of civil rights, gender and nonmarital equality and other unconstitutional discrimination. Foreign-born offspring of one or two U.S. citizens will, themselves, only be citizens if the parent(s) have had qualifying residence or presence in the U.S.A. or presence abroad as government employees or military members, or dependents of either. Until the U.S. Supreme Court decision of June 12, 2017, nonmarital children (the concept of "illegitimacy" having been largely abolished in the United States and many other countries), absent particular facts, would only be citizens if the mother had spent 365 uninterrupted days on U.S. soil at some prior period in her life:
In Lynch v. Morales-Santana, 582 U.S. ___ (2017) (numerous commentaries have been published online and can be found with a search engine query, and the State Department analyzed the case prior to the publication of Justice Ginsburg's opinion in its Digest of United States Practice in International Law (2016)) Justice Ruth Bader Ginsburg determined that such citizenship treatment of nonmarital children was discriminatory and (at the Government's invitation) somewhat arbitrarily substituted the 5-year (of which 2 years after the age of 14) rule prospectively. See Vice Consul Amelia Shaw's 2015 article in the Foreign Service Journal, "Citizenship and Unwed Border Moms: The Misfortune of Geography" for how this changed the outcome for many. While it may lead to greater consistency, the outcome may be surprising in some cases: the child of an unmarried former dependent of a U.S. government employee or military member abroad, if born after the date of the judgment (or if he or she should bring suit on the question), may be a citizen despite the mother never having set foot in the United States before or after. Such status is assimilated to presence in the geographic United States.
The percentage of nonmarital births in the United States is 40.3%. The rates in foreign countries are highly variable but have been increasing rapidly since the mid-1960s. The definition of marriage itself varies by jurisdiction, most interestingly in countries following legal pluralism where personal status may depend on one's religion or tribal culture: the Philippines, Israel, India, Lebanon, and most predominantly Muslim countries, much of Africa and among North American native tribes. In Canada, the Heritage Committee of Parliament addressed the issue.
A major point inherent in nationality cases and the tax cases that depend upon nationality is that birth in the United States, if that fact can be documented will yield 14th Amendment (or for birth in unincorporated territories, under accession treaty, Organic Act and the Immigration and Nationality Act of 1965, statutory) indefeasible U.S. citizenship from birth. Expatriation is a right, but the exercise of that right is conditional and sometimes impossible for economic or mental capacity reasons. (There is a degree of home rule in the rights attributable to territorial noncitizen nationals, subject to Constitutional guarantees.) But does the IRS have standing to open the question of a foreign-born person's nationality when his or her status has not previously been addressed by a competent agency: the State Department or an Immigration Court? The concept of "tax nationality" or "Tax Code as Nationality Law" applies to those who have had, and lost, U.S. citizenship or legal residence, not those as to whom underlying facts are in doubt, or not admitted.
Nationality, or a claim to it, is sometimes denied. From 2013 through mid-2016, undocumented immigrants experienced difficulties obtaining birth certificates for their children born in Texas and members of the cross-border Tohono O'odham Tribe have long had difficulty in proving their status U.S. nationality law, notwithstanding Article 7 of the Convention on the Rights of the Child of 1990 (not ratified by the United States but a generally noncontentious statement of an international human rights norm), poses no obstacle to a child born abroad to a U.S. citizen, or a U.S. citizen renouncing that status at a consular office abroad, being stateless. (In a few circumstances, mostly relating to pre-Morales-Santana unmarried mother cases with special facts, offspring born abroad with unwed or adulterous American fathers, cross-border adoption under former law, assisted reproduction cases and green-card entitlement, U.S. citizenship is effectively voluntary. There may be age limits: see the Hizam judgment, below.)
On the Tohono O'odham and other borderland native status issues, see José Luis Rocha, Revista Envío, Central American University (1915): The American Dream’s anteroom is Mexico’s nightmare, Solid and liquid border vigilance, Part 1; The Mexico-US border: The Border Patrol’s empire, Solid and liquid border vigilance, Part 2; The Mexico-US border: A very lucrative, inefficient business, Solid and liquid border vigilance, Part 3.
Implementation of nationality law may be capricious, and the militarization of USCIS border guards has not infrequently made it difficult for ethnic minority citizens to claim their rights: "Deported U.S. citizen finally gets passport back", N.Y. Daily News, Dec. 1, 2013 (Houston-born resident of El Salvador). "US citizen sues government after being detained by immigration officials for 7 months", RT News, Oct. 22, 2013 (with court documents from PACER and Scribd). "Deportation Nightmare: Eduardo Caraballo, US Citizen Born In Puerto Rico, Detained As Illegal Immigrant", Huffington Post, May 25, 2010. Castelano v. Clinton (Castelano v. Rice), S.D. Tex., No. CA-M-08057 Second Amended Class Action Complaint — Stipulation and Agreement of Settlement — U.S. Dept. of State (Passport issuance obstacles: "Plaintiffs and those they seek to represent are, or are perceived by the government to be, of Mexican descent. When they or their parents were born in states bordering Mexico (i.e., Texas, New Mexico, Arizona and California … their births were attended by midwives or other nonphysicians … in a home or local clinic.")
Nationality attributed in error may be annulled: Hizam v. Kerry, 747 F.3d 102 (2d Cir. 2014) ("[The State Department] will continue to support other lawful means to provide relief to Hizam, including a private bill in Congress") — Brief for Pl'f Hizam — Brief for Gov't — Reply Brief for Gov't — Gov't Memo of Law on Motion to Dismiss — Hizam Pet'n for Reh'g en banc and Digest of U.S. Practice in International Law (2014), p, 1. —David Isaacson Blog — Peter van Buran blog (comparing with Yemeni cases generally, see below). As the court said, Hizam's sole source of relief would be a private Act of Congress (see GovTrack of private bills); CRS, "Procedural Analysis of Private Laws Enacted: 1986-2013" (2013); N.Y. Times, Feb. 26, 2012, "Because U.S. Erred in ’90, Bronx Resident Becomes a Man Without a Country". U.S. law does not encompass the concept of "possession d'état" which could resolve such problems in France and some other countries. U.K. practice: "[A]n innocent mistake would not give rise to a power to order deprivation under this provision." Canada: Afzal v. Canada, 2014 FC 1028 (setting aside certificate of nationality granted in error). Revocation of nationality may result in revocation of the nationality of any children as well, depending upon a State's jus soli and long-term physical presence rules. See Jack Khoury, Israel Revokes Citizenship of Hundreds of Negev Bedouin, Leaving Them Stateless, Haaretz, Aug 25, 2017 for a discussion of Israeli cases involving children. ("Some were citizens for 40 years, served in the army and paid their taxes, but had their status canceled with a single keystroke and no further explanation.")
Once (legitimately) acquired, key prior Supreme Court decisions have made it more difficult to lose U.S. nationality either by accident or by (informal) relinquishment:
- Vance v. Terrazas, 444 U.S. 252 (1980); Comment by Lawrence Abramson, "United States Loss of Citizenship Law After Terrazas: Decisions of the Board of Appellate Review", 16 N.Y.U. J. Int'l L. & Pol. (1984)
- Afroyim v. Rusk, 387 U. S. 253 (1967), Alan M. Gunn, "Acquisition of Foreign Citizenship the Limits of Afroyim v Rusk", 54 Corn. L. Rev. 624 (1969)
- Patrick Weil, The Sovereign Citizen: Denaturalization and the Origins of the American Republic (2013)
The case law centered on nationality sees citizenship as a precious right and takes no note of what may be onerous obligations for an overseas resident. Subject to formal procedure, renunciation remains a right for those of full age and competence, albeit with tax consequences discussed extensively below. See the Meyer Kahane cases, notably United States v. Kahane, 527 F.2d 491 (2nd Cir. 1975) and compare Heuer v. United States, 20 F.3d 424 (11th Cir. 1994) Commentary: Edward Morgan and Ofer Attias , "Rabbi Kahane, International Law, and the Courts: Democracy Stands on Its Head", 4 Temp. Int'l & Comp. L.J. 185 (1990); similarly, Matter of Kekich, Board of Immigration Appeals Interim Decision 2983 (Nov. 16, 1984).
In its attribution to persons born abroad or suspected of birth abroad, citizenship may be inchoate: unrecognized and its obligations unenforced. In cases of doubt where the offspring of a citizen is unable or unwilling to prove facts (blood or gestational relationship; prior parental U.S. residence) that would determine nationality, a person may be admissible to the United States as a presumed alien: 9 FAM 202.1-2 and 7 FAM 085. There is a rebuttable presumption of alienage as to persons born outside the geographic United States and territories: Rios v. Civiletti, 571 F. Supp. 218 (D. P.R. 1983) (father, U.S. Army deserter, recorded birth in Mexico using fictitious name); Corona-Palomera v. INS, 661 F.2d 814, 818 (9th Cir.1981); Matter of Leyva, 16 I. & N. Dec. 118, 119 (BIA 1977).
Developments in assisted reproductive technology have led to new interpretation of the Immigration and Nationality Act: Department of State, Digest of United States Practice in International Law (2014), p. 18. The gestational option has been seen as discriminatory against LGBT men: Guardian, Jan. 24, 2018, "One ruled a US citizen, the other not: gay couple's twins face unusual battle".
The involuntary attribution of nationality later than at birth and other than as a matter of law when previously unknown facts (such as place of birth, parentage or parental residence prior to birth) come to light requires consent. This is an international law principle: that consent of the individual (or guardian) is required at a time other than birth, adoption, state succession or (now rarely) marriage. On the matter of automatic naturalization through marriage and its exorbitant attribution generally, see Alfred M. Boll, Multiple Nationality and International Law (2007), United Nations, Women, Nationality and Citizenship (2003), Michel Verwilghen, Conflits de nationalités: Plurinationalité et apatridie (1999), and International Law Commission, Draft Articles on Nationality of Natural Persons in Relation to the Succession of States with Commentaries (1999). The result is that citizenship cannot be "restored" retroactively without actual or implied consent, as by availing oneself of an attribute of that citizenship or by continued residence in the relevant territory. Right of option and ethnic identity have been two elements of many treaties and statutes. China (1909) and Israel (1951) existed for some years without any nationality law at all, yet in each case the State had no doubt as to who belonged to it.
Note the IRS effort to argue otherwise in Rev. Rul. 75-357, PLR 8138071: "The Supreme Court's decision in Afroyim has the legal effect of voiding section 401(e) of the 1940 Act (and its successor, section 349(a)(5) of the 1952 Act, 8 U.S.C. section 1481(a)(5) (1970)) and the Rocha decision has the same effect with respect to section 3 of the 1907 Act. Since the decisions operate both retroactively and prospectively, individuals affected thereby are and have been United States citizens since birth or naturalization in the absence of facts establishing that such individuals are not United States citizens by virtue of other provisions of law." Taken literally this IRS postulation could affect many foreign-born children of former U.S. citizens who have pursued their lives from birth as nonresident aliens. One could go further in terms of exorbitance: what force shall be given to denaturalization effected by the Bancroft Conventions, the last of which (Bulgaria) was denounced by the United States in the 1990s.
It has historically been impossible for the IRS to enforce this presumptive declaration of status against individuals who, having expatriated or had their U.S. nationality annulled, built their family and economic lives, and given birth to those ostensibly non-American children, elsewhere in the world, perhaps accumulating assets that would from 1986 subject them to exorbitant PFIC (foreign collective investment, as in mutual funds and pensions) taxation (see below). There is a parallel here in the FATCA enterprise and its application to a universe of refuseniks and of expatriates who thought they never had, or had fully disposed of, American citizenship rights and obligations. Here is the source of the uniquely American concept of "tax nationality": devoid of rights but retaining an obligation to pay tax and acknowledged in Article 1(4) of the U.S. Model Tax Convention ("former citizen or former long-term resident").
As to retroactive attribution of nationality and ensuing tax obligations, an issue with Afroyim and Terrazas, the matter did not arise in Morales-Santana: "In the interim, as the Government suggests, §1401(a)(7)'s now-five-year requirement should apply, prospectively, to children born to unwed U.S.-citizen mothers. See Brief for Petitioner 12, 51; Reply Brief 19, n. 3." See Digest of U.S. Practice in International Law (2015), p. 1.
Compare Rev. Rul. 92-109, 1992-2 C.B. 3: "Regarding the taxation of former and reinstated U.S. citizens, it was determined that individuals who lost their U.S. citizenship and then had it retroactively restored before January 1, 1993, will not be held liable for federal income or gift taxes as U.S. citizens between the date they lost their citizenship and the beginning of the taxable year in which the citizenship was restored." This is extrastatutory, but it implies forced reintegration of those expatriated under former law.
Revenue Rulings do not have precedential value. If taxation, even only prospectively, were sought to be enforced against nonresident former citizens who have established commitments and, indeed, who might thereby forfeit citizenship of another country that disallows dual nationality, the application of draconian penalties and taxation under Passive Foreign Investment Company (PFIC) and foreign-trust rules could cause conflict and impoverishment. (There are exceptions to PFIC rules only in respect of pension funds in those few countries where U.S. tax treaties so provide, notably Canada and the United Kingdom. Some commentators deny that U.K. private pension plans ("SIPPs") fall within the treaty exception; one solution for affected taxpayers is to submit Form 8833, "Treaty Based Return Disclosure" to explain that they are adopting the majority, other, view.)
As to transfers of territory, note that Art. VI of the 1970 Treaty to Resolve Pending Boundary Differences and Maintain the Rio Grande and Colorado River as the International Boundary between the United States and Mexico declares:
"The relocation of the international boundary and the transfer of portions of territory or any other provision of this Treaty shall not affect in any way:
"(1) The legal status with respect to citizenship laws, of those persons who are present or former residents of the portions of territory transferred".
It remains to be seen what provision would be made for persons born or naturalized in Puerto Rico in the event the latter territory became independent. Note that Article IX of the 1898 Treaty of Paris between the United States and Spain provided, "In case [Spanish subjects] remain in the territory they may preserve their allegiance to the Crown of Spain by making, before a court of record, within a year from the date of the exchange of ratifications of this treaty, a declaration of their decision to preserve such allegiance; in default of which declaration they shall be held to have renounced it and to have adopted the nationality of the territory in which they may reside."
There is a distinction between the status of Puerto Ricans (and Guamanians) and that of Filipinos, all three populations inherited from Spain in 1898: The Tydings-McDuffie Act (1934) anticipated independence for the Philippines and classified Filipinos as alien protégés. Dawn B. Mabalon, "The Significance of 1946 for Filipina/o Americans". They were noncitizen nationals: Licudine v. Winter, 603 F. Supp. 2d 129 (2009) — Complaint — Motion to Proceed in Forma Pauperis — Motion to Appoint Counsel — Gov't Motion to Dismiss — Opinion (Court version). The instability of that status is highlighted in Tuaua v. United States, 788 F.3d 300 (2015), Cert. denied 136 S. Ct. 2461 (2016), Note: Benjamin Wallace Mendelson, "Courts Have Gone off the Map: The Geographic Scope of the Citizenship Clause", 95 Tex. L. Rev. 873 (2017); Scotusblog (with downloadable case documents). The Philippines inherited American citizenship-based taxation in 1913 but abolished it in 1998 (Republic Act 8424).
We can draw the conclusion from the above that while the citizenship status of most individuals born in the Continental United States is subject to its sovereign jurisdiction, and therefore citizens by way of the 14th Amendment of the U.S. Constitution is clear, and the status of those born in U.S. territories (including, subject to the child having an American parent, until Oct. 1, 1979, the Panama Canal Zone) is established by statute, U.S. citizenship of persons born abroad, and those as to whom birth within U.S. territory is in question, is dependent upon administrative or judicial ruling. See, for example, "Birth documents from border lay midwives draw scrutiny: U.S. challenging some passport applicants born on border", Houston Chronicle, Feb. 14, 2009 And compare "Yemeni-Americans, Thrust Into Limbo, Say U.S. Embassy Unfairly Revokes Passports", N.Y. Times, May 27, 2015 and Ramzi Kassem, "Passport Revocation As Proxy Denaturalization: Examining the Yemen Cases", 82 Ford. L. Rev. 2099 (2014).
U.S. nationality is only one of the criteria by which an individual may become subject to U.S, taxation. Deemed residence ("Green card" status), physical presence and certain cases of former nationality at least since 2008 give rise to indefinite tax obligations in the absence of particular administrative demarches having been effected: and this is true whether the individual has any right to enter or work in the United States, and can be true even if he or she has been deported. The U.S. Congress has as a matter of practice overridden tax treaty provisions and doubtless will continue to do so. Two examples: the Alternative Minimum Tax and the Net Investment Income ("Obamacare") 3.8% surtax on unearned income of individuals with adjusted gross income exceeding $200,000 ($250,000 in the case of married couples filing jointly). Haver v. Comm'r, 444 F.3d 656 (D.C. Cir. 2006) (AMT). FATCA is no less a tax treaty override.
- See, generally, U.S. Treasury, "Income Tax Compliance by U.S. Citizens and U.S. Lawful Permanent Residents Residing Outside the United States and Related Issues" (1998)
- Republicans Overseas, “The Unintended Consequences of the Foreign Account Tax Compliance Act”
- Democrats Abroad, “FBAR/FATCA Task Force Report” and subsequent updates.
- Association of Americans Resident Overseas, “Access to banking and financial services”.
