Canadian #FATCA IGA Litigation Update: Court has fixed Monday January 28, 2019 as trial date

 

Canadian FATCA IGA Litigation

cross-posted from Isaac Brock Society

   by Stephen Kish

Now appears more likely that we will get to trial in January 2019 in our Canadian FATCA IGA enabling legislation lawsuit in Federal Court.

The Case Management Judge has just advised:

“The hearing of this summary trial motion shall take place before this Court at the Federal Court, 701 West Georgia Street, Vancouver, British Columbia, on Monday, the 28th day of January, 2019, at 9:30 in the forenoon for a maximum duration of five (5) days. The number of hearing days may be reduced depending on the number of preliminary motions.”

Other:

“The following timetable shall apply to the motion for summary trial: (a) The Defendant [Mr. Trudeau’s attorneys] shall serve her evidence (with the exception of one expert report) by April 16, 2018. (b) The Defendant shall serve her remaining expert report by April 30, 2018. (c) Notice of any objections to expert reports shall be served by June 15, 2018. (d) A case management conference shall be held, by teleconference, on July 12, 2018 at 1:00 pm (Eastern) to address any motion to strike affidavits. (e) All cross-examinations shall be completed by July 31, 2018. (f) The Plaintiffs [Gwen and Kazia] shall serve and file their complete motion record by September 28, 2018. (g) The Defendant shall serve and file her complete responding motion record by November 16, 2018. (h) The Plaintiffs shall serve and file their reply submissions by December 7, 2018.

It’s Happening Again – Enough is Enough is Enough

 

NB: STAY TUNED – a 7-part video on the Transition Tax, with
John Richardson & Karen Alpert will be posted in the next couple of days.

 
 
NB: For anyone with time to spare/the interest/needing specifics to make the point regarding the “intention” of the law, here are some of the relevant House/Senate hearings and/or documents:

Oct 3, 2017 Full Committee Hearing -Senate Finance

Nov 6 – 9, 2017 H W & M Markup
Nov 13, 2017 Open Executive Session to Consider an Original Bill Entitled the Tax Cuts and Jobs Act Sessions also continued Nov 14, 15, 16 with videos at the page)
Supporting Document Markup – Senate Finance Committee

*******

Another day, another set of articles and comments where the #TransitionTax & #GILTI are being stuffed down the throats of expatriates who have their own small corporations. The proliferation of articles on this issue, all proclaiming the U.S. can now inflict a deeper cut into the retirement savings of non-residents, is infuriating. The first two articles at least expressed the idea that these provisions might affect non-resident U.S. taxpayers.

Max Reed , posted on November 3, 2017:

As part of this transition, the new rules impose a one-time 12% tax on income that was deferred in a foreign corporation. Although perhaps unintentional, since US citizens will not benefit from a territorial model, the new rules impose a 12% tax on any cash that has been deferred since 1986.

Kevyn Nightengale, posted on November 10, 2017 (I have not included the updated comments because this is what we saw at that time):

This provision was not designed to catch individuals (I think), and certainly not Americans abroad – they are collateral damage. it’s incredibly unfair.

When I saw the House version, I expected that individuals would be exempted after a sober second (or third) thought. Or at least individuals living abroad would be exempted. But seeing a parallel provision in the Senate version makes me expect the worst.

Seems fairly obvious that the biggest clue that the #TransitionTax IS NOT meant to apply to small CFC’s is that they are not “transitioned” from a worldwide system to a territorial one. This is so basic it is hard to believe nobody just calls these people out on this. How many tax professionals watched all of the House/Senate hearings? Many of us did, all hoping to hear that the move to territorial would include individuals; or at least some mention of us. There simply was nothing to suggest that this tax applied to anyone except large multi-national corporations.This provides the context in which the law was conceived. It should be considered just as thoroughly as the plain reading that professionals claim catches expats in the net. Just exactly who is really making the law here?

Now, on to the two prominent articles of the week. The Financial Post has U.S. tax reform to bring double taxation to some Canadians by Julius Melnitzer. Mr. Melnitzer is well-known for making huge distortions of reality. Canadians are familiar with the fact that he perpetuated “the biggest personal loan fraud in Canadian banking history.”

The biggest personal loan fraud in Canadian banking history was the work of a wealthy, respectable London, Ontario lawyer, Julius Melnitzer. When he left the board of Vanguard Trust, a small firm with which his law firm had been dealing, he just happened to take a copy of the corporate seal that Vanguard had used, among other purposes, to attest to the validity of certain forms which it issued in lieu of custom-designed share certificates. Melnitzer’s first trick was to create fake shares by simply typing in the share amounts and stamping the certificates with the company seal. He created five certificates representing a total of almost 900,000 shares. Then he used these “shares” as collateral for personal lines of credit. He also forged financial statements of a company that his father had founded, in which Melnitzer owned 20% of the shares, along with a pledge from the company that it would guarantee Melnitzer’s debts. Using the Vanguard shares and the phoney loan guarantees Melnitzer received a total of $5.6 million in lines of credit from five major Canadian banks. The scam went on for years. Each time a bank would start to press him for repayment, he would threaten to take his business elsewhere. He would also request a letter of recommendation from one bank, then use it to obtain funds from its competitors. A few years later, the banks pressed him to either pay up or come up with better collateral. Emboldened by the fact that no one had questioned the veracity of the forged documents, he decided to do the second.

