Jackie Bugnion 2017 Residence Based Taxation: To Chairman Hatch’s request for tax reform proposals

Introduction: It’s tax reform season and Senator Orrin Hatch wants to hear from you (again)

As reported on the Isaac Brock Society and other digital resources for those impacted by U.S. taxes, you have until July 17, 2017 to tell Senator Hatch what you think needs to be changed in the Internal Revenue Code. After great deliberation, it occurred to me that people who either are (or are accused of being) U.S. citizens or Green Card holders living outside the United States, might want the USA to stop taxing them. After all, they already pay taxes to the countries where they reside. This is your opportunity to “Let your voices be heard” (well maybe).

The Senate Finance Committee is yet again asking the general public to send comments on tax reform. The deadline is July 17, and the email address is taxreform2017@finance.senate.gov.

https://www.finance.senate.gov/chairmans-news/hatch-calls-for-feedback-on-tax-reform

(July 17, 2017 is coming quickly. Please take a few moments to send your thoughts to Senator Hatch. Tell him you feel about FATCA, citizenship-based taxation, FBAR, etc.)

Speaking of “tax reform”: Introducing Jackie Bugion

Jackie Bugnion is a U.S. citizen who has lived in Switzerland for many many years. She has been a tireless advocate for “residence based taxation”. She worked with “American Citizens Abroad” for many years and has recently retired. She was recently honoured with the Eugene Abrams award by ACA – an event that was the subject of a post at the Isaac Brock Society – that described her many achievements (over a long career).

She was the principal organizer of the “Conference on Citizenship Taxation” which took place in Toronto, Canada in May of 2014. The Conference was widely discussed on the Isaac Brock Society here and here. The live video of the “Kirsch Schneider debate” is here.

I have reproduced a number of her written submissions and posts on this blog, specifically:

Jackie Bugnion – 2013 Submission to the House Ways and Means Committee – Explains the upcoming New American Revolution

The submission referenced in the above tweet describes the history of the construction of the U.S. “fiscal prison” brick by legislative brick! (Forward it to anybody and everybody with a interest in this.)

Jackie has returned with her 2017 submission to Senator Hatch.

Jackie Bugnion – 2017 submission to Chairman Hatch – reproduced with permission of Jackie Bugnion

 

Continue reading

Are “non-U.S. mutual funds” foreign corporations AKA #PFIC? Does your tax preparer know for sure?

I have written many posts that include a discussion of PFICs. This post has been motivated by a post by Karen Alpert at “Fix The Tax Treaty” (well it can’t really be fixed). The post focuses on the use of “non-U.S. mutual funds” in retirement planning. The post is written from the perspective that “non-U.S. mutual funds” ARE PFICs.

If you don’t know what a PFIC is be happy, be happy! A bit of knowledge (especially if you know things that aren’t true) can be a dangerous thing. Although most “tax professionals” treat non-U.S. mutual funds as PFICs, there is little explanation or analysis of WHY or HOW a “non-U.S. mutual fund” is a PFIC. In other words, most “tax professionals” know that “non-U.S. mutual funds” are PFICs. But, they don’t do a good job of explaining why. This post is based on a series of comments on Karen’s post that are consolidated as tweets in this Storify post.

Continue reading

U.S. Citizenship clarification: Time between your actual renunciation and the date your CLN is issued

Two questions that I frequently receive from people who have renounced U.S. citizenship are:

I. An immigration question: What if I attempt to travel to the United States during the period of time between my actual renunciation of U.S. citizenship and actually receiving my CLN (which is my proof of having renounced U.S. citizenship)?

II. A tax question: At what point after I renounce U.S. citizenship do I cease to be treated as a U.S. citizen for U.S. tax purposes? For example, when am I free to sell my house (located outside the USA) and NOT be subject to U.S. capital gains taxes?

Two kinds of U.S. citizenship: How the issuance of a CLN affects (1) U.S. citizenship for Immigration purposes and (2) U.S. citizenship for tax purposes

1. How the issuance of a CLN affects U.S. citizenship for immigration and nationality purposes:

Immigration and Nationality Act S. 349(a) (U.S. Code 1481(a)) make it clear that the issuance of a CLN is completely irrelevant to your status as a U.S. citizen for immigration purposes. A CLN is of value ONLY for the purposes of PROVING that you are not a U.S. citizen.

