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Welcome to Citizenship Solutions (and Green rd solutions) – John Richardson

Welcome to Citizenship Solutions – The blog of John Richardson


I am guessing (actually I know for sure) that you arrived here beuse of some aspect of being a U.S. citizen living outside the United States. Maybe you are a Green rd holder. Perhaps you are a former U.S. resident who has just learned that you may still be subject to U.S. “worldwide taxation” even though are a “tax resident” outside the USA. I also know how you are feeling.

“U.S. citizens” and “Green rd holders” are referred to as “U.S. Persons”. So, if you are a “U.S. Person Abroad”, well, life is pretty tough. in fact living as a “U.S. Person” outside the United States is: hard, expensive, confusing and (quite frankly) unsustainable.

Some of you are NOT in compliance with the intrite and (almost) impossible to understand web of tax and reporting requirements. Non-compliance has its share of problems.
Some of you ARE in compliance (as far as you know) with the intrite (and almost) impossible to understand web of tax and reporting requirements. Compliance also has its share of problems (stress, expense, anxiety).

Whether you are in compliance or not in compliance, you have problems. This is beuse:
U.S. citizenship is the one citizenship in the world that affects virtually every aspect of your life. in addition to the information on this blog, I help people with the following kinds of specific problems/questions (which include):

1. Are you a U.S. citizen at all? Have you relinquished U.S. citizenship along the way? If you have relinquished U.S. citizenship, are you a “U.S. Person” for FAT and tax filing purposes?

2. Have you just received a “FAT Letter” addressed to you as an INDIVIDUAL or to you as an ENTITY (corporation, trust, etc.)? How to respond. What’s a W9? What’s a W-8BEN-E anyway?

3. What about that old Green rd sitting in your drawer? You may still be subject to U.S. taxation, even when you don’t live in the USA! What are the tax obligations of Green rd holders? What to do? ….

4. Renouncing U.S. citizenship – What’s the “right way”? What’s the “wrong way”? The better question is “what’s the safest way”? What about that “back dated” relinquishment?

5. Green rd expatriation – How to exit the tax system and the U.S. immigration system.

6.? Oh My God!! The moment many of you will never forget. Yes it’s a problem. No it’s not as much of a problem as you think. Make certain that you respond and not react. If all you want to do is file U.S. taxes

7.? U.S. S. 877A “Exit Tax” consulting. If you think you n leave the “Land Of The Free” for free, you better think again. A bit about the the United States expatriation taxes. Those of you with a? non-U.S. pension and want to renounce U.S. citizenship should take specific note!

8. Retirement and financial planning (including pensions) as a “U.S. Person” abroad – You will be surprised at the problems you will have living as a U.S. tax compliant Amerin abroad. Think (or maybe you shouldn’t) “PFIC“.

9. Coming into U.S. tax complianceWhat are the various options? ?Why one option over another? What about “Streamlined” compliance? 99% of you should NEVER use “OVDP”!!

10. Non-U.S. AKA “Foreign Corporations” – Yes, these n be a BIG problem. ution: The U.S. CFC tax rules may attribute income to YOU that you never received!

11. Getting a divorce? Are you a U.S. citizen married to a non-citizen? – Your U.S. citizenship will play a role.

Respond, don’t react! – Do NOT make any decisions without understanding the present and FUTURE consequences of those decisions.

So, how do I know this?

First, I am a person (Toronto based lawyer actually) who was born in the United States and has lived almost all of my life outside the United States. In other words, I have lived and do live these problems.
Second, I have spent the last few years of my life assisting “U.S. Persons abroad” survive the unjust imposition of FAT, FBAR and “CBT” (AKA U.S. “place of birth taxation”) on Amerins abroad. I work with many groups of people including: “accidental Amerins“, long term dual citizens who wish to retain U.S. citizenship, long term dual citizens who feel they must renounce U.S. citizenship, Green rd holders (whether they live in the United States or not) and those who have ONLY U.S. citizenship. It’s what I do.

Third, I have been (and continue to be) actively involved in efforts to oppose FAT in the courts and in the process of making submissions to the U.S. Treasury. If you want to learn about the Alliance For The Defense of nadian Sovereignty lawsuit against the Government of nada, see here.

I work with people all around the world! I have given “live presentations” about the “Problems of U.S. citizenship” all over nada and Europe. I have given a number of “media interviews” about FAT and the problems of U.S. citizenship. I have testified as a witness before the nadian House of Commons Standing Committee on Finance (May 2014). I have written hundreds of articles and blog posts about FAT, FBAR and U.S. taxation-based citizenship. I have and continue to teach courses both for Amerins abroad and for professionals who counsel U.S. citizens abroad.
Anyway, the blog is free. The counselling and assistance require individual consultations. Contact me if you want me to help you solve these problems as they apply to YOUR SITUATION.

John Richardson

P.S. Here is the one of the very first posts that I wrote on for this blog. Some posts are “timeless”. “What you need to consider BEFORE consulting a lawyer or tax professional“.

 

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"Coming Into Tax Compliance Book" – How Amerins n come into U.S. tax compliance in a FAT world

Are you “Coming To Ameri” by entering the U.S. tax system as an Amerin Abroad?
The “How To Come Into U.S. Tax Compliance” book for Amerins abroad
John Richardson, LL.B, J.D.


