When The IRS Tracks Down ‘Accidental Americans’ In France

WorldCrunch ^ | Mar 18 2018 | Staff and la Figaro

[texas booster]

French authorities agreed to help the U.S. crack down on tax evaders. But in doing so, people who just happened to be born on American soil face massive penalties and reams of red tape.

PARIS — In 1964, a happy young French couple moved to the United States. The husband had just taken a new job at IBM and his wife was expecting their first child. They spent two hectic years in this country they didn’t know, together with their little Renaud, who came into the world just a few months after they’d settled — in Poughkeepsie, New York. Then, following a transfer, the family returned to France, moving into a home near Paris.

Renaud knew that being born on the other side of the Atlantic, he had dual-citizenship. “When I was a teenager I used to show off a little to my friends, even if I didn’t know the country,” he says. But coming of age, he assumed he’d lost his American citizenship. Then, one day in 2013, his bank, HSBC, told him they’d found a “trace of Americanization” in his file.

At first, he didn’t worry too much about it, thinking it was maybe a mistake. But a few months later he discovered an astonishing transaction on an account he had with a different French bank, Caisse d’Epargne. “At that time I had almost 5,000 euros of Home Depot shares that my father had given me. In September 2013, I decided to sell them — at a loss! — and earned only about 4,100 euros. In November, I was astonished to see that the bank had canceled the entry and only re-credited 2,900 euros to my account. The difference was the $1,500 deducted at the source without my consent from the U.S. tax authorities. I was livid.”

A one-size-fits-all approach

There are several thousand people like Renaud, who are French but also “accidental Americans.” He never took the necessary steps to renounce his U.S. citizenship, so technically, he’s still a citizen of this unfamiliar country. But because he doesn’t want to file a tax return in a foreign country to which he has “no ties,” he’s also an outlaw — at least from the U.S. perspective. And as a result, he lives with the permanent danger of a tax adjustment or lawsuit — a “sword of Damocles’ hanging over his head, he says.

In the United States, taxpayer status is based on nationality, not on residence. And being a U.S. taxpayer means having to declare your income to the IRS every year, regardless of where you live or work. In 2010, Washington passed the Foreign Account Tax Compliance Act (FATCA), a piece of legislation designed to fight against tax evasion that requires banks around the world to disclose information (income, account details, etc.) on any of their U.S. clients whenever their accounts exceed $50,000. Failure to do so may result in penalties.

He lives with the permanent danger of a tax adjustment or lawsuit.

In 2013, the two countries reached a bilateral agreement making FATCA effective in France. Bi-nationals who never intended to break the law are getting singled out regardless. That’s because every American — “accidental” or not — is subject to the same rules. As such, hundreds of French people have received bank letters in recent years obliging them to regularize their situation with the U.S. tax authorities.

To say that most of them were dumbfounded is an understatement. Some people have decided to bury their heads in the sand — even if means one day having to pay back taxes or penalty fees. Others make an effort to get their paperwork in order with the help of lawyers and arrears payments.

As for those who want to relinquish their nationality, they must first regularize the past five tax years. The sums can go up quickly. Taxes paid on income in France are deducted from those claimed by the U.S. But many investments are taxable. In France, you can deduct part of your private pension contributions from your taxes, but not on the other side of the Atlantic. The tax bases also differ between the two countries, notably on things like life insurance and the sale of principal residences.

“Of course, it’s a mistake”

Marilyn knows this situation all too well. Born by chance in Georgia in 1950, from a Breton mother and a British father, she had an American passport until the 1970s. “I returned it to the embassy,” she says. “At the time, you had to choose only one nationality before you turned 25.” Then, in 2015, she received a letter from her bank asking her to give information because she is American. Of course, it’s a mistake, she assumed. But when her online bank, ING, announced that it was closing her life insurance, she realized that things were perhaps more serious than she’d thought.

Nobody at the embassy can find any record that she relinquished her U.S. citizenship. “I thought the sky had fallen on my head,” she says. So once again, she began taking the necessary steps to bring herself into compliance. As best as she could, she tried to regularize her tax situation from the last few years. That led to another bad surprise: the IRS asked her to pay several thousand dollars in taxes even though she is not liable in France, having gone through a period of unemployment. She filed a claim with the IRS and hopes to receive a prompt response. In the meantime, she cannot sell her house without having to pay a capital gains tax.

