Part 27 – While addressing some Sec. 965 @USTransitionTax concerns, there is NO EVIDENT CONCERN from @WaysandMeansGOP ‏for the injustice inflicted on Americans abroad

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.

BILLS-115SAHR88-RCP115-85

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.)
G:\M\15\BRADTX\BRADTX_108.XML
g:\VHLC\112618\112618.162.xml (708722|9)
190
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 …

http://www.citizenshipsolutions.ca/2018/05/05/part-11-responding-to-the-sec-965-transition-tax-letter-to-the-senate-finance-discussing-the-effects-of-the-transition-tax-on-americans-abroad/

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.

John Richardson

What if Meghan Markle’s child is born a U.S. citizen? Would the child have any immediate tax and information reporting requirements to the IRS?

-posted from Quora

J-bnnJohn Richardson
Toronto lawyer: FATCA U.S. tax + renunciation of citizenship
CitizenshipSolutions

John Richardson, Lawyer (1982-present)
Answered Mon
 

 
What if Meghan Markle’s child is born a U.S. citizen? Would the child have any immediate tax and information reporting requirements to the IRS?

I note that the question (1) assumes that Ms. Markle’s child is a U.S. citizen and (2) the question focuses on BOTH tax and reporting requirements.

Would Meghan Markle’s children be U.S. citizens?

The majority view is “YES” her children would automatically be U.S. citizens. My minority view is “NO” – they would have the right to be U.S. citizens but not the obligation to be U.S. citizens. I have previously explained my reasoning on Quora here:

John Richardson’s answer to Could Meghan Markle’s children apply for US citizenship?

But, assuming that her child will be born a U.S. citizen, then …

To be perfectly clear:

With the exception of gifts/bequests received from a “covered expatriate” the recipient of a gift is NOT required to pay tax on the value of the gift.

The recipient of a gift or bequest may be subject to penalty laden reporting requirements. These reporting requirements apply even though the value of the gift is NOT subject to tax.

Furthermore, this answer is really a “thought experiment” which explores the absurdity of certain aspects of the Internal Revenue Code apply to the lives of Americans abroad.

Here we go …

Tax Requirements …

The obligation to file a tax return would depend on the amount of taxable income the child received and whether that income met the thresholds for filing. It is unlikely (but not impossible) that the child could meet the income thresholds. For information on thresholds (which also depend on filing category) see:

Do I Need to File a Tax Return?

Reporting Requirements (which may exist independently of the obligation to file a tax return)…

The reporting requirements can exist independently of whether a tax return is required to be filed. It depends on whether there are sufficient facts to trigger the basic reporting requirements.

The child is a recipient of support from Harry

The child is probably going to live life as a normal baby and will be both supported and cared for by his/her parents. It is reasonable to assume that the child will receive financial support from the Harry (the father) who is (from a U.S. perspective) an “alien” or at least a foreign person.

Should the food, housing, medical care, toys, etc. received from Harry be considered to be a “gift” from a “foreign person”? If the answer is YES and the value of the support exceeds $100,000.00 USD then the child has a reporting obligation to the IRS (whether the child files a tax return or not). This is made very clear by Section 6039F of the Bible Of American Life – The Internal Revenue Code. It reads:

26 U.S. Code § 6039F – Notice of large gifts received from foreign persons
Continue reading What if Meghan Markle’s child is born a U.S. citizen? Would the child have any immediate tax and information reporting requirements to the IRS?

The “Pax Americana” to the “Tax Americana”: How the USA is imposing a separate, punitive tax regime on “nonresidents”

cross-posted from storify

The “Pax Americana” to the “Tax Americana”: How the USA is imposing a separate, punitive tax regime on “nonresidents”

Tax Colonization by exporting the Internal Revenue Code to other countries

by John Richardson

Part 9-2: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana” (cont)

 

This is a continuation of the post “Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”
cross-posted from citizenshipsolutions by John Richardson

The first portion of the post was published here.
Links to the first eight posts in my “transition tax” series are listed at the bottom of this post.

Part D: Citizenship and the expansion of Empire – Ancient Rome

As described by Andrew Henderson of Nomad Capitalist, in 212 AD the Roman Emperor Caracella expanded Roman citizenship by bestowing Roman citizenship on all free men. A listing in Wikipedia suggests that:

The Roman jurist Ulpian‘s Digest stated, “All persons throughout the Roman world were made Roman citizens by an edict of the Emperor Antoninus Caracas” (D. 1.5.17).

The context of the decree is still subject to discussion. According to Cassius Dio, the main reason Caracalla passed the law was to increase the number of people available to tax. In the words of Cassius Dio: “This was the reason why he made all the people in his empire Roman citizens; nominally he was honoring them, but his real purpose was to increase his revenues by this means, inasmuch as aliens did not have to pay most of these taxes.”[2] It should, however, be noted that Cassius Dio generally saw Caracalla as a bad, contemptible emperor.

