Category Archives: Book Of Forms

13 Reasons Why I Committed #Citizide: (Inspired by the television series, 13 Reasons Why)

Introduction – Guest post by a perfectly ordinary person who renounced U.S. citizenship for perfectly ordinary reasons

In a recent submission to Senator Hatch  I argued that what the United States thinks of as “citizenship-based taxation”, is actually a system where the United States imposes U.S. taxation on the residents and citizens of other countries. That submission included:

On July 4, 2017, Americans living inside the USA celebrated the “4th of July” holiday – a day that Americans celebrate their independence and freedom.

On that same day, I had meetings with SEVEN American dual citizens, living outside the United States. This “Group of Seven” were in various stages of RENOUNCING their U.S. citizenship. Each of them was also a citizen and tax paying resident of another country. They varied widely in wealth, age, occupation, religion, and political orientation. Some of them have difficulty in affording the $2350 USD “renunciation fee” imposed by the U.S. Government. Some of the SEVEN identify as being American and some did NOT identify as being American. But each of them had one thing in common. They were renouncing their U.S. citizenship in order to gain the freedom that Americans have been taught to believe is their “birth right”.

On August 2, 2017 posts at the Isaac Brock Society and numerous other sources, reported that that there were 1759 expatriates reported in the second quarter report in the Federal Register. The number of people renouncing U.S. citizenship continues to grow.

Now on to the guest post by Jane Doe, which is a very articulate description of the reasons why people living outside the United States feel forced to renounce U.S. citizenship.

John Richardson

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Whether through regulation or legislation #FATCA Same Country Exemption won’t work

In the beginning there was Facebook …

and from a second Facebook group:

 

Introduction: If you were to REPEAL FATCA

A previous post discussing the what exactly is meant by FATCA and the Mark Meadows “Repeal FATCA” bill, described:

FATCA is the collective effect of a number of specific amendments to the Internal Revenue Code which are designed to target both (1) Foreign Financial Institutions and (2) Those “U.S. Persons” who are their customers.

1. There are “Three Faces To FATCA” which include:

– Face 1: Legislation targeting Foreign Financial Institutions (Internal Revenue Code Chapter 4)

– Face 2: The FATCA IGAs (which for practical purposes have replaced Chapter 4)

– Face 3: Legislation targeting individuals (primarily Americans abroad who commit “Personal Finance Abroad – While Living Abroad” – Internal Revenue Code 6038D which mandates Form 8938)

2. The amendments to the Internal Revenue Code that would be necessary to reverse the sections of the Internal Revenue that created FATCA.

Legislative FATCA vs. Regulatory FATCA

The sections of the Internal Revenue Code that comprise “FATCA” are surprisingly few.

FATCA Face 1: Internal Revenue Code S. 1474(f) gives Treasury broad authority to make “FATCA regulations”.
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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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Is Form 8938 required by “Green Card Holders” who are nonresidents by “treaty tie breaker”? – Any exemption is the result of “IRS grace”

Summary:

The context: Form 8938 was created by the IRS to meet the reporting requirements mandated by Internal Revenue Code S. 6038D. S. 6038D was mandated by S. 511 of the HIRE Act.

On March 18, 2010 President Obama signed the HIRE Act into law. The HIRE Act had two targets. The first target was the Foreign Financial Institutions that were willing to do business with U.S. citizens. The second target was Americans citizens who attempted to do business with any “non-U.S. bank or other financial institution.

The first target – Foreign Financial Institutions: The HIRE Act introduced Chapter 4 of Subtitle A – AKA FATCA – into the Internal Revenue Code. Pursuant to Chapter 4 Foreign Financial Institutions are threatened with a 30% sanction for failing to “Review, Identify and Report” those who the U.S. claims as “U.S. persons“. The Canadian FATCA lawsuit, launched by the Alliance For The Defence of Canadian Sovereignty, is related to the reporting requirements imposed on the banks.

The second target – American citizens attempting to use Foreign Financial Institutions outside the United States: The second group is composed of “individuals” who are required to disclose information to the IRS. The HIRE Act imposed extraordinary reporting requirements on Americans abroad. The most visible – Form 8938 – is an intrusive form that is aimed at targeting “individuals”. The term “individuals” means every human life form on the planet.  The U.S. based “FATCA Legal Action” lawsuit (which was condemned by Democrats abroad), is a lawsuit that is primarily intended to attack the requirements imposed on individual Americans abroad.

