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Welcome to Citizenship Solutions (and Green Card solutions) – John Richardson

Welcome to Citizenship Solutions – The blog of John Richardson

I am guessing (actually I know for sure) that you arrived here because of some aspect of being a U.S. citizen living outside the United States. Maybe you are a Green Card holder. Perhaps you are a former U.S. resident who has just learned that you may still be subject to U.S. “worldwide taxation” even though are a “tax resident” outside the USA. I also know how you are feeling.

“U.S. citizens” and “Green Card holders” are referred to as “U.S. Persons”. So, if you are a “U.S. Person Abroad”, well, life is pretty tough. in fact living as a “U.S. Person” outside the United States is: hard, expensive, confusing and (quite frankly) unsustainable.

Some of you are NOT in compliance with the intricate and (almost) impossible to understand web of tax and reporting requirements. Non-compliance has its share of problems.
Some of you ARE in compliance (as far as you know) with the intricate (and almost) impossible to understand web of tax and reporting requirements. Compliance also has its share of problems (stress, expense, anxiety).

Whether you are in compliance or not in compliance, you have problems. This is because:
U.S. citizenship is the one citizenship in the world that affects virtually every aspect of your life. in addition to the information on this blog, I help people with the following kinds of specific problems/questions (which include):

1. Are you a U.S. citizen at all? Have you relinquished U.S. citizenship along the way? If you have relinquished U.S. citizenship, are you a “U.S. Person” for FATCA and tax filing purposes?

2. Have you just received a “FATCA Letter” addressed to you as an INDIVIDUAL or to you as an ENTITY (corporation, trust, etc.)? How to respond. What’s a W9? What’s a W-8BEN-E anyway?

3. What about that old Green Card sitting in your drawer? You may still be subject to U.S. taxation, even when you don’t live in the USA! What are the tax obligations of Green Card holders? What to do? ….

4. Renouncing U.S. citizenship – What’s the “right way”? What’s the “wrong way”? The better question is “what’s the safest way”? What about that “back dated” relinquishment?

5. Green Card expatriation – How to exit the tax system and the U.S. immigration system.

6.  Oh My God!! The moment many of you will never forget. Yes it’s a problem. No it’s not as much of a problem as you think. Make certain that you respond and not react. If all you want to do is file U.S. taxes

7.  U.S. S. 877A “Exit Tax” consulting. If you think you can leave the “Land Of The Free” for free, you better think again. A bit about the the United States expatriation taxes. Those of you with a  non-U.S. pension and want to renounce U.S. citizenship should take specific note!

8. Retirement and financial planning (including pensions) as a “U.S. Person” abroad – You will be surprised at the problems you will have living as a U.S. tax compliant American abroad. Think (or maybe you shouldn’t) “PFIC“.

9. Coming into U.S. tax complianceWhat are the various options?  Why one option over another? What about “Streamlined” compliance? 99% of you should NEVER use “OVDP”!!

10. Non-U.S. AKA “Foreign Corporations” – Yes, these can be a BIG problem. Caution: The U.S. CFC tax rules may attribute income to YOU that you never received!

11. Getting a divorce? Are you a U.S. citizen married to a non-citizen? – Your U.S. citizenship will play a role.

Respond, don’t react! – Do NOT make any decisions without understanding the present and FUTURE consequences of those decisions.

So, how do I know this?

First, I am a person (Toronto based lawyer actually) who was born in the United States and has lived almost all of my life outside the United States. In other words, I have lived and do live these problems.
Second, I have spent the last few years of my life assisting “U.S. Persons abroad” survive the unjust imposition of FATCA, FBAR and “CBT” (AKA U.S. “place of birth taxation”) on Americans abroad. I work with many groups of people including: “accidental Americans“, long term dual citizens who wish to retain U.S. citizenship, long term dual citizens who feel they must renounce U.S. citizenship, Green Card holders (whether they live in the United States or not) and those who have ONLY U.S. citizenship. It’s what I do.

Third, I have been (and continue to be) actively involved in efforts to oppose FATCA in the courts and in the process of making submissions to the U.S. Treasury. If you want to learn about the Alliance For The Defense of Canadian Sovereignty lawsuit against the Government of Canada, see here.

I work with people all around the world! I have given “live presentations” about the “Problems of U.S. citizenship” all over Canada and Europe. I have given a number of “media interviews” about FATCA and the problems of U.S. citizenship. I have testified as a witness before the Canadian House of Commons Standing Committee on Finance (May 2014). I have written hundreds of articles and blog posts about FATCA, FBAR and U.S. taxation-based citizenship. I have and continue to teach courses both for Americans abroad and for professionals who counsel U.S. citizens abroad.

