Category Archives: U.S. tax citizen

Why ALL individuals should support the @RepHolding Tax Fairness For Americans Abroad Act

2 Replies

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).

Continue reading →

As 2018 draws to a close: Congressman Holding introduces "Fair Taxation For Americans Abroad Act"

2 Replies

Updated December 21, 2018 – Here is the video of the discussion:


___________________________________________________________________________

Here is a description of what the Bill is intended to accomplish:

Tax Fairness for Americans Abroad

The proposal outlined below would effectively end the current citizenship-based taxation system and instead transition to a system that provides territoriality for individuals – often referred to as residence-based taxation. By taking this first step toward ending the onerous burdens of citizenship-based taxation, Americans will become more competitive in the international job market and free to pursue opportunities around the world.

Under this new system, qualified nonresident citizens will no longer be taxed on their foreign source income while they are resident abroad; however, they will remain subject to tax on their U.S. source income.

Eligibility

In order to qualify for qualified nonresident citizen status, an individual must be a nonresident citizen and make an election to be taxed as such. Individuals will make an annual election to certify they remain in compliance with the eligibility requirements.

Under this proposal, a nonresident citizen is defined as in individual that:

• Is a citizen of the United States,
• Has a tax home in a foreign country,
• Is in full compliance with U.S. income tax laws for the previous 3 years, and
• Either:

a) establishes that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
b) is present in a foreign country or countries during at least 330 full days during such taxable year

Tax Treatment

Once an individual meets the qualifications to become a nonresident citizen, he may elect to be taxed as a qualified nonresident citizen.

Those electing to be taxed as qualified nonresident citizens will be exempt from taxation on, and shall exclude from gross income, their foreign source income. This includes both foreign earned income (as defined in section 911(b)) and foreign unearned income (defined as income other than foreign earned income that is sourced outside the U.S).
Under this proposal a qualified nonresident citizen will remain subject to tax on any U.S. source income.

While individuals will not be taxed on gain from the sale of foreign personal property attributable to their time as a qualified nonresident citizen, they will still be taxed on any gain attributable to their time as a resident of the U.S. In other words, if an individual holds a foreign asset prior to their election of qualified nonresident citizen status and then sells said asset while they are a qualified nonresident citizen, the individual will only owe U.S. tax on the portion of gain attributable to the period prior to their change in status.

Here is the full text of the Bill:

Tax Fairness for Americans Abroad Act_H.R. 7358

Reactions …

John Richardson – Follow me on Twitter: @ExpatriationLaw

The "proper care and feeding of the Green Card": Tax Filing Edition – Use of the 911 Foreign Earned Income Exclusion

Leave a reply

Introduction: The Purpose and Limited Scope Of This Post
This post focuses on Green Card holders who are filing the 1040 tax return. The 1040 is the return that is filed by all individuals unless you are a “nonresident aliens”. Non-resident aliens file the 1040-NR. This post does NOT discuss (1) when it could be advantageous for a Green Card holder to file a 1040-NR (using a tax treaty tie breaker provision) and (2) what the (DANGEROUS) consequences of filing a 1040-NR (from both a tax and immigration perspective) could be. For a Green Card holder, there can be both disadvantages and also substantial advantages to using a tax treaty tiebreaker to file a 1040-NR.
This post assumes that the Green Card holder is filing a 1040 and is specifically focused on the following question:
Is it wise for a Green Card holder who is temporarily outside the United States to use the Foreign Earned Income Exclusion found in Section 911 of the Internal Revenue Code (as opposed to the Section 901 Foreign Tax credits) when filing the 1040?
(Most tax practitioners agree, that in general, it is better to use the Sec. 901 foreign tax credits and and not sue the S. 911 Foreign Earned Income Exclusion. Here is a post that explains why this is so. So, why would anybody ever use the FEIE? The answer is that some people live in countries where there is income tax and therefore no foreign tax credit to use against income that is taxable from a U.S. perspective.)
Continue reading →

Considering the EB-5 Visa? The IRC S. 877A Expatriation Tax Demonstrates that "Not All US @TaxResidency Is The Same!"

