Tag Archives: ACA

Part 8 of series: Former ACA Tax Director Jackie Bugnion recalls the 2014 Kirsch Schneider debate on "citizenship-based taxation"

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).
This is the eigth of a series of post I have written as a run up to the May 17, 2019 Tax Connections discussion about U.S. citizenship-based taxation. You can read the previous posts here.
Introducing Jackie Bugnion …
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Part 21 – @ACAVoice makes presentation at October 22/18 IRS @USTransitionTax hearing – argues both that Regulatory Flexibility Act should apply and/or that de minimis rule be created

Introduction


This is Part 21 of my series of posts about the Section 965 transition tax.
The Section 965 “Transition Tax” saga continues. Americans abroad may have political differences. They may have philosophical differences. They may live in different countries with different tax treaties. But, opposition to the Section 965 Transition Tax and GILTI appear to have unified all Americans abroad.


To put it simply: The application of the Section 965 transition tax to the small businesses operated by Americans Abroad is the most unjust, most punitive, most egregious and most unjustified piece of legislation over to come from the Homeland (assuming – which I doubt – that it was every intended to apply to Americans abroad in the first place). Significantly, the transition tax is a benefit to Homeland Americans but can confiscate the retirement plans of Americans abroad. In other words, the transition tax is one more punishment that America is meting out to its citizens who dare to leave the United States.
Boldly Go, where no fictitious tax event has gone before …
The transition tax is also a direct attack on the tax base of the countries where Americans abroad live. To put it simply: the transition tax is a fictional tax event, that allows the United States to take a preemptive tax strike against the tax base of other countries. By so doing, the transition tax allows the United States to siphon tax revenue from other countries, that it could never siphon before. (Well, the S. 877A Exit Tax rules also create a fictitious tax event that allows the United States to siphon capital from other countries.) The impact of the transition tax on Canadian residents (who are also U.S. citizens) has been explored in CBC reporter Elizabeth Thompson’s series of posts about the transition tax.
The Transition Tax when applied to Americans abroad is:

The retroactive taxation of undistributed earnings of a non-US corporation, based on NO event that generates taxable income, which almost certainly subjects Americans abroad to double taxation.

The parts I have bolded provide arguments for why the “transition tax” violates numerous tax treaties.
In Part 20 I explored the arguments for why/how the Treasury Regulations are not compatible with the Regulatory Flexibility Act. Part 20 included a discussion of the arguments made by ACA for why the Regulatory Flexibility Act should apply to the regulations.
In Part 21 (this post), I am highlighting the submission of American Citizens Abroad (ACA), who argues IN ADDITION (this is a no brainer) that there should be a threshold level of undistributed earnings before the Section 965 confiscation can apply – period.
Thanks to ACA (“American Citizens Abroad”) for taking the time to organize these arguments and present them at the October 22, 2018 IRS hearing on the “transition tax”.
What follows is the email I received from ACA – I strongly suggest that you follow the links. ACA has done a superb job of demonstrating how the Treasury can exempt Americans abroad from this particularly draconian and confiscatory piece of legislation.
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Part 19 – Comments from those with @TaxResidency in other countries about the effects of @USTransitionTax & #GILTI

Designed for Google and Amazon and applied to individual Americans abroad …


ADCS Press Release on the Transition Tax and GILTI: The Alliance For The Defence Of Canadian Sovereignty issued a press release on the impact of the “transition tax and GILTI” on people with tax residency in other countries. Although issued in November of 2017, it attracted a number of comments. These comments provide insight into how U.S. citizenship-based taxation damages people in other countries.
Comments made in November 2017 (before the world heard about the transition tax)
The comments (from November of 2017 which is well before the Section 965 transition tax was understood) are here.
Comments in September/October 2018
As described in this post, U.S. Treasury has been seeking comments about the Sec. 965 transition tax. The deadline for comments is October 9, 2018. You can read the comments here.
Comments that are particularly noteworthy are:
From American Citizens Abroad – on behalf of all Americans abroad


