11/16/2017 UPDATE: HOUSE TAX REFORM BILL PASSES FLOOR VOTE; SENATE TAX BILL PASSES SENATE FINANCE COMMITTEE — Do not have final versions yet but strongly suspect that we are not helped in either bill

712 thoughts on “11/16/2017 UPDATE: HOUSE TAX REFORM BILL PASSES FLOOR VOTE; SENATE TAX BILL PASSES SENATE FINANCE COMMITTEE — Do not have final versions yet but strongly suspect that we are not helped in either bill”

1. JC

   I read your comment a few hours ago.
   refresh your browser?

2. I do wonder what it is going to take before the governments of the world realise just what a tool they have handed the USA by implementing FATCA.

   Heck, why even stop at 14 percent as a one off?

   Hey, and let’s have a new annual tax on overseas businesses while we’re at it. We’ll call it a “homeland support contribution tax”.

   Make it punitive though, because those suckers are trying to avoid US taxes and their fair share, so it’ll get full backing in the USA!

3. @All, we MUST stop talking about this punitive tax on Canadian small corporations its a tax on small corporations worldwide!!

4. RO writes:

   TTFI update: TTFI is not in Chairman Brady’s markup revision on Thursday due to the fact that the Joint Committee on Taxation hasn’t completed TTFI’s scoring in time. We asked if JCT could use ACA’s RBT score to speed up its TTFI scoring process. No. ACA’s revenue neutrality is through an exit tax for expats working overseas. We want to close a tax loophole for foreign billionaires to pay for TTFI, not to make expats to pay a new exit tax.

   Question:

   So, if your proposal is still stuck in JCT, what is the likelihood of us seeing this pass?

   RO’s reply:

   There are no guarantees, but we did have some initial positive feedback. We do have supporters in both the House and Senate, and we will continue to reach out to them throughout this process.

   See RO’s FB for more.

5. https://isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-13/#comment-8049234
   Kym Kettler-Paddock’s reply to Stephen Kish:

   We are seeking clarification from the House Ways and Means Committee of the interpretation of this tax as applied to Overseas Americans. If it turns out that this will indeed apply to Overseas Americans with the consequences you have outlined, then we will find a way to fight it.

6. Meanwhile, Senate comes up with even more proposals to screw diaspora businesses
   https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf

   The proposal amends the ownership attribution rules of section 958(b) so that certain stock of a foreign corporation owned by a foreign person is attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation and, therefore, whether the foreign corporation is a CFC. In other words, the proposal provides “downward attribution” from a foreign person to a related U.S. person in circumstances in which present law does not so provide. The pro rata share of a CFC’s subpart F income that a United States shareholder is required to include in gross income, however, continues to be determined based on direct or indirect ownership of the CFC, without application of the new downward attribution rule.

   Sec 958 (and the associated reporting requirement Sec 6046) are already so batshit insane that under current law they produce results like this:
   https://hodgen.com/real-life-get-married-file-form-5471/

   Here is a real life problem we are solving right now for a real life couple: an American citizen married to a noncitizen, living abroad.

   H formed a corporation in his country of residence, and started a business. It is a “foreign corporation” to the IRS.
   H met W, an American citizen. They married.
   W has never been an officer, director, or employee of the corporation. H continues to be the sole shareholder of the corporation to this day. There are no community property rules that give W a shared ownership in the corporation.

   Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?

   And the Senate want to make it worse

7. Why waste time trying to figure out what those who wrote it say it means. It means what ever the regulator you are dealing with says it means until such time as the question is put to the courts who will then decide what it means. Unless you convinve USCabroad to loan you his time machine, trying to find the meaning of this or that part of the bill is an exercise in futility.

   Regardless of whatever regulations are written to implement this law, if it passes, and the eventual court judgements, there will be people hurt by this. For USCs abroad with business interests, the road is clear, all roads lead to selling off all business interests. Sell off and be free! Be quick about it too, the sand is running out, the longer you wait the more difficult it wil be. SELL OFF AND REJOICE.

