PREP Podcaster - ”Success Favours The PREPared Mind”

Attention! Our Trip Is Entering International Waters: For Americans Abroad, Let The Double Taxation Begin!

January 21, 2022 - Participants include:

John Richardson - @Expatriationlaw

Jim Gosart - Vice-President Republicans Overseas

 

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Attention! We are entering "International Waters"! US Citizens be advised that you may now be subject to double taxation!

 

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To Whom Much Has Been Given, Much Is Expected!!

Yes, it's true! A US citizen, because and only because of the combination of US citizenship-based taxation coupled with living outside the United States, is likely to be subject to double taxation. The following discussion explains why.

Part A: Introduction – About Citizenship-based Taxation
Part B: How the Internal Revenue Code is designed to mitigate the effects of double taxation in certain circumstances
Part C: Determining what is “foreign source” income
Part D: The problem of international waters …
Part E: The effect of sourcing to the US income earned in international waters by dual tax residents
Part F: Deducting “foreign taxes” paid – although income from international waters may not be foreign, it is still subject to the payment of “foreign taxes”
Part G: Can a US citizen living abroad be saved by a tax treaty? Maybe if he/she lives in Canada****
Part H: Conclusion and the need for “Pure Residence-Based Taxation”

You can read the horrible details here ...

 

https://www.taxconnections.com/taxblog/airline-and-cruise-ship-employees-how-income-earned-in-international-waters-may-lead-to-double-taxation-for-only-americans-abroad/

 

Understanding Why People Renounce US Citizenship: The Perspective Of A Man In His Twenties

January 14, 2022 - Participants Include:

 

John Richardson - @Expatriationlaw

 

Max - A former US citizen residing in Germany

 

The value of US citizenship depends largely on your age. As  a general principle, I believe that the value of US citizenship is inversely correlated with age. US citizenship is more valuable to younger people who are in the process of building their careers. After all, there are many job and career opportunities in the United States. The younger you are, the more valuable US citizenship is.

 

As of late, I am seeing more and more people in their twenties considering renouncing US citizenship. After "tweeting" this trend, Max (a resident of Germany) contacted me and expressed his willingness to explain his reasons for renouncing.

This podcast is a very lucid description of why middle class people living outside the United States are renouncing US citizenship. I suggest that it be spread far and wide!

A special thanks to Max for sharing!

 

 

 

 

The Covered Expatriate And The Five Year Tax Certification Test - Compliance, At What Point In Time?

January 10, 2022 - Participants Include:

 

Virginia La Torre Jeker - @VLJeker

 

John Richardson - @Expatriationlaw

 

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The Issue:

Is the expatriate required to certify that he is in compliance at the moment of expatriation? Can compliance problems be fixed after expatriation?

 

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Who Is A Covered Expatriate? - The Statute

 

The Covered Expatriate - IRC 877(a)(2)

 

(2)Individuals subject to this section This section shall apply to any individual if—

(A)

the average annual net income tax (as defined in section 38(c)(1)) of such individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $124,000,

(B)

the net worth of the individual as of such date is $2,000,000 or more, or

(C)

such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.

 

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Our Conclusion:

 

In this podcast Virginia La Torre Jeker and John Richardson discuss why they believe that compliance at the point of expatriation is a sufficient but not a necessary condition to avoid covered expatriate status.

 

The Covered Expatriate And The IRC 121 Principal Residence Exclusion - Available Or Not?

January 7, 2022 - Participants Include:

 

Virginia La Torre Jeker - @VLJeker

 

John Richardson - @Expatriationlaw

 

The Background - An Exclusion From Capital Gains

 

Internal Revenue Code Section 121 provides (in certain circumstances) a $250,000 exclusion from taxation on the capital gain on the sale of a principal residence.

 

Covered Expatriates, The Exit Tax and "Deemed Capital Gains"

 

When a covered expatriate renounces US citizenship he/she is subject to a capital gains tax based on the deemed sale of all property. Specifically 877A includes:

26 U.S. Code § 877A - Tax responsibilities of expatriation

(a)General rules For purposes of this subtitle—

 

(1)Mark to market

All property of a covered expatriate shall be treated as sold on the day before the expatriation date for its fair market value.

