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, Paris, 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 London where he writes on private international law issues, especially in the fields of nationality and tax. Among his publications are , 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 “Update: Finding the Law: the Micro-States and Small Jurisdictions of Europe” and “A Research Guide to Cases and Materials on Terrorism”.

Published September/October 2023

(Previously updated in November/December 2019)

See the Archive Version!

1. Foreword

This bibliographic essay addresses the cross-border enforcement of citizenship-based taxation by the United States, in particular the requirement that “U.S. Persons” (defined below) report annually on foreign financial assets via FBAR (FinCEN Form 114). The essay collects links to documentation of known IRS prosecutions and reported or litigated civil penalties imposed against noncompliant U.S. Persons and financial institution enablers. Since about 2005 the IRS has aggressively pursued violators resident in the U.S.A., including some who came to its attention through voluntary disclosure in amnesty programs. There are other sources: “quiet disclosure” where a taxpayer submits amended or late tax returns and declarations (see Noam Noked, “The Future of Voluntary Disclosure”, Tax Notes, Aug 6, 2018, p. 783.); and notoriously from the U.S. Treasury’s pursuit of Swiss and other foreign banks: UBS, Credit Suisse, HSBC, Wegelin and other client lists. The “Panama Papers” (purloined documents of the Mossack Fonseca law firm), the Paradise Papers, the “LuxLeaks“, and other disclosures by the International Consortium of Investigative Journalists and Wikileaks, the Birkenfeld and UBS client lists, and initiatives of the OECD and the European Union led to a web of bilateral agreements and rules, including EU Council Directive 2014/107/EU on mandatory automatic exchange of tax-relevant information. The ICIJ created a database of more than 785,000 offshore companies, foundations and trusts from the Panama Papers, the Offshore Leaks, the Bahamas Leaks and the Paradise Papers investigations. See Monty Raphael, “Who’s evading whose taxes when everywhere is offshore to everywhere else?”, Offshore Investment, June 2010. Meanwhile, the U.S.A. proceeded unilaterally through FATCA and intergovernmental agreements (IGAs) with virtually all the world’s countries and agreements with many banks, to secure data on the placement of funds by and for U.S. Persons.[1] Despite its aggressive pursuit of non-reporting and tax evasion, the paucity of cases involving U.S. taxpayers living abroad, including dual nationals, suggests that diplomatic, jurisdictional and time bar constraints have left numerous noncompliant U.S. Persons overseas apparently unmolested.

In the enforcement of FBAR penalties there will be tension among the 6-year statute of limitations,[2] absence of a target person from the U.S.A., doubt as to nationality status, and practical ability to prosecute and to collect any civil judgment by levy, voluntary surrender or otherwise. These penalties are not tax debts and so they are not collectible through reciprocal tax treaty collection provisions. Tax liability may have no effective civil time bar (fraud, non-submission of a declaration or a form, substantial misstatement) and criminal liability may be tolled, but even a sealed indictment, criminal information or civil complaint may be ineffective against target persons abroad, and revocation of passports cannot isolate a person with another nationality.[3] (See below, Enforcement and Partial Abatement Matters.) The law providing for exit and inheritance taxation of certain present and former long-term residents, harsher than that applied to present and former U.S. citizens, may be unenforceable abroad. As cases cited below will show, the IRS may depend on income, assets or heirs located in the U.S.A. or for the commercial interests of family enterprises to plea-bargain and compromise, or on mutual tax debt collection provisions of treaties. In the end, the IRS is, and acts like, a collection agency for the U.S. Government: at a time of budget austerity it devotes attention to easy, large value and publicity-driven cases. Selective prosecution may lead to comparative injustice, but that is a weakness common to the entirety of the justice system.

All this is useful in reviewing the case documents linked below at Significant Recent Cases.

This essay attempts with links to primary and secondary materials to address the anomalies of U.S. citizenship-based worldwide taxation and the crisis that arose with a sudden strict and harsh implementation of existing and new legislation relating to foreign assets and income. There are several classes of citizens and of noncitizen taxable persons within the purview of these laws. The United States Government generally does not know who its citizens are unless they bear a Social Security number or a passport. Yet even unknowing and unwilling citizens are subject to taxation, even those who were involuntarily and sometimes retroactively, perhaps contrary to international law, attributed or restored to citizenship unilaterally by court decisions and policy changes. If later on challenged on status, noncompliant expatriates may find they have lost by lapse of time the opportunity to exclude, deduct and credit foreign elements.

Among those with restored citizenship: women who had lost citizenship prior to the Cable Act as affirmed by Mackenzie v. Hare, 239 U.S. 299 (1915) and such cases as In re Chamorra, 298 F. 669 (N.D. Cal. 1924) (refusing naturalization after citizenship deprivation) and had it reattributed (Rocha v. INS, 450 F.2d 946 (5th Cir. 1971)); persons who were deemed expatriated by relinquishment (naturalization abroad, service in foreign armed services or civil service, voting in a foreign election, prolonged residence in country of former nationality, draft-dodging, desertion) and whose relinquishment was reversed by the Supreme Court’s Schneider, Afroyim and Terrazas decisions. See also Kazuyoshi Akita, “The Resumption of Citizenship Lost by Marriage to Aliens”, 29 Denver L Rev. 50 (1952). They thus became potentially subject to retroactive taxation. As linked references to Revenue Rulings will show, the IRS sometimes conditioned retroactive (but not future) liability to tax to having availed oneself of an attribute of U.S. citizenship. Yet liability did not necessarily equate to IRS enforcement, or efforts at enforcement, against expatriates. It was the privatization of tax enforcement post-FATCA through foreign banks’ monitoring of U.S. Persons’ financial affairs that drew many expatriates and “accidental Americans” into the tax net.

Enhanced enforcement began with the Bank Secrecy Act of 1970 (Comptroller of the Currency explanation) as amended in 2004, 31 U.S. Code § 5314, § 5322(a), instituting the FBAR reporting of foreign financial accounts, and continued with the Tax Reform Act of 1986 (Passive Foreign Investment Company taxation, including, in the absence of contrary treaty provisions, foreign pensions), United States Subpart F Rules (controlled foreign corporations, Revenue Act of 1962, P.L 87-834; 76 Stat. 999). FATCA came into being with the Foreign Account Tax Compliance Act, part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, Pub. L. 111-147, 124 Stat. 71, 97-117. The Tax Cuts and Jobs Act of 2017 (TCJA) implemented the Repatriation Transition Tax, (IRS Guidance; Dept. of Treasury Inspector General Report, May 2019) aimed at large firms with large sums abroad but affecting with surprising retroactivity to 1986, and by way of tax treaty override,[4] small, partly U.S.-owned enterprises. The transition tax’s constitutionality was affirmed by the 9th Circuit (Moore v. U.S., 53 F.4th 507 (9th Cir. 2022), certiorari petition pending at time of writing). In some countries, including Canada, retained earnings may be a common repository for proprietors’ pension cash to be taxed later in the other country when disbursed. Another provision taxing “Global Intangible Low-Taxed Income” (GILTI) imposed complicated calculations and additional compliance burdens beginning in 2018. As one firm of accountants noted, “It would be prudent to consider alternatives to help mitigate the impact of the new tax regime, which may include corporate restructuring, filing of annual elections or renouncing U.S. citizenship.” See Jacqueline Bugnion, “A Double Taxation Nightmare Disguised as Tax Reform”, Tax Notes, Apr. 29, 2019, p. 723 (“The deemed repatriation tax and the GILTI tax introduced by the TCJA add to a long list of fiscal abuses and instances of double taxation caused by the overseas extension of U.S. tax law.”) (archived copy); Cadesky Tax, “Understanding the Impact of GILTI” (2019).

At the time of writing, three cases that petitioned the Supreme Court for Certiorari need to be followed: Bittner v. U.S., 598 U.S. __, 143 S.Ct. 713 (2023), decided 5-4 in the petitioner’s favor but with seven justices apparently willing to accept any penalty clearly imposed by the Congress,[5] Bedrosian v. U.S., on “willfulness” of noncompliance, and Moore v. U.S., concerned with the constitutionality of the Transition Tax (or “Repatriation Tax”) imposed by the TCJA. See below for further history of these cases, which may help define the future of taxation, tax penalty imposition and tax prosecution of expatriate Americans and U.S. persons in general with passive assets abroad.

2. Introduction

This collection of academic, government and professional sources represents an effort to show how court-ordered human-rights based decisions and legislative changes to U.S. nationality law, coupled with the American notion of nationality as “allegiance“—and accidents of history in matters of taxation and a longstanding principle of “citizenship-based taxation,”[6] have led to anomalous tax and reporting obligations for American citizens abroad.[7] An already expansive nationality law based both on jus soli and jus sanguinis, and Supreme Court decisions presuming it to be always and everywhere a valuable right, has made its divestiture more difficult. Comparison by many in the body politic of renunciants, expatriates and “accidental Americans” to “tax dodgers” has infected the political discourse and made negotiating a solution more difficult.

Notoriety of a few cases of wealthy emigrants renouncing citizenship to avoid taxes led to the introduction of exit taxes by the Congress.[8] As enacted, the exit tax has been capricious with anomalous results depending on status at birth, place of residence and amount and source of wealth.[9] 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,[10] the Congress enacted the disclosure and reporting statutes mentioned above. One propulsion for enacting such laws was the use of presumed new revenue as an offset for new government spending and tax reductions. More recent 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 (via a 30% withholding tax), enforcement was privatized. Intergovernmental Agreements (IGAs) call 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.

Who is a U.S. Person? In general it includes all those who are U.S. citizens, whether under the XIV Amendment (born in the 50 U.S. States or D.C., except for certain offspring born to parents on the diplomatic Blue List)[11] and “statutory” citizens born in an outlying U.S. territory or born abroad to at least one (recognized) U.S. parent who has qualifying prior residence or presence, or constructive residence, in the U.S.A., and certain adoptees. See Sessions v. Morales-Santana, 582 U.S. __, 137 S.Ct. 1678 (2017); on adoptees see Bitterman v. Ashcroft, 106 Fed.App’x. 699, 2004 WL 1790035 (10th Cir. 2004). It includes present, and certain former, permanent residents (green-card holders) and most statutory residents, subject to tax treaties and diplomatic conventions. A curious, and pertinent, possible exception relates to noncitizen “U.S. persons” who have subsequently acquired diplomatic (or sovereign) immunity; and former citizens who may or may not have had citizenship restored under Supreme Court decisions or statutory changes but who never after their expatriation availed themselves of an attribute of U.S. citizenship. Whatever the statute, the U.S. Government tends not to enforce its citizenship against such persons, or indeed any person born abroad whose U.S. citizenship derives from ancestry but whose birth has never been reported to a Government agency: thus the Cable Act restoration of citizenship per Rev. Rul. 75-357 and similar conundrums after the Afroyim (1967) and Terrazas (1980) decisions. Morales-Santana expressly claims not to be retroactive (see below).

