# Washington to discuss tax reform



## Immigpat

I assume most people on this forum are aware that Washington is discussing Tax Reform. Foreign Tax concerns appears to be one of the topics potentially on the table. With luck, some form of Residence Based Taxation will be on the cards. Hopefully they will act if a large number of expats like us submit comments outlining the difficulties we face with the current system. Washington is actively seeking comments from the public. See their website:

The United States Senate Committee on Finance: Newsroom - Chairman's News


----------



## Bevdeforges

Hurry up, though - because the deadline for comments is April 15th. That's next week!
Cheers,
Bev


----------



## diharv

Residence based taxation ? In our dreams ! I am not against RBT but I am a realist and have accepted that a century plus old law will not fade quietly into the night . It is a cash cow after all with no consequences to any elected officials whatsoever.


----------



## BBCWatcher

I'm compelled to agree with Diharv.

To elaborate slightly, I'm at least a bit concerned that if/when this particular can of worms is opened up there will be both Republicans and Democrats -- Republican Senator Chuck Grassley, we're thinking of you  -- who are persuaded that the current tax code is _too kind_ to U.S. citizens living overseas. Here are possible areas where tax reform could end up being less kind to overseas Americans:

1. The Foreign Earned Income and Foreign Housing Exclusion limits. Grassley persuaded Congress to reduce the FHE a bit, and it could be reduced more. By historical standards today's FEIE/FHE is rather generous, and periodically in history there's been some debate about getting rid of the exclusions entirely in favor of only retaining the Foreign Tax Credit.

My view here is that, in principle, I'd be in favor of increasing the exclusion on unearned income for overseas Americans "a bit" even if it meant reducing the FHE (in particular) or FEIE. I am sympathetic to Americans with modest incomes who retire overseas and having a tax code that's a little kinder to them.

2. The Foreign Tax Credit was recently improved significantly. The number of income categories was reduced, and carry forward provisions were increased from 5 to 10 years. These changes mean that Americans living in comparatively high income tax jurisdictions get really sweet tax credits when/if they return to the U.S. The U.S. ends up "paying down" the difference between the U.S. and foreign rate when/if they move back to the U.S. Right now there is no income limit whatsoever on these tax credits. I don't know any other country that does this -- it's really a sweet deal for those who qualify. Congress might consider imposing an income limit here so that a high income individual with a stint overseas -- the prototypical highly compensated U.S. executive sent to Paris for a couple years, for example -- doesn't get such huge tax breaks when she returns to the U.S.

3. Members of Congress from both parties have already proposed tightening up and increasing the Expatriation Tax. That could happen.

4. There are some refundable tax credits, notably the Additional Child Tax Credit and American Opportunity Tax Credit, that overseas Americans can qualify for and, thus, enjoy a negative U.S. income tax rate (i.e. receive free money from the IRS). Congress may decide to reduce or eliminate this bit of generosity.

5. In the course of bolstering U.S. Social Security -- something that has to happen in some form -- Congress could conceivably decide to require more overseas Americans to contribute. Right now those Americans who live in non-treaty countries only contribute to U.S. Social Security if they're self-employed (or in fairly exceptional circumstances). Conceivably Congress could write a blanket requirement that Americans living overseas who do not contribute to any "comparable" foreign social insurance program must contribute to U.S. Social Security, whether self-employed or not. That's not _necessarily_ bad news since U.S. Social Security is an excellent program -- there are benefits. In fact, I'd like to see overseas Americans have the option to contribute voluntarily even if they're not required to contribute. However, Congress could make contributions more mandatory than they are today.

Change comes with some danger, and I think these five dangers (plus a few others) are at least plausible -- much more plausible than adoption of a strict RBT regime.


----------



## maz57

Congress "discusses" lots of things but rarely does anything useful. They are far more concerned with getting re-elected and getting their man (or woman) in the White House in 2016 than substantive tax reform. 

They have been talking about tax code reform since I started paying attention to such things but all that has happened in all those years is relatively minor tinkering. A while back I stumbled upon an old 1980s article by Milton Friedman in which he explained why real US tax reform was essentially impossible. Nothing has changed with the Washington system since then to make it any more likely; in fact things are more politicized now than they ever were back then. Nowadays they will oppose what they believe to be a good idea simply because the other side thought of it first. I wish I could remember where I found that article; his arguments were very convincing and remain valid to this day.

For once I'll have to agree with BBC; they are just as likely to screw things up as improve them if they manage to do anything at all.


----------



## AmerInSyd

My submission to Congress (not that I think it will do any good, but it felt cathartic to write). Does anyone have tips on expat investing, by the way?

I am an American who recently moved to Australia to teach at a university here. I enjoy living in Australia and am looking forward to building a life and career. However I am becoming extremely disheartened by the seeming impossibility for overseas Americans to participate in the same middle-class retirement saving and wealth-building strategies which are available to all other ordinary Americans and Australians.

Take retirement savings. Americans have tax-deferred 401(k) and IRA plans available, and Australians have tax-advantaged superannuation plans. But Americans in Australia have no access to IRS approved tax-deferred plans and the IRS does not recoginze Australian superannuation concessions, so we can get taxed by the United States at the full marginal tax rate on our Australian government-mandated retirement accounts. And we can't even buy local mutual funds with our post-tax dollars because of the onerous PFIC reporting rules and punitive taxation regime which completely destroys the value of such investments. It seems that the main American brokerages (e.g. Fidelity, Vanguard) won't even open accounts for expats, and even if we can manage to get a US-based account, then we have to contend with overseas banking and foreign exchange fees. How ridiculous is it that as an Australian resident making an Australian salary, I have to send my cash through the US just to invest in an Australian mutual fund? And imagine if the Australian government follows suit by making it difficult for Australian taxpayers to invest overseas - then I would be unable to buy financial products in either the US or Australia!

Then there is the other great pillar of middle-class wealth, the family home. The US offers a mortgage interest deduction, which Australia does not offer, and Australia offers zero capital gains tax on primary home sales, which the US does not offer. The result is that an American living in Australia gets no mortgage interest-rate deduction on their Australian returns, and then has to pay the United States capital gains tax when they sell the home. A more absurd issue is the capital gains tax that the US charges for currency fluctuations. If I buy a home with my Australian salary and then later sell it a loss, I could still be liable for capital gains tax on the US-dollar value of the mortgage if the US dollar has depreciated against the Australian dollar in the interim. This is despite the fact that I have not made any money! This makes a home purchase a much poorer investment for an expat than for either an American or an Australian.

While a double taxation treaty appears to avoid direct double taxation on a dollar-for-dollar basis, Americans living overseas always have to pay the higher of US and Australian rates for each dollar, which is assessed differently by the two countries depending on the type of income. Because of the different structures of the two tax codes, this means we get slammed by all the most burdensome aspects of both tax codes and have access to none of the advantages of either tax code. In particular, retirement savings and investing in our future is virutally impossible for ordinary middle-class expats, unlike for all other Americans. The current double taxation regime caused by the United States' unique citizen-based taxation is fundamentally unjust.


