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. Status quo:

   Accepting US tax residency gets you US citizen benefits – and the saving clause and FBAR reporting and FATCA reporting.

   Renouncing gets you residence benefits (such as tax-free savings accounts) plus (if applicable) treaty benefits.

   Ignoring the whole business gets you residence benefits plus (if US-born) potential problems with bank access.

   Not a bad deal, provided there is same-country exemption.

2. Exempting local accounts from FBAR / FATCA reporting is something the US could deliver. (If it wanted to and wasn’t so dysfunctional.)

   Getting rid of the saving clause is not, as the saving clause saves the partner country from having to allow FTCs on income for which the partner country has primary taxing rights. Renegotiations would be needed.

3. Exempting resident accounts from FATCA reporting is something the residence country can easily do, either by sliding into a don’t-ask-don’t-tell policy, or by not contesting a court ruling that FATCA birthplace discrimination is illegal.

   The second would be much more satisfying, but personally I’ll settle for either.

4. JC: “This tweet and meme focuses on the question – is Australia he 51st State – as that is the only way an Australian resident may simultaneously be an actual resident of the U.S.”

   I like the icon used by one of the French commenters –

   “Je suis sick of this shit” 🙂

   Vive la France! Come on, other Model 1 signatory countries!

   Don’t do America’s dirty work for them.

5. Plaxy – “Getting rid of the saving clause is not, as the saving clause saves the partner country from having to allow FTCs on income for which the partner country has primary taxing rights. Renegotiations would be needed.”

   It should not be that complicated. The execrable saving clause allows a country to tax its citizens and residents as if the treaty had not come into effect, but does not require it to. As written it is entirely symmetrical, but only the US ever uses it (to its own advantage, of course). If the US changed policy to not do so, the saving clause could just live on in treaties as entirely inactive text. No renegotiation needed.

6. Watcher – you may be right. But what would be the consequences for USCs who wanted to continue filing US tax returns and getting US tax benefits such as preferential withholding rates? There’s a treaty article about discriminating – never fathomed exactly when it applies.

   The US would have to either allow preferential rates to all (including NRAs) or to none (including those who have built their retirement plans on US source investments. Or am I missing something?

7. And is there any circumstance in which the country of residence would be able to make use of the savings clause as it stand (but simply chooses not to)?

   The residence country can already tax its residents on income for which the residence country has primary taxing rights. It can’t tax its residents on income for which it doesn’t have primary taxing rights, because it can’t collect. The tax is withheld by the source country.

   Exactly the reason the US can’t tax its citizens on income for which it doesn’t have primary taxing rights.

   The treaty doesn’t give the US (or the residence country) the right to usurp the primary taxing rights; it prevents the US (or the residence country) from usurping the primary taxing rights. That’s how it looks to me.

8. Sorry – should have closed italics after “prevents”

9. For those who want the USC benefits, it works. For those who don’t (but are trying to get free of the damned IRS dragnet) it doesn’t. These would be better off choosing to ignore or renounce.

10. I found it ironic that TAP mentions only ‘citizens’ despite the category of those the US defines as ‘UStaxableperson’ being much much broader. Theoretically those the US claims as UStaxpayers also includes those living outside the US who didn’t surrender their greencards in the prescribed manner even if the status has expired and they are no longer eligible to live in the US, and those renunciants/relinquishers outside the US who didn’t exit in the manner prescribed by the IRS and also those deemed ‘covered expatriates’.

    TAP says;
    ” Is there a membership position available for individuals living abroad?
    Yes, TAP includes at least one member to represent international taxpayers. For these purposes, “international taxpayers” are broadly defined to include U.S. citizens working, living, or doing business abroad or in a U.S. territory.’
    https://improveirs.org/signupalert.aspx

    It also says “The number of TAP member representatives is based on the number of Taxpayer Advocate Service Local Taxpayer Advocates in each state.” So, the number of TAP seats is based on the number of LOCAL TAS reps INside the US. How many TAS member reps are there OUTSIDE the US?

