ACA: TAX REFORM BILL AND AMERICANS ABROAD: WHAT HAPPENED? WHAT’S NEXT?

 

NB: While ADCT respects ACA’s positions and appreciates their lobbying efforts, this post in no way serves as an endorsement of their submission regarding RBT.

It bears repeating that no group approached Congress during the tax reform process and specifically requested RBT. Many chose to support RO’s effort (TTFI) assuming it more likely to succeed given Congress was clearly intent upon changing corporations to a territorial model.

ACA’s approach to RBT has been described by some as CBT with a carve-out (for those who are already compliant). It does not address the issues of Accidental Americans; becoming compliant for the express purpose of renunciation, etc.
 
 

TAX REFORM BILL AND AMERICANS ABROAD: WHAT HAPPENED? WHAT’S NEXT?
 

by Charles M Bruce
ACA’s Legal Counsel and Of Counsel to Bonnard Lawson-Lausanne

with contributions from Jonathan Lachowitz, Chairman, ACA, Marylouise Serrato,
Executive Director, ACA, and Jacqueline Bugnion, Former Director, ACA.

On the day President Trump signed the The Tax Cuts and Jobs Act (TCJA) , Mr. Bruce issued this letter (found on the ACA website).

EXCERPTS:

What happened?
 
Changes in the basic rules for Americans abroad were not made.
There are strong indications that Congress will soon return to the subject of tax law changes to make corrections in what was done and to address issues that were postponed. A couple of days ago Chairman Brady said, “I’m going to recommend that we do have some form of tax reconciliation in future budgets because there are still areas of the tax code I think . . . can be improved, including retirement savings, education, and streamlining,” Brady said. “And we had a number of good ideas from our members we weren’t able to accommodate. Plus, I think we’ll have to continue to modify the international code over time.”

What has not changed?
 

  • The basic foreign earned income and housing cost amount exclusion (FEIE) has not changed
  • The 3.8% net investment income tax to fund Medicare and The Affordable Care Act, remains in place and continues to apply in a way that, for Americans abroad, exposes them to double taxation because they are not allowed to credit foreign taxes against it.

 
There are some serious problems.
 
(a) The new participation exemption system adversely affects Americans abroad by not providing the dividends received deduction and yet taxing an individual on the deemed distribution.

(b) Special reduced rates for so-called “passthroughs” do not benefit Americans abroad that earn from a passthrough foreign income.

(c) Foreign real property taxes can no longer be deducted under the Act.
 
What are the good points?
 
Overall, the visibility of the subject of taxation of Americans abroad has greatly increased. The House Republican Blueprint for tax changes, developed early on, said that legislators would consider “appropriate treatment of individuals living and working abroad in today’s globally integrated economy.” Ways and Means Chairman Brady said that Congress is thinking about changes in the way American individuals abroad are taxed. Lawmakers, he added, take seriously the call for a shift from a citizen-based income tax system to a residence-based system that would only tax people on the income they earn in the U.S. Finance Committee
Chairman Hatch’s corporate integration proposal called for reconsideration of the taxation of nonresident citizens. Individual Members, such as, Representative Holding (Republican-North Carolina), have said that changing the way Americans overseas are taxed is high on their list of priorities. Late in the process, there was a very good floor colloquy between Representative Holding and Chairman Brady on the need to take up this subject afresh in the near future.

One of the most positive things that happened was that ACA successfully developed the best, most comprehensive baseline set of data for detailing the taxation of Americans abroad. This baseline information did not previously exist. It required five months of work by ACA and its independent revenue estimator, District Economics Group (DEG). Utilizing this information, ACA has been able to greatly refine its description of a possible approach to changes in the law and
to run revenue estimates. All of this shows that enactment of RBT can be made revenue neutral. This is an extremely important outcome. ACA has always said that for RBT to be adopted, it must be revenue neutral, tough against abuse, and fair for everyone, meaning among other things that no one would be worse off. ACA’s numbers-crunching shows that RBT can be adopted and the, at the same time, section 911 can be left in place.
 
What’s next?
 
