cross-posted from citizenshipsolutions
Introduction – “Indifference being the worst form of abuse”
"Indifference and neglect often do much more damage than outright dislike." https://t.co/dxiMjWIltE via @BrainyQuote pic.twitter.com/wi3JS4WCGg
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 29, 2018
A quick summary of this post:
On November 26, 2018 the House Ways and Means Committee under the leadership of Chairman Brady announced a bi-partisan bill which contains a number of “Technical Fixes” to the December 22, 2017 Tax Cuts and Jobs Act. While specifically addressing the Sec. 965 transition tax, the bill contains neither mention nor relief for Americans Abroad who are at risk of having their retirement pensions confiscated by the U.S. Government. (While the transition tax may actually be beneficial for Homeland Americans, it is simply devastating for Americans abroad.)
In other words: The proposed legislation is NOT neutral. By specifically addressing the Sec. 965 transition tax and NOT providing relief for Americans abroad, it has exacerbated a difficult situation. My understanding is that many Americans abroad have requested filing extensions to December 15, 2018. The failure of this proposed bill to provide relief means that many Americans abroad with small businesses are in an impossible situation where compliance may well be impossible.
My analysis and discussion follows …
Shocking!! tax bill – bipartisan or not – proposed by @WaysandMeansGOP does address aspects of the Sec. 965 @USTransitionTax but has completed ignored the effect on #Americansabroad – specifically the confiscation of their retirement pensions!! For many compliance not possible. https://t.co/yxQahNr636
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 29, 2018
On November 26, 2018 Representative Kevin Brady announced a tax reform bill (presumably with the intent of getting it through the lame duck session). You will find the compete text – 297 pages – here.
The House Ways and Means Committee announced:
Washington, D.C. – Today, House Ways and Means Committee Chairman Kevin Brady (R-TX) has released a tax and oversight package that includes the Retirement, Savings, and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018. This package includes retirement and other savings enhancements, legislation to redesign the Internal Revenue Service, and temporary tax relief for victims of the wildfires in California and for communities impacted by Hurricanes Florence and Michael and by storms and volcanoes in the Pacific. The package also addresses the tax extenders, and includes some time-sensitive technical corrections to H.R. 1, the Tax Cuts and Jobs Act.
Upon release of the package, Chairman Brady made the following statement:
“This broad, bipartisan package builds on the economic successes we continue to see throughout our country. The policy proposals in this package have support of Republicans and Democrats in both chambers. I look forward to swift action in the House to send these measures to the Senate.”
The proposed bill and modifications to the Sec. 965 U.S. Transition Tax
The bottom line is this:
1. The bill proposes to amend Section 965(h) to address certain concerns raised by Taxpayer Advocate.
2. The bill fails to consider the impact of the bill on the small business of Americans abroad.
In other words, there is NO CURRENT proposal to remedy either the problems of the “transition tax” or GILTI as they apply to Americans abroad! This is shocking and a complete disgrace. This leaves many Americans abroad in a position where they cannot continue to survive as U.S. citizens abroad.
First some additional background
I have written a series of posts about the Sec. 965 transition tax. On September 9, 2018 I wrote a post for the purpose of (1) describing whether intent matters in the interpretation of the Section 965 transition tax and (2) noting that Taxpayer Advocate had seemed to assume that “intent” did matter in the interpretation of the law (a novel concept indeed). (There is no evidence that the transition tax was ever intended to apply to the small businesses operated by Americans abroad.) That post included the following tweet:
The intent of the law should matter in the interpretation of the law. Was the @USTransitionTax intended for #Americansabroad? "IRS Administration of the Section 965 Transition Tax Contravenes Congressional Intent and Imposes Unintended Burden on Taxpayers" https://t.co/I8PoME8B0t pic.twitter.com/3uAtxYziTY
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 9, 2018
The analysis from Taxpayer Advocate based on the argument of “unintended consequences” included:
In other words, the memo concluded that the full amount of the Section 965 liability becomes due immediately – not ratably over the eight-year period the law gives taxpayers the option to make payments. As a result, any “overpayment” of non-Section 965 liabilities over the 8-year period cannot be refunded or applied as estimated tax for a future period until the full Section 965 liability is paid in full.
