This article explains the simple regulatory actions that United States Department of the Treasury can take that would, in the absence of legislative change, improve the lives of Americans living overseas and permit the IRS to better focus its limited resources to more effectively administer the U.S. tax system.
Watch the discussion that took place with @BruceAHeyman here. It focuses solely on how #Americansabroad can vote "Toronto Star virtual event: U.S. Election 2020: Why votes from abroad matter, and explaining the battle to overcome voter suppression" https://t.co/8yfc1ry1qM
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 23, 2020
The 21st century has been notable for an evolving assault on representative democracy.
1. The rise of the head state who is to serve for life.
2. An unhealthy mass of power in the hands of political parties in general and small parts of the party in particular. Does the individual/local representative (Congressman or MP) even matter?
3. A sentiment that individual votes no longer matter or that they are no candidates worth voting for.
Variants of these themes are being played out all over the world.
In general, politicians operate on the principle that:
“The business of the public is none of the public’s business.”
As reported by American Expat Finance, which discusses an interview with Dr. Bernard Schneider of Queen Mary …
John Richardson Podcast: Dr Bernard Schneider, an expert in int'l tax law at Queen Mary U in London, says China does NOT have a US-style citizenship-based tax regime and isn't moving that that direction. (It does have somewhat "sticky" domicile regs…) https://t.co/hP4vkhaeHjpic.twitter.com/jRa1waZ1Ph
The Longer Version: “Tax Residency” Based Information Exchange In The 21st Century
The 21st Century has ushered in FATCA, CRS, voluntary disclosure programs and a general awareness of taxation. Many people have been subjected to the FATCA inquisition (“Are you or have you ever been a US citizen?) or a CRS motivated inquiry about “tax residence” (“List all countries where you are a tax resident.”)
In the 21st, the “citizenship by investment industry” is booming. There are many opportunities to acquire (through investment programs) “permanent residency” in a county. (I will refer to these programs collectively as “economic migration”). The value of these “economic migration” programs, to a specific individual, is largely determined by considerations of tax residency.
On June 25, 2020 Dr. Karen Alpert and I did a series of podcasts where we discussed how renunciation will affect your interaction with the US tax system. The key point is that you will still be taxable by the United States on US source income. What does that mean? Under what circumstances could renunciation of US citizenship actually increase your US tax liability?
This 1981 article on the S. 911 FEIE explains the purpose was to make it less expensive for US corps to hire US citizens. It was NOT motivated by any desire to help #Americansabroad. "THE FOREIGN EARNED INCOME EXCLUSION: REINVENTING THE WHEEL" on JSTOR https://t.co/QBSz1f84NS
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 12, 2020
I recently participated in a podcast discussing both the opportunities and limitations associated with the Section 911 FEIE (“Foreign Earned Income Exclusion”). It is short and explains why the FEIE is not the answer to the problems experienced by Americans abroad. You can listen to it here:
The podcast was the subject of a post at American Expat Finance. That post prompted me to explore more deeply, the origins of the FEIE. When was it enacted? What was it designed to do? I found a fantastic article that I thought I would/should share.
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) March 28, 2020
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 … Continue reading →
The IRS definition of non-willful covers a lot of territory. Negligence, for example, includes “any failure to make a reasonable attempt to comply with the provisions of the Code” (IRC Sec. 6662(c)) or “to exercise ordinary and reasonable care in the preparation of a tax return” (Reg. Sec. 1.6662-3(b)(1)). Further, “negligence is a lack of due care in failing to do what a reasonable and ordinarily prudent person would have done under the particular circumstances.” (Kelly, Paul J., (1970) TC Memo 1970-250). The court also stated that a person may be guilty of negligence even though he is not guilty of bad faith. So the fact that you ignored the FBAR filing requirements for many years, and failed to report your foreign income, might be negligent behavior, but it’s probably not willful. That means you likely qualify for one of the new streamlined procedures. On the other hand, if you loaded piles of cash into a suitcase and lugged it over to Switzerland to conceal it from the IRS, you don’t qualify, because that is willful conduct. If you believe your behavior may have been willful under these guidelines, consult with an attorney before submitting returns through one of the streamlined procedures. We work with attorneys who are experts in this field and we would be happy to provide a referral, free of charge or obligation.
Notably, the definition of “non-willfulness” for the Streamlined Program is the same as the definition for the new “IRS Relief For Former Citizens Program”.
Part A – IRS Relief For Former Citizens Who Relinquished U.S. Citizenship After March 18, 2010 (the date FATCA became law)
Appreciate these interviews from Democrats Abroad. But, they need to STOP making the question about residence-based taxation conditional on revenue neutrality!
See starting at the 9 minute mark … Separate questions about FATCA and citizenship-based taxation …
This is the @Demsabroad interview with Senator Sanders that includes two distinct questions: 1. About FATCA and 2. About residence-based taxation.
Many people have reported (based on this interview) that Senator Sanders supports residence-based taxation on a “revenue neutral” basis. This is NOT what he said. His answer did NOT include the “revenue neutral” condition. The question asked by the DA representative phrased the question in terms of revenue neutrality. (Arguably, the Senator’s answer was based on an assumption of revenue neutrality – but, I don’t think so.
My impression is that Senator Sanders did NOT condition his support on revenue neutrality. Democrats should stop building the “revenue neutrality” condition into the question. It is obscuring the meaning of the answers.
Finally, Mayor Pete when asked the question ABSOLUTELY made it clear that his support for residence-based taxation WAS based on revenue neutrality. Again, it is possible that he was NOT answering the question more generally.
I applaud Democrats Abroad for this interview series and for asking these questions of all candidates. That said, I do NOT think the question should be based on a move to residence-based taxation being revenue neutral.
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!”
And now over to Laura Snyder with thanks. Continue reading →