Anyway, the blog is free. The counselling and assistance require individual consultations. Contact me if you want me to help you solve these problems as they apply to YOUR SITUATION.

John Richardson

P.S. Here is the one of the very first posts that I wrote on for this blog. Some posts are “timeless”. “What you need to consider BEFORE consulting a lawyer or tax professional“.

 

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"Coming Into Tax Compliance Book" – How Americans can come into U.S. tax compliance in a FATCA world

Are you “Coming To America” by entering the U.S. tax system as an American Abroad?

The “How To Come Into U.S. Tax Compliance” book for Americans abroad

John Richardson, LL.B, J.D.

I have contributed to establishing the new “Citizenship Taxation” site. As part of launching that site, I have written a series of posts providing relevant information (in a broad sense) about how Americans abroad, who did not know about their U.S. tax obligations, can come into U.S. tax compliance.

Sooner or later, it’s likely that many people will receive a FATCA letter. In your panic, you should be careful. There are a number of things Americans abroad should consider before consulting a lawyer or tax professional.

This series of posts developed from my “Educational Outreach” program for Americans abroad. It is an effort to respond in a practical way to the questions that people have.

The chapters of “Coming Into Compliance Book” are:

Chapter 1 – “Accepting Cleanliness – Understanding U.S. Citizenship Taxation – To remain a U.S. citizen or to renounce U.S. citizenship

Chapter 2 – “But wait, I can’t renounce U.S. citizenship if I’m not a U.S. citizen. How do I know if I am a U.S. citizen?”

Chapter 3 – “No matter what, I must come into U.S. tax compliance – Coming into U.S. tax compliance for those who have NOT been filing U.S. taxes

Chapter4 – “Oh no, I have attempted U.S. tax compliance by filing tax returns. I have just learned that I have made mistakes. How do I fix those mistakes?”

Chapter 5 – “I don’t want to renounce U.S. citizenship. How to live outside the United States as a U.S. tax compliant person

Chapter 6 – “I do want to renounce U.S. citizenship. This is too much for me. How the U.S. “Exit Tax” rules might apply to me if I renounce

Chapter 7 – “I really wish I could do retirement planning like a “normal” person. But, I’m an American abroad. I hear I can’t invest in mutual funds in my country of residence. The problem of Americans Abroad and non-U.S. mutual funds explained.

Chapter 8 – “We all have to live somewhere. Five issues – “The problem of Americans Abroad and non-U.S. real estate explained

Chapter 9 – “Receiving U.S. Social Security – #Americansabroad and entitlement to Social Security

Chapter 10 – “Paying into Social Security – #Americansabroad, double taxation and the payment of “Self-employment” taxes

Chapter 11 – “Saving the children – INA S. 301 – “Residence” vs. “Physical Presence” and transmission of US citizenship abroad

Chapter 12 – “Issues surrounding 401k, IRAs, Roths and Americans Abroad

Chapter 13 – “Married filing separately” and the “Alien Spouse” – the “hidden tax” on #Americansabroad

Chapter 14 – “The Obamacare “Net Investment Income Tax” – Pure double taxation of #Americansabroad

Chapter 15 – “To be “FORMWarned is to be “FORMArmed” – It’s “FORM Crime” stupid!!

Chapter 16 – “Most “Form Crime” penalties can be abated if there is “reasonable cause”

Chapter 17 – “How to get “credit” for taxes (foreign) paid to your country of residence

Chapter 18 – “I don’t pay taxes in the country where I live. Can I “exclude” my foreign income from the U.S. tax return?

Chapter 19 – “Is it better to take the “Foreign Tax Credit” or the “Foreign Earned Income Exclusion” – a discussion


Chapter 20
– “The child tax credit: take it, leave it or how to take it

Chapter 21 – “How #Americansabroad can continue to use the #IRA as a retirement planning vehicle

Chapter 22 – “To share or not to share” – Should a U.S. citizen share a bank account with a “non-citizen AKA alien spouse? – Reporting Edition

The “Coming Into Compliance Book” is designed to provide an overview of how to bring some sanity to your life.
 Coming to America

You may remember the old Eddie Murphy movie about “Coming To America”.

