Category Archives: Subpart F

Part 31 – "Double Taxation Disguised as Tax Reform": Jackie Bugnion comments in @TaxNotes on @USTransitionTax and #GILTI

https://twitter.com/worldnewsreader/status/1132961693598986241

This is Part 31 of my series of blog posts about the Sec. 965 transition tax. It is a “guest post” by Jackie Bugnion who is the former tax direction of ACA. The article explores the impacts of the Section 965 transition tax and GILTI on the lives of Americans abroad. Ms. Bugnion places the transition tax and GILTI in the context of the U.S. system of citizenship-based taxation.

This article is reproduced with thanks to the author Jackie Bugnion and the publisher Tax Analysts.

Bugnion-4-29

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John Richardson – Follow me on Twitter @Expatriationlaw

Part 11 in series: The Emotional Toll of US Non-Resident Taxation and Banking Policies – “I Feel Threatened by My Very Identity”

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).

You will find Part 1 to Part 10 of this series of posts here.
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Psychological harm and the pain of living as an American abroad – Why this next series of posts is important

I began this “Citizenship Solutions blog” in 2014. The blog included a page (not very visible) called:

“Emotional counselling for those threatened by the FATCA Roundup”

The comments (occasional as they may be) are significant. The comments include a “ping back” to a discussion of great interest which took place at the Isaac Brock Society.

Origins of the psychological torment of those targeted by the extra-territorial application of U.S. tax and banking laws

The campaign of Barack Obama will be remembered by the slogan “Change You Can Believe In”. For Americans abroad the election of Barack Obama was the beginning of a nightmare that they will never forget. Although U.S. citizenship- based taxation had always been the law in theory, it was never applied in practice. This changed with the Obama administration in three ways:

First, a toxic mix of Obama’s IRS, the tax compliance industry and the media worked to create an environment where individuals living outside the United States were led to believe, that the U.S. was enforcing U.S. citizenship-based taxation on Americans abroad. During the summer of 2011 innocent Americans abroad (some who had relinquished U.S. citizenship years earlier),were ushered into the OVDI program.

Second, the rollout of FATCA enlisted banks in the process of searching for U.S. citizens living abroad, who were not filing U.S. taxes.

Third, many Americans experienced their “Oh My God” moment where they learned about U.S. extraterritorial tax policies. For many the “Oh My God” moment permanently changed their perceptions of themselves. One day they were proud Americans. The next day they were threatened by the fact that they either were or had been U.S. citizens. Furthermore, they became (or at least believed) that they were a threat to their non-U.S. citizen families.*

The simple truth is that U.S. citizens are terrified of the U.S. Government. The vast majority of Americans abroad were not (and are still not) filing U.S. taxes. Their failure to file was because, they didn’t know that they were required to. Those individuals who were financially responsible and compliant with the tax laws where the live, were most impacted emotionally. They couldn’t believe that they had done something wrong. After all, they had lived their lives “trying to do the right thing”. The realization that they were not compliant with U.S. laws evoked a range of very damaging emotions. They experienced a range of emotions that they had never experienced before.

The emotions experienced were somewhere between “anger” at one extreme and “fear at the other extreme”. The experience of either too much fear or too much anger is a dangerous thing. The best an individual can hope for is to live life somewhere between fear and anger. It’s important to understand how intense and how damaging the psychological impact of the experience of being criminalized by the U.S. Government, has been and continues to be.

Laura Snyder discusses the “emotional toll of U.S. non-resident taxation and banking policies

Laura Snyder has written (in addition to her original four posts) a series of five posts describing and exploring “The Emotional Toll of US Non-Resident Taxation and Banking Policies. Part 10 of this series (comments of Nando Breiter) was a prologue to Ms. Snyder’s five posts.

Now, over to Laura …
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Part 7 of series: Tax Law to American Abroad – “How Do I Hate Thee, Let Me Count the Ways

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).

This is post 7 in my series leading up to the May 17 Tax Connections discussion. The first six posts have been for the purpose of demonstrating:

– in posts 1 to 4, Laura Snyder did a wonderful job in explaining how the U.S. tax system impacts the lives of Americans abroad. Her specific focus was on those individuals who identify as being U.S. citizens

– in post 5, I extended the discussion to reinforce that what the U.S. calls “citizenship-based taxation” is actually a system that impacts far more than those who identify as being U.S. citizens. In fact it burdens every individual on the planet who can’t demonstrate that he is a “nonresident” alien (people are renouncing U.S. citizenship because they can save themselves ONLY if they become a “nonresident alien”).