The critical issue is this: because U.S. nationality law and the statutory and judicial rules on loss, renunciation and relinquishment of that nationality, whether voluntarily or not, have changed dramatically during the 20th Century, it requires close analysis of facts and timing to determine whether an expatriated individual lost or relinquished, retained or regained U.S. citizenship. The IRS and the State Department may not agree on the issue of involuntary restoration or retention, and under current law citizenship-based taxation may apply despite previous loss of nationality or residence status. At least since 2004 there is dissonance between loss of citizenship for nationality purposes (including right of entry and abode) and loss for tax purposes and this may impact persons whose prior loss of citizenship as a matter of law did not come to the attention of the U.S. Government. Compare prior law as applied in Marks v. Esperdy, 315 F.2d 673 (1963) (loss of U.S. nationality for having served in the Cuban Revolutionary Army deemed effective, ostensibly for all purposes, by performance of the expatriating act).
John Richardson puts it this way, borrowing from his two linked online commentaries: "Prior to June 3, 2004, U.S. citizenship for nationality purposes determined U.S. citizenship for tax purposes. If one was not a citizen for 'nationality purposes' one was not a 'citizen for tax purposes'. Beginning with June 3, 2004 it became possible to relinquish U.S citizenship for nationality purposes, but continue to be subject to U.S. taxation with various 'notice requirements' (Form 8854 between 2004 and 2008 and CLN from 2008 on) were met. This resulted in indefinite taxation until those notice requirements were met. It is (I think) similar to the requirement for Green Card holders that the Green Card be formally surrendered (I-407) for example, or the requirements in Internal Revenue Code Sec. 7701(b) be met." ("Renunciation is one form of relinquishment – It’s not the form of relinquishment, but the time of relinquishment" and "Q. Is a CLN necessary to relinquish US citizenship for tax purposes? A. It depends on the date of relinquishment") See also Rolf E. Kroll, Internal Revenue Code Section 7701(b): A More Certain Definition of Resident, 3 Dickinson J. Int'l L. 233 (1985)
Beyond that, there are categories of persons, including noncitizen nationals (see the Harvard Law Review series of articles, 2017 and Matter of Ah San, Board of Immigration Appeals Case No. A-20968308 (1975)), of American Samoa and Swains island (pop. 17), Native Canadians with Jay Treaty rights, citizens of Micronesia, Marshall Islands and Palau (per the Compact of Free Association) and certain noncitizen military members who may have right of residence giving rise to tax liability without necessarily leaving a clear paper trail. The latter group is currently in a tenuous situation; some military veterans have been deported.
Even given the standard "savings clause" of U.S. tax treaties (Art. 1(4) of the U.S. Model Income Tax Convention) and notwithstanding the international-law rule that it is for each State to determine who are its nationals, it is not inevitable that foreign states will recognize for all purposes another State's claim to allegiance, particularly as to a person who is also a national of the first State or of a State included in a free travel area. See Micheletti v. Delegación del Gobierno en Cantabria,  ECR I-04239 (European Union citizenship of an Argentine-Italian migrant could not be ignored by Spanish authorities). Already, in terms of laws prohibiting dual nationality, some states have chosen to disregard nationality links that a foreign country cannot or will not abrogate. Nationality of an unrecognized State may be acknowledged for some purposes and not others. If dual citizenship is indeed a human right, what does that say about the right to renounce? Peter J. Spiro, Dual citizenship as human right, 8 Int'l J. Const'l L. 111 (2010). If the costs (consular fees and exit taxes) of renunciation are exorbitant is another State required to recognize its retention?
While the principle of nonrecognition of a nationality absent genuine and substantial ties with the granting State comes from cases such as Nottebohm and Schwartzkopf v. Uhl that are of limited usefulness in the more recent context of common multiple nationality, it makes sense that "international law should candidly analyze and regulate nationality in terms of its functions so as to better effectuate the diverse roles that nationality serves today": R.D. Sloane, "Breaking the Genuine Link: The Contemporary Legal Regulation of Nationality", 50 Harv. Int'l L. J. 1 (2009)). How far may a State go in abusive attribution of obligations of allegiance on someone whose connection with that State are accidental and trivial? And how far may a State go to privatize enforcement, punishing private-sector entities that do not pursue aggressive enforcement on the State's behalf?
Foreign Financial Institutions (FFIs) have been cued to demand a Certificate of Loss of Nationality (CLN) as means of proving citizenship loss, but such documents (now form DS-4083, formerly form FS-348, per 7 FAM 1220) were not required for any obvious purpose prior to June 16, 2008 (26 U.S.C. §877(g)(4)). Applying for a CLN could, under certain circumstances, invoke restoration of previously lost citizenship, only for that citizenship to be renounced or relinquished once more. This could have adverse tax consequences: John Richardson, a U.S. and Canadian lawyer, has written extensively on this subject. Philip Hodgen, a Pasadena, CA lawyer, manages a similar law practice. "Tax-Expatriation" is a Web site maintained by Patrick W. Martin.
Expatriation, while a constitutional "right" from the time of Thomas Jefferson can come at great cost, quite beyond the nonrefundable $2,350 consular fee currently charged. American citizens not specifically exempted either by statute or in some way by sovereign or diplomatic (or quasi-diplomatic immunity) immunity attaching immediately upon loss of U.S. citizenship, and who possess assets beyond a stated amount (see the IRS explanation) are liable to pay exit tax. Thus: capital gains tax on deemed sale of assets including assets (such as pensions) to which they do not have access, and notwithstanding the rights of others, such as family members, under foreign law. See: Robert Wood, "Renounce U.S., Here's How IRS Computes 'Exit Tax'", Forbes, Feb. 27, 2017. Certain persons who were dual nationals at birth and who resided in their other country of nationality may, under conditions, avoid the most onerous tax consequences of expatriation. Thus: Phil Hodgen, "The Dual Citizen Exception to Covered Expatriate Status".
This exception still leaves certain questions open, particularly for persons exercising the right of establishment in another country within the EU/EEA/Switzerland and more interestingly for Irish and British citizens who reside in the other country. Northern Ireland raises particular questions in that the U.K.'s Ireland Act 1949 and similar Irish legislation provide for a Common Travel Area and that the citizens of the other country are not aliens. The Good Friday Agreement reinforces those rights. From the standpoint of this essay an interesting question is whether the Court of Justice of the European Union would allow a Member State to implement a reciprocal collection provision of a tax treaty with the United States as against a migrant worker exercising his or her EEA rights: CJEU case law on direct taxation. The CJEU has only occasionally and obliquely addressed the limits of Member State capacity to grant or deny citizenship: Hanneke van Eijken, "European Citizenship and the Competence of Member States to Grant and to Withdraw the Nationality of their Nationals" (2010).
The European Commission does not necessarily go to the Court of Justice to enforce such rights: a quiet demarche to a Member State can work: (Greek deprivation of nationality under former law to an ethnic Turk exercising his EU right of free movement; Ramadanoglou's Greek nationality was quietly restored). Forcing an issue to go before the CJEU rather than quietly conceding a single case can set a legal precedent that a recalcitrant government will regret: Rush Portuguesa Lda v Office national d'immigration,  ECR-I 1417. The IRS knows this too. See also: Thomas Christiansen et al, eds., Informal Governance in the European Union: An Introduction (2011).
On the conflict of nationalities and rights within the EU/EEA/Switzerland: Devorah Kalekin-Fishman and P. Pitkanen, eds, Multiple Citizenship as a Challenge to European Nation-states (2007) Google Books — Chapt. 1, "Theorizing Multiple Citizenship"
Many of the dual nationals and former U.S. citizens most severely affected by U.S. taxation of expatriates and renunciants are residents of Canada. Two Web forums discuss issues of conflict of laws, inequitable taxation, loss of tax-sparing provisions of the laws of one or the other country, and anomalous situations involving minors and mentally disabled persons unable to renounce U.S. citizenship and so unable to benefit fully from disability benefits and tax-sparing savings and pension provisions of Canadian law:
- Isaac Brock Society
- Maple Sandbox
- Other forums address similar issues for various countries:
- English Forum (Switzerland)
- Expat Forum (numerous country forums)
- FAWCO, Federation of American Women's Clubs Overseas Tax systems can easily collide: governments may tax wealth or spending to a greater extent than income; exemptions and deductions are rarely compatible across borders.
- Reddit discussions of topics pertinent to this essay, including citizenship renunciation and FATCA
On Australian pensions: Mondaq, Aug. 12, 2016: "Australia: The 'Super' Reason Australians Are Renouncing Their US Citizenship"; Marsha-laine Dungo, "U.S. taxation of Australian Superannuation funds: when the Super is NOT so super after all", Moodys Gartner, July 27, 2016; Compare International Tax Blog. Sept. 14, 2017, "Withdrawal of Prior Blog Post Regarding Australian Superannuation Funds" (persisting uncertainty). Similarly: KPMG, "US Tax Implications —Novartis Pension Plans" (Switzerland) (Oct. 11, 2016)
While it is for each State to determine for itself who are its nationals it is not universally true that every State must give effect to such determination by a foreign State: Convention on Certain Questions Relating to the Conflict of Nationality Law (1930), art 1 (ratified by a small number of States, not including the USA, and denounced by Canada in 1996); Adam I. Muchmore, "Passports and Nationality in International Law", 10 U.C. Davis J. Int'l L. & Pol'y 301 (2004); H.F, van Panhuys et al. eds, International Law in The Netherlands, vol. 3 (1980), pp, 13-14.
That said, U.S. tax treaties have savings clauses that, with stated exceptions, reserve the right of the IRS to impose tax on certain income as if the treaty did not exist as to its citizens and former citizens and residents. No treaty addresses the issue of proof of facts relating to citizenship: the assumption seems to be that status is obvious. How far the treaty partner country need go in acknowledging a (denied) relationship between one of its own citizens or residents and the United States is an open question. Exorbitant attribution of nationality by a country is well known in history. For the United States, however, place of birth, in the absence of foreign diplomatic status, creates a jus soli nationality claim that is difficult to deny absent clear proof of an expatriating act that precedes controlling Supreme Court cases, or at the latest the 2008 tax statute. Or outright renunciation or relinquishment (if that is different), acknowledged by the U.S. Department of State. Even diplomatic status is not always properly addressed.
There's a certain amount of unjustified hysteria in the literature: citizenship administratively assumed based on a birth certificate and wrongly issued Social Security account has no legal validity and would be revoked if brought to the attention of the State Department and the Social Security Administration. There is a subset of diplomats on the Blue List (as to whom the exception for offspring jus soli citizenship normally applies) who have a spouse with U.S. nationality or permanent residence, whose U.S.-born children are citizens (see next paragraph); and there are consulate officers and diplomatic staff on the White List as to whom the jus soli exception does not apply. Joseph D. Becker, "The State Department White List and Diplomatic Immunity", 47 Am. J. Int'l L. 704 (1953).
A child born in the United States of a parent with diplomatic status whose non-diplomatic spouse is a citizen or permanent resident acquires United States citizenship at birth, Digest of U.S. Practice in International Law 1978, at 249, 250. Otherwise such a child acquires the status of a permanent resident, status retained at least until majority, 8 C.F.R. 101.3(a)(1), Matter of Huang, 11 I. & N. Dec. 190 (R.C. 1965), Matter of Chu, 14 I & N Dec. 241 (R.C. 1972). And see USCIS Policy Manual.
One can imagine, in the case of a nonresident alien mother and an American citizen father, a strategic divorce or failure to marry prior to the birth of a child to avoid attribution of American citizenship at birth, with the child having the right of option (with cooperation of the father) until at least age 18.
The upshot of this nationality discussion is that before addressing issues of possible liability for taxes and penalties for prior years and for undeclared foreign assets, entities and trusts, an expatriate or presumed "accidental American" should determine his or her actual citizenship status. Neither the individual nor the U.S. Government may know for sure. That is a matter for an immigration and nationality lawyer, not a tax lawyer or accountant. Even if the conclusion is that an individual has valid U.S. citizenship status there is an advantage of proceeding through a tax lawyer who can engage an accountant or auditor through a "Kovel letter" so that professional privilege and confidentiality may be preserved.
The issue of taxation as a controlling or motivating factor in nationality is addressed in Michael S. Kirsch, “The Tax Code as Nationality Law” 43 Harv. J. Leg. 42 (2006). The article also addresses Constitutional and international-issues of the quasi-nationality Congress has created for tax purposes.
The first issue is that enforcement of U.S. tax laws is based on voluntary declaration. Enforcement depends on a vast network of reporting from financial institutions. The Foreign Account Tax Compliance Act (FATCA) enacted by the HIRE Act of 2010 (Pub. L. 111–147, 124 Stat. 71, March 18, 2010, H.R. 2847) led to a web of Intergovernmental Agreements (IGAs) with virtually every foreign country providing for reporting to the IRS of accounts held by presumed "U.S. Persons" with foreign banks, brokerages and other financial institutions. The aim was and is to enforce the laws requiring U.S. Persons to declare foreign assets exceeding specified values on FBAR (FinCEN Form 114) and IRS Forms including 8938 (financial assets, and see comparison with FBAR), 3520/3520A (foreign trusts), 5471 and schedules and 926 (foreign corporations), 5472 (Foreign single-member LLCs), 8621 (PFIC), 8858 (foreign disregarded entities, 8832 (entity classification election), 8865 (foreign partnerships). Draconian penalties may apply whether or not any tax is due.
See U.S. Senate, Committee on Finance, "International Tax Working Group Submissions", March-April 2015 notably the testimony of Todd Stoudt and Permanent Subcommittee On Investigations, "Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts".
But: "A compilation of comments and letters from Americans abroad on the effects of citizenship taxation", Submission to the United States Senate Finance Committee, International Tax Section, April 9, 2014. Other Congressional submissions through 2015. (These constituent complaints may have more political than academic-legal significance. Status, when an accident of birth, comes with benefits and costs, sometimes extreme and sometimes crippling and indefeasible.)
- American Citizens Abroad: "Why FATCA is Bad for America - Update".
- William Byrnes, Texas A&M University School of Law: "Background and Current Status of FATCA and CRS" (Sept. 2017).
- Congressional Research Service, Sept. 2016: “FATCA Reporting on U.S. Accounts: Recent Legal Developments” And for the United Kingdom, Chartered Institute of Taxation on the Common Reporting Standard, "The state of play on tax evasion and avoidance" (Mar. 2, 2017).
- OECD Global Forum on Transparency and Exchange of Information for Tax Purposes.
Part of the multilateral enforcement scheme has consisted of positive identification of users of financial services. That includes proof (or declaration) of nationality and submission of a national client identifier, typically a tax, national insurance or Social Security number or ITIN. Entities and trusts, in the UK and elsewhere, must obtain a 20-character alphanumeric Legal Entity Identifier. The latter has not been adopted in the United States (Internal Revenue Bulletin: 2016-29, July 18, 2016) which remains, partly because of state sovereignty in matters of corporate and trust law, a tax haven for nonresident aliens: Todd Ganos, "Forget The Panama Papers, Use The United States As A Tax Haven", Forbes, Apr. 25, 2016; Samuel D. Brunson, "The U.S. as Tax Haven? Aiding Developing Countries by Revoking the Revenue Rule", 5 Colum. J. Tax L. 170 (2014).
At present, the United States has reciprocal collection agreements in tax treaties with five countries: Canada, Denmark, France, the Netherlands and Sweden. A new provision is pending with Japan. (See discussion by Sullivan & Cromwell.) In general these provisions do not apply to persons who were citizens of the other treaty country at the time tax or penalty accrued, but there are unresolved issues relating in particular to European Union law on the rights of EU/EEA/Swiss migrants and to a decision of the European Court of Human Rights which restrained Switzerland from imposing penalties in addition to unpaid tax on the heirs of a tax debtor: E.L., R.L. and J.O. –L. v. Switzerland, ECHR 75/1996/694/886, 1997-V at 1509; A.P., M.P. and T.P. v. Switzerland, ECHR, 71/1996/690/882, 1997-V at 1477. The European Convention on Human Rights, Art 6 is applicable where penalties and surcharges effectively amounted to criminal penalties: Jussila v Finland, Application 73053/01. And see comment on UK case, HMD Response International v CRC (TC01322).
- A notable recent case of Canadian enforcement of severe penalties against a U.S. citizen resident in Canada for non-submission over a number of years of FBARs and Forms 5471 is Dewees v. United States, Case No. 16-cv-01579 (D. D.C. Aug. 8, 2017) Discussions (John Richardson).
- Peter Muto, "A cautionary tale: How Canada Revenue Agency helps U.S. collect taxes" (Oct. 2017).
- Hale Sheppard, "Assessing Tax Liabilities is One Thing, Collecting Them Abroad is Another New Case Shows International Reach of the IRS".
- Mondaq comment (Under the US-Canada tax treaty, the mutual collection provision does not apply to persons who were Canadian citizens when the tax or penalty accrued, and it does not apply to FBAR penalties).
As the case documents show, Dewees brought himself to the attention of the IRS after a professional advisor brought an OVDP case on his behalf. Earlier Canadian tax advisors had failed to advise him as to his reporting obligations to U.S. tax authorities, with disastrous consequences. The case, mentioned throughout this essay, holds many lessons and warnings for U.S. Persons abroad and shows how it is the middle and professional classes without the resources or awareness to hire expensive international tax and legal advisors who fare the worst under U.S. laws aimed at that group within the wealthy class who deliberately flout American reporting and tax obligations.
