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The Isaac Brock Society

Posted on by Posted in Citizenship Issues, FATCA, Tax Treaties, Transition Tax 30 Comments

Update from “Accounting Today” – June 4/18 – 11:00 p.m. EST:

https://www.accountingtoday.com/news/irs-provides-penalty-and-filing-relief-on-transition-tax-in-tcja

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I haven’t had time to really read and digest this Bulletin from U.S. Treasury.

You will have to read and draw your own conclusions, but it appears that paragraph 16 speaks to this issue:

Q16: If an individual fails to timely pay his or her first installment of tax due under section 965(h), will the IRS assess an addition to tax for failure to pay? Will the taxpayer’s requirement to pay all subsequent installments be accelerated under section 965(h)(3)?
A16: If an individual meets the criteria in this paragraph and pays the total amount of the first installment on or before the due date for the second installment, the IRS will not assess an addition to tax for failure to timely pay the first installment and will not accelerate subsequent installments under section 965(h)(3). An individual with a net tax liability under section 965 is required to report the liability on his or her tax return for the year in which or with which the inclusion year of the deferred foreign income corporation ends and pay the full amount of that liability on the unextended due date of that return, unless the individual elects to pay the liability in eight annual installments pursuant to section 965(h)(1). However, the IRS has determined that, if an individual’s net tax liability under section 965 in the individual’s 2017 taxable year is less than $1 million, the individual makes a timely election under section 965(h), and the individual did not pay the full amount of the first installment by the due date under section 965(h)(2), the failure to make the payment will not result in an acceleration event under section 965(h)(3) so long as the individual pays the full amount of the first installment (and its second installment) by the due date for its 2018 return (determined without regard to extensions). For this purpose, the relevant due date generally is April 15, 2019. In the case of United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico, and United States citizens and residents in military or naval service on duty, including non-permanent or short term duty, outside the United States and Puerto Rico, the relevant due date is June 17, 2019, which is provided by Treas. Reg. §1.6081-5(a)(5) and (6). Although the IRS will not assess an addition to tax for failure to timely pay the first installment, a taxpayer will be liable for interest on such amount from the due date of the installment. See I.R.C. §6601.

If the IRS sends a taxpayer a notice of an addition to tax for failure to timely pay the first installment, and the taxpayer meets all the conditions for relief described above (including making the required payment by the due date for the second installment due under section 965(h)), the taxpayer should contact the IRS office that issued the notice and request abatement of the addition to tax for failure to timely pay the first installment in accordance with the provisions in these FAQs.

Posted: 06/04/2018

Note that this does NOT apply to all people (appearing to give relief only to small businesses).

30 thoughts on “Interrupting our regularly scheduled programming: It appears that there is a delay to the June 15, 2018 @USTransitionTax payment”

  1. Sounds like you still have to do everything other than pay the tax. That means accountants fees, etc to determine what the liability is. Considering how helpful the Canadian government’s been, maybe they should help with that expense.

    I think the most meaningful thing about this gesture is that the US recognized the problem and were willing to provide relief where relief was due. I am however against the $1M threshold, as this tax is unfair on any level.

  2. @BB

    Agree – but it does provide some time for some calm deliberations. I assume that one would just file for an extension prior to June 15 and then figure out what the right approach should be by October.

  4. Q16 looks like a FAQ. FAQs have no legal power. Haven’t we seen how the IRS uses FAQs to faq people?

  6. @ND

    There is no interaction with the IRS that is “risk free”. But, there is no immediately obvious improper motive for the Treasury to have offered this.

    It seems to me that, this does “buy some time”, to construct a more permanent solution to an obvious problem. I think it’s better to view this as the IRS doing what it can, to create some “breathing space” for that solution to happen.

    In a broader context, this demonstrates the extent to which “citizenship-based taxation” is a problem for individuals, the world and ultimately the United States.

  8. Perhaps very few returns have been arriving with TT-sized cheques attached.

    It’s shambolic (first stating such an impossibly short deadline and then waiting until two weeks (!) before the deadline to offer an extension). But it’s good. Time to think, without the haze of panic clouding one’s judgment.

    And it surely shows that they really are flying by the seat of their pants. They don’t have a plan worked out for enforcement, and they fired the only guy who might have been able to scrape together a plan.

  10. “On the MNE front also (the ones who really won’t be ignoring or renouncing), things don’t seem to be going to plan:”

    I guess MNE means US-based Multi National Enterprise, not Minister of National Evenue or something like that. Renunciation by an MNE is called inversion.

    I guess ignoring would still be called ignoring, but I guess enterprises don’t try to do that.

  11. This from three weeks ago:

    “IRS, Treasury Officials Unusually Quiet About New Tax Regulations”
    https://www.bna.com/irs-treasury-officials-n73014476029/

    IRS and Treasury Department officials have been noticeably less forthcoming about the regulations the government plans to issue on the 2017 tax act, a change that comes as companies clamor for more clarity about how the law will affect them.

    At recent tax conferences, including the May meeting of the American Bar Association Section of Taxation, officials stuck to a variation of this refrain: “We understand the issue and are working on regulations.”

    Which comes out sounding like: “We’re trying to come up with a way to make it work.”

  12. “I guess ignoring would still be called ignoring, but I guess enterprises don’t try to do that.”

    Exactly. They’ll obey the letter of the law while using workarounds to minimize their costs. They’ve had lots of practice out in the big bad world of Foreign.

  13. ‘Which comes out sounding like: “We’re trying to come up with a way to make it work.”’

    No, they know it will never work. It sounds like “We’re still trying to figure out how to penalize US non-resident citizens for failing to fit round pegs into square holes in yet another way. We need more ways to penalize US non-resident citizens because they’re MNE Mine a.k.a Dracs.”

  14. Which comes out sounding like: “We’re trying to come up with a way to make it work.”’

    No, they know it will never work.

    They may know it, or be gradually realising it, but they can’t say it in public. That’s what got Dana Trier fired.

  16. The founders hated a tax on income and said so in the constitution. Along cones MARX WHO HATED ANYONE WITH MORE ASSETS THAN HIM. WE WERE DOING JUST FINR UNTIL THE MARXISTS DISCOVERED WE WERE HAPPY. They hate anyone who appears to be happy, so the recruited anyone who hated the rich and got their help passing the 16th amendment voiding the desire of the founders, putting us where we are today. it is estimated that 10% of the population makes their living on this insane idea,the progressive income tax.
    Al our efforts should be dedicated to repeal of the 16th amendment and passing a tax system the founders recognized as equitable. That is everyone, rich, poor and middle income should have skin in the game. Our problem then would be to concentrate on spending and controlling it. If the Brokers would simply stop all IRS co operating and insist that the homelanders change the taxing system to eliminate the Marxist element and pass a national sales tax. No forms, no IRS,no thieves stealing 7 or 8 billion a year filing a tax return and getting a refund even thought they paid no witholding taxes. We’d all be better off,woulden’t we.

  18. The AICPA submitted comment letters to the IRS on April 4, 2018, and April 19, 2018, requesting clarification of some previous IRS FAQs on this issue, along with relief for certain taxpayers subject to the transition tax. The newly released penalty and other relief addresses several of the questions and concerns raised by the AICPA in the April 4 letter. However, Jonathan Horn, senior manager–AICPA Tax Policy & Advocacy, notes that “the IRS actions to date fail to mitigate the detrimental impact on taxpayers raised in the AICPA’s letter of April 19.”

    https://www.thetaxadviser.com/news/2018/jun/irs-tax-relief-on-untaxed-foreign-earnings-201819103.html

  20. I agree that the one year extension allows some breathing space for those affected, but it is breathing space that must be used by those in power to fix this thing *at its root*. And we all know what that is. Until CBT is abolished, all of us must live under the fearful shadow of the next deadline or of whatever new rules and regulations will be enacted against us in its name.

    Meanwhile, I’d like to suggest that whoever’s in Washington writing these rules and regs learn to use two of the English language’s best words: “except” and “exempt”. Those two little words could save millions of people a great deal of anguish as well as billions of dollars in wasted effort looking for taxpayers that exist only in the US government’s unique definition of the term.

  22. It’s quite an interesting news story. Shows what bad things can happen if someone gets bad advice or doesn’t come here first. The gentleman is , I think, one of the principles of americansoverseas.org. They steer everyone into streamlined. The lady got bad advice and started down the road of getting a SS number and presumably trying to comply. The announcer repeats the myth that you have to comply in order to renounce. Caveat Emptor

  23. This Jerusalem Post article (https://m.jpost.com/Israel-News/Thousands-of-Israeli-Americans-to-get-one-year-repatriation-tax-reprieve-559243) gives a strong impression that (a) Congress didn’t intend individuals to be affected and (b) a fix is definitely on the way.

    Is this correct, I wonder? I got the distinct impression from Solomon Yue’s tweets that only a TTFI/RBT bill is being drafted for introduction in the House before the mid-term election. Predictions about what might be possible afterwards seem risky.

  24. Lots of folks are looking for any pretext to hope the transition tax will go away, at least for expats, but it’s silly to think Congress did not intend it to apply to individuals.

    The Conference Report provides as follows: “Individual U.S. shareholders, and the investors in U.S. shareholders that are pass-through entities generally can elect application of corporate rates for the year of inclusion.\1513\”

    The election referred to is under section 962 of the Code, which allows individual US shareholders to be taxed at corporate rates, and with the benefit of a credit for foreign taxes paid by the foreign corporation, but at the cost of later being taxed again when they receive dividends from the foreign corporation.

  25. From Monte Silver:

    Sign the new & final petition to win the legislative phase at: http://www.americansabroadfortaxfairness.org

    Dear Fellow Americans abroad

    In early March 2018 we launched our campaign. The Treasury & IRS responded immediately, and granted us relief, twice! The second relief gave us a year extension – until June 15, 2019 – to make the painful first payment on the Repatriation tax. We won two battles without spending a dime!

    Why we won? (1) Our cause is just and our goal specific. (2) Our petition targeted the right people. (3) You, many Americans abroad, and all the expat organizations acted!!

    Two battles down and just one to go. That’s right, just one: the legislative solution.

    Fact: Congress will pass a law that fixes various problems created by the reform. Fact: It will happen in the Lame Duck session – between the elections on November 6, 2018, and January 3, 2019 when the new Congress convenes.

    Will we be part of the fix? The answer is yes, if… if we are a priority to congress. Are we? Yes, if you get make your voice heard effectively. Remember, we compete with hundreds of other interest groups that are spending billions on lobbyists. We do not need lobbyists. We need your voice!

    This petition is the platform for our effective activism. We successfully used a petition once, and now we simply duplicate what we did, one final time. When you sign the new petition, every single key senator and House representative, and their key staff members, will hear your voice, very loud and very clear. As soon as enough expats have signed it, we will be able to organize meetings and advance our cause where it counts: in Washington DC with the key staff members of (i) Senators on the Finance committee and (ii) House members on Ways & Means committee

    Your voice counts!! And we are counting on your voice. So let’s do it!

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