More from NYT on US Overseas Tax Reach: Will FATCA Fly? (Maybe.)

by Peter Spiro

Here’s yet another long-ish story in the NY Times on the Foreign Account Tax Compliance Act, or FATCA, and how it’s cramping American citizens abroad.  (How many tax stories get this kind of play? NYT must have some reader traction on this.)  Remember: the US is the only country other than Eritrea that taxes its external citizens.

Dueling takeaways: More AmCits abroad are complying with related disclosure requirements (almost doubled in the last three years), so it is sticking.  Or, the numbers of Americans abroad who are looking to renounce their citizenship is skyrocketing (one accountant says that her Middle-Eastern clients are “lining up to get rid of the US passport), so it’s bound to fail.

I suspect that there’s a hidden third group, one that would be understandably shy with NYT reporters: those who are non-compliant but holding on to their US citizenship, giving rise to a new class of “secret Americans.”

Of course, the IRS and Congress could just stay the course, enjoying whatever enhanced receipts result from the measure (note that the IRS is tripling the number of its “international agents”).  Overseas Americans may not be politically well-organized enough, partly because they are dispersed electorally, to make a run at repeal.

But vignettes like this one might shift the balance (every cause needs its poster person):

Roy, 37, [is] a lifelong Canadian resident and citizen whose dual-national mother fears the U.S. tax authorities will target the modest savings account the Canadian government provides him as a developmentally disabled adult . . .

Roy’s mother, Carol, and her husband emigrated to Canada in 1969 and took citizenship in 1975, believing that they had thereby relinquished their U.S. citizenship, she said in a phone interview from Calgary, Alberta.

When she learned she and her son were still subject to U.S. taxes, she said: “I was just astounded, angry. It’s not the tax. I just really, really, really, really resent being painted — all of us who’ve chosen to live in whatever country — as tax-evaders, you know?”

Because she has signature authority over her son’s account, she is taxable by the United States for all grants and bond contributions that the Canadian government has contributed to her son’s savings plan, she said.

On top of that, the U.S. Consulate in Calgary told her she could not renounce his citizenship because, it said, he lacked “the legal capacity to form the specific intent necessary to lose U.S. nationality.” Roy, his mother said, “does not understand the concept of citizenship.”

Doesn’t sound very fair, does it?  Might even violate international law, insofar as states can’t arbitrarily obstruct expatriation.

http://opiniojuris.org/2012/05/11/more-from-nyt-on-us-overseas-tax-reach-will-fatca-fly-maybe/

One Response

  1. Here is Canadian perspective, based on the equality under law that all Canadians have under our Charter of Rights and Freedoms:
     
     
     
    FATCA would make US-born Canadians second-class citizens in their own country. This would violate the Charter of Rights and Freedoms and Human Rights Act, along with well-established principles of sovereignty, Canadian bank laws, and Canadian court judgments regarding banking and foreign tax revenue claims.
     
    If Canadian financial institutions, with the complicity of the Canadian government, single out certain customers by birthplace, irrespective of actual economic activity, location of assets, residence or physical presence, it’s discrimination based on nationality or ethnic origin. And it exposes these individuals to harm. Canadians born in the US have no exemption from the protection of Canadian law; all Canadians are equal under the Charter, regardless of place of birth.

    Any Canadian government assistance in enforcement of the foreign law FATCA would adversely affect US-born Canadian citizens who earn, bank and invest solely in Canada – long-term Canadian taxpayers with no US economic ties or presence. This includes Canadians who were simply born there while parents were visiting, or through cross-border hospital arrangements, and Canadian-born children of US-born Canadians. These individuals would likely mount a challenge based on the Canada Charter of Rights and Freedoms.

    Let’s be clear. Whether this involves Canadian banks getting away with a soft-pedaled, half-hearted, less-than-diligent electronic search for US birthplace… or tagging US-born Canadians with a red,white and blue star on their garments…the principle is the same.
     
     

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