Olivier Clifford, for his part, was able to renounce his U.S. citizenship. “But it’s racketeering!” he says. Born in 1966 in Chicago — his father completed his studies as a dentist that year at Northwestern University — he spent just 13 days on American soil before returning to France. Nearly a half-century later, in 2014, his bank, Axa, contacted him with the news that they’d found “a trace of Americanness’ and gave him one month to transfer his accounts. “I felt totally helpless as if the ground was falling from under my feet,” Clifford says.

That’s when he decided to give up a nationality he’d never felt a genuine claim to in the first place. “I realize that the country only sees me as a walking piggy bank. I don’t see why I’d pay for American highways or schools when I never even used them!”

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TOPICS:
KEYWORDS: frenchirs

[texas booster]

The “one thing I did wrong: being born on American soil”

U.S. authorities then asked him to prove that he had always lived in France. “I went and dug up vaccination cards, certificates of school attendance, library cards, diplomas, etc.,” he recalls. Clifford also called on a tax consultant, who took almost a year to reconstitute his bank account history and compile his tax file, which ran 400 pages! “The total cost of this operation came to about 12,000 euros — 6,500 euros for the consultant, 3,500 euros in taxes and 2,000 euros in administrative costs. It’s a good thing I had some savings. For some French people, that means six months of wages.”

Lobbying the government

Despite his calm voice, Fabien Lehagre, 33, is arguably the angriest of all “accidental Americans.” The young man was born in Mountain View, California in December 1984, to a French father and a mother of Singaporean descent. Like others, he also found himself in “an illegal situation,” according to the U.S. tax system. He has since been going through “a long and expensive journey, all because of just one thing I did wrong: being born on American soil,” he says.

But rather than just ignore the situation or wrestle with the red tape, Lehagrehe has decided to go even further. Starting in late 2016, he got in touch with other bi-nationals in the same situation. “We wanted our voices to be heard, so I created a Facebook group to gather testimonials,” he says. “Soon there were a lot of us.”

On the page, comments pour in. “We’re sick and tired of being treated like pariahs or tax evaders,” one of the other “Accidental Americans’ wrote. Some people say their inheritance has been blocked. Others have spent thousands of euros trying to regularize their situation. Others explain how some banks refuse to take them as customers. “Just you go and try it, go to Boursorama, Hello Bank! or ING and use an American city as your birthplace,” one person wrote.

In 2017, the group established itself as a formal organization — the l’Association des Américains Accidentels (Association of Accidental Americans) — or AAA. Some of the members managed to alert the French Ombudsman, Jacques Toubon. Fabien Lehagre, meanwhile, launched an intense lobbying effort with the public authorities. A few members of Parliament have been receptive to the arguments. The ministries not so much. Senior advisors at the Ministry of Economy, at the Foreign Ministry or even at the presidential palace listen politely to their grievances but seem disinclined to act.

“They are talking about double taxation, but we mustn’t forget that they have dual citizenship,” a government source says. “It gives them rights but also obligations,” a source at the Ministry of Economy says. “This information-sharing provision was originally introduced to combat tax evasion, which is very commendable.”

Their struggle will be long and difficult.​

But things can change. The association now has the support of La République En Marche!, President Emmanuel Macron“s party, which is no small feat. In early February, the president of the group in the lower house of Parliament, Richard Ferrand, wrote Prime Minister Édouard Philippe to alert him on the issue. In his letter, he asked Philippe to “take strong diplomatic action” with the United States in order to prevent “derogatory” treatment for “Accidental Americans,” allowing them to renounce American citizenship through a “simple and free” procedure or be “exempt from American tax obligations.”

At the same time, Ferrand asked for “negotiations with French banks so that they can provide their Franco-American clients with all of their services.” According to our sources, the prime minister responded to the letter, saying that, “France will argue vigorously with the American diplomacy to obtain simplified renunciations of citizenship.”

But AAA members know that their struggle will be long and difficult. Therefore, the association is pursuing a legal strategy. Last July, its members met Régis Bismuth, a professor at the Sciences Po Law School. The legal expert worked hard throughout the summer and produced a memo laying out the flaws in the system. “FATCA raises serious issues regarding the reciprocal implementation of this commitment by the United States. Indeed, they haven’t taken the necessary internal measures to ensure that the exchange of information is equivalent,” Régis Bismuth explains.

He adds that it’s also likely to present many “inconsistencies with European Union legislation on the protection of personal data.” The association stepped into the breach and hired the law firm, Spinosi-Sureau, last October with filing a plea to the French Council of State — not against the FATCA treaty ratified by the French Parliament, but against the implementing decree. All the cards are now in the hands of the institution. It has 18 months to deliver its verdict.

[texas booster]

I posted the article about the IRS, about how 2000 Frenchmen want to have no trace of American citizenship.

Of course, Congress could solve this problem overnight. Bur they won't.

Here is the above article in the original French:

Quand le fisc américain traque les contribuables français

[ViLaLuz]

“I realize that the country only sees me as a walking piggy bank. I don’t see why I’d pay for American highways or schools when I never even used them!”
.............................................

Now you know how tax-paying Americans feel!

[Ezekiel]

Olivier Clifford, for his part, was able to renounce his U.S. citizenship. “But it’s racketeering!” he says. Born in 1966 in Chicago — his father completed his studies as a dentist...

I realize that the country only sees me as a walking piggy bank...

Plainly obvious here is that

Oliver is a taxidental American.

[MeneMeneTekelUpharsin]

I have posted repeatedly in this forum that the Federal Agencies are running the country like little warlord kingdoms. I have tired of doing so because almost no one listens. The American people are repsonsible for their own demise because they will NOT fight back. muslims, on the other hand, go nuts when any little thing is imposed on them that they do not like. Major difference.

[Fai Mao]

The US tax system for expats is equivalent to Mafia shakedown.

[texas booster]

Agreed.

From the article, more fallout from the Obama-era:

In 2010, Washington passed the Foreign Account Tax Compliance Act (FATCA), a piece of legislation designed to fight against tax evasion that requires banks around the world to disclose information (income, account details, etc.) on any of their U.S. clients whenever their accounts exceed $50,000. Failure to do so may result in penalties.

[Worldtraveler once upon a time]

---- "The US tax system for expats is equivalent to Mafia shakedown."

We've worked in a number of countries ( me more than my bride ). paid taxes to each, and receive US-taxable benefits from only one beyond these United States.

ALL tax systems are equivalent to a shakedown. Ditto for unions.

[Katydidnt]

Hello, Birth-rite citizens!
Love, IRS

[Rlsau1]

As with many things in dealing with any government anywhere, be informed, pay attention, & make an effort to follow the rules. Ignoring government entities and/or rules, regulations, etc. seldom yields good results unless one is a member of a protected class. Renouncing American citizenship may be the best solution for many.

[Merrick]

Oh, boo hoo. You love strutting around bragging about being American, but when being American has consequences... shut up.

From Wikipedia:

U.S. citizens and resident aliens abroad
In principle, United States citizens are liable to tax on their worldwide earnings, wherever they reside. However, some measures mitigate the resulting double tax liability. An individual who is a bona fide resident of a foreign country or is physically outside the United States for an extended time is entitled to an exclusion (exemption) of part or all of his earned income, i.e. personal service income, as distinguished from income from capital or investments. (See IRS form 2555.) If some income is not covered by this exclusion, foreign taxes paid on it can be claimed as a credit.

So, the real issue here is that many banks don’t want to deal with the increase reporting responsibility you represent as a customer, and when you buy/sell/trade American assets you have to follow the American rules. Boo hoo. STFU and start dealing with REAL problems like the terrorists in your streets raping your daughters. And the terrorists cutting off YOUR OIL in the Persian Gulf.

[fruser1]

If a foreign national is a citizen for being born here, they get two big perks of citizenship - taxes and, if enacted, a draft into the military.

[Merrick]

I’m sorry - exactly what are you suggesting Congress could do to “solve this problem” this overnight? Grant them tax relief? For buying and selling American assets (like the Home Depot shares in the story)? No, thanks. If I have to pay taxes for that then they do, too.

And, what exactly is the “problem” you’re referring to? I don’t see a problem.

[texas booster]

Congress has full control to define citizenship, and enact rules to manage all aspects of the birthright controversy.

The case before the Supreme Court is but one aspect of the 14th Amendment.

The point is not that I want Congress to do something, but that they have abdicated their role is setting laws regarding who is an American, who is a visitor, and who can enjoy the rights of citizenship, and the perils thereof.

The problem is not selling shares of Home Depot, that were inherited. Every country has rules about such transactions.

It is about the tendency of government to expand.

We may be seeing the creation of a one world government as we speak, based on finances and power.

Not good for Asian Indians in the one world government is in Washington.

Not good for Americans if the one world government is in Delhi.

[pierrem15]

My wife and I inherited property in Europe including a bank account with just over $10K, so we have to go through the idiocy of filing an FBAR every year.

There's no income into the account: we just use it to pay property tax and utilities in Europe.

[Merrick]

The Congress absolutely does NOT have full control to define citizenship. SCOTUS will (probably wrongly) interpret the 14th Amendment and Congress CANNOT override the Constitution (at least not without legal challenge). If they try, SCOTUS will shut them down. The ***ONLY*** way to overcome a Constitutional Amendment is with another Constitutional Amendment.

Now, they *should* absolutely do this (start the Amendment process). It probably won’t go very far, but they ought to start the process. And seeing action from Congress *will* have some affect on how SCOTUS rules. SCOTUS *does* look to Congress for their sense of law. But that’s about the limit of what Congress can do when a Constitutional Amendment is in play.

Congress can do *exceptionally* little to modify the Amendment. If SCOTUS says “birthright citizenship” in fact means being born here, no matter the circumstances, confers citizenship upon you, then Congress certainly could try to pass a bill redefining “birthright citizenship” - but it would fail IMMEDIATELY unless SCOTUS took it up again for reconsideration.

Amending the Constitution is supposed to be hard, because once it’s there it’s there. And if you think Congress can somehow undermine that then *you* are the one giving more power to Government. The Constitution is the ultimate authority conferred by *us*. You start giving Congress the ability to work around its margins and that’s where Government power grows. If you want to limit Government power, as you suggest, you shouldn’t be hoping Congress will try little tricks to undermine the 14th Amendment. You need to be hoping SCOTUS will do the right thing, and if not that Congress will start working on a 28th Amendment that more clearly defines who is and is not a citizen.

Frankly, they should be working on this Amendment anyways, because unless and until it’s more clearly defined by something more than the whims of SCOTUS it will keep coming back. But a simple bill won’t do it, and Democrats and RINOs will stop it anyways.

[Ge0ffrey]

Thank Obama.

[Brian Griffin]

“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside.”

Many babies of PRC moms never reside in any state. Mere popping out in the USA is insufficient.

The “and” is important. It means that the clause is merely retroactive as of the date of ratification.

born - past tense

naturalized - past tense

are - present (time of ratification [1868]) tense

******

Shall is normally used in the Constitution for the future tense.

Amendment X uses “are reserved”.

Reserve means “to keep back or save for future or special use”

The citizenship clause is at most a one-time (1868) grant.

******

The fact that the writers didn’t use the oft used Constitutional word “shall” matters. It was the obvious choice. It would have accomplished what they undoubtedly intended.

******

Also consider the citizenship of babies born in the USA with parents having citizenship from the country of India.

The babies can get Indian citizenship upon application, but they are not born with it.

Why does India have such a system? Probably so that babies of citizens of India don’t run afoul of the complete jurisdiction requirement.

******

“If birth in the US alone would constitute US citizenship (particularly following Wong Kim Ark of 1898), then there would have been no need for the Indian Citizenship Act (Snyder Act) of 1924.”

It would be silly to say that a baby of Mexican Apaches if popped out in hospital room in El Paso would be an American citizen under Amendment XIV but a baby of American Apaches if popped out in the adjoining hospital room would not.

[Brian Griffin]

8 U.S. Code § 1401:

The following shall be nationals and citizens of the United States at birth:
(a) a person born in the United States, and subject to the jurisdiction thereof;
....

[Merrick]

Let me make one small amendment before someone tries to argue I’m wrong on a technicality. For someone who has zero right to claim American citizenship (their parents are citizens of foreign sovereigns and they were born outside the US), Congress has the authority to define naturalization. That is 100% separate from and not the same as “birthright citizenship.” Someone with “birthright citizenship” - like *me* and *you* have our citizenship without any ability of Congress to remove via laws regarding naturalization. We are not subject to the naturalization process. For anyone subject to the naturalization process, yes, Congress has control of setting those rules.

But that’s not the issue here. The issue is, who, in addition to *you* and *me* is covered under the concept of “birthright citizenship.” If you listened to the jackass who was speaking for SCOTUSBLOG on C-SPAN right before coverage of arguments before SCOTUS started arguments in the case last week, not only does he think they are going to rule against Trump, but that the few laws Congress *has* put in place in this regard will absolutely be thrown out based on what he argues is the absolutism in the definition of “birthright citizenship.” And to unpack that a little more, Congress *has* passed laws that say things like, “surely foreign diplomats here representing their nations - and with diplomatic immunity (i.e., not subject to our jurisdiction) can’t have their children considered as birthright citizens.”

So, yeah, that’s a *real* possibility here. That even the few laws already on the books that do exactly what texas booster is suggesting here actually get thrown out as well. So, no, Congress does not have complete control here.