Tag Archives: covered expatriate

The Internal Revenue Code vs. IRS Form 8854: the “noncovered expatriate” and the Form 8854 Balance Sheet

Introduction: For whom the “Form” tolls …

I would not want the job that the IRS has. There are many “information reporting requirements” in the Internal Revenue Code. The IRS has the job (sometimes mandatory “shall” and sometimes permissive “may”) of having to create forms that reflect the intent of the Internal Revenue Code. The forms will necessarily reflect how the IRS interprets the text and intent of the Code. Once created, the “forms” become a practical substitute for the Code. If you look through your tax return you will “form” after “form” after “form”. The forms reflect how the various provisions of the Internal Revenue Code are “given meaning” (if the meaning can be determined).

The Form (in theory) follows the requirements of the Internal Revenue Code …

Every “form” is the result of one or more sections of the Internal Revenue Code. For example, Form 8833 is described as:

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The S. 877A “Dual Citizen” exemption: MUST certify tax compliance for the five years prior to relinquishment

Introduction:

This is the 7th of seven posts analyzing the “dual citizen exemption” to the S. 877A Exit Tax which is found in S. 877A(g)(1)(B) of the Internal Revenue Code. Please remember that the “dual citizen exemption” is available ONLY to those who meet the “five year tax compliance test”.

1. What is the S. 877A(g)(1)(B) “dual citizen exemption” and why does it encourage those “born dual citizens” to not renounce U.S. citizenship?

2. The history of Canada’s citizenship laws: Did the 1947 Canada Citizenship Act affirm citizenship or “strip” citizenship and create @LostCanadians?

3. The S. 877A “dual citizen” exemption – I was born before the first ever Canada Citizenship Act? Could I have been “born a Canadian citizen”?

4. 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”)

5. The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act and the requirements to be “born Canadian

6. “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of Canada?

7. The S. 877A “Dual Citizen” exemption: “MUST certify tax compliance for the five years prior to relinquishment

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To begin: Any person who cannot meet the “tax compliance test” found in section 877(a)(2)(C) of the Internal Revenue Code will be a “covered expatriate”!

As a reminder, of what makes somebody a “covered expatriate”:

S. 877A(g) of the Internal Revenue Code includes:

(g) Definitions and special rules relating to expatriation For purposes of this section—

(1) Covered expatriate
(A) In general

The term “covered expatriate” means an expatriate who meets the requirements of subparagraph (A), (B), or (C) of section 877(a)(2).

(B) Exceptions An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if—
(i) the individual—
(I) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
(II) has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for not more than 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs,

Notice that the “dual citizen exemption” operates so that the individual does NOT become a “covered expatriate” if he meets the tests of “subparagraph (A) or (B) of section 877(a)(2)” (the income test or the asset test). The “dual citizen exemption” does NOT absolve the individual from meeting the “tax compliance test” found in section 877(a)(2)(C) of the Internal Revenue Code, which reads as follows:
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Thoughts from a conversation: Green Cards – Dangers of moving to America and moving from America

How could  somebody possibly not  know about  FBAR?

In our case my wife hailed from the Republic of Ireland. We were married in the early 1990’s. As any immigrant knows it is a hard road. Homesickness, difficulties with the Immigration Service, it’s an enormous adjustment. In our immigration packet of hundreds of documents I recall one that was quite frightening. It was from the US treasury and said that if you have more than $10K in assets you need to file an FBAR or you could lose half of what you owe. Thankfully we didn’t owe anything. At that time there was not 1040 tax requirement to list all overseas assets. That came in a few years later, about 1998. By 1997 my wife received a small lump sum pension. It put her over the limit, but by then we had plenty of other issues consuming us that drove the FBAR issue out of our line of sight. She was suffering from a mysterious illness that was weakening her by the month, she was homesick and I was struggling on a new job. I work somewhere else now. It was a very difficult time and difficult times can leave you open to mistakes.


Eventually somehow around 2000 I was reminded of the FBARs but realized that we were already in deep trouble. Had the first offense been in any way reasonable I would have paid up and gotten into compliance. The penalties however were far too harrowing. Today, you look on the internet and there are articles by the hundreds about filing an FBAR. Back then, because the government wisely didn’t enforce the FBAR rules and their draconian penalties, except for the most egregious offenders there simply were no reminders out there.
Fast forward to about 2010 and FBARs suddenly were pressing news, but for many it was simply too late.


There are several problems with the current scheme. Number one the penalties are insanely draconian for people who often owe less than $1K in taxes over the past 8 years. In our case that translates to $10K to a lawyer (the IRS highly suggest you get one) and $29K in IRS penalties. Any way you cut it that is a $40K penalty for less than $1K in back taxes. In fact it is possible that my attorney didn’t include foreign tax credits which could have brought our back taxes down to $0K. Because he is afraid of the Big Bad IRS, he doesn’t want to irk them and get penalized worse or rejected from the OVDP program. Another crazy thing is that if the IRS owes YOU in back taxes for previous years that doesn’t count by their reckoning. The only thing that matters is what you owe them. Therefore if they owe you $5K over the past 8 years but you owe them $3K over the past 8 years – are you ready for this accounting trick ? Therefore you owe them $3K over the past 8 years. They forgive themselves for the $5K that they owe you over the past 8 years. Therefore if in the Real World if you were owed $2K by the IRS thus strengthening your hand in opting out of the OVDP, think again. They only count what you owe them and you cannot carry forward what they owe you to cancel out what you them. How freaking convenient is that ?


