Collateral Consequences – Non-Tax
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.”
The Intersection of U.S. Federal Tax Law with Collection of International Information – Including other Federal Agencies
For decades, the IRS largely worked in a vacuum, relative to other government agencies.
Changes started in earnest in 2003 after September 11, 2001, when Congress past various anti-terrorism laws. For details of the history and how and when the IRS became responsible for these functions, the IRS Internal 
Revenue Manual has a detailed explanation – Part 4, Chapter 26, Section 5. Bank Secrecy Act History and Law
In April 2003, the IRS became in charge of civil enforcement of foreign account information under Title 31. See IRM, Part 4, Chapter 26, Section 16. Report of Foreign Bank and Financial Accounts (FBAR).
The world has changed dramatically in these past few years and the IRS no longer works in such a vacuum. For a history of foreign bank and Congressional influences, see, How Congressional Hearings (Particularly In the Senate) Drive IRS and Justice Department Behavior
Today there are a host of governmental inter-agency activities along with foreign government exchanges of information; e.g., DHS, Department of State, ICE, USCIS, foreign government exchanges of information under FATCA IGAs, a plethora of federal “intelligence agencies” for “terrorism related requests” as identified in IRM pursuant to IRC Section 6103(i), foreign governments under tax treaty exchanges, among many others.
The law is not even clear as to which agencies qualify as “intelligence agencies” as they are not identified in the statute and many are presumably classified organizations.
- Who is an “intelligence agency” for purposes of the statute?
The following is a list of some of the intelligence agencies that are presumably included in the federal tax statute Section 6103(i)(7):
National |
|
| United States Intelligence Community Director of National Intelligence National Intelligence Council [NIC] National Counterterrorism Center (NCTC) National Counterintelligence Executive [NCIX] |
Official Official Official Official Official |
| Central Intelligence Agency | Official |
| National Security Agency | Official |
| National Reconnaissance Office | Official |
| National Geospatial-Intelligence Agency | Official |
| Defense Intelligence Agency | Official |
| Federal Bureau of Investigation | Official |
| Department of Homeland Security Office of Intelligence and Analysis | Official |
Other Defense Department |
|
| Assistant to the Secretary for Intelligence Oversight | Official |
| Under Secretary of Defense for Intelligence Under Secretary of Defense for Policy |
Official Official |
| Assistant Secretary of Defense for Networks and Information Integration | Official |
| Defense Information Systems Agency | Official |
| Defense Advanced Research Projects Agency | Official |
| Defense Protective Service | Official |
| Defense Security Service | Official |
| US Special Operations Command | Official |
| Army Army Deputy Chief of Staff for Intelligence Intelligence and Security Command |
Official Official Official |
| Navy Office of Naval Intelligence Naval Security Group Command Naval Criminal Investigative Service |
Official Official Official Official |
| Marine Corps | Official |
| Air Force Air Force Technical Applications Center Air Intelligence Agency |
Official Official Official |
Other Federal Agencies |
|
| National Security Council President’s Foreign Intelligence Advisory Board Office of National Drug Control Policy |
Official Official Official |
| Energy Department Office of Intelligence |
Official Official |
| Justice Department Justice Intelligence Coordinating Council OIG – Office of the Inspector General DEA – Drug Enforcement Administration NDIC – National Drug Intelligence Center USNCB – U.S. National Central Bureau |
Official Official Official Official Official Official Official |
| State Department INR – Bureau of Intelligence & Research INL – Bureau for International Narcotics and Law Enforcement Affairs CT – Counterterrorism Office DS – Bureau of Diplomatic Security |
Official Official Official Official Official |
| Treasury Department Office of Intelligence Support Office of the Under Secretary (Enforcement) FINCEN – Financial Crimes Enforcement FLETC – Federal Law Enforcement Training Center |
Official Official Official Official Official |
| National Archives and Records Administration Information Security Oversight Office |
Official Official |
A less secret organization is the Social Security Administration which now increasingly intersect with the work of
the IRS. Also, the Department of State now provides warnings on its Passport applications about tax consequences and requirements of social security numbers (“SSN”s).
See also how in an Application for a U.S. Passport there are now specifically references IRC Section 6039E.
Finally, see also how on the last page (page 28) of currently issued U.S. Passport (“Book“) and paragraph D that explains generally the taxation obligations of citizenship.
–
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.
Why vested Social Security Retirement Benefits are not lost when a USC or LPR sheds their citizenship or immigration status. The Answer to: What happens to social security benefits to former USCs and LPRS including a “covered expatriate”?
The law of the Social Security Act is a bit obscure for persons who are not (i..e, no longer are) U.S. citizens. It is “obscure” because the law is silent as to former U.S. citizens. For basic background, see, Social Security Retirement Benefits – for former USCs and LPRs (Intersection of U.S. Tax and Social Security Law)
While USCs have broad, largely unfettered rights to social security (including when they reside exclusively outside the United States), former USCs and LPRs fall into a different category, specifically including the tax treatment of those benefits.
Also, the U.S. Congress has imposed limitations, first under the so-called Illegal Immigration Reform and Immigrant Responsibility Act of 1996 and later by the Social Security Protection Act of 2004.
For the “Accidental American” who has spent virtually all of their lives outside the U.S. (and has never been employed by a U.S. employer), this discussion will largely be irrelevant to you as you will probably have no rights to Social Security Retirement Benefits.
