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Welcome to Citizenship Solutions – John Richardson

Welcome to Citizenship Solutions – The blog of John Richardson

I am guessing (actually I know for sure) that you arrived here because of some aspect of being a U.S. citizen living outside the United States. Maybe you are a Green Card holder. I also know how you are feeling.

“U.S. citizens” and “Green Card holders” are referred to as “U.S. Persons”. So, if you are a “U.S. Person Abroad”, well, life is pretty tough. in fact living as a “U.S. Person” outside the United States is: hard, expensive, confusing and (quite frankly) unsustainable.

Some of you are NOT in compliance with the intricate and (almost) impossible to understand web of tax and reporting requirements. Non-compliance has its share of problems.

Some of you ARE in compliance (as far as you know) with the intricate (and almost) impossible to understand web of tax and reporting requirements. Compliance also has its share of problems (stress, expense, anxiety).

Whether you are in compliance or not in compliance, you have problems. This is because:

U.S. citizenship is the one citizenship in the world that affects virtually every aspect of your life. in addition to the information on this blog, I help people with the following kinds of specific problems/questions (which include):

1. Are you a U.S. citizen at all? Have you relinquished U.S. citizenship along the way? If you have relinquished U.S. citizenship, are you a “U.S. Person” for FATCA and tax filing purposes?

2. Have you just received a “FATCA Letter” addressed to you as an INDIVIDUAL or to you as an ENTITY (corporation, trust, etc.)? How to respond. What’s a W9? What’s a W-8BEN-E anyway?

3. What about that old Green Card sitting in your drawer? What to do ….

4. Renouncing U.S. citizenship – What’s the “right way”? What’s the “wrong way”? The better question is “what’s the safest way”? What about that “back dated” relinquishment?

5. Green Card expatriation – How to exit the tax system and the U.S. immigration system.

6.  Oh My God!! The moment many of you will never forget. Yes it’s a problem. No it’s not as much of a problem as you think. Make certain that you respond and not react. If all you want to do is file U.S. taxes

7.  U.S. S. 877A “Exit Tax” consulting. If you think you can leave the “Land Of The Free” for free, you better think again. A bit about the the United States expatriation taxes. Those of you with a  non-U.S. pension should take specific note!

8. Retirement and financial planning
(including pensions) as a “U.S. Person” abroad – You will be surprised at the problems you will have living as a U.S. tax compliant American abroad. Think (or maybe you shouldn’t) “PFIC“.

9. Coming into U.S. tax complianceWhat are the various options?  Why one option over another? What about “Streamlined”? 99% of you should NEVER use “OVDP”!!!

10. Non-U.S. AKA “Foreign Corporations” – Yes, these can be a BIG problem. Caution: The U.S. CFC tax rules may attribute income to YOU that you never received!

11. Getting a divorce? Are you a U.S. citizen married to a non-citizen? – Your U.S. citizenship will play a role.

Respond, don’t react! – Do NOT make any decisions without understanding the present and FUTURE consequences of those decisions.

So, how do I know this?

First, I am a person (Toronto based lawyer actually) who was born in the United States and has lived almost all of my life outside the United States. In other words, I have lived and do live these problems.

Second, I have spent the last few years of my life assisting “U.S. Persons abroad” survive the unjust imposition of FATCA, FBAR and “CBT” (AKA U.S. “place of birth taxation”) on Americans abroad. I work with many groups of people including: “accidental Americans“, long term dual citizens who wish to retain U.S. citizenship, long term dual citizens who feel they must renounce U.S. citizenship, Green Card holders (whether they live in the United States or not) and those who have ONLY U.S. citizenship. It’s what I do.

Third,
I have been (and continue to be) actively involved in efforts to oppose FATCA in the courts and in the process of making submissions to the U.S. Treasury. If you want to learn about the Alliance For The Defense of Canadian Sovereignty lawsuit against the Government of Canada, see here.