----------



## BBCWatcher

AmerInSyd said:


> Does anyone have tips on expat investing, by the way?


Yes, for the vast majority of "mere mortal" Americans living overseas stick to U.S. financial accounts for anything involving "investing" except direct holding of individual bonds (corporate and government) and individual bank and insurance company stocks. If you think you're likely to need to support a particular future lifestyle in another currency besides U.S. dollars, focus _some_ of your investing on vehicles that are highly correlated with your preferred foreign currency. For example, if you plan to retire in Australia, consider any of the following U.S. traded funds (trading symbols) as examples: EWA, AUNZ, AUSE, KROO, QAUS, EWAS, and FAUS. QAUS looks like the best of that lot to me, but your mileage may vary. QAUS has an annual expense ratio of 0.3%, or about 6 tenths of a percentage point lower than the Australian average (from the data I can find).

Buy and hold, and avoid active trading both directly and indirectly. Dollar cost average, consistently.

If you have your eye on retiring in a particular foreign country (e.g. Australia), take a look at the tax treaty (if there is one) and see if that country currently respects U.S. tax advantages, partially or fully, on such funds. If it does, great, take advantage of that vehicle. If it doesn't, "oh well."



> But Americans in Australia have no access to IRS approved tax-deferred plans....


Oh? That'll be news to Congress. While it is true that many U.S. IRA administrators are unwilling to open new IRA accounts for Americans living overseas, many will. "No access" isn't actually factual.

To qualify to make a contribution to a U.S. IRA you only need taxable (not necessarily taxed) earned income, no matter where you earn it, that is not excluded via the Foreign Earned Income Exclusion or Foreign Housing Exclusion.

_Australia_ does not necessarily respect the tax advantages of a U.S. IRA. Repeat after me: *there is no such thing as a globally tax-advantaged retirement account*. Nothing Congress can do can change that fact. This is simply one of the facts of life if you ever move across an international border, mild CBT or not.



> ....Then we have to contend with overseas banking and foreign exchange fees.


Yes, but those fees (inbound to the U.S.) are part of your cost basis in calculating capital gains. Beyond that, how is the U.S. Congress going to regulate fees that Australian financial institutions charge you? You've got a complaint, OK, _but what can the U.S. Congress do about that_?

Actually the private sector can do something about that: Australia has recently seen a lot of new, non-bank competition in the form of international money transfer services.



> How ridiculous is it that as an Australian resident making an Australian salary, I have to send my cash through the US just to invest in an Australian mutual fund?


You don't _have_ to do that. If you want particular U.S. (only) tax advantages then you are required to place your savings in the United States, yes. That doesn't actually seem that unreasonable. Does Australia let you enjoy Australian superannuation tax advantages if you decide to open an account in New York?



> The result is that an American living in Australia gets no mortgage interest-rate deduction on their Australian returns, and then has to pay the United States capital gains tax when they sell the home.


You're forgetting something, and Congress won't: the Foreign Tax Credit. To the extent Australia "penalizes" you by providing no tax advantages for your mortgage the U.S. lets you book Foreign Tax Credits. Those FTCs you can then spend to offset future U.S. income tax, including any capital gains tax on the sale of the home as long as the credits are in the same income category (passive income).

So why is the FTC inadequate? You don't explain.

You also haven't explained why the extremely generous U.S. Foreign Housing Exclusion is inadequate -- that's also part of the present tax code. You could pay for your housing in Australia in an FHE-compatible way and get one heck of a fantastic U.S. tax break. Congress has even granted higher FHE limits for 5 Australian cities than the general global limit. The FHE was so freakin' over-the-top generous that Republican Senator Chuck Grassley got it trimmed a bit a couple years ago.



> A more absurd issue is the capital gains tax that the US charges for currency fluctuations.


OK, but again, what's Congress supposed to do about that? Congress doesn't control the exchange rate between the U.S. dollar and the Australian dollar. You're complaining about life, not necessarily about tax policies and legislation that Congress can change.

What Congress _could_ do -- what you could suggest -- is allow you to calculate the gain entirely as Australian dollars _then_ convert that gain to U.S. dollars. Would that solve the problem? Since that change would reduce tax revenues, what do you propose to make up that lost revenue? Should the FHE be reduced, for example?



> ....Americans living overseas always have to pay the higher of US and Australian rates for each dollar....


No, that's just factually not correct. Americans pay _no worse than_ what you've described. They typically pay less than that description, often much less -- the existence of the FEIE and FHE alone assures that outcome. Big difference!

Brother (or Sister), _everybody_ complains about life, even if you live in Topeka. What's Congress supposed to _do_ with your complaints, and why are your specific policy recommendations the best ones? How would you propose keeping revenues neutral or better if you're proposing that you enjoy a bigger tax break?

Sorry to be hard on you here, but if I were a Congressional staff person I'd chuck your letter in the trash as written -- hate to say it, but there it is. I'm trying to be constructive in helping you write a much better letter.


----------



## AmerInSyd

I don't doubt they will chuck it in the trash, it's very kind of you to say so though. 

However I think a number of your responses are disingenuous. It's true that there are no globally tax-deferred retirement plans. The problem here is that because of CBT, Americans residing abroad can't even participate in a local tax-advantaged retirement plan in the country where they live and work without incurring tax obligations to another country with which they may have no economic connection. Maybe you think that's perfectly fair, but I don't, and it seems that neither does anyone outside of the US, since no other country treats its citizens this way.

Similarly, the reason I have to go through the US to buy an Australian mutual fund is not because I want "particular U.S. (only) tax advantages", it's because I don't want dozens of hours of paperwork and punitive taxation attracted by PFIC's. I can easily buy a US-based mutual fund as an Australian taxpayer without any such problems from the Australian government. 

Ultimately it's probably not worth arguing over each point since we clearly have different opinions about what constitutes basic fairness and equitable treatment.

Nevertheless, I do appreciate the investment advice, I'll look into it.


----------



## AmerInSyd

PS I will admit that the last paragraph is sloppy - it is indeed not true that expats *always* pay the higher of the two rates because of exclusions like FEIE among other tihings. It is often true however.


----------



## BBCWatcher

AmerInSyd said:


> The problem here is that because of CBT, Americans residing abroad can't even participate in a local tax-advantaged retirement plan in the country where they live and work without incurring tax obligations to another country with which they may have no economic connection.


Yes, but Australians run into the same problem if/when they retire to (insert some random country here). Their wonderful Australian tax-advantaged superannuation accounts are then subject to that country's income and/or wealth taxes, absent a treaty provision that says otherwise.

In other words, this problem is not a unique characteristic of a mild CBT. It's a unique characteristic of _crossing an international border_, which you did, I presume. The only thing mild CBT adds is that if you cross that border earlier you might still run into the problem, whereas without mild CBT you could cross the border a little later in your lifetime.