– in Post 6, I added the thoughts of Toronto Tax Professional Peter Megoudis who explained how those who are connected to “U.S. persons” (through family or business arrangements) can be impacted by the U.S. tax system

In this, Post 7, I am extending the discussion to explain that:

1. Not only does the United States impose worldwide taxation on individuals who don’t live in the United States; but

2. The system of worldwide taxation imposed is in reality and separate and far more punitive collection of taxes than is imposed on Homeland Americans.

I have previously written on this topic at Tax Connections:

Think of it! With the exception of the United States, when a person moves away from the country and establishes tax residency in another country, they will no longer be taxed as a resident of the first country.

But in the case of the United States: If a U.S. citizen moves from the United States and establishes tax residency in a new country, (1) he will STILL be taxable as a tax resident of the United States and (2) will be subjected to a separate and more punitive system of taxation! #YouCantMakeThisUp!

Although this truth is rarely understood and is rarely stated (it’s one of America’s “dirty little secrets”) here is an excerpt from a discussion I had with three international tax experts:

In this series of posts I am incorporating the thinking and writing of guest bloggers. In order to guide us in this discussion I welcome Virginia La Torre Jeker, a U.S. tax lawyer based in Dubai. I have previously featured Virginia in my “Unsung Heroes Of Life” Series.

Now on to Virginia La Torre Jeker …

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U.S. tax professionals discuss the principle that: The United States imposes a separate and more punitive taxation on #Americansabroad and @USAccidental

Here are some links to some of my videos discussion various of aspects of FATCA and U.S. “citizenship-based taxation”. In general there are three sources:

1. My personal YouTube channel.

2. Videos made at ThatChannel.com (a small Toronto internet based television station).

3. Podcasts at “PREP Podcaster” – featuring many interesting discussions with interesting people.

In March of 2019 I began a discussion at Tax Connections exploring the principle that:

“The United States is imposing a separate and more punitive tax system on people who are tax residents of other countries and do not live in the United States.”

As part of this discussion I had some discussion with Virginia La Torre Jeker, Peter Megoudis and Elena Hanson. Each of them is highly experienced and knowledgeable about how the U.S. tax system applies to Americans abroad and accidental Americans. The discussion took place in March of 2019. It turned out to be a very long discussion. Rather than include a video of the complete discussion, I have broken this into smaller videos that are based on themes.

This post is to separate and highlight the videos that resulted from this discussion.
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Part 6 of series: Why this Toronto based International Tax specialist always asks whether there are any U.S. taxpayers in the family

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 sixth of a series of posts that reflect views and experiences of Americans abroad who are experiencing the reality of living as an American abroad in an FBAR and FATCA world. (The first post is here.) The second post is here. The third post is here. The fourth post is here. The fifth 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.
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The last post in this series made the point that U.S. “citizenship-based taxation” impacts people who are dual citizens and tax residents of other countries. Many of of these people do NOT view themselves as U.S. citizens at all. The suggestion that they are U.S. citizens is not welcome and is (because U.S. citizens are subject to a vast regulatory scheme) an intrusion in their lives. Fair enough.

Most of the posts in this series describe the effect of U.S. regulation on those who ARE U.S. citizens. What about the effect of “citizenship-based taxation” on those who are NOT U.S. citizens? The marriage of Meghan Markle to Prince Harry has generated an awareness of the regulatory requirements on U.S. citizens who live outside the United States. This is only part of the problem. To focus on how U.S. citizenship-based taxation affects ONLY U.S. citizens is selfish and misguided. After all, by marrying Prince Harry, Meghan Markle is now part of a family which includes non-resident aliens. As I recently suggested on Twitter:

My thinking along these lines began with:

What about Internal Revenue Code Section 318? This would deem “Baby Sussex” to be (for IRS purposes) the owner of any the shares of any U.K. corporations that Harry might own. This is only one of many instances where (to put it simply) the U.S. citizenship of one family member can become a problem for the whole family. In any event, this series really needs a post, describing what could happen, when a U.S. citizen becomes part of what is otherwise, a family of “non-resident aliens”.

In order to assist with this, I realized that I needed the input of a “U.S. Tax Anthropologist”. I turned to Peter Megoudis who is the director of the expat tax division at Trowbridge. Peter astutely recognised that the United States invented the concept of the “expat”. See the following video clip.

I asked Peter if he would share the results of his research on how one U.S. citizen family member could impact the whole family. In other words: How do the rules of U.S. “citizenship-based taxation” affect people who are not U.S. citizens, but have chosen to interact with U.S. citizens?

