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

This is the sixth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying 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.
This post will draw on the lessons/discussion from the first five posts. The specific purpose of this post is to argue that what the United States calls “taxation” (presumably because it is found in the Internal Revenue Code), as applied to “nonresidents” is actually a separate tax regime that:
1. Imposes different tax rules on “nonresidents” (certain individuals who live outside the United States); and
2. Those rules for “nonresidents” are designed to operate primarily as “confiscations of non-U.S. assets.
The Internal Revenue Code of the United States is based on three principles:
Principle 1: A hatred for all things foreign
Principle 2: A hatred of all forms of deferral (except IRAs, 401Ks and other U.S. sanctioned forms of deferral)
Principle 3: Attempts of prevent “leakage” of “U.S. person” owned assets from the U.S. tax system.
The interaction of these three principles creates a complex, penalty laden, “anti-deferral regime”, that specifically targets income and assets earned in other countries and located in other countries.
The time has come for countries who have U.S. tax treaties that contain the “savings clause” and which have signed to FATCA IGAs to “wake up” to this reality.
To put it simply: What the U.S. calls “taxation” is actually the “confiscation” of assets located in other countries. The “transition tax” is a timely and exceptionally brazen example of how this confiscation works.
The first five 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!

The April 15, 2018 deadline had for certain US taxpayers having a tax home and an abode, in a real and substantial sense, outside the United States and Puerto Rico …
In promised guidance issued today (Notice 2018-26), the Treasury and IRS have stated that, for US taxpayers having a tax home and an abode, in a real and substantial sense, outside the United States and Puerto Rico, the un-extended due date for payment of the 965 tax will be considered to be June 15 rather than April 15 of the particular year.
Regulation §1.6801-5 provides that, for certain partnerships, corporations and US citizens and residents, the filing due date for US tax returns is automatically extended to the 15th day of the 6th month following the end of the tax year – this provision is familiar to US practitioners outside the United States. Today’s Notice refers to individuals who are entitled to this extension as “specified individuals”. Section 965(h)(2) requires that, in the case of an individual electing to pay their 965 liability over 8 years, the first installment must be paid by the un-extended due date for the 2017 return and subsequent installments are to made on the anniversary of that date. Section 3.05(e) of the Notice indicates that Treasury will issue regulations providing that, “if a specified individual receives an extension of time to file and pay under §1.6081-5(a)(5) or (6), then the individual’s due date for an installment payment under section 965(h) is also the fifteenth day of the sixth month following the close of a taxable year.” It is essential, as always, to include in the return the required statement claiming the extension under Regulation 1.6081-5.
This means that, for US shareholders who are subject to the 965 transition tax but are entitled to the June 15 filing extension, there is an additional two months to finalize the determination of the amount to pay by the un-extended due date for 2017.
The complete IRS Notice released April 2,2018 is here:
18 04 02 Notice 2018-26

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