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Tag Archive for Transition Tax

The United States Imposes A Separate And Much More Punitive Tax On U.S. Citizens Who Are Residents Of Other Countries

John Richardson - The United States Taxes Citizens Who Reside In Another Country

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.

The Bottom Line Is:

The United States is in effect imposing a separate and more punitive tax system on its citizens abroad. Strange but true. The purpose of this post is to explain how that works and to provide specific examples.

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Americans Abroad And The Transition Tax – Leaves Taxpayers In Tough Situation

John Richardson - Transition Tax Leaves Taxpayers In Tough Situation

As 2018 comes to and end many individuals are still trying to decide how to respond to the Sec. 965 “transition tax” problem. The purpose of this post is to summarize what I believe is the universe of different ways that one can approach Sec. 965 transition tax compliance. These approaches have been considered at various times and in different posts over the last year.

As 2018 comes to an end the tax compliance industry is confused about what to do. The taxpayers are confused about what to do. For many individuals they must choose between: bad and uncertain compliance or no attempt at compliance. (I add that the same is true of the Sec. 951A GILTI provisions which took effect on January 1, 2018.)

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Transition Tax Bad Effect On Small U.S. Business Owners Operating Overseas

John Richardson - Nov 7

U.S. Treasury sought comments about the Sec. 965 transition tax. The deadline for comment was October 9, 2018. You can read the comments here. A particularly noteworthy comment was posted by James Gosart:

To: United States Department of the Treasury

Subject: Proposed Regulations under Section 965 [REG 104226-18]

The transition tax is a killer for small American owned overseas businesses. I am a small business owner of a consulting company in Hong Kong. Around the world, I’m sure there are thousands of small American business owners like me.

I formed the company in 2011 after spending more than 25 years based in China and Asia as an expat employee of a major US corporation. During the 7 years the company has been in operation, I have helped US companies and investors with their China and Asia strategies, ultimately growing their businesses in Asia and contributing to US based employment. My company paid corporate taxes annually in Hong Kong. I have now relocated to the US and I’m in the process of shutting the business down.

The new transition tax is so burdensome and complex that there is no way I would start such a business today.

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Dual Citizen, Canadian Lawyer: Does “Intent” Matter In The Interpretation Of The U.S.Transition Tax?

John Richardson- Transition Tax Intent

An example of the perspective of the “tax compliance” community -Look at what the statute says and not what was intended.

“Probably Congress and the Administration did not contemplate the fallout to these USC taxpayers. They were focusing on a different group of taxpayer. Nevertheless, Section 965 imposes immediate U.S. individual taxation on the “phantom income” (i.e. when no dividends are distributed to the USC shareholder) of the USC shareholder.”

Does the “intent” matter? If the application of the U.S. transition tax to Americans Abroad was an accident and not intentional, then why should it apply to them? Read the “965 Hammer” for USCs residing overseas.

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U.S. Constitutions 16th Amendment Authorized Income Taxes: Transition Tax Is Not An Income Tax

John Richardson - Transition Tax Is Not An Income Tax

Origin Of Internal Revenue Service

The roots of IRS go back to the Civil War when President Lincoln and Congress, in 1862, created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was repealed 10 years later. Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.

16th Amendment

In 1913, Wyoming ratified the 16th Amendment, providing the three-quarter majority of states necessary to amend the Constitution. The 16th Amendment gave Congress the authority to enact an income tax. That same year, the first Form 1040 appeared after Congress levied a 1 percent tax on net personal incomes above $3,000 with a 6 percent surtax on incomes of more than $500,000.

In 1918, during World War I, the top rate of the income tax rose to 77 percent to help finance the war effort. It dropped sharply in the post-war years, down to 24 percent in 1929, and rose again during the Depression. During World War II, Congress introduced payroll withholding and quarterly tax payments.

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Letter To The Senate Finance Committee On The Effects Of The Transition Tax On Americans Abroad

John Richardson- Transition Tax

Senate Committee on Finance
Attn. Editorial and Document Section
Rm. SD-219
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Dear Chairman Hatch, Ranking Member Wyden, and all Members of the Committee:

Part A – Introduction

I am based in Toronto, Canada and work with U.S. citizens living outside the United States who are  required to comply with the tax laws of both the United States AND their country of residence. U.S. citizens living in Canada (the majority of who are dual Canada U.S. citizens) are required to comply with the tax laws of both Canada and the United States. Dual citizens in general and “U.S./Canada dual citizens in particular, live in a world where compliance with U.S. tax laws is somewhere “between difficult and impossible”. The difficulty is first because of the potential for double taxation and second because the U.S. Internal Revenue Code imposes far more punitive taxation on U.S. citizens living outside the United States than it does on U.S. citizens living inside the United States.

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IRC Section 965 Transition Tax – Part 10

John-Richardson- Investigating the Transition Tax

Individuals Subject to U.S. State Tax Jurisdiction, the Response of New York State

This is the tenth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

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IRC Section 965 Transition Tax – Part 9

John-Richardson- Investigating the Transition Tax

From The “Pax Americana” To The “Tax Americana”

This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

Introduction – The purpose of this post is …

to demonstrate that the “transition tax” is an example (particularly egregious) of the principle that (1) not only does the United States impose “worldwide taxation” on the “tax residents” of other countries, but  (2) it imposes a separate tax regime on certain “tax residents” of other countries that is different and far more punitive than the regime imposed on Homeland Americans. Yes, you read correctly!

It is the “Tax Americana”– a “form” (no pun intended) of an “empire” which is colonizing other countries through taxation.

A recent and most important example of the “Tax Americana” is the “transition tax” : A U.S. resident who has undistributed earnings in a U.S. corporation will NOT be subjected to the “transition tax”. A Canadian resident who has undistributed earnings in a Canadian corporation will be subjected to the “transition tax”!

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IRC Section 965 Transition Tax – Part 8

John-Richardson- Investigating the Transition Tax

This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

This is the eighth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen. Read more

IRC Section 965 Transition Tax – Part 7

John Richardson - Transition Tax - Part 7

Why The Transition Tax Creates A Fictional Tax Event That Allows The U.S. To Collect Tax Where It Never Could Have Before

This is the seventh in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries(who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen. Read more

IRC Section 965 Transition Tax – Part 6

John-Richardson- Investigating the Transition Tax

A Reprieve

This is the sixth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen. Read more

IRC Section 965 Transition Tax – Part 5

John-Richardson- Investigating the Transition Tax

Shades of ODVP

This is the fifth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen. Read more

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