Category Archives: Uncategorized

Treasury exempts applicable “tax-favored foreign trusts” from the Form 3520 (and therefore Form 3520A) requirement

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Introduction – A small step for forms, one giant leap for “formkind”

It’s true. Many Americans abroad may no longer be required to file Form 3520 and Form 3520A to report their lives abroad! Early indications appear that many Americans will (assuming their retirement vehicle does qualify as a trust) not be required to report on Form 3520. This new initiative from Treasury a positive step in the right direction.

I have long thought that Treasury could solve many of the problems experienced by Americans abroad. Here is a wonderful example of Treasury taking the initiative to clarify the obvious:

Americans abroad do NOT use non-U.S. pension plans and non-U.S. tax-advantaged investing accounts to evade U.S. taxes. Hence, there is NO reason for the Form 3520 reporting requirement. This is an example of the tax compliance industry sitting down with Treasury, explaining a problem and getting a resolution. I suggest (and hope) that the same can be done for PFIC (Form 8621), Small Business Corporations (Form 5471) and other penalty-laden forms.

Yes, this announcement from Treasury in the form of RP 20-17 is a great achievement. Although it certainly doesn’t solve all the problems, it’s:

A small step for forms, one giant leap for “formkind”

The background to this problem – It starts in 1996 (same year as the beginning of the Exit Tax)…

Since 1996 Internal Revenue Code 6048 has required extensive reporting of almost any interaction with a foreign trust. Treasury has required that the reporting take place on Forms 3520 and 3520A. The forms are complex and subject to the draconian penalty regime described in Internal Revenue Code Section 6677. In order for an entity to be a foreign trust, it must be a trust. A “trust” for IRS purposes is defined by the Treasury Regulations as:

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Part 33 – US residents bring suit alleging that the Section 965 US Transition Tax is Unconstitutional

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A lawsuit alleging that the Section 965 transition tax is unconstitutional affords the opportunity to write Part 33 in my series of posts about the U.S. Transition Tax.
Part 22 of this series included a discussion of a paper by Sean P. McElroy which argued that the Section 965 repatriation tax was unconstitutional for the following reasons explained in the abstract:
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The 2019 IRS "expatriation" compliance campaign: Getting ahead of the fear mongering

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On July 19, 2019 the IRS announced six new compliance initiatives.
Of particular interest to U.S. citizens and permanent residents (Green Card holders) is what is described as:

Expatriation
U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.

What is expatriation?
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Letting go and moving on: So long @JayNoonez and thanks for your efforts over the years

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Introduction:
https://twitter.com/millionsofmoth1/status/1152476890260598784
When it comes to Americans abroad, a community is the same as a village.


Which is why it saddens me to read …


Please remember that …


Thanks to @JayNoonez for his contributions over the years! He should be recognized as an “Unsung Hero Of Life“.
John Richardson – Follow me on Twitter @Expatriationlaw

Part 8 of series: Former ACA Tax Director Jackie Bugnion recalls the 2014 Kirsch Schneider debate on "citizenship-based taxation"

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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 the eigth of a series of post I have written as a run up to the May 17, 2019 Tax Connections discussion about U.S. citizenship-based taxation. You can read the previous posts here.
Introducing Jackie Bugnion …
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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

When a US citizen marries a non-citizen – AKA The #FBAR Marriage: Filing status, joint ownership of assets, income, gift and estate tax issues

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Marriage is complicated. Marriage between U.S. citizens is complicated. But, a marriage between a U.S. citizen and a non-citizen is (for tax compliant Americans) is the most complex marriage of all.

The U.S. Internal Revenue Code governs almost all aspects of the lives of Americans citizens regardless of where they…

Posted by Citizenship Solutions on Thursday, February 7, 2019

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"Non-citizenship" has its privileges: An overlooked reason why a Green Card holder may NOT want to become a U.S. citizen

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U.S. Tax Residency – The “Readers Digest” Version

Last week I participated in a “panel discussion” titled:
“Tax Residency In A World Of Global Mobility: What Tax Residency Means, How To Sever It, The Role Of Tax Treaties and When Exit Taxes May Apply”

The panel included a discussion of  the “pre-immigration planning” that should be undertaken prior to becoming a “tax resident of the United States”. U.S. citizens and U.S. residents are “tax residents” of the United States and (from an income tax perspective) are taxable on their world wide income. (There are separate “tax residency” rules for the U.S. Estate and Gift Tax Regime.) For the purposes of “income taxation”, the definition of “U.S. resident” includes “Green Card holders” , who by definition are “permanent residents” of the United States. Those who come to America and get that “Green Card” have subjected themselves to the U.S. “worldwide taxation” regime. Note that a Green Card holder who becomes a “long term” resident of the United States has also subjected himself to the S. 877A Expatriation Tax Regime! In other words, a Green Card holder may NOT be able to move from American without subjecting himself to a significant confiscation of his wealth! To put it simply: If a prospective immigrant is “well advised”, the S. 877A Exit Tax rules will provide a strong reason to NOT become a “permanent resident” of the United States. But, remember:
The S. 877A Exit Tax rules apply to “permanent residents” who become “long term residents”.

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