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Latest Podcast Guest: Tax Attorney John Richardson



Anthony Parent, Tax Advisor, Wallingford, USA, TaxConnections

An unfortunate discovery for many passionate advocates is that many other advocates do not share the same passion for their clients. This is true in the tax industry. It in an uncomfortable truth that many tax professionals like that the overly complicated US tax code. It compels people to have to hire them. But not all advocates are like this. We found a kindred-spirit in Canada. John Richardson, both a brilliant tax attorney and a thoughtful advocate who too wants to see the law reformed to more just system of taxation. In this episode of the IRSMedic podcast, we finally got the chance to speak to Attorney Richardson.

A part of our interview that really stands out to me is when Attorney Richardson referred to the current system of global taxation and compliance as immoral. I could not agree more. Why? A few reasons stand out. Our current system:

  • Imposes compliance obligations on tax residents of other countries.
  • Taxes due are usually nothing because of the foreign income exclusion and foreign tax credits or incredibly high because of that the type of income is one that was disfavored by Congress.
  • Perhaps most importantly, tax compliance is a non-delegable duty. That is, a tax payer is always ultimately responsible. Yet we know it is impossible for a lay person to actually know if their tax professional is doing things 100% correct. And also, the fact is, as far as international returns go, the chances that a tax preparer is doing it correctly is remote. Either they don’t know how to do it correctly, or what is also common, is there there is no real “right” answers. There are competing answers all of which could be right, all of which could be wrong. Coming up with the best answer is communicating the real risks to the client so that they can make an informed decision.

The other surprise for me is when Attorney Richardson made the claim that the biggest victim on the complicated international taxation system is the IRS itself. Surprising, but true when you think about it. The IRS has limited resources and limited brainpower. International compliance is so heavy on the top talent that there needs to be a substantial payoff to justify the IRS’s examination function.

Yet even with the draconian $10,000 penalties and FBAR penalty they can assess, the IRS is still coming up short. The international compliance rate still remains incredibly low and while the revenue generated by the offshore disclosure programs seems impressive, in relation to other opportunities, the amount is tiny.

Consider, only 700,000 FBARs were filed ion 2016. And there is estimated that there are 9.0 million expats overseas, we should expect a large portion of them to have bank account and other assets in excess of $10,000. Additionally, there are 2.4 million H1B visa holders, they too still have foreign assets in their home country that needs to be reported. And since 1990, there have been 26 million Green Card holders, again many of them with assets they earned themselves overseas or inherited.

The fact is that over 1 in 10 Americans is an immigrant or an expat who possesses a substantial likelihood of having foreign income and asset reporting requirements.  Those 700,000 FBARs really seem a little light. But Congress continues to  give tax commands that the IRS can’t enforce — especially with half the revenue officers and agents they had in 2008. This is not the foundation of good governance or does it make the IRS an especially joyful place to work.

Ultimately the way forward for those looking to fix the law is that we need to refocus and acknowledge that everyone is suffering under the current regime. There is no one who is benefiting from the current state of affairs, with the exception of tax professionals who believe there is nothing else the market would pay them for other than to fill in the compliance holes the US government creates.

The way forward is for Republicans, Democrats, Socialists, Libertarians to unite with one consistent message: The bloated US tax system serves no one. The US tax system makes all American second class citizens and limits opportunity around the world. We need to put Americans first; we deserve a world-class taxing system that does not tax us around the world.

Have a question? Contact Anthony Parent. Your comments are always welcome!

 

Anthony E. Parent, Esq. is a partner of the law firm of Parent & Parent LLP, a boutique tax resolution firm headquartered in Connecticut. The firm’s practice is strictly limited to the representation before the Internal Revenue Service and state agencies. He has developed irsmedic, which hosts numerous tax guides, webinars, and tax articles which have been viewed by taxpayers, CPAs, tax attorneys and other tax professionals. He has made numerous media appearances including the Fox Business Report and the Wall Street Journal. Attorney Parent oversees his staff of attorneys, accountants and ex-IRS agents deal with some of the most difficult tax collections and audit cases around the country, and some of the most complicated offshore bank and voluntary disclosure cases from around the world.

