Category Archives: savings clause

Double Taxation Of Americans Abroad Is Because Of Citizenship Based Double Tax Residency

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What Is Meant By The Double Taxation Of Americans Abroad?

On February 12, 2025 I hosted an “X Spaces“. The intended purpose was to discuss Professor Avi-Yonah’s new paper “Should The United States Abandon Citizenship-based Taxation”? The paper is clearly in support of the continuation of U.S. citizenship taxation. The paper is here:

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You can listen to the discussion here:

At the end of the discussion we focused on the question of:

Q. What is meant by ending double taxation?

I suggested that the answer is:

A. Double taxation is the result of double tax residency. For U.S. citizens “double tax residency” is caused by U.S. citizenship taxation. It is ended by severing citizenship from tax residency.

Two previous discussions about ending Citizenship-based “double taxation”

I have included the “slides” that were prepared for each of these presentations. They (in my opinion) do a good job in explaining what citizenship taxation really is and what is required to end it.

Enjoy (or not).

July 10, 2024 – What is REAL(ly) Residency Taxation?

Here are the slides for the presentation:

RBT 2

July 12, 2024 – Republicans Overseas Tax Proposal

Here are the slides for the presentation:

Severing citizenship from tax residency 3

In conclusion …

I believe that these two presentaions (along with the slides) will assist in understanding:

1. What the double taxation of Americans abroad actually is; and

2. How the double taxation of Americans abroad can (and must) be ended.

John Richardson – Follow me X.com @ExpatriationLaw

NY Congressman Brian Higgins Draws Attention To The Injustice Of Citizenship Taxation By Challenging Canada’s Underused Housing Tax

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Introduction

You can see the complete twitter thread here.

A recent post describes how various Canadian Underused and Vacant property taxes might apply to unsuspecting U.S. residents (Toronto, Vancouver and Ottawa) and U.S. citizens (Canada’s Underused Property Tax).

Taxes that apply to ALL owners of property

The Toronto, Vancouver and Ottawa taxes apply to ALL owners (regardless of citizenship or residence) of residential property. Although these taxes apply to all owners, some U.S. citizen/residents have argued that they are disguised taxes on being American. The broad scope of these taxes makes them difficult to challenge.

Taxes that apply to property owners based on citizenship or immigration status

Interestingly Canada’s Underused Property Tax, by its express terms applies based on “citizenship” and/or “immigration status”. Specifically, it applies to people who are neither citizens nor permanent residents of Canada. In the same way that the United States imposes taxes on people based on and only on the status of being a U.S. citizen or permanent resident of the United States (Green Card holder), Canada’s Underused Vacant Property Tax is based on NOT being a citizen or permanent resident of Canada. Significantly, certain provincial human rights codes (presumptively) prohibit discrimination based on citizenship. The first case decided by the Supreme Court of Canada (Andrews) interpreting S.15 of Canada’s Charter of Rights struck down a British Columbia statute requiring Canadian citizenship to practise law in British Columbia. In 1974 – In Re Griffiths – the U.S. Supreme Court struck down a similar Connecticut provision requiring U.S. citizenship to be admitted to the bar in Connecticut. In the United States, classifications based on citizenship/alienage are “suspect classifications” and presumptively unconstitutional. Canada’s laws and judicial decisions are generally hostile to classifications based on citizenship.

To be clear: classifications based on citizenship clearly attract judicial scrutiny!
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Some US Citizens And Green Card Holders Resident In Belgium Are Excluded From Benefits Under The Tax Treaty Available To US Citizen Residents

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Prologue

I was recently alerted to a provision in the US Belgium Tax Treaty (a similar but not identical provision also appears in the US UK Tax Treaty – which I have explored in this earlier post.). Normally all US Citizens and Green Card holders are defined as “US Residents” under US tax treaties. The US Belgium Tax Treaty (and the US Uk Tax Treaty) contain an interesting exception to the general principle that US citizens and Green Card holders are “US Residents” under the Tax Treaty. Think of it as a “residency carve out”. The purpose of this post is to describe this “carve out” and explore the (some) practical implications of what this means. Interestingly it is one more example of how the US tax treatment of Americans abroad depends on their country of residence.

Just when you think the US tax treatment of Americans abroad couldn’t be worse, the US never ceases to amaze. Seriously, this is the tax treaty version of “Shock and Awe”! It demonstrates that any general discussion about tax treaties is, well just “general”. One must always understand the specific provisions of the specific treaty. Before, anybody gets overly upset, no need to worry. Even those US citizens who do get the benefits of the US Belgium tax treaty don’t (because of the “saving clause”) get much. Nevertheless, the US Belgium Tax Treaty affords a good opportunity to read tax treaties carefully. It also provides a good reminder that the “saving clause” excludes US citizens from most benefits of the tax treaty (even when US citizens meet the residency requirements of the treaty). Finally, this analysis reinforces how carefully tax treaties must be read. Does a provision talk about “citizens”, “nationals”, “residents” …?

