Media and Blog Articles Open for Comments – Part 5 of 11 (Year 2018)

1,714 thoughts on “Media and Blog Articles Open for Comments – Part 5 of 11 (Year 2018)”

1. Plaxy – while it might not be worthwhile for a one-person business to incorporate, once Joe the Plumber brings on employees or needs asset protection, incorporation might make sense. These small businesses will pay local (Australian) tax on their income as earned. The individual shareholder only pays tax when there are distributions (dividends and/or salary). Income paid out will be taxable on a US return, with a credit for Australian tax paid at the individual level. Assuming there’s no passive income inside the corporation, corporate income will not be subject to US tax until distributed. So, if the corporation accumulates income to grow the business, it will have undistributed income that will be subject to the repatriation tax. Since that undistributed income represents assets needed to run the business, payment could cause financial distress.

   Has the accumulation of income inside the corporation resulted in a deferral of US tax? Only if the Australian tax on dividends is less than the US tax (which it may be due to Australia’s dividend imputation system).

2. Karen – thanks for that explanation. Can I ask a couple more questions.

   a) If the plumber had not incorporated his plumbing business, would he not have been subject to US self-employment tax and US tax on earned income? I ask because I see condors who advise (or used to advise) incorporation as a way of escaping US tax and SE tax, for SE USCs (who can’t claim FEIE).

   2. Could Joe “repatriate” money to the US by investing in US retirement plans?

   To explain why I’m wondering about these questions – I’m just thinking about whether it really is unintended that USC owners of foreign corporations should be hit by the transition tax. I don’t exactly see what’s the legal distinction between a foreign corporation set up by a USC with the deliberate intention of taking advantage of the US corporation tax laws; and Joe’s simple plumbing business which just happens to fall under US corporation tax laws because of his US citizenship.

3. i.e., if the IRS was to agree to modify, how would they specify it in order to spare Joe but include the guy who’s intentionally using foreign incorporation as a way to shield income from US tax.

4. “children born to French parents on US soil” that’s me! Except I don’t live in France. How’d that work?? OMD! (Oh Mon Dieu!). Oh well, I could move there.

5. I wouldn’t start packing.

6. Plaxy,
   Australia has a totalization agreement, so SE tax isn’t an issue here. Self employed individuals and those employed by their own small corporation would be eligible to use FEIE, though I think it’s not as effective if you’re self employed.

   The difference between Joe’s corporation and one owned by a US resident is that Joe will pay Australian tax when he receives dividends from his company and the US must allow those Australian taxes as a credit against his US tax on the dividends. If the transition tax applies to Joe’s corporation, it bypasses the Australian dividend tax so Joe would be double taxed.

   I believe that the transition tax is contrary to the intent of the Tax Treaty, which is supposed to prevent double taxation.

7. Karen – thanks for clearing up my confusion about SE/FEIE.

   “If the transition tax applies to Joe’s corporation, it bypasses the Australian dividend tax so Joe would be double taxed.

   I believe that the transition tax is contrary to the intent of the Tax Treaty, which is supposed to prevent double taxation.”

   I agree Joe would be double-taxed; I agree the Tax Treaty is supposed to prevent double taxation; unfortunately, because of the Saving Clause USCs don’t have normal protection under the Tax Treaty. I would certainly have been double-taxed if I had filed a 1040, and the same is surely true for many, many USCs receiving income which does not benefit from the FEIE and (for whatever reason) has not already been taxed by the country of source. I think that’s what the US intends to happen.

   But perhaps Holding and Brady will intervene in the extreme case of this retroactive transition tax, if they really do intend to bring in RBT. Let’s hope they do.

   Thanks again for the explanation.

8. “Here is what the IRS is doing. Their headcount has been decimated over the last 3 or 4 years. It’s down by 23%. So more and more, the IRS is relying on technology, and their computers are generating automatic notices. 70% of the time they’re incorrect.”

   https://www.taxconnections.com/taxblog/how-to-turn-irs-notices-into-a-marketing-opportunity/

9. Déjà vu — http://www.cbc.ca/news/politics/tax-evasion-privacy-crime-1.4554901…

   ‘Buried’ in the budget
   A civil liberties advocate accuses the government of using the budget to hide controversial changes to Canada’s Criminal Code.

   “If you can get something buried in the budget that nobody knows about, sometimes you can get something passed without getting the kind of heat it deserves,” said Michael Bryant, executive director of the Canadian Civil Liberties Association and a former Ontario attorney general.

   “Well, this deserves a lot of heat from the opposition and scrutiny from media.”

