The Alliance for the Defeat of Citizenship Taxation, a non-profit corporation registered in Canada, wants to move forward with a lawsuit targeting Citizenship Taxation in U.S. federal District Court.
At present ADCT is NOT accepting donations. We estimate legal costs of U.S. $200,000 to take litigation through U.S. Court of Appeals. If interested in possibility of being a major donor (minimum donation $US50,000), please contact ADCT at information@cbtlawsuit.ca.
Our lawsuit will focus on the core doctrine of “Citizenship Taxation” which serves as the basis for the extraterritorial reach of U.S. tax obligations as well as the annual financial reporting requirements imposed upon permanent residents and citizens of other countries. The litigation will also seek to overturn other U.S. laws made applicable to persons who may have been born in the United States but have long since had little or no nexus to United States. In addition, the legal action would challenge the excessive costs and time delays imposed on those seeking to abandon U.S. citizenship.
John Richardson,
Carol Tapanila
Patricia Moon
Stephen Kish
The Directors of the
Alliance for the Defeat of Citizenship Taxation (www.citizenshiptaxation.ca) 283 College Street, P.O. Box 67678 Toronto, Ontario, CANADA M5T 3M1
Stephen, The bill does nothing to change the general principle of taxing based on citizenship rather than residence. Non-resident US citizens are still taxed under the same rules that apply to resident citizens (other than the limited carve out allowed by the FEIE).
@Tim
Not much mystery where this is coming from. That’s fine. My perception is that lobbying and drafting legislation is so far, not any more effective than anything else and it’s great to have several different approaches. As to enough lawsuits already, the Bopp FATCA litigation is not moving, and the other two lawsuits are not in the US. As far as Canada goes, it was (and remains) obvious that there is absolutely no point whatsoever in approaching our government to try and change anything through legislation. These idiots continue to respond to constituents that the US has the right to tax their citizens as they see fit and that contact should be made with the IRS and a competent tax compliance professional. Unbelievable………There was some political work that went on in France but seems Fabien and Jude also came to the conclusion that litigation offered them a chance.
If lobbying/drafting legislation in the US makes sense, I cannot follow why litigation in the US is any less a reasonable approach to take.”The wrong idea at this time?” Who is to say?
@Karen: Thanks for pointing that out. Interesting they mention it explicitly. Yes, 962 election will let the individual opt in to US corporate rates and § 960 FTC on “amounts which are included in his gross income under section 951(a)”. But I see three issues:
1. There’s a trade-off: you lose your § 959(a) exemption on the future actual distribution of that same income, so you end up with a second round of US income tax on it.
2. That quoted phrase about § 951(a) is supposed to mean all Subpart F income. I’m not certain it does. It definitely does mean GILTI (explicit in new § 951A(f)(1)(A) that § 962 applies). I’m not sure if it means transitioned-taxed accumulated E&P (no such explicit statement in amended § 965).
3. Compliance costs. Professionals who understand § 962 are thin on the ground. If it really helps with the transition tax then there will be lots of Homeland whale owners of large multinational LLCs/S-corps/partnerships trying to hire them to file 2017 taxes, leaving no one to help expat minnows.
#1 is particularly a problem when the future distribution would go untaxed by the country where it’s actually paid (e.g. because there’s dividend franking or no tax on dividends in general), and/or it’s a non-treaty country so the dividends will never be US qualified dividends (i.e. the 2nd round of US taxation is at the ordinary income rate).
Of course, if you’re compliant and not wealthy enough to be a covered expatriate, you can always take the 962 election, get your FTC on the Subpart F deemed distribution, and then renounce before any actual distribution.
@Eric – given the placement of the reference to sec 962 in the discussion of the tax rate on the transition inclusion in sec 951(a), it seems that the intent is for sec 962 to apply here.
I agree that the compliance costs could be astronomical. Would small companies even know what their post-1986 accumulated E&P is? They would have been reporting current E&P each year on form 5471 – but I suspect many small companies, especially those owned by shareholders who have only recently realised their “obligation” to file US tax returns, may have no idea what accumulated E&P is.
For those who cannot renounce to avoid the subsequent dividend, whether the tradeoff of sec 962 v sec 959(a) is worthwhile will depend on how long the distribution is deferred, how much FTC will be available due to local tax on the dividend, and whether it is treated as a qualified dividend on the US return.