_As it happens_ I have a partial solution in mind that I'll recommend, one that actually might attract significant political support. (Hint: It's certainly not just about Americans overseas. It's about every American.) I've given this problem a lot of thought. There's no _perfect_ solution, however. Tax advantages simply do not cross international borders as a general principle.

There are many facets of life that aren't "fair." Congress can only address some of them. An example of something that's not "fair": being born with Down Syndrome and without the ability to write a letter to Congress.



> Similarly, the reason I have to go through the US to buy an Australian mutual fund is not because I want "particular U.S. (only) tax advantages", it's because I don't want dozens of hours of paperwork and punitive taxation attracted by PFIC's. I can easily buy a US-based mutual fund as an Australian taxpayer without any such problems from the Australian government.


Correct. But you can buy individual direct holdings of bonds, bank stocks (equities), and insurance stocks (equities) in Australia without PFIC complications. Or you can renounce U.S. citizenship and have no PFIC complications going forward. Or you can buy mutual funds in the U.S. You have several non-PFIC options here.

What, if anything, should Congress do about this issue, and why? Would your recommendation open a massive tax loophole that the Mitt Romneys of the world will (once again) drive trucks through?



> Ultimately it's probably not worth arguing over each point since we clearly have different opinions about what constitutes basic fairness and equitable treatment.


_Not necessarily_, but you're going to have to come up with better arguments that are grounded in fact and that have at least some context in revenue raising. _Anybody_ can write a letter pleading for cutting his/her own taxes (and paperwork). That's not at all interesting.

If your letter makes it past initial screening it'll get reviewed by a staffer who understands tax issues extremely well. If you think you're going to make hyperbolic arguments and get any traction in Congress with that staffer (and her boss), think again. Give these people some credit. The tax writing committees are generally extremely smart and well-informed, and if they're not they've got fantastic IRS people who are.


----------



## Immigpat

BBCWatcher said:


> Would your recommendation open a massive tax loophole that the Mitt Romneys of the world will (once again) drive trucks through?


This should be considered and I'm sure will be. If the IRS has fantastically smart people, they can make sure statutes are written in such a way that the likelihood of this is lessened.

Just because some people might misuse a provision doesn't mean you should try to prevent it by making life difficult for everybody. This is fundamental precept of law. Prohibition is a good example - see what that did and how it ultimately had to be repealed (I recommend the great Ken Burns documentary if you haven't seen it). I hope CBT (it's not mild CBT, it's CBT) goes the same way.


----------



## BBCWatcher

No, it's mild CBT, truly. I chose that word carefully and correctly. Federal income tax incidence is about 6%, so 94% of overseas Americans owe nothing (or less than nothing) to Uncle Sam. Versus roughly 50% of U.S. residents -- and much, much higher than that inclusive of payroll taxes.

Moreover -- and this just dawned on me, but it's an important point -- all U.S. states and municipalities with income taxes are fairly described as RBT regimes. (This is not black and white stuff though, around the world -- there aren't just two pure buckets here. _Step foot_ in New York State, for example, and you could have a pro-rated income tax liability for the time you spend there. Some countries also operate that way, even though they're "RBTs." "Residence" has many definitions.) So that's another important respect in fairly describing the U.S. income tax system as mild CBT. It's only the federal level that occasionally taxes non-U.S. source income received by non-U.S. residents. California has a top marginal income tax rate of 13.3%, for perspective -- not a _small_ thing -- but you cannot be a Citizen of California if you've never lived there.


----------



## BBCWatcher

As a follow-up, there's some interesting new data just released from the Citizens for Tax Justice. It illustrates the total tax burden: local, state, and federal. As it turns out, when you look at all levels of U.S. government the overall U.S. tax system is _barely_ progressive. In the U.S. if you're receiving a $100 million income your total effective tax rate is barely different than someone receiving a $150,000 income.

Here are my thoughts on these findings, in no particular order:

1. I don't think the CTJ fully accounted for "non-tax revenues," otherwise known as Ferguson-style fees and penalties. That form of revenue raising is deeply regressive, and it's widespread and getting more common at all levels of government, unfortunately. The $2350 renunciation fee is a small example of that -- a fixed fee, probably true cost-based, that is invariant to both income and wealth. (Maybe that one's not the _best_ example, but it's an example.) If the CTJ had fully accounted for those forms of very tax-like revenues then the overall picture would probably look even worse.

2. The U.S. tax system actually consists of a strict RBT regime (state and local) and a mild CBT regime (federal). Guess which side has devolved into a harshly regressive tax system -- and getting more regressive? That's right, the strict RBT side of the ledger. I don't think that's a coincidence! The federal part is barely enough to pull the whole tax system back into the barest hint of progressivity -- not fully counting fees and penalties.

3. The approximately 6% of overseas Americans who owe any U.S. tax on non-U.S. source income mostly but not perfectly fit into the top 6% on CTJ charts. In U.S. terms that'd be roughly at the $300K income cutoff, it looks like. However, it's not quite that simple inside the U.S., and it's certainly not that simple outside. You can be an American living in a relatively high tax jurisdiction with millions or billions in annual income and owe zero U.S. tax (thanks to the Federal Tax Credit) -- indeed, you'd be banking lots of excess credits for future spend down. Or you can be an overseas American living in the United Arab Emirates (zero income tax) with only modest foreign passive income, falling way below that $300K level, and owe some U.S. tax. Both scenarios are not particularly common, but both are possible, and they're very different. I get a little frustrated with groups that try to represent overseas Americans as being a completely or nearly monolithic block, with identical shared interests -- or for that matter interests that are too terribly removed from those of U.S. residents. I don't think that's true in part due to the range of experiences.

4. Progressive tax systems have to be a _little_ complicated but only a little. There's no shortage of tax avoidance and tax evasion creativity, unfortunately. The more to avoid and evade, the more creativity.

But that doesn't mean governments should be whacking poor and middle class people, as they too often are, including in the U.S. (and in much of Europe). It just means they have to stay at least a half step ahead. Moreover, much of the complexity comes from political responses to wealthy folks who nibble away at progressivity.

5. Whatever Congress does at the federal level, in my view they'll also need to "encourage" (ahem) state and local governments to change course, moving away from regressive toward more progressive tax regimes. When reporters started taking a close look at how Ferguson's government raises its revenues, they were shocked and appalled, rightly so. Ferguson isn't even the worst example, even in Missouri. It's really tough to be poor in America now, and it's getting tougher. Thank goodness I'm not poor (touch wood), but that's not what I want for my country -- and it is my country, my choice, too. Relatedly, kudos to John Legend for launching his campaign against mass incarceration in the United States.


----------



## maz57

BBCWatcher said:


> No, it's mild CBT, truly. I chose that word carefully and correctly. Federal income tax incidence is about 6%, so 94% of overseas Americans owe nothing (or less than nothing) to Uncle Sam. Versus roughly 50% of U.S. residents -- and much, much higher than that inclusive of payroll taxes.