Another goal may have been to increase the number of men able to serve in the legions, as only full citizens could serve as legionaries in the Roman Army. In scholarly interpretations that followed a model of moral degeneration as the reason for the fall of the Roman Empire, notably the model followed by Edward Gibbon, the edict came at the cost to the auxiliaries, which primarily consisted of non-citizen men, and led to barbarization of the Roman military

Clearly Rome was not the last empire to associate “citizenship” with “taxation”.

Part E: Empire and taxation: As goes taxation, so goes civilizations

As the late Charles W. Adams wrote in his classic book – “For Good and Evil: The Impact Of Taxes On The Course Of Civilization” – the evolution of civilizations is a function of the tax policies of the civilization. Presumably as “civilizations expand into empires”, the tax policies of an empire are more likely to expand beyond the borders of the nation and into other nations. What the United States calls “citizenship-based taxation” (making it seem patriotic) is really the policy of imposing “worldwide taxation” on the “tax residents” of other countries. It is explainable as a part of the creation and expansion of empire. FATCA is the way that the American Empire has forced other nations to (1) impose U.S. taxation on the residents of those countries and (2) force those other countries to bear the cost of so doing.

Canada is probably the number one victim of U.S. “extra-territorial taxation”.

Part F: Public Perception of Empire

Former Canadian Liberal Leader Michael’s Ignatieff writing on American Empire – 2003

Former Canadian Liberal Leader Michael Ignatieff was a Harvard Professor when he was recruited by the Federal Liberals to return to Canada and lead the Liberals from the “waste land” to the “promised land”. Mr. Ignatieff was kind of a “public intellectual” who quickly learned that the “hard knocks” of political life were harder than the comforts of his academic appointments. In any case, Mr. Ignatieff recognized American Empire and wrote a fascinating article about it (which appeared in the New York Times in 2003 just prior to the Bush invasion of Iraq.) It’s a fascinating article. Well worth the read. It includes:

America’s empire is not like empires of times past, built on colonies, conquest and the white man’s burden. We are no longer in the era of the United Fruit Company, when American corporations needed the Marines to secure their investments overseas. The 21st century imperium is a new invention in the annals of political science, an empire lite, a global hegemony whose grace notes are free markets, human rights and democracy, enforced by the most awesome military power the world has ever known. It is the imperialism of a people who remember that their country secured its independence by revolt against an empire, and who like to think of themselves as the friend of freedom everywhere. It is an empire without consciousness of itself as such, constantly shocked that its good intentions arouse resentment abroad. But that does not make it any less of an empire, with a conviction that it alone, in Herman Melville’s words, bears ”the ark of the liberties of the world.’

In other words, the United States is a country that believes that all of its policies, actions and ambitions are cloaked in righteousness simply because it is the United States.

Part G: Empire and taxation: If you were to ask your friends the following question:

Q. Do you think that the United States would impose more punitive taxation and compliance requirements on: (1) U.S. citizens living in the United States or (2) certain Canadian citizens living in Canada?

A. The probable answer would be: Don’t be absurd. Of course the United States imposes more punitive taxation on U.S. citizens living in the United States than on Canadian citizens living in Canada.

Wrong! Wrong! Wrong!

To put it simply: The Internal Revenue Code of the United States imposes taxes, sanctions and penalties on certain Canadian residents that are not imposed on Homeland Americans at all. The point its is that “non-residents” are subjected to a harsher set of U.S. tax rules than are U.S. residents.

One answer to the question includes

I know the answer to this question. I filed one year using TurboTax (and a host of paper filings since TurboTax falls way short of being sophisticated enough for a foreign return) and it had a helpful function at the end where you could compare your US tax liability against others in a similar income band. My US tax liability was 2.5x the average bill in the same income band. That’s not 2.5% but 2.5x. My “fair share” was more than twice as much for the same level of income as the homelander “fair share”.

Thankfully, the out of pocket cost was limited by the taxes I had already paid in the UK. But, it shows the cost of not living a life optimised for the rules of the US tax system can be enormous. If you live in the US, there are tax no brainers. If you live in the UK, there are tax no brainers. But if you’re subject to both systems at the same time, you can’t benefit from the tax no brainers since, by and large, the other country takes what the other giveth.

As I’ve said before, the US tax system includes on the basis of citizenship but excludes on the basis of physical location since participation in the tax no brainers is limited by things like US source earned income which you can, generally, only get when you live in the US.

 

U.S. taxation of residents of other Canada and other countries: It’s really “territorial taxation” in reverse

As Charles Bruce (ACA Legal Counsel) describes it:

Ironically, this is a prime example of “upside down” territoriality. Under a territorial approach, such as, residency-based taxation, the taxpayer is expressly not taxed on foreign income. Here, the taxpayer – say, an American abroad – for sure will be fully taxed on foreign income, whereas his or her cousin in the States who earns domestic business income will enjoy the 20% deduction.