Patricia Moon – “If lobbying/drafting legislation in the US makes sense, I cannot follow why litigation in the US is any less a reasonable approach to take.”
Litigation can only succeed if there are people who have suffered harm and want to sue. If anyone comes forward who wants to sue and can show they’ve been harmed, then people may be more ready to donate to a funding drive, as they will then be better able to assess whether they think the case has a chance of succeeding.
@Eric makes the point that:
Although buried at the end of an extremely “technical” comment, this bears repeating (hence this comment).
If you are:
1. Not a covered expatriate (including dual citizens by birth)
2. Have been filing 5471s, you would use the 962 election to defer the tax and renounce immediately!
Caveat – get the appropriate advice, but this does open a window of opportunity (primarily I think for those who can meet the dual citizen from birth exemption).
For the rest of the people, it may be that they will simply have to cease filing. Why? They won’t have any idea how to do so, and/or any ability to pay the associated compliance costs.
On this note, the simple fact is that the vast majority of 5471s done by expats will NOT accurately reflect E and P and may not have been done in accordance with U.S. accounting standards.
It’s all over!
There is really no way to comply with this even if people wanted to.
All roads lead to renunciation or simply doing nothing (including just stop filing, for those who have made the mistake of filing).
Tim: Certainly “more work should go towards lobbying and drafting new legislation” but lawsuits against the US government need to start multiplying as well. The generally polite and more or less business-like pleas for extra-territorial tax reform that we have sent to Congress over the past many years (and particularly in the past few months) have been totally ignored by the congressional body. Perhaps the only language it understands is, “See you in court!” In my opinion while the wounds are still fresh, there’s no time like the present to launch this lawsuit.
@Muzzled
The argument being made to me is that to date most of the existing lobbying efforts have been incompetent(by Washington standards) thus that is why our pleas have gone unheeded. While this view may be very controversial I do think there is some truth to this view. In reality the way the game is played in DC(and Ottawa) I have to the conclusion is NOT the way most of us were taught in civics class. I guess the question is whether to go to the lawsuit route or play the game the way it is actually played NOT the way we wish and were led to believe by our civics teachers it was played.
@Tim
Why does it need to be one or the other? If it’s a question of limited resources / attention, then which is more likely to bring results?
I am reminded of this paper by Allison Christians Human Rights at the Borders of Tax Sovereignty. Prof. Christians looks at the example of California’s worldwide unitary tax system, where the legislative solution was ultimately successful. In comparing that case with CBT, she says on p.27 (footnotes omitted):
After reading this paper, my conclusion is that the courts are more likely to hold the solution to this problem than the legislature. Our electoral clout is too dispersed – and many of us can no longer vote in US elections.
Yeah I knew there was no point in fighting unless the fight is to have good representation to plead our case to US Congress which we don’t have and we would not have either as we are living overseas and do not count. We are not constituents of Congress as we live overseas and they only tax us or make the compliance industry richer by making us bound to their laws. So they are not going to listen to us and would make more laws to make our lives miserable. That means ‘No’ for certain jobs as the employers don’t want US citizens on their payroll for IRS to get into bed with them. They don’t want US citizens to open up brokerage or bank accounts locally as they would have problems in unnecessary compliance for resident banking customers. They are fined by IRS or have to pay withholding tax and if they still don’t comply (which every bank in the world did already) their bank officers are hunted down by IRS which happened already in the past.
The best advice given years ago to me personally by a lawyer friend was to renounce before they make it impossible for you to renounce. This advice was given in 2012 to me and we all saw it got tougher and tougher.
Regarding today’s choice of language: “THIRTY DAYS REMAINING: Por favor, ayúdenos a encontrar grandes donadores (personas con dinero)”
Ironic that US citizens in the most heavily Spanish speaking territory are already exempt from CBT and pay RBT to their territory instead.
This from Solomon Yue, Republicans Overseas:
“14% tax for repatriation of corporate profits will be in the version released by the conference for a vote next week.
What we couldn’t figure out is that if this 14% also applies to overseas small businesses owned by overseas Americans who don’t bring corporate profits back to the states. For that we need the IRS to interpret the law after the Tax Cuts and Jobs Act is passed. If it applies to overseas small businesses, we will add this issue to the tax reform fix bill next year. We have reached out to all AmCham in Asia and they agreed to join the fight in 2018. If you have a contact to AmCham in Canada, we need to reach out to them as well.
All AmChams around the world have been focusing on TTFC. Now they got it but their small business members are upset with the 14% tax. That will also help our TTFI and FATCA efforts next year.”
“There is really no way to comply with this even if people wanted to.”
Even before the “this” part of the more general “this”, the IRS’s Taxpayer Advocate reported to Congress in 2011 that thousands of people found there was no way to comply with “this”. That was back when honest taxpayers were trying to comply. So now it’s all over again, right? Next time, it will be all over again all over. All roads…
‘The generally polite and more or less business-like pleas for extra-territorial tax reform that we have sent to Congress over the past many years (and particularly in the past few months) have been totally ignored by the congressional body.’
Over 100 years. Remember someone posted a New York Times article from 1914?
‘Perhaps the only language it understands is, “See you in court!”’
Yeah, like they see Bopp in court? They don’t have to give a Hoover Dam about it.
Norman – NYT article from 7 March 1914 http://query.nytimes.com/mem/archive-free/pdf?res=9A0CEFDE163AE633A25754C0A9659C946596D6CF
Unfortunately not The only language they understand is ‘here’s a very large campaign contribution- we expect a tax cut in return’
“The only language they understand is ‘here’s a very large campaign contribution- we expect a tax cut in return’ ”
Exactly. And they struggle to deliver, even for the donors. The system is bust, corrupt, crooked and paralyzed. Rotten.
There’s a chance the US may change US law because it suits their agenda – there’s absolutely zero chance that they’re going to change US law because they empathize with US citizens living outside the US. Why keep appealing to them?
Renunciation’s not cheap but it’s cheaper than US “justice.”
BB quoting Solomon Yue:
“What we couldn’t figure out is that if this 14% also applies to overseas small businesses owned by overseas Americans who don’t bring corporate profits back to the states. For that we need the IRS to interpret the law after the Tax Cuts and Jobs Act is passed.”
The Republican Party can’t understand the law it just finagled through Congress.
Bet they understand the tax breaks for private jets and the repeal of health care for the poor. I guess they only read the bits they were interested in.
“If it applies to overseas small businesses, we will add this issue to the tax reform fix bill next year.”
Right. That’s all right then.
Will RO advize small business owners to not comply with this tax until it gets sorted out? That’s the only ethical approach to the problem.
What makes you think it’s going to be sorted out?
@plaxy you got that right. They would never sort it out as they don’t want to and never would. I think so many court cases have been there to change it but they weren’t successful. Lawyers got paid and people were left in the same situation if not worst. Good effort by different organizations to change this time by appealing to legislative branch and no success there. How about a tweet to DT to get executive action as legislative and judicial efforts have all failed?
@plaxy
I don’t think it will be sorted out. But RO (and any other credible US-persons-abroad organization) should advise not attempting to comply unless that happens.
Thanks for clarifying. I understand your point, although I think if I were facing this problem I would not be seeking advice from Republicans Overseas. Apparently, they don’t understand it and are waiting for the IRS to explain.
A US court will never uphold a law if the law favours the court’s unfavoured party. If the US government’s lies aren’t sufficient the court will make up more. The IRS issues transcripts that contradict each other and courts accept all of them as needed to keep the victim from winning. A district court even destroyed a witness’s notarized declaration and got away with it.
“If you are:
1. Not a covered expatriate (including dual citizens by birth)
2. Have been filing 5471s, you would use the 962 election to defer the tax and renounce immediately!
Caveat – get the appropriate advice, but this does open a window of opportunity (primarily I think for those who can meet the dual citizen from birth exemption).”
Not filing at all seems less risky than figuring out a way to file yet achieve a desired outcome (in this case, avoiding the transition tax). It might be worth paying to get a ruling, rather than taking a chance. Though that risks an adverse ruling.
By not filing, the person puts the onus on the IRS. What would be the consequences for the taxpayer if the IRS (a) did pursue or (b) did not pursue? If the taxpayer is a citizen of the residence country, the IRS can’t collect; but might there be consequences for the business, if the corporation has US interactions?