Internal Revenue Code Section 6038D and “Foreign Asset Disclosure”

A previous post discussed the interaction among: the Internal Revenue Code, tax treaty tie breaker rules and whether a Green Card Holder is a U.S. resident for FATCA purposes. This post is to discuss the form 8938 requirement and how it applies to Green Card Holders (resident aliens) who are deemed by treaty to be “nonresidents” under a treaty “Tie Breaker” rule.

The statute – Internal Revenue Code Section 6038D – gives the “Secretary” (meaning IRS) the right to create specific exemptions. “Nonresident aliens” is one group that the IRS is allowed to specifically exempt from the form 8938 requirement. Green Card Holders are statutory “resident aliens” under S. 7701(b) of the Internal Revenue Code. Yet, in some cases “Green Card Holders” can be treated as “nonresident aliens” pursuant to a tax treaty.

What is a “Treaty Tie Breaker” rule?

It’s possible for a person to be treated as a “tax resident” of two countries. In this case a Tax Treaty can be used to determine in which country the person is a “tax resident”. For example Section 2 of Article IV of the Canada U.S. Tax Treaty says:

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.

(Note that the “Treaty Tie Breaker” rules are available to “Green Card” holders. The treaty “savings clause” prevents U.S. citizens from being treated solely as a resident of Canada.)

So, what do the IRS regulations say?

On December 29, 2014 the IRS removed the temporary regulations (which are described here) and issued final Form 8938 reporting rules. The final regulations, which took effect on December 29, 2014 (making them applicable for years 2014 and onward), make it clear that Green Card Holders, who pursuant to a treaty tie-breaker provision, are treated as “nonresidents” (nonresident aliens) are NOT required to file Form 8938.

Specifically, the IRS confirms that:

1. Dual resident taxpayers

A comment recommended an exemption from the section 6038D reporting requirements be included for an individual who is a dual resident taxpayer and who, pursuant to a provision of a treaty that provides for resolution of conflicting claims of residence by the United States and the treaty partner, claims to be treated as a resident of the treaty partner. In such a case, a dual resident taxpayer may claim a treaty benefit as a resident of the treaty partner and will be taxed as a nonresident for U.S. tax purposes for the taxable year (or portion of the taxable year) that the individual is treated as a nonresident. The final rule adopts this recommendation for a dual resident taxpayer who determines his or her U.S. tax liability as if he or she were a nonresident alien and claims a treaty benefit as a nonresident of the United States as provided in § 301.7701(b)–7 by timely filing a Form 1040NR, “Nonresident Alien Income Tax Return,” (or such other appropriate form under that section) and attaching a Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).” The Treasury Department and the IRS have concluded that reporting under section 6038D is closely associated with the determination of an individual’s income tax liability. Because the taxpayer’s filing of a Form 8833 with his or her Form 1040NR (or other appropriate form) will permit the IRS to identify individuals in this category and take follow-up tax enforcement actions when considered appropriate, reporting on Form 8938, “Statement of Specified Foreign Financial Assets,” is not essential to effective IRS tax enforcement efforts relating to this category of U.S. residents.

Why this makes sense …

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Forms required by #Americansabroad 101 – The Explanation

The above tweet references a comment that I left on a medium.com post written by Rachel Heller titled “Why I renounced my US citizenship” (Hint: It’s not because I’m avoiding taxes!“.

The article was well written, interesting and attracted responses from Homeland Americans. (It was reproduced here and attracted even more comments.) The comments from U.S. residents demonstrated again that they do NOT understand the problems experienced by Americans abroad. Although Rachel DID mention the problem of “forms” as a contributing factor to her renunciation, at least one comment – ” indicated “disbelief” that “forms” could be a contributing factor to the renunciation of U.S. citizenship.

It is clear that this person, well intentioned as he/she may be simply does NOT understand what forms mean in the lives of Americans abroad. It’s as though he/she thinks that filling out a form is akin to completing a customer satisfaction survey.

As I result, I wrote a reply in the hopes of inviting him/her to understand what forms really mean in the lives of Americans abroad. (This post is a modified version of that “reply”.)

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