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providing for retroactive effective dates for tax laws "confined to short and limited periods required by the practicalities of producing national legislation." 114 S.Ct. at 2024. Moreover, Justice Blackmun noted that Carlton involved a retroactive correction to a deduction provision that was inadvertently drafted to have broad consequences not contemplated by Congress (and a revenue cost over 20 times greater than anticipated the previous year), and Congress acted reasonably in deciding to prevent the revenue loss by "denying the deduction to those who made purely tax-motivated stock transfers." 114 S.Ct. at 2022.172

Retroactive application of the expatriation tax proposals would clearly be distinguishable from the situation in Carlton and other Supreme Court decisions upholding retroactive tax changes, which all have involved a "modest period of retroactivity" of about a year and relatively minor adjustments, such as a tax rate change or a corrective measure to an existing statutory scheme. As Justice O'Connor noted in her separate concurring opinion in Carlton, a tax provision made retroactively effective for more than a year prior to the legislative session in which the law was originally enacted would raise "serious constitutional questions." 114 S.Ct. at 2026.173 Moreover, Justice O'Connor suggested that even a limited period of retroactivity would be problematic when the Government is enacting fundamental tax law changes: "The governmental interest in revising the tax laws must at some point give way to the taxpayer's interest in finality and repose. For example, a 'wholly new tax' cannot be imposed retroactively." 114 S.Ct. at 2025. See also Wiggins v. Commissioner, 904 F.2d 311, 314 (5th Cir. 1989)(and cases cited therein) (distinguishing retroactive application of rate changes or corrective measures from retroactive imposition of a "wholly new tax"). Thus, in contrast to the situation in Carlton, the expatriation tax proposals could present far more serious constitutional problems because the retroactive effects could potentially reach back for many years and would have the drastic effect of pulling some persons back into the jurisdiction of the U.S. tax system-a far more significant retroactive change than a mere rate increase or denial of a deduction. The retroactive effects of the proposals would also have the effect of subjecting persons who have been outside the jurisdiction of the U.S. tax system to the novel deemed sale rule that would tax otherwise unrealized gains. To use

172 Although the Carlton decision used the traditional rational-basis test rather than a formulation which asked whether the retroactive law was "harsh and oppressive" (as some courts had done in the past), Justice Blackmun stated that the standards were identical. While some commentators have read Carlton as, in theory, lowering the threshold for testing the constitutionality of retroactive tax changes by giving little weight to the taxpayer's alleged detrimental reliance on the pre-amendment version of section 2057, other commentators have noted that Carlton reflects the Supreme Court's use of a modified balancing approach, more exacting than that used for prospective aspects of economic legislation, to determine the validityof retroactive tax changes. See, e.g., Comment, "The Supreme Court-Leading Cases," 108 Harv. L. Rev. 139, 229 (1994)("Although the Court's rational basis focus on the legislature prevents the searching review that could come with an emphasis on the taxpayer's hardships, the reasoning of Carlton does produce a somewhat more stringent process of scrutiny for retroactive than for prospective legislation."); CRS Report for Congress, supra, at 9 (The approach taken in Carlton "suggests that while the Court is likely to give Congress (or a state legislature) considerable latitude in its choice of legislative remedies to implement revenue policies, it will still make its own evaluation whether the choice of a retroactive tax increase was reasonable in the light of other possible legislative alternatives.")

173 In another separate concurring opinion, Justices Scalia and Thomas took the position that no tax or economic legislation should be subject to judicial review under the so-called “substantive due process" standard.

Justice O'Connor's words, it is difficult to imagine taxpayers' "interest in finality and repose" being any stronger than with respect to the fundamental issue of whether or not they are beyond the jurisdiction of the tax system because they have ceased to be a U.S. citizen for all legal purposes.