Therefore, one ceases to a U.S. citizen for immigration purposes on the date of the relinquishing (renunciation) act.

2. How the issuance of a CLN affects U.S. citizenship for U.S. tax purposes

Internal Revenue Code 877A(g)(4) mandates that those relinquishing/renouncing U.S. citizenship after June 16, 2008:

– will continue to be treated as U.S. citizens for U.S. tax purposes until the CLN is actually issued; and

– the date of ceasing to be a U.S. citizen for U.S. tax purposes will be the actual date of the relinquishing act (date of renunciation).

Therefore, (assuming a relinquishing act after June 16, 2008) one continues to be a U.S. citizen for tax purposes until the CLN is issued.

These distinctions are discussed in an earlier post:

Renunciation is one form of relinquishment – It’s not the form of relinquishment but the time of relinquishment

Bottom line: One ceases to be a U.S. citizen for immigration purpose before one ceases to be a U.S. citizen for tax purposes.

Generally people are more concerned with travelling to the USA during the time gap between renouncing U.S. citizenship and before receiving a CLN. Fortunately, we have a “guest post” written by someone who has just experienced this issue from the Immigration perspective. He has shared his thoughts as follows:

Travel Limbo? Keep calm and CLN on.

Recently, I found myself in a potentially sticky situation enroute to a holiday in the U.S while at a Canadian airport. My Canadian passport showed a U.S. birthplace and before allowing me
through, the U.S. Border Officer wanted me to show my Certificate of Loss of Nationality (CLN) or an American passport.

Although I had renounced my U.S. citizenship several months earlier, the U.S. Department of State had not yet issued my CLN. Before this experience, I had always been able to cross the border to the U.S. with my Canadian passport (the only passport I’d ever had).

Fortunately, the situation didn’t escalate. I attempted to give the officer a simple explanation that I had renounced at a U.S. Embassy many months before but the approved CLN had not been couriered in time for my trip. If he would permit me, I would show him my email correspondence with the U.S. embassy.

The officer accepted my explanation. Before he waived me through, I asked if he had any advice to share with anyone caught in travel limbo without their CLN.

Hopefully, his comments will help others to navigate a soft landing:

Keep calm

There is a line-up of people behind you. This is not the time to be outraged or to educate agents about the plight of Accidental Americans or dual citizens.

Show proof

Travel with a copy of your CLN. If you’re still waiting for it, carry a copy of Form DS-4080 (the form you sign when you renounce and swear an oath at a U.S. Embassy). Keep copies on your phone.

Provide a reasonable explanation

If you accidentally forget your documents or booked a trip before your CLN arrives, a simple description of the renunciation process and the long wait times for the approved CLN to arrive will hopefully be reasonable enough to a reasonable officer.

Thanks to our guest blogger for the relaying the above experience!

John Richardson

U.S. “culture of penalty” and inflation: First, inflation used to increase the size of #FBAR penalty base and then to increase the size of actual penalties

Introduction: Penalty as a part of American Culture

The above tweet links to a wide range of examples of America’s culture of penalty.

The purpose of this post is to explore how inflation results in the facilitation of enhanced penalty collection in America today.

What is inflation?

In its simplest terms:

“Inflation is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. Put differently, as inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation.”

Source: Adam Hayes, CFA

(Note his use of the words “goods and services“. Are FBAR penalties and the S. 877A Exit Tax consumer goods or government services?)

Inflation can either be helpful or can be hurtful. Some benefit from inflation and others are hurt by inflation. At a minimum, inflation will always erode the value of cash.

Effect of inflation on owners/lenders of cash: When it comes to cash inflation will hurt the owners/lenders of cash. This is because inflation will erode the value of cash.

Effect of inflation on borrowers of cash: Inflation will help he borrowers of cash. This is because inflation erodes the value of the cash that must be repaid.
Continue reading

RT Unbelievable! Toronto based cycling team @TeamTPLRaam places second in @RAAMRaces Race Across America!