Melnitzer went to a small local printing company that his law firm had done business with for years. He told them he was representing a client charged with using forged stock certificates to get loans at banks. He wanted to prove in court that printing technology had improved so much, even a small shop like theirs could do a credible job. When the company agreed, he ordered single shares of five blue-chip companies in the name of his daughter to avoid suspicion. He then altered them to put in his own name and bumped up the amounts until they had a face value of about $30 million. Not only did the great majority of the financial institutions he dealt with accept these in the place of the initial collateral, but some even significantly increased his line of credit. Alas, when an officer at National became suspicious about how Melnitzer’s personal wealth had risen so quickly, the officer asked bank experts to inspect the stock certificates. Melnitzer was arrested three days later.

Further:

Julius Melnitzer, a London, Ont., lawyer, was brilliant in the courtroom and had a stable of powerful clients, including some of the province’s biggest landlords. Thanks to a tip from an observant middle manager at a bank, the police discovered Melnitzer had printed up more than $100 million worth of stock certificates bearing blue-chip names like Exxon Corp. and used them to secure around $67 million in loans from several banks. He also bilked several friends out of more than $14 million by getting them to invest in a bogus property deal in Singapore. In 1992, Melnitzer pleaded guilty to 43 counts of fraud. He was sentenced to nine years in jail but was out on day parole after a couple of years and full parole in 1995. Melnitzer is now a well-known and respected Canadian legal affairs writer.

For Mr. Melnitzer’s point of view see here.

So why am I making such a big deal out of Mr. Melnitzer’s background? Irony. Hypocrisy. Disgraceful. Despicable. Along with government and the tax compliance community, the media is guilty of presenting only one side of the picture, consistently. We are labelled as “tax cheats” “scofflaws” and so on for not filing pieces of paper we knew nothing about. This man, who cheated banks out of $67 million, his friends out of $14 million, is promoting a questionable point of view that seriously affects the lives of millions of expats. Sorry, I cannot consider him a “well-known and respected Canadian legal affairs writer.”

The article quotes Roy Berg on the Transition Tax issues and Paul Seraganian on estate tax issues. An example of the Transition Tax issue:
 
A doctor who is a dual citizen practising in Canada,
with $2M of accumulated earnings in a private Canadian corporation,
would have a one-time U.S. tax liability of $300,000 this year

Roy Berg, director, U.S. tax law, Moodys Gartner
 

“A one-time tax liability of $300,000.” Incredible. Just a “fact.” Doesn’t matter at all how immoral this tax is in the first place. Doesn’t matter that this likely represents the doctor’s retirement savings. He/she likely worked very hard to earn that.This is a real-life person, not a hugely wealthy individual such as a corporate CEO who makes far more than $2 million a year in bonuses alone. It’s not small potatoes to confiscate that from a non-resident “U.S.” person. A Canadian citizen and resident. It is unbelievable that anyone, in any country would simply accept that U.S law applies outside it’s borders. It seems to me that “tax professionals” need to think carefully about what they are doing, who they are hurting and their role in what is truly an amoral regime at best and an immoral regime at worst. And people affected by this should think long and hard about parting with such amounts. I sincerely hope renunciations will be off the charts next year. One can at least be certain that “unofficial” renunciations, people “just walking with their feet” (as in non-compliance) will continue. There is a limit to the value of anything and U.S. citizenship is quickly becoming something non-residents simply cannot afford to keep.

An excellent comment by Karen Alpert on this article:

It is patently clear that Congress was not thinking about the impact of tax reform on non-resident US citizens. None of the discussion in the lead-up to tax reform, or in the committee hearings, indicated that Congress intended to punish the citizens and residents of other countries who happen to be claimed by the US as citizens. Nothing written by the IRS so far has indicated that they believe this applies to non-resident individuals – every example in the IRS notices has specifically looked at corporate shareholders. The only indication that this might apply to non-resident individual shareholders is from the tax compliance industry that stands to earn a large amount of fees on attempts to comply with this extra-territorial over-reach by the US.

If applied to non-resident individuals, the “transition” tax would be a pre-emptive grab at the tax base of Canada and every other country where US emigrants and Accidental Americans are living. The “deferred foreign income” that would be confiscated is money that was never subject to US tax, and is only claimed by the US because of a fictional “deemed repatriation”. Think about what that really means – the US is pretending that US emigrants are “repatriating” funds back to a country where they don’t live, and that they may no longer really identify with. The only good that could possibly come from this is the long overdue realisation that US taxation of the citizens and residents of other countries is contrary to the national interests of those countries and contrary to normal international practice.

