Dual Citizens At Birth: Is A Certificate Of Loss Of Nationality Really Required To Lose U.S. Citizenship For #FATCA Purposes?

July 17, 2022 - Participants Include:

 

Dr. Karen Alpert - @FixTheTaxTreaty

Dr. Laura Snyder - @TapInternation

John Richardson - @ExpatriationLaw

Background:

Those "Born In The USA"are (without a "Certificate Of Loss Of Nationality") presumed to be U.S. citizens. Once identified as "U.S. Citizens", the FATCA IGAs require U.S. citizens to provide a U.S. Social Security Number and sign a W9. The banks generally interpret their FATCA compliance obligations to mean they are required to secure this information - including the Social Security Number - from the U.S. citizen. There are many U.S. citizens who do NOT have U.S. Social Security Numbers. This combination of factors has resulted in many individuals (largely Accidental Americans with a U.S. birthplace) having problems maintaining access to financial accounts. From the perspective of the bank they are caught between:

1. Complying with their FATCA obligations which (pursuant to the FATCA IGAs) are now imposed under local law and NOT U.S. law; and

2. Whatever obligations they may have to their customers.

The legal framework between the bank and the customer has been defined by the FATCA IGAs.

 

When interpreting the legal framework it's important to understand that:

1. The IGAs require the banks to "hunt" for "suspected U.S. citizens". But who is defined as a "U.S. citizen"?

2. Section 1 ee) (page 7) of the FATCA IGAs specifies that whether someone is a U.S. citizen is determined by and only by U.S. law - specifically the Internal Revenue Code.

https://home.treasury.gov/system/files/131/FATCA-Agreement-Canada-2-5-2014.pdf

 

3. What it means to terminate U.S. citizenship under the Internal Revenue Code: Sec. 877(g)(4) of the Internal Revenue Code states that (at least for expatriating acts committed after June 16, 2008) that a Certificate Of Loss Of Nationality is required to cease to be a U.S. citizen for tax purposes. For those who were "Born In The USA" a "Certificate Of Loss Of Nationality" is required as proof of loss of U.S. citizenship.

https://www.law.cornell.edu/uscode/text/26/877A

 

4. Sec. 7701(a)(50) of the Internal Revenue Code states two things:

(A)  Generally Sec. 877A(g)(4) applies for the purposes of determining when and whether U.S. citizenship is terminated for tax purposes; and

(B) Treasury can by regulation create different rules for individuals who were dual citizens at birth. (In other words dual citizens from birth  may NOT be required to have a "Certificate Of Loss Of Nationality" to lose U.S. citizenship for tax purposes.)

https://www.law.cornell.edu/uscode/text/26/7701

 

In other words: For people born with dual citizenship, Treasury can make rules governing the termination of U.S. citizenship (for Internal Revenue Code purposes) that do NOT require a Certificate Of Loss Of Nationality and/or may or may not be tied to a specific expatriation date.

This appears to be very flexible. Treasury could do this in a number of ways. Possible example(s):

"Any individual who is a U.S. citizen with dual citizenship from birth who has  ___________________ will cease to be a U.S. tax resident _______."

Fill in the blanks.

 

 

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Full text of the statute:

 

(50)Termination of United States citizenship

(A) In general

An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).

(B)Dual citizens

Under regulations prescribed by the Secretary, subparagraph (A) shall not apply to an individual who became at birth a citizen of the United States and a citizen of another country.

https://www.law.cornell.edu/uscode/text/26/7701

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In this podcast we discuss the possible meaning of the "Dual Citizens" carveout from the general rule. Further analysis is available at:

http://citizenshipsolutions.ca/2021/06/29/a-simple-regulatory-fix-for-the-fatca-problems-of-dual-citizens-from-birth/

and here

https://threadreaderapp.com/thread/1548658858859560960.html