As to treaty mutual tax collection provisions, the citizen exception is generalized. The French treaty provides: "The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made…." The French Cour de Cassation invalidated such treaty provisions with Mali and Senegal on technical grounds: Ass. Comm., May 2, 1972, Bull. Civ. IV, No. 124; 2 Juris-Classeur Droit Fiscal International, Fasc. 358 III A. The current treaty with Senegal was signed in 1974 and with Mali in 1972. Issues of administrative and judicial integrity and compliance with human rights norms have arisen in connection with collection assistance requested by some countries.
There can be anomalies in cross-border collection: Van deMark v. Toronto-Dominion Bank, 68 O.R. (2d) 379 (Ont. H.C.J.) (Funds seized by the IRS from the U.S. branch of a Canadian bank, on the basis of transferee liability of the heir of a tax debtor, had nevertheless to be repaid by the bank to their Canadian depositor.)
- On transferee liability for tax debts see IRM 4.11.52 and Delaune v. United States, 143 F.3d 995 (5th Cir. 1998), brief for appellee
- Hagaman v. Comm’r, 100 T.C. 180 (1993)
- Espinosa v. Comm’r, T.C.M. 2000-66
- Osherow v. Porras (In re Porras), 312 B.R. 81 (Bankr. W.D. Tex. 2004) (fraudulent transfers, bankruptcy fraud, money laundering)
- United States v. van der Horst, 270 F.Supp. 365 (D. Del. 1967) (Fraudulent conveyance matter; judgment against nonresident expatriated former U.S. citizen in rem only.)
The principle of FATCA and the Intergovernmental Agreements is to privatize enforcement by forcing foreign financial institutions to report the activities and assets of U.S. Persons. It is considered by the U.S. Government that constitutional, international law and privacy issues are bypassed through the recruitment of foreign governments and foreign financial institutions to undertake implementation. Whether this is a long-term viable solution or not remains to be seen. At the time of writing there is litigation under way in the U.S.A., Canada, France and Israel.
It is only since World War II that birth certification became standardized in the United States. Those requesting birth certificates for the first time for employment or otherwise needed to collect evidence for retroactive registration: Shane Landrum, Undocumented Citizens: the Crisis of U.S. Birth Certificates, 1940-1945. While home births in border areas continue to create "birther"-type disputes, birth registration fraud is negligible for in-hospital births. Denial of status would seem common, and indeed only feasible in any practical way, with respect to possible jus sanguinis attribution of nationality in the context of plausible doubt. There the key — exploited by American parents today who refuse to register births abroad with U.S. consular officials — is possession of another nationality at birth, and life records consistent with that.
This seems to be the means for millions of those untaxed "accidental Americans" we posit from the statistics given above to ignore shrill calls to come into compliance. Life history — birth, parentage, schooling, residence, status — is made up of papers and government data. (In much of the world, lack of "papers" obliterates one from society: "In Mexico, a Paper-Thin Barrier to School".) By reason of FATCA, FFIs may put clients to the proof of non-U.S. status, but the process is necessarily trivial. It is hard to imagine an invasive genealogical audit forced on FFIs by the U.S. Treasury. On the other hand, if someone in the Congress finds political capital in such a law, it could happen. In the United Kingdom proof of nationality at birth since January 1, 1983 is (for most citizens) by proof of birth within the U.K. accompanied by proof of U.K. nationality or "settled" (indefinite leave to remain) status by one parent. There is opportunity for those who would expand FATCA presumptions to raise suspicion if any American connection — ancestry or presence — appears. Denial — self-birtherism — takes more sophistication then. At what point does a demand to prove a negative become exorbitantly expensive and time consuming, and at what point does it intrude upon the paramount national interests of other sovereigns? C. B. Marshall, "National Interest and National Responsibility", 282 Annals Am. Acad. Pol. & Soc. Sci. 84 (1952). What role there may be for comity and its cousin "forum non conveniens" is difficult to discern. Dorinou v. Mezitis, 132 F. Supp. 2d 139 (S.D. N.Y. 2000) (nonmarital birth; question of "habitual residence" of a newborn for purposes of The Hague Child Abduction convention).
The pursuit for taxes of a reluctant or denying U.S. citizen has a philosophical parallel in treason or apostasy accusations against individuals with a genealogical or cultural connection with a State. Thus: United Nations, Yearbook of the International Law Commission 1997, Volume 1; Rainer Bauböck et al, Acquisition and Loss of Nationality: Comparative Analyses, Policies and Trends in 15 European States. Future hostility to repeated treaty overrides and perceived intrusion into sovereignty and vital national interests could yield blocking statutes and commercial espionage provisions as seen in trade matters in the 1980s: United Kingdom's Protection of Trading Interests Act, 1980 French Law No. 80-538 of July 6, 1980, art. 273 of the Swiss Penal Code, the Mexican law "to protect trade and investment from foreign norms that contravene international law", the Canadian Foreign Extraterritorial Measures Act. Compare The Legal Advocate, "Blocking Statutes and the Hague Evidence Convention: Frustration for American Litigants in Transnational Litigation".
- PFIC statute: 26 U.S. Code § 1297.
- Comment: Monica Gianni, "PFICs Gone Wild!", 29 Akron Tax J. 29 (2014), Charles I. Kingson, "Revise the Rules for Passive Income and Passive Assets", Tax Analysts (2008).
- Stephanie Ray, "Getting Caught Between the Borders: The Proposed Exemption of the Canadian Mutual Fund from the Passive Foreign Investment Company Rules", 37 Fordham Int'l L. J. 822 (2014).
- John Richardson, "Form 8621 and Form 5471 are required even if the tax return is NOT!" (April 2017).
- Haoshen Zhong, "PFIC Look-through for Foreign Pensions" (June 1, 2016).
- Haoshen Zhong, "Lookthrough Rules for Mutual Funds Held in Foreign Pensions in Treaty Countries" (July 12, 2016).
- Harvey P. Dale and Nancy H. Kaufman "Passive Foreign Investment Companies", explanation of relevant provisions of the Tax Reform Act of 1986.
- KPMG, "IRS Issues Final PFIC Regulations" (Jan. 13, 2017) ("Treaty-based reporting exception for PFIC stock held through a foreign pension fund is expanded to PFICs held through all foreign pension funds regardless of entity classification").
- Submission on PFIC tax rules relating to American citizens overseas, presented to the Senate Finance Committee, Feb. 2014.
Two "voluntary" projects were undertaken by the IRS, the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedure. "Quiet disclosure" by submission of amended returns and late forms and declarations is sometimes discussed as an alternative, but is not without risk.
It is obvious that a U.S. resident delinquent taxpayer has virtually no ready personal or property defenses beyond bankruptcy (or flight) and can be subjected to devastating penalties and tax liens attaching to all property. A further problem with arrangements subject to conditions and perhaps to the proclivities of one or more particular IRS employees is the risk of an abrupt change in position by the IRS: Grant v. United States, 289 F. Supp. 2d 1361 (S.D. Fla. 2003) (see links to briefs and case documents at foot of Web page) (“Sometime in 1999, Agent Smith passed away, and Calvin Byrd was assigned as the new IRS agent in charge of the Grants’ case. See id. at 16. Agent Byrd did not like the deal his predecessor had made with the Grants.”)
As to discharge in bankruptcy, see IRM Part 5 and United States v. Wilson, No. 3:15-cv-01448 (N.D. Cal. Jan. 21, 2016) withdrawal of opinion — appellant’s brief — stipulation of dismissal Comment (prior to withdrawal of opinion over jurisdictional question), “District Court Examines Bankruptcy Discharge Timing Rule For Tax Penalties”, Forbes, Jan. 26, 2016.
Hawkins v. Franchise Tax Board, 769 F.3d 662 (9th Cir. 2014) (Question of whether debtor "willfully attempted in any manner to evade or defeat such tax" by lavish prebankruptcy spending). Comment by A. Lavar Taylor, "What constitutes an attempt to evade or defeat taxes for purposes of section 523(a)(1)(C) of the Bankruptcy Code: the Ninth Circuit parts company with other circuits"; comment by Bryan Camp, "Taking Issue With the Ninth Circuit and Lavar Taylor’s View of A Willful Attempt to Evade or Defeat Tax" (citing approvingly contrary position of 3rd, 5th, 6th and 7th Circuits).
U.K. practice in initiating bankruptcy proceedings against tax debtors is explained by TaxAid (a charity assisting persons on low income).
A discharge in bankruptcy rendered by a foreign court will bar suit for collection in that foreign jurisdiction but not elsewhere unless the creditor has appeared or filed proof of claim or debt. "Conflict of Laws in the Discharge of Debts in Bankruptcy", 5 Int'l Insolv. Rev. 1 (1996); The Government of the Commonwealth of the Northern Mariana Islands v Millard (unreported, 15 April 2014) (discussion). The effect of an in-rem order of a U.S. court or of an injunction in conflict with a foreign proceeding is unpredictable. Two examples: Felixstowe Dock And Railway Co v US Lines Inc.,  1 QB 360 (Chapter 11 proceeding conflicting with English Mareva (asset freezing) injunction) and Federal Trade Comm'n v. Affordable Media, 179 F.3d 1228 (1999) (Cook Islands trust provisions ignored; debtors held in contempt).
A comparative study of Canadian and American treatment in bankruptcy of tax debts appears in Colin Jackson, Settlement, Compromise, and Forgiveness in Canadian Income Tax Law (with references). See pp. 103-04 regarding conditions under which Canadian tax debts may be dischargeable.
In In re Morgan, 1999 Man. D. J. 185, (1999) 88 A.C.W.S. (3d) 964. an undischarged bankrupt who had moved from Canada to the United States was pursued in 1997 by the IRS for Canadian tax debts that Revenue Canada (now Canada Customs and Revenue Agency) had claimed in the 1994 Canadian bankruptcy. The reciprocal collection arrangement operated forced the debtor to return to the Canadian bankruptcy court which, taking account of his increased earnings capacity, fixed Can.$100,000 (approximately half the tax debt exclusive of interest and penalties) as the amount to be paid over 60 months as condition to the grant of a discharge.
Chua v. Minister of National Revenue, Federal Court of Canada, Docket T-1216-99, Sept. 12, 2000, dealt more specifically with the working of the treaty provision in relation to Canadian collection of tax claimed by the Internal Revenue Service. The judgment in that case held inconsistent with Subsection 15(1) of the Canadian Charter of Rights and Freedoms retroactive aspects of the Protocol's mutual collection provisions, finding that the applicant, not a Canadian citizen when her U.S. tax liability arose, "is now vulnerable to breaches of procedural and substantive justice in respect of this escalating IRS claim".
Oblique reference to the bar on enforcement of foreign claims against a local national was made in United States v. Van der Horst, 270 F. Supp. 365 (D. Del. 1967) mentioned above.
By analogy, the conflicting outcomes in Canadian student loan bankruptcies, In re Taylor, (1988) 68 C.B.R. (N.S.) 93 (P.LI.S.C.) and Re Bialek, 25 C.B.R. (3d) 271 (S.C. Ont.) make uncertain the terms under which U.S. tax debts might be discharged in a Canadian bankruptcy.
FBAR penalties may not be discharged in bankruptcy:
- Robert Horwitz, “Litigating the FBAR Penalty in District Court and the Court of Federal Claims” (July 2017)
- Collier on Bankruptcy Taxation ¶ TX3.07
- 11 U.S.C. § 523(a)(7)
- United States v. Williams, 4th Cir. No. 10-2230 (2012)
- Robert W. Wood, "FBAR Penalties Just Got Even Worse", Forbes, July 22, 2012
- Hale E. Sheppard, "Third Time's the Charm: Government Finally Collects ‘Willful’ FBAR Penalty in Williams" (2012)
- United States v. Bussell, 9th Cir. No. 16-55272 (2017) — Jack Townsend comment — "Taxpayer was liable for million dollar FBAR penalty", Thomson Reuters Tax & Accounting News, Nov. 2, 2017
Contempt proceedings are readily available to the Government where a delinquent taxpayer has hidden, or kept, assets abroad, as in an "asset protection trust". The Anderson case, discussed by Jay Adkisson, is just one example. As the Marc Rich litigation (and eventual pardon by President Clinton) demonstrated, enforcement is less certain where the tax miscreant remains abroad: Marc Rich & Co. A.G. v. United States (In re Marc Rich & Co. A.G.), 739 F.2d 834 (2d Cir. 1984) (subpoena). The Clinton pardon did not affect Rich's state tax liability but he never returned to the U.S. in any case: Accounting Web, Mar. 2, 2001, "Tax Fugitive Rich's Pardon Backfires".
The Marc Rich case was special since it also involved the Trading with the Enemy Act and "sources and methods" of intelligence procurement and intercepts now known to have involved the NSA. Upon his death his surviving daughters liquidated his assets but whether on behalf of charities or whether the IRS and the New York State Department of Taxation and Finance were able to assert claims is unknown. He was resident in Switzerland but the law applicable to his succession is not obvious, nor the nature of entities and trusts that he may have used. The very wealthy among renunciants may not be excessively concerned with the very laws enacted by Congress to reach their assets post mortem.
In the modern age of mass data collection there are bound to be false positives. The false positive rate in selection for audit generally rose to 66% in 2017. Self-assessment systems depend on publicized prosecution of celebrity and other notable cases "pour encourager les autres". The fact remains that the principal subject of this article — American citizens and dual nationals abroad — remain disadvantaged by the U.S. principle of citizenship taxation with partial relief by way of the foreign earned income exemption and credit for (some) foreign taxes. Traps for the unwary and double taxation persist due to temporal and characterization conflicts and legislative override of treaty provisions discussed elsewhere in this essay. The Tax Cuts and Jobs Act of 2017 is likely to create new anomalies on top of those generated by foreign-government reliance on non-deductible or -creditable (for U.S. tax purposes) of payroll, social, spending (sales tax, VAT) and wealth taxes: Rev. Rul. 76-536 (Irish wealth tax) citing Biddle v. Commissioner, 302 U.S. 573 (1938), Rev. Rul. 70-464 (Swiss wealth tax) citing Lynch v. Turrish, 247 U.S. 221 (1918) see RIA ¶ O-4233 for rulings and decisions on specific foreign taxes. For an argument as between characterization and timing in relation to a Canadian statute of limitations and method of accounting, see Coulter Electronics, Inc. v. C.I.R., T.C. Memo 1990-186, aff'd 943 F.2d 1218 (11th Cir.)
Statute of limitations issues are dealt with, in tax matters, at IRM 18.104.22.168.4. Note conditions leading to an extended Assessment Statute Expiration Date at IRM 22.214.171.124.4. FBAR (civil penalties, six years, criminal five years from the date of the violation) and recordkeeping ("section 103.32 does not require records to be maintained for more than five years") limitations are at IRM 126.96.36.199.
Limitations periods for tax-related offenses will be tolled while the taxpayer is a fugitive, has absconded or is outside the United States; and on civil liability where a fraudulent return or no return has been filed or the taxpayer is abroad. On the fugitive disentitlement doctrine see Molinaro v. New Jersey, 396 U.S. 365 (1970), limited by Ortega-Rodriguez v. United States, 507 U.S. 234 (1993); State v. Bell, 2000 ND 58, 608 N.W.2d 232 (2000) (discussion of states' practices); also Robert Lyon, "Expats and IRS tax collection statute limitations" (2015). See especially Jack Townsend's blog entry "Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance" (2013) (noting the possibility of a sealed indictment).
Traps for the unwary include an extended statute of limitation in certain cases, and an unlimited period for an entire tax return where a particular tax document has not been filed. In the Dewees case a form or schedule (in that case form 5471) was not filed because of ignorance, leaving the taxpayer with no time bar and an annual penalty of $10,000. Many citizens abroad will owe tax due to temporal conflicts of pension contributions and payments (thus: U.S. tax on the foreign contributions and foreign tax on the retirement annuity payments). Others' offenses will come to light because they volunteered for one of the IRS disclosure programs.
Clients of Mossack Fonseca and other law firms specializing in offshore entities, trusts and banking were not necessarily in defiance of law: corporate offshore earnings may be legally parked in tax havens. But the taint is there even with false positives, and individuals have been audited and where appropriate charged after their data were turned over by foreign banks or revealed by the Panama Papers, the Paradise Papers and the LuxLeaks (all publicized by the International Consortium of Investigative Journalists) have been targeted for enforcement. The Paradise Papers have been cited by Australian tax authorities as evidence of the "commoditisation" of tax avoidance.
Those who have truly no U.S. connection other than accidental citizenship: no assets, income or heirs in the United States and, if they have offspring those heirs are not U.S. citizens, may have an optimum strategy quite different from others who do have such personal and financial connections. There is a risk that any substantial tax debtor who (his or her U.S. passport having (or not having) been cancelled due to tax debts and accrued interest and penalties exceeding $50,000 or who having renounced citizenship has not complied with relevant exit tax obligations) visits the United States may be faced with the rare writ Ne Exeat Republica. United States v. Barrett, Case No. 10-cv-02130, 2014 U.S. Dist. LEXIS 10888 (D. Colo. 2014) District Court order Docket and case documents from RECAP & Free Law Project. Internal Revenue Manual 5.21.3, Jack Townsend, "Writ Ne Exeat Republica to Restrain from Foreign Travel as Tax Collection Tool" (2/11/14); also United States v. Mathewson, 839 F. Supp. 857 (S.D. Fla. 1993), United States v. Maryans, 803 F.Supp. 1378 (N.D. Ind. 1992), United States v. Lipper, 1981 WL 1762 (N.D. Cal. 1981) ("while District Courts authority to issue writs of ne exeat republica is clearly without question, the power is seldom exercised.")
