Category Archives: Americans abroad

July 5/22: An Opportunity To Educate Resident Americans About The Horrors Of Citizenship Tax

An Opportunity To Educate Resident Americans About The Horrors Of US Citizenship Tax

First a special thanks to Joe Howard who arranged for this opportunity.

On Tuesday July 5, 2022 at 8 pm EST (20:00) I (John Richardson) will appear on the Fair Tax Power Radio Show. The Fair Tax Power Radio Show is hosted by Bob Paxton and Bob Scarborough. The show is for the purpose of educating US residents about the (1) the problems of the U.S. income tax system and (2) the solution by moving to the Fair Tax. You can learn more about the Fair Tax in my recent blog post found here and on the Fair Tax site. I suggest that you follow their Twitter feed at @FairTaxOfficial.

The Topic: How The US Tax System Disables Americans Abroad From Financial and Retirement Planning and How The Fair Tax System Would Solve This Problem

You understand the problem. You understand the pain. You understand the fear. You understand that you may be forced to renounce U.S. citizenship.

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H.R. 5800 – To establish a commission to study how Federal laws and policies (except US Citizenship Taxation) affect United States citizens living in foreign countries

The Readers Digest Version

Yes, this post is a bit long. If you don’t want to read it, here is the “Readers Digest” version in the form of a tweet:

Now, on to the explanation …

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Moving To Mexico From Canada Or The USA

There is definitely at trend toward moving abroad for retirement or other reasons …

I came across this very interesting answer on Quora. There are many people in both the United States and Canada who are looking for a “kinder and gentler nation”. In a Post-Covid world more and more people are realizing that they are not tied to any particular place.

I came across this very interesting answer on Quora. There are many people in both the United States and Canada who are looking for a “kinder and gentler nation”. In a Post-Covid world more and more people are realizing that they are not tied to any particular place.

John Richardson – Follow me on Twitter @Expatriationlaw

US Citizens And Divorce: It’s More Complicated For Americans Abroad

Prologue – Divorce And US Citizens Abroad

Panel session – US Expat Tax Conference from Deborah Hicks on Vimeo.

Purpose Of This Post …

Divorce is difficult, traumatic and potentially very costly. What follows are links to three posts – written by David Ellis, CPA – which originally appeared at Tax Connections ins 2022. The point is that US citizens abroad are subject to BOTH US tax rules and the rules in their country of residence. The problem is exacerbated when a US citizen is married to a noncitizen.

The following three posts provide an excellent summary and analysis of how the Internal Revenue Code impacts US citizens living inside the United States or abroad …

Dividing Property In Divorce Tax Traps – Part 1

Dividing Property In Divorce Tax Traps – Part 2

Dividing Property In Divorce Tax Traps – Part 3

Dividing Property In Divorce Tax Traps – Part 4

Dividing Property In Divorce Tax Traps – Part 5

John Richardson – Follow me on Twitter @Expatriationlaw

Part II: Biden Proposal Changes the Taxation Game for Gifts and Inheritances – Americans Abroad Hit Hard

Today’s post, Part II, was written by Virgina La Torre Jeker, J.D. and John Richardson, J.D.

Part I of this blog post discussed President Biden’s Green Book proposal that would change the tax rules for unrealized capital gains when assets are gifted or passed at death. To recap, the major thrust of the Green Book proposal (starting at page 30) is to treat gifts and bequests as “deemed sales at fair market value” triggering a capital gains tax which would be payable with respect to the year of the transfer. The net investment income tax / 3.8% surcharge looks as if it can certainly apply in addition to the capital gains tax (full detail on the 3.8% surcharge is here). The Green Book contains no proposals to eliminate or change the current Estate and Gift Tax rules and we believe that taxing gifts and bequests from an income tax perspective while keeping the Estate and Gift Tax regime in place is only a recipe for tax disaster.

Today’s post, Part II, looks at how the proposal will particularly impact the American abroad, its exemptions and carve-outs and how it complicates tax planning for individuals wishing to give up their US citizenship or green card.

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Biden 2023 Green Book: Six Ways The Proposals Would Affect Americans Abroad

Update April 13, 2022 …

Here is yet a seventh waythe treatment of gifts as capital gains – that the Biden Green book would impact Americans Abroad

Introduction

As long as the United States employs citizenship taxation any proposed changes to the US tax system will have an impact (some intended and some unintended) on Americans abroad.

