Tag: “committing” personal finance abroad

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

Comment #2 on “Think You Can Leave the U.S. – Think Again

 

 


 

“There is something fundamentally wrong with a country where compliance with its laws
forces you to (eventually) renounce your citizenship.”

 
This post is based on a comment by John Richardson. The comment is a response to
a post by laurainparis on the Thom Hartmann blogsite.

Laura, you conclude your last comment with:

“In asking his question Thom demonstrates the importance of how the United States treates it citizens when they leave the country. He demonstrates that this is an important question not just for Americans who live outside the US, but for ALL Americans, regardless of where they live. Because anyone who thinks they can leave the country, anyone who comforts themselves with this idea – anyone who asks the question “why don’t more Americans leave?” – they are deluding themselves. There is no freedom for Americans. Americans are not free to live normal lives outside the US, unless they are financially and emotionally prepared to STOP BEING AMERICANS (that is, renounce their citizenship). The word “ironic” doesn’t begin to describe the situation. The words “impossible” and “tragic” do.”

A tragic situation indeed.

What’s most interesting and tragic is that:

The ones who try the hardest to comply with the U.S. rules are the ones who ultimately are forced to renounce. I have assisted a very large number of people in renouncing their U.S. citizenship (and thereby ending U.S. jursidction over them). A high percentage of people I have assisted are people who:

1. Have tried for years to comply with the “alphabet soup” series of laws and reguations that govern the lives of Americans abroad; and

2. Realize that compliance is no longer possible.

The only remaining Americans abroad will be “noncompliant” Americans abroad

In the long run, the only Americans abroad who will be able to retain their U.S. citizenship are those who do NOT attempt compliance with these laws. There is something fundamentally wrong with a country where compliance with its laws forces you to (eventually) renounce your citizenship. This is a problem that has escalated over time.

U.S. citizens abroad are living under siege.

A wonderful expression of the evolution of the problem comes from Jackie Bugnion in
her submission
to the House Ways and Means Committee on Tax Reform. Writing in 2013 she said:

“In 1776, the United States declared independence because the mother country on the other side of the ocean was imposing taxes on the colonies for the benefit of England. Resentment started when Britain tried to enforce the Navigation Act after 1763. Resentment increased with the Stamp Act in 1765, a way for Britain to tax the colonies. The British Tea Act of 1773 led to the Tea Party and we all know the outcome – the American Revolution and independence crying out “no taxation without representation”.

Today, the estimated 7 million Americans resident abroad, of whom the majority are long-term overseas residents in high tax OECD countries, face a comparable situation. Their representation in Congress is non-existent in reality. Americans abroad amount to only 1 to 2% of the votes in any particular state; Congressmen and Senators have ignored their tax issues. The unjustified myth that Americans abroad are wealthy and disloyal restricts a rational approach to the problems because of political image issues.

Citizenship-based taxation (CBT) has existed ever since the federal income tax was adopted. Despite CBT being an anomaly involving double taxation, taxation of phantom gains and explicit tax code discrimination, it was grudgingly tolerated by Americans abroad because it was essentially voluntary, most often involved little tax or no U.S. tax liability and basically was not enforced. In particular, the FBAR filing requirement was so obscure that even the big four accounting firms were not aware of the filing obligation dating from 1970 and failed to inform Americans abroad of the need to file the FBAR.

Since 2001, a series of legislative events have radically changed the situation:

  • In 2001, the Patriot Act made anything foreign suspect, including Americans residing overseas.
  • In 2004, Congress, under the Jobs Act, drastically increased the FBAR civil and criminal penalties to confiscatory levels, creating a disguised form of taxation on assets held overseas.
  • In 2006 administration of the FBAR reports was transferred to the IRS for enforcement.
  • In 2006 the Tax Increase Prevention and Reconciliation Act (TIPRA) extended the Bush tax cuts and included a compensatory revenue raising provision that reduced the benefit of the foreign earned income exclusion, limited the foreign housing allowance and pushed Americans overseas into higher tax brackets, thereby increasing U.S. tax liabilities for many Americans abroad.
  • In 2008 the law relating to renunciation of U.S. citizenship was revised under Section 877A and introduced an Exit Tax on wealthy individuals (defined as “covered”). The law also provided that Americans who inherit from estates of former “covered” U.S. citizens are subject to U.S.
    inheritance tax with no exclusion. This outrageous discriminatory provision aims to discourage renunciation of citizenship, but in fact penalizes children of former U.S. citizens for an act they did not commit. In practice, it encourages the children to also renounce their U.S. citizenship.
  • In 2009 the IRS launched its initiative against tax evasion linked to foreign assets through the Overseas Voluntary Disclosure Programs and a threatening public relations campaign. While it justifiably targeted U.S. resident tax evaders, it simultaneously trapped Americans abroad who necessarily have foreign assets. The IRS’s one size fits all policy and bait and switch tactics led to abuses of Americans abroad which inspired sharp criticism from the National Taxpayer Advocate.
  • In 2010 FATCA was slipped into the HIRE bill with no debate in Congress and no cost/benefit
    analysis. FATCA aims to provide the door that closes the fiscal trap by requiring foreign financial institutions to report to the IRS on assets held overseas by U.S. persons. It effectively cuts off many Americans from foreign financial institutions which find it too onerous to maintain American clients. FATCA creates a barrier to free movement of capital and people.
  • In 2012 S.3457 proposed to grant the IRS the authority to have a U.S. passport cancelled or not issued if the IRS determined that the individual owed $50,000 or more U.S. tax.
  • In 2012 the Ex-patriot Act, S.3205, proposed to deny any “covered” expatriate re-entry into the United States, with retroactive effect for ten years prior to enactment of the law. The Reed
    Amendment of the 1996 Illegal Immigration Reform and Immigrant Responsibility Act already
    allows the United States to deny entry of former citizens into the United States.
  • In 2013, S.268 was introduced; it compounds difficulties created by FATCA.
  • In 2013 the Senate Finance Committee included in its tax reform recommendations a provision which would grant the IRS authority to cancel a U.S. passport for tax collection purposes.

This stream of legislation and proposals categorizes Americans abroad as suspected criminals seeking to escape U.S. taxes. Congress has outdone George III and has turned the United States into a fiscal prison, including legislation which is deemed anti-constitutional under the Fifth Amendment1 and is contrary to Articles of the Universal Declaration of Human Rights.2
The foundation of the U.S. fiscal prison is citizenship-based taxation. Americans working and living abroad carry a ball and chain of dual taxation throughout their entire lives up to and including death.

Americans abroad already pay taxes in the country where they reside and receive governmental services.

The additional U.S. tax obligation creates inevitable incompatibilities and discrimination and even requires Americans abroad to break foreign exchange control laws to pay U.S. taxes.

A revolution among long-term overseas residents is now underway. Five years ago, Americans abroad never talked about renunciation of citizenship. Today, it is a common topic in the press and among the community abroad. For more and more individuals, renunciation is the only solution to an intolerable situation created by the U.S. imposing its laws beyond its borders. The United States is literally destroying the community of Americans abroad, which plays an essential role in representing U.S. interests and goodwill overseas. The United States is shooting itself in the foot.

While the absolute number of renunciations, currently around 2,000 a year, is insignificant compared to the average annual U.S. citizenship naturalizations of 680,000, renunciations have multiplied seven times over the last four years. So far we have seen only the tip of the iceberg if CBT remains in force.

Today’s situation leads to serious hidden prejudice for the United States. U.S. exports are far below where they should to be because citizenship-based discourages U.S. companies from deploying U.S. citizens overseas to sell U.S. products; the law makes them too expensive. U.S. tax law and FATCA create insurmountable barriers for small and medium-sized companies to establish beachheads abroad to develop exports. The loss represents millions of U.S. jobs, hundreds of billions of dollars of exports, billions of dollars of U.S. tax revenue, and an unsustainable trade and budget deficit. Americans married to a foreign spouse, who represent about a third of the Americans resident abroad, now hesitate to register their children born abroad with the U.S. Embassy. The hot thing among young adults in their twenties is to renounce U.S. citizenship; they are aware of the impossible web of U.S. regulations that restrict job opportunities and personal freedom. Pushing away the young generation of Americans abroad is an immense loss to the United States. In prior generations, many highly educated multi-lingual American children returned to the United States, founded companies and created jobs in the U.S.

Adopting RBT will stop this revolution immediately. RBT law needs to be drafted in the spirit to allow free movement of individuals to leave and return to the United States, to reinforce the competitiveness of Americans and the United States overseas, to provide a simple, non-penalizing transition to RBT for the community of Americans already overseas, to ensure that Americans abroad are not subject to FATCA and FBAR, to adapt existing bilateral tax treaties and enter into new tax treaties so that withholding tax rates on U.S. source income are reasonable and to ensure that Americans abroad who have the majority of their assets in the United States (retirement funds, pension funds, real estate) are not disadvantaged under RBT with regard to either income or estate taxes.

I thank you for the opportunity to comment and hold high hopes that your bi-partisan efforts will lead to the constructive tax reform so necessary for Americans residing abroad.

Sincerely yours,
Jacqueline Bugnion”

 

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.

Why the proposed transition tax, if applied to individual U.S. shareholders living abroad, is analogous to the “Offshore Voluntary Disclosure Program

 

 
The following was written by John Richardson and is a section of a larger piece yet to be published. I will provide the link at the time it is available and of course, have permission to publish this.

When I first read this, two things occurred to me. The OVDP/OVDI process represented a penalty for a failure to report. A failure to report is not a transaction to be recorded or that can be measured in relation to tax that is owed. The “in lieu of FBAR” penalty. The percentage was a figure set by the Treasury Dept with no clear connection to anything other than the value of an asset. So one agreed to allow a certain level of confiscation not based upon any amount of tax owed. The other issue with OVDP/OVDI was that it was an incredible deal for “whales”-that percentage represented far less than what they would have paid all-told. The transition tax is a gift for multi-nationals; moving to a territorial system, they will not pay what they would have been required to pay were they to repatriate the income that they will now, never be required to do.

Notably the Transition Tax is part of reforms to international taxation. The centerpiece of the reforms is that for US corporate shareholders of foreign companies there will no longer be US taxation of foreign earnings. (In other words, the US has forced corporations to move in the direction of territorial taxation). The transition tax is imposed as a mechanism to fund territorial taxation. Corporate shareholders are subject to the Transition tax and receive the benefits of territorial taxation. Individual shareholders (including possibly Americans Abroad) are subject to the Transition tax but do not receive the benefits of territorial taxation. Americans Abroad, who carry on business through non US corporations may be required to fund the move to territorial taxation (unlike corporate shareholders) and will continue to be taxed and taxed in an even more punitive way.

Of course, referring to OVDP/OVDI &/or the Transition Tax as a “gift refers only to multi-national corporations or people of wealth. For “minnows” OVDP/OVDI was an absolute abomination. The Transition Tax, should it apply to small CFC’s ( read “individuals”), will provoke the largest number of renunciations whether official or via “feet”.

This is an absolute breaking point in our process. Now that the rate on liquid assets is highter (15%), once the calculations are done, the effective rate applied to individuals will be over 18%. It will not be a matter of refusal as much as the simple inability to pay it. No one can continue to contribute to financial suicide, law or not.

**************

Why the proposed transition tax, if applied to individual U.S. shareholders living abroad, is analogous to the “Offshore Voluntary Disclosure Program (OVDP)”


by John Richardson

Significantly, the “transition tax” is NOT based on any income realization event. It is based only on the fact of legally earned retained earnings, which are subject to taxation in the country where they were earned.

The transition tax is a calculation based on an “account balance” – specifically the “retained earnings” account balance on the greater of two dates.

It is a mandatory payment which is based on the value of a “foreign asset”.

Therefore, the “transition tax” as applied to Americans abroad has characteristics that are more like “OVDP” than an income tax (which would be based on a realization event).

In any case, the “transition tax” is nothing more than an asset confiscation with nothing in return.

The application of the “transition tax” to Americans abroad would raise U.S. “citizenship-based taxation” to a new and UNPRECEDENTED level of unfairness and obscenity

Dewees 3: Lessons about the “Oh My God Moment” and dealing with the problems of U.S. citizenship

cross posted from citizenshipsolutions

As I write this post, my mind goes back to one of my very first posts about U.S. compliance issues. This post was called “What you should consider before contacting a lawyer“. Since that time I have written hundreds of post describing the problems faced by Americans abroad.

More recently …

In Dewees 1, I explained the importance of the Canada U.S. tax treaty and how it provides “some protection” to Canadian citizens from U.S. tax debts.

In Dewees 2, I explained some of the characteristics of the OVDP program and how Mr. Dewees got caught in it.

In Dewees 3 (this post), I am suggesting some possible lessons that can be learned from the story of Donald Dewees.

