Category Archives: tax reform

Part 4 of 4: “It Hurts My Heart:” The Case for Fairer Taxation of Non-Resident US Citizens

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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:

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).
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This is the fourth of a series of four posts that reflect views and experiences of Americans abroad who are experiencing the reality of actually living as an American abroad in an FBAR and FATCA world. (The first post is here.) The second post is here. The third post is here. I think it’s important to hear from people who are actually impacted by this and who have the courage to speak out. The “reality on the ground” is quite different from the theory.
I hope that this series of posts will give you ideas for questions and concerns that you would like to have addressed in the May 17, 2019 Tax Connections – Citizenship Taxation discussion.

I am grateful to Laura Snyder for contributing her thoughts, writing and research to the discussion.
Now over to Ms. Snyder …

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As 2018 draws to a close: Congressman Holding introduces "Fair Taxation For Americans Abroad Act"

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Updated December 21, 2018 – Here is the video of the discussion:


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Here is a description of what the Bill is intended to accomplish:

Tax Fairness for Americans Abroad

The proposal outlined below would effectively end the current citizenship-based taxation system and instead transition to a system that provides territoriality for individuals – often referred to as residence-based taxation. By taking this first step toward ending the onerous burdens of citizenship-based taxation, Americans will become more competitive in the international job market and free to pursue opportunities around the world.

Under this new system, qualified nonresident citizens will no longer be taxed on their foreign source income while they are resident abroad; however, they will remain subject to tax on their U.S. source income.

Eligibility

In order to qualify for qualified nonresident citizen status, an individual must be a nonresident citizen and make an election to be taxed as such. Individuals will make an annual election to certify they remain in compliance with the eligibility requirements.

Under this proposal, a nonresident citizen is defined as in individual that:

• Is a citizen of the United States,
• Has a tax home in a foreign country,
• Is in full compliance with U.S. income tax laws for the previous 3 years, and
• Either:

a) establishes that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
b) is present in a foreign country or countries during at least 330 full days during such taxable year

Tax Treatment

Once an individual meets the qualifications to become a nonresident citizen, he may elect to be taxed as a qualified nonresident citizen.

Those electing to be taxed as qualified nonresident citizens will be exempt from taxation on, and shall exclude from gross income, their foreign source income. This includes both foreign earned income (as defined in section 911(b)) and foreign unearned income (defined as income other than foreign earned income that is sourced outside the U.S).
Under this proposal a qualified nonresident citizen will remain subject to tax on any U.S. source income.

While individuals will not be taxed on gain from the sale of foreign personal property attributable to their time as a qualified nonresident citizen, they will still be taxed on any gain attributable to their time as a resident of the U.S. In other words, if an individual holds a foreign asset prior to their election of qualified nonresident citizen status and then sells said asset while they are a qualified nonresident citizen, the individual will only owe U.S. tax on the portion of gain attributable to the period prior to their change in status.

Here is the full text of the Bill:

Tax Fairness for Americans Abroad Act_H.R. 7358

Reactions …

John Richardson – Follow me on Twitter: @ExpatriationLaw

The possible end of U.S. "citizenship-based taxation: Two Programs with @SolomonYue -Toronto August 12 & August 16, 2018

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In addition to the meeting organized by the American Chamber of Commerce described below (August 16), there will be a second, more informal program for individuals affected, expats, their families and friends. This format would be a more intimate question and answer which will be focused on individuals subject to the U.S. CBT regime. This second event will take place on Sunday, August 12, from 2:00 – 4:00 pm on the U of T campus. Pre-registration is requred. If you are interested, please email nobledreamer16 at gmail dot com Cost: $20
 
AMChamCanada logoDO_NOT_DELETE_AmCham_Canada_generic_event_image
 
Many of you reading this post will NOT be in the Toronto area! This are important events! Please actively share this information with all people who you believe would be interested or affected by this!
 
 
A LIGHT AT THE END OF THE TUNNEL OR ANOTHER ONCOMING TRAIN: THE POSSIBLE END OF U.S. CITIZENSHIP-BASED TAXATION
If you are an American citizen residing and doing business in Canada, you bear the pain of the heavy tax burden endured by all U.S. citizens due to the fact that the U.S. is the only major country that imposes worldwide taxation on its citizens no matter whether they live in the U.S. or in another country. In addition, the U.S. imposes significant penalty laden reporting requirements on U.S. citizens living in Canada and abroad.
Change is a possibility.
Did you know that there is a possibility that the U.S. Congress may introduce, debate and vote upon a bill that may ease this worldwide taxation burden on U.S. citizens living and working in Canada? This bill would enact ‘Territorial Taxation for Individuals (TTFI)’. It is a tax cut for 9 million overseas Americans by ending double taxation.
 
Solomon Yue headshot(1)Solomon Yue, CEO of Republicans Overseas has been involved with drafting the TTFI bill. Mr. Yue, who is currently working with AmChams throughout the world, will present publicly shareable information about the TTFI bill, and discuss its progress as it journeys through the legislative process. He will be encouraging AmCham Canada to lend its support in the global effort to encourage Congress to move forward with this legislation.
 
Elena Hanson headshot 2(1) Elena Hanson, Managing Director of Hanson Crossborder Tax Inc. and a member of Democrats Abroad. Elena will be speaking on the logistics and burden of U.S. tax filing obligations as an American in Canada.
 