Part H: 12 examples (in addition to the “transition tax”) which U.S. residents can “laugh about” and Canadian citizens can/should “rage about”:

1. Templeton Mutual Fund bought in the U.S. by a U.S. resident is NOT subject to PFIC confiscation. The same mutual fund (with exactly the same securities) bought in Canada by a Canadian resident is subject to PFIC confiscation. Furthermore, the Canadian resident is required to report his ownership in his Canadian mutual fund on Form 8621 – check it out here.

2. A U.S. resident who invests in a ROTH IRA has automatic “tax deferral” and is not subject to U.S. taxation. A Canadian resident who invests in an equivalent TFSA does not have “tax deferral” and is subject to U.S taxation on the income on TFSA even though he is not subject to taxation on the income in Canada.

3. A U.S. resident who invests in an ABLE plan (Achieving a Better Life Experience Act) has automatic tax deferral. A Canadian resident who invests in an RDSP (equivalent “special needs plan”) is subject to U.S. taxation on that income. Furthermore, the Canadian resident is required to report his ownership of his RDSP on Form 3520 – check it out here.

4. A U.S. resident who invests in a S. 529 “education plan” has automatic tax deferral. A Canadian resident who invests in an RESP (equivalent “education plan”) does not have “tax deferral” and is subject to U.S. taxation on that income. Furthermore, the Canadian resident is required to report his ownership in his RESP on Form 3520 – check it out here.

5. A U.S. resident who receives distributions from a 401K plan is not subject to the 3.8% Obamacare surtax. A Canadian resident who takes a distribution from an (equivalent) Canadian RRSP is subject to the 3.8% Obamacare surtax. Furthermore, the Canadian resident is required to report his Obamacare surtax on Form 8960 – check it out here.

6. A U.S. resident is not required to report his local U.S. bank accounts to U.S. Financial Crimes. A Canadian resident is required to report his Canadian bank accounts to U.S. Financial Crimes. This is a very special category of “form crime” -see information about Mr. FBAR.

7. A U.S. resident is not required to report his U.S. financial assets annually to the IRS on Form 8938. A Canadian resident may be required to report his Canadian financial assets annually to the IRS on Form 8938. Form 8938 is an extremely intrusive, time consuming form. Check it out here.

8. A U.S. resident is NOT required to treat his activities in the USA as foreign and subject to penalties and reporting. Certain Canadian residents are required to treat their business activities in Canada as foreign and subject to penalties and reporting. Check out Form 5471 and From Form 8865.

9. A U.S. resident married to a U.S. citizen spouse is allowed to make unlimited gifts to his spouse. A Canadian resident married to a Canadian citizen spouse is NOT allowed to make unlimited gifts to his spouse. Furthermore, the Canadian resident is required to report certain gifts to his spouse on Form 709 – check it out here.

10. A U.S. resident who renounces U.S. citizenship will not have his U.S. pension plan subject to confiscation because of the Section 877A Exit Tax. A Canadian resident who renounces U.S. citizenship would have his Canadian pension plan subject to confiscation because of the S. 877A Exit Tax. It’s because it the pension is NOT a “U.S. pension”, but is a “Canadian pension”.

11. The TCJA includes a provision that allows U.S. residents to deduct property taxes on their U.S. principal residences, but specifically does NOT allow a Canadian living in Canadian to deduct property taxes on his Canadian principal residence.

12. The TCJA provided allows a deduction of up to 20% of passthrough income for specified service business owners with income under $157,500 (twice that for married filing jointly) for certain income effectively connected with the conduct of the trade or business within the US. A U.S. resident operating a U.S. business is entitled to the deduction. A Canadian resident carrying on a small unincorporated business in Canada is NOT entitled to the 20% reduction.

An “unintended consequence” or “willful”?

The vast majority of U.S. residents and Congressmen neither understand this nor know that this is taking place. That said, some members of the Treasury clearly do understand that:

Part I: It’s the “Tax Americana” – a “form” (pun intended) of “tax colonization”

In any case – the “Tax Americana” must first be understood and then end:

The time has come for the United States to stop imposing “worldwide taxation” of people who are “tax residents” of other countries and do NOT live in the United States”.

The time has come for other countries to recognize the “Tax Americana” and realize how the “Tax Americana” is eroding the sovereignty of other nations!

The next post in this series will explore the question of:

What could the Canadian Government do (without U.S. agreement) to stop the U.S. from taxing Canadian residents (who are also U.S. citizens)?

John Richardson

The first eight posts in my “transition tax” series were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!

Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of “Homeland Americans” to the treatment of “nonresidents”

Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!

