Citizenship based taxation.

[Italy999]

this might be a little bit of a longer post.

I am a US citizen, born and raised in Michigan, and I moved to Italy 15 years ago and have been living here ever since. I have recently taken up Italian citizenship while maintaining my US citizenship as both Italy and the US allow dual citizenship. The US is one of three countries in the world that taxes its citizens regardless of where in the world they live. The other two being North Korea and a small dictatorship in Africa called Eritrea. I am taxed by Italy and the US even though I have no bank accounts or property or anything in the US. My only tie to the US is my US passport. I have been thinking for quite a while about taking legal action against the federal government as this is very wrong. I am quite wealthy so I'd think I'd be able to afford the cost of a good lawyer and whatever other costs could result from a legal proceeding, in not sure how much it'd cost so if anyone has any ideas about what that would be like let me know. Yesterday while researching to my surprise I found out there has already been a Supreme Court case on the matter. The Judges ruled that US citizenship had benefits no matter where the citizen lives and therefore due to said benefits the us can tax the citizen as it pleases. This is total hogwash, my US passport has absolutely no benefits for me here in Italy, it actually creates problems for me, one of which is that many banks don't want to open accounts with US citizens as they don't want to have to do all the paper work of giving financial info to the IRS, they do this because Italy takes part in the FATCA treaty unfortunately. Anywho, would a secondary case be successful under the argument that the US citizenship does in fact NOT provide benefits to citizens resident outside of the US? Or would they come up with some other BS excuse to justify this?

 

[Zigner]

this might be a little bit of a longer post.

I am a US citizen, born and raised in Michigan, and I moved to Italy 15 years ago and have been living here ever since. I have recently taken up Italian citizenship while maintaining my US citizenship as both Italy and the US allow dual citizenship. The US is one of three countries in the world that taxes its citizens regardless of where in the world they live. The other two being North Korea and a small dictatorship in Africa called Eritrea. I am taxed by Italy and the US even though I have no bank accounts or property or anything in the US. My only tie to the US is my US passport. I have been thinking for quite a while about taking legal action against the federal government as this is very wrong. I am quite wealthy so I'd think I'd be able to afford the cost of a good lawyer and whatever other costs could result from a legal proceeding, in not sure how much it'd cost so if anyone has any ideas about what that would be like let me know. Yesterday while researching to my surprise I found out there has already been a Supreme Court case on the matter. The Judges ruled that US citizenship had benefits no matter where the citizen lives and therefore due to said benefits the us can tax the citizen as it pleases. This is total hogwash, my US passport has absolutely no benefits for me here in Italy, it actually creates problems for me, one of which is that many banks don't want to open accounts with US citizens as they don't want to have to do all the paper work of giving financial info to the IRS, they do this because Italy takes part in the FATCA treaty unfortunately. Anywho, would a secondary case be successful under the argument that the US citizenship does in fact NOT provide benefits to citizens resident outside of the US? Or would they come up with some other BS excuse to justify this?

Why don't you simply renounce your citizenship?

 

[adjusterjack]

I found out there has already been a Supreme Court case on the matter. The Judges ruled that US citizenship had benefits no matter where the citizen lives and therefore due to said benefits the us can tax the citizen as it pleases.

Cite the case decision.

 

[quincy]

Cite the case decision.

Perhaps Italy999 is referring to Cook v. Tait, 265 US 47?

https://www.law.cornell.edu/supremecourt/text/265/47

 

[Taxing Matters]

Anywho, would a secondary case be successful under the argument that the US citizenship does in fact NOT provide benefits to citizens resident outside of the US? Or would they come up with some other BS excuse to justify this?

I think that it would not succeed. The case to which you refer did not rest, as I have often seen claimed, on the idea that the citizen residing outside the United States derives some specific benefits from the government. If you read the case carefully, the court said the presumption is that the fact of citizenship itself benefits the citizen and that the constitutionality of worldwide taxation rests on the relationship of the person to the government, not the situs of the person or his property:

Or, to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal-the government having power to impose the tax.​

Cook v. Tait, 265 U.S. 47, 56, 44 S. Ct. 444, 445, 68 L. Ed. 895 (1924). In short, the court did not look to any particular benefit (and indeed did not mention a single benefit) but simply on the premise that citizenship is enough for the government to regulate its citizens beyond its borders. That case, now being nearly a century old, is well established precedent and the Supreme Court generally does not overturn such longstanding precedent absent some compelling reason to do so. Considering that the Court only hears a little over 100 cases every year, which is less than 1% of the cases in which Supreme Court review is sought I think it is a pretty safe bet that the Court is unlikely to take such a case today unless you could convince a federal appeals court to rule contrary to Cook, a circumstance that would be quite extraordinary. Note, too that the Supreme Court has in even more recent case ruled in favor of other laws in which the federal government regulates its citizens in their activity beyond the borders of the U.S. supporting the idea that citizenship alone is enough for the government to extend its reach beyond the borders of the U.S.