Extradition is rarely available for tax crimes. Tax evasion is usually assimilated to money laundering, common-law fraud or wire fraud, or white collar crime, computer hacking or terrorism. (U.S. Embassy FAQ; Heritage Foundation comment on draft treaty). Conceptually, extradition might be sought for perjury. Congressional Research Service, Extradition To and From the United States: Overview of the Law and Recent Treaties (Aug. 2007); Bruce Zagaris, U.S. Efforts to Extradite Persons for Tax Offenses, 25 Loy. L.A. Int'l & Comp. L. Rev. 653 (2003); history of extradition: J. Mervyn Jones, Modern Developments in the Law of Extradition (1941). Exceptions such as VAT fraud, identity theft and fraudulent refunds are mentioned below. Customs fraud is another exception to what remains of the Revenue Rule: Pasquantino v. United States, 544 U.S. 349 (2005). Extradition cases have addressed narcotics smuggling (Colin Hugh Martin v. Canada, 2017 BCCA 220 (B.C. 2017) Sup. Ct. app. dism'd, Case No. 37614 (2017) — Trail Times article) or weapons (Alexis Vlachos and Annette Wexler) via ironically, the Haskell Free Library and Opera House, which straddles the frontier): D. Vt. Case No. 15-cr-00006, Vlachos Indictment — Superseding Indictment (Sealed plea agreement filed Dec. 29, 2017).
See also this writer's unpublished article, "Conflicts in Cross-border Enforcement of Tax Claims" (2007) and, generally, Prof. Jack Towsend's Federal Tax Crimes Blog, Robert W. Wood’s regular contributions to Forbes Magazine, Kenneth Rijock's Financial Crime Blog on money laundering and financial crime and Prof. Allison Christians' Tax, Society & Culture Blog.
4.5. FATCA, Know Your Customer (KYC), Anti-Money Laundering (AML) and Foreign Financial Institutions (FFIs): Denial of Financial Services Abroad to "U.S. Persons"
- Democrats Abroad: "FATCA: A Banking Burden Abroad".
- "Isa providers refuse to open accounts for British-Americans", Daily Telegraph, May 29, 2015 (ISAs are similar to Roth IRAs in that taxed income can be saved and accumulate earnings tax-free, but with no withdrawal age restriction).
- Swiss Banking Ombudsman: Swiss banks are not obliged to do business with U.S. Persons even if they hold Swiss nationality (in French) (German version).
- Swissinfo, Dec. 27, 2016: "Swiss abroad see red over bank account treatment".
- Der Spiegel (English), Dec. 14, 2011: "European Banks Stop Serving American Customers".
- Alexander Baron von Engelhardt, Rechtsanwalt: "FATCA and What it Practically means for your German Bank Relationship from the German Legal Perspective" (viewed on Dec. 23, 2017).
- Banque Cantonale Vaudoise: "Why do you ask me if I am American when I want to open an account?" (in French).
But see: David Enrich, "A Swiss Banker Helped Americans Dodge Taxes. Was It a Crime?", N.Y. Times, Jan. 6, 2018 ("Stefan Buck created bank accounts for dozens of Americans hiding money from tax collectors. The U.S. tried to hold him personally accountable.") and several prior articles on the same subject. Buck was acquitted on Nov. 21, 2017, S.D. N.Y. case 1:13-cr-00282-JSR (indictment) (decision and order) (acquittal). Similar acquittal, Raoul Weill (UBS). This might alter the strategy of foreign bankers otherwise inclined to accept a plea bargain (guilty plea by Susanne Rüegg-Meier, Credit Suisse). And see Reuters, Dec. 9, 2016 "Ex-Swiss banker goes home after U.S. loses extradition from Germany" (Wegelin; "Bank to close")
- "Fewer and fewer banks accept [accounts with] Swiss abroad" (in French), Le Temps, Aug. 11, 2014 (Hardship of denial of accounts or else imposition of heavy maintenance charges for individuals, especially pensioners on fixed income).
- France: Absolute right, established in law, for anyone resident in France, and any French citizen resident abroad, to open a basic bank account (in French).
- Thun Financial: "Why US Brokerage Accounts of American Expats are Being Closed" (2017) (archived copy).
- Wall Street J.: "Fidelity Bans U.S. Investors Overseas From Buying Mutual Funds" (July 1, 2014).
- Association of Americans Resident Overseas (Paris): "Americans Residing Overseas are Denied Bank Accounts".
- Deloitte: FATCA Frequently Asked Questions (FAQs) (2013) (archived copy).
- Kluwer Tax Blog: "The Brave New World of AML and Tax Compliance Overlap for Tax Status Certification for FATCA, CRS and the EU. Why are so many compliance officers getting it wrong?" (2016).
- PWC: "FATCA and KYC: Similar yet different" (2012).
- Protiviti: "Guide to U.S. Anti-Money Laundering Requirements, Frequently Asked Questions, 6th ed." (2014) (archived copy).
- The Economist: (June 28, 2014) "Taxing America’s diaspora: FATCA’s flaws" ("America’s new law on tax compliance is heavy-handed, inequitable and hypocritical").
- Lexisnexis® Guide to FATCA Compliance: Chapter 1 by William Byrnes, Robert Munro (2016).
Lawsuits under way against FATCA and its enforcement:
- Republicans Overseas: Crawford v. U.S. Dept. of Treasury, S.D. Ohio, 15-250 (archive of downloadable documents)
- Canadian FATCA IGA litigation: Hillis and Deegan v. Attorney General of Canada and Minister of National Revenue (archive of downloadable documents) — Judgment
- Israeli litigation: BNA report of government objection
- “September 12, 2016: Israel Supreme Court quashes FATCA injunction — but the Israeli FATCA litigation fight will continue” and “Why is the Republican Party Coming to the Israeli High Court for Help?"
- Association des Américains accidentels
It is the digitalization of financial data that has made extreme enforcement possible: Oxford University Centre for Business Taxation, Implications of digitalization for international corporate tax reform (July 2017). Digital Commons Network, links to Full-Text Articles in "Taxation-Transnational".
Comment: The impact of FATCA on non-American spouses of U.S. Persons can be perverse and severe, although in immigration cases it is most often due to voluntary act of one of the parties, with assets left behind in the country of origin. For accidental and expatriate Americans, community property and joint ownership can lead to an obligation on the part of the U.S. spouse to declare, annually, any phantom gains in foreign exchange based on expenditure and repayment of loans and assets may be attributed to the U.S. Person over which he or she has no actual control or may be legally barred from liquidating (as with pension funds, insurance policies and certain savings schemes). Many, but far from all, children of mixed marriages, nonmarital, polygamous or adulterous relationships and assisted-reproduction children may be U.S. citizens and their assets and income (or trust income) subject to FATCA and Internal Revenue Code "kiddie tax" rules. The status of other children may be in doubt and parents may not wish to seek State Department clarification: nor under present law and regulation are they obliged to do so. I.R.C. § 152(b)(3)(A) excludes noncitizen children not resident in the U.S. or a "country contiguous" to it from qualifying as a dependent for U.S. tax purposes.
An important conflicts issue is definitional, thus: "When is a trust not a trust". A "trust of land" (formerly a trust for sale) in English law is a substitute for tenancy in common or joint tenancy with more than four parties, the limit to land registration: it does not have the qualities of a typical trust. On the other hand, a foreign entity may be a trust for U.S. tax purposes even though a "trust" is not, itself, an entity: Estate of Swan v. Commissioner, 24 T.C. 829 (1955), acq., 1956-2 C.B. 8, aff'd in part and rev'd in part on other grounds, 247 F.2d 144 (2d Cir. 1957); PLR 200302005, PLR 200226012 On the complexity of determining the status, as corporation, pass-through entity, partnership, trust or other object of U.S. taxation or asset declaration, with potentially severe penalties for getting it wrong, see this brief online essay on the Web site of a private firm: "Understanding the U.S. Tax Classification of Your Foreign Business Entity"
Community property can bring assets of a non-U.S. Person within the scope of U.S. taxation. (Basic Principles of Community Property Law) (list of jurisdictions recognized by the IRS as community property, arguably incomplete). But see Lane-Burslem v. Comm'r, 72 T.C. 849 (1979)
It should be noted that most of the "advice" offered by tax lawyers and accountants under the key word "FATCA" is to retain them to undertake OVDP or another compromise approach with the IRS. Understandably those who use scare tactics have been pejoratively called "compliance condors". Nowhere is it envisaged that many U.S. Persons with accounts abroad might in fact be compliant. The FBAR project has been a matter of law since 1971; tax forms 1040 Schedule B (and tax preparation software) have included a question as to accounts abroad for much or all that time. Below is a typical lawyers' Web advice, dated January 2014. Like most, it is both scary and self-promoting and fails to distinguish between U.S, resident-citizens and “accidental Americans” resident abroad for whom the correct advice may be different and for whom the Offshore Voluntary Disclosure Program (OVDP) is both expensive and, in many cases, inappropriate (see the Dewees case). The possibility of pre-2004 loss of nationality and its significance for U.S. income tax liability is not seen in such postings and the writer has learned of cases where non-U.S. persons have been put through IRS compliance programs uselessly and at great expense in fees, taxes and penalties, with no refund in the end.
Thus, Blank Rome LLP, "U.S. Taxpayers Receiving Letters from Their Foreign Banks May Have One Last Opportunity to Avoid Criminal Prosecution and Increased Civil Penalties". In fact, there are classes of "U.S. taxpayers", including a large number of former (even deported and inadmissible) U.S. Persons who have lifetime liability to U.S. taxation. IRS jurisdiction over their person and property is a legal issue that logically should precede the rush into OVDP promoted by the Blank Rome law firm. Allegiance to the United States does not always and everywhere supersede allegiance to another country and property right claims of an alien family including community property, Undivided Hindu Family, estate and succession law including forced heirship, foreign tax obligations, foreign insolvency law and much else.
Inevitably asset protection and estate planning are common concerns of expatriate and accidental Americans suddenly faced with facts of what, to the IRS, is "tax defalcation". While transferee liability rules (discussed above) put the IRS in a strong position within the United States and as to U.S. heirs of tax debtors abroad, rules of estates, discretionary trusts (with a proviso relating to self-settlement), trust protectors, entities, foreign succession, charitable legacies (but see Estate of Silver v. Comm'r, 120 T.C. 430 (2003)) and insolvency in foreign jurisdictions are not in its favor. Even fraudulent transfer (or Civil Code Paulian action) law may be unhelpful to it across borders. Enforcing a U.S, default judgment or lien and retaining commercial collection agencies are unlikely workarounds. As to former U.S. Persons who are liable for tax only because of procedural defects in terminating legal residence status, or failure to file tax returns and expatriation statement after renunciation, there is little public record of IRS collection action abroad beyond tax-treaty reciprocal collection provisions, discussed above under "
The fact is that "FATCA letters" are being sent to many persons with no connection with the United States; some financial services providers are in such fear of reprisal from the IRS for any unreported accounts held by U.S. Persons that they impose upon all clients the burden of proving that they do not now have, and never have had, any U.S. connection. See "British families billed £500 – to prevent Americans dodging tax", Daily Telegraph, Aug. 23, 2014; also the Law Society of Scotland: "All trusts are caught by FATCA irrespective of whether or not they have US persons as settlors, trustees or beneficiaries or US assets."
The conundrum for many, whether or not they have been substantially compliant or their assets abroad are de minimus or their practical U.S. connection and U.S. assets virtually nonexistent is that technical compliance may be impoverishing, consuming family assets belonging to non-U.S. persons, exhausting retirement funds, and destroying families. As a practical matter, divorce and foreign bankruptcy have been unfortunate but cheaper alternatives for some.
Without U.S. validation of a foreign proceeding by Chapter 15 cancellation of debt income may ensue but unless the debtor is otherwise insolvent that presumes the cancellation of debt being effective in the United States and an absence of meaningful liens. For some, it is only the blocking of enforcement of a U.S. tax debt abroad that is relevant. Overseas Inns S.A. PA. v. United States, 911 F.2d 1146 (5th Cir. 1990), case comment 24 Vand. J. Transnat'l L. 571 (1991).
From an enforcement standpoint, it matters whether American nationality was acquired by birth in the U.S. or by descent. There have been erroneous certifications of nationality by U.S. consular officers (Hizam case, above), and there have been misrepresentations by parents in registering children, quite apart from nationality relinquishment cases under former law.
There are special cases, too, where the U.S. Government has a particular interest in expediting loss of nationality. Whereas deprivation or renunciation of citizenship can be a long drawn-out and expensive process leading to issuance of a Certificate of Loss of Nationality, some treason, terrorism and foreign-diplomat cases are more directly resolved:
- Tomoya Kawakita, 343 U.S. 717 (1952).
- Yaser Esam Hamdi.
- Feodor Fedorenko, 449 U.S. 490 (1981).
- But see Divna Maslenjak v. U.S., 582 U.S. ___ (2017) (citizenship cannot be revoked for minor falsehoods) Scotusblog Timeline and documents — Harvard Law Review comment — Scotusdaily links to other commentaries and news articles.
Enemy combatants with U.S. citizenship may become military targets, citizenship disregarded:
- Abraham U. Kannof, Dueling Nationalities: Dual Citizenship, Dominant and Effective Nationality, and the Case of Anwar al-Aulaqi, 25 Emory Int'l L. Rev. 1371 (2011).
- Raffi Khatchadourian, Azzam the American: The Making of an Al Qaeda Homegrown, UVA Miller Center (referencing Raffi Khatchadourian, Azzam the American: The Making of an Al Qaeda Homegrown, The New Yorker (Jan. 22, 2007) (story of Adam Gadahn)).
- Adam Taylor, The U.S. keeps killing Americans in drone strikes, mostly by accident, Washington Post, Apr. 23, 2015.
- Also see U.S. Citizenship and Immigration Services Adjudicator’s Field Manual.
Wikipedia offers a list of denaturalized former citizens of the United States. One is left wondering how, and if, the IRS responds to those with U.S. assets in terms of exit taxation. Unnamed U.S. citizen detained in Iraq has right to consult ACLU lawyer, N.Y. Times, Dec. 24, 2017, “American ISIS Suspect Held in Iraq Has Right to Lawyer, Judge Rules” (“It is not clear whether the United States government would seek to make the man renounce his American citizenship”).
- Boris Johnson (British Foreign Secretary).
- David Alward (former Premier of New Brunswick, born in Boston, Mass., prior to being named Canadian Consul General in Boston): Isaac Brock Society — CBC News (Apr. 24, 2015).
- And presumably Meghan Markle.
- Wikipedia has a list of notable former U.S. citizens.
- The Government of Belize was refused accreditation for Kenneth B. Dart as consul following Dart's renunciation of U.S. citizenship.
Of course, every case depends upon its own facts: age, nationality, marital status, wealth, nationality of heirs, location, and amount of assets, exemption in bankruptcy or inviolability of pension rights among them. "Willfulness" is an important element of the punitive U.S. provisions regarding non-declaration and non-filing. The statistics given in the first paragraph of this article are relevant. The ethical norms set for accountants, in particular those applicable in the United Kingdom, create a conundrum for U.S. Persons who are unable or unwilling to address past noncompliance with non-U.K. tax authorities: "Code of Professional Ethics". Yet the complexity of tax filing makes it difficult or impossible for many to complete their own tax forms, with or without commercial tax software. It is unsurprising that the statistical evidence is that the default reaction for many is to do nothing. (Some may remain unbanked and without a U.S. passport. Although the Truck Acts are long gone, the low-paid may not see this as hardship. Check cashing shops are well known in the United States too; and many remain unbanked and indebted for other reasons. See: S. Carbó, E. Gardner, Philip Molyneux, Financial Exclusion (2005)). Nor is it surprising that the IRS has been criticized by the American Citizens Abroad organization and by the IRS's own Taxpayer's Advocate: its reporting requirements and its voluntary disclosure programs.
In this sense, the recent Dewees case (mentioned several times above, and included with links to key judicial documents in the list of cases below) offers lessons: Dewees, a U.S. but not a Canadian citizen, resident in Toronto, sought professional assistance and was advised by a Canadian tax advisor to incorporate his consulting enterprise in Canada. Years later, made aware of his U.S. tax obligations was guided into OVDP. His failure to file certain U.S. tax returns, FBARs and Forms 5471 thus came to the attention of the IRS. Upon being assessed $185,862 in FBAR penalties Dewees opted out of OVDP. He was then assessed $120,000 in Form 5471 "automatic" penalties. The latter (as tax penalties) but not the former (assessed under 31 U.S. Code § 5321 and not under the Internal Revenue Code) are collectible through Competent Authority Assistance under the U.S.-Canada Tax Treaty from debtors who were not Canadian citizens at the time they accrued.
While not condoning noncompliance or avoidance either of taxes or penalties, one has to highlight the professional incompetence and the bad advice given. As in several of the penalty cases linked in this essay, Dewees had suffered a family tragedy, a child's suicide. Unlike some of the others he is of relatively modest means ("Mr. Dewees’ earnings were approximately $118,504 US per year on average for the years at issue.") He is an unlikely intended target for the legislation under which he was penalized: collateral damage in the "war against tax cheats" and the institution of minimum and sometimes automatic penalties. In that situation, it is difficult for a professional, retained on a fee basis, to give advice that might be seen as encouraging violation of law: and indeed doing so could vitiate professional privilege. Even pre-bankruptcy planning has risks as a marker of fraudulent transfer (archived copy). Still, there may be alternative solutions: the easiest (and most remunerative for the tax professionals) strategy may not be optimum for the noncompliant citizen, especially abroad. Like any debt collection agency, the IRS does bargain under the right circumstances.
