Immigration Law Considerations

Part II: Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?

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A post in August 2014 explained the basic rule of who is a  “long-term resident” as that technical term is defined for tax purposes in IRC Section 877 (e)(2).  There is much confusion about how the tax law defines a “lawful permanent resident” (“LPR”) versus Chart - USCs Who Renounce Compared to LPRs who Abandonhow immigration law defines what is almost the same concept.  The statutes are different and have definitions in two separate federal codes (Title 26, the federal tax provisions and Title 8, the immigration law provisions).

See   –

Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?

Posted on August 19, 2014

This follow-up comment is to highlight some key concepts about why it matters if you become a “long-term” resident as that term is defined in the tax law.

  • A LPR can reside for substantially shorter periods in the U.S. (shorter than the apparent 7 or 8 years identified in the statute), and still be a “long-term resident” per IRC Section 877 (e)(2) depending upon the facts of any particicular case.Table 4  Country of Brith of LPRs 2012

 

  • There are far more LPRs who abandon their status (formally) than U.S.  citizens who formally take the oath of renunciation.  See the table above reflecting those who have formally renounced U.S. citizenship versus those who have formally abandoned their LPR status.

 

  • Plenty of LPRs informally abandon their LPR status for immigration purposes by moving and living permanently outside the U.S.

 

 

  • There are plenty of timing issues for LPRs surrounding how and when they have “abandoned” their LPR status for purposes of IRC Section 877 (e)(2).  See –

Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card, Posted on August 15, 2015

 

 

 

Lawful Permanent Residents – Tax Law vs. Immigration Law – University of San Diego School of Law – Procopio International Tax Institute

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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 UnidosLey fiscal vs. Ley de inmigración

Speakers:  irs-form-8833

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:irs-form-1040nr-p1

  • 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.

irs-form-1040nr-p5

  • 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.I-407 New LPR Abandonment Form P1 Complete

 

See prior posts regarding how and when lawful permanent residents can be deemed to have expatriated:

IT AIN’T FAIR: First (1) taxing me as a U.S. citizen and then (2) taxing me on my relinquishment or renunciation of U.S. citizenship or LPR abandoment and further (3) taxing my children on their inheritance from me!@!@!, Oct. 25, 2015

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

Survey of the Law of Expatriation from 2002: Department of Justice Analysis (Not a Tax Discussion)

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Most discussions regarding renunciation/relinquishment of U.S. citizenship are highly focused towards the U.S. federal tax consequences.  Today, the focus is on a 2002 report prepared by the DOJ for the Solicitor General, who supervises and conducts government litigation in the United States Supreme Court.

The report is found here, and I have highlighted some key excerpts:  Survey of the Law of Expatriation: Department of Justice Analysis:World Map

You have asked us for a general survey of the laws governing loss of citizenship, a process known as “expatriation” (also known within the specific context of naturalized citizens as “denaturalization”). See, e.g.,Perkins v. Elg, 307 U.S. 325, 334 (1939) (“Expatriation is the voluntary renunciation or abandonment of nationality and allegiance.”). Part I of this memorandum provides a general description of the expatriation process. Part II notes the relative difficulty of expatriating a person on the grounds that he has either obtained naturalization in, or declared allegiance to, a foreign state, absent evidence of a specific intention to relinquish U.S. citizenship apart from the act of naturalization or declaration itself. Part III analyzes the expatriation of a person who serves in a foreign armed force
engaged in hostilities against the United States.1
*
1  Editor’s Note: The original footnote 1 has been removed in order to preserve the  confidentiality of  internal government deliberations.
* * *
*
. . . In 1868, Congress declared that “the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.” Act of July 27, 1868, ch. 249, pmbl., 15 Stat. 223, 223; see also 8 U.S.C. § 1481 note (2000) (quoting Rev. Stat. § 1999 (2d. ed. 1878), 18   Stat. pt. 1, at 350 (repl. vol.)) (same).US Citizens Who Renounced - Chart Qtr 3 - 2015
 *
That declaration further stated that “any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.” 15 Stat. at 224. Similarly, the Burlingame Treaty of 1868 between the United States and China recognized “the inherent and inalienable right of man to change his home and allegiance, and also the mutual advantage of . . . free migration and emigration . . . for purposes of curiosity, of trade, or as permanent resident s.” U.S.-China, art. 5, July 28, 1868, 16 Stat. 739, 740. Congress provided specific legislative authority for nullifying citizenship when, in 1907, it enacted the predecessor of the modern federal expatriation statute.

