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Archive for John Richardson

US Citizens Living In Canada Will NOT Pay US Tax On $1200 US Cares Act Payment But Likely Will Pay US Tax On Canada’s CERB Payment

US Citizens Living In Canada Will NOT Pay US Tax On $1200 US Cares Act Payment But Likely Will Pay US Tax On Canada’s CERB Payment

Prologue – The Only Certainties Are Death And Taxes

The above tweet references an article in the Globe and Mail on May 7, 2020. The article contains interesting perspectives, but much has changed since that time.

COVID-19 And The Role Of Government Assistance

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Individuals, Treasury, The State Department And IRC 6039G: Who Has To Report What When An Individual Renounces U.S. Citizenship?

John Richardson - Renounce U.S. Citizenship

Prologue – Treasury has recently reported the “Name and Shame” list

There is strong evidence that the numbers are NOT being accurately reported.

Renunciation of U.S. Citizenship triggers a “Reporting Frenzy”!

It’s simply unbelievable. The renunciation of U.S. citizenship triggers more reporting obligations on the part of individuals and government agencies than anything else. More than birth. More than death. More than marriage. More than bankruptcy. More than conviction of a crime (probably). It’s unbelievable.

The purpose of this post is to “slice and dice” what those reporting obligations are.

Let’s Go On A Magical Reporting Tour

The rules governing information reporting when one relinquishes U.S. citizenship are found in Internal Revenue Code 6039G. They impose reporting obligations on “some” individual relinquishers (“covered expatriates”), the State Department whenever a Certificate of Loss Of Nationality has been issued and on U.S. Treasury. (I will comment separately on the situation of Green Card holders at the end of this post.) Most of this is summarized in the following two tweets. But, because this is so confused, I am going to take the time to parse the statute.
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Treasury Final Regulations Confirm That Foreign Income Subject To High Foreign Tax Be Excluded From Definition Of #GILTI

Treasury Final Regulations Confirm That Foreign Income Subject To High Foreign Tax Be Excluded From Definition Of #GILTI

July 20, 2020: The Readers Digest Version …

Treasury, IRS issue final and proposed regulations on income subject to a high rate of foreign tax

IR-2020-165, July 20, 2020

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued a final regulation addressing the treatment of income earned by certain foreign corporations that is subject to a high rate of foreign tax.

The final regulations 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.

Treasury and the IRS today also issued a proposed regulation regarding the high-tax exception with the GILTI high-tax exclusion. Treasury and the IRS welcome public comments.
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China Does Not Have And Is Not Moving Toward U.S. Style Citizenship-Based Taxation

China Does Not Have And Is Not Moving Toward U.S. Style Citizenship-Based Taxation

Readers Digest Version: The Bottom Line Is …

As reported by American Expat Finance, which discusses an interview with Dr. Bernard Schneider of Queen Mary …

You can listen to the podcast here.
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Does The United States Provide Americans Abroad Any Benefits?

americans abroad benefits: taxconnections

This question was presented in May 2020 on Quora with some interesting comments from Americans Abroad. This post is about the question “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.

As a defender of American “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. What follows is the readers question and 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 American citizen, he or she must be enjoying SOME benefits or they would logically renounce their US citizenship instead of paying US taxes. That would be a good solution for anyone facing this question. Just go!
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The S. 911 Foreign Earned Income Exclusion: It’s Origins, Journey, Opportunities And Limitations

John Richardson

I recently participated in a podcast 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 Americans abroad. You can listen to it here:

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

The podcast was the subject of a post at American 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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CARES ACT: How U.S. Citizen Taxation Leads To Sending Relief Money To Individuals Outside The United States And Denies Relief Money To Individuals Inside The United States

Cares Act Effect On Expatriates

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?

The Quora answer was rewritten with the generous technical assistance of CPA Olivier Wagner of 1040 Abroad.

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:
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Analysis Of The CARES ACT From Professor Francine Lipman

John Richardson- Cares Act

I received the following from Professor Francine Lipman who is on the faculty of the UNLV School of law. It is a statement of how the CARES Act operates to provide funds to Americans in need.

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

To be clear, what follows is a post written by Professor Francine Lipman.

________________________________________________________________________________________

Dear Passion Warriors for Justice:

I hope this is helpful to you and your colleagues. The CARES 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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Recent Economic Upheaval Creates Expatriation Opportunities For “US Persons” Living Abroad

JOHN RICHARDSON

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 Card (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 Card 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:
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Why Are These Senators Attempting To Reverse Treasury Regulations That Affect Americans Abroad?

John Richardson on GILTI

Prologue

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% 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.

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 Americans 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 basically 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!
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A Thoughtful Proposal Regarding Expatriates Foreign Trusts And Retirement Savings: Will Treasury Listen?

Foreign Trusts - John Richardson

TaxConnections is posting this thoughtfully written comment on an article titled “Treasury Exempts Applicable “Tax-Favored Foreign Trusts” From The Form 3520… And Therefore Form 3520A Requirement” written by John Richardson. Here is a recommendation for Treasury to consider as posted by a David Johnstone.

John,
Excellent post. Based on my reading of the Revenue Procedure, as well as feedback from practitioners in the UK or Australia, I have grave reservations about the claim that this Revenue Procedure will help “many” Americans abroad. Perhaps this is an example of an attempt to simplify things from a legal perspective that in practice – once one does the math – may lead to greater complexity and help a very small number of people at best.
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Treasury Exempts Applicable “Tax-Favored Foreign Trusts” From The Form 3520… And Therefore Form 3520A Requirement

Form 3520 And Form 3520A

Introduction – A small step for forms, one giant leap for “formkind”

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:

Americans abroad do NOT use non-U.S. pension plans and non-U.S. tax-advantaged investing accounts to evade U.S. taxes. Hence, there is NO reason for the Form 3520 reporting requirement. This is an example of the tax compliance industry sitting down with Treasury, explaining a problem and getting a resolution. I suggest (and hope) that the same can be done for PFIC (Form 8621), Small Business Corporations (Form 5471) and other penalty-laden forms.

Yes, this announcement from Treasury in the form of RP 20-17 is a great achievement. Although it certainly doesn’t solve all the problems, it’s:

A small step for forms, one giant leap for “formkind”

The background to this problem – It starts in 1996 (same year as the beginning of the Exit Tax)…

Since 1996 Internal Revenue Code 6048 has required extensive reporting of almost any interaction with a foreign trust. Treasury has required that the reporting take place on Forms 3520 and 3520A. The forms are complex and subject to the draconian penalty regime described in Internal Revenue Code Section 6677. In order for an entity to be a foreign trust, it must be a trust. A “trust” for IRS purposes is defined by the Treasury Regulations as:

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