Monthly Archives: January 2019

Green Card holders who have moved from the United States without properly severing US tax residency

Here is the scenario that this post is addressing:
An individual becomes a permanent resident of the United States (meaning that he has a Green Card). He lives in the United States for any number of years. He then moves away from the United States and returns to live in his home country. He is NOT aware that he must complete any specific steps (from either an immigration or tax perspective) to sever his ties with the United States.
He simply moves from the United States with the intention of no longer living permanently in the United States and:
1. Stops filing U.S. tax returns;
2. Fails to notify the State Department that he is abandoning his U.S. permanent residence.
While a resident of the United States he acquired significant pensions and IRAs.
Years later he reads an article in a newspaper that suggests that the United States still considers him to be subject to the full force of U.S. tax laws. Accessing the pensions will force him to file U.S. tax returns. He (as might be expected) is panic stricken and wonders what to do.
This is a very common scenario – what should he do?
The short answer is: it is completely dependent on the facts. This is one of the most difficult areas to advise in. The problem is that the person is likely to continue to be a tax resident of the United States and subject to all of the requirements of the Internal Revenue Code. The most appropriate response to this will depend on the interaction of a number of factors specific to the individual.
If you are in this situation, I suggest that you seek competent assistance sooner rather than later.
John Richardson – Follow me on Twitter @ExpatriationLaw

Are you a US citizen? The US has two kinds of citizenship: Citizenship for tax purposes and citizenship for nationality purposes

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.


John Richardson – Follow me on Twitter @ExpatriationLaw

Canadian Expats Abroad – The four tax issues you should know about, but didn't know to ask

Introduction

The Canadian Expat believes that Canadians abroad represent an incredibly rich and valuable resource for Canada. Canadians living and working abroad are directly and indirectly responsible for billions of dollars in bilateral trade. They are exceptionally well educated, linguistically adept and culturally bilingual. They are cultural and economic ambassadors for Canada. The more we as a country engage them, the more Canada will prosper.
There are an estimated 2.8 million Canadians living and working outside of the country. To put that in perspective it would constitute the 4th largest province in Canada.

http://thecanadianexpat.com/features/values-mission-vision
In the 21st Century the most interesting thing about a person is their “tax residency”


It’s not only Americans abroad who have difficult tax issues. Moving to another country subjects all people to new and difficult tax problems. Canadians are NOT exempt from problems when they move from Canada. It’s important that tax residency in Canada be clearly understood. These problems include (but are certainly not limited to):
Becoming a non-resident: Severing Tax Residency With Canada


The cost of becoming a non-resident: Canada Departure Tax


Living as a non-resident of Canada: Taxation on Canadian source income while a non-resident of Canada


Taxation and reporting of Canadian assets while living as a tax resident of another country


John Richardson – Follow me on Twitter: @Expatriationlaw

How Americans moving to Canada can maximize the use of their existing Roth IRA

I have previously explained how the Canada U.S. Tax Treaty allows a U.S. citizen to move to Canada and continue the deferral of taxation (in both Canada and the United States) on his existing Roth.The treaty allows for deferral with respect to the existing balance in the Roth. It does NOT allow for deferral with respect to contributions made after the person becomes a tax resident of Canada.

That post concluded with:

Conclusions:

1. The owner of a ROTH who moves to Canada can will continue to not pay tax on the income earned by the ROTH and will not pay tax on distributions from the ROTH. We will see that this can prevent a tremendous investing opportunity; and

2. Contributions made to the ROTH after moving to Canada will cease to be “pensions” within the meaning of of Article XVIII of the Treaty! This means that post “resident in Canada” contributions will NOT be subject tax “tax deferral” (as per paragraph 7) and will be subject to taxation (as per paragraph 1).

Possible Additional Conclusion:

3. Because a Canadian TFSA is the same kind of retirement vehicle as a U.S. ROTH IRA, and the ROTH IRA is treated as a “pension” under Article XVIII of the treaty:

A TFSA should be treated as a pension under Article XVIII of the Canada U.S. Tax Treaty.

