Tag Archives: residence taxation

Trump Gold Card: Pay Off The National Debt By Ending US Citizenship Taxation!

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Introduction:

We live in interesting times. This morning I awakened to postings about a new announcement from President Trump. Apparently, the Trump government plans to introduce a new immigration and citizenship opportunity for the millions of people wanting permanent residence and/or citizenship status in the United States. It is called “The Gold Card” (presumably – like American Express Cards – an upgrade from the Green Card). It is NOT replacing the Green Card. It appears to be replacing the EB-5 program which is a “Green Card by investment program”. The beauty of the “Gold Card (should it be called “The Trump Card”) is that it is purely transactional. Pay the USA 5 million USD and you shall have a Green Card with a path to U.S. citizenship. In this respect, the USA is simply catching up with many other countries (including Canada) that offer (or have offered) citizenship by investment and residency by investment programs.

Interestingly, in his announcement, the President suggested that the new “Gold Card” would solve a gap in the U.S. immigration system. For example, corporations could buy residence status (and eventually citizenship) for any non-U.S. citizen. (Presumably the expenditure would be an expenditure for income tax purposes, which would reduce the cost of the “Gold Card” by the amount of the tax savings.)

An interesting idea indeed. Perhaps it’s time that the USA join the club of nations that simply sell their citizenship on a purely transactional basis.

The idea becomes ever more interesting when (as the President points out) there might be enough people that might each pay 5 million dollars for US citizenship or resident status. Could this be enough to wipe out the national debt! Now, this would surely make it worth it for the United States!

At a cost of 5 million dollars, the “Gold Card” will be one of the most expensive Plan B programs in the world. Will the demand be as high as the President suggests? Will wealthy “foreigners” be prepared to pay 5 million for U.S. citizenship?

Of course, some will and some won’t. I suspect that those who understand what U.S. citizenship and having a Green Card (or equivalent tax residency status) really means, will say NO THANKS. It’s not because of the 5 million dollars. It’s because that to become a U.S. citizen or Green Card holder means that one becomes subject to U.S. citizenship taxation.

In simple terms, those lucky “Gold Card Holders”, will be subject to U.S. “worldwide taxation” whether they live in the United States or not. “Worldwide taxation” means that their non-U.S. assets and income streams will instantly become subject to punitive U.S. taxation and reporting. Those moving to the United States will (without expensive and early planning) will learn that any assets, pensions or businesses in their “home country” will be subject to U.S. taxation and reporting.

The “tax issue” has of course not yet been a subject of discussion (very worrying).

The following tweet from X.com includes interesting commentary about taxation, but also includes the excerpts from the announcement.

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Understanding Double Taxation: A Methodology To Think About What It Is

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Introduction:

I received the following message from:

Dr. Suzanne de Treville
Swiss Finance Institute Professor of Operations Management, Emeritus
University of Lausanne
Faculty of Business and Economics
1015 Lausanne-Dorigny
Switzerland

A very interesting analysis of double taxation indeed. I am reproducing this as a blog post with her kind permission.

Suzanne has kindly agreed to participate in an upcoming “Spaces Discussion” as part of our “Understanding Double Taxation” series. Stay tuned!

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John,

This message is in response to your request for proposals for how to define double taxation..

My field is operations and supply-chain management. I recently retired as a professor of operations and supply-chain management at the University of Lausanne, and served as co-EIC of the Journal of Operations Management (a Financial Times 50 journal) from 2018 to 2023. I began applying operations logic to the taxation process a couple of years ago because of the usual expat problems—and the incredible difficulty of finding anyone who actually understands how this reporting should work. Democrats Abroad provided helpful material, I got to know Rebecca Lammers, and have been helping out on the analysis and drafting side of the Taxation Task Force for a couple of years.

I propose to define taxation as an operation, such that double taxation is a second pass of a taxation operation to revenue or assets.

An analogy is a harvester going over a field. We the taxpayers are the field. I am a tax resident of Switzerland, so the Swiss tax authorities make a first pass over my income and wealth. Because I am a US citizen, the IRS then makes a second pass over what has already been processed by the Swiss authorities.

A harvester making a second pass over a field collects a small fraction of what was harvested the first time. This is why 54% of 2021 returns from outside the US had no tax liability at all, compared to 19% for US tax returns as a whole. The fact that I receive a credit for the Swiss taxes paid means that my tax liability to the US is minimal. Whether or not I also pay taxes to the US does not change the fact that my income and assets have been doubly “processed”, first by Switzerland, and then by the US. And, the main costs of the second pass through the taxation process concern the cost and complexity of compliance.

