Category Archives: Subpart F

US Treasury proposes that foreign income subject to high foreign tax be excluded from definition of #GILTI

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In general – Good News For American Entrepreneurs Abroad …

On Friday June 14, 2019 US Treasury proposed in Notice 2019-12436 that any foreign income earned by Controlled Foreign Corporations be (subject to election) excluded from the definition of GILTI income. This will be particularly welcome to Americans living outside the United States, who are attempting to carry on business in their country of residence, through non-U.S. corporations.

For those who are concerned with understanding the hows and whys, I suggest you read Treasury’s Notice which includes a good history and description of the Subpart F rules, some Legislative History leading to the GILTI rules, and Treasury’s attempt to piece it all together. You will find it all here.

Treasury Notice 2019-12436
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Part 32 – So, you have received a letter saying that your @USTransitiontax is also subject to the 3.8% NIIT

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This is Part 32 of my series of blog posts about the Sec. 965 transition tax. I recently received a message from a person who says that he was assessed a Section 1411 Net Investment Income Tax assessment on the amount of the Section 965 transition tax. Although not intended as legal advice, I would like to share my thoughts on this. I don’t see how the transition tax could be subject to the NIIT.
Let’s look at it this way:
Why Section 965 Transition Tax Inclusions Are NOT Subject To The Sec. 1411 Net Investment Income Tax
A – The Language Of The Internal Revenue Code – NIIT Is Not Payable On Transition Tax Inclusions
I see no way that the language of the Internal Revenue Code leads to the conclusion that the transition tax can be subject to the NIIT.
My reasoning is based on the following two simple points:
1. The NIIT is based on Net Investment Income which is generally defined as dividends, interest and capital gains as per this tweet:


2. Subpart F income by legal definition (controlling case law) is NOT interest, dividends or capital gains as per this tweet


B – The Purpose Of The Section 965 Transition Tax
3. The whole point of the transition tax is to go after active income that was not subject to U.S. tax when it was earned. There is nothing about the transition tax that converts active income into investment income by making it a subpart F inclusion as per this tweet:


Therefore, (and this is speculation on my part) the NIIT charge must be based on something specific to your tax filing – likely treating the transition tax inclusion as meeting the definition of Net Investment Income – specifically Dividends, Interest or Capital Gains.
Under no circumstances should you or anybody else impacted by this simply pay a NIIT surcharge on the transition tax, without a careful and meticulous investigation of the reasons for it. Have a good look at your tax return.
The mandatory disclaimer: Obviously this is not intended to be legal advice or any other kind of advice. It is simply intended to give you the framework to discuss this issue with your tax preparer if you were one of the unfortunate victims who received an NIIT tax assessment on your acknowledged transition tax liability.
John Richardson – Follow me on Twitter @Expatriationlaw

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

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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”

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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).

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

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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).

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

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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

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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 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

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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 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

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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

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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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