As a practical matter, this interpretation sharply limits the value of Section 965(h), and in some cases, it may even render it meaningless. Large corporations frequently overpay their estimated taxes for a variety of reasons, including to minimize the risk they may become liable for underpayment interest. Some may even have “overpaid” by most or all of their Section 965 liability. According to the IRS’s interpretation, those corporations will not receive any of the benefits Congress provided by enacting Section 965(h).
It may be that the IRS’s interpretation is legally correct, and congressional tax-writers failed to consider the interaction of IRC 965(h) with existing provisions governing refunds and credits. Some in the private sector generally agree that the IRS cannot pay refunds after a return is filed and the tax has been assessed, but they have suggested that – before the liability is assessed – the IRS may at least pay the estimated tax refunds requested on Form 4466. I have requested the Office of Chief Counsel to take another look at the issue and consider alternative approaches. Where Congressional intent is clear, it is the job of administrative agencies to give effect to that intent to the extent feasible. In some cases, that may require adopting a plausible interpretation, even if it not the “best” interpretation.
Here is what happened: The “devil is in the details” (or in this case the lack of details)
On the one hand the proposed bill addresses the concern described by Taxpayer Advocate
To be very specific, the proposed bill includes the following Section 965 amendment that specifically addresses the concern expressed by Taxpayer Advocate. Here is the exact text found in Title V (Technical Corrections) on page 189:
(e) AMENDMENT RELATING TO SECTION 14103.—
2 Section 965(h) is amended by adding at the end the fol3 lowing new paragraphs:
4 ‘‘(7) EXCESS REMITTANCE OF INSTALLMENT
5 SUBJECT TO CREDIT OR REFUND.—
6 ‘‘(A) IN GENERAL.—In the case of a re7 quest to credit or refund any excess remittance
8 with respect to an installment under this sub9 section—
10 ‘‘(i) the Secretary, within the applica11 ble period of limitations, may credit the
12 amount of any excess remittance, without
13 interest, against any liability in respect of
14 an internal revenue tax on the part of the
15 person who made the excess remittance
16 and may refund the excess remittance,
17 without interest, to such person in the
18 same manner as if it were an overpayment
19 of tax for purposes of section 6402, and
20 ‘‘(ii) the first sentence of section 6403
21 shall not apply with respect to such install22 ment.
23 ‘‘(B) EXCESS REMITTANCE.—For purposes
24 of this paragraph, the term ‘excess remittance’
VerDate Mar 15 2010 19:06 Nov 26, 2018 Jkt 000000 PO 00000 Frm 00189 Fmt 6652 Sfmt 6201 C:\USERS\SJPROBST\APPDATA\ROAMING\SOFTQUAD\XMETAL\7.0\GEN\C\BRADTX_10
November 26, 2018 (7:06 p.m.)
G:\M\15\BRADTX\BRADTX_108.XML
g:\VHLC\112618\112618.162.xml (708722|9)
190
1 means a payment, including an estimated in2 come tax payment, that exceeds the sum of—
3 ‘‘(i) the net income tax liability de4 scribed under section 965(h)(6)(A)(ii), plus
5 ‘‘(ii) the sum of all installments for
6 which the payment due date under this
7 subsection has passed.
8 ‘‘(8) INSTALLMENTS NOT TO PREVENT ADJUST9 MENT OF OVERPAYMENT OF ESTIMATED INCOME
10 TAX BY CORPORATION.—In the case of any tax due
11 as an installment under this subsection, the tax in12 stallment shall not be taken into account as a tax
13 for purposes of section 6425(c)(1)(A) until the date
14 on which the tax installment is due.’’.