Taking a harvester that is costly to run and deploying its capacity to cover fields that have already been harvested once is typically not cost effective. The IRS is short of capacity, so would do financially better to avoid using capacity in ways that bring little or no revenue. Also, collecting taxes from and managing the taxation process for those living abroad is more expensive than for domestic taxpayers. Again considering the 2021 data, we see that the tax revenue from returns with an AGI of less than $100,000 was only $708 million, and for those with an AGI of less than $200,000 it was $1.56 billion—again a relatively small number.

The complexity of reporting for expats comes not only from the need to prepare full reports to two jurisdictions, but to a large extent from the difficulty of reconciling the two operations that apply different principles. Let’s compare this to a Finnish citizen who moves to Switzerland and becomes Swiss. Each chunk of income is allocated via the tax treaty to one or the other country to be taxed. Pension income from work done in Finland before the move to Switzerland is taxed by Finland as source income if the person is a Finnish but not Swiss citizen. If the person becomes a Swiss citizen, they notify the Finnish authorities and the taxation shifts to Switzerland. There is very little in terms of duplication in reporting.

Many of the taxation problems that emerge for expats come from this second pass of a taxation operation. Although the second pass tends to produce little, it can unfairly increase the tax liability for income that is not taxed by the country of residence (e.g., disability payments). This provides little for the IRS, yet creates a crushing burden for the taxpayer. Defining taxation as a process/operation/“machine”—with double taxation being a second pass of that machine over the same revenue or assets—should make it easier to explain these problems. And, it makes crystal clear the deceptive nature of the savings clause.

Imagine that the US would eliminate this second pass over income (assets) that are taxed by the country in which the taxpayer is a tax resident. This could be combined with prioritizing US taxation of US-sourced income. I am, for example, first taxed by Switzerland on investment income from the US, then get a tax credit for those taxes to offset US taxes. The US could consider negotiating with Switzerland that US-sourced investment income would be first taxed in the US. Someone like Heitor David Pinto would be positioned to do a simulation of how an increase in US taxation of US-sourced income would compare to the loss of revenue from eliminating the second pass of the taxation machine.

One final point: International Information Returns and FATCA do not fit the definition of double—or even single—taxation. They are not that kind of machine! Their purpose combines control and penalty generation. This penalty-as-a-revenue model is beginning to be understood, and needs to be addressed, but it is not (double) taxation.

I hope that these thoughts are useful to you. Thank you for the leadership that you are showing at this critical time.

All the best,

Suzanne

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This slide presentation from Suzanne further explains the issue of double taxation.

John Richardson – Follow me on X.com/ExpatriationLaw

Separating Citizenship From Tax Residency: The Republicans Overseas Tax Proposal

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In 2024 the Republicans Overseas Tax Committee created the following proposal for separating U.S. citizenship from U.S. tax residency. The proposal is three parts which are:

1. A Legislative Fix – changing who is a tax resident from “individual” to “resident”.

2. A Regulatory Fix – changing the regulation to define “individual”in the Internal Revenue Code to mean “resident”

3. A Treaty Fix – narrowing the range of the treaty “saving clause” so that U.S. citizens who are tax residents of other countries can use the “treaty tie break” provision to be treated as nonresidents.

Ending the Unjust Taxation of Overseas Americans

A September 2024 twitter discussion of the proposal is here along with a link to a series of videos made by John Richardson and James Gosart:

John Richardson – Follow me on X.com @ExpatriationLaw

The Five “Americans Abroad” Obama Would Meet In Heaven – How Taxation “Slices and Dices” Americans Abroad

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Reminder:

US citizenship abroad information/discussion sessions in January of 2024:

1. London, UK – Wednesday January 17, 2024 – 18:00 – Location: The Sutton Arms – first floor wine room – 6 Carthusian Street, London – EC1M 6EB

2. Prague, Czech Republic – Sunday January 21, 2024 – Brix bar & Hostel, Rohacova 132/15, Prague 3 Žižkov
– 200CZK – includes lunch

3. The Prague session will be livestreamed on the IRSMedic Youtube Channel. Check there for how to join.

Further details here.

Outline, table of contents and purpose of this post.

Because U.S. citizenship taxation impacts different groups in different ways, it is hard to garner a significant mass of people to committed to the mission of ending citizenship taxation. There are five different groups who are impacted by citizenship taxation. Yet they would seem very different if you were to meet them in heaven.

