cross-posted from citizenshipsolutions
Introduction – “Indifference being the worst form of abuse”
A quick summary of this post:
On November 26, 2018 the House Ways and Means Committee under the leadership of Chairman Brady announced a bi-partisan bill which contains a number of “Technical Fixes” to the December 22, 2017 Tax Cuts and Jobs Act. While specifically addressing the Sec. 965 transition tax, the bill contains neither mention nor relief for Americans Abroad who are at risk of having their retirement pensions confiscated by the U.S. Government. (While the transition tax may actually be beneficial for Homeland Americans, it is simply devastating for Americans abroad.)
In other words: The proposed legislation is NOT neutral. By specifically addressing the Sec. 965 transition tax and NOT providing relief for Americans abroad, it has exacerbated a difficult situation. My understanding is that many Americans abroad have requested filing extensions to December 15, 2018. The failure of this proposed bill to provide relief means that many Americans abroad with small businesses are in an impossible situation where compliance may well be impossible.
My analysis and discussion follows …
On November 26, 2018 Representative Kevin Brady announced a tax reform bill (presumably with the intent of getting it through the lame duck session). You will find the compete text – 297 pages – here.
The House Ways and Means Committee announced:
Washington, D.C. – Today, House Ways and Means Committee Chairman Kevin Brady (R-TX) has released a tax and oversight package that includes the Retirement, Savings, and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018. This package includes retirement and other savings enhancements, legislation to redesign the Internal Revenue Service, and temporary tax relief for victims of the wildfires in California and for communities impacted by Hurricanes Florence and Michael and by storms and volcanoes in the Pacific. The package also addresses the tax extenders, and includes some time-sensitive technical corrections to H.R. 1, the Tax Cuts and Jobs Act.
Upon release of the package, Chairman Brady made the following statement:
“This broad, bipartisan package builds on the economic successes we continue to see throughout our country. The policy proposals in this package have support of Republicans and Democrats in both chambers. I look forward to swift action in the House to send these measures to the Senate.”
The proposed bill and modifications to the Sec. 965 U.S. Transition Tax
The bottom line is this:
1. The bill proposes to amend Section 965(h) to address certain concerns raised by Taxpayer Advocate.
2. The bill fails to consider the impact of the bill on the small business of Americans abroad.
In other words, there is NO CURRENT proposal to remedy either the problems of the “transition tax” or GILTI as they apply to Americans abroad! This is shocking and a complete disgrace. This leaves many Americans abroad in a position where they cannot continue to survive as U.S. citizens abroad.
First some additional background
I have written a series of posts about the Sec. 965 transition tax. On September 9, 2018 I wrote a post for the purpose of (1) describing whether intent matters in the interpretation of the Section 965 transition tax and (2) noting that Taxpayer Advocate had seemed to assume that “intent” did matter in the interpretation of the law (a novel concept indeed). (There is no evidence that the transition tax was ever intended to apply to the small businesses operated by Americans abroad.) That post included the following tweet:
The analysis from Taxpayer Advocate based on the argument of “unintended consequences” included:
In other words, the memo concluded that the full amount of the Section 965 liability becomes due immediately – not ratably over the eight-year period the law gives taxpayers the option to make payments. As a result, any “overpayment” of non-Section 965 liabilities over the 8-year period cannot be refunded or applied as estimated tax for a future period until the full Section 965 liability is paid in full.
As a practical matter, this interpretation sharply limits the value of Section 965(h), and in some cases, it may even render it meaningless. Large corporations frequently overpay their estimated taxes for a variety of reasons, including to minimize the risk they may become liable for underpayment interest. Some may even have “overpaid” by most or all of their Section 965 liability. According to the IRS’s interpretation, those corporations will not receive any of the benefits Congress provided by enacting Section 965(h).
It may be that the IRS’s interpretation is legally correct, and congressional tax-writers failed to consider the interaction of IRC 965(h) with existing provisions governing refunds and credits. Some in the private sector generally agree that the IRS cannot pay refunds after a return is filed and the tax has been assessed, but they have suggested that – before the liability is assessed – the IRS may at least pay the estimated tax refunds requested on Form 4466. I have requested the Office of Chief Counsel to take another look at the issue and consider alternative approaches. Where Congressional intent is clear, it is the job of administrative agencies to give effect to that intent to the extent feasible. In some cases, that may require adopting a plausible interpretation, even if it not the “best” interpretation.
