Integrity Legal

Archive for the ‘US Taxes’ Category

9th February 2017

In the aftermath of the new year, there have been many announcements which have had significant impacts upon those living outside the USA. It recently came to this blogger’s attention that the Internal Revenue Service (IRS) of the United States is poised to begin certifying delinquent taxes and communicating such certification to the United States Department of State. To quote the official IRS website directly:

The IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in early 2017…If you have seriously delinquent tax debt, IRC § 7345 authorizes the IRS to certify that to the State Department. The [State] department generally will not issue or renew a passport to you after receiving certification from the IRS…Upon receiving certification, the State Department may revoke your passport. If the department decides to revoke it, prior to revocation, the department may limit your passport to return travel to the U.S.

As of January 1, 2016 US Federal statutes were amended to allow US passport revocation for those individuals who were delinquent in taxes under statutorily defined circumstances. Notwithstanding the fact that this law had been promulgated, it appears that until now the IRS had not put a frame work in place for notifying the State Department that an individual had tax delinquency issues. As can be seen from the IRS’s own website, that is no longer the case moving forward. For this reason it is prudent for those who may have tax delinquency issues to retain the services of a competent professional in order to rectify such issues before a situation arises where one is unable to get a passport issued, or a passport is revoked either in the USA or while traveling abroad.

Meanwhile, it appears that authorities in Thailand have adjusted the tax structure for certain taxpayers in Thailand. To quote directly from the Bangkok Post:

A revamped personal income tax structure aimed at increasing disposable incomes for taxpayers has officially come into effect…The amendment to the Tax Code, published in the Royal Gazette on Jan 27, applies to incomes received from Jan 1, 2017 to be filed in 2018…

It appears that under the restructure individuals will be able to make larger deductions for certain expenses while certain filing requirements have been changed requiring a larger number of individuals to file taxes. Those interested in these developments are strongly encouraged to read the article cited above and consult appropriate professionals in order to be apprised of the posture of a given tax situation.

Finally, The United States Embassy in Bangkok, Thailand has recently increased their official exchange rate to 37-1 (baht to dollars). This change reflects the fact that the Baht has been weakening against the US dollar in recent months and may be a signal that said currency may weaken further. The US Embassy in Thailand utilizes a set exchange rate which provides a level of certainty regarding the cost (in baht terms) of service fees for services provided by the US Embassy personnel.

more Comments: 04

9th May 2016

In a recently published article on CNN’s official website it was noted that based upon published data from 2015 the number of renunciations of United States Citizenship appears to be rising:

The number of citizens and long-term residents cutting their official ties to Uncle Sam jumped more than 20% last year to 4,279, according to a CNNMoney analysis of the latest government data.

First, let’s take note of a nuanced facet of this issue that the article quoted above does not delve into: Lawful Permanent Residence. The article used figures which showed the number of those renouncing U.S. Citizenship along with those surrendering their green card. These are two very different legal issues. The renunciation of one’s citizenship results in an inability to obtain a United States passport, enjoy all of the legal benefits of U.S. law, and the an inability to obtain various services at United States Embassies and Consulates abroad, to name just a few things. Lawful Permanent Residents of the USA, aka Green Card holders, presumably have an underlying nationality. Many of those who surrender their green card do so in connection with a return to their native country. The motivations behind citizenship renunciation and green card surrender are often very different.

To some, this renunciation trend is rather alarming. For those Americans who have lived abroad for a significant period of time the information above is unlikely to be a surprise. With recent changes to the laws regarding the reporting of financial information pertaining to Americans residing abroad and the fact that American citizens are supposed to pay taxes on their world wide income the recent increase in renunciations of United States Citizenship does not seem as bizarre as it may seem at first glance as the aforementioned article goes on to elucidate:

Many of those severing links are Americans living overseas who are tired of dealing with complicated tax paperwork, a headache that has worsened since new regulations came into effect…Unlike most other countries, the U.S. taxes its citizens on all income, no matter where it’s earned or where they live. For Americans living abroad, that results in a mountain of paperwork so complex that they are often forced to seek professional help…

To be clear, renunciation of United States citizenship is a very serious matter. In this blogger’s personal opinion one should not renounce one’s citizenship unless one has taken a significant period of time to seriously contemplate such an endeavor. In many cases, renunciation of US citizenship could result in new unforeseen tax liability. Meanwhile there are those who are under the impression that they must renounce their citizenship when in fact a renunciation is not required.

