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US Transition Tax Hearing – Argues Regulatory Flexibility Act Should Apply And/Or De Minimis Rule Be Created

John Richardson - ACA

“The Tax Cuts And Job Act brought in a whole new level. Small locally owned businesses we caught up in an effort to repatriate money from the likes of Google and Amazon. These small business owners were forced to recalculate their earnings dating back to 1986 (just like a large multinational corporation). The tax preparation for this alone could easily be in the tens of thousands of dollars. The retroactive back taxes will likely bankrupt thousands of businesses.”

The Section 965 “Transition Tax” saga continues. Americans abroad may have political differences. They may have philosophical differences. They may live in different countries with different tax treaties. But, opposition to the Section 965 Transition Tax and GILTI appear to have unified all Americans abroad.

To put it simply: The application of the Section 965 transition tax to the small businesses operated by Americans Abroad is the most unjust, most punitive, most egregious and most unjustified piece of legislation over to come from the Homeland (assuming – which I doubt – that it was every intended to apply to Americans abroad in the first place). Significantly, the transition tax is a benefit to Homeland Americans but can confiscate the retirement plans of Americans abroad. In other words, the transition tax is one more punishment that America is meting out to its citizens who dare to leave the United States.

Boldly Go, where no fictitious tax event has gone before …

The transition tax is also a direct attack on the tax base of the countries where Americans abroad live. To put it simply: the transition tax is a fictional tax event, that allows the United States to take a preemptive tax strike against the tax base of other countries. By so doing, the transition tax allows the United States to siphon tax revenue from other countries, that it could never siphon before. (Well, the S. 877A Exit Tax rules also create a fictitious tax event that allows the United States to siphon capital from other countries.) The impact of the transition tax on Canadian residents (who are also U.S. citizens) has been explored in CBC reporter Elizabeth Thompson’s series of posts about the transition tax.

The Transition Tax when applied to Americans abroad is:

The retroactive taxation of undistributed earnings of a non-US corporation, based on NO event that generates taxable income, which almost certainly subjects Americans abroad to double taxation.

The parts I have bolded provide arguments for why the “transition tax” violates numerous tax treaties.

In Part 20 I explored the arguments for why/how the Treasury Regulations are not compatible with the Regulatory Flexibility Act. Part 20 included a discussion of the arguments made by ACA for why the Regulatory Flexibility Act should apply to the regulations.

In Part 21 (this post), I am highlighting the submission of American Citizens Abroad (ACA), who argues IN ADDITION (this is a no brainer) that there should be a threshold level of undistributed earnings before the Section 965 confiscation can apply – period.

Thanks to ACA (“American Citizens Abroad”) for taking the time to organize these arguments and present them at the October 22, 2018 IRS hearing on the “transition tax”.

What follows is the email I received from ACA – I strongly suggest that you follow the links. ACA has done a superb job of demonstrating how the Treasury can exempt Americans abroad from this particularly draconian and confiscatory piece of legislation.

American Citizens Abroad

Washington, DC

October 22, 2018

Today, American Citizens Abroad, Inc. presented oral testimony at the public hearing held by the IRS and Treasury Department, “Guidance Regarding the Transition Tax Under Section 965 and Related Provisions (Ref-104266-18)”.

ACA has gone on record twice in 2018, submitting written comments to the Treasury Department, on the effects that the Transition Tax and GILTI provisions of the Tax Cuts and Jobs Act (TCJA) have on Americans living and working overseas.

At today’s hearing, ACA Executive Director, Marylouise Serrato highlighted the fact that in drafting the regulations for the Section 965 regime, Treasury did not consider the effect of these regulations on Americans living and working overseas.  “Treasury Department, in our view, is not well informed about the situation of Americans abroad.  These regulations, in the eyes of tens of thousands of individuals living overseas, are maddeningly cavalier,” said Serrato.

ACA is requesting that Treasury insert a de minimis rule in the regulations.  ACA believes that by doing so the Treasury will remove from the Section 965 regime most Americans overseas affected by the law.

ACA also noted that the Treasury Department has not done its due diligence in determining how small entities will be affected by the law.  The Treasury is required under the Regulatory Flexibility Act (RFA) to evaluate the economic impact of proposed regulations on small entities, including small entities abroad.

“Treasury is not truly in touch with the reality of Americans abroad.  Foreign corporations owned by Americans abroad exist in abundance. They are an everyday fact of life,” added Serrato.

ACA believes that it is fundamentally wrong for the Treasury Department to write regulations without knowing who is affected, and to what extent, as this goes against the fundamental requirements of the RFA.

Marylouise Serrato, 202 322 8441,

Have questions? Contact John Richardson.



The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a Toronto based 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.”

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.


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