Congress, having focused on large-scale tax avoidance by expatriation, has sought to respond to tax-motivated renunciation (excepting certain persons who are dual nationals from birth), and also against departed long-term residents. The hardly enforced Expatriation Exclusion Clause (“Reed Amendment“) would bar from entry into the U.S.A. former citizens whose renunciation is tax-motivated. Going further, Senator Schumer proposed an EX-PATRIOT Act, S. 3205, “to raise taxes and impose entry bans on targeted former citizens and permanent residents”, Congressional Record, May 24, 2012; see 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 Tax Avoidance”, Forbes, May 23, 2012. That bill died in committee. It would have imposed special taxes on a subset of covered expatriates for ten years. It is mentioned here to show how the Congress targets the entirety of the U.S. expatriate population and domestic owners of foreign financial assets with penalties for relatively modest noncompliance: collateral damage of legislators’ reaction to an unknown number of tax avoiders and tax evaders. “Excessive fines” defense arguments have not gained traction. The penalties are not reflective of whether there was any tax revenue loss or of the source of the overseas funds. Compare “[U.K.] Treasury proposal may fine tax evaders up to 200% of amount owed”, Guardian, Aug. 24, 2016: such U.K. fines would be on unpaid tax, not penalties for non-declaration of assets, and the tax is residence-based, not citizenship-based. The U.K. does have recapture rules for taxpayers it deems to 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 intergovernmental agreement and enhanced enforcement of reporting obligations, of the FBAR requirement. FBAR is not part of the tax code but its enforcement has been delegated by Treasury to the IRS. 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 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 attenuated their enforcement; the FBAR has a statute of limitations (a nuanced view) but absconding abroad or failure to file other forms can allow indefinite civil and criminal IRS action for connected tax offenses. The fugitive disentitlement doctrine may also apply.[12]

This essay begins with the evolution of American nationality law and then covers the tax issues as just discussed, with links to recent court judgments and law review articles that could be located in Westlaw, LEXIS, RIA Checkpoint, PACER and online up to June 2023. It is intended to set out the basic comparative-law and conflict-of-laws issues, and the U.S. notion of pre-emption by its claims to allegiance and its imposition of 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.

There remains a tension between U.S. claims against accidental Americans holding also a foreign nationality and residing in that other country and claims against persons in the U.S. holding unreported financial assets abroad. The law does not distinguish between the two, but practicality of enforcement, beyond the fact that foreign financial institutions (FFIs) are 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 an occasional 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 whose American parent(s)’ qualifying residence or presence may be subject to doubt) and those born on continental or territorial U.S. soil, flagged for attention once that fact is known.[13]

Note that this bibliographic essay is not presented as legal advice: it is an assembly of source materials, a unit in the GlobaLex collection of international law library bibliographic essays. In addition to background on the problems delineated by its title, it collects links to primary and secondary law and commentary, to case law, 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 taxpayers and their professional advisors—and scholars—will want to examine.[14] Where the essay strays from the subject 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 beyond those originally targeted.

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 (Lausanne) and University College London. I am grateful to those libraries and their librarians for their assistance. I have used PACER, RECAP, Lexis, Westlaw and HeinOnline; and JSTOR as to which I give a nod to the late Aaron Swartz.

3. Population of U.S. Citizens Abroad

Without any conviction or particular evidence, the U.S. Department of State had estimated the number of its citizens abroad as 9 million in 2016.[15] In 1979 its estimate was 2.1 million, in 2004 3.2 million, in 2008 and 2010 4 million; in 2012 6.3 million and in 2013 and in 2022 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. The “9 million” number disappeared from State Department communications without explanation but that number continues to be cited by writers and organizations with an interest in claiming a large number. The population of persons living abroad who appear in the context of taxation, consular assistance with passports, and social media bears no semblance to such a figure. As explained below the U.S. Government makes no effort to identify, to trace, or to obligate any person who might have a claim to U.S. citizenship but has never been documented as such and is not known to have been born on U.S. territory.[16] Immigration officers have been reported as questioning the arrival of children brought to a port of entry as aliens by U.S. parents, leading to the child’s registration. Refusal to register carries no legal consequences; children born by medically assisted conception or adopted or born prior to the mother’s marriage to an alien may or may not be U.S. citizens, depending on facts and timing. The Migration Policy Institute could only offer a range between 2.2 and 6.8 million in 2013 (Joe Costanzo, Amanda Klekowski von Koppenfels, “Counting the Uncountable: Overseas Americans”; and see Helen B. Marrow and Amanda Klekowski von Koppenfels, “Modeling American Migration Aspirations: How Capital, Race, and National Identity Shape Americans’ Ideas about Living Abroad”, Int’l Migration Rev. (2018)). Unlike citizens of some other countries Americans are under no obligation to register residence or domicile with. civil authorities in their home country or abroad.[17] 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 2020 show the following numbers of tax returns filed from “other areas” defined as including “returns filed from Army Post Office and Fleet Post Office addresses by members of the armed forces stationed overseas; and returns filed by other U.S. citizens abroad”, and in U.S. outlying territories subject mainly to “mirror taxes”,[18] as well as foreign countries (total number of returns filed from all locations in 2020 was 164,041,940):

Number of single returns 345,780
Number of joint returns 225,410
Number of head of household returns 46,900

The “Head of Household” concession is allowed to U.S. Persons who “paid more than half the cost of keeping up a home for the year [and a] qualifying person lived with [them] in the home for more than half the year.” The qualifying person need not be a U.S. citizen: IRS Pub. 501, page 10, table 4. Infants, the low paid, and unemployed persons with foreign financial assets under $10,000 are unlikely to be represented in the above numbers; and aliens other than green-card holders unless married to a U.S. citizen filing a joint return. A U.S. taxpayer who files “married filing separately” must do so if income is $5 or more. A couple, regardless of gender, who enter into a civil partnership or a registered domestic partnership will not be deemed married for U.S. income tax purposes regardless of their treatment under other law; this offers some tax arbitrage possibilities. States that impose income tax based on domicile do not necessarily follow all federal rules nor honor U.S. tax treaty provisions.

See: Helen Burggraf, American Expat Financial News J, Aug. 10, 2019, “The ongoing mystery of the missing American expatriate numbers” Statistics of FBARs and Forms 8938 for certain years appear in the GAO document “Foreign Asset Reporting: Actions Needed to Enhance Compliance Efforts, Eliminate Overlapping Requirements, and Mitigate Burdens on U.S. Persons Abroad” (Apr. 2019). Filings prior to 2016 are discussed in IRS Press Release, “Foreign Account Filings Top 1 Million; Taxpayers Need to Know Their Filing Requirements” (Mar. 15, 2016) — Comment, Jack Townsend. “GAO Report on Foreign Asset Reporting and Related Issues” (4/4/19). In 2020 1,404,395 FBARs were filed by individuals. AARO has collected statistics going back to 2001.

4. Citizenship and Nationality

The point to retain in this context is that the State Department has a restrictive notion of “Who is a U.S. citizen” and the Internal Revenue Service an expansive one. They may be in conflict, especially as there is a rebuttable presumption of alienage as to a person born abroad vs. “Tax Code as Nationality Law”. U.S. Tax law is connected not only with nationality and residence, but with immigration: Shayak Sarkar, “Tax Law’s Migration”, 62 B.C.L. Rev. 2209 (2021).

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. Foreign-born offspring of one or two U.S. citizens will, subject to options available under the Child Citizenship Act of 2000, 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. Ashley Moore, “The Child Citizenship Act: Too Little, Too Late For Tuan Nguyen”, 9 Wm. & Mary J. Women & L. 279 (2003). For acquisition of citizenship at birth outside the USA see the Immigrant Legal Resource Center Chart (2022), based on USCIS Policy Manual and on State Department and Embassy advice. For births resulting from assisted reproductive technology see 8 FAM 304.3. Amelia Shaw’s 2015 article cited just below demonstrates the difficulty of proving physical presence in certain cases, most especially in cases of nonmarital children prior to the Morales-Santana SCOTUS decision. One immigration law firm’s website provides a listing of the elements of proof needed to show actual residence. The presumption of alienage upon birth abroad works to the advantage of parents who do not wish to have a child’s U.S. citizenship acknowledged or recorded.

Until the U.S. Supreme Court decision of June 12, 2017, nonmarital children, 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. Until amended in 1986 by Pub. L. 99–653, 26 U.S.C. § 1401(a)(7) required for a parent, with an alien spouse, of children born abroad ten years’ U.S. physical presence, of which five after attaining the age of 14 (earlier law had specified age 16). This meant that a married teenage parent giving birth abroad would be excluded from passing U.S. nationality to her child irrespective of time spent in the U.S. unless married to another U.S. citizen: In re S.F., 2 I. & N. Dec. 182 (1944) (“The mother was under 21 years of age when the appellant was born and therefore she had not, ‘prior to the birth’ resided in the United States ‘at least 5 (years) after attaining the age of 16 years’.”); Villegas-Sarabia v. Sessions, Case 15-60639 (5th Cir. 2017) (“Applying the rule in Morales-Santana to the instant case, the district court erred in extending the one-year exception provided in § 1409(c) to fathers”); Solis-Espinoza v. Gonzales, Case 03-70625 (9th Cir. 2005) (“Solis-Espinoza was a legitimate child, not born out of wedlock, and is thus a United States citizen”), Chavez-Garcia v. Sessions, Case 14-72172 (9th Cir. 2017) (10-year, not 365-day rule, held applicable because parental marriage held valid); Ruiz v. INS, 410 F.2d 382 (6th Cir. 1969) (impossibility for a parent under 21 years of age at the time of the child’s birth to qualify); Weedin v. Chin Bow, 274 U.S. 657 (1927) (“not a citizen, because at the time of his birth in China his father had never resided in the United States”).

The most recent SCOTUS treatment of nationality is Sessions v. Morales-Santana, 582 U.S. ___ (2017) — SCOTUSblog case documents — Digest of U.S. Practice in International Law (2015), p. 1 and 8 U.S.C. § 1401(g). Numerous commentaries have been published online, and the State Department analyzed the case prior to the publication of Justice Ruth Bader Ginsburg’s opinion, in its Digest of United States Practice in International Law (2016); see also Jonathan Burt, “Equal Protection and Scrutinizing Scrutiny: The Supreme Court’s Decision in Sessions v. Morales-Santana”, 2018 Utah L. Rev. 787, also discussing paternal recognition and legitimation. Justice Ginsburg wrote that gender-based citizenship treatment of nonmarital children was discriminatory and (at the Government’s prompting) transposed, indeed legislated (despite saying “We must therefore leave it to Congress to select, going forward, a physical-presence requirement”) the marital 5-year (of which 2 years after the age of 14) residence rule prospectively.[19] — Compare 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; also “Mexican Children of U.S. Citizens: ‘Viges Prin’ and Other Tales of Challenges to Asserting Acquired U.S. Citizenship” and Rios v. Civiletti, mentioned below). The HHS Inspector General reported on birth certificate fraud in 2000 and hardships resulting from “false positives” continue to be reported in the press. Morales-Santana is the first Supreme Court treatment of nationality in recent times that is restrictive rather than expansive in requiring a longer association with the U.S.A. for the mother of a nonmarital child born abroad (but allowing discontinuities in residence).[20] USCIS Policy Manual explanation — Compare 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. The majority view is that objective facts and not the will of an individual or his or her parent or guardian determines nationality: but facts may be difficult or impossible to prove, and there is the rebuttable presumption of alienage as to persons born abroad.

The percentage of nonmarital births in the United States has been 40.0% (2021). 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. Civil partnerships, registered domestic partners and civil unions create anomalous situations:

A major point inherent in nationality cases and the tax cases that depend upon nationality is that birth in the United States will yield XIV Amendment (or for birth in unincorporated territories, under accession treaty, the Organic Act,[21] and the Immigration and Nationality Act of 1965, statutory) U.S. citizenship from birth. Indefeasible except for renunciation and, perhaps, cession of territory, of which the only relevant instance has been the Philippines (archived copy). See Lozada Colon and Santori cases, below, relative to “Puerto Rico citizenship”, and note that I.R.C. §§ 2208, 2209; Rev. Rul. 74-25; TAM 7612220070A; General Counsel Memorandum 36944, Dec. 10, 1976, and mirror tax rules create special regimes for estate tax and income tax, respectively, for Puerto Rico-born or -naturalized taxpayers.