Part A – “The Five People You Meet In Heaven” – the notion of interconnectedness
Part B – Barack Obama and the revival of citizenship taxation – how did his administration “slice and dice” Americans abroad?
Part C – Different kinds of Americans abroad with different attitudes toward the taxation of Americans abroad
Part D – Fault Lines Among Americans Abroad – The discussion in Keith Redmond’s American Expatriates Facebook group
Part E – The Five Types Of Americans Abroad Obama Would Meet In Heaven
Part F – Conclusion

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How U.S. Citizenship Tax, The Treaty “Saving Clause” and FATCA Create A Fiscal Prison For Dual Tax Residents

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Introduction – The Problem Of Dual Tax Residency For U.S. Citizens

A “Hell greater than the sum of the parts”

There are people in the world who really don’t understand (or say they don’t) what exactly is the problem with U.S. citizenship based taxation. They claim to not understand why defining “tax residency” based on the “circumstances of birth” rather than the “circumstances of life” is a problem. They fail to consider how taxation based on “circumstances of birth”, interacts with U.S. tax treaties and FATCA to create a “hell that is greater than the sum of the parts”.

This is the third post in a series designed to explore and facilitate the understanding of the U.S. “citizenship based” extra-territorial tax regime. The first post explored the practical meaning of U.S. citizenship-based taxation (it’s primary effects are on people who live outside the U.S.). The second post explored the fact that tax residency based on “citizenship” is tax residency based on the “circumstances of one’s birth” rather than the “circumstances of one’s life” (its effects are primarily based on the circumstance of birth in the U.S.). The conclusion drawn from these first two posts was that the U.S. citizenship based extra-territorial tax regime is one in which:

The circumstance of a U.S. birthplace is used as a justification to regulate the lives of people with no connection to the United States and impose U.S. taxation on income that has no connection to the United States and is received by someone who does not live in the United States.

Citizenship taxation has practical and contextual meaning only its application to tax residents of non-US countries. The U.S. uses the circumstance of a “U.S. birthplace” to reach out and “claim” the tax residents of other countries as U.S. “tax residents”.

The purpose of this post is to explain how the interaction of U.S. citizenship taxation (claiming those with a U.S. birth place as U.S. tax residents when they are tax residents of other countries), the “saving clause” (not allowing U.S. citizens with dual tax residency to assign tax residency to the country where they actually live) and FATCA (the tool to hunt, find and enforce the extraterritorial U.S. tax and regulatory regime on the residents of other countries) creates a whole hell greater than the sum of the parts.

Many people understand the three components of “citizenship taxation”, the “saving clause” and “FATCA” as separate entities. Few appear to understand how those three components interact together to destroy the lives of U.S. citizens with dual tax residency. The U.S. has created a “fiscal prison” for its citizens. Seven video accounts of the impact of the U.S. citizenship tax regime are available here.

This problem can be solved ONLY by the United States redefining its rules for “tax residency” so that “citizenship” (the circumstances of one’s birth”) is not relevant to “tax residency” (the circumstances of one’s life).

This post is to identify the component “Part”(s) of the problem. It is organized in “Sections” and “Parts” as follows:

Section I – How The Problem Was Created

Part A – Tax, Residency and Tax Residency
Part B – The general problem of dual tax residency
Part C – Introducing the treaty tie break and how it can be used to end “dual tax residency” under a relevant Canadian tax treaty”
Part D – The general principles of the U.S. Canada “tax treaty tie break – How “circumstances of life” are used to assign tax residency
Part E – Food for thought – Citizenship the least important factor for the treaty tie break
Part F – Two possible examples of assigning residence to one country by using the “treaty tie break” – Green Card Edition
Part G – U.S. Citizens CANNOT Benefit From The “Tax Treaty Tie Break” – Hello “Saving Clause”
Part H – The “Saving Clause” And The Inability For U.S. Citizens To Use The “Treaty Tie Break” Is How The United States Captures The Residents Of The Treaty Partner Country And Claims Them As U.S. Tax Residents
Part I – The Tax Treaty Tie Break And Implications For U.S. Tax Compliance And For FATCA And The CRS Reporting

Section II – How Dual Tax Residents Experience The Extraterritorial Tax Regime

Part J – The U.S. exports a more punitive from of taxation to tax residents of other countries
Part K – The Problem Of Investing, Retirement planning and Retirement Planning – The Punitive Taxation And Reporting Requirements of PFICs and Foreign Trusts
Part L – The Problem Of Non-U.S. Pensions – How Are They Treated Under The Internal Revenue Code? – Different Rules For Different Countries
Part M – Discouraging U.S. Small Business Abroad – The Treatment Of Small Business Corporations Generally And On A Country By Country Basis
Part N – The “FBAR Marriage”: How Marriage To An Alien Results In Higher Taxation, More Reporting, Difficulties With Asset Transfers, Higher Divorce Costs And Possibly A Requirement To File A Tax Return With As Little As $5 Of Income