The Readers Digest Version Of This Post

US citizens and Green Card holders are US tax residents wherever they live in the world. Most US tax treaties define citizens and Green Card holders as US tax residents. Yet, there are some treaties that “may” not define “US Persons Abroad” as “residents of the United States”. The treaties that “may not” define Green Card holders and citizens as “residents of the United States” include Belgium and the UK. It appears that Green Card holders are the biggest losers. That said, the Belgium and UK tax treaties demonstrate that “US Persons Abroad” may receive fewer tax treaty benefits than resident Americans. Significantly this means that there are certain US tax treaties that actually discriminate against US citizens and Green Card Holders who live outside the United States without a residential nexus to the United States.

Although perhaps enacted without considering the impact on “US Persons Abroad”, this demonstrates (yet again) how attempts to curb certain abuses create negative consequences for Americans abroad because and only because of citizenship taxation. We have seen these consequences in conjunction with the 877A Exit tax rules, the PFIC rules, Subpart F, the Transition Tax, GILTI and now “treaty shopping”.

Surely, this is one more example of the clear principle that US citizens abroad are subjected to a more punitive tax system than resident Americans.

It is absolutely essential that the United States end citizenship taxation and transition to residency based taxation that completely severs US citizenship from US tax residency..

For those who want to better understand this …

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US Tax Treaties Should Reflect The 21st Century And Not The World Of 100 Years Ago

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Prologue

The rules of taxation should follow changes in society. The ordering of society should NOT be hampered by the rules of taxation!

As the world has become more digital, companies can carry on business from any location. Individuals have become more mobile. Multiple citizenships, factual residences and legal tax residencies are not unusual. It has become clear that the rules of international tax as reflected in tax treaties (as they apply to both corporations and individuals) are in need of reform.

The purpose of this post is to identify two specific areas where US tax treaties are rooted in the world as it was one hundred years ago and NOT as it is today.

First: The “Permanent Establishment” clause found in US and OECD tax treaties

Second: US Citizenship-based taxation which the US exports to other countries through the “saving clause” found in almost all US tax treaties

Each of these will be considered.

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Part 2 – The Warren “Ultra-Millionaire Tax Act of 2021” and The Wealth Of Other Nations

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The fact that …

Leads to the obvious question of …

Hmm…

The fact is that Senator Warren is proposing to impose her wealth tax on property located outside the United States, purchased by individuals who live outside the United States, who have no connection to the United States other than (perhaps) the circumstance of having been born in the United States. Yup, it’s true.

On March 18, 2021, FATCA will turn on 11. The Senator’s proposed wealth tax explicitly states that FATCA is to be used to enforce this tax! Finally an (il)legitimate use for FATCA.

In the 18th Century Adam Smith wrote “The Wealth Of Nations”. In the 21st Century Senator Warren is proposing to impose a wealth tax on “The Wealth Of OTHER Nations”.

Discussion And Analysis

This is the second of what I expect to be a multi-part series on Senator Warren’s proposed wealth tax of 2021. As the above tweet makes clear, the practical utility of the tax depends on US citizenship-based taxation (to whom it applies) and FATCA (how are non-US assets located). In my first post, I referenced Senator Warren’s statement that:

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Part 2 of 4: “It Hurts My Heart:” The Case for Fairer Taxation of Non-Resident US Citizens

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Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.

Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).
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This is the second of a series of four posts that reflect views and experiences of Americans abroad who are experiencing the reality of actually living as an American abroad in an FBAR and FATCA world. (The first post is here.) I think it’s important to hear from people who are actually impacted by this and who have the courage to speak out. The “reality on the ground” is quite different from the theory.

I hope that this series of posts will give you ideas for questions and concerns that you would like to have addressed in the May 17, 2019 Tax Connections – Citizenship Taxation discussion.

I am grateful to Laura Snyder for contributing her thoughts, writing and research to the discussion.

Now over to Ms. Snyder …

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Part 29 – Can the full Canadian tax paid personally on distributions from Sec. 965 income be used to offset the @USTransitionTax

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Introduction – As the year of the “transition tax” comes to an end with no relief for Americans abroad (who could have known?)
As 2018 comes to and end (as does my series of posts about the transition tax) many individuals are still trying to decide how to respond to the Sec. 965 “transition tax” problem. The purpose of this post is to summarize what I believe is the universe of different ways that one can approach Sec. 965 transition tax compliance. These approaches have been considered at various times and in different posts over the last year. As 2018 comes to an end the tax compliance industry is confused about what to do. The taxpayers are confused about what to do. For many individuals they must choose between: bad and uncertain compliance or no attempt at compliance. (I add that the same is true of the Sec. 951A GILTI provisions which took effect on January 1, 2018.)
But first – a reminder: This tax was NEVER intended to apply to Americans abroad!!!
A recent post by Dr. Karen Alpert – “Fixing the Transition Tax for Individual Shareholders” – includes:

There have been several international tax reform proposals in the past decade, some of which are variations on the final Tax Cuts and Jobs Act (TCJA) package. None of these proposals even considered the interaction of the proposed changes with taxing based on citizenship. One even suggested completely repealing the provision that eliminates US tax on dividends out of previously taxed income because corporate shareholders would no longer be paying US tax on those dividends anyway.

and later that …

One of the obstacles often mentioned when it comes to a legislative fix is the perceived requirement that any change be “revenue neutral”. While this is understandable given the current US budget deficit, it shouldn’t apply to this particular fix because the transition tax liability of individual US Shareholders of CFCs was not included in the original estimates of transition tax revenue.

