Part I of this blog post discussed President Biden’s Green Book proposal that would change the tax rules for unrealized capital gains when assets are gifted or passed at death. To recap, the major thrust of the Green Book proposal (starting at page 30) is to treat gifts and bequests as “deemed sales at fair market value” triggering a capital gains tax which would be payable with respect to the year of the transfer. The net investment income tax / 3.8% surcharge looks as if it can certainly apply in addition to the capital gains tax (full detail on the 3.8% surcharge is here). The Green Book contains no proposals to eliminate or change the current Estate and Gift Tax rules and we believe that taxing gifts and bequests from an income tax perspective while keeping the Estate and Gift Tax regime in place is only a recipe for tax disaster.
Today’s post, Part II, looks at how the proposal will particularly impact the American abroad, its exemptions and carve-outs and how it complicates tax planning for individuals wishing to give up their US citizenship or green card.
On March 28, President Joe Biden released the FY2023 Budget, also known as the Green Book, available here. The Green Book is not proposed legislation, but it might be viewed as a kind of reading of the tea leaves showing what may lie ahead in the not-too-distant future. Today’s post will discuss a Green Book proposal that would change the tax rules for unrealized capital gains when assets are gifted or passed at death.
This is the second time this proposal has been put forth by the Biden Administration. It may be sitting on the shelf for now, but the proposal is an enticing revenue-raiser and helps meet what society has been viewing as a call for a “fairer” tax code, by targeting higher-income and asset wealthy taxpayers. We bet it goes through in one form or another. Continue reading →
"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
— William Byrnes (Tax Monk) (@williambyrnes) May 5, 2019
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 post 7 in my series leading up to the May 17 Tax Connections discussion. The first six posts have been for the purpose of demonstrating:
– in posts 1 to 4, Laura Snyder did a wonderful job in explaining how the U.S. tax system impacts the lives of Americans abroad. Her specific focus was on those individuals who identify as being U.S. citizens
– in post 5, I extended the discussion to reinforce that what the U.S. calls “citizenship-based taxation” is actually a system that impacts far more than those who identify as being U.S. citizens. In fact it burdens every individual on the planet who can’t demonstrate that he is a “nonresident” alien (people are renouncing U.S. citizenship because they can save themselves ONLY if they become a “nonresident alien”).
– in Post 6, I added the thoughts of Toronto Tax Professional Peter Megoudis who explained how those who are connected to “U.S. persons” (through family or business arrangements) can be impacted by the U.S. tax system
In this, Post 7, I am extending the discussion to explain that:
1. Not only does the United States impose worldwide taxation on individuals who don’t live in the United States; but
2. The system of worldwide taxation imposed is in reality and separate and far more punitive collection of taxes than is imposed on Homeland Americans.
I have previously written on this topic at Tax Connections:
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 9, 2019
Think of it! With the exception of the United States, when a person moves away from the country and establishes tax residency in another country, they will no longer be taxed as a resident of the first country.
But in the case of the United States: If a U.S. citizen moves from the United States and establishes tax residency in a new country, (1) he will STILL be taxable as a tax resident of the United States and (2) will be subjected to a separate and more punitive system of taxation! #YouCantMakeThisUp!
Although this truth is rarely understood and is rarely stated (it’s one of America’s “dirty little secrets”) here is an excerpt from a discussion I had with three international tax experts:
In this series of posts I am incorporating the thinking and writing of guest bloggers. In order to guide us in this discussion I welcome Virginia La Torre Jeker, a U.S. tax lawyer based in Dubai. I have previously featured Virginia in my “Unsung Heroes Of Life” Series.
Here are some links to some of my videos discussion various of aspects of FATCA and U.S. “citizenship-based taxation”. In general there are three sources:
2. Videos made at ThatChannel.com (a small Toronto internet based television station).
3. Podcasts at “PREP Podcaster” – featuring many interesting discussions with interesting people.
In March of 2019 I began a discussion at Tax Connections exploring the principle that:
“The United States is imposing a separate and more punitive tax system on people who are tax residents of other countries and do not live in the United States.”