Leave a reply


“Understanding U.S. Tax Residency …
The United States uses a form of “deemed tax residency“.
The Internal Revenue of the United States deems that all “individuals” (wherever they live in the world – including citizens and residents of other countries) except “nonresident aliens” are subject to taxation in the United States on their world wide income. One qualifies as a “nonresident alien” unless one is a:
1. A U.S. citizen
2. A U.S. resident as defined by Internal Revenue Code Sec. 7701(b)
Continue reading →

On what date does an individual (other than a U.S. citizen) begin or end @USTaxResidency

Leave a reply

This is an interesting and important question. This question is always important for determining how the Sec. 877A “Exit Tax” applies to “permanent residents” AKA “Green Card Holders” who with to abandon their permanent residence. There are many other many other reasons why this matters. U.S. tax residency (which is an example of “deemed tax residency“) can be a complicated thing. With the exception of U.S. citizens, U.S. tax residency is usually a function of some form of “physical presence”.
U.S. tax residency can trigger:
– income tax payable
– reporting requirements with respect to non-U.S. assets and more (dual tax residents may be able to use a “tax treaty tie-breaker” to opt out of U.S. tax residency)
Remember that “residence” for purposes of taxation can be different from residence for the purposes of immigration. As the Topsnik case makes clear, it is entirely possible to NOT have the right to have lost the right to live in the United States, but still be subject to taxation as a U.S. resident.
Rather than reinvent the wheel, I am please to reproduce this post from Daniel Gray – a Toronto based CPA. Thanks to Daniel for allowing me to reproduce this post from his blog.


Continue reading →

13 Reasons Why I Committed #Citizide: (Inspired by the television series, 13 Reasons Why)

Leave a reply

Update – November 2, 2018 to include – “Retain or Renounce” Information session held in Brisbane Australia on October 25, 2018


Introduction – Guest post by a perfectly ordinary person who renounced U.S. citizenship for perfectly ordinary reasons


In a recent submission to Senator Hatch  I argued that what the United States thinks of as “citizenship-based taxation”, is actually a system where the United States imposes U.S. taxation on the residents and citizens of other countries. That submission included:

On July 4, 2017, Americans living inside the USA celebrated the “4th of July” holiday – a day that Americans celebrate their independence and freedom.
On that same day, I had meetings with SEVEN American dual citizens, living outside the United States. This “Group of Seven” were in various stages of RENOUNCING their U.S. citizenship. Each of them was also a citizen and tax paying resident of another country. They varied widely in wealth, age, occupation, religion, and political orientation. Some of them have difficulty in affording the $2350 USD “renunciation fee” imposed by the U.S. Government. Some of the SEVEN identify as being American and some did NOT identify as being American. But each of them had one thing in common. They were renouncing their U.S. citizenship in order to gain the freedom that Americans have been taught to believe is their “birth right”.

On August 2, 2017 posts at the Isaac Brock Society and numerous other sources, reported that that there were 1759 expatriates reported in the second quarter report in the Federal Register. The number of people renouncing U.S. citizenship continues to grow.
Now on to the guest post by Jane Doe, which is a very articulate description of the reasons why people living outside the United States feel forced to renounce U.S. citizenship.
John Richardson
Continue reading →

U.S. Citizenship clarification: Time between your actual renunciation and the date your CLN is issued

2 Replies

Two questions that I frequently receive from people who have renounced U.S. citizenship are:

I. An immigration question: What if I attempt to travel to the United States during the period of time between my actual renunciation of U.S. citizenship and actually receiving my CLN (which is my proof of having renounced U.S. citizenship)?

