International Tax · Citizenship Renunciation · LPR Abandonment
International Tax Shareholder
Part II of Part II: The Gold Card – The U.S. Tax Costs – “It’s like the green card, but better and more sophisticated.”
See Part I for the background discussion, which was published more than a year ago.
This article focuses on the tax consequences of the “Trump Gold Card” program and, in particular, the implications if participation ultimately leads to U.S. citizenship (“USC”).
The final version of the Gold Card program requires a $1 million contribution to the federal government, rather than the $5 million amount initially discussed in April 2025. See the government website, The Trump Gold Card is Here.
It is also important to note that President Trump established the Gold Card program through Executive Order 14351 in September 2025. Congress did not enact the program through legislation.
The Cost of a Trump Gold Card
For a $15,000 Department of Homeland Security processing fee and, following successful background review, a $1 million contribution to the federal government, an applicant may obtain U.S. permanent residence through the Gold Card program.
Why Would an Ultra-High-Net-Worth Individual Voluntarily Enter the U.S. Tax Net?
A fundamental question arises: Why would an ultra-high-net-worth (“UHNW”) individual contribute $1 million to obtain U.S. residence and potentially U.S. citizenship, thereby becoming subject to one of the world’s most expansive tax systems?
For many individuals, acquiring U.S. citizenship or lawful permanent resident (“LPR”) status can result in exposure to:
U.S. income taxation on worldwide income;
U.S. gift taxation on worldwide transfers of property; and
U.S. estate taxation on worldwide assets at rates that currently reach 40%.
U.S. Estate and Gift Taxation of Worldwide Assets
The United States generally imposes estate and gift taxes on the worldwide assets of U.S. citizens. In addition, lawful permanent residents who are domiciled in the United States may become subject to the same worldwide transfer tax regime.
Unlike many countries, the United States generally does not permit its citizens to escape worldwide taxation simply by relocating abroad. Most U.S. income tax treaties and estate and gift tax treaties contain a “savings clause” that preserves the right of the United States to tax its citizens notwithstanding treaty provisions.[1]
U.S. Estate and Gift Taxation of Worldwide Assets
As a result, the worldwide assets of a U.S. citizen may be included in the U.S. transfer tax system under IRC §§ 2001 and 2031 (estate tax) and IRC §§ 2501 and 2511 (gift tax).
Consider a U.S. citizen who owns:
a residence in Norway;
shares of a Mexican corporation;
a bank account in Singapore;
an interest in a Liechtenstein foundation (Stiftung);
a portfolio of securities held through a London financial institution; and
an apartment in Dubai.
Subject to applicable valuation and ownership rules, each of these assets generally forms part of the individual’s worldwide taxable estate for U.S. estate tax purposes.
By contrast, a non-U.S. citizen who is not domiciled in the United States generally would not be subject to U.S. estate tax on any of these assets, unless they include U.S.-situs property such as stock issued by U.S. corporations.
The difference can be dramatic: no U.S. estate tax exposure versus potential exposure to a 40% U.S. estate tax on worldwide assets.
U.S. Income Taxation of Worldwide Income
The contrast is equally significant in the income tax context.
A nonresident generally is subject to U.S. income taxation only on limited categories of U.S.-source income and income effectively connected with a U.S. trade or business.
A U.S. citizen, however, remains subject to U.S. federal income taxation on worldwide income regardless of where the individual resides.
Consequently, a foreign entrepreneur, investor, or family office principal who acquires U.S. citizenship will find that income earned from businesses, investments, trusts, partnerships, and financial accounts throughout the world generally becomes reportable to the Internal Revenue Service and subject o U.S. income taxation.
That result raises an obvious question: if the program is available, why have so few ultra-high-net-worth individuals pursued it successfully?
The most obvious explanation is that the long-term U.S. tax consequences may outweigh the perceived immigration benefits for many globally mobile individuals.
Comparison to the EB-5 Program
Different applicants may have different motivations.
The traditional EB-5 immigrant investor program generally requires a qualifying investment that, if successful, may ultimately be recovered. The program also requires satisfaction of statutory requirements, including job creation. Approximately 200,000+/- individuals have obtained a green card through the EB-5 program. There are important unintended tax consequences that can befall individuals here: see, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware!International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9).
EB-5 Visa Applicants by Country
By contrast, the Gold Card program requires a direct contribution to the federal government.