Welcome to the confusing and high stakes rules for U.S. taxation and Americans abroad.
The United States has the most complex, confusing, most penalty ridden and most difficult anti-deferral regime in the world. McGill Professor Allison Christians has noted that Americans abroad are both:

“deemed to be permanently resident in the United States for tax compliance and financial reporting purposes” …

and are

“subject to the most complex aspects of the U.S. tax code regardless of any activity in the United States, and facing extraordinary compliance costs and disclosure risks even for nil returns”

Although Americans abroad are deemed to be resident in the United States, their assets are treated as “offshore”. In addition Americans abroad are subject to taxation in their country of residence.

All of this means that:

1. Americans abroad are subject to the worst and most punitive aspects of the U.S. tax system (there is no Homelander who is treated as badly as an American abroad); and

2. Denied most benefits of the tax systems of their country of residence.

To put it simply, Americans abroad get the worst of all possible tax systems.

The most horrific aspects of the U.S. tax system are saved for Americans abroad. Prepare to be shocked. As one commenter at the Isaac Brock Society site recently said:

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Renouncing US citizenship? How the S. 877A "Exit Tax" may apply to your Canadian assets – 25 Parts


Introduction:
usexittax
There is much discussion of the U.S. rules which operate to impose taxation on the residents of other countries and income earned in those other countries. You will hear references to “citizenship taxation”, “FATCA Canada“, PFIC, etc. It is becoming more common for people to wish to relinquish their U.S. citizenship. The most common form of “relinquishment is renunciation”. The U.S. tax rules, found in the Internal Revenue Code, impose taxes on everything. There is even a tax on “renouncing U.S. citizenship”. I don’t mean the $2350 USD administrative fee which everybody has to pay. (Isn’t that really a tax?). I mean a tax on your assets. To be clear:
You must pay a price to NOT be a U.S. citizen.
This tax is found in S. 877A of the U.S. Internal Revenue Code.
It’s defined as the:
Tax responsibilities of expatriation
Few people are aware of this tax. Fewer still understand how it works.  As FATCA operates to enforce U.S. taxation on many Canadian citizens, and increasing numbers wish to NOT be U.S. citizens, the importance of understanding the U.S. “Exit Tax” increases.
It is particularly important to understand what triggers the “Exit Tax”. You will be subject to the “Exit Tax” if you are a “covered expatriate”. You must know what that means and why, sooner or later, everybody will become a “covered expatriate”.
The “Exit Tax” is not a simple “token tax”. For Canadians, the tax can be a significant percentage of their net worth. Furthermore, the tax is payable NOT on actual gains, but on “pretend gains”. (Where would the money come from to pay the tax?)
Hang on to your seats. You will shocked, amazed and horrified by this.
Since the advent of FATCA in Canada, this issue is increasingly important.*
To be forewarned is to be forearmed!
This is a 22 part series which is designed to provide you  with some basic education on:
How the U.S. S. 877A Exit Tax rules work; and
How they particularly affect Canadians with a U.S. birthplace, who lived most of their lives in Canada.
This will be covered over a 9 day period in a “9 part” series. (It has since been expanded to 16 posts and counting.)
Although this series is beginning on “April Fools Day”, I assure that this is NOT a joke.
The 16 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? “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 is the “Exit Tax”  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 – “Why 2015 is a good year for many Americans abroad to relinquish U.S. citizenship – It’s the exchange rate
Part 8 – April 8, 2015 – “The U.S. “Exit Tax vs. Canada’s Departure Tax – Understanding the difference between citizenship taxation and residence taxation
Part 9 – April 9, 2015 – “For #Americansabroad: US “citizenship taxation” is “death by a thousand cuts, but the S. 877A Exit Tax is “death by the guillotine”
Part 10 – April 10, 2015 – “The S. 877A Exit Tax and possible relief under the Canada U.S. Tax Treaty
Part 11 – April 11, 2015 – “S. 2801 of the Internal Revenue Code is NOT a S. 877A “Exit Tax”, but a punishment for the “sins of the father (relinquishment)
Part 12 – April 12, 2015 – “The two kinds of U.S. citizenship: Citizenship for “immigration and nationality” and citizenship for  “taxation” – Are we taxed because we are citizens or are we citizens because we are taxed?”
Part 13 – April 13, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?
Part 14 – April 14, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?
Part 15 – May 22, 2015 – “Interview with GordonTLong.com – “Citizenship taxation”, the S. 877A Exit Tax, PFICs and Americans abroad
Attention: Parts 16 – 21 focus on the “dual citizen exemption in the context of Canada’s Citizenship laws.
Part 16 – February 16, 2016 – “Why the S. 877A(g)(1)(B) “dual citizen exemption” encourages dual citizens from birth to remain US citizens and others (except @SenTedCruz) to renounce” – Note that this module is composed of Parts 16 – 21 – six posts.
Part 17 – February 16, 2016 – The history of Canada’s citizenship laws: Did the 1947 Canada Citizenship Act affirm citizenship or “strip” citizenship and create @LostCanadians?
Part 18 – February 16, 2016 -The S. 877A “dual citizen” exemption – I was born before the first ever Canada Citizenship Act? Could I have been “born a Canadian citizen”?
Part 19 – February 16, 2016 – The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act – Am I still a Canadian or did I lose Canadian citizenship? (The “Sins Of The Father”)
Part 20 – February 16, 2016 -The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act and the requirements to be “born Canadian
Part 21 – February 16, 2016 – “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of Canada?
Part 22 – February 29, 2016 – “The S. 877A “Dual Citizen” exemption: MUST certify tax compliance for the five years prior to relinquishment
More on the United States Expatriation Tax – ongoing miscellaneous:
Part 23 – “How the 1966 desire to “poach” capital from other nations led to the 2008 S. 877A Exit Tax
Part 24 – “Clinton Treasury representative Les Samuels explains why the U.S. Exit Tax SHOULD apply to the assets of Americans abroad
Part 25 – “Relinquishing US citizenship: South African Apartheid, the Accidental Taxpayer and the exit tax
 
