Collateral Consequences – Non-Tax
W-8s for U.S. Citizens Abroad: Filing False Information with Non-U.S. Banks
Individuals who do not specialize in U.S. federal tax law, often have little detailed understanding of the U.S. federal “Chapter 3” (long-standing law regarding withholding taxes on non-resident aliens and foreign corporations and foreign trusts) and “Chapter 4” (the relatively new withholding tax regime known as the “Foreign Account Tax Compliance Act”) rules.
Indeed, plenty of U.S. tax law professionals (CPAs, tax attorneys and enrolled agents) do not understand well the interplay between these two different withholding regimes –
- 26 U.S. Code Chapter 3 – WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
- 26 U.S. Code Chapter 4 – TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
Plus, the IRS forms have been significantly modified over the years; with increasing factual representations that must be made by individuals who sign the forms under penalty of perjury. They are complex and not well understood. For instance, the older 2006 IRS Form W-8BEN for companies was one page in length and required relatively little information be provided.
The entire form is reproduced here; indicating how foreign taxpayer information was optional and generally there was no requirement to obtain a U.S. taxpayer identification number. It was governed exclusively by Chapter 3 and the regulations that had been extensively produced back in the early 2000s.
The forms were even easier before those regulations (see old IRS Form 1001). No taxpayer identification numbers were ever required and virtually no supporting information regarding reduced tax treaty rates on U.S. sources of income.
Life was simple back then – compared to today!
The one thing all of these forms have in common is that all information was provided and certified under penalty of perjury. Current day IRS Forms W-8s can typically be completed accurately by experts who understand the complex web of rules. Plus, multiple versions of W-8s exist today; most running some 8+ pages in length.
See the potpourri of current day W-8 forms –
Making certifications under penalty of perjury are more complex, the more and more factual information that is being certified. If I certify the dog I see in front of me is “white and black” that is not a complex certification, if I see the dog and see the “white and black”. If the dog also has some brown coloring, my certification would necessarily not be false.
However, if I have to certify as to the colors of each dog in a pack of 8 dogs (and each and every color that each dog is/was), that becomes a much more complicated certification.
That’s my analogy for the old IRS Forms W-8s and the current day IRS Forms W-8s.
Compare that form, of just 10 years ago, with what is required and must be certified to under current law. It can be daunting.
Now to the rub. Individuals who certify erroneously or falsely, can run a risk that the government asserts such signed certification was done intentionally. I have seen it happen in real cases; even though the individual layperson (particularly those who speak little to no English and live outside the U.S.) typically has little understanding of these rules. They typically sign the documents presented to them by the third party; usually the banks and other financial institutions.
The U.S. federal tax law has a specific crime, for making a false statement or signing a false tax return or other document – which is known as the perjury statute (IRC Section 7206(1)). This is a criminal statute, not civil. Some people are also under the misunderstanding that a false tax return needs to be filed. The statute is much broader and includes “. . . any statement . . . or other document . . . “.
(1) Declaration under penalties of perjury
Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or . . .
Therefore, if a U.S. citizen living overseas (or anywhere) signs IRS Form W-8BEN (or the bank’s substitute form, which requests the same basic information), that signature under penalty of perjury will necessarily be a false statement, as a matter of law. Why? By definition, the statute says a U.S. citizen is a “United States person” as that technical term is defined in IRC Section 7701(a)(30)(A). Accordingly, IRS Form W-8BEN, must only be signed by an individual who is NOT a “United States person”; who necessarily cannot be a United States citizen. To repeat, a United States citizen is included in the definition of a “United States person.” Plus, the form itself, as highlighted at the beginning of the form, warns against any U.S. citizen signing such form.
Accordingly, if a U.S. citizen were to sign IRS Form W-8BEN which I have seen banks erroneously request of their clients, they run the risk that the U.S. federal government will argue that such signatures and filing of false information with the bank was intentional and therefore criminal under IRC Section 7206(1). See a prior post, What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?