John Richardson headshot(1) John Richardson, a Toronto Lawyer of Citizenship Solutions, will also be joining Elena and Solomon to speak on the lost opportunity cost of being a dual U.S.-Canadian tax filer: Canadian residents who are subject to the U.S. tax system do not have the same financial planning and other opportunities that non-U.S. citizens have..
 
 
Date: Thursday, August 16, 2018
Time: 6:15pm to 9:00pm
Place: St. Michael’s College, Alumni Hall, Room 400; 121 St. Joseph Street, Toronto (paid parking near building; nearest subway station is Museum) MAP
Cost: $20 +tax (AmCham members); $35 +tax (non-members).
Pre-registration is required. Registrations due August 13.
Register
Info: AmCham Toronto TTFI Event
 

Part 11: Responding to the Sec. 965 “transition tax”: Letter to the Senate Finance discussing the effects of the transition tax on Americans abroad

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This is the eleventh in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The first ten posts in my “transition tax” series were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!

Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of “Homeland Americans” to the treatment of “nonresidents”

Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!

Part 6: Responding to the Sec. 965 “transition tax”: A “reprieve” until June 15, 2018

Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before

Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

Part 10: Responding to the Sec. 965 “transition tax”: Individuals subject to U.S. state tax jurisdiction, the response of New York State – It’s about “reasonable cause”!
Introduction – The purpose of this post is …

Awareness of the how the “Transition Tax” is affecting residents of other countries is beginning to grow. For example, see the following editorial in the Halifax Chroncile Herald:

On April 24, 2018, the Senate Finance Committee held a hearing called “Full Committee HearingEarly Impressions of the New Tax Law“. A video of the hearing is referenced in the following tweet:

Written submissions from the public were invited.

This post includes the letter that I sent to the Senate Finance Committee describing the possible impact of the Sec. 965 “Transition Tax” on Americans abroad in general and Canadian residents in particular. Feel free to forward this post to anybody you like.
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If you want to be a shareholder in our Canadian business then you must renounce U.S. citizenship

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The unified message from all should be that: The United States should stop imposing “worldwide taxation” on people who have “tax residency” in other countries and do NOT live in the United States! This is a message that all advocates of tax reform can support. As recently explained in a post from “ACA”, the mechanism (RBT vs TTFI) used to achieve this change is less important.


It is no secret that Congressman George Holding is working on a proposal to end the U.S. practice of imposing “worldwide taxation” on those who have “tax residency” in other countries. If successful, this would be a positive change for the United States, U.S. citizens who choose to live outside the United States and the residents of other (including “accidental Americans”) countries. None of these should be burdened by the extra-territorial application of U.S. tax laws!
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TCJA and Expanding the definition of and number of "Controlled Foreign Corporations" subject to Subpart F

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As goes the number of “Controlled Foreign Corporations“, so goes the size of the U.S. tax base. The “messaging” was that the United States was moving to a system of “Territorial Taxation” for corporations. The reality is that the TCJA has actually increased the number of “non-U.S. corporations” that the United States claims to be be its “tax subjects”. (This has been accomplished by increasing the ways in which “non-U.S. corporations” can be treated as “controlled foreign corporations”. Furthermore, those “non-U.S. corporations (“controlled foreign corporations”), subject to U.S. tax jurisdiction, will be subject to U.S. tax on more income. I do understand that those “non-U.S. corporations” cannot be taxed directly by the United States. Fair enough. But “non-U.S. corporations” are clearly taxed indirectly by attributing income earned by the “controlled foreign corporation” to “United States Shareholders” under the Subpart F regime. In the same way that the United States is imposing taxation on the “worldwide” income of individuals who are “tax residents” of other nations, the United States is imposing taxation on the “worldwide income” of “non-U.S. corporations”. (This is done indirectly by imposing taxation on the “United States Shareholder” rather than on the “controlled foreign corporation” directly.) Although this has always been true, the “Tax Cuts and Jobs Act” has significantly expanded this taxation. This has been accomplished in at least three ways:
1. Expanding the definition of “United States Shareholder” in the Internal Revenue Code – Internal Revenue Code Sec.. 951
2. Expanding the circumstances under which the income from a “Controlled Foreign Corporation” is attributed to “United States Shareholders – Deleting the 30 day requirement – Internal Revenue Code Sec. 951
3. Increasing the number of “United States Shareholders” through changes in the “attribution rules” – Say “Good Bye” to Internal Revenue Code Sec. 958(b)(4)
This list is not intended to be exhaustive. I will discuss each of these in turn.
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Part 2: The problem is NOT “worldwide taxation”. The problem is imposing “worldwide taxation” on people who don’t live in South Africa or the USA and are “tax residents’ of other countries.

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As goes taxation, so goes civilization.

This is Part 2 of my post discussing the South Africa tax situation. Part 1 is here.

This is a follow up to my post exploring whether South Africa is moving to a tax system that is based on “citizenship-based taxation” or (in the case of the United States of America) “taxation-based citizenship”. That post was the result of a “special request”. The response from that first post included:

I now understand the difference between the SA system and the US. I believe that the similarity that caused the consternation when this first came up was the issue of “tax residency”. CBT mandates that those declared US citizens by the US are simultaneously declared US tax residents. In a similar fashion SA has a concept of tax residency that *does* include some people who do not physically reside in SA but NOT just because they’re citizens. I get it. Thanks again for clarifying this!
That being said, I think the term “tax residency” is crazy. I wish that someone with the power to influence terminology in the general usage of language could come up with something that accurately describes the basis on which a person can be taxed by a country in which that person does not live. Taxes don’t reside; people do, and they can only live one place at a time. Any ideas? 🙂

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