State Bar of California- Tax Section on FATCA

While I know personally and I suspect many others here would like some stronger language I think the California Bar Assocation Tax Section raises some very pointed comment in their letter that discusses the issues we are facing here. I should further point out that the fact they bring up these issues is not for naught as the California Tax Section is one of the most influential groups of US Tax Lawyers. In particular I think they raise a very pointed question of the IRS Commmisioner which is the entire recent crackdown intended only solely to go after people living in the US with offshore assets or people residing outside the US with basic banking arrangements in their home countries. I also wanted to post this letter because two of the more prominent friends of the site(Steven Mopsick and Phil Hodgen) are members of the State Bar of California- Tax Section


28 thoughts on “State Bar of California- Tax Section on FATCA

  1. @tim- they don’t come out against citizen based taxation. Instead all that they do is to continue to endorse the practise and they call on the FFI’s to play a role as unpaid IRS agent. The FFI’s are charged with the duty of giving IRS information to any legal resident U.S. person account holder.
    As long as the root is alive the branches will be fed.

  2. I agree with you. I just wanted to post for informational purposes. It I think gives a better overview of the real situation in places like Central and South America.

  3. This proposal was written by a very fine attorney, Patrick Martin from San Diego, with whom I had the pleasure of serving on the Taxation Section. The proposal addresses a very narrow issue regarding how to provide a mechanism for American expats abroad to retain banking services in their local communities but it does not mention the injustice of citizenship based taxation with regards to expats, nor does it address the injustice of a 27.5 % tribute in order to get within the good graces of the IRS for expats who have made their homes abroad and don’t even think about the U.S. from day to day.
    I will be sharing a proposal with the Isaac Brock Society this week which will argue for a general amnesty for expats with no significant economic connection to the U.S. , and provide for no penalties and no back taxes.

  4. I’ve been lurking here for the past week or so. I’m hopefully going to renounce my US citizenship at the end of September, but it’s my children, the Accidental Americans, I fear for if the US continues down this path. I’m going to write to my MP, MSP, and anyone else I can think of, and will include a link to this proposal.

  5. @IRSVet, it would be very good if the IRS could introduce a genuine amnesty for expats without significant US assets, but would be far better if we could move to a residence-based taxation like the rest of the world. I suppose it will have to be one chip at a time though…

  6. @Scotgirl

    Welcome aboard, and glad you have moved from lurker to a “Reply-er” You are amongst friends here, and look forward to hearing more of your story or comments that you should care to share. Lots of good folks here, on a mission to help each other out, and maybe influence some changes in US taxation policies as remote a possibility it seems at times.

  7. Thank you, Tim, for bringing this to our attention. Although we may disagree with the proposal for a number of reasons, we can appreciate the spirit if fairness that lies behind it.

    One further note: one consequence would be that US residents with vacation property in Canada (or another country) would not be allowed to have a local bank account. This would be very inconvenient for the individual or family spending a month or two a year outside the US. Not my problem, though…

  8. @NorthernShrike

    That is an issue. Luckily in terms of account access no one has really been effected in Canada because of our stronger consumer protection laws. Additionally if you are a US resident who travels to or vacations in Canada a lot there a definate advantages and needs to having a Canadian checking account.

  9. @NorthernShrike

    There is also a case that the Government of Canada has engaged in a certain amount of good faith compliance as contemplated in the letter. Flaherty’s office does have a fact sheet on FBAR and other filing requirements and they do send them out at Canadian taxpayer expense.

  10. @30yearIRSVet, we look forward to your proposal, and continue to be thankful that you are participating here.
    Thank you @Tim for posting that letter.

    Wondering if there also something in a similar vein from the NY Bar association? Due to the historic flows of people back and forth across the borders between NY and S.Ontario, Maritimes and Maine, Detroit and Windsor, I would expect that other regional Bar Associations (ex. Michigan, Florida?) would also understand more of the true context of this situation and it’s consequences.

  11. @badger

    I don’t think all of the comment letters have been published yet simply because so many all came in at the same time. The NY State Bar Association sent a letter back in January before really any of this came to the fore. I think what is telling the California Tax Section basically used their comment letter on expat issues not on other matters regarding the legislation.

    Right now there are about 120 comment letters that have been published in April many of which are quite lengthy. The legal staff at the IRS are going to have a very LONG Summer reading list.