The Biden Green Book for fiscal year 2023, released on March 28, 2022, contains a number of proposals to both increase tax rates and increase the tax base by increasing the number of activities that are taxable events. Generally the proposals include a number of provisions to create and enhance taxation on both income from capital and capital itself. These provisions continue to generate discussion in the mainstream media including: The New York Times, Washington Post and Wall Street Journal. This is certain to generate much discussion in the tax compliance community.

The 2023 Green Book is available here.

Much will be written about how the proposals would affect resident Americans. Far less will be written about how the proposals would affect Americans abroad. The US rules of citizenship taxation steal from Americans abroad (and the countries where they reside) in hundreds of ways. Some are intended and foreseeable. Others are the unintended consequences that result from tax changes that apply to people who are not considered in the political process.

Significantly the Green Book does not suggest a move away from US citizenship taxation toward resident taxation as embraced by the rest of the world. In their totality, the proposals (particularly those that create income realization events when a gift is made) suggest a worsening of the situation for Americans abroad. That said, one proposal “might” (depending on Treasury) allow for the relaxation for the 877A Exit Tax rules, for a narrow group of Americans abroad under certain circumstances.

The purpose of this post is to identify six ways (and I assure you that there are more) that the Green Book would impact Americans abroad. The “Group Of Six” includes:

1. Raising The Corporate Tax Rate To 28 percent – Creating Subpart F Income and Making More Americans Abroad GILTI – Page 2

Verdict: This will have the effect of increasing the number of Americans abroad subject to taxation on income earned by their small corporations but not received by them personally.

2. An increase in the Corporate rate would increase the GILTI rate (suggesting to 20 percent) – Page 2

Verdict: More Americans abroad will be GILTI and will possibly (depending on a combination of country specific factors and their specific circumstances) be subject to GILTI taxes at a higher rate).

3. Reducing Phantom Gains And Losses: Simplify Foreign Exchange Rate And Loss Rules For Individuals And Exchange Rate Rules For Individuals – Page 90

Verdict: This in interesting. While reinforcing that Americans abroad are tethered to the US dollar it does suggest a recognition of the unfairness of how the phantom gain rules harm the purchase and sale of residential real estate outside the USA). Imagine how this would interact with the proposed rules converting gifts to taxable capital gains?

4. Strengthening FATCA: Provide For Information Reporting by Certain Financial Institutions and Digital Asset Brokers For the Exchange Of information – Page 97

Verdict: This is an attempt to reinforce the core principles of FATCA which are about the identification of US citizens outside the United States.

5. Expatriation – The Stick: Extend The Statute Of Limitations For Auditing Expatriates To Three Years From The Date From Which 8854 Should Have Been Filed (Possibly Forever) – Page 87

Verdict: This is theoretically very bad. It means that those who renounce without filing Form 8854 would be subject to a lifetime of risk. Practically speaking these provisions are not understood on the retail level. Hence, I doubt this will influence many people.

6. Expatriation – The Carrot: Exempting Certain Dual Citizen Expatriates From The Exit Tax – Page 87

Verdict: This is good news for the narrow group of people impacted by this – mainly “Accidental Americans”. It is bad news for the rest because the existing rules will continue to apply to those “who are left behind”.

I assure you that the Green Book contains a large number of ways that Americans abroad will be impacted. I will leave it to others to add to this list.

The principle is:

Citizenship taxation can steal from Americans abroad at least a thousand ways. If you can understand even one hundred of them you are doing well!

Summary: Once again this shows how all proposed changes to US tax law impact Americans abroad in a world of citizenship taxation. There is nothing in this that suggests a move toward residence taxation. There are few crumbs which might make citizenship taxation easier to live with (example relaxing phantom gains). But, on balance these provisions are a “doubling down” on the problems of citizenship taxation. The provision to allow easier expatriation for “Accidental Americans” does nothing to make life easier for the rest.