I have contributed to establishing the new “Citizenship Taxation” site. As part of launching that site, I have written a series of posts providing relevant information (in a broad sense) about how Amerins abroad, who did not know about their U.S. tax obligations, n come into U.S. tax compliance.
Sooner or later, it’s likely that many people will receive a FAT letter. In your panic, you should be reful. There are a number of things Amerins abroad should consider before consulting a lawyer or tax professional.
This series of posts developed from my “Edutional Outreach” program for Amerins abroad. It is an effort to respond in a practil way to the questions that people have.
The chapters of “Coming Into Compliance Book” are:
Chapter 1 – “Accepting Cleanliness – Understanding U.S. Citizenship Taxation – To remain a U.S. citizen or to renounce U.S. citizenship
Chapter 2 – “But wait, I n’t renounce U.S. citizenship if I’m not a U.S. citizen. How do I know if I am a U.S. citizen?”
Chapter 3 – “No matter what, I must come into U.S. tax compliance – Coming into U.S. tax compliance for those who have NOT been filing U.S. taxes
Chapter4 – “Oh no, I have attempted U.S. tax compliance by filing tax returns. I have just learned that I have made mistakes. How do I fix those mistakes?”
Chapter 5 – “I don’t want to renounce U.S. citizenship. How to live outside the United States as a U.S. tax compliant person
Chapter 6 – “I do want to renounce U.S. citizenship. This is too much for me. How the U.S. “Exit Tax” rules might apply to me if I renounce
Chapter 7 – “I really wish I could do retirement planning like a “normal” person. But, I’m an Amerin abroad. I hear I n’t invest in mutual funds in my country of residence. The problem of Amerins Abroad and non-U.S. mutual funds explained.
Chapter 8 – “We all have to live somewhere. Five issues – “The problem of Amerins Abroad and non-U.S. real estate explained
Chapter 9 – “Receiving U.S. Social Security – #Amerinsabroad and?entitlement to Social Security
Chapter 10 – “Paying into Social Security – #Amerinsabroad, double taxation and the payment of “Self-employment” taxes
Chapter 11 – “Saving the children – INA S. 301 – “Residence” vs. “Physil Presence” and transmission of US citizenship abroad
Chapter 12 – “Issues surrounding 401k, IRAs, Roths and Amerins Abroad
Chapter 13 – “Married filing separately” and the “Alien Spouse” – the “hidden tax” on #Amerinsabroad
Chapter 14 – “The Obamare “Net Investment Income Tax” – Pure double taxation of #Amerinsabroad
Chapter 15 – “To be “FORMWarned is to be “FORMArmed” – It’s “FORM Crime” stupid!!
Chapter 16 – “Most “Form Crime” penalties n be abated if there is “reasonable use”
Chapter 17 – “How to get “credit” for taxes (foreign) paid to your country of residence
Chapter 18 – “I don’t pay taxes in the country where I live. n I “exclude” my foreign income from the U.S. tax return?
Chapter 19 – “Is it better to take the “Foreign Tax Credit” or the “Foreign Earned Income Exclusion” – a discussion

Chapter 20
– “The child tax credit: take it, leave it or how to take it
Chapter 21 – “How #Amerinsabroad n continue to use the #IRA as a retirement planning vehicle
Chapter 22 – “To share or not to share” – Should a U.S. citizen share a bank account with a “non-citizen AKA alien spouse? – Reporting Edition
The “Coming Into Compliance Book” is designed to provide an overview of how to bring some sanity to your life.
?Coming to Ameri
You may remember the old Eddie Murphy movie about “Coming To Ameri”.


Welcome to the confusing and high stakes rules for U.S. taxation and Amerins abroad.
The United States has the most complex, confusing, most penalty ridden and most difficult anti-deferral regime in the world. McGill Professor Allison Christians has noted that Amerins abroad are both:

“deemed to be permanently resident in the United States for tax compliance and financial reporting purposes” …
and are
“subject to the most complex aspects of the U.S. tax code regardless of any activity in the United States, and facing extraordinary compliance costs and disclosure risks even for nil returns”

Although Amerins abroad are deemed to be resident in the United States, their assets are treated as “offshore”. In addition Amerins abroad are subject to taxation in their country of residence.
All of this means that:
1. Amerins abroad are subject to the worst and most punitive aspects of the U.S. tax system (there is no Homelander who is treated as badly as an Amerin abroad); and
2. Denied most benefits of the tax systems of their country of residence.
To put it simply, Amerins abroad get the worst of all possible tax systems.
The most horrific aspects of the U.S. tax system are saved for Amerins abroad. Prepare to be shocked. As one commenter at the Isaac Brock Society site recently said:


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Renouncing US citizenship? How the S. 877A "Exit Tax" may apply to your nadian assets – 25 Parts