11. Is FAWCO on our side after all? They sure don’t seem like it in their smug non-responses to various people working on these issues. Next week they’re taking part in “Overseas Americans Week” in Washington. Below is what they claim to have worked on in the same event in 2017 (bold emphasis is mine):

    The prime focuses over the years have remained the same, though immediate priorities change from year to year: ensuring that military and civilian overseas voters can vote using secure, efficient technology and know that their ballots will arrive in time to be counted; facilitating transmission of U.S. citizenship to the children and grandchildren of Americans abroad; reducing the financial reporting burden on Americans living and working abroad; working to create an equitable tax system for overseas Americans and, more recently, to move from “citizenship based taxation” to “residence based taxation” in line with other industrialized countries around the world.

    We have reacted swiftly in the face of new challenges like the creation of FATCA legislation in 2010, provisions to deny or refuse to renew passports for overseas Americans with outstanding fines or debts to the IRS, increasing numbers of financial institutions refusing service to Americans living abroad, the closing of IRS offices abroad, etc.

    https://www.fawco.org/us-issues/us-issues-news/overseas-americans-week

12. Barbara: “Is FAWCO on our side after all? They sure don’t seem like it in their smug non-responses to various people working on these issues. ”

    What side is that? What outcome are the various people working towards?

    An all-round solution to FATCA birthplace discrimination?

    A solution for USCs who want to file US taxes but without the FATCA birthplace discrimination?

    A solution for those who want to keep being USCs but not be asked by banks if they’re USCs?

    Or a solution that suits Brady and Norquist?

13. Those who have filed and paid US taxes, and have invested in the US in order to finance their retirement, want the status quo but without the bank access problems.

    Those who haven’t filed/paid US taxes, and have invested in their country of residence in order to finance their retirement, want to carry on doing that, but get rid of the bank access problems without having to file/pay US taxes and penalties for past years and ongoing.

    Chances are, no solution that makes it easier for USCs to invest in a foreign country is going to be on offer, and no solution that lets non-complying USCs avoid “coming into compliance” could ever get through Congress.

    Just getting rid of the birthplace discrimination could be done by tweaking the regulations, if the Republicans actually wanted to do it. They apparently don’t.

14. Way-hey! 🙂

    Treasury and OMB released a joint “Memorandum of Agreement” on Thursday that gives the budget office significant new authority to review tax regulations before they take effect. For instance, OMB’s Office of Information and Regulatory Affairs will be able to review proposed regulations that affect the economy by $100 million or more, raise new legal or policy issues, or run counter to actions planned by another agency.

    Among the major provisions of the new law that could get extra scrutiny are a tax break for non-corporate “pass-through” businesses and rules to deter companies from moving operations abroad, a top Treasury official told lawmakers at a hearing Thursday.

    Transition tax and GILTI, perhaps?

    https://www.politico.com/story/2018/04/12/mulvaney-tax-regulations-478201?tab=most-read

15. Here’s the one where the IRS got the power to write all those tax regulations (including the decisions about which assets former USCs “are required to” share with America, and which non-US assets US Persons “are required to” report to the IRS.

    https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/inforeg/inforeg/memos/2016/omb_moa_83_93.pdf

16. From the Wall Street Journal – by Laura Saunders –
    Look Out, Meghan Markle! The IRS Is Watching
    Some timely advice before a royal wedding that will raise daunting and complex tax issues

    https://www.wsj.com/articles/look-out-meghan-markle-the-irs-is-watching-1523611800

17. Ryan political obit:

    “The Tragedy of Paul Ryan”
    https://www.politico.com/magazine/story/2018/04/12/how-donald-trump-upended-paul-ryans-plans-217989

    Though to me the Republican chaos looks more like farce than tragedy, it’s worth bearing in mind that Ryan’s plan favoured a switch to territoriality (associated generally with capital export neutrality if I understand correctly).

    While the plan Trump signed off is called a switch to territoriality but in fact continues to cling to capital import neutrality by taxing both US individuals and US corporations on non-US-source income.

