Friday, November 7, 2014

Consider the definitions of “U.S. Citizen” provided by the IRS and by the State Department.

Generally the question of whether one is a "U.S. person" (citizen, Green Card Holder, resident, substantial presence test) is determined under U.S. law. FATCA has the effect of enforcing the taxation of "U.S. persons" who reside outside the U.S. By changing the definition of "U.S. person", the U.S. can increase the number of "U.S. persons" residing in other countries. FATCA is the enforcer - by identifying "U.S. persons" - of extra-territorial taxation. The combined effect of "U.S. person" taxation and FATCA is that the U.S. can increase or decrease its tax base in other countries. If more people are deemed to be U.S. persons the tax base will increase. The FATCA rules make clear that the U.S. and only the U.S. will define what is a "U.S. account" (held by a "U.S. person").
Interestingly the IRS has offices outside the U.S. (London, Frankfurt, Paris and Beijing). As FATCA becomes fully operational, one wonders whether the IRS will establish more "Local Office(s) Internationally". FATCA is likely to make the IRS a "U.S. export".

First the IRS:
A U.S. citizen is:
  An individual born in the United States.
  An individual whose parent is a U.S. citizen.*
  A former alien who has been naturalized as a U.S. citizen
  An individual born in Puerto Rico.
  An individual born in Guam.
  An individual born in the U.S. Virgin Islands

Second the State Department:
U.S. citizens are one of the following:
a. Individuals born in the United States or its territories (Guam, Puerto Rico, and the U.S. Virgin Islands; also residents of the Northern Mariana Islands who elected to become U.S. citizens).
b. American Indians born outside the U.S. without regard to immigration status or date of entry if:
i. They were born in Canada and are fifty percent American Indian blood (but need not belong to a federally recognized tribe); or
ii. They are members of a federally recognized Indian tribe or Alaskan Native village or corporation.
c. Individuals who have become naturalized U.S. citizens.
d. Individuals born abroad to at least one U.S. citizen parent depending on conditions at the time of their birth, per title 8, subchapter III, section 1401 of the United States Code.
e. Individuals who turn eighteen years of age on or after February 27, 2001, automatically become U.S. citizens if the following conditions are met while the individual is under age eighteen per INA 320.
i. The individual is granted lawful permanent resident (LPR) status;
ii. At least one of the individual’s parents is a U.S. citizen by birth or naturalization; and
iii. The individual:
A. Resides in the U.S. in the legal and physical custody of the citizen parent; or
B. Was adopted according to the requirements of INA 101 and resides in the U.S. in the legal and physical custody of the citizen parent.
f. Individuals who turned eighteen before February 27, 2001, would have automatically become a citizen if, while the individual was still under eighteen, he or she became a lawful permanent resident and both his or her parents naturalized. Such individuals also may have derived citizenship when only one parent naturalized, if the other parent was dead or a U.S. citizen by birth, or the individual’s parents were separated and the naturalized parent had custody.
*****
What you will see is that both of the definitions are sufficiently broad to include any person born in the U.S. Neither definition contemplates the reality that people born in the U.S. can, and have, and will continue to cease to be U.S. citizens when they have relinquished/renounced.
How many people entered OVDP/OVDI because lawyers and accountants told them that they were U.S. citizens just because they were born in the U.S.?
There is no doubt that the U.S. government has already begun to define people as U.S. citizens who are NOT. Furthermore, the Expatriation rules continue to define people as U.S. citizens even when they have ceased to be U.S. citizens.
As the saying goes: The trend is your friend!

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