712 thoughts on “11/16/2017 UPDATE: HOUSE TAX REFORM BILL PASSES FLOOR VOTE; SENATE TAX BILL PASSES SENATE FINANCE COMMITTEE — Do not have final versions yet but strongly suspect that we are not helped in either bill”

1. “But treason is something not easy to analyze and simply for buying TShirts is not a valid excuse for treason unless you are buying arms from them and supplying to other world markets.”

   It’s not a T-shirt, it’s a business shirt. White. Armed. 88cm long arms.

2. “Even if US citizens are caught in arms smuggling they don’t take your citizenship away. Treason law was basically designed for Japanese Americans, German Americans and now Muslim Americans to take away their citizenship”

   Got it. JapanT, convert to Islam. You don’t have to buy my arms.

3. I was curious about this new (to me) term called “markup” so I went to wikipedia. It’s a bit clearer now.
   https://en.wikipedia.org/wiki/Markup_(legislation)

4. ‘But, in Canada there have been about 155,000 accounts identified and the “slips” sent on. Although it is early in the game there is no evidence of “follow through”.’

   Right, they’re waiting for ADCS to lose the lawsuit.

   But I’m not sure why. The IRS doesn’t have to obey US court orders, so who would expect it to obey a Canadian court order?

5. @Stephen Kish

   You refer to the “frightening prospect” of the 12% tax on the retained earnings of Canadian Controlled Corporations suggested by Max Reed as follows:
    

   Imposition of a 12% one-time tax on deferred profits. Under the new rules, the US corporate tax system is transitioning to a territorial model. As part of this transition, the new rules impose a one-time 12% tax on income that was deferred in a foreign corporation. Although perhaps unintentional, since US citizens will not benefit from a territorial model, the new rules impose a 12% tax on any cash that has been deferred since 1986. Take a simple example to illustrate the enormity of the problem. A US citizen doctor moved to Canada in 1987. She has been deferring income from personal tax in her medical corporation and investing it. Now, 12% of the total deferred income since 1986 would be subject to a one-time tax in the US. That may be a significant US tax bill…”

    
   @Eric in a later comment confirms that Mr. Reed’s analysis comes from a reference to Sec. 4004 (the transition tax).
    

   @Stephen Kish: Yes, he’s referring to Sec 4004 (the transition tax)

    
   Although this is unclear and generally difficult to read, I believe that the 12% transition tax (dealing with past retained earnings) does NOT apply to the retained earnings of Canadian Controlled Private Corporations which are owned by INDIVIDUAL shareholders.
    
   My reasoning follows …
    
   Sections 4001 – 4004 are part of Subtitle A in the proposed bill which appears to deal specifically with the “foreign source” dividends received from certain specific 10-percent owned foreign corporations”. The point is that it deals with domestic corporations that are shareholders of “foreign corporations”.

   If you analyze Sections 4001 – 4004, they appear to achieve their objective by amending two different Subchapters of the Internal Revenue Code.
    
   Amendments to Sec. 245 which is in the Subchapter of the Internal Revenue Code that describes the computation of taxable income
    
   Sec. 4001 is an amendment to the current Sec. 245 which deals very specifically with the deductions available to corporations in the computation of taxable income. Furthermore, by its plain terms Sec. 4001 describes domestic shareholders that are shareholders of foreign corporations. In general the section allows domestic corporations to deduct foreign dividends from the calculation of taxable income. This is the way the USA moves to “territorial taxation” for corporations ONLY.
    
   Amendments to the subpart F rules which are found in Subchapter N and used to attribute the income of controlled foreign corporations to U.S. shareholders (Sec. 956, Sec. 961 and Sec. 965)
    
   Sec. 4002 is an amendment to the current Sec. 956 which speaks only to the application (or non application) of the section to corporations. In other words, Sec. 4002 applies only to corporations.
    
   Sec. 4003 is an amendment to the current Sec. 961 which applies ONLY to corporate shareholders of foreign corporations.
    
   Sec. 4004 replaces Sec. 965 which is a section that deals specifically with “the case of a corporation which is a United States shareholder”. I agree that Sec. 4004 (if read outside the context of Subtitle A) could be interpreted to apply to individual shareholders. That said:
    
   1. Sec. 4004 replaces a section that deals specifically with corporations; and

   2. For Sec. 4004 to apply to individuals would make it the “odd man out” in Subtitle A (in the proposed bill) which is clearly descriptive of how corporations would transition to “territorial taxation”.
    
   For these reasons I don’t see how the 12% “transition tax” would apply to individual shareholders.
    
   But, Mr. Reed also describes a “prospective tax” (found in Sec. 4301) of the proposed bill on the U.S. citizen shareholders of Canadian Controlled Private Corporations as follows (which I think may be accurate):
    

   It imposes a new, very complicated, set of rules on US citizens that own the majority of a foreign corporation. The proposal would tax the US citizen owner personally on 50% of the entire income of the Canadian corporation that is above the amount set by an extremely complex formula. At best, this will make the compliance requirements for US citizens that own a business extremely complicated and expensive. At worst, this will cause double tax exposure for US citizens who own a Canadian business on 50% of the profits of that business.

    
   Renounce & Rejoice!

6. Thanks for that USCA. It made my eyes cross reading it but I kinda maybe got the gist of it. Waiting to hear Solomon Yue of Republican Overseas’ request to the House Ways and Means legal counsel about what it really means. I also wrote to my Congressman and senator about it today and I know Democrats Abroad and ACA are aware of the situation. DA is scheduled to do another round of door knocking this week. As mentioned earlier, the public is allowed into the markup meetings, but it’s not clear to me whether they can participate in the discussion. Stay turned, promises to be an interesting ride.

   #NOTPAYINGTHIS

7. For the records, the number of accounts turned over by the CRA to the IRS:

   Sept 30, 2015 154,667
   Sept 30, 2016 315,160
   Sept 30, 2017 – ?

   http://www.cbc.ca/news/politics/taxes-internal-revenue-service-fatca-united-states-1.3954789

   We are not hearing from people in other countries being contacted by the IRS so as tempting as it may be to imagine the IRS is waiting until the CDN IGA suit is over, would seem unlikely -esp considering how long it is taking – we will all be dead before this occurs…. 🙂

8. As whomever may answer our question of what this garbled mismash of words means will not be the one who determines if/when this question goes to trial several years down the road, wouldn’t it be better to ask that it be reworded to remove ambiguity?

9. The IRS isn’t “following through”, (a) because of the complexities of trying to enforce collection extra-territorially, and (b) because of the risk that if extra-territorial double-tax collection was enforced, through assistance from the resident-country’s tax agency, CBT and the cosy world of wink-wink bilateral treaty-making which colludes with and facilitates it, might find itself under an uncomfortable degree of international scrutiny.

10. “might find itself under an uncomfortable degree of international scrutiny.”

    Since the IRS doesn’t have to worry about the amount of scrutiny it’s received from Congress and US courts, surely it won’t have to worry about international scrutiny.

    Maybe government employees prioritize other operations where the employees can turn a profit. If the IRS collected information about 300,000 accounts that have an average of $2,000 in each account, there’s nothing in it for them.

11. “Since the IRS doesn’t have to worry about the amount of scrutiny it’s received from Congress and US courts, surely it won’t have to worry about international scrutiny.”

    Of course not. The IRS doesn’t sign bilateral treaties.

12. The point of a John Doe summons, which is essentially what FATCA is, is to allow a whole class of individuals to be summonsed, in order to allow an authority to identify and bring to court the guilty few. Fruitlessly pursuing non-criminal members of the summonsed class would make it hard to justify the use of John Doe.

    But the more interesting possible consequence could be questions asked by taxpayers in other countries as to why their government’s Treasury or whatever was allowed to agree to connive with the US Treasury to deprive innocent people of protection against double taxation.

13. Just sent this to RO:

    Dear Mr Yue & Republicans Overseas:

    First: THANK YOU for your efforts for all of us Americans Abroad.

    I am not on Facebook, so I take the liberty of writing you this short email to say: please keep trying to obtain relief for us during this time when Tax Reform is still being discussed and crafted.

    The BEST thing would be to obtain pure and simple Residency Based Taxation! I believe this would be cost-effective, fair, and technically relatively easy to legislate. It might SAVE money by freeing up valuable resources currently wasted processing data from Americans Abroad who owe no taxes! It has been shown that money spent on FATCA, for instance, is much, much, less effective than that used on tax fraud at home!

    Again, my deep gratitude, sincere thanks and full support for your efforts.

14. Here’s the Committee markup page
    https://waysandmeans.house.gov/event/markup-tax-cuts-jobs-act/

    Anyone know the difference between “H.R. 1, Tax Cuts and Jobs Act” (timestamped 2 Nov, 10:46 AM)
    https://waysandmeans.house.gov/wp-content/uploads/2017/11/20171106-H.R.-1.pdf

    and “Amendment in the Nature of a Substitute to H.R. 1” (timestamped 3 Nov, 10:40 AM)
    https://waysandmeans.house.gov/wp-content/uploads/2017/11/20171106-Amendment-in-the-Nature-of-a-Substitute-to-H.R.-1.pdf

    I see that the limitation on treaty benefits thing (Section 4502) has been eliminated in the amendment. Other than that I didn’t see big differences in international taxation between the two but I’m probably missing something.

15. “If Japanese companies which sell goods and services under the brand name of US parent companies must pay taxes to the US, will they then at some point have to comply with all other manner of US corporate, labor and finance law?”

    I believe that is exactly the road we are heading down. It’s already clear that the USA has a hard time understanding what it does and does not own and what is and is not any of its business. Taxing individuals that that do not live in the USA, forcing its law down the throats of other countries, stealing money from those countries tax bases and a little regime change here and there are just a few symptoms.

16. USCA, thanks for the analysis. I have posted it on the RO site and suggested that they pass it on to the mark-up folks.

17. @Muzzled no more

    “I don’t think we should take up any more space on this thread but if you would like to converse about this one-to-one I will authorize the administrators to release my email address to you.”

    Please send again. I saw your email in my spam box in the few moments between deleting the entire mailbox and before it disappeared.

18. Update letter from Republicans Overseas:

    No TTFI in the Tax Reform Bill – What Next? 

    Dear Suzanne,

    House Republicans introduced the tax reform bill (H.R. 1 – Tax Cuts and Jobs Act) on November 2, 2017, and overseas Americans immediately reviewed it to see if Territorial Taxation for Individuals was included in it. After Chairman Brady mentioned TTFI in a press conference and stated that his committee was seriously considering it, expectations were high. Unfortunately, this first version of the bill did not propose TTFI. While we are disappointed, this is not entirely unexpected. The process of getting a bill introduced and then voted into law is a complicated process that balances many competing requirements.

    The tax bill does support a move to territorial taxation for corporations, and this is a positive development for overseas Americans. Moving away from a corporate version of CBT paves the way for moving away from CBT for individuals as well. Nothing in the tax reform bill’s language regarding territorial taxation for corporations would negatively influence or prevent a change to territorial taxation for individuals.

    While not yet included in the bill, our TTFI proposal is currently in the Joint Committee on Taxation.

    Furthermore, the complicated nature of marking up a bill and reconciling it between the House and Senate also means that there are still several points where TTFI could be introduced.

    “We are confident that our friends of the House Ways and Means Committee will do their best to get our TTFI included in Chairman Brady’s mark-up. When we started fighting for TTFI in January of this year, nobody on Capitol Hill said that TTFI inclusion would be an easy fight,” said Solomon Yue, Jr., CEO and Vice Chairman of Republicans Overseas. “We’ve made progress and have gotten senior officials talking about TTFI. Now we need to get those words put into writing in the tax reform bill. We are committed to fight and win this uphill battle.”

    If Chairman Brady’s mark-up does not contain any language on TTFI, then the next opportunity for including TTFI in tax reform will be in the Senate’s version of the bill. We may have an additional opportunity to lobby in person for inclusion of TTFI in the Senate bill, and we will let you know when that happens.

    The fight to end double taxation is not over—we are still fighting for TTFI inclusion, and we will keep you updated on developments. The strongest weapon we have to fight for TTFI is grassroots support. As a result, please keep gathering signatures on the petition: http://ttfi.info/.