As part of this discussion I had some discussion with Virginia La Torre Jeker, Peter Megoudis and Elena Hanson. Each of them is highly experienced and knowledgeable about how the U.S. tax system applies to Americans abroad and accidental Americans. The discussion took place in March of 2019. It turned out to be a very long discussion. Rather than include a video of the complete discussion, I have broken this into smaller videos that are based on themes.
This post is to separate and highlight the videos that resulted from this discussion. Continue reading →
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:
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 16, 2019
You are invited to submit your questions in advance.
And now, back to our regularly scheduled programming.
_____________________________________________________________________________ I begin with the conclusion …
#Americansabroad who marry a non-US citizen (AKA nonresident alien) are now (if using married filing separately status) required to file a US tax return unless the nonresident alien makes a 6013(g) election to enter the US tax system. #YouCantMakeThisUp! https://t.co/QkxLsKCO3w
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 15, 2019
The Every Day facts:
"The United States imposes a separate and more punitive tax system on those Americans living outside the United States than it does on Homeland Americans." They have a special hatred for the non-citizen spouse. In fact: https://t.co/VrAKXYWDf4pic.twitter.com/3gNf9lIqiX
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 18, 2019
1. A U.S. citizen living in Canada Is married to an alien (the nonresident type)
2. Had $500 of part time employment income
3. Because she is married (in accordance with the definition of “married” in Internal Revenue Code 7703) she is of course required to absorb all the punitive consequences of the “married filing separately” filing category. The “married filing separately category” is a punitive filing category which is a “hidden tax on Americans abroad“.
In the 2017 tax (and previous) year she had NOT met the filing threshold required to file a U.S. tax return. Using the IRS Interactive “Do I Have To File A Tax Return” tool, we find that: (Note that this refers to a threshold of $4050 which is the amount of the personal exemption for 2017. The significance of this will be further explained below.)
She did however have financial assets which exceeded the $200,000 threshold required to file Form 8938. Most of these assets were owned jointly with her nonresident alien husband. Because she had not met the filing threshold for “married filing separately” in 2017 and previous years she had not been required to file Form 8938. Notice that Form 8938 does require her to report to the IRS assets that are jointly owned with her “nonresident alien” husband. (By the way he would not be happy about this. I some cases this forces Americans abroad to choose between their U.S. citizenship and their marriage.) April 2019 – An SOS …
I received a frantic message. She was/is trying to to determine whether she is required to file a U.S. tax return for the 2018 year (based on her $500 of income and her status as “married filing separately”).
On the one hand she is directed by IRS publication 54 (the Bible For Americans Abroad) that her filing threshold is $12,000.
Page 3 of the 2018 IRS Publication 54 for Americans abroad directs that those in "married filing separately" category have a $12,000 filing threshold. This is the publication for Americans abroad. https://t.co/CcHpkoWdWdpic.twitter.com/sCOQ5QEEiN
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 18, 2019
On the other hand, she is being told on the IRS page describing filing thresholds that she is required to file a U.S. tax return.
The law of U.S. citizenship has evolved over time. It can sometimes be difficult to determine whether one is or is not a U.S. citizen. The difficulty has been exacerbated by the fact that in 2004, the United States created (what I will refer to as) the tax citizen.
It is possible to be a U.S. citizen for the purposes of taxation but NOT be a U.S. citizen for the purposes of immigration and nationality. This state of affairs could exist if one had (1) relinquished U.S. citizenship for nationality purposes, but (2) not taken the required notification steps to end U.S. tax citizenship. (It is also possible for one to have lost the Green Card for the purposes of immigration but still be subject to U.S. taxation.)
The difficulty is compounded by the fact that different rules have existed at different times.
