Category Archives: citizenship based taxation

Under the Starry Flag by @SalyerLucy shows how the history of citizenship struggles repeat themselves: The USA of the 21st Century is like Britain in the 19th Century

Under the Starry Flag – exploring the historical context of the 1867 Expatriation Act


In 2018 Professor Lucy Salyer of the University of New Hampshire published “Under the Starry Flag” – a book largely about the 1868 Expatriation Act. The book describes a period in American history where Britain treated its “subjects” as having perpetual loyalty to the British Crown. To put it simply: One could NOT emigrate to America and expatriate. No matter what one did, those who were born British Subjects were destined to die British Subjects.
The above tweet links to an interview of Professor Lucy Salyer conducted on February 9, 2019. The interview is about Professor Salyer’s new book “Under the Starry Flag”. It is a fascinating (brilliantly researched) work. The publisher describes the book as:

The riveting story of forty Irish Americans who set off to fight for Irish independence, only to be arrested by Queen Victoria’s authorities and accused of treason: a tale of idealism and justice with profound implications for future conceptions of citizenship and immigration.
In 1867 forty Irish American freedom fighters, outfitted with guns and ammunition, sailed to Ireland to join the effort to end British rule. Yet they never got a chance to fight. British authorities arrested them for treason as soon as they landed, sparking an international conflict that dragged the United States and Britain to the brink of war. Under the Starry Flag recounts this gripping legal saga, a prelude to today’s immigration battles.
The Fenians, as the freedom fighters were called, claimed American citizenship. British authorities disagreed, insisting that naturalized Irish Americans remained British subjects. Following in the wake of the Civil War, the Fenian crisis dramatized anew the idea of citizenship as an inalienable right, as natural as freedom of speech and religion. The captivating trial of these men illustrated the stakes of extending those rights to arrivals from far-flung lands. The case of the Fenians, Lucy E. Salyer shows, led to landmark treaties and laws acknowledging the right of exit. The U.S. Congress passed the Expatriation Act of 1868, which guarantees the right to renounce one’s citizenship, in the same month it granted citizenship to former American slaves.
The small ruckus created by these impassioned Irish Americans provoked a human rights revolution that is not, even now, fully realized. Placing Reconstruction-era debates over citizenship within a global context, Under the Starry Flag raises important questions about citizenship and immigration.

In the 19th Century Britain regarded its subjects as subjects for life. Many Americans abroad will appreciate how the book applies to their lives in the 21st century. To put it simply: Americans abroad are treated as primarily Americans citizens – even though they are often citizens and residents of other countries. The FATCA IGAs are the most obvious example of this reality. (Shades of the British – History does have a way of repeating itself.) Renunciation is desirable, difficult, expensive (and for those who are in the U.S. tax system – inevitable). For many Americans abroad:

All Roads Lead To Renunciation.”

Furthermore, dual citizens (for example the accidental Americans in France) are beginning to request that their countries of citizenship/residence intervene and assist their citizens in breaking ties with the United States. History does repeat itself.
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Why ALL individuals should support the @RepHolding Tax Fairness For Americans Abroad Act

What: You are invited to a live conversation with Solomon Yue and John Richardson to discuss the Holding bill

When: Tuesday January 15, 2019 – 12:30 EST/17:30 GMT (Toronto, Canada) time (one hour)

Where: http://www.uberconference.com/orgop2 or by calling: 503 – 773 – 9640

Pre-Registration: Required – please visit http://www.facebook.com/RepublicansOverseas for instructions (or leave a comment at the bottom of this post which includes your name, email and country of residence).

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Considering renouncing US citizenship? Meet a person who I suggested NOT commit #citizide


For most U.S. citizens attempting to live outside the United States (in compliance with U.S. laws), their days as U.S. citizens are coming to an end. Those who have ignored the fiscal demands required of Americans abroad (meaning they have not entered the U.S. tax system) will be able to retain U.S. citizenship for the foreseeable future. But, for those who do file U.S. taxes and attempt to comply with the outrageous demands of the United States (FBAR, forms, PFIC, Transition Tax, GILTI, Subpart F and more), they experience life like this:
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Part 28 – From @HelenBurggraf: Concern as Brady tax bill fix legislation lacks called-for fixes for US expats including @USTransitionTax

Part 26 – 2018 The @USTransitionTax in Review: As the year winds down lawyer @MonteSilver1 organizes the "Transition Tax" lawsuit – Monte has supported you! It's time for you to help Monte support you!


