The question analyzed in the post is:
Are those who relinquished U.S. citizenship (under the U.S. Immigration and Nationality Act) PRIOR to June 16, 2008 considered to be “U.S. Tax Citizens” until they receive a CLN (Certificate of Loss of Nationality)?
To put the question in more practical terms:
Imagine you were born in the United States. Imagine you moved to Canada in 1970. Imagine further that you voluntarily became a Canadian citizen in 1975 with the intention of relinquishing U.S. citizenship. After becoming a Canadian citizen you lived your life as a Canadian citizen only. You have not believed you were a U.S. citizen. No U.S. passport, voting, etc. Are you currently subject to U.S. taxation?
This short post is to suggest that the Canada U.S. FATCA IGA can be used as an aid in interpreting the S. 877A rules to NOT be retroactive. My reasoning follows:
Part 1 – The Canada U.S. IGA
Background: You were born in the United States, live in Canada and have an account with a Canadian bank. You have been identified as a possible U.S. person.
The Canada U.S. FATCA IGA explains how Canadian financial institutions should deal with a customer with a customer with a U.S. place of birth. The language is:
Annex I – Part B – 4
Notwithstanding a finding of U.S. indicia under subparagraph B(1) of this section, a Reporting Canadian Financial Institution is not required to treat an account as a U.S. Reportable Account if: a) Where the Account Holder information unambiguously indicates a U.S. place of birth, the Reporting Canadian Financial Institution obtains, or has previously reviewed and maintains a record of: (1) A self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes (which may be on an IRS Form W-8 or other similar agreed form); (2) A non-U.S. passport or other government-issued identification evidencing the Account Holder’s citizenship or nationality in a country other than the United States; and (3) A copy of the Account Holder’s Certificate of Loss of Nationality of the United States or a reasonable explanation of: (a) The reason the Account Holder does not have such a certificate despite relinquishing U.S. citizenship; or (b) The reason the Account Holder did not obtain U.S. citizenship at birth.
The question is:
How does this language help us interpret S. 877A of the Internal Revenue Code? How does this language bear on the possible “retroactivity” of S.
Part 2 – Assuming That S. 877A is retroactive – S. 877A applies to those who relinquished citizenship prior to June 16, 2008
Under this interpretation, there would be NO purpose/reason in including the language: “(a) The reason the Account Holder does not have such a certificate despite relinquishing U.S. citizenship”.
This is because the only possible answer for NOT having a “certificate despite relinquishing U.S. citizenship” would be:
“I had a CLN. But, the dog ate my CLN”.
Which brings us to …
Part 3 – Why the language of the Canada U.S. FATCA IGA means that S. 877A of the Internal Revenue Code cannot be interpreted to apply to pre-2008 relinquishments (under S. 349(a) and other provisions of the INA)
“(a) The reason the Account Holder does not have such a certificate despite relinquishing U.S. citizenship”
This language has meaning only if it is assumed that there is a valid reason to have relinquished U.S. citizenship AND not have a CLN. The only VALID reason for not having a CLN would be if a CLN were NOT required. A CLN is NOT and has NEVER been required under the INA. Remember that all U.S. citizens have two kinds of citizenship:
1. Citizenship for Immigration and Nationality purposes (the benefits of U.S. citizenship); and
2. Tax citizenship which was created in 2004 (the burdens of U.S. citizenship).
Therefore, the Canada U.S. IGA assumes that S. 877A of the Internal Revenue Code does NOT apply retroactively. This must mean that those who relinquished U.S. citizenship under the INA PRIOR to the enactment of S. 877A (the HEART Act) are NOT affected by the provisions of the HEART Act. In people talk: You would NOT be a U.S. citizen for tax purposes.
Part 4 – Conclusion …
A. To interpret S. 877A as having retroactive effect is to interpret S. 877A in a manner that appears to be inconsistent with the text of Annex I the Canada U.S. FATCA IGA.
B. To interpret S. 877A as NOT having retroactive effect is consistent with the text of the Canada U.S. FATCA IGA.
Practical advice …
You are probably a candidate to provide the bank with a “self-certification” explaining that you are NOT a U.S. citizen and the reason why you have relinquished your U.S. citizenship. Obviously you must also provide your Canadian passport.