* * *

 *
II. Foreign Naturalization or Declaration of Foreign Allegiance
 *
Under federal law, a U.S. citizen can lose his nationality if he voluntarily “obtain[s] naturalization in a foreign state… after having attained the age of eighteen years.” 8 U.S.C. § 1481(a)(1). Likewise, a citizen of the United States could be expatriated if he voluntarily “tak[es] an oath or mak[es] an affirmation or other formal declaration of allegiance to a foreign state or a political subdivision thereof, after having attained the age of eighteen years.” Id. § 1481(a)(2). In either case, however, no loss of citizenship may result unless the citizen acts “with the intention of relinquishing United States nationality.” Id. § 1481(a).
 *
The most common obstacle to expatriation in cases involving foreign naturalization or declaration of foreign allegiance is sufficient proof of a specific intention to renounce U.S. citizenship. Intent need not be proved with direct evidence, to be sure. It can be demonstrated circumstantially through conduct.  Thus, in some cases, such as service in a hostile foreign military at war with the United States, the act of expatriation itself may even constitute “highly persuasive evidence…of a purpose to abandon citizenship.” Terrazas , 444 U.S. at 261 (quotations omitted).
*
* * *
Dual nationality, the Supreme Court has explained, is “a status long recognized
in the law.” Kawakita, 343 U.S. at 723. See also id. at 734 (“Dual nationality . . . is
the unavoidable consequence of the conflicting laws of different countries. One
who becomes a citizen of this country by reason of birth retains it, even though by
the law of another country he is also a citizen of it.”) (citation omitted); Savorgnan, 338 U.S. at 500 (although “[t]he United States has long recognized the general undesirability of dual allegiances[,] . . . [t]emporary or limited duality of citizenship has arisen inevitably from differences in the laws of the respective nations as to when naturalization and expatriation shall become effective . . .
*
For some prior related posts, see: The Semantically Driven Vortex of “Relinquishing” vs. “Renouncing”, June 21, 2014 and various posts that highlight the statutory tax rules requiring notice be provided to the IRS (which is typically emphasized by an officer at the U.S. Department of State as part of the consulate interview to renounce U.S. citizenship); Part I: Tax Timing Problems for Former U.S. Citizens is Nothing New – the IRS and the Courts Have Decided Similar Issues in the Past (Pre IRC Section 877A(g)(4)), Oct 16, 2015.

Why Most U.S. Citizens Residing Overseas Haven’t a Clue about the Labyrinth of U.S. Taxation and Bank and Financial Reporting of Worldwide Income and Assets

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This post is written simply because so many U.S. citizens residing overseas are reasonably confused about the complexity of U.S. tax law.  The mere requirement to file U.S. income tax returns for those overseas often comes as a great surprise.  My non-U.S. born wife is an exception (as she also lives outside the U.S.) simply because I have repeatedly told her for our 20 some years of marriage.  IRS Form W-7 Highlighted

Some in the IRS erroneously think U.S. citizens residing overseas do and should understand U.S. tax law.  I posed one simple scenario to a very sophisticated IRS attorney not very long ago who specializes in the FATCA rules.

Her view is (hopefully was) that U.S. citizens throughout the world know or should know the U.S. tax laws because the instructions to IRS Form 1040 are clear.