For many people who do NOT live in the United States it would be prudent to undertake a careful evaluation of your U.S. citizenship status. This should be done before entering the U.S. tax system.
What follows are two videos of interviews with lawyers Andrew Grossman (2014) and Virginia La Torre Jeker (2018). By watching the interviews you will be introduced to some of the complexities of U.S. citizenship.
This post is one more of a collection of FBAR posts on this blog. The most recent FBAR posts are here and here.
The “unfiled FBAR” continues to be a problem for certain Homeland Americans with “offshore accounts” and all Americans abroad, who continue to “commit personal finance abroad”.
So much publicity! So little relevance!
The New York primary was this week. Both Donald Trump and Hilary Clinton extended their leads and moved one step closer to their respective party’s nominations. (Mrs. Clinton with the approval of the Democratic Party and Mr. Trump with the disapproval of the Republican Party.) Interestingly both Mr. Trump and Mrs. Clinton have higher disapproval ratings than approval ratings. Yet each of them appears likely to represent their respective parties in the upcoming Presidential election. One of them will win the election (this is not the same as having been elected). Will the eventual winner make a positive difference in the life of any individual? Doubtful. Watching the political process contributes to a sense of negativity about human nature. But, wait! The World Is Full Of Good People!
Starting at the age of 7 or 8, I participated in four seasons of organized sports. To be truly effective, organized sports are highly dependent on adult volunteers. I well remember a guy named “Bob D.” Although I thought of him as old, he was probably somewhere between the age of 20 and 25. Anyway, “Bob D” was helping with baseball. “Bob D.” was helping with basketball. “Bob D.” was helping with football. “Bob D.” was always volunteering his time and coaching. I have a memory of my father noticing “Bob D.” and commenting “There are a lot of good people in this world”. So true. I don’t believe that “Bob D.” received a lot of recognition or a lot of gratitude. Yet year after year, season after season, week after week, day after day. “Bob D.” showed up. He clearly made a positive difference in the lives of others. The Unsung Heroes of Life
You will find people like “Bob D.” in every facet of life. They do things for people, just because they want to. They contribute to their communities, just because they want to. They provide mentorship for people, just because they want to. They put their kids through university because they want to. They are the true “Unsung Heroes of Life”. I once thought of writing a little book about these “Unsung Heroes of Life”. Although, I can’t do a book. I can offer this “Bedtime Story” … Continue reading →
The U.S. Treasury has been working overtime to:
1. Persuade the world’s sovereign countries to cede their sovereignty to and “Pledge FATCA obedience” to the U.S.
2. “Make the world believe” that Treasury has been and will continue to be successful.
In order to achieve this, Treasury has created what I call “the pretend IGA”. A “pretend IGA” is where a country has NOT signed an IGA, but it is anticipated (presumably by Treasury) that an IGA will be signed. That is to say, that an IGA is a “done deal”.
The tax compliance complex has (for the most part) joined the Treasury Chorus to sing to the tune of:
“It’s a small (FATCA) world after all“.
The problem is that neither Treasury nor the FATCA Compliance Complex deal in facts. They deal in “myths”. Facts are stubborn things
An interesting post appears on U.S. tax lawyer Virginia La Torre Jeker‘s blog which considers the “FATCA of the matter”. Continue reading →
I was recently attempting to explain FATCA, FBAR and U.S. taxation practices to a friend. After deciding that I was NOT fabricating a story, she remarked: “It’s unjust! It’s inhumane! I didn’t choose where I was born!”
(Fortunately she was not born in the U.S.).
The truth is that issues of FATCA, FBAR and citizenship-based taxation are more “citizenship problems” than tax problems.
Incompatible tax systems create problems for people subject to both tax systems.
Incompatible citizenship laws create problems for people who have dual citizenship.
U.S. tax lawyer, Virginia La Torre Jeker has just published a fascinating post where she describes the problems of “incompatibility of citizenship”. Ms. Jeker describes the problems where a country: Continue reading →