However, for the former USC or LPR who falls into any of the following categories, and worked full-time for the requisite 40 quarters, they should have Social Security Retirement Benefits that are due and payable when they meet the age requirements:
- self-employed (and paid and filed self-employment tax returns – paying social security); or
- employed within the United States (even by a foreign employer); or
- employed outside the United States by a U.S. employer.
For a detailed discussion of how and when these federal employment taxes apply (including at what rates), please see “Comparative Overview of U.S. and Mexican Federal Employment Taxes,” CCH International Tax Journal, November–December 2009. Current Social Security Tax Rates, and the taxable base – contribution base (which adjusts annually) can be reviewed on the Social Security Website.
The 1996 and 2004 statutory amendments reflected above, do not modify the rights of former USCs or LPRs. They do affect the rights of individuals who were not USCs or LPRs; namely who did not have legal immigration status while working and living in the U.S.
For a detailed discussion of this part of the law, please see the Congressional Research Report of 2010 titled Social Security Benefits for Noncitizens.
The final conclusion about whether the Social Security Act restricts social security retirement benefits to “covered expatriates”, can NOT be expressly found in the statute or the regulations themselves. There is no affirmative answer in Title 42 or the regulations thereunder, regarding “covered expatriates.” It is silent on the issue and not expressly addressed.
Most importantly, throughout the Social Security Act and regulations thereunder, because of the “silence” of the statute, there are no restrictions expressly imposed on “covered expatriates” or any other former USCs or LPRs. This category of persons, “covered expatriates” is not somehow identified or segregated in the law for disparate treatment. The law provides generally that Social Security Retirement Benefits are available to non-citizens and those who no longer have LPR status; provided they meet the previous work and eligibility requirements. Shedding USC or LPR does not strip these individuals of these benefits.
While it is always hard (impossible) to “prove a negative”; our office has also received telephonic confirmation from technical support personnel of the Social Security Administration, that the above conclusion is a correct interpretation of the law.
Stay tuned to another post about how the U.S. imposes income and withholding taxes on Social Security benefits to “covered expatriates”; which is indeed different than for current USCs (and some LPRs) residing overseas.
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Social Security Retirement Benefits – for former USCs and LPRs (Intersection of U.S. Tax and Social Security Law)
The basic law of social security, regarding retirement income (not survivors or dependent’s benefits) is set out below, and does not consider those countries with a Totalization Agreement (of which there are 26 countries, 25 which are currently in force):
- Generally, a worker must have 40 quarters (which is 10 years) of “covered employment” to be eligible for Social Security retirement benefits.
- U.S. citizens have virtually no limitations imposed upon them for receiving retirement benefits, provided they have met the 40 quarters of “covered employment”.
- Covered employment largely means the individual was
- self employed in the U.S. (and paid social security taxes) or
- was working for a U.S. employer (where the actual employer was/is a U.S. corporation or otherwise a U.S. tax resident) either in or outside the U.S.; and
- the employment must generally be full time.
- Historically, there were no limits on Social Security payments to non-U.S. citizens.
- Congress then passed a law in 1956 that required non-citizens to generally reside in the U.S. to receive Social Security payments.
- Subsequently, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 added Section 202(y) to the Social Security Act. Section 202(y) of the act, which became effective for applications filed on or after December 1, 1996, states:
- Notwithstanding any other provision of law, no monthly benefit under [Title II of the Social Security Act] shall be payable to any alien in the United States for any month during which such alien is not lawfully present in the United States as determined by the Attorney General.
More details on social security retirement benefits regarding former USCs and former LPRs to come in a further post; specifically including a discussion of how the vested retirement benefits under the Social Security Act are not terminated upon a change of immigration status or loss of U.S. citizenship.
See also, What happens to social security benefits to former USCs and LPRS including a “covered expatriate”?
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Collateral Affects of Renouncing U.S. Citizenship & LPR status – U.S. Driver’s License
Renouncing USC or formally abandoning your LPR can have consequences that you may not have contemplated. For instance, many States in the United States will not issue or renew a driver’s license to a non-USC who has a certain immigration status.
As an example, Delaware will not issue a driver’s license to someone who has an A-1, A-2, B-2, B-1, or WB visa holder.
Other States, such as Texas have extensive requirements, depending upon the immigration status of the former USC or LPR.
California laws restrict many non-citizens from having a driver’s license. California does accept a Canadian passport or birth certificate as a valid document and proof of eligibility. Also a valid Mexican border crossing card (aka “laser visa”) with a valid I-94 is acceptable in California. See, California DMV.
Almost every State has a different set of unique rules. See, for instance, New Hampshire, New York, Florida, Washington State, Illinois and Washington, D.C. Illinois, for instance, has a law passed in 2013 that allows a driver’s license to be issued to an “undocumented” temporary visitor.
Washington State currently has one of the most liberal set of rules for obtaining a license; including acceptance of “multiple documents issued by: Mexican government [&] Guatemalan government”
Of course, if you are living almost exclusively outside the U.S., a driver’s license from a State within the United States, will certainly not be necessary. However, some U.S. insurance companies will not provide certain insurance coverage for non-citizens without a U.S. driver’s license. Losing your U.S. driver’s license may be little more than an inconvenience.
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