If one is thinking of giving up their US citizenship simply for reasons related to taxation, then prior consultation with a tax expert would be wise. Those thinking generally about renouncing their United States Citizenship should consult with a legal professional prior to making any irrevocable decisions as renunciation of one’s citizenship could have dire consequences.

more Comments: 04

5th December 2015

In a recent article in the Wall Street Journal a new bill proposed by the United States Congress was discussed:

Under a new law expected to take effect in January, the State Department will block Americans with “seriously delinquent” tax debt from receiving new passports and will be allowed to rescind existing passports of people who fall into that category. The list of affected taxpayers will be compiled by the Internal Revenue Service using a threshold of $50,000 of unpaid federal taxes, including penalties and interest, which would be adjusted for inflation.

Clearly this proposed legislation could have significant ramifications for Americans living abroad. Presently, Americans abroad could only see their passports rescinded or applications for renewals denied where said applicants have outstanding criminal warrants in the United States of America or are delinquent on their child support. The proposed legislation comes after the relatively recent  implementation of FATCA (the Foreign Account Tax Compliance Act) which requires foreign banking institutions to report the financial activities of American citizens making financial transactions abroad. There have been some who disapprove of FATCA and there have been moves made in the US Federal Court to challenge the law’s constitutionality. However, at present the law remains part of the current American legal framework with respect to overseas bank accounts. As a possible consequence, in recent years there have been a growing number of individuals who have opted to renounce their United States Citizenship. It is clear that more and more people are opting to renounce their United States Citizenship. Each individual’s renunciation is likely based upon a different calculus, but it seems clear that recent changes to American tax policy have had a significant impact upon Americans living abroad.

The recent announcement that passports could be revoked as a consequence of tax delinquency seems likely to cause the number of Citizenship renunciations to increase. Although, it remains to be seen if this new policy will have a significant impact upon renunciations. Regardless of the fact that 50,000 USD seems like a substantial amount of money it will be interesting to see if the proposed legislation will allow for a form of COLA (Cost of Living Adjustment) style system whereby the amount of money in tax delinquency which would trigger a passport renunciation would increase year by year in order to track inflation. It is unlikely that such a scheme would be implemented because Foreign Bank Account Reporting (FBAR) requirements have not changed since the late 70′s. Therefore it stands to reason that the passport issuance requirements will stay frozen. Therefore, this legislation, although unlikely to have a significant impact upon Americans abroad anytime soon could have serious ramifications for Americans in 15-20 years time when 50,000 USD is not the representation of wealth that it is today.

more Comments: 04

10th August 2013

Millions of people around the world wish to take up residence in the United States of America and often wish to become American Citizens. However, it would appear that some Americans are cutting ties with the USA and renouncing their United States Citizenship. Names of all those Americans who renounce their United States Citizenship are recorded and published in the United States Federal Register. These lists are generally not particularly newsworthy. However, in the most recent quarterly publication regarding US Citizenship renunciation it would appear that the number of Americans renouncing their United States Citizenship has jumped by over 60% when compared to previous quarters. In the last quarter 1,131 people renounced their United States Citizenship. This number is a large increase from the previous quarter which saw only 679 renunciation. Although, when compared against the same quarter of the previous year which saw only 188 renunciations the 1,811 figure is rather staggering. Is this simply a one-time anomaly or is this the sign of a growing trend?