This thought knocked me off my figurative chair onto the floor!  Smack. 

My surprise is based upon my own experience working with individuals and families throughout the world, in numerous countries.  I have noticed a number of notions, based upon these andectodal experiences as follows:

  1. A minority of U.S. citizens (unless they lived most of their lives in the U.S. and recently moved overseas as an “expatriate”) have no real basic idea of how the U.S. federal tax laws work; let alone to their assets and income in their country of residence.  See USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms
  2. There are indeed plenty of immigrant U.S. residents (certainly less than 50% by my own experience – especially when concepts of PFICs and foreign tax credits start being discussed) who even understand the basics of U.S. international tax law.
  3. If they reside in an English speaking country that has relatively strong family or historical ties to the U.S. (e.g., England, Ireland, Scotland, and Canada, etc.) they are likely to have a better idea of the U.S. federal tax laws, but still the majority don’t know key concepts.  See, Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.
  4. Even those in English speaking countries that have less historical or family ties to the U.S. have a lesser understanding (e.g., New Zealand, Australia, Kenya, South Africa, India, etc.).US Passport
  5. Those who do not speak English know even less about U.S. tax laws and how they apply to them.
  6. Many individuals who learn of these requirements overseas are sometimes driven to great despair.  The message they receive is not a correct one under the law in my view: as they read IRS materials (for instance, see FAQs 5, 6 and and former 51.2 from the Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers 2014) and come to the conclusion they will soon be going to jail, criminally prosecuted or otherwise be subject to tens of thousands of dollars worth of penalties for their failure to file a range of tax forms.
  7. Literally, sometimes as a tax lawyer I feel more like a psychologist, when these individuals come to me saying they can’t sleep, they can’t eat, they are seeing a cardiologist for high blood pressure, etc. and even in a most extreme case they thought suicide was a solution.  See, How is the offshore voluntary disclosure program really working? Not well for USCs and LPRs living overseas.
  8. Individuals around the world (even tax professionals) and certainly laypeople, are not commonly reading TaxAnalysts (nor would they subscribe) or other tax professional publications that explain many of the intricacies of U.S. tax laws.
  9. Learning and understanding U.S. tax laws, including just the basics, requires a great deal of time, aptitude for nuances and details, literacy, patience and a level of aptitude for such matters that simply escape many people around the world (most I would say).  see, “PFICs” – What is a PFIC – and their Complications for USCs and LPRs Living Outside the U.S.  I can relate to this personally, as I am an international tax professional (indeed I even studied a post graduate law course outside the U.S. in a non-English language), have spent my entire professional career of more than 25 years in the area, and yet only generally have a very superficial understanding of tax laws throughout the countries where I am dealing with clients.  I don’t try to understand the details of those laws. Chart of Trends - US Citizenship Renunications Qtr 3 - 2015
  10. Many people are angry and frustrated (justifiably so, in my view, in many cases) after learning they are subject to these rules.  See comment above about being a psychologist.  Plus, USCs and LPRs residing outside the U.S. – and IRS Form 8938. In addition, see, Taxpayer Advocate Report on Burdens of Benign Taxpayers who Make Mistakes

Back to the intelligent IRS tax attorney.  My question to her was:  “Why would you, as a U.S. born individual not be reviewing the tax laws, tax forms and tax instructions of the country where your parents were born prior to immigrating to the U.S.?”  I asked:  “Are you not reviewing those laws in the original language of your parents (not English, but the other language of your parent’s country) to understand what tax forms and returns you should be filing?”

The IRS attorney’s response was:  “What:  of course, I am not reviewing such tax forms or filing information or tax laws, as I would have no tax obligations in that foreign country where I have no income, no assets or no bank or financial accounts!”

My follow-up question was a simple one:  “Don’t you realize that U.S. federal tax law (Title 26) and financial bank reporting laws (Title 31) do just that!”

