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Category Archives: Transition Tax

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

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).

Brock project: Is the application of the U.S. Transition Tax to Canadian residents possible only because of the “savings clause”?

Posted on by Posted in Issues regarding US persons abroad, Non Resident Taxation, Tax Treaties, Transition Tax 34 Comments

In my previous post about the June 15, 2018 “transition tax deadline” I referenced the letter received from Minister Morneau’s office which included:

… Canada recognizes the sovereign right and policy choice, of the U.S. to tax its citizens, including citizens who are resident abroad. The Canada-United States Tax Convention (the Convention), preserves this right.

467306-470243
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Brock project: Seeking stories from “Proud Americans” who are being destroyed by @NonResidentTax and @CitizenshipTax

Posted on by Posted in Issues regarding US persons abroad, Non Resident Taxation, Tax Treaties, Transition Tax 80 Comments

This post is motivated by the following Brock comment from “JC”. His comment concludes with:

So do we have a feature here on Brock to come up with stories about being proud Americans? So we may give them to Solomon.

Why not? Yes, let’s use this post to create a “Brock Feature” from expected comments. This can be the the “Isaac Brock Society” contribution to U.S. Tax Reform!

I realize that the Isaac Brock Society is not a site that is populated particularly by “Proud Americans” (am I wrong?). But, the idea of compiling a set of comments, about how U.S. tax policies have destroyed the lives of those who have attempted compliance could be valuable. They could be forwarded to all groups (RO, DA, ACA, FAWCO etc.) in this fight.

For once, let’s focus on those who are compliant!

I have a request though. Much of the focus on this and other sites is on people who have NOT complied with U.S. tax laws – usually because they have not bothered to enter the U.S. tax system. I don’t understand why those who have not entered the U.S. tax system have TAX problems. It seems clear that, those who have NOT complied, have NOT had their lives destroyed. They still have their pensions and their marriages. Noncompliant Americans abroad are in no danger of having their passports revoked (because those not in the U.S. tax system cannot have a tax debt). Noncomplaint Americans are in no danger of having their retirement savings stolen. Noncompliant Americans have no fear of crossing the border. But, I digress …

The reality of U.S. tax compliance for Americans abroad

It is those unfortunate people who have complied (with the assistance of the “very best” U.S. tax advisors), who have suffered the most. Think of all those who were ushered into OVDP. Think of those who entered “Streamlined” with their Canadian Controlled Private Corporations. After being assured that the “business earnings” were not subject to U.S. taxation, they are NOW retroactively subject to the transition tax. Think of the “transition tax” (punishment for your past). Think of GILTI (punishment for your future).  Only those who have filed U.S. taxes generally and Form 5471 in particular are subject to the great “pension confiscation”. Those who have not complied will still have a happy retirement.

U.S. citizenship is primarily about penalties: Comparing the “penalties” for noncompliance with the “penalties” for compliance

Penalties for noncompliance: For years people have been forced to listen to a constant noise (that’s the problem with the internet isn’t it)  warning people about the penalties for noncompliance. These are expressed in the language of either “tax crimes” or “form crimes”. Yes, the penalties for noncompliance are truly frightening! But, they are suffered randomly and sparingly. Let’s compare them to the …

Penalties for compliance: Nobody (don’t understand why) really talks about the “penalties” for compliance. They are real! They are NOT speculative! They are automatically assessed! Think I am kidding? Talk to anybody who is suffering the “transition tax” or somebody who has a real fear of “passport revocation”. Talk to somebody in Australia who has had problems with their Superannuation.

Americans abroad are subject to penalties no matter what they do. What were you thinking when you left the Homeland? You should be punished! And you are punished. Americans abroad are NOT subject to the same tax rules that Homelanders are subject to. They are subject to a different set of punitive rules. You should NOT be permitted to, simply leave the Homeland and expect those left behind, to pay your “fair share”! It is the duty of ALL Americans, wherever they may be, to support the Government of the United States (which as Cook v. Tait teaches – confers benefits to you wherever you may be).

Your experiences please …

Therefore, I think it would of great value to hear from those who have complied with – that Great Bible of American Life – the U.S. Internal Revenue Code (whether you have complied from inception/conception or whether you have recently come into compliance).