  12. @Tim, I posted this on another thread here re the ‘voluntary’ disclosure programs and the Taxpayers’ Advocate, but I’m reposting it here as well so it will not be missed. It is very scathing of the IRS conduct in general towards those with ‘foreign’ accounts – and even if it does not mention FATCA, the principles are the same – what they have demonstrated in the OVD programs and administration of FBARs is what we can expect from the implementation of FATCA – but exponentially worse because of the broader intent and application. The excerpt below is from a law firm in Florida:
    This webpage by a US law firm is very critical of the conduct of the IRS:

    “IRS Commissioner Ignores Taxpayer Advocate’s Recommendations Seeking to Address Unduly Harsh Penalties Faced by Participants of the Offshore Voluntary Disclosure Program”

    ………….”As discussed by the Taxpayer Advocate in the TAD, the IRS lured participants in this program with promises of leniency, consistency, and predictability.

    With significant FBAR penalties as leverage, the IRS “strongly encouraged” people who failed to file these and similar returns and report income from foreign accounts to participate in the 2009 Offshore Voluntary Disclosure Program (OVDP), rather than quietly filing amended returns and paying any taxes due. It warned that taxpayers making “quiet” corrections could be “criminally prosecuted,” while OVDP participants would generally be subject to a 20 percent “offshore” penalty in lieu of various other penalties, including the FBAR penalty. While the OVDP appeared to be a great deal for those involved in criminal tax evasion, it was a terrible deal for many whose violations were not willful or who would be eligible for reasonable cause exceptions.”…..

    ……”The Commissioner’s failure to adhere to his statutory duty to respond to the recommendations by the Taxpayer Advocate coupled with his remarks during his speech before the National Press Club reflect that his objectives are focused solely on generating revenue, without any regard to taxpayers’ rights or whether such revenue is properly collected.”………..

  13. I have decided (for the time being at least) that I will remain an American by choice, living in Brazil. I am very grateful for this Society and especially to @30yearIRSVet who has been so helpful to all of us. If I ever need a lawyer I know whom to look for. I continue to love the USA and will not follow the recommendation from the IRS to renounce my citizenship. I have family in the USA is much more than the IRS or a temporary administration. Although I have no representation I will continue to fight for what I see as my rights. I know it is an uneven fight (You can’t fight City Hall as they say) but I have no choice at this point. I am fighting for:
    Residence Based US Income Tax
    No double taxation of my Social Security Self Employed Tax in two countries.
    No taxation on my pension in Brazil from my work here (Americans in France do not pay).
    True amnesty for Americans Abroad who started to file FBARs later than 2003 for not knowing about it. No draconian penalties for us, much more than for Americans living in the USA.
    Not to identify us with Americans Living and working in the USA and investing US made dollars in hided foreign accounts.
    No repetitious forms to fill.
    Representation for Americans Abroad.
    And more.
    This may seem strange to all of you but I still trust this Country and believe that sooner or later it will be fair to us.
    Thank you all for being there.

  14. Best wishes to you @markpinetree. We must all do what we see as best in our individual situations. Thank you for contributing here – it is very valuable to draw on a range of opinions and experiences – and the information you shared was very valuable.

  15. Slightly off-topic, but isn’t California one of the “agressive” states that pursues epxat abroad with a menace to continue paying CA state taxes? I have a friend from there who literally had to wait for her state id card to expire, close all bank accounts and remove all property etc before they would leave her alone. They operate under the assumption that all stays abroad for CA former residents are temporary and that you intend to come back and are taxable if they can find the slightest link to CA as mentioned above. Any other states like this? Has anyone here been subjected to state income tax on top of the federal one?

  16. @markpinetree, I wish you well, please keep in touch!! Let us know how things are going for you!!

  17. @30-year IRS Vet
    We look forward to seeing your amnesty proposal.

    I would hope that such an amnesty would also include an amnesty or waiver of Form 8854 and any other filing for expats who relinquished their citizenship years ago (or at least thought they did and have recently applied for a reqlinquishment CLN based on an expatriating act 30-40 years in the past, in several cases I know personally). These people are not tax cheats (in Canada they’ve mostly been paying higher taxes than they would have in the US and having been doing so for decades), not only have no economic connections with the US but haven’t exercised any rights of US citizenship since their expatriating act decades ago (their relinquishment CLN application will be turned down by State if they have, and they know that). No sane person can claim they committed their expatriating acts decades ago for tax reasons; they’re filing for CLNs now because a) until now, they had no idea there was such a thing as a CLN, how to get one, nor why they’d ever need one, b) to be able to cross the US border on their Canadian passports that show US birthplace without getting harassment from customs/border officials, and c) to set their bankers’ and investment brokers’ minds at rest that they are NOT in fact US citizens and hence their account information should NOT be forwarded to IRS under FATCA (and the banks/brokerages cannot close their accounts or penalize them in any other way for refusing to waive their banking privacy rights in Canada).