“Hmm she paused: how can that be?”  I don’t recall if she said this out loud, or just said it with her puzzled expression.

The answer of course is that through citizenship (including derivative citizenship through a U.S. parent even though the child never spent a single day of residence in the U.S., let alone received any income or assets); that same individual in the mirror position as that IRS attorney is subject to a host of U.S. federal tax and financial reporting laws.  See,

Here is the big disconnect.    It’s not just among the ill-informed or those lesser educated on the fine points of law.  I had the pleasure this week along with my wife to host two educated, worldly and engaging individuals who have been married some 20 years together.  They are well read and highly educated.  Both are lawyers by training, one practices law that often pushes him fairly deeply into the tax law and his wife is a wonderful and experienced judge in the California state courts.

I asked them (as I like to ask people around the world) if they had ever heard or understood that the U.S. federal tax law imposes taxation and very detailed reporting on the worldwide income and assets of U.S. citizens who reside outside the U.S.  I discussed Civil War ImageCook v. Tait and the U.S. Civil War a bit.  See both Supreme Court’s Decision in Cook vs. Tait and Notification Requirement of Section 7701(a)(50) and The U.S. Civil War is the Origin of U.S. Citizenship Based Taxation on Worldwide Income for Persons Living Outside the U.S. ***Does it still make sense?

All of it was a great surprise to them! They were in utter shock and both are residents in the U.S., highly educated in the law and are like the vast majority of the world, including U.S. citizens who reside outside the U.S.

This is the common response for many U.S. citizens residing overseas.

Part II: C’est la vie Ms. Lucienne D’Hotelle! Tax Timing Problems for Former U.S. Citizens is Nothing New – the IRS and the Courts Have Decided Similar Issues in the Past (Pre IRC Section 877A(g)(4))

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This is Part II, a follow-on discussion of older U.S. case law and IRS rulings that address how and when individuals are subject to U.S. taxation before and after they assert they are no longer U.S. citizens.

I might point out that I am of the belief that we humans always like to hear the news we want to hear; and/or interpret it in the way we find most beneficial to us.  Who doesn’t like good news versus bad news?  Whether we (laypeople and tax lawyers alike) interpret Section 877A(g)(4) in any particular way; it is of no real consequence when it is the IRS that will enforce the law and ultimately the Department of Justice, Tax Division who will handle any such case interpreting this provision before a U.S. District Court or the Court of Federal Claims.  For those who have not litigated before these Courts and seen how aggressive are the government lawyers in advocating for the government, the following discussion will hopefully be illustrative.Europe Map

See, Part I: Tax Timing Problems for Former U.S. Citizens is Nothing New – the IRS and the Courts Have Decided Similar Issues in the Past (Pre IRC Section 877A(g)(4)), dated October 16, 2015.

The question is what is the correct date of “relinquishment of citizenship” as defined in the statute; IRC Section 877A(g)(4)?  Many argue the law cannot be applied retroactively?

However, the specific case discussed here, did just that; applied the law retroactively to determine U.S. citizenship status of an individual and corresponding tax obligations.  This was also in a time of a much simpler tax code with (i) no international information reporting requirements (e.g., IRS Forms 8938, 8858, 5471, 8865, 3520, 3520-A, 926, 8621, etc.), (ii) no Title 31 “FBAR” reporting requirements and (iii) no constant drumbeat by the IRS of international taxpayers and enforcement.  See, recent announcement by IRS on Oct. 16, 2015 (one day after tax returns were required to be filed by many) Offshore Compliance Programs Generate $8 Billion; IRS Urges People to Take Advantage of Voluntary Disclosure Programs.  However, for cautionary posts on the IRS OVDP and the deceptive numbers published (e.g., “$8 Billion”), see  posted May 10, 2014 and The 2013 GAO Report  of the IRS Offshore Voluntary Disclosure Program, International Tax Journal, CCH Wolters Kluwer, January-February 2014.   PDF version here.

