Tag Archives: Americans abroad

Exercising broad regulatory authority, US Treasury has clarified the meaning of “resident” for #FBAR Purposes

Introduction – Looking For Mr. FBAR

What’s new?

I haven’t written a post about Mr. FBAR for quite some time. But, a post about the recent Boyd case at Tax Connections, by Darlene Hart got me thinking about FBAR again. For those interested – where the IRS successfully argued that it was appropriate to impose penalties on each individual account – here is the case:

HBe

And for a hint at the commentary:

Those who know little about Mr. FBAR might find this introduction to FBAR – although written in 2012 – helpful. Incidentally, it’s pretty obvious that Russia’s Foreign Bank account reporting laws were based on an admiration of Treasury’s success with the FBAR rules.

The purpose of this post

The purpose of this post is to explain:

1. The Congressional FBAR statute – Title 31 Section 5314 – which delegates to Treasury the responsibility of determining ALL aspects of FBAR administration including:

– who is subject to FBAR reporting

– the financial thresholds that trigger reporting

2. It is NOT the Congressional FBAR statute that defines the absurdly low $10,000 threshold for reporting. Rather it is Treasury. Although FBAR penalties are now indexed to inflation, the FBAR reporting threshold remains at $10,000. To put it simply: through inflation, Treasury has found a way to increase both the number of FBAR violations and the penalties associated with those violations. (There is a reason it’s called “The FBAR Fundraiser”).

3. It is not Congress that imposes the FBAR requirement on Americans abroad. It is Treasury. In fact, Treasury has recognized that they it has the right to exempt Americans abroad from the FBAR requirements, but has refused to do so. To be specific, Treasury’s 20111 statement found on page 10327 (middle column) was without explanation:

With respect to the comments raised by United States persons living abroad, FinCEN does not believe that an exemption is appropriate simply because a United States person chooses to live outside of the United States.

Treasury offered no reason for this decision.

Commentary on this decision at the Isaac Brock Society may be read here.

4. Treasury has by regulation “tinkered” with the meaning of “resident” over the years. I note that in 2012 (as explained by Phil Hodgen and others) the meaning of “resident” was not defined by statute. Rather, it is through Treasury regulations, that the word “resident” is given meaning. By 2017 Treasury had adopted the statutory meaning of resident used in the Internal Revenue Code (Section 7701(b)). (By expanding the definition of “United States” to include possessions and territories, it appears that Treasury has expanded the penalty base to include U.S. “Nationals”.) The FBAR statute is found in Title 31. The Internal Revenue Code is Title 26. There is neither a requirement nor a reason why Treasury should have used the definition of “resident” in Title 26 as the the meaning of “resident” in Section 5314 of Title 31. There are many different ways of defining “resident”. For example, for U.S. Estate and Gift Tax purposes, “residency” is defined in terms of domicile …

My point is this

Individuals and groups attempting to achieve justice for Americans abroad, Accidental Americans, Green Card Holders and all “U.S. Persons” would be advised to focus their efforts on U.S. Treasury. Yes, the lobbying of Congress should continue. But, meaningful change can be achieved without Congress even being aware of it. U.S. Treasury has the authority and ability to fix the FBAR related penalty and reporting injustices imposed on Americans abroad. But, FBAR is just the beginning. Almost all of the problems of Americans abroad can be fixed by Treasury.

This is the first of a series of posts in which I will explain how Treasury can solve almost all of the problems inflicted by the U.S. Government on Americans abroad.

John Richardson – Follow me on Twitter @Expatriationlaw

Appendix – For those who want to better understand the technicalities: Let me explain you …

Continue reading

Recently Released Survey Report Dispels Myth of the Wealthy American Abroad and Demonstrates Why Middle Class Americans Abroad Are Forced To Renounce US Citizenship

This blog post features the research of Laura Snyder. It is (I believe) the single and most comprehensive study of (1) the U.S. legislation that is understood to apply to Americans abroad and (2) the disastrous impact this legislation has on them. To put it simply, Congress is forcing Americans Abroad to renounce their U.S. citizenship.

The bottom line is that for Amerians Abroad:

“All Roads Lead To Renunciation!”

____________________________________________________________________________________________
And now over to Laura Snyder with thanks.
Continue reading

Part 2: Because banks and people are not the same: @RepMaloney #FATCA amendments require foreign banks but NOT individuals to report custodial accounts

Introduction:


FATCA imposes obligations on both foreign banks (report on individuals to the IRS – Internal Revenue Code Section 1471) and obligations on individual Americans abroad (report foreign assets to the IRS – Internal Revenue Code 6038D).
Depository vs. Custodial Accounts
In general a “Depository” accounts is a basic day-to-day bank account (checking, savings, etc.)
In general a “Custodial” account is a brokerage or other account that holds assets for management.
The Maloney bill addresses these obligations (with respect to the reporting of “Custodial” accounts) differently.
The Maloney bill and foreign banks – Section 1471 Amendments – custodial accounts are reportable
Representative Maloney’s H.R. 4362 – “Overseas Americans Financial Access Act” – includes relief provisions for both foreign banks AND for individual Americans abroad.
My previous post discussed how the Maloney bill impacts the reporting requirements of foreign banks. Notably the Maloney bill relaxes the reporting requirements for foreign banks ONLY with respect to depository accounts.
The Maloney bill and individuals – Section 6038D Amendments – custodial accounts not reportable
It appears that the Maloney bill would relax the Form 8938 reporting requirements for individuals with respect to BOTH depository and custodial accounts. Although not a model of clarity, it means that (as a general principle) Americans abroad would not be required to report their local (foreign to the USA) accounts (depository or custodial) to the IRS. This is a variant of what has been called FATCA SCE (“Same Country Exemption”).
Bottom Line: Foreign banks and Americans abroad do NOT get the same treatment under the Maloney bill. Is this an oversight? Is it careless drafting? Is it deliberate?
________________________________________________________________
Technical analysis (of interest to few people) follows:
Continue reading

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!
Continue reading

Part 21 – @ACAVoice makes presentation at October 22/18 IRS @USTransitionTax hearing – argues both that Regulatory Flexibility Act should apply and/or that de minimis rule be created

Introduction


This is Part 21 of my series of posts about the Section 965 transition tax.
The Section 965 “Transition Tax” saga continues. Americans abroad may have political differences. They may have philosophical differences. They may live in different countries with different tax treaties. But, opposition to the Section 965 Transition Tax and GILTI appear to have unified all Americans abroad.


To put it simply: The application of the Section 965 transition tax to the small businesses operated by Americans Abroad is the most unjust, most punitive, most egregious and most unjustified piece of legislation over to come from the Homeland (assuming – which I doubt – that it was every intended to apply to Americans abroad in the first place). Significantly, the transition tax is a benefit to Homeland Americans but can confiscate the retirement plans of Americans abroad. In other words, the transition tax is one more punishment that America is meting out to its citizens who dare to leave the United States.
Boldly Go, where no fictitious tax event has gone before …
The transition tax is also a direct attack on the tax base of the countries where Americans abroad live. To put it simply: the transition tax is a fictional tax event, that allows the United States to take a preemptive tax strike against the tax base of other countries. By so doing, the transition tax allows the United States to siphon tax revenue from other countries, that it could never siphon before. (Well, the S. 877A Exit Tax rules also create a fictitious tax event that allows the United States to siphon capital from other countries.) The impact of the transition tax on Canadian residents (who are also U.S. citizens) has been explored in CBC reporter Elizabeth Thompson’s series of posts about the transition tax.
The Transition Tax when applied to Americans abroad is:

The retroactive taxation of undistributed earnings of a non-US corporation, based on NO event that generates taxable income, which almost certainly subjects Americans abroad to double taxation.

The parts I have bolded provide arguments for why the “transition tax” violates numerous tax treaties.
In Part 20 I explored the arguments for why/how the Treasury Regulations are not compatible with the Regulatory Flexibility Act. Part 20 included a discussion of the arguments made by ACA for why the Regulatory Flexibility Act should apply to the regulations.
In Part 21 (this post), I am highlighting the submission of American Citizens Abroad (ACA), who argues IN ADDITION (this is a no brainer) that there should be a threshold level of undistributed earnings before the Section 965 confiscation can apply – period.
Thanks to ACA (“American Citizens Abroad”) for taking the time to organize these arguments and present them at the October 22, 2018 IRS hearing on the “transition tax”.
What follows is the email I received from ACA – I strongly suggest that you follow the links. ACA has done a superb job of demonstrating how the Treasury can exempt Americans abroad from this particularly draconian and confiscatory piece of legislation.
Continue reading

As Sir John Templeton said: The best time to invest is when you have the money – The 7 Habits Of Highly Effective #Americansabroad

The late Sir John Templeton pioneered the concept of “international” investing. Of course, by the standards of today, this would be considered “offshore investing”. He also pioneered the concept of “renouncing U.S. citizenship“. It is clear that Sir John’s renunciation of U.S. citizenship was the best investment decision he ever made. Like many Americans who are forced to renounce U.S. citizenship to create business opportunities, Sir John likely renounced to save his mutual fund business.
Sir John was fond of saying:
“The best time to invest is when you have money.”
Of course, that is a more difficult concept for Americans abroad. (The problem is particularly acute in Australia where it is believed that the Australian Superannuation may be subject to U.S. taxation.) Time after time, in country after country, I speak with people who avoid investing because they are Americans abroad. This is a great mistake.
It’s important for Americans abroad to heed the teaching of Sir John Templeton. They must (1) learn to invest when they have the money and (2) discipline themselves to acquire the money to invest!
One of my most consistently read posts is “The biggest cost of being a “dual Canada/U.S. tax filer” is the “lost opportunity” available to pure Canadians“.


