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:
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: Continue reading →
This will be my last tweet or like about #FATCA, #CBT citizenship based taxation, or the plight of US citizens who permanently live abroad. In 2010 the US Congress voted to force all foreign banks to identify 'US persons', with the purpose of enforcing tax residents of other …
countries to also pay taxes in the US. But the vast majority of us wouldn't owe anything to the US unless wealthy. The tax forms are complex, don't cover the type of financial products such as pensions or college savings accounts available in some countries.
Lots of banks stopped providing services to US citizens. I also strongly object to the compliance costs forced on small countries such as New Zealand, $10's of millions to try and identify people with a US connection. Those of us who married find our joint bank
accounts may be reported to what our spouses consider to be a foreign government. Rock and a hard place when they say no, nothing to do with me. Why doesn't US join international CRS scheme? Anyway, I've done my best to explain my situation to US relatives multiple times. …
And I've just had my sister visit me. She asked, 'How are things with you and the US government, it's to do with the Magnitsky Act, isn't it?' First reaction, wow she knows this Act?, second reaction, what is the point if even family don't understand #FATCA, #CBT. I'm done.
"What Is The Future Of Citizenship-Based Taxation?" Prof. William Byrnes (Texas A&M Law), Prof. Edward Zelinsky (Cardozo Law), John Richardson (Canadian attorney who represents US-Canada dual nationals), Kat Jennings (CEO Tax Connections) https://t.co/LP63MHEFYS
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 … Continue reading →
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.”
Thanks to @VlJeker for participating in this video series. Again, the most important question of our age is: "Is it the U.S. citizen or is it the non-citizen that is the source of the problem in the #FBARMarriage?" Your thoughts? https://t.co/SiPJAY4alz
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 7, 2019
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…
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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 https://t.co/yzxRjFikhp
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) July 30, 2018
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”