II. A tax question: At what point after I renounce U.S. citizenship do I cease to be treated as a U.S. citizen for U.S. tax purposes? For example, when am I free to sell my house (located outside the USA) and NOT be subject to U.S. capital gains taxes?

Two kinds of U.S. citizenship: How the issuance of a CLN affects (1) U.S. citizenship for Immigration purposes and (2) U.S. citizenship for tax purposes

1. How the issuance of a CLN affects U.S. citizenship for immigration and nationality purposes:

Immigration and Nationality Act S. 349(a) (U.S. Code 1481(a)) make it clear that the issuance of a CLN is completely irrelevant to your status as a U.S. citizen for immigration purposes. A CLN is of value ONLY for the purposes of PROVING that you are not a U.S. citizen.

Therefore, one ceases to a U.S. citizen for immigration purposes on the date of the relinquishing (renunciation) act.

2. How the issuance of a CLN affects U.S. citizenship for U.S. tax purposes

Internal Revenue Code 877A(g)(4) mandates that those relinquishing/renouncing U.S. citizenship after June 16, 2008:

– will continue to be treated as U.S. citizens for U.S. tax purposes until the CLN is actually issued; and

– the date of ceasing to be a U.S. citizen for U.S. tax purposes will be the actual date of the relinquishing act (date of renunciation).

Therefore, (assuming a relinquishing act after June 16, 2008) one continues to be a U.S. citizen for tax purposes until the CLN is issued.

These distinctions are discussed in an earlier post:

“Renunciation is one form of relinquishment – It’s not the form of relinquishment but the time of relinquishment”
Bottom line: One ceases to be a U.S. citizen for immigration purpose before one ceases to be a U.S. citizen for tax purposes.

Generally people are more concerned with travelling to the USA during the time gap between renouncing U.S. citizenship and before receiving a CLN. Fortunately, we have a “guest post” written by someone who has just experienced this issue from the Immigration perspective. He has shared his thoughts as follows:

Travel Limbo? Keep calm and CLN on.

Recently, I found myself in a potentially sticky situation enroute to a holiday in the U.S while at a Canadian airport. My Canadian passport showed a U.S. birthplace and before allowing me through, the U.S. Border Officer wanted me to show my Certificate of Loss of Nationality (CLN) or an American passport.

Although I had renounced my U.S. citizenship several months earlier, the U.S. Department of State had not yet issued my CLN. Before this experience, I had always been able to cross the border to the U.S. with my Canadian passport (the only passport I’d ever had).

Fortunately, the situation didn’t escalate. I attempted to give the officer a simple explanation that I had renounced at a U.S. Embassy many months before but the approved CLN had not been couriered in time for my trip. If he would permit me, I would show him my email correspondence with the U.S. embassy.

The officer accepted my explanation. Before he waived me through, I asked if he had any advice to share with anyone caught in travel limbo without their CLN.

Hopefully, his comments will help others to navigate a soft landing:

Keep calm

There is a line-up of people behind you. This is not the time to be outraged or to educate agents about the plight of Accidental Americans or dual citizens.

Show proof

Travel with a copy of your CLN. If you’re still waiting for it, carry a copy of Form DS-4080 (the form you sign when you renounce and swear an oath at a U.S. Embassy). Keep copies on your phone.

Provide a reasonable explanation

If you accidentally forget your documents or booked a trip before your CLN arrives, a simple description of the renunciation process and the long wait times for the approved CLN to arrive will hopefully be reasonable enough to a reasonable officer.

Thanks to our guest blogger for the relaying the above experience!