10. BB – along similar lines:

    http://www.cpapracticeadvisor.com/news/12400342/irs-gives-americans-anxiety-and-incites-confusion

    The condors seem to think they’ve hit on a great new ploy to scare taxpayers into thinking their risk of “audit” is far higher than it actually is: convince them that any auto-generated IRS is as bad as an audit, only worse, and ought to be called an audit.

    Soon, no doubt, it will be. Thus bumping the “audit” rate up to a level high enough to bring in the punters.

    Poor devils. (The taxpayers, needless to say, not the condors.)

11. @ calgary411
    Elizabeth Thompson has another good article under her belt. She’s awesome. After reading some of the comments it looks like most Canadians have the gLib’s number on this attempt to pull yet another fast one on us. Somebody outta spike the tires on their omnibus.

12. Plaxy
    All the saving clauses I’ve looked at have an exception for the treaty article on double taxation. So, even a US citizen should be able to make a double taxation argument under the treaty.

13. Sure, a USC can use the Mutual Agreement Procedure, but it’s probably not going to help. Double taxation is avoided through agreements as to which state has primary taxing rights; where the residence state has primary taxing rights, the US allows credit against the US tax due. If the residence state hasn’t yet taxed the income, the US will tax, and there’s nothing the USC can do about it (if they want to comply with CBT). Eventually, when the residence state taxes the income, the USC pays tax again because the residence state has primary taxing rights and no obligation to allow credit for the US tax paid.

14. Same thing where the residence state gives a tax break, for instance if the USC sells their principal residence and the residence state doesn’t charge CGT because they want the taxpayer to be able to use the full proceeds of the sale in order to buy their next home. The US will step in and charge CGT and the USC has no foreign tax credits to offset the US tax liability – as famously happened to Boris Johnson.

    Of course, that’s not exactly double taxation, since the residence state chose not to tax; but it does mean that the USC loses out on the tax break that’s available to fellow residents.

    Likewise the exit tax, where the renouncing USC is supposed to pretend they have sold their worldwide assets while they were still a USC, and now get to give about 40% to the US. Eventually, they may be taxed on what’s left by their residence country, which will not give credit for the US tax that has been paid.

15. The moral is, don’t pay this pernicious tax. Renounce or refuse.

16. @plaxy- you left out about the part of liquidation to pay for the 40% exit tax. Who would have that sort of cash sitting around? Investments would be sold (some such as in pensions could not be sold) and that would attract home country and U.S. tax then the 40% taken out of what is left.

    Also, re: double taxation, don’t fall for the U.S. treasury definition of preventing double taxation on a tax by tax basis. The definition that we need to insist on is you pay all your tax to your home country and then there is $0 tax to pay to the U.S. for home country source and zero additional compliance for home country source , ELSE that is DOUBLE TAXATION.

17. @plaxy

    The exit tax is 15% of unrealized gains above $650,000, it’s not 40% of assets,.
    40% is the tax applied to the estates of covered US persons, who leave to US heirs.

18. JC – what you want to insist on is already the reality. Nobody’s making USCs pay CBT.

19. Heidi – scuse me all to hell and back. Perfectly reasonable. All decent natural-born and voluntarily naturalized Americans should be falling over themselves to pay such a moderate reasonable contribution to the pockets of the hardpressed American stinking rich before they even think about committing the heinous son of renouncing the citizenship of that glorious land. Right?

20. lol – sin not son.

21. Just to clarify Heidi – I do not give a goldplated shit what percentage of my pension America “requires” me to pay for the privilege of allowing me to live my life and go into my bank without being treated like a criminal Dwelling on the intricacies of the US tax code is perverse in my opinion, and not psychologically healthy.

22. Plaxy
    Just didn’t want to give anyone with little choice but to commit that ‘heinous act’ an unnecessary heart attack 🙂
    Also always lots of uninformed newbies here

23. @placy
    Listen
    I share your anger, that is why I renounced. But many are here to glean knowledge to help them make the best decision possible from their perspective. I have learned from you and others,

24. Heidi – I understand that you mean to be helpful. But there’s only one message USCs need to hear from other USCs and former USCs, which is that nobody can force them to pay double tax.

    Telling them exactly how much double tax they can’t be forced to pay just comes across like that’s something they need to know.

    On compliant forums, condors squat, ever ready to jump in and correct the finer points of American lying tax law and point out that America “requires” USCs to do this and “requires” USCs not to “fail” to do that – particularly not “wilfully”. It is psychological abuse. America can’t “require” USCs to do these things, and THAT is what USCs need to know. USCs need to avoid letting themselves get caught up in the lying deeming charade.

25. Having cooled down, I acknowledge that I myself have also often slipped into the trap and got caught up in puzzling over the US tax code – a giant metaphor for our times. It’s worse than superglue for getting stuck.

    Apologies for losing the plot. I will go away and open a new bank account to soothe my spirit. 🙂

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