In either case, the successful applicant receives lawful permanent resident status. However, if the Gold Card ultimately serves as a pathway to naturalized U.S. citizenship, the applicant may become subject to the unique worldwide taxation regime applicable to U.S. citizens.
The Expatriation Problem
If Gold Card holders ultimately naturalize as U.S. citizens, future departure from the U.S. tax system will necessarily become significantly more complicated.
Individuals who later seek to relinquish U.S. citizenship will necessarily face the expatriation rules of IRC § 877A and be tainted with “covered expatriate” status.
As discussed in earlier posts, covered expatriate status can have substantial long-term tax consequences for both the expatriating individual and future recipients of gifts and inheritances.
Legal Questions Surrounding the Program
The Gold Card program also raises constitutional and statutory questions.
Unlike the EB-5 program, which was enacted by Congress, the Gold Card program was created through executive action. Congress did not amend Title 8 of the United States Code to establish a new immigrant category.
Whether the Executive Branch possesses sufficient statutory authority to create such a program remains an open legal question (I am doubtful it will be sustained – if challenged) and will likely be the subject of continued litigation and judicial review.
The outcome of pending litigation involving other immigration-related executive actions may provide useful guidance regarding the scope of presidential authority in this area. We await the outcome of the latest case litigated through the courts. See, Supreme Court appears likely to side against Trump on birthright citizenship which was also issued by an executive order.
Who Truly Benefits?
Who is the ideal candidate for a Trump Gold Card? Only one person thus far has one.
For almost all HNW individuals, the immigration benefits, travel flexibility, business opportunities, and potential pathway to U.S. citizenship would rarely justify the cost. Someone with assets below US$20M might find it attractive.
For almost all others—particularly those with substantial foreign businesses, investment portfolios, trusts, and family wealth located outside the United States—the long-term consequences of worldwide U.S. income, estate, and gift taxation will almost always substantially outweigh the advantages.
As a result, any prospective applicant for a Trump Gold Card should carefully evaluate not only the immigration benefits of the program (+ the uncertainty in the law), but particularly the tax consequences that will follow for decades thereafter.
FATCA (the Foreign Account Tax Compliance Act) is a US law that went into effect on 1 January 2014. Since then, there have been an increasing number of consequences for United States citizens (USCs) and lawful permanent residents (LPRs, or green-card holders) who live overseas.
What was FATCA designed to do?
FATCA was built to bring transparency to the worldwide assets of US citizens and green-card holders. Its intended consequences include:
Identifying non-US financial, investment, and company assets held by USCs and LPRs.
Identifying the foreign financial institution (FFI) where those assets are located.
Identifying non-financial foreign entities (NFFE) owned by a USC or LPR.
Generally bringing transparency to the assets, accounts, and information about the worldwide assets of USCs and LPRs.
Much of this information gets collected through IRS forms, including Forms W-8BEN, W-8BEN-E, and W-9 used by USCs and LPRs overseas. To carry this out around the world, the US Treasury Department negotiated FATCA Intergovernmental Agreements (IGAs) with various countries.
Who was FATCA originally meant to target?
The group FATCA originally targeted was US resident individuals who were evading taxes through foreign financial institutions. The focus was on US resident taxpayers, even though the US imposes income tax on the worldwide income of US citizens living anywhere in the world. This understanding comes from extensive conversations with ex-government officials and some government officials who were involved in the original policy discussions.
What is the biggest unintended consequence of FATCA?
One of the most significant unintended consequences is that the US federal government, meaning the IRS, the Treasury Department, and Congress, never initially even contemplated USCs and LPRs living overseas. An unintended consequence is one that was never contemplated by Congress or the President when the laws were passed, nor intended by the Treasury Department as the IGAs were negotiated. The heavy compliance burden now felt by Americans and green-card holders abroad was a consequence of this kind, not part of the original plan.
Why has it been hard for the IRS to collect taxes from Americans living abroad?
For many years, the US federal government has known it can be nearly impossible to collect a tax liability against US citizens who live and hold their assets outside the United States. The Treasury Department made this point back in 1998, noting that because the United States asserts taxing jurisdiction over people with little or no connection to the country other than citizenship or status as a lawful permanent resident, overseas US taxpayers are in many cases difficult to trace or contact. Treasury added that even when valid tax assessments can be made against overseas taxpayers, the IRS has limited enforcement recourse if the taxpayer’s assets are physically located outside the United States. This appears on pages 13 to 15 of that 1998 Treasury report.