The comments section is still open; please go over and make your views known.

**********

The other major article this week is at the Financial Times.

You can see the article on the

citizenshiptaxation facebook group

 
Financial Times
Americans abroad hit by Trump’s new repatriation tax rules
by Andrew Edgecliffe-Johnson in New York – FEBRUARY 4, 2018

John Richardson comments:

(A previous comment of John’s is here . )

@Mitchell @WBY @Brian Lillis @Monte

@Mitchell gives us an excellent description of the reality of this situation.

We are dealing with a situation where the “tax compliance community” says: “Resistance is futile” and the reality is “compliance is impossible”.

What will be people do? Those who have long term relationships with “tax compliance people” are probably in the worst situation. They will be under enormous pressure to transfer their pensions (in reality this is how these corps are often used) to the IRS. These people will be confused, frightened and “easy prey”for the amoral individuals who populate the industry. I saw one explanation of the “transition tax” from a highly regarded tax firm that noted that they must search their client base for “victims”.

Notably, this is also taking place against a backdrop where VERY FEW “tax professionals” even understand how this (so called) tax works and how to work with it (or against it).

It is laughable that the only way any individual could even know that this exists is because of the combined efforts of the media and the “tax compliance industry” (frankly the last group of people I would trust).

I would also like to stress that members of the tax compliance community do NOT know more about this than the individuals impacted. Sure, they may be able to calculate the tax better (assuming that it applies to Americans abroad at all.) But their insight into this is limited by the thought (if you want to call it a thought):

The law is the law – the intent of the law was irrelevant – the unintended consequences are irrelevant.

The unfortunate truth is this:

People are going to have to choose between following the advice from their tax professional that “the law is the law” and retaining their life savings.

It will be interesting to see what happens.

 
 

Imposing Tax & Reporting Obligations on the Citizens & Residents of Other Countries is Immoral

Latest Podcast Guest: Tax Attorney John Richardson

 

cross-posted from Tax Connections

After the latest IRS Medic podcast, Tax Connections published a post by Anthony Parent.

Perhaps the most unifying statement of the post is:

A part of our interview that really stands out to me is when Attorney Richardson referred to the current system of global taxation and compliance as immoral.

John Richardson answers :

With the respect to the following excerpt as evidence of the “immorality”:

“Imposes compliance obligations on tax residents of other countries.”

Notice that that says “compliance” obligations. This includes but is certainly not limited to “tax obligations”.

The Internal Revenue Code is written so that EVERY INDIVIDUAL in the world EXCEPT “NONRESIDENT ALIENS” is required to comply with the Internal Revenue Code in its entirety. This requirement is without regard to where you live in the world. So, in determining how the Internal Revenue Code applies to an individual, one would simply ask whether the person is a “nonresident alien”. If not, the the Internal Revenue Code applies in its full force. This means that the full force of the Internal Revenue Code applies to individuals who are citizens and residents of other countries who just happen to have been born in the United States. (U.S. citizenship is automatically conferred on those who were “Born In The USA”).

Think of it. The U.S. has actually exported the Internal Revenue Code around the world. The Internal Revenue Code is used to impose direct taxation on people who are BOTH citizens and “tax residents” of other countries! Note that is the Internal Revenue Code (in its full force) that applies.

Whether you are a seasoned tax professional or doing your first tax return, you know full well that that compliance with the Internal revenue code requires much more than the payment of U.S. tax. It requires compliance with a range of penalty laden and intrusive reporting obligations. It also punishes those who “commit personal finance abroad” and/or attempt financial and retirement planning outside the United States.

As mentioned in the video, all tax systems are expressions of the cultural values of the country. So, the application of the Internal Revenue Code to other countries, means that the U.S. (via its tax system) is actually exporting and attempting to impose U.S. cultural values (or lack thereof) on the citizens and residents of other countries. The video used the example of imposing the Internal Revenue Code on residents of Muslim countries. This is a big problem that can lead only to trouble. (See for example a recent article written by Virginia La Torre Jeker that suggests conflicts between the Internal Revenue Code and Sharia law.)

The United States and Eritrea are the only two countries in the world that attempt to impose “worldwide taxation” on the residents of other countries. Interestingly, Eritrea imposes only an excise tax. It does not export its reporting requirements and create “fake income”. It is a far more gentle system than that imposed by the United States.

Frankly, to compare the Eritrea to the United States (in this regard), is an insult to Eritrea.

The Current System of Global Taxation and Compliance is Immoral

 

cross-posted from Tax Connections

UPDATE February 2,2018
For more on how an expat can have higher U.S. taxes than a comparably situated Homeland American, please see here.
 
After the latest IRS Medic podcast, Tax Connections published a post by Anthony Parent.