The bottom line is:
Congress did not consider whether the transition tax would apply to Americans abroad and therefore did not intend for the transition tax to apply to them. Within hours of release of the legislation, the tax compliance industry, while paying no attention to the intent of the legislation, began a compliance campaign to assist owners of Canadian Controlled Private Corporations to turn their retirement savings over to the IRS. There was (in general) no “push back” from the compliance industry. There was little attempt on the part of the compliance industry to analyze the intent of the legislation. In general (there are always exceptions – many who I know personally – who have done excellent work), the compliance industry failed their clients. By not considering the intent of the legislation and not considering responses consistent with that intent, the compliance industry effectively created the “transition tax”.
In fairness to the industry, Treasury has given little guidance to practitioners and the guidance given came late in the year. In fairness to Treasury, by granting the two filing extensions, Treasury made some attempt to do, what they thought they could, within the parameters of the legislation.
The purpose of this post …
This post will summarize (but not discuss) the various options. There is no generally preferred option. This is not “one size fits all”. The response chosen will largely depend in the “stage in life” of the individual. Younger people can pay/absorb the “transition tax”. For people closer to retirement, for whom the retained earnings in their corporations are their pensions: compliance will result in the destruction of your retirement.
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Canada U.S. Tax Treaty – Article XXVIA: How the 5th Protocol Enhances protection for Canadian citizens

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Introduction – The Purpose of this post
This is an addition to “The Little Red Tax Treaty Book“.
I was recently asked the following question:
I heard that the Canada U.S. Tax Treaty means that the Canada Revenue Agency will not help the United States collect a U.S. tax debt on a Canadian citizen, provided that the person was a Canadian citizen at the time the U.S. tax debt arose. But, what if the person was NOT a Canadian citizen when the U.S. tax debt arose? Will the Canada Revenue Agency help the United States collect U.S. tax debt?
My answer to the question:
On September 21, 2007 Canada and the United States signed the 5th Protocol to the Canada U.S. tax treaty (first entered into in 1980). As a result of the 5th protocol, Paragraph 8 (a) of Article XXVIA now reads:
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Part 9: Responding to the Sec. 965 “transition tax”: From the "Pax Americana" to the "Tax Americana"

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This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying 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.
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Does the end of #OVDP signal a move FROM the "voluntary disclosure" model TO the "enforcement model"?

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The IRS recently announced that it was ending OVDP – the “Offshore Voluntary Disclosure Program.”
The reaction of the “tax compliance community has been largely that the “retiring” of the OVDP program should be interpreted to be a “last, best chance to come into compliance!” A comment at the Isaac Brock Society asks:

“Those who still wish to come forward have time to do so.”
I haven’t finished reading John’s farewell to OVDP but that IRS statement caught my eye. It does NOT say “who must come forward” or “who have yet to come forward”. Who the heck would ever “wish” to come forward, especially after reading about Just Me’s trial by OVDP fire and the betrayal of trust suffered by our dear Dr. Marcus Marcio Pinheiro (aka markpinetree)?

I suppose there could be two possible reasons:
1. The OVDP program could be replaced with something worse; and/or
2. There could be some (few and far between) situations where OVDP might actually be better than streamlined.


What do the “tax professionals” think? A collection of comments from the twittersphere follows:


Interestingly, the IRS announcement was accompanied by the statement that:

The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

A comment from the Isaac Brock Society asks:

Doesn’t this just mean that they will move from the “voluntary disclosure” model to the “enforcement model” where they will begin to use the information gathered in FATCA, etc, to send notices to people with large fines?
To me, this sounds more like a gunshot that begins the battle between the IRS and expats versus an expat victory.

And in the real world …
Last week I was shown a sample of an IRS form letter received by an elderly American woman who has (apparently) not lived in the United States for fifty years. During those fifty years she had dutifully and responsibly filed her U.S. tax returns. Of course, she was living in a “foreign” country outside the United States.
Those interested might have a look at the following form letter she received. Notice that the letter appears to have been prompted because the IRS received information that she had an account at a “foreign bank”.
IRS – ltr form 6019
Looks like quite the fishing expedition to me. What a “penalty laden” list of possible accusations. Would you like to receive a letter like this about your “local” bank accounts?