Monthly Archives: June 2025

Update: 899 Penalty Tax Will NOT Go Forward – Secretary Bessent Claims Mission Accomplished!

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Prologue

I have been following the discussion about the “Big Beautiful Bill” and written blog posts about the proposed IRC S. 899 Tax titled:

“Enforcement Of Remedies Against Unfair Taxes”

The blog posts are here:

Take YOUR Money And Run: Understanding The Proposed § 899. ENFORCEMENT OF REMEDIES AGAINST UNFAIR FOREIGN TAXES

http://citizenshipsolutions.ca/2025/05/20/take-your-money-and-run-understanding-the-proposed-%C2%A7-899-enforcement-of-remedies-against-unfair-foreign-taxes/

The Proposed S. 899 Penalty Tax On U.S. Source Income And The Decision To Renounce U.S. Citizenship

https://citizenshipsolutions.ca/2025/06/25/the-proposed-s-899-penalty-tax-on-u-s-source-income-and-the-decision-to-renounce-u-s-citizenship/

UPDATE – June 26, 2025

It now appears that the S. 899 tax will NOT be included in the “Big Beautiful Bill”.

An early indicator of this decision came from Zorka Milin here:

This was followed by a general announcenent from Secretary Bessent here:

Senator Crapo here:

Representative Smith here:

Good commentary here:

I will add more later.

John Richardson – Follow me on X.com @ExpatriationLaw

The Proposed S. 899 Penalty Tax On U.S. Source Income And The Decision To Renounce U.S. Citizenship

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Update – June 27, 2025 – The 899 Penalty Tax has been removed from the “Big Beautiful Bill”:

Introduction – It’s The American (A)Way

The United States tax system is designed to impose punitive tax, reporting and penalties on the non-U.S. income and assets of Americans abroad. Nonresident aliens (those who are neither U.S. citizens nor residents) are taxable ONLY on their U.S. source income.

This reality has driven many U.S. citizens (living abroad) to renounce U.S. citizenship. It has also caused many Green Card holders to abandon their green cards. This is the consequence of U.S. citizenship-based taxation – a system that defines tax residency in terms of one’s citizenship (one may not reside in one’s country of citizenship) – regardless of one’s actual residence. (Green Card holders are deemed to be U.S. tax residents regardless of their residence.)

The United States taxes ALL U.S. source income regardless of the recipient of the income. Therefore, the practical impact of citizenship taxation is to impose U.S. taxation on the non-U.S. source income of individuals who do NOT reside in the United States. To put this in visual terms:

A person born in the United States, with no U.S. source income, is subject to U.S. tax, reporting and penalties on income received from the country where that individual lives.

A Summary Of How Different People Are Subject To U.S. Taxation

1. The United States taxes ALL individuals – regardless of citizenship or residence – on U.S. Source income.

2. The United States taxes its RESIDENTS – regardless of citizenship – on worldwide income.

3. The United States taxes U.S. citizens – regardless of residence – on worldwide income. The United States is the only major country that taxes its citizens on their worldwide income when they do not live in the country.

4. The United States taxes nonresident aliens (those who are neither citizens nor residents) on U.S. source income.

The 2025 “Big Beautiful Bill” proposes a new S. 899 of the Internal Revenue Code. This new section would impose a more punitive U.S. tax regime on the U.S. source income, received by some, but not all, nonresident aliens. The more punitive regime would be imposed on nonresident aliens who are tax residents of countries that are described as “offending foreign countries”. “Offending foreign countries” are countries that the U.S. deems to impose unfair taxes on U.S. corporations or persons. To be clear, the tax paid imposed on the individual, would be based on the tax policies of the country where the individual is resident for tax purposes!

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Highlights of @HelenBurggraf’s American Expat Financial News Journal (2018 to 2023)

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Highlights of @HelenBurggraf’s American Expat Financial News Journal (2018 to 2023)*

*(with help from Nick Papadopoulos)

As the late Charles Adams would say:

“As goes taxation, so goes civilization”.

The American Expat Financial News Journal (archived here) was, as many American expats know, a news website that existed from 2018 to 2023. It contained a wide range of articles – covering myriad topics, mostly having to do with American expats’ tax and financial issues – and often, reflected the frustrations of Americans living everywhere outside of the U.S., from Australia to Zanzibar. Most of the articles published during that time can still be found at archive.org.

