Tag Archives: PFIC

The United States imposes a separate and more punitive tax system on US dual citizens who live in their country of second citizenship

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Prologue


Do you recognise yourself?
You are unable to properly plan for your retirement. Many of you with retirement assets are having them confiscated (at this very moment) courtesy of the Sec. 965 transition tax. You are subjected to reporting requirements that presume you are a criminal. Yet your only crime was having been born in America (something you didn’t even choose) and attempting to live as a U.S. tax compliant American outside the United States. Your comments to my recent article at Tax Connections reflect and register your conviction that you should not be subjected to the extra-territorial application of the Internal Revenue Code – when you don’t live in the United States.
The Internal Revenue Code: You can’t leave home without it!
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Considering renouncing US citizenship? Thinking #citizide? @Expatriationlaw moderates a "Retain or Renounce" conversation among a lawyer, a financial planner and an accountant

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As 2018 comes to a close, the “Retain or Renounce” discussion intensifies. American Citizens Abroad (ACA) writes that …


The @citizide twitter account frames the question as follows …

In an #FBAR and #FATCA world #Americansabroad ask: “To retain or renounce US citizenship, whether tis better to live free ..” – #citizide explore this question

The hashtag #citizide has been established in the twittersphere …
The “Retain or Renounce” question is discussed by a wide range or professional advisers …

To hear the snippets of the discussion continue on …
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As Sir John Templeton said: The best time to invest is when you have the money – The 7 Habits Of Highly Effective #Americansabroad

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The late Sir John Templeton pioneered the concept of “international” investing. Of course, by the standards of today, this would be considered “offshore investing”. He also pioneered the concept of “renouncing U.S. citizenship“. It is clear that Sir John’s renunciation of U.S. citizenship was the best investment decision he ever made. Like many Americans who are forced to renounce U.S. citizenship to create business opportunities, Sir John likely renounced to save his mutual fund business.
Sir John was fond of saying:
“The best time to invest is when you have money.”
Of course, that is a more difficult concept for Americans abroad. (The problem is particularly acute in Australia where it is believed that the Australian Superannuation may be subject to U.S. taxation.) Time after time, in country after country, I speak with people who avoid investing because they are Americans abroad. This is a great mistake.
It’s important for Americans abroad to heed the teaching of Sir John Templeton. They must (1) learn to invest when they have the money and (2) discipline themselves to acquire the money to invest!
One of my most consistently read posts is “The biggest cost of being a “dual Canada/U.S. tax filer” is the “lost opportunity” available to pure Canadians“.


I have been meaning to write a “follow up” post for a long time. Perhaps, the message was too simple. Perhaps it is only worth a tweet. Perhaps it’s dangerous to expand such a simple thought into multiple paragraphs, but here goes …
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Bye Bye Storify, Hello Wakelet – My "Stories" will live in this post and be moved to https://wakelet.com/@Expatriationlaw

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Today is May 15, 2018. Tomorrow Storify closes forever (unless it provides a last minute_ reprieve.
Therefore, I am creating this post to “store” copies of my 6 Storify Stories.
They are being saved here in pdf format. I have also moved them over to my Wakelet account where I will continue posts of this type.
‘Will you walk into my parlour?’ – #Americansabroad and IRS “amnesty” offers in the 2009 #OVDP
Australian Greens Senator @LarissaWaters resigns because of her CANADIAN place of birth. Too bad she was born in Canada
Can the common law “revenue rule” be used to stop the enforcement of U.S. “citizenship taxation” on non-U.S. residents?
My tax professional told me my “non-U.S. mutual fund is a #PFIC! What is a #PFIC and what do I do?
Tax, culture and how the USA uses #citizenshiptaxation to impose US culture (and penalties) on other countries
The “Pax Americana” to the “Tax Americana”: How the USA is imposing a separate, punitive tax regime on “nonresidents”

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

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This is the ninth 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.
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The worldwide trend of attacking the use of corporations as a way to reduce or defer taxation for individuals

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Introduction – The war against corporations and the shareholders of those corporations
Corporations as entities that are separate from their shareholder/owners
As every law students knows, a corporation is a legal entity that is separate from its owner. As a legal entity that is separate from its owner, a corporation is capable of holding assets, carrying on a business and investing in a way that results in separation of the shareholder(s) from the business itself. It is a mistake to infer that the corporation’s status as a separate legal entity means that the corporation’s income will not be taxed to its shareholders.
Corporations as legal instruments of tax deferral
When corporate tax rates are lower than individual tax rates, there is incentive for individuals to earn and invest through corporations rather than to earn and invest as individuals. In other words, in certain circumstances, corporations can be used to pay less taxes.
Corporations as instruments of tax evasion
In many jurisdictions is it possible to create a Corporation and NOT disclose the identities of the beneficial owners. Because of this circumstance:
1. Corporations (as was made clear in the “Panama Papers Story”) can be used to hide income and assets for either legitimate or illegitimate reasons; and
2. Corporations can be used to avoid the attribution of income earned by the corporation to the shareholders.
Corporations and the rise of @TaxHavenUSA
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The biggest cost of being a "dual Canada/U.S. tax filer" is the "lost opportunity" available to pure Canadians

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Update August 6, 2018:
I have written a sequel to this post – “7 Habits Of Highly Effective Americans Abroad” which you may find of interest:


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The reality of being a “DUAL” Canada U.S. tax filer is that you are a “DUEL” tax filer

“It’s not the taxes they take from you. It’s that the U.S. tax system leaves you with few opportunities for financial planning”.