8. Just curious, if one is unable to come up with the cash to pay this additional tax burden, what might that do to their passport?

9. “Here is a real life problem we are solving right now for a real life couple: an American citizen married to a noncitizen, living abroad.

   H formed a corporation in his country of residence, and started a business. It is a “foreign corporation” to the IRS.
   H met W, an American citizen. They married.
   W has never been an officer, director, or employee of the corporation. H continues to be the sole shareholder of the corporation to this day. There are no community property rules that give W a shared ownership in the corporation.

   Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?

   And the Senate want to make it worse”

   BUT, BUT that can not be! Brockers told me that I can not be taxed based upon my spouses assetts.

10. “Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?”

    No, not really. I’m sure there are dozens of traps for people that get too close to an American and the USA.

    Only the ignorant or foolish marry an American. Don’t marry one, don’t go in to any sort of business with one, don’t have one as a client and don’t employ one. Have nothing to do with the USA, do not own investments there, property there, nothing.

11. “Only the ignorant or foolish marry an American. Don’t marry one, don’t go in to any sort of business with one, don’t have one as a client and don’t employ one. Have nothing to do with the USA, do not own investments there, property there, nothing.”

    That is exactly what I tell me friends and clients.

12. @Eric:

    “Two problems:
    1. You have to get convicted. Unless you want to go over there and stand trial, that means you have to goad the US just enough that they’ll prosecute you in absentia, but not so much that they’ll demand your extradition or send hired thugs to pull a Sidney Jaffe on you.”

    Would this work.

    Line up a whole bunch of stereo speakers along the 49th Parallel, crank the stereo to 10 and blare “3 Dead Trolls in a Baggie” at ’em for hours on end?

    https://youtu.be/aue-zWxYtEc

    Maybe if we play it 24 hrs a day for 36 days, they might give in…and give us our TTFI.

    Or maybe they may get pissed off enough to invade us. 🙁

13. “Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?”

    No, but it would surprise me if W was dumb enough to do so.

14. Those with a second citizenship and in compliance now should seriously be considering renouncing. The renunciation fee may work out to be the best money ever spent.

    One needs to examine their relationship with US citizenship. If your only relationship is filing forms hoping for change it is better to renounce now. For those not in compliance, as I said before, this group should do everything in their power to stay that way.

15. @Eric. That attribution revision sounds ridiculous.

    If H owns 100% and is not a U.S. citizen then W should file no forms. Under this setup W does not even have to file the all invasive FBAR on the company accounts.

    Of course there is danger if H passes and the company is left to W, or is put in a trust where W is a beneficiary.

16. @JC

    If H owns 100% and is not a U.S. citizen then W should file no forms. Under this setup W does not even have to file the all invasive FBAR on the company accounts.

    Of course (as you point out) it’s ridiculous. W would NOT be treated as an owner for the purposes of Subpart F income, would be required to file because the attribution rule (different attribution rules for different purposes) would would reflect a pretend change in share ownership.

    But, somebody could know only this only if the kept searching for a tax person whose hobby was attribution rules.

17. @Stephen Kish

    Hate to do this, but want to go back to your comment here:

    https://isaacbrocksociety.ca/2017/11/02/here-is-the-2017-u-s-house-tax-cuts-and-jobs-act-bill-does-it-help-or-harm-us/comment-page-10/#comment-8046477

    where you write:

    The Joint Committee Summary for the Tax Reform Bill has now been released (see link below). There is new text suggesting that the 12% one time tax applies to ALL shareholders of foreign (local to us) corporations — not just the big foreign subsidiaries of domestic corporations. US persons are given eight years to pay up.

    The text on page 253:

    “…In general. The proposal generally requires that, for the last taxable year beginning before January 1, 2018, all [“all” means ALL] U.S. shareholders of any [“any” means ANY] CFC or other foreign corporation that is at least 10-percent U.S.-owned but not controlled (other than a PFIC) must include in income their pro rata share of the accumulated post-1986 deferred foreign income and which was not previously taxed. A portion of that pro rata share of deferred foreign income is deductible; the amount deductible varies depending upon whether the deferred foreign income is held in the form of liquid or illiquid assets. The deduction results in a reduced rate of tax applicable to the included deferred foreign income. A corresponding portion of the credit for foreign taxes is disallowed, thus limiting the credit to the taxable portion of the included income. The increased tax liability generally may be paid over an eight-year period…”

    “In contrast to the participation exemption deduction available only to domestic corporations that are U.S. shareholders under subpart F, the transition rule applies to all U.S. shareholders of a specified foreign corporation…”

    From:

    https://www.jct.gov/publications.html?func=startdown&id=5031

    Let’s consider the complete paragraph (which you have abbreviated). It reads as follows:

    4. Treatment of deferred foreign income upon transition to participation exemption system of taxation

    Description of Proposal

    In general

    The proposal generally requires that, for the last taxable year beginning before January 1, 2018, all U.S. shareholders of any CFC or other foreign corporation that is at least 10-percent U.S.-owned but not controlled (other than a PFIC) must include in income their pro rata share of the accumulated post-1986 deferred foreign income and which was not previously taxed. A portion of that pro rata share of deferred foreign income is deductible; the amount deductible varies depending upon whether the deferred foreign income is held in the form of liquid or illiquid assets. The deduction results in a reduced rate of tax applicable to the included deferred foreign income. A corresponding portion of the credit for foreign taxes is disallowed, thus limiting the credit to the taxable portion of the included income. The increased tax liability generally may be paid over an eight-year period.

    The mechanism for the mandatory inclusion of pre-effective date foreign earnings is subpart F. The proposal provides that the subpart F income of all specified foreign corporations is increased for the last taxable year that begins before January 1, 2018, by its accumulated post-1986 deferred foreign income. In contrast to the participation exemption deduction available only to domestic corporations that are U.S. shareholders under subpart F, the transition rule applies to all U.S. shareholders of a specified foreign corporation. A specified foreign corporation means (1) a CFC or (2) any foreign corporation in which a domestic corporation is a U.S. shareholder (determined without regard to the special attribution rules of section 958(b)(4)), other than a PFIC that is not a CFC. A specified foreign corporation that has deferred foreign income is a deferred foreign income corporation. Consistent with the general operation of subpart F, each U.S. shareholder of a specified foreign corporation must include in income its pro rata share of the foreign corporation’s subpart F income attributable to its accumulated deferred foreign income.

    I think it’s important to have argument(s) why this would NOT apply to Canadian Controlled Private Corporations. I am not sure that this has to be interpreted such that the retained earnings of CCPCs are subject to the 14% tax.

    My argument is very simple. Here is the title of Sec. 4004

    Sec. 4004. Treatment of deferred foreign income upon transition to participation exemption system of taxation.

    The retained earnings of Canadian Controlled Private Corporations are not “deferred income” of any kind. It is the income of the corporation. It may never be distributed. There is no reason that it ever has to be distributed. Since it never has to be distributed it cannot be deemed to be “deferred”. The Subpart F rules in effect to this point have been used to determine which earnings were treated as subject to the “anti-deferral regime” and were therefore characterized as Subpart F. The earnings that were NOT Subpart F are NOT by any definition “deferred”. They are understood to be earnings that belong to the corporation.

    If no deferred income, then no deferred foreign income …

18. @USCA – I hope you’re right! However, when reading the tax code I am repeatedly reminded of this quote:

    “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

    — Lewis Carroll, Through the Looking-Glass

    Whether the retained earnings of a CFC (I’m not going to specify a Canadian Controlled Private Corporation, because this provision steals money from all countries that have allowed US citizens to immigrate and start businesses) are “deferred” income depends on how Congress chooses to define deferred income, not on what the dictionary tells you that deferred income should be. Congress is the master of the meaning of words in the tax code!