Perhaps the most unifying statement of the post is:

A part of our interview that really stands out to me is when Attorney Richardson referred to the current system of global taxation and compliance as immoral.

John Richardson answers:

 
With the respect to the following excerpt as evidence of the “immorality”:

“Taxes due are usually nothing because of the foreign income exclusion and foreign tax credits or incredibly high because of that the type of income is one that was disfavored by Congress.”

Two general thoughts:

1. It is true that many Americans abroad do not have to send a check to the IRS to pay U.S. taxes. This does NOT necessarily mean that U.S. tax is not owing. Remember that FTCs are a mechanism to pay taxes that ARE ACTUALLY OWED. One pays a tax that would otherwise be owed by using the FTC. What is astonishing about the situation of Americans abroad is that:

Absent the tax mitigation provisions afforded by the FTC rules and the FEIE (“Foreign Earned Income Exclusion”), their U.S. tax bill might be higher than the tax bill of a comparably situated Homeland American!! In other words, the rules of the Internal Revenue Code operate so that Americans abroad (because they have a non-U.S. financial footprint) will have higher U.S. taxes than a comparably situated Homeland American.

A good example of this would be the sale of a principal residence. The fact that their mortgage is in foreign currency frequently means that Americans abroad would pay a tax on the sale of the principal residence even if there is no capital gain on the property.

2. Americans abroad are subject to all kinds of things that I would call fake income. Again this is due to the fact that they live outside the United States. I define “fake income” as income that is specifically created where there really isn’t any. Examples would include:

– phantom gains on foreign currency transactions (see the example of the discharge of the mortgage above)

– Subpart F income because they carry on business through small business corporations that are in their country of residence (but foreign to the USA)

– PFIC “taxation” (interpreted to apply to non-U.S. mutual funds)

– the consequences of using the “married filing separately” category (because they are frequently married to non-U.S. citizens)

– more expensive divorce (because of the rules governing marriage to a non-U.S. citizen)

– and probably more

The bottom line is this:

U.S. citizens who attempt to live outside the USA will be punished for it by the Internal Revenue Code.

Meet the Proposed Commissioner of the IRS – A Welcome Change?

cross-posted from Brock.

Rettig

Politico announced Trump’s nomination Of Charles P. Rettig, including the following excerpts:

Rettig, who specializes in settling complex tax disputes between his taxpayer clients and authorities like the IRS, known as tax controversies, has for more than three decades represented clients before the IRS, the Justice Department, state tax authorities and other jurisdictions.

Rettig is no stranger to the Washington tax policy community. Many IRS officials would be familiar with him because of tax litigation in which he’s been involved.

Rettig’s nomination would break a nearly two-decade practice of naming commissioners from the general business world, a trend that began after the IRS Restructuring and Reform Act of 1998. Prior to that, commissioners generally had tax backgrounds.

 
Continuing with the conversation from Media & Blogs thread, I see many mentions of the fact that his firm represented some 100 UBS clients (which may be why some of his articles concern the OVDP). I am trying to locate some actual court cases but the site that keeps coming up in references seems to be down. He also clearly, is respected for his work representing clients by his peers:

TaxControversy360

Rettig would also oversee the implementation of tax reform. Rettig has been a friend and mentor to many of us in the tax controversy bar over the years, and we are encouraged by the selection of someone from the private bar to the post.

Given he is a tax litigator, I don’t expect he would support a change to RBT (hope I am wrong about that) but some of his comments certainly suggest he understands what has happened and that our situation is very different from that of U.S. residents with foreign accounts.

Forbes IRS FBAR Streamlined Procedures Revisited, Am I Non-Willful

If, as some believe, the Streamlined Procedures are being used to entice unsuspecting taxpayers into placing their head onto the FBAR chopping block, the government should be held accountable. However, if, as most believe and our experience seems to support, the Streamlined Procedures were designed to provide not quite willful taxpayers an opportunity back into compliance through a simplified and expedited process, the IRS should respect the vast majority of Streamlined submissions (and requests for transitional treatment) and move on.

Forbes IRS FBAR Voluntary Disclosure Program Taxpayer Interviews

It should be anticipated that the IRS will pursue examinations of the amended returns of taxpayers residing in the United States in some manner. It remains uncertain whether the IRS would or could effectively pursue those residing outside the United States in any realistic manner. It should also be acknowledged that there remain viable alternatives to the OVDP, including the voluntary disclosure practice of the IRS set forth in Internal Revenue Manual (IRM) 9.5.11.9 [see Example 6(A)], Section 4.01 of the Criminal Tax Manual for the U.S. Department of Justice, and Section 3, Policy Directives and Memoranda, Tax Division of the U.S. Department of Justice.

Certainly, given the complexities of the Internal Revenue Code, other relevant statutes and life in general, many of the indiscretions associated with an income tax return or FBAR are anything but willful or intentional and definitely not fraudulent or criminal in nature. In these situations, an interview of the taxpayer and/or their return preparer can lead to an extremely quick and reasonable resolution.

