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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.

Nor would I recommend it to anyone else. For the US to decide to retroactively tax retained earnings of small US owned overseas businesses is so draconian and unprecedented that it will seriously impact the survival of countless numbers of such businesses. Even if a US owned overseas business is capable of making this payment, and many will not be able to, how can any business survive when faced with a 17.5% tax that their non-US owned competitors do not have? In addition, many thousands of Americans who use lawful local corporate entities as retirement savings vehicles will see their lifelong retirement savings decimated.

The Commerce Department has long estimated that for every $1 billion of business done by American business abroad 5,000 domestic US jobs are supported. Based on my own anecdotal experience I agree with that. No doubt the transition tax will cause thousands of American owned small businesses to close, or fail to start in the first place, will cause the loss of many thousands of US based American jobs, and will damage the lives of countless numbers of Americans living abroad.

I do not believe the transition tax for small business can be made fair or workable. It must simply be dropped altogether.

Have questions? Contact John Richardson.

 

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

2 thoughts on “Transition Tax Bad Effect On Small U.S. Business Owners Operating Overseas

  1. Ken Owens says:

    John
    It seems foolish to publish a foolish letter. The only thing noteworthy about the letter is that the sender should have sent it to their congress-man/woman. The Treasury Department cannot make or change a law, in this country.

    • Monte says:

      Not accurate Ken

      In issuing the regs Treasury has complete authority to exempt small businesses from the transition tax. And it’s much easier to deal with Treasury than congress.

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