Indeed, criminal cases are not simple, and I am not aware of any single criminal case that hinged exclusively on a false IRS Form W-8BEN. However, I have seen cases, where the government has alleged the U.S. born individual must have signed the form intentionally, knowing the information was false. It’s a question of proof and of course U.S. citizens wherever they reside, should take care to never sign an IRS Form W-8BEN as an individual certifying they are not a “United States person”; even if they think they are not a U.S. person
For further background information on this topic, see a prior post: FATCA Driven – New IRS Forms W-8BEN versus W-8BEN-E versus W-9 (etc. etc.) for USCs and LPRs Overseas – It’s All About Information and More Information
Lawful Permanent Residents – Tax Law vs. Immigration Law – University of San Diego School of Law – Procopio International Tax Institute
The 12th annual international tax conference was held on campus on October 20 & 21st, 2016: The University of San Diego School of Law – Procopio International Tax Institute.
This specific course was addressed by tax and immigration law experts and views from a federal immigration court judge, as follows:
Course 3B: U.S. Lawful Permanent Residents – Tax Law vs. Immigration Law
Residentes legales permanentes de los Estados Unidos – Ley fiscal vs. Ley de inmigración
Speakers:
The Honorable Rico J. Bartolomei, assistant chief immigration judge of the federal immigration courts
Patrick W. Martin, Esq., Partner – Procopio
Jan Joseph Bejar, Esq., Founder – Immigration Law Clinic
The speakers addressed numerous issues, including the immigration consequences of filing IRS Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and the specific impact of IRC Section 7701(b)(6) that provides in relevant part as follows:
- An individual shall cease to be treated as a lawful permanent resident of the United States if such individual commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country, does not waive the benefits of such treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment. [emphasis added]
Act of Abandonment for Immigration Law Purposes?
Some of the key points made by the immigration law experts, including the immigration judge were:
- Permanent resident card is not a tourist visa.
- DHS will make a finding of abandonment following a single trip outside the U.S. of more than one year.
- Rebuttable presumption of abandonment following a single trip outside the U.S. of six months to one year.
- Residency may be deemed abandoned following multiple trips abroad, even if no single trip exceeds six months.
–Factors include the noncitizen’s family ties, employment, property holdings, and business affiliations in the U.S. and in the foreign country
–Filing a U.S. income tax return as a tax nonresident alien raises a rebuttable presumption of abandonment.
See prior posts regarding how and when lawful permanent residents can be deemed to have expatriated:
Unplanned Expatriation: Lawful Permanent Residents’ Deportation Risks for Filing U.S. Federal False Tax Returns, Sept. 28, 2015
Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card, August 15, 2015
Part I: New TIGTA Report to Congress (Sept 30) Has International Emphasis on Collecting Taxes Owed by “International Taxpayers”: Treasury Inspector General for Tax Administration (TIGTA)
TIGTA’s Semiannual Reports – Today’s Report with International Considerations – Part I
The Internal Revenue Service and U.S. Department of Justice (Tax Division) are the “soldiers” on the ground used to enforce U.S. federal tax law. They interpret the law, in no small part based upon the expertise and input of the myriad of experts in the U.S. Treasury, IRS and DOJ.
However, there are outside forces which oftentimes seem to have an “over-sized” influence on how, when and what priorities are identified in the IRS and DOJ. One of those powers of course is the Administration which makes up the Treasury Department and the very Department of Justice. The green book proposals of the Treasury and different policy proposals are an example. The other organization, within the Executive Branch is the Treasury Inspector General for Tax Administration (TIGTA).
TIGTA is the sort of “watch dog” over the IRS that independently reviews the work undertaken and often times questions that work and the IRS’ efforts. Per its own website it describes itself as:
The Treasury Inspector General for Tax Administration (TIGTA) was established in January 1999 in accordance with the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98) to provide independent oversight of Internal Revenue Service (IRS) activities. As mandated by RRA 98, TIGTA assumed most of the responsibilities of the IRS’ former Inspection Service.