Congress did not consider RBT and reject it. It’s noteworthy that no Member or committee arrived at the point where an RBT/territoriality-for-individuals proposal was put by a Member on the table, drafted in legislative language and “scored” for its revenue effects.Republican interest groups, as well as other groups such as Democrats Abroad, AARO, and FAWCO, all talked with many Members and “knocked on many doors”. They deserve great credit for their efforts……. However, the big, high-visibility subjects, including changes in the international tax rules for corporations, commanded most of the attention of decision-makers.Also, the approaches to these subjects, including the various versions of proposed changes in the corporate tax rules, resulted in a constantly changing landscape and made it difficult to insert residency-based taxation alongside them.
The effect of work on the other subjects can be seen from the fact that many effects on Americans abroad were simply overlooked or not fully appreciated until very late in the game, if it (sic) all.

ACA believes that Members, including Chairman Brady, Chairman Hatch, Representative Holding, and others, are sincere in saying that they want to change the tax rules for Americans abroad. We don’t think they would’ve made the statements they did if this was not the case.

In light of what was not addressed in TCJA and some of the overlooked outcomes, ACA strongly believes NOW IS THE TIME FOR CONGRESS TO HOLD HEARINGS ON THE TAX TREATMENT OF AMERICANS ABROAD. These can lay out the existing rules, including the rules added by TCJA. The Joint Committee on Taxation, the lead committee on matters having to do with tax, can construct its own baseline for dealing with the subject. ACA is making the results of the ACA/DEG study available. Hearings can also identify the key topics, including, for example, treatment of tax havens, various anti-abuse topics, etc. All the interested parties can present their views. It’s an opportunity for everyone generally to “get on the same page” or say why they choose not to be on that page. Of course, there will be differences in opinion as to what changes should be made. ACA suggests that the hearings be held by the Ways and Means Subcommittee on Tax Policy. It looks to Members, both Republicans and Democrats, who have historically taken an interest in the subject to support hearings.
 
*******
 
On the Transition Tax:

The Merry-go-Round of Unintended Consequences
No Evidence of Intent to Apply the Transition Tax to Small Business Corporations of #Americansabroad
ADSC-ADCT Letter to US Congress
Seven Simple Points to be made re Transition Tax and CFCs
It’s the Subpart F Rules Stupid

ACA Papers:

submission to the Senate Finance Committee April 2015

Side-By-Side Analysis: Current Law; Residency-Based Taxation

Representative Holding’s comments:

Can the Common Law “Revenue Rule” be used to stop Enforcement of #CBTax on non-US Residents?

 
cross-posted from Storify/Expatriation Law
 


 
INTRODUCTION

In 1775 Lord Mansfield proclaimed “no country ever takes notice of the revenue laws of another.” In common parlance this means that the courts of one country will not enforce the tax laws of another country. It is articulated in the “The Conflict of Laws, Rule #3 , a standard English text by Dicey and Morris. It has been practiced in common law countries as well as civil law countries. However, the law itself can be said to promote tax evasion and for that reason, its supremacy begins to be challenged, especially through tax treaties. Vern Krishna, a law professor at University of Ottawa, explored this briefly in his paper
The Demise of the Revenue Rule.

 

 

I was born in Canada by an American mother, so am I an American citizen?

 

Cross-posted from Quora

I was born in Canada by an American mother, so am I an American citizen?

 
Answer by John Richardson , Lawyer (1982-present)

Anybody concerned with the answer to this question should (1) do the appropriate research and (2) get the appropriate advice.

Unless you live in the United States or want to live PERMANENTLY in the United States, you would NOT want U.S. citizenship. U.S. citizens are subject to U.S. taxation on ALL OF THEIR WORLDWIDE INCOME, even if they do NOT live in the United States. In fact U.S. citizens living outside the United States who are “tax residents” of other countries are always “subject(s)” (pun intended) to two tax systems.

The question is: “I was BORN IN CANADA to an AMERICAN mother, so am I an American citizen?” Note that if you were born in Canada you are born in another country where U.S. laws (as much as they would like them to) do NOT presumptively apply. The U.S. Immigration and Nationality Act is the statute that defines who is an American citizen and who is NOT an American citizen.

Here is my answer which is written in a way to encourage caution and to NOT just listen to the first “accountant” (what would an accountant know about this anyway?) or lawyer or immigration consultant.

The answer is “maybe”. It depends. Your approach to this question depends on whether you want to be a U.S. citizen or do not want to be a U.S. citizen.

