cross-posted from citizenshipsolutions
Introduction – “Indifference being the worst form of abuse”
"Indifference and neglect often do much more damage than outright dislike." https://t.co/dxiMjWIltE via @BrainyQuote pic.twitter.com/wi3JS4WCGg
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 29, 2018
A quick summary of this post:
On November 26, 2018 the House Ways and Means Committee under the leadership of Chairman Brady announced a bi-partisan bill which contains a number of “Technical Fixes” to the December 22, 2017 Tax Cuts and Jobs Act. While specifically addressing the Sec. 965 transition tax, the bill contains neither mention nor relief for Americans Abroad who are at risk of having their retirement pensions confiscated by the U.S. Government. (While the transition tax may actually be beneficial for Homeland Americans, it is simply devastating for Americans abroad.)
In other words: The proposed legislation is NOT neutral. By specifically addressing the Sec. 965 transition tax and NOT providing relief for Americans abroad, it has exacerbated a difficult situation. My understanding is that many Americans abroad have requested filing extensions to December 15, 2018. The failure of this proposed bill to provide relief means that many Americans abroad with small businesses are in an impossible situation where compliance may well be impossible.
My analysis and discussion follows …
Shocking!! tax bill – bipartisan or not – proposed by @WaysandMeansGOP does address aspects of the Sec. 965 @USTransitionTax but has completed ignored the effect on #Americansabroad – specifically the confiscation of their retirement pensions!! For many compliance not possible. https://t.co/yxQahNr636
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 29, 2018
On November 26, 2018 Representative Kevin Brady announced a tax reform bill (presumably with the intent of getting it through the lame duck session). You will find the compete text – 297 pages – here.
The House Ways and Means Committee announced:
Washington, D.C. – Today, House Ways and Means Committee Chairman Kevin Brady (R-TX) has released a tax and oversight package that includes the Retirement, Savings, and Other Tax Relief Act of 2018 and the Taxpayer First Act of 2018. This package includes retirement and other savings enhancements, legislation to redesign the Internal Revenue Service, and temporary tax relief for victims of the wildfires in California and for communities impacted by Hurricanes Florence and Michael and by storms and volcanoes in the Pacific. The package also addresses the tax extenders, and includes some time-sensitive technical corrections to H.R. 1, the Tax Cuts and Jobs Act.
Upon release of the package, Chairman Brady made the following statement:
“This broad, bipartisan package builds on the economic successes we continue to see throughout our country. The policy proposals in this package have support of Republicans and Democrats in both chambers. I look forward to swift action in the House to send these measures to the Senate.”
The proposed bill and modifications to the Sec. 965 U.S. Transition Tax
The bottom line is this:
1. The bill proposes to amend Section 965(h) to address certain concerns raised by Taxpayer Advocate.
2. The bill fails to consider the impact of the bill on the small business of Americans abroad.
In other words, there is NO CURRENT proposal to remedy either the problems of the “transition tax” or GILTI as they apply to Americans abroad! This is shocking and a complete disgrace. This leaves many Americans abroad in a position where they cannot continue to survive as U.S. citizens abroad.
First some additional background
I have written a series of posts about the Sec. 965 transition tax. On September 9, 2018 I wrote a post for the purpose of (1) describing whether intent matters in the interpretation of the Section 965 transition tax and (2) noting that Taxpayer Advocate had seemed to assume that “intent” did matter in the interpretation of the law (a novel concept indeed). (There is no evidence that the transition tax was ever intended to apply to the small businesses operated by Americans abroad.) That post included the following tweet:
The intent of the law should matter in the interpretation of the law. Was the @USTransitionTax intended for #Americansabroad? "IRS Administration of the Section 965 Transition Tax Contravenes Congressional Intent and Imposes Unintended Burden on Taxpayers" https://t.co/I8PoME8B0t pic.twitter.com/3uAtxYziTY
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 9, 2018
The analysis from Taxpayer Advocate based on the argument of “unintended consequences” included:
In other words, the memo concluded that the full amount of the Section 965 liability becomes due immediately – not ratably over the eight-year period the law gives taxpayers the option to make payments. As a result, any “overpayment” of non-Section 965 liabilities over the 8-year period cannot be refunded or applied as estimated tax for a future period until the full Section 965 liability is paid in full.