From James Gosart an individual

To: United States Department of the Treasury
Subject: Re: Proposed Regulations under Section 965 [REG 104226-18]
The transition tax is a killer for small American owned overseas businesses.
I am a small business owner of a consulting company in Hong Kong. Around the world, I’m sure there are thousands of small American business owners like me.
I formed the company in 2011 after spending more than 25 years based in China and Asia as an expat employee of a major US corporation. During the 7 years the company has been in operation, I have helped US companies and investors with their China and Asia strategies, ultimately growing their businesses in Asia and contributing to US based employment. My company paid corporate taxes annually in Hong Kong. I have now relocated to the US and I’m in the process of shutting the business down.
The new transition tax is so burdensome and complex that there is no way I would start such a business today. Nor would I recommend it to anyone else. For the US to decide to retroactively tax retained earnings of small US owned overseas businesses is so draconian and unprecedented that it will seriously impact the survival of countless numbers of such businesses. Even if a US owned overseas business is capable of making this payment, and many will not be able to, how can any business survive when faced with a 17.5% tax that their non-US owned competitors do not have? In addition, many thousands of Americans who use lawful local corporate entities as retirement savings vehicles will see their lifelong retirement savings decimated.
The Commerce Department has long estimated that for every $1 billion of business done by American business abroad 5,000 domestic US jobs are supported. Based on my own anecdotal experience I agree with that. No doubt the transition tax will cause thousands of American owned small businesses to close, or fail to start in the first place, will cause the loss of many thousands of US based American jobs, and will damage the lives of countless numbers of Americans living abroad.
I do not believe the transition tax for small business can be made fair or workable. It must simply be dropped altogether.

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And on the Home front …


The FATCA Canada lawsuit continues: The Alliance For The Defence Of Canadian Sovereignty announces the filing of its Memorandum of Fact and Law. The trial is expected to be heard in January of 2019.
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More on the U.S. “Transition Tax”
This is Part 19 of my series of posts discussing the Section 965 U.S. Transition Tax. This has been reposted with permission from Americansabroadfortaxfairness.org.

If you want to be a shareholder in our Canadian business then you must renounce U.S. citizenship

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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Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?

This is post is “based on” (not identical to)  one of two submissions that I submitted in response to Senator Hatch’s request for submissions regarding tax reform.
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Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?
The Internal Revenue Code mandates that ALL “individuals” , EXCEPT “non-resident aliens”, are subject to full taxation, on their WORLDWIDE income, under the Internal Revenue Code. The word “individuals” includes U.S. citizens regardless of where they live and regardless of whether they are citizens and residents of other countries where they also pay tax. This means that, by its plain terms, the United States imposes full taxation on the citizens and residents of other nations, because they are also (according to U.S. definitions) U.S. citizens. The United States is the only country in the world that has a definition of “tax residency that mandates full taxation based ONLY on citizenship.
How “U.S. citizenship” and U.S. “taxation” interact
Principle 1: The United States is one of the few countries in the world that confers citizenship based SOLELY on birth on its soil.
Principle 2: The United States is the ONLY country in the world that imposes full taxation ON THE WORLD INCOME of its citizens, REGARDLESS OF WHERE THE U.S. CITIZEN LIVES IN THE WORLD.
Bottom line: The United States is the ONLY country in the world that imposes full taxation, on WORLDWIDE income, based ONLY on the “place of birth”!
A practical example: A person whose only connection to the United States is that he was born in the United States, who lives in Canada (and may have never lived in the United States and whose only income is earned in Canada), is required to pay U.S. tax on that income. This resident of Canada is treated AS THOUGH HE WAS A U.S. RESIDENT. NOTE ALSO THAT THIS INDIVIDUAL IS REQUIRED TO PAY TAX TO CANADA! He is subject to “double taxation”. (This “double taxation” is only partially mitigated through “foreign tax credits”, tax treaties and the “foreign earned income exclusion”.)
Therefore: What academics and government officials refer to as “citizenship-based taxation” (they really don’t understand its practical effects) is PRIMARILY  “place of birth taxation” and therefore a convenient way to impose U.S. taxation on the citizens and residents of other countries. As a blog devoted to “citizenship taxation” (noting the difference between the theory and reality) points out:

“A supporter of citizenship taxation is someone who THINKS about “citizenship taxation”. An opponent of citizenship taxation is anybody who has tried to LIVE under citizenship taxation.”

How did this happen? It certainly didn’t start this way!

The evolution of “U.S. citizenship”
The result of legislative change and various U.S. Supreme Court decisions (primarily Afroyim ) has meant that “U.S. citizenship” is far easier to obtain and far harder to lose. 
Furthermore, as people become more and more mobile, it is not unusual for somebody to have been “Born In The USA” but live outside the USA. Global mobility is now the rule, rather than the exception.
The evolution of U.S. taxation and the Internal Revenue Code
The Internal Revenue Code has become more and more complex and impacts more and more activities of daily life. Because “U.S. citizens” (even though they are citizen/residents of other countries) are subject to U.S. taxation, they have been tremendously impacted by the “creeping complexity” of the Internal Revenue Code (which applies equally to ALL Americans wherever they may live).
This “creeping complexity” has evolved slowly through the years. The problems have been exacerbated because Congress does NOT consider that when amending the Internal Revenue Code they are impacting the lives of tax paying residents of other nations (who happen to be U.S. citizens). Congress is “indifferent” to the plight of Americans abroad (indifference being one of the worst forms of abuse).
Through the years, slowly and consistently …

The evolution of the Internal Revenue Code combined with ease of retaining U.S. citizenship has built a “fiscal prison” (legislative brick by legislative brick), in which  to keep the tax paying residents of “OTHER NATIONS”, who just happen to have been born in the United States.