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7 thoughts on “Latest Podcast Guest: Tax Attorney John Richardson

  1. Nononymous says:

    Compliance rates among dual citizens abroad, particularly accidental US citizens, will remain low because there is no good reason for them to come into compliance. The IRS is toothless, its threats hollow.

    In Canada, the terms of the tax treaty forbid any assistance in collecting US penalties or taxes owed against Canadian citizens. The IRS can only collect from dual citizens if they have US assets or income. Therefore there is no incentive for an ordinary accidental US citizen in Canada (by birthplace or parentage) to go through the hassle, expense and risk of US tax compliance.

    If you live in a country where FATCA enforcement means that US citizens face discrimination in banking and investment services, then it may be worth renouncing to obtain a CLN. Otherwise, save the $2350 and continue ignoring the US government.

  2. Mike says:

    With the exception of the tax compliance industry, nobody is winning. That really is the message here. It’s just pain all around and what’s more the efforts of the US to enforce its global taxation are generating global hatred of the USA.

  3. With the respect to the following excerpt as evidence of the “immorality”:

    “Taxes due are usually nothing because of the foreign income exclusion and foreign tax credits or incredibly high because of that the type of income is one that was disfavored by Congress.”

    Two general thoughts:

    1. It is true that many Americans abroad do not have to send a check to the IRS to pay U.S. taxes. This does NOT necessarily mean that U.S. tax is not owing. Remember that FTCs are a mechanism to pay taxes that ARE ACTUALLY OWED. One pays a tax that would otherwise be owed by using the FTC. What is astonishing about the situation of Americans abroad is that:

    Absent the tax mitigation provisions afforded by the FTC rules and the FEIE (“Foreign Earned Income Exclusion”), their U.S. tax bill might be higher than the tax bill of a comparably situated Homeland American!! In other words, the rules of the Internal Revenue Code operate so that Americans abroad (because they have a non-U.S. financial footprint) will have higher U.S. taxes than a comparably situated Homeland American.

    A good example of this would be the sale of a principal residence. The fact that their mortgage is in foreign currency frequently means that Americans abroad would pay a tax on the sale of the principal residence even if there is no capital gain on the property.

    2. Americans abroad are subject to all kinds of things that I would call “fake income”. Again this is due to the fact that they live outside the United States. I define “fake income” as income that is specifically created where there really isn’t any. Examples would include:

    – phantom gains on foreign currency transactions (see the example of the discharge of the mortgage above)

    – Subpart F income because they carry on business through small business corporations that are in their country of residence (but foreign to the USA)

    – PFIC “taxation” (interpreted to apply to non-U.S. mutual funds)

    – the consequences of using the “married filing separately” category (because they are frequently married to non-U.S. citizens)

    – more expensive divorce (because of the rules governing marriage to a non-U.S. citizen)

    – and probably more

    The bottom line is this:

    U.S. citizens who attempt to live outside the USA will be punished for it by the Internal Revenue Code.

  4. With the respect to the following excerpt as evidence of the “immorality”:

    “Imposes compliance obligations on tax residents of other countries.”

    Notice that that says “compliance” obligations. This includes but is certainly not limited to “tax obligations”.

    The Internal Revenue Code is written so that EVERY INDIVIDUAL in the world EXCEPT “NONRESIDENT ALIENS” is required to comply with the Internal Revenue Code in its entirety. This requirement is without regard to where you live in the world. So, in determining how the Internal Revenue Code applies to an individual, one would simply ask whether the person is a “nonresident alien”. If not, the the Internal Revenue Code applies in its full force. This means that the full force of the Internal Revenue Code applies to individuals who are citizens and residents of other countries who just happen to have been born in the United States. (U.S. citizenship is automatically conferred on those who were “Born In The USA”).