For those born in Canada and who WANT to be U.S. citizens:

The U.S. Immigration and Nationality Act has specific rules that say under what circumstances a person born to an American mother outside the USA “shall” be a U.S. citizen. The answer is dependent on the mother having a certain number of years of actual physical presence in the United States. (The one year “continuous presence” test was struck down by the U.S. Supreme Court in the 2017 decision of Morales-Santanya).

Therefore, if you want to be an American citizen you would have to establish the existence of specific facts and present those facts to the U.S. State Department and ask them to issue you a U.S. passport. Note that you are NOT entitled to a U.S. passport until those specific facts are proven to the satisfaction of the State Department.

For those born in Canada who do NOT want to be U.S. citizens:

There are some in the tax compliance industry (what do they know about citizenship law anyway?) who have marketed the idea that U.S. citizenship can be imposed on people born in Canada (and other countries) even if they have never considered themselves to be U.S. citizens.

Can the USA forcibly impose U.S. citizenship on people who were NOT “Born In The USA”? What if one was born to an American mother in China (a country that does NOT allow “dual citizenship”). Can the USA forcibly impose U.S. citizenship on that citizen of China?

If you have accepted that you are a U.S. citizen and have traveled on a U.S. passport (and that kind of stuff) then you would NOT be able to defend the accusation of U.S. citizenship. But, if you have done NONE of those things and just happened to have been born outside the United States to an American mother, then your situation is probably different. You are arguably in a position where you would have the “right” to U.S. citizenship (under U.S. law if you want) but NOT the obligation to accept U.S. citizenship (because you were born in a country where the USA does not have jurisdiction).

I am not aware of a single instance where a U.S. court has ruled that people born outside the United States are required to be U.S. citizens.

In any case, if you were NOT born in the USA, you do not have the objective characteristics that would raise the question of “U.S. citizenship” anyway.

This issue has been discussed at the Isaac Brock Society and other sites. The following post provides some of the “analytical tools” to consider the question.

Help: Can the United States IMPOSE US citizenship on those born outside the US?

If you have read this far you might find the following video of interest:

U.S. citizenship and the Government of Australia

The question of “dual citizenship” and whether somebody IS a “dual citizen” was of practical relevance in Australia in 2017. Basically, seven (at least) Australian politicians were accused of being “dual citizens” (making them ineligible to serve in Australia’s legislative body). This “farce” provides a real world example of why it would matter if somebody born outside the USA to an American other would be an American citizen. See the following:

Australian Greens Senator @LarissaWaters resigns because of her CANADIAN place of birth. Too bad she was born in Canada (with images, tweets) · expatriationlaw

Why the proposed transition tax, if applied to individual U.S. shareholders living abroad, is analogous to the “Offshore Voluntary Disclosure Program

 

 
The following was written by John Richardson and is a section of a larger piece yet to be published. I will provide the link at the time it is available and of course, have permission to publish this.

When I first read this, two things occurred to me. The OVDP/OVDI process represented a penalty for a failure to report. A failure to report is not a transaction to be recorded or that can be measured in relation to tax that is owed. The “in lieu of FBAR” penalty. The percentage was a figure set by the Treasury Dept with no clear connection to anything other than the value of an asset. So one agreed to allow a certain level of confiscation not based upon any amount of tax owed. The other issue with OVDP/OVDI was that it was an incredible deal for “whales”-that percentage represented far less than what they would have paid all-told. The transition tax is a gift for multi-nationals; moving to a territorial system, they will not pay what they would have been required to pay were they to repatriate the income that they will now, never be required to do.

Notably the Transition Tax is part of reforms to international taxation. The centerpiece of the reforms is that for US corporate shareholders of foreign companies there will no longer be US taxation of foreign earnings. (In other words, the US has forced corporations to move in the direction of territorial taxation). The transition tax is imposed as a mechanism to fund territorial taxation. Corporate shareholders are subject to the Transition tax and receive the benefits of territorial taxation. Individual shareholders (including possibly Americans Abroad) are subject to the Transition tax but do not receive the benefits of territorial taxation. Americans Abroad, who carry on business through non US corporations may be required to fund the move to territorial taxation (unlike corporate shareholders) and will continue to be taxed and taxed in an even more punitive way.

