FATCA – Chapter 4

USCs without a Social Security Number (and a Passport) Cannot Travel to the U.S.

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Recent posts have focused on the dilemma facing U.S. citizens (USCs) who have no social security number (“SSN”).  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)?

These problems are quickly coming to the surface, now that financial institutions US Passport(“FFIs”) around the world and private companies and trusts (e.g., non-financial foreign entities -NFFEs) must have their owners and clients certify they are not U.S. citizens; OR report the accounts of such U.S. citizens to the IRS under FATCA and the intergovernmental agreements (“IGAs”).

See, U.S. Citizens Overseas who Wish to Renounce without a Social Security Number will Necessarily be a “Covered Expatriate”

The intricacies of this problem are highlighted in a technical paper I recently drafted and presented to the U.S. Treasury Department and the Joint Committee of Taxation, among other federal government groups.  Some key excerpts of that paper titled URGENT NEED FOR U.S. CITIZENS RESIDING OUTSIDE THE U.S. TO BE ABLE TO OBTAIN A TAXPAYER IDENTIFICATION NUMBER (“TIN”) OTHER THAN A SOCIAL SECURITY NUMBER are set out below in this section:

The U.S. tax law imposing taxation on the worldwide income of USCs[1] residing overseas has created a dilemma that prejudices these USCs without a SSN. This strict SSN/TIN regulatory rule undermines the basic tax administration system and discourages tax compliance for those USCs who never obtained a SSN.  This dilemma affects numerous USCs throughout the world, which is now compounded by the certification and reporting requirements of USCs and third parties, such as FFIs and NFFEs[ under the Foreign Account Tax Compliance Act (“FATCA”).

In short, USCs without a SSN, necessarily cannot be in compliance with U.S. federal tax law.  As I point out in my paper, such –

A law that cannot be complied with is surely a bad law, the same as a “ . . .law that cannot be enforced is a bad law.”[a]

[a] See, The Case Against Taxing Citizens, Reuven S. Avi-Yonah (March 31, 2010), University of Michigan School of Law, Law & Economics Working Papers.

The paper referenced above explains how difficult it is for USCs residing overseas to ever obtain a SSN.  Specifically, it explains how difficult it is to have an in-person interview at only 18 different locations around the world with a U.S. Department of State employee.  See,  12 Year Old (and Older) U.S. Citizens Residing Outside the U.S. Must Have An “In-Person” Interview in a U.S. Embassy or Consulate for SSN Application in 1 of Just 17 Posts WorldwideExpatriates US citizens renounced chart through 2014

As a USC residing somewhere around the world, you might decide to simply spend the time, money and resources to travel internationally to arrive in the U.S. to apply for a SSN directly with the Social Security Administration within the U.S.  Unfortunately, any USC is now legally prohibited from traveling in or out of the U.S. without a U.S. passport.  There are few exceptions to this general rule, none of which contemplate U.S. federal tax compliance.    See, the relevant excerpts from the white paper:

C.               Travel to the U.S. is Also Not An Option for a USC without a SSN, Due to 22 CFR § 53.1 Requiring a U.S. Passport

A possible solution to this TIN/SSN dilemma may appear to be a trip to the U.S. by the USC to apply for a SSN in the U.S. Unfortunately, this simply creates another dilemma, since the USC must have a U.S. passport to travel to the U.S.   The immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States. The relevant part of the regulations is § 53.1(a) which provides as follows:

Passport requirement; definitions.

(a) It is unlawful for a citizen of the United States, unless excepted under 22 CFR 53.2,[2] to enter or depart, or attempt to enter or depart, the United States, without a valid U.S. passport.

These regulations were first published in 2006 and unfortunately, simply create another dilemma for the USC residing overseas without a SSN. This additional dilemma is that an application[3] for a U.S. passport requires the individual have a SSN; a vicious circle back to the inability to obtain a SSN.

At the end of the day, the restrictions imposed on USCs make it legally impossible for a USC without a passport to travel to the U.S. (even if they wish they could) to obtain a SSN.

[1] See, IRC § 61 and Treas. Reg. §§ 1.1‑1(b) and 1.1‑1(a)(1)..

[2] The exceptions set forth in this regulation would not generally be applicable in the case of USCs residing overseas without a SSN.

[3] Application for a U.S. Passport – http://www.state.gov/documents/organization/212239.pdf.