Well, you can call it whatever you want, BBC. but the ugly truth is that for that 94% the life control from afar which unjustifiably disrupts their financial life is a far more serious issue than the tax. Not even that s...thole Eritrea tries to do that. The idea that a country I haven't lived in for over 4 decades claims the right to tell me that accounts and investments which are perfectly legal (even encouraged) in my chosen country are forbidden to me just because of where I was born is repugnant. Other words describe US CBT far more accurately than mild; "anomalous" and "larcenous" come immediately to my mind.

How much US tax an expat might or might not owe is the least of the problems caused by CBT. The sad thing is that this life control is well documented, it benefits absolutely no one except the compliance industry, and yet Congress won't lift a finger to fix it. The US totally ignores the fact that expats first and foremost have to live with the tax code of their country of actual residence.

By the way, did you notice one of your favorite benefits (and justifications) for US CBT is a myth? The US government has officially abandoned its citizens stuck in Yemen. There will be no US government rescue no matter who pays the tab. So much for the "protection" afforded by having US citizenship.


----------



## BBCWatcher

maz57 said:


> The idea that a country I haven't lived in for over 4 decades claims the right to tell me that accounts and investments which are perfectly legal (even encouraged) in my chosen country are forbidden to me just because of where I was born is repugnant.


Maz57, what's your (continuing) problem? Do you really have to exaggerate to the point of crossing over into falsehoods?

U.S. citizens are not "forbidden" to open accounts and investments. (North Korea might be one exception, but lots of countries have the same policies about the very few embargoed countries.) There may or may not be _tax consequences_ and/or financial reporting associated with particular accounts, but that's all there would be. Sometimes those tax consequences are actually favorable! (The U.S. Foreign Tax Credit carryover provisions are very internationally weird in a good way for the individual.) And Congress and the IRS just got through making life much simpler for holders of those various Canadian alphabet soup accounts.

"Life control"? Goodness, that'd be awful....

....Now back to reality. Let's take a look at that "life control" for tax filings. The penalty for non-filing when zero tax is owed (that's 94% of Americans overseas) is...zero. That's not most countries! Most countries charge a penalty, often a stiff one, if you're required to file but don't, even if you owe zero tax. (The U.K., for example, is up at a minimum £1500 penalty as I recall. To its credit, Canada is one of the very few countries like the U.S. in this respect.) File your FBARs (FinCEN Form 114) and IRS Form 3520/3520-A, if applicable -- simple forms -- and you wipe out those (highly theoretical, lower) penalties, too.

The U.S. has no military draft and hasn't since 1973, so no life control there. And that really is life control, literally. Lithuania _just_ reintroduced their life control (draft). About 40 countries also have compulsory military service, in a few cases (Singapore, for example) extending to non-citizens. Jordan and "tax free" UAE recently introduced (or reintroduced) military drafts, to pick another couple examples.

The U.S. has no requirement that its overseas citizens report their marriages, divorces, and mere changes of address, as scores of other countries require -- no life control there, either. The countries with the Napoleonic-style mandatory civil registration procedures are among those that exert this sort of "life control." Japan is among these countries as another example.

Adult U.S. passports (10 years) cost US$110 anywhere in the world, first time or renewal. To pick a random example, a Canadian passport (10 years) costs about US$128 at current exchange rates...but that's only in Canada. Need to renew your Canadian passport outside Canada and it's about US$208, so the U.S. has about US$98 less life control on that score than Canada does. (The tyranny of Canada! ) Italy's passport costs about US$123, to pick another random example.

....Back here on Planet Earth some of us are living in reality, Maz57. Come on, you're just being ridiculous, again.

Sure, I have many recommendations for improvements. But I start from reality, a very good place to start.


----------



## Immigpat

maz57 said:


> ... the ugly truth is that for that 94% the life control from afar which unjustifiably disrupts their financial life is a far more serious issue than the tax ...


I agree. And, given the large number of US expats who have apparently considered renunciation, which is after all a potentially highly disruptive step in one's life, I would guess that a large number of US expats would agree.

For example, in my case, I have to carefully track and document flow of finances that I would not need to do otherwise (certain taxes are taken care of directly without individual involvement and some finances involve non-US family members) and this is very difficult and expensive in terms of time and cost.

As I said before, putting an onerous bureaucratic burden on a large number of people just because a handful might misuse something is just bad inadequately thought out policy (like Prohibition was many years ago).


----------



## Bevdeforges

I have to say that I tend to side with maz57 on this, and it seems to me that BBC is trying to trivialize the issues that (to him) seem unimportant. But in many countries, great store is placed in "integrating" into the society and culture in which you are living, and there are many American rules and laws that work against this or actively discourage US citizens from integrating fully into their country of residence.

I can only wonder what the reaction would be in the US if other governments placed similar restrictions on their nationals living in the US - like, for example, making participation in a US IRA or 401K as onerous for their nationals as the standard retirement investments have become for US citizens living overseas. 

And it's not so much the inconvenience for the high rollers, who already employ teams of accountants and attorneys to hide their ill gotten gains from the prying eyes of the IRS, but rather the "little guy" in the middle class with absolutely dead normal salary and investments (fully visible and reported to the local fiscal authorities) who winds up feeling obligated to hire expensive tax help to try to stay out of trouble. Seems an incredible waste of resources - unless we're mainly looking to assure full employment for US trained tax accountants and attorneys.
Cheers,
Bev


----------



## Bevdeforges

As an appeal to all sides in this ongoing discussion, please take a look at the video at the end of this article: Addicting Info – GOP’s IRS Cuts Ticking Off Taxpayers And May Cost Over $30 Billion Per Year (VIDEO)

It certainly addresses the issue of the "omnipotence" of the IRS as well as to their current crisis based on funding cuts. And who knows, you might get a smile out of it, too!
Cheers,
Bev


----------



## BBCWatcher

I'm not exaggerating, and I'm not exaggerating to falsehoods.

By the way, I have a foreign account that's not a foreign trust, does not contain PFICs, and does hold non-cash investments that are doing rather well. It's mildly foreign tax-advantaged (primarily foreign tax-deferred) and not U.S. tax-advantaged, but that still works. I'm not in Canada, so I don't get the benefit of recent Congressional/IRS blanket exceptions for most of those Canadian alphabet soup accounts. Sadly I'm not a "high roller" either, though I am in the Six Percent Club.

It sounds like I'm "integrated," Bev. 

Look, there are some complaints to be made. But start with _reality_ and some decent perspective. This is just whacko stuff I'm reading too often, sorry. ("Forbidden" accounts? In _Canada_? Come on. Start with the facts, and that's not factual.)


----------



## AmerInSyd

I think Bev makes a very important point about integrating into the country where you live. A lot of the investment advice to expats that I see is to keep everything in US based accounts. Why shouldn't I be able to participate in the financial life of the country in which I live and work? Why should I have to be at competitive disadvantage in my local real estate market because I have to worry about paying the US capital gains tax on my home while none of my friends and neighbors do?

The absurdity of the effective requirement for expats to keep their investment accounts in the US becomes clear when one does a thought experiment to consider what would happen if every country behaved as the US does. In that case expats wouldn't be able to invest at all. Which is pretty much already the situation for many types of investments, including tax advantaged retirement accounts.