As a practical matter, this interpretation sharply limits the value of Section 965(h), and in some cases, it may even render it meaningless. Large corporations frequently overpay their estimated taxes for a variety of reasons, including to minimize the risk they may become liable for underpayment interest. Some may even have “overpaid” by most or all of their Section 965 liability. According to the IRS’s interpretation, those corporations will not receive any of the benefits Congress provided by enacting Section 965(h).
It may be that the IRS’s interpretation is legally correct, and congressional tax-writers failed to consider the interaction of IRC 965(h) with existing provisions governing refunds and credits. Some in the private sector generally agree that the IRS cannot pay refunds after a return is filed and the tax has been assessed, but they have suggested that – before the liability is assessed – the IRS may at least pay the estimated tax refunds requested on Form 4466. I have requested the Office of Chief Counsel to take another look at the issue and consider alternative approaches. Where Congressional intent is clear, it is the job of administrative agencies to give effect to that intent to the extent feasible. In some cases, that may require adopting a plausible interpretation, even if it not the “best” interpretation.
Here is what happened: The “devil is in the details” (or in this case the lack of details)
On the one hand the proposed bill addresses the concern described by Taxpayer Advocate
To be very specific, the proposed bill includes the following Section 965 amendment that specifically addresses the concern expressed by Taxpayer Advocate. Here is the exact text found in Title V (Technical Corrections) on page 189:
(e) AMENDMENT RELATING TO SECTION 14103.—
2 Section 965(h) is amended by adding at the end the fol3 lowing new paragraphs:
4 ‘‘(7) EXCESS REMITTANCE OF INSTALLMENT
5 SUBJECT TO CREDIT OR REFUND.—
6 ‘‘(A) IN GENERAL.—In the case of a re7 quest to credit or refund any excess remittance
8 with respect to an installment under this sub9 section—
10 ‘‘(i) the Secretary, within the applica11 ble period of limitations, may credit the
12 amount of any excess remittance, without
13 interest, against any liability in respect of
14 an internal revenue tax on the part of the
15 person who made the excess remittance
16 and may refund the excess remittance,
17 without interest, to such person in the
18 same manner as if it were an overpayment
19 of tax for purposes of section 6402, and
20 ‘‘(ii) the first sentence of section 6403
21 shall not apply with respect to such install22 ment.
23 ‘‘(B) EXCESS REMITTANCE.—For purposes
24 of this paragraph, the term ‘excess remittance’
VerDate Mar 15 2010 19:06 Nov 26, 2018 Jkt 000000 PO 00000 Frm 00189 Fmt 6652 Sfmt 6201 C:\USERS\SJPROBST\APPDATA\ROAMING\SOFTQUAD\XMETAL\7.0\GEN\C\BRADTX_10
November 26, 2018 (7:06 p.m.)
1 means a payment, including an estimated in2 come tax payment, that exceeds the sum of—
3 ‘‘(i) the net income tax liability de4 scribed under section 965(h)(6)(A)(ii), plus
5 ‘‘(ii) the sum of all installments for
6 which the payment due date under this
7 subsection has passed.
8 ‘‘(8) INSTALLMENTS NOT TO PREVENT ADJUST9 MENT OF OVERPAYMENT OF ESTIMATED INCOME
10 TAX BY CORPORATION.—In the case of any tax due
11 as an installment under this subsection, the tax in12 stallment shall not be taken into account as a tax
13 for purposes of section 6425(c)(1)(A) until the date
14 on which the tax installment is due.’’.
15 (f) EFFECTIVE DATES.—Except as otherwise pro16 vided in this section, the amendments made by this section
17 shall take effect as if included in the provision of Public
18 Law 115-97 to which they relate.
On the other hand – after all the lobbying laying out the impact on Americans abroad
While addressing certain aspects of the Sec. 965 transition tax, there is NO mention of the small business owned by Americans abroad and TOTAL INDIFFERENCE to their plight!
In the “Pay To Play Casino” that is Washington, DC: Lobbying isn’t everything, it’s the only thing!
Taxpayer Advocate: The proposed change to the application of the transition tax rules was likely the result of “lobbying” (absolutely proper) by Taxpayer Advocate.
S Corp Association: The Sec. 965 exemption for S Corporations was the result of lobbying by the S Corp association. That said, there is no reason to believe that the S Corp lobbying should have been construed to be an exemption for ONLY individuals who owned their CFCs through S Corps (rather than owning them directly as individuals). The reasonable position of the S-Corp Association is that:
The 2013 @SCorpAssn submission to the @WaysandMeansGOP in which it argues that S Corps should be exempt from the @USTransitionTax bc (1) S Corp do not benefit from #territorialtax like C corps and (2) the repatriation tax will result in double taxation – https://t.co/bJaAdppYVI pic.twitter.com/xvFJGXgc0M
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 18, 2018
Surely the same reasoning would apply to ALL individuals (including those living outside the United States). Perhaps the S-Corp association should create a division to advocate for the interests of Americans abroad, who like individuals in the United States, also run small businesses. This would help give individuals who are Americans abroad a voice in Washington.
As it currently stands, Americans abroad simply do not have full time lobbyists and are therefore irrelevant to the legislative process.
Should you retain U.S. citizenship if your concerns cannot be heard?
The question really is:
Do you want to be in a situation where a “far off land” can make laws that affect you when they neither know about you or care about you?
Bottom line …
It's not that Congress doesn't care about #Americansabroad. It's that they don't care that they don't care. " Letter to the Senate Finance discussing the effects of the @USTransitionTax on US #expats" https://t.co/hicUktgXHH via @ExpatriationLaw
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 29, 2018
As I have previously said:
The problem is NOT that Congress doesn’t care about Americans Abroad. The problem is that they con’t care that they don’t care!
The only remedy is with the courts and I strongly suggest that you support the transition tax lawsuit being organized by Monte Silver.
Punky – surely an extraterritorial debt collector couldn’t threaten any action? They can’t take you to court in a foreign country; and they can’t take you to court in Canada because you haven’t broken any Canadian laws.
Cross-border debt collection doesn’t seem to work very well. Different sort of debt, but same outcome as far as US creditors are concerned: https://www.vice.com/en_us/article/qbx7dm/talking-to-american-debt-dodgers-who-moved-to-europe-to-avoid-paying-off-their-student-loans-111
Student loan lawyers give much better advice that tax accountants:
“Student loan lawyers give much better advice than tax accountants“
“I just received a note from my accountant that since I renounced in 2018, the Transition Tax must be paid in full, instead of over the next 8 years.”
Although that note came from an accountant, I’ve read the same statement before.
So I think US non-resident citizens are not collateral damage. The US knows who it’s targeting, knows what its targets will do, and takes this additional step to make sure the abuse proceeds as planned.
“The federal government doesn’t have really strong tools for collecting debt from people who move overseas,” says Mark Kantrowitz, another expert on student loans who serves on the board of the Journal of Student Financial Aid. “In theory, you could live the rest of your life in another country.”
Sorry, Mark. Its way more than a theory for 9 million or so expats. But you’re right about the extreme difficulty when it comes to collection.
Of course there is a major difference between (a) US residents who receive a student loan and leave the US and never repay the loan; and (b) non-US-resident citizens of, say, Canada who don’t pay the US a retroactive tax on 30 years of non-US-source income which the US has ordered them to pretend they have received.
In one case money is owed to the US; in the other case money is pretended to be owed to the US.
So although it’s refreshing to see the student loan lawyer laying it on the line about uncollectability, in ethical terms the two situations are very different.
I cited the student loan article in response to a specific question about collection agencies operating outside the US. Apparently they don’t. The source of the (alleged) debt isn’t really the issue.
No. The difference matters though.
I agree – there’s an ethical difference between avoiding a debt that you willfully took on vs. a tax created by a foreign government where you haven’t lived in for many years (if ever).
It may also be a question of common sense . If you submit an income tax form to the IRS the gentleman at the receiving desk will routinely check the figures and come up with his numerical answers without knowing nor caring whether you have ever lived or received any services in or from the homeland. He may well assume that you are boarding a plane bound for the homeland at that moment.
Is that gentleman being unethical in sending you some bad news or was it the person sending out the form who wanted to be treated as a homelander and didn’t use some common sense
Of course, this argument doesn’t apply to those who have some deep romantic or financial reaon to reason to stay connected..
My point is, the transition tax is a tax on imaginary income, like the exit tax. The debt’s not real.
Whereas a student loan is a real debt.
Different situation, ethically. But as Nononymous said, the inability of tax collectors to collect foreign debts has nothing to do with ethics, it’s just because it’s cross-border.
“My point is, the transition tax is a tax on imaginary income, like the exit tax. The debt’s not real.”
The “deemed distribution” of the transition tax may be imaginary but the resulting tax debt is quite real, collectable or not. People who up to now have been dutifully filing now face a stark choice; (1) suffer serious financial damage by paying it, or (2) throw all those years of compliance out the window, refuse to pay, and check out for good. Some people, for whatever reason, have wanted to remain compliant and now they are being screwed. But at least they have a choice.
Its just more cruelty to go along with all the rest of the US government’s CBT regime. As usual, the ones who try to comply are the ones that are hurt.
“The “deemed distribution” of the transition tax may be imaginary but the resulting tax debt is quite real, collectable or not. ”
In what way is an uncollectable claimed “debt”, which can’t be used as a basis for legal action and is not legally owed under the law of the land, “quite real?”
In what way is any further discussion of this issue useful?
A question was asked about collection agencies. The question was answered. Do we really want to argue about metaphysics? (If a debt cannot be collected, is it still a debt?)
Your unhelpful and largely irrelevant comment includes:
It’s time for you to stop commenting on this post. It’s obvious that on “Planet Plaxy” it’s not real because Plaxy is not impacted by it. It’s also obvious that people who have been filing U.S. returns (which included the 5471s) have a problem in at least one of three ways (to articulate the obvious):
1. They have assets in the USA
2. They want access to the USA
3. They want to be U.S. tax compliant
These kind of comments are extremely offensive to the people who believe (with justification found in the Internal Revenue Code) that they are impacted by this and as @Maz57 points out are faced with a “stark decision”.
Yep. They want the benefits without the obligations.
Good luck to their elbow, but it doesn’t make citizenship based taxation enforceable.
The real problem is not tax but discrimination on the basis of national origin.
“They want the benefits without the obligations.”
It’s a good thing BB doesn’t hang around here anymore or Plaxy would be slapped good for that statement. Not saying I agree or disagree but no doubt many fellow Canadians see ALL ‘US citizens living in Canada’ as cake eaters regardless the circumstances of their US connection.
Should clarify that I don’t think all US persons living in Canada are cake eaters. And will stop there before I get myself in trouble.
I lied. I can’t stop because what I think I was trying to say but failed to, is that I wish that having a US birthplace wasn’t an automatic, you are an American living in Canada. Maybe that was also what Plaxy was getting at with: “The real problem is not tax but discrimination on the basis of national origin”. If we focus too much on the tax problems we appear more like ‘Americans living in Canada’. Very few empathize with that supposedly privileged group but more likely to feel for the Canadian who has deemed herself or himself to be Canadian first and foremost and having cut most ties with the US.