Of course, the answer to this question helps determine if and when will the individual be subject to the federal tax laws of the U.S. on their worldwide income and global assets.  In the case of Ms. Lucienne D’Hotelle (an interesting 1977 appellate opinion from the firs circuit) she had spent little time in the U.S. and had sent a letter in her native language French to the U.S. Department of State, which stated “I have never considered myself to be a citizen of the United States.”  This is  not unlike many individuals around the world today;  at least as of late – in the era of FATCA, who assert they are not a U.S. citizen because they “relinquish[ed] it by the performance of certain expatriating acts with the required “intent” to give up the US citizenship” and did not notify the U.S. federal government.

The Court nevertheless found Ms. Lucienne D’Hotelle retroactively subject to U.S. income taxation on her non-U.S. source income (up until she received a certificate of loss of nationality from the Department of State); for specific years even when the immigration law provisions of the day said she was no longer a U.S. citizen during that same retroactive period.

There have been many contemporary commentators who argue an individual does not need to (i) have, (ii) do, or (iii) receive any of the following, and yet still should be able to successfully argue they have shed themselves of U.S. citizenship and hence the obligations of U.S. taxation and reporting on their worldwide income and global assets –

(i) receive a U.S. federal government issued document (e.g., a certificate of loss of nationality “CLN” per 877A(g)(4)(C)),

(ii) receive a cancelation of a naturalized citizen’s certificate of naturalization by a U.S. court (per 877A(g)(4)(D)),

(iii) provide a signed statement of voluntary relinquishment from the individual to the U.S. Department of State (per 877A(g)(4)(B)), or

(iv) provide proof of an in person renunciation before a diplomatic or consular officer of the U.S. (per  paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)), in accordance with 877A(g)(4)(C)).

Some older tax cases that interpreted similar concepts are worthy of consideration.  They will certainly be in any brief of the attorneys for the U.S. Department of Justice, Tax Division and/or Chief Counsel lawyers for the IRS in any case where the individual challenges that none of the above items are required in their particular case to avoid U.S. taxation and reporting requirements.Graph - Foreign Earned Income By Country - IRS Report

The D’Hotelle case is illustrative of the efforts taken by the Department of Justice, Tax Division in collecting U.S. income tax on a naturalized citizen.  You will notice they did not take a sympathetic approach to her case.   Ms. Lucienne D’Hotelle was born in France in 1909 and died in 1968 in France, yet the U.S. government continued to pursue collection of U.S. income taxation on her foreign source income from the Dominican Republic, France and apparently Puerto Rico even after her death during a period of time when she used a U.S. passport.  Lucienne D’Hotelle de Benitez Rexach, 558 F.2d 37 (1st Cir.1977).  She, not unlike many individuals today, claimed she was not a U.S. citizen – or at least stated “I have never considered myself to be a citizen of the United States.

Some of the particularly interesting facts relevant to Ms. D’Hotelle, a naturalized citizen, which are relevant to the question of U.S. taxation of citizens, were set forth in the appellate court’s decision as follows:

Lucienne D’Hotelle was born in France in 1909. She became Lucienne D’Hotelle de Benitez Rexach upon her marriage to Felix in San Juan, Puerto Rico in 1928. She was naturalized as a United States citizen on December 7, 1942. The couple spent some time in the Dominican Republic, where Felix engaged in harbor construction projects. Lucienne established a residence in her native France on November 10, 1946 and remained a resident until May 20, 1952. During that time s 404(b) of the Nationality Act of 19402 provided that naturalized citizens who returned to their country of birth and resided there for three years lost their American citizenship. On November 10, 1947, after Lucienne had been in France for one year, the American Embassy in Paris issued her a United States passport valid through November 9, 1949. Soon after its expiration Lucienne applied in Puerto Rico for a renewal. By this time she had resided in France for three years.

