Category Archives: American expatriates

Does the US provide #Americansabroad any benefits? Shouldn’t US #expats who find US @taxationabroad onerous just renounce their US citizenshp?

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On May 30, 2020 the following question appeared on Quora and prompted some interesting answers and discussion:

As a defender of American “freedom”, how do you justify the fact that US citizens have to pay taxes to the US even if they live and work abroad (even if they have never been to the US but got their citizenship through their parents)?

I along with others attempted to answer the question. Here is my answer.

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Some of the most interesting analysis comes from the comments to the answers. See the following answer and comment. I have turned David Johnstone’s comment into a post.

One of the answers to the question included the suggestion that:

If someone lives and works abroad as an American citizen, he or she must be enjoying SOME benefits or they would logically renounce their US citizenship instead of paying US taxes. That would be a good solution for anyone facing this question. Just go!

David Johnstone responds to this answer with the following comment:

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Seeking short social media – twitter and facebook posts – explaining why @citizenshiptax and #FATCA are wrong

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On June 3, 2020 I plan to do a podcast with Anthony Scaramucci of Skybridge Capital and SALT Conference fame. The June 3 podcast has its roots in the following @Scaramucci tweet which was the subject of discussion at the Isaac Brock Society.

Mr. Scaramucci’s tweet generated a great deal of discussion. If you click on the tweet, you will see, what some of the responses were.

A third party individual has arranged for me to do a podcast with Mr. Scaramucci. This will take place on June 3. In order to provide background information for “citizenship taxation”, FATCA and how they impact Americans abroad, I would ask that you reply to the following tweet. It is your opportunity to contribute to the conversation.

Feel free to leave a comment to this post. I will ensure that it finds its way into the twitter thread.

John Richardson – Follow me on Twitter @Expatriationlaw

Podcast – US Citizenship: Retain or Renounce – Streamlined, Relief Procedures For Former Citizens

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(Interesting discussion in the above twitter feed.)

On April 30, 2020 I hosted a discussion with Karen Alpert, Laura Snyder, David Johnstone and Keith Redmond. The discussion touched on a variety of subjects of interest to Americans abroad and Accidental Americans.

The discussion included a segment on the September 2019 IRS Relief Procedures For Former citizens and how they compare to Streamlined compliance.

Bottom Line: It’s complicated. People are different. Different solutions for different people. But, for many:

“All Roads Lead To Renunciation”.

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

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The context

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

Interestingly, with respect to access to monetary relief:

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

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

It appears to be much easier to access the relief in Canada than to access the relief in the United States. Additionally, Canadians do NOT need a lawyer or accountant to understand the program. But, that’s an issue for another day …
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Exercising broad regulatory authority, US Treasury has clarified the meaning of “resident” for #FBAR Purposes

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Introduction – Looking For Mr. FBAR

What’s new?

I haven’t written a post about Mr. FBAR for quite some time. But, a post about the recent Boyd case at Tax Connections, by Darlene Hart got me thinking about FBAR again. For those interested – where the IRS successfully argued that it was appropriate to impose penalties on each individual account – here is the case:

HBe

And for a hint at the commentary:

Those who know little about Mr. FBAR might find this introduction to FBAR – although written in 2012 – helpful. Incidentally, it’s pretty obvious that Russia’s Foreign Bank account reporting laws were based on an admiration of Treasury’s success with the FBAR rules.

The purpose of this post

The purpose of this post is to explain:

1. The Congressional FBAR statute – Title 31 Section 5314 – which delegates to Treasury the responsibility of determining ALL aspects of FBAR administration including:

– who is subject to FBAR reporting

– the financial thresholds that trigger reporting

2. It is NOT the Congressional FBAR statute that defines the absurdly low $10,000 threshold for reporting. Rather it is Treasury. Although FBAR penalties are now indexed to inflation, the FBAR reporting threshold remains at $10,000. To put it simply: through inflation, Treasury has found a way to increase both the number of FBAR violations and the penalties associated with those violations. (There is a reason it’s called “The FBAR Fundraiser”).