Forbes articles

Many, many articles penned by Mr. Reddig are available via SSRN and listed here.

Bubblebustin asked for this post to be based upon this paper. Unfortunately the most we can offer is the link and a few excerpts. Strongly suggest everyone read this particular article- Why the Ongoing Problem with FBAR Compliance? from the Journal of Tax Practice & Procedure, August-September 2016, published by CCH, a part of Wolters Kluwer.

A major point in the article is when government is trusted, is seen as legitimate, compliance tends to be a result. It probably does not help that the IRS emphasizes submissions coming from OVDP and Streamlined will be examined “in an effort to uncover leads for criminal prosecutions.” Mr. Rettig is also aware that eighty percent of non-resident filers will have no U.S. Tax Liability. Though again, that is a reference to income tax and does not cover some of our worst grievances.

Potential government actions should consider the
impact
on those six-plus million U.S. people (and their
advisors) sitting in the bleachers domestically or in various
foreign countries trying to determine how best to pursue
some form of voluntary compliance, expatriation or to
possibly just continue sitting in the bleachers … “History
repeats itself because no one was listening the first time.

 

The Conscience of a Lawyer and “The FBAR Fundraiser” Revisited

Many of you may remember this outstanding post (below) from the early days……when the incessant torment was massive fear of “#FBAR penalties.” Compounded by #OVDP, (or #OVDI in 2011); FAQ35, minnows, whales, LCU’s, FATCA, DATCA, GATCA, FATCAnatics, JustMe, Opting out, in lieu of FBAR penalty etc ad nauseum. People who were minnows, tax compliant but did not know about FBAR being fined $75,000; Just Me engaging the Taxpayer Advocate to get his ridiculous fine of $172k lowered to “only” $25k. Those were days of real terror. Now time has passed, those who want to be compliant can do Streamlined, many have seen they can remain under the radar. The strong possibility of Tax Reform had everyone feeling “safe” again (relatively speaking). About the last thing expected, was that things would get worse. Well guess what, they did.

Anyone who owns a small corporation is being told a one time transition tax is part of the new Tax Cuts and Jobs Act. Now this is a very curious thing as not one word was said about the expat situation during the House or Senate sessions; all of the talk focused on changing the status of large non-resident corporations to a territorial model. I actually watched a very good portion and listened carefully for any mention of us and for any information about this tax. It was clearly concerned only with these large corporations. How many compliance people watched? Can the intent of the law be determined only from a strict reading without any regard for context? The transition tax was a way of the US extracting something from large multinational corporations’ earnings that would never be repatriated. This is the context, the situation the law was meant to address. Shortly after the first version of the bill was passed by the House, the first Canadian tax lawyer wrote that this same tax would apply to smaller corporations, single-shareholder owners in spite of the fact that they will not be able to transition to a territorial system after this “tax” is paid. An excellent discussion took place at Brock between USCitizenAbroad & Karen.

This is like a repeat of a very bad movie, one which we all should take a close look at.

Like the OVDP, expats are at risk of confiscation of a considerable portion of wealth based on a non-event.

And like the OVDP, the enforcers will not be the IRS but the cross-border tax compliance community.

Remember how strongly OVDP was pushed, due to the fact there would be no criminal charges? It was revoltingly referred to as an “amnesty program.” It was a program for criminals, and was not intended for people who had in no way, consciously chosen to omit filing an FBAR. Virtually no one had ever heard of it and it had never been unforced prior to the Swiss bank debacle.

How about all the hoopla about “quiet disclosures” which were misunderstood (misrepresented?) as amounting to a first disclosure filed without going through the program/without anything to flag it as new (i.e., likely delinquent for FBAR). As I recall, a real “quiet” disclosure was amending a previous return without calling the IRS’ attention to it.

As has been said, the law says “you have to file” it does not say you have to go through the OVDP/OVDI. Fear of being labelled a “quiet disclosure” stopped people from following the actual law, of just entering the system. There was no way many of us would have entered OVDP, even without the FactSheet 2011-13 (which did not say that one had to enter OVDP).

Yet the tax compliance community pushed OVDP and many people who did not belong there went through 2+ years of pure hell plus penalties. And later, so many lamented the fact that it was clear OVDP was not for minnows………….However, the fact remains that the actions of the compliance community at the very least, established themselves as “IRS agents-at-large.” Many feel the influence of the tax compliance community amounts to actually making the law, rather than deferring to what Congress passed (case in point – the “retroactivity” of 877A).

If it were not for the tax community, nobody would have noticed anything in the bill to suggest this idea that small foreign corporations (who do NOT have shareholders resident in the U.S.)would be required to pay the Transition Tax. No one would ever have imagined nor come to the conclusion that this portion of the law would apply to them. While we wait for some kind of indication from Congress as to their intention, the compliance community continues to engage in an education campaign; more and more articles are appearing. Some make reference to the fact it is not entirely clear whether it applies or not yet all are claiming it does. In other words, this is absolutely a creation of the compliance community.