(2)Recognition of gain or lossIn the case of any sale under paragraph (1)—

A)

notwithstanding any other provision of this title, any gain arising from such sale shall be taken into account for the taxable year of the sale, and

 

The Issue:

Do the words "notwithstanding any other provision of this title" mean that the S. 121 exclusion is not available to "covered expatriates" renouncing US citizenship?

 

On January 6, 2022 Dubai based US tax lawyer wrote a post discussing this issue:

https://us-tax.org/2022/01/06/covered-expatriates-exit-tax-and-the-principal-residence/

On January 7, 2022 Virginia joined me to explore this issue in this podcast.

 

Subpart F, GILTI and The Transition Tax - Fake Income: Americansabroad are taxed more punitively than US residents

January 3, 2022 - Participants include:

John Richardson - @Expatriationlaw

Jim Gosart - Vice-President Republicans Overseas

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The United States is the only major country in the world that continues to impose worldwide taxation on its citizens when they move from the country and establish tax residency in another country. But, it gets worse. When US citizens move from the USA and establish tax residency in another country they are subjected to a separate and more punitive form of taxation that that imposed on US residents.

Nothing illustrates this principle better than the story of US citizens who attempt to carry on small businesses outside the United States. As well as the expensive forms and regulation, those US citizens who are "entrepreneurs abroad" risk being subject to tax on income they never received! Yes, it's true. Read on ...

US citizens abroad are generally subjected to various forms of taxation on "fake income" (meaning income they have never received). Some very common forms of "fake income" are found in Subpart F of the Internal Revenue Code. The Transition Tax and GILTI were created by the 2017 TCJA.

In this episode Jim Gosart and John Richardson discuss "fake income" as a general principle (it doesn't apply to US residents on their US based assets). The 2017 Transition Tax and GILTI are the result.

Our point is simple:

The only solution is for the United States to stop citizenship-based taxation and adopt pure residence-based taxation!

 

 

While Forcing Americans Abroad To Renounce Citizenship, The US Will Not Provide Them With Renunciation Appointments

December  29, 2021 - Participants Include:

 

John Richardson - @Expatriationlaw

 

Diane Gelon - London, UK based New York lawyer - DianeGelon.com

On November 29, 2020 London based US lawyer Diane Gelon joined me for a discussion about the current state of renunciation. That podcast may be accessed here. One year ago, we discussed the fact that the relevant statute - S. 349(a) of the Immigration and Nationality Act - does not require that the renunciation meeting take place inside a US Consulate of Embassy.

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The text of the statute is:

 

§1481. Loss of nationality by native-born or naturalized citizen; voluntary action; burden of proof; presumptions

 

(a) A person who is a national of the United States whether by birth or naturalization, shall lose his nationality by voluntarily performing any of the following acts with the intention of relinquishing United States nationality-

 

(1) obtaining naturalization in a foreign state upon his own application or upon an application filed by a duly authorized agent, after having attained the age of eighteen years; or

 

(2) taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state or a political subdivision thereof, after having attained the age of eighteen years; or

 

(3) entering, or serving in, the armed forces of a foreign state if (A) such armed forces are engaged in hostilities against the United States, or (B) such persons serve as a commissioned or non-commissioned officer; or

 

(4)(A) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years if he has or acquires the nationality of such foreign state; or (B) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years for which office, post, or employment an oath, affirmation, or declaration of allegiance is required; or

 

(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State; or

 

(6) making in the United States a formal written renunciation of nationality in such form as may be prescribed by, and before such officer as may be designated by, the Attorney General, whenever the United States shall be in a state of war and the Attorney General shall approve such renunciation as not contrary to the interests of national defense; or

 

(7) committing any act of treason against, or attempting by force to overthrow, or bearing arms against, the United States, violating or conspiring to violate any of the provisions of section 2383 of title 18, or willfully performing any act in violation of section 2385 of title 18, or violating section 2384 of title 18 by engaging in a conspiracy to overthrow, put down, or to destroy by force the Government of the United States, or to levy war against them, if and when he is convicted thereof by a court martial or by a court of competent jurisdiction.