If you have seen enough you can stop here. For those who want more of the details and explanation, continue on …

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The Road To Tax Reform For Americans Abroad: Part 1 – The Problem Is The System And Not The Party

Introduction – The First Of A Series Of Short Posts

My name is John Richardson. I am a Toronto, Canada based lawyer. I am also a founding member of “SEAT” (“Stop Extraterritorial American Taxation”). I am an advocate for reforming the US laws which apply to US citizens who live outside the United States as permanent residents of other countries. The problems experienced by Americans abroad are at the “boiling point” and something must be done. This post is motivated by the following twitter thread which reveals the pain, desperation, anger and divisiveness experienced by Americans abroad:

This is the first of a series of short posts in which I will share my thoughts and suggestions for how to proceed. I welcome your comments both here and on twitter where I am @Expatriationlaw.

Blind Partisanship Is Not Productive

I want to state at the outset that I am an independent and am not a member of any political party. I have been and continue to be supportive of independent candidates in Canada (and anywhere else). I state this because during this series of posts, I will express sentiments that are critical of political parties. When I criticize the Democrats it’s not because I am a Republican. It’s because the Democrats are deserving of criticism (or vice-versa). Healthy democracies are dependent on accurate observations and objective analysis. Excessive partisanship is simply an excuse for reasoned analysis.

The Difficulty Of Living As A US Citizen Outside The United States

First, if you are a “retiree living abroad” where all of your income is US sourced this post is NOT for you. You are filing the same US tax return while “retiring abroad” that you would if you were living in the USA. You are probably filing tax returns ONLY in the USA. Therefore, the US citizenship tax regime does not impact you in the same way. This post is for those who live permanently outside the United States and your income sources, assets and retirement planning are associated with the tax systems of other countries (foreign to the United States).

Second, As permanent residents of other countries, US citizens are treated as BOTH tax residents of the United States and tax residents of the countries where they live. In other words, they are subject to the full force of two (often incompatible) tax systems. Think of it. US citizens living outside the United States are subject to the tax systems of two countries at the same time. Leaving aside the anxiety this induces, the time that it takes to comply, the heightened threats of penalties and the outrageous costs of compliance (think tax accountants and lawyers), this puts Americans abroad in a position where:

1. They are subjected to a tax system that is more punitive than the tax system imposed on US residents

2. They are often subject to double taxation (the foreign tax credit rules and the Foreign Earned Income Exclusion do not prevent many forms of double taxation)

3. The US tax rules prevent them from engaging in the normal financial planning and retirement opportunities (Canadian TFSA and UK ISAs are not tax free for US citizens)

4. In many countries, because and only because of their US citizenship they are prevented from maintaining the normal financial accounts they need to live in a normal way (this is the direct result of the 2010 Obama FATCA law)

The cumulative weight of these problems is that US citizens living outside the United States are being constructively forced to renounce their US citizenship in order to survive. But, it gets worse. Since June 16, 2008 certain Americans abroad who renounce US citizenship (“covered expatriates“) are forced to pay a special expatriation tax on their non-US assets to achieve this goal. (You can find a video of my discussing US citizenship renunciation here.)

Americans abroad are NOT renouncing because they don’t want to be Americans. They are renouncing because the US tax and regulatory regime is forcing them out of their US citizenship!

It’s The System Not The Parties

Regardless of which political party is in power, tax laws will continue to change.

As long as the United States employs citizenship-based taxation, changes in US tax laws will continue to have dramatic (sometimes intended and sometimes unintended) effects on Americans abroad. These negative effects and outcomes will continue regardless of which political party is in power.

For example:

The 2017 TCJA became law under the Republicans. The effects on Americans abroad were horrible. (Examples include: Transition Tax, GILTI, those using the “Married Filing Separately” category were required to file with zero income)

The 2010 FATCA law was enacted under the Democrats. The effects on Americans abroad were horrible. (Examples include: Form 8938, FATCA bank account closures, etc.)

Therefore, it is a mistake to bicker over which political party has done more or less damage to Americans abroad. As long as citizenship-based taxation continues and tax laws continue to evolve, whatever political party is in power will – by changing tax laws – continue to damage the lives and finances of Americans abroad.

Individual American Abroad Must Unite To Get This System Of Law Changed

Conclusion for today: The problem is the system! It’s not the political parties.

You have the right to vote. The question is not which party to vote for. The question is how can you most effectively use your vote to end US citizenship-based taxation and encourage FATCA repeal.