Are we about to see a repeat of the tax compliance community insisting the transition tax applies which will cost people many thousands of dollars just to compute the actual retained earnings figure and an obscene amount of tax that will transition expats nowhere? Let’s not forget that for the 5 countries with Mutual Collection Agreements (Canada, Denmark, France, Sweden & the Netherlands), people who were citizens at the time the tax was incurred do not at this time, have any reason to fear.

As far as we know, RO was unable to get clarification from the Congress before the bill was passed. Guidance from the IRS only gives examples for large corporations. Guidance also here

And while we assume penalties for non-compliance will be threatened, has anyone actually seen, read or heard of anything specific?

Will this be the “straw that broke the camel’s back?” How many will refuse to turn over their pensions to the IRS? Where will this end?

It is still clear that the best protection is renouncing U.S.citizenship.

More Information

********************
The Conscience of a Lawyer and “The FBAR Fundraiser”

Cross posted from RenounceUScitizenship.

Having a license to practise law (bar admission) does not a lawyer make.

Admission to the Bar, gives an individual the legal right to conduct oneself as  a lawyer. A lawyer operates within a specific construct of ethics and morality. The American Bar Association Model Rules of Professional Conduct make it clear that

A lawyer has an obligation to the client that is more important than loyalty to any other person or entity. This principle is made clear in Rule 1.7 of  The American Bar Association Model Rules of Professional Conduct.  Rule 1.7 clarifies that a lawyer should not act for a client if there exists any conflict of interest. It reads as follows: Continue reading The Conscience of a Lawyer and “The FBAR Fundraiser” Revisited

Appears U.S. can Suggest but Cannot/Will not Force Citizenship on Those Born Outside the Country

 
This post appeared at reddit. It is interesting that while the Consulate in Montreal asked “why we did not want to apply for citizenship of our son” several years later, there had been no efforts to impose or force it. This gentleman explains it as pressure however, the lack of any follow-through by the Consulate suggests strongly that the U.S. simply cannot or will not impose citizenship on persons born outside the U.S., simply because they are eligible for it.

It should also be considered that while it is commonly understood that the INA establishes certain situations that define when one can be a citizen, it does not say that one must. The underlying assumption is that one would automatically want to be a U.S. citizen but this does not constitute a “law.” There is no reason to assume U.S. law has power over individuals who are citizens and residents of other countries.

 

Pressure to have kids become US citizens by consulate in Montreal (self.expats)

submitted 14 hours ago * by UncutExpat American living in Montreal
 

I’m a US expat living in Montreal for many years. My wife is Canadian and we have two kids born here (who have Canadian passports). My wife’s also an accountant who does tax returns (Canadian and US). She told me that if our kids are also US citizens, then our paperwork for US tax returns is more complex.

We have education funds for both kids, so we need to legally declare that revenue to the US. They need at least a tax ID number, so we want to fill IRS W-7. That form requires certified copies to the of the supporting documents, and the information shown on the form is as follows:

You may be able to request a certified copy of documents at an embassy or consulate. However, services may vary between countries, so it is recommended that you contact the appropriate consulate or embassy for specific information.

For our first son, several years ago, we were able to get the certified copies in Montreal (for $50), but it was not easy. We had to speak with three different people at the consulate who asked us why we did not want to apply for citizenship of our son. At first I thought it was really none of their business, but by the end of the last meeting, I politely said I would do the US citizenship application if someone paid for my wife’s time with the additional paperwork that would be required for the next 18 years at least! The whole deal took more than 3 hours.

This time, for our second son, we only had to see two people (who asked us the same pressuring questions as before). The second person finally told us (after speaking to a colleague when we explained it was for accounting reasons that we did not want to apply for citizenship now) that since the form was 4 pages, it would cost $200.00 for the certified copies ($50 per page). We asked why it was so much, and they told us the policy had changed since the last time. We politely declined and left, realizing the whole episode was a waste of time. We often visit Boston or other cities, and it can be done there in an IRS office.

Just wondering if anyone else had such annoyances, and how they solved the problem. Needless to say, I’m not happy with this policy of the consulate (and actually wonder what is the benefit to the US, given that immigration is a big issue these days).

EDIT: the Tax ID is needed mostly for me to claim them as dependents (it’s not much of a deduction, as we don’t pay much income tax to the US now — however, it could be worth it in the future and my accountant says it’s a red-flag to suddenly claim children as dependents when they weren’t on last year’s return). Also, if my kids grow up in Canada and never want to move to the USA, they’ll be stuck with an obligation to declare their income every year as long as they have a US passport (huge paperwork burden with no real benefit).

 

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!

Seven Simple Points to be Made Re: Transition Tax and CFCs

 


 
This comment from the Isaac Brock Society makes basic points to be made with regard to the proposed “Transition Tax” in both the House and Senate Tax Reform Bills.
 