    Hence Form 8854, not to mention back-filing of 1040s or anything else, is ludicrous in these cases.

  18. @Tim / Steve

    Is there a legal definition of an “Accidental American?” The description in the California Bar proposal wasn’t crystal clear.

    Would a natural born American who has lived outside the US for 20 years fall into the category of “Accidental American?” Its not like he / she chose where to be born.

  19. @fromthewilderness- if such a person was born to none American parents who were in the States for purposes of study then that person would be an accidental American. Also persons who are born abroad to parents where one of the parents is an American would fit into this category.
    Those are two instances that I can think of. Those are not legal definitions because the term does not exist in U.S. law. Anyone who is born under the rules of American citizenship is an America period. Under U.S. law there are no degrees/levels of citizenship. However this does not prevent the U.S. from forcing a quasi level of citizenship responsibilities onto residents who are legally not citizens.

  20. @30 year vet
    I look forward to seeing your proposal and hope that the points that Schubert has made, above, will be part of that proposal. Having been in Canada for almost 50 years and a citizen of Canada for 40 years with no ties to the U.S., I would like nothing more than the opportunity to obtain a back-dated CLN and have absolutely no obligation to file any tax returns or other forms with the U.S. Government. As Schubert says that would allow me to cross the border in peace and not frightened out of my mind. It would also allow me to ensure that my Canadian bank continues to allow me to use all of their services without fear of being reported to the IRS.

  21. I am continually impressed with the various letters written to the US government, the effort and the great number of intelligent arguments made to illustrate how utterly idiotic and ill-thought out this legislation is. What an exercise in stupidity FATCA is showing to be. The devil’s always in the details, isn’t it? Everyone in congress (or should be now call them “regress”?) should be fired.
    I can appreciate how the CA state bar emphasizes how the actual implementation of FATCA will cause US citizens to be denied banking services, but they seem to gloss over how difficult it will be to actually identify (their first line of defence) those who fall under FATCA’s jurisdiction. I really don’t know why they think that FFI’s will be able to easily identify green card holders in the vetting process. Can @30 year IRS vet tell me? They do not have a US birthplace as indicia, as also the US citizens who “inherit” US citizenship through a parent don’t. Then there are those who don’t even know they’re US citizens!
    FATCA should not be tinkered with as here, and watered down, as the ACA proposes, it should be repealed. The arrogance of this nation.
    @scotgirl, yes, write those letters!

  22. @bubblebustin- Congress and the Executive branch are both seemingly august bodies consisting of learned men and women who cannot produce a very intelligent piece of legislation.
    What can you expect from a collection of politicians who last year willingly and unncessarily brought their nation to the edge of bankruptcy over paying a bill for things that they had already bought for their own people?
    FATCA at its root is an affront to the principles of democracy that they U.S. considers itself to be the defender of.

  23. For whatever its worth I just got a quick email from a reporter at one the major daily newspapers here in Canada who might be looking at doing an update story on FATCA in the near future. I’ll have to see how it turns out.

  24. @30 year IRS vet. I too look forward to your proposal. The reception by the IRS will smoke out their motives. Personally, I think the stealth attack upon unsuspecting Canadians is deliberate, and the objective is to seize savings and pensions. If it were not, they would have come up with something along your lines in the first place.

  25. @All: my paper is going through some fine tuning and I hope to get it to you NLT the end of the week. It solely addresses the issue of American expats who have little or no connection to the US. although it does not mention @Schubert’s point directy it would make it a “no brainer.” it is also quite critical of the current OVDI program. I think that politically, it is sometimes best to pick off some low hanging fruit first before going further up the line. It should be obvious to any government person with a brain that an expat who is living his life abroad minding his own business with no more connection to the US than Antarctica shouldnt have to be worried about filing US tax returns or whether the IRS is going to give them a hard time.

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