Here is what happened: The “devil is in the details” (or in this case the lack of details)
On the one hand the proposed bill addresses the concern described by Taxpayer Advocate
To be very specific, the proposed bill includes the following Section 965 amendment that specifically addresses the concern expressed by Taxpayer Advocate. Here is the exact text found in Title V (Technical Corrections) on page 189:
(e) AMENDMENT RELATING TO SECTION 14103.—
2 Section 965(h) is amended by adding at the end the fol3 lowing new paragraphs:
4 ‘‘(7) EXCESS REMITTANCE OF INSTALLMENT
5 SUBJECT TO CREDIT OR REFUND.—
6 ‘‘(A) IN GENERAL.—In the case of a re7 quest to credit or refund any excess remittance
8 with respect to an installment under this sub9 section—
10 ‘‘(i) the Secretary, within the applica11 ble period of limitations, may credit the
12 amount of any excess remittance, without
13 interest, against any liability in respect of
14 an internal revenue tax on the part of the
15 person who made the excess remittance
16 and may refund the excess remittance,
17 without interest, to such person in the
18 same manner as if it were an overpayment
19 of tax for purposes of section 6402, and
20 ‘‘(ii) the first sentence of section 6403
21 shall not apply with respect to such install22 ment.
23 ‘‘(B) EXCESS REMITTANCE.—For purposes
24 of this paragraph, the term ‘excess remittance’
VerDate Mar 15 2010 19:06 Nov 26, 2018 Jkt 000000 PO 00000 Frm 00189 Fmt 6652 Sfmt 6201 C:\USERS\SJPROBST\APPDATA\ROAMING\SOFTQUAD\XMETAL\7.0\GEN\C\BRADTX_10
November 26, 2018 (7:06 p.m.)
1 means a payment, including an estimated in2 come tax payment, that exceeds the sum of—
3 ‘‘(i) the net income tax liability de4 scribed under section 965(h)(6)(A)(ii), plus
5 ‘‘(ii) the sum of all installments for
6 which the payment due date under this
7 subsection has passed.
8 ‘‘(8) INSTALLMENTS NOT TO PREVENT ADJUST9 MENT OF OVERPAYMENT OF ESTIMATED INCOME
10 TAX BY CORPORATION.—In the case of any tax due
11 as an installment under this subsection, the tax in12 stallment shall not be taken into account as a tax
13 for purposes of section 6425(c)(1)(A) until the date
14 on which the tax installment is due.’’.
15 (f) EFFECTIVE DATES.—Except as otherwise pro16 vided in this section, the amendments made by this section
17 shall take effect as if included in the provision of Public
18 Law 115-97 to which they relate.
On the other hand – after all the lobbying laying out the impact on Americans abroad
While addressing certain aspects of the Sec. 965 transition tax, there is NO mention of the small business owned by Americans abroad and TOTAL INDIFFERENCE to their plight!
In the “Pay To Play Casino” that is Washington, DC: Lobbying isn’t everything, it’s the only thing!
Taxpayer Advocate: The proposed change to the application of the transition tax rules was likely the result of “lobbying” (absolutely proper) by Taxpayer Advocate.
S Corp Association: The Sec. 965 exemption for S Corporations was the result of lobbying by the S Corp association. That said, there is no reason to believe that the S Corp lobbying should have been construed to be an exemption for ONLY individuals who owned their CFCs through S Corps (rather than owning them directly as individuals). The reasonable position of the S-Corp Association is that:
Surely the same reasoning would apply to ALL individuals (including those living outside the United States). Perhaps the S-Corp association should create a division to advocate for the interests of Americans abroad, who like individuals in the United States, also run small businesses. This would help give individuals who are Americans abroad a voice in Washington.
As it currently stands, Americans abroad simply do not have full time lobbyists and are therefore irrelevant to the legislative process.
Should you retain U.S. citizenship if your concerns cannot be heard?
The question really is:
Do you want to be in a situation where a “far off land” can make laws that affect you when they neither know about you or care about you?
Bottom line …
As I have previously said:
The problem is NOT that Congress doesn’t care about Americans Abroad. The problem is that they con’t care that they don’t care!
The only remedy is with the courts and I strongly suggest that you support the transition tax lawsuit being organized by Monte Silver.