I work with people all around the world! I have given “live presentations” about the “Problems of U.S. citizenship” all over Canada and Europe. I have given a number of “media interviews” about FATCA and the problems of U.S. citizenship. I have testified as a witness before the Canadian House of Commons Standing Committee on Finance (May 2014). I have written hundreds of articles and blog posts about FATCA, FBAR and U.S. taxation-based citizenship. I have and continue to teach courses both for Americans abroad and for professionals who counsel U.S. citizens abroad.

Anyway, the blog is free. The counselling and assistance require individual consultations. Contact me if you want me to help you solve these problems as they apply to YOUR SITUATION.

John Richardson

P.S. Here is the one of the very first posts that I wrote on for this blog. Some posts are “timeless”. “What you need to consider BEFORE consulting a lawyer or tax professional“.

 

 

 

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“Coming Into Tax Compliance Book” – How Americans can come into U.S. tax compliance in a FATCA world

Are you “Coming To America” by entering the U.S. tax system as an American Abroad?

The “How To Come Into U.S. Tax Compliance” book for Americans abroad

John Richardson, LL.B, J.D.

I have contributed to establishing the new “Citizenship Taxation” site. As part of launching that site, I have written a series of posts providing relevant information (in a broad sense) about how Americans abroad, who did not know about their U.S. tax obligations, can come into U.S. tax compliance.

Sooner or later, it’s likely that many people will receive a FATCA letter. In your panic, you should be careful. There are a number of things Americans abroad should consider before consulting a lawyer or tax professional.

This series of posts developed from my “Educational Outreach” program for Americans abroad. It is an effort to respond in a practical way to the questions that people have.

The chapters of “Coming Into Compliance Book” are:

Chapter 1 – “Accepting Cleanliness – Understanding U.S. Citizenship Taxation – To remain a U.S. citizen or to renounce U.S. citizenship

Chapter 2 – “But wait, I can’t renounce U.S. citizenship if I’m not a U.S. citizen. How do I know if I am a U.S. citizen?”

Chapter 3 – “No matter what, I must come into U.S. tax compliance – Coming into U.S. tax compliance for those who have NOT been filing U.S. taxes

Chapter4 – “Oh no, I have attempted U.S. tax compliance by filing tax returns. I have just learned that I have made mistakes. How do I fix those mistakes?”

Chapter 5 – “I don’t want to renounce U.S. citizenship. How to live outside the United States as a U.S. tax compliant person

Chapter 6 – “I do want to renounce U.S. citizenship. This is too much for me. How the U.S. “Exit Tax” rules might apply to me if I renounce

Chapter 7 – “I really wish I could do retirement planning like a “normal” person. But, I’m an American abroad. I hear I can’t invest in mutual funds in my country of residence. The problem of Americans Abroad and non-U.S. mutual funds explained.

Chapter 8 – “We all have to live somewhere. Five issues – “The problem of Americans Abroad and non-U.S. real estate explained

Chapter 9 – “Receiving U.S. Social Security – #Americansabroad and entitlement to Social Security

Chapter 10 – “Paying into Social Security – #Americansabroad, double taxation and the payment of “Self-employment” taxes

Chapter 11 – “Saving the children – INA S. 301 – “Residence” vs. “Physical Presence” and transmission of US citizenship abroad

Chapter 12 – “Relinquishing citizenship and your IRA – bringing your IRA home

Chapter 13 – “Married filing separately” and the “Alien Spouse” – the “hidden tax” on #Americansabroad

Chapter 14 – “The Obamacare “Net Investment Income Tax” – Pure double taxation of #Americansabroad

Chapter 15 – “To be “FORMWarned is to be “FORMArmed” – It’s “FORM Crime” stupid!!

Chapter 16 – “Most “Form Crime” penalties can be abated if there is “reasonable cause”

Chapter 17 – “How to get “credit” for taxes (foreign) paid to your country of residence

Chapter 18 – “I don’t pay taxes in the country where I live. Can I “exclude” my foreign income from the U.S. tax return?

