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.

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

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.

 

 

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

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.

.

Parsing Proposed Legislation -Intended Confiscation or Not?

 
cross posted from The Isaac Brock Society
 

Is there a duty to obey a law that was never intended to apply to you,
even if the literal reading of he law suggests that it may/does apply?

 
 
 
 
USCitizenAbroad says
November 22, 2017 at 7:13 am

 
@Karen notes:

At the bottom of page 62 of the section by section summary:

” For the last taxable year beginning before the dividend exemption takes effect, a U.S. corporation that is a 10-percent shareholder of a foreign corporation must include in income its pro rata share of the undistributed, non-previously-taxed post-1986 foreign earnings of the corporation. The subpart F inclusion is taxed at rates of 10 percent for earnings attributable to liquid assets and 5 percent for other earnings. (emphasis added)”

Clearly, the Senate intends for the deferred foreign income to be taxable only to corporate shareholders. I’m not sure how the actual legislative text accomplishes this.

This is what the Senate summary says. This may even be what the Senate actually intends. I have spent considerable time trying to read through this crap to determine whether the “literal reading” of the proposed statute (regardless of legislative or Senate intent) can be interpreted to apply to the shareholders of Canadian Controlled Private Corporations. Although I do NOT believe that the intent is to apply this “transition tax” to Canadian Controlled Private Corporations, I believe that the literal reading of Sec. 14103 would include Canadian Controlled Private Corporations. So, the Senate Bill is no improvement (with respect to Americans abroad than the House bill).

What follows is my reading/parsing of the proposed legislation. I hope that those who are “wiser than I” can demonstrate why I am wrong.

1. What is the purpose of Sec. 14103?

The purpose is to confiscate a percentage of the retained earnings of certain corporations as a way of funding the move to territorial taxation for corporations.

2. Do the U.S. individual shareholders, including Americans abroad get the benefits of territorial taxation?

Absolutely not.

3. To what kind of corporations does Sec. 14103 apply?

The section applies to any “deferred income corporation”.

4. What is a “deferred income corporation”?

“The term ‘deferred foreign income corporation’ means, with respect to any United States shareholder, any specified foreign corporation of such United States shareholder which has accumulated post-1986 deferred foreign income (as of the close of the taxable year referred to in subsection (a)) greater than zero.”

Note that U.S. citizens are United States shareholders. So the question becomes …

5. What is a “specified foreign corporation”?

“For purposes of this section, the term ‘specified foreign corporation’ means— (A) any controlled foreign corporation,”

By “this section” they mean Sec. 14103 – noting that Sec. 14103 is the section that prescribes who is pay the “transition tax”. It does NOT mean Sec. 14101 which is the section that prescribes who gets the benefit of “territorial taxation”.

So, a “specified foreign corporation” appears to include any “controlled foreign corporation” which would include a very large number of Canadian Controlled Private Corporations!

Notice how similar the language in Sec. 14103 “specified foreign corporation” (who is subject to the tax/confiscation) is to the language in Sec. 14101 (who gets the benefit of territorial) “specified 10-percent owned foreign corporations”. The definition of “specified 10-percent owned foreign corporations” in Sec. 14101, is restricted to U.S. corporations that are the owners of a foreign corporation. See:

‘‘(1) IN GENERAL.—The term ‘specified 10-per-cent owned foreign corporation’ means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation.”

Conclusion …

The language in both the House and Senate bills seem to allow for the confiscation of the retirement plans of some Shareholders of some Canadian Controlled Private corporations. (In July of 2017, Mr. Morneau – of Trudeau Government Finance Minister fame) began a discussion of how the Government of Canada could attack this same pool of earnings. It appears that the U.S. Government may be interested in that same earnings pool.)

Actually, I remain convinced that this is not the intent. So, I will conclude with the question that I asked in my last comment on this issue:

Is there a duty to obey a law that was never intended to apply to you, even if the literal reading of he law suggests that it may/does apply?