________________________________________________________________________________________
* Why this is of increased importance: The role of FATCA and U.S. taxation in Canada
A picture/video tells a thousand words. Have a look at the “Rick Mercer FATCA video” in the following tweet:


FATCA is U.S. law which is designed to identify financial assets and people, outside the United States, that the U.S. believes are subject to its tax laws. (It makes no difference whether the person is a Canadian citizen”.) This includes people who were:
– born in the U.S.
– Green card holders
– people born to U.S. parents in Canada
– “snow birds” who spend too much time in the United States
The Government of Canada is assisting the United State to implement FATCA in Canada. To be specific:
– on February 5, 2014 the Government of Canada formally agreed to change Canadian law to identify “U.S. connected” Canadians in Canada
– in May of 2014, the Government of Canada passed Bill C 31 which contained the implementing legislation
– on July 1, 2014 FATCA became the law in Canada
– since July 1, 2014 many Canadians have received a “FATCA Letter” (can the U.S. claim you as a taxpayer?)
The Alliance For The Defence Of Canadian Sovereignty has sued the Government of Canada in Federal Court on the basis that the participation of the Canadian Government in FATCA, is in violation of the Charter Rights of Canadians. You can keep up with their progress on the Alliance blog” which is here.
FATCA is a tool to enforce “U.S. taxation in Canada”. The result is that more and more Canadian citizen/residents  will be forced to pay U.S. taxes. But, U.S. tax rules include much more than tax. They are source of comprehensive information gathering and “information returns”. Typical returns required by U.S. taxpayers in Canada include: FBAR, FATCA Form 8938, Form 5471, Form 3520, Form 3520A and many more.
In addition, U.S. tax rules are different from Canadian tax rules. The most painful example is that when:
– Canada allows a “tax free” capital gain on your principal residence
– the U.S. imposes a 23.8% tax on the sale of your principal residence (you get a $250,000 deduction)
Sound horrible?
It is, but:
It’s only Canadian citizens with a past “U.S. connection” who will be subject to these taxes. It is estimated that approximately one million Canadians may be subject (as “U.S. Subjects”) to these rules. But, Canadians with a “U.S. connection” are members of families. Therefore, U.S. taxation in Canada will impact all members of a Canadian family which has at least one “U.S. connected” member.
 
John Richardson
 

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What you should consider before contacting a lawyer

decision

The Reality of U.S. Citizenship Abroad
Nobody denied that the unintended targets of Congressional legislation aimed at those who supposedly “owe allegiance” to the USA, now assisted by craven foreign governments anxious lest their financial services entities lose access to the US market, are mostly unlikely to do anything at all. But the whole idea of universal self-assessment of taxation is to keep the taxpayer in an anxious condition, to make him overpay if possible, but at least not to underpay. Those now faced with an unprecedented, even retroactive, enforcement campaign and who must, if they wish to become compliant and avoid penalty or even prosecution (should they be identified in the future), sacrifice much of their wealth, even become insolvent.
Comment at the Isaac Brock Society blog – July 29, 2013


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Yes, Naomi Osaka is Japanese. And American. And Haitian

Yes, Naomi Osaka is Japanese. And American. And Haitian

Netflix

Aoife Wilkinson, The University of Queensland

On Friday, Naomi Osaka lit the cauldron at the 2020 Tokyo Olympics opening ceremony. This honour sent an important message to the world: Osaka represents a diversifying Japan.

