The compliance community leads the @USTransitionTax charge: "TCJA’s transition tax could hit cross-border biz owners" https://t.co/jQwJ1sUomM
— U.S. Transition Tax – Subpart F (@USTransitionTax) January 24, 2018
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.
********************
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”