BBC apparently feels that tax-advantaged retirement accounts are a luxury that expats shouldn't expect, but virtually every developed country makes them (or some equivalent) available to its residents and many actively encourage participation. To take the close-to-home example of Australian superannuation, participation is actually mandatory, thereby generating "income" for the IRS to tax which the participants have no access to until retirement. To get an idea of how dangerous the tax burden of superannuation can become if it is taxed annually, you can see some of the numbers I ran in the superannuation thread, where towards the end of a career, a middle class worker can attract through his pension fund tens of thousands of dollars of US tax each year (on top of Australian income taxes, which are already higher than US rates). But defenders of the IRS presumably feel that this problem is Australia's fault for not tailoring their country's retirement plan to the exact specification of the United States Internal Revenue Code.

Yes life is unfair and many people have problems, much worse than mine. But when my problems are the direct result of aggressively unjust treatment by the US government, complaining seems appropriate.


----------



## AmerInSyd

I'll just add that my last comment was written hastily and contains a bit of hyperbole ("wouldn't be able to invest at all"). But I stand by the gist.


----------



## Nononymous

Bevdeforges said:


> It certainly addresses the issue of the "omnipotence" of the IRS as well as to their current crisis based on funding cuts.


On this note, I'm recommending the "stop complaining and stop complying" approach for US citizens permanently living outside the US, particularly dual citizens. (Which doesn't solve the problem of FATCA-inspired denial of banking services - for that one must renounce.)


----------



## Bevdeforges

Hey, AmerInSyd, I'm with you all the way here (even if I haven't followed your Superannuation example in great detail...).

A few years ago, I looked into the possibility of shifting my US IRA and/or 401K into the standard retirement investment accounts here in France (namely, Assurance Vie). One of the huge uncertainties with all this retirement investment stuff for us expats is the ever-changing exchange rate. What ultimately put me off this plan was finding out that I would, indeed, wind up being double taxed on the funds in the shift between countries. (Not all at once - but once when I withdrew funds from the US accounts, and then again, on withdrawal from the assurance vie to live on.)

Now, with the FATCA thing in full bloom, it appears that popular opinion (among the high-priced tax advisors) is that just about any of the various standard retirement investment options here would involve highly complex reporting to the US as PFICs, foreign trusts or some other such nonsense. While I appreciate the US's efforts to uncover hard core tax evasion among the rich and powerful, I find the standard investment opportunities here in my country of residence to be more than adequately monitored by the French Fisc. Why the US feels the need to double the work and expense (on my shoulders) while subverting the efforts of the French government to get folks to put away for their retirement is something I don't understand and I really don't appreciate.

But do watch the John Oliver video I posted. There are a couple of places where the Director of the IRS admits that the US system is a voluntary compliance system, where taxpayers can (and no doubt, do) just give up when compliance becomes too onerous and simply drop off the radar. And there isn't a whole lot the IRS can do about it - especially with their budget being cut back the way it is. 
Cheers,
Bev


----------



## maz57

BBCWatcher said:


> I'm not in Canada, so I don't get the benefit of recent Congressional/IRS blanket exceptions for most of those Canadian alphabet soup accounts.


Sadly, BBC, you don't know what you are talking about. There are no "recent Congressional/IRS blanket exceptions" for those Canadian accounts. They have been designated as non-reportable accounts under the terms of the IGA, period. The only one that gets any recognition at all by the IRS is the RRSP and there is nothing new there except the new for t.y. 2014 elimination of Form 8891.

The rest continue to be fully reportable by the individual on his US tax return and FBAR, and they continue to be fully US taxable. (Even the Canadian government matching contributions intended to assist the young and the disabled are considered to be taxable income in the hands of the individual by the IRS.) Not only that, they all trigger the ridiculous additional reporting for "foreign trusts" and PFICs. All this, of course, renders them totally useless for their intended purpose. 

This is what I mean when I say they are effectively "forbidden". It is not against US law to buy them but US tax rules make both the reporting and the tax treatment so punishing that no sane person would touch them with a ten foot pole. These are common accounts available to any Canadian taxpayer but they are off the table if one is unfortunate enough to also be a US taxpayer.


----------



## Nononymous

maz57 said:


> (Even the Canadian government matching contributions intended to assist the young and the disabled are considered to be taxable income in the hands of the individual by the IRS.)


I'd forgotten about that one. The 20 percent government RESP top-ups are considered taxable by the IRS. Great. Way to go, Uncle Sam.


----------



## Bevdeforges

Nononymous said:


> I'd forgotten about that one. The 20 percent government RESP top-ups are considered taxable by the IRS. Great. Way to go, Uncle Sam.


Unless you categorize them as "public assistance" as exempted from taxation (and reporting) in Pub 525, I think it is. You have to get creative with this stuff.
Cheers,
Bev


----------



## BBCWatcher

maz57 said:


> The only one that gets any recognition at all by the IRS is the RRSP....


Start here, for example, where the IRS explicitly also mentions RRIFs.

....Oh, but that's not all. I'll quote a very, very important sentence from the IRS's revenue procedure: _For purposes of this revenue procedure, the term “Canadian retirement plan” means *any* trust, company, organization, *or other arrangement that is within the scope of Article XVIII(7)* of the Convention._ (Emphasis mine.)

OK, so let's look at Article XVIII(7). Here it is:

_7. A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust, company, organization or other arrangement that is a resident of the other Contracting State, generally exempt from income taxation in that other State and operated exclusively to provide pension, retirement or employee benefits may elect to defer taxation in the first-mentioned State, under rules established by the competent authority of that State, with respect to any income accrued in the plan but not distributed by the plan, until such time as and to the extent that a distribution is made from the plan or any plan substituted therefore._

Does that look like it's limited to RRSPs and RRIFs? It doesn't to me. Most importantly, do not interpret the IRS's use of the word "retirement" to mean, well, "retirement." The IRS tells you exactly what they mean by "Canadian retirement plan" -- "look at the treaty." They do not mean only "retirement" plans in the colloquial sense. The treaty says: "...pension, retirement, *or employee benefits*..." (emphasis mine).

READ. I don't think this language is ambiguous at all. It's incredibly precise, in fact -- and quite favorable to what you say you want.

If I'm correct -- and I think I am -- the "alphabet soup" Canadian plans have broad protection. You apparently don't have foreign trust or PFIC reporting obligations (though still FBAR/FATCA, if/as applicable, per normal), and you do have U.S. tax deferral, of course less Canadian taxes (if any), either in the same year or via carryback/carryforward FTCs. Which means, oversimplifying only slightly, they're all pretty much like U.S. Traditional IRAs.

That's how I read this, and I didn't have to read much.

So, let's figure out *what reality really is* before complaining about a problem that may no longer exist.


----------



## BBCWatcher

AmerInSyd said:


> BBC apparently feels that tax-advantaged retirement accounts are a luxury that expats shouldn't expect....


Where did I write that, even "apparently"?

I did write that there is no such thing as a globally tax-advantaged account, retirement or otherwise, nor is there any reasonable prospect there will be any time soon. That's just fact. I don't think world peace is a "luxury," but unfortunately that doesn't exist yet either.


----------



## BBCWatcher

Bevdeforges said:


> But in many countries, great store is placed in "integrating" into the society and culture in which you are living, and there are many American rules and laws that work against this or actively discourage US citizens from integrating fully into their country of residence.


OK, about that....

Do you really want to argue -- to Congress, for example -- that the U.S. should do a better job (or even better job) making sure that its citizens (who _choose_ to remain citizens!) ought to have an easier time "integrating" into foreign countries?

One perfectly rational, sensible reaction to that argument is something very much like, "Gosh, isn't this working _exactly as designed_?" It sounds like a feature, not a bug. Why would it be in the U.S. public interest to achieve that particular policy goal, to make it easier for the American diaspora to become, well, less American?

That's not how it worked in the "old days." During the great waves of migration into the United States -- Irish, Italian, German, etc. -- immigrants _abandoned_ their former citizenships and integrated. They (by and large) did not maintain allegiances to foreign governments. Americans of German and Italian descent fought in two world wars against their former countries, as an important example.

So if you want to integrate, integrate. I certainly have no problem with that. But why should the U.S. make it easier to do that if you also want to retain U.S. citizenship? I can certainly understand why _you_ might want that, but why should U.S. society? The U.S. really doesn't want a large _disconnected_ American diaspora, quite obviously, if you just look at _jure sanguinis_ citizenship transmission limits.

This again comes back to the desire among some overseas Americans -- and sure, I get it! -- to separate the rights and privileges of their citizenship from _any_ obligations. I also see why countries would rationally choose not to agree to that separation, why they'd insist on an all-or-nothing package.


----------



## AmerInSyd

BBCWatcher said:


> Where did I write that, even "apparently"?
> 
> I did write that there is no such thing as a globally tax-advantaged account, retirement or otherwise, nor is there any reasonable prospect there will be any time soon. That's just fact. I don't think world peace is a "luxury," but unfortunately that doesn't exist yet either.


Fair enough, I should not have put words in your mouth and apologize for that. 

However I do think you are being dismissive of the extent of the problem expats face in retirement planning, and I don't agree with your stance that Congress is blameless. To borrow your analogy, world peace doesn't exist and won't anytime soon, but we still criticize countries who start wars. The particular problems expats face with retirement planning and investing are a direct result of what you call the United States' "mild CBT". 

Now it's true that even without any good retirement planning options, I'd still be much better off financially than much of the global population simply by virtue of earning a middle-class income in a developed country, so in that sense my problems are not the most pressing issue in the world.

But I think these issues should be taken into account in any discussion of US tax policy, rather than being dismissed as an inevitable fact of life.

Though I do agree with you that it's not likely to happen soon.


----------



## Bevdeforges

BBCWatcher said:


> The U.S. really doesn't want a large _disconnected_ American diaspora, quite obviously, if you just look at _jure sanguinis_ citizenship transmission limits.
> 
> This again comes back to the desire among some overseas Americans -- and sure, I get it! -- to separate the rights and privileges of their citizenship from _any_ obligations. I also see why countries would rationally choose not to agree to that separation, why they'd insist on an all-or-nothing package.


To be honest about it, the US already has a large _disconnected_ American diaspora, due to the confusing and conflicting laws it has cobbled together regarding citizenship - largely to mollify the demands of the American expats back in the 1970's regarding passing on US citizenship to their kids born overseas. Even the folks who lobbied long and hard for those changes had no idea what they were getting themselves and their kids into, because back then the overseas taxation thing was on the books, but rarely ever enforced or invoked.

These days, there are plenty of countries that still hold their overseas citizens to some requirements, and of course your country of nationality very often determines which other countries you will or won't need (or get) a visa for. 

I do think that the attitude in the US would be considerably different if some other country were penalizing their citizens resident in the US for participating in an IRA, 401K or even just US Social Security or US style health insurance (i.e. Obamacare). Though the US attitude is usually that all foreigners should simply give up their old nationalities and take US citizenship. 
Cheers,
Bev


----------



## BBCWatcher

Bevdeforges said:


> I do think that the attitude in the US would be considerably different if some other country were penalizing their citizens resident in the US for participating in an IRA, 401K or even just US Social Security....


If you're Japanese and you inherit a U.S. IRA or 401(k) (within 5 years of moving from Japan), you bet Japan collects inheritance tax on that -- that's how Japanese inheritance and gift tax law works. I'm not aware of any treaty exception in that case, and Japanese inheritance tax exclusions are _much_ lower than U.S. exclusions. Is the U.S. government angry at Japan for how it treats its citizens resident in the United States? Not that I've heard.


----------



## BBCWatcher

AmerInSyd said:


> ....I don't agree with your stance that Congress is blameless.


Where did I write that?

Of course I think Congress could make some improvements. For example, to pick an easy one: IRS Form 8938 and FinCEN Form 114. There really could be a single, combined reporting form since those two forms are highly duplicative. Congress could make that change, and I'm at least cautiously optimistic Congress will.

But there have been a lot of complaints posted here about things Congress cannot plausibly fix or that Congress wouldn't plausibly believe is in the U.S. public interest to change.


----------



## Bevdeforges

BBCWatcher said:


> If you're Japanese and you inherit a U.S. IRA or 401(k) (within 5 years of moving from Japan), you bet Japan collects inheritance tax on that -- that's how Japanese inheritance and gift tax law works. I'm not aware of any treaty exception in that case, and Japanese inheritance tax exclusions are _much_ lower than U.S. exclusions. Is the U.S. government angry at Japan for how it treats its citizens resident in the United States? Not that I've heard.


Inheritance tax is a whole different issue. On the FATCA reporting and tax side of things, we're still just feeling our way around since 2014 is the first year that the full impact is being felt. But the US tax system IS still very much a voluntary compliance thing. In many ways, Congress is only hurting their own interests by making things so complex that folks just take their chances in opting out altogether.
Cheers,
Bev


----------



## BBCWatcher

Bevdeforges said:


> Inheritance tax is a whole different issue.


You don't like my example?