Tax Reform 2017
The United States is “making noises” about “tax reform”. Senator Orrin Hatch requested submissions from “steak stake holders” on what should be included in tax reform. He has clearly received (as did the Ways and Means Committee in 2013 and the Senate Finance Committee in 2015) many suggestions advocating the repeal of “citizenship-based taxation”.
As noted at a site compiling the submissions of those affected by U.S. extra-territorial taxation:
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Whether through regulation or legislation #FATCA Same Country Exemption won't work

In the beginning there was Facebook …


and from a second Facebook group:


 
Introduction: If you were to REPEAL FATCA
A previous post discussing the what exactly is meant by FATCA and the Mark Meadows “Repeal FATCA” bill, described:
FATCA is the collective effect of a number of specific amendments to the Internal Revenue Code which are designed to target both (1) Foreign Financial Institutions and (2) Those “U.S. Persons” who are their customers.
1. There are “Three Faces To FATCA” which include:
– Face 1: Legislation targeting Foreign Financial Institutions (Internal Revenue Code Chapter 4)
– Face 2: The FATCA IGAs (which for practical purposes have replaced Chapter 4)
– Face 3: Legislation targeting individuals (primarily Americans abroad who commit “Personal Finance Abroad – While Living Abroad” – Internal Revenue Code 6038D which mandates Form 8938)
2. The amendments to the Internal Revenue Code that would be necessary to reverse the sections of the Internal Revenue that created FATCA.
Legislative FATCA vs. Regulatory FATCA
The sections of the Internal Revenue Code that comprise “FATCA” are surprisingly few.
FATCA Face 1: Internal Revenue Code S. 1474(f) gives Treasury broad authority to make “FATCA regulations”.
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Even in “retirement” Jackie Bugnion writes the best arguments against citizenship taxation ever


This article originally appeared on the Alliance For The Defence Of Canadian Sovereignty blog.
Introducing Jackie Bugnion …


Jackie Bugnion has published a superb article describing the problems of U.S. citizenship taxation and why the United States must move to residence based taxation. Before, describing her article, for those who don’t know …
On May 7, 2015 I received notification that Jackie Bugnion had submitted her resignation to the Board of ACA “American Citizens Abroad“. I read the notification with a combination of sadness and total appreciation for the incredible efforts that Jackie has made in advocating for the rights of Americans Abroad. Jackie was largely responsible for organizing the “Citizenship Taxation Conference” (featuring the debate between Michael Kirsch and Bernard Schneider) that took place in Toronto on May 2, 2014. Some of you may have had the privilege of meeting her there. It’s unlikely that she could be replaced by any one individual.
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Excellent @JackieBugnion and Roland Crim article on Boris Johnson @MayorOfLondon and plight of #Americansabroad

Just received this article in written by Jackie Bugnion and Roland Crim pdf format. Jackie was in Toronto on May 2, 2014 for the ACA Conference on the Taxation of Americans Abroad. (The conference was a great success leading to many things including David Kuenzi’s New York Time’s Op-Ed explaining that the application of the FATCA rules to Americans abroad is absurd. You will find a report on the Conference here.)

Charles Cullen, Bernard Schneider, David Kuenzi, Jim Yager, Jackie Bugnion (left to right)

Charles Cullen, Bernard Schneider, David Kuenzi, Jim Yager, Jackie Bugnion (left to right)

This newest article is an exceptionally clear statement of the problems facing Americans who choose to live outside the United States. The problem is that by moving form the United States and by being subject to the U.S. tax system that are:

1. At an extreme disadvantage when it comes to retirement planning; and

2. When it comes to U.S. taxation abroad – getting the worst of both worlds.

Here is the article:

Bugnion-Crim

John Richardson – Follow me on Twitter @Expatriationlaw

“Changes in the US Tax Laws: How they impact US Citizens in the UK” @ACAVoice Event


 
The following event organized by ACA may be of interest to a “world-wide” audience. It is modestly priced and available by webinar.

“Changes in the US Tax Laws: How they impact US Citizens in the UK”
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