Yet, some still question whether she really is Japanese.
The question we should be asking instead is: who is Naomi Osaka, really?

Netflix’s new three-part documentary series attempts to answer this question. Director Garrett Bradley followed the tennis player over two years from her first grand slam win in 2018 to her third in 2020.

The documentary touches on her tennis career, her mental health and her call to change the format of post-match press conferences.

But it also gives viewers a closer look at Osaka finding her voice in the world as a young, mixed-race Japanese Haitian woman.

The difference between nationality and race

In the documentary, Osaka speaks about her decision to renounce her American nationality in 2019. Reflecting on the public’s response to her decision, she felt “people really don’t know the difference between nationality and race”.

She is right when she says there is a difference.

Nationality is a form of legal identification specifying our membership to a nation. Race refers to physical appearances, and is often described as a social construct: not determined by scientific fact, but rather by the social meaning collectively attributed to biological traits. To avoid uncomfortable conversations, some choose to use the word “ethnicity” instead of race, a term used to define groups based on invisible factors like language or customs.

Osaka holding a tennis racquet.
The documentary follows Osaka as she plays tennis, but also as she finds her way as a young woman.
Netflix

Despite the difference in their meanings, race, nationality and ethnicity are deeply interconnected in the ways we discuss identity.

Osaka was born in Japan in 1997 to her Japanese mother and Haitian father. She moved to the United States when she was three and grew up there as a Japanese-American dual national.

During the two years when the documentary was in production, Osaka celebrated her 22nd birthday. According to Japanese Nationality Law, dual Japanese nationals are required to renounce one of their nationalities before they turn 22.

For many, the decision to forfeit one nationality is tricky, uncomfortable and, where possible, avoided by dual nationals only showing their Japanese passport at Japanese airports.

In my research on mixed-race Japanese youth in Australia, participants told me their dual nationality opens up economic and personal opportunities for them to live or work in Japan without the restrictions of a visa.

But perhaps more importantly, the thought of forfeiting their nationality was a great concern for those who saw it as an intrinsic part of their identity.

In the documentary, Osaka says her decision to become a sole Japanese national was an obvious one. “I’ve been playing under the Japanese flag since I was 14”, she says. “It was never even a secret that I was gonna play for Japan for the Olympics.”

But while it was obvious, it wasn’t easy. Some people saw this renouncing of her American citizenship as a decision to forfeit her Black identity:

I don’t choose America and suddenly people are like, “your Black card is revoked”. And it’s like, African American isn’t the only Black, you know?

Despite choosing to become a sole Japanese national, Osaka is both Japanese and Haitian, and holds deep connections to America, Haiti and Japan. The film follows her as she plays for Japan, wears face masks to the US Open in support of the Black Lives Matter movement, and travels with her family to the Osaka Foundation — a school for Haitian children established by her parents.

Navigating identity and expectations

Osaka isn’t the only person facing interrogation into their identity.

Many people of mixed-race heritage often have a sense of “racial impostor syndrome”: the sense of doubt they feel when others question the authenticity of their mixed-race background.

It is common for young persons of Japanese background living outside of Japan to only be beginner to intermediate speakers of Japanese. Speaking about her self-confessed “broken” Japanese skills, Osaka worries she is “doing something wrong by not representing the half Black, half-Japanese kids well.”

But Osaka’s openness about these difficulties is exactly how the half Black, half Japanese kids need to be represented.




Read more:
When Naomi Osaka talks, we should listen. Athletes are not commodities, nor are they super human


It is important for us to challenge static ideas of race, ethnicity and nationality by sharing the voices of people of mixed backgrounds like Osaka.

Our identities are complex, and they change over time. There is more to being Japanese than fluently speaking the Japanese language, looking Japanese or holding a Japanese passport.

We shouldn’t forget who Naomi Osaka is. A strong tennis player, a passionate activist, and a mixed-race woman who represents contemporary Japan.The Conversation

Aoife Wilkinson, PhD candidate, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.