Section III – How The U.S. Extraterritorial Tax Regime Attacks The Sovereignty Of Other Countries

Part O – The U.S. taxation of residents of other countries attacks and erodes the tax base of those other countries

Section IV – Solving The Problem: Regulatory And Legislative Solutions

Part P – Regulatory Solution: “A Regulatory Fix For Citizenship Taxation
Part Q – Regulatory Solution: Amending The “Saving Clause” In U.S. Tax Treaties
Part R – Territorial Taxation For U.S. Citizen Individuals
Part S – Redefining U.S. Tax Residency To Move To Residence-based Taxation”

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Part 2 – Would A Move To Residency-based Taxation Solve The FATCA Problem For Americans Abroad Created By The FATCA IGAs?

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Purpose Of This Post – The “Readers Digest” Version

FATCA is administered through the FATCA IGAs (international agreements) and not through the U.S. Internal Revenue Code (domestic law of the United States). the FATCA IGAs do NOT include a provision to change the meaning of “U.S. Person”. Rather the meaning of “U.S. Person” is permanently defined as a “U.S. citizen or resident”. There is no provision in the IGA to change this definition. Therefore, the IGAs are written so that they will ALWAYS apply to U.S. citizens regardless of whether the U.S. continues citizenship taxation.

In effect, implementing FATCA through the IGAs has had the practical impact that:

– the FATCA partner country has changed its domestic laws to adopt the provisions of the FATCA IGAs which are intended to impose specific rules on “U.S. Persons” who are defined as “U.S. citizens or residents”

– those domestic laws reference the FATCA IGAs which contain no provision to change or adapt the meaning of “U.S. Person” which means that discrimination against “U.S. citizens” is permanent.

– resulting in a situation where the FATCA partner country is obligated under its own domestic law to target “U.S. citizens” for special treatment!

Note that this is irrelevant to how the United States defines tax residency! A move to residence-based taxation will not change this basic fact.

Bottom line: The United States has forced other countries to permanently discriminate against U.S. citizens. Because the discrimination is enshrined in the FATCA IGAs, the United States has effectively created an extra-territorial jail for its own citizens, forced other countries to lock U.S. citizens up and effectively thrown away the key!!

#YouCantMakeThisUp!

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Introduction And Background On FATCA

FATCA has created many difficulties for Americans abroad. It has caused great anxiety, created an awareness of US citizenship taxation, expanded the US tax base into other countries and resulted in a growing number of Americans renouncing US citizenship. Because the US employs citizenship taxation, FATCA has created a situation where information flows from a country where Americans abroad live (for example Canada) to a country where they do not live (the United States). Any suggestion that FATCA and the CRS (“Common Reporting Standard”) are some how equivalent is wrong. Many of the differences between FATCA and the CRS are explained here. Finally, neither the FATCA IGAs nor FATCA as defined in the Internal Revenue Code (Chapter 4) impose any obligation of reciprocity on the United States. This has had the consequence of (1) the United States not providing information about accounts held by the tax residents of those countries in the United States while (2) demanding information about the accounts held by US citizens in those other countries. In other words: the combination of the US FATCA law coupled with the US refusal to adopt the CRS has supercharged the United States as a significant tax haven! All of this has had a considerable and life altering impact on US citizens who live, work and engage in retirement/financial planning outside the United States.

FATCA And Citizenship Taxation

There has been considerable discussion about how FATCA interacts with US citizenship taxation and what can be done to mitigate the effects of FATCA on the community of Americans abroad. There is an obvious correlation between the enactment of FATCA and renunciations of US citizenship. What is the solution? If the United States severed “citizenship” from its definition of tax residency (abolishing citizenship taxation) would that solve the FATCA problem for Americans abroad?

Severing citizenship from US tax residency – how would FATCA continue to apply to Americans abroad?

In Part 1 I considered the question of whether a move from citizenship taxation to residence based taxation would end the FATCA problems for Americans abroad under the Internal Revenue Code. I concluded that severing citizenship from tax residency would solve the FATCA problem for Americans abroad in the Internal Revenue Code. The problem is that FATCA is NOT administered through the Internal Revenue Code. FATCA is administered through the FATCA IGAs (“Inter-governmental Agreements”). It’s important to understand that implementing FATCA through the FATCA IGAs has meant that:

1. The FATCA IGAs (agreed to by both the United States and the partner country) have replaced the Internal Revenue Code (a US law made by and only by the United States) as the vehicle through which FATCA is implemented; and

2. The partner country has enacted the terms of the FATCA IGA as the domestic law of that country.

To put it simply, the use of the FATCA to implement FATCA has meant that other countries (at the request of the United States) have adopted laws for the express purpose of identifying US citizens, reporting their financial accounts to the IRS and ultimately discriminating against US citizens by not allowing them access to financial services! In 2008, Candidate Obama defined his vision as “Change You Can Believe In”. He neglected to say that the change included the United States forcing other countries to change their domestic laws to punish US citizens who live in their country!