Part 6: Responding to the Sec. 965 “transition tax”: A “reprieve” until June 15, 2018

Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before

Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

Part 9-1: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”


 
 
 
 
 
 
 
 
cross-posted from citizenshipsolutions by John Richardson

Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

(Links to the first eight posts in this series can be found at the end of this post)

Introduction – The purpose of this post is …

to demonstrate that the “transition tax” is an example (particularly egregious) of the principle that (1) not only does the United States impose “worldwide taxation” on the “tax residents” of other countries, but (2) it imposes a separate tax regime on certain “tax residents” of other countries that is different and far more punitive than the regime imposed on Homeland Americans. Yes, you read correctly! Continue reading Part 9-1: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

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.

 
 

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.

Taxation of #AmericansAbroad in the 21st Century: “Country of birth” Taxation vs. “Country of Residence” Taxation- Part V (Final)

cross-posted from citizenshipsolutions

by John Richardson

Update January 2018: This post has been updated with some new links and discussion

Part I is here.

Part II is here.

Part III is here.

Part IV is here.

*******

Taxation of #AmericansAbroad in the 21st Century: “Country of birth” Taxation vs. “Country of Residence” Taxation- Part V (Final)

What the U.S. calls citizenship-based taxation is actually a U.S. claim that it has the right to impose “worldwide taxation” on the residents and citizens of other countries.

Specifically the U.S. claims the right to impose taxation on:

1. Who: residents and citizens of other countries; and on

2. What: income earned in other countries or property situated in other countries.

(The U.S. also taxes U.S. corporations on profits earned in other countries when those profits are taxed by those other countries. This has led to “inversions” which are the corporate equivalent to renouncing U.S. citizenship. Note that the 2017 “Tax Cuts and Jobs Act” has resulted in “partial territorial taxation” for certain U.S. corporations.)

Under the guise of what the U.S. calls “citizenship-based taxation, it actually taxes people who are neither U.S. citizens nor people with an actual residential connection to the United States and are “tax residents” of other countries.

The two obvious examples are:

A. Permanent residents of the United States (AKA Green Card holders) who do NOT live in the United States (having either moved away or in some cases having never moved there – see the story of Gerd Topsnik); and

B. Non-citizens who are NOT Green Card holders. The obvious example are people who have lost their U.S. citizenship for immigration purposes but are still treated as taxable U.S. property for tax purposes. The S. 877A Expatriation rules clearly contemplate this reality. Furthermore, there are certain U.S. tax treaties that specifically allow the U.S. to tax people who were but are non longer U.S. citizens. (Furthermore, the “savings clause” found in all U.S. tax treaties “saves” the right of the United States to impose full taxation on its citizens.)

My point is that the U.S. has long since separated the idea of being “taxable U.S. property” from being a U.S. citizen for nationality purposes.

Therefore, although birth in the U.S. makes one a U.S. citizen, a U.S. birth should NOT make one taxable U.S. property for life. Surely citizenship should mean more than taxation.

The U.S. is laying claim to people because they were born in the USA. There is no reason why it has to. They just do it because they think they can. The U.S. is the only developed country in the world that attempts to control the lives of its citizens (under the guise of taxation) when they move from the United States. This is an intolerable and grossly unfair policy.

The discussion and debate at the Toronto Conference on “U.S. Citizenship-based taxation” demonstrated that citizenship should be neither a necessary nor a sufficient condition for taxation. Taxation should be based on some kind of voluntary connection to the United States. It is submitted that those in Categories:

(A) Border babies

(B) Those who move from the U.S. with their parents as children

(C) Those non-U.S. residents who were born outside the U.S. to U.S. citizen parents

(D) People who left the U.S. as young adults, have never returned to the U.S., and have accumulated all of their economic assets outside the U.S.

do NOT have any connection to the U.S. that could possibly justify U.S. taxation. In each of these cases, taxation is NOT based on a connection to the U.S., but only on the circumstance of a U.S. birthplace! Can it really be that the United States of America is the only advanced country in the world where:

The circumstances of your birth determine the outcome of your life?

To tax those who are not residents of the United States solely because they were born in the United States:

Is unjust and is inhumane. People do NOT choose where they were born!

What about the person in Category (E) above? This is the U.S. citizen and resident who leaves the United States temporarily with the intention of returning. This is the ONLY kind of U.S. citizen that could rationally be subjected to U.S. taxation while living temporarily outside the United States. But, to tax even this person is incompatible with the realities of the modern world.

Citizenship imposed vs. citizenship chosen

The current practice of U.S. “place of birth taxation” is much more analogous to a “property interest” that a country has in it’s citizens than a voluntary commitment to the engagement that should characterize good citizenship. It is respectfully submitted that “citizenship” should imply a voluntary connection to a country and not a form of “ownership” where the citizen exists only to serve the government.

John Richardson

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

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!