 

(b) Whenever the loss of United States nationality is put in issue in any action or proceeding commenced on or after September 26, 1961 under, or by virtue of, the provisions of this chapter or any other Act, the burden shall be upon the person or party claiming that such loss occurred, to establish such claim by a preponderance of the evidence. Any person who commits or performs, or who has committed or performed, any act of expatriation under the provisions of this chapter or any other Act shall be presumed to have done so voluntarily, but such presumption may be rebutted upon a showing, by a preponderance of the evidence, that the act or acts committed or performed were not done voluntarily.

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The London Embassy continues to deny US citizens wishing to renounce the opportunity to make renunciation appointments.

In this episode Diane and I discuss possible renunciation options that may meet the requirements of the law while not requiring a specific appointment for the purposes or renouncing. 

Thanks to Diane Gelon for her creative thinking!

 

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Appendix:

 

The description of the November 29, 2020 Diane Gelon podcast was ...

"One the hand one, many Americans abroad are desperate to pay the $2350 USD fee to renounce US citizenship. On the other hand, the US State Department has stopped providing appoints to renounce.

Do US citizens have the right to renounce?

The 1868 Expatriation Act suggests that they have a statutory right to renounce.

Right of Expatriation

R.S. § 1999 provided that: “Whereas the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness; and whereas in the recognition of this principle this Government has freely received emigrants from all nations, and invested them with the rights of citizenship; and whereas it is claimed that such American citizens, with their descendants, are subjects of foreign states, owing allegiance to the governments thereof; and whereas it is necessary to the maintenance of public peace that this claim of foreign allegiance should be promptly and finally disavowed: Therefore any declaration, instruction, opinion, order, or decision of any officer of the United States which denies, restricts, impairs, or questions the right of expatriation, is declared inconsistent with the fundamental principles of the Republic.”

The 1967 U.S. Supreme Court decision in Afroyim suggests they have a constitutional right to renounce.

The fact is that there is no bar to conducting renunication appointments through video conferencing. It's too bad that the US government won't allow this."

https://prep.podbean.com/e/locked-into-us-citizenship-do-americans-have-the-right-to-renounce/

 

 

Middle Class Americans Abroad Don’t Renounce US Citizenship Because They Want To! They Renounce Because They Have To!

December 27, 2021 - Participants include:

John Richardson - @Expatriationlaw

Jimi Gosart - Vice-President Republicans Overseas

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As President John F. Kennedy said:

"The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest, but the myth, persistent, persuasive and unrealistic."

The Myth: Various media outlets continue to preach the "myth" that its wealthy Americans who are renouncing US citizenship (to avoid US taxation).

The Truth: It's middle class Americans abroad who are renouncing US citizenship. They are not renouncing because they want to. They are renouncing because they are forced to (if they wish to engage in normal financial and retirement planning in their country of residence).

In this episode Republicans Overseas Vice President Jim Gosart and John Richardson discuss these issues.

The fact that Americans abroad cannot survive under the US tax system is one more reason why the only solution for Americans abroad is:

Pure residence-based taxation - No Carveouts and No Left outs!

Pure residence-based taxation will solve the all problems for all people all the time!

 

 

”Democracy In America”: How Americans Abroad Can Be Part Of Democratic Renewal

December 23, 2021 - Participants Include:

 

John Richardson - @Expatriationlaw

 

Joe Howard - @JustJoe12345678

 

 

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There are two groups of Americans whose interests are not considered in the political process.

 

Group 1 - Americans Abroad: US citizens living outside the USA who are very much aware that their interests are not represented.

 

Group 2 - Resident Americans: US citizens living inside the USA who (although able to vote) do not have the opportunity to vote for candidates who represent their interests. They are increasingly becoming aware that their interests are not represented.

 

Unfortunately the US political process is run for and only for the mainstream political parties. Neither party has either awareness or concern for  the interests of Americans abroad. To put it simply:

 

"It's not they don't care. It's that they don't care that they don't care!"

 

There is no short term solution to the "PartyOcracy" of US politics. In the long run "Democracy In America" will survive only with the creation of new political parties and through the rise of independent candidates. This is the only way to nourish candidates who represent the interests of the voters rather than the interests of the parties.

 

In today's podcast I had the opportunity to speak with Joe Howard. Joe is an American (with an interesting background) living in Thailand where he teaches English and Physical Education. He is also working on a Masters in Education through the University Of The People.

