Tag Archives: COVID-19

Americans abroad and relief under the CARES Act: How do they get it and how much do they get

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The context

Many countries including Canada and the United States have offered monetary relief to help their residents during these difficult times. (In addition to monetary relief, as Virginia La Torre Jeker as reported here and here: the United States has relaxed the deadline for filing 2019 tax returns. Canada has made similar allowances.)

Interestingly, with respect to access to monetary relief:

Canada’s “CERB Benefit” approach appears to be to simply get cash into the hands of affected people. The benefits may or may not be taxable. But, filing a tax return is not a prerequisite to receipt of benefits.

The U.S. “CARES Act” approach appears to use the tax system as the mechanism for delivery of benefits. Early indications suggest that (at least for Americans abroad) filing tax U.S. tax returns will be a necessary condition for the receipt of benefits. Could benefits really be conditional on filing tax returns, when there are so many people who do not meet the threshold for filing U.S. tax returns?

It appears to be much easier to access the relief in Canada than to access the relief in the United States. Additionally, Canadians do NOT need a lawyer or accountant to understand the program. But, that’s an issue for another day …
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Recent economic upheaval creates expatriation opportunities for “US Persons” living abroad

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This post was motivated by a thread on Reddit …

At the end of this post, I have included the Reddit thread. (Note that I am trying to develop a “RenounceUSCitizenship” thread on Reddit – you will find it here.)

As you know the US Section 877A Expatriation Tax applies to U.S. citizens and “Long Term Residents”. A “Long Term Resident” is an individual who has had a Green Card (as defined by the rules in Internal Revenue Code Section 7701(b)(6) for at least eight of the fifteen years prior to expatriation). This has become a serious problem for Green Card holders who simply move from the United States and and don’t take formal steps to sever their U.S. tax residency. (They must either file the I-407 or use a tax treaty tie breaker election to expatriate. Otherwise they may be in a situation where they have no right to live in the United States (having lost the immigration status) but are taxable on their worldwide income (still being tax citizens).

That said, whether you are a U.S. citizen wishing to renounce U.S. citizenship or a Long Term Resident wishing to sever U.S. tax residency, you do NOT want to be a “covered expatriate“. Generally, (unless one is subject to two exceptions – dual citizen from birth or expatriation between 18 and 181/2 – that are beyond the scope of this post), one is treated as a “covered expatriate” if one meets any one of these three tests:

1. Net worth of 2 million USD or more (which this post will focus on)

2. Average U.S. tax liability of more than approximately $165,000 USD over the five years prior to expatriation

3. Failure to certify U.S. tax compliance for the five years prior to expatriation.

The COVID-19 Panic – Falling asset values – more favourable exchange rates -2 million USD net worth test

The last couple of weeks have changed and continue to change our world. We are experiencing human misery on an unprecedented and global scale. This includes physical illness, fear of illness and social distancing. I live in a large city and I am beginning to see less variety in the food available. Self-employed people are seeing disruptions to their revenue streams, etc. I don’t want to keep listing examples. But it is very bad. On the economic front, we are seeing unprecedented and incalculable damage to the world economy. This includes (but is not limited to) falling asset values – how is your stock portfolio doing? We see currencies that are weakening relative to the U.S. dollar. (This means that a higher Canadian or Australian dollar net worth would equal 2 million USD.) As I write this post I just received a message, from someone advising me that the shares in a certain cruise ship stock, have fallen from $136 to $22. (My advice would be: Don’t spend money on the cruise. Instead buy the shares in the company.)

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