John Richardson

How the "assistance in collection" provisions in the Canada US Tax Treaty facilitates "US citizenship based taxation"

Leave a reply


The above tweet references the comment I left on an article titled: ”

Why is the IRS Collecting Taxes for Denmark?

which appeared at the “Procedurally Speaking” blog.
The article is about the “assistance in collection” provision which is found in 5 U.S. Tax Treaties (which include: Canada, Denmark, Sweden, France and the Netherlands). I am particularly interested in this because of a recent post at the Isaac Brock Society.
This post discusses the “assistance in collection” provision found in Article XXVI A of the Canada U.S. Tax Treaty. The full test of this article is:
Continue reading →

Why Boris Johnson must relinquish US citizenship on the occasion of his appointment as British Foreign Minister

Leave a reply

A recent post (July 7, 2016) on this blog began with:
Prologue – U.S. citizens are “subjects” to U.S. law wherever they may be in the world …


Yes, it’s true. In 1932 (eight years after the Supreme Court decision in Cook v. Tait), Justice Hughes of the U.S. Supreme Court, in the case of Blackmer v. United States ruled that:

While it appears that the petitioner removed his residence to France in the year 1924, it is undisputed that he was, and continued to be, a citizen of the United States. He continued to owe allegiance to the United States. By virtue of the obligations of citizenship, the United States retained its authority over him, and he was bound by its laws made applicable to him in a foreign country. Thus, although resident abroad, the petitioner remained subject to the taxing power of the United States. Cook v. Tait, 265 U.S. 47, 54 , 56 S., 44 S. Ct. 444. For disobedience to its laws through conduct abroad, he was subject to punishment in the courts of the United States. United States v. Bow- [284 U.S. 421, 437] man, 260 U.S. 94, 102 , 43 S. Ct. 39. With respect to such an exercise of authority, there is no question of international law,2 but solely of the purport of the municipal law which establishes the duties of the citizen in relation to his own government. 3 While the legislation of the Congress, unless the contrary intent appears, is construed to apply only within the territorial jurisdiction of the United States, the question of its application, so far as citizens of the United States in foreign countries are concerned, is one of construction, not of legislative power. American Banana Co. v. United Fruit Co., 213 U.S. 347, 357 , 29 S. Ct. 511, 16 Ann. Cas. 1047; United States v. Bowman, supra; Robertson v. Labor Board, 268 U.S. 619, 622 , 45 S. Ct. 621. Nor can it be doubted that the United States possesses the power inherent in sovereignty to require the return to this country of a citizen, resident elsewhere, whenever the public interest requires it, and to penalize him in case of refusal. Compare Bartue and the Duchess of Suffolk’s Case, 2 Dyer’s Rep. 176b, 73 Eng. Rep. 388; Knowles v. Luce, Moore 109, 72 Eng. Rep. 473.4 What in England was the prerogative of the sov- [284 U.S. 421, 438] ereign in this respect pertains under our constitutional system to the national authority which may be exercised by the Congress by virtue of the legislative power to prescribe the duties of the citizens of the United States. It is also beyond controversy that one of the duties which the citizen owes to his government is to support the administration of justice by attending its courts and giving his testimony whenever he is properly summoned. Blair v. United States, 250 U.S. 273, 281 , 39 S. St. Ct. 468. And the Congress may provide for the performance of this duty and prescribe penalties for disobedience.

It’s that simple. If you are a U.S. citizen, some would argue that you are the property of the U.S.government.
On the other hand (and this will be the subject of another post), the Supreme Court decisions in Cook v. Tait and Blackmer v. The United States were decided in an era where there was no U.S. recognition of dual citizenship. It is reasonable to argue that these decisions have no applicability in the modern world.
There will be those who will say: Come on! Get real! The United States would never rely on these old court decisions. Well, they still do cite Cook v. Tait. Mr. FBAR lay dormant until it was resurrected by the Obama administration as the “FBAR Fundraiser“.
Dual Citizenship: What is the “effect” of a U.S. citizen also holding the citizenship of another nation?


The State Department description includes:

However, dual nationals owe allegiance to both the United States and the foreign country. They are required to obey the laws of both countries. Either country has the right to enforce its laws, particularly if the person later travels there. Most U.S. nationals, including dual nationals, must use a U.S. passport to enter and leave the United States. Dual nationals may also be required by the foreign country to use its passport to enter and leave that country. Use of the foreign passport does not endanger U.S. nationality. Most countries permit a person to renounce or otherwise lose nationality.