                                         * * *

On May 20, 1952, the Vice-Consul there signed a Certificate of Loss of Nationality, citing Lucienne’s continuous residence in France as having automatically divested her of citizenship under s 404(b). Her passport . . . was confiscated, cancelled and never returned to her. The State Department approved the certificate on December 23, 1952. Lucienne made no attempt to regain her American citizenship; neither did she affirmatively renounce it.

                                         * * *

Predictably, the United States eventually sought to tax Lucienne for her half of that income. Whether by accident or design, the government’s efforts began in earnest shortly after the Supreme Court invalidated *40 the successor statute4 to s 404(b). In in Schneider v. Rusk, 377 U.S. 163 (1964), the Court held that the distinction drawn by the statute between naturalized and native-born Americans was so discriminatory as to violate due process. In January 1965, about two months after this suit was filed, the State Department notified Lucienne by letter that her expatriation was void under Schneider and that the State Department considered her a citizen. Lucienne replied that she had accepted her denaturalization without protest and had thereafter considered herself not to be an American citizen.

There are other facts that make clear the government was not fond of her husband, the income that he earned and how he managed his and his wife’s assets during and after her death.  The Court also discusses at length the fact that she had used a U.S. passport during the years when she alleges she was not a U.S. citizen.  The Court goes on to analyze her U.S. citizenship, and the following discussions are illustrative of the ultimate tax consequences.

LUCIENNE’S CITIZENSHIP

The government contends that Lucienne was still an American citizen from her third anniversary as a French resident until the day the Certificate of Loss of Nationality was issued in Nice. This case presents a curious situation, since usually it is the individual who claims citizenship and the government which denies it. But pocketbook considerations occasionally reverse the roles. United States v. Matheson, 532 F.2d 809 (2nd Cir.), cert. denied 429 U.S. 823, 97 S.Ct. 75, 50 L.Ed.2d 85 (1976). The government’s position is that under either Schneider v. Rusk, supra, or Afroyim v. Rusk, 387 U.S. 253, 87 S.Ct. 1660, 18 L.Ed.2d 757 (1967), the statute by which Lucienne was denaturalized is unconstitutional and its prior effects should be wiped out. Afroyim held that Congress lacks the power to strip persons of citizenship merely *41 because they have voted in a foreign election. The cornerstone of the decision is the proposition that intent to relinquish citizenship is a prerequisite to expatriation.

12 Section 404(b) would have been declared unconstitutional under either Schneider or Afroyim. The statute is practically identical to its successor, which Schneider condemned as discriminatory. Section 404(b) would have been invalid under Afroyim as a congressional attempt to expatriate regardless of intent. Likewise it is clear that the determination of the Vice-Consul and the State Department in 1952 would have been upheld under then prevailing case law, even though Lucienne had manifested no intent to renounce her citizenship. Mackenzie v. Hare, 239 U.S. 299, 36 S.Ct. 106, 60 L.Ed. 297 (1915). Accord, Savorgnan v. United States, 338 U.S. 491, 70 S.Ct. 292, 94 L.Ed. 287 (1950). See also Perez v. Brownell, 356 U.S. 44, 78 S.Ct. 568, 2 L.Ed.2d 603 (1958), overruled, Afroyim v. Rusk, supra.

411 F.Supp. at 1293. However, the district court went too far in viewing the equities as between Lucienne and the government in strict isolation from broad policy considerations which argue for a generally retrospective application of Afroyim and Schneider to the entire class of persons invalidly expatriated. Cf. Linkletter v. Walker, supra. The rights stemming from American citizenship are so important that, absent special circumstances, they must be recognized even for years past. Unless held to have been citizens without interruption, persons wrongfully expatriated as well as their offspring might be permanently and unreasonably barred from important benefits.6 Application of Afroyim or Schneider is generally appropriate.* * *

During the interval from late 1949 to mid-1952, Lucienne was unaware that she had been automatically denaturalized.                                        

