Is a US Citizen with Dual Nationality a “US Person” under #FATCA?


TD9809 (an update to the US FATCA regulation) which was published on Jan 6, 2016.

Page 9 and 10 contain the following:

U.S. Person:

The 2014 temporary regulations define the term U.S. person to include a person described in section 7701(a)(30), but do not specify whether a U.S. person includes a dual resident (that is, an individual who is considered a resident of the United States and also a resident of a country with which the United States has an income tax treaty). For purposes of chapter 3, a person that is a resident of a foreign country under the residence article of an income tax treaty and §301.7701(b)-7(a)(1) (which therefore includes a person that is a dual resident) is a nonresident alien individual. See §1.1441- 1(c)(3)(ii). The Treasury Department and the IRS have determined that the treatment of dual residents should be consistent in chapters 3 and 4 and that dual residents should be treated as non-U.S. persons for purposes of chapters 3 and 4. Accordingly, these final regulations revise the 2014 temporary regulations to provide that an individual will not be treated as a U.S. person for a taxable year or any portion of a taxable year that the individual is a dual resident taxpayer (within the meaning of §301.7701(b)-7(a)(1)) who is treated as a nonresident alien pursuant to §301.7701(b)-7 for purposes of computing the individual’s U.S. tax liability. Final regulations under chapter 3 published elsewhere in this issue of the Federal Register modify the definition of nonresident alien individual to provide a description of a dual resident consistent with the definition included in these final regulations (but do not change the substantive rule in chapter 3).


 

The true “legalese” is on page 105 and 106.

The term U.S. person or United States person does not include a foreign insurance company that has made an election under section 953(d) if it is a specified insurance company and is not licensed to do business in any State. An individual will not be treated as a U.S. person for a taxable year or any portion of a taxable year that the individual is a dual resident taxpayer (within the meaning of §301.7701(b)-7(a)(1) of this chapter) who is treated as a nonresident alien pursuant to §301.7701(b)-7 of this chapter for purposes of computing the individual’s U.S. tax liability. A U.S. person does not include an alien individual who has made an election under section 6013(g) or (h) to be treated as a resident of the United States.


At first, you might be forgiven for thinking that US regulators had taken the sensible step of eliminating Accident Americans (for example, those born in the USA but have never set foot there since) from the population of “Americans” reported under FATCA.

Alas, you’d be wrong….and that is a shame….

What seems to be deeply embedded in US culture and, by extension, the US tax code, is the concept that US Citizenship trumps everything. (No pun intended.)

If you have US Citizenship the only way to get away from FATCA is to renounce your Citizenship.

All the legalese I quoted above won’t help you if you have US Citizenship.

Worse still is that renouncing US Citizenship is an expensive and administrative burden.

I wish it was not so.

 


All that has happened is that a subsection of FATCA that allowed a very small population, who would otherwise be “US Persons” under FATCA, not to be “US Persons” under FATCA, has changed ever so slightly from this:

Reasonable explanation supporting claim of foreign status.

A reasonable explanation supporting a claim of foreign status for an individual means a written statement prepared by the individual (or the individual’s completion of a checklist provided by the withholding agent), stating that the individual meets one of the requirements of paragraphs (e)(4)(viii)(A) through (D).

(A) The individual certifies that he or she—
(1) Is a student at a U.S. educational institution and holds the appropriate visa;
(2) Is a teacher, trainee, or intern at a U.S. educational institution or a participant in an educational or cultural exchange visitor program, and holds the appropriate visa;
(3) Is a foreign individual assigned to a diplomatic post or a position in a consulate, embassy, or international organization in the United States; or
(4) [Reserved] For further guidance, see § 1.1471-3T(e)(4)(viii)(A)(4).
(B) The individual provides information demonstrating that he or she has not met the substantial presence test set forth in § 301.7701(b)-1(c) of this chapter (for example, a written statement indicating the number of days present in the United States during the 3-year period that includes the current year);
(C) The individual certifies that he or she meets the closer connection exception described in § 301.7701(b)-2, states the country to which the individual has a closer connection, and demonstrates how that closer connection has been established; or
(D) With respect a payment entitled to a reduced rate of tax under a U.S. income tax treaty, the individual certifies that he or she is treated as a resident of a country other than the United States and is not treated as a U.S. resident or U.S. citizen for purposes of that income tax treaty.

to this:

Reasonable explanation supporting claim of foreign status. A reasonable explanation supporting a claim of foreign status for an individual has the meaning described in §1.1441-7(b)(12).


1.1441-7(b)(12):

 (12) Reasonable explanation supporting claim of foreign status. A reasonable explanation supporting an individual’s claim of foreign status for purposes of paragraphs (b)(5) and (8) of this section means a written statement prepared by the individual or the individual’s completion of a checklist provided by the withholding agent, stating that the individual meets the requirements of one of paragraphs (b)(12)(i) through (iv) of this section.

(i) The individual certifies that he or she –

 (A) Is a student at a U.S. educational institution and holds the appropriate visa;

(B) Is a teacher, trainee, or intern at a U.S. educational institution or a participant in an educational or cultural exchange visitor program, and holds the appropriate visa;

(C) Is a foreign individual assigned to a diplomatic post or a position in a consulate, embassy, or international organization in the United States; or

(D) Is a spouse or unmarried child under the age of 21 years of one of the persons described in paragraphs (b)(12)(i)(A) through (C) of this section;

 (ii) The individual provides information demonstrating that he or she has not met the substantial presence test set forth in § 301.7701(b)-1(c)* of this chapter (e.g., a written statement indicating the number of days present in the United States during the three-year period that includes the current year);

(iii) The individual certifies that he or she meets the closer connection exception described in § 301.7701(b)-[1]2, states the country to which the individual has a closer connection, and demonstrates how that closer connection has been established; or

 (iv) With respect a payment entitled to a reduced rate of tax under a U.S. income tax treaty, the individual certifies that he or she is treated as a resident of a country other than the United States and is not treated as a U.S. resident or U.S. citizen for purposes of that income tax treaty.


 

[1]* (c) Substantial presence test –

(1) In general. An alien individual is a resident alien if the individual meets the substantial presence test. An individual satisfies this test if he or she has been present in the United States on at least 183 days during a three year period that includes the current year. For purposes of this test, each day of presence in the current year is counted as a full day. Each day of presence in the first preceding year is counted as one-third of a day and each day of presence in the second preceding year is counted as one-sixth of a day. For purposes of this paragraph, any fractional days resulting from the above calculations will not be rounded to the nearest whole number. (See § 301.7701(b)-9(b)(2) for transitional rules for calendar years 1985 and 1986.)

(2) Determination of presence –

(i) Physical presence. For purposes of the substantial presence test, an individual shall be treated as present in the United States on any day that he or she is physically present in the United States at any time during the day. (But see § 301.7701(b)-3 relating to days of presence that may be excluded.)

(ii) United States. For purposes of section 7701(b) and the regulations thereunder, the term United States when used in a geographical sense includes the states and the District of Columbia. It also includes the territorial waters of the United States and the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the United States and over which the United States has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources. It does not include the possessions and territories of the United States or the air space over the United States.

(3) Current year. The term current year means any calendar year for which an alien individual is determining his or her resident status.

(4) Thirty-one day minimum. If an individual is not physically present for more than 30 days during the current year, the substantial presence test will not be applied for that year even if the three-year total is 183 or more days. For purposes of the substantial presence test, it is irrelevant that an individual was not present for more than 30 days in the first or second year preceding the current year.


In this update to the FATCA regulation another opportunity to avoid the impact of FATCA on Accidental Americans has again been missed.

 

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