Sunday, November 30, 2014

No wonder that CBT is here to stay ... a conversation with Jack Townsend - a tax lawyer and professor who teaches some University of Houston Tax Fraud Classes

There is a very strong disconnect between how Americans -even the ones that have the intelligence and experience to know better- in the homeland think are the rights and responsibilities of a U.S. citizen abroad and the reality !
I can't think of one person I've talked to in the homeland who wasn't 100% convinced that the Marines would show up to help him if he and other Americans got into trouble outside the U.S.
The fee business really sets them back on their heels - they had no idea. And once they've wrapped their minds around how it really works, I sometimes get this response, "It's not the problem of the US government if you go gallivanting off to dangerous places and it shouldn't be their responsibility to bail you out." Okey-dokey. Fair enough. Nice to know we are on our own. But then everyone needs to stop using this as an argument for why expats should be paying taxes twice. Winston Churchill once said "A country which tries to tax itself out of debt is like a man standing in a bucket and trying to lift himself up by the handles." Take a look at the following conversation with Jack Townsend of  Townsend & Jones, L.L.P 



"Jack if you remember  I broke the story to you about 2 weeks ago and it has attracted a lot of media attention over the last 5 days. Let me say this to you :
At the end of the day the only thing that people have and that countries have is their “moral capital”. The USA is rapidly eroding the “moral capital” that it has remaining. Most Homeland Americans don’t believe that the USA would attempt to levy taxes on (1) somebody who doesn’t live in the USA on (2) income not earned in the USA. Most Homeland Americans would regard this as “unjust”. They would regard it as “unjust” because Boris Johnson - the major of London (like many others” doesn’t live in the USA and didn’t choose where he was born). Finally, if Homeland Americans knew or understand how compliance with U.S. tax laws outside the U.S. destroyed people’s lives (i’ts really a form of “Life Control”), they would regard it is inhumane. Yes,  what the U.S. calls “citizenship-based taxation” (making it sound patriotic and reasonable) is actually “place of birth or naturalization taxation”. As Bruce Springsteen would say, that’s the result of being “Born In The USA”. In fact for those who were “Born In The USA” but who live outside the USA, US tax policies are: “Unjust, they are inhumane, people didn’t choose where they were born.”
That’s the America of today. Does America care? No. Does America care that it doesn’t care? No. (and this is the real moral crisis.) In any event, FATCA is being used by the USA to enforce USA extra-territorial taxation outside the borders of the USA. Taxation of “non-US income” on people who “don’t live in the US”, assumes that the USA has a “property right” in people. Why? Well, because they were born in U.S. soil. What? …. This is a moral issue. It’s really very simple: citizenship-based taxation is America’s Apartheid system. It is repugnant, immoral and indefensible. Since CBT is so clearly irredeemable, there is really nothing to talk about, unless your intellectual curiosity exists in a profoundly amoral vacuum. CBT discriminates against a particular group of people on the basis of their place of birth – a characteristic as immutable as the colour of their skin. It labels them, tracks them, intimidates them, criminalizes them and forces them into virtual prisons from which escape is nearly impossible. Worse, the architects of CBT are now co-opting the rest of the world to implement this discriminatory regime for them. It is astonishing and disheartening how quickly and easily this is unfolding. Far too many countries, cowed by the 30% withholding stick that the U.S. threatens to beat them with, like the FBAR and OVDP sticks they already beat their CBT victims with, simply refuse to challenge America on fundamental moral grounds and it is wrong. The U.S. does not deserve a free pass on CBT and FATCA any more than the old South African government deserved a free pass for its heinous apartheid policies. Yet several ostensibly modern and enlightened nations have rationalized their acquiescence to FATCA by publicly exclaiming that America has the inherent right to tax its citizens in whatever manner it chooses. Well, in a just world it does not, for CBT represents a clear denial of basic human rights and dignity. Yes, the global hypocrisy is staggering, especially from countries like Canada. Last year, the Conservative government expelled the consul-general for Eritrea for that regime’s tax extortion efforts against its expats in Canada. Just last week, the same government enthusiastically ushered-in America’s FATCA laws to override the country’s own Charter of rights and freedoms, discriminating on the basis of national origin, gutting federal banking privacy laws and setting the stage for a massive legal challenge which will be fought in our Supreme Court. Beneath all the technocratic language about forms, compliance, jurisdictions and enforcement, there is a fundamental truth: these American policies are morally unjust and the world must not condone them any longer. FATCA will be a global disaster unless it is modified now. It is indeed time for the world to say no to the U.S. practice of citizenship-based taxation and to force it to adopt residency-based taxation like the rest of the world. If not, then the world better find a more deserving reserve currency in a hurry – the United States has abused its position of trust for far too long and it needs to be reminded that it is just one nation in a community of nations. The breathtaking audacity of FATCA is simply a bridge too far. For America the attempt to impose taxation on people who don’t reside in the USA because they were “Born In The USA” is evidence of an aspect of “moral bankruptcy”. The America of today is: - Financially bankrupt - Spiritually bankrupt - Morally bankrupt And ….It doesn’t care that it doesn’t care! Both the USA and South Africa have punitive (as did the Nazis and the Soviets) Exit Taxes. But there is one way that the USA’s Exit Tax is different.  Whereas South Africa (and the other two countries I mentioned) imposed Exit Taxes when people physically left the country, the USA imposes an Exit Tax if one renounces US citizenship regardless of whether one physically leaves the USA or not. Think of it:The USA imposes an “Exit Tax” on many middle class people who do not live in the USA if they don’t want to be an American citizen anymore!
One thing Jack sticks out here with people including yourself and that is denial ....
Centuries ago France helped americans become independant to the english empire because they were fed up with paying 14% taxes on their income at the time to England....please explain to me what has changed or is different in 2014 ??".