It’s 11:00 pm – Do You Know What The @TheDemocrats Are Up To?

On May 14 – 16 the Democratic Party had its Global Annual Meeting. It’s interesting to see the resolutions proposed. (Those not dealt with will considered at a later meeting.)

Americans abroad who understand that the single most important issue facing them is US citizenship-based taxation, should be aware of resolution 18. Shockingly this resolution was proposed by FOUR MEMBERS OF DEMOCRATS ABROAD and includes (but is not limited to):

1. A strong endorsement of US citizenship-based taxation and the proposed US Wealth Tax

2. Some proposals to make US citizenship-based taxation, FATCA and FBAR work a little better

Notice in this excerpt they completely acknowledge that at best, their proposal is designed to create “de facto” residence-based taxation for some Americans abroad. To put it very simply:

Clearly (at least) some members of Democrats Abroad:

1. Do NOT want pure residence-based taxation; and

2. Are playing the same game of proposing some “carve outs” for some people, some of the time, under some circumstances.

(The retention of citizenship-based taxation allows them to keep changing the rules.)

It’s shocking that this proposal is coming from members of Democrats Abroad!

Here it is in all of its glory …

All 25 DPCA Resolutions submitted to the 2021 Global Meeting_Adopted, Withdrawn, or Deferred

Take 1: Digging The Foundation To Build The House Of US Residency-based Taxation

Prologue

This is the fifth of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. The third post was “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“. The fourth post explains why some Americans Abroad actually OPPOSE changes to citizenship-based taxation. This fifth post in the series is to begin a discussion of what would be the basic changes (to the existing Internal Revenue Code) that would move the United States toward the world standard of pure residency-based taxation.

It’s about “pure residency-based taxation” and not citizenship-based taxation with a “carve out”

I have previously advocated that the United States should move to to a system of pure residence-based taxation. A system of pure residency-based taxation, means that:

Citizenship is NOT a sufficient condition for tax residency. If citizenship is not a sufficient condition for tax residency, income sourced outside the United States, which is received by people who are not residents of the United States, should not be taxable by the United States.

Note that pure residency-based taxation is NOT citizenship-based taxation with a “carve out” for US citizens living abroad. To put it another way: US citizens, simply because they are US citizens, would NOT be defined as US tax residents and subject to US worldwide taxation. This is different from US citizens being defined as US tax residents, but allowing (like the FEIE) for their foreign income to be excluded from US taxation. Note also that this is a legislative proposal. It is therefore different from our earlier proposal for “A Regulatory Fix To Citizenship Taxation“.

It is my opinion and the opinion of the members of SEAT, that only a system of pure residency-based taxation will solve the many problems of Americans abroad!

How is residency to be determined?

Residency is commonly determined in various ways. For example, Canada determines residency based on an objective deeming provision (number of days spent in Canada and through a “facts and circumstances” test described as ordinary residence). Generally, citizenship (if it is a factor at all) is not a significant issue in determining ordinary residence. The Canadian experience is proof that it is possible to have very sticky tax residency without citizenship being an issue.

Purpose of this post:

The purpose of this post is to propose some simple amendments to the Internal Revenue Code which would provide a foundation for the United States to transition from citizenship-based taxation to pure residence-based taxation. The goal is modest. The post is not intended to (I will write a separate post) deal with those who are CURRENTLY US citizens living outside the United States. It is NOT to address all the issues. That said, most of the Internal Revenue Code focuses on the taxation of those who are US tax residents. Little in the Code focuses on the actual definition of US tax residency.

The purpose of this post is begin with the fundamentals and ask:

How could the existing Internal Revenue Code be modified to provide a framework for residency-based taxation? Of course, readers will be left with many questions. But, the proposed foundation would allow for:

1. US citizens to move from the United States and sever tax residency with the United States.

2. US citizens to move from the United States and continue to be treated as tax residents of the United States.

Under either scenario, US citizens would remain US citizens. They would NOT be required to relinquish US citizenship in order to sever tax residency.

Obviously there will be many complications. But, every journey begins with a modest beginning. This is intended to be only a modest beginning. It is to begin digging the foundation to build the house of “residency-based taxation”.

The post is composed of the following parts:

Part A – Residents Are Subject To Worldwide Taxation

Part B – Nonresidents Are Not Subject To Worldwide Taxation

Part C – Definition Of Resident and Nonresident- 7701(b)

Part D – Definitions That Require Change “US Person”, “Relinquishment Of Residency”, etc.