Chapter 19 – “Is it better to take the “Foreign Tax Credit” or the “Foreign Earned Income Exclusion” – a discussion

Chapter 20
– “The child tax credit: take it, leave it or how to take it

Chapter 21 – “How #Americansabroad can continue to use the #IRA as a retirement planning vehicle

Chapter 22 – “To share or not to share” – Should a U.S. citizen share a bank account with a “non-citizen AKA alien spouse?

The “Coming Into Compliance Book” is designed to provide an overview of how to bring some sanity to your life.

 Coming to America

You may remember the old Eddie Murphy movie about “Coming To America”.

Welcome to the confusing and high stakes rules for U.S. taxation and Americans abroad.

The United States has the most complex, confusing, most penalty ridden and most difficult anti-deferral regime in the world. McGill Professor Allison Christians has noted that Americans abroad are both:

“deemed to be permanently resident in the United States for tax compliance and financial reporting purposes” …

and are

“subject to the most complex aspects of the U.S. tax code regardless of any activity in the United States, and facing extraordinary compliance costs and disclosure risks even for nil returns”

Although Americans abroad are deemed to be resident in the United States, their assets are treated as “offshore”. In addition Americans abroad are subject to taxation in their country of residence.

All of this means that:

1. Americans abroad are subject to the worst and most punitive aspects of the U.S. tax system (there is no Homelander who is treated as badly as an American abroad); and

2. Denied most benefits of the tax systems of their country of residence.

To put it simply, Americans abroad get the worst of all possible tax systems.

The most horrific aspects of the U.S. tax system are saved for Americans abroad. Prepare to be shocked. As one commenter at the Isaac Brock Society site recently said:

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Renouncing US citizenship? How the S. 877A “Exit Tax” may apply to your Canadian assets – 25 Parts

Introduction:

usexittax

There is much discussion of the U.S. rules which operate to impose taxation on the residents of other countries and income earned in those other countries. You will hear references to “citizenship taxation”, “FATCA Canada“, PFIC, etc. It is becoming more common for people to wish to relinquish their U.S. citizenship. The most common form of “relinquishment is renunciation”. The U.S. tax rules, found in the Internal Revenue Code, impose taxes on everything. There is even a tax on “renouncing U.S. citizenship”. I don’t mean the $2350 USD administrative fee which everybody has to pay. (Isn’t that really a tax?). I mean a tax on your assets. To be clear:

You must pay a price to NOT be a U.S. citizen.

This tax is found in S. 877A of the U.S. Internal Revenue Code.

It’s defined as the:

Tax responsibilities of expatriation

Few people are aware of this tax. Fewer still understand how it works.  As FATCA operates to enforce U.S. taxation on many Canadian citizens, and increasing numbers wish to NOT be U.S. citizens, the importance of understanding the U.S. “Exit Tax” increases.

It is particularly important to understand what triggers the “Exit Tax”. You will be subject to the “Exit Tax” if you are a “covered expatriate”. You must know what that means and why, sooner or later, everybody will become a “covered expatriate”.

The “Exit Tax” is not a simple “token tax”. For Canadians, the tax can be a significant percentage of their net worth. Furthermore, the tax is payable NOT on actual gains, but on “pretend gains”. (Where would the money come from to pay the tax?)

Hang on to your seats. You will shocked, amazed and horrified by this.

Since the advent of FATCA in Canada, this issue is increasingly important.*

To be forewarned is to be forearmed!

This is a 22 part series which is designed to provide you  with some basic education on:

How the U.S. S. 877A Exit Tax rules work; and

How they particularly affect Canadians with a U.S. birthplace, who lived most of their lives in Canada.

This will be covered over a 9 day period in a “9 part” series. (It has since been expanded to 16 posts and counting.)

Although this series is beginning on “April Fools Day”, I assure that this is NOT a joke.