TIGTA is separate and apart from the Taxpayer Advocate Service (“TAS”). See, excerpts of TAS reports here.
Another important influence is the Congress. See a prior post from September 2014 on this topic: How Congressional Hearings (Particularly In the Senate) Drive IRS and Justice Department Behavior
Letter from Your Non-U.S. Bank Regarding Chapter 4 of Subtitle A of the U.S. Internal Revenue Code – aka – “FATCA”
Financial institutions, outside the U.S. have been taking numerous steps to advise their U.S. born clients and U.S. resident clients about the reporting of their account information to the U.S. Internal Revenue Service.
These letters take various forms, depending upon the institution. In short, they normally say that as a result of the “Foreign Account Tax Compliance Act” (aka – FATCA, which comes from the newly created Chapter 4 of Subtitle A of the Internal Revenue Code, Title 26) they will be providing various account information to the U.S. Internal Revenue Service.
Some institutions are accelerating the information provided to include the account number, account holders/owners, balances and income from all sources. FATCA does not require all of this information until it is fully phased in over the next couple of years.
Many U.S. born individuals who have resided virtually all of their lives outside the U.S., often find out for the first time they are U.S. income tax residents by virtue of their birth and the 14th amendment of the U.S. Constitution. See, Co-author. “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.
In many cases, I have seen and advised individuals who are first learning of these obligations when they open new accounts and the financial institution outside the U.S. requests an IRS Form W-9 with a U.S. taxpayer identification number, i.e., the social security number for U.S. citizens. See an older post (23 July 2014) – Why do I have to get a Social Security Number to file a U.S. income tax return (USCs)?
The financial institution will have them certify under penalty of perjury their status as a U.S. person or not. If the individual was born in the U.S., they will necessarily be a U.S. person unless (i) they were born to diplomatic parents who were on diplomatic assignment in the U.S., or (ii) they renounced their U.S. citizenship and obtained a Certificate of Loss of Nationality from the U.S. Department of State. See, The Importance of a Certificate of Loss of Nationality (“CLN”) and FATCA – Foreign Account Tax Compliance Act
These FATCA letters are no longer just for U.S. taxpayers with non-U.S. accounts. Countries throughout the world are using the exchange of information agreements between the U.S. Treasury and other countries, the Intergovernmental Agreements to notify their taxpayers that soon information about their U.S. accounts will be made available to their tax authorities. See, recent Mexican articles released including August 26, 2015, in the El Siglo de Torreón, titled Preparan SAT y EU auditorías: ”
“El Servicio de Administración Tributaria (SAT) realizará el primer intercambio de información con Estados Unidos en septiembre para las primeras auditorías de personas con cuentas bancarias en Estados Unidos a partir del próximo año, aseguró Aristóteles Núñez, jefe del fisco.
“Vamos a poder conocer quiénes tienen cuentas en Estados Unidos y con ello empezar a revisar quién ha pagado sus impuestos y si no lo ha hecho habrá auditorías.”
Tracking U.S. Citizens and LPRs in and Out of the Country – Tracking Taxpayers (Entry/Exit System)
The U.S. federal government, led by the Department of Homeland Security (“DHS”) has taken great efforts and incurred great cost to develop technology and systems to track individuals as they come into the U.S. There are also programs afoot, specifically the Entry/Exit system with Canada, that helps track individuals as they leave the U.S. For more details, see the Wilson Center and its review of the Entry-Exit Systems in North America.
This tracking is very specific and part of the TECS database that is operated and managed by the DHS. The TECS database has been discussed in prior posts, including Does the IRS investigate United States Citizens (USCs) and Lawful Permanent Residents (LPRs) residing overseas?
See also, an earlier post that discusses the TECS database and its usage by the Internal Revenue Service in U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations
This topic will become even more relevant starting in 2015 as the IRS collects financial and account information via FATCA of USCs and LPRs residing in various countries throughout the world.
A series of posts dedicated to this topic will be made, including by guest immigration lawyers, discussing various legal implications of the tracking of U.S. citizens and LPRs.