One can only say, by way of scholarly comment, that holistic examination and advice is needed in any tax noncompliance case where the penalties would amount to life-altering destruction of wealth and income. With the specialization of professional practice today, that is unlikely if an accidentally noncompliant taxpayer, especially one living abroad, relies on the Internet for a referral, perhaps by typing into a search engine "fatca letter". Issues that need to be addressed will not automatically appear among results: personal status (i.e., nationality(ies)), nature of assets and income and family, jurisdictional issues, non-tax remedies including insolvency and what used to be called "asset protection" until that term became a marker of possible fraud (In re Ellison, see below); and criminal liability. Statutes of limitation, even though subject to tolling, matter. Cases become difficult to prove after
This essay offers comments and links on all these points. What is missing at least through January 2018 when these words are written, is any obvious participation in the debate and in diplomacy on behalf of their own citizens and residents (other than multinational corporate interests) on the part of foreign governments. They seem to have been silenced by their own financial institutions, which in turn have been threatened with exclusion from U.S. markets and from dollar transactions.
In re Ellison, (Bankr. C.D. Cal. 2016), Chapt. 7 Case No. 14-24463, Adv. Proc. 15-01001: Petition — Adversary Proc. Complaint — Appellant Statement of Issues — Adversary Proc. Memo. Decision — Adversary Proc. Judgment — Notice of Order Denying Discharge.
Relating both to inconsistent treatment of noncompliant taxpayers and of dual nationals and others abroad as to whom the United States claims the right to tax (whether citizens or not) it is remarkable that given the stated power of the U.S. Treasury to exclude foreign financial institutions from American financial markets and its banking system, there has been no overt protest concerning the clash of sovereignty or the attack on ordre public (thus, the frustration and/or double taxation of pensions and benefits for the students and the disabled). Neither has there been any attack on the protectionist Passive Foreign Investment Company law that — given the refusal of many or most large brokerage firms and investment companies to trade with persons residing abroad, American citizens or not — exclude many from any market-based investment at all.
The U.S. Government is not responsible for the errors of its agents, and much guidance published by the IRS is non-precedential and non-binding: Wisconsin Central R, v United States 164 U.S. 190 (1896); Kroyer v. United States, 55 F.2d 495 (1932). It takes no responsibility either for exorbitant extraterritorial reach in taxation or, seemingly, other areas either: that, it is said, is part of American "exceptionalism". The result has been a flurry of renunciations of citizenship.
But more than that, has been — especially among those "accidental Americans" born outside the United States — concealment of status; and on the part of parents, based on what statistics are available, an increasing reluctance to register births of children with U.S. consular officials. Persons unknown to the U.S. Government and without Social Security numbers occasionally get caught up in the tax net for particular reasons. Most often this is the consequence of fright or guilt generated by an accountant or lawyer: to renounce and to settle past tax obligations involves first establishing citizenship status, then securing a Social Security number and then filing past tax returns and account, asset, trust and foreign-company declarations — and paying, or settling, the tax debt and substantial professional fees. The examples given where OVDP is sensibly advised almost all relate to U.S. residents or persons with U.S. income, assets or heirs, and in particular where there is potential criminal liability: Stephen J. Dunn, "Foreign Accounts? Don't Rush Into OVDP", Forbes, May 12, 2014. Some cases are beyond compromise: the Bussell cases (see below) involved hiding unreported income abroad, tax evasion, bankruptcy fraud, prison and suicide.
- Reuven S. Avi-Yonah, "The Case against Taxing Citizens", Law & Economics Working Papers, University of Michigan Law School Scholarship Repository (2010)
- Baker & McKenzie Voluntary Disclosure Steering Committee, "Experiences With the ‘New’ Voluntary Disclosure Program—Some Good, Some Bad" (2010) ("As it currently stands, the financial cost of coming forward is incredibly high and, except in the case of a few very specific taxpayers, the risk of being caught and prosecuted is very low.")
- Joshua D. Blank and Ruth Mason, "Exporting FATCA" (February 1, 2014), 142 Tax Notes, NYU Law and Economics Research Paper No. 14-05 ("Fiscal crisis emboldened the United States to use access to its capital markets as an enforcement mechanism for securing information about domestic taxpayers from foreign institutions. And, in turn, the U.S. passage of FATCA emboldened some of our trading partners to rally behind a new standard of automatic information exchange. Thus, the initial outraged reactions to FATCA among private parties and government officials seem to be shifting to acquiescence by the FFIs, and at least some government officials view FATCA as an opportunity to strengthen their own offshore enforcement.")
- Karen Brodsky and Sha Zhang, "International Information Reporting for U.S. Individuals" (2017) ("It is important for tax practitioners to be aware of the various information reporting obligations their clients may face and to work with specialists in these areas as needed to help their clients pursue a clear understanding of their reporting obligations and remain in compliance.")
- Montano Cabezas, "Reasons for Citizenship-Based Taxation?", 121 Penn. St. L. Rev. 101 (2016) ("Congress should ... set out the grounds for its decision to tax citizens abroad. It follows that if the U.S. government feels that it cannot justify citizenship-based taxation, then it should be abolished.")
- Allison Christians, A Global Perspective on Citizenship-Based Taxation, 38 Mich. J. Int'l L. 193 2017) ("The extraordinary tax claims made by the United States upon its citizens at the very least implies that those who obtain that status without their informed consent have an absolute right to exit. Upon learning of their status and the obligations attendant thereto, these citizens must be entitled to leave without being compelled to produce paperwork, engage in interviews, endure punishment for past tax or information reporting noncompliance, or pay a fee, as current law requires.")
- Jessica Dorfmann, The Cost of United States Citizenship Abroad, Harvard Int'l Rev. (Winter 2013) ("It is ironic that a citizenship so widely desired has come to feel like a burden for so many.")
- Christopher M. Ferguson, "The Required Records Doctrine: The Fifth Amendment Privilege Under Attack" (2011) ("If the Ninth Circuit's holding in [in re MH, 648 F.3d 1067 (9th Cir. 2011)] is permitted to stand, it would not be farfetched to fear that it signals the beginning of the end of the Fifth Amendment privilege as applied to personal records.") But see Jack Townsend appraisal (with list of cases): the Required Records Doctrine is a consistently enforced among the circuit courts of appeal.
- J. Richard Harvey, Jr., "Worldwide Taxation of U. S. Citizens Living Abroad Impact of FATCA and Two Proposals", Villanova Public Law and Legal Theory Working Paper Series (2013) ("Although this article addresses both possibilities, my strong suspicion is that Congress will not adopt a residence-based tax system for individuals because of fairness and tax revenue concerns.")
- International Consortium of Investigative Journalists, "The mystery of the fleeing Americans" (Dec. 6, 2003) ("Why are so many Americans suddenly so eager to cut their ties with Uncle Sam?")
- A continuing series of articles of scholarly value by "Eric" on the Isaac Brock Society forum on matters related to status, expatriation and rights
- "Considering 'Citizenship Taxation': In Defense of FATCA", by Young Ran (Christine) Kim, 20 Fla. Tax Rev. 335 (2017) ("[T]his Article aims to defend the administrability of citizenship taxation in conjunction with new reporting obligations.")
- Michael S. Kirsch, The Tax Code as Nationality Law, (2006) ("This Article questions the frequently asserted axiom that Congress's taxing power knows no bounds. It does so in the context of recently enacted legislation that creates a special definition of citizenship that applies only for tax purposes.")
- Michael S. Kirsch, Taxing Citizens in a Global Economy, 82 N.Y.U. L. Rev. 443 (2007) ("The tax treatment of overseas citizens in the past century and a half reflects changing perceptions of citizens abroad and their relationship with the United States, as well as the changing role of the United States in world economic affairs.")
- Giovanni Legorano and John Letzing, "Italy’s Crackdown on Tax Evasion Deals Another Blow to Swiss Banks", Wall Street J., Feb. 9, 2016 (Archived copy)
- Samantha McKay, The Foreign Account Tax Compliance Act: A Constitutional Analysis (2018). Law School Student Scholarship 944. ("FATCA should be repealed")
- Ruth Mason, Citizenship Taxation, 89 So. Cal. L. Rev. 169 (2016)
- Andrew Mitchell and Ryan Dunn, "The Escalation of Offshore Penalties Over the Last 20 Years", International Tax Blog, Nov.2, 2015
- "Criminal Tax Investigations: Civil and Criminal Tax Fraud", 2014 New England IRS Representation Conference, Nov. 21, 2014
- New York University School of Law Spring 2015 Colloquium on Tax Policy and Public Finance
- Kevin E. Packman, "IRS Renews Its Focus on Unreported Foreign Accounts and Assets: The 2011 Disclosure Program" (2011)
- Kevin E. Packman, "Noncompliance after the IRS offshore income reporting initiative—what options remain?" (2009) ("Taxpayers should be aware that the Service intends to continue its focus on enforcement, a direction reinforced by both the President and Congress.")
- Kevin E. Packman, "The Tax Rules Just Changed: Emotions Aside, Does Expatriating Make Financial Sense?" (2008) ("The HEART legislation provides significant benefits to veterans. To offset the approximate $1.2 billion price tag of those benefits, the HEART legislation ... created ... legislation [which] is expected to raise $600 million by subjecting all new expats to a mark-to-market exit tax. Additionally, new Section 2801 subjects U.S. recipients of gifts and bequests from expats to gift or estate tax.")
- Kevin E. Packman, "Significant New FBAR Developments From IRS and the Tax Court" (2008) ("The FBAR related questions run several pages. Taxpayers should understand that if dealing with the IRS alone, they could inadvertently make an admission that will later be used against them in a criminal matter. They also should realize that the innocuous questions can be followed up with the more aggressive approach.")
- Kevin E. Packman and Mauricio D. Rivero, "Increased Disclosure, Penalties, and Audit Periods Courtesy of the Foreign Account Tax Compliance Act" (2010) ("It is clear that FATCA, the latest congressional effort to stanch tax evasion, will prove to be burdensome. How U.S. taxpayers, foreign entities and financial organizations deal with the burdens remain to be seen.")
- Kevin E. Packman, "Significant New FBAR Developments From IRS and the Tax Court" (2008)
- Kevin E. Packman, "Foreign Account Reporting Using Form 8938—Has the Service Created Compliance Traps?" ("While there is nothing illegal or improper about holding foreign accounts and assets, the government continues to increase the level of transparency and compliance required by those holding such assets. The penalties for failing to comply are costly. Even though the monetary cost of not complying with the Form 8938 requirements is far less severe than the FBAR requirement, the ancillary penalties are no mere slap on the wrist. The statute of limitations will not begin to run until the form is filed, there is a six-year statute of limitations if $5,000 of income associated with an SFFA [specified foreign financial assets] is omitted, and a 40% deficiency penalty associated with unreported income from an SFFA.")
- Richard Pomp, "The Experience of the Philippines in Taxing Its Nonresident Citizens", 17 N.Y.U. J. Int'l L. & Pol. 245 (1984-1985) (Iryn S. Yap-Balmores (2012): "With the passage of RA 8424 [of 1998], however, nonresident citizens became subject to tax only on their income from Philippine sources. Only resident citizens are taxed on their worldwide income.")
- Charles P. Rettig, "IRS FBAR Voluntary Disclosure Program: Taxpayer Interviews", Forbes, June 12, 2013 ("It should be anticipated that the IRS will pursue examinations of the amended returns of taxpayers residing in the United States in some manner. ... For some [taxpayers with un disclosed foreign accounts] the OVDP or a process of amending prior returns might not be realistic or practical. ... Waiting and watching from the sidelines is not a viable option ... some form of timely compliance for all is to be encouraged.")
- Charles P. Rettig, "Why the Ongoing Problem with FBAR Compliance?", J. Tax Pract. & Procedure, Aug.-Sept. 2016, p. 37 ("The perception of fairness associated with ongoing enforcement efforts will have a significant impact on the future of both domestic and international U.S. tax compliance. Similarly, the perception that those who voluntarily come forward were treated unfairly in some manner will have a significant, although adverse, impact on the future of U.S. tax compliance. The lesson learned from the OVDP and Streamlined programs encouraging voluntary compliance should not be that only 'chumps' participate.")
- John Richardson, "Taxation of #AmericansAbroad in the 21st Century: 'Country of birth' Taxation vs. 'Country of Residence' Taxation" ("The current practice of U.S. 'place of birth taxation' is much more analogous to a 'property interest' that a country has in its citizens than a voluntary commitment to the engagement that should characterize good citizenship. It is respectfully submitted that 'citizenship' should imply a voluntary connection to a country and not a form of 'ownership' where the citizen exists only to serve the government.")
- Two YouTube interviews of this writer by John Richardson, Toronto nationality and tax lawyer: March 16, 2014 and Dec. 8, 2016
- Stephen A. Saltzburg, "The Required Records Doctrine: Its Lessons for the Privilege Against Self- Incrimination", 53 U. Chi. L. Rev. 6 (1986) ("In 1951 Professor Meltzer observed that the privilege against self-incrimination must be assessed against the regulatory system that a nation adopts.'" Thus, far the cases have proved him correct.")
- Bernard Schneider, "The End of Taxation Without End: A New Tax Regime for U.S. Expatriates", 32 Va. Tax Rev. 1 (2012) ("This article proposes that the United States follow the approach of several other countries and eliminate the worldwide taxation of expatriate citizens and LPRs and replace the exit tax on those renouncing U.S. citizenship or relinquishing LPR status with a departure tax regime that would apply to all U.S. citizens and LPRs who emigrate from the United States.")
- Hale Sheppard, "Government Wins Second Willful FBAR Penalty Case: What McBride Really Means to Taxpayers with Unreported Foreign Accounts" (2013) Comment by Jack Townsend ("[T]he reality is that the U.S. government, after a long period of inactivity and ineffectiveness, has taken significant steps over the past few years to identify and punish failures to file ... “FBARs” as they are commonly known.")
- Hale E. Sheppard, "Government Wins Fourth Straight FBAR Penalty Case: Analyzing Bohanec and the Evolution of ‘Willfulness’" (2017)
- Hale E. Sheppard, "IRS Giveth and DOJ Taketh Away: Recent Opinion Jeopardizes Retroactive FBAR Relief" (2010)
- Hale E. Sheppard, "Evolution of the FBAR: Where We Were, Where We Are, and Why It Matters", 7 Hous. Bus. Tax J. 1 (2006)
- Timothy M. Todd, "The required-records doctrine and the Fifth Amendment", The Tax Advisor, July 1, 2017
- Georges Ugeux, "Should Lex Americana be universal? FATCA turns foreign banks into tax informants", CLS Blue Sky Blog, June 19, 2013 ("Is US foreign policy using all its weaponry, including the FCPA and FATCA to impose a Lex Americana (i.e., American law regime) upon the rest of the world? Shouldn’t the US first look more closely at its own taxation system and corruption? International tax law is in urgent need of modernization with a focus on equity and fairness rather than threat and blackmail.")
- United Nations, Women, Nationality and Citizenship (2003); Convention on the Nationality of Married Women, 1957
- U.S. Department of Justice Tax Division Judgment Collection Manual (May 2004)
- "Tax Treatment of Expatriated Citizens", Hearing before the Committee on Finance, United States Senate 104th Congress (1995); Cong. Record, Apr. 6, 1995 ("Amendment No. 448 to Amendment No. 420 (Purpose: To state the sense of the Senate regarding tax avoidance by certain former citizens of the United States)"); renunciants labeled "super-rich traitors" by Congressman Dick Durbin, Cong. Record, Mar. 30, 1995, p, 1.
- A Study of the Consequences of the Foreign Account Tax Compliance Act on Americans Living Overseas: Survey Results and Interpretations, Univ. of Nevada (2015) ("Americans living abroad generally feel that the FATCA negatively impacts their professional pursuits and compliance is burdensome.")
- U.S. Department of Homeland Security, Inadmissibility of Tax-Based Citizenship Renunciants, Nov. 30, 2015, Fiscal Year 2015 Report to Congress ("[T]he Department of Homeland Security and the Department of State remain committed to continuing to strengthen lines of communication, improve information sharing, and develop more consistent protocols to ensure that both Departments are aware when a renunciant admits that he or she renounced U.S. citizenship for the purpose of U.S. tax avoidance.")
- Martin Peter Vink and Rainer Bauböck, Citizenship configurations: Analysing the multiple purposes of citizenship regimes in Europe, 11 Comp. Eur. Pol. 621 (2013) ("Instead of assuming that citizenship laws regulate only the inclusion of immigrants, we assume that such laws are shaped by multiple purposes")
- Citizenship through parents (as of 11/10/2015 and not, or not yet, reflecting decision in Sessions v. Morales-Santana which changed the law as to nonmarital births abroad as of June 12, 2017), USCIS Policy Manual — But see comment by John Richardson (suggesting that whatever the U.S. Government's position as to one's citizenship, at least some individuals who have never exercised an attribute of U.S. citizenship and lack its "objective characteristics" may be in a position to reject or refuse U.S. nationality.)