15 (f) EFFECTIVE DATES.—Except as otherwise pro16 vided in this section, the amendments made by this section
17 shall take effect as if included in the provision of Public
18 Law 115-97 to which they relate.
On the other hand – after all the lobbying laying out the impact on Americans abroad
While addressing certain aspects of the Sec. 965 transition tax, there is NO mention of the small business owned by Americans abroad and TOTAL INDIFFERENCE to their plight!
In the “Pay To Play Casino” that is Washington, DC: Lobbying isn’t everything, it’s the only thing!
Taxpayer Advocate: The proposed change to the application of the transition tax rules was likely the result of “lobbying” (absolutely proper) by Taxpayer Advocate.
S Corp Association: The Sec. 965 exemption for S Corporations was the result of lobbying by the S Corp association. That said, there is no reason to believe that the S Corp lobbying should have been construed to be an exemption for ONLY individuals who owned their CFCs through S Corps (rather than owning them directly as individuals). The reasonable position of the S-Corp Association is that:
The 2013 @SCorpAssn submission to the @WaysandMeansGOP in which it argues that S Corps should be exempt from the @USTransitionTax bc (1) S Corp do not benefit from #territorialtax like C corps and (2) the repatriation tax will result in double taxation – https://t.co/bJaAdppYVI pic.twitter.com/xvFJGXgc0M
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 18, 2018
Surely the same reasoning would apply to ALL individuals (including those living outside the United States). Perhaps the S-Corp association should create a division to advocate for the interests of Americans abroad, who like individuals in the United States, also run small businesses. This would help give individuals who are Americans abroad a voice in Washington.
As it currently stands, Americans abroad simply do not have full time lobbyists and are therefore irrelevant to the legislative process.
Should you retain U.S. citizenship if your concerns cannot be heard?
The question really is:
Do you want to be in a situation where a “far off land” can make laws that affect you when they neither know about you or care about you?
Bottom line …
It's not that Congress doesn't care about #Americansabroad. It's that they don't care that they don't care. " Letter to the Senate Finance discussing the effects of the @USTransitionTax on US #expats" https://t.co/hicUktgXHH via @ExpatriationLaw
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 29, 2018
As I have previously said:
The problem is NOT that Congress doesn’t care about Americans Abroad. The problem is that they con’t care that they don’t care!
The only remedy is with the courts and I strongly suggest that you support the transition tax lawsuit being organized by Monte Silver.
Posted 11/29-30/2018 on the Republicans Overseas Facebook site where “revenue offsets” are now being talked about:
Republicans Overseas [says]: “Rick Adams, I asked why we can’t use technical fixes for TCJA Transition Tax and GILTI Tax at the Grover’s TTFI working group roundtable.
The answer was they were used as revenue enhancements.
What it takes to fix them? We need a bill with revenue offsets to fix them.
Many approached Congressman Holding to use our TTFI savings to pay for transition tax and GILTI tax revenue offsets. TTFI savings can’t be used to pay ALL three: TTFI, transition tax and GILTI tax. I told the reporter that is Holding’s reality….
I was asked already how much it would cost for a S Corp status bill for individual small business owners abroad.
I don’t know.
The S Corp bill cost also is a seperate issue from TCJA Transition Tax fix and TCJA GILTI Tax fix because both would require revenue offsets and are not merely technical fixes.
I told the reporter I am dealing with the reality with no quick fixes and many unanswered questions.”
Rick Adams [replies]: “Why revenue offsets? This was not revenue they were getting before this disastrous law!”
https://www.facebook.com/republicansoverseas/
I’m now adding “offsets” to my list of obstructions to justice for expats (previously I put “standing” on that list). They’ve got a block for every play it seems. As with FATCA, the damage from TT and GILTI will be widespread before they even begin to thrash out a fix. They just don’t give a flip about making corrections to their taxing legislation when the well-being of expats is involved.
There were no offsets when the Trump admin lowered tax rates for the wealthiest 1%. No offsets when they lowered corporate rates. They don’t give a fig about us.
There are only 2 solutions. 1. Renounce and 2 fight in Canadian and European courts
3. Lie and ignore, if possible in your country of residence
“Indifference being the worst form of abuse”
No. Sometimes it’s worse than dislike but it’s not the absolute worst. Though I’m not one for religion, I understand the commandment “Thou shalt not bear false witness against thy neighbour.” Persuading the state to use the power of the state to abuse a victim who innocently told the truth about you is the worst form of abuse.
Meanwhile buy some American flags and matchsticks, and persuade Trump to enact an executive order.
Rep. Kevin Brady (R-Texas), Chairman of the House Ways and Means Committee, got busted for drunk driving on 7 October 2005. He went on to vote for bills that appropriate money for grants to help States crack down on underage drinking. It is obvious why he would rather push a hate crime against persons younger than 21 instead of pushing tougher measures against drunk driving.
Renouncing will not help with the Transition Tax. That ship has sailed.
As for offsets for SCorps – I believe they got their deferrals before the TCJA passed.
“Renouncing will not help with the transition tax”
Not for those who stand on the jetty for too long. As Hodgen said some years ago. To paraphrase
“Get out while its still somewhat easy, it will only get worse”
Has anyone heard any update on if Holding will introduce the TTFI bill? What on earth are they waiting for?? Does anyone have any info on this?
@ Aaron
IRS Medic has a new video today with an important update. Keith Redmond says the stand alone bill WILL be introduced before Christmas.
@EmBee
Yes, that has been cross-verified by different sources I am aware of, but I will believe it when I see it.
Crossing fingers, toes and whatever still bends enough to cross…
Hope springs eternal when reality fails.
JCT did not consider the tax revenue from individual US shareholders when computing the budget impact of TCJA. See my post at http://fixthetaxtreaty.org/2018/12/10/fixing-the-transition-tax-for-individual-shareholders/#comment-59422
Additional statistics – the IRS publishes aggregate data for forms 5471 attached to US corporate returns (Form 1120 – so this excludes any 5471s for CFCs owned by individuals or pass-through entities). You can find the data at https://www.irs.gov/statistics/soi-tax-stats-controlled-foreign-corporations. The most recent compilation is from 2014. This shows USD2.7 trillion of deferred income (accumulated E&P not previously taxed) from a total of 90,204 CFCs owned by 14,969 US corporations. While this figure includes some pre-1987 accumulated E&P, after growth from 2014 to 2017, this easily covers the transition tax receipts estimated by JCT. Individually owned CFCs were not considered.
If tax receipts from individual US shareholders weren’t in the original budget effects, what is there to offset?
I renounced early December and got my CLN beginning of Feb 2019.
I just received a note from my accountant that since I renounced in 2018, the Transition Tax must be paid in full, instead of over the next 8 years.
OMG, Every chance they get… they screw you. Has anyone ever heard of anyone unable or unwilling to pay the Transition Tax.
I really need to understand the consequences of not paying the Transition Tax.
I know currently the CRA will not collect from a CDN dual if the tax bill was incurred while there were a CDN citizen, which I have been for 50 years.
I would certainly be unwilling to pay the transition tax. It wasn’t ever intended for small businesses owned outside the US . They were collateral damage.
@Punky. ” Has anyone ever heard of anyone unable or unwilling to pay the Transition Tax.”
No one is willing or able to pay the transition tax. Raising the cash to pay it may trigger Canadian taxes compounding the damage. Hopefully, you don’t have US assets. If you don’t I’d say your best bet is to file nothing further. That means no final 2018 tax return and no Form 8854. Trying to play by the rules guarantees you will be screwed whereas refusing to play gives you at least a fighting chance of escaping. Depending on your net worth the exit tax may come into play here as well. It will take the IRS years to figure out what happened and even if they do, Canada won’t collect. Meanwhile, maybe Congress will fix the problem. I wouldn’t travel to the US, though. This is something that came out of left field that nobody could have planned for.
If you do have US assets the picture is more complicated. You will have to do the math to see which makes more sense; pay the tax or be prepared to write off those assets. My $.02. Fair disclosure here: I’m not a lawyer and not an accountant, but I’m a very experienced refusnik.