Part E – Relinquishment Of Residence

Part F – Living abroad without relinquishing US residence

Generally, I believe that amendments to a small number of sections of the Internal Revenue Code provide the foundation from which to grow. Note that this proposal solves the problems of the “Retirees Abroad” (they don’t give notice under the new 877(a)(g)) and the problems of accidentals (they were never tax residents in the first place). There would be regulations (like the Canada Revenue Agency folio) for what constitutes residence. In Canada tax residency is defined largely by “ordinary residence” – a concept that is very sticky).

I am identifying the building blocks that could define tax residency under a US system of residency-based taxation, with few modifications to the Internal Revenue Code. (These building blocks are generally compatible with the existing Internal Revenue Code.) Once the foundation has been built we would then build our way out. This initial foundation solves the PFIC problem, the CFC problems and most problems related to foreign source income. The FinCEN 114 (FBAR) rules currently reference Internal Revenue Code 7701(b). Therefore, the proposals in this post would solve the FBAR problem.

I will discuss other issues impacting Americans abroad in subsequent posts.

I have included only the sections of the Internal Revenue Code that I consider the foundation of US tax residency. When a word is IN CAPS that means that there has been a change to facilitate a change to pure residence-based taxation.

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A Simple Regulatory Fix For The FATCA problems of dual citizens from birth

Prologue

It is clear that the US extraterritorial tax regime, which imposes taxation on the non-US source income of US citizens living outside the United States, is an outrageous violation of the sovereignty of other nations. It is also an extreme injustice inflicted on US citizens living outside the United States. The US has successfully exported the extraterritorial tax regime to the world through a combination of (1) The US Internal Revenue Code (2) the FATCA IGAs (hunting down US citizens) and (3) the saving clause in US tax treaties (Country X agrees that the US can impose tax on any individual who has been identified as a US citizen and is tax resident of Country X). To understand the interplay between (1), (2) and (3) above see the following article I wrote for the American Expat Finance News Journal.

The three groups most visibly impacted by the US Extraterritorial tax regime (in different ways) and its enforcement outside the United States include:

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Treasury 26 CFR § 301.7701-2 – Business entity definitions discriminate against Canadian Controlled Private Corporations

Synopsis:

Canadian corporations should NOT be deemed (under the Treasury entity classification regulations) to be “per se” corporations. The reality is that corporations play different roles in different tax and business cultures. Corporations in Canada have many uses and purposes, including operating as private pension plans for small business owners (including medical professionals).

Deeming Canadian corporations to be “per se” corporations means that they are always treated as “foreign corporations” for the purposes of US tax rules. This has resulted in their being treated as CFCs or as PFICs in circumstances which do not align with the purpose of the CFC and PFIC rules.

The 2017 965 Transition Tax confiscated the pensions of a large numbers of Canadian residents. The ongoing GILTI rules have made it very difficult for small business corporations to be used for their intended purposes in Canada.

Clearly Treasury deemed Canadian Controlled Private Corporations to be “per se” corporations without:

1. Understanding the use and role of these corporations in Canada; and

2. Assuming that ONLY US residents might be shareholders in Canadian corporations. As usual, the lives of US citizens living outside the United States were not considered.

These are the problems that inevitably arise under the US citizenship-based AKA extraterritorial tax regime, coupled with a lack of sensitivity to how these rules impact Americans abroad. The US citizenship-based AKA extraterritorial tax regime may be defined as:

The United States imposing worldwide taxation on the non-US source income of people who are tax residents of other countries and do not live in the United States!

It is imperative that the United States transition to a system of pure residence-based taxation!

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Introduction

The United States imposes a separate and more punitive tax system on US citizens living outside the United States than on US residents. There are numerous examples of this principle – a principle that is well understood (but not directly experienced) by tax preparers.

The US tax system operates through a combination of laws, Treasury Regulations, enforcement by the tax compliance community and IRS administration. There are many instances where the extraterritorial application of the US tax system results in absurdities, that are very damaging to those who try their best to comply with those laws.

Treasury regulations have an enormous impact on how the Internal Revenue Code applies to Americans abroad. In a previous paper coauthored with Dr. Alpert and Dr. Snyder, we described how Treasury could provide “A Simple Regulatory Fix For Citizenship Taxation“. Treasury regulations can be extremely helpful to Americans abroad or extremely damaging. It is therefore crucial that Treasury consider how its regulations would/could impact the lives of those Americans abroad attempting compliance with the US extraterritorial tax regime. In some cases it may be appropriate to have different regulations for resident Americans than for Americans abroad.