* * *

Fairness dictates that the United States recover income taxes for the period November 10, 1949 to May 20, 1952. Lucienne was privileged to travel on a United States passport; she received the protection of its government.
_
It’s quite interesting that the Court uses and focuses on fairness as to the U.S. government, more than a discussion of “fairness” to the individual.  The use of the passport seems to be an integral fact.  Here, the Court determined she was retroactively a U.S. citizen and hence subject to taxation on her worldwide income during those crucial periods (1949 through 1952) even though (1) the U.S. Department of State said she was not a U.S. citizen during that time, and (2) she stated “I have never considered myself to be a citizen of the United States.” 
_
101112 Although the government has not appealed the decision with respect to taxes from mid-1952 through 1958, the district court was presented with the issue. We wish to explain why the government should be allowed to collect taxes for the two and one-half year interval but not for the subsequent period. The letter from Lucienne to the Department of State official in 1965, which appears in English translation in the record, states that after the Certificate of Loss of Nationality, “I have never considered myself to be a citizen of the United States.” We think that in this case this letter can be construed as an acceptance and voluntary relinquishment of citizenship. We also find that in this particular case estoppel would have been proper against the United States. Although estoppel is rarely a proper defense against the government, there are instances where it would be unconscionable to allow the government to reverse an earlier position. Schuster v. Commissioner of Internal Revenue, 312 F.2d 311, 317 (9th Cir. 1962). This is one of those instances. Lucienne cannot be dunned for taxes to support the United States government during the years in which she was denied its protection. In Peignand v. Immigration and Naturalization Service, 440 F.2d 757 (1st Cir. 1971), this court refused to decide whether estoppel could apply against the government. A decision on the question was unnecessary, since the petitioner had not been led to take a course of action he would not otherwise have taken. Id. at 761. Here, Lucienne severed her ties to this country at the direction of the State Department. The right hand will not be permitted to demand payment for something which the left hand has taken away. However, until her citizenship was snatched from her, Lucienne should have expected to honor her 1952 declaration that she was a taxpayer.
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Of particular note, the Court highlighted that the Department of State (one hand) cannot take away citizenship, the individual’s passport and issue a certificate of loss of nationality (“CLN”), and the IRS (on the other hand) impose taxation for the time period after the CNL was issued.
One point of emphasis by the Court was how U.S. citizenship rights are a highly protected right; as articulated by the U.S. Supreme Court.  That high protection granted, serves to aid those individuals who defend against a government arguing they somehow ceased to be a U.S. citizen.  Of course, for those trying to escape U.S. taxation, the result is not a desired one. . . a curious situation, since usually it is the individual who claims citizenship and the government which denies it. . . “
C’est la vie Ms. Lucienne D’Hotelle!

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)

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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.TIGTA Semi Annual Report - Cover

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

The latest semi-annual report to Congress from TIGTA (published today), has a number of highlights that affect Accidental Americans and other United States Citizens (“USCs”) and lawful permanent residents (LPRs) who live principally outside the U.S.:
 *
The Internal Revenue Service Needs to Enhance Its International Collection
Efforts
 *
International tax noncompliance remains a significant area of concern for the IRS. The IRS’s collection efforts need to be enhanced to ensure that delinquent international taxpayers become compliant with their U.S. tax obligations.  Our review found that the IRS has not provided effective management oversight to international collection, contributing to several control weaknesses in the program. Most notably, international
collection does not have:
 *
• Adequate policies and procedures, position descriptions,or the training needed to ensure that international revenue officers can properly work international collection cases;
 *
• A specific inventory selection process that ensures that the international collection cases with the highest risk are worked;
 *
• Performance measures and enforcement results reported separately from domestic collection; and
 *
A process to measure the effectiveness of the Customs Hold as an enforcement tool.
 *
Customs Hold:  A notification to the Department of Homeland Security that, according to IRS records, a taxpayer owes Federal taxes. If the taxpayer should return to the United States or Commonwealth Territories without having paid the total amount due, he or she could be interviewed by a Customs and Border Protection Officer at the time of entry. The IRS will then be advised of the taxpayer’s arrival and will be provided with information enabling it to contact the taxpayer regarding payment of his or her outstanding tax liability.
 *
See pages 49 and 59 of latest semi-annual report to Congress from TIGTA (published today), April 1, 2014 –September 30, 2014.