While some are speculating as to what this trend means in a broad socio-economic context, I feel that some analysis is necessary to put some perspective on these numbers. A reader looking at the Federal Register’s official posting regarding these numbers will likely note the following information:

For purposes of this listing, long-term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United States who lost citizenship.

The casual reader may wonder: what does this mean? Well to quote directly from the Cornell Law School’s website which lists sections 877 (e)(1) and 877(e)(2):

(1) In general

Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.

(2) Long-term resident

For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in subparagraph (A) or (B) of paragraph (1) occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country.

Therefore, based upon the information provided by the Federal Register and the United States statutes noted above some of those listed in the Federal Register as those renouncing their Citizenship could be United States Lawful Permanent Residents (colloquially referred to as “Green Card” holders) who have chosen to give up their permanent resident status. This explanation probably does not account for all of the “Citizenship renunciations” listed in the recent Federal Register publication, but it may account for some of these numbers. In any event, the number of those expatriating from the United States remains high compared to previous points in American history. The question remains, why are higher numbers of Americans renouncing their citizenship?

There are some who contend that the recent spike in citizenship renunciation may stem from American policy regarding taxation of United States Citizens living abroad. American Citizens (as well as lawful permanent residents) are taxed on their worldwide income, regardless of where they physically reside. This situation is in stark contrast to the tax policies of virtually every other country in the world as most countries only tax those of their citizenry who reside in their country. There are exceptions to the previous statement as issues such as domicile play into many countries’ foreign taxation policies. Many feel that the recent increases in the number of renunciations is driven by Americans with high foreign derived incomes seeking to rid themselves of the need to pay American taxes. In a major story from last year it was noted that one of the founders of Facebook had renounced his United States Citizenship before the IPO of that company’s stock. It should be noted that some argue that his tax obligations at that time may not have actually decreased as a result of his decision to give up his citizenship (due to American tax laws such as the so-called “Expatriation Tax” or “Exit Tax”), although his future tax liabilities may be reduced as a result of that decision. Perhaps more Americans are taking the (somewhat drastic) step of renouncing their citizenship in order to save some money from the tax man. Without knowing each former-American’s motivations for renouncing United States Citizenship we are left to speculate.

There may be another impetus behind the recent increase in the number of Americans renouncing their Citizenship: the FATCA. The Foreign Account Tax Compliance Act (FATCA) compels financial institutions outside of the United States to report information about accounts maintained by American Citizens or lawful permanent residents to the Internal Revenue Service. Furthermore, foreign financial institutions are also required to report on accounts maintained by foreign corporations in which Americans or Lawful Permanent Residents own a significant interest. The FATCA’s implementation has been pushed back until July of 2014. Could the looming specter of the FATCA be the reason for the recent uptick in American’s renouncing their citizenship? One of the many upshots of the FATCA is the fact that the regulatory requirements imposed by the American government on foreign banking and financial institutions can be rather burdensome. One way that these foreign institutions can relieve themselves of these burdens is by refusing to accept American customers. If there are no Americans holding accounts at a given foreign bank, then the bank does not necessarily have to comply with the provisions of the FATCA. This has lead to a situation where more and more overseas banks are refusing to provide services to Americans living and working abroad. By renouncing United States Citizenship and naturalizing to the Citizenship of another country a former American could bank in much the same manner as other foreign nationals.

The decision to renounce one’s U.S. Citizenship is a significant one and should not me made lightly. There are many benefits to being an American Citizen so those thinking of renouncing their Citizenship should review not only their tax situation, but also the intangible and tangible benefits of their American citizenship (including the US Passport). Will this trend continue? It remains to be seen, but there are many who feel that as American oversight of global taxation matters becomes more ubiquitous there will be more American’s who question the value of their citizenship.

–Benjamin W. Hart is an American attorney who resides in Bangkok, Thailand.