To be continued …

John Richardson – Follow me on Twitter @Expatriationlaw

Airline and cruise ship employees: how income earned in international waters may lead to double taxation for (only) Americans abroad

Oliver Wagner, CPA and John Richardson – January 16, 2022

Americans abroad and the presumption of double taxation

Prologue: For whom the bell tolls …

Whether a US citizen lives in (and is a tax resident of) Mexico and works on a ship in international waters

Or Whether A US citizen lives in (and is a tax resident of) Holland and is an airline pilot …

That US citizen, because and only because of the combination of US citizenship-based taxation coupled with living outside the United States, is likely to be subject to double taxation. The following discussion explains why.

A Summary Podcast …

Part A: Introduction – About Citizenship-based Taxation
Part B: How the Internal Revenue Code is designed to mitigate the effects of double taxation in certain circumstances
Part C: Determining what is “foreign source” income
Part D: The problem of international waters …
Part E: The effect of sourcing to the US income earned in international waters by dual tax residents
Part F: Deducting “foreign taxes” paid – although income from international waters may not be foreign, it is still subject to the payment of “foreign taxes”
Part G: Can a US citizen living abroad be saved by a tax treaty? Maybe if he/she lives in Canada****
Part H: Conclusion and the need for “Pure Residence-Based Taxation”

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The State Department Should Allow For US Citizenship Renunciations To Take Place By Video

This post has been co-authored by Diane Gelon* (see “Reflections Of An Expatriation Lawyer“) and John Richardson

Prologue

In September of 2021 the Paris based “Accidental Americans Association” filed a lawsuit against the US State Department. The lawsuit was brought in an attempt to force the State Department to allow individuals to renounce their US citizenship. (A prior lawsuit by the “Accidental Americans Association” was based on the excessive $2350 renunciation fee.)

The lawsuit is evidence of the extreme frustration that many Americans abroad are experiencing because they (1) are unable to renounce US citizenship and (2) justifiably feel that they are prisoners of the circumstances of their birth.

It was recently announced that “The US Department of State (DOS) is suspending in-person interview requirements at local consulates for a year for numerous non-immigrant work visa categories and their families (spouse and dependent children“. In London the US Embassy is conducting telephone meetings to deal with Social Security issues. (Prior to Covid this would have required an in person meeting at the Embassy.) The State Department is clearly reducing the number and kinds of services that require “in person” Consulate visits.

The purpose of this post is to argue that renunciations of US Citizenship need not take place through in person interviews at a US Embassy or Consulate. Rather renunciations of US citizenship can and should take place through video conferencing. The backlog in processing renunciations is explained as being related to the Covid-19 pandemic. A response to the pandemic has been that more and more legal proceedings are taking place through video conferencing. Both Canada and the UK (and certainly other countries) are conducing citizenship ceremonies by video, entire court cases are held via video conferencing, and documents can be witnessed and certified by video. We have discussed various aspects of this issue with each other over a long period of time as well as benefiting from discussions with Dubai based lawyer Virginia La Torre Jeker and Esquire Founder Jimmy Sexton.

There is no law that requires that renunciations of US citizenship take place inside a US Consulate or Embassy!

This post is composed of the following seven parts leading to the following conclusion:

Americans abroad and their representatives should pressure the State Department to use their statutory authority to allow renunciations by video conferencing. The State Department has the statutory authority to do so. The fact that the State Department does not currently allow renunciations through video conferencing doesn’t mean that it cannot allow renunciations through video conferencing!

Part I – Introduction: Why Americans Abroad Are Renouncing US Citizenship
Part II – An appointment to renounce US citizenship is hard to find
Part III – Why there is NO legal requirement that renunciation appointments must take place inside a US Embassy or Consulate
Part IV – The State Department website does not specifically state that renunciations must take place inside the US Consulate or Embassy
Part V – Americans abroad and their organizations must push the Biden administration to allow renunciations of US Citizenship through video conferencing
Part VI – Interesting Bobby Fisher anecdote supporting the view that renunciations are not required to take place inside US Consulates
Part VII – Diane Gelon and John Richardson update their November 29, 2020 podcast with a December 29, 2021 podcast

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