 

Joe is doing what no expat or group has done before. He is working with new political parties to ensure that the interests of Americans abroad are represented and that pure residence-based taxation is part of the agenda/platform.

 

He is currently working with the "United People's Assembly" which is creating an Americans Abroad caucus. With or without changes in US tax policy it is essential that the interests of Americans abroad find a home in the US political process.

 

Americans abroad are good at complaining and bad about taking specific steps to help their situation. You are invited to ride on Joe's work. All that is required is that you support democratic renewal for Americans abroad!

 

United People's Assembly (Guilded)  is getting organized. The Guilded link is an invite link.

https://www.guilded.gg/r/zzARmrndBl?i=AnbwnlXA

 

You can (and should) contact Joe at:

american.expat.rbt@gmail.com

 

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To learn more about the "University of the People" (an amazing initiative)

https://www.uopeople.edu/

 

Breaking News! Build Back Better Confirms The Need For Pure Residence-based Tax!

December 20, 2021 - Participants include:

John Richardson - @Expatriationlaw

Jimi Gosart - Vice-President Republicans Overseas

In this episode we discuss a a proposed amendment to the Build Back Better bill which would disproportionately impact Americans abroad. The specific provision was a proposal to end the one carry year carry back of foreign tax credits allowed under Internal Revenue Code 904.

If passed this force Americans abroad to be more conscious of their US tax situation. When it comes to Americans abroad and US citizenship-based taxation Americans abroad should:

Think about CBT early! Think about CBT often! Think about CBT in relation to every aspect of their lives! And keep records of what they think about!

 

Thanks to Financial Times Reporter Emma Agyemang  for this article!

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US bill threatens ‘double taxation for American expats in UK’

Carry back provision would be scrapped under measures considered by the Senate

 

Emma Agyemang 

DECEMBER 17 2021

"UK-based Americans face cash flow headaches and possible double taxation due to a expatriate tax change proposed by the Biden administration Tax experts warned that the plan could eliminate the ability to offset tax paid in the UK against US liabilities on the same income. Measures being considered by the US Senate plan to abolish a carry back provision used when American expats have paid more tax abroad than they owe in the US. If UK tax is paid in the calendar year immediately following when the income is reported in the US, current rules allow for a backwards adjustment."

 

You can read the complete article here ...

https://www.ft.com/content/4c6d002d-5486-478d-88cf-83ff3847531d

 

 

Although many Americans are extremely patriotic, more and more Americans are playing ”The Expatriation Games”

December 14, 2021 - Participants Include:

 

Olivier Wagner CPA - @1040Abroad

John Richardson - @Expatriationlaw

 

The Expatriation Games - A Discussion with Oliver Wagner

This podcast features a practical and focussed discussion about some of the key issues in relinquishing US citizenship. Olivier has posted this podcast on his youtube channel.

 

These issues include:

 

There are two kinds of US citizenship:

1. US Citizenship for immigration/nationality purposes:

- relinquished on the date of the relinquishing act

 

2. US Citizenship for tax purposes:

- after June 3, 2004 relinquished on the date that notice is given to the US government

- prior to June 3, 2004 relinquished on the date of the expatriating act

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Covered expatriate status - tax compliance is necessary:

- one (but the not the only one) of the necessary conditions to avoid "covered expatriate" status is a certification of five years of tax compliance (in the five years prior to the year of the appointment at the Consulate)

- obviously this means that a defensible level of tax compliance is required 

 

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Significance of Form 8854:

After listening to this podcast I think this issue deserves further clarification as follows:

- Since June 16, 2008 it is NOT necessary to file Form 8854 in order to sever tax residency from the USA. One ceases to be a US tax resident from the date of renunciation. This means that from that point on one is  treated as a nonresident alien. But, note that renunciation does not cure/end past tax obligations.

- But the tax certification of five years compliance is required to be done on Form 8854. This is is why filing Form 8854 is necessary for avoiding covered expatriate status

- "covered expatriates" are subject to the 877A Exit rules and the 2801 tax impediments to making gifts or bequests to US persons

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Reducing net worth to avoid covered expatriate status through gifting ... and more!

- For most people a net worth in excess of 2 million USD on the date of expatriation will make one a covered expatriate

- to make gifts is to reduce net worth (but there are requirements to make a valid gift).