Every expat who knows there are private individuals who are incorporated in their country should be contacting relevant government representatives giving them the information that U.S. Tax Reform may impose a “transition tax.” As it is widely surmised that this is an unintended consequence, now is the time to bring it to the forefront and create awareness/resistance to this. We have appealed to the U.S. government to change the relevant sections (or give some clarification); if this does not occur, we cannot allow the compliance community to decide what the law is. In the past this HAS occurred with regard to the treatment of PFICs, applying the Exit Tax retroactively to people who renounced prior to 2008 and putting “minnows” into OVDP/OVDI. Time to stand up and say “NO!”
 
The following points would work for any country; just change the numbers in point 1 and “Canadian” to your country (generally) and the ministers’ names to yours.
 
1. There are approximately one million Canadian citizens who are resident in Canada and are also U.S. citizens (mostly Canada/U.S. dual citizens – with the U.S. citizenship conferred on them because of a U.S.
birthplace).

2. It’s safe to say that a significant number of these “dual citizens” are “small business owners”, who carry on business through Canadian Controlled Private Corporations.

3. It is possible and likely that many of these “small business” owners have (since 1986 or the date of incorporation) accumulated earnings.
These accumulated earnings operate as their “retirement pensions” ( a fact that has been widely discussed with Finance Minister Morneau and Prime Minister Trudeau as part of their discussions on Canadian tax reform).

4. The United States imposes taxation on individuals based ONLY on U.S.citizenship (even if the person lives in Canada). The United States is the only advanced country in the world to impose “citizenship-based taxation”. The United States is the ONLY country in the world that BOTH:
1. Confers citizenship based on birth in the country AND 2. imposes “worldwide taxation” based on citizenship.

5. Many of the Canadian Controlled Private Corporations owned by Canadians with dual citizenship are deemed under the Internal Revenue Code of the United States, to be “U.S. shareholders”, of what are called “controlled foreign corporations”. To repeat, from a U.S. perspective the Canadian shareholders of Canadian Controlled Private Corporations, may be considered to be the “U.S. shareholders” of “Controlled Foreign Corporations”.

6. The United States is in the middle of a process of amending the Internal Revenue Code. It appears that both the House and Senate versions of the bill, include a provision that would require the “U.S. shareholder” of a “controlled foreign corporation” to include directly in his/her personal income, a percentage of the total amount of the “retained earnings” of the “controlled foreign corporation” (which could well be a Canadian Controlled Private Corporation”). This percentage would be based on the amount of the retained earnings which have accumulated since 1986. See for example Sec. 14103 of
The Tax Cuts and Jobs Act

(See the section starting on page 375 with Sec. 14103 beginning on page391.)

7. Although it is not completely clear that this provision would apply to the Canadian shareholders of Canadian Controlled Private Corporations, the “literal reading of Sec. 14103 suggests that it may.

Certainly there have been (and this is where the danger lies) some tax professionals who are adamant that this would apply.

Conclusion:

It is extremely important that this danger be understood by all “stake holders” in Canada. This would include Finance Minister Morneau and members of the small business community in general.

Some discussion of this problem may be found here.

.

The Merry-Go-Round of “Unintended Consequences”

 

This provision is not designed to catch individuals (I think), and certainly not Americans abroad – they are collateral damage. it’s incredibly unfair.

A little more than 10 days ago, an article by a Canadian tax lawyer claimed the proposed House Bill contained two very startling changes that would affect #AmericansAbroad:

BAD NEWS FOR BUSINESS OWNERS
If your cross-border client owns a business, his tax position “may get substantially worse,” Reed says, noting two areas of concern:

a one-time 12% tax will be imposed on all income previously deferred from U.S. tax in Canadian (foreign) corporations; and
new complex rules make it difficult for U.S. citizens who own Canadian (foreign) corporations to defer active business income.
The 12% tax is part of the transition to a territorial corporate tax system.

“Although perhaps unintentional, since U.S. citizens will not benefit from a territorial model, the new rules impose a 12% tax on any cash that has been deferred since 1986,” says Reed.

He offers the example of a U.S. doctor who moved to Canada in 1987 and has since deferred income from personal tax in her medical corporation, and invested it — resulting in a potentially significant tax bill.

Deferring active business income

New punitive rules that apply to US citizens who own a business. Currently, most US citizens who own a Canadian corporation that is an active business don’t pay tax on the company’s profits until they take the money out. The House plan changes this. It imposes a new, very complicated, set of rules on US citizens that own the majority of a foreign corporation. The proposal would tax the US citizen owner personally on 50% of the entire income of the Canadian corporation that is above the amount set by an extremely complex formula. At best, this will make the compliance requirements for US citizens that own a business extremely complicated and expensive. At worst, this will cause double tax exposure for US citizens who own a Canadian business on 50% of the profits of that business.
 

This post was a response to the issues raised.