Did the early offshore disclosure programs account for people living overseas?
The original offshore voluntary disclosure initiative in 2009 never even contemplated any particular treatment for USCs or LPRs residing overseas. At that time, the US citizen or green-card holder living abroad was not on the IRS radar. The programs shifted over time:
In 2011, a new category imposed a 5% penalty for persons residing overseas who had only US$10,000 of US-source income.
As the IRS realized that millions of USCs and LPRs live somewhere other than the US, the 2014 OVDP was modified again to provide a 0% penalty in certain circumstances for these individuals.
FATCA itself was originally passed in 2010, and at that point USCs and LPRs living overseas were not the focus and barely a thought.
Are Americans living overseas now a focus of the government?
Yes. Even the Senate has started to focus on US citizens living overseas. The Senate Permanent Subcommittee on Investigations focused extensively on Swiss accounts opened by US citizens living outside the United States. Its findings appear in the report titled Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts, dated February 26, 2014.
Does TIGTA have the Answer: to the Question – How many former U.S. citizens and long-term lawful permanent residents have filed and should have filed IRS Form 8854?
The short answer to the question above – is NO!
The government does not know how many IRS Forms 8854 should have been filed.
Note the total numbers of 8854 returns filed as reported in Figure 2 of the TIGTA Report were less than 25,000 during a ten year period. This report focuses really only on former U.S. citizens (“USC”) who have renounced their citizenship. Not on lawful permanent residents (“LPRs), which during that same ten year period there were around 200,000 who filed USCIS Form I-407.
* How Many Individuals Should have Filed Form 8854?
These thresholds differ significantly from those in 2014 due to the TCJA passed in 2017.
That blog post detailed specific requirements applicable only to U.S. resident individual taxpayers:
Any USC individual (and any LPR who does not live in a country with a U.S. income tax treaty) is obligated under the U.S. federal tax law to file a federal income tax return IRS Form Form 1040 if they meet minimum thresholds of income. The thresholds are low, and are reached once the gross income is at least the sum of (i) the “exemption” amount (currently US$3,900 per exemption) and (ii) the “standard deduction” amount.
Accordingly, even if a USC or LPR has even a modest sum of “gross income”, which equates to at least US$10,000 (in whatever currency earned), the USC or LPR will probably have a U.S. tax return filing requirement.
Several significant developments have occurred since the publication of that blog post. First, the federal tax reform primarily applicable for the 2018 tax year, the The 2017 Tax Cuts and Jobs Act (TCJA), substantially altered various tax concepts. Specifically, the TCJA eliminated the concept of “personal exemptions” for the taxpayer, spouse, and dependents. These were previously used to calculate income thresholds determining whether a U.S. resident taxpayer had to file a tax return or not. However, they are no longer applicable. The standard deduction is now key to determine who is required to file.
A recent federal report from Congressional Research Service (CRS Report explains -Nov. 2023): Under the TCJA, basic standard deduction amounts in 2018 were nearly doubled to $12,000 for single filers, $18,000 for head of household filers, and $24,000 for married joint filers. These amounts were annually adjusted for inflation after 2018. In 2024, these amounts are $14,600, $21,900, and $29,200, respectfully.
Hence, for U.S. residents, the filing thresholds have increased substantially for those required to file U.S. tax returns: $14,600 for single filers, $21,900 for head of household filers, and $29,200 for married joint filers for the 2024 tax year.
Non-residents have a completely different rule as to when they are required to file U.S. non-resident tax returns (1040NR), which will be discussed in a later blog. A non-resident can have as little as say US$1,500 of income sourced from the United States and have an obligation to file a tax return. Totally different thresholds and totally different rules are applicable.
Part II: “Neither Confirm nor Deny the Existence of the TECs Database”: IRS Using the TECs Database to Track Taxpayers Movements – and Assets
Part II: This is a follow-up to the federal government’s database known as “TECS” (Treasury Enforcement Communication System)that is now operated by the Department of Homeland Security (“DHS”). The IRS uses it to track travel, trips, movement and even asset movements (e.g., wire transfers) by U.S. citizen taxpayers; including those residing outside the U.S.