    Now that they’ve stuck it to the IRS, will the conservatives amend their tax bill to shift it back towards genuine territoriality? That would be helpful for some and could possibly be helpful for all.

18. Nice mention for several of our expat groups:

    https://www.facebook.com/AWA.Melbourne/?hc_ref=ARQUldlOgAoYT5SG_JwdqjN-CAzNfiHijNNXnb30zle5ch5DXybILsCzDUZmFWMkw8g&fref=nf

19. Left-leaning homelanders will applaud these righteous individuals who fled Trump’s America:

    Some Said They’d Flee Trump’s America. These People Actually Did.

    No mention in the article that they are still tax and form slaves of America. Would those same left-leaning homelanders applaud that too?

20. They are just traveling. None have taken up residency anywhere else and most still “work” in the US remotely or are running a business there. Homelanders abroad.

21. The worst kind:
    Never stay anywhere long enough to have a tax-residency and the double taxation involved with that. Never have a house outside the US they might want to sell. Probably even have all their accounts in the US.
    Then those kind are used to point out how not-bad the situation is for people dealing living outside the US.

22. @ Unforgiven Too
    Yes. Stepford wives who have stepped away from their home(land) for a bit but retained their American character, despite the non-American nature of their surroundings.

23. Can it be true that American states may also try to tax the deemed Transition Tax income? Or is this just a tax adviser drumming up trade?

    Similar to GILTI, the TCJA, in Section 965, also provided for a transition tax (TT)2 through a one-time income inclusion under Subpart F, and a corresponding deduction, in order to arrive at a preferred effective federal tax rate. Effective for the 2017 tax year, the TT deems otherwise deferred foreign earnings and profits of controlled foreign corporations (CFCs) be included in the federal tax base. Like the GILTI, this inclusion will automatically expand the state tax base absent a state-specific exclusion for income received from CFCs or a dividend-received deduction for states that treat this type of income as such. While the TT is generally expected to increase state taxes, for those states that choose to exclude this income, taxpayers may benefit from the TT because the state tax base will otherwise still include the IRC § 965 deduction. Thus, some states will need to enact a new add-back in order to avoid this unexpected loss. Also, for federal income tax purposes, taxpayers may elect to defer the TT liability by paying the tax in eight installments. However, the election will likely not apply to the states because it is merely deferring the payment rather than deferring the income recognition. Thus, absent a state-specific election, any state tax liability resulting from the TT will be due and entirely payable in the 2017 tax year.

    http://www.berdonllp.com/mobile_newsdetail/nid-5966

    There seems to be widespread uncertainty about what states can and can’t do in the wake of the TCJA.

    No mention at all of the impossible situation of expat USC owners/shareholders of non-US corporations.

24. Some states base their taxes on federal taxable income or AGI – unless they write a specific law on how to deal with the transition tax, these states will include the section 965 inclusion in taxable income without any of the 8-year deferral benefit. Fortunately, most long term expats would not be considered tax residents for state income tax purposes. For US residents with CFCs, however, this can be a big problem.

25. Something called the State Tax Research Institute says:

    Most states provide a subtraction or exclusion for Subpart F income, as shown in Figure 7, meaning that amounts includable in federal income due to the transition tax will generally not be taxed by the states. However, four states (i.e., Colorado, New Hampshire, Oklahoma, and Vermont) do not provide a deduction or modification for Subpart F income and may impose their taxes on the federal amounts reported under IRC Section 965. In many other states, tiered deductions are provided for Subpart F income based on ownership levels. This analysis assumes that income subject to tax under this provision was earned by a 100%-owned entity and would be subject to the maximum exclusion percentage. Given this assumption, four states may fully tax income determined under IRC Section 965 and another 12 states may impose tax on a fractional portion of this income.

    http://www.ey.com/Publication/vwLUAssets/ey-the-impact-of-federal-tax-reform-on-state-corporate-income-taxes/$File/ey-the-impact-of-federal-tax-reform-on-state-corporate-income-taxes.pdf

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