WSJ: When American Expats Don’t Want Their Kids to Have U.S. Citizenship By: Chantal Panozzo

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WSJ:  When American Expats Don’t Want Their Kids to Have U.S. Citizenship
By: Chantal Panozzo (18 Feb. 2015)
A recent article this week by Ms. Chantal Panozzo in the Wall Street Journal, explains in practical terms the decisions faced by many multi-national families; typically where one parent is a U.S. citizen.  The child will typically be a U.S. citizen, as a matter of law through what is known as “derivative citizenship” as explained in prior posts (see, Famous Americans who Renounced U.S. Citizenship – Elizabeth Taylor!).
The Wall Street article uses various family scenarios around the world, with some key interviews , including the following with “Jessica” that demonstrates the choices individuals are making around the world:

Jessica, who asked that her last name not be used, says she initially looked forward to getting her infant son an American passport. But after considering the implications of American citizenship, including the possibility of her son being drafted or taxed by a country where he may never live, she and her husband decided against applying for the moment.

The article seems to imply that a U.S. citizen may be “U.S. person” for U.S. federal tax purposes, but will not need to file U.S. tax returns or report their worldwide assets, if they do not apply for a U.S. passport:
That said, U.S. citizens born abroad are technically liable for taxes even if their parents don’t register their birth with American authorities . . .
It’s probably worth clarifying, that Title 26, the federal tax law, has a clear dictate that all U.S. citizens (whether they know of their citizenship status or not) are “U.S. persons” and therefore subject to worldwide taxation and worldwide reporting of their assets.  Whether the U.S. citizen without a U.S. passport actually owe any taxes or not, is a different question.  See, How the IRS Can file a “Substitute Return” for those USCs and LPRs Residing Overseas
Every individual who is born to a parent who was a U.S. citizen must consider whether they too are a U.S. citizen as a matter of law via “derivative citizenship“; i.e., “derived” from a U.S. citizen parent.   The U.S. Citizenship and Immigration Services (USCIS) has a “Nationality Chart 1, for Children Born Outside U.S.” to help determine if the individual was a U.S. citizen at birth.  
Whether a U.S. passport is ever applied for, is irrelevant for purposes of the tax definition of who is a “U.S. person” (See, IRC Section 7701(a)(30)(A) and Treas. Reg. § 301.7701-6 Definitions; person, fiduciary); including for FATCA reporting requirements when forms and information are provided under penalty of perjury with financial institutions around the world.  See, Part 2 – Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.

Laura Saunders of the WSJ: “Record Number Gave Up U.S. Citizenship or Long-Term Residency in 2014”

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Record Number Gave Up U.S. Citizenship or Long-Term Residency in 2014: WSJ:  By, Laura Saunders (10 Feb. 2015)Expatriates US citizens renounced chart through 2014


Her most recent article has a number of excellent observations, including the following regarding an academic study of those citizens living abroad:

According to a recent survey of 1,546 U.S. citizens and former citizens living abroad, 31% of participants have actively considered renouncing their U.S. citizenship and 3% are in the process of doing so. Many who were considering the move cited increasingly onerous and intrusive financial reporting requirements. The survey was conducted between Dec. 5 and Jan. 20 by Amanda Klekowski von Koppenfels, a researcher at the University of Kent in the U.K.


For other articles written by Ms. Laura Saunders, on this related subject, see the Media:  News & Articles section –

Wall Street Journal: Expats Left Frustrated as Banks Cut Services Abroad Americans Overseas Struggle With Implications of Crackdown on Money Laundering and Tax Evasion, (The Wall Street Journal, 11 Sept 2014) By –Laura Saunders

IRS Eases Up on Accidental Tax Cheats:  Agency Lowers Some Offshore-Account Penalties, Raises Others (The Wall Street Journal, June 18, 2014), By – Liam Pleven and Laura Saunders

IRS Warns of Breach of Individual Financial Information – Bank Account Details and other FATCA Related Account Data

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This is not new news; indeed it is somewhat old and stale. It has become more relevant, however, as the exchange of financial information under FATCA is to commence in a few months in 2015.

The IRS issued a warning in September that reads in relevant part as follows:

IRS Warns Financial Institutions of Scams Designed to Steal FATCA-Related Account Data


WASHINGTON — The Internal Revenue Service today issued a fraud alert for international financial institutions complying with the Foreign Account Tax Compliance Act (FATCA). Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identity and financial account information.

The IRS does not require financial institutions to provide specific account holder identity information or financial account information over the phone or by fax or email. Further, the IRS does not solicit FATCA registration passwords or similar confidential account access information.

This statement may be a bit misleading, since the FATCA law does require specific individual account holder information be provided to the government.  It is detailed in its scope of information required; including account numbers, names of account owners, addresses of account owners, income from such accounts, taxpayer identification numbers (which means Social Security Numbers for U.S. citizens), etc.

Time will tell, how effective governments will be in maintaining their taxpayers’ information confidential; as opposed to private institutions, such as JP Morgan.  See,  JPMorgan data breach entry point identified: NYT

“Neither Confirm nor Deny the Existence of the TECs data”: IRS Using the TECs Database to Track Taxpayers Movements –

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There have been a series of previous posts that discussed the IRS and other government agencies ability to track taxpayers and their assets outside the U.S.IRS Offshore Training TECs database

See for instance, the following posts:  Should IRS use Department of Homeland Security to Track Taxpayers Overseas Re: Civil (not Criminal) Tax Matters? The IRS works with Department of Homeland Security with TECs Database to Track Movement of Taxpayers

and  Does the IRS investigate United States Citizens (USCs) and Lawful Permanent Residents (LPRs) residing overseas?

Interestingly, the release of IRS internal training manuals and materials (which were obtained through a Freedom of Information Act – FOIA – request) and includes the Power Point slide in this post, describes the TECs database and how it can be used by IRS agents regarding foreign assets and individuals as follows:

The Treasury Enforcement Communications System (TECS) is a database maintained by the Department of Homeland Security (DHS), and it is used extensively by the law enforcement community. TECS contains historical travel information such as records of commercial airline flights, border crossings, and specific dates that individuals have traveled to and from the United States.

All this information could provide you with potential leads to pursue.

For example, the discovery of where the taxpayer may hold assets or accounts or where the taxpayer conducts business. It may also assist in determining taxpayer’s residency and the credibility of taxpayer testimony. TECS may have gaps in the information captured, caution is advised. For example, it might contain incomplete information about border crossings, private plane and private boat information. It does not contain enough stand alone data to determine residency. It should be used together with other sources of information.

In addition, the IRS training materials demonstrates the secrecy of the TECs database and what steps the IRS tells their agents to take regarding the TECs database.  The following excerpt directly from the IRS “Matrix Application Training International Individual Compliance:  Basic Structures Part II:  Pre-Audit, Investigative Techniques & Statutes”

 • IRM – Covers using TECS Historical Travel Information

First and foremost, do not discuss the existence of TECS with the taxpayers. We must neither confirm nor deny the existence of TECS data.

FATCA IGA with Hong Kong Signed: U.S. Citizens and Lawful Permanent Residents Residing in or Around Hong Kong Need to Know

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Those USCs and LPRs who are living in Hong Kong or the Pacific Rim with accounts in the Hong Kong financial sector, need to be aware of the FATCA implications and the Intergovernmental Agreement (IGA) that was just signed.Hong Kong Emblem

The Hong Kong government’s press release with pictures can be viewed here.  Of course, even those not resident in Asia with accounts, investments, financial instruments and other activities such as private equity funds, will be effected by this IGA.

The U.S. Treasury had announced in May 2014 that Hong Kong had previously ” . . . reached agreements in substance and have consented to being included on this list . . . “

The Government of the Hong Kong Special Administrative Region (HKSAR) publishes facts about the financial sector that can be reviewed here:

Undoubtedly, numerous companies, entities and trusts with Hong Kong based investments, accounts, funds and financial activities will have U.S. citizen and LPR investors and be subject to reporting under the U.S.-Hong Kong IGA.Hong Kong Financial Statistics Summary
HKDTC Research provides extensive research regarding the Hong Kong banking industry, that can be found on its website here, with a summary of its size and scope here:
The U.S. Consulate in Hong Kong and Macau has a dedicated website page regarding U.S. citizens who wish to renounce their citizenship, which provides specifically for – Renunciation Appointments

OECD’s Automatic Exchange of Information – Following the U.S. Lead of FATCA – for Better or for Worse

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There has been much grumbling and lamenting around the world about the U.S. law of FATCA that went into effect in 2014.  See,  Part 1- Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.World Map

For better or worse, FATCA has become the basic model that has driven all of the large economies (some 50+ countries) to move along the same path of automatic exchange of information with countries around the world.  Recent revelations last week of Luxembourg is likely to only increase the political motivation to push forward these efforts.  See, the Guardian’s recent article, Luxembourg tax files: how tiny state rubber-stamped tax avoidance on an industrial scale, (5 Nov 2014, by Simon Bowers).