For related information please see: Citizenship Renunciation.

more Comments: 04

30th April 2011

Over the years this blogger has seen large numbers of tourists flock to the Kingdom of Thailand as well as the neighboring nations of Laos, the Union of Myanmar (referred to by some as Burma), Malaysia, and the Kingdom of Cambodia. At the same time, this blogger has also witnessed the metamorphosis of some of these tourists into entrepreneurs by remaining in some of these countries (as well as other jurisdictions in Greater Asia such as Indonesia, Vietnam, China, Taiwan, Singapore, Hong Kong, South Korea, Nepal, Macau, India, and Sri Lanka; to name only a few) in a business context for many years and; for some, even decades or a whole lifetime. Whatever the circumstances of those Americans Resident Abroad remaining in the region of economies increasingly being labeled by both the mainstream and alternative media outlets by their affiliation with the Association of Southeast Asian Nations (ASEAN) one thing is clear: the economies of Asia are set to expand at an incredible rate by relative historical comparison. Therefore, it stands to reason that there are likely to be more Americans doing business in these jurisdictions. This state of affairs is occurring at a time when the potential of the internet and the World Wide Web first noted little more than a decade ago is beginning to become fully realized by businesses large and small. As e-commerce becomes an evermore ubiquitous facet of virtually every enterprise’s business strategy it is becoming more clear that many business functions are increasingly being performed by businesses of all sizes online and, in some cases, these businesses are even being maintained from an entrepreneur’s home.

This phenomenon is interesting for this blogger to note from the perspective of an American who is resident in Bangkok, Thailand as the Thai shop-house business model of maintaining a residence and business premises within close proximity has lead to a thriving small business community in the vast metropolis that is Greater Bangkok. This thriving business community, coupled with many of the other positive factors associated with doing business in Thailand, has lead to a vibrant economy that remains conducive to further foreign investment by entrepreneurs and businesses seeking to derive economic benefits both in Thailand and throughout the Asian markets. Of possible importance to Americans resident abroad or those thinking of residing abroad are the issues noted above as well as those associated with ownership of Thai property or Thai real estate especially in the form of a Thai Condominium.

In Thailand, as well as throughout many jurisdictions in Asia, there are restrictions placed upon foreign ownership of real estate. Although there are provisions allowing for foreign ownership of Thai property in many cases it is difficult, if not impossible, for a foreign national to secure freehold title (referred to as Chanote title in Thailand) in Thai real property such as land. However, it may be possible for a foreign national in Thailand, such as an American Citizen, to conveniently secure freehold title to a Thai Condo if the provisions of various laws and regulations on this issue, such as the Thai Condominium Act, are adhered to. Meanwhile, a foreign national who owns a Condo in Thailand may be qualified to receive a Foreign House Registration Booklet (referred to as a Tabien Baan for Thais or a Foreign Tabien Baan, or Yellow Tabien Baan for foreign nationals). Taking the aforementioned factors into consideration, in conjunction with the fact that for American Citizens and American Companies in Thailand there may be benefits pursuant to the provisions of various legal instruments such as the US-Thai Treaty of Amity which may provide the privilege of virtually 100% ownership of a Company in Thailand with “National Treatment” for certain business undertakings, one is left with little doubt that there are tangible legal benefits which could be accrued to the favor of Americans resident in Thailand conducting business in the ASEAN region as well as the regions of Greater Asia. Therefore,  investing in what this blogger would refer to as a “Thai Pad” (which non-literally alludes to the IPad-like gadgets allowing for increasingly easy real time access to the internet as well as the exponentially beneficial combination of privileges accruing to owners of Thai property registered on a Yellow Tabien Baan in conjunction with the advantages which may be had for Americans resident abroad utilizing a Thai company certified under the US-Thai Amity Treaty) could prove to have been prudent by future analysts in both tangible as well as intangible terms.

For related information please see: US Company Registration.

more Comments: 04

17th March 2011

In recent months the likelihood of a government shutdown seems to be increasing as the politicians in the United States capital seem to be more polarized than ever. Meanwhile, some are arguing in favor of a shutdown (even going so far as to advocate for an extended period of governmental closure). At the same time, others argue against a shutdown. Regardless of one’s opinion either way, it seems possible that a shutdown may occur, and in the event that a shutdown does come to pass, those processing an immigration matter may be prudent to research the impact that a shutdown might have upon the immigration process.