Of course, referring to OVDP/OVDI &/or the Transition Tax as a “gift refers only to multi-national corporations or people of wealth. For “minnows” OVDP/OVDI was an absolute abomination. The Transition Tax, should it apply to small CFC’s ( read “individuals”), will provoke the largest number of renunciations whether official or via “feet”.

This is an absolute breaking point in our process. Now that the rate on liquid assets is highter (15%), once the calculations are done, the effective rate applied to individuals will be over 18%. It will not be a matter of refusal as much as the simple inability to pay it. No one can continue to contribute to financial suicide, law or not.

**************

Why the proposed transition tax, if applied to individual U.S. shareholders living abroad, is analogous to the “Offshore Voluntary Disclosure Program (OVDP)”


by John Richardson

Significantly, the “transition tax” is NOT based on any income realization event. It is based only on the fact of legally earned retained earnings, which are subject to taxation in the country where they were earned.

The transition tax is a calculation based on an “account balance” – specifically the “retained earnings” account balance on the greater of two dates.

It is a mandatory payment which is based on the value of a “foreign asset”.

Therefore, the “transition tax” as applied to Americans abroad has characteristics that are more like “OVDP” than an income tax (which would be based on a realization event).

In any case, the “transition tax” is nothing more than an asset confiscation with nothing in return.

The application of the “transition tax” to Americans abroad would raise U.S. “citizenship-based taxation” to a new and UNPRECEDENTED level of unfairness and obscenity

Which country’s citizens enjoy more freedoms than American citizens?

From Quora

John Richardson, Lawyer (1982-present)
Answered Dec 5, 2017

Which country’s citizens enjoy more freedoms than Americans?

The short answer is: The citizens of many countries enjoy more freedoms than Americans.

The answer to this difficult and interesting question should be considered from at least 3 perspectives:

Perspective 1: Do American citizens have the right to leave the United States and to make a new life outside the United States?
 
Perspective 2: How do the freedoms of American citizens living in the United States compare to the freedoms of (for example) a Russian citizen living in Russia?
 
Perspective 3: How do the freedoms of American citizens compare to the freedom of the citizens of other countries from the perspective of international human rights instruments?
 


 
Perspective 1: Do American citizens have the right to leave the United States and to make a new life outside the United States?

There are presumably some countries that make it impossible to physically leave the country. Certainly the United States does not (except that U.S. law requires U.S. citizens to have a U.S. passport to leave the United States) prevent its citizens from leaving the United States. What the United States does do, is make it difficult for U.S. citizens to survive outside the United States.

As long as they remain U.S. citizens, Americans do NOT really have the freedom to leave the United States, settle in other countries and fully participate as residents of other countries.

The primary reason is because U.S. citizens who leave the United States are still (as long as they remain U.S. citizens) subject to U.S. tax and reporting requirements. These requirements are so onerous (FATCA, FBAR, PFIC, CBT, etc.) that more and more U.S. citizens are renouncing U.S. citizenship so that they have the freedom to live outside the United States. There is no other country in the world that attempts to impose domestic laws on its citizens after they leave the country.

For a particularly graphic description of how America treats its citizens who attempt to live abroad, read about the Nightmare of Mexican residents who have U.S. citizenship”.

Conclusion: From perspective 1, Americans are the LEAST free people in the world.
 
Perspective 2: How do the freedoms of American citizens living in the United States compare to the freedoms of (for example) a Russian citizen living in Russia?

I suspect that Americans living in the United States have more freedom than citizens of some countries and less freedom than the citizens of other countries. But again, it depends how freedom is defined. Is freedom objective or is it subjective? What are the areas of human activity that are relevant?

The United States has a Federal Government and 50 states AND is a “mature country”. The country necessarily has a large number of laws and regulations (many of which cannot be easily understood).

Americans in the United States are clearly much more free than North Koreans living in North Korea. But, for the reasons given in the answer by Sindhu Mahadevan (below), I suspect that Americans living in the United States are not more free (and possibly less free) than the citizens of other first world democracies.

Americans live in a constant state of fear. Fear of illness, fear of violence, fear of terrorism, etc., fear of not being able to pay for post-secondary education … This is a big problem.

Two possible additional considerations:

The United States has the highest incarceration rate in the world.
The United States does have a “death penalty”
 
Can a country that has the highest incarceration rate in the world really be considered to be a country with maximum freedoms?
 