In determining whether retroactive economic legislation violates the Fifth Amendment, the Supreme Court has not established a set formula for identifying an improper "taking," but has relied instead on "ad hoc, factual inquiries into the circumstances of each particular case." Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 224 (1986). Čonsequently, it is difficult to predict with certainty which possible fact patterns could lead to a court holding that retroactive application of the expatriation tax proposals would be unconstitutional. However, it is significant that retroactive application of tax legislation to noncitizens as provided for by the expatriation tax proposals (regardless of the period of retroactivity or the amount of revenue involved) would seem to conflict with the rationale put forth in Carlton for why retroactive imposition of tax changes does not necessarily infringe upon due process. In Carlton, Justice Blackmun quoted with approval from the Court's earlier holding in Welch v. Henry, 305 U.S. 134, 146-47 (1938), where the Court stated:

Taxation is neither a penalty imposed on the taxpayer nor
a liability which he assumes by contract. It is but a way
of apportioning the cost of government among those who
bear its burdens. Since no citizen enjoys immunity from
that burden, its retroactive imposition does not necessarily
infringe due process.

This rationale highlights the fundamental unfairness of retroactively deeming persons to be U.S. citizens for tax persons-such persons have not had the benefits of citizenship, nor should they be apportioned the burdens of the cost of the U.S. Government, with respect to periods when, in fact, they were not U.S. citizens by operation of longstanding laws.

3. International human rights issues

The expatriation tax proposals provide special tax rules that would come into play when individuals renounce their U.S. citizenship or when certain long-term residents of the United States terminate their residency. Consequently, some observers have labeled the proposals as being "exit taxes" and have suggested that the proposals may conflict with rights to emigrate or expatriate recognized under international law. This section discusses the implications of the proposals under principles of international law.

General rules

A number of international agreements and statements of international law 174 recognize the right to emigrate as a fundamental

174 The generally recognized sources of international law include: (1) international conventions, whether general or particular, establishing rules expressly recognized by the contesting states; (2) international custom, as evidence of a general practice accepted as law; (3) the general principles of law recognized by civilized nations; and (4) judicial decisions and teachings of the most highly qualified publicists of the various nations. Statute of the International Court Continued

human right. The most widely recognized statement of the right to emigrate appears in Article 12 of the International Covenant on Civil and Political Rights ("International Covenant"), which states (in part):

2. Everyone shall be free to leave any country, including
his own.

3. The above-mentioned rights shall not be subject to any
restrictions except those which are provided by law, are
necessary to protect national security, public order (ordre
public), public health or morals or the rights and freedoms
of others, and are consistent with the other rights recog-
nized in the present Covenant. 175

In addition, the Universal Declaration of Human Rights (“Universal Declaration"), adopted by the United Nations General Assembly on December 10, 1948, recognizes both a right to physically leave, so-called "emigration," and a right to relinquish citizenship, so-called "expatriation." Article 13(2) of the Universal Declaration provides: "Everyone has the right to leave any country, including his own, and to return to his country." Article 15(2) of the Universal Declaration provides: "No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality." 176 The right to emigrate and the right to expatriate are theoretically distinct. 177 International law provisions and commentary focus on the right to emigrate (that is, the right to change one's residence) and not on the right to expatriate (that is, the right to change one's citizenship). Some commentators view the right to expatriate as being "somewhat less well protected" than the right to emigrate, and some even question whether the right to expatriate should be considered to be part of customary international law. 178 Moreover, the precise binding nature of the various international declarations and covenants (and their enforceability in particular settings) is debatable.179 Nonetheless, what matters most for present purposes is that the United States officially recognizes both

of Justice art 38, entered into force Oct. 24, 1945, 1977 U.N.Y.B. 1190, U.N. Sales No. E.79.1.1 (entered into force for United States, Oct. 24, 1945, 59 Stat. 1031, T.S. No. 993). See also Barist, et al, "Who May Leave: A Review of Soviet Practice Restricting Emigration on Grounds of Knowledge of 'State Secrets' in Comparison with Standards of International Law and the Policies of Other States," 15 Hofstra L. Rev. 381 (1987).