This is a very dangerous trend. When truth and common sense are not the basis for our laws and regulations then we cease to live in a free and democratic society.


As I mentioned previously, every day, you and I are either heading to the light or to the darkness. We choose. We make the same choices with our country. It is “We The People” that is the conscience of our government. If we are too indulgent of our government, it is our fault if our government grows perverted, out of control and rapacious. We The People are our countries disciplinarian. We The People make our own collective breaks in what type of government we must live with. Silence is not Golden. It’s Golden only to tyrants.

 This post was prompted  because …

Today I had a brief conversation with somebody who was moving to America. I thought I would share some thoughts from the conversation. After all, tens of thousands of people move to the United States each year. Some move there as U.S. citizens. Some move there on Green Cards. Some move there on another type of U.S. visa.

The purpose of this is to reinforce some very simple points. I find that people always have more trouble remembering what’s simple. Here goes:

Moving to America

1. Asset Reporting

If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for penalties.

Please remember that if you are:

– a U.S. citizen – Internal Revenue Code – S. 7701(a)(1)(50)

– a Green Card holder – Internal Revenue Code – S. 7701(b)(1)(A)

– a person who meets the substantial presence test – Internal Revenue Code – S. 7701(b)(3)

that you are required to file FBARs, FATCA Form 8938s and possibly more forms and reporting requirements. Those who are leaving behind a limited company may meet the requirements to file Form 5471.

The failure to meet these reporting obligations has caused untold misery for may immigrants to the USA. Remember how many immigrants to the U.S. were damaged by the OVDI program in 2011. (The hyperlink in the previous sentence leads to a post with 382 comments!)

2. Make sure that you know the fair market value of any assets that you own at the time of your move to the USA. This (depending on your status at the time you entered the U.S.) may have implications for future taxes (including the S. 877A Exit Tax).

3. If possible do NOT enter the U.S. on a Green Card and do NOT acquire a Green Card.

If you acquire the Green Card you are one step away from being subjected to the S. 877A Exit Tax if you decide to leave America!

Green Card Holders Moving From America

Potential problems exist for those with a Green Card who move from the USA.

A partial list includes:

1. Read S. 877A of the Internal Revenue Code. You will see that if you held a Green Card for 8 of the last 15 years, you will be a “long term resident” and subject to the S. 877A Exit Tax rules.

2. You are deemed to be a tax resident until you File I-407 (or other reasons that are less common). In order to cease to be a “U.S. tax resident” you would file your I-407. But, be careful!  The filing of your I-407 may (depending on whether you are a “long term resident”) may trigger the Exit Tax rules! To put it simply: If you file the I-407, and you are a “long term” resident, you will be subject to the S. 877A Exit Tax rules. Extreme caution is warranted!

Moral of the story! Be careful. You will avoid many problems by avoiding the Green Card.

Conclusion:

To be forewarned is to be forearmed!

 

 

 

 

Interview with GordonTLong.com – Citizenship based taxation, PFIC, the S. 877A Exit Tax and #Americansabroad

On May 22, 2015 I was interviewed by Gordon T. Long. There is NO way to discuss U.S. “citizenship taxation” (which is primarily “place of birth taxation”) without discussing the S. 877A Exit Tax rules. During the month of April 2015, I wrote a 14 part series on “How the S.877A rules affect Americans abroad“. The interview with Mr. Long serves as a good reminder (or if you don’t want to read the posts) on:

– what it means to be a “covered expatriate

how the U.S. S. 877A “Exit Tax” rules operate to impose punitive “taxation” on non U.S. pensions (See the actual scenarios of how the Exit Tax applies to various individuals including those with a non-U.S. pension.

– more

This topic is of extreme important to anybody with a U.S. place of birth. Those with a “U.S. place of birth” begin life as a U.S. citizen. Therefore, those born in the U.S. are in effect:

“U.S. Taxpayers by birth”.

The U.S. is using FATCA to search the U.S. for people who were “born in the USA” to bring them into the U.S. tax system. More and more people are receiving “The FATCA Letter“.

This interview with Mr. Long really should be included as part of the “Exit Tax” series.

Therefore, I have designated my interview with Mr. Long to be:

Part 15 of the Exit Tax Series.