The 16 parts are:

Part 1 – April 1, 2015 – “Facts are stubborn things” – The results of the “Exit Tax

Part 2 – April 2, 2015 – “How could this possibly happen? “Exit Taxes” in a system of residence based taxation vs. Exit Taxes in a system of “citizenship (place of birth) taxation

Part 3 – April 3, 2015 – “The “Exit Tax” affects “covered expatriates” – what is a “covered expatriate“?”

Part 4 – April 4, 2015 – “You are a “covered expatriate” How is the “Exit Tax”  actually calculated

Part 5 – April 5, 2015 – “The “Exit Tax” in action – Five actual scenarios with 5 actual completed U.S. tax returns

Part 6 – April 6, 2015 – “Surely, expatriation is NOT worse than death! The two million asset test should be raised to the Estate Tax limitation – approximately five million dollars – It’s Time

Part 7 – April 7, 2015 – “Why 2015 is a good year for many Americans abroad to relinquish U.S. citizenship – It’s the exchange rate

Part 8 – April 8, 2015 – “The U.S. “Exit Tax vs. Canada’s Departure Tax – Understanding the difference between citizenship taxation and residence taxation

Part 9 – April 9, 2015 – “For #Americansabroad: US “citizenship taxation” is “death by a thousand cuts, but the S. 877A Exit Tax is “death by the guillotine”

Part 10 – April 10, 2015 – “The S. 877A Exit Tax and possible relief under the Canada U.S. Tax Treaty

Part 11 – April 11, 2015 – “S. 2801 of the Internal Revenue Code is NOT a S. 877A “Exit Tax”, but a punishment for the “sins of the father (relinquishment)

Part 12 – April 12, 2015 – “The two kinds of U.S. citizenship: Citizenship for “immigration and nationality” and citizenship for  “taxation” – Are we taxed because we are citizens or are we citizens because we are taxed?”

Part 13 – April 13, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?

Part 14 – April 14, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?

Part 15 – May 22, 2015 – “Interview with GordonTLong.com – “Citizenship taxation”, the S. 877A Exit Tax, PFICs and Americans abroad

Attention: Parts 16 – 21 focus on the “dual citizen exemption in the context of Canada’s Citizenship laws.

Part 16 – February 16, 2016 – “Why the S. 877A(g)(1)(B) “dual citizen exemption” encourages dual citizens from birth to remain US citizens and others (except @SenTedCruz) to renounce” – Note that this module is composed of Parts 16 – 21 – six posts.

Part 17 – February 16, 2016 – The history of Canada’s citizenship laws: Did the 1947 Canada Citizenship Act affirm citizenship or “strip” citizenship and create @LostCanadians?

Part 18 – February 16, 2016 -The S. 877A “dual citizen” exemption – I was born before the first ever Canada Citizenship Act? Could I have been “born a Canadian citizen”?

Part 19 – February 16, 2016 – The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act – Am I still a Canadian or did I lose Canadian citizenship? (The “Sins Of The Father”)

Part 20 – February 16, 2016 -The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act and the requirements to be “born Canadian

Part 21 – February 16, 2016 – “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of Canada?

Part 22 – February 29, 2016 – “The S. 877A “Dual Citizen” exemption: MUST certify tax compliance for the five years prior to relinquishment

More on the United States Expatriation Tax – ongoing miscellaneous:

Part 23 – “How the 1966 desire to “poach” capital from other nations led to the 2008 S. 877A Exit Tax

Part 24 – “Clinton Treasury representative Les Samuels explains why the U.S. Exit Tax SHOULD apply to the assets of Americans abroad

Part 25 – “Relinquishing US citizenship: South African Apartheid, the Accidental Taxpayer and the exit tax

 

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* Why this is of increased importance: The role of FATCA and U.S. taxation in Canada

A picture/video tells a thousand words. Have a look at the “Rick Mercer FATCA video” in the following tweet:

FATCA is U.S. law which is designed to identify financial assets and people, outside the United States, that the U.S. believes are subject to its tax laws. (It makes no difference whether the person is a Canadian citizen”.) This includes people who were:

– born in the U.S.