The life and times of Boris Johnson – A United States taxpayer by birth
Assumptions about Mr. Johnson’s citizenship …
I am assuming that he became both a U.S. and U.K. citizen by birth. I also assume that he remains both a U.S. and a U.K. citizen.
A U.S. Centric Perspective: As a U.S. citizen, Mr. Johnson is defined primarily in terms of taxation. On the occasion of Mr. Johnson’s recent appointment as the U.K. Foreign Minister, the Washington Times published the following article.


The article referenced in the above tweet provides an interesting summary of the Mr. Johnson’s adventures with the U.S. tax system. The article demonstrates how U.S. “place of birth” taxation is used to extract capital from other nations and transfer that capital to the U.S. Treasury. (As always the comments are of great interest.)
A non-U.S. Centric Perspective: Mr. Johnson is a “poster boy” for the problems of the U.S. “place of birth taxation” (AKA “taxation-based citizenship”). Mr. Johnson’s “IRS Problems” resulted in raising the profile and awareness of U.S. tax policies. A particularly interesting article was written by Jackie Bugnion and Roland Crim of “American Citizens Abroad”.


At a minimum, Mr. Johnson is subject to IRS jurisdiction, IRS reporting requirements, IRS threats and penalties and IRS assessments.
Boris Johnson has now been named the U.K. Foreign Minister …
How does his United States citizenship impact on this situation? Is it possible for him to be both a U.S. citizen and the British foreign minister? The “logical answer” is “Yes he can”. That said, having a U.S. citizen as the U.K. foreign minister raises many questions.
These questions include:
1. What effect (if any) does Mr. Johnson’s acceptance of this position have on his retention of United States citizenship as a matter of U.S. law?
2. If his acceptance of the position were a “relinquishing act” (under U.S. law) would Mr. Johnson be subject to the United States S. 877A Exit Tax?
3. Assuming that Mr. Johnson were to retain “dual” U.S./U.K. citizenship, how would his “divided loyalties” impact on this ability to serve as the British foreign minister?
4. Assuming that Mr. Johnson were to retain “dual” U.S./U.K. citizenship, how does the fact that the IRS has the jurisdiction to threaten him with fines and penalties impact the situation? What about the reporting requirements?
5. Should Boris Johnson formally relinquish his U.S. citizenship in order to avoid the conflict of interest that would arise because of divided loyalties?
Each question will be considered separately. Here we go …
Continue reading →

Is it Congress or Treasury that is responsible for "taxation-based citizenship"? Perhaps change is through regulation and not law!

1 Reply

This post is a continuation to my recent post: “The Internal Revenue Code does not explicitly define “citizen”, “citizenship” or require “citizenship-based taxation“. That post was reposted at the Isaac Brock Society, and received a comment which included:

Your statement that the IRC does not explicitly define citizenship is technically correct. It is also misleading. When the IRC was codified in 1939, the Secretary of Treasury was given an order to issue all needful regulations. That mandate is now found at 26 USC 7805. The needful regulation of the Secretary, Treasury Regulation, 26 CFR 1.1-1(c) explicitly defines citizenship in terms of the 14th Amendment and it included the term subject. 26 CFR 1.1-1(a) explicitly states that the tax imposed by section 1 of the IRC imposes the tax on citizens and residents. It does not list any other type, class or category of person upon the tax may be imposed by force.

In the original post I had demonstrated why taxation based on “citizenship” was a reasonable inference from Sections 1 and 2 of the Internal Revenue Code. The basic reasoning from Sections 1 and 2 of the Internal Revenue (without consideration of outside sources) is reflected in the following syllogism:

1. All individuals with the exception of non-resident aliens are subject to U.S. taxation.

2. Citizens are individuals who are NOT “nonresident aliens”

Therefore, citizens are subject to taxation.

