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Welcome to Citizenship Solutions (and Green rd solutions) – John Richardson

Welcome to Citizenship Solutions – The blog of John Richardson


I am guessing (actually I know for sure) that you arrived here beuse of some aspect of being a U.S. citizen living outside the United States. Maybe you are a Green rd holder. Perhaps you are a former U.S. resident who has just learned that you may still be subject to U.S. “worldwide taxation” even though are a “tax resident” outside the USA. I also know how you are feeling.

“U.S. citizens” and “Green rd holders” are referred to as “U.S. Persons”. So, if you are a “U.S. Person Abroad”, well, life is pretty tough. in fact living as a “U.S. Person” outside the United States is: hard, expensive, confusing and (quite frankly) unsustainable.

Some of you are NOT in compliance with the intrite and (almost) impossible to understand web of tax and reporting requirements. Non-compliance has its share of problems.
Some of you ARE in compliance (as far as you know) with the intrite (and almost) impossible to understand web of tax and reporting requirements. Compliance also has its share of problems (stress, expense, anxiety).

Whether you are in compliance or not in compliance, you have problems. This is beuse:
U.S. citizenship is the one citizenship in the world that affects virtually every aspect of your life. in addition to the information on this blog, I help people with the following kinds of specific problems/questions (which include):

1. Are you a U.S. citizen at all? Have you relinquished U.S. citizenship along the way? If you have relinquished U.S. citizenship, are you a “U.S. Person” for FAT and tax filing purposes?

2. Have you just received a “FAT Letter” addressed to you as an INDIVIDUAL or to you as an ENTITY (corporation, trust, etc.)? How to respond. What’s a W9? What’s a W-8BEN-E anyway?

3. What about that old Green rd sitting in your drawer? You may still be subject to U.S. taxation, even when you don’t live in the USA! What are the tax obligations of Green rd holders? What to do? ….

4. Renouncing U.S. citizenship – What’s the “right way”? What’s the “wrong way”? The better question is “what’s the safest way”? What about that “back dated” relinquishment?

5. Green rd expatriation – How to exit the tax system and the U.S. immigration system.

6.? Oh My God!! The moment many of you will never forget. Yes it’s a problem. No it’s not as much of a problem as you think. Make certain that you respond and not react. If all you want to do is file U.S. taxes

7.? U.S. S. 877A “Exit Tax” consulting. If you think you n leave the “Land Of The Free” for free, you better think again. A bit about the the United States expatriation taxes. Those of you with a? non-U.S. pension and want to renounce U.S. citizenship should take specific note!

8. Retirement and financial planning (including pensions) as a “U.S. Person” abroad – You will be surprised at the problems you will have living as a U.S. tax compliant Amerin abroad. Think (or maybe you shouldn’t) “PFIC“.

9. Coming into U.S. tax complianceWhat are the various options? ?Why one option over another? What about “Streamlined” compliance? 99% of you should NEVER use “OVDP”!!

10. Non-U.S. AKA “Foreign Corporations” – Yes, these n be a BIG problem. ution: The U.S. CFC tax rules may attribute income to YOU that you never received!

11. Getting a divorce? Are you a U.S. citizen married to a non-citizen? – Your U.S. citizenship will play a role.

Respond, don’t react! – Do NOT make any decisions without understanding the present and FUTURE consequences of those decisions.

So, how do I know this?

First, I am a person (Toronto based lawyer actually) who was born in the United States and has lived almost all of my life outside the United States. In other words, I have lived and do live these problems.
Second, I have spent the last few years of my life assisting “U.S. Persons abroad” survive the unjust imposition of FAT, FBAR and “CBT” (AKA U.S. “place of birth taxation”) on Amerins abroad. I work with many groups of people including: “accidental Amerins“, long term dual citizens who wish to retain U.S. citizenship, long term dual citizens who feel they must renounce U.S. citizenship, Green rd holders (whether they live in the United States or not) and those who have ONLY U.S. citizenship. It’s what I do.

Third, I have been (and continue to be) actively involved in efforts to oppose FAT in the courts and in the process of making submissions to the U.S. Treasury. If you want to learn about the Alliance For The Defense of nadian Sovereignty lawsuit against the Government of nada, see here.

I work with people all around the world! I have given “live presentations” about the “Problems of U.S. citizenship” all over nada and Europe. I have given a number of “media interviews” about FAT and the problems of U.S. citizenship. I have testified as a witness before the nadian House of Commons Standing Committee on Finance (May 2014). I have written hundreds of articles and blog posts about FAT, FBAR and U.S. taxation-based citizenship. I have and continue to teach courses both for Amerins abroad and for professionals who counsel U.S. citizens abroad.
Anyway, the blog is free. The counselling and assistance require individual consultations. Contact me if you want me to help you solve these problems as they apply to YOUR SITUATION.

John Richardson

P.S. Here is the one of the very first posts that I wrote on for this blog. Some posts are “timeless”. “What you need to consider BEFORE consulting a lawyer or tax professional“.

 

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"Coming Into Tax Compliance Book" – How Amerins n come into U.S. tax compliance in a FAT world

Are you “Coming To Ameri” by entering the U.S. tax system as an Amerin Abroad?
The “How To Come Into U.S. Tax Compliance” book for Amerins abroad
John Richardson, LL.B, J.D.


I have contributed to establishing the new “Citizenship Taxation” site. As part of launching that site, I have written a series of posts providing relevant information (in a broad sense) about how Amerins abroad, who did not know about their U.S. tax obligations, n come into U.S. tax compliance.
Sooner or later, it’s likely that many people will receive a FAT letter. In your panic, you should be reful. There are a number of things Amerins abroad should consider before consulting a lawyer or tax professional.
This series of posts developed from my “Edutional Outreach” program for Amerins abroad. It is an effort to respond in a practil way to the questions that people have.
The chapters of “Coming Into Compliance Book” are:
Chapter 1 – “Accepting Cleanliness – Understanding U.S. Citizenship Taxation – To remain a U.S. citizen or to renounce U.S. citizenship
Chapter 2 – “But wait, I n’t renounce U.S. citizenship if I’m not a U.S. citizen. How do I know if I am a U.S. citizen?”
Chapter 3 – “No matter what, I must come into U.S. tax compliance – Coming into U.S. tax compliance for those who have NOT been filing U.S. taxes
Chapter4 – “Oh no, I have attempted U.S. tax compliance by filing tax returns. I have just learned that I have made mistakes. How do I fix those mistakes?”
Chapter 5 – “I don’t want to renounce U.S. citizenship. How to live outside the United States as a U.S. tax compliant person
Chapter 6 – “I do want to renounce U.S. citizenship. This is too much for me. How the U.S. “Exit Tax” rules might apply to me if I renounce
Chapter 7 – “I really wish I could do retirement planning like a “normal” person. But, I’m an Amerin abroad. I hear I n’t invest in mutual funds in my country of residence. The problem of Amerins Abroad and non-U.S. mutual funds explained.
Chapter 8 – “We all have to live somewhere. Five issues – “The problem of Amerins Abroad and non-U.S. real estate explained
Chapter 9 – “Receiving U.S. Social Security – #Amerinsabroad and?entitlement to Social Security
Chapter 10 – “Paying into Social Security – #Amerinsabroad, double taxation and the payment of “Self-employment” taxes
Chapter 11 – “Saving the children – INA S. 301 – “Residence” vs. “Physil Presence” and transmission of US citizenship abroad
Chapter 12 – “Issues surrounding 401k, IRAs, Roths and Amerins Abroad
Chapter 13 – “Married filing separately” and the “Alien Spouse” – the “hidden tax” on #Amerinsabroad
Chapter 14 – “The Obamare “Net Investment Income Tax” – Pure double taxation of #Amerinsabroad
Chapter 15 – “To be “FORMWarned is to be “FORMArmed” – It’s “FORM Crime” stupid!!
Chapter 16 – “Most “Form Crime” penalties n be abated if there is “reasonable use”
Chapter 17 – “How to get “credit” for taxes (foreign) paid to your country of residence
Chapter 18 – “I don’t pay taxes in the country where I live. n I “exclude” my foreign income from the U.S. tax return?
Chapter 19 – “Is it better to take the “Foreign Tax Credit” or the “Foreign Earned Income Exclusion” – a discussion

Chapter 20
– “The child tax credit: take it, leave it or how to take it
Chapter 21 – “How #Amerinsabroad n continue to use the #IRA as a retirement planning vehicle
Chapter 22 – “To share or not to share” – Should a U.S. citizen share a bank account with a “non-citizen AKA alien spouse? – Reporting Edition
The “Coming Into Compliance Book” is designed to provide an overview of how to bring some sanity to your life.
?Coming to Ameri
You may remember the old Eddie Murphy movie about “Coming To Ameri”.


Welcome to the confusing and high stakes rules for U.S. taxation and Amerins abroad.
The United States has the most complex, confusing, most penalty ridden and most difficult anti-deferral regime in the world. McGill Professor Allison Christians has noted that Amerins abroad are both:

“deemed to be permanently resident in the United States for tax compliance and financial reporting purposes” …
and are
“subject to the most complex aspects of the U.S. tax code regardless of any activity in the United States, and facing extraordinary compliance costs and disclosure risks even for nil returns”

Although Amerins abroad are deemed to be resident in the United States, their assets are treated as “offshore”. In addition Amerins abroad are subject to taxation in their country of residence.
All of this means that:
1. Amerins abroad are subject to the worst and most punitive aspects of the U.S. tax system (there is no Homelander who is treated as badly as an Amerin abroad); and
2. Denied most benefits of the tax systems of their country of residence.
To put it simply, Amerins abroad get the worst of all possible tax systems.
The most horrific aspects of the U.S. tax system are saved for Amerins abroad. Prepare to be shocked. As one commenter at the Isaac Brock Society site recently said:


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Renouncing US citizenship? How the S. 877A "Exit Tax" may apply to your nadian assets – 25 Parts


Introduction:
usexittax
There is much discussion of the U.S. rules which operate to impose taxation on the residents of other countries and income earned in those other countries. You will hear references to “citizenship taxation”, “FAT nada“, PFIC, etc. It is becoming more common for people to wish to relinquish their U.S. citizenship. The most common form of “relinquishment is renunciation”. The U.S. tax rules, found in the Internal Revenue Code, impose taxes on everything. There is even a tax on “renouncing U.S. citizenship”. I don’t mean the $2350 USD administrative fee which everybody has to pay. (Isn’t that really a tax?). I mean a tax on your assets. To be clear:
You must pay a price to NOT be a U.S. citizen.
This tax is found in S. 877A of the U.S. Internal Revenue Code.
It’s defined as the:
Tax responsibilities of expatriation
Few people are aware of this tax. Fewer still understand how it works.? As FAT operates to enforce U.S. taxation on many nadian citizens, and increasing numbers wish to NOT be U.S. citizens, the importance of understanding the U.S. “Exit Tax” increases.
It is particularly important to understand what triggers the “Exit Tax”. You will be subject to the “Exit Tax” if you are a “covered expatriate”. You must know what that means and why, sooner or later, everybody will become a “covered expatriate”.
The “Exit Tax” is not a simple “token tax”. For nadians, the tax n be a signifint percentage of their net worth. Furthermore, the tax is payable NOT on actual gains, but on “pretend gains”. (Where would the money come from to pay the tax?)
Hang on to your seats. You will shocked, amazed and horrified by this.
Since the advent of FAT in nada, this issue is increasingly important.*
To be forewarned is to be forearmed!
This is a 22 part series which is designed to provide you? with some basic edution on:
How the U.S. S. 877A Exit Tax rules work; and
How they particularly affect nadians with a U.S. birthplace, who lived most of their lives in nada.
This will be covered over a 9 day period in a “9 part” series. (It has since been expanded to 16 posts and counting.)
Although this series is beginning on “April Fools Day”, I assure that this is NOT a joke.
The 16 parts are:
Part 1 – April 1, 2015 – “Facts are stubborn things” – The results of the “Exit Tax
Part 2 – April 2, 2015 – “How could this possibly happen? “Exit Taxes” in a system of residence based taxation vs. Exit Taxes in a system of “citizenship (place of birth) taxation
Part 3 – April 3, 2015 – “The “Exit Tax” affects “covered expatriates” – what is a “covered expatriate“?”
Part 4 – April 4, 2015 – “You are a “covered expatriate” How is the “Exit Tax”? actually lculated
Part 5 – April 5, 2015 – “The “Exit Tax” in action – Five actual scenarios with 5 actual completed U.S. tax returns
Part 6 – April 6, 2015 – “Surely, expatriation is NOT worse than death! The two million asset test should be raised to the Estate Tax limitation – approximately five million dollars – It’s Time
Part 7 – April 7, 2015 – “Why 2015 is a good year for many Amerins abroad to relinquish U.S. citizenship – It’s the exchange rate
Part 8 – April 8, 2015 – “The U.S. “Exit Tax vs. nada’s Departure Tax – Understanding the difference between citizenship taxation and residence taxation
Part 9 – April 9, 2015 – “For #Amerinsabroad: US “citizenship taxation” is “death by a thousand cuts, but the S. 877A Exit Tax is “death by the guillotine”
Part 10 – April 10, 2015 – “The S. 877A Exit Tax and possible relief under the nada U.S. Tax Treaty
Part 11 – April 11, 2015 – “S. 2801 of the Internal Revenue Code is NOT a S. 877A “Exit Tax”, but a punishment for the “sins of the father (relinquishment)
Part 12 – April 12, 2015 – “The two kinds of U.S. citizenship: Citizenship for “immigration and nationality” and citizenship for? “taxation” – Are we taxed beuse we are citizens or are we citizens beuse we are taxed?”
Part 13 – April 13, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?
Part 14 – April 14, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?
Part 15 – May 22, 2015 – “Interview with GordonTLong.com – “Citizenship taxation”, the S. 877A Exit Tax, PFICs and Amerins abroad
Attention: Parts 16 – 21 focus on the “dual citizen exemption in the context of nada’s Citizenship laws.
Part 16 – February 16, 2016 – “Why the S. 877A(g)(1)(B) “dual citizen exemption” encourages dual citizens from birth to remain US citizens and others (except @SenTedCruz) to renounce” – Note that this module is composed of Parts 16 – 21 – six posts.
Part 17 – February 16, 2016 – The history of nada’s citizenship laws: Did the 1947 nada Citizenship Act affirm citizenship or “strip” citizenship and create @Lostnadians?
Part 18 – February 16, 2016 -The S. 877A “dual citizen” exemption – I was born before the first ever nada Citizenship Act? Could I have been “born a nadian citizen”?
Part 19 – February 16, 2016 – The S. 877A “Dual Citizen” exemption: The 1947 nada Citizenship Act – Am I still a nadian or did I lose nadian citizenship? (The “Sins Of The Father”)
Part 20 – February 16, 2016 -The S. 877A “Dual Citizen” exemption: The 1947 nada Citizenship Act and the requirements to be “born nadian
Part 21 – February 16, 2016 – “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of nada?
Part 22 – February 29, 2016 – “The S. 877A “Dual Citizen” exemption: MUST certify tax compliance for the five years prior to relinquishment
More on the United States Expatriation Tax – ongoing miscellaneous:
Part 23 – “How the 1966 desire to “poach” pital from other nations led to the 2008 S. 877A Exit Tax
Part 24 – “Clinton Treasury representative Les Samuels explains why the U.S. Exit Tax SHOULD apply to the assets of Amerins abroad
Part 25 – “Relinquishing US citizenship: South Afrin Apartheid, the Accidental Taxpayer and the exit tax
 
________________________________________________________________________________________
* Why this is of increased importance: The role of FAT and U.S. taxation in nada
A picture/video tells a thousand words. Have a look at the “Rick Mercer FAT video” in the following tweet:


FAT is U.S. law which is designed to identify financial assets and people, outside the United States, that the U.S. believes are subject to its tax laws. (It makes no difference whether the person is a nadian citizen”.) This includes people who were:
– born in the U.S.
– Green rd holders
– people born to U.S. parents in nada
– “snow birds” who spend too much time in the United States
The Government of nada is assisting the United State to implement FAT in nada. To be specific:
– on February 5, 2014 the Government of nada formally agreed to change nadian law to identify “U.S. connected” nadians in nada
– in May of 2014, the Government of nada passed Bill C 31 which contained the implementing legislation
– on July 1, 2014 FAT beme the law in nada
– since July 1, 2014 many nadians have received a “FAT Letter” (n the U.S. claim you as a taxpayer?)
The Alliance For The Defence Of nadian Sovereignty has sued the Government of nada in Federal Court on the basis that the participation of the nadian Government in FAT, is in violation of the Charter Rights of nadians. You n keep up with their progress on the Alliance blog” which is here.
FAT is a tool to enforce “U.S. taxation in nada”. The result is that more and more nadian citizen/residents? will be forced to pay U.S. taxes. But, U.S. tax rules include much more than tax. They are source of comprehensive information gathering and “information returns”. Typil returns required by U.S. taxpayers in nada include: FBAR, FAT Form 8938, Form 5471, Form 3520, Form 3520A and many more.
In addition, U.S. tax rules are different from nadian tax rules. The most painful example is that when:
– nada allows a “tax free” pital gain on your principal residence
– the U.S. imposes a 23.8% tax on the sale of your principal residence (you get a $250,000 deduction)
Sound horrible?
It is, but:
It’s only nadian citizens with a past “U.S. connection” who will be subject to these taxes. It is estimated that approximately one million nadians may be subject (as “U.S. Subjects”) to these rules. But, nadians with a “U.S. connection” are members of families. Therefore, U.S. taxation in nada will impact all members of a nadian family which has at least one “U.S. connected” member.
 
John Richardson
 

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What you should consider before contacting a lawyer

decision

The Reality of U.S. Citizenship Abroad
Nobody denied that the unintended targets of Congressional legislation aimed at those who supposedly “owe allegiance” to the USA, now assisted by craven foreign governments anxious lest their financial services entities lose access to the US market, are mostly unlikely to do anything at all. But the whole idea of universal self-assessment of taxation is to keep the taxpayer in an anxious condition, to make him overpay if possible, but at least not to underpay. Those now faced with an unprecedented, even retroactive, enforcement mpaign and who must, if they wish to become compliant and avoid penalty or even prosecution (should they be identified in the future), sacrifice much of their wealth, even become insolvent.
Comment at the Isaac Brock Society blog – July 29, 2013


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Does the US provide #Amerinsabroad any benefits? Shouldn’t US #expats who find US @taxationabroad onerous just renounce their US citizenshp?

On May 30, 2020 the following question appeared on Quora and prompted some interesting answers and discussion:

As a defender of Amerin “freedom”, how do you justify the fact that US citizens have to pay taxes to the US even if they live and work abroad (even if they have never been to the US but got their citizenship through their parents)?

I along with others attempted to answer the question. Here is my answer.

_________________________________________________________________________________________

Some of the most interesting analysis comes from the comments to the answers. See the following answer and comment. I have turned David Johnstone’s comment into a post.

One of the answers to the question included the suggestion that:

If someone lives and works abroad as an Amerin citizen, he or she must be enjoying SOME benefits or they would logilly renounce their US citizenship instead of paying US taxes. That would be a good solution for anyone facing this question. Just go!

David Johnstone responds to this answer with the following comment:

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Seeking short social media – twitter and facebook posts – explaining why @citizenshiptax and #FAT are wrong

On June 3, 2020 I plan to do a podst with Anthony Sramucci of Skybridge pital and SALT Conference fame. The June 3 podst has its roots in the following @Sramucci tweet which was the subject of discussion at the Isaac Brock Society.