Ten thoughts on U.S. taxation, non-compliance, Americans Abroad and the U.S. taxation of Americans abroad

Continue reading “Dewees 3: Lessons about the “Oh My God Moment” and dealing with the problems of U.S. citizenship”

Dewees 2: Why did he participate in the 2009 #OVDP Horror Show?

cross posted from citizenship solutions

In an earlier post I explained why the Canada Revenue Agency assisted the IRS in collecting a $133,000 U.S. dollar penalty on a Canadian resident. The bottom line was that he was presumably NOT a Canadian citizen and therefore did NOT have the benefits of the tax treaty. This post is to explain where the penalty came from in the first place.

Will you walk into my parlour?’ – #Americansabroad and IRS “amnesty” offers in the 2009 #OVDP

It has been widely reported that a U.S. citizen residing in Toronto, Canada since 1971, paid a $133,000 U.S. dollar penalty for failing to file IRS forms disclosing that he was running a business through a Canadian corporation. How did this fly get caught in the spider’s web?

The Spider and the Fly is a poem by Mary Howitt (1799–1888), published in 1829. The first line of the poem is “‘Will you walk into my parlour?’ said the Spider to the Fly.” The story tells of a cunning Spider who ensnares a naïve Fly through the use of seduction and flattery. The poem is a
cautionary tale against those who use
flattery and charm to disguise their true evil intentions.

More here

The Canada U.S. tax treaty does NOT protect Canadians from U.S. tax liability but does mean that Canada will NOT assist the U.S. in collection!

cross posted from citizenship solutions

Can the common law “revenue rule” be used to stop the enforcement of U.S. “citizenship taxation” on non-U.S. residents?
What the United States calls “citizenship taxation” is actually U.S. taxation of certain citizens and residents of other countries. The U.S. claims the right to impose full U.S. taxation on the “world income” of certain people who do NOT even live in the United States.

Prologue: In August of 2017 it was widely reported that the Canada Revenue Agency had assisted the IRS in enforcing a massive penalty ON A CANADIAN RESIDENT levied under the U.S. Internal Revenue Code. The penalty was imposed on that Canadian resident was for failing to report to the IRS, that he had been carrying on a Canadian business, through a Canadian Controlled Private Corporation. At the time of collection, the penalty was for approximately $133,000 U.S. dollars!

Q. How did this happen? A. He entered the 2009 IRS OVDP (“Offshore Voluntary Disclosure Program”). Those who entered #OVDP were basically “signing up” to pay penalties to the IRS. Those interested in reading about the horrific treatment of another Canadian resident, who tried to “do the right thing” by entering OVDP should read this.

For the rest of the story, please see here .

Why is the United States imposing an “Exit Tax” on the Canadian pensions of Canadian citizens living in Canada?

cross-posted from citizenshipsolutions


by John Richardson

This post is based on (but is NOT identical to) a July 17, 2017 submission in response to Senator Hatch’s request for Feedback on Tax Reform

“Re the impact of the S. 877A “Exit Tax” on those “Americans living abroad” who relinquish U.S. citizenship:

Why is the United States imposing an “Exit Tax” on their “non-U.S. pensions” and “non-U.S. assets”? After all, these were earned or accumulated AFTER the person moved from the United States?”

Part A – Why certain aspects of the Exit Tax should be repealed

In a global world it is common for people to establish residence outside the United States. Many who establish residence abroad either are or become citizens of other nations. Some who become citizens of other nations do NOT wish to be “dual citizens”. As a result, they “expatriate” – meaning they relinquish their U.S. citizenship. By relinquishing their U.S. citizenship they are cutting political ties to the United States. They are signalling that they do NOT wish the opportunities, benefits and protection from/of the United States.

Yet Internal Revenue Code S. 877A imposes a separate tax on “expatriation”. The “expatriation tax” is discussed in a series of posts found here.

Specific examples of HOW the “Exit Tax Rules” effectively confiscate pensions earned outside the United States are here.

Assuming, “covered expatriate status” and NO “dual-citizen exemption to the Exit Tax“, the S. 877A “Exit Tax” rules operate to:

  1. Virtually “confiscate” non-U.S. pensions that were earned
    when the individual was NOT a United States resident; and
  2. Allow for the retention of “U.S. pensions” which were earned
    while the individual WAS a resident of the United States.

(One would think that the result should be THE EXACT OPPOSITE!”)