2018 has been a difficult year for Americans living outside the United States who operate small businesses through corporations. The tax compliance community is still interpreting Section 965 of the Internal Revenue to require them to “turn over” a percentage of their assets to the U.S. government.
For those who don’t understand what the “transition tax” is:


Okay, sorry the text in the above image is a little small. But, my point includes, that the “transition tax” is: (1) retroactive taxation (2) on income that was specifically NOT subject to U.S. taxation at the time that it was earned (3) without any triggering event whatsoever (4) that is an attempted tax grab before the host country can tax it (5) in a way that absolutely results in double taxation (6) that is in effect a confiscation of the “pensions” of Americans abroad. Yes, it’s true and NO U.S. TAX PROFESSIONAL HAS EVEN ATTEMPTED TO SUGGEST THAT POINTS 1 – 6 ARE FALSE.
The purpose or this post is to:
1. Review what has happened during the last year; and
2. Strongly encourage you to support Monte Silver (a U.S. tax lawyer based in Israel) in his organizing a lawsuit against U.S. Treasury for not having complied with various statutes in the implementation of this law. See Silvercolaw.com or contact Monte at ms@silvercolaw.com
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Considering renouncing US citizenship? #citizide – There are times when US citizenship can save you from foreign taxes!

Should other nations be permitted to impose taxation on U.S. citizens or corporations?
At first blush, the question sounds absurd. Is there something about being a U.S. citizen that should exempt individuals from taxation in or by a another country? Some time ago, this question was explored in a discussion on a Facebook group. Interestingly, most participants thought the discussion was absurd and did not take it seriously. But truth can be stranger than fiction. When it comes to taxation there can be some benefits to being a U.S. citizen. In fact, in certain cases, U.S. citizenship can act as a “cloaking device” – a device that shields you from taxation in another country.

The two certainties are “death and taxes” …

It’s in the area of “death” where U.S. citizenship can be helpful. Sometimes it can be to your benefit to die as a U.S. citizen. Sometimes U.S. citizenship can be helpful when somebody dies leaving you part of their estate.
What follows are some categories where U.S. citizenship can protect you from taxation. These possibilities should be considered prior to renouncing U.S. citizenship.
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Part 22 – The 16th amendment authorises an Income Tax – but the @USTransitionTax is a wealth tax!

Part 1: The constitutional authorisation for the US income tax

As explained in a recent post at Tax Connections:

Written by TaxConnections Admin | Posted in TaxConnections

IRS- First Tax Return Form In 1913

Origin Of Internal Revenue Service

The roots of IRS go back to the Civil War when President Lincoln and Congress, in 1862, created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was repealed 10 years later. Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.

16th Amendment

In 1913, Wyoming ratified the 16th Amendment, providing the three-quarter majority of states necessary to amend the Constitution. The 16th Amendment gave Congress the authority to enact an income tax. That same year, the first Form 1040 appeared after Congress levied a 1 percent tax on net personal incomes above $3,000 with a 6 percent surtax on incomes of more than $500,000.

In 1918, during World War I, the top rate of the income tax rose to 77 percent to help finance the war effort. It dropped sharply in the post-war years, down to 24 percent in 1929, and rose again during the Depression. During World War II, Congress introduced payroll withholding and quarterly tax payments.

1913 Form 1040

(PDF 126KB, 4 pages, including instructions)

A New Name

In the 50s, the agency was reorganized to replace a patronage system with career, professional employees. The Bureau of Internal Revenue name was changed to the Internal Revenue Service. Only the IRS commissioner and chief counsel are selected by the president and confirmed by the Senate.

Today’s IRS Organization

The IRS Restructuring and Reform Act of 1998 prompted the most comprehensive reorganization and modernization of IRS in nearly half a century. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs.

(Note that even in 1913, the most prominent part of the 1040 was the Penalty Provision.)

1913

Part 2: Taxation must be constitutional. Is the transition tax an income tax?

A new paper by Sean P. McElroy titled: “The Mandatory Repatriation Tax Is Unconstitutional” suggests that:

Abstract
In late 2017, Congress passed the first major tax reform in over three decades. This Essay considers the constitutional concerns raised by Section 965 (the “Mandatory Repatriation Tax”), a central provision of the new tax law that imposes a one-time tax on U.S.-based multinationals’ accumulated foreign earnings.

First, this Essay argues that Congress lacks the power to directly tax wealth without apportionment among the states. Congress’s power to tax is expressly granted, and constrained, by the Constitution. While the passage of the Sixteenth Amendment mooted many constitutional questions by expressly allowing Congress to tax income from whatever source derived, this Essay argues the Mandatory Repatriation Tax is a wealth tax, rather than an income tax, and is therefore unconstitutional.

Second, even if the Mandatory Repatriation Tax is found to be an income tax (or, alternatively, an excise tax), the tax is nevertheless unconstitutionally retroactive. While the Supreme Court has generally upheld retroactive taxes at both the state and federal level over the past few decades, the unprecedented retroactivity of the Mandatory Repatriation Tax — and its potential for taxing earnings nearly three decades after the fact — raises unprecedented Fifth Amendment due process concerns.

Here is a copy of the paper …

SSRN-id3247926

The point is that the transition tax is not a tax on income. It is a tax on “fake income”. It is “fake income” on two levels:

First, by definition it is not based on income. It is based on a pool of capital that was not subject to taxation when it was earned.

Second, Sec. 965 deems it to be income precisely because it not actual income which is based on any realisation event.

Is this the simplest argument for why the Section 965 transition tax may be unconstitutional?