________________________________________________________________________

Legislative Text of US Senate Tax Reform Bill

________________________________________________________________________

What follows is a very parsed down excerpt from Sec. 14103

1 SEC. 14103. TREATMENT OF DEFERRED FOREIGN INCOME
2 UPON TRANSITION TO PARTICIPATION EX-
3 EMPTION SYSTEM OF TAXATION.
4 (a) IN GENERAL.—Section 965 is amended to read
5 as follows:
6 ‘‘SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME
7 UPON TRANSITION TO PARTICIPATION EX-
8 EMPTION SYSTEM OF TAXATION.
9 ‘‘(a) TREATMENT OF DEFERRED FOREIGN INCOME
10 AS SUBPART F INCOME.—In the case of the last taxable
11 year of a deferred income corporation which begins before
12 January 1, 2018, the subpart F income of such foreign
13 corporation (as otherwise determined for such taxable year
14 under section 952) shall be increased by the greater of—
15 ‘‘(1) the accumulated post-1986 deferred for-
16 eign income of such corporation determined as of
17 November 9, 2017, or
18 ‘‘(2) the accumulated post-1986 deferred for-
19 eign income of such corporation determined as of
20 December 31, 2017.

1 ‘‘(d) DEFERRED FOREIGN INCOME CORPORATION;
2 ACCUMULATED POST-1986 DEFERRED FOREIGN IN-
3 COME.—For purposes of this section—
4 ‘‘(1) DEFERRED FOREIGN INCOME CORPORA-
5 TION.—The term ‘deferred foreign income corpora-
6 tion’ means, with respect to any United States
7 shareholder, any specified foreign corporation of
8 such United States shareholder which has accumu-
9 lated post-1986 deferred foreign income (as of the
10 close of the taxable year referred to in subsection
11 (a)) greater than zero.
12 ‘‘(2) ACCUMULATED POST-1986 DEFERRED FOR-
13 EIGN INCOME.—The term ‘accumulated post-1986
14 deferred foreign income’ means the post-1986 earn-
15 ings and profits except to the extent such earnings—
16 ‘‘(A) are attributable to income of the
17 specified foreign corporation which is effectively
18 connected with the conduct of a trade or busi-
19 ness within the United States and subject to
20 tax under this chapter, or
21 ‘‘(B) in the case of a controlled foreign
22 corporation, if distributed, would be excluded
23 from the gross income of a United States share-
24 holder under section 959.

1 ‘‘(e) SPECIFIED FOREIGN CORPORATION.—

1 ‘‘(1) IN GENERAL.—For purposes of this sec-
2 tion, the term ‘specified foreign corporation’
3 means—
4 ‘‘(A) any controlled foreign corporation,
5 and
6 ‘‘(B) any section 902 corporation (as de-
7 fined in section 909(d)(5) as in effect before the
8 date of the enactment of the Tax Cuts and Jobs
9 Act).

Vulnerable Americans Abroad: Legal Weight of IRS Pubs, Info, FAQs = ZILCH!

An article by Virginia La Torre
Jeker JD, at the
angloinfo blog

This is an excellent post. It clarifies how one can determine what the IRS really can (and can’t) do and in particular, points out how the OVDP program is NOT rooted in law. This is important for those who do not/never did belong in OVDP in the first place. OVDP is for criminals. Simply failing to file with no tax due when one is unaware of the requirements does not equate to being a criminal. And don’t forget, once OVDP is entered, there is no “reasonable cause” option available. Instead, one commits to a penalty, pretending to be guilty when likely one is not.

What’s a taxpayer to do? As if the US tax rules are not confusing enough, it’s a sad situation when taxpayers cannot rely on information supplied by the Internal Revenue Service (IRS) in the most commonly accessed and user-friendly formats – such as IRS Publications, “Frequently Asked Questions” (FAQs), news releases, videos and the like. On May 18, 2017 IRS issued a memorandum to all of its examiners reminding them that FAQs and other items posted on the IRS website www.IRS.gov that have not been published in the Internal Revenue Bulletin (IRB) are not legal authority.

The five types of guidance published in the IRB are:

Treasury Regulations
IRS Revenue Rulings
IRS Revenue Procedures
IRS Notices, and
IRS Announcements

Be Careful What You Rely On! Case in Point: OVDP

A good example of how serious the problem of “unofficial” IRS guidance can be is evidenced by the IRS “Offshore Voluntary Disclosure Program” (OVDP), which was accused of IRS “bait and switch” tactics. Taxpayers with offshore assets and those living abroad are likely very familiar with the OVDP. Even with the critical importance of the OVDP and its monumental impact on thousands of taxpayers, the OVDP is governed only by a long series of FAQs (and much agency secrecy). Taxpayers must be reminded these FAQs are not binding authority, even though the FAQs themselves do not indicate any warning to taxpayers or their advisors of this fact.

More here