Nevertheless, the comment raises a very interesting question. To put it simply the question is:

Could U.S. Treasury/IRS by regulation exempt Americans abroad from U.S. taxation?

The purpose of this post is to explore this very interesting question.

Let’s work with the information in the comment.

1. S. 7805 of the Internal Revenue Code gives U.S. Treasury the authority to make regulations to implement the provisions of the Internal Revenue Code.

(a) Authorization

Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

2. The regulation made to interpret S. 7805 of the Internal Revenue Code is:

§ 1.1-1 Income tax on individuals.

(a) General rule.

(1) Section 1 of the Code imposes an income tax on the income of every individual who is a citizen or resident of the United States and, to the extent provided by section 871(b) or 877(b), on the income of a nonresident alien individual. …

(JR Note: This does NOT say ONLY “citizen or resident”, but okay.)

(b) Citizens or residents of the United States liable to tax. In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States. …

(c) Who is a citizen. Every person born or naturalized in the United States and subject to its jurisdiction is a citizen. For other rules governing the acquisition of citizenship, see chapters 1 and 2 of title III of the Immigration and Nationality Act (8 U.S.C. 1401-1459). For rules governing loss of citizenship, see sections 349 to 357, inclusive, of such Act (8 U.S.C. 1481-1489), Schneider v. Rusk, (1964) 377 U.S. 163, and Rev. Rul. 70-506, C.B. 1970-2, 1. For rules pertaining to persons who are nationals but not citizens at birth, e.g., a person born in American Samoa, see section 308 of such Act (8 U.S.C. 1408). For special rules applicable to certain expatriates who have lost citizenship with a principal purpose of avoiding certain taxes, see section 877. A foreigner who has filed his declaration of intention of becoming a citizen but who has not yet been admitted to citizenship by a final order of a naturalization court is an alien.

All well and good, what might this mean? Why might this be helpful?

A possible conclusion:

In the above regulation Treasury appears to have restricted the meaning and scope of the word “individual” to “citizen or resident”. For example a U.S. national is a broader term than citizen. (Confirmed by S. C of the above regulation “For rules pertaining to persons who are nationals but not citizens at birth“). Yet, in this regulation Treasury appears to have excluded “nationals”, who clearly are “individuals”, from payment of the income taxes imposed in Subtitle A of Title 26. Yet, U.S. “nationals” are clearly “individuals”.

Put it another way: In this Treasury regulation, Treasury is excluding at least one class of “individuals” (“nationals”) from the Income Tax. If Treasury can exclude one class of persons from the meaning of “individuals” for the purposes of S. 1 of the Internal Revenue Code, then why can’t it exclude another class of individuals?

I nominate Americans abroad as a class of “individuals” that Treasury could ALSO exempt from taxation under Subtitle A of Title 26 (the income tax).

To put it another way:

Could “taxation-based citizenship” be abolished by Treasury/IRS regulation? This seems like a simple argument. Why has this argument not been made before?

Afterthought …

In the last two Obama budgets, the White House has recognized the injustice of imposing “U.S. taxation” on certain “accidental Americans“. If Treasury believes it can define “individuals” in a way that excludes certain “individuals” from U.S. Income tax, then why not let the Obama government solve this problem through regulation (which he loves doing anyway) rather than waiting for Congress to change the law (at best as part of major tax reform) or through the Alliance For The Defeat of Citizenship Taxation lawsuit.
A question for President Obama and Democrats who have caused all the problems:
Cook v. Tait just means that the U.S. had (at least in 1924) the constitutional right to impose citizenship-based taxation. This does not mean that the U.S. is required to have citizenship-based taxation.

How about abolishing citizenship-based taxation through regulation?

With the stroke of a pen you could solve this problem – that is if you want to!

In fact, here is recent precedent of your attempting to amend the Internal Revenue Code by regulation:

Yes we can!!!

John Richardson

Related articles