In this post – Part 2 – I consider whether a move to residence taxation would end the FATCA problem for Americans abroad as it is defined in the FATCA IGAs. I conclude that it would NOT end the FATCA nightmare caused by the FATCA IGAs.

Therefore, a move to residence taxation would NOT end the FATCA nightmare for Americans abroad.

This issue is explored in the following four parts:

Part A: A Move To Residence-based Taxation Under The Internal Revenue Code Would End The Application Of FATCA To Americans Abroad Under The Internal Revenue Code
Part B: A Move To Residence-based Taxation Under The Internal Revenue Code Would NOT End The Application Of FATCA To Americans Abroad Under The FATCA IGAs
Part C: The FATCA IGAs Have Been Legislated As Domestic Law In The FATCA Partner Countries
Part D: What Amendments To The IGAs Would Be Required If The U.S. Severed Citizenship From Tax Residency?

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Republicans Overseas Begins Its Support and Advocacy for Pure Residence-based Tax

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This is an incredibly significant development. See the following posts on their Facebook site. They also have a new Twitter feed. Follow them at @RepOverseas.

Republicans Overseas position On What Pure Residence-based taxation means:

Tax Talk 1 – November 22, 2021

Tax Talk 2 – November 29, 2021

Tax Talk 3 – December 10, 2021

Tax Talk 4 – December 15, 2021

Tax Talk 5 – December 20, 2021

Tax Talk 6 – December 27 2021

Tax Talk 7 – January 3, 2022

Tax Talk 8 – January 21, 2022

Tax Talk – January 24, 2022

Part 2 – Understanding "Exit Taxes" in a system of residence based taxation vs. Exit Taxes in a system of "citizenship (place of birth) taxation

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This is Part 2 of a 9 part series on the Exit Tax.
The 9 parts are:
Part 1 – April 1, 2015 – “Facts are stubborn things” – The results of the “Exit Tax”
Part 2 – April 2, 2015 – “How could this possibly happen? Understanding “Exit Taxes” in a system of residence based taxation vs. Exit Taxes in a system of “citizenship (place of birth) taxation”
Part 3 – April 3, 2015 – “The “Exit Tax” affects “covered expatriates” – what is a “covered expatriate”?”
Part 4 – April 4, 2015 – “You are a “covered expatriate” How the “Exit Tax” is actually calculated”
Part 5 – April 5, 2015 – “The “Exit Tax” in action – Five actual scenarios with 5 actual completed U.S. tax returns.”
Part 6 – April 6, 2015 – “Surely, expatriation is NOT worse than death! The two million asset test should be raised to the Estate Tax limitation – approximately five million dollars – It’s Time”
Part 7 – April 7, 2015 – “The two kinds of U.S. citizenship: Citizenship for immigration and citizenship for tax”
Part 8 – April 8, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?”
Part 9 – April 9, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?”
“Exit Tax” – Understanding The Confiscatory Horror
Let’s begin with some politics …


In an interesting post Robert Wood writes:

Both Mayor Johnson and Senator Cruz are U.S. citizens. Both Mayor Johnson and Senator Cruz either have or are renouncing the citizenships of the countries where they were born. There will no tax consequences to Senator Cruz for renouncing Canadian citizenship. Mayor Johnson will probably be spared America’s draconian “Exit Tax” (assuming he was born a dual citizen) for renouncing U.S. citizenship. The “Exit Tax” (if applicable) is a very serious thing. Robert Wood notes that:
To leave America, you generally must prove 5 years of U.S. tax compliance. Plus, if you have a net worth greater than $2 million or have average annual net income tax for the 5 previous years of $157,000 or more (that’s tax, not income), you pay an exit tax. There is an exemption of approximately $680,000. Giving Up A Green Card can cost you too. Some people expatriate under the immigration rules and never file anything with the IRS, a practice that is generally unwise. But then, no one wants to get on the wrong side of the IRS.

As the following tweet suggests, Senator Cruz was very lucky that he was born in Canada (which does NOT impose a tax on renouncing Canadian citizenship) and NOT in the United States (which does impose a tax on renouncing U.S. citizenship).


Introduction – What is an “Exit Tax”?
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