I am a tax lawyer but would not take this case if you came to my office. I don’t take cases that have virtually no chance to win as I see that as a waste of my client’s money and a waste of court resources. And that is my view of this one. But you might find a firm willing to take your money to try to overturn that nearly century old case. If I had to place a bet, though, I’d be taking the safer bet that suit would fail. That said, sometimes taking the real long shot bet pays off.

 

[Italy999]

I think that it would not succeed. The case to which you refer did not rest, as I have often seen claimed, on the idea that the citizen residing outside the United States derives some specific benefits from the government. If you read the case carefully, the court said the presumption is that the fact of citizenship itself benefits the citizen and that the constitutionality of worldwide taxation rests on the relationship of the person to the government, not the situs of the person or his property:

Or, to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal-the government having power to impose the tax.​

Cook v. Tait, 265 U.S. 47, 56, 44 S. Ct. 444, 445, 68 L. Ed. 895 (1924). In short, the court did not look to any particular benefit (and indeed did not mention a single benefit) but simply on the premise that citizenship is enough for the government to regulate its citizens beyond its borders. That case, now being nearly a century old, is well established precedent and the Supreme Court generally does not overturn such longstanding precedent absent some compelling reason to do so. Considering that the Court only hears a little over 100 cases every year, which is less than 1% of the cases in which Supreme Court review is sought I think it is a pretty safe bet that the Court is unlikely to take such a case today unless you could convince a federal appeals court to rule contrary to Cook, a circumstance that would be quite extraordinary. Note, too that the Supreme Court has in even more recent case ruled in favor of other laws in which the federal government regulates its citizens in their activity beyond the borders of the U.S. supporting the idea that citizenship alone is enough for the government to extend its reach beyond the borders of the U.S.

I am a tax lawyer but would not take this case if you came to my office. I don’t take cases that have virtually no chance to win as I see that as a waste of my client’s money and a waste of court resources. And that is my view of this one. But you might find a firm willing to take your money to try to overturn that nearly century old case. If I had to place a bet, though, I’d be taking the safer bet that suit would fail. That said, sometimes taking the real long shot bet pays off.

Do you think I'd have a valid argument if I tried to say that it is unconstitutional as it goes against our right to life liberty and happiness to tax us if we don't live in the us.

If that doesn't work could a court case be successful in making the government give citizens abroad benefit due to the fact they pay us taxes, like could a court case say that Medicare or Medicaid should reimburse the medical expenses of citizens abroad?

 

[Taxing Matters]

Do you think I'd have a valid argument if I tried to say that it is unconstitutional as it goes against our right to life liberty and happiness to tax us if we don't live in the us.

No, that certainy wouldn’t work. There is no right to happiness (or even a right to pursue happiness) in the Constitution; that is something found in the Declaration of Independence, which pre-dates the Constitution and is not part of the law of the United States. Nor is any liberty interest implicated here.

If that doesn't work could a court case be successful in making the government give citizens abroad benefit due to the fact they pay us taxes, like could a court case say that Medicare or Medicaid should reimburse the medical expenses of citizens abroad?

Your right to any benefit programs is established by the statutes that set up those programs; you have no Constitutional right to Medicare or Medicaid. Nor is there any direct connection to the taxes you pay and what you get back, if anything, in those benefits.

The federal tax law gives you the earned income exclusion and a credit or deduction for the foreign taxes you pay. Thus, you are not double taxed on the Italian income you have. If the Italian income tax rate is more than the U.S. tax you generally would owe no federal income tax (though quirks in the how the foreign tax credit works and differences in the tax base of the two countries might result in some U.S. tax being paid). If the U.S. tax rate is more than the Italian rate the general effect is that you just end up paying the same total amount of tax between both countries as you would pay the U.S. if it were the only one taxing it. But if you find that still to be too much a burden, you do have the option to expatriate by giving up your U.S. citizenship. You would have to pay the exit tax under IRC § 877 to ensure you don’t escape paying tax on capital gains that had built up while you were a citizen, but after that you would not longer be subject to income tax in the U.S. on any income except that income which is U.S. source. So if you truly feel like citizenship confers no benefit on you whatsoever, that would seem to be the route to take. After all, why remain a citizen of a country that provides you no benefit? There are people every year who live abroad and make that same choice to expatriate.