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Jack Townsend reply :

I guess I have not made my position clear.  I do not have a position of whether CBT is the best statutory requirement for the U.S. (or any other country).  That requires a host of considerations (economic, political, etc.) that I just can’t offer anything meaningful on.
I will say, however, that I think the people complaining about CBT under-recognize the benefit of being a U.S. citizen in other countries.  The U.S. has a broad and very expensive system of embassies and consulates and other arrangements with a major purposes of assisting U.S. citizens (and businesses) abroad.  When things go bad for U.S. citizens (and businesses abroad), the system kicks in to assist.  The expensive system is a major benefit in many cases, perhaps not all.  And, it is a major benefit for just being available when not used.  Persons residing only in the U.S. do not benefit from this expensive system and could argue that the nonresidents should have to pay for it.
Furthermore, persons who are U.S. citizens by virtue of their citizenship should contribute to the various societal programs we have to help the least among us (that is a biblical phrase but true in the governmental context when our government has made policy decisions that we will help the least among us).
So, although again I do not address the issue of whether CBT is the best balance of all the factors that go into choosing the fairest system, I think it is a lot more balanced that just saying that the nonresident gets no benefit from the U.S.
But, to re-emphasize, the best service I can provide is to deal with the system we have and leave to those who are smarter and more powerful than I am what the system should be.
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 Jack it is good that I brought this up because ....."When things go bad for U.S. citizens (and businesses abroad), the system kicks in to assist".....is something that many homelanders like yourself believe and this argument has been used many times over but how could everybody know otherwise unless they engage in some serious research or even better experience it first hand but let me tell you that your thesis is flawed.... there are many misconceptions and misinformation.

Jack you have to use objective criteria in order to rationalize the same old conclusions that CBT is equitable . U.S. citizens working abroad for the long term receive significantly smaller benefits from U.S.  government services than those living in the United States. I could write a book about this but let me just mention a few quick facts.

How much of the $2.8 billion consular services portion of that budget is planned to be spent on “American Citizens Services”? Answer: $8.6 million.
13 million passports are issued each year. There’s perhaps 7 million Americans residing abroad, passport validity is 10 years (meaning that you’d expect only around 700,000 Americans abroad to be renewing U.S. passports in any given year), and many citizens abroad are dual citizens and prefer to use their other, lower-profile passport. http://www.state.gov/documents/organization/207266.pdf   (page 68 you get a detailed breakdown)
 So out of the $250 million spent on passport services, perhaps $10 million actually benefits Americans abroad . To put that ACS spending number in further perspective, it’s one-four-hundred-thousandths of the projected $3.77 trillion 2014 Federal budget. Not only are consular services an insignificant part of the US budget, but they are paid by fees, not taxes.....
 The Bureau of Consular Affairs itself declares that it “is almost entirely fee funded“. And the Department of State’s financial report (pages 116 and 119) confirms that Consular Affairs earns slightly more revenue from fees than its cost of operation.
Consular services are primarily intended to assist VISITORS and not residents (as well as to promote American business interests). If they happen to have the odd bit of utility to resident citizens, it is an accident not by design.
In general keep in mind the fact that the edifice of laws and programs FUNDED by those taxes is almost universally residence based (from food stamps to medicare to roads and bridges). 
Btw. Jack did you know if and when you need to be rescued or evacuated by the military you have to pay for it later... approx. $50,000 ...the full commercial rate !!
http://www.overseas-exile.com/2013/03/us-expat-evacuations-not-what-people.html
http://yaounde.usembassy.gov/media/faqs_for_potential_evacuees.pdf

The government would have to identify “rights of U.S. citizenship” to justify citizenship-based taxation. (“Rights of citizenship” are given by government.)
What I am interested to know is, what government benefits would the Supreme Court try to use to justify the “….presumption that government by its very nature benefits the citizen and his property wherever found,”?  Cook v. Tait

- The right to enter the US? Anyone with a foreign  ”visa waiver” passport has this.
- The right to work in the US? Americans abroad are obviously not there to exercise this. Besides, the unemployment and underemployment situation in the US has been less than desirable for many years.
- The protection of the US? How many US citizens abroad are sitting in jail somewhere on trumped up charges while the State Department takes the line that “we cannot interfere with the other country’s justice system?” Does the US government provide the citizen with a public defender if he cannot afford a lawyer him/herself? Does the Embassy charge a fee if the Consular prepares any paperwork on the citizen’s behalf?
- If the US citizen’s property located abroad is stolen, does the US send police to investigate the crime?

Anyone who understands the situation can see that citizenship-based taxation is a one-way street when it comes to cost vs. benefits. In my opinion, many more Americans abroad would have already renounced or relinquished US citizenship if the process were easier to navigate and people were not so afraid of being trapped by compliance and exit tax issues– barriers that were purposely put in place to block the outflow of productive people.
Citizenship is clearly determined by the Constitution.  There is absolutely no assumption that citizenship is a function of taxation or vice versa in the Constitution.  The issue of taxation for the most part was left to the States for its funding.  But people in the USA was residents or states but citizens of the USA.  The government up to 1913 was funded through customs duties and excise taxes.  To argue, therefore, as Cook v Tait does that citizenship itself denotes the obligation to pay taxes turns history upside down. Maybe there is a GOOD reason why NO OECD country practices what the U.S. practices? Citizenship taxation is a paradigm for sure, a throw back to Byzantine times and needs to be abolished! What cost are you willing to bear to maintain an out of date paradigm? That is 'you', only in the rhetorical sense. I don't hold you personally responsible for CBT, I just want you to think long and hard about it like you do in interpreting tax law.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2346458







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