The Roots and Fruits of Section 6039g

• Jurisdiction: United States,Federal
• Author: By Erin L. Fraser
• Citation: Vol. 26 No. 3
• Publication year: 2017

The Roots and Fruits of Section 6039G

By Erin L. Fraser¹

Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877(a) or 877A, i.e., expatriation to avoid US tax laws) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

IRC section 6039G(d).

On April 15, 2017, thousands of Americans protested by marching in Los Angeles, Modesto, Milpitas, Oakland, Palm Springs, Redding, Sacramento, San Diego, San Francisco, San Jose, Washington, D.C., and other cities across the United States.² At issue was President Donald Trump's refusal to release his tax returns.

Others went further than "Chicken in Chief" signage. On April 18, 2017, an uncertain number privately protested by failing to pay their United States ("U.S.") Federal income tax.³ Never mind that filing annual returns is required,⁴ failure to pay the tax shown on a return incurs penalties,⁵ and willful failures to file returns or pay tax constitute a Federal crime.⁶

Then there are those thousands of Americans that have gone further still: expatriation, i.e., loss of citizenship. Since the 2010 passage of the Foreign Account Tax Compliance Act (FATCA),⁷ expatriation has generally increased.⁸ Yet 2016 was exceptional: a record 5,409 individuals renounced their citizenship.⁹ For scale, that is roughly the same number of people that expatriated over the eight years of Clinton's presidency.¹⁰

At a time when nearly one-third of Californians are in favor of secession from the U.S.,¹¹ we might rightly wonder what U.S. citizenship means in 2017. We might also wonder what motivates those that have renounced. There is one thing we need not wonder, however. That is: who are these expatriates? That question is easily answered thanks to Internal Revenue Code ("IRC") section 6039G.

I. 6039 WHAT?

For readers who rarely venture north of the income tax provisions of the IRC, the first surprise may be that section 6039G even exists. To be clear, since late 1996 the U.S. has purported to publish the name of every individual losing citizenship. Viewed objectively today, one's instinct may be to liken section 6039G to the diatribes of Twitter's most powerful user. ("You are going to walk away from America without retribution or consequence? WRONG!"¹²) Theatrics aside, expatriation clients often inquire as to the origins of and motivation for this provision. Uncertain, I dug into contemporary news articles, the Congressional Record, reports by the Joint Committee on Taxation, and other legislative history to answer these questions. This article explores what I found.

A. It Was Oh So Quiet at the Beginning

This public shaming of expatriates has its genesis in a bill introduced in April 1995 by Democratic Representative Sam Gibbons of Florida.¹³ Representative Gibbons introduced "a bill to require the Secretary of State to publish the names of United States citizens who renounce their citizenship."¹⁴ His goal was clear: "Individuals enjoying enormous tax advantages through renunciation of their U.S. citizenship should be publicly identified."¹⁵ Gibbons was the senior ranking Democrat on the powerful House Committee on Ways and Means at the time. He briefly chaired the committee immediately before the Republicans took control of the House in 1995.¹⁶

Representative Gibbons planted a seed but his 1995 bill failed to make it out of the Judiciary Committee.¹⁷ However, the Gibbons language was eventually incorporated into the more comprehensive and prominent expatriation tax-reform bill (the "Expatriation Tax Act of 1995") by Republican Representative Bill Archer of Texas, then-Chairman of the House Ways and Means Committee.¹⁸ Although Archer's bill also failed to become law,¹⁹ most of its substantive provisions (including the public shaming provision) were eventually incorporated into the Health Insurance Portability and Accountability Act ("HIPAA") of 1996.²⁰

The House Report on HIPAA is brief in its discussion of section 6039G. The expatriation provisions were included as "revenue offsets . . . to avoid increasing the budget deficit."²¹ While HIPAA did include revenue offsets when it was introduced, the initial bill did not include the expatriation tax provisions.²² The expatriation provisions may have been added during a markup session by the Committee on Ways and Means.²³ (Recall that Representative Archer, sponsor of the failed Expatriation Tax Act of 1995, was chair of the Committee at that time and Representative Gibbons was the ranking member.) The House Report justified the addition of section 6039G solely by stating "information reporting and sharing rules to enhance compliance with the expatriation tax provisions."²⁴

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The HIPAA legislative history explains how section 6039G appeared in the IRC. However, the public shaming provision is not discussed at any length, hence, the "why" of section 6039G requires further discussion.