Introduction:
usexittax
There is much discussion of the U.S. rules which operate to impose taxation on the residents of other countries and income earned in those other countries. You will hear references to “citizenship taxation”, “FAT nada“, PFIC, etc. It is becoming more common for people to wish to relinquish their U.S. citizenship. The most common form of “relinquishment is renunciation”. The U.S. tax rules, found in the Internal Revenue Code, impose taxes on everything. There is even a tax on “renouncing U.S. citizenship”. I don’t mean the $2350 USD administrative fee which everybody has to pay. (Isn’t that really a tax?). I mean a tax on your assets. To be clear:
You must pay a price to NOT be a U.S. citizen.
This tax is found in S. 877A of the U.S. Internal Revenue Code.
It’s defined as the:
Tax responsibilities of expatriation
Few people are aware of this tax. Fewer still understand how it works.? As FAT operates to enforce U.S. taxation on many nadian citizens, and increasing numbers wish to NOT be U.S. citizens, the importance of understanding the U.S. “Exit Tax” increases.
It is particularly important to understand what triggers the “Exit Tax”. You will be subject to the “Exit Tax” if you are a “covered expatriate”. You must know what that means and why, sooner or later, everybody will become a “covered expatriate”.
The “Exit Tax” is not a simple “token tax”. For nadians, the tax n be a signifint percentage of their net worth. Furthermore, the tax is payable NOT on actual gains, but on “pretend gains”. (Where would the money come from to pay the tax?)
Hang on to your seats. You will shocked, amazed and horrified by this.
Since the advent of FAT in nada, this issue is increasingly important.*
To be forewarned is to be forearmed!
This is a 22 part series which is designed to provide you? with some basic edution on:
How the U.S. S. 877A Exit Tax rules work; and
How they particularly affect nadians with a U.S. birthplace, who lived most of their lives in nada.
This will be covered over a 9 day period in a “9 part” series. (It has since been expanded to 16 posts and counting.)
Although this series is beginning on “April Fools Day”, I assure that this is NOT a joke.
The 16 parts are:
Part 1 – April 1, 2015 – “Facts are stubborn things” – The results of the “Exit Tax
Part 2 – April 2, 2015 – “How could this possibly happen? “Exit Taxes” in a system of residence based taxation vs. Exit Taxes in a system of “citizenship (place of birth) taxation
Part 3 – April 3, 2015 – “The “Exit Tax” affects “covered expatriates” – what is a “covered expatriate“?”
Part 4 – April 4, 2015 – “You are a “covered expatriate” How is the “Exit Tax”? actually lculated
Part 5 – April 5, 2015 – “The “Exit Tax” in action – Five actual scenarios with 5 actual completed U.S. tax returns
Part 6 – April 6, 2015 – “Surely, expatriation is NOT worse than death! The two million asset test should be raised to the Estate Tax limitation – approximately five million dollars – It’s Time
Part 7 – April 7, 2015 – “Why 2015 is a good year for many Amerins abroad to relinquish U.S. citizenship – It’s the exchange rate
Part 8 – April 8, 2015 – “The U.S. “Exit Tax vs. nada’s Departure Tax – Understanding the difference between citizenship taxation and residence taxation
Part 9 – April 9, 2015 – “For #Amerinsabroad: US “citizenship taxation” is “death by a thousand cuts, but the S. 877A Exit Tax is “death by the guillotine”
Part 10 – April 10, 2015 – “The S. 877A Exit Tax and possible relief under the nada U.S. Tax Treaty
Part 11 – April 11, 2015 – “S. 2801 of the Internal Revenue Code is NOT a S. 877A “Exit Tax”, but a punishment for the “sins of the father (relinquishment)
Part 12 – April 12, 2015 – “The two kinds of U.S. citizenship: Citizenship for “immigration and nationality” and citizenship for? “taxation” – Are we taxed beuse we are citizens or are we citizens beuse we are taxed?”
Part 13 – April 13, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?
Part 14 – April 14, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?
Part 15 – May 22, 2015 – “Interview with GordonTLong.com – “Citizenship taxation”, the S. 877A Exit Tax, PFICs and Amerins abroad
Attention: Parts 16 – 21 focus on the “dual citizen exemption in the context of nada’s Citizenship laws.
Part 16 – February 16, 2016 – “Why the S. 877A(g)(1)(B) “dual citizen exemption” encourages dual citizens from birth to remain US citizens and others (except @SenTedCruz) to renounce” – Note that this module is composed of Parts 16 – 21 – six posts.
Part 17 – February 16, 2016 – The history of nada’s citizenship laws: Did the 1947 nada Citizenship Act affirm citizenship or “strip” citizenship and create @Lostnadians?
Part 18 – February 16, 2016 -The S. 877A “dual citizen” exemption – I was born before the first ever nada Citizenship Act? Could I have been “born a nadian citizen”?
Part 19 – February 16, 2016 – The S. 877A “Dual Citizen” exemption: The 1947 nada Citizenship Act – Am I still a nadian or did I lose nadian citizenship? (The “Sins Of The Father”)
Part 20 – February 16, 2016 -The S. 877A “Dual Citizen” exemption: The 1947 nada Citizenship Act and the requirements to be “born nadian
Part 21 – February 16, 2016 – “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of nada?
Part 22 – February 29, 2016 – “The S. 877A “Dual Citizen” exemption: MUST certify tax compliance for the five years prior to relinquishment
More on the United States Expatriation Tax – ongoing miscellaneous:
Part 23 – “How the 1966 desire to “poach” pital from other nations led to the 2008 S. 877A Exit Tax
Part 24 – “Clinton Treasury representative Les Samuels explains why the U.S. Exit Tax SHOULD apply to the assets of Amerins abroad
Part 25 – “Relinquishing US citizenship: South Afrin Apartheid, the Accidental Taxpayer and the exit tax
 
________________________________________________________________________________________
* Why this is of increased importance: The role of FAT and U.S. taxation in nada
A picture/video tells a thousand words. Have a look at the “Rick Mercer FAT video” in the following tweet:


FAT is U.S. law which is designed to identify financial assets and people, outside the United States, that the U.S. believes are subject to its tax laws. (It makes no difference whether the person is a nadian citizen”.) This includes people who were:
– born in the U.S.
– Green rd holders
– people born to U.S. parents in nada
– “snow birds” who spend too much time in the United States
The Government of nada is assisting the United State to implement FAT in nada. To be specific:
– on February 5, 2014 the Government of nada formally agreed to change nadian law to identify “U.S. connected” nadians in nada
– in May of 2014, the Government of nada passed Bill C 31 which contained the implementing legislation
– on July 1, 2014 FAT beme the law in nada
– since July 1, 2014 many nadians have received a “FAT Letter” (n the U.S. claim you as a taxpayer?)
The Alliance For The Defence Of nadian Sovereignty has sued the Government of nada in Federal Court on the basis that the participation of the nadian Government in FAT, is in violation of the Charter Rights of nadians. You n keep up with their progress on the Alliance blog” which is here.
FAT is a tool to enforce “U.S. taxation in nada”. The result is that more and more nadian citizen/residents? will be forced to pay U.S. taxes. But, U.S. tax rules include much more than tax. They are source of comprehensive information gathering and “information returns”. Typil returns required by U.S. taxpayers in nada include: FBAR, FAT Form 8938, Form 5471, Form 3520, Form 3520A and many more.
In addition, U.S. tax rules are different from nadian tax rules. The most painful example is that when:
– nada allows a “tax free” pital gain on your principal residence
– the U.S. imposes a 23.8% tax on the sale of your principal residence (you get a $250,000 deduction)
Sound horrible?
It is, but:
It’s only nadian citizens with a past “U.S. connection” who will be subject to these taxes. It is estimated that approximately one million nadians may be subject (as “U.S. Subjects”) to these rules. But, nadians with a “U.S. connection” are members of families. Therefore, U.S. taxation in nada will impact all members of a nadian family which has at least one “U.S. connected” member.
 
John Richardson
 

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What you should consider before contacting a lawyer

decision

The Reality of U.S. Citizenship Abroad
Nobody denied that the unintended targets of Congressional legislation aimed at those who supposedly “owe allegiance” to the USA, now assisted by craven foreign governments anxious lest their financial services entities lose access to the US market, are mostly unlikely to do anything at all. But the whole idea of universal self-assessment of taxation is to keep the taxpayer in an anxious condition, to make him overpay if possible, but at least not to underpay. Those now faced with an unprecedented, even retroactive, enforcement mpaign and who must, if they wish to become compliant and avoid penalty or even prosecution (should they be identified in the future), sacrifice much of their wealth, even become insolvent.
Comment at the Isaac Brock Society blog – July 29, 2013


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Recent economic upheaval creates expatriation opportunities for “US Persons” living abroad

This post was motivated by a thread on Reddit …

At the end of this post, I have included the Reddit thread. (Note that I am trying to develop a “RenounceUSCitizenship” thread on Reddit – you will find it here.)

As you know the US Section 877A Expatriation Tax applies to U.S. citizens and “Long Term Residents”. A “Long Term Resident” is an individual who has had a Green rd (as defined by the rules in Internal Revenue Code Section 7701(b)(6) for at least eight of the fifteen years prior to expatriation). This has become a serious problem for Green rd holders who simply move from the United States and and don’t take formal steps to sever their U.S. tax residency. (They must either file the I-407 or use a tax treaty tie breaker election to expatriate. Otherwise they may be in a situation where they have no right to live in the United States (having lost the immigration status) but are taxable on their worldwide income (still being tax citizens).

That said, whether you are a U.S. citizen wishing to renounce U.S. citizenship or a Long Term Resident wishing to sever U.S. tax residency, you do NOT want to be a “covered expatriate“. Generally, (unless one is subject to two exceptions – dual citizen from birth or expatriation between 18 and 181/2 – that are beyond the scope of this post), one is treated as a “covered expatriate” if one meets any one of these three tests:

1. Net worth of 2 million USD or more (which this post will focus on)

2. Average U.S. tax liability of more than approximately $165,000 USD over the five years prior to expatriation

3. Failure to certify U.S. tax compliance for the five years prior to expatriation.

The COVID-19 Panic – Falling asset values – more favourable exchange rates -2 million USD net worth test

The last couple of weeks have changed and continue to change our world. We are experiencing human misery on an unprecedented and global sle. This includes physil illness, fear of illness and social distancing. I live in a large city and I am beginning to see less variety in the food available. Self-employed people are seeing disruptions to their revenue streams, etc. I don’t want to keep listing examples. But it is very bad. On the economic front, we are seeing unprecedented and inlculable damage to the world economy. This includes (but is not limited to) falling asset values – how is your stock portfolio doing? We see currencies that are weakening relative to the U.S. dollar. (This means that a higher nadian or Australian dollar net worth would equal 2 million USD.) As I write this post I just received a message, from someone advising me that the shares in a certain cruise ship stock, have fallen from $136 to $22. (My advice would be: Don’t spend money on the cruise. Instead buy the shares in the company.)

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Seriously now, who’s GILTI? Senators Wyden and Brown attempt to reinforce the punishment of GILTI Amerins abroad

Prologue

Amerins abroad who are individual shareholders of small business corporations in their country of residence have been very negatively impacted by the Section 951A GILTI and Section 965 TCJA amendments. In June of 2019, by regulation, Treasury interpreted the 951A GILTI rules to NOT apply to active business income when the effective foreign corporate tax rate was at a rate of 18.9% or higher. Treasury’s interpretation was reasonable, consistent with the history of Subpart F and consistent with the purpose of the GILTI rules.

Now, Senators Wyden and Brown are attempting to reverse Treasury’s regulation through legislation. This is a direct attack on Amerins abroad. Senators Wyden and Brown are living proof of the principle that:

When it comes to Amerins abroad:

It’s not that Congress doesn’t re. It’s that they don’t re that they don’t re!

Introduction

As many readers will know the 2017 US Tax Reform, referred to as the Tax Cuts and Jobs Act (TCJA), contained provisions which have made it difficult for Amerins abroad to run small businesses outside the United States. In the common law world a corporation is treated as a separate legal entity for tax purposes. In other words the corporation and the shareholders are separate for tax purposes, file separate tax returns and pay tax on different streams of income. The 2017 TCJA contained two provisions that basilly ended the separation of the company and the individual for U.S. tax purposes. In other words: there is now a presumption (at least how the Internal Revenue Code applies to small business owners) that active business income earned by the corporation will be deemed to have been earned by the individual “U.S. Shareholders”. To put it another way: individual shareholders are now presumptively taxed on income earned by the corporation, whether the income is paid out to the shareholders or not! The effect of this on individual Amerins abroad has been discussed by Dr. Karen Alpert in her article: “llous Neglect: The impact of United States tax reform on nonresident citizens“.

The expansion of the Subpart F Regime

The Subpart F rules were established in 1962. The principle behind them was that individual Amerins should be prevented from, using foreign corporations to earn passive income, in jurisdictions with low tax regimes (or tax regimes that have lower taxes than those imposed by the United States). The Subpart F rules have (since 1986) included a provision to the effect that investment income (earned inside a foreign corporation) which was subject to foreign taxation at a rate of 90% or more of the U.S. corporate rate, would NOT be subject to taxation in the hands of the individual shareholder.

To put it another way (with respect to investment income):

1. It was mostly investment/passive income that was subject to inclusion in the incomes of individual shareholders as Subpart F income; and

2. Passive income that was subject to foreign taxation at a rate of 90% or more of the U.S. corporate tax rate (now 21%) would NOT be considered to be Subpart F income (and therefore not subject to inclusion in the hands of individual shareholders).

To coordinate my background discussion with the Arnold Porter submission described below, I will refer to exclusion of investment income subject to a 90% tax rate as “HTKO” (High Tax Kick Out).

The basic principle was (and continues to be):

If passive income earned in a foreign corporation is taxed at a rate of 90% or more of the U.S. corporate tax rate, that there was no attribution of that corporate income to the individual U.S. shareholder.

In its most simple terms, the Subpart F rules are found in Sections 951 – 965 of the Internal Revenue Code. They are designed to attribute income earned by the corporation directly to the U.S. shareholder, without regard to whether the corporate profits were paid to the shareholders as a dividend. Note that many developed countries have similar rules. Many developing (from a tax perspective) countries (for example Russia) are adopting Subpart F type rules. The U.S. rules are more complited, more robust and (beuse of citizenship taxation) apply to the lolly owned companies of individuals, who do not live in the United States.

Punishing them for their past and destroying their futures – The expansion of the Subpart F Regime to active business income

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Treasury exempts applible “tax-favored foreign trusts” from the Form 3520 (and therefore Form 3520A) requirement

Introduction – A small step for forms, one giant leap for “formkind”

It’s true. Many Amerins abroad may no longer be required to file Form 3520 and Form 3520A to report their lives abroad! Early inditions appear that many Amerins will (assuming their retirement vehicle does qualify as a trust) not be required to report on Form 3520. This new initiative from Treasury a positive step in the right direction.

I have long thought that Treasury could solve many of the problems experienced by Amerins abroad. Here is a wonderful example of Treasury taking the initiative to clarify the obvious:

Amerins abroad do NOT use non-U.S. pension plans and non-U.S. tax-advantaged investing accounts to evade U.S. taxes. Hence, there is NO reason for the Form 3520 reporting requirement. This is an example of the tax compliance industry sitting down with Treasury, explaining a problem and getting a resolution. I suggest (and hope) that the same n be done for PFIC (Form 8621), Small Business Corporations (Form 5471) and other penalty-laden forms.

Yes, this announcement from Treasury in the form of RP 20-17 is a great achievement. Although it certainly doesn’t solve all the problems, it’s:

A small step for forms, one giant leap for “formkind”

The background to this problem – It starts in 1996 (same year as the beginning of the Exit Tax)…

Since 1996 Internal Revenue Code 6048 has required extensive reporting of almost any interaction with a foreign trust. Treasury has required that the reporting take place on Forms 3520 and 3520A. The forms are complex and subject to the draconian penalty regime described in Internal Revenue Code Section 6677. In order for an entity to be a foreign trust, it must be a trust. A “trust” for IRS purposes is defined by the Treasury Regulations as:

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The U.S. citizenship news of the week: While seeking to strip some naturalized Amerins of their citizenship, the USA makes it harder for those with @dualcitizenship in nada to renounce

We live in an era of the weaponization of citizenship. This has been quite a week on the U.S. citizenship front.

While, making it more difficult for certain citizens to renounce U.S. citizenship

The U.S. Government is taking specific initiatives to strip naturalized U.S. citizens of their U.S. citizenship

Is this constitutional? Interesting commentary from the Twittersphere …

Exercising broad regulatory authority, US Treasury has clarified the meaning of “resident” for #FBAR Purposes

Introduction – Looking For Mr. FBAR

What’s new?

I haven’t written a post about Mr. FBAR for quite some time. But, a post about the recent Boyd se at Tax Connections, by Darlene Hart got me thinking about FBAR again. For those interested – where the IRS successfully argued that it was appropriate to impose penalties on each individual account – here is the se:

HBe

And for a hint at the commentary:

Those who know little about Mr. FBAR might find this introduction to FBAR – although written in 2012 – helpful. Incidentally, it’s pretty obvious that Russia’s Foreign Bank account reporting laws were based on an admiration of Treasury’s success with the FBAR rules.

The purpose of this post

The purpose of this post is to explain:

1. The Congressional FBAR statute – Title 31 Section 5314 – which delegates to Treasury the responsibility of determining ALL aspects of FBAR administration including:

– who is subject to FBAR reporting

– the financial thresholds that trigger reporting

2. It is NOT the Congressional FBAR statute that defines the absurdly low $10,000 threshold for reporting. Rather it is Treasury. Although FBAR penalties are now indexed to inflation, the FBAR reporting threshold remains at $10,000. To put it simply: through inflation, Treasury has found a way to increase both the number of FBAR violations and the penalties associated with those violations. (There is a reason it’s lled “The FBAR Fundraiser”).

3. It is not Congress that imposes the FBAR requirement on Amerins abroad. It is Treasury. In fact, Treasury has recognized that they it has the right to exempt Amerins abroad from the FBAR requirements, but has refused to do so. To be specific, Treasury’s 20111 statement found on page 10327 (middle column) was without explanation:

With respect to the comments raised by United States persons living abroad, FinCEN does not believe that an exemption is appropriate simply beuse a United States person chooses to live outside of the United States.

Treasury offered no reason for this decision.

Commentary on this decision at the Isaac Brock Society may be read here.

4. Treasury has by regulation “tinkered” with the meaning of “resident” over the years. I note that in 2012 (as explained by Phil Hodgen and others) the meaning of “resident” was not defined by statute. Rather, it is through Treasury regulations, that the word “resident” is given meaning. By 2017 Treasury had adopted the statutory meaning of resident used in the Internal Revenue Code (Section 7701(b)). (By expanding the definition of “United States” to include possessions and territories, it appears that Treasury has expanded the penalty base to include U.S. “Nationals”.) The FBAR statute is found in Title 31. The Internal Revenue Code is Title 26. There is neither a requirement nor a reason why Treasury should have used the definition of “resident” in Title 26 as the the meaning of “resident” in Section 5314 of Title 31. There are many different ways of defining “resident”. For example, for U.S. Estate and Gift Tax purposes, “residency” is defined in terms of domicile …

My point is this

Individuals and groups attempting to achieve justice for Amerins abroad, Accidental Amerins, Green rd Holders and all “U.S. Persons” would be advised to focus their efforts on U.S. Treasury. Yes, the lobbying of Congress should continue. But, meaningful change n be achieved without Congress even being aware of it. U.S. Treasury has the authority and ability to fix the FBAR related penalty and reporting injustices imposed on Amerins abroad. But, FBAR is just the beginning. Almost all of the problems of Amerins abroad n be fixed by Treasury.

This is the first of a series of posts in which I will explain how Treasury n solve almost all of the problems inflicted by the U.S. Government on Amerins abroad.

John Richardson – Follow me on Twitter @Expatriationlaw

Appendix – For those who want to better understand the technilities: Let me explain you …

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About #FAT and @Citizenshiptax: Here is the @DemsAbroad Interview with @AmyKlobuchar on January 22, 2020

Amy Klobuchar speaks to Democrats Abroad!

Join our global town hall with presidential ndidate Amy Klobuchar! We’ve invited every Democratic Presidential ndidate to join a ll with us to discuss the issues that matter most to Amerins abroad and give you the chance to get to know our ndidates.

Posted by Democrats Abroad on Wednesday, January 22, 2020

This is an interesting interview with an interesting ndidate. But, it is very clear that Senator Klocbuchar (1) believes in FAT and (2) has no interest in abolishing citizenship-based taxation. You n pick this up at the 27 minute mark.