----------



## maz57

BBCWatcher said:


> Start here, for example, where the IRS explicitly also mentions RRIFs.
> 
> ....Oh, but that's not all. I'll quote a very, very important sentence from the IRS's revenue procedure: _For purposes of this revenue procedure, the term “Canadian retirement plan” means *any* trust, company, organization, *or other arrangement that is within the scope of Article XVIII(7)* of the Convention._ (Emphasis mine.)
> 
> OK, so let's look at Article XVIII(7). Here it is:
> 
> _7. A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust, company, organization or other arrangement that is a resident of the other Contracting State, generally exempt from income taxation in that other State and operated exclusively to provide pension, retirement or employee benefits may elect to defer taxation in the first-mentioned State, under rules established by the competent authority of that State, with respect to any income accrued in the plan but not distributed by the plan, until such time as and to the extent that a distribution is made from the plan or any plan substituted therefore._
> 
> Does that look like it's limited to RRSPs and RRIFs? It doesn't to me. Most importantly, do not interpret the IRS's use of the word "retirement" to mean, well, "retirement." The IRS tells you exactly what they mean by "Canadian retirement plan" -- "look at the treaty." They do not mean only "retirement" plans in the colloquial sense. The treaty says: "...pension, retirement, *or employee benefits*..." (emphasis mine).
> 
> READ. I don't think this language is ambiguous at all. It's incredibly precise, in fact -- and quite favorable to what you say you want.
> 
> If I'm correct -- and I think I am -- the "alphabet soup" Canadian plans have broad protection. You apparently don't have foreign trust or PFIC reporting obligations (though still FBAR/FATCA, if/as applicable, per normal), and you do have U.S. tax deferral, of course less Canadian taxes (if any), either in the same year or via carryback/carryforward FTCs. Which means, oversimplifying only slightly, they're all pretty much like U.S. Traditional IRAs.
> 
> That's how I read this, and I didn't have to read much.
> 
> So, let's figure out *what reality really is* before complaining about a problem that may no longer exist.


I thought I had perhaps been a little harsh when I commented that you didn't know what you were talking about. Unfortunately, this last post of yours proves you really don't on this subject. (This is only with respect to the US tax treatment of Canadian tax-deferred accounts, not in a general sense; you obviously know a great deal about the US tax system.)

A little primer: 

All RRSPs eventually morph into a RRIF, usually at age 71. They two are identical except rolling a RRSP into a RRIF triggers mandatory minimum withdrawals (and the resulting taxation) of that deferred income. There are a few other far less common tax-deferred accounts which are arguably for retirement and one could probably take a treaty based position and defer the US tax (but not the reporting) if one is willing to file a mountain of paperwork. But it certainly isn't relatively easy like the RRSP/RRIF. The RRSP/RRIF is the only one specifically mentioned in the US tax code.

TFSAs, RDSPs, RESPs and a host of others are in no way even remotely retirement plans and are therefore subject to the full brunt of US tax and reporting rules. These are special purpose tax-advantaged accounts which the Canadian government has created to assist the disabled, the young, middle class working folks, and so on. Some of these accounts are equivalent to tax-deferred accounts available to US residents, some are unique to Canada. 

You are right, the treaty wording IS unambiguous; the lion's share of these other plans are clearly NOT "pension, retirement, or employee benefits", so no treaty protection for any of them. 

The Canadian government matching contributions going into some of these plans are considered by the IRS to be taxable income in the hands of the plan owner and must be declared and tax paid each year. All the local cross border tax experts advise US citizens to NOT be the owner of these plans, particularly if they are paying someone to do their US taxes. They should know; they are the ones in the trenches every day.

The TFSA is particularly problematical; because money can be withdrawn at any time for any purpose without penalty it can't possibly be a tax-deferred retirement account. Every expert says don't open them and if you have one, close it because it offers no tax benefit to a US taxpayer and it isn't worth the reporting nightmare. That is "what reality really is" for US citizens in Canada who hold Canadian tax-advantaged accounts.


----------



## BBCWatcher

maz57 said:


> All RRSPs eventually morph into a RRIF, usually at age 71. They two are identical except....


Except they're not. 

The U.S. also has "rollover" accounts, but when they have different names it's important to spell them out. The fact RRIFs are also covered under the treaty definition is a good thing.



> The RRSP/RRIF is the only one specifically mentioned in the US tax code.


They're the only accounts mentioned in the IRS's _examples_, quite clearly identified as such. That's because they're the most common, aren't they?



> TFSAs, RDSPs, RESPs and a host of others are in no way even remotely retirement plans and are therefore subject to the full brunt of US tax and reporting rules.


Maz57, you do not go to the dictionary for the definition of "retirement plans" when the IRS has a definition of "Canadian retirement plans." They do. In IRS parlance, "Canadian retirement plans" is equal to all accounts covered by Article XVIII(7). That's what they wrote! Don't shoot the messenger here. I'm just reading what they wrote. You're inventing something they didn't write, at the moment anyway.

So what else fits into Article XVIII(7)? Well, according to what I can find (not being in Canada), it sure looks like these accounts qualify: LIRAs, LRSPs, RCAs, PRIFs, SERPs, IPPs, and MPPPs. TFSAs look like they're not within the definition of Article XVIII(7) -- though I read that one clever Canadian fund manager has come up with a perfectly IRS-friendly TFSA.

However, if the employer contributes to a TFSA, RDSP, or RESP -- if that's allowed -- then that shifts over into treaty coverage according to the plain meaning of the treaty. Employer contributions to RDSPs wouldn't make much sense even if allowed (it looks like), so that one probably cannot fit within the treaty. Your mileage may vary.

"More than RRSPs" is entirely accurate. Let's make sure we understand the facts, and the facts are kinder and gentler than you described.


----------



## Immigpat

It's fortunate that all us expats have loads of time to read up on and understand the intricacies of tax law and tax treaties. Imagine if we had other things to do!


----------



## BBCWatcher

Well, OK, but don't blame the United States for Canada's complex "alphabet soup" of tax-advantaged accounts. The treaty is the simple part. (Goodness, as I read the legislative history in Canada it seems like you folks up north have had a parade of politicians come along with "yet another account" every couple years for the past decade or two. Simple? That's well in the rear view mirror now, my goodness. I thought the U.S. "alphabet soup" was complicated enough, but you Canadians are putting the south-of-the-border folks to shame on that score. )

That said, if you value simplicity, then don't touch any "alphabet soup" accounts in _any_ country. Also don't move across borders, and don't acquire (or retain) citizenships you don't intend to take advantage of.

....And yes, all that said, the U.S. Congress has _some_ ability to simplify things, and I advocate for those opportunities. But Congress doesn't actually have as much ability in that regard as some people seem to think.


----------



## Immigpat

The Forbes post below is a really good article which comes close to describing issues I myself have had ...

Guest Post: Giving Up Citizenship Because Of Taxes - Forbes


----------



## Bevdeforges

Immigpat said:


> It's fortunate that all us expats have loads of time to read up on and understand the intricacies of tax law and tax treaties. Imagine if we had other things to do!


I think this is really the crux of the whole problem. The laws and the regulations are made based on US conditions and investments, with next to no regard for the impacts on those of us living overseas. It's literally up to us to shoehorn our local investment options into the rather limited US definitions and pigeonholes.

A recent Wall St. Journal article on taxation of overseas residents had a very disturbing assertion that, while "sure, there may be the odd 'starving artist' here and there" "most" expats "enjoy an elevated income and lifestyle." This really is the stereotype current in Washington and in much of the US these days. Only problem is that it's just not true.