II. WHY SHAME EXPATRIATES?

A. Gibbons's Original 1995 Bill

As later adoptions of the public shaming provision (i.e., Archer's bill and HIPAA) do not provide insight into its motivation, it is useful to review legislative history from earlier incarnations. There is a logical inference that must be drawn here. Namely, that the motivation behind Representative Gibbons's bill (which failed to pass) remained constant when the text of the bill was later picked up in Archer's bill (which also failed to pass), and eventually in HIPAA (which passed). While it is acknowledged that the late Justice Scalia would shudder if such an inference were argued as a means of statutory interpretation,²⁵ the inquiry here is one of policy.

The statement by Gibbons in April 1995 when he introduced his bill ("Individuals enjoying enormous tax advantages through renunciation of their U.S. citizenship should be publicly identified."²⁶) appears to be the only record of why a provision like section 6039G exists (other than the House conclusions that information reporting will enhance compliance).²⁷ No other member of the House seems to have been as passionate about naming expatriates, but Gibbons had sought to name expatriates repeatedly in floor speeches to the House.²⁸ Why did Gibbons have such a penchant for outing expatriates? To understand, it is useful to review the political context.

B. The Environment

The bill by Representative Gibbons was introduced amidst a nasty spell of partisan bickering over taxation of expatriates. The U.S. first enacted an expatriation tax regime in the 1960s.²⁹ By the 1990s, the regime was acknowledged as ineffective by Republicans and Democrats alike.³⁰ Hence, President Clinton proposed radical change to the expatriation tax in his 1996 budget proposal,³¹ possibly after reading an inflammatory article in Forbes magazine.³² Much debate followed, but it was clear that some major changes were afoot in the taxation of expatriates and expatriation. Meanwhile, the Democratic Party was still collectively licking its wounds in early 1995 from a bruising election cycle (the Republican Revolution, i.e., the 1994 midterm elections). Representative Gibbons, however, was hitting his stride. His "red-faced bursts of outrage" at Republicans around this time were noted in the press.³³

Gibbons was in favor of Clinton's proposed expatriation tax. His first fight over expatriate taxation seems to have come in late March 1995. During debate over an unrelated tax bill, Representative Gibbons sought to introduce an amendment that a joint reconciliation committee favor a Senate tax bill (which included an expatriation tax section and closely followed Clinton's proposal) rather than his own chamber's tax bill (which was promoted by Republicans, including Chairman Archer, and did not include any expatriation provisions).³⁴ In his speech on the floor of the House, Representative Gibbons noted that the Senate (Democratic) proposal was meant to target 12 to 24 individuals who expatriated for tax reasons, and went on to name a few of them.³⁵ The Gibbons amendment failed, the Republicans won the day, and the resulting legislation did not change the expatriation tax.³⁶ Representative Gibbons had lost the first battle but was not defeated.

A few months later, the New York Times and Gibbons accused Republican congressmen of delaying expatriation tax legislation to benefit a few wealthy individuals.³⁷ In particular, the press and Democratic congressmen were alarmed at the lobbying by one California law firm for one client with regard to one specific provision: the effective date of new expatriation tax provisions.³⁸ President Clinton and Democrats wanted to make any expatriation tax legislation retroactive to early February 1995, when it was first announced (as is common with tax legislation). They accused Republicans of pushing for a later effective date due to intense lobbying on behalf of one particular expatriate (Mr. Joseph Bogdanovich, an executive at Heinz Company), who applied for a Certificate of Loss of Nationality in mid-February 1995. Therefore, if the effective date of any new rules was early February, Mr. Bogdanovich would have been subject to additional taxation. If the Republicans changed the effective date of the legislation, Mr. Bogdanovich would be subject only to the old rules (which he had skirted effectively, we can assume).

This was the environment in which section 6039G was born. Democrats were furious over the apparent pay-to-play legislation; Representative Gibbons for one was not going to take it lying down. With this understanding, the provision's raw retaliatory nature makes more sense.

C. Sunlight Is the Best Disinfectant

Representative Gibbons and the rest of Congress knew of certain high-profile expatriates because of press reports. Evidently not satisfied with relying on the press to expose tax-dodging expatriates...