Mr. Sramucci’s tweet generated a great deal of discussion. If you click on the tweet, you will see, what some of the responses were.

A third party individual has arranged for me to do a podst with Mr. Sramucci. This will take place on June 3. In order to provide background information for “citizenship taxation”, FAT and how they impact Amerins abroad, I would ask that you reply to the following tweet. It is your opportunity to contribute to the conversation.

Feel free to leave a comment to this post. I will ensure that it finds its way into the twitter thread.

John Richardson – Follow me on Twitter @Expatriationlaw

The S. 911 Foreign Earned Income Exclusion: It’s origins, journey, opportunities and limitations

I recently participated in a podst discussing both the opportunities and limitations associated with the Section 911 FEIE (“Foreign Earned Income Exclusion”). It is short and explains why the FEIE is not the answer to the problems experienced by Amerins abroad. You n listen to it here:

https://prep.podbean.com/e/us-taxation-of-amerins-abroad-do-the-foreign-tax-credit-rules-work-sometimes-yes-and-sometimes-no/

The podst was the subject of a post at Amerin Expat Finance. That post prompted me to explore more deeply, the origins of the FEIE. When was it enacted? What was it designed to do? I found a fantastic article that I thought I would/should share.

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Podst – US Citizenship: Retain or Renounce – Streamlined, Relief Procedures For Former Citizens

(Interesting discussion in the above twitter feed.)

On April 30, 2020 I hosted a discussion with Karen Alpert, Laura Snyder, David Johnstone and Keith Redmond. The discussion touched on a variety of subjects of interest to Amerins abroad and Accidental Amerins.

The discussion included a segment on the September 2019 IRS Relief Procedures For Former citizens and how they compare to Streamlined compliance.

Bottom Line: It’s complited. People are different. Different solutions for different people. But, for many:

“All Roads Lead To Renunciation”.

RES Act Relief: How US citizen taxation leads to sending relief money to individuals outside the United States and denies relief money to individuals inside the United States

Introduction

This post is based on my Quora answer to the question: “Do you agree with the policy of not issuing checks to US citizens who jointly file taxes with someone who has an ITIN?

Part I – Objective Analysis

This post focuses on the class of individuals entitled to relief. It does not discuss how the relief is administered.

The statute authorizing the relief is found in Section 6428 or Subtitle F (the Procedure And Administration section of the Internal Revenue Code). The following sections specify WHO is entitled to the relief:

§6428. 2020 Recovery rebates for individuals

(d) Eligible individual

For purposes of this section, the term “eligible individual” means any individual other than-

(1) any nonresident alien individual,

(g) Identifition number requirement

(1) In general

No credit shall be allowed under subsection (a) to an eligible individual who does not include on the return of tax for the taxable year-

(A) such individual’s valid identifition number,

(B) in the se of a joint return, the valid identifition number of such individual’s spouse, and

(C) in the se of any qualifying child taken into account under subsection (a)(2), the valid identifition number of such qualifying child.

(2) Valid identifition number

(A) In general

For purposes of paragraph (1), the term “valid identifition number” means a social security number (as such term is defined in section 24(h)(7)).

(B) Adoption taxpayer identifition number

For purposes of paragraph (1)(C), in the se of a qualifying child who is adopted or placed for adoption, the term “valid identifition number” shall include the adoption taxpayer identifition number of such child.

In summary this means that:

Those who are conditionally entitled to relief include, ANY individual except a nonresident alien, provided that they:

– have a Social Security Number (who is eligible for a Social Security Number?); and

– do NOT file jointly with an individual who does not have a Social Security Number

Who is a “nonresident alien” and therefore NOT an “eligible individual”?

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A Twitter Tribute To Mark Andrews – nada’s Equality Rights Pioneer

I am very sad to learn of the death of Mark Andrews. I was privileged to have known Mr. Andrews during the 1980s – a period in which he was nada’s Equality Rights Pioneer.

Part A – A Twitter Tribute

Click here to see the thread.

Part B – My Full Length Post On The ADCS Blog

Comprehensive analysis of the RES ACT From Professor Francine Lipman – @narfnampil

I received the following from Professor Francine Lipman who is on the faculty of the UNLV School of law. It seems to me to be an extremely comprehensive statement of how the RES Act operates to provide funds to Amerins in need.

I highly recommend that you access her scholarship.

With her permission, I have simply reproduced her email as the post.

________________________________________________________________________________________

Dear Passion Warriors for Justice:

I hope this is helpful to you and your colleagues. Stay strong and put your oxygen mask on first. We need your strength, stamina & resilience today and all days on the frontlines of justice. Feel free to contact me at Francine.lipman@unlv.edu for any reason or no reason at all. We are stronger together and I am sending you positive energy! We will get through this and be even more fierce, fearless and appreciative of community, fellowship and face to face conferences! @narfnapil on Twitter

The RES Act was just signed into law, including a number of individual income tax provisions.

Here are some details on the Recovery Rebate Tax Credit:

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Amerins abroad and relief under the RES Act: How do they get it and how much do they get

The context

Many countries including nada and the United States have offered monetary relief to help their residents during these difficult times. (In addition to monetary relief, as Virginia La Torre Jeker as reported here and here: the United States has relaxed the deadline for filing 2019 tax returns. nada has made similar allowances.)

Interestingly, with respect to access to monetary relief:

nada’s “CERB Benefit” approach appears to be to simply get sh into the hands of affected people. The benefits may or may not be taxable. But, filing a tax return is not a prerequisite to receipt of benefits.

The U.S. “RES Act” approach appears to use the tax system as the mechanism for delivery of benefits. Early inditions suggest that (at least for Amerins abroad) filing tax U.S. tax returns will be a necessary condition for the receipt of benefits. Could benefits really be conditional on filing tax returns, when there are so many people who do not meet the threshold for filing U.S. tax returns?

It appears to be much easier to access the relief in nada than to access the relief in the United States. Additionally, nadians do NOT need a lawyer or accountant to understand the program. But, that’s an issue for another day …
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Recent economic upheaval creates expatriation opportunities for “US Persons” living abroad

This post was motivated by a thread on Reddit …

At the end of this post, I have included the Reddit thread. (Note that I am trying to develop a “RenounceUSCitizenship” thread on Reddit – you will find it here.)

As you know the US Section 877A Expatriation Tax applies to U.S. citizens and “Long Term Residents”. A “Long Term Resident” is an individual who has had a Green rd (as defined by the rules in Internal Revenue Code Section 7701(b)(6) for at least eight of the fifteen years prior to expatriation). This has become a serious problem for Green rd holders who simply move from the United States and and don’t take formal steps to sever their U.S. tax residency. (They must either file the I-407 or use a tax treaty tie breaker election to expatriate. Otherwise they may be in a situation where they have no right to live in the United States (having lost the immigration status) but are taxable on their worldwide income (still being tax citizens).

That said, whether you are a U.S. citizen wishing to renounce U.S. citizenship or a Long Term Resident wishing to sever U.S. tax residency, you do NOT want to be a “covered expatriate“. Generally, (unless one is subject to two exceptions – dual citizen from birth or expatriation between 18 and 181/2 – that are beyond the scope of this post), one is treated as a “covered expatriate” if one meets any one of these three tests:

1. Net worth of 2 million USD or more (which this post will focus on)

2. Average U.S. tax liability of more than approximately $165,000 USD over the five years prior to expatriation

3. Failure to certify U.S. tax compliance for the five years prior to expatriation.

The COVID-19 Panic – Falling asset values – more favourable exchange rates -2 million USD net worth test

The last couple of weeks have changed and continue to change our world. We are experiencing human misery on an unprecedented and global sle. This includes physil illness, fear of illness and social distancing. I live in a large city and I am beginning to see less variety in the food available. Self-employed people are seeing disruptions to their revenue streams, etc. I don’t want to keep listing examples. But it is very bad. On the economic front, we are seeing unprecedented and inlculable damage to the world economy. This includes (but is not limited to) falling asset values – how is your stock portfolio doing? We see currencies that are weakening relative to the U.S. dollar. (This means that a higher nadian or Australian dollar net worth would equal 2 million USD.) As I write this post I just received a message, from someone advising me that the shares in a certain cruise ship stock, have fallen from $136 to $22. (My advice would be: Don’t spend money on the cruise. Instead buy the shares in the company.)

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Seriously now, who’s GILTI? Senators Wyden and Brown attempt to reinforce the punishment of GILTI Amerins abroad

Prologue

Amerins abroad who are individual shareholders of small business corporations in their country of residence have been very negatively impacted by the Section 951A GILTI and Section 965 TCJA amendments. In June of 2019, by regulation, Treasury interpreted the 951A GILTI rules to NOT apply to active business income when the effective foreign corporate tax rate was at a rate of 18.9% or higher. Treasury’s interpretation was reasonable, consistent with the history of Subpart F and consistent with the purpose of the GILTI rules.

Now, Senators Wyden and Brown are attempting to reverse Treasury’s regulation through legislation. This is a direct attack on Amerins abroad. Senators Wyden and Brown are living proof of the principle that:

When it comes to Amerins abroad:

It’s not that Congress doesn’t re. It’s that they don’t re that they don’t re!

Introduction

As many readers will know the 2017 US Tax Reform, referred to as the Tax Cuts and Jobs Act (TCJA), contained provisions which have made it difficult for Amerins abroad to run small businesses outside the United States. In the common law world a corporation is treated as a separate legal entity for tax purposes. In other words the corporation and the shareholders are separate for tax purposes, file separate tax returns and pay tax on different streams of income. The 2017 TCJA contained two provisions that basilly ended the separation of the company and the individual for U.S. tax purposes. In other words: there is now a presumption (at least how the Internal Revenue Code applies to small business owners) that active business income earned by the corporation will be deemed to have been earned by the individual “U.S. Shareholders”. To put it another way: individual shareholders are now presumptively taxed on income earned by the corporation, whether the income is paid out to the shareholders or not! The effect of this on individual Amerins abroad has been discussed by Dr. Karen Alpert in her article: “llous Neglect: The impact of United States tax reform on nonresident citizens“.

The expansion of the Subpart F Regime

The Subpart F rules were established in 1962. The principle behind them was that individual Amerins should be prevented from, using foreign corporations to earn passive income, in jurisdictions with low tax regimes (or tax regimes that have lower taxes than those imposed by the United States). The Subpart F rules have (since 1986) included a provision to the effect that investment income (earned inside a foreign corporation) which was subject to foreign taxation at a rate of 90% or more of the U.S. corporate rate, would NOT be subject to taxation in the hands of the individual shareholder.

To put it another way (with respect to investment income):

1. It was mostly investment/passive income that was subject to inclusion in the incomes of individual shareholders as Subpart F income; and

2. Passive income that was subject to foreign taxation at a rate of 90% or more of the U.S. corporate tax rate (now 21%) would NOT be considered to be Subpart F income (and therefore not subject to inclusion in the hands of individual shareholders).

To coordinate my background discussion with the Arnold Porter submission described below, I will refer to exclusion of investment income subject to a 90% tax rate as “HTKO” (High Tax Kick Out).

The basic principle was (and continues to be):

If passive income earned in a foreign corporation is taxed at a rate of 90% or more of the U.S. corporate tax rate, that there was no attribution of that corporate income to the individual U.S. shareholder.

In its most simple terms, the Subpart F rules are found in Sections 951 – 965 of the Internal Revenue Code. They are designed to attribute income earned by the corporation directly to the U.S. shareholder, without regard to whether the corporate profits were paid to the shareholders as a dividend. Note that many developed countries have similar rules. Many developing (from a tax perspective) countries (for example Russia) are adopting Subpart F type rules. The U.S. rules are more complited, more robust and (beuse of citizenship taxation) apply to the lolly owned companies of individuals, who do not live in the United States.

Punishing them for their past and destroying their futures – The expansion of the Subpart F Regime to active business income

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