This previous post described how the U.S. federal government uses the TECS to locate assets and travel patterns of U.S. citizens; specifically outside the U.S. The IRS trains their employees to (1) Not discuss TECS with taxpayers; (2) Neither confirm nor deny existence of TECS; (3) Keep in separate “Confidential” envelope; and (4) Stamp documents as “OFFICIAL USE ONLY”
The image in this post reflects a page from IRS training materials for their employees; e.g., revenue agents (those individuals who audit taxpayers and determine tax deficiencies and the like), revenue officers (those individuals who work on collecting taxes owed or alleged to be owed) and chief counsel attorneys (those individuals who litigate tax cases against taxpayers); among other IRS employees.
Frankly, there is not a lot of detailed law about how and when the IRS can use TECS or other tracking techniques of individuals and their assets. There are no tax cases (at least none that I am aware of) where the Courts have tried to impose limits on the use and methods of the federal government in collecting this type of TECS information. Indeed, there are specific provisions granting broad use of taxpayer information when the government alleges there is a “terrorist incident, threat, or activity” as that term is defined in IRC Section § 6103.
On the other hand, there are important laws about how the IRS cannot generally disclosetaxpayer information. For instance, see the same code section IRC Section § 6103 for wrongful disclosures of taxpayers’ information. That statute makes it a violation (even a criminal violation in certain willful circumstances) to disclose taxpayer information in “most” (or at least many) circumstances. The statute is comprehensive and there is a lot of case law interpreting various provisions. A good overview of the statute can be found in the Criminal Tax Manual for the Department of Justice, Tax Division – Chapter 42.00
A recent case (United States v. Garrity, 2016 U.S. Dist. LEXIS 66372 (D. Conn. 2016), discussed in Jack Townsend’s blog, was one where the IRS had disclosed the name of a deceased taxpayer Paul G. Garrity, Sr. regarding his foreign (non-U.S.) accounts. The disclosure included IRS investigation techniques that were disclosed as part of a FOIA request, which ultimately made it to the public. This was found to be disclosure of return information as defined by IRC Section § 6103. However, the Court there found that there was no violation of the statute by the IRS, as the taxpayer was deceased by the time the claim was brought by the estate. The government made a Title 31 FBAR penalty assessment of over US$1M including interest and penalties that is still pending.
It seems to me that the use of the TECS database by the IRS and Section 6103 are a bit like two heads of a coin. It all deals with taxpayer information and what rights, if any do taxpayers have to protect their personal and financial information – especially where it can (purposefully or inadvertently – e.g., through a data breach/hacking) be released to the public.
There are many unanswered questions as there has been little to no litigation regarding how and when the TECS database can and should be used.
Does the government have any limits on its use?
This ultimately becomes more of a policy discussion about how and to what extent can/should the federal government have and use and collect personal financial and travel information of individuals (particularly for tax purposes)?
Will U.S. Tax Law Regarding “Covered Expatriates” get Modified with Recent Government Push in International?
It is rare to have the President of the United States hold press conferences specifically dealing with international tax policy and tax enforcement. Nevertheless, this is what happened last week when President Obama announced his administration’s recent efforts in the field of international tax, anti-corruption and financial transparency.
The Commissioner of the Mexican IRS (SAT – Servicio de Administración Tributaria (SAT)), Mr. Aristóteles Núñez Sánchez just announced that the U.S. government is not holding up its side of the bargain under the U.S.-Mexico IGA. See, the Dec. 12, 2015 article en the national Mexican newspaper, El Universal, EU incumple entrega de informacion: SAT: Mexico ha hecho su parte, asegura Aristóteles Núñez
The article, which is in Spanish, explains that Mexico has complied with its obligations under the IGA by providing detailed information about U.S. taxpayers with accounts in Mexican financial institutions to the U.S. government. However, the U.S. government has not complied with its side of the bargain. The news report says no specific details were provided by Mr. Núñez about what type of information was provided.
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
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.
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:
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
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.
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.).
Those who do not speak English know even less about U.S. tax laws and how they apply to them.
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.
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.
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.
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.
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.
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.
U.S. District Court Flatly Denies Claims of Injury under FATCA and Title 31-FBAR Reporting Requirements: Upholds FATCA, IGAs and the FBAR Requirements to Encourage Tax Compliance and “Combat Tax Evasion”
There has been a case floating around since a complaint was filed this summer by Senator Rand Paul (current Presidential candidate) and various other current and former U.S. citizens including a Mr. Kisch who is resident in Toronto, Canada and a Mr. Crawford who lives in Albania; along with other individuals. Crawford v. United States Dep’t of the Treasury, 2015 U.S. Dist. The complaint asked for declaratory and injunctive relief.