As a reminder this series of “S. 877A Exit Tax Posts” includes:

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

 

 

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

1995 – The origins of the S. 877A Exit Tax – Video of House Oversight Committee

 

 

This testimony in this video covers a number of perspectives. It includes a consideration of whether the S. 877A rules are a “human rights violation”. This video should be watched in its entirety. It illustrates the viciousness of the Exit Tax and the attitude of the Clinton administration. There is a suggestion that the purpose of the S. 877A rules was to “keep people from leaving”. If you find any testimony or questions that address the problems of “Americans Abroad”, please leave a comment describing the speaker, time and the substance. It appears that there was little or no consideration of how this would affect “American Citizens Abroad”.

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Part 8 – “The U.S. “Exit Tax vs. Canada’s Departure Tax – citizenship taxation vs. residence taxation”

The above tweet references the following comment:

At least the departure tax has a sliver of logic to it, and an appropriate name. To have to pay a US “exit tax” when I left empty handed over thirty years ago, beggars belief. Perhaps if they called it an escape tax or freedom tax that would make more sense.

Composing this series of posts about the U.S. S. 877A “Exit Tax” made me realize that “Exit Taxes” are a prism through which to view a country’s tax system. Any kind of tax imposed on leaving the “tax jurisdiction” of a country will reveal much about the fairness of a tax system. Yet there has been little discussion of “Exit Taxes”. In theory an “Exit Tax” is imposed when one emigrates from one country and immigrates to another country. This is how “Canada’s Departure Tax” works. It is NOT how the U.S. “Exit Tax” works.

I recently came across an interesting book written by Nancy Green and Francois Weil titled:

Citizenship and Those Who Leave: The Politics of Emigration and Expatriation

citizenshipandthosewholeavegreen

The description includes:

Exit, like entry, has helped define citizenship over the past two centuries, yet little attention has been given to the politics of emigration. How have countries impeded or facilitated people leaving? How have they perceived and regulated those who leave? What relations do they seek to maintain with their citizens abroad and why? Citizenship and Those Who Leave reverses the immigration perspective to examine how nations define themselves not just through entry but through exit as well.

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Part 6 – “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”

This is Part 6 of a 9 part series on the Exit Tax.

The 9 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? Understanding “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 the “Exit Tax” is 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 – “The two kinds of U.S. citizenship: Citizenship for immigration and citizenship for tax”

Part 8 – April 8, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?”

Part 9 – April 9, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?”

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Introduction

Many Americans abroad have had their lives turned upside down by the combination of FATCA and the enforcement of U.S. “place of birth” taxation. Those who are “long term” residents abroad find themselves caught between a “rock and a hard place”.

On the one hand they can’t afford the costs and complexity of filing U.S. tax returns.

On the other hand, many “middle class” Americans abroad cannot relinquish their U.S. citizenship (freeing themselves from the complexity of U.S. tax laws and the IRS) without paying the U.S. an “Exit Tax”.

Many Americans abroad can neither afford to comply with U.S. tax laws nor afford to relinquish U.S. citizenship.

The “Exit Tax”

Yes, many “long term” U.S. citizens abroad are in a position where they are forced to “buy their freedom from the U.S. Government”. I am reminded of one of Ronald Reagan’s great speeches where he noted, that when it comes to Americans:

 

“The price of our freedom has sometimes been high. But, we have never been willing to pay that price”.

I often wonder what President Reagan would have thought of the America today. Yes, the United States of America has joined some of the nastiest regimes in history with it’s “Exit Tax”. (Well, we all know, there must be a good policy reason for it. Just ask your Congressman.)

Not all Americans abroad are subject to the “Exit Tax”. Only “covered expatriates” are subject to the “Exit Tax”.

The obvious question is:

“How does somebody become a “covered expatriate?”

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

This is Part 3 of a 9 part series on the Exit Tax.

The 9 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? Understanding “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 the “Exit Tax” is 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 – “The two kinds of U.S. citizenship: Citizenship for immigration and citizenship for tax”

Part 8 – April 8, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?”

Part 9 – April 9, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, What’s the difference?”

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

Form8854

In a FATCAesque world, where “relinquishments” are becoming a form of “self defense”, it’s important that you understand:

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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

 

Tales of renouncing citizenship: U.S. Senator Ted Cruz and London Mayor Boris Johnson

In September of 2014, I conducted a “Problems of U.S. Citizenship Session” in Montreal, Canada. As usual many of the attendees were in the midst of their OMG (“Oh My God Moment”). The phrase “OMG Moment” is well known. But, what is the “OMG Moment”? I suggest that the “OMG” moment is one of two things. It is either:

1. The moment that those who believe that they are U.S. citizens (or other “U.S. persons”) learn that  they are required (even though they don’t live in the U.S.A.) to obey U.S. tax laws, file U.S. tax and information returns, and are subject to the draconian life altering penalties that are part of membership  in Club U.S.A.; or

2. The moment that they learn for the first time that they may be considered to be a U.S. citizen (or other U.S.person).

This post will focus on those in the second group. That is on:

Those who do NOT believe and have not believed they are U.S. citizens and are learning that they “may be considered to be a U.S. citizen”. 

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