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,[22] 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, with or without justification. Aside from accusations of forged birth certificates, there have been many cases of unrecorded (especially) pre-1945 births, and members of the cross-border Tohono O’odham Tribe have long had difficulty in proving their status.[23] 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, and see Gerard-René de Groot, “Children, Their Right to a Nationality and Child Statelessness”, in Alice Edwards and Laura van Waas, ed., Nationality and Statelessness under International Law (2014)), there is no obstacle to a child born abroad to a U.S. citizen without past U.S. residence, or any renouncing U.S. citizen being stateless.[24] Given certain facts, especially relating to offspring born abroad to unwed or adulterous American fathers, intercountry adoption and assisted reproduction, U.S. citizenship may be subject to effective election. There may be age limits to prove eligibility and opt in: see the Hizam judgment, below, and other paternal recognition cases. Also, Gonçalo Matias, Citizenship as a Human Right: The Fundamental Right to a Specific Citizenship (2016).

Courts or officials of one country will sometimes rule on the nationality status of purported citizens of another, occasionally without reference to or contrary to the view of that other country’s consular representatives: Mahaboob Bibi v. Home Secretary, [1987] Imm. A.R. 340 (Mauritius decolonization, attributing nationality despite failure to register a birth with the foreign consulate: Département fédéral de justice et police v. Vilchez, Trib. féd., Cour de droit public, 29 June 1979, A.T.F., 105, 1979, Ib, p. 63, Clunet, 114.1987.674 (archived copy) (Peruvian nationality not recorded with consular officials); Australian parliamentary eligibility crisis and Re Canavan, [2017] HCA 45; also Philip Fusco (birth in Australia to American father never declared to U.S. consular officials). (Compare a Lacey Act case, U.S. v. McNab, 331 F.3d 1228 (11th Cir. 2003) — Comment, Walter James Environmental Crimes Blog, “The Lobster Conviction”, Jan. 30, 2007.). Shamima Begum has been rendered stateless by Britain on the basis of a purported right to Pakistani citizenship which Pakistan refuses to concede. And see Bureau of Investigative Journalism, “‘Medieval Exile’: The 42 Britons Stripped of Their Citizenship”, Feb. 26, 2023.

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); Alex Perez and BJ Lutz, “American Citizen Faced Deportation: Despite ID and birth certificate, Chicago man detained for three days”, NBC Chicago, May 24, 2010; Jennifer Solis, “Puerto Rican evacuees struggle to get licenses in Nevada”, Nevada Current, Jul. 24, 2018 (Nevada DMV said it could not authenticate, and so would not honor for exchange, Puerto Rico driver licenses; “If we were ever approached about changing it we would do it but it would require legislation.” Eugene Volokh: “a state has no constitutional obligation to recognize driver’s licenses from other states”; but see Driver License Compact (unlike some other interstate compacts, the Driver License Compact does not include territories); “US citizen sues government after being detained by immigration officials for 7 months”, RT News, Oct. 22, 2013 (archived copy). “Deportation Nightmare: Eduardo Caraballo, US Citizen Born In Puerto Rico, Detained As Illegal Immigrant”, Huffington Post, May 25, 2010 (archived copy).

  • 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.”)
  • Gutierrez v. Kerry, 2016 U.S. Dist. LEXIS 190865, 2016 WL 7742793 (S.D. Tex. 2016) (“The plaintiffs in these five consolidated cases filed complaints under 8 U.S.C. § 1503(a) seeking a declaration of U.S. citizenship after the U.S. Department of State (‘State Department’) either denied the plaintiffs application to renew his U.S. passport or revoked it.”)

Nationality attributed in error may be annulled:

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:

The case law centered on nationality sees citizenship as a precious right and takes no note of what onerous obligations for a citizen residing overseas. Subject to formal procedure, renunciation remains a right for those of full age and competence, albeit with tax and other consequences discussed extensively below. See the Meir Kahane cases, notably:

In its attribution to persons born 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 (genetic or gestational relationship; prior parental U.S. residence) that would determine nationality, a person may be admissible to the United States temporarily as a presumed alien: 9 FAM 202.1-2 and 7 FAM 085. Note that the texts of State Department Instruction 9 FAM 202.1-2 and 9 FAM 301.3-3 were revised as of April 30, 2019, leaving 7 FAM 085 unchanged at least for the time being. Compare the prior version of 9 FAM 202.1-2: the new version requires greater confidence on the part of the consular officer regarding a visa applicant’s status: “You may not issue a visa to an individual unless you are satisfied that the applicant is an alien.” As to the 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) (Mexican birth certificates in evidence)
  • Matter of Leyva, 16 I. & N. Dec. 118, 119 (BIA 1977) (birth in Mexico)

Developments in assisted reproductive technology led to new interpretation of the Immigration and Nationality Act by the Department of State as to visas and nationality: Digest of United States Practice in International Law (2014), p. 18 (Retroactive, published Jan. 31, 2014); Michele Chabin, “Policy shift eases citizenship for foreign-born kids of American moms”, USA Today, Feb. 27, 2014; Ellen Trachman, “The State Department Goes For Broke in Its Fight Against … Babies Of LGBTQ Parents”, Above the Law, May 22, 2019; Kristine S. Knaplund, “Baby Without a Country: Determining Citizenship for Assisted Reproduction Children Born Overseas”, 2013 Denver Univ. L. Rev.; Allison Kaplan Sommer, “IVF Babies Denied U.S. Citizenship”, Forward, Mar. 21, 2012; The gestational option has been seen as discriminatory against LGBTQ men: Sam Levin, “One ruled a US citizen, the other not: gay couple’s twins face unusual battle”, Guardian, Jan. 24, 2018.

The attribution of nationality later than at birth (and other than as a matter of law when previously unknown facts come to light (archived copy)) normally requires consent. This is an international law argument: that consent of the individual (or guardian) is required at a time other than birth, adoption, state succession (see also Ineta Ziemele, “State Succession and Issues of Nationality and Statelessness”, in Alice Edwards and Laura van Waas, ed., Nationality and Statelessness under International Law (2014)) or (now rarely) marriage (Airola case, below). Most international-law complaints relate to denial, rather than attribution, of nationality, as in “Ex Post Facto Problems of the Czech Citizenship Law”, and many relate to ethnicity criteria for the attribution of nationality as in the Baltic country cases.[25] On the matter of automatic naturalization through marriage and its exorbitant attribution generally, see Laura Ellen van Waas, Nationality Matters: Statelessness under International Law (2008); 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); International Law Commission, Draft Articles on Nationality of Natural Persons in Relation to the Succession of States with Commentaries (1999) and International Law Commission reports drafted under the direction of Special Rapporteur Manley O. Hudson in the mid-20th Century; Airola v. Commission, Case 21.74, [1975] ECR 221 (Belgian staff member of the European Communities automatically attributed Italian citizenship upon her marriage to an Italian; held disregarded for purposes of expatriation allowance while posted to Italy).

The result is that it is questionable practice to “restore” citizenship 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 (see Treaty of Paris 1898, just below). China (1909) and Israel (1951) existed for some time without any nationality law at all, yet in each case the State had no doubt as to who belonged to it. The IRS, as of 1975, did not agree that involuntary restoration of citizenship was ineffective for tax purposes: Rev. Rul. 75-357 (regarding estate taxation of persons expatriated under the Expatriation Act of 1907); similarly Rev. Rul 92-109, 1992-C.B. 3 (citizenship restored retroactively by the Terrazas and Afroyim SCOTUS judgments). In effect the Department of State invalidated prior documentation of loss of nationality. No case has come to light to date where an interested party (including after-born offspring, born abroad to such a former U.S. citizen) has been made unwillingly to adapt to such restoration and consequent assessment of U.S. income tax or subjection to estate and gift tax despite years of living abroad as a nonresident alien. But see Dept. of the Treasury Office of Tax Policy, Income Tax Compliance by U.S. citizens and U.S. Lawful Permanent Residents Residing Outside the United States and Related Issues (May 1998), pp. 38-42, “Relief for ‘Unknowing’ or ‘Restored’ Citizens”. (“Equity may argue for granting some unknowing and restored U.S. citizens an exemption from U.S. taxation. An individual claiming the benefit of this exemption should bear the burden of proving that he or she had no knowledge of his or her U.S. citizenship during the period at issue. [footnote omitted] Because of the possibility of abuse, the criteria for lacking knowledge of U.S. citizenship should be strictly construed.”)

Neither the Department of State nor the IRS can realistically force administrative or judicial adjudication of cases in which a nonresident foreign-born person has a potential claim to U.S. citizenship by reason of ancestry or of birth in U.S. air or maritime space. Relevant facts as to residence, presence or “genetic and/or gestational and legal” relationship, indeed access to DNA evidence, may be unprovable after many years and without the cooperation of an individual or parents. The conventional manner of ascertaining citizenship in doubtful cases abroad is application for a U.S. passport, or for infants application for a Consular Report of Birth Abroad of a Citizen of the United States of America. One can assume that the IRS has no standing to institute an investigation of citizenship against a person abroad who has never claimed citizenship or announced facts that would attribute it. On this subject see Wikipedia on “Accidental American” and Chantal Panozzo, “When American Expats Don’t Want Their Kids to Have U.S. Citizenship”, Wall St. J. Expat Blog, Feb. 18, 2015. Children born abroad to U.S. citizen parent(s) and whose birth was never registered with a consular office can, with proper evidence of parental status and U.S. residence or presence, apply for a U.S. passport or, within the USA, a certificate of citizenship. Such persons may want first to arrange their financial and tax affairs, just as any intending immigrant would, before taking such steps: Practising Law Institute, Pre-Immigration Tax Planning; Patrick W. Martin, Jon Schimmer, “The Great Myth in Pre-Immigration Tax Planning – Why Section 679(A)(4) Does Not Apply to Subtitle B (U.S. Estate, Gift and Generation Skipping Transfer Taxes)”, Calif. Tax Lawyer (2005).

Note the IRS effort to argue expansively 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 naturalized 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,[26] the last of which (Bulgaria, Nov. 23, 1923) was denounced by the United States by 2017; its last appearance in the historical Treaties in Force database is as of Jan. 1, 2013.[27] And see U.S. v. Matheson (Estate of Burns), 400 F.Supp. 1241 (S.D. N.Y. 1975), aff’d, 532 F.2d 809 (2nd Cir. 1976) (expatriation, reintegration: “Mrs. Burns and Matheson continually believed and represented that she was a citizen of the United States”; income and estate taxes); King v. Rogers, 463 F.2d 1168 (9th Cir. 1972) (“After 1954, King did not consider himself to be a United States Citizen. In 1954 he had the specific subjective intent to and did renounce his United States citizenship.”); FN 1, “Compare Savorgnan v. United States, 338 U.S. 491 (1950) with Afroyim v. Rusk, 387 U.S. 253 (1967); Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963); Nishikawa v. Dulles, 356 U.S. 129 (1958); and Trop v. Dulles, 356 U.S. 86 (1958). Cf. Rogers v. Bellei, 401 U.S. 815 (1971).”

Rev. Rul. 92-109,[28] 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; Jacquin D. Bierman, Steven L. Severin, “Ruling Provides Filing Relief For Expatriates”, 78 J. Tax’n 138 (1993). And see: 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), pp. 38-39. And see U.S. v. Lucienne D’hotelle de Benitez Rexach, 558 F.2d 37 (1st Cir. 1977) (Loss of U.S. nationality by return to country of origin (France); Estate held liable for income tax on community property for the years that decedent “was unaware that she had been automatically denaturalized” and claimed benefits of U.S. citizenship, including passports); Furstenberg v C.I.R., 83 T.C. 755 (1984) (taxpayer liable for tax on constructive receipt of capital gains and dividends prior to her expatriation).