The other commonly held myth about expats is that they are all integrally bound back to the Mother Ship, er, I mean "country." By that, I mean that folks back there think that we follow US news and legal developments with the same fervor that folks back there do. (Irony fully intended.) Point of the matter is, we don't - certainly not if we have no plans to return for anything more than a visit of a couple of weeks every year or five.
Cheers,
Bev


----------



## AmerInSyd

BBCWatcher said:


> You're forgetting something, and Congress won't: the Foreign Tax Credit. To the extent Australia "penalizes" you by providing no tax advantages for your mortgage the U.S. lets you book Foreign Tax Credits. Those FTCs you can then spend to offset future U.S. income tax, including any capital gains tax on the sale of the home as long as the credits are in the same income category (passive income).
> 
> So why is the FTC inadequate? You don't explain.


This is actually an excellent example of why the FTC is inadequate. The tax advantages that the US provides home buyers in the form of the mortgage interest deduction may lead to FTC's (on top of the FTC's accrued due to Australia already having substantially higher income tax rates than the US) but none of these FTC's will save me a single penny on the capital gains tax bill that the IRS sends me when I sell my house unless they happen to be in the passive income category. As it happens virtually none of my annual income is passive.

By slicing and dicing income into different categories, which are treated differently by different countries' tax codes, the IRS effectively zeros in on any leniency in the other country's tax code and steps into the breach with a bill, even the the overall tax burden of the other country may be much higher. So while there may be no double taxation on a strict dollar-for-dollar basis, the effect is the same.

The point is that a middle class expat who pays a lot more tax to his country of residence than a person with a similar income in the US can still be hit by large tax bills from the US, in spite of the FEIE and FTC.


----------



## BBCWatcher

There used to be more FTC income categories, would you believe. As I recall Congress cut the number in half not too long ago.

It's at least a bit tough to get down to a single category, but I think it's possible with a couple other changes. In particular, if the U.S. tax code were to shift to taxing real (after-inflation) income and then also equalize rates across all income types, then it should be possible to collapse the FTC all the way down to one income category.


----------



## Nononymous

AmerInSyd said:


> ...none of these FTC's will save me a single penny on the capital gains tax bill that the IRS sends me when I sell my house unless they happen to be in the passive income category.


So by what mechanism does the IRS know that you've sold your house? Is the reporting of capital gains purely voluntary?

Capital gains will be an issue for older US duals and expats selling homes in markets like Toronto and Vancouver. I'd expect that even some who are (fully or partially) compliant will not report these gains if it leads to Boris Johnson tax bills.


----------



## BBCWatcher

Nononymous said:


> So by what mechanism does the IRS know that you've sold your house?


Home sales are among the worst kept secrets in most countries, near or far. How'd the IRS know Boris Johnson sold his home?

Of course the IRS isn't _endlessly_ curious, but home sales aren't generally as hidden as nuclear launch codes. 

Johnson paid his tax bill, by the way.


----------



## maz57

BBCWatcher said:


> Home sales are among the worst kept secrets in most countries, near or far. How'd the IRS know Boris Johnson sold his home?
> 
> Of course the IRS isn't _endlessly_ curious, but home sales aren't generally as hidden as nuclear launch codes.
> 
> Johnson paid his tax bill, by the way.


I think big mouth Boris blabbed about it in a radio interview which resulted in the IRS "reaching out" to him. He paid the bill as part of the process of exiting the US tax system forever. 

This high profile situation exposed the ridiculousness of US CBT to a lot of people who previously had no idea how crazy the US system was. I have a hunch his lawyers worked out a deal with the IRS; both sides probably wanted to end it as soon as possible. It was looking bad for all concerned.


----------



## Nononymous

BBCWatcher said:


> Home sales are among the worst kept secrets in most countries, near or far. How'd the IRS know Boris Johnson sold his home?
> 
> Of course the IRS isn't _endlessly_ curious, but home sales aren't generally as hidden as nuclear launch codes.
> 
> Johnson paid his tax bill, by the way.


Sure, if there's an investigation or audit it's relatively easy to discover. But under normal circumstances, it's self-reported, correct? I'm sure there's going to be plenty of "I had no idea" non-compliance.


----------



## AmerInSyd

Nononymous said:


> So by what mechanism does the IRS know that you've sold your house? Is the reporting of capital gains purely voluntary?
> 
> Capital gains will be an issue for older US duals and expats selling homes in markets like Toronto and Vancouver. I'd expect that even some who are (fully or partially) compliant will not report these gains if it leads to Boris Johnson tax bills.


Well one has to receive the sale money somewhere. Under FATCA banks are reporting maximal annual balances, if I understand correctly. The IRS will probably notice if someone's maximal annual balance suddenly jumps by several hundred thousand one year.


----------



## Nononymous

AmerInSyd said:


> Well one has to receive the sale money somewhere. Under FATCA banks are reporting maximal annual balances, if I understand correctly. The IRS will probably notice if someone's maximal annual balance suddenly jumps by several hundred thousand one year.


Right. But depending on the country, FATCA may be quite easy to avoid, if the bank never asks, or you - oops - answer incorrectly.


----------



## Bevdeforges

Nononymous said:


> Right. But depending on the country, FATCA may be quite easy to avoid, if the bank never asks, or you - oops - answer incorrectly.


Or if the Treasury Dept even notices the "blip" in your balance. Anyhow, for the time being, the banks are only reporting the year-end balances in your accounts. You report the high balance via the FBAR/FinCEN. 

Treasury does not track each individual account reported with a fine tooth comb. In fact, unless your income tax return has something "weird" on it, they may not even bother checking any of the detail on your FBAR and/or any bank reporting of foreign accounts and/or balances.

The IRS is nowhere near as "omnipotent" as folks seem to think.
Cheers,
Bev


----------



## BBCWatcher

maz57 said:


> I think big mouth Boris blabbed about it in a radio interview which resulted in the IRS "reaching out" to him.


That's one way. Facebook, Twitter, and other social media sites also work. There are tax agencies that comb social media.



> He paid the bill as part of the process of exiting the US tax system forever.


No, that's a different process.

Johnson has "threatened" to renounce his U.S. citizenship for a couple decades. Let's wait until his name appears on the official list before concluding he has.


----------



## Immigpat

AmerInSyd said:


> By slicing and dicing income into different categories, which are treated differently by different countries' tax codes, the IRS effectively zeros in on any leniency in the other country's tax code and steps into the breach with a bill, even the the overall tax burden of the other country may be much higher. So while there may be no double taxation on a strict dollar-for-dollar basis, the effect is the same.


Yes! This is exactly what happens. I've lived in a country that has a very different tax structure to the US's. For example, their economic philosophy is to try and reduce consumption and encourage savings, while the US's is to try and encourage consumption and investment; consequently the tax structures are very different and FTC is almost useless and what you say happens.


----------



## sardoc

I think you are right about the re-election thing. Also someone should consider a term limit for politicians. But then who would vote for it?


----------



## BBCWatcher

There is a term limit for the President. It's called the Twenty-Second Amendment to the United States Constitution.


----------



## sardoc

I knew of the Presidential term limit; I was referring to the other Offices: Senator, Congressman, etc. and not just in the U.S.


----------