Unplanned Expatriation: Lawful Permanent Residents’ Deportation Risks for Filing U.S. Federal False Tax Returns

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One sure way to “get expatriated” as a lawful permanent resident (even if that was not the plan) is to file a false federal tax return, statement or provide false information to the government.  U.S. citizens cannot be deported for filing false tax returns, due to Constitutional rights.  world-map.png

Kawashima vs. Holder, (2012), is a story of a Japanese family that lived legally in the U.S. with lawful permanent residency status.  According to the L.A. Times,

“Akio and Fukado Kawashima came to Southern California in 1984 as lawful Japanese immigrants determined to succeed in business. They operated popular sushi restaurants in Thousand Oaks and Tarzana and recently opened a new eatery in Encino.

But after they underreported their business income in 1991, they paid a hefty price. The Internal Revenue Service hit them with $245,000 in taxes and penalties. The couple pleaded guilty and paid in full. A decade later, the Immigration and Naturalization Service decided to deport them. . . “

The crucial mistake was the filing of a false return as defined under IRC Section 7206(1):

(1) Declaration under penalties of perjury . . . Willfully makes and subscribes any return, statement, or other document . . . made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter . . . “

The Supreme Court ruled in this case that the false return that generated a revenue loss of at least US$10,000 for the government was properly classified by the government as an “aggravated felony.”  In other words, the tax returns were materially false (which the taxpayers had plead to previously) and created an unpaid tax liability of at least US$10,000.  The Supreme Court cited the immigration law (Title 8) and found such an offense to be a violation of Section 1227(a)(2)(A)(iii) as an:

(iii) Aggravated felony

Any alien who is convicted of an aggravated felony at any time after admission is deportable.

The false tax return which created a tax liability of a relatively low threshold of US$10,000 therefore carries potentially sever consequences.Europe Map

See a prior post that briefly discusses IRC Section 7206(1), see, What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?

While most USCs residing overseas will never be concerned about deportation (which should generally not be available to the government, due to constitutional rights of the U.S. citizen) LPRs filing tax returns will indeed want to consider carefully the implications of ” . . . any [and all tax and other] return[s], statement[s], or other document[s] . . . ” submitted to the federal government.

Also, prior posts discussed the law and risks associated with filing or sending false documents, information or returns to the Internal Revenue Service (“IRS”) –

See,Take Caution when Completing a “Tax Organizer” Provided by Your Tax Return Preparer, posted July 19, 2014;

*Is the new government focus on U.S. citizens living outside the U.S. misguided or a glimpse at the new future?* posted March 6, 2014, Will the Justice Department and Criminal Investigation Division of the IRS Turn Their Sights on USCs or LPRs living Overseas? posted March 19, 2014,Asia Map - including Russia

The relevance of the Kawashima case to readers of this blog, is how a “long-term resident” may inadvertently find they will trigger the “mark-to-market” tax on their worldwide assets and later cause their U.S. beneficiaries to be subject to what is currently a 40% tax on the receipt of certain gifts and inheritances.  See, prior posts on LPR status – Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?, posted August 19, 2014.

Some prior news coverage of the Kawashima v. Holder case here:

Legal immigrants face deportation for filing false tax return

The Supreme Court rules against a couple who pleaded guilty and paid in full, saying the crime was an ‘aggravated felony’ subject to automatic deportation. Tax lawyers say the decision is ominous.

February 26, 2012|By David Savage and Catherine Saillant, Los Angeles Times