But, moving back to the U.S. citizen who moves to Canada with a Roth IRA.

How a U.S. citizen who moves to Canada can maximize use of the Roth and the Canada U.S. Tax Treaty

Q. How does this work? A. It takes advantage of the “stretch” principle
The general “stretch” principle is described at Phil Hogan as follows:

How US plans can “stretch” to Future Generations

Chris discusses the often overlooked benefits of US plans for Canadian residents. Under US tax laws IRA (and sometimes 401k) plans can be “stretched” or transferred to future generations tax free. Pursuant to Canada-US treaty provisions the same treatment can be had for Canadian tax purposes.

Unlike RRSP accounts, US IRA accounts can be transferred to a second generation (non-spouse) tax free under the Canada-US tax treaty. The impact of the tax free transfer and compounding investment over the lifetime of the beneficiary can be significant. This is outlined in detail in Chris’ new white paper report Roth IRAs in Canada – The gift that keeps on giving. How $250,000 can turn into $35 million TAX FREE to an heir.

Here is the full video …

And the written explanation …

Bottom line:

The features of a Roth IRA coupled with certain provisions of the Canada U.S. tax treaty may provide for better financial planning options for U.S. citizens who move to Canada than are available to Canadian residents who have not lived in the United States.

John Richardson Follow me on Twitter @ExpatriationLaw

Part 30 – Treasury issues final @USTransitionTax Regs with no relief for #Americansabroad


This is Part 30 of my series of blog posts about the Sec. 965 transition tax.
Because of the importance and significance of this news I am writing this post without having read the 305 pages of Treasury regulations which relate to the Sec. 965 transition tax which are found here. I am relying on Monte Silver’s analysis which concludes that the regulations propose NO regulatory relief for the small businesses of Americans abroad. This is disappointing after the lobbying efforts that have been undertaken.
The attitude of U.S. Treasury
Assuming no relief for Americans abroad, coupled with the vast campaign that was undertaken to educate Treasury, we can assume that the denial of relief was intentional and with full recognition of the harm caused to a political minority, who do not even live in the United States.
To put it simply: It is the intention of U.S. Treasury to confiscate the retirement assets of Canadians with Canadian Controlled Private Corporations and similarly situated individuals in other countries. No other conclusion is possible.
The attitude of Congress – As I have previously said:
The problem is NOT that Congress doesn’t care about Americans Abroad. The problem is that they con’t care that they don’t care!
The only remedy is with the courts and I strongly suggest that you support the transition tax lawsuit being organized by Monte Silver.
The attitude of the Courts
I anticipate that Monte Silver’s lawsuit (described in the previous paragraph) is now inevitable.
Here is what actually has happened this week …
First – as reported on January 15, 2019 before issuing final regulations …

Second – and on January 16, 2019 – for the encore the final Sec. 965 regulations are issued and guess what?

For further commentary I refer you to Monte Silver at Americans for Small Business.
For those who can stomach it, the final (supposedly) regulations are here.
John Richardson
Follow me on Twitter: @ExpatriationLaw

MLex Reporter @PMerrion writes on @ADCSovereignty: "#FATCA regime goes on trial in Canada"

With just two weeks to go before the start of the ADCS-ADSC FATCA lawsuit, U.S. based MLex reporter Paul Merrion has written a nice piece about our upcoming FATCA Canada lawsuit.

The court documents can be accessed on the ADCS-ADSC site. For those who are not up to speed on what has happened so far, you might reference the “FATCA Trial: Law Students Edition” which is found on the Alliance blog.

How we got there – Canada’s Standing Committee on Finance May 2014

2019 – The Trial Begins In the Federal Court of Canada – January 28, 2019

Mr. Merrion’s article contains a nice summary of the legal issues, the impact of the outcome of the decision, a description of the plaintiffs, a summary of the legal issues AND (by discussing Representative Holdings’s 2018 bill) an acknowledgement of the role of “citizenship based taxation”.

