Liberty and justice for all United States persons abroad

The Isaac Brock Society

Part 25 – Reflections on the “S Corporation” exemption to the Sec. 965 @USTransitionTax – Hat Tip to @SCorpAssn (Part B)

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cross-posted from citizenshipsolutions

Part A is here .

1. What exactly is an S Corporation?

An “S corporation” is a corporation which elects a specific kind of tax treatment under the Internal Revenue Code. It is NOT a type of corporation. Rather it is the “tax treatment” used by a corporation. (A corporation can be incorporated in any state.)

The following tweet referencing an excellent article from Wolters Kluwer explain this point.

The first thing to remember is that an S corporation is simply a for-profit corporation that elected to be taxed under Subchapter S of the Internal Revenue Code, making it a “pass-through” entity for tax purposes. It is incorporated under and governed by the same state corporation laws as a corporation that was not eligible for S corporation tax status or whose shareholders chose not to elect that status. Therefore, an S corporation has the same non-tax advantages as a regular corporation. (A regular corporation is also referred to as a C corporation when discussing its tax status because it is taxed under Subchapter C of the Internal Revenue Code).

Because an S Corporation is a corporation with a specific kind of tax treatment (the profits are passed through to the shareholders), one can say that an S Corporation is really a creation of the Internal Revenue Code (On The Third Day Congress Created The S Corporation).

2. How the requirements of an S Corporation reflect that that S Corps are the “small business corps” of America
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What if Meghan Markle’s child is born a U.S. citizen? Would the child have any immediate tax and information reporting requirements to the IRS?

Posted on by Posted in Citizenship Issues, Non Resident Taxation, reductio ad absurdum 147 Comments

interesting court comment

cross-posted from Quora

J-bnnJohn Richardson
Toronto lawyer: FATCA U.S. tax + renunciation of citizenship
CitizenshipSolutions

John Richardson, Lawyer (1982-present)
Answered Mon
 

 
What if Meghan Markle’s child is born a U.S. citizen? Would the child have any immediate tax and information reporting requirements to the IRS?

I note that the question (1) assumes that Ms. Markle’s child is a U.S. citizen and (2) the question focuses on BOTH tax and reporting requirements.

Would Meghan Markle’s children be U.S. citizens?

The majority view is “YES” her children would automatically be U.S. citizens. My minority view is “NO” – they would have the right to be U.S. citizens but not the obligation to be U.S. citizens. I have previously explained my reasoning on Quora here:

John Richardson’s answer to Could Meghan Markle’s children apply for US citizenship?

But, assuming that her child will be born a U.S. citizen, then

To be perfectly clear:

With the exception of gifts/bequests received from a “covered expatriate” the recipient of a gift is NOT required to pay tax on the value of the gift.

The recipient of a gift or bequest may be subject to penalty laden reporting requirements. These reporting requirements apply even though the value of the gift is NOT subject to tax.

Furthermore, this answer is really a “thought experiment” which explores the absurdity of certain aspects of the Internal Revenue Code apply to the lives of Americans abroad.

Here we go …
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Part 25 – Reflections on the “S Corporation” exemption to the Sec. 965 @USTransitionTax – Hat Tip to @SCorpAssn (Part A)

Posted on by Posted in Transition Tax 1 Comment

cross-posted from citizenshipsolutions

This post is in 3 parts, published over 3 days.

Beginnings …

A recent comment at the Isaac Brock Society includes:

It’s too bad I didn’t put my Canadian corporation in an S Corp before I knew I was a US taxpayer. I must have misplaced my crystal ball at the time. As I had when I sold my house in Canada.

What a clusterfu@k!

On November 15, 2018 I did a second interview (first interview October 16, 2018 here) with Monte Silver and his Sec. 965 advocacy. The video was featured on a post at CitizenshipTaxation.ca.

If you have not watched the November 15 interview, I suggest that you begin by watching the video (click on the above tweet). The most significant part of the interview is where Sec. 965(I) is discussed. Interestingly Sec. 965(I) provides a transition tax exemption to individuals who are the shareholders of an “S Corp”. To understand the mechanism for the exemption, click on the link in the following tweet:

This interesting exemption is available only to individuals who are shareholders of S corporations and not to other individuals. The interview also included some discussion of the fact that “S Corp” shareholders have the benefit of lobbying from a powerful lobbying association – S-Corp. The interview ended with Monte Silver describing the probability that the Sec. 965 transition tax issue is headed to the courts.

But, in the “Pay To Play Casino” that America has become:

Why are individuals who are the shareholders of an S corporation, which owns the shares of a CFC, more equal than those individual shareholders who own the shares of a CFC directly?

Let’s see …
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The US wants to “raise funds” by imposing taxation on the undistributed earnings of Canadian Controlled Private Corporations. Lawyer Monte Silver needs to “raise funds” to stop them. You can help

Posted on by Posted in Issues regarding US persons abroad, Transition Tax 46 Comments

Update – November 16, 2018 – Here is the November 15, 2018 interview with Monte Silver:

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A message from one Canadian resident …

More info after the jump …

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“All persons born or naturalized in the United States, and SUBJECT TO THE JURISDICTION THEREOF, are citizens of the United States…”

Posted on by Posted in Freedom 97 Comments

There is much discussion now on ending imposition of U.S. birthright citizenship for persons born in the US whose parents do not have a meaningful relationship with the country.

This discussion does NOT involve, as some very sloppy journalism suggests, ending ALL birthright citizenship, but rather, interpreting part of the already existing section one of the U.S. 14th amendment to mean that children born in U.S. to (e.g., Canadian) parents who do NOT have a legal/permanent/meaningful relationship with the U.S — should not receive U.S. citizenship at birth:

They are not actually subject to the jurisdiction of/allegiance to the U.S. — they are, for example, Canadians and they don’t deserve the benefits or negative consequences of U.S. birthright citizenship irrespective of consent or whether some might like the idea of having a second passport.

“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside…”

I hope that the United States Supreme Court will confirm this common sense interpretation of the U.S. 14th Amendment.

Brock project: How would the absence of the “savings clause” in the Canada US tax treaty change the tax treatment of “US citizens” in Canada?

Posted on by Posted in Issues regarding US persons abroad 81 Comments

Introduction …

This post is largely motivated by two recent Facebook discussions.

First discussion:

A recent discussion in the American Expatriates group explored the question of whether a U.S. citizen who was a “tax resident” of another country could use a “tax treaty tie breaker” to avoid U.S. taxation. The discussion began with:

Good Morning, does anyone know something about Tax treaty tiebreakers, Would that be a possible solution for Americans Abroad, Dual Citizens, Accidental Americans ?

Tax treaty tiebreakers are rules that are used to assign a person’s tax residency to one country when an individual is a tax resident of both countries. In the context of U.S. tax treaties, treaty tie breaker rules are used when an individual is both:

1. A U.S. person for tax purposes (U.S. citizen or U.S. resident); and

2. A tax resident of another country.

It is very common to use tax treaties to assign tax residency to a country when an individual is a tax resident of more than one country

Questions:

1. Does this mean that without the “savings clause” that that U.S. citizens living permanently in Canada would no longer be (in a practical sense) subject to “citizenship-based taxation”?

2. If the answer is that: the “savings clause” (by not allowing a “tax treaty tiebreaker”) is responsible for “citizenship-based taxation” in Canada – then is Canada by agreeing to the “savings clause” responsible for imposing U.S. “citizenship-based taxation” in Canada?

Second discussion:

A second discussion raised the question of whether Canadian residents could sue the Government of Canada for entering into a treaty which would subject them to U.S. worldwide taxation. (Although the ADCS FATCA lawsuit argues that the amendments to Canada’s Income Tax Act violate the Charter, one wonders whether one could argue that the IGA itself violates the Charter.)

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CANADIAN FATCA IGA LAWSUIT UPDATE: October 3, 2018 Plaintiffs’ Memorandum of Argument Has Been Submitted to Canada’s Federal Court

Posted on by Posted in Freedom 147 Comments

Here is the Memorandum of Argument of our Plaintiffs (Gwen and Kazia) for our FATCA IGA legislation lawsuit that was submitted on October 3, 2018 to Canada’s Federal Court. [Note that text is limited to 30 pages.]

The Memorandum can be found HERE.

The gist of our argument (page 12) is that the FATCA IGA legislation is inapplicable to Provincially regulated institutions and violates Sections 7, 8, and 15 of Canada’s Charter of Rights.

Some Excerpts:

— “The Impugned Provisions trench upon the core of the provincial power over property and civil rights because they constitute the regulation of a particular industry – the financial industry – and the regulation of this particular industry is an exercise of the provinces’ core powers over property and civil rights.40″

—”…although some US Persons in Canada have obligations under US law to report their Accountholder Information to the IRS, they generally do not have an obligation to report this information to Canada.”

…“Canada admits that it does not know how many account records have been shared with the IRS which are associated with individuals who are not US Persons.49…”

—”That the Impugned Provisions authorize warrantless searches without any notice or means of judicial review of any kind is undisputed and fatal to their reasonableness.”

—“But Canada has admitted that it does not oversee – meaningfully or at all – the conduct of Canadian FIs in determining whose Accountholder Information will be reported to both Canada and the United States.”

—“…it is impossible for Canada to establish that its own use for domestic tax compliance purposes of Accountholder Information obtained pursuant to the Impugned Provisions (to which it admits63) is reasonable because Canada’s use of that information is unrelated to the objective underlying the Impugned Provisions.”

— “The plaintiffs and other reasonable hypothetical individuals have a reasonable expectation of privacy in their Accountholder Information. Canadian courts have observed that personal financial information prima facie attracts a reasonable expectation of privacy, and that individuals can reasonably expect their financial institutions to keep their information confidential.

—“Canada cannot justify the s. 8 infringement under s. 1 of the Charter because it cannot demonstrate that the Impugned Provisions minimally impair s. 8.”

—“Most importantly, the Impugned Provisions undermine the Group’s access to a basic aspect of full membership in Canadian society by denying them the protection of Canadian sovereignty by exposing them to the extraterritorial enforcement of another state’s taxation and tax compliance regime.”

NEXT STEPS:

— Canada responds to our Memorandum of Argument by November 21, 2018.

— We reply to Canada by December 7, 2018.

— Trial is held in Vancouver beginning January 28, 2019

Passport Revocation: The new weapon in the US war on Americans abroad

Posted on by Posted in Issues regarding US persons abroad 270 Comments

passport revoke
 
 
 
 
 
 
 

cross posted from Citizenship Solutions

by John Richardson

Circa 2015:

The logical progression continues …

I just got off the phone with someone who has just received a letter from the IRS stating that:

1. He had a “seriously delinquent” tax debt; and

2. That notice of the “seriously delinquent” tax debt was being forwarded to the State Department.

(In 2016 I did a presentation on this topic just a few months after the law came into force. You may view the presentation here.)

It is clear that the letters from the IRS have started to go out. The purpose of this post is to explain in simple terms what this means for Americans abroad.

To put it simply:

1. If you have received the notice and you do NOT have a current U.S. passport then:

The State Department cannot issue you a passport.

2. If you have received the notice and you DO have a current U.S. passport then:

The State Department may revoke your passport but is not required to revoke your passport. Continue reading →