The District Court granted neither and dismissed the case in favor of the government in a bold fashion upholding FATCA and FBAR/Title 31 reporting and information requirements. Importantly, the Court concluded by saying ” . . . The FATCA statute, the IGAs, and the FBAR requirements encourage compliance with tax laws, combat tax evasion, and deter the use of foreign accounts to engage in criminal activity. A preliminary injunction would harm these efforts and intrude upon the province of Congress and the President to determine how best to achieve these policy goals.”
Also, the tax publication/resource, Tax Analysts summarized the original complaint (which can be read in its entirety here) as follows:
The FATCA suit makes the following claims:
the IGAs are unconstitutional sole executive agreements because they exceed the scope of the president’s independent constitutional powers, and because they override FATCA;
the heightened reporting requirements for foreign financial accounts deny U.S. citizens living abroad the equal protection of the laws;
the FATCA FFI penalty, passthrough penalty, and willfulness penalty are all unconstitutional under the excessive fines clause;
FATCA’s information reporting requirements are unconstitutional under the Fourth Amendment; and
the IGAs’ information reporting requirements are also unconstitutional under the Fourth Amendment.
Not unsurprisingly, the District Court ruled in favor of the government and dismissed the majority of the claims by a finding that the parties lacked standing to bring the suit and that ” . . . The FATCA statute, the IGAs, and the FBAR requirements encourage compliance with tax laws . . .”
Some highlights of the Court’s opinion [with my emphasis added] are set out below:
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Background
A. FATCA Statute and Regulations
Congress passed the Foreign Accounts Tax Compliance Act (FATCA) in 2010 to improve compliance with tax laws by U.S. taxpayers holding foreign accounts. FATCA accomplishes this through two forms of reporting: (1) by foreign financial institutions (FFIs) about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest, 26 U.S.C. § 1471; and, (2) by U.S. taxpayers about their interests in certain foreign financial accounts and offshore assets. 26 U.S.C. § 6038D.
FATCA
President Obama signed FATCA into law on March 18, 2010. Senator Carl Levin, a co-sponsor of the FATCA legislation, declared that “offshore tax abuses [targeted by FATCA] cost the federal treasury an estimated $100 billion in lost tax revenues annually” 156 Cong. Rec. 5 S1745-01 (2010). FATCA became law as the IRS began its Offshore Voluntary Disclosure Program (OVDP), which since 2009 has allowed U.S. taxpayers with undisclosed overseas assets to disclose them and pay reduced penalties. By 2014, the OVDP collected $6.5 billion through voluntary disclosures from 45,000 participants. “IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance,” http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance (last visited Sept. 15, 2015). The success of the voluntary program has likely been enhanced by the existence of FATCA.
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C. Report of Foreign Bank and Financial Account
The third body of law at issue in this case pertains to the Report of Foreign Bank and Financial Account (FBAR) requirements. U.S. persons who hold a financial account in a foreign country that exceeds $10,000 in aggregate value must file an FBAR with the Treasury Department reporting the account. See 31 U.S.C. § 5314; 31 C.F.R. § 1010.350; 31 C.F.R. § 1010.306(c). The current FBAR form is FinCEN Form 114. The form has been due by June 30 of each year regarding accounts held during the previous calendar year. § 1010.306(c). Beginning with the 2016 tax year, the due date of the form will be April 15. Pub. L. No. 114-41, § 2006(b)(11). A person who fails to file a required FBAR may be assessed a civil monetary penalty. 31 U.S.C. § 5321(a)(5)(A). The amount of the penalty is capped at $10,000 unless the failure was willful. See 5321(a)(5)(B)(i), (C).A willful failure to file increases the maximum penalty to $100,000 or half the value in the account at the time of the violation, whichever is greater. § 5321(a)(5)(C). In either case, whether to impose the penalty and the amount of the penalty are committed to the Secretary’s discretion. See § 5321(a)(5)(A) (“The Secretary of the Treasury may impose a civil money penalty[.]”) & § 5321(a)(5)(B) (“[T]he amount of any civil penalty . . . shall not exceed” the statutory ceiling). Plaintiffs seek to enjoin enforcement of the willful FBAR penalty under § 5321(a)(5). Prayer for Relief, part Q. They also ask for an injunction against “the FBAR account-balance reporting requirement” of FinCen Form 114. Prayer for Relief, part W.