– Green card holders

– people born to U.S. parents in Canada

– “snow birds” who spend too much time in the United States

The Government of Canada is assisting the United State to implement FATCA in Canada. To be specific:

– on February 5, 2014 the Government of Canada formally agreed to change Canadian law to identify “U.S. connected” Canadians in Canada

– in May of 2014, the Government of Canada passed Bill C 31 which contained the implementing legislation

– on July 1, 2014 FATCA became the law in Canada

– since July 1, 2014 many Canadians have received a “FATCA Letter” (can the U.S. claim you as a taxpayer?)

The Alliance For The Defence Of Canadian Sovereignty has sued the Government of Canada in Federal Court on the basis that the participation of the Canadian Government in FATCA, is in violation of the Charter Rights of Canadians. You can keep up with their progress on the Alliance blog” which is here.

FATCA is a tool to enforce “U.S. taxation in Canada”. The result is that more and more Canadian citizen/residents  will be forced to pay U.S. taxes. But, U.S. tax rules include much more than tax. They are source of comprehensive information gathering and “information returns”. Typical returns required by U.S. taxpayers in Canada include: FBAR, FATCA Form 8938, Form 5471, Form 3520, Form 3520A and many more.

In addition, U.S. tax rules are different from Canadian tax rules. The most painful example is that when:

– Canada allows a “tax free” capital gain on your principal residence

– the U.S. imposes a 23.8% tax on the sale of your principal residence (you get a $250,000 deduction)

Sound horrible?

It is, but:

It’s only Canadian citizens with a past “U.S. connection” who will be subject to these taxes. It is estimated that approximately one million Canadians may be subject (as “U.S. Subjects”) to these rules. But, Canadians with a “U.S. connection” are members of families. Therefore, U.S. taxation in Canada will impact all members of a Canadian family which has at least one “U.S. connected” member.

 

John Richardson

 

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What you should consider before contacting a lawyer

decision

The Reality of U.S. Citizenship Abroad

Nobody denied that the unintended targets of Congressional legislation aimed at those who supposedly “owe allegiance” to the USA, now assisted by craven foreign governments anxious lest their financial services entities lose access to the US market, are mostly unlikely to do anything at all. But the whole idea of universal self-assessment of taxation is to keep the taxpayer in an anxious condition, to make him overpay if possible, but at least not to underpay. Those now faced with an unprecedented, even retroactive, enforcement campaign and who must, if they wish to become compliant and avoid penalty or even prosecution (should they be identified in the future), sacrifice much of their wealth, even become insolvent.

Comment at the Isaac Brock Society blog – July 29, 2013

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Green card holders: the “tax treaty tiebreaker” and eligibility for Streamlined Offshore

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

This is another in a series of posts on the “tax treaty tiebreaker” (which is a standard provision in most U.S. tax treaties). “Tax treaty tiebreakers” are rules that are used to assign a person’s “tax residency” to one country when an individual is a “tax resident” of both countries. In the context of U.S. tax treaties, “treaty tie breaker” rules are used when an individual is both:

1. A “U.S. person” for tax purposes (U.S. citizen or U.S. resident); and

2. A “tax resident” of another country.

It is very common to use tax treaties to assign “tax residency” to a country when an individual is  a tax resident of more than one country.

For example, Article IV of the Canada U.S. tax treaty provides for a rule to assign an individual’s “tax residency” to either Canada or the United States when an individual is a “tax resident” of Canada and and a tax resident of the the United States.

The “savings clause” prohibits U.S. citizens from using the “tax treaty tiebreaker” from avoiding being a “tax resident” of the United States.

Article IV of the Canada U.S. tax treaty includes:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

It is clear that the “tax treaty tiebreaker” provision does NOT exclude Green Card Holders from it’s application. In fact, the impact of the “tax treaty tie breaker” may be the reason why the Canada Revenue Agency advises that “Green Card Holders” are NOT U.S. residents for FATCA reporting purposes.

