June 2023 – The fight against the 965 Transition AKA Mandatory Repatriation Tax Continues
"The Little Red Transition Tax Book" – Everything you need to know about the 965bmandatory repatriation tax but didn't know to ask. A horrific abuse of #Americansabroad in a @citizenshiptax and #FATCA world! https://t.co/j7v1Asreek
— U.S. Transition Tax – Subpart F and #GILTI (@USTransitionTax) June 26, 2023
On June 26, 2023 the U.S. Supreme Court agreed to hear the Moore appeal to the constitutionality of the U.S. Transition Tax. For those who don’t know, the transition is found in S. 965 of the Internal Revenue Code and was part of the 2017 TCJA. It was intended (in part) to be a “trade off” pursuant to which:
1. U.S. corporations would have the corporate tax rate lowered from 35% to 21%.
2. The U.S. Claimed to adopt “territorial taxation” for its corporations. Generally this meant that profits earned outside the United States would not be taxed by the United States.
3. The U.S. adopted the 951A GILTI rules which exposed the lie of moving to territorial taxation (the profits earned outside the United States were taxed before being distributed. They were then not taxed a second time on distribution).
4. The U.S. adopted that 965 transition AKA mandatory repatriation tax which was a retroactive tax on the retained earnings of CFCs which had not been distributed and therefore not subjected to U.S. taxation.
In a nutshell:
The 965 transition tax was a one time retroactive tax (going back to profits accrued since 1986) on earnings that were not subject to taxation at the time that they were earned. This is incredible stuff!!
But, (as usual) little thought was given to the fact that some CFCs were owned by individuals. No thought was given to the fact that many Americans living outside the United States had small business corporations in their country of residence.
For U.S. citizens in Canada, their small business corporations (in many cases) were actually their private pension plans. To put it simply:
The 965 transition AKA mandatory repatriation tax confiscated the pension plans of many Americans abroad. Frankly this is/was one of the most egregious offences against Americans abroad ever perpetrated by Congress and the Treasury.
In 2018 I began writing a number of blog posts about various aspects of this issue. These are written mostly from the perspective of Americans abroad who are dual “tax residents” (of other countries and of the United States). I don’t think the Moore’s are tax residents of India.
I haven’t written about the transition tax for a long time. That said, the fact that the U.S. Supreme Court is going to hear the Moore Case has reminded me of this issue. This means that more posts will be written. Each post is really a chapter. The posts have been designated as chapters which collectively compose the “Little Red Transition Tax Book”.
Therefore, this post (which I will add to) is “The Little Red Transition Tax Book”.
The posts include: