Liberty and justice for all United States persons abroad

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

Today (11/16/2017) the floor of the House passed the House tax reform bill. The earlier version is here .

Today also the Senate Finance committee passed the Senate tax reform bill. See link

Do not yet have the final versions of either bill but suspect that we are not helped in the bills. Will post here final versions when they become available.

Listen to the C-span clip found by BB in which Residence-based taxation is mentioned by Golding and Brady in the House tax bill debate — none of this however, appears to have been incorporated into the House or Senate bills passed on 11/16/2017

Republicans Overseas (RO) continues to press on, to make changes in the final tax package that will help us. The fight is not yet over, but it continues, right from the beginning, to be an uphill battle — and the odds don’t seem very good right now. RO says: “Again we need to focus on the Senate side since this fight is far from over.”

Personally, it makes no sense to me to blame Solomon and the handful of people at Republicans Overseas for trying to make a change and, so far, failing. Yesterday a friend reminded me that there was this Ismene, who kept telling her sister Antigone that it was pointless to even “try”: “…but you’re bound to fail…No sense in starting a hopeless task…Go then, if you are determined, to your folly, etc. etc.” Antigone responded: “When I have tried and failed, [then] I shall have failed.”

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. @Lake Superior Guy

    BTW, I’m an equal opportunity detractor of both the Republicans AND the Democrats. It is now crystal clear that Trump and Clinton share one indisputable fact: they both bought-out their pathetic respective parties for ten cents on the dollar.

  2. Richard Durden @ American Expatriates FB wrote:

    It appears also that if nothing is added the threshold for filing ‘married filing separately’ will be $0 since this plan eliminates the personal exemption. Right now the threshold for filing is $4,050 which is the same as the personal exemption.

    Could this mean divorce for some couples? Would that even help?

  3. I just posted in the top post the below. Is Max Reed correct?

    November 3 UPDATE:

    I was just made aware of an article by Max Reed that apparently indicates that US persons overseas who own small business corporations might be harmed by the new tax legislation. In particular, the imposition of a one-time 12% tax on deferred earnings would hit not just the intended giant corporations overseas, but also the tiny incorporated businesses (e.g., family or one person medical doctor “corporation”). They don’t have the money to pay the tax — and won’t pay. I am trying to determine whether Max’s opinion is correct.

    From the Max Reed article:

    “… New punitive rules that apply to US citizens who own a business. Currently, most US citizens who own a Canadian corporation that is an active business don’t pay tax on the company’s profits until they take the money out. The House plan changes this. It imposes a new, very complicated, set of rules on US citizens that own the majority of a foreign corporation. The proposal would tax the US citizen owner personally on 50% of the entire income of the Canadian corporation that is above the amount set by an extremely complex formula. At best, this will make the compliance requirements for US citizens that own a business extremely complicated and expensive. At worst, this will cause double tax exposure for US citizens who own a Canadian business on 50% of the profits of that business.

    Imposition of a 12% one-time tax on deferred profits. Under the new rules, the US corporate tax system is transitioning to a territorial model. As part of this transition, the new rules impose a one-time 12% tax on income that was deferred in a foreign corporation. Although perhaps unintentional, since US citizens will not benefit from a territorial model, the new rules impose a 12% tax on any cash that has been deferred since 1986. Take a simple example to illustrate the enormity of the problem. A US citizen doctor moved to Canada in 1987. She has been deferring income from personal tax in her medical corporation and investing it. Now, 12% of the total deferred income since 1986 would be subject to a one-time tax in the US. That may be a significant US tax bill…

    It is unclear what, if anything, will be enacted. However, US citizens in Canada – particularly those that own a business – should pay close attention as their tax situation could get significantly worse. Renouncing US citizenship may become an increasingly attractive option.”

  4. It’s fairly obvious that:

    1. Those who are not in U.S. tax compliance will NEVER come into compliance (unless for the narrow purpose of renunciation).

    2. Those who are in compliance MUST renounce ASAP.

    It has become very clear that the this proposed tax reform bill makes things WORSE and not better for many (if not most) Americans abroad.

    Although U.S. taxation affects all people living outside the U.S. It is clear that those who have attempted compliance are suffering an extra layer of harm.

    Mr. Kish’s comment makes clear that (if the analysis is correct) the present proposal would confiscate 12% of the retained earnings of any Canadian Controlled Private Corporation, under the following conditions:

    1. The corporation is a “controlled foreign corporation” (total U.S. share ownership is more than 50%)

    2. Any U.S. citizen who owns 10% or more of the shares of that Canadian Corporation that qualifies as a “controlled foreign corporation” will be expected to pay this 12% personally.

    On this point, I remind you that ownership is determined NOT only by “direct ownership” but my “indirect ownership” and through “attribution rules” (the ownership of somebody else’s shares can be attributed to you).

    Obviously, nobody will pay the 12% confiscation, because they can’t.

    Word of warning!!!! If you believe you are affected by this, be careful who you talk to about it!

  5. 12%, no doubt this personal or otherwise tax would not be covered by the tax treaties, as countries of the world do not have a similarly named tax going back to 1986, named something like Territorial Adjustment Tax. Thus by the tax treaty, double taxation is “prevented” by limiting the tax to no higher than the highest rate for each country, Canada for instance 0%, so the new tax applies. And as the income is Canadian source the Canadian government will not allow tax credit for this U.S. tax paid on Canadian source income = double tax guaranteed.

    No doubt those Canadian corporations which are complying now will hear from their compliance firm about this.

    Tea Party on the St. Lawrence, anyone!