The application of the “tax treaty tiebreaker” makes one a “nonresident alien, WITH RESPECT TO INCOME TAXATION, for U.S. tax purposes but NOT for other purposes (including FBAR and other information returns).

The “nonresident alien” and the 1040NR

Nonresident aliens file a 1040NR. A “nonresident alien” filing a 1040NR is filing to report and pay tax on income connected to the United States. A 1040NR is NOT used to report “non-U.S. income”. General information for the 1040NR is here. IRS Publication 519 – The U.S. Tax Guide For Aliens” is here.

Possible advantages for a “Green Card Holder” using the “tax treaty tiebreaker” to file the 1040NR

1. A Green Card Holder, by virtue of the “tax treaty tiebreaker”, would NOT be subject to U.S. taxation on “foreign income” which includes Subpart F income and PFIC income.

2. A Green Card Holder, by virtue of the “tax treaty tiebreaker”, would NOT be required to file Form 8938, Form 8621 and is subject to modified reporting requirements for Form 5471.

A reminder …

A Green Card Holder, using the “tax treaty tiebreaker” IS still a “U.S. Person”. He is a “U.S. Person” who is deemed to NOT be a U.S. person for the limited purposes of the “tax treaty tiebreaker”. He is a “U.S. Person”, who is NOT treated as a “U.S. Person” and  who is therefore able to file a 1040NR.

There are millions of “U.S. persons” (citizens and Green Card Holders) abroad who have not been filing U.S. taxes

Many of them are “coming into compliance” using the IRS Streamlined Foreign Offshore Program. As a general principle, “streamlined” is NOT available to “nonresident” aliens. This makes sense. After all, a “nonresident alien” is NOT a “U.S. person” for tax purposes.

Is “streamlined” available to a “U.S. Person”, who is filing a 1040NR, because he is treated as a “nonresident” pursuant to the “tax treaty tiebreaker”?

I suggest the answer comes from the instructions for streamlined which include:

“Eligibility for the Streamlined Foreign Offshore Procedures

In addition to having to meet the general eligibility criteria, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must: (1) meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement described below) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

Let’s focus specifically on this part of the requirements:

“(2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law,”

If one is filing a 1040NR, then one is reporting ONLY U.S. source income. The whole point of the 1040NR would be to NOT have to report income from foreign financial assets. Think of the specific examples of Subpart F income and PFIC income.

Therefore, (although I will confess to never having analyzed this in terms of the streamlined rules) I suggest that one could NOT use the Foreign Offshore streamlined program to file the 1040NR.

It’s NOT that Green Card Holders who use the “tax treaty tiebreaker are NOT “U.S. Persons”. It’s that filing a 1040NR means that there is no reason to report income from a foreign financial asset (meaning that one fails the eligibility test for streamlined)!

John Richardson

Green card holders, the “tax treaty tiebreaker” and reporting: Forms 8938, 8621 and 5471

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

Now, on to the post.

The “Treaty Tiebreaker” and information reporting …

The Internal Revenue Code imposes on “U.S. Persons” (citizens or “residents”):

1. The requirement to pay U.S. taxes; and

2. The requirement to file U.S.forms.

All “U.S. Persons” (citizens or residents) are aware of the importance of “Information Returns” AKA “Forms” in their lives.

What is a U.S. resident for the purposes of taxation?

This question is answered by analyzing Internal Revenue Code S. 7701(b). If one is NOT a U.S. citizen, a physical connection to the United States (at some time or another) is normally required for one to be a “tax resident” of the United States..

What happens if one is a “tax resident” of more than one country?

The “savings clause” ensures that U.S. citizens are the only people in the world who have no defence to being deemed a tax resident of multiple countries. U.S. citizens (“membership has its privileges”) are ALWAYS tax residents of the United States. U.S. citizens who reside in other nations, may also be “tax residents” of their country of residence.

