U.S. CBT is Enforced ONLY by the Compliance Industry

 

 

This post is based upon a comment of USCitizenAbroad at Brock. It makes a very important point that all of us should keep in mind generally but especially if the Tax Reform Bill passes with the insidious clause concerning taxing the retained earnings of small CFCs (which really isn’t INTENDED but………..)
 
USCitizenAbroad says:
November 18, 2017 at 8:55 am
 

@Plaxy quoting @Badger writes:

badger: “What is with the reverence for or tacit acceptance of US
law on Canadian sovereign autonomous soil?”

Exactly. Why accept US law, US/Canadian duals residing in Canada?

Stop filing and renounce.

__________________________________________________________________

After having watched the proceedings at both the House Ways and Means Committee and the Senate Finance Committees, I can say with absolute confidence that:

– the members of the these committees don’t even understand how these provisions affect Homeland Americans

– have no consciousness that the USA has “citizenship-based taxation”
that would apply to people living outside the United States

– do NOT understand the technicalities of how “territorial taxation” for corporations is being implemented

– have no understanding that there is a “transition tax” and/or that it could possibly apply to the owners of Small Business Corporations living outside the United States.

There is no possibility that the “transition tax” could possibly have been intended to apply to the small business corporations owned by Canadian citizens resident in Canada.

BOTH Mr. Reed and Mr. Nightingale state their views that the application of the “transition tax” to CCPCs is NOT intended; but

The plain wording of Sec. 4004 (by making the statute apply to individual U.S. persons as defined in the subpart F rules which reference back to the definitions in Sec. 7701) means that it would apply to any U.S. citizen (regardless of where he has “escaped to”) anywhere in the world.

Please remember that the U.S. legislators:

– equate citizenship with residence (didn’t you know that a citizen is a resident and a resident may or may not be a citizen)

– don’t know there is a world beyond the USA

– are therefore NOT thinking at all about the application of U.S. law outside the USA

Also, again I make the point that the Internal Revenue Code does NOT anywhere explicitly mandate “citizenship-based taxation” – referring only to “individuals” and then allowing the inference that “individuals”
include “citizens”. My point is only that the application of U.S. tax laws outside the USA is not something that is even on the radar in Washington.

Also, to the extent that U.S. laws impact Americans abroad, they are NOT enforced directly by the USA anyway. The USA has downloaded enforcement to the banks and tax compliance professionals. Think about it this way:

FATCA is enforced NOT by the USA directly but by the banks. Yes, your friendly neighborhood bank is a FATCA enforcement agent.

U.S. CBT is enforced ONLY by the compliance industry. If you stay away from the tax professionals you will not be within their “enforcement area” … The ONLY people with U.S. tax problems are those who have attempted U.S. tax compliance. Leaving aside the complicated legal/moral/ethical issues of “to comply or not to comply” (tax compliance people are amoral) the individuals who have been brutalized are those who have attempted compliance. The people who must renounce are those who have complied. Those Americans abroad who want to retain U.S. citizenship do so by NOT attempting compliance.

So, where are we now?

The early commenters from the compliance industry are saying: Bad luck, although NOT intended, this new and exciting instrument of confiscation applies to you. Okay, they should also add to their “news bulletin”
that: Because they are compliance “professionals” that they will NOT sign the returns of anybody who does NOT pay this tax.

This poses an interesting question:

What is a poor compliant person, dependent on his tax professional, doesn’t believe this tax applies to him and needs professional help to do? Completing his return (that form 5471 is not easy for an individual to do). Will you let your friendly neighborhood tax professional force you to turn your retirement fund over to the IRS?

The question it seems to me is this:

Is there a duty to obey a law that clearly was NEVER intended to
apply to you and can be construed to apply to you ONLY because of
the literal wording? That is the question.

This is the question that should have been asked in some other interesting contexts which include:

Were the PFIC rules really intended to apply to the Canadian mutual funds owned by Canadian residents?

Were the S. 877A Exit Rules intended to apply to those who clearly relinquished prior to 2004?

Were OVDP and OVDI appropriate compliance options for Americans abroad who have lived for many years outside the USA?

Were the CFC rules intended to apply to Americans abroad, etc. …

Are you going to allow your assets to be confiscated yet again?

When the “Call Of The Condor” becomes the “Law Of The Land”

Neither the IRS nor Congress really know how these laws apply (or not) outside the USA. What happens is that the compliance industry becomes the single most important vehicle for determining how these laws are to be interpreted. Once enough tax people start behaving in a certain way, the others are sure to follow. Put it another way: In general (and I am not referring to either Mr. Reed or Mr. Nightingale) tax professionals know less about this than you do. So, if you call a tax professional and
ask:

“Does the Sec. 4004 “transition tax” apply to Canadian business
corps” they will just ask their associate”. Yes, it really is that
bad. So, I would NOT rely on “tax professionals” to give you good
advice on how these laws might or might not apply to Americans
abroad.

But, to get back to my original question:

Is there a duty to obey a law that clearly was NEVER intended to
apply to you and can be construed to apply to you ONLY because of
the literal wording? That is the question.

I expect that different people will have different answers to this question. But, I don’t think that the “tax professionals” are worth asking. After all, they can’t sign your returns unless you comply with their interpretation of the law.

I have previously explored this issue in the following comments (which I am including here so that I can find them again later):

http://isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-9/#comment-8045126

http://isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-9/#comment-8045126

http://isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-14/#comment-8049389

isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-25/#comment-8053507

And on the compliance choice …

http://isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-16/#comment-8049549

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