I was recently asked “what exactly are the issues facing “Canada U.S. dual tax filers?” This is my attempt to condense this topic into a short answer. There are a number of “obvious issues facing U.S. citizens living in Canada.” There are a number of issues that are less obvious. Here goes …
There are (at least) five obvious issues facing “dual Canada U.S. tax filers in Canada”.
At the very least the issues include:
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Wisdom of "Three Monkeys" explains why: Although there is little support for "citizenship-based taxation" repeal is difficult

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The uniquely American practice of “imposing direct taxation on the citizen/residents of other nations” (“citizenship-based taxation”) has NO identifiable group of supporters (with the exception of a few academics who have never experienced it and do not understand it).
The Uniquely American practice of imposing direct taxation on the citizen/residents of other nations has large numbers of opponents (every person and/or entity affected by it). In addition to the submissions of Jackie Bugnion, “American Citizens Abroad“, “Democrats Abroad“, Bernard Schneider there is significant opposition found in the submissions of a large number of individuals. It is highly probable that the submissions come from those who are attempting compliance with the U.S. tax system.
The “imposition of direct taxation” on the “citizen/residents of other nations” evolved from “citizenship-based taxation”. “Citizenship-based taxation” was originally conceived as a “punishment” for those who attempted to leave the United States and avoid the Civil War. I repeat, it’s origins are rooted in PUNISHMENT and PENALTY and not as sound tax policy.
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Are "non-U.S. mutual funds" foreign corporations AKA #PFIC? Does your tax preparer know for sure?

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I have written many posts that include a discussion of PFICs. This post has been motivated by a post by Karen Alpert at “Fix The Tax Treaty” (well it can’t really be fixed). The post focuses on the use of “non-U.S. mutual funds” in retirement planning. The post is written from the perspective that “non-U.S. mutual funds” ARE PFICs.
If you don’t know what a PFIC is be happy, be happy! A bit of knowledge (especially if you know things that aren’t true) can be a dangerous thing. Although most “tax professionals” treat non-U.S. mutual funds as PFICs, there is little explanation or analysis of WHY or HOW a “non-U.S. mutual fund” is a PFIC. In other words, most “tax professionals” know that “non-U.S. mutual funds” are PFICs. But, they don’t do a good job of explaining why. This post is based on a series of comments on Karen’s post that are consolidated as tweets in this Storify post.

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Form 8621 and Form 5471 are required even if the tax return is NOT!

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The Internal Revenue Code of the United States requires two things:
1. The calculation of taxes; and
2. The reporting of information.
The Internal Revenue Code of the United States is based on three basic principles:
1. A dislike of all things “foreign”. (If you see the word “foreign” a penalty is sure to follow.)
2. A hatred of all forms of non-U.S. “tax deferral”
3. An attempt to stop the “leakage” of “U.S. taxable assets” from the U.S. tax base. (Examples include the U.S. tax treatment of the “alien spouse” and the U.S. S. 877A “Exit Tax” that may be payable when one makes the decision to renounce U.S. citizenship).
“Forms” AKA “information returns” are for the purpose of forcing disclosure of information relevant to  “foreignness”, “deferral” and “leakage”.


The above tweet references an earlier post describing many of the “forms” required of Americans abroad. The post also describes the significant penalties which can be potentially imposed for the failure to file those forms.
For Americans abroad the information reporting requirements are extensive, burdensome and penalty laden. Normally (but not in all cases) the “forms” are filed as part of the tax return (1040 or 1040NR).
NEVER FORGET MR. FBAR – THE NEW SYMBOL OF U.S. CITIZENSHIP – AND THE POTENTIAL FBAR PENALTIES FOR FAILURE TO FILE THE FBAR! THOSE WHO HAVE FAILED TO FILE MR. FBAR SHOULD BE CAUTIOUS ABOUT HOW THEY “FIX THE FBAR PROBLEM“.
(Interestingly, Mr. FBAR has been used as a model for Russia which now has (for lack of a better term) the Russian FBAR.)
Many people do NOT understand that they may be required to file “information returns”, even though they may NOT meet the income thresholds to file a tax return!
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