    Sincerely,
    Michael DeSombre
    Worldwide President, Republicans Overseas

19. USCA suggests above that the 12% one-time tax on foreign (local to us) corporations, in the draft U.S. Tax Reform bill, is likely limited to foreign subsidiaries of domestic corporations and not to the small incorporated businesses that we might own.

    Max Reed has just reviewed USCA’s analysis for me but still feels that, irrespective of intent of the drafters, the proposed tax reform bill, as stated, captures ALL owners of foreign corporations (bad news for us if true).

    I am passing this analysis on to Republicans Overseas hoping that it will be passed on to the mark-up folks.

    Max’s November 6, 2017 response sent to me:

    “The purpose of the two sections 4004 and 4301 are to transition the US federal corporate tax regime from a global model to a territorial model. To accomplish this, they create new categories of Subpart F” income that relies in large part on the existing controlled foreign corporation US citizens abroad are already familiar with these rules as they apply to those who own foreign corporations.

    As a result, the way the sections are drafted provides for a broader application than the drafters may have intended (I’m not sure).

    The technical reasons for this result are briefly summarized as follows. Both sections 4004 and 4301 apply to “United States Shareholders”.

    That term is currently defined in Code section 951(b) to mean a US person defined in 957(c) who owns 10% or more of the voting stock of a foreign corporation. Section 957(c) essentially adopts the definitions 7701(a)(30) including US citizen.

    There is no change to either Code section 951(b) or Code section 957(c) in the House bill that would alter this. Consequently, 4004 and 4301 apply to “US Shareholders” including all US citizens, US green card holders, US trusts as well as US corporations who own 10% or more of the voting stock of a foreign corporation.

    There is no carve out elsewhere in the bill.

    The fact that other provisions in the same section only apply to corporate shareholders does not affect the reading of 4004 and 4301. Those sections specifically note the limited application of those provisions whereas 4004 and 4301 do not. Further, the fact that existing section 965 only applied to corporate shareholders also does not matter as it is being replaced in its entirety by new section 965.

    In short, the purpose of the provisions may be to assist in the transition to a territorial corporate tax system.

    But, as drafted, from a technical perspective the legal effect of them will be so much broader. It will apply this 12% one-time tax to US citizens who own an interest in CFCs [e.g., an incorporated medical doctor’s clinic].

    It will further apply an ongoing complex new tax regime to US citizens that own a foreign business that earns active business income. These provisions may not be passed in their current state. I certainly hope not. But if they are the effects on US citizens outside the US will be significant.”

20. Is Max lobbying the US government to stop this insanity? I seriously doubt it.

21. What if the effects are so devastating to Americans abroad that if these laws were to pass that we could actually work as an impediment to their enforcement?

22. If this monstrosity sneeks through in the tax bill I’d like to see a 12% tax on all US citizen and/or US based condors on all their fees charged to US citizen clients … retroactive to 1986. No I can’t provide a legalese reason. I don’t care. You’re so right, Bubblebustin — the insanity MUST STOP NOW!!!

23. Does the proposed legislation confiscate the retained earnings of those Canadian Controlled Private Corporations tainted with U.S. connections? I guess, Congress must simply the law so that we can see what’s in it?

    Remember this:

    https://youtu.be/hV-05TLiiLU

24. @USCA, @Stephen Kish, @et al…..I believe the safe posture is the worst case from Max?

    Why? In poorly drafted legislation of all people….expats WILL get the short end of the stick because it will be up to the IRS and Treasury to both interpret and issue the implimenting regulations. What seems clear to us Outlanders is often radically different from Homelanders.

    Homelanders could NOT see the problems with FATCA and still to this day can not get it through their thick skulls that Outlanders are Irish/Canadian/British/French/Insert first and foremost before being American. In their eyes a British/American dual living in the USA can only be American and British/American living in Wales can be only one thing American.

    This poorly drafted legislation will screw us in the end, mark my word.

25. George (GB): Alas I fear you are right. TTFI sounds like progress, but it’s not really RBT, and RO isn’t really for RBT. Not that it matters what DA or RO or any of us think. Not sure how it’s playing in the US but here the “Paradise Papers” have the media up in arms about tax avoidance here, offshore there, etc. Hard time to come out and explain, hey, we’re neither avoiding tax nor hiding stuff “offshore”, just leave us alone.