John Richardson Follow me on Twitter @Expatriationlaw

Part 21 – @ACAVoice makes presentation at October 22/18 IRS @USTransitionTax hearing – argues both that Regulatory Flexibility Act should apply and/or that de minimis rule be created

Introduction


This is Part 21 of my series of posts about the Section 965 transition tax.
The Section 965 “Transition Tax” saga continues. Americans abroad may have political differences. They may have philosophical differences. They may live in different countries with different tax treaties. But, opposition to the Section 965 Transition Tax and GILTI appear to have unified all Americans abroad.


To put it simply: The application of the Section 965 transition tax to the small businesses operated by Americans Abroad is the most unjust, most punitive, most egregious and most unjustified piece of legislation over to come from the Homeland (assuming – which I doubt – that it was every intended to apply to Americans abroad in the first place). Significantly, the transition tax is a benefit to Homeland Americans but can confiscate the retirement plans of Americans abroad. In other words, the transition tax is one more punishment that America is meting out to its citizens who dare to leave the United States.
Boldly Go, where no fictitious tax event has gone before …
The transition tax is also a direct attack on the tax base of the countries where Americans abroad live. To put it simply: the transition tax is a fictional tax event, that allows the United States to take a preemptive tax strike against the tax base of other countries. By so doing, the transition tax allows the United States to siphon tax revenue from other countries, that it could never siphon before. (Well, the S. 877A Exit Tax rules also create a fictitious tax event that allows the United States to siphon capital from other countries.) The impact of the transition tax on Canadian residents (who are also U.S. citizens) has been explored in CBC reporter Elizabeth Thompson’s series of posts about the transition tax.
The Transition Tax when applied to Americans abroad is:

The retroactive taxation of undistributed earnings of a non-US corporation, based on NO event that generates taxable income, which almost certainly subjects Americans abroad to double taxation.

The parts I have bolded provide arguments for why the “transition tax” violates numerous tax treaties.
In Part 20 I explored the arguments for why/how the Treasury Regulations are not compatible with the Regulatory Flexibility Act. Part 20 included a discussion of the arguments made by ACA for why the Regulatory Flexibility Act should apply to the regulations.
In Part 21 (this post), I am highlighting the submission of American Citizens Abroad (ACA), who argues IN ADDITION (this is a no brainer) that there should be a threshold level of undistributed earnings before the Section 965 confiscation can apply – period.
Thanks to ACA (“American Citizens Abroad”) for taking the time to organize these arguments and present them at the October 22, 2018 IRS hearing on the “transition tax”.
What follows is the email I received from ACA – I strongly suggest that you follow the links. ACA has done a superb job of demonstrating how the Treasury can exempt Americans abroad from this particularly draconian and confiscatory piece of legislation.
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Considering renouncing US citizenship? @Expatriationlaw information sessions Fall 2018

FATCA, U.S. citizenship-based taxation (which includes much more than taxation) and restrictions on financial and retirement planning are causing many Americans abroad to renounce their U.S. citizenship.
The US Government is well aware of the problem that FATCA (coupled with US “citizenship-based taxation) has caused for Americans abroad.
The proof comes from the following two tweets:
1. 2014 – Don Beyer (currently a Member of Congress) was the US Ambassador to Switzerland from 2009 – 2014. In this interview he acknowledges some of the problems of FATCA (incredibly acknowledging that FATCA has led to divorces.


2. September 24, 2018 – A comment by a Foreign Service Officer in Frankfurt acknowledging the problems the United States has caused for its citizens living living abroad. He also acknowledges  that people are renouncing their valued U.S. citizenship. I have linked directly to his comment. But, I suggest that you take the time to watch the whole video. You will see “heart breaking” stories of people who feel that they can no longer remain U.S. citizens. (Thanks to Solomon Yue for his tireless efforts in advocating for tax changes to “Save U.S. Citizenship” for Americans abroad!)


The United States would rather have FATCA than have Americans living abroad.
FATCA is a tool to enforce (what the United States refers to as) “citizenship-based taxation”. In practice (as patriotic as it sounds), “citizenship-based taxation” is actually the U.S. policy of:
Imposing “worldwide taxation” on people who are “tax residents” of other countries and who do not live in the United States.
 
I will be conducting information sessions (some formal presentations and some informal discussions) during the next few weeks as follows:
Bangalore, India – October 22
Brisbane, Australia – October 25 (with Karen Alpert) – 19:00 – 21:00
Auckland, New Zealand – October 31
Sydney, Australia – November 1 – 19:00 – 21:00 The address is 58A Macleay Street – Entrance near Baroda Street – Potts Point NSW 2011 – There is a train you can get to Kings Cross Station.
Dubai, UAE – November 4
Limassol, Cyprus – November 7
Who: John Richardson, B.A., LL.B., JD (Toronto based lawyer)
When: 19:00 – 21:00
Cost: Free, but preregistration is required for all sessions except the October 25 session in Brisbane (where you can just appear)
Registration: Please send an email to: citizenshipsessions at citizenshipsolutions.ca
This post will be updated as further information becomes available. Feel free to check back!
Topics discussed:
Although there will be variation from location to location, the topics covered are likely to include:
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