The Government asserts that the information in the FBAR assists law enforcement and the IRS in identifying unreported taxable income of U.S. taxpayers that is held in foreign accounts as well as investigating money laundering and terrorism.
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Mark Crawford decries his bank’s policy against taking U.S. citizens as clients and claims the denial of his application for a brokerage account may have “impacted Mark financially,” ¶ 21, any such harm is not fairly traceable to an action by Defendants, which are not responsible for decisions that foreign banks make about whom to accept as clients. Crawford cannot establish standing indirectly when third parties are the causes of his alleged injuries. See Shearson, 725 F.3d at 592. Moreover, his discomfort with complying with the disclosures required by FATCA, see ¶23, does not establish the concrete, particularized harm that confers standing to sue. See, e.g., Lujan, 504 U.S. at 561 (requiring “concrete and particularized” and “actual or imminent” injury). Even if Crawford fears “unconstitutionally excessive fines imposed by 31 U.S.C. § 5321 if he willfully fails to file an FBAR,” ¶ 24, there is no allegation that he failed to file any FBAR that may have been required, much less that the Government has assessed an “excessive” FBAR penalty against him. Any harm that may come his way from imagined future events is speculative and cannot form the foundation for his lawsuit.
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None of the allegations states that Kuettel is presently being harmed by FATCA or the Swiss IGA, and neither FATCA nor the IGA apply to him as a non-U.S. citizen. See ¶¶ 51-58. His assertion of past harm because he was “mostly unsuccessful” in refinancing his mortgage due to FATCA does not convey standing. If that was a harm, it was due to actions of third-party foreign banks not those of Defendants. Regardless, having now renounced his American citizenship and obtained refinancing on terms he found acceptable, any past harm is not redressable here. See Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 210-11 (1995) (“[T]he fact of past injury . . . does nothing to establish a real and immediate threat that he would again suffer similar injury in the future.” (quotation omitted)). This leaves Kuettel’s claims concerning the FBAR requirement, in Counts 3 and 6, for which the Government concedes Kuettel has standing. Response, ECF 16, at 15, PAGEID 216.
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Donna-Lane Nelson is a citizen of Switzerland who has also renounced her U.S. citizenship. ¶ 59. She alleges that her Swiss bank “notified her that she would not be able to open a new account if she ever closed her existing one because she was an American. Fearing that she would eventually not be able to bank in the country where she lived, she decided to relinquish her U.S. citizenship.” ¶ 65. After she renounced, a Swiss bank “offered investment opportunities that were not available to her as an American.” Id. She “resents having to provide” “explanations” to Swiss banks that have requested information on her past U.S. citizenship and payments to her daughter, who lives in the United States, and she sees “threats implied by these requests which appear to be prompted by FATCA.” ¶ 68. Like other Plaintiffs, Nelson does not want to disclose financial information to the Government, and she fears willful FBAR penalties, even though no such penalty has been imposed or threatened against her. ¶¶ 69, 70. Unlike the preceding Plaintiffs, however, she adds that she fears the 30% withholding tax may be imposed against her “if her business partner,” who is now her husband, and with whom she has joint accounts, “opts to become a recalcitrant account holder.” ¶
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L. Marc Zell states that he is a practicing attorney and a citizen of both the United States and Israel who lives in Israel. He alleges that: (1) he and his firm have been required by Israeli banking institutions to complete IRS withholding forms for individuals whose funds his firm holds in trust, regardless of whether the forms are legally required, causing certain clients to leave his firm, ¶¶ 79 & 81; (2) Israeli banks have required his firm to close accounts, refused to open others, and requested conduct contrary to banking regulations, ¶¶ 79-80; and, (3) the compelled disclosure of his fiduciary relationship with clients impinges on the attorney-client relationship, ¶ 82. On request of clients, who claim their rights are violated by FATCA, Zell “has decided not to comply with the FATCA disclosure requirements whenever that alternative exists.” ¶ 83. He fears that the FATCA 30% withholding tax on pass-through payments to recalcitrant account holders could be imposed due to his refusal to provide identifying information about a client to an Israeli bank. ¶ He also has refused to provide information to his own bank and “fears that he will be classified as a recalcitrant account holder,” ¶ 85. Like the other Plaintiffs, he does not want his financial information disclosed, ¶ 86, and fears an FBAR penalty if the IRS determines that he willfully failed to file an FBAR, ¶ 87.