- 26 U.S. Code § 877 - Expatriation to avoid tax and 26 U.S. Code § 877A - Tax responsibilities of expatriation
- "The Tax-Immigration Nexus", by Tessa Davis, 94 Denv. L. Rev. 195 (2017)
- Note and Comment: "International Tax Regulation by United States Fiat: How FATCA Represents Unsound International Tax Policy", by James F. Kelly, 34 Wis. Int'l L. J. 981 (2017)
- Comment: "Foreign Account Tax Compliance Act: What It Could Mean For the Future of Financial Privacy and International Law", by John S. Wisiackas, 31 Emory Int'l L. Rev. 585 (2017)
- Michigan Journal of International Law Tax Symposium Issue: Vol. 38, Issue 2, Winter 2017 ("This issue of MJIL features four out of the many outstanding papers that were presented at a conference on Taxation and Citizenship held at Michigan Law in October 2015 and co-organized by Allison Christians and [Reuven S. Avi-Yonah]. The impetus for the conference was the realization that the unique U.S. practice of taxing its citizens on worldwide income, regardless of where they reside, has become a major flashpoint in the relationship between the United States and its citizens living overseas, and sometimes also between the United States and the country those citizens resided in.")
- Tax Symposium: Introduction, Reuven S. Avi-Yonah
- Citizenship Overreach, Peter J. Spiro
- A Global Perspective on Citizenship-Based Taxation, Allison Christians
- Minimalism About Residence and Source, Wei Cui
- Defining Residence for Income Tax Purposes: Domicile as Gap-Filler, Citizenship as Proxy and Gap-Filler, Edward A. Zelinsky
- Avoiding Double Taxation and Expatriation: A Comprehensive Solution to FATCA and Corporate Inversion, by Michael B. Cohen, 41 N.C.J. Int'l L. & Com. Reg. 595 (2016) (archived copy)
- Note: The Eighth Amendment and Tax Evasion: Whether FATCA Non-compliance Fines are Excessive, by Tyler R. Murray, 24 Wm. & Mary Bill of Rts. J. 553 (2015)
- Penalties for the Failure to Report Foreign Financial Accounts ad the Excessive Fines Clause of the Eighth Amendment, by Matthew A. Melone, 23 Geo. Mason L. Rev. 337 (2015)
- Comment: The End of Secret Swiss Accounts?: The Impact of the U.S. Foreign Account Tax Compliance Act (FATCA) on Switzerland's Status as a Haven for Offshore Accounts, by: Jane G. Song, 35 NW. J. Int'l L. & Bus. 687 (2015)
- Too Much Collateral Damage, FATCA: The Well-Intentioned, Yet Misguided and Unconstitutional, Tax Law, by Zac DeLap, 35 J. Nat'l Ass'n L. Jud. 212 (2015)
- The U.S. Foreign Account Tax Compliance Act: American Legal Imperialism?, by Bruce W. Bean and Abbey L. Wright, 21 ILSA J. Int'l & Comp. L 334 (2015) (archived copy)
- Worldwide Taxation and FATCA, by Ann C. Kossachev, 25 Geo. Mason U. Civ. Rts. L. J. 217 (2015) (archived copy)
- Comment: "Americans: We Love You, But We Can't Afford You": How the Costly U.S.-Canada FATCA Agreement Permits Discrimination of Americans in Violation of International Law, by Yvonne Woldeab, 30 Am. U. Int'l L. Rev. 611 (2015)
- FATCA and the Erosion of Canadian Taxpayer Privacy, Report to the Office of the Privacy Commissioner of Canada, April 2014, by Arthur J. Cockfield
- Desperate Times Call for Desperate Measures: The Cost to Multinational Corporations of Implementing FATCA, by Callyn H. Terveer, 15 Hous. Bus. & Tax L.J. 300 (2015)
- Comment: Goodbye, Uncle Sam? How the Foreign Account Tax Compliance Act is Causing a Drastic Increase in the Number of Americans Renouncing Their Citizenship, by Taylor Denson, 52 Hous. L. Rev. 967 (2015)
- Comment: I Got 99 Problems and They're All FATCA, by Nirav (Jonathan) Dhanawade, 35 NW. J. Int'l L. & Bus. 139 (2014)
- Innovations in the War on Tax Evasion, by Tracy A. Kaye, 2014 B.Y.U. L. Rev. 363 (2014)
- Note: Foreign Account Tax Compliance Act: A Step in the Wrong Direction, by Sean Deneault, 4 Ind. Int'l & Comp. L. Rev. 729
- Comment: Buying FATCA Compliance: Overcoming Holdout Incentives to Prevent International Tax Arbitrage, by Marc D. Shepsman, 36 Fordham Int'l L.J. 1767 (2013)
- Comment: "Using a Sledgehammer to Crack a Nut: Why FATCA Will Not Stand", by Frederic Behrens, 2013 Wis. L. Rev. 205 (2013)
- Symposium article: Tax Advice for the Second Obama Administration: Putting the Reign Back in Sovereign, by Allison Christians, 40 Pepp. L. Rev. 1373 (2013) (archived copy)
- IRS, Will You Spare Some Change?: Defining Virtual Currency for the FATCA, by Elizabeth M. Valeriane, 50 Val. U. L. Rev. 863 (2016)
- Hiding in plain sight: how non-US persons can legally avoid reporting under both FATCA and GATCA, by Peter A. Cotorceanu, Trusts & Trustees, Vol. 21, No. 10, December 2015, pp. 1050–1063
- Revisiting the Tax Treatment of Citizens Abroad: Reconciling Principle and Practice, by Michael Kirsch, 16 Fla. Tax Rev. 117 (2014)
- Beyond FATCA: An Evolutionary Moment for the International Tax System, by Itai Grinberg (working draft, 2012)
- FATCA - A Report from the Front Lines, by J. Richard Harvey Tax Notes, p. 713, August 6, 2012
- Avoidance, Evasion, and Taxpayer Morality, by Allison Christians, 44 Wash. U. J. L. & Pol’y 039 (2014)
- "Tax havens" are seen, not least of all in U.S. tax legislation, as legitimate for corporations and illegitimate for individuals: Tax Havens and the Transparency Wave of International Tax Legalization, by Robert T. Kudrle, 37 U. Penn. J. Int'l L. 1153 (2016)
- International Tax Cooperation, Taxpayers' Rights and Bank Secrecy: Brazilian Difficulties to Fit Global Standards, by Carlos Otavio Ferreira de Almeida, 21 L. & Bus. Rev. Am. 217 (2015)
- Tax Transparency: A Tale of Two Countries, by Tracy A. Kaye, 39 Ford. Int'l L. J. 1152 (2016) ("The Panama Papers are also a powerful reminder that transparency matters greatly in the war on tax evasion.")
- Are You Hiding Money from the IRS Overseas? Be Very Afraid: The agency has new tools to find secret accounts and penalties are harsher, by Laura Saunders, Wall St. J., June 2, 2017 (archived copy, with 91 reader comments) 
- Media and blog articles of 2017 (with links to other years) collected by Isaac Brock Society
- FATCA has a few professional supporters but their tendency is to ignore its impact on persons whose center of economic and family life is abroad and who may never have set foot in the United States since birth, if ever: notably Prof. Elise J. Bean, and Sen. Carl Levin, on whose staff she worked. The issue addressed by many of the commentators cited here is that there is a distinction between U.S. resident taxpayers who have concealed untaxed income abroad and those living abroad whose level of sophistication and income is such that they cannot be expected to know, and cannot afford to buy, the skills needed to avoid the draconian penalties for nondeclaration fixed by the Congress.
- Thus: Young Ran Kim, "Considering 'Citizenship Taxation': In Defense of FATCA", 20 Florida Tax Review 335 (2017)
- United States v. All Assets Held at Bank Julius Baer & Co., 772 F. Supp. 2d 205 (D. D.C. 2011)
- U.S. v. All Assets Held at Bank Julius Baer & Co., 116 AFTR 2d 2015-6650 (D. D.C. 2015)
- U.S. v. Bank Julius Baer & Co., Case 16-00886 (S.D. N.Y. 2016) (Deferred prosecution agreement). Comment, Robert W. Wood, Forbes, Feb. 4, 2016, “Bank Julius Baer Hit With $547M Criminal Tax Evasion Penalty, Two Bankers Plead Guilty”
- U.S. v. Badreg, 120 AFTR 2d 2017-6227 (M.D. Fla. 2017)
- U.S. v. Badreg, 120 AFTR 2d 2017-6230 (M.D. Fla. 2017)
- U.S. v. Bedrosian, Case 2:15-cv-05853-MMB (E.D. Pa. 2017) Comment: Ed Zollars, "Taxpayer Found Not to Have Willfully Filed Erroneous FBAR Report"
- U.S. v. Bohanec, 118 AFTR 2d 2016-6757 (C.D. Cal. 2016) (Court version) Comment, Jack Townsend
- U.S. v. Brayshaw, 118 AFTR 2d 2016-6203 (E.D. Cal. 2016) (Records demand regarding Swiss bank account) Court documents — Magistrate Judge findings and recommendation
- Brayshaw v. United States, 9th Cir. Case No. 17-16327 Brief for appellant — Brief for Government
- U.S. v. Bussell, Nos. 02-50495, 02-50528 (9th Cir. 2005)
- L.A. Times, Feb. 6, 2002, "Doctor in Fraud Trial Dies in Fall from Hotel"
- Bussell v. Comm'r, T.C. Memo. 2005-77, aff'd, 262 Fed. App'x 770 (9th Cir. 2007)
- Letantia Bussell and Estate of John Bussell v. Comm'r, 130 T.C. No. 13 (2008)
- Bussell v. Comm'r, 130 T.C. No. 13 (2008)
- U.S. v. Bussell, 117 AFTR 2d 2016-439 (C.D. Cal. 2016)
- U.S. v. Bussell, 117 AFTR 2d 2016-446 (C.D. Cal. 2016)
- U.S. v. Bussell, 120 AFTR 2d 2017-6376 (C.D. Cal. 2016)
- U.S. v. Bussell, 120 AFTR 2d 2017-6379 (9th Cir. 2017) (Court version) — Comment by Jack Townsend Comment by Anthony Parent, "A win for the government? Unpacking the meaning of the Bussell FBAR decision"
- U.S. v. Canale, 115 AFTR 2d 2015-2249, 14 Cr. 713 (S.D. N.Y. 205) ("Canale conspired with others to open and maintain undeclared bank accounts in Switzerland—and to hide those accounts, and the income generated therefrom, from the Internal Revenue Service")
- U.S. v. Chabot, 116 AFTR 2d 2015-5270, 793 F.3d 338 (3d Cir. 2015) ("IRS petition to enforce summonses for foreign bank account records") Jack Townsend comment
- U.S. v. Chabot, No. 16-3873 (3rd Cir. 2017) (civil contempt for failing to comply with the Court's enforcement order of IRS summons)
- Crawford v. U.S. Dept. of Treas., 116 AFTR 2d 2015-6288 (S.D. Ohio 2015) (sometimes called the "Bopp case" after the lead lawyer) (Court version) ("Plaintiffs request that the Court enjoin Defendants from enforcing the Foreign Account Tax Compliance Act ('FATCA'), the intergovernmental agreements ('IGAs') negotiated by the United States Department of the Treasury ('Treasury Department') to supplant FATCA in the signatory countries, and the Report of Foreign Bank and Financial Accounts ('FBAR') administered by the United States Financial Crimes Enforcement Network ('FinCEN').") — Lawsuit timeline
- Crawford v. U.S. Dept. of Treas., 120 AFTR 2d 2017-5544, 868 F.3d 438 (6th Cir. 2017) (Court version) (Lack of standing)
- Crawford v. U.S. Dept. of Treas., 120 AFTR 2d 2017-5913 (6th Cir. 2017) (Petition for rehearing en banc denied)
- Dewees v. United States, Civil Action No. 2016-1579 (D.C. 2017) — Documents downloaded from RECAP: Complaint — Gov't Memo in Support of Motion to Dismiss — Declaration of IRS agent — Opposition to Gov't Motion — Gov't Reply Memo — Memorandum Opinion ("Dewees learned that he had failed to comply with these [26 U.S.C. § 6679, Form 5471] requirements, and, on the advice of a tax specialist, applied to participate in the IRS’s Offshore Voluntary Disclosure Program ('OVDP').")
- Flume v. Comm’r, T.C. Memo. 2017-21 (U.S. citizen resident in Mexico; Form 5471 penalties)
- U.S. v. Forbes, 120 AFTR 2d 2017-6018 (E.D. Va. 2017) (FBAR penalties and interest of $1,657,812.23 default judgment)
- U.S. v. Forbes, 120 AFTR 2d 2017-6020 (E.D. Va. 2017) (entry of judgment)
- U.S. v. Gippetti, 96 AFTR 2d 2005-6978 (D.C. N.J. 2005) (Offshore credit card project; bank and credit card accounts with Cayman National Bank, Ltd)
- In Re Grand Jury Proceedings, No. 4-10, Case No. 12-13131, 11th Cir. (Feb. 11, 2013) ("we affirm the district court’s order granting the government’s motion to compel the Target and his wife to comply with the subpoenas duces tecum for their foreign financial account records.")
- U.S. v. Greenfield, 118 AFTR 2d 2016-5275, 831 F.3d 106 (2d Cir. 2015) (Liechtenstein Global Trust leaked documents) See "Tax Haven Banks and U.S. Tax Compliance", Senate Hearing 110-614 (2008)
- Gubser v. IRS, 5th Cir. Case No. 16-40948 Judgment, March 13, 2017 (Gubser failed to establish standing; case still in IRS appeals process and Government has not waived its sovereign immunity) Appellant's brief — Amicus brief — Appellee brief (Standard of proof for willfulness in FBAR penalty imposition) Comment by Anthony Parent
- U.S. v. Hom, 113 AFTR 2d 2014-1426 (N.D. Cal. 2014) (FBAR collection action; amended answer and counterclaim struck)
- U.S. v. Hom, 113 AFTR 2d 2014-2325, 45 F. Supp. 3d 175 (N.D. Cal. 2014)
- Comment by Charles Rettig, "FBAR Penalty Applies to Offshore Poker Account"
- U.S. v. Hom, 118 AFTR 2d 2016-5222, 657 Fed. App'x 652 (9th Cir. 2016) ("The issue before us is whether Hom's accounts with FirePay, PokerStars, and PartyPoker required the filing of FBAR forms under 31 U.S.C § 5314")
- Kaplan v. Commissioner, T.C. Memo. 2014-43 (Further proceedings as Nineveh Investments Ltd. v. United States.)
- Nineveh Investments Ltd. v. United States, 2017 U.S. Dist. LEXIS 199486 (E.D. Penn. 2017) ("Kaplan's tax obligations stem from the sale of his shares in BetOnSports, PLC, an overseas gambling operation"; the proceeds were settled on two trusts based in the Isle of Jersey.) The judgment notes that the U.S. Government has not consented to be sued in foreign courts. Since the decision in United State,  S.C.R. 366 the U.S. Government has not brought suit in its own name in foreign courts in its own name to collect taxes. The risks are that a foreign court would either rule on a matter of U.S. law or entertain a counterclaim by the defendant. Compare the Foreign Sovereign Immunities Act and Cabiri v. Ghana, 165 F.3d 193 (2d Cir. 1999) Sean D. Murphy, United States Practice in International Law, vols. 1 & 2 (Cambridge 2009, 2011)
- U.S. v. Kerr, Quiel and Rusch, Case No. 11-cr-02385-JAT, D. Ariz. (2011) Indictment — Trial brief for Government — Comment by Jack Townsend "Convictions of U.S. Persons Related to UBS and Pictet Accounts" (4/12/13) and Christopher M. Rusch was disbarred in California
- U.S. v. Kerr, 120 AFTR 2d 2017-6066 (9th Cir. 2017) (Court version) (Claim that "defendants' lawyer, Christopher Rusch, had engaged in criminal and fraudulent behavior before, during, and after the trial, in part by blogging and podcasting" did not justify new trial or limited remand) — Comment by Jack Townsend
- U.S. v. Hyung Kwon Kim E.D. Va. No. 17-cr-00248 Criminal information — Statement of facts — Plea agreement — Sentence: DoJ Press Release ("Failed to Report Foreign Financial Accounts with Value Exceeding $28 Million") — Jack Townsend comment
- U.S. v. Little, 119 AFTR 2d 2017-1715, 2017 U.S. Dist. LEXIS 67580 (S.D. N.Y. 2017) (Prosecution over undeclared offshore accounts)
- U.S. v. Lui, 120 AFTR 2d 2017-5332, 2017 U.S. Dist. LEXIS 119953 (N.D. Cal. 2017) Comment by Jack Townsend (with link to court docket listing documents downloadable from PACER)
- In re MH, 648 F.3d 1067 (9th Cir. 2011) (Required records doctrine, overriding 5th Amendment privilege, applied to IRS effort to determine whether taxpayer used secret Swiss bank accounts to evade paying federal taxes. Comment, Jeremy H. Temkin, N.Y.L.J., Jan. 15, 2014.