    All cannons pointed at FATCA leaves tax treaty gaps and lack of highlight with the Canadian Government in regards to their abrogation of their obligation to protect their resident citizens who are U.S. persons. At least the Canadian tax treaty, while not shielding its residents from egregious and unjustified U.S. tax claims, says that it will not assist the U.S. in its collection of Canadian resident Canadian citizens in Canada before the tax year of any such claim.

  6. The tax on corporations reminds me of taxing capital gains on house sales. These are not things I would report on my returns since there is no way for the IRS to know if I sold a house abroad or if I incorporate my business.

  7. @Fred (B)

    The tax on corporations reminds me of taxing capital gains on house sales. These are not things I would report on my returns since there is no way for the IRS to know if I sold a house abroad or if I incorporate my business.

    This is a problem for people who have been in compliance and have filed 5471s (you know those fools who obeyed the law). The 5471 tracks the information required to assess the tax.

    Obviously nobody is going to voluntarily pay this for the simple reason that nobody would have the money to pay it.

    I assume your point is that the 5471 should never have been filed at all.

    The house thing is entirely different because one is not (at least at present) required to report your real estate on Form 8938 or in any other place. But, it does see to me that Americans abroad should take care to NEVER reference that they own a home on any return for any reason. Same thing with the “alien spouse” (another scared instrument of tax evasion).

    This new proposed rule, on he heels of the other changes over the years, has made it so that U.S. tax compliance is not possible from even a logistical perspective. It can’t be done!

  8. Found this tidbit on markup as to when we will know at that stage;

    “House Ways and Means Chairman Kevin Brady on Friday made some technical changes to the legislation released the day before, and he said the panel will begin the real work of “making more substantive improvements to the bill” when it meets on Monday. He promised that work will be finished Thursday after “four days of open, full-throated debate.”

    AND

    “Senate Finance Committee Chairman Orrin Hatch plans to release his version of the tax plan by the end of next week.”

  9. @USCA

    How would someone with a Canadian corporation then renounce without becoming a covered expatriate since the 12% tax is retroactive to 1986?

  10. JC said:

    Tea Party on the St. Lawrence, anyone!

    This is a brilliant suggestion! If a large enough group of people gathered on the Saint Lawrence (what about Niagara Falls) and dumped a huge quantity of tea into the water, with banners behind saying “Americans abroad are fed up with taxation without representation!” that could in fact gather a lot of press coverage and viral attention online, with videos of the event. Seriously! If enough people participated, it would be a colorful enough event to truly attract media attention, give us a voice to announce our “revolt”, and would increase the pressure on Congress. I might even fly to Canada just to take part.

  11. @Bubblebustin

    First, I don’t know for sure whether this description of the proposed law is accurate. This whole discussion is assuming the truth of the posted article.

    Second, assuming the article is true, there is no problem. The tax would NOT go back to 1986. The tax would be a current tax (which is not yet law) based on accumulated earnings since 1986.

    On the tax compliance issue, you would simply renounce before this is signed into law and this year. That way you are require to certify tax compliance for the the 5 years prior to 2017 (2012 – 2016). This allows you to certify tax compliance for the relevant years. Then “pooofff” – it’s magic you are a U.S. citizen no more and (if a dual from birth) out from under the Exit Tax.

    My advice, (I know that this is hard to believe coming from me):

    Renounce (right away) and rejoice!!!!!!!!

    All roads lead to renunciation, and Bubblebustin:

    You are at the end of the road!

  12. “If a large enough group of people gathered on the Saint Lawrence (what about Niagara Falls) and dumped a huge quantity of tea into the water…”

    Uh, environmental concerns?

  13. @Stephen Kish: Yes, he’s referring to Sec 4004 (the transition tax) and Sec 4301 (“foreign high returns” now included as Subpart F income). I have been staring at 4301 over my morning coffee and I barely understand. But what I understand so far: for a single-owner corporation, “foreign high return” means your foreign business profit minus a pretend “fair return” on amounts you’ve reinvested in the business which aren’t debt-financed (for some godawful US-centric definition of “reinvested” which is going to be defined by regulation).

    4301 says 50% of that is immediately included in the owner’s income (and, like all Subpart F income, taxed at ordinary rate not qualified dividend rate even if dividends from that company would be qualified otherwise because you’ve held it for so long). The pretend “fair return” is US Fed short term funds rate plus 7%.

    As long as they insist on treating US persons abroad the same as US persons at home this is not really fixable. If they exempt US individual shareholders of CFCs other than corporations from those provisions, then large private businesses would switch to holding their CFCs through pass-throughs instead.

  14. Follow up to previous post: this basically screws people whose businesses inherently don’t require much deployed capital or who manage to get good ROIC (e.g. during startup phase).

  15. @fredB
    “There is no way for the IRS to know if I sold a house abroad or incorporate a business ”
    If identified as a US person, your bank will report that large amount from your house sale as the maximum account value for that year.
    It could be questioned if not included on your fbars.

  16. Why would this proposed US tax be any different from the rest of CBT?

    Uncollectable.

    As for tea in the St Lawrence – mightn’t the world react with ridicule rather than sympathy? Refusing to pay the tax might be a more effective form of civil disobedience.

  17. @plaxy
    Yes, unless of course they determine you owe more than $50,000 and you are put at risk of passport revocation, or need to enter the good old USA for personal or business reasons.

  18. USCA: got it. In my field many people incorporate for tax reasons. I have not but if I do I will not file that form.

    Heidi: true but it depends on individual situations, If I sold my house the money would go to paying remaining mortgages and into an escrow account for a new purchase. I’d make sure it doesn’t show up on my accounts. Of course I realise this is not always possible, but it’s woth considering,

    My point is that a measure of compliance can be attempted for whatever personal reasons, but this should be done by feeding a tax preparer selected data, not blindly handing over one’s entire financial life. This is much less expensive and probably much safer than actively seeking to give them more info than can be digested.

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