The following was quoted directly from a recent posting on the website CaldwellTeaParty.org:

The next month will be marked by intense negotiations on the debt ceiling, and the GOP will then have to decide on a shutdown or a bipartisan budget deal with Kent Conrad and his allies.

The above citation most clearly and concisely sums up the current state of affairs regarding the possibility of a government shutdown. The administration encourages readers to click on the above links as this issue is quite complex. Those interested in understanding the ramifications of a government shutdown may be best informed by this administration quoting directly from Wikipedia:

A government shutdown occurs when a government discontinues providing services that are not considered “essential.” Typically, services that continue in spite of a shutdown include police, fire fighting, armed forces, utilities, air traffic management and corrections.

A shutdown can occur when a legislative body (including the legislative power of veto by the executive) cannot agree on a budget financing its government programs for a pending fiscal year. In the absence of appropriated funds, the government discontinues providing non-essential services at the beginning of the affected fiscal year. Government employees who provide essential services, often referred to as “essential employees”, are required to continue working.

Although the above citation clears up the issue of what constitutes a government shutdown, the question likely on the mind of those with foreign loved ones processing through the immigration system is: how would a government shutdown impact the processing of my loved one’s visa? The answer: a Federal government shutdown would result in a sort of “freeze” of most of the immigration apparatus as this falls within the bailiwick of the Federal government. Therefore, a Federal shutdown would likely result in little, if any, action being taken with regard to adjudication of visa applications  at each US Embassy or US Consulate abroad. For further insight it may be best to quote directly from a recent posting on the Diplopundit blog:

In 1995, all visa applications are walk-in.  Today, a good number of consular sections have online appointment systems. Which means, visa appointments will have to be canceled and rescheduled if there is a shutdown.  Consular sections may only be open for life and death emergencies. That means lost passport applications, reports of births abroad, adoption cases, notarials, etc. will all have to wait until the Federal government reopens.

The administration of this blog highly encourages readers to click on the above hyperlinks as the quotation above was found in a very interesting and detailed posting dealing with these issues.

Clearly, the ramifications of a government shutdown will be severe for those awaiting processing of a visa application. Meanwhile, it would appear as though USCIS will continue to operate as normal despite a possible shutdown. To quote directly from the website Martindale.com:

USCIS has announced that, because it is funded by filing fees, it should remain open during a government shutdown. The operations of the four Service Centers should remain largely unaffected. Local USCIS District Offices should also remain open.

Again, this blogger highly encourages readers to click on the hyperlinks above to learn more.

Notice that the above quotation uses the word should. This blogger only points this out as it goes to show how difficult it is to foretell what the impact of a government shutdown would be on the United States Citizenship and Immigration Service (USCIS) since that agency has attempted to remain self-funded through application fees. That said, the overall issue of government shutdown has yet to fully manifest itself, but that should not be construed to mean that it will not. In fact, those seeking American visas are likely to see an overall slowdown in the overall processing of cases as a result of a shutdown (should one actually occur, which remains to be seen).

more Comments: 04

5th February 2011

One of the Founding Fathers of the United States, and a true Renaissance man, Benjamin Franklin was once quoted as stating, “In this world nothing can be said to be certain, except death and taxes.” Truer words may never have been uttered as taxation and death seem as ubiquitous now as they likely did in the 1700′s. With that in mind, this blogger has recently noticed a great many American people outside of the USA who have misconceptions regarding the current state of American law with regard to taxation of Americans resident abroad. It would appear that there are those under the mistaken impression that individuals outside of the United States are not subject to American income tax. In fact, nothing could be further from the truth pursuant to current United States tax rules.

To quote directly from the official website of the Internal Revenue Service: IRS.gov:

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

As can be seen from the above quotation, Americans