- U.S. v. McBride, 110 AFTR 2d 2012-6600, 908 F. Supp. 2d 1186 (D. Utah 2012) (case to collect a civil penalty for alleged willful failure to report interest in four foreign bank accounts)
- Moore v. U.S., 115 AFTR 2d 2015-1375 (W.D. Wash. 2015) ("Mr. Moore filed this lawsuit to contest the IRS's decision to assess the maximum penalty of $10,000 against him four times, once for each year from 2005 through 2008")
- Moore v. U.S., 116 AFTR 2d 2015-5397 (W.D. Wash. 2015) Comment by Leslie Book
- Nance v. U.S., 111 AFTR 2d 2013-1616 (W.D. Tenn. 2013) (Complaint seeking a refund of tax penalties)
- Norman v. U.S., 117 AFTR 2d 2016-1279 (126 Fed. Cl. 277) (Ct, Cl. 2016) (Question of jurisdiction of Court of Federal Claims)
- U.S. v. Padula, M.D. Fla. No. 17-cr-00015-SPC-MRM-1 Dept. of Justice Press Release — Judgment — Comment, Jack Townsend
- U.S. v. Palmer, 118 AFTR 2d 2016-6444 (M.D. Fla 2016)
- From PACER: Complaint ("[D]efendant Palmer is a United States citizen who currently resides abroad. … From 2006 through 2008, Palmer had a financial interest in … two accounts at Clariden Leu Bank in Switzerland. Both of these accounts were in the name of Liechtenstein trusts. … In 2009, Palmer requested admission into the IRS's Offshore Voluntary Disclosure Initiative (OVDI).") Order
- U.S. v. Paltzer, S.D. N.Y. No. 13-00282 Indictment (with Stefan Buck who was acquitted, see above) — Docket (CourtListener, with downloadable documents from PACER and RECAP) — Zurich Web sites (1) (2) — Paradise Papers
- U.S. v. Park, 120 AFTR 2d 2017-6075 (N.D. Ill. 2017) (IRS suit to collect decedent's outstanding FBAR penalties from his children or estate on basis of transferee liability)
- U.S. v. Pomerantz, 119 AFTR 2d 2017-2113 (W.D. Wash. 2017) (Court version) (Nonresident dual U.S.-Canadian citizen, questions of willfulness and time bar)
- U.S. v. Pomerantz, 120 AFTR 2d 2017-6095 (W.D. Wash. 2017) (Denial of motion to dismiss)
- U.S. v. Quiel, 114 AFTR 2d 2014-6984, 595 Fed. App'x 692 (9th Cir. 2014) (false tax returns and failure to file FBARs) Comment by Jack Townsend
- U.S. v. Radchik, 119 AFTR 2d 2017-2039 (D. N.J. 2017) (tax preparer privilege of confidentiality; 5th Amendment rights)
- Schaffler v. U.S., 806 F.3d 34 (2nd Cir. 2015) (IRS summons and attorney-client privilege) Jack Townsend comment
- U.S. v. Simon, 106 AFTR 2d 2010-6739 (N.D. Ind. 2010) (opinion on motion)
- U.S. v. Simon, 107 AFTR 2d 2011-358 (N.D. Ind. 2010) (opinion on renewed motion)
- U.S. v. Simon, 107 AFTR 2d 2011-1393 (N.D. Ind. 2010) (opinion; sentencing findings) — complaint
- U.S. v. Simon, 112 AFTR 2d 2013-5734, 727 F.3d 682 (7th Cir. 2013) ("A jury convicted James A. Simon of filing false income tax returns, failing to file reports of foreign bank accounts, mail fraud and financial aid fraud. … Denise committed suicide several days after federal agents executed a search warrant at the Simon family home." Memorial page — Comment by Jack Townsend — Earlier comment
- U.S. v. Simonelli, 102 AFTR 2d 2008-6577 (D. Conn. 1999) (Summary judgment for Government on civil FBAR penalty)
- Ian D. Smith v. Comm'r, 148 T.C. No. 21 (2017) (rewards to informers and whistleblowers)
- U.S. v. Srivastava, 98 AFTR 2d 2006-5932, 444 F. Supp. 2d 385 (D.C. Md. 2006) (suppression of evidence)
- Thompson v. U.S., 102 AFTR 2d 2008-6130 (S.D. Tex. 2008) (Third party summons on taxpayer's accountant)
- U.S. v. Tilga, 108 AFTR 2d 2011-7129 (824 F. Supp. 2d 1295), (D.C. N.M. 2011) (sentencing issues in tax evasion prosecution)
- Topsnik v. Comm'r, 146 T.C. 1 (2016) (abandonment of lawful permanent resident status creating covered expatriate status) Comments: Martin J. McMahon Jr. and Bruce A. McGovern — John Richardson
- U.S. v. Toth, 119 AFTR 2d 2017-1688 (D. Mass. 2017) (FBAR penalty of $2,173,703)
- United States v. Under Seal, 112 AFTR 2d 2013-7316, 737 F.3d 330 (4th Cir. 2013) (civil contempt order over records of foreign bank account: " Does argue that individuals are unlikely to keep account records for the five years required under 31 C.F.R. § 1010.420, given the three-year statute of limitations for civil tax adjustments, and because foreign banks are notorious for failing to provide customers with records. This argument fails, however, given the clear language in § 1010.420 that requires the retention of the account information that has been subpoenaed.")
- U.S. v. Van Katwyk, 120 AFTR 2d 2017-6380 (C.D. Cal. 2017) (default judgment for FBAR penalties against lawful permanent resident)
- U.S. v. Warner, 116 AFTR 2d 2015-5175 (7th Cir. 2015) (Beanie Babies creator sentenced to two years' probation with community service, plus a $100,000 fine and costs)
- Joseph B. Williams III v. Comm'r, T.C. Memo 2009-82 (collateral estoppel after tax evasion conviction)
- Joseph B. Williams III v. Comm'r, T.C. Memo 2011-89 Comment by Jack Townsend
- Joseph B. Williams III v. Comm'r, (4th Cir. 2012)
- U.S. v. J. Bryan Williams, Amended judgment after guilty plea in tax evasion case, S2-03-cr-00406-001 (HB) (S.D. N.Y. 2003) Indictment (kickback to Mobil Oil executive from Kazakh project)
- U.S. v. J. Bryan Williams, 106 AFTR 2d 2010-5158 (E.D. Va. 2010) (denial of IRS motion for summary judgment)
- U.S. v. J. Bryan Williams, 106 AFTR 2d 2010-6150 (E.D. Va. 2010) (willfulness issue)
- U.S. v. J. Bryan Williams, 110 AFTR 2d 2012-5298, 489 Fed. App'x 655 (4th Cir. 2012) (Court version) Comment by Steven Ferraro, "Effect of United States v. Williams on the Offshore Voluntary Disclosure Program", 10 BYU Int'l L. & Mgmt. R. 27 (2014)
- U.S. v. J. Bryan Williams, 114 AFTR 2d 2014-5036 (E.D. Va. 2014) (statutory maximum FBAR penalty affirmed)
- U.S. v. Zwerner, S.D. Fla. Case No. 13-cv-22082-CMA, Complaint — Jury question — Jury verdict — Notice of Settlement — Zwerner: Jury Determines 150% FBAR Penalty Applies - What Next? (Forbes, May 29, 2014)
- See additional 2014 and older cases at SCRIBD
- The BCCI Affair: A Report to the Committee on Foreign Relations, Senator John Kerry, Senator Hank Brown (Dec. 1992)
- House of Commons, Inquiry into the Supervision of the Bank of Credit and Commerce International (Oct. 1992)
- "BCCI: Dead and Buried", The Economist, April 13, 2000
- "A Brief History of the United States Liquidation of Bank of Credit and Commerce International ('BCCI') July 5, 1991 through July 31, 2012"
- Final judgment, United States v. BCCI Holdings (Luxembourg) S.A., Crim. Action No. 91-0655 (JHG) (D. D.C. 1999)
- "Files close on BCCI banking scandal" Guardian, May 17, 2012
US Tax Program for Swiss Banks ("The Program for Non-Prosecution Agreements or Non-Target letters for Swiss Banks intends to settle a dispute between Swiss Banks and the United States of America linked to tax evasion of US Related Accounts held in Swiss Banks.") — Dept. of Justice Timeline — Jack Townsend, "General Links" — But see: Finews, Dec. 30, 2016, "U.S. Ends 4-Year Swiss Hunt With Paltry Reward". ($1.36 bn total from 80 banks) — Swissinfo, Aug. 17, 2017, "Swiss asset manager settles US tax evasion charges" ("A handful of other banks, including Pictet and the Basel and Zurich cantonal banks, could still be subject to criminal convictions and heavy fines.") On Bradley C. Birkenfeld, see his memoir, Lucifer’s Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy: Goodreads summary, and Jack Townsend comment.
"Fines for Misconduct in the Banking Sector — What is the Situation in the EU?", Economic and Monetary Affairs Committee, European Parliament (March 2017). Gateley Plc, "Facilitation of tax evasion – considerations for banks" (Dec. 2017) ("a foreign tax evasion offence relating to conduct which is an offence under the law of a foreign country, which relates to a breach of duty regarding a tax imposed under that foreign law and which would be regarded as a UK tax evasion offence if the offence were committed in the UK.")
"European banks face ‘disproportional’ US fines", Financial News, Sept. 11, 2017 ("European institutions account for almost 40% of all the fines paid to US regulators for failing to police economic crime") Likewise: Chris Skinner's Blog, "American Hypocrisy Over Bank Fines Shows Parochialism at Large", May 21, 2014 ("The banks the US Authorities seek to punish are mainly the large European banks whilst, when it comes to its own, it is far more lenient.") Settlements with Treasury have been deducted by banks from their own taxable income for U.S. tax purposes: GAO report 05-747 (2005), Newsweek, Oct. 27, 2014.
"Swiss banks suddenly preach transparency in U.S. tax evasion endgame", Financial Post, April 2015 ("Faced with the threat of penalties that could bankrupt some of them, almost 100 of the country’s banks are calling U.S. clients to get them to disclose hidden offshore accounts")
Compare penalties against foreign banks for violation of money laundering and trade embargo laws: The Economist, Dec. 15, 2012, "HSBC and Standard Chartered: Too big to jail".
For covered expatriates who have heirs who are American citizens the 40% tax imposed by I.R.C. § 2801 on a U.S. Person-recipient of a legacy represents a real threat although it is subject to credit for foreign death taxes paid. (BNA comment on Proposed Reg. 112997-10; NYC Bar comment.) In a few older cases known to this writer, an estate (or administrator of a succession) has been able to bargain, through powerful Wall Street law firms and Big-Four accounting firms with the IRS for partial remission of taxes, penalties and interest. That tactic may be less likely to be successful today, but a discretionary trust barring payment of any funds that might be seized, or lead to seizure of equivalent assets, has been put forth as an alternative for jurisdictions that recognize trusts and similar arrangements. The issue of personal liability of a trustee for foreign taxes is largely untested. Bequests to foreign charities are outside the scope of IRS collections. See 26 U.S.C. § 877A(g) for exceptions to covered status in the case of certain dual nationals.
There may be a few other exceptions deriving from diplomatic and sovereign immunity of a very few former U.S. citizens. Thus David Alward, mentioned above) — although diplomats assigned to consulates have only functional and not personal immunity: See Vienna Convention on Consular Relations, Article 43, "Immunity from jurisdiction". Art. 49 exempts consular officers and their families from "all dues and taxes, personal or real, national, regional or municipal", with exceptions. And see the discussion of the diplomatic staff White List above.
- Compare the Consul General Prabhu Dayal case: "NY maid claims Indian consul exploited her: lawsuit", Reuters, June 21, 2011 and see court documents from PACER and RECAP: (complaint) and (order of closure upon settlement)
- Kasner Symposium October 25, 2014: "An Introduction to International Estate Planning" (archived copy)
- John Richardson, "Part 11 – S. 2801 of the Internal Revenue Code is NOT a S. 877A 'Exit Tax', but a punishment for the 'sins of the father'" (2015)
- Phil Hodgen, "How to Handle Inheritances from an Expatriate" (2017)
- Max Reed, "Tax Consequences of Renouncing U.S. Citizenship" (2016) ("This may lead to double taxation, as the tax will be paid in Canada later on when the assets are actually sold without a credit for the U.S. taxes already paid.")
See: Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital Article XXIX B, "Taxes Imposed by Reason of Death" (reciprocal credit for U.S. estate tax and Canadian capital gains tax on deemed disposition at death). The 40% duty ("the highest rate of tax specified … in section 2001(c)") imposed upon the recipient of a gift or legacy from a covered expatriate appears to be another Congressional override, or partial override, of tax treaties. In the case of a covered expatriate domiciled or deemed domiciled in the U.K., this would result in 40% U.K. "inheritance tax" applied to the estate above the exemption amount (at the time of writing, £325,000) and a 40% U.S. tax imposed on any legatee who is a U.S. Person, even if that person is also domiciled and resident in the U.K., with credit for foreign tax paid. To the extent that non-U.S. accountants, estate lawyers and civil-law notaries consider it their ethical duty to require clients to satisfy foreign as well as domestic tax obligations (U.K. Code of Professional Ethics, cited above), even if there are no U.S.-sited assets and no treaty collection provision, the difficulty for the IRS in exercising jurisdiction abroad may be moot.
However, the application of I.R. Reg. 11297-10 ("Notice of Proposed Rulemaking") leaves open some questions. It sets out detailed definitions regarding liability for the tax and the treatment of foreign and domestic trusts, charitable remainder trusts, and provides that payment of the tax shall not constitute a gift subject to Generation Skipping Tax. There no reference to the special provision of Protocol III to the U.S.-Canada Tax Treaty, Article XXIXB which provides for "the estate of an individual (other than a citizen of the United States) who was a resident of Canada" credit against U.S. estate tax for capital gains tax. Paragraph 7 provides:
"In determining the amount of estate tax imposed by the United States on the estate of an individual who was a resident or citizen of the United States at the time of death, or upon the death of a surviving spouse with respect to a qualified domestic trust created by such an individual or the individual's executor or surviving spouse, a credit shall be allowed against such tax imposed in respect of property situated outside the United States, for the federal and provincial income taxes payable in Canada in respect of such property by reason of the death of the individual or, in the case of a qualified domestic trust], the individual's surviving spouse."
Given that for a decade prior to the implementation of the Protocol there was double taxation (U.S. estate duty and Canadian capital gains tax) on certain property held at death by individuals whose estates were liable for both and in view of the major changes in U.S. estate taxation subsequent to the Protocol, we will have to wait for clarification. Estate of Ballard v. Comm'r, 85 T.C. 300 (1985).
As to conflict of characterization generally, see TAM 9413005 (Germany-U.S.; trust determined to constitute US domestic estate with no treaty exemption notwithstanding that assets not actually distributed to beneficiaries were taxable to them in Germany). Comment: M. Read Moore, "Foreign Affairs 101: Tax and Estate Planning for U.S. Clients Who Own Foreign Property" (RTF download link)
For the rest, the real problem is this: any lawyer or accountant is obliged, morally and legally, to advise a client to comply with all the tax laws that apply to him or her. But compliance may be impossible, or may create conflicts with the interests of other clients, typically members of the U.S. Person's family or employer. Not infrequently taxes and penalties cumulate to the point where they exceed income or assets. This may invoke public policy (ordre public) in the country of residence where the noncompliant U.S. taxpayer would become a public charge.
Taxes exceeding 100% of capital was the complaint of the attorneys acting for the Estate of Ned Green (son of Hetty Green) in Texas v. Florida, 306 U.S. 398 (1939) where it was contrived that five states should simultaneously claim estate duty. It is not hard to envisage a case where U.S. income tax would be added to a confiscatory foreign marginal rate: Reuters, May 18, 2013, "Taxes on some wealthy French top 100 pct of income: paper". Even at lower levels of income the withdrawal of benefits and allowances when income exceeds a certain, even modest, level can lead to perverse marginal rates of tax. (UK taxation) In the case of U.S. Persons abroad the Foreign Earned Income Exclusion will not apply to income from investments rather than salary or wages, magnifying the problem in a case where foreign tax credit is not available.
There is no clearer nor more sympathetic story regarding the exorbitance of American nationality and tax laws combined than that of Carol Tapanila of Calgary, Alberta, known as Calgary911, who can speak for herself. — CBC News (2014) ("U.S. FATCA tax law catches unsuspecting Canadians in its crosshairs")
There was hope among interested parties that the Tax Cuts and Jobs Act of 2017 would repeal FATCA. That did not happen; indeed, by further overriding certain tax treaty provisions and by disregarding conflicts of timing and characterization of income and deemed income, the Act may have made the situation worse.
- Forbes, Nov 29, 2017, "For FATCA Repeal, It's Now Or Never".
- Bright Tax CPAs, Nov. 9, 2017: "Trump Tax Reform Bill Analysis - What Does it Mean For US Expats?" (higher gift tax threshold may allow some renunciants to avoid "covered expatriate" status)
- American Citizens Abroad, “Tax Reform Bill and Americans Abroad: What Happened? What’s Next?” (Dec. 2017) Another copy, with Isaac Brock Society comment
Court of Justice of the European Union: Fidelity Funds v Skatteministeriet, intervener NN (L) SICAV, Case C-480/16, Opinion of Advocate General Mengozzi. (compatibility with the free movement of capital and the freedom to provide services of Danish legislation that grants undertakings for collective investment in transferable securities (‘UCITS’) established in Denmark which, either in fact or technically, make a minimum distribution to their members, an exemption from tax at source on dividends distributed by Danish companies, to the exclusion of UCITS established in other Member States.) This opinion cites preceding EU case law on tax discrimination.