    Think of it. The U.S. has actually exported the Internal Revenue Code around the world. The Internal Revenue Code is used to impose direct taxation on people who are BOTH citizens and “tax residents” of other countries! Note that is the Internal Revenue Code (in its full force) that applies.

    Whether you are a seasoned tax professional or doing your first tax return, you know full well that that compliance with the Internal revenue code requires much more than the payment of U.S. tax. It requires compliance with a range of penalty laden and intrusive reporting obligations. It also punishes those who “commit personal finance abroad” and/or attempt financial and retirement planning outside the United States.

    As mentioned in the video, all tax systems are expressions of the cultural values of the country. So, the application of the Internal Revenue Code to other countries, means that the U.S. (via its tax system) is actually exporting and attempting to impose U.S. cultural values (or lack thereof) on the citizens and residents of other countries. The video used the example of imposing the Internal Revenue Code on residents of Muslim countries. This is a big problem that can lead only to trouble. (See for example a recent article written by Virginia La Torre Jeker that suggests conflicts between the Internal Revenue Code and Sharia law.)

    The United States and Eritrea are the only two countries in the world that attempt to impose “worldwide taxation” on the residents of other countries. Interestingly, Eritrea imposes only an excise tax. It does not export its reporting requirements and create “fake income”. It is a far more gentle system than that imposed by the United States.

    Frankly, to compare the Eritrea to the United States (in this regard), is an insult to Eritrea.

  5. Karen says:

    Well done Anthony and John. Thanks for an interesting conversation.

    What John said about CBT imposing US values on the rest of the world is so true. For non-resident US taxpayers US tax compliance is an exercise in putting square pegs into round holes! Local retirement plans, business structures and investments rarely fit neatly into the definitions in the US Internal Revenue Code. Plus, other countries may very well use a different mix of taxes to balance their budgets – but if it isn’t an income tax, it doesn’t qualify for FTC. It’s like the US expects the rest of the world to follow US law.

  6. As a person who lives “offshore”, and attempts to assist individuals who are “tax residents” of other countries (Canada and others), I am a keen observer of the damage (perhaps “carnage”) that the Internal Revenue Code inflicts on people who do not live in the United States.

    As a law student I had little interest in the philosophy of law. As a person who sees how the extra-territorial application of laws impacts the lives of ordinary people, I recently had the following memory.

    Many years ago I was introduced to Professor Lon Fuller’s (of Harvard law school fame) book titled “The Morality of Law”. In Chapter 2 he describes “The Morality That Makes Law Possible”. It is a fascinating and relevant read. He identifies the following (among others) as characteristics of immoral laws:

    – retroactive laws
    – laws that lack clarity
    – contradictory laws
    – laws requiring the impossible
    – laws that are not constant through time
    – laws where the law is applied in a manner that is inconsistent with it’s intent (FBAR anyone?)

    Professor Fuller was writing in the early 1970s. Looks to me as though the application of the Internal Revenue Code to “tax residents” of other countries, was specifically designed to include all of these immoral attributes.

    Funny how rereading Professor Fuller’s book many years (at least one generation) later reminded me of the great American writer Mark Twain:

    “When I was 14 my father was so ignorant I couldn’t stand to with him. By the time I turned 21, I was amazed at how much my father had learned in 7 years.”

  7. Jane says:

    “And there is estimated that there are 9.0 million expats overseas, we should expect a large portion of them to have bank account and other assets in excess of $10,000”

    The reaction of “no sympathy/good-riddance” from homelanders can be traced to this one, single sentence: the USA is so awful now, with stagnant (or backwards sloping) income/employment that MOST homelanders will NEVER have $10,000 in their account. This, is what causes the ire– the idea that other people have gotten out & are doing well & that they, themselves, are stuck there (for many, various reasons). Imho

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