The OECD is now moving at light-speed, at least compared to the normal speed of the OECD, as its member countries have signed a ” . . . Common Reporting Standard for automatic exchange of tax information, now contained in Part II of the full version of the Standard.  On 6 May 2014, the OECD Declaration on Automatic Exchange of Information in Tax Matters was endorsed by all 34 member countries along with several nonmember countries. . . ”

See the Automatic Exchange of Information programs provided by the OECD in its website

Importantly, and most recently on October 29, 2014, ” . . . 51 jurisdictions, 39 of which were represented at ministerial level, signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Multilateral Convention. This agreement specifies the details of what information will be exchanged and when, as set out in the Standard. . . ”

Interestingly, it seems clear that the Common Reporting Standard for automatic exchange of tax information will become the future standard of automatic information.

Technology and a world wide financial sector that is globally connected throughout, allows governments around the world to make these systems possible; for better or for worse.

USCs and LPRs Who Are Having Their Non-U.S. Accounts Closed: Is it hype or is it real?

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Is it hype or is it real?

It’s difficult to know with certainty how accurate are the various claims that U.S. citizens overseas are having their accounts closed by foreign financial institutions. If it has happened to you, of course you will know it.  See for instance the following reports, just to name a few:FBAR 114 electronic

Wall Street Journal: Expats Left Frustrated as Banks Cut Services Abroad Americans Overseas Struggle With Implications of Crackdown on Money Laundering and Tax Evasion (11 Sept 2014)

Wall Street Journal – Opinion (Colleen Graffy): How to Lose Friends, Citizens and Influence; The U.S. Foreign Account Tax Compliance Act seeks to co-opt foreign banks as long-arm enforcement

Association of Americans Resident Overseas: Americans Abroad are Denied Access to Banking and Investment Opportunities

Time Magazine: Swiss Banks Tell American Expats to Empty Their Accounts

The Huffington Post (Aug 2014) – Expatriate Tax Sense or Broad-Brush Overreach: The U.S. Foreign Account Tax Compliance Act (FATCA)

The New York Times (April 2013) Overseas Finances Can Trip Up Americans Abroad


American Citizens Abroad which compiles various news accounts of accounts being closed. 

Anecdotally, I have certainly seen it in my practice, in places such as Hong Kong, London, Geneva and Zurich, but I can’t say I have seen it as a widespread practice.  Indeed, for those individuals with large investment accounts (e.g., greater than US$1M, the banks seem to accommodate, or at least require them to move their assets to their U.S. affiliate or branch).  I suspect those with smaller accounts of less than US$100,000, are seeing a broader brush stroke closing these accounts.

For good practical advice about maintaining or opening foreign accounts, I recommend you read:

American Citizens Abroad: Maintaining Bank Accounts in the United States While You Are Living AbroadRecommended steps for overseas Americans to follow  if a U.S. bank refuses either to open an account or to maintain an account because of the client’s foreign address

I can say that what I have seen in practice is a widespread plan by individuals to close foreign financial accounts and relocate the assets to a U.S. financial institution.  This is not the decision of the financial institution, but rather the individual.  The reason is not FATCA, per se, but a desire to reduce the compliance costs of filing and reporting on these foreign accounts. See,  Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.

Multiple tiers of reporting of foreign assets is now required and it can cost a small fortune to have a good international tax adviser who is aware of these reporting requirements.  See,  USCs and LPRs residing outside the U.S. – and IRS Form 8938 [Specified Foreign Financial Assets]IRS Form 8938 Specified Foreign Financial Assets - Highlighted Marker

For those with significant assets and numerous accounts, the professional fees and costs of reporting accurately these accounts can become exorbitant (especially when the risks of potentially devastating civil penalties are weighed into the mix).  See,  Why the Zwerner FBAR Case is Probably a Pyrrhic Victory for the Government – for USCs and LPRs Living Outside the U.S. (Part II)

At the end of the day, the practical affect I have seen (anecdotally) is a widespread desire to close foreign accounts and move them to the U.S.; not because of FATCA, but because of the costs and compliance and risk (more than just perceived – considering the IRS now regularly threatens large multiple year 50% willfulness penalties for those who did not file an FBAR) of being penalized by the IRS.

I find this ironic, since there is no legal restriction for a USC to hold foreign accounts and indeed a USC or LPR residing outside the U.S., will generally find it easier from a lifestyle and personal financial management perspective to have an account in their home country.  The affect, however, is that U.S. financial institutions are receiving these assets and investments.

I will post a survey this week to ask individuals if they have had their non-U.S. bank accounts closed.