Taking a break from our regular programming to congratulate the Toronto based cycling team known as “True Patriot Love” for (1) attempting and (2) completing and (3) placing second (34 minutes behind the winners) in “The World’s Toughest Bicycle Race“.

The Race Across America – starting in Oceanside California and ending in Annapolis, Maryland. Think of it! A group of eight “regular guys” (well perhaps a bit on the fit side) cycled non-stop across America and completed the race in under 6 days. This is faster than some could drive the distance. This is faster than (given the state of Air Travel and time to get to the Airport and through security) that some could fly the distance (well, not really). In any case, a truly amazing achievement. Few people even knew that this was going on. Anyway, spread the word and take a moment to retweet the following tweet.

and this …

and from Facebook …

And hey, if they can manage to do the race, surely you can manage to donate a few dollars to their cause here!
Continue reading

Morales-Santana: U.S. Supreme Court makes it harder for people “born abroad” to U.S. citizen parent(s) to become citizens

Prologue:U.S. citizenship is not as attractive as it was

One benefit of U.S. citizenship: If one is a U.S. citizen then one cannot be deported from the USA

Some Green Card holders become U.S. citizens. Some do NOT become U.S. citizens. Many of those Green Card holders become U.S. citizens in order to avoid the possibility of deportation. Deportation results in expatriation and can (among other things) subject the unfortunate Green Card holder to the S. 877A Expatriation Tax, which can result in significant confiscation of assets. In fact, the S. 877A Expatriation Tax discourages people from seeking Green Cards in the first place.  That said, it is only Green Card Holders who are “long term residents” who are subject to the Exit Tax.

The plight of Mr. Morales-Santana: No U.S. citizenship = the possibility of deportation

The facts as described by the court:

In 2000, the Government sought to remove Morales-Santana based on several criminal convictions, ranking him as alien because, at his time of birth, his father did not satisfy the requirement of five years’ physical presence after age 14. An immigration judge rejected Morales-Santana’s citizenship claim and ordered his removal. Morales­ Santana later moved to reopen the proceedings, asserting that the Government’s refusal to recognize that he derived citizenship from his U. S.-citizen father violated the Constitution’s equal protection guarantee.

Continue reading

Mr. Pomerantz meets Mr. #FBAR in the Homeland: The “willful” FBAR penalty requires proof of “willfulness”

Looking for Mr. FBAR

This is one more in a series of posts discussing the FBAR rules. The FBAR rules were born in 1970, laid virtually dormant until the 2000s and then were then unleashed in their full “ferocity” on U.S. persons. A good review of the history of Mr. FBAR is here. A discussion of how the discovery of Mr. FBAR can lead to larger problems is here. Finally, a discussion of of why people must exercise caution in “fixing problems with FBAR” is here.

Mr. FBAR has not visited Canada, but he has visited Canadian citizens

Mr. Pomerantz returns …

Readers of this blog (particularly those in Canada) may recall that I have previously written about the adventures of Mr. Jeffrey P. Pomerantz (currently of Vancouver, Canada) with Mr. FBAR. At that point (March 2017) it was clear that the U.S. Department of Justice planned to sue Mr. Pomerantz to collect the FBAR penalties to which it felt entitled. It is worth noting that FBAR penalties are assessed under the Bank Secrecy Act (Title 31 of U.S. laws) which is different from the Internal Revenue Code (Title 26 of U.S. laws.) In order to collect FBAR penalties the U.S. Government must sue, and sue it did. The purpose of this post is to tell the story of what happened when the U.S. Government sued Mr. Pomerantz in U.S. District Court in Seattle.

But, before we begin our story, this post is more about “Civil Procedure” than it is about “Mr. FBAR” …

Bottom line: Although the U.S. Government suffered a temporary (probably) defeat, the defeat was because the Government failed to follow the rules of “Civil Procedure”. In other words, whether Mr. Pomerantz actually violated the FBAR statute was NOT the issue in this case. The issue was whether the Government followed the rules that they were required to follow in order to win their case. The Government did NOT follow the rules. Therefore, the Government lost. With that disclosure, we are no ready to begin yet another example of an adventure with Mr. FBAR.