Remember that ALL U.S. citizens who were “Born In The USA” are presumptive “Tax Cheats By Birth”! This is because the  USA confers citizenship by birth and imposes tax based only on citizenship.

Could you address the following 3 questions in your comment?

1. Why as a “nonresident” of the United States did you decide to enter the U.S. tax system? For example, did your accountant tell you do do it? Were you simply heeding “The Call Of The Condor?” Was your entry into the U.S. tax system associated with another significant life event (illness, divorce, etc.) Do you snap to attention when you hear the U.S. National Anthem?

2. How has U.S. tax compliance caused you specific damage (calling all “transition tax” victims and more)?

3. Will the proposed #TTFI bill (the one from Congressman Holding) solve your problems or not?

If you are not in U.S. tax compliance, you could comment on why you do not intend to enter the U.S. tax system. Were you lucky (probably) or clever (maybe)?

And now, turning it over to JC …
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Part 9-1: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

Posted on by Posted in Non Resident Taxation, Transition Tax 7 Comments


 
 
 
 
 
 
 
 
 
cross-posted from citizenshipsolutions by John Richardson

Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

(Links to the first eight posts in this series can be found at the end of this post)

Introduction – The purpose of this post is …

to demonstrate that the “transition tax” is an example (particularly egregious) of the principle that (1) not only does the United States impose “worldwide taxation” on the “tax residents” of other countries, but (2) it imposes a separate tax regime on certain “tax residents” of other countries that is different and far more punitive than the regime imposed on Homeland Americans. Yes, you read correctly! Continue reading →

Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

Posted on by Posted in Transition Tax 19 Comments

by John Richardson

This is the eighth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

Continue reading →

Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before

Posted on by Posted in Non Resident Taxation, Transition Tax 118 Comments

 

cross posted from citizenshipsolutions

    by John Richardson
 

Introduction

This is the seventh in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

Continue reading →

Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!

Posted on by Posted in Non Resident Taxation, Transition Tax 26 Comments

cross posted from citizenship solutions
    by John Richardson

I suggested to John that some might not understand why a similarity between OVDP and the Transition Tax was being made. He asked me to introduce the post to make sure it was clear that the U.S. government has demonstrated that confiscation is the name of the game (NOT tax).

Some of you may wonder why a connection is being made between the OVDP program and the Transition “Tax.” The reason is very simple. We need to change the language. We need to call it what it really is. In the beginning, people were too frightened to understand what the OVDP really was. It took years before it was clear it was nothing less than confiscation. Fortunately, we knew prior to the passage of the Tax Jobs Cut Act that the Transition “Tax” was a blatant confiscatory provision.

The “Offshore Voluntary Disclosure Program.” An “amnesty” program. Nine years and many destroyed lives have exposed it for what it really was. No one could really have considered it “voluntary.” The IRS and the tax compliance community certainly presented as one’s only option. In 2011, we did not have the advantage of what we know now; the limitations of being discovered, the extremely difficult/unlikely ability of the IRS to collect. People who had no tax liability among other atrocities, were fined from 20 – 27.5% of their assets. There was no taxable event. This revolved around not filing a piece of paper. FBAR. An appropriate term used was “The FBAR Fundraiser.” Another word would be confiscation. IOW, OVDP was NOT about TAX.

Some words have powerful associations. Sometimes those associations grow into clichés. We are all familiar with the association that anyone who has left America is rich has done so to avoid tax. We have been working at this since late 2011. Seven years. No amount of trying to educate via comments on online articles etc. has put a dent in this erroneous and damaging perception. Recently, some of us have started replacing “citizenship taxation” with “non-resident taxation.” Non-resident taxation describes what it really is and dissociates from the idea that a patriotic citizen (American) should pay it. It appeals to the notion that reasonable people accept i.e., that one pays taxes (only) where one lives. It may take time but the value of changing the language in this situation, is obvious.

To refer to this new requirement as a “tax” is to immediately justify it as being reasonable. Take the Canadian government for example. It’s position is that the U.S. has the right to tax it’s own citizens and that Canada has no business interfering with that. Thus the IGA. Nevermind that the majority of the people affected are Canadian citizens and residents FIRST.