3. It is not Congress that imposes the FBAR requirement on Americans abroad. It is Treasury. In fact, Treasury has recognized that they it has the right to exempt Americans abroad from the FBAR requirements, but has refused to do so. To be specific, Treasury’s 20111 statement found on page 10327 (middle column) was without explanation:

With respect to the comments raised by United States persons living abroad, FinCEN does not believe that an exemption is appropriate simply because a United States person chooses to live outside of the United States.

Treasury offered no reason for this decision.

Commentary on this decision at the Isaac Brock Society may be read here.

4. Treasury has by regulation “tinkered” with the meaning of “resident” over the years. I note that in 2012 (as explained by Phil Hodgen and others) the meaning of “resident” was not defined by statute. Rather, it is through Treasury regulations, that the word “resident” is given meaning. By 2017 Treasury had adopted the statutory meaning of resident used in the Internal Revenue Code (Section 7701(b)). (By expanding the definition of “United States” to include possessions and territories, it appears that Treasury has expanded the penalty base to include U.S. “Nationals”.) The FBAR statute is found in Title 31. The Internal Revenue Code is Title 26. There is neither a requirement nor a reason why Treasury should have used the definition of “resident” in Title 26 as the the meaning of “resident” in Section 5314 of Title 31. There are many different ways of defining “resident”. For example, for U.S. Estate and Gift Tax purposes, “residency” is defined in terms of domicile …

My point is this

Individuals and groups attempting to achieve justice for Americans abroad, Accidental Americans, Green Card Holders and all “U.S. Persons” would be advised to focus their efforts on U.S. Treasury. Yes, the lobbying of Congress should continue. But, meaningful change can be achieved without Congress even being aware of it. U.S. Treasury has the authority and ability to fix the FBAR related penalty and reporting injustices imposed on Americans abroad. But, FBAR is just the beginning. Almost all of the problems of Americans abroad can be fixed by Treasury.

This is the first of a series of posts in which I will explain how Treasury can solve almost all of the problems inflicted by the U.S. Government on Americans abroad.

John Richardson – Follow me on Twitter @Expatriationlaw

Appendix – For those who want to better understand the technicalities: Let me explain you …

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Recently Released Survey Report Dispels Myth of the Wealthy American Abroad and Demonstrates Why Middle Class Americans Abroad Are Forced To Renounce US Citizenship

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This blog post features the research of Laura Snyder. It is (I believe) the single and most comprehensive study of (1) the U.S. legislation that is understood to apply to Americans abroad and (2) the disastrous impact this legislation has on them. To put it simply, Congress is forcing Americans Abroad to renounce their U.S. citizenship.

The bottom line is that for Amerians Abroad:

“All Roads Lead To Renunciation!”

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And now over to Laura Snyder with thanks.
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On October 21, 2019 Canada could have it's first US citizen Prime Minister! Think of the penalties!

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It started on the campaign bus


Worked it’s way to the Toronto Star


(Speaking of the “noose” of citizenship-based taxation, it’s worth noting that former New Brunswick Premier David Alward was reported to have been in the IRS OVDI program.)
Brought back memories of other victims
British Prime Minister Boris Johnson renounced U.S. citizenship before becoming Prime Minister.
Somalia’s president revealed that he had recently renounced U.S. citizenship.
Was confirmed by the Isaac Brock Society
As reported at the Isaac Brock Society and assuming the truth of the Toronto Star article referenced in the above tweet, Conservative Leader Andrew Scheer may become Canada’s first U.S. citizen Prime Minister. If the article is to be believed, he wouldn’t be a U.S. for long. He is apparently in the process of renouncing U.S. citizenship.
Triggered some of our fondest memories in politics


In the 2015 election debate, Justin Trudeau famously claimed that:
“A Canadian is a Canadian is a Canadian!”
Made us ask whether anything in Canada should be off limits to the USA
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Became the subject of public discussion and debate
Update: The Globe and Mail confirms the news! Mr. Scheer is subject to the U.S. sanction of citizenship-based taxation. @InFBARWeTrust!