In some cases, a U.S. “resident” (which includes a Green Card holder) may be deemed to be a “nonresident” pursuant to the terms of a U.S. Tax Treaty. A Green Card holder “may” be able to use a “Treaty Tiebreaker” provision to be treated as a “nonresident”.

Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?
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Green card holders: the “tax treaty tiebreaker” rules and taxation of Subpart F and PFIC income

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

Now, on to the post …

The Internal Revenue Code of the United States imposes (1) requirements for taxation (determining how much tax is payable by various individuals) and (2) requirements for information reporting returns. For “U.S. Persons Abroad” the “information reporting requirements” are far more onerous.
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Form 8621 and Form 5471 are required even if the tax return is NOT!

The Internal Revenue Code of the United States requires two things:

1. The calculation of taxes; and

2. The reporting of information.

The Internal Revenue Code of the United States is based on three basic principles:

1. A dislike of all things “foreign”. (If you see the word “foreign” a penalty is sure to follow.)

2. A hatred of all forms of non-U.S. “tax deferral”

3. An attempt to stop the “leakage” of “U.S. taxable assets” from the U.S. tax base. (Examples include the U.S. tax treatment of the “alien spouse” and the U.S. S. 877A “Exit Tax” that may be payable when one makes the decision to renounce U.S. citizenship).

“Forms” AKA “information returns” are for the purpose of forcing disclosure of information relevant to  “foreignness”, “deferral” and “leakage”.

The above tweet references an earlier post describing many of the “forms” required of Americans abroad. The post also describes the significant penalties which can be potentially imposed for the failure to file those forms.

For Americans abroad the information reporting requirements are extensive, burdensome and penalty laden. Normally (but not in all cases) the “forms” are filed as part of the tax return (1040 or 1040NR).

NEVER FORGET MR. FBAR – THE NEW SYMBOL OF U.S. CITIZENSHIP – AND THE POTENTIAL FBAR PENALTIES FOR FAILURE TO FILE THE FBAR! THOSE WHO HAVE FAILED TO FILE MR. FBAR SHOULD BE CAUTIOUS ABOUT HOW THEY “FIX THE FBAR PROBLEM“.

(Interestingly, Mr. FBAR has been used as a model for Russia which now has (for lack of a better term) the Russian FBAR.)

Many people do NOT understand that they may be required to file “information returns”, even though they may NOT meet the income thresholds to file a tax return!
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How #digitalnomads use the #FEIE to avoid paying income tax anywhere

The above tweet references a post by Virginia La Torre Jeker describing the “Foreign Earned Income Exclusion” found in Internal Revenue Code S. 911. Her description of the Foreign Earned Income Exclusion includes:

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Tweet #Citizide: The new response of US citizens to #FATCA #FBAR #PFIC


Searching for Uncle #FATCA: Where is he? What does he do? Why is he a danger to America? Can Congressman Meadows and Senator Paul save America?

Outline:

April 7, 2017

Part 1: Prologue – Introducing  Uncle FATCA – Who is he? What does he mean in your life?

Part 2: What is FATCA, what are the FATCA IGAs, what is the Meadows Bill and how do these things interact?

Part 3 – What does it mean to repeal FATCA and how exactly does the Meadow Bill repeal FATCA? A section by section analysis

Part 4: An important reminder – FATCA repeal does not mean IGA repeal

Part 5: The text of FATCA and the text of the Meadows Bill (very dry and technical and not likely to be of interest to the casual reader)

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The Bopp FATCA Legal Action U.S. Based Lawsuit

The FATCA Legal Action lawsuit is organized by Republicans Overseas and is prosecuted by the Bopp Law Firm in Indiana. It argues that FATCA is unconstitutional based on a number of legal grounds. One of the plaintiffs is Dr. Steven Kish, who is also the Chair of “The Alliance For The Defence of Canadian Sovereignty” (the organization bringing the FATCA lawsuit in Canada). Interestingly, Dr. Kish reluctantly renounced U.S. citizenship in August of 2016.