Specific request: The S. 877A Exit Tax should be repealed. If the United States is to impose a tax on expatriation, the tax should not extend to “non-U.S. pensions” earned while the individual was NOT a U.S. resident. Furthermore, the tax should NOT extend to “non-U.S. assets” that were accumulated while the individual was NOT a U.S. resident.

But, that’s assuming that the United States should have ANY kind of “Exit Tax!”

Continue reading “Why is the United States imposing an “Exit Tax” on the Canadian pensions of Canadian citizens living in Canada?”

The Biggest Threat to America Does NOT Lie Outside its Borders

 

 

The biggest threat to America does NOT lie outside its borders. The biggest threat to America is the Internal Revenue Code and its absurd rules governing international taxation (the taxation of U.S. citizens and U.S. corporations on revenue generated outside the United States). The bottom line is that the Internal Revenue Code has (not is) destroyed the ability of U.S. citizens and corporations to compete outside the United States.
by John Richardson
 
This is because of the peculiarly U.S. practice of:

1. Who the USA taxes: Taxing all U.S. citizens who live in other countries and pay taxes to those other countries (every heard of double taxation?) Why is the USA attempting to impose taxes on the residents of other nations?

2. What income are they taxed on: Using a system of “worldwide taxation” (meaning that the USA imposes taxation on income earned in other nations).

Time out for a second –
(1) this means that the USA taxes U.S. citizens who DO NOT even live in the USA on income NOT ASSOCIATED with the USA!
(2) U.S. corporations who have the gall to attempt to do business outside the USA are subject to taxation on those profits
(when corporations based in other countries are not – Hello!!! Talk about giving a competitive advantage to non-U.S. companies)

3. How (what are the U.S. tax rules that apply to U.S. citizens abroad?) are citizens a taxed on this “foreign income”. Answer according to U.S. tax rules that as though the income was earned in America. Because, Americans abroad live their lives outside the USA (committing “personal finance abroad”) they are subject to the punitive U.S. tax rules that apply to anything “foreign” (including the penalty laden reporting requirements. This results in U.S. citizens abroad being technically being subject to higher U.S. taxation than Homeland Americans! (Things like the foreign tax credits are designed to mitigate the actual U.S. tax owed.)

Bottom line: The Internal Revenue Code has (not is) completely destroyed the ability of U.S. citizens and corporations to exist and profit outside the United States. Perhaps some people think that this is okay. But, most will realize in a global world that this is a bad bad bad thing.

Therefore (coming back to tax reform) the USA needs to do the following:

1. Stop attempting to impose taxation on the residents of other nations (that just happen to be U.S. citizens). Stop the U.S. practice of “citizenship-based taxation” and move to a system of “residence/territorial based taxation”.

2. Stop discriminating against its own corporations by imposing taxation on their economic activity outside the United States. America: STOP punishing your own corporations! They are run by Americans. Their shareholders are Americans. Why does the Internal Revenue Code hate them so much?

The discussion of the “border adjustment tax” in this article is a bit of a red herring. It is irrelevant to the fundamental tax reform that is actually needed.

But, for the record (if it matters):

The border adjustment tax is just a way to punish imports to the USA. It will simply make imports more expensive to every day people. There has been an ongoing debate about this idea for months.

What we KNOW about a border adjustment tax: It will raise the cost of imports to the USA

What we DON’T KNOW about the Border Adjustment Tax: Whether somehow the decrease in demand for imports (because they are now more expensive) will somehow result in adjustments to exchange rates that will somehow result in price adjustments.

Furthermore, the border adjustment tax would (likely ) violate international trade agreements.

Yes, it’s time to get with the “tax reform program”. It’s time for the USA to

(1) STOP attempting to tax economic activity that is unrelated to the USA (move to territorial taxation) and
(2) stop attempting to impose taxation on the residents of other nations (stop citizenship based taxation).

There are reasons why individuals are renouncing U.S. citizenship and U.S. corporations are inverting.

Will these changes to the system of “international taxation” happen? Maybe and maybe not. Was it Winston Churchill who said:

“You can always count on Americans to do the right thing – after they’ve tried everything else.”

When Law Becomes a Substitute for Morality & Causes Cruel & Unneccesary Harm

 

if you cant trust

 
Another comment deserving its own post

USCitizenAbroad says
March 13, 2017 at 7:08 am
@Karen and all

Thank you for collecting and posting these stories.

Our Stories

I would like to offer some general observations (of which Shaun is one of many examples) and suggest some lessons which are largely based on Shaun’s story in particular.