Q. Is it appropriate for a U.S. citizen to be the head of state of a non-U.S. country?
A. The comments the Globe and Mail article are interesting.
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More twitter coverage/discussion:
https://twitter.com/i/events/1179861494650953728

Part 2: Because banks and people are not the same: @RepMaloney #FATCA amendments require foreign banks but NOT individuals to report custodial accounts

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Introduction:


FATCA imposes obligations on both foreign banks (report on individuals to the IRS – Internal Revenue Code Section 1471) and obligations on individual Americans abroad (report foreign assets to the IRS – Internal Revenue Code 6038D).
Depository vs. Custodial Accounts
In general a “Depository” accounts is a basic day-to-day bank account (checking, savings, etc.)
In general a “Custodial” account is a brokerage or other account that holds assets for management.
The Maloney bill addresses these obligations (with respect to the reporting of “Custodial” accounts) differently.
The Maloney bill and foreign banks – Section 1471 Amendments – custodial accounts are reportable
Representative Maloney’s H.R. 4362 – “Overseas Americans Financial Access Act” – includes relief provisions for both foreign banks AND for individual Americans abroad.
My previous post discussed how the Maloney bill impacts the reporting requirements of foreign banks. Notably the Maloney bill relaxes the reporting requirements for foreign banks ONLY with respect to depository accounts.
The Maloney bill and individuals – Section 6038D Amendments – custodial accounts not reportable
It appears that the Maloney bill would relax the Form 8938 reporting requirements for individuals with respect to BOTH depository and custodial accounts. Although not a model of clarity, it means that (as a general principle) Americans abroad would not be required to report their local (foreign to the USA) accounts (depository or custodial) to the IRS. This is a variant of what has been called FATCA SCE (“Same Country Exemption”).
Bottom Line: Foreign banks and Americans abroad do NOT get the same treatment under the Maloney bill. Is this an oversight? Is it careless drafting? Is it deliberate?
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Technical analysis (of interest to few people) follows:
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IRS provides limited tax relief for certain individuals renounced(ing) after March 18, 2010

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Update – My thoughts “The Morning After” – September 7, 2019:
After having digested this for a day (it was announced the afternoon of September 6/19), I offer the following additional thoughts:

Practical value: I think that this IRS announcement/program has value. It may be that those who have renounced would NOT want to come into compliance (although there are certainly some who would – just to bring closure). But, the IRS announcement makes clear that this procedure is available to those who have not yet renounced/relinquished and wish to do so in the future. The point is that these future relinquishers can:

1. Come into tax compliance and have up to $25,000 USD in tax forgiven; and

2. Come into tax compliance without getting a Social Security number. This has the potential to be enormously helpful to a lot of people (but this is a minority view). It’s a way to make the compliance/renunciation process easier and less expensive (tax forgiveness) than it has been to date.

Of course, this will anger the thousands who have previously come into compliance, paid taxes and gone to the trouble of getting a Social Security number.

IRS Motivation: Much of the discussion in social media has revolved around the question of: “Why would the IRS offer this program at all? What’s in it for the IRS (especially if they are forgiving taxes)? I don’t know and nobody outside Treasury/IRS knows. But, my guess is that this is a political response from US Treasury to the problems that FATCA is causing with foreign banks. Viewed prospectively, this provides a clearer path for accidental Americans (living outside the USA) to renounce U.S. citizenship. Although renunciation (which does have tax consequences) does NOT require tax compliance, most people seem to think that it does. Also, this is a clear response from Treasury/IRS to the problems that foreign banks are having with FATCA compliance. In other words: I do NOT think that this has anything to do with helping accidental Americans. I do think that it to assist foreign banks with the problems they are having with accidental Americans. Note that the relinquishment date – March 18, 2010 – is tied to the date that FATCA was enacted. But, what do I know?