What follows are tweets that link to various posts that I have written about the progress of the U.S. based FATCA Legal Action lawsuit. The lawsuit is still held up on “standing issues”. Judge Rose ruled that the plaintiffs did NOT have “standing to sue”. This decision was appealed and argued on January 24, 2017. We are waiting for a decision to see if the lawsuit can proceed. You may listen to Mr. Bopp’s oral argument here.

Here is the twitter timeline for @FATCALawsuit:

John Richardson

The Little Red #FATCA Book – (Review, Identify and Report on “U.S. Persons”) – How FATCA affects the non-U.S. World

About FATCA – The “worst law nobody has heard of” …

FATCA (The Foreign Account Tax Compliance Act) was signed into law – as a revenue offset provision to the Hire Act – in March of 2010. It is doubtful that Congress even knew that FATCA was part of the HIRE Act (“Hiring Incentives To Restore Employment”). Yet, FATCA has created havoc in banking systems around the world, has destroyed the lives of the citizens and residents of other nations (who just happen to have been born in the United States), led to many Americans abroad renouncing their U.S. citizenship and forced banks to waste tens of millions (and this is conservative) of dollars in compliance fees. Interestingly FATCA has also led to other countries actually changing their domestic laws (overriding their own constitutions) to “hunt” for people with a U.S. birthplace. FATCA has generated significant hatred of America and has severely eroded America’s “moral capital” during a time when China is challenging the United States for global supremacy.

FATCA has recently been part of an inquiry by the Government of France into the “overreaching” of U.S. laws. Nigel Green of the Devere Group has joined with Jim Jatras to lobby for the repeal of FATCA.

2012 – The world according to FATCA  – For the compliance industry: “The Gift That Just Keeps on Giving” …

2014 – At Home In Canada – The genesis of the ADSC Lawsuit – Opposition Rising …

2015 – Meanwhile, In The Homeland – The Bopp FATCALegalAction.com Lawsuit begins …

Interestingly, in August 2016, Dr. Stephen Kish, a plaintiff in the Bopp lawsuit and Chair of the Alliance For the Defence of Canadian Sovereignty renounced his U.S. citizenship.

Listen to the legal arguments …

 

December 2016 – Advocacy For Americans Abroad Fails: U.S. Treasury refuses proposed FATCA Same Country Exemption for Americans Abroad (but not for “Accidental Americans”) …

To be clear, much of the FATCA harm caused to “some” Americans abroad could be alleviated with the FATCA Same Country exemption (proposed by “ACA” and “Democrats Abroad”). FATCA SCE could be achieved by regulation. In December of 2016, U.S. Treasury refused to support a regulation creating the FATCA Same Country Exemption. This means that, the Obama administration was:

1. Aware of the harm that FATCA was causing to Americans abroad (leaving aside the harm to the rest of the world); and

2. Refused to provide relief for Americans abroad!

2017 – The world according to FATCA  – Hearings in Washington, D.C. …

 

On April 26, 2017, at the initiative of Congressman Mark Meadows and Senator Rand Paul, “FATCA Hearings” will take place in Washington, DC. Although FATCA has been the subject of much discussion outside of the United States, there has been little discussion of FATCA inside the United States. In fact, FATCA is NOT well known in the United States.

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The “Little Red FATCA Book” Documenting the “Worldwide Hunt” for “U.S. Persons” …

The “Little Red FATCA Book” is a collection of posts that I created over an 18 month period. I have decided to collect the individual posts and organize them in one place. I have grouped the individual posts into three broad chapters which I will call Chapter A, Chapter B and Chapter C. This is a “work in progress”. Some of the posts are incomplete.

FATCA which is essentially the enforcement mechanism of U.S. “Place of Birth Taxation” is a controversial topic. Feel free to post your thoughts and comments.

John Richardson

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