Perspective 3: How do the freedoms of American citizens compare to the freedom of the citizens of other countries from the perspective of international human rights instruments?

Interestingly Americans have CONSTITUTIONAL rights that are enshrined in the U.S. constitution. They do NOT have many “human rights” as guaranteed by international human rights documents. In many cases, the rights guaranteed by the U.S. constitution do NOT provide the protections afforded by international human rights documents. This may be surprising to Americans reading this. But, you might find the following to be of interest:

Human Rights and the United States

On the other hand, American systems do have access to a legal system and courts that can be used to enforce the CONSTITUTIONAL rights that they do have.
 

Tax Culture & How the USA uses Citizenship Taxation to Impose US Culture (& Penalties) on Other Countries

Alliance for the Defeat of Citizenship Taxation (ADCT) seeks major donors to fund United States lawsuit in federal District Court

 

 

cross-posted from Brock by Stephen Kish

It is now likely that the new United States Tax “Reform” legislation will not help citizen-residents of other countries who are deemed to be “U.S. persons”.

Consequently, we at the Alliance for the Defeat of Citizenship Taxation (ADCT), a non-profit corporation, want to move quickly on a lawsuit in federal District Court in the United States.

Our lawsuit will focus on the core doctrine of “Citizenship Taxation” which serves as the basis for the extraterritorial reach of U.S. tax obligations as well as the annual financial reporting requirements imposed upon permanent residents and citizens of other countries.

The litigation will also seek to overturn other U.S. laws made applicable to persons who may have been born in the United States but have long since had little or no nexus to United States. In addition, the legal action would challenge the excessive costs and time delays imposed on those seeking to abandon U.S. citizenship.

The lawsuit will require plaintiffs who have suffered a distinct, not “speculative”, injury and funds to pay legal costs.

We estimate that legal costs will be U.S. $200,000 to take litigation through U.S. Court of Appeals.

We cannot finalize agreement with any law firm until we have received the necessary funding. We already have a legal opinion from Washington D.C. attorney Mr. Jim Butera (Jones Walker LLP), who has previously acted on our behalf, and once funds are received we will explore a contract with Mr. Butera.

At present we are not accepting any funds. Once the U.S. tax reform bill becomes law our preference is to obtain quickly the necessary funds from a small number of major donors (minimum, $U.S. 50,000).

If interested in the possibility of being a major donor, please contact Stephen Kish at information@cbtlawsuit.ca.

We all agree that asking “small” donors to fund this litigation is very unfair. However, should we receive no indication of interest from major donors by January 15, 2018 we will have no choice but to seek funding of any amount from donors of limited means.

John Richardson,
Carol Tapanila
Patricia Moon
Stephen Kish

Alliance for the Defeat of Citizenship Taxation (www.citizenshiptaxation.ca) 283 College Street, P.O. Box 67678 Toronto, Ontario, CANADA M5T 3M1

The Nightmare for Mexicans who have US Citizenship………

 

The following comment appeared today at Brock. It is unbelievably shocking to see how this miserable situation is evolving-I have yet to hear anything like this. We have reached out a couple of times to try and link to the expat community in Mexico without results. I guess back then, this situation had not yet fully developed…………

escaped slave says
December 3, 2017
To whom it may concern, at,
calgaryfouroneone at gmail.com
and at, isaacbrocksociety.ca

¡Hola community!

Thank you for your fight against CBT on behalf of my family and those throughout the world who this affects. I will not sign any petitions until my minor children have renounced, but I would like to add a concept that so far, may not have been addressed in your UN human rights violation complaint and this is the purpose of my message.

Some Background on my grievance –

My family and I live in Mexico, a developing country. You may or may not know that since candidate Trump was put fourth, the Mexican peso nearly crashed against all currencies. It was already on its way down due to the price of oil declining, but when President Trump was sworn in, the peso value compared with the USD literally crashed. Its current more stable rate (for now) remains a 75% devaluation against the USD since before candidate Trump tossed in his hat to run for president in late spring of 2016. With this said, I am not making any statement for or against President Trump, but how his presence in politics has affected the exchange rate between the Mexican peso and the US Dollar.