175 Adopted December 16, 1966, entered into force March 23, 1976, 999 U.N.T.S. 171. The International Covenant was adopted unanimously by the General Assembly. The International Covenant entered into force after ratification by 35 nations, and as of January 1, 1985, 85 nations had ratified it. President Carter signed the International Covenant and submitted it to the Senate, but no action was taken at that time. 15 Hofstra L. Rev. at 387 footnote 16. Eventually, the Senate extended its consent to ratification in 1992.

176 As discussed later on in more detail, it is perhaps more accurate to refer to this right, as some commentators do, as the "right to a nationality" or the "right of citizenship," because the right provides protection in both directions the right to be free from arbitrary burdens imposed on a person's choice to retain or renounce citizenship.

177 However, in some cases, both rights could be implicated, such as a case where in order to emigrate to a country, that country requires the person to renounce his citizenship elsewhere. It is our understanding that several countries, such as Korea, have such a rule.

178 See, e.g., Letter of Professor Hurst Hannum, Tufts University, to Honorable Daniel Patrick Moynihan (dated March 31, 1995); I. Brownlie, Principles of International Law (4th ed.) 557 (1990). The right to emigrate was incorporated into the International Covenant, but the right to expatriate was not.

179 As a technical matter, the International Covenant is viewed as an explicit obligation of the United States under international law, although subject to certain reservations expressed by the Senate. In contrast, other documents, such as the Universal Declaration, generally are considered political rather than legal, although in may respects are considered to reflect customary international law and are often referred to when interpreting treaties.

the right to emigrate and the right to expatriate. 180 Therefore, the rights to emigrate and expatriate recognized under international law are applicable norms against which the expatriation tax proposals must be judged.

Permissible limitations on the rights to emigrate and expatriate

The rights to emigrate and expatriate are not unqualified rights.181 The rights protect individuals against arbitrary or unreasonable infringements by governments on the freedom to leave and return to their country of residence and to retain or renounce their citizenship. Some restrictions and limitations on these rights are recognized as being proper under principles of international law. However, such restrictions or limitations may not arbitrarily be imposed or be so burdensome as to amount to a de facto denial of the rights to emigrate or expatriate.

Right to emigrate

As a technical matter, it appears that, in the case of an individual who renounces U.S. citizenship, the expatriation tax proposals do not implicate the right to emigrate under international law. This is so because the proposals have no impact on a U.S. citizen who leaves the geographic territory of the United States, either on a temporary or permanent basis. A U.S. citizen may leave the United States and reside elsewhere for as long as he or she desires (and can return to the United States whenever he or she wants) and their status as a U.S. citizen will not be affected by the mere fact that they have resided elsewhere. Thus, as long as a person continues to be a U.S. citizen, he or she may come and go at will without being subject to any of the provisions of the expatriation tax proposals, 182

In contrast, in the case of certain long-term resident aliens of the United States, the expatriation tax proposals appear to implicate the right to emigrate recognized under international law. Under the Administration proposal, if a person who is not a U.S. citizen but has lived in the United States for 10 of the last 15 years (8 of the last 15 under S. 700 and H.R. 1535) terminates his status as a lawful permanent resident ("LPR") in the United States (or, under S. 700 and H.R. 1535, begins to be treated as a resident of another country under a treaty between the United States and that other country), then the proposals would deem that person to have

180 See "Section 201 of the Tax Compliance Act of 1995: Consistency With International Human Rights Law," Memorandum of the Department of State, Submitted for the Record by the Department of the Treasury, Hearing before the Subcommittee on Oversight, Committee on Ways and Means, U.S. House of Representatives, March 27, 1995 (hereafter cited as "State Memo") (included in Appendix G).

181 Article 12(3) of the International Covenant specifically recognizes that some restrictions may properly be placed on the right to emigrate; and article 15(2) of the Universal Declaration defines the right to expatriate as one that cannot be "arbitrarily" restricted.