You can read his article here which is posted with the permission of MLex® US Tax Watch and attribution to MLex® US Tax Watch.

MerrionFATCATrial

John Richardson

You can follow me at: @ExpatriationLaw

Mr. Smyth Goes To Washington: Accidental Americans #FATCA – @ADCSovereignty – @RepHolding bill and More!


Today I had an interesting conversation with veteran FATCA and citizenship-taxation activist Timothy Smyth. There are few people with his depth of knowledge and insight.
He will be in Washington this week. He is the man in above tweet who deserves your support and funding!
Enjoy the insight in his podcasts

Why ALL individuals should support the @RepHolding Tax Fairness For Americans Abroad Act

What: You are invited to a live conversation with Solomon Yue and John Richardson to discuss the Holding bill
When: Tuesday January 15, 2019 – 12:30 EST/17:30 GMT (Toronto, Canada) time (one hour)
Where: http://www.uberconference.com/orgop2 or by calling: 503 – 773 – 9640
Pre-Registration: Required – please visit http://www.facebook.com/RepublicansOverseas for instructions (or leave a comment at the bottom of this post which includes your name, email and country of residence).
Continue reading

Supporters of @ADCSovereignty #FATCA lawsuit might be interested in @RunnymedeSoc Law and Freedom Conference – Jan. 12/19


Canada is a Westminster Parliamentary democracy. Historically it has had a constitution (British North America Act) which defined how Canada was to be governed. In simple terms: the Federal Government has the jurisdiction to legislate in some areas (example criminal law). The Provincial Governments have the right to legislate in other areas (property and civil rights). These laws are made by democratically elected legislatures. Prior to the Canadian Charter of Rights and Freedoms (April 17, 1982), the only limits on the legislative bodies were jurisdictional. Any law could be enacted. It was just a question of whether it was the Federal Government or the Provincial Government that could enact the law.
In 1982 the Charter of Rights became part of Canada’s constitution. The Charter imposed limitations on the powers of elected legislatures. In other words, there were certain areas of activity that were presumptively beyond the reach of legislatures.
The Alliance For The Defence Of Canadian Sovereignty FATCA lawsuit is a Charter of Rights lawsuit against the Government of Canada. Our claim is the Government of Canada does not have the right to enact the legislation which requires banks to (1) Search for customers who are U.S. citizens and (2) then turn their account information over to the U.S. Internal Revenue Service. In general terms the arguments are based on the theory that by so doing the Government of Canada has violated Charter Rights which include the:
– S. 15 Equality rights; and
– S. 8 rights against unreasonable search and seizure
of Canadians.
Essentially the court will be asked to rule that the laws enacted by a democratically elected legislative body (the Parliament of Canada) violate the Constitutional rights of Canadians.
In other words: Does a democratically elected legislature prevail or do the rights of individuals prevail?
Supports of the our FATCA lawsuit might frame the question this way:
Should we have rule by law (the legislature prevails) or rule by justice (the law should be declared unconstitutional)?
________________________________________________________________________________
On January 11 and 12, 2019 the Runneymede Society is running its annual law and freedom conference. In general terms, the Conference is designed to debate the question of whether there should be limits on the powers of democratically elected legislatures. If so, what should those limits be? How does S. 1 of the Charter interact with the rights enshrined in the Charter? This should be of interest to all of those who are interested in the ADCS-ADSC FATCA lawsuit.
You can attend the Conference by Facebook and follow the conference on Twitter
Twitter – Hashtag = #RSCON19
Facebook live –


John Richardson

How can the IRS enforce US tax debts in foreign countries? Does renunciation of citizenship matter?

For years people have asked the question: Can the United States enforce U.S. tax debts in foreign countries? If this is possible, how would this work. I sometimes answer questions on Quora. My answer to this question (comments invited) is here:
Read John Richardson's answer to Can the IRS confiscate non US-based assets for taxes owed after someone renounces their citizenship? on Quora