59 thoughts on “Alliance for the Defeat of Citizenship Taxation (ADCT) seeks major donors to fund United States lawsuit in federal District Court”

1. Great questions, plaxy. We are possibly entering uncharted territory, as the US has never seemed interested in pursuing individuals residing outside the US in the past (except in special circumstances, like Mr Dewees). Perhaps they’d feel differently about corporations, especially if the IRS confirms that the transition tax also applies to overseas small businesses owned by overseas Americans who don’t bring corporate profits back to the states.

   One has to wonder how they came up with the transition tax rate as an offset. Did they take into consideration the number of 5471’s on file? They would most certainly would have included those submitted by non-resident US taxpayers.

2. BB – Isn’t this transition tax deemed to be income received by the individual? If so, the IRS can’t ask Canada to collect. They could of course confiscate US source income/assets but that seems unlikely.

   The question is, if the corporation does any business in the US, might it causr problems if the owner was not in good standing with the IRS?

   “One has to wonder how they came up with the transition tax rate as an offset. Did they take into consideration the number of 5471’s on file? ”

   No. If you look back over the years at the documents proposing this transition tax, there’s explanations and rationalisations for the rate. It’s not based on how many taxpayers they think they can screw. I’ll repost some links later.

3. 2011, Susan B. Morse, long discussion on effective rate for transition tax.
   https://poseidon01.ssrn.com/delivery.php?ID=087089099092098121006020120001113005018043040037001065095009010113091100108024088067002010036056019123016100106003081098072023104087070023007100021022078017016099004020076113006125084116119126064126101091109100094011096024082092094009002077074106098&EXT=pdf

   Also of interest in this paper: “Constitutional Boundaries for Retroactive Taxes”, p. 562

   2014, Morse, http://taxprof.typepad.com/files/73ti0629.pdf

   2017, “Getting from here to there: the transition tax issue” https://dash.harvard.edu/bitstream/handle/1/31958204/155tn0069-Fleming.pdf?sequence=1

   2017, Morse, “Taxing the $2.5 Trillion”, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2922145

   As can be seen, Ms Morse is quite the go-to academic when it comes to thinking up justifications for treaty overrides.

4. B. Constitutional Boundaries for Retroactive Taxes
   The modern Supreme Court has refused to strike down any retroactive tax statute on constitutional grounds,59 roundly dismissing challenges to retroactive taxes under the Ex Post Facto Clause60 and the Equal Protection Clause (absent a situation that calls for a standard of review other than rational basis).61 However, it has taken seriously recent claims that retroactive taxes violate substantive due process.62 For example, in the 1994 case United States v. Carlton,63 the Court upheld a retroactive statute against a due process challenge but emphasized the “modest” length of time—about one year—between the enactment of the statute and the retroactive amendment to the statute.64
   In a concurrence, Justice O’Connor suggested that more than one year’s retroactivity would be problematic.65 At least one state court has held that a retroactive tax violated the due process clause under the Carlton precedent because its retroactivity exceeded a “modest” length of time.66 The Carlton Court also placed some importance on the fact that the retroactive amendment corrected an apparent mistake in the original statute.67

   The constitutional issue is not a significant obstacle to the imposition of some kind of tax that burdens the untaxed offshore earnings of MNCs. However, it may affect the design of such a tax, especially if policymakers have little appetite for constitutional litigation.68 Substantive due process questions would be raised by an explicit retroactive taxation approach that asked a U.S.-parented MNC to go back to each tax year of its non-U.S. subsidiaries and determine the tax that would have been due if the non-U.S. income of such subsidiaries had been subject to U.S. tax. On the other hand, a lump-sum transition tax should not raise any colorable constitutional claim based on a retroactive taxation argument. Corporate taxpayers cannot reasonably have relied on an expectation that no transition tax would be imposed, since the possibility is an important part of the discussions about a change to territoriality. In addition, a lump-sum tax could be analyzed as a separate excise tax; the corporate income tax was originally held constitutional under a similar excise tax argument.69

   https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2175353

   This seems (to my non-legal-expert reading) to suggest that there is concern about whether a retroactive transition tax could risk a constitutional challenge. The author decides it should be safe to tax multinationals retroactively, but perhaps it wouldn’t be so safe to tax retroactively a US citizen individual?

   I wonder if this is why the Republicans have taken the trouble to mention that the fixit bill might address the problematic issue of the retroactive taxation of the unwarranted retroactive taxation of US citizens living outside the US, either by removing the FEIE cap, or by making use of the existing rules for taxation of NRAs.

   Lifting the FEIE cap would be a very easy way to avoid the risk that a US citizen individual might pay the whopping demand in accordance with accountant advice, and then sue in a US court.

5. @plaxy – The transition tax wouldn’t be on earned income, so FEIE won’t help unless they extend it to unearned income; and if they do that and remove the cap – then essentially you have RBT. In that case, revenue would be higher if they taxed non-resident citizens as if they were NRAs.

6. Karen – “The transition tax wouldn’t be on earned income, so FEIE won’t help unless they extend it to unearned income;”

   Yes, thanks for the correction. Slipped my mind that they would be deeming the deemed income to have been unearned.

   I was probably off the track anyway in speculating that they might be concerned about the risk of a constitutional challenge; since Morse made those comments, it appears SCOTUS has moved much further in the direction of upholding retroactive taxation.

7. A lot “may” happen here. Could be a busy Christmas season for cross border accounting firms:

   http://view.kpmgemail.com/?qs=2b84ee6c8f33541c80f3ae7b6e2b0e29091fd328c0c6d55cb7560b73290fd3605ad072389d5d1d662a371026628f5b63173f891c250d79c8b1dc8d859c836500949ffe80acdda742a4718d931b470eb5

8. @John Richardson, Carol Tapanila, Patricia Moon, Stephen Kish

   Thank you so very much for your efforts. They offer hope to me and to many, and are a light in the darkness. I wish you the very best this Christmas and in the years to come! Thank you so much!

9. @Sad-in-the-UK

   Thank you for your kind words and your support. Without that, we could do nothing!

   Merry Christmas!! Happy New Year!!