It’s interesting that the two ndidates endorsed by the New York Times (Elizabeth Warren and Amy Klobuchar) are hostile (more so than most other Democrats) to the interests of Amerins abroad.

Here is an interesting Facebook discussion about this interview, which includes the following comment:

DA Q and Sen K A on RBT: DA: Most Amerins living abroad think that the time has come for residency based taxation, the principle guiding all other country’s tax systems and a fix for numerous unjust burdens on Amerins living and working abroad. Now there are bipartisan, revenue neutral proposals to implement our Beatie that include robust provisions to protect the laws from abuse by tax evaders. All we need is a moment of leadership to get this done. Will you be that leader?

Sen K: Well, I have not taken a position to change that at this time. I’m always open to looking at things. And if I could just step back on our taxes in general. There just has not been the opportunity to step back and look at our tax code to see what works for regular people. Beuse when you think about it, when President Obama was in, we did some things, but we were in a deep recession and it was hard to make the changes that need to be made. Then President [00:03:30.0] Trump comes at it and they pass his tax bill, which really. Oh, wait. It was weighted toward people at the top and has added over a trillion dollars in debt. And when you look at his time period, while he gloats about what things, what’s happening in our country, we’ve had a 30 percent over the last dede, even before him slow down in startups. We ll it the startup slump beuse of consolidations and other things. And we just don’t have a good tax enforcement, as I already mentioned. And then there’s just a bunch of things I think that we need to change. When it comes to our tax code, including closing some loopholes and doing something about the Buffett Rule and bringing in reversing some of the corporate tax cuts he made, I was in the group that wanted to bring the corporate tax rate down, but not to the level near the level that he brought it to. Every pointing went down was one hundred billion. And I would actually take a big chunk of that money and put it into infrastructure. Another chunk to start working on the deficit, which is brought to record levels. And I just think there’s much more we have to do to keep our economy strong for the long term.

The interview speaks for itself. It’s as though the Democrats think that the only purpose of life is to avoid taxes.

It’s pretty clear that a vote for the Democrats is a vote against Amerins Abroad. (I am not, by this statement, taking any position on the Republins.

About #FAT and @Citizenshiptax: Here is the @DemsAbroad Interview with @TulsiGabbard on January 15, 2020

Tulsi Gabbard speaks to Democrats Abroad!

Join our global town hall with presidential ndidate Tulsi Gabbard! We’ve invited every Democratic Presidential ndidate to join a ll with us to discuss the issues that matter most to Amerins abroad and give you the chance to get to know our ndidates.

Posted by Democrats Abroad on Wednesday, January 15, 2020

With respect to U.S. FAT and Citizenship-based taxation, her answers were:

1. FAT: She would direct Treasury to take the necessary steps to alleviate the problems that Amerins abroad experience with banking access.

2. Citizenship-based taxation: Bear in mind that the DA question always includes (1) a recognition that revenue neutrality is possible and (2) that any remedial legislation must be refully constructed to “prevent abuse” (whatever that means). Ms. Gabbard said:

– in principle she believes in a move to residence-based taxation

– it must be constructed in such a way that the wealthy don’t leave the USA to avoid U.S. taxation

– it MUST be revenue neutral

From Jackson-Vanik To The HEART Act – The Evolution Of Amerin Hypocrisy

Introduction

The above tweet references a 2012 post from the Isaac Brock Society pointing out the hypocrisy of “Jackson-Vanik” and the United States. “Jackson-Vanik” – enacted in 1974 – was a U.S. law which imposed sanctions on countries who imposed unreasonable restrictions (exit taxes) on the rights of their citizens to emigrate to new countries.

By 1996, the United States (led by the Clinton administration) was imposing Exit Taxes on certain Amerins who renounced U.S. citizenship. James Dale Davidson writing in “The Sovereign Individual” (1997) compared the justifition (or lack thereof) for U.S. Exit Taxes to the rationale for Exit Taxes imposed by the East Germany, as follows:

If you accept the premise that people are or ought to be assets of the state, Honeker’s wall made sense. Berlin without a wall was a loophole to the Communists, just as espe from U.S. tax jurisdiction was a loophole to Clinton’s IRS. Clinton’s argument about esping billionaires, aside from showing a politician’s usual disregard for the integrity of numbers, were similar in kind to Honeker’s, but somewhat less logil beuse the U.S. Government, in fact, does not have a large economic investment in wealthy citizens who might seek to flee. It is not a question of their having been eduted at state expense and wanting to slip away and practice law somewhere else. The overwhelming majority of those to whom the exit tax would apply have created their wealth by their own efforts and in spite of, not beuse of, the U.S. Government.

James Dale Davidson – The Sovereign Individual page 117. (This book contains some of the most prescient observations about citizenship-based taxation I have ever seen.)

(Enacted as a revenue offset to the HEART Act in 2008, the United States of Ameri now has the most brutal exit taxes imposed in the history of the world. In effect, it confistes non-U.S. assets, acquired by people who did not live in the United States. Beuse of the confistory intent of the U.S. Exit Tax Regime, the Internal Revenue Code includes numerous reporting requirements whenever an individual renounces U.S. citizenship. To learn about the inner workings of the Section 877A Exit Tax – see the series of posts here.)

