Can the whistle be blown against accidental Americans? First part
One of the most contentious policy issues in US international tax law is the application of US taxes to “accidental Americans”. The term is often used to describe individuals who were born in the United States and therefore became U.S. citizens at birth, moved abroad at an early age, and maintained little contact with the United States through later, but who never formally renounced their US citizenship or otherwise expatriated.
Suppose a whistleblower learns that a wealthy foreign citizen residing abroad might just be an accidentally American born in the United States. If the whistleblower provides this information to the IRS whistleblower office in a reward claim form—Form 211– Can the IRS whistleblower office deny this claim?
That was the problem in Whistleblower 15977-18W c. Commissioner, decided by the United States Tax Court in December 2021. In upholding the IRS’ denial of the request, the opinion appeared to conclude that the target’s U.S. birth certificate was not “specific and credible” indicating that the target acquired U.S. citizenship at birth. The Tax Court later noted that even assuming the target had acquired U.S. citizenship at birth, the apparent absence of a formal renouncement of U.S. citizenship by the target was not “accurate information.” and Credible” regarding the whistleblower’s assertion of the target’s continued U.S. citizenship.
This contrasts sharply with Walby vs USAwhere the United States Court of Federal Claims, in further analysis, pointed out that the birth in the United States of non-diplomatic alien parents and the absence of a formal waiver – at least in the absence of proof of both of another act of expatriation and the inapplicability of Section 7701(a)(50) of the Internal Revenue Code— made any claim of non-US citizenship from birth, for US tax purposes, “frivolous.”
In Walby, a tax protester case, the Court of Federal Claims noted the high evidentiary bar that a person born in the United States must meet in order to avoid qualifying as a United States citizen for United States tax purposes. Walby notes that under immigration law, a person cannot avoid the acquisition of United States citizenship for immigration law purposes at birth unless the person demonstrates that he or she was born in the United States. States of a foreign diplomat.
Walby also observes that if the person acquired United States citizenship at birth but never renounced their United States citizenship, they remained a United States citizen for the purposes of United States immigration law, unless certain other acts of expatriation have not taken place. For example, under 8 USC Section 1481(a)(4)(A), a person may have lost their US citizenship if they became an official of a foreign government of which they are a citizen. However, for 8 USC Section 1481(a)(4)(A) to trigger his loss of citizenship acquired at birth, Walby notes that 8 USC Section 1481(a) requires that she accepted foreign government office with the intent to renounce US citizenship.
Walby points out that under 8 USC Section 1481(b), the burden of proof to establish loss of U.S. citizenship rests with the party claiming that such loss has occurred. For example, in Kahane vs Schultz– a non-tax case in which the United States government has shown that the individual born in the United States who has become a citizen of a foreign country has voluntarily become a member of the parliament of that country, but the United States government has not, by a preponderance of evidence, demonstrated that the individual thereby intended to lose his US citizenship acquired at birth – the district court held that the US government could not treat the individual as having lost his US citizenship.
Additionally, pursuant to Section 7701(a)(50), cited in Walby, loss of U.S. citizenship for tax purposes due to prior loss of U.S. citizenship for purposes of U.S. immigration law due to 8 USC 1481(a)(4)(A), except in the measure provided in the yet-to-be-issued Treasury Regulations regarding dual nationality at birth generally require the former U.S. citizen to obtain a certificate from the U.S. Department of State confirming her previous loss of U.S. citizenship. American Bar Association Tax Section asked that the IRS concedes that expatriations described in 8 USC Section 1481(a)(4)(A) that occurred prior to June 17, 2008, are exempt from the requirement of Section 7701(a)(50 ) to obtain such a certificate. No such concession has been issued by the IRS to date.
In Walby, the Court of Federal Claims found that the individual was born in the United States, that there was no evidence that either of the individual’s parents was a diplomat, that there was no evidence that the individual had renounced his citizenship, that there was no preponderance of evidence present showing that the individual committed another act of expatriation voluntarily with the intention of expatriating himself, and, even had there hypothetically been such an act of voluntary expatriation, there was no evidence that Section 7701(a)(50) would have rendered such act ineffective to remove her status as a U.S. citizen for purposes of the American tax. Thus, the Federal Claims Court concluded that any assertion by this person that this person was not a US citizen, taxable in the United States on his worldwide income, was “frivolous”.
In Whistleblower 15977-18W, the the informant provided the IRS whistleblower bureau with a copy of the target’s US birth certificate. The informant also provided the IRS with information about the US activities of the target’s parents. Nothing in the Tax Court’s opinion indicates that the target’s parent was a foreign diplomat whose US activities would have deprived the target of US citizenship at birth.
The informant also pointed out that there was no public record, presumably including the quarterly expatriate list published by the IRS under Heading 6039G(d), that the target ever renounced US citizenship. The informant was also unable to find any public records indicating that the target had ever obtained a US Social Security number. Treasury Regulation 301.6109-1(a)(1)(ii)(A) and social security administration website state that to comply with individual IRS tax obligations, a U.S. citizen living abroad must generally obtain a Social Security number. To do this, US citizens living abroad are directed to designated US embassies or consulates.
No evidence was presented showing that after the IRS denied the whistleblower claim, the IRS proceeded against the target.
In Part II, we will delve deeper into legal approaches to whistleblowers and the potential consequences.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Alan S. Lederman is a shareholder of Gunster, Yoakley & Stewart, PA in Fort Lauderdale, Florida.
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