I have been meaning to write a “follow up” post for a long time. Perhaps, the message was too simple. Perhaps it is only worth a tweet. Perhaps it’s dangerous to expand such a simple thought into multiple paragraphs, but here goes …
Continue reading

If you want to be a shareholder in our Canadian business then you must renounce U.S. citizenship

The unified message from all should be that: The United States should stop imposing “worldwide taxation” on people who have “tax residency” in other countries and do NOT live in the United States! This is a message that all advocates of tax reform can support. As recently explained in a post from “ACA”, the mechanism (RBT vs TTFI) used to achieve this change is less important.


It is no secret that Congressman George Holding is working on a proposal to end the U.S. practice of imposing “worldwide taxation” on those who have “tax residency” in other countries. If successful, this would be a positive change for the United States, U.S. citizens who choose to live outside the United States and the residents of other (including “accidental Americans”) countries. None of these should be burdened by the extra-territorial application of U.S. tax laws!
Continue reading

Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!

Introduction
This is the fifth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
The purpose of this post is to argue that (as applied to those who do not live in the United States) the transition tax is very similar to the OVDP (“Offshore Voluntary Disclosure Programs”) which are discussed here. Some of my initial thoughts (December 2017) were captured in the post referenced in the following tweet:


The first four posts in my “transition tax” series were:
Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”
Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”
Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!
Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of “Homeland Americans” to the treatment of “nonresidents”
*A review of what what the “transition tax” actually is may be found at the bottom of this post.
This post is for the purpose of the arguing that, as applied to those who live outside the United States, payment of the “transition tax” in 2018, is the financial equivalent to participation in 2011 OVDI (“Offshore Voluntary Disclosure Program”).
 


Seven Reasons Why The U.S. Transition Tax as applied to “nonresidents” is similar to the “Offshore Voluntary Disclosure Program As Applied To “Nonresidents”. In both cases there are benefits to Homeland Americans and extreme detriments to “nonresidents”. These detriments amount to a punishment for living outside the United States and becoming a “tax resident” of another country.
Continue reading

Americans abroad opposing "taxation-based citizenship" should retire the "Taxation Without Representation" argument

In a recent comment reproduced as a post at the Isaac Brock Society and at Citizenship Taxation, I argued that it’s time for people to unite with one simple message. The message captured in the following tweet:


“The United States must not impose “worldwide taxation” on those who have “tax residency” in other countries and do not live in the United States!”
I propose this for the following reasons:
1. There is not a single person or organization on the planet that could not support this and credibly claim that they want to end U.S. extra-territorial tax policies.
2. It places the focus of U.S. tax policies on how the policies affect the citizens and residents of other countries and NOT on those who identify as U.S. citizens living abroad AKA “Homelanders Abroad”. There is no suggestion of seeking exemptions for certain “tax compliant people”, …
3. It resonates with “accidentals” (AKA those carbon life forms that the United States considers to be life long tax slaves) because they were born in the United States.
4. It naturally leads to a discussion of how U.S. extra-territorial taxation affects the economies (“steals from their tax base) of other countries.
5. By focusing on “tax residents” of other countries, it avoids alltogether the idiotic “baff gablle” of: “Well, you are a member of the political community”, “patriotism”, “right to live in the USA” and all of these “academically focussed) distractions.
6. It avoids getting into the incredibly difficulty problem of explaining precisely HOW the Internal Revenue Code applies in different countries (in practical terms it applies differently in different countries). Almost nobody understands how the Internal Revenue Code actually applies in other countries (including the IRS) …
7. It bypasses arguments like: “What do you mean you are complaining? I hear you exclude about 100,000 using this thing called the “Foreign Earned Income Exclusion”. If you can exclude 100,000 when you don’t even live in the USA, then why can’t I as a Homelander exclude at least 100,000″ …
Again to agree to the message:
“The United States must not impose “worldwide taxation” on those who have “tax residency” in other countries and do not live in the United States!”
should avoid the distractions described in points 1 – 7.
“Taxation without representation argument”
But, I want to focus on an argument/point that I think is a particular time waster and probably hurts the cause rather than helps it.
The ONLY Americans who have representation in the political process are those who have the money to “buy the laws” that they want. The American legislative process is nothing more and nothing less than a “pay to play casino”. It’s that simple. America is one of the world’s most dysfunctional democracies. In fact it is a democracy only in the sense that some Americans (including some but not all Americans abroad) have the right to vote. Having a vote is a necessary but not a sufficient condition for a functioning democracy. A vote matters only if there are viable candidates to vote for. In the America of today, who the candidates are, is tightly controlled by the political parties. Do you really think that if America had a functioning democracy, that allowed for democratically selected candidates, that the 2016 election would have come down to:
Donald Trump vs. Hilary Clinton?
Not a chance. My point is that almost no Americans have political representation in any case. By making the “taxation without representation argument”, Americans abroad are asking for something that Homelanders don’t have!

So, please let’s retire the:


“Taxation without representation argument”!

John Richardson
My morning thoughts on this were generated by the comments in the following tweets (all of which were generated by the Financial Times discussion on the Sec. 965 Transition Tax: