Archive for John Richardson

Exempt Non-resident Citizens From FBAR

Exempt Non-resident Citizens From FBAR

OMB Control No: 1506-0009 / ICR Reference No: 202403-1506-001 / Federal Register: 2024-06697
Reports of Foreign Financial Accounts Regulations and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

An earlier post alerted people to the opportunity to submit comments (due April 29, 2024) about whether the FBAR rules should be applied to the local accounts of Americans abroad. What follows is my comment …

Outline:

Treasury should explain precisely what it is about the status of U.S. citizenship (regardless of residence or connection to the United States) that creates a presumption of tax evasion, terrorism and money laundering.

The time has come for Treasury to recognize the obvious injustice and stop requiring an FBAR to report the “local” bank accounts of Americans abroad to the Financial Crimes Division of U.S. Treasury!!

Part I – Introduction and Context- Understanding The April 29, 2024 Deadline For FBAR Commentary Submissions
Part II – Comment: Statement Of Purpose
Part III – Looking For Mr. FBAR – Where are the rules found?
Part IV – Understanding FBAR: “U.S. Persons” are required to file an FBAR. Who is a “U.S. Person”?
Part V – FBAR and U.S. Citizens: The World of Mr. FBAR in 1970 is NOT The World Of Mr. FBAR 2024
Part VI – Non-application of the FBAR rules to U.S. citizens who reside in U.S. territories
Part VII – The application of FBAR to non-citizens who do NOT live in U.S. territories
Part VIII – Conclusion: If ALL U.S. citizens (regardless of connection to the United States) are to be subject to the FBAR requirement …

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Canada’s Underused Housing Tax Treats Non-residents Of Canada Differently

Canada's Underused Housing Tax Treats Non-residents Of Canada Differently

Purpose and summary of this post:

Because Canada’s Underused Housing Tax treats nonresidents of Canada differently, based on their citizenship, the tax may violate the non-discrimination Article in many of Canada’s tax treaties (including the Canada U.S. tax treaty). Nonresidents of Canada are treated differently depending on whether or not they are Canadian citizens. For example a Canadian citizen who is a nonresident of Canada is “excluded” from the tax. But, a U.S. citizen who is a nonresident of Canada is “affected” by the tax. This appears to violate paragraph 1 of Article XXV of the Canada U.S. tax treaty (and other Canadian tax treaties).

Paragraph 1 of Article XXV of the Canada U.S. tax treaty:

  1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, particularly with respect to taxation on worldwide income, are or may be subjected. This provision shall also apply to individuals who are not residents of one or both of the Contracting States.

The question is what is meant by “in the same circumstances”. Relevant commentary from the OECD and from U.S. Treasury underscores that the words “particularly with respect to taxation on worldwide income” include whether the individual is taxed as a tax resident of the country or as a nonresident of the country.

Arguably all “nonresidents” of Canada are “in the same circumstances” (in relation to Canada’s tax system). Hence, “nonresidents” should not be treated differently depending on their citizenship.

Discussion and analysis follows.

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Written by | Posted in Canada • Canada Housing Tax Credits • Housing Tax Credits

Introduction To Citizenship Based Taxation

Introduction To Citizenship Based Taxation

You will also learn alot from this YouTube Video: https://www.youtube.com/watch?v=DWYnIGgG0Ak

Part A: Introduction – About Citizenship-based Taxation
Part B: How the Internal Revenue Code is designed to mitigate the effects of double taxation in certain circumstances
Part C: Determining what is “foreign source” income
Part D: The problem of international waters …
Part E: The effect of sourcing to the US income earned in international waters by dual tax residents
Part F: Deducting “foreign taxes” paid – although income from international waters may not be foreign, it is still subject to the payment of “foreign taxes”
Part G: Can a US citizen living abroad be saved by a tax treaty? Maybe if he/she lives in Canada****
Part H: Conclusion and the need for “Pure Residence-Based Taxation”

Part A: Introduction – About Citizenship-based Taxation

Whether they live in Mexico, France, Canada, Brazil or even on a yacht, US citizens are taxable on their worldwide income. Worldwide income means income of all kinds, from all sources and wherever earned. US citizens are taxable an ALL income sources. It doesn’t matter whether the income has a source in Mexico, France, Canada, Brazil or even on a yacht. For example, a US citizen living in France who has ONLY French source income is required to treat that income as taxable in the United States. The fact that the income is also taxable in France is irrelevant!

The Internal Revenue Code is based on a presumption of double taxation. The presumption of “double taxation” is reinforced by the “saving clause” in US tax treaties where the treaty partner country agrees that the US retains the right to tax US citizens regardless of the tax treaty. The treaties themselves typically contain a small number of specified exceptions that mitigate against the effects of double taxation in certain narrow circumstances.

Relief from double taxation is available either domestically under the Internal Revenue Code or through provisions in international tax treaties (or possibly both). Each avenue of mitigation will be considered separately.

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How The Lives Of “Free Trade Professionals”, Americans Abroad And Casablanca Overlap

JOHN RICHARDSON

Mexico City – September 2023 – A reminder that citizenship matters

Last month I attended an Immigration Conference in Mexico City. It was organized by Buffalo immigration lawyer Joe Grasmick and focussed on the USMCA, CUSMA (formerly called the NAFTA Free Trade Immigration Visa- TN Visa). The conference highlighted the opportunities available to citizens of Canada, Mexico and the USA to live in any one of these three countries performing certain professional services for which they are qualified.

In a nutshell the “Free Trade Immigration” visa is an opportunity for:

1. Citizens of the United States, Canada and/or Mexico who have the status of being certain kinds of professionals (who they are and their professional qualifications); to accept

2. Certain kinds of employment (what will they actually be doing).

The devil is certainly in the details. Immigration under the “Free Trade Professional” category has its own nuances. It is certainly more difficult than it appears (and is described).

The conference was a “sobering” reminder that “citizenship matters”!

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Written by | Posted in TaxConnections

Bonjour Part 2 – US Citizens Living In France Can Use French Tax As A Credit To Offset The Obamacare Surtax!

Bonjour Part 2 - US Citizens Living In France Can Use French Tax As A Credit To Offset The Obamacare Surtax!

“Congratulations to lawyers Stuart Horwich & James Lieber for their work and success in achieving this result for Americans abroad.”

A Quick Synopsis

Because of the specific provisions of the France/U.S. tax treaty, U.S. citizens who are resident in France are eligible to use French income tax paid as a tax credit against the 3.8% Obamacare surtax. Depending on the terms of the tax treaty in their country of residence, it is possible that U.S. citizens residing in other countries may be able to use taxes in their country of residence as a tax credit against the 3.8% Obamacare surtax.

As described below, I expect that to be able to use foreign taxes paid as a credit against the 3.8% Net Investment Income Tax, the “Double Taxation” article in the relevant tax treaty must include a specific provision for “U.S. citizens residing in the country of residence”. (Canada comes to mind. But, I will have to some more research …)

Note that it is very possible that this decision will be appealed. The US government will be unhappy with this decision.

For more detail and analysis, keep reading. This post in organized into the following parts:

Part A – Introduction – Background
Part B – Before moving to another country, pay special attention to the tax treaty between the US and that country!
Part C – MATTHEW AND KATHERINE KAESS CHRISTENSEN V. UNITED STATES – Why does the US/France tax treaty work for them?
Part D – Not all tax treaties are the same! What kind of tax treaty provision create the eligibility to use foreign tax credits to offset the Obamacare surtax?
Part E – It’s great that I am entitled to a foreign tax credit. But, how is the tax credit to be calculated?
Part F – The Question: I live in country X. May I use foreign tax credits to offset the Obamacare surtax?
Part G – Dang! Can I get a refund? It appears that refunds ARE available to those who improperly were charged the Obamacare surtax!
Appendix – ARTICLE 24 Of the 1994 France/US Tax Treaty with the later protocols taken into account

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Retroactivity, Realization And The Moore Appeal: A Focus On Retroactivity

Retroactivity, Realization And The Moore Appeal: A Focus On Retroactivity

Prologue – Taxation, Fairness And “The Man On The Street”

Imagine asking an individual (who was not a tax academic, lawyer or accountant) the following two questions:

1. Do you think that people should be forced to pay taxes on income never received?

2. Do you think people should be forced to pay taxes on on income from the previous 30 years that they had never received?

The average person would be shocked by the possibility of this.

It may be difficult for the average person to understand Subpart F’s attribution of the income of a corporation to a shareholder. The average person would not doubt the unfairness of attributing 30 years of untaxed earnings of the corporation to the shareholder (especially when the income was never received by the shareholder).

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Retroactivity, Realization And The Moore Appeal: A Focus On Retroactivity

Retroactivity, Realization And The Moore Appeal: A Focus On Retroactivity

Prologue – Taxation, Fairness And “The Man On The Street”

Imagine asking an individual (who was not a tax academic, lawyer or accountant) the following two questions:

1. Do you think that people should be forced to pay taxes on income never received?

2. Do you think people should be forced to pay taxes on income from the previous 30 years that they had never received?

The average person would be shocked by the possibility of this.

It may be difficult for the average person to understand Subpart F’s attribution of the income of a corporation to a shareholder. The average person would not doubt the unfairness of attributing 30 years of untaxed earnings of the corporation to the shareholder (especially when the income was never received by the shareholder).

Moore and Retroactivity – The Readers Digest Version

This history of the Moore case is described by Professors Brooks and Gamage as follows:
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Beyer, Titus Introduce Tax Simplification for Americans Abroad Act – Sept. 2023

Beyer, Titus Introduce Tax Simplification for Americans Abroad Act - Sept. 2023

Introduction and initial reactions

Today, U.S. Representatives Don Beyer (D-VA) and Dina Titus (D-NV) announced the introduction of the Tax Simplification for Americans Abroad Act, legislation to help American taxpayers living overseas comply with their U.S. tax obligations by calling on the IRS to create a short form certification for Americans living abroad who owe no U.S. tax and earn below $400,000 annually. The bill would expand the Foreign Earned Income Exclusion to include additional types of income that are earned overseas like pensions and distributions from retirements funds. It would also consolidate duplicative and burdensome forms that taxpayers must file under the Foreign Account Tax Compliance Act (FATCA) and the Bank Secrecy Act.

“Ordinary Americans living abroad are often overlooked when U.S. tax policy is written, which can make it extremely difficult and expensive for them to navigate the tax system,” said Rep. Don Beyer. “I saw a record-breaking number of Americans renounce their citizenship when I served as the U.S. Ambassador to Switzerland, and the needless complexity of the U.S. tax code was often cited as a reason. This bill would help ordinary Americans fulfill their obligations without having to retain an expensive accountant to certify that they owe no U.S. taxes, and remove some of the frustrations faced by Americans living abroad who just want to follow the law.”

“Americans abroad face a uniquely complex set of reporting requirements that we here at home aren’t subject to. I’m joining Rep. Beyer to create a simplified income tax return for taxpayers living abroad because Americans shouldn’t have to jump through extra hoops simply because they reside or work overseas,” said Rep. Dina Titus, Chair of the Americans Abroad Caucus.
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Is A Canadian FHSA (“First Home Savings Account”) A Reportable Account Under The Canada/US FATCA IGA?

Is A Canadian FHSA ("First Home Savings Account") A Reportable Account Under The Canada/US FATCA IGA?

August 23, 2023: An Important notice from the Canada Revenue Agency

Interim treatment of NEW First Home Savings Accounts (FHSA) under Part XVIII

The FHSAs are under consideration for being added to the list of the excluded accounts described in Annex II of the Agreement. These accounts do not need to be reviewed, identified or reported at this time.

What does this notice mean for U.S. citizens living in Canada?

On August 23, 2023 the Canada Revenue Agency released its latest guidelines for how financial institutions should interpret the Canada/US FATCA IGA. The guidelines are updated annually to reflect changes (which include) evolving financial products. The Canadian “FHSA” “FHSA” (First Home Savings Account) was introduced in 2023. My recommendation is that U.S. citizens living in Canada should have an FHSA.

The good news is that the FHSA accounts will join other accounts under Annex II which are NOT required to be reported BY FINANCIAL INSTITUTIONS under the FATCA IGAs! The FHSA should be reported by individuals on IRS Form 8938 with their tax returns when the Form 8938 is required!

In other words, U.S. citizens living in Canada can expect that FHSA accounts will NOT be reported to the Canada Revenue Agency and then the IRS.

The text from the guidelines – Section 5.6 (go directly to the bottom) – includes:
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TaxConnections Members’ Blog Post About Expatriate Taxes Has Received More Than 7024 Reads (A Great Reason To Post Your Blogs With Us)

JOHN RICHARDSON

(This blog reposted due to its popularity and commentary. What has changed for expatriates in the past few years?)

Revenue Neutrality And A Move To Residence-based Taxation: Open Letter To Democrats Abroad

OPEN LETTER TO DEMOCRATS ABROAD

Democrats Abroad (DA) reached out to the Democratic presidential candidates to ask them about issues relevant to Americans living overseas. The questions DA posed and the responses it received can be accessed at this link:

https://www.democratsabroad.org/democrats_abroad_talks_with_the_candidates?fbclid=IwAR0TKNlkqnxPjdhQz22tUsnnBDotPiSR7NaRVm430LXvlZHma8FWF1HuhQs

We strongly applaud DA for this valuable initiative. But we believe that it is important—indeed, vital—to call out the framing of this question:

“Most Americans living abroad think that the time has come for Residency-Based Taxation, the principle guiding all other countries’ tax systems and a fix for numerous unjust burdens on Americans living and working abroad. There are bi-partisan, revenue-neutral proposals to implement RBT that include robust provisions to protect the law from abuse by tax evaders. All we need is a moment of leadership to get this done. Will you be that leader?”

We believe that it is a grave error to condition a move to residency-based taxation (RBT) upon a demonstration of revenue neutrality. Doing so would serve to perpetuate the immoral and unjust system in place today.

These are the reasons why:

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Because The US Exports Its Tax Code, Other Countries Should File Amicus Briefs In The Moore MRT Appeal

Because The US Exports Its Tax Code, Other Countries Should File Amicus Briefs In The Moore MRT Appeal

Why U.S. deemed income events cause problems for U.S. citizens living in other countries and erode the tax based of the countries where they live

All countries in the world have an interest in the Moore MRT appeal and should file Amicus briefs in support of the Moores.

The U.S. citizenship tax AKA extraterritorial tax regime applies to ALL U.S. citizens and residents wherever they live in the world. With its very expansive definition of “tax residency”, the United States claims the tax residents of other countries as U.S. tax residents. Those unlucky dual filers are subject to additional administrative fees, additional taxation and the opportunity cost of the inability to effectively engage in retirement and financial planning.

In the Moore MRT appeal the U.S. Supreme Court will consider whether “income” requires the actual receipt of income or whether “deemed income” meets the 16th Amendment test for income. Does the 16th Amendment require objective tests that must be satisfied before “income” can exist? The answer to this question will have profound implications for both the “U.S. citizen” residents of other countries and (2) the countries where they live. As previously discussed, if income does NOT have to be actually received, this opens the door for the U.S. tax the residents of other countries on income they have never received. Often the taxable event in the U.S. will take place before the taxable event in that other country.

The following post describes some examples where the United States is already deeming income to have been received for U.S. tax purposes before income has been received in the other country.

The following post describes how the U.S. deeming income to have been received for U.S. tax purposes prior to income having been received in the other country may result in (1) double taxation to the individual and (2) erosion of the tax base of the other country.

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Written by | Posted in Renounce U.S. Citizenship • TaxConnections

The MRT AKA Transition Tax – Exporting Taxes, Forms And Penalties To Residents Of OTHER Countries

The MRT AKA Transition Tax - Exporting Taxes, Forms And Penalties To Residents Of OTHER Countries

Exporting U.S. taxes, forms and penalties to the residents of other countries

In the Moore appeal, the Supreme Court of the United States is charged with the task of determining whether “realization” is a necessary condition, for an “accession to wealth”, to qualify as “income” under the 16th Amendment. This broad question arises in the context of the Moores, who as “U.S. Shareholders” of a CFC, were subjected to the MRT which facilitated the double taxation of the Moores. The Moores, who reside in the United States, certainly have not and have no expectation of receiving a distribution from the India corporation. As problematic as the MRT was for the Moores, the MRT was far more devastating for Americans abroad, who were operating businesses that although “foreign to the United States”, were “local” to them. For the Moores their investment in the CFC represented an investment in a corporation that was “foreign” to both the Moores and the United States. Americans abroad were shareholders in CFCs (unlike the Moores and other resident Americans) that were “local” to them but foreign to the United States. In addition, for Americans abroad the CFC typically represents a pension/retirement planning vehicle. How can it be that the MRT could apply to individuals who live in other countries and are shareholders of corporations created in those countries? The answer is of course the extra-territorial application of the U.S. tax system to residents of other countries who happen to be U.S. citizens. In fact, the use of Canadian Controlled Private Corporations by dual US/Canada citizens living in Canada, demonstrates that it is possible for a U.S. citizen in Canada to be a shareholder in a Canadian corporation that would not qualify as CFCs if owned by U.S. residents.

The key takeaway is that the U.S. tax system, because of the extra-territorial tax regime (citizenship-based taxation) has a profoundly negative effect on individuals who are residents of other countries! U.S. tax law applies NOT only to U.S. residents but to residents of other countries who cannot demonstrate they are nonresident aliens. Therefore, a decision that the 16th Amendment does NOT require “realization” means that the U.S. will export the taxation of “unrealized income” to residents of other countries. The U.S. would tax the “unrealized income” of residents of other countries even when those other countries did not recognize the unrealized income as a taxable event!

In some circumstances the taxation of unrealized income would lead to double taxation. In other circumstances the taxation of unrealized income would frustrate the objectives of the tax policy of the other country. In many circumstances the taxation of “unrealized income” allows the United States to tax the wealth of other nations. It’s important to recognize that when the Supreme Court rules in the Moore appeal, it will also be deciding whether the U.S. can export the taxation of “unrealized income” to other countries! This has huge implications for both the residents and tax sovereignty of other countries.

Some EXISTING examples

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Written by | Posted in Citizenship Based Taxation • Citizenship Solutions • TaxConnections
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