The majority of Zell’s allegations concern conduct of Israeli banks and his belief that the actions have been unfair to him or his clients. But conduct of third parties (even if related to the banks’ compliance with FATCA) does not confer standing to bring suit against Defendants. See, e.g., Ammex Inc. v. United States, 367 F.3d 530, 533 (6th Cir. 2004). Nor may Zell seek redress on behalf of third parties who have allegedly suffered harm, including unidentified clients. See Warth v. Seldin, 422 U.S. 490, 499 (1975). The third parties who have allegedly suffered harm are not plaintiffs, thus, alleged harm to them does not provide a basis for Zell to maintain this suit. The contention that disclosure of the identity of clients for whom Zell holds funds in trust violates the attorney-client privilege is also without merit. He gives no example of harm that has occurred or how he was harmed by disclosure of clients’ identities. He cannot raise the attorney-client privilege on his clients’ behalf, nor is the fact of representation privileged. See In re Special Sept. 1978 Grand Jury (II), 640 F.2d 49, 62 (7th Cir. 1980) (“[A]ttorney-client privilege belongs to the client alone[.]”); United States v. Robinson, 121 F.3d 971, 976 (5th Cir. 1997) (“The fact of representation . . . is generally not within the privilege.”). It is the fiduciary relationship, not the attorney-client relationship, that is the basis for the reporting requirement.
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“We begin, of course, with the presumption that the challenged statute”—FATCA—“is valid. Its wisdom is not the concern of the courts; if a challenged action does not violate the Constitution, it must be sustained[.]” INS v. Chadha, 426 U.S. 919, 944 (1983); see also National Federation of Independent Business v. Sebelius 132 S. Ct. 2566, 2594 (2012) (“‘[E]very reasonable construction must be resorted to, in order to save a statute from unconstitutionality.’” (quoting Hooper v. California, 155 U.S. 648, 657 (1895))).
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Plaintiffs decry that U.S. citizens living in foreign countries are in this manner treated differently than U.S. citizens living in the United States. According to Plaintiffs, the federal government has no legitimate interest in knowing the amount of any income, gain, loss, deduction, or credit recognized on a foreign account, whether a foreign account was opened or closed during the year, or the balance of a foreign account.
Plaintiffs contend that the “heightened reporting requirements” imposed by FATCA, the FBAR information-reporting requirements, and the Canadian, Swiss, Czech, and Israeli IGAs, violate the Fifth Amendment rights of “U.S. citizens living in a foreign country” and should be enjoined. See Complaint ¶¶ 124-130
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Plaintiffs’ equal protection claims fail because the statutes, regulations, and executive agreements that they challenge simply do not make the classification they assert. None of the challenged provisions single out U.S. citizens living abroad. Instead, all Americans with specified foreign bank accounts or assets are subject to reporting requirements, no matter where they happen to live. The provisions Plaintiffs contend discriminate against “U.S. citizens living abroad” actually apply to all U.S. taxpayers, no matter their residence.
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The distinction that the regulations do make is rationally related to a legitimate governmentinterest. The U.S. tax system is based in large part on voluntary compliance: taxpayers are expected to disclose their sources of income annually on their federal tax returns. The information reporting required by FATCA is intended to address the use of offshore accounts to facilitate tax evasion, and to strengthen the integrity of the voluntary compliance system by placing U.S. taxpayers that have access to offshore investment opportunities in an equal position with U.S. taxpayers that invest within the United States. Third party information reporting is an important tool used by the IRS to close the tax gap between taxes due and taxes paid. The knowledge that financial institutions will also be disclosing information about an account encourages individuals to properly disclose their income on their tax returns. See Leandra Lederman, Statutory Speed Bumps: The Roles Third Parties Play in Tax Compliance, 60 STAN. L. REV. 695, 711 (2007).