Now on to the post as originally written …

Breaking news – just released today – September 6, 2019

Background:

In what appears to be a response to how FATCA issues affect “accidental Americans” living outside the United States, the IRS has introduced a procedure providing limited tax relief, penalty relief and certainty for accidental Americans who need to renounce U.S. citizenship in a FATCA world. The problem is described in this recent article by Helen Burggraf at American Expat Finance. Note that March 18, 2010 was the date that the HIRE Act (of which FATCA was a revenue offset) was enacted – making it clear that this relief is tied to FATCA and NOT to “citizenship-based taxation” per se.

In a nutshell, it appears (I will read this in more detail again) to say that:

Individuals who:

1. Have NEVER filed a 1040 U.S. tax return
2. Have relinquished/renounced U.S. citizenship after March 18, 2010
3. File the five tax years in the year prior to relinquishment
4. File a tax return in the year of relinquishment
5. Have a net worth of less than 2 million USD at the time of relinquishment AND at the time of filing*
6. Have a total of less than $25,000.00 in U.S. tax liabilities over the five year period
7. Have an average U.S. tax liability of less than approximately 165,000 USD for the five preceding years*
8. Certify that their failure to file was non-willful.

can file, avoid paying the U.S. taxes owed and NOT be a covered expatriate.

*These mirror the general requirements to not be a covered expatriate.

This is of value for a limited (but probably numerically large) group of people. The benefits appear to be:

1. Forgiveness of tax up to $25,000.00
2. The opportunity to exit the U.S. tax system cleanly and avoid covered expatriate status.

This is likely to upset those who previously went to the trouble of coming into compliance to expatriate. Note that the procedures are not available to anybody who has EVER filed a 1040.

I will write more on this later. But, for the moment here is the announcement from the IRS News Room:

09 | 6 | 19
IRS announces new procedures to enable certain expatriated individuals a way to come into compliance with their U.S. tax and filing obligations

IR-2019-151

WASHINGTON – The Internal Revenue Service today announced new procedures that will enable certain individuals who relinquished their U.S. citizenship to come into compliance with their U.S. tax and filing obligations and receive relief for back taxes.

The apply only to individuals who have not filed U.S. tax returns as U.S. citizens or residents, owe a limited amount of back taxes to the United States and have net assets of less than $2 million. Only taxpayers whose past compliance failures were non-willful can take advantage of these new procedures. Many in this group may have lived outside the United States most of their lives and may have not been aware that they had U.S. tax obligations.
Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes. The purpose of these procedures is to provide relief for certain former citizens. Individuals who qualify for these procedures will not be assessed penalties and interest.
The IRS is offering these procedures without a specific termination date. The IRS will announce a closing date prior to ending the procedures. Individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible so long as they satisfy the other criteria of the procedures.

These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

The IRS will host an on-line webinar in the near future providing additional information and practical tips for making a submission to the Relief Procedures for Certain Former Citizens.

Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime. Taxpayers interested in these procedures should read all the materials carefully, including the FAQs, and consider consulting legal counsel before making any decisions.

See the following link for more information:

https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens
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Part 31 – "Double Taxation Disguised as Tax Reform": Jackie Bugnion comments in @TaxNotes on @USTransitionTax and #GILTI

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https://twitter.com/worldnewsreader/status/1132961693598986241

This is Part 31 of my series of blog posts about the Sec. 965 transition tax. It is a “guest post” by Jackie Bugnion who is the former tax direction of ACA. The article explores the impacts of the Section 965 transition tax and GILTI on the lives of Americans abroad. Ms. Bugnion places the transition tax and GILTI in the context of the U.S. system of citizenship-based taxation.

This article is reproduced with thanks to the author Jackie Bugnion and the publisher Tax Analysts.

Bugnion-4-29

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John Richardson – Follow me on Twitter @Expatriationlaw