- BBC: “Paradise Papers: Who are Appleby, the lawyers at the centre of the leak?” (Nov. 5, 2017)
- Colin Riegels "Appleby v The Guardian, a 30 second legal analysis" (Dec. 26, 2017)
- Columbia Journalism Review, Dec. 22, 2017, "The quiet impact of the Paradise Papers"
The 2017 Tax Bill does not change the principle of citizenship-based taxation as applied to individuals. Nor will it relieve from double taxation income that is not provided for under existing statutes and provisions of tax treaties that have not been overridden by subsequent legislation — and which fall into definitional and temporal conflict traps. Closure of IRS attaché offices abroad and general lack of funding seems to have limited enforcement of violations of FBAR law and the other laws discussed above to "accidental Americans" and permanent expatriates abroad who have themselves voluntarily declared their default — as Dewees (cited above) did — through participation in the Offshore Voluntary Disclosure Program (OVDP). That program, as much as FATCA itself, and close analysis of the Panama and Paradise Papers and Big Data in general, seems to constitute a research and matching project for the IRS. It is one that is likely to yield a large number of false positives, and also encompass a very large number of accidental Americans and other, mainly dual nationals, of low income and few assets who are effectively judgment proof. The IRS's main weapon in such cases, where imposed penalties and taxes exceed $50,000, is to revoke the right to an American passport: a penalty without meaning to someone who never plans to visit the USA (but see the Barrett case, above).
The more serious potential is for inclusion of tax crimes in future extradition treaties, including a waiver of the dual criminality proviso, and for assimilation of tax crimes to money laundering and common-law and wire fraud and perjury. The extradition cases which have made news in the past have been major thefts from tax authorities: "carousel" VAT fraud, identity theft and fraudulent refunds, and tax cases involving very large sums of money taken from the tax authorities (thus: Ian Leaf), as compared with failure to pay tax (Marc Rich). Bankruptcy fraud has been an issue in a number of cases, including Bussell. See also: In re Tucker (A Bankrupt), LAWTEL, July 11, 1988 (Isle of Man, May 16, 1987) (applying Bankruptcy Act 1914; taking evidence in support of English proceeding); Bullen v. Her Majesty's Government of the United Kingdom, 553 So.2d 1344 (Fla. App. 4th Dist. 1989) petition for review denied, 567 So.2d 434 (Sup. Ct. Fla. 1990), enforcing vesting of Florida property in English receiver in Regina v. Garner,  1 W.L.R. 73 Cf. Ex parte Bettle (In re "The Land Transfer Act, 1885"), (1895) 14 N.Z.L.R. 129. And see Ashurst v. Pollard,  2 W.L.R. 722,  2 All E.R. 772 (Ch.D.) (Portuguese real property; court's power to compel English debtor and spouse to execute transfer documents in favor of debtor's bankruptcy trustee); In re International Administrative Services, Inc., 211 B.R. 88 (Bankr. M.D. Fla. 1997). The IRS is less likely to make a tax debtor involuntarily bankrupt because U.S. bankruptcy law is less friendly to creditor-initiated bankruptcy than are the laws of, say, England. Theophile v. Solicitor-General,  A.C. 186, 201; an individual is deemed still to be "doing business" until all debts, including taxes, are paid). Nor will the IRS any longer appear in its own right in a foreign proceeding lest the foreign court make an anomalous ruling, one that could in principle invoke a counterclaim and deem the U.S. Government's sovereign immunity to have been waived. Government of the United States v. Harden,  S.C.R. 366 (applying the so-called Revenue Rule, under the law and tax treaty as they then stood)
This bibliographic essay has sought to bring together sources of background materials, including statutes, case law, scholarly work and journalists' and tax professionals' opinions. What is obvious is that the high cost of compliance, and Washington's lack of knowledge about the real existence and identity of many of the "9 million" expatriate Americans it believes to exist work against the success of FATCA and the U.S. asset and income reporting statutes with such draconian penalties for noncompliance. Statutes meant to ferret out untaxed income hidden abroad by wealthy U.S. residents cannot work well in relation to middle- and working-class Americans abroad, at least those who have abandoned, if they ever had it, any practical connection with the United States. Even the proposed, but thus far abandoned, provision for a same-country exemption has gone nowhere.
The most serious problem, for any philosopher-jurist, has to be less that hardship and inequity and the apparent "gotcha" mentality of IRS enforcers, regretted even by the Agency's own Taxpayer Advocate, but that a law so widely and obviously scorned and ignored by millions abroad, reduces respect for the tax and its judicial enforcement system as a whole. Two generations born abroad are sufficient, absent qualifying U.S. residence or presence by a U.S. parent, to end the nationality link. That would not, in principle, prevent the IRS, if it had the factual knowledge, the means and the cooperation of other countries and their courts, from pursuing its target tax debtors — and their progeny under a principle of transferee liability or fraudulent transfer (or its civil-law equivalent, Paulian action) within the limits of those laws. In theory, at least cross-border bankruptcy law might provide some help, with a discharge of U.S. tax debts valid in the country where granted but not as to the debtor or assets in other jurisdictions. Statutes of limitation may be tolled or nonexistent but the notion of the IRS pursuing persons with U.S. ancestry, and putting them to the positive proof of non-liability — as some foreign financial institutions cited above seem to be doing on the IRS's behalf — is unreasonable. Individuals not born in the United States and never registered with the U.S. State Department or the U.S. military are, to date, targets only of the private sector "compliance industry" of accountants and lawyers, and of foreign financial institutions to the extent that they ask for certification of non-U.S. Person status. The IRS has issued proposed regulations for continuous verification of FFIs.
Every self-assessment tax system depends upon prosecuting the occasional celebrity, on seeking out major targets, and on public shaming. However the complexity of U.S. nationality law, and the oversimplified criteria of the IGAs (which include a U.S. telephone number, which could be a VoIP or a Google Voice number, and the presentation of a CLN even for dates decades before CLNs existed and where an application for one could involve risk of retroactive submission to jurisdiction) put FFIs into a bind such that it is unsurprising that many simply reject any person who is, or ever might have been, a member of the American polity. It remains an interesting question whether the U.S. Government can, indeed would, enforce its claim of citizenship and assert its jurisdiction over a person born abroad of one or two American parents but who had never set foot in the United States and never availed him- or herself of an attribute of U.S. citizenship, including parental registration of his or her birth. Exorbitant claims of primacy of loyalty have a dismal 20th Century history. To the extent that the U.S. Government is dependent upon treaty partners and other foreign governments to recognize such claims, at least as against those governments' own (dual) nationals — which seem to be basic to the "9 million" count of Americans living abroad — cooperation seems unlikely. And this despite the claim of the United States that "[a] citizen of the United States residing in a foreign country continues to owe allegiance to the United States and is bound by its laws made applicable to his situation." Blackmer v. United States, 284 U.S. 421 (1932) (quoting from the syllabus); see also FBI Blackmer file and Tribune-Times article (1928).
The statistics quoted above as to the number of tax return filings from abroad are telling. It is important that laws are obeyed and seen to be obeyed: but to the extent that they can and do lead to double (and very occasionally confiscatory) taxation and penalties that can impoverish noncitizen family members of expatriates, conflict with the paramount interests of other countries is inevitable. Privatization of enforcement to FFIs, and even the IGAs with foreign governments, do not resolve the conflict resulting from the U.S. assertions of primacy of allegiance and citizenship-based taxation. The practice of tax treaty override enhances the conflict. Assertion of government prerogative by fear, and that in the face of broad noncompliance suggested by published statistics, is a deficit if not a default in democracy.
 Allison Christians, "A Global Perspective on Citizenship-Based Taxation", 38 Mich. J. Int'l L. 193 (2017), and Reuven S. Avi-Yonah, "The Case against Taxing Citizens", U. Mich. L. School, Mar. 22, 2010 ("Citizenship-based taxation of Americans living overseas began during the Civil War. ... and finally was incorporated into the 'modern' income tax of 1913.").
 Nancy L. Green, "Expatriation, Expatriates, and Expats: The American Transformation of a Concept", 114 Am. Hist. Rev. 307 (2009).
 Brigid McMenamin, "Home Free", Forbes, July 26, 1999, p. 110 (tax benefits of xpatriation); Robert Lenzner, "And Don't Come Back", Forbes, Nov. 18, 1996, p. 44. Brigid McMenamin, "Flight Capital: Avoiding U.S. Taxes by Renouncing Citizenship", Forbes, Feb. 28, 1994, p. 55; Christine L. Agnew, "Expatriation, Double Taxation, and Treaty Override: Who is Eating Crow Now?", 28 U. Miami Inter-Am. L. Rev. 69 (1996), Joint Committee on Taxation, Review of the Present-Law Tax and Immigration Treatment of Relinquishment of Citizenship and Termination of Long-Term Residency (2003); Karen de Witt, "Some of Rich Find A Passport Lost Is A Fortune Gained", N.Y. Times, Apr. 12, 1995.
 John Richardson, "You are a “covered expatriate” – How the “Exit Tax” is actually calculated"; "The 'Exit Tax' in action – Five actual scenarios with 5 actual completed U.S. tax returns" and "Relinquishing US citizenship: South African Apartheid, the Accidental Taxpayer and the United States S. 877A exit tax".
 Samuel Rubenfeld, "Inside the U.S. Swiss Bank Tax Evasion Program", Wall St. J., June 1, 2016 (archived copy); Niels Jensen, How to Kill the Scapegoat: Addressing Offshore Tax Evasion with a Special View to Switzerland,, 63 Vand. L. Rev. 1823 (2010) ("a bilateral tax withholding system—the only feasible solution that promises relief in the near future.").
 The markers of U.S. status obliging FFIs to inquire further are listed in the model Intergovernmental Agreement, "Due diligence obligations for identifying and reporting on U.S. reportable accounts", Annex I, page 16. GAO Report, "Implications of Deleting the Birthplace in U.S. Passports" (1985).
 Jack Townsend, "The Mirror Code Concept; Some Thoughts and Ruminations", May 27, 2013; Appleton v. Comm'r, 140 T.C. 273 (2013).
 Thus, the case of S.J., born in the United Kingdom in 2013 to an American-British single mother, former dependent of an overseas U.S. Government employee, the mother herself born in the U.K. in the 1970s and lifelong resident there.
 As to Filipinos before July 4, 1946 see Application of Viloria, 84 F. Supp. 584 (D. Haw. 1949). Many or most Native Americans were noncitizen protégés prior June 2, 1924 and the Indian Citizenship Act of 1924, Pub. L. 68-175, 43 Stat. 253, 8 U.S. Code § 1401(b); N. D. Houghton, Legal Status of Indian Suffrage in the United States, 19 Calif. L. Rev. 507 (1931); Willard Hughes Rollings, Citizenship and Suffrage: The Native American Struggle for Rights in the American West 1830-1965, 5 Nev. L. J. 126 (2004). An anecdote on the rejection by Canadian authorities of a "Haudenosaunee Nation passport" offered in lieu of the recognized "enhanced tribal status card" sheds light on the frustrations of border tribes today relating to sovereignty and rights as well as grievances over taxation and racism. Native tribes on the Mexican border (see below, José Luis Rocha articles) have comparable grievances over rights, nonrespect, proof of identity and accusations of smuggling.
 "'[C]itizen' of the United States wherever used in connection with the estate tax includes every decedent who was a United States citizen resident in a possession of the United States unless he acquired citizenship solely by reason of (1) his being a citizen of a possession of the United States, or (2) birth or residence within a possession of the United States." 26 U.S.C. §§ 2208, 2209; Rev. Rul. 74-25; TAM 7612220070A; General Counsel Memorandum 36944, Dec. 10, 1976; PLR 9403009 (see Territorial Citizens Have Unique Tax Status, St. John Source, may 26, 2001). While perhaps of limited significance given the current basic exclusion of over $10 million it creates an interesting subset of "U.S. citizen" along with that of "noncitizen national" for tax purposes. And see John R. Hein, Born in the U.S.A. But Not Natural Born: How Congressional Territorial Policy Bars Native-born Puerto Ricans from the Presidency, 11 J. Const'l L. 423 (2009).
 Wall Street Journal articles are behind a paywall. WSJ Blog articles cannot be found on ProQuest U.S. Newsstream (library database, free access for their members via many university and public libraries) but some have been archived elsewhere on the Internet and may be accessed full-text on some browsers using a search engine.
 "Fatca Relief Coming for U.S. Expats Via 'Same Country Exception'? – Opinion", by Jonathan Lachowitz, Wall Street Journal Blog, July 28, 2015 (archived copy).
 See Robert Whitman, "Tax Collection from Estates of Nonresidents", 68 Colum. L. Rev. 1049 (1968) and Note, Transnational Tax Evasion of United States Taxation, 81 Harv. L. Rev. 876 (1968) Transferee liability in the USA is based on state fraudulent transfer law, Comm'r v. Stern, 357 U.S. 39 (1958) Starnes v. Comm'r, 680 F.3d 417 (4th Cir. 2012). In at least two states the time bar does not begin to run until a judgment for debt has been obtained: Cortez v. Vogt, 52 Cal.App.4th 917 (4th App. Dist, 1997), Macedo v. Bosio, 86 Cal. App. 4th 1044 (1st App. Dist. 2001), Forum Insurance Co. v. Comparet, 62 Fed. App'x 151 (Cal. 9th Cir. 2003) and Morganroth & Morganroth v. Norris, McLaughlin & Marcus P.C., 331 F.3d 406 (N.J., 3d Cir. 2003); cf. Levy v. Markal Sales Corp., 724 N.E.2d 1008 (2000). In the U.K. transferee liability commonly occurs where a gift (a "Potentially Exempt Transfer") is made within seven years of the transferor's death and all or part of the gift is included in the estate for IHT (death duty) purposes. The concept works, by statute, in reverse with respect to income tax where a tax avoidance scheme has been entered into liability may be asserted against the transferor: R. v. Dimsey,  U.K.H.L. 46.
 See for example Freeman v. First Union National Bank, 865 So.2d 1272 (Fla. 2004) ("FUFTA was not intended to serve as a vehicle by which a creditor may bring a suit against a non-transferee party (like First Union in this case) for monetary damages arising from the non-transferee party's alleged aiding-abetting of a fraudulent money transfer.") but compare Chang v. JPMorgan Chase Bank, N. A., 845 F.3d 1087 (11th Cir. 2017), comment on prior decision by Manual Farach ("[W]e are left with a dual system on the tort of aiding and abetting fraud: a cause of action that exists in the federal court system but not in the Florida courts.").
 Bresson v. Comm'r, 213 F.3d 1173 (9th Cir. 2000), citing prior and divergent cases; there is a similarly autonomous rule in matters of disclaimer: Drye v. United States, 528 U.S. 49 (1999), although presumably ineffective as to foreign estates and inheritance. In civil law systems it may be necessary to disclaim inherited assets to avoid inheriting debts of the decedent; the heirs have the right to a prior accounting (inventaire), (French) Civ. Code art. 774. IRS priority claims and liens can scarcely have extraterritorial effect to compromise the right to disclaim, Civ. Code Art. 784-810, especially Art. 802 (effect of "without prejudice" declaration) (2006); compare Req. Dec. 28, 1938, Rev. crit. de juris. et de lég. Dalloz, 1941, J. 132 (disclaimer invalid where the heir is insolvent; Cass. civ. Dec. 13, 1989, No. 88-13393 (addressing tax debt, disclaimer, gift and Paulian issues) and see Adam J. Hirsch, "The Problem of the Insolvent Heir", 74 Corn. L. Rev. 587 (1989)). Prof. Hirsch's work invites the question of the effect a disclaimer by a U.S. legatee or donee of a covered expatriate where a 40% tax is otherwise applicable. In some legal systems, a disclaimer has the effect of treating the legatee as having predeceased the testator. In England a disclaimer may have perverse consequences: "Unfortunately, should a beneficiary disclaim his inheritance, for IHT purposes he is treated as having made a transfer of value (in essence he is treated as if he has himself made a gift of his inheritance) which may precipitate an IHT charge; this is the position even though from a practical perspective the beneficiary in fact received nothing." A disclaimer in France is "not a simple affair".
 It is birth in the United States that is the major marker of U.S. tax obligation; registration as a citizen does not change legal status but impacts administrative practice. The risk for the unknown U.S. dual citizen is from self-denunciation. Those born abroad and without a personal or financial connection to the United States are effectively free to argue the international-law and human-rights case that exorbitant attribution of nationality may be ignored elsewhere.
 Thus: nationality of women and McKenzie v. Hare, and the Chinese Exclusion Act (Lucy E. Salyer, Laws Harsh as Tigers: Chinese Immigrants and the Shaping of Modern Immigration Law (1995)), and the Afroyim and Terrazas cases and preceding law discussed above. The United States was not alone in denying statutory citizenship on racist grounds and then deporting the victimized "other": Co-operative Committee for Japanese Canadians v. Attorney General,  A.C. 87 (Canada) and book: The Politics of Racism Other countries have exit taxes, chiefly capital gains tax on deemed sale of property at emigration, but none on the scale the United States, nor based on unwanted nationality imposed, and taxes demanded, based on accident of judicial decisions in other contexts and accident of birth.
 Carla De Pietro, "Tax Treaty Override and the Need for Coordination between Legal Systems: Safeguarding the Effectiveness of International Law", World Tax J., Feb. 2015 Allison Christians, "Why FATCA Is A Tax Treaty Override", LexisNexis® Legal Newsroom, Tax Law (Jan. 21, 2013) Anthony Infanti, "Domestic Law and Tax Treaties: the United States" (Feb. 2, 2012), Reuven S. Avi-Yonah. "Tax Treaty Overrides: A Qualified Defense of US Practice" (Nov. 2005).