    In its “wisdom” (sarcasm intended) Congress (or at least the House) has decided to define deferred income as:

    (2) ACCUMULATED POST-1986 DEFERRED FOREIGN INCOME.—The term ‘accumulated post-1986 deferred foreign income’ means the post-1986 earnings and profits except to the extent such earnings—

    (A) are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or

    (B) if distributed, would be excluded from the gross income of a United States shareholder under section 959.

    (section 965(d)(2) as amended by HR 1, section 4004)

    I certainly hope sanity prevails and Congress learns how to use a normal dictionary. This nightmare is a full-employment act for accountants (maybe that’s why they put Jobs in the short title of the bill).

19. “Sec 958 (and the associated reporting requirement Sec 6046) are already so batshit insane that under current law they produce results like this:
    https://hodgen.com/real-life-get-married-file-form-5471/”

    The way Phil Hodgen writes it, it includes this case:

    H is an American Samoan citizen and resident, which makes him a US non-citizen national under nationality law, but makes him a US non-resident alien under US income tax law, He owns 100% of a company in American Samoa. W moves to American Samoa and marries him. W has to file Form 5471.

    And, it includes this case:

    H is a US citizen residing in Puerto Rico. He owns 100% of a company in Puerto Rico. W moves to Puerto Rico and marries him. From Mr. Hodgen’s blog it looks like H had to file Form 5471 all along and W has to start when they get married.

    If they get married before W moves to Puerto Rico (or American Samoa) then, even if some other law makes exceptions for residents of Puerto Rico (or American Samoa), W isn’t a resident of Puerto Rico (or American Samoa) at the time of marriage so she has to file Form 5471.

20. “Why waste time trying to figure out what those who wrote it say it means. It means what ever the regulator you are dealing with says it means until such time as the question is put to the courts who will then decide what it means.”

    Wanna bet they’ll decide what it means? When it gets put to the courts a court will state two contradictory meanings in the same ruling.

21. ‘Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?’

    “BUT, BUT that can not be! Brockers told me that I can not be taxed based upon my spouses assetts.”

    At this particular moment that appears to be true. W is getting PENALIZED not taxed.

22. ““Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?”

    No, but it would surprise me if W was dumb enough to do so.”

    NOT dumb to do so if your FIs are reporting it.

23. ““Why waste time trying to figure out what those who wrote it say it means. It means what ever the regulator you are dealing with says it means until such time as the question is put to the courts who will then decide what it means.”

    Wanna bet they’ll decide what it means? When it gets put to the courts a court will state two contradictory meanings in the same ruling.”

    Which makes this current endeavor even more meaningless.

24. “‘Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder” of H’s corporation?’

    “BUT, BUT that can not be! Brockers told me that I can not be taxed based upon my spouses assetts.”

    At this particular moment that appears to be true. W is getting PENALIZED not taxed.”

    Touche! Great point, and sharp too! Thanks for the corretion, but I was also told that I could not be penalized based upon my spouse’s assets.

25. Karen –

    Whether the retained earnings of a CFC (I’m not going to specify a Canadian Controlled Private Corporation, because this provision steals money from all countries that have allowed US citizens to immigrate and start businesses) are “deferred” income depends on how Congress chooses to define deferred income, not on what the dictionary tells you that deferred income should be. Congress is the master of the meaning of words in the tax code!

    Yes, but a person not living in the US need not choose to agree with the US taxwriter’s definitions.

    This provision, if enacted, would be a clear instance of double taxation. Owners would have a right to raise a complaint under the Mutual Agreement Procedures. There is no need to bend over and meekly accept the whipping,

    Alternatively, the owner could make arrangements to avoid “covered” status, and renounce US citizenship.

    Or the owner could remain a US citizen, wait to see if this US tax bill passes, and when it fails, as looks likely, breathe a sigh of relief and continue in this state of extreme vulnerability – thanking the Republicans for all their help.

    Up to the owner to choose.