The AXFNJ was the work of Helen Burggraf, a long-time American expat living in London, and Nick Papadopoulos, an Athens-based, British/Greek website designer and entrepreneur, many of whose clients were (and still are) in the cross-border financial space.

From Day One, the American Expat Financial News Journal was a unique and unmissable running commentary on the difficulties U.S. expats are obliged to live with, as a result of America’s problematic, citizenship-based tax regime, which were made worse by the introduction of FATCA in 2010 (and ignored ever since by Washington lawmakers).

The following pdf highlights “some” of the articles written during the life of the publication.

Stories covered by the (sadly no longer published) AXFNJ 2018 – present -1

Although the links refer to the original URLs, you can find the articles in the archive (which has a search feature) at:

https:/axfnjarchive.wordpress.com

Thanking Helen for a great publication that reflected the history of the time!

Helen is still on X.com @HelenBurggraf.

John Richardson – Follow me on X.com @ExpatriationLaw

Senate Finance Committee Response To The “Remittance tax” Proposed In The “Big Beautiful Bill”

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The Senate Finance Committee has responded to the “Big Beautiful Bill”. It has made changes to the “remittance tax” as originally proposed.

Here is how I interpret the Senate proposed rules for the remittance tax found on page 388 of the Senate Bill:

https://www.finance.senate.gov/imo/media/doc/finance_committee_legislative_text_title_vii.pdf

1. General rule of 3.5% tax on remittance transfers for all people all day, every day.

2. Transfers which are funded by WITHDRAWALS from bank/brokerage accounts listed in 5312(a) of the Bank Secrecy Act are excluded (this solves the problem of most people). It means that this applies to Western Union (and others), etc (who may not continue in this business).

3. If cash, check, etc. is PROVIDED for the transfer then the 3.5% tax applies even if it is a commercial bank listed in 5312(a) that is facilitating the remittance.

4. Those who do/did pay the 3.5% remittance tax, who have a Social Security Number, can get some kind of tax credit. (This appears to be an attempt to make it more expensive for “some” undocumented people to send funds home.)

5. The Senate proposal describes the credit as refundable (“REFUNDABLE INCOME TAX CREDIT ALLOWED TO INDIVIDUALS WITH WORK-ELIGIBLE SOCIAL SECURITY”) . Yet, the actual proposed legislation describes it as ONLY a credit against tax – ‘‘SEC. 36C. CREDIT FOR EXCISE TAX ON REMITTANCE TRANSFERS BY INDIVIDUALS WITH WORK ELIGIBLE SOCIAL SECURITY NUMBERS.” So, it is NOT clear that this is to be a “refundable tax credit”. In addition, the language of the proposed legislation is ambiguous.

6. The ambiguity described in “5” above is illuminated and reinforced by the actual proposed language which reads:

‘‘(a) IN GENERAL.—In the case of any individual, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the aggregate amount of taxes paid by such individual under section 4475 during such taxable year.”

A plain reading suggests:

– it is NOT clear whether the credit is refundable

– it is NOT clear whether the credit is available if no tax is actually owed

(This can (I think) be interpreted to mean that if no tax is actually imposed that the credit is not available.)

All of this can be fixed. But, I don’t think that the proposed legislative language is clear.

John Richardson – Follow me on X.com @Expatriationlaw

A #GILTI Carveout For INDIVIDUAL CFC Shareholders Of Certain Virgin Islands Corps

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Introduction and purpose:

The Big Beautiful Bill (“BBB”) Contains many surprises. Yesterday, I wrote a first post about a section of the BBB that addressed the application of the GILTI rules.

GILTI, Americans Abroad And SEC. 111110 Of The Big Beautiful Bill: The Good, The Bad And The Ugly

That post was largely based on an interesting expose in the Washington Post. This called attention to the fact that a provision in the BBB appears to provide a GILTI carveout to a U.S. C Corp. That expose failed to mention that the same section of the BBB also created an ongoing carveout for individual shareholders of Virgin Islands CFCs that appear to be “service oriented” businesses. So that the implications of this are clear, I will put it this way:

The BBB creates an opportunity for “United States Shareholders” of Controlled Foreign Corporations who are INDIVIDUALS – regardless of where they live in the world – to avoid the GILTI tax on certain kinds of income. Interestingly, U.S. citizens living abroad are still required to pay GILTI on the service oriented CFCs in their country of residence. There comes a certain point (we are well past it) where there should be an acknowledgement (even from the tax compliance community) that the U.S. tax system is deserving of nothing more than scorn and ridicule. It’s quite obvious that the “service businesses” owned by U.S. citizens abroad are exactly the same kinds of businesses that are based in the Virgin Islands and owned by U.S. residents.

Unpacking the proposed legislation

“(i) Qualified virgin islands services income.–The term `qualified Virgin Islands services income’ means any gross income which satisfies all of the following requirements:

“(I) Such gross income is compensation for labor or personal services performed in the Virgin
Islands by a corporation formed under the laws of the Virgin Islands.

“(II) Such gross income is attributable to services performed from within the Virgin Islands by
individuals for the benefit of such corporation.

“(III) Such gross income is effectively connected with the conduct of a trade or business within the Virgin Islands.

“(ii) Specified united states shareholder.–The term `specified United States shareholder’ means any United States shareholder which is–

“(I) an individual, trust, or estate, or

“(II) a closely held C corporation (as defined in section 469(j)(1)) if such corporation acquired its direct or indirect equity interest in the foreign corporation which derived the qualified Virgin Islands services income before December 31, 2023.

“(iii) Regulations.–The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out this subparagraph and subparagraph (A)(i)(VI), including regulations or other guidance to prevent the abuse of such subparagraphs.”.

What does this mean? What would be an example of a CFC that would qualify?

Let’s break this down. Imagine a tax preparation firm owned by a resident of the State of New York. Let’s imagine that he incorporates a Virgin Islands Corporation. The U.S. resident is the sole shareholder. The Virgin Islands Corporation is clearly a CFC. The purpose of the corporation is to provide tax preparation services for Americans abroad. He names the business “Virgin Islands Tax Prep”.

He then visits the Virgin Islands for the purpose of hiring and training individuals who are residents of the Virgin Islands. He trains them in the art of U.S. tax return preparation (including GILTI), forms and penalty abatement. They are being trained for the purpose of being employed by “Virgin Islands Tax Prep”.

The business is a spectacular success. Let’s consider whether “Virgin Islands Tax Prep” qualifies for the GILTI carveout.

Again, here are the rules:

“(i) Qualified virgin islands services income.–The term `qualified Virgin Islands services income’ means any gross income which satisfies all of the following requirements:

“(I) Such gross income is compensation for labor or personal services performed in the Virgin
Islands by a corporation formed under the laws of the Virgin Islands.

JR Commentary: Clearly “Virgin Islands Tax Prep” is formed under the laws of the Virgin Islands. The gross income of the company is solely payment for the labor and personal services required to file U.S. Expat Tax Returns.

“(II) Such gross income is attributable to services performed from within the Virgin Islands by
individuals for the benefit of such corporation.

JR Commentary: The whole purpose of going to the Virgin Islands to hire and train tax preparation employees is to prepare tax returns in the Virgin Islands for the benefit of “Virgin Islands Tax Prep”.

“(III) Such gross income is effectively connected with the conduct of a trade or business within the Virgin Islands.

JR Commentary: Obviously the gross income is compensation for services performed by a Virgin Islands company from inside the Virgin Islands.

Notice also that competitors of “Virgin Islands Tax Prep” in any other part of the world will pay the GILTI tax.

Now, close your eyes and substitute for “Virgin Islands Tax Prep” any other kind of service business. Also, reflect on the fact that Americans broad will pay GILTI tax on CFC service income in their country of residence. But, U.S. residents can avoid the GILTI tax by incorporating a company in the Virgin Islands.

My point:

The services businesses of CFCs located ANYWHERE should be exempt from GILTI!

Why is the Virgin Islands the only “Possession” that receives this benefit?

John Richardson – Follow me on X.com @Expatriationlaw

GILTI, Americans Abroad And SEC. 111110 Of The Big Beautiful Bill: The Good, The Bad And The Ugly

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Introduction and purpose

GILTI – found in IRC 951A – is one of the most problematic manifestations of U.S. citizenship taxation. It has caused huge compliance problems and costs for Americans abroad. The costs are composed of (1) the compliance costs of Form 5471 and (2) the possibility of the payment of U.S. taxes. All businesses understand that taxes are a cost of running a business. GILTI has imposed costs on the businesses run by Americans abroad that citizens of other countries do not have.

To put it simply:

As explained in the following short video done with Republicans Overseas Tax, GILTI imposes costs on U.S. citizens that citizens of other countries do not have.

Unsurprisingly, organizations representing Americans abroad have (independently of efforts to end citizenship taxation) worked to achieve relief from GILTI for Americans abroad. ACA (“American Citizens Abroad”) has consistently argued that Americans abroad should be exempt from the 2017 TCJA Transition Tax and GILTI provisions. For example:

“ACA continues its advocacy for the application of a de minimis ruling that would take out from the Transition Tax and GILTI regimes small businesses run by US citizens living and working overseas.”

https://www.americansabroad.org/tcja_and_gilti_regimes_us_businesses_overseas

The “Big Beautiful Bill” does NOT include any direct relief targeted for Americans abroad. Nevertheless, the “Big Beautiful Bill” includes some provisions that may be helpful to individual shareholders of CFCs (that include Americans abroad).

The purpose of this post is to identify three respects in which the Big Beautiful Bill impacts Americans abroad. I will refer to them as:

1. The Good – By extending the tax cuts, the GILTI income exclusion will remain at 50% and not be increased to 66 2/3% (as IRC 250 and the 2017 TCJA would require). This is relief for ALL shareholders of CFCs which therefore includes Americans abroad.

2. The Bad – Certain kinds of CFCs – with individual U.S. citizen shareholders – carrying on business in the U.S. Virgin Islands will have their income excluded from the GILTI inclusion. The Virgin Islands are a U.S. territory. There is no comparable provision for:

(a) U.S. citizens running small business corporations in foreign countries; or

(b) U.S. citizens running small business corporations in other U.S. territories

This is bad because it reflects an indifference to the special problems of Americans abroad.

For commentary see the following X.com thread …

3. The Ugly – Some (but not all) CFCs with C corporation shareholders are apparently receiving a “carveout” from GILTI inclusionsl The carveout is for certain kinds of income earned in the U.S. Virgin Islands. Washington Post reporter Jeffrey Stein suggests that this is the result of paid lobbying and not a conclusion based on sound tax policy. This allows for the inference that the application of U.S. tax laws, depends on your ability to “buy” the legislation you want.

For commentary, see the following X.com threads …

The “Big Beautiful Bill” And The Obfuscation Of What The Change Means

Changes to tax laws often appear in large Omnibus bills. Omnibus bills make it easier to hide the changes in tax laws. The ability to hide change is magnified in two ways.

First – Burying The Proposed Change In A Section That Appears To Describe Completely Unrelated Issues

The GILTI changes appear in SEC. 111110 Of The Big Beautiful Bill. Interestingly, SEC. 111110 appears under the following heading:

Part 2–Additional Tax Relief for American Families and Workers

It is quite obvious that the proposed GILTI changes have NOTHING to do with “Additional Tax Relief For American Families and Workers”.

Second – by including in the legislation ONLY the change in the language of the statute.

The language is meaningless without taking the time to go to the original legislation and parse the changes.

Therefore, in the following Appendixes, I have identified the text of the changes and incorporated those changes into the original legislation. This will allow (if you are interested) to see what the legislation will look like after the proposed changes are implemented.

Specifically:

Appendix A – Identifies the relevant text in the Big Beautiful Bill

Appendix B – Identifies the existing legislation (IRC 951A)

Appendix C – Incorporates Appendix A into Appendix B which results in the identification of what 951A (the GILTI rules) would be AFTER the changes proposed in SEC. 111110 of the Big Beautiful Bill

John Richardson – Follow me on X.com @ExpatriationLaw

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Exit Taxes As A Barrier To Emigration And The Need For An International Treaty To Create Uniformity And Certainty Surrounding Emigration

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Exit Taxes As A Barrier To Emigration And The Need For An International Treaty To Create Uniformity And Certainty Surrounding Emigration

This blog post was written for a presentation at the MigrationConference.net on June 12, 2025. Here are the slides that will be used:

A PDF version is here:

Migration Conference 2

Here is a recording of John’s brief presentation at the conference on June 12, 2025:

A more comprehensive blog post follows.

Outline:

Part A – Introduction
Part B – Emigration historically burdened by “exit taxes” (The Nazis and Soviets)
Part C – Modern Exit Taxes And First World Democracies (Canada, the United States, etc.)
Part D – A Tax Treaty Solution That Protects BOTH The Right Of Emigration And the Desire Of Governments To Tax Individuals On Gains Accruing While Living In The Country

Appendix – Human Rights Documents

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