Once upon a time in District Court in Seattle …

It appears that the hearing took place in early June of 2017. In any event, the court’s judgement was dated June 8, 2017.

Interesting fact: Mr. Jeffrey P. Pomerantz appeared “pro se” – he represented himself at the hearing. He may have had “legal advice” prior to the hearing. On the other hand, he may have had the assistance of the judge who recognized that he did NOT appear with a lawyer.

The judgement references the fact that Mr. Pomerantz sought to transfer the venue from Washington State to Washington, DC. Apparently his “lawyer of choice” was in Washington, DC. The court (for various procedural reasons) denied his request for this “change in venue”. In other words, the hearing took place in Seattle.
Continue reading

The teaching of Topsnik 2 – 2016: #Greencard expatriation and the S. 877A “Exit Tax”

What! You want to abandon your Green Card and leave the USA!

Introduction – Introducing Gerd Topsnik – The World According to Facebook

“This case will be seen as the first of an (eventual) series of cases that determine how the definition of “long term resident” applies to Green Card holders. The case makes clear that if one does NOT meet the treaty definition of “resident” in the second country, that one
cannot use that treaty to defeat the “long term resident” test. A subsequent case is sure to expand on this issue. Otherwise, the case confirms that the S. 877A Exit Tax rules are “alive and well” and that the “5 year certification” test must be met to avoid “non-covered status”

Topsnik may or may not be a “bad guy”. But even “bad guys” are entitled to have the law properly applied to their facts. It would be very interesting to know how the court would have responded if Topsnik had been paying tax (a nice taxpayer) in Germany as a German resident.”

A nice summary of Topnik 1 and Topsnik 2

This is part of a series of posts on: (1) “tax residency“, (2) the use of “treaty tiebreakers” when an individual is a “tax resident” of more than one jurisdiction and (3) how to use “treaty tiebreakers” to end “tax residency” in an undesirable tax jurisdiction.

This is the second of the two Topsnik posts.

Topsnik 1 focused on the “tax residence” of Green Card Holders. The decision in Topsnik 1 is here:

topsnikdiv.halpern.TC.WPD
Continue reading

The teaching of Topsnik 1 – 2014: Taxation for #GreenCard @TaxResidency and “tax treaty tiebreakers”

Introduction

This is part of a series of posts on: (1) “tax residency“, (2) the use of “treaty tiebreakers” when an individual is a “tax resident” of more than one jurisdiction and (3) how to use “treaty tiebreakers” to end “tax residency” in an undesirable tax jurisdiction.

Topsnik 1: It’s about the taxation (not expatriation) of  Green Card Holders

The 2014 decision in Topsnik is an interesting example of how these components interact. Mr. Topsnik was given a Green Card in 1977. He moved from the United States in 2003 and did NOT formally abandon his Green Card. He then attempted to argue that because he was a “tax resident” of Germany that he could use a “treaty tie breaker” to argue that he was NOT a “U.S tax resident”.

In summary the court ruled on a number of questions which INCLUDED:

1. Was Mr. Topsnik a U.S. “tax resident”?

Because Mr Topsnik never formally abandoned his Green Card (as required by the regulations) that he WAS a “U.S. tax resident” for ALL relevant years. This meant that he was taxable in the United States on all of his world income.

For clarity the regulations to Internal Revenue Code 7701(b) specifically state:

(b)Lawful permanent resident –

(1)Green card test. An alien is a resident alien with respect to a calendar year if the individual is a lawful permanent resident at any time during the calendar year. A lawful permanent resident is an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws. Resident status is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned.

(2)Rescission of resident status. Resident status is considered to be rescinded if a final administrative or judicial order of exclusion or deportation is issued regarding the alien individual. For purposes of this paragraph, the term “final judicial order” means an order that is no longer subject to appeal to a higher court of competent jurisdiction.