182 Generally, a person already would be outside the geographic limits of the United States at the time he or she renounces U.S. citizenship, and, therefore, that person's right to emigrate would not directly be implicated by the proposals. During peacetime, U.S. citizens must be outside the United States in order to renounce their citizenship. (State Memo at 2) Some observers have noted, however, that even though it may be technically correct to say that the proposals do not impose tax on a U.S. citizen's physical departure from the United States, in effect, the proposals function as an "exit tax" with respect to U.S. citizens, since virtually all U.S. citizens who renounce their citizenship do so in conjunction with their emigration from the United States.

sold certain assets at the time status as a U.S. resident is terminated and would impose tax on gains in excess of $600,000. By definition, a person terminates his or her status as a LPR of the United States (or starts to be treated as a resident elsewhere under a treaty) by leaving the United States in order to reside elsewhere (i.e., by exercising the right to emigrate). Thus, equating the right to emigrate with the right to change residence, 183 in the case of a resident alien of the United States, the expatriation tax proposals implicate the right to emigrate. 184 In such a case, therefore, the question is whether the right to emigrate is arbitrarily infringed upon by the proposals. 185

Right to expatriate

As the State Department acknowledges, the expatriation tax proposals implicate the right to expatriate. The proposals would result in special tax rules being applied when a U.S. citizen renounces his or her U.S. citizenship. Therefore, as with the right to emigrate in the case of a resident alien who leaves the United States, the question follows whether the proposed special tax rules constitute an arbitrary infringement on the right to expatriate. Not all so-called "exit taxes" 186 are violations of the rights to emigrate or expatriate, but only those that are arbitrarily imposed.

Would the proposals constitute an arbitrary infringement under international law?

What kinds of restrictions or limitations would be viewed as improper infringements of the right to emigrate and the right to expatriate under international law? It is clear that a direct prohibition

183 The State Department has informally indicated that there is some uncertainty about how the right to emigrate operates in theory in the case of LPR who does not automatically lose his or her United States "green card" status by moving elsewhere.

184 The State Department memorandum dated March 27, 1995, recognizes at the outset that the expatriation tax proposal applies both to U.S. citizens and certain long-term residents of the United States. However, the memorandum is confined to an analysis of the impact of the proposal on U.S. citizens, concluding with respect to the right to emigrate that the proposal "does not affect a person's right to leave the United States." (State Memo at 2). However, this conclusion ignores the impact of the proposal on long-term residents who cease to be residents of the United States by taking up residence elsewhere.

185 The question also has arisen whether the expatriation tax proposals are inconsistent with long-standing U.S. policies with respect to the right to emigration as reflected in the JacksonVanick Amendment to the Trade Act of 1974 (19 U.S.C. sec. 2432). The Jackson-Vanick Amendment restricts the granting by the United States of most-favored-nation treatment (and certain trade related credits and guarantees) to non-market economies (i.e., communist countries) that unduly restrict emigration. See Tab A of State Memo (included in Appendix G). Technically, the provisions have no applicability to any conditions or limitations on emigration imposed by the United States itself. Even so, some observers have questioned whether the expatriation tax proposals conflict with the underlying "spirit" of the Jackson-Vanick Amendment, such that it would be hypocritical for the United States to enact the proposals. See Letter from Professor Abram Chayes, Harvard Law School, to Honorable Daniel Patrick Moynihan, dated March 30, 1995. Because the Jackson-Vanick Amendment provides for trade sanctions to deal with practices of other countries that amount to a de facto or arbitrary restriction on the right to emigration by their nationals, the issue of the underlying "spirit" of the Amendment involves the same issues (discussed infra) raised in addressing whether the expatriation tax proposals constitute a de facto denial or arbitrary restriction of the right to emigrate under principles of international law. The right to emigrate under international law is the underlying "spirit" of the Jackson-Vanick Amendment.

186 With respect to U.S. citizens, it is somewhat of a misnomer to refer to the proposed tax as an "exit tax," because the tax is triggered not by exiting but by renunciation of citizenship, regardless of how long a person has been away from the United States or whether they ever resided in the United States. The proposals are "exit taxes" in the conceptual sense that the person renouncing U.S. citizenship is exiting the jurisdiction of the United States tax systems. In the case of a nonresident alien subject to the proposals, he or she would be exiting the United States both physically and jurisdictionally.

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