So what’s wrong with the term “Transition Tax?” As we all know, any expat with a “foreign” corporation will be unable to transition to a territorial system as will major multinationals . So to call it a “transition” is completely erroneous. As for “tax”, a general notion is that a tax is connected with delivery of services or benefits i.e., there is some relationship between the exchange of income for services. It is nothing short of bizarre to levy a 30-year retroactive tax on a group of people who were not residents, nor receiving anything in exchange for surrendering a considerable portion of what is primarily, their retirement pensions.

A phrase John has used repeatedly to describe the Transition “Tax” is “the confiscation of the retirement pensions of the citizens and residents of other countries.” That’s what it really is. Like the OVDP, it is a punitive tool that destroys the lives of long-term expats. We need to get that message across.

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    by John Richardson

Introduction

This is the fifth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The purpose of this post is to argue that (as applied to those who do not live in the United States) the transition tax is very similar to the OVDP (“Offshore Voluntary Disclosure Programs” which are discussed here. Some of initial thoughts were captured in the post referenced in the following tweet:


Continue reading →

Part IV-Sec 965 Transition Tax – Comparing Treatment of Homeland Americans to the Treatment of Non-Residents

Posted on by Posted in Transition Tax 7 Comments

 
cross posted from citizenshipsolutions     by John Richardson
 

CLICK TO ENLARGE

 
 
 
 
 
 
 
 
 
 

Attorney Monte Silver has organized a worldwide petition to prevent the application of the “transition tax” and GILTI to “tax residents” of other countries. Please support him by participating. You will find his petition and further information here:

https://www.democratsabroad.org/remedy_repatriation_gilti_taxes

And now, back to our regularly scheduled programming.

Introduction

This is the fourth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The first three posts were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!

Last night I was discussing the “transition tax” with an “individual” who is impacted by the tax AND is a Homeland American. He is a “tax resident” of ONLY the United States. For Homeland Americans who are subject to ONLY the U.S. tax system the “transition tax” is NOT a bad thing. For “non-residents” it is a terrible thing, which may destroy their retirements. The reason is that “nonresidents” are subject to both U.S. taxation and taxation in their countries of residence. The “transition tax” is an extremely egregious example of the terrible effects of the U.S. practice of imposing “worldwide taxation” on the residents of other countries. I hope that “the transition tax” will be the “straw that breaks the Camel’s back” and ends the U.S. practice of imposing taxation on people who don’t live in the United States.

After the discussion, I summarized our conversation in the following letter to him. Here is the letter.

Continue reading →

Part 3-Responding to the Sec 965 Transition Tax- They Hate you for Your Pensions!

Posted on by Posted in Transition Tax 18 Comments

cross posted from citizenshipsolutions

by John Richardson

Introduction

This is the third in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The first two posts were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Immediately prior to the passing of President Obama’s “Affordable Care Act” (which was subsequently ruled to be constitutional BECAUSE it was a “tax”), legislators were faced with a comprehensive, complex and incomprehensible piece of legislation. Very few members of Congress understood the details and impact of what they were voting for.


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Part 2: The Transition Tax: Is “Resistance Futile”? The Possible use of the Canada U.S. Tax Treaty to Defeat the “Transition Tax”

Posted on by Posted in Tax Treaties, Transition Tax 17 Comments

 

cross-posted from citizenshipsolutions blog

by John Richardson

Beginning with the conclusion (for those who don’t want to read the post) …

For the reasons given in this post, I believe that there are grounds to argue that the imposition of the Sec. 965 “transition tax” on Canadian resident/citizens DOES violate the Canada U.S. tax treaty. It is my hope that this post will generate some badly needed discussion on this issue.

If you are an individual who believes you may be impacted by the “transition tax”, you should consider raising this issue with the Competent Authority. I would be happy to explore this with you.

Need some background on the Sec. 965 “U.S. transition tax”?

The following tweet references a 7 part video series about the Internal Revenue Code Sec. 965 “Transition Tax” created by John Richardson and Dr. Karen Alpert.

(Video 6 gives examples of what various approaches to “Transition Tax Compliance” might look like.)

Continue reading →