Revenue Rulings are an official interpretation of the Internal Revenue Code but may not have precedential value to the extent that they refer to a specific set of facts; they are not binding on courts. 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. (Archived former Dutch Foreign Ministry list of countries which do not have provision for renunciation of their citizenship.[29]) 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, but with reservations.

As to transfers of territory, 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 territory became independent.[30] 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:

We can draw the conclusion from the above that while the status of most individuals born in the Continental United States subject to its sovereign jurisdiction and therefore citizens by way of the XIV Amendment of the U.S. Constitution is clear, and the status of those born in U.S. territories[31] 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 acknowledgment of facts. Thus, for example, “Birth documents from border lay midwives draw scrutiny: U.S. challenging some passport applicants born on border”, Houston Chronicle, Feb. 14, 2009 (archived copy); “Yemeni-Americans, Thrust Into Limbo, Say U.S. Embassy Unfairly Revokes Passports”, N.Y. Times, May 27, 2015 (archived copy) and Ramzi Kassem, “Passport Revocation As Proxy Denaturalization: Examining the Yemen Cases”, 82 Ford. L. Rev. 2099 (2014). — State Dept. précis of U.S. Citizenship Laws and Policy — Bibliography of treatises and other materials on U.S. immigration and nationality law.

On renunciation, revocation or denial of U.S. citizenship:

Loss of nationality or green-card status since 2008 may 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, even in deportation cases. The U.S. Congress has overridden tax treaties: the Alternative Minimum Tax and the Net Investment Income (“Obamacare”) 3.8% surtax on unearned income: Haver v. Comm’r, 444 F.3d 656 (D.C. Cir. 2006) (AMT). FATCA may be no less a tax treaty override. (Cases and materials on statutory override are discussed and linked below.)

The critical issue is this: because U.S. nationality law and the statutory and judicial rules on loss, renunciation and relinquishment of that nationality have changed dramatically during the 20th Century and through to the present it requires close analysis of facts and timing to determine whether an expatriate lost or relinquished, retained or regained U.S. citizenship status will directly affect tax and reporting obligations of nonresidents. 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 and even in the case of a person with no right of entry or residence in the U.S.A. At least since 2004 there is dissonance (archived copy) 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, U.S. and Canadian lawyer, puts it this way: “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 unless 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 of American Samoa and of Swains island, First 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 and no, or attenuated, U.S. tax obligations when abroad. The latter group is currently in a tenuous situation (archived copy); some military veterans have been deported. See the Harvard Law Review series of articles of 2017 and Matter of Ah San, Board of Immigration Appeals Case A-20968308 (1975) (“The applicant for admission is a native and citizen of Western Samoa. She is the child of a noncitizen national born in American Samoa.”). See Tuaua v. United States, 788 F.3d 300 (D.C. Cir. 2015), Cert. denied 136 S. Ct. 2461 (2016) (“To date, Congress has not seen fit to bestow birthright citizenship upon American Samoa, and in accordance with the law, this Court must and will respect that choice.”).

Even given the standard “saving 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, [1992] 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 (“dual nationals are somehow suspect”). Dual nationality was an issue before the Iran-U.S. Claims Tribunal, as before earlier postwar claims commissions. Nationality of an unrecognized State may be acknowledged for some purposes and not others. If dual citizenship is 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); Peter Spiro, At Home in Two Countries: The Past and Future of Dual Citizenship (Citizenship and Migration in the Americas) (2016). If the costs (consular fees and exit taxes) of renunciation are exorbitant or if renunciation is dependent upon performance of military service would another State be 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 is accidental and trivial? And how far may a State go in collateral enforcement, punishing private-sector entities that do not pursue aggressive enforcement on the State’s behalf?

A proliferation of “economic citizenships” (citizenship by investment) has highlighted the risk of fraude á la loi.

Foreign Financial Institutions (FFIs) have been cued to demand a Certificate of Loss of Nationality (CLN) as means of proving loss of U.S. citizenship, 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 has written extensively on this subject. Philip Hodgen, Pasadena, CA and Golding & Golding, Irvine CA are among specialist international tax lawyers with useful Websites. “Tax-Expatriation” is a website maintained by Patrick W. Martin.

Expatriation, while a constitutional entitlement from the time of Thomas Jefferson, can come at great cost, quite beyond the nonrefundable $2,350 consular fee currently charged. See Virginia La Torre Jeker, “Unprecedented Fee for CLNs Documenting Loss of US Citizenship by ‘Relinquishment'”, World Tax, Apr. 7, 2016 and Robert W. Wood, “Fee To Renounce Citizenship To Drop, Reversing 422% Hike”, Forbes, Jan 12, 2023. As of the time of writing, the renunciation fee remains at $2,350. American citizens not specifically exempted either by statute or in some way by sovereign, diplomatic or quasi-diplomatic 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 the 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 reside 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”. A U.S. citizen accredited by a foreign country to the United Nations has no personal immunity (U.S. citizens cannot receive State Department accreditation to a diplomatic mission in Washington unless they renounce citizenship):

This exception still leaves certain questions open, particularly for persons exercising the right of establishment in another country within the region 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; Brexit’s “Irish Backstop” has put the relationship in question. From the standpoint of this essay an interesting question is whether the Court of Justice of the European Union would impede a Member State from implementing the 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 (to 2018). 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, [1990] 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:

Other forums address similar issues for various countries:

  • Association of Americans Resident Overseas (AARO), Paris (members in many countries)
  • English Forum (Switzerland)
  • Expat Forum (numerous country forums)
  • Accidental Americans Facebook Group
  • 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 FATCA

On Australian pensions: Mondaq, Aug. 12, 2016: “Australia: The ‘Super’ Reason Australians Are Renouncing Their US Citizenship” (Archived copy); Marshalaine Dungo, “U.S. taxation of Australian Superannuation funds: when the Super is NOT so super after all”, Moodys Gartner, July 27, 2016 (archived copy); 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.

U.S. tax treaties have saving clauses that with specific country exceptions reserve the right of the IRS to impose tax on most income as if the treaty did not exist as to its citizens and residents and some former citizens. Thus the U.S. is to tax U.S.-source income of dual nationals first; the taxpayer relegated to claiming tax credit, if possible, in the other country and seeking as appropriate Competent Authority assistance: Filler v. Comm’r, 74 T.C. 406 (1980). “The saving clause does not nullify the Convention; it nullifies the benefits provided by certain provisions to current citizens and certain former residents and citizens,” Cole v. Comm’r, T.C. Summ. Op. 2016-22) 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. The question is starker where the U.S. (second) nationality was retroactively restored. Some countries have no provision in law for renunciation.[32] Exorbitant attribution of nationality by a country, based on ethnicity or residence especially, is well known in history.

There is a certain amount of unjustified hysteria in the literature on offspring of foreign diplomats: citizenship administratively assumed based on a birth certificate and wrongly issued Social Security account has no legal validity and would be revoked (archived copy) 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; list not published online after Fall 2020 issue) who have a spouse with U.S. nationality or permanent residence, whose U.S.-born children are citizens (see below); 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). And see Jon Feere, “Birthright Citizenship for Children of Foreign Diplomats?” Center for Immigration Studies, Jul. 11, 2011 (Claiming that since offspring of Blue List diplomats in the U.S. are likely to receive normal birth certificates and may obtain Social Security cards, this is tantamount to citizenship. It is not: such offspring may have “Green Card” status to be claimed at majority but an application for a U.S. passport would be fraudulent. See below Expatriation, Conflict of Status, “Covered Expatriates”, Estates and Trusts. 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),

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 actual citizenship status.[33] Judicial determination may be needed: the Hoda Muthana case above. The laws on both acquisition and loss of nationality have changed over time, sometimes with retroactive effect and sometimes not, but retroactivity can scarcely be usefully imposed on someone permanently established abroad.

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 looks at Constitutional and international-law issues of the quasi-nationality Congress has created for tax purposes.

5. Taxation Matters

5.1. General

The first issue is that assessment of U.S. taxes is based on spontaneous declaration by taxpayers. 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 and intermediaries. 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 for improper failure to file these forms whether 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” (2014). And the IRS Tax Crimes Handbook (Office of the Chief Counsel, 2009), DOJ Criminal Tax Manual (2022?), American Bar Association 34th Annual National Institute on Criminal Tax Fraud & 7th National Institute on Tax Controversy, Criminal Tax Workshop (Dec. 2017), Mirabaud Report: The Shell Bank Loophole: Billionaire tax evasion scheme exposes how weak enforcement of the Foreign Account Tax Compliance Act enables wealthy tax cheats to hide income offshore (2022)

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 occasionally indefeasible.)

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, ITIN or EIN. 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).

5.2. Extraterritorial Reach of the IRS

5.2.1. Citizenship-Based Taxation

The structure of the U.S. Tax Code is a matter of history and historical accident (both the concept of “allegiance” as a proxy for nationality and its afferent obligations, issues tested in Revolutionary times and subsequently and relying on Common Law jurisprudence)[34] and taxation: the Civil-War origins of citizenship-based taxation. [35] Thus the U.S. Government is a jealous sovereign, and with its unique notion of “exceptionalism” deems its claim to allegiance pre-empts that of any other, even, in its domestic law, as to a dual national resident in the other country of nationality, and even if that person has never set foot in the U.S.A. (or in the alternative, was born there and left after a few days, a true “accidental American”) See: Dept. of Justice, Income Tax Compliance By U.S. Citizens And U.S. Lawful Permanent Residents Residing Outside the United States and Related Issues (1998), pp. 38 ff. The dictum of Lord Mansfield’s “Rule”, often cited, has been less persuasive than imagined by many.[36]

Statutes, Regulation, Guidance

Cases

Commentary

Editorial Note: As to treaty mutual tax collection provisions, there is a generalized exception for citizens of the requested country. 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, just as it has with Red Notices filed with Interpol. Red Notices have been posted based on tax evasion, even where the crime would not necessarily support extradition. See Alan R. Johnson, Lawrence Nirenstein, Stephen E. Wells, “Reciprocal Enforcement of Tax Claims Through Tax Treaties”, 33 Tax Lawyer 469 (1980)

5.2.2. Collection of Tax Debts Abroad

Statutes, treaties

Cases

Commentary

5.2.3. Passport Revocation

Case law

  • Adams v. Comm’r, 160 T.C. No. 1 (2023) (U.S. Tax Court does not have jurisdiction to review the constitutionality of the Secretary of State’s passport actions under section 32101 of the FAST Act.)
  • McNeil v. U.S., 2021 WL 1061221 (D.D.C. 2021) (“The Court finds no support in § 7345 or anywhere else in the tax code for the notion that Congress wanted § 7345(e) to become a vehicle for challenging IRS procedures and tax assessments that cannot otherwise be challenged.”)
  • Hadwan v. Dep’t of State, 340 F.Supp.3d 351 (S.D. N.Y. 2018) (Plaintiff “did not make strong showing of bad faith or improper behavior on part of agency” in passport revocation
  • Maehr v. Dep’t of State, 5 F.4th 1100 (10th Cir 2020) (Restricting international travel of taxpayer who was seriously delinquent in paying his taxes by revoking his pass- port was rationally based on legitimate government interest.)
  • Ruesch v. Comm’r, 154 T.C. 289 (2020), Affirmed in Part, Vacated in Part, Remanded, 25 F.4th 67 (2nd Cir. 2022) (Action challenging certification of her tax debt as “seriously delinquent,” as could allow revocation or denial of passport, and taxpayer also challenged underlying civil penalties; dismissed)
  • U.S. v. Struckman, 611 F.3d 560 (9th Cir. 2010) (affirming case below) — Struckman opening brief — Gov’t brief — Certificate of interested persons — Oral argument — 2010 U.S. App. LEXIS 13202
  • U.S. v. Struckman, W.D. Wash. Case 04-cr-229 Docket — Indictment — Order regarding defendant’s motions to dismiss indictment for outrageous government misconduct and unnecessary delay as to David Struckman by Judge Robert M. Takasugi — (Earlier civil case, Starkey v. Struckman et al.: Docket — Certifying judgment from N.D. Okla. for $4,650,905.00)
  • Schoenman v. F.B.I., 573 F.Supp.2d 119 (2008) (FOIA requests regarding passport revocation; Ralph Schoenman had been a personal secretary to Bertrand Russell)
  • Kent v. Dulles, 357 U.S. 116 (1958) (Right to travel)
  • Zemel v. Rusk, 381 U.S. 1 (1965) (Secretary of State is statutorily authorized to refuse to validate the passports of United States citizens for travel to Cuba)

Commentary

5.2.4. Foreign Account Tax Compliance Act (FATCA)

What foreign assets are subject to FBAR (and FATCA) reporting is not always clear. Real estate and commodities not in an entity or trust wrapper or financial account are excepted. For foreign financial assets the criteria are control, legal title or beneficial interest.