Peter replied to me with the following …

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Part 3 of 4: “It Hurts My Heart:” The Case for Fairer Taxation of Non-Resident US Citizens

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 third 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 part is here.) The second part 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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US Treasury interprets Section 962 Election to mean that individual shareholders are entitled to 50% exclusion of #GILTI income when calculating income attributed

On March 4, 2019 as described by Helen Burggraf at American Expat Finance:
My comment included:

Also welcoming the news of the changes in the tax treatment of Americans’ overseas small businesses was John Richardson, a Toronto-based lawyer at CtizenshipSolutions.ca, who specializes in assisting Americans abroad with their tax and citizenship issues. The Treasury, Richardson said, should be congratulated for taking a “purposive” approach “when interpreting how Sec. 951A interacts with Sec. 962” of the relevant regulations.
In layman’s terms, Richardson noted, the new regulation means that “American expats may now deduct 50% of the active business income defined as GILTI, thus reducing the amount of GILTI they would be expected to have to pay tax on.”
However, the new regulations don’t affect the so-called Section 965 “transition tax,” he noted.
“It appears that Treasury heard and understood the problems faced by individual shareholders of CFCs [Controlled Foreign Corporations].
“I suspect that organisations representing S Corps [a type of closely-held corporation, as defined by the U.S. Internal Revenue Service] also made submissions to Treasury and had an influence on this decision.
“All Americans abroad should be encouraged by this. Instead of interpreting the law in the most literal and punitive way, it appears that Treasury has recognized the problems that individuals, whether living inside or outside America, faced.
“The bottom line is that small business owners abroad will now, for the most part, be able to defer U.S. taxation on the active business income of their corporations by using the Sec. 962 election, provided that their corporations are paying sufficient local tax. They will of course have to pay U.S. tax when the income is distributed to them.
“But [even here], the distributions will be subject to local tax which can then be used, via the FTC rules, to offset U.S. tax owing – for active business income.
“In other words, this is excellent news for Americans abroad.”

Full discussion here …


An example of the 50% discount and the Section 962 election here …


John Richardson – Follow me on Twitter at @ExpatriationLaw

The United States imposes a separate and more punitive tax system on US dual citizens who live in their country of second citizenship

Prologue

Do you recognise yourself?

You are unable to properly plan for your retirement. Many of you with retirement assets are having them confiscated (at this very moment) courtesy of the Sec. 965 transition tax. You are subjected to reporting requirements that presume you are a criminal. Yet your only crime was having been born in America (something you didn’t even choose) and attempting to live as a U.S. tax compliant American outside the United States. Your comments to my recent article at Tax Connections reflect and register your conviction that you should not be subjected to the extra-territorial application of the Internal Revenue Code – when you don’t live in the United States.

The Internal Revenue Code: You can’t leave home without it!

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Part 30 – Treasury issues final @USTransitionTax Regs with no relief for #Americansabroad


This is Part 30 of my series of blog posts about the Sec. 965 transition tax.
Because of the importance and significance of this news I am writing this post without having read the 305 pages of Treasury regulations which relate to the Sec. 965 transition tax which are found here. I am relying on Monte Silver’s analysis which concludes that the regulations propose NO regulatory relief for the small businesses of Americans abroad. This is disappointing after the lobbying efforts that have been undertaken.
The attitude of U.S. Treasury
Assuming no relief for Americans abroad, coupled with the vast campaign that was undertaken to educate Treasury, we can assume that the denial of relief was intentional and with full recognition of the harm caused to a political minority, who do not even live in the United States.
To put it simply: It is the intention of U.S. Treasury to confiscate the retirement assets of Canadians with Canadian Controlled Private Corporations and similarly situated individuals in other countries. No other conclusion is possible.
The attitude of Congress – As I have previously said:
The problem is NOT that Congress doesn’t care about Americans Abroad. The problem is that they con’t care that they don’t care!
The only remedy is with the courts and I strongly suggest that you support the transition tax lawsuit being organized by Monte Silver.
The attitude of the Courts
I anticipate that Monte Silver’s lawsuit (described in the previous paragraph) is now inevitable.
Here is what actually has happened this week …
First – as reported on January 15, 2019 before issuing final regulations …

Second – and on January 16, 2019 – for the encore the final Sec. 965 regulations are issued and guess what?

For further commentary I refer you to Monte Silver at Americans for Small Business.
For those who can stomach it, the final (supposedly) regulations are here.
John Richardson
Follow me on Twitter: @ExpatriationLaw

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

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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