Punky:
“I really need to understand the consequences of not paying the Transition Tax.
I know currently the CRA will not collect from a CDN dual if the tax bill was incurred while there were a CDN citizen, which I have been for 50 years.”
Congratulations on your renunciation.
As for the consequences of not paying the transition tax, I think you’ve answered your own question: the CRA won’t collect.
Since your government won’t collect, and the IRS can’t collect, the tax, quite rightly, can’t be collected.
Perhaps it would be a good time to find a new accountant and maybe restructure your business, now that you’re no longer a dual citizen? A clean break, and no more emails about US tax requirements.
Making sure to explain the situation to the new accountant, and show him/her a copy of the treaty provision which makes clear that the US demand is uncollectable (so that s/he understands that you are in the right).
This is just a thought. IANAL, nor a tax accountant, nor an expert of any kind.
My intention currently is to just go dark.
I think you are correct, Canada will not collect, I will be safe as long I don’t enter the states. I have no US assets.
I plan on speaking with John Richardson, not necessarily to get advice, but he may have knowledge of others that are heading down the road I am… or consequences we have not thought of.
Anybody know dates of Monte Silvers lawsuit?
Hopefully it will be successful and this transition tax nightmare will end for everyone.
@Punky
Good luck. You are doing the right thing. I expect that even US travel won’t be a problem, at least not initially.
One favour to ask. Please let us know what your accountant says when you tell them you won’t be filing any further returns.
Yes, I will tell you what my new accountant says, and also how I make out with my lawyer.
I think this might be uncharted waters for everyone.
Thanks for the support!
If you want to stick your neck out a little, write to your MP and the Ministers of Finance and National Revenue plus the relevant opposition critics, explain what you’re doing and why, and how it benefits Canada not to send a big cheque to the US, and request the protection of the treaty in the unlikely event that the IRS figures it out.
But possibly don’t use your real name and address.
Agreed, I have already gotten 3 letters from Moreau’s office, granted just form letters, saying they know about the problem but, “ the US have the right to tax their citizens they way they want too. My reply is “ I’m more a CDN citizen than a US citizen “. No answer to that response of course.
Punky:
“…this transition tax nightmare…”
Nightmare, or outrage? The latter, in my view, and, I am sure, the view of most who hear about it.
It would certainly be a nightmare if they could actually do it, but fortunately they can’t, and they know it.
Nononymous:
“write to your MP and the Ministers of Finance and National Revenue plus the relevant opposition critics, explain what you’re doing and why, and how it benefits Canada not to send a big cheque to the US, and request the protection of the treaty in the unlikely event that the IRS figures it out.”
I agree that writing to the MP would be good, and possibly therapeutic. There’s no need to ask for treaty protection: the treaty states that Canada won’t collect, therefore Canada can’t collect even if it wanted to.
I would suggest instead that Punky might like to consider asking his MP to consider asking a question on this issue in Parliament.
“But possibly don’t use your real name and address.”
Why not? Punky hasn’t done anything wrong. It seems to me it would be better not to write at all than to write anonymously.
Indeed, the US has the right to tax its citizens however it sees fit. And Canada has the right to not facilitate collection of those taxes on its soil. All is well on that front.
Punky:
“…I have already gotten 3 letters from Moreau’s office, granted just form letters, saying they know about the problem but, “ the US have the right to tax their citizens they way they want too. ” ”
Interesting. They get so many complaints about it they’ve created a form letter, and they think that’s a sufficient response to the constituent?
@plaxy
Fair point, nobody is breaking Canadian law here. Also agree with the point about not requesting the protection of the treaty, but rather stating how fortunate it is that the treaty protects Canadian citizens from predatory US taxation.
Having the MP ask a question in Parliament is an excellent idea. My suggestion: “Would the Minister be wiling to publicly reassure all Canadians facing this foreign tax that their assets and income in Canada are protected from any attempt at collection?”