Statutory materials

Commentary

Lawsuits against FATCA and its enforcement:

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) (Archived copy). Digital Commons Network, links to Full-Text Articles in “Taxation-Transnational”.

5.2.5. Swiss Bank Program

The Swiss Bank Program, which was announced on August 29, 2013, provide[d] a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program. ~ Department of Justice announcement, Sept. 5, 2018

Cases

Major settlement agreements published by DOJ

Commentary

5.3. Flight, Absconding, Fugitive Status and Absence from the Jurisdiction; Commands to Repatriate Assets

Departure or absence from the jurisdiction can frustrate civil enforcement and prosecution. It is noteworthy that in each case of pursuit of a foreign-based FBAR-noncompliant individual cited in this essay the willingness of the taxpayer, banker or judgment debtor to appear or comply resulted from levy (or potential levy) on assets within the USA, risk of commercial loss, expectation (or hope) of acquittal, or a changing environment for extradition and extraterritorial enforcement of judgments and inability to travel. The hundreds of cases cited here represent only a fraction of IRS pursuit of FBAR and other tax and tax penalty debtors: tens of thousands have paid or compromised. Some must have claimed prior relinquishment of citizenship; perhaps a few could claim error in an initial grant of a passport following birth abroad: an Abdo Hizam situation discussed above. The IRS does pursue expatriated Americans for fraudulent exit tax declarations (Form 8854): Oleg Tinkov.

Case law:

Commentary

5.4. Controlled Foreign Corporations (CFC)

5.5. Passive Foreign Investment Companies (PFIC)

U.S. shareholders of foreign corporations are also subject to the passive foreign investment company (PFIC) rules, which tax U.S. shareholders who escape CFC taxation because they own less than 10% of a foreign corporation. Unlike the CFC rules, the threshold in determining PFIC ownership is based not on stock ownership or value, but rather on the nature of the income or assets of the particular foreign corporation.

5.6. Enforcement and Partial Abatement Matters

“In FY 2008 as part of its continuing efforts to improve its post-judgment collection efforts, the Division, created a Financial Litigation Unit, which is staffed by three-to-five attorneys (some on details from other civil trial sections) and four paralegals that work under the supervision of the Office of Review. [sic].

“One particularly notable collection case involved a suit for the failure to file Reports of Foreign Bank and Financial Accounts (‘FBAR’). These penalties help prevent the use of offshore accounts for tax evasion. Accordingly, ensuring that the penalties are collected is an important (and growing) part of the Division’s caseload. For example, in United States v. Dominique Colliot (W.D. Tex.), the Tax Division filed suit to obtain a judgment for FBAR penalties in the amount of $917,446 plus a 10% statutory surcharge for debt collection in December 2016. After filing suit, the court issued a pre-judgment writ of garnishment to UBS Financial Services, Inc., ordered Colliot to instruct UBS to liquidate assets as necessary to generate $1,126,016 in cash, and ordered UBS to segregate and hold those funds until further instruction from the court.”

— United States Department of Justice Tax Division, FY 2018 Congressional Budget

At least three “voluntary” projects were undertaken by the IRS, the Offshore Voluntary Disclosure Program (OVDP), OVDI and the Streamlined Filing Compliance Procedure. “Quiet disclosure” by submission of amended returns and late forms and declarations is sometimes discussed as an alternative (2014), but is not without risk. Under certain circumstances delinquent FBARs can be filed without penalty. See Sean M. Golding, Quiet Disclosure or Streamlined (Update), HG.org (2020?) (“knowingly submitting a Quiet Disclosure is a form of tax fraud”). (Ed note; Facts matter, especially place, timing and amount, citizenship status, potential penalties. Law firms specialized in compliance issues stress the anomaly that once a noncompliant taxpayer has declared overseas assets and income through amended returns, continued noncompliance is “willful”, therefore inviting prosecution. This may or may not be borne out by the statistics. The cases below at “Significant Recent Cases” are those that were neither administratively resolved nor ignored by the IRS: data are unknown beyond figures for 2009 and 2010 cited by Anthony Parent in “Quiet/Soft Disclosure: IRS Crackdown Audits And Penalties” (May 31, 2013, archived). Parent’s numbers come from GAO report 13-318 entitled “IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion” (2013).

A U.S.-resident delinquent taxpayer has virtually no ready personal or property defenses and can be subjected to devastating penalties (150% FBAR penalty in the Zwerner case below) and tax liens attaching to all property. Asset protection devices are severely limited once the tax debtor has unconditional title to assets; ERISA (pensions), Social Security (15%), inheritance and trusts other than fully discretionary (Archived copy) potential payments, tenancy by the entireties, See generally, Bryan D. Camp, “Protecting Trust Assets from the Federal Tax Lien”, 1 Est. Planning & Comm. Prop. L. J. 295 (2009). FBAR penalties cannot be discharged in bankruptcy (see below). Some but not all the IRS compromise initiatives allow for penalty reductions; sometimes the taxpayer must “opt out” of scheduled penalties and take the risk of unfavorable adjustment or indeed prosecution. As with Offers in Compromise and extrastatutory concessions, a result can include conditions that later cannot be met, or proclivities of particular IRS employees and risk of an later 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 linked case report) (“Sometime in 1999, Agent Smith passed away, and Calvin Byrd was assigned as the new IRS agent in charge of the Grants’ case. … Agent Byrd did not like the deal his predecessor had made with the Grants.”). Also, Ted Afield, “IRS Can File a Proof of Claim in Bankruptcy Court for the Full Amount of Tax Liability Even After an Accepted Offer in Compromise”, Procedurally Taxing Blog, June 13, 2019.

Those with overseas assets connected with entities and persons on the IRS list of “Foreign Financial Institutions or Facilitators” are subject to higher penalties: 50% of highest balance (including assets not connected with a listed institution of facilitator) instead of 27.5%: Congressional Research Service, “Reporting Foreign Financial Assets Under Titles 26 and 31: FATCA and FBAR” (Mar. 27, 2014), U.S. v. Singenberger and accompanying text and links (below), Robert W. Wood, “IRS Still Hunts Offshore Accounts As More Foreign Banks Sign Deals With U.S.”, Forbes, Jan. 26, 2016. Comments, Jack Townsend, ‘Report of Government Comments on FBAR Penalties at ABA Tax Section Meeting” (2/1/13) and “Report on Webinar on Opting Out and Litigating FBAR Penalties” (1/17/13; with Caveat Update on 2/1/13).

Willfulness: The measure of penalty depends on judicial attribution of willfulness on the part of the FBAR delinquent. It is increasingly difficult for those accused of FBAR violations and crimes to defend on ground of ignorance and accountants’ negligence: indeed that is one of the reasons for IRS publicity in its prosecutions. Thomson Reuters Checkpoint explains: “In Program Manager Technical Advice, IRS has set out the definition of willfulness, and the standard of proof for establishing willfulness, for purposes of the penalty for willful violation of the requirements of the Report of Foreign Bank and Financial Accounts (FBAR). (Program Manager Technical Advice 2018-013)”

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.

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 necessarily 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 (Cayman Islands unreported, 15 April 2014; see below for 2012 S.D. N.Y. case between the same parties) (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., [1989] 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

By analogy, the conflicting outcomes in Canadian bankruptcies involving U.S. student loans make uncertain the terms under which U.S. tax debts might be discharged in a Canadian bankruptcy.

Unlike some other penalties, and subject to timing, FBAR penalties may not be discharged in bankruptcy:

Contempt proceedings are readily available to the Government where a delinquent taxpayer has hidden, or kept, assets abroad, as in an “asset protection trust”. FTC v. Affordable Media LLC and Anderson, 179 F.3d 1228 (9th Cir. 1999), discussed by Jay Adkisson (Archived copy), 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:

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 and GCHQ. 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.

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. See Taxpayer Advocate, MSP #5, “False Positive Rates” (2018, Archived copy) and Transcript Records Access Clearinghouse, “IRS Audits Few Millionaires But Targeted Many Low-Income Families in FY 2022” (Archived copy). Self-assessment systems depend on publicized prosecution of celebrity and other notable cases pour encourager les autres. The fact remains that a 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 created 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 without published opinion, 943 F.2d 1318 (11th Cir. 1991).

Statute of limitations issues are dealt with, in tax matters, at IRM 25.6.1.6.4. Note conditions leading to an extended Assessment Statute Expiration Date at IRM 25.6.1.5.4. 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 4.26.17.5. There is a particularly anomalous status of limitations period for those engaged in IRS amnesty programs: Jack Townsend has written on this: “Protecting the Refund Statute of Limitations for those in OVDI” (1/4/12)

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). The Paradise Papers have been cited by Australian tax authorities as evidence of the “commoditization” of tax avoidance. Other data dumps include the Swiss Leaks (HSBC files) and the Mauritius Leaks (Indian Express: Conyers Dill & Pearman law firm; Archived copy).

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 at least a conceptual 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 expatriation tax obligations) visits the United States may be faced with the rare writ Ne Exeat Republica (IRM 5.21.3.3 (01-07-2016)) .

More common (now) is the revocation or denial of passport facilities under 22 U.S.C. § 2714a and the hard interrogation of returning nonresident citizens: Sydney Watson, reported to the FBI by Comedy Central as a “threat”; her Australian colleague Ali Yemeni refused entry and deported.

Many noncitizens are, in principle, obliged to obtain a “sailing permit” prior to departing the United States, and to pay accrued income tax at that time: IRS, “Departing Alien Clearance (Sailing Permit)”. This obligation, it seems, was better known and understood in the days when the Smith Act required annual registration of aliens at a Post Office. A recent poll of tax preparers and tax lawyers showed few who were aware of the sailing permit provisions, although one respondent remarked that it was yet another profit center for his firm.

Extradition has been infrequently available for tax crimes in part as a result of historical practice and policy, and in part because of hesitation on the part of tax authorities to expend the diplomatic credit required except in egregious cases. Solicitation of expulsion or deportation may be an alternative in some cases. But tax evasion may be assimilated to money laundering, common-law fraud or wire fraud with greater likelihood of foreign government cooperation, (U.S. v. Yusuf, 536 F.3d 178 (3rd Cir. 2008): false tax return as mail fraud, money laundering). Some new bilateral arrangements and changes of law in certain foreign countries have increased the number of extraditions for tax crimes. It remains true that extradition is a complex and expensive procedure that consumes diplomatic goodwill and so is reserved for significant cases.

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). Other cases:

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:

Extradition cases have addressed narcotics smuggling.