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Part 34 – 2019: Treasury Fails To Prevent @MonteSilver1 lawsuit against @USTransitionTax From Proceeding – se To Be Heard On The Merits

What Happened

The judgment is here.

We win!!!!!

About The Transition Tax

As part of the 2017 TCJA, Congress imposed a retroactive tax, without any realization event, on the retained earnings of Controlled Foreign Corporations. Although intended to be the the “trade off” for lowering the Corporate Tax rate from 35% to 21%, it was interpreted to apply to the small business corporations owned by Amerins abroad. (The tax compliance industry aggressively promoted this damaging interpretation of the law.) In any event, this imposed signifint and life altering consequences on Amerins abroad (particularly in nada) for whom their small business corporations were really their pension plans. I documented the history, damage and madness of this in a series of posts about the transition tax. The law was interpreted (in various ways) and the regulations were drafted in an extremely punitive manner. What needs to be most understood is that a law intended for the Apples, Googles, etc. was interpreted to apply in the same way to individuals (your friends and neighbors) who owned small business corporations.

About The Regulatory Flexibility Act

Title 5 of the U.S. Code of Laws deals with how the U.S. Government works. Subtitle 5 is the Administrative Procedure Act. Subtitle 6 is the Regulatory Flexibility Act. At the risk of over-generalization, the purposes of the Regulatory Flexibility Act are to require the Government to consider the effect that certain rules/regulations have on small businesses and undertake specific procedural steps in relation to this consideration.

Learn About the Regulatory Flexibility Act

An excellent site providing edution about the Regulatory Flexibility Act is here. Although written in the context of the EPA, the description offers the following introduction to the Regulatory Flexibility Act:

The Regulatory Flexibility Act (RFA), 5 U.S.C. §§ 601 et seq, was signed into law on September 19, 1980. The RFA imposes both analytil and procedural requirements on EPA and on other federal agencies. The analytil requirements ll for EPA to refully consider the economic impacts rules will have on small entities. The procedural requirements are intended to ensure that small entities have a voice when EPA makes policy determinations in shaping its rules. These analytil and procedural requirements do not require EPA to reach any particular result regarding small entities.

The key is that Government is required by law to consider the economic effect of regulations on small business entities.

And here …

Monte Silver’s Lawsuit Against the Transition Tax – Treasury Did NOT Consider The Impact Of The Transition Tax Regulations on Small Business Entities (including those run by Amerins Abroad

The lawsuit was not (like other lawsuits) against the Transition Tax per se. Rather the lawsuit was about the the failure of U.S. Treasury to comply with the procedural requirements of the Regulatory Flexibility Act. Predictably, the Government argued that the lawsuit lacked standing. On December 24, 2019 a U.S. District Court Judge ruled that the plaintiff (Mr. Silver) did have standing. The reason was that his lawsuit was not against the transition tax itself. Rather the lawsuit was against U.S. Treasury using injury resulting from the failure of Treasury to comply with the requirements mandated in the Regulatory Flexibility Act.

Congratulation to Monte Silver for an incredibly important win. The success of his lawsuit opens the door to many similar lawsuits (GILTI anyone?) down the road.

Earlier posts

In November of 2018 I first wrote about Mr. Silver’s lawsuit.

That post included the following earlier interviews.

Speaking with Monte Silver …

Interview 1 – October 16, 2018

Interview 2 – November 15, 2018

John Richardson – Follow me on Twitter @Expatriationlaw

SECURE Act of 2019 Erodes Future pital Growth In Order To Pay For The Present Expenses

Introduction – The SECURE Act aims to: “Set Every Community Up for Retirement Enhancement”

The above tweet references an excellent article by Daniel Kurt, describing the pros and cons of IRA reform. Signifintly, the article includes:

One other key change in the new bill is paying for all this: the removal of a provision known as the stretch IRA, which has allowed non-spouses inheriting retirement accounts to stretch out disbursements over their lifetimes. The new rules will require a full payout from the inherited IRA within 10 years of the death of the original account holder, raising an estimated $15.7 billion in additional tax revenue. (This will apply only to heirs of account holders who die starting in 2020.)

Legislative/Socioeconomic Background

There is a “retirement crisis” in North Ameri. Neither nadians nor Amerins are saving enough for retirement. At the same both governments are operating with huge deficits. Individuals have failed to plan for financing their retirements. As a result, any and all honest attempts to improve the situation are welcome. That said, governments seem to reflexively attempt to solve problems by generally increasing taxes. In some ses, governments increase the rate of taxation on income. In other ses governments broaden the tax based by subjecting new things to taxation. There is however a worrisome trend toward governments simply imposing taxation on existing pital. Examples include: the Section 965 transition tax and Section 877A expatriation tax. In both ses these laws create “fake income” by deeming there to be a distribution where there was in actual fact, no distribution to be taxed. The SECURE Act continues the same principle by forcing certain inherited IRAs to be distributed within a ten year period. At a bare minimum, this reinforces the principle that individuals should not be able to easily transfer assets to the next generation and that existing pital pools are fair game for taxation.

Prior To The SECURE Act Certain Inherited IRAs Could Grow For The Life Of The Beneficiary

In an earlier post (with the help of Chris Stooksbury) I had described the tremendous growth and pital preserving opportunity in certain inherited ROTH IRAs.

No more!

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