Note From TaxConnections CEO: After following John Richardson’s nearly 200 Blog Posts on our site, I can tell you John dug deep in his research to provide answers that lawyers would charge one thousand dollars an hour to give you. John Richardson knows what is happening to Americans Abroad and has the prescience to know what is about to happen to those now residing in America.
I asked John if I could post these questions and answers and also if he would help us pull together a selected group of the nearly 200 posts into an eBook we could give you all. It is coming soon! In the meantime, follow his well-researched and expert counsel. John Richardson is the best of the best!
Kat Jennings, CEO TaxConnections
1.What do I need to report as a U.S. taxpayer who renounces citizenship?
Renunciation of US citizenship triggers a reporting frenzy. Information regarding the rules governing information reporting when one relinquishes U.S. citizenship are found in the Internal Revenue Code 6039G. Read this article:
2. What are the U.S. Treasury’s Final Regulations on GILTI?
The U.S. Treasury final regulations (at least prior to the Biden administration) allow taxpayers to exclude certain high-taxed income of a controlled foreign corporation from their Global Intangible Low Taxed Income(GILTI) computation on an elective basis. Read this article:
3. Does the United States Provide Americans Abroad Any Benefits? This post presents the questions, answers and my answer to the question. If you are an American Abroad reading this post your comments and experiences are most appreciated. Read this article:
4. Are U.S. shareholders of small businesses abroad subject to increased taxes?
Individual Americans abroad, who are shareholders in their small business corporations, may now be subject to triple taxation on their active business income! Read this article: https://www.taxconnections.com/taxblog/seriously-now-whos-gilti-senators-wyden-and-brown-attempt-to-reinforce-the-punishment-of-gilti-americans-abroad/
5. Is the U.S. Cares Act Payment Taxable Income to U.S. Citizens living in Canada?
The US $1200 payments under the CARES Act and Canada’s CERB payments were designed to fulfill the same purpose. Specifically, that purpose was to get relief money into the hands of individuals who were suffering from the COVID-19 pandemic. It appears that payments were made generously with few qualifications for receipt of payments. The qualification appears to have been that an individual was a tax resident of the country. The $1200 CARES Act payment and the CERB payment were to fulfill the same function. Therefore, it would seem logical that both the CERB and CARES Act payment should be taxable in each country or neither payment should be taxable in the country. But, different characterizations of the payments appear to lead to different results. Read this article: https://www.taxconnections.com/taxblog/us-citizens-living-in-canada-will-not-pay-us-tax-on-1200-us-cares-act-payment-but-likely-will-pay-us-tax-on-canadas-cerb-payment/
6. Why Are U.S. Senators Trying To Reverse Treasury Regulations That Affect Americans Abroad?
Americans 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% (90% of the US corporate tax rate) 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 Americans abroad. It will be interesting to see what the new Biden administration will do. Read this article: https://www.taxconnections.com/taxblog/seriously-now-whos-gilti-senators-wyden-and-brown-attempt-to-reinforce-the-punishment-of-gilti-americans-abroad/
7. Do U.S. Taxpayers living abroad need to file a Form 3520 and Form 3520A?
Revenue Procedure 2020-17: It’s true. Many Americans abroad will no longer have to file Form 3520 and Form 3520A to report their lives abroad! Early indications appear that many Americans will (assume their retirement vehicle does qualify as a trust) be required to report on Form 3520. This new initiative from Treasury a positive step in the right direction.
I have long thought that Treasury could solve many of the problems experienced by Americans abroad. Here is a wonderful example of Treasury taking the initiative to clarify the obvious.
8. What is the U.S. definition of “ Resident” for FBAR purposes?
I have not written a post about Mr. FBAR for quite some time. But, a post about the recent Boyd Case at Tax Connections, by Darlene Hart got me thinking about FBAR again.
9. If I am an expatriate living outside of the United States, will my foreign assets be subject to U.S. taxation?
a) Taxation of income from your remaining “non-U.S. assets”
You will be shocked to find that many of your “foreign assets” will be subject to particularly punitive U.S. taxation.
b) Reporting of your “non-U.S. assets”
If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for taxation and penalties.
Read the entire post: https://www.taxconnections.com/taxblog/coming-to-america-welcome-to-the-land-of-fbars/
10. What options are available for U.S. taxpayers with undisclosed foreign financial assets?
On December 17, 2019 Gary Carter published a post on Tax Connections, which outlined the “Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets“. It contained an excellent overview and analysis which included a discussion of the IRS definition of “non-willfulness” under the Streamlined Program. In commenting on the definition of “non-willful” he noted that:
The IRS definition of non-willful covers a lot of territory. Negligence, for example, includes “any failure to make a reasonable attempt to comply with the provisions of the Code” (IRC Sec. 6662(c)) or “to exercise ordinary and reasonable care in the preparation of a tax return” (Reg. Sec. 1.6662-3(b)(1)). Further, “negligence is a lack of due care in failing to do what a reasonable and ordinarily prudent person would have done under the particular circumstances.” (Kelly, Paul J., (1970) TC Memo 1970-250). The court also stated that a person may be guilty of negligence even though he is not guilty of bad faith. So the fact that you ignored the FBAR filing requirements for many years, and failed to report your foreign income, might be negligent behavior, but it’s probably not willful. That means you likely qualify for one of the new streamlined procedures. On the other hand, if you loaded piles of cash into a suitcase and lugged it over to Switzerland to conceal it from the IRS, you don’t qualify, because that is willful conduct. If you believe your behavior may have been willful under these guidelines, consult with an attorney before submitting returns through one of the streamlined procedures. We work with attorneys who are experts in this field and we would be happy to provide a referral, free of charge or obligation.
Since September 6, 2019 the IRS has offered an additional program called: “Relief Procedures For Former Citizens” (likely designed for Accidental Americans). This program, described in the following post, provides a way for certain individuals to both renounce US citizenship and fix any outstanding tax and reporting issues.
11. Are Americans Abroad subjected to a more punitive tax system than Homeland Americans?
There are many instances where a U.S. citizen living abroad who earns his salary abroad, owns his assets abroad, has his pension abroad and is married to a non-U.S. spouse will pay higher U.S. taxes on income that is local to him than a comparable Homeland American would pay on income that is local to him.
It’s amazing that the United States imposes higher taxes and more punitive reporting on US citizens, who live outside the United States, do not use services offered by the US government and are tax residents of other countries.
12. What are the requirements for an arrangement to qualify as a “trust” under the Internal Revenue Code?
Definitions are found in Internal Revenue Code 7701.
Treasury Reg. 301.7701-4(a) defines a trust for Internal Revenue Code purposes in a way that includes:
“an arrangement created either by will or inter vivos declaration whereby trustees take title to property for the purpose of protecting and conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts . . . . Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit”
13. What are the primary reasons expatriates renounce U.S. citizenship?
On December 5, 2019 TaxConnections published our “Open Letter To Democrats Abroad” in which we argued that “revenue neutrality” should be irrelevant in moving from “citizenship-based taxation” to “residence-based taxation”. That post attracted a large number of comments from Americans abroad expressing the difficulties living under the citizenship-based taxation regime. The bottom line is that the United States is forcing expats to renounce their U.S. citizenship. Yes, it’s true. Americans abroad are not renouncing because they want to. Thy are renouncing because they have to. The comments reminded me of a post that appeared on my site in 2017. Settle in for the ride as you read the “13 Reasons Why …
14. A tax resident of the United States is taxable on his worldwide income. According to the Internal Revenue Code of the United States, which one of the following is NOT a tax resident of the United States of America?
(A) Congresswoman “Born In The USA”, head of her household, who does not and has never had a U.S. Passport
(B) An unmarried Green Card Holder who has never filed an FBAR who lives in El Paso Texas
(C) A fifty year old U.S. citizen who is divorced has never set foot in the United States, doesn’t have a U.S. Social Security Number and lives in and pays full taxes in Germany
(D) A citizen of only Canada who lives four months a year in Florida with his U.S. citizen wife, in a house he owns where he parks a car he owns with Florida license plates
(E) A citizen of Grenada who lives full time in the USA with an E1 visa operating a fast food franchise
The rules for tax residency vary from country to country. The following post compares tax residency in the United States to tax residency in Canada.
For help in finding the answer see post: https://www.taxconnections.com/taxblog/presumptions-of-tax-residency-in-a-fatca-world/
15. Has the IRS introduced a procedure providing limited tax relief, penalty relief and certainty for Accidental Americans who need to renounce U.S. citizenship in a FATCA world?
In what appears to be a response to how FATCA issues affect “accidental Americans” living outside the United States, the IRS has introduced a procedure providing limited tax relief, penalty relief and certainty for accidental Americans who need to renounce U.S. citizenship in a FATCA world. The problem is described in this recent article by Helen Burggraf at American Expat Finance. Note that March 18, 2010 was the date that the HIRE Act (of which FATCA was a revenue offset) was enacted – making it clear that this relief is tied to FATCA and NOT to “citizenship-based taxation” per se.
16. How do the rules of U.S. “citizenship-based taxation” affect people who are not U.S. citizens, but have chosen to marry a U.S. citizen?
The marriage of Meghan Markle to Prince Harry has generated an awareness of the regulatory requirements on U.S. citizens who live outside the United States. This is only part of the problem. To focus on how U.S. citizenship-based taxation affects ONLY U.S. citizens is selfish and misguided. After all, by marrying Prince Harry, Meghan Markle is now part of a family which includes non-resident aliens.
How do the rules of U.S. “citizenship-based taxation” affect people who are not U.S. citizens, but have chosen to interact with U.S. citizens?
Forget Meghan and the baby. Time to ask: How might being the father of a U.S. citizen and the husband of a U.S. citizen create a link between Harry and the IRS?
My thinking along these lines began with:
What about Internal Revenue Code Section 318? This would deem “Baby Sussex” to be (for IRS purposes) the owner of any the shares of any U.K. corporations that Harry might own. This is only one of many instances where (to put it simply) the U.S. citizenship of one family member can become a problem for the whole family.
17. How do U.S. tax rules constrain my investment choices if I am married and now living with my Australian husband in Australia?
Think of it! With the exception of the United States, when a person moves away from the country and establishes tax residency in another country, they will no longer be taxed as a resident of the first country.
But in the case of the United States: If a U.S. citizen moves from the United States and establishes tax residency in a new country: (1) they will STILL be taxable as a tax resident of the United States (2) they will be subjected to a separate and more punitive system of taxation! (3) they will have to engage in financial planning according to the rules of the tax system where he resides.
18. What does U.S. citizenship-based taxation mean?
They are all US citizens living outside the United States. And yes, the United States imposes worldwide taxation, on these individuals who do NOT live in the United States and are tax residents of other countries. How would you like for your employment income in France be subjected to US taxation?
Speaking of people born outside the United States to a U.S. citizen parent, one need look no further than the U.S. citizenship of Meghan Markle and baby Sussex:
These Individuals May Have Been:
1. Born in the United States but moved permanently from the United States as babies
2. Born in the United States but moved permanently from the United States before reaching the age of majority
3. Born outside the United States to a citizen or citizen(s) of the United States.
Thy are all US citizens living outside the United States. And yes, the United States imposes worldwide taxation, on these individuals who do NOT live in the United States and are tax residents of other countries. How would you like for your employment income in France be subjected to US taxation?
Speaking of people born outside the United States to a U.S. citizen parent, one need look no further than U.S. citizenship on Meghan Markel and baby Sussex:
19. Does the United States impose a higher tax on U.S. Citizens who are residents of other countries?
On February 28, 2019 TaxConnections kindly posted my first post comparing the way that 19th Century Britain and 21st Century America Treated Its Citizens/Subjects. The post received a great deal of interest resulting in more than 120 comments (largely reflecting the frustration of Americans abroad and accidental Americans).
The purpose of that post focused largely on citizenship and the fact that the United States imposes worldwide taxation on U.S. citizens who are tax residents of other countries and do NOT live in the United States. What that post did NOT do was to focus on HOW the Internal Revenue Code applies to U.S. citizens who do NOT live in the United States.
20. Are Green Card Holders Considered U.S. Tax Residents Under The Internal Revenue Code?
Green Card holders are deemed to be U.S. tax residents under the Internal Revenue Code. In most circumstances Green Card Holders are also treated as U.S. tax residents under U.S. tax treaties.
U.S. Green Card holders have traditionally been able to use tax treaties to sever “tax residence” with the United States. This decision carries both burdens and benefits and should never be undertaken without competent professional advice. (For Green Card holders who are “long term residents“, the use of a “tax treaty tie breaker” will result in expatriation. Expatriation may trigger the imposition of the Sec. 877A Expatriation Tax.)
21. What Are The Ten Commandments That Govern The Lives Of Americans Abroad In An FBAR and FATCA World?
A supporter of “citizenship taxation” is a person who thinks about “citizenship taxation”.
An opponent of “citizenship taxation” is a “U.S. tax compliant” American abroad who understands what it’s like to live under “citizenship taxation”.
The “Bible of the Homelander is based on two basic principles:
Principle 1: The “Bible of the Homelander” hates anything that is foreign. In fact, if the word “Foreign” appears in the “Bible”, the word “penalty” (generally starting at $10,000) is sure to follow.
Principle 2: The “Bible” is designed to punish all forms of “tax deferral” that are not “Homelander Permitted (think IRA) Tax Deferral”.
Now, from these two great principles, we will develop the “Ten Commandments” of living a clean American life outside the United States.
“Living Clean” – The Life Of A U.S. Citizen Abroad
Here are the ten commandments of “Living Clean” that apply to U.S. citizens abroad. They are designed to ensure that:
if a U.S. citizen lives outside the United States that he lives according to the principle that:
“When in Rome, live as a Homelander” does, when elsewhere, live as they live elsewhere.
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