Firearms:

Some important tax and white-collar-crime extradition cases are:

Bankruptcy fraud has been an issue in a number of cases, including Bussell, below. See also: In re Tucker (A Bankrupt), [1990] Ch. 148, LAWTEL, July 11, 1988 (Isle of Man, May 16, 1987) (applying Bankruptcy Act 1914; taking evidence in support of English proceeding; and David Graham, “Tucker and the Taxman” in Ian F. Fletcher, ed., Cross-Border Insolvency: Comparative Dimensions, pp. 205-15 (1990)); 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, [1986] 1 W.L.R. 73 Cf. Ex parte Bettle (In re “The Land Transfer Act, 1885”), (1895) 14 N.Z.L.R. 129. Ashurst v. Pollard, [2001] 2 W.L.R. 722, [2000] 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, [1950] A.C. 186, 201 (an individual is deemed still to be “doing business” until all debts, including taxes, are paid). Nor is the IRS likely 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, [1963] S.C.R. 366 (applying the so-called Revenue Rule, under the law and tax treaty as they then stood).

See also this writer’s unpublished article, “Conflicts in Cross-border Enforcement of Tax Claims” (2007) and, generally, Prof. Jack Townsend’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, Prof. Allison Christians’ Tax, Society & Culture Blog and David Bentley, “Fingering White Collars”, Chatham House, The World Today, v. 63, Jan. 2007.

5.7. FATCA, Know Your Customer (KYC), Anti-Money Laundering (AML) and Foreign Financial Institutions (FFIs): Denial of Financial Services Abroad to “U.S. Persons”

Selected Money laundering cases and materials, including FBAR violations:

6. Statutes of Limitation (Time Bars)

Tax

FBAR

  • 31 U.S. Code § 5314. Records and reports on foreign financial agency transactions
  • 31 U.S. Code § 5321(b) Time Limitations for Assessments and Commencement of Civil Actions to recover a penalty.
  • IRM ¶ 8.11.6 FBAR (Chapter 31, U.S. Code) penalties and limitations period
  • Stephen J. Dunn, “To OVDP Or Not To OVDP: Compliance Options For Holders Of Foreign Accounts”, Forbes, Jul 5, 2014 (“The OVDP requirements are punitive. The taxpayer must sign consents waiving the statute of limitations on assessment of an FBAR penalty and income tax, penalties, and interest with respect to the account…”).
  • Harrison v. IRS, 2021 WL 930266 (D. D.C. 2021) (Suit by taxpayer to recover funds paid to IRS by way of OVDP settlement)
  • Flint v. U.S., 162 Fed.Cl. 91 (2022) (Executors of estate of deceased taxpayer filed suit against United States, claiming breach of contract and illegal exaction, and seeking $156,795.26 paid to IRS by taxpayer as miscellaneous offshore penalty. Dismissed for lack of jurisdiction.)

Case Law, Statute of Limitation

Fugitive disentitlement doctrine

Transferee liability, fraudulent transfers cases

Civil forfeiture

Commentary

Commentary

In the United States, limitations periods for tax-related offenses will be tolled while the taxpayer has absconded or is outside the United States (but whether that applies to someone living permanently abroad is disputed); and on civil liability where a fraudulent return or no return has been filed: 18 U.S.C. § 3290, 26 U.S.C. § 6531; U.S. v. Hoffman, 80 A.F.T.R. 2d (RIA) 6062 (6th Cir. 1997); U.S. v. Greever, 134 F.3d. 777 (6th Cir. 1998) (“Both McGowen v. United States, 105 F.2d 791 (D.C.Cir.1939), and King v. United States, 144 F.2d 729 (8th Cir.1944), held that mere absence from the jurisdiction where the crime was committed was enough to toll the statute of limitations and that the government need not prove intent to avoid prosecution. However, other cases have held, and this court has noted, that ‘fleeing from justice requires intent to avoid arrest or prosecution rather than mere absence from the jurisdiction.’ United States v. Hoffman, No. 94-6289, 1997 WL 476513, at *4 (6th Cir. Aug. 19, 1997) (citing United States v. Wazney, 529 F.2d 1287 (9th Cir.1976); Jhirad v. Ferrandina, 486 F.2d 442 (2d Cir.1973); Donnell v. United States, 229 F.2d 560 (5th Cir.1956); Ferebee v. United States, 295 F. 850 (4th Cir.1924)).”). The limitations period on collection of assessed tax will likewise be tolled: 26 US.C. § 6503(c). Whether a taxpayer resident and/or domiciled abroad shall be considered an “absconder” for this purpose has been an open question and the imposition of citizenship-based taxation generally, even as to “accidental Americans” born abroad to an American parent, or born in the USA to alien parents, who may barely or never have set foot on American soil, suggests that imposing the primacy of American law is more a matter of “exceptionalist pre-emption” than any principled norm. Yet, § 6531(8) reads: “The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings.” See DOJ Criminal Tax Manual, ¶ 7.00.

On the taxpayer as fugitive, as absconder or outside the United States,[38] and civil liability where a fraudulent return or no return has been filed, see Virginia La Torre Jeker, “FBAR and Tax Crime Statutes of Limitations – Suspended When Overseas?”, Angloinfo, June 22, 2015) and Anthony N. Verni, “Outrunning the IRS: FBAR Statute of Limitations Guidelines”, Jul. 24, 2016). 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); Angelo M. Russo, “The Development of Foreign Extradition Takes a Wrong Turn in Light of the Fugitive Disentitlement Doctrine: Ninth Circuit Vacates the Requirement of Probable Cause for a Provisional Arrest in Parretti v. United States”, 49 DePaul L. Rev. 1041 (2000); also Robert Lyon, “Expats and IRS tax collection statute limitations” (2015). note especially Jack Townsend’s blog entry “Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance” (2013) (mentioning the possibility of a sealed indictment); John Simon, Charles G. Dawes, “Extradition: The Statute of Limitations is Tolled By Constructive Flight”, 10 Case W. Res. J. Int’l L. 521 (1978).

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 out of ignorance and tax advisor error, 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.

The U.S. Government is not bound by a state (or foreign) time bar

A comparable issue arises with an insolvent heir and the validity of a disclaimer. Likewise for a foreign insolvency procedure where the U.S. Government did not file a proof of claim or debt: any such discharge may be valid only in the jurisdiction where it was granted: a geographic bar to the remedy and not the debt. This creates an anomaly for covered expatriates without income, assets or heirs in the U.S.A. who reside and are domiciled in another country of nationality and who have renounced U.S. citizenship without paying exit taxes under I.R.C. § 877 or 877A.

References:

Note few cases below, among Federal Cases Mentioning “FBAR” where a sealed indictment or equivalent was used to surprise a nonresident alien or citizen either upon arrival in the U.S.A. or in a country where an Interpol Red Notice might be honored. The Barrett and Raoul Weil cases are examples. Such procedures on the part of the IRS are costly in time and money: they are uncommon. Some are politically driven cases, others are pour encourager les autres.

7. Miscellany

An important conflicts issue is definitional, thus: for purposes of U.S. tax law, what constitutes a trust? A “trust of land” (formerly a trust for sale) in English law is a “bare trust”, a substitute for tenancy in common or joint tenancy, especially with more than four parties, the limit to land registration: it does not have the qualities of a typical trust and is transparent, the beneficiaries having direct rights.

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:

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 website of a firm of tax lawyers: “Understanding the U.S. Tax Classification of Your Foreign Business Entity” (2017)

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 IRS as community property, arguably incomplete).

But see:

Quasi-community property and its foreign equivalents do not provide a step-up in basis at death nor, attribution rules aside, tax liability to the non-U.S. Person spouse; but see the limits to attribution.

Inevitably asset protection and estate planning (and executor and beneficiary liability for unpaid income, gift, and estate taxes of a decedent) 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), charitable contribution deduction on estate tax return of NRA decedent) and insolvency in foreign jurisdictions are not in its favor. Even fraudulent (voidable) transfer (or Civil Code Paulian action)[39] 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.

Canadian “foreign specified property” reporting requirement (a provision comparable to FBAR) but using end-of-year data, not highest balance:

8. Bibliography (In Descending Date Order)

9. Earlier Articles on FATCA

FATCA has a few professional supporters; 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: 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 non-declaration fixed by the Congress. The following support FATCA as an enforcement tool:

10. Significant Recent Cases

  • Bittner v. U.S., 143 S.Ct. 713 (2023)
    • Certiorari from Court of Appeal, 19 F.4th 734 (5th Cir. 2021) and District Court 469 F.Supp.3d 709 (E.D. Tex. 2020)
    • Oral argument, case documents from Oyez.org
    • SCOTUSBlog case documents
    • Bittner Expert Report
    • United States’ Response In Opposition To Amended Amicus Brief In Support Of Defendant’s Motion For Partial Summary Judgment.
    • Defendant Alexandru Bittner’s Sur-Reply To The United States’ Reply To Defendant’s Response To Plaintiff’s Motion For Partial Summary Judgment
    • United States’ Response In Opposition To Amended Amicus Brief In Support Of Defendant’s Motion For Partial Summary Judgment
    • Defendant Alexandru Bittner’s Reply To The United States’ Response To Defendant’s Motion For Partial Summary Judgment
    • United States’ Sur-Reply To The Amicus Reply To The United States’ Response To Bittner’s Motion For Partial Summary Judgment
    • Government Memorandum In Support Of Motion For Summary Judgment
    • United States’ Motion To Strike The Expert Testimony And Report Of Scott D. Michel
    • United States’ Reply On Its Motion For Partial Summary Judgment
    • Defendant Alexandru Bittner’s Motion To Compel Discovery Responses
    • United States’ Motion For Partial Summary Judgment
    • Amended Amicus Brief In Support Of Alexandru Bittner’s Motion For Partial Summary Judgment
    • Defendant Alexandru Bittner’s Motion For Partial Summary Judgment
    • United States’ Response To Defendant’s Motion For Partial Summary Judgment
    • Defendant Alexandru Bittner’s Response To The United States’ Motion For Partial Summary Judgment
    • Brief Of the American College of Trust And Estate Counsel As Amicus Curiae In Support Of Neither Party
    • Brief for the Petitioner
    • Brief For the Respondent Government
    • Brief For the Chamber of Commerce of the United States of America As Amicus Curiae Supporting Petitioner
    • Joint Appendix on Writ of Certiorari
    • Brief of Amicus Curiae of National Whistleblower Center Supporting Respondent Government
    • Brief of the American College of Tax Counsel as Amicus Curiae in Support of Petitioner
    • Expert Report of Scott D. Michel
    • United States’ Motion in Limine
    • Brief of Center for Taxpayer Rights as Amicus Curiae in Support of Petitioner
    • CRS Report for Congress: Supreme Court Rules Against IRS on Foreign Account Reporting Penalties
    • Bittner v. IRS, 120 AFTR 2d 2017-5633 (W.D. Tex. 2017), Report And Recommendation Of The United States Magistrate Judge
    • Comment, Jim Dawson, Chad Vanderhoef, Alexander Olama, Bloomberg Tax, Mar. 7, 2023: Supreme Court’s FBAR Ruling Skips Crucial Legal Question for Now (1) (Mar. 7, 2023) (Archived copy) (“The majority and dissenting opinions in Bittner v. United States relied on traditional canons of statutory construction to reach opposite conclusions, but it left a key issue unanswered—the appropriate standard as to mens rea.”)
    • Comment N.J. Law J.: Finally, a Taxpayer Victory in an FBAR Penalty Case—But Will It Change Anything? (Mar. 24, 2023) (Archived copy)
    • Salley v. U.S., 2023 WL 3568618 (M.D. Fla. 2023): “Bittner v. United States, 143 S. Ct. 713, 724–25 (2023), applied the rule of lenity to construe an ambiguous statute criminalizing the willful failure to notify the Secretary of the Treasury about banking transactions in a foreign country. Only two justices adopted the section of the opinion which applies the rule of lenity.”
  • Aroeste v. U.S., 2023 WL 1974144, 2023 US Dist LEXIS 24397, 131 A.F.T.R.2d 2023-623
    Order on Joint Discovery Motion
    U.S. Tax Court, May 16, 2022 (Casetext version)
  • Bedrosian v. U.S., 42 F.4th 174 (3rd Cir. 2022)
    Earlier judgment: 912 F.3d 144 (3rd Cir. 2018)
    Dist. Court: 2017 WL 3887520, 2017 U.S. Dist. LEXIS 56535 (E.D. Pa. 2017)
    505 F.Supp.3d 502 (E.D. Pa. 2020)
    Zhanna Ziering Speaks to Tax Notes on Bedrosian and DeMauro
    Petition for Writ of Certiorari
    James A. Beavers, Counsel’s admission costly to taxpayer in FBAR case, The Tax Advisor, Oct. 1, 2022
  • Zachary C. Kling, Jennifer Lee, Peter Glicklich, Michael H. Lubetsky, Federal Courts Weigh in on the FBAR: Providing Relief from Outrageous Penalties (March 22, 2023)