(3)Administrative or judicial determination of abandonment of resident status. An administrative or judicial determination of abandonment of resident status may be initiated by the alien individual, the Immigration and Naturalization Service (INS), or a consular officer. If the alien initiates this determination, resident status is considered to be abandoned when the individual’s application for abandonment (INS Form I-407) or a letter stating the alien’s intent to abandon his or her resident status, with the Alien Registration Receipt Card (INS Form I-151 or Form I-551) enclosed, is filed with the INS or a consular officer. If INS replaces any of the form numbers referred to in this paragraph or § 301.7701(b)-2(f), refer to the comparable INS replacement form number. For purposes of this paragraph, an alien individual shall be considered to have filed a letter stating the intent to abandon resident status with the INS or a consular office if such letter is sent by certified mail, return receipt requested (or a foreign country’s equivalent thereof). A copy of the letter, along with proof that the letter was mailed and received, should be retained by the alien individual. If the INS or a consular officer initiates this determination, resident status will be considered to be abandoned upon the issuance of a final administrative order of abandonment. If an individual is granted an appeal to a federal court of competent jurisdiction, a final judicial order is required.

Green Card holders must understand that they do NOT end their status as “U.S. tax residents” by leaving the United States and taking up residence in another country! Specific steps (related to notification) are required.

2. Could Mr. Topsnik use the “treaty tiebreaker” to argue that he was a “tax resident” of Germany and NOT a “tax resident” of the United States?

No. The use of a “treaty tiebreaker” requires that an individual be a “tax resident” of both countries. In this case the “treaty tie breaker” could be used ONLY if Mr. Topsnik was a “tax resident” of both Germany and the United States. The court held that Mr. Topsnik was NOT a “tax resident” of Germany but was a “tax resident” of the United States.

Note that the fact that Mr. Topsnik was NOT a “tax resident” of Germany meant that he was NOT eligible to use the “tax treaty tie breaker” rules. Eligibility to use the “tax treaty tie breaker” rules would NOT guarantee that Mr. Topsnik would be a “German tax resident”.

Conclusion: Mr. Topsnik was ONLY a “U.S. tax resident” and was therefore taxable in the United States on his world income!

Moral of the story: If a Green Card Holder ceases to reside in the United States he as NOT ended his status as a U.S. “tax resident”.
Continue reading

Part 2: OECD Common Reporting Standard (“CRS”): “tax residence” and the “tax treaty tiebreaker”

This is Part 2 – a continuation of the post about “tax residency under the Common Reporting Standard“.

That post ended with:

Breaking “tax residency” to Canada can be difficult and does NOT automatically happen if one moves from Canada. See this sobering discussion in one of my earlier posts about ceasing to be a tax resident of Canada. (In addition, breaking “tax residency in Canada” can result in being subjected to Canada’s departure tax. I have long maintained that paying Canada’s departure tax is clear evidence of having ceased to be a “tax resident of Canada”.)

Let’s assume that our “friend”, without considering possible “tax treaties” is or may be considered to be “ordinarily resident” in and therefore a “tax resident” of Canada.

Would a consideration of possible tax treaties (specifically the “tax treaty residency tiebreaker) make a difference?

This question will be considered in Part 2 – a separate post.

What is the “tax treaty residency tiebreaker”?

It is entirely possible for an individual to be a “tax resident” according to the laws of two (or more countries). This is a disastrous situation for any individual. Fortunately with the exception of “U.S. citizens” (who are always “tax residents of the United States no matter where they live), citizens of most other nations are able to avoid being “tax residents” of more than one country. This is accomplished through a “tax treaty tie breaker” provision. “Treaty tie breakers” are included in many tax treaties. (Q. Why are U.S. citizens always U.S. tax residents? A. U.S. treaties include what is called the “savings clause“).

Some thoughts on the “savings clause”

First, the “savings clause” ensures that the United States retains the right to impose full taxation on U.S. citizens living abroad (even those who are dual citizens and reside outside the United States in their country of second citizenship).

Second, the U.S. insistence on the “savings clause” ensures that other countries agree to allow the United States to impose U.S. taxation on their own citizen/residents who also happen to have U.S. citizenship (generally because of a U.S. place of birth.)

Where are “tax treaty tie breakers” found? What do they typically say?

Many countries have “tax treaty tie breaker” provisions in their tax treaties. The purpose is to assign tax residence to one country when a person is a “tax resident” of more than one country.

As explained by Wayne Bewick and Todd Trowbridge of Trowbridge Professional Corporation (writing in the context of Canadian tax treaties):

Continue reading