Unlike most countries, U.S. taxpayers are subject to tax on their worldwide income, and their investments have become increasingly global in scope. Absent the FATCA reporting by FFIs, some U.S. taxpayers may attempt to evade U.S. tax by hiding money in offshore accounts where, prior to FATCA, they were not subject to automatic reporting to the IRS by FFIs. The information required to be reported, including payments made or credited to the account and the balance or value of the account is to assist the IRS in determining previously unreported income and the value of such information is based on experience from the DOJ prosecution of offshore tax evasion. See Senate Permanent Subcommittee on Investigations bipartisan report on “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts,” February 26, 2014; see also Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 29 (1974) (“when law enforcement personnel are confronted with the secret foreign bank account or the secret foreign financial institution they are placed in an impossible situation…they must subject themselves to time consuming and often times fruitless foreign legal process.”).
The FBAR reporting requirements, likewise, have a rational basis. As the Supreme Court noted in California Bankers, when Congress enacted the Bank Secrecy Act (which provides the statutory basis for the FBAR), it “recognized that the use of financial institutions, both domestic and foreign, in furtherance of activities designed to evade the regulatory mechanism of the United States, had markedly increased.” Id. at 38. The Government has a legitimate interest in collecting information about foreign accounts, including account balances held by U.S. citizens, for the same reason that it requires reporting of information on U.S.-based accounts. The information assists law enforcement and the IRS, among other things, in identifying unreported taxable income of U.S. taxpayers that is held in foreign accounts. Without FBAR reporting, the Government’s efforts to track financial crime and tax evasion would be hampered.
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In Count Six, Plaintiffs contend that the FBAR “Willfullness Penalty” is unconstitutional under the Excessive Fines Clause. Plaintiffs decry that 26 U.S.C. § 5321 imposes a penalty of up to $100,000 or 50% of the balance of the account at the time of the violation, whichever is greater, for failures to file an FBAR as required by 26 U.S.C. § 5314 (the FBAR “Willfulness Penalty”). 31 U.S.C. § 5321(b)(5)(C)(i). 31
Plaintiffs allege the Willfulness Penalty is designed to punish and is therefore subject to the Excessive Fines Clause. Plaintiffs further allege the Willfulness Penalty is grossly disproportionate to the gravity of the offense.
Plaintiffs’ Eighth Amendment claims, however, are not ripe for adjudication because no withholding or FBAR penalty has been imposed against any Plaintiff . . .
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IV. Conclusion
Plaintiffs have failed to establish that they are entitled to a preliminary injunction . . . The FATCA statute, the IGAs, and the FBAR requirements encourage compliance with tax laws, combat tax evasion,37 and deter the use of foreign accounts to engage in criminal activity. A preliminary injunction would harm these efforts and intrude upon the province of Congress and the President to determine how best to achieve these policy goals. Thus, Plaintiffs’ Motion for Preliminary Injunction, ECF 8, is DENIED.
DONE and ORDERED in Dayton, Ohio, this Tuesday, September 29, 2015.
For those U.S. citizens and lawful permanent residents residing outside the U.S. who expected the Courts to be sympathetic to their legal arguments somehow invalidating Chapter 4/FATCA and the FBAR filing requirements under Title 31, they will surely be disappointed by the result.
“Expatriation” Implies Leaving the U.S., But Many More Want to Come to the U.S.: Tax Consequences
U.S. citizens and long-term residents who are considering renouncing their citizenship or abandoning their lawful permanent residency (“LPR”) are increasingly undertaking more sophisticated life and tax planning before “taking the plunge”!
Many (in my experience – all) of these “expatriates” eventually want to be able to visit the U.S. and in some cases possibly come back to live permanently. Many simply apply for and obtain a B1/B2 visa.
This is the other “side of the coin” so to speak, since individuals contemplating coming to the U.S. often should undertake pre-immigration tax planning. One means for non-U.S. citizens to become LPRs and eventually U.S. citizens, is through the EB-5 visa program.
The next post on this site will be a complete article by Ms. Teodora Purcell explaining in more detail the EB-5 visa program and recent developments.
As to the tax implications of immigration to the U.S. (as opposed to emigration from it), I wrote the tax chapter in the latest edition of the American Immigration Lawyers Association (“AILA’s) treatise – Immigration Options for Investors & Entrepreneurs US$199.
methods of the federal government in collecting this type of TECS information. Indeed, there are specific provisions granting broad use of taxpayer information when the government alleges there is a “terrorist incident, threat, or activity” as that term is defined in 