11. Federal Cases Mentioning “FBAR”

(Federal cases mentioning “FBAR” in alphabetical order by name of defendant or significant party.[40])

These are civil and criminal cases, from searches on LexisNexis, Westlaw and among DOJ Press Releases, with supporting documents from PACER (Archived copy) and RECAP. A list of 170 civil FBAR cases was collected by Jack Townsend from data provided by DOJ Tax, presented as an Excel spread sheet) (Archived version) (Jack Townsend discussion, “Data Table and Statistics on FBAR Penalty Civil Litigation (5/19/18)”). Only a few of those civil cases are included in the list below, notably U.S. v. Jane Boyd, concerning the calculation of non-willful penalties against a California resident who, apparently, had worked in the U.K. and probably accumulated there private pension savings (SIPP) or U.K.-tax-sparing savings (ISA) or both.[41] She may also have faced PFIC tax issues not apparent in the court papers. Note that very few of these cases involve party’s resident abroad; the exceptions seem to be those with a substantial U.S. connection, sometimes involving voluntary presence or court appearance, perhaps for business, family, or strategic reasons. Thus (non-exclusively): Barrett, Cambata, Dewees, Katholos, Pomerantz and certain Swiss bankers and enablers. The interrelationship between the FBAR statute of limitation, first FBAR filing, and commencement of U.S. residence is worth noting. The countless instances where noncompliant taxpayers resolved issues within an IRS amnesty program or by voluntarily paying an assessed penalty are not reflected here. FATCA has in effect “privatized” enforcement to the extent that overseas U.S. Persons are (or will be) denied financial services by foreign-based providers without proof (or declaration) of status and/or compliance. See also, AARO Banking Committee Chair, Paul Atkinson, “FBAR and other financial reporting cases” (Archived copy). These are, of course, only cases that were contested. In tens of thousands of instances taxpayers settled directly with the IRS or successfully used the IRS via OVDP or Streamlined programs. And there must be many more absconders and fugitives than open records show, including cases of sealed indictments, unpaid assessments, unpublished default judgments and inability to serve process on a tax debtor. (The Mrvc case below is an example.). Some Russian and Saudi Arabian citizens (or dual nationals) have notoriously avoided leaving their country.

12. Whistleblower Cases

13. Origins of FATCA: Banks Alleged to be Involved in Tax Evasion; Substantial Penalties

BCCI

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” (see right-hand column) — 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 Uncensored: The Untold Story of How I Destroyed Swiss Bank Secrecy (2020), and Jack Townsend comment, “The Birkenfeld Prosecution, Conviction and Sentence” (11/13/17).

Frank Hirth Tax Conference, London, March 26-27, 2019, Lecture slides, Individual Tax – FBAR Statistics. Increased FBAR penalty cases:

  • 2014: 13 cases
  • 2015: 22 cases
  • 2016: 30 cases
  • 2017: 66 cases
  • 2018: 55 cases [1 January to 9 September 2018])

FBAR filing by year: statistics collected by AARO

“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, “Tax Administration: Systematic Information Sharing Would Help IRS Determine the Deductibility of Civil Settlement Payments” (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”.

Other references

14. Expatriation, Conflict of Status, “Covered Expatriates”, Estates and Trusts

For covered expatriates who have heirs who are U.S. Persons 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, perhaps through influential 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 in a FATCA world 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 or conditional legacies. The issue of personal liability of a trustee for foreign taxes is largely untested and may depend upon the terms of a will or trust. 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. See Peter Spero, Asset Protection: Legal Planning, Strategies and Forms (loose-leaf, updated; found in many law libraries and on Westlaw).

Note the special status of diplomatic and international organization families: As a practical matter, if citizenship is acquired at birth expatriation may be facilitated: Boris Johnson (see Robert W. Wood, “Boris Johnson’s Big Win? He Beat IRS”, Forbes, July 10, 2022; David A. Graham, “London Mayor Boris Johnson Hates the IRS, Too” (“he could also be subject to an exit tax”), The Atlantic, Feb. 17, 2015) and David Alward, mentioned above; also Thai King Bhumibol Adulyadej (Another link) whose status arose from his father’s sovereign immunity. Diplomats assigned to consulates have 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. Prince Albert of Monaco renounced his U.S. citizenship long ago, before the U.S. imposed quasi-exit tax on certain expatriates; The status of children born to accredited diplomats (where the accompanying spouse is not a U.S. citizen) yields an administrative anomaly: such dependents or former dependents may apply for permanent residence status. The State Department will not accredit a U.S. citizen as a foreign diplomat, but a number of foreign diplomats have U.S.-citizen spouses: those spouses enjoy no immunity beyond the courtesies needed to avoid international embarrassment in an appropriate case. As noted above a U.S.-born child of a diplomat with an alien spouse has the option of claiming Green Card status at age 18. Many of these anomalies carry with them income tax and foreign asset reporting complications. At the time of writing, Arturs Krišjānis Kariņš, born in Wilmington, Delaware, is prime minister of Latvia. Nothing has been made public of his tax status.

Denationalization in other countries:

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. (On legislative override see Carla Di Pietro, “Tax Treaty Override and the Need for Coordination between Legal Systems: Safeguarding the Effectiveness of International Law”, World Tax J., Feb. 2015, p. 73; Carla Di Pietro, Tax Treaty Override (2012); Nicholas Stephanopoulos, “The Case for the Legislative Override”, 10 UCLA J. Int. L and Foreign Affairs 250 (2005).) In the case of a covered expatriate domiciled or deemed domiciled in the U.K., covered expatriate status 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.[42]

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 and see above “Facilitation of tax evasion – considerations for banks” (Dec. 2017)), even if there are no U.S.-sited assets and no treaty collection provision, the difficulty for the IRS in exercising jurisdiction abroad may, as it has with FATCA, be overcome by “privatization“.

However, the application of I.R. Reg. 11297-10 (“Notice of Proposed Rulemaking … Regarding the Imposition of Tax on Certain Gifts and Bequests from Covered Expatriates”) 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 is 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 paid to Canada. 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, one 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” (2007).

For the rest, the real problem is this: any lawyer or accountant is obliged, ethically 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. Occasionally taxes and penalties could 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.

Tax 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 Calgary411, 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.

15. Tax Discrimination Cases, Human Rights and Other Issues Peripheral to the FATCA Question

16. Implications for the Future

The 2017 Act encompassing corporate residence-based taxation did not change the principle of citizenship-based taxation for U.S. individuals. Nor did it relieve from double taxation income that is not provided for under existing statutes and provisions of tax treaties. Closure of IRS attaché offices abroad and general lack of funding seems to have prevented more aggressive enforcement against accidental and expatriate Americans but the matters raised in this article, and particularly the privatization of enforcement through FATCA, has left them in a fragile position (Position paper of Fabien Lehagre, Américains Accidentels, June 10, 2019). Some who have come forward, like Dewees, have paid heavily in terms of back taxes, interest and penalties. Self-disclosure through OVDP and denunciation via the publication of the Panama Papers and other ICIJ disclosures, Birkenfeld and UBS, and Big Data in general, provided an enormous reservoir of information on hidden wealth and tax evasion strategy to tax collectors of all countries. They are likely to shape future legislation and future enforcement activity. See Kimberly Houser and Debra Sanders, “The Use of Big Data Analytics by the IRS: Efficient Solutions or the End of Privacy as We Know It?”, 19 Vand. J. Ent. & Tech. L. 817 (2017). The use by HMRC in the U.K. of banking, insurance, real estate and social networking records to compare tax declarations with spending patterns was the subject of an Aug. 14, 2017 Channel 4 TV program, “Catching the Tax Dodgers” (TV Review, Guardian, Aug. 15, 2017).

There is potential for increased cooperation in reciprocal collection of tax debts and 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 to common-law and wire fraud and to perjury. What is not apparent is any incentive for Treasury to modernize tax treaties to generalize mutual recognition of pension schemes and tax-sparing savings, including those aimed at educational costs and disability relief.

17. Conclusion

This bibliographic essay has sought to bring together sources of background materials, including statutes, case law, scholarly analysis and journalists’ and tax (and nationality law) professionals’ opinions. Nearly all the cases relate to residents of the U.S. with unreported foreign assets and often untaxed income, and to their enablers—in some cases to innocent heirs. The focus of much of the cited literature is enforcement against U.S Persons resident abroad and not to domestic taxpayers concealing income and assets. What appears is the high cost of compliance both to financial intermediaries and to expatriates—and Washington’s apparent lack of interest in the incompatibility of foreign residents’ family economic life with domestic U.S. tax-driven choices and the tax concessions that incentivize them. Impossibility and double taxation work against the success of FATCA and the U.S. asset and income reporting statutes. To the degree that foreign financial institutions exclude U.S. Persons from becoming account holders there is incentive for them to conceal, misrepresent and deny, with continued noncompliance, perhaps renunciation of citizenship and non-registration of births. There is also incentive to shift assets to nonfinancial investments such as real estate, and until recent IRS intrusion, crypto assets. 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, especially those with little personal and economic connection to the U.S. For them, the issue is not hidden untaxed wealth but compromised tax-sparing pension and savings, and corporate retained earnings all falling into a trap created by incompatibilities between U.S. and foreign law. Tax treaties are infrequently revised, and their text is largely dictated by the interests of major stakeholders whose lobbyists are heard in Washington and foreign capitals. Treaty partners have little motivation to lessen the impact of the U.S. “saving clause” beyond a few specified issues typically pensions, government service, administrative matters.

The most vexing problem for any philosopher-jurist has to be not just the 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 abroad may reduce respect for the tax and its enforcement system as a whole as well as the extravagant concept of “allegiance”. Ultimately “Tax law is political”: Anthony C. Infanti, Bridget J. Crawford, eds., Critical Tax Theory: An Introduction (2009).

[1] Without in fact offering much reciprocity: ownership of assets in the U.S.A. is often obscured by the applicability of state laws on entities and trusts, and many or most federal treaties, including tax treaties, cannot bind the states without their consent.

[2] The IRM makes no mention of possible statutory tolling of the time bar. See Robert W. Wood. “How Far Back Can IRS Claim Tax Evasion Or Fraud? Timing Is Everything”, Forbes, Oct. 13, 2013; Sam Bruson, “Trump, Tax Fraud, and the Statute of Limitations”, The Surly Subgroup tax blog, Oct. 3, 2018; Leslie Book, Procedurally Taxing, Apr. 28, 2016, “Recent Case Highlights How Taxpayer Can Refresh the Statute of Limitations for Tax Evasion Even By Speaking (and Lying) to IRS”.

[3] The literature and the blogs have addressed expatriation issues, renunciation of U.S. citizenship, and the conflicts facing U.S. expatriates in countries that disallow dual nationality and those who are subject to U.S. exit taxation on renunciation.