Mexico, as you know is the birthplace of many immigrants (tens of millions) that have entered into the USA over the last several decades. Many immigrant Mexicans were born here (not in US) and are living illegally in USA. They are working in USA and most are paying into employment taxes, sales taxes and social security, disability, state, local, etc unless they are being paid under the table in cash. Many of these same people brought small children with them who have now grown up in the USA and are referred to as “Dreamers”. Many of these Mexican immigrants and dreamers have themselves given birth in the USA, making their children US citizens.

Mexican immigrant workers are an important labor pool in the USA used to fund social current and future security recipients while these same Mexicans, mostly young adults, will likely never see any of the benefits that the current generation of recipients enjoy. Young USA people have not kept up the birth rate to maintain and care for the aging “baby boomer and silent” generations. Low paid unskilled immigrant populations working in the USA have been introduced to boost the birthrate (future taxpayers).

The threat of deportation weighs heavily on on undocumented Mexican USA families who have established roots in their communities. The Mexican government has actively pushed its citizens into going up north where “they will make a better living”, and will be able to “send money to their family in Mexico”. The decades long push to the north has been caused by neoliberalism, regional violence, land disputes, a horrible education system, a huge wealth disparity, corruption and a decades long weak national economy (mostly due to NAFTA). Dollars that are sent South from the USA into Mexico are called remittances here or “remisas” and this money is the SECOND most important contributor to the Mexican economy. International financial institutions enrich themselves greatly on these one way cross border wire transfers, on the backs of poor working class immigrants.

Mexico’s elite NEED this money to keep coming because it has so far prevented widespread civil unrest. Mexico’s elite own ALL forms of the media and continue to push this very visible and viable option on its young people to “leave Mexico” and settle in USA (now Canada!) if they want a better life. Our own government and corrupt elite have failed to warn our young citizens as to what will happen after they become owned by the IRS. Thousands and thousands of young Mexicans receive no advice and no help with such important facts that are for all intents and purposes being hidden from their view; just “go North and send us the money!”

This dangerous programmed sentiment to go north where there’s “more money and freedom”, is pushed endlessly in telenovelas (Mexican soap operas), children’s shows, in the “news”, blogs, advertisements, social media and the like. When the deported come back to live in Mexico, either self deportees or forced deportees, those with obvious US indica showing they were born in USA will be screwed. At this point in time, very few have comprehended this serious life-changing concept, very few are bilingual and can follow isaacbrocksociety.ca and the other information that’s out there.

The Human Rights Violation Related in Mexican Terms –

In Mexico, the minimum wage has just risen to $88 Mexican pesos per day. Even this small increment of less than 8 Mex pesos has caused our central banker, Augustin Carstens to say that we are likely to see an economic recession and inflation for 2018! Everything in Mexico revolves around the federal minimum wage. All laws, fines, tariffs, fees, appraisals and the like here are based on and state the number of work days at the federal minimum wage as to what they cost. Most productive (sane) people in Mexico are small business owners, because they know that they will never “get ahead” on this embarrassingly low minimum wage AND in addition~ in Mexico it is widely practiced and LEGAL to discriminate based on AGE (and sex, and marital status, and looks!) for hiring. Most people once they reach 35 years of age are unemployable unless they posses a highly sought-after and marketable special skill.

Considering all that I have written, my family’s input to the UN complaint is how the US state department is violating every Mexican citizen’s human rights! Here’s why ~

For a Mexican to pay the $2,350 US Dollar renunciation fee as a worker being paid the federal minimum wage of $88 Mexican pesos (which is is LESS THAN $4.88 US Dollars) .… It will take

481 and a half days of full time work!

If they also need to eat, pay rent/housing, school fees, pay for basic medical expenses then of course it will take much longer to pay the renunciation extortion. Imagine, regular Mexicans being ENSLAVED for 481.5 days of their already difficult lifetimes to pay an inhumane and probably internationally illegal extortion fee to imperialist USA!

ONE AND ONE THIRD YEARS!!!!! Of SLAVERY to pay the US Government to be FREE again! Slavery is a violation of human rights and this is our complaint, one and one third YEARS to pay this onerous and unjust renunciation fee. We refuse to be enslaved any longer.

I thank you for your time in considering this and perhaps using this information to help add evidence to the US human rights complaint.

Thank you Canada and isaacbrocksociety.ca

Addenum –

PLEASE DO NOT consider this a “heartbreaking letter” because it is not. This letter is intended to strengthen the UN human rights complaint. Thank you!