Shaun’s Story

It seems to me that the lesson(s) from Shaun’s story are simple. So, let’s summarize them:

1. Those Australians who have entered the U.S. tax system need to renounce as quickly as possible (hopefully before they are “covered expatriates”) and probably even if they are “covered expatriates”.

Anybody who doesn’t get this does not understand the U.S. tax system. (Not that anybody understands the system.)

2. Because of the prevalence of Superannuation in Australian society, those who are NOT in U.S. tax compliance should not be too quick to enter the U.S. tax system (better clarification on the tax status of one’s particular Superannuation – they are NOT all the same) – is needed.

3. Under NO circumstances should anybody in Australia engage the services of a U.S. based CPA or lawyer. The simple reality is that these “specific life forms” (1) Don’t give care about you in the least (2) don’t understand your local tax system (3) subconsciously believe that you are a “tax cheat” (because all Americans are) and (4) are required to view the world entirely through the “perverted prism” of the Internal Revenue Code (which presumes that anything that is “Not U.S” (not one of “us”) exists ONLY for the purpose of defrauding the U.S. Treasury.

Remember that when it comes to the Internal Revenue Code and Americans abroad:

– Americans abroad are deemed to actually live inside the USA; and

– the assets of Americans abroad are deemed to be foreign (even though they are really local to the individual)

4. It is painfully obvious that Shaun would have been far better off if he had NEVER entered the U.S. tax system. This is hindsight. He could never have understood where this was going. Truth is that things have changed a great deal over his 30 years in Australia. But, Shaun has provided a great lesson to Australian citizens and residents who are NOT in the system.

The lesson is this:

For Americans abroad in general, but for Australians in particular (think Super), the consequences of entering the U.S. tax system lead to far worse results than the consequences of NOT entering it. It’s pretty simple. Shaun lost the following:

– his retirement
– his health
– his happiness (you can be sure that he carries with him anger and resentment)
– he has probably become a very negative person
– if he has an Australian spouse (or still has one) it is likely that this has impacted his family in a big way

Shaun is unique. Although it doesn’t specifically say that he has filed U.S. taxes for 30 years, it is clear that he has filed U.S. taxes for many many years. Poor Shaun. He filed because filing “is the law”. Yes, it’s the law. Shaun probably thought that there was some connection between law and morality or law and “doing the right thing”.

There is no connection between law and morality. Filing U.S. taxes is “obeying the law” and obeying unjust and immoral laws. A great American writer (by the name of Thoreau) wrote a book (considered to be subversive in the land of the free) on this topic. It’s called “Civil Disobedience”. Read it sometime. (He discusses the relationships among: laws, unjust laws and compliance with unjust laws.)

Clearly Shaun (and others who have exhibited this kind of “life time” compliance while living outside the USA) are “model citizens”. Yet they have been proven to have been “model fools”. Through compliance with these laws, they have destroyed their lives.

The U.S. tax system, enforced by the tax professionals (who usually don’t know what they are doing anyway) is such that:

It’s far more punitive to be in the U.S. tax system than not be in it. There are a number of reasons for this, but we see how Shaun loses his life savings by trying to comply (doing the “right thing”).

Believe, me Shaun has lost a lot more than his money. Year ago I wrote a couple of posts based on theme that:

“It’s not what they take from you, it’s what they leave you with”.

Collective psychotherapy – U.S. citizens outside U.S. – Not what they take from you, it’s what they leave you with

followed by:

The agony of U.S. citizenship for U.S. citizens living outside the U.S.

Take particular note of the comments (including one from MarkPineTree who was Dr. Marcio Pinheiro whose anxiety over Mr. FBAR made the last few years of his life a “living hell”). See a tribute to him at:

http://isaacbrocksociety.ca/2015/08/18/another-brock-warrior-down-in-memory-of-marcio-v-pinheiro/

Finally, this story is a sad, sad reminder that those who have been most hurt by the predatory and immoral practice of U.S. “place of birth taxation” are the ones who tried hardest to comply.

The Tax Compliance Industry might say:

“Resistance is futile!!!!”

Those who have tried hard to comply will say:

“Compliance is impossible”

Put it this way:

“It’s very clear that “compliance is impossible”. But, it’s not clear that “resistance is futile”. The proof is rather simple:

Seven out of eight Americans abroad recommend non-compliance and every one of them is in a better state than our friend Shaun!