[4] “The OECD Committee on Fiscal Affairs (CFA) defines treaty override in its recommendation of 2 October 1989 as ‘the enactment of domestic legislation which is intended to nullify unilaterally the application of international treaty obligations’.” See Alexander Rust, “Germany: Consequences of a Treaty Override?”, in Michael Lang et al, ed., Tax Treaty Case Law Around the Globe (2017).

[5] John Richardson explains: “The Court’s ruling is based on the proper interpretation of the existing statute and specifically does not (with the exception of Justices Gorsuch and Jackson) deal with the broader issue of issue of permissible limitations on FBAR penalties. This decision would NOT prevent Congress from simply amending the statute to impose a penalty based on each account.” [Emphasis in original]

[6] 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.”).

[7] Nancy L. Green, “Expatriation, Expatriates, and Expats: The American Transformation of a Concept”, 114 Am. Hist. Rev. 307 (2009).

[8] Brigid McMenamin, “Home Free”, Forbes, July 26, 1999, p. 110 (tax benefits of expatriation); 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.

[9] 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”.

[10] 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.”).

[11] Such offspring receive the benefit of a right to claim a Green Card under certain conditions.

[12] Fugitive disentitlement doctrine: Molinaro v. New Jersey, 396 U.S. 365 (1970), subsequently restrained by Ortega-Rodriguez v. U.S., 507 U.S. 234 (1993); State v. Bell, 2000 ND 58, 608 N.W.2d 232 (2000) (discussion of states’ practices); Wittgenstein v. INS, 124 F.3d 1244 (10th Cir. 1997) (deportation case; further background at 163 F3d 1164 (10th Cir. 1998)); Pecoraro v. Commissioner, T.C. Memo. 1995-220 and Daccarett-Ghia v. Comm’r, 70 F.3d 621 (D.C. Cir. 1995) (declining to dismiss tax appeals). See also Walsh v. Walsh, 221 F.3d 204 (1st Cir. 200) (child custody); In re Henson, 289 B.R. 730 (Bankr. N.D. Calif. 2002) (bankruptcy) (all discussing prior cases). The doctrine may not bar the defense of unrelated civil claims, Federal Deposit Ins. Corp. v. Pharaon, 178 F.3d 1159 (11th Cir. 1999); it cannot be used to deny a hearing in civil forfeiture cases, Degen v. United States, 517 U.S. 820 (1996), but may bar a child custody action, Prevot v. Prevot (In re Prevot), 59 F.3d 556 (6th Cir. 1999), 244 F.3d 1250 and Mishkin Pesin v. Osorio Rodriguez, 244 F.3d 1250 (11th Cir. 2001). The doctrine is stronger in the USA than England: compare Parretti v. U.S., 143F.3d 508 (9th Cir. 1998) with Polanski v. Condé Nast Publications Ltd., [2005] UKHL 10, [2005] 1 W.L.R. 637; one explanation, mentioned in Polanski, may be the interpretation given to Art. 6(1) of the European Convention on Human Rights (right to a “fair and public hearing within a reasonable time” in determination of civil rights and obligations. In Canada the issue has been addressed in relation to the right of appeal while a fugitive: R. v. Piché (C.A., Quebec 1994, reported only as 1994 CarswellQue 1047 (Westlaw), citing R. v. Dzambas, (1974) 14 C.C.C. (2d) 364 (Ont. C.A.); and see Jaffe v. Miller, reported only as 1994 CarswellOnt 2871 (Ont. C.J.), discussing Jaffe v. Snow, 610 So.2d 482 (C.A. Fla. 5th Dist. 1993), applying fugitive disententitlement doctrine to bar wife from enforcing a Canadian judgment on claims derivative from fugitive husband.

[13] 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).

[14] John Richardson and Michael S. Kirsch have commented on tax law having created a unique concept of “citizenship” without “rights”, only obligations. This includes certain renunciants, former Green Card Holders, “covered expatriates” and categories of “accidental Americans” and deportees.

[15] Embassy estimate of 1.5 million in Mexico; common estimates of 1.0 to 1.4 million in Canada.

[16] This writer has appeared as counsel in a religious court to “prove” the ancestral religion of a party seeking to be married under religious law endorsed by the Marriage Act 1949, of which Part III Art. 26 controls marriages according to Jewish law, and Art 26 and 47 marriages according to usages of the Society of Friends.

[17] Florida and Louisiana have provision in law and practice for voluntary declaration of domicile at the county level. Succession of Lombardo, 205 La. 261, 17 So. 2d 303 (1944).

[18] Jack Townsend, “The Mirror Code Concept; Some Thoughts and Ruminations”, May 27, 2013; Appleton v. Comm’r, 140 T.C. 273 (2013).

[19] Noncontinuous residence allowed, nothing said about the alternative of parental residence abroad as dependent of military or of government or international organization employee: a very few offspring born abroad to U.S. government and military dependents abroad might be citizens subsequently who would not have been before.

[20] The case did not concern the alien mother but the American father and the constitutionally-based law revision depended on sex discrimination: Moritz v. Comm’r, 469 F.2d 466 (10th Cir. 1972), Lila Thulin, “The True Story of the Case Ruth Bader Ginsburg Argues in ‘On the Basis of Sex'”, smithsonian.com, Dec. 24, 2018.

[21] As to Puerto Rico, see the Jones–Shafroth Act (Pub. L. 64–368, 39 Stat. 951, enacted Mar. 2, 1917) — History at House of Representatives Archives, — Comment, Charles R. Venator-Santiago, “The Jones Act made Puerto Ricans citizens, yet not fully American”, Baltimore Sun, Thurs., Mar. 15, 2018. (Archived copy)

[22] 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.

[23] 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.

[24] The late Garry Davis did this too, but as a political statement for his World Citizen project (Archived copy).

[25] See, for example, Liberian Constitution, Art. 27(b) (racial qualification); Hungarian Citizenship Act (nonresident citizenship of ethnic Hungarians); Myanmar exclusion of Rohingya.

[26] Michael Walter, “The Bancroft Conventions: Second-Class Citizenship for Naturalized Americans”, 12 Int. Lawyer 825 (1978); Encyclopedia of Public International Law & Human Rights and the Individual in International Law; International Economic Relations (1985), p. 46.

[27] Perhaps an opportunity for certain expatriates to claim involuntary loss of nationality and avoid expatriate tax and covered expatriate status.

[28] Prior practice, from International Income Tax and Estate Planning § 3:3 (2d ed.): “Previously, Rev. Rul. 70-506, 1970-2 C.B. 1 concluded that United States citizens who were mistakenly treated as having lost citizenship under 8 U.S.C.A. § 1484 would continue to be taxed as United States citizens from 1971 forward. Furthermore, native-born United States citizens who, as a result of marriage to foreign citizens, lost their citizenship under the Expatriation Act of 1907, which under current law would be unconstitutional, were to be treated as citizens for tax purposes from January 1, 1976. Rev. Rul. 75-357, 1975-2 C.B. 5.”

[29] This link may be deactivated if the Netherlands amends its Nationality Act to allow dual nationality in more cases. Countries shown as of May 2019 without provision for loss of citizenship: Algeria, Angola, Argentina, Bangladesh, Burkina Faso, Costa Rica, Cuba, Dominican Republic, Ecuador, Greece, Iran, Libya, Nicaragua, Pakistan, Sudan, Taiwan, Yemen.

[30] “‘[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).

[31] Including, subject to the child having an American parent, until Oct. 1, 1979, the Panama Canal Zone

[32] Algeria, Angola, Argentina, Bangladesh, Burkina Faso, Costa Rica, Cuba, Dominican Republic, Ecuador, Greece, Iran, Libya, Nicaragua, Pakistan, Sudan, Taiwan, Yemen among them. See Netherlands Immigration and Naturalization (2019).

[33] If the conclusion is that an individual has valid U.S. citizenship status circumstances may dictate approaching the tax issue carefully, with a view to lawyer-client privilege and a “Kovel letter”. A “Kovel” accountant may or may not resolve the privilege issue: Robert S. Steinberg, “Tax Crimes: Kicking the Hornet’s Nest: Both lawyer and client can be stung in an IRS investigation”, Family Lawyer Magainze, July 18, 2012, at 38.

[34] Calvin’s Case; Aeneas Macdonald; Sir Frederick Pollock & Frederic W. Maitland, History of English Law, vol. 1, p. 299 (2d ed.1898); Sir Francis T. Piggott, “Ligeance of the King”, 83 Nineteenth Century and After 729 (1915); Clive Parry, British Nationality Law and the History of Naturalisation (1954). See Grossman, Birthright Citizenship as Nationality of Convenience, Proceedings, Council of Europe, Third Conference on Nationality, Strasbourg, 11-12 Oct. 2004, pp. 109-21.

[35] Edward A. Zelinsky, Defining Residence for Income Tax Purposes: Domicile as Gap-Filler, Citizenship as Proxy and Gap-Filler, 38 Mich. J. Int’l L. 271 (2017)

[36] Holman v. Johnson, (1775) 1 Cowp. 341, 98 Eng. Rep. 1120; also Planché v. Fletcher, (1779) 1 Dougl. 251, 99 Eng. Rep. 164 (1779). “It is now recognized that the often quoted citation of Lord Mansfield in Holman v. Johnson (1775) 1 Cowp. 341: ‘No country ever takes notice of the revenue laws of another’ does not represent the law”. 2 Dicey, Morris & Collins, 11th ed. (1987) at 1230, n. 22; cf. 14th ed. (2006) at 105-07.

[37] Comparable provisions in U.S. tax treaties with France (Art. 28), Denmark (Art. 27), Netherlands (Art. 31), Sweden (Art. 27); and Japan (Art. 27) — EY, Tax Treaty between the United States and Japan (“On 24 January, 2013, the United States and Japan signed a new Protocol … Expanded and strengthened provisions regarding assistance in the collection of taxes”) — Sullivan and Cromwell, “Japan and the United States Sign a Protocol Amending the Existing Japan-U.S. Income Tax Treaty” (2013). See IRM Part 5, Ch. 21, Sect. 3, “Collection Tools for International Cases”.

[38] “There have been several noteworthy tax cases in which a defendant or target of an investigation fled.” DOJ Criminal Tax Manual, ¶ 5.04, Detention and Bail, p. 11, FN 4. Also Justice Undone: Clemency Decisions in the Clinton White House, Second Report by the Committee on Government Reform, vol. 1 (2002), Executive Summary.

[39] See unpublished essay, “Conflict of Laws in Fraudulent Transfer and Paulian Actions” (1993).

[40] See: Comment by the editor on this list of FBAR prosecutions and civil suits.

[41] Pension savings, including SIPPs but less arguably so Junior SIPPs (for non-earning minors) are free of tax on contributions and accruals, including PFIC taxation, until paid out as benefits. SIPPs are deemed subject to reporting by FBAR as foreign financial assets. See Art. 19, US-UK Tax Treaty. And see Holly Payling, “Changes to foreign pensions for US taxpayers – or not?”, Buzzacot, May 28, 2020 (Archived copy) (“The IRS has released new rules regarding Foreign Pensions, detailed in Revenue Procedure 2020-17” which may or may not apply to UK self-invested pension plans.) The IRS had not replied to Ms Payling’s (or anyone else’s) queries and there has been no published litigation. By and large it is unwise to volunteer into the Foreign Trust reporting system without professional advice to do so: IRS Ogden can impose severe penalties for 3520/3520-A errors and omissions but our search for litigation of the sort that FBAR penalties gave rise to have yielded not even a single case.

[42] The U.S. has an Estate and Gift Tax Convention with the U.K. In respect of jurisdictions with which the U.K. does not have such a convention, it imposes IHT with limited unilateral relief.