Treasury has demonstrated that it can be very helpful

Although this post will focus on difficulties, it’s important to note that Treasury has demonstrated that it can be very helpful to Americans abroad. It has interpreted the Internal Revenue Code in ways that have mitigated what could have been extreme damage. Here are two recent examples from the GILTI context where Treasury:

– interpreted the 962 Election to allow individuals to receive the 50% deduction in GILTI income inclusion that was allowed to corporations; and

– interpreted the Subpart F rules to mean that ALL income earned by a CFC should be entitled to the high tax exclusion

Clearly some of the news coming from Treasury has been good!

The power to regulate is the power to destroy

This post provides examples of how certain Treasury regulations contribute to the application of the United States extraterritorial tax regime. The examples are found in the following two categories of regulations:

Category A: Foreign Trusts – The Form 3520A Penalty Fundraiser – Regulations That Are Unclear Resulting In Penalties

Category B: Business Entities Designated as “per se” Corporations – Creating CFCs In Unreasonable Circumstances (Canadian Controlled Private Corporations) – Regulations That Are Clear But Over-inclusive

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US Tax Treaties Should Reflect The 21st Century And Not The World Of 100 Years Ago

Prologue

The rules of taxation should follow changes in society. The ordering of society should NOT be hampered by the rules of taxation!

As the world has become more digital, companies can carry on business from any location. Individuals have become more mobile. Multiple citizenships, factual residences and legal tax residencies are not unusual. It has become clear that the rules of international tax as reflected in tax treaties (as they apply to both corporations and individuals) are in need of reform.

The purpose of this post is to identify two specific areas where US tax treaties are rooted in the world as it was one hundred years ago and NOT as it is today.

First: The “Permanent Establishment” clause found in US and OECD tax treaties

Second: US Citizenship-based taxation which the US exports to other countries through the “saving clause” found in almost all US tax treaties

Each of these will be considered.

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Toward An Explanation For Why Some Americans Abroad Oppose Changes To Citizenship Taxation

Prologue

This is the fourth of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. The third post was “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“. This fourth post explains why some Americans Abroad actually OPPOSE changes to citizenship-based taxation.

My last post discussed those who were complacent about citizenship-based taxation. In other words people who are actually indifferent. Their indifference contributes to the difficulty in cultivating a strong movement in support of pure residence-based taxation.

The purpose of this post is to discuss those who actually support the current system of citizenship-based taxation because they fear any change will harm them. They are NOT indifferent. They support the current system fo citizenship-based taxation.
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Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation

Prologue

This is the third of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. This third post is “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“.

Why are some Americans Abroad not concerned about citizenship-based taxation? Why will many Americans Abroad continue to vote for the same political party that continues to damage them? What does this imply for unifying Americans Abroad in support of a movement toward residency-based taxation? This post will explore these issues.

In The Life Of Many Americans Abroad: Citizenship-based taxation is not a problem until it is!!

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Toward A Movement For Residence-based Taxation For Americans Abroad

Part I – Pure Residency-based Taxation vs. Citizenship-based Taxation With A Carve Out

This is a continuation of my post on May 29, 2021 titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“.

In that post I noted that different persons/groups have different ideas of what is meant by residence-based taxation. That someone tells you that they support residence-based taxation does not tell you what they mean. There are different definitions of residence-based taxation. I strongly believe that people must embrace a definition of residence-based taxation that means that US citizens are NOT – because of their US citizenship – subject to the Internal Revenue Code. In other words, the goal should reflect the view that:

The United States should not be imposing taxation and should not be permitted to impose tax on the non-US source income received by people who are tax residents of other countries and do NOT reside in the United States!

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Toward a definition of residence-based taxation for Americans abroad

Introduction

The discussion of tax reform for Americans abroad is increasing in intensity. Whether through amendments to the Internal Revenue Code or a “Regulatory Fix To Citizenship-based Taxation“, Americans abroad are in desperate need of change. The US tax system as it impacts Americans abroad is forcing renunciations of US citizenship.

The language in the discussion for change reflects a desire (on the part of individuals and organizations) to move from the US system of “citizenship-based taxation” to a system of “residence-based taxation”. Various individuals and groups describe the goal using the language of “residence-based taxation” AKA RBT. It would be a mistake to assume that RBT means the same thing to different people. The purpose of this post is to describe definitions of RBT and and how those definitions may be defined for different individuals or groups.

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