 

Today, another Canadian compliance professional made similar observations about the proposed Senate bill.

 

Kevyn Nightengale published an article on LinkedIn; excerpts below:

American? Own shares in a foreign corporation? Get ready for a pain in the wallet

Published on November 10, 2017
by Kevyn Nightengale

Accumulated deferred foreign income

One thing they will do is apply an immediate tax (well, sort of immediate – it’s to be paid over 8 years) to the retained earnings of those foreign subsidiaries. And there’s some logic to this as well. Those earnings have been tax-deferred until now. If they fell into the “exempt” system in future years, US multinationals will have effectively gamed the system by keeping them offshore long enough to completely escape tax.

One problem is that if you’re an American individual, and you own shares in a foreign corporation directly, this provision will create an immediate tax in your hands.

You won’t get a foreign tax credit for the corporate tax (like a US domestic corporate parent). You won’t get a special deduction (like a US domestic corporate parent). You just have to pay tax on the retained earnings.

It’s a double whammy if you live abroad

If you live in a country where it’s common to run a small business through a corporation (say, Canada), you already have enough double-tax issues to worry about (Subpart F, filing forms 5471, FINCEN 114, etc.). This new provision will probably lead to double taxation. And even if you can pay out dividends to limit that, it probably will create extra tax in your country. The US tax probably isn’t creditable in your country (in Canada, it isn’t).

Global intangible low-taxed income (“GILTI”)

…… The shareholder (yes, including a US citizen living abroad, in the same country as the company) has to include an amount in his income.

The amount is the company’s total income less a deemed return (10%) on tangible assets. This means that any type of income is caught. Companies that provide services are especially vulnerable, because they typically have only a small amount of tangible assets. Incorporated professionals are going to be hit hard. They’ll be taxed on their companies’ incomes, even if the company doesn’t distribute it to them. And that tax will apply at full tax rates, not qualified dividend rates.

Can this be avoided?

This provision is not designed to catch individuals (I think), and certainly not Americans abroad – they are collateral damage. it’s incredibly unfair.

*******
 
I find it puzzling that both gentlemen indicate these policies are not intended to include #AmericansAbroad, yet act as if they have no choice but to “enforce” this if it becomes U.S. law. Haven’t the “unintended” consequences of #FBAR caused enough grief for #AmericansAbroad? Why does everyone assume there is nothing that can be done to stop this from extending to expats? If the law is not meant to be applied that way, does not specifically indicate they are to be included, how can they claim they must do so because it is “U.S. law?” That is clearly not the correct position to take. And what will the result be if people are mad/scared enough to simply not deal with this U.S. situation any longer?

 

*******

John Richardson comments:

There are many who interpret the proposed changes, to include a provision that would lead to the confiscation of a significant portion of the retained earnings of small business corporations, owned by Americans abroad. I wrote the above referenced post and used the example of a U.S./Canada dual citizen living in Canada who owns a small business corporation. By the way, it is very common for Canadians to utilize small business corporations to carry on their businesses.

This specific provision is found in Sec. 4004 of the Proposed tax bill.
The way it would operate (after identifying those who own small Canadian Controlled Private Corporations in Canada) would be to:

1. Focus on the retained earnings of the corporation since 1986. Note that these earnings were either NOT subject to U.S. taxation at the time or were already included in the income of the shareholder via the subpart F provisions.

2. Impose a tax of either:

House Bill: 14% (cash) or 7% (non-cash)

Senate Bill: 10% (cash) or 5% (non-cash)

on the retained earnings by including those earnings in Subpart F income.

Understand that for many Canadians these small business corporations contain their retirement savings. So, the bottom line is the the United States proposed to literally confiscate these assets.

Understand also that Sec. 4004 is part of the section that creates the system of territorial taxation for U.S. corporations. The idea is that the “transition tax” is a way to repatriate the earnings which have not returned to the USA (obviously because of confiscatory taxation). After paying this “transition tax” those U.S. corporations will get the benefit of territorial taxation.

Understand also that U.S. individual shareholders of Canadian Controlled Private Corporations do NOT get the benefit of “territorial taxation”
but (if this is interpreted correctly) are still required to pay this.

What the USA, in it’s great wisdom is doing, is to:

1. Retroactively go back and deem income that was NOT taxable at the time to be taxable; and

2. Use the mechanism of subpart F inclusion (I am not going to dignify this by calling it a tax) to CONFISCATE the asset.

Understand also that this is one more of a long line of indignities inflicted on Americans abroad that includes:

– the virtual confiscation of Canadian pensions (via the Sec. 877A Exit Tax rules applied to some who renounce U.S. citizenship) that were earned in Canada while the individual was NOT living in the United States; and

– the application of the 3.8% Obamacare surtax to distributions of from Canadian RRSPs (the equivalent of U.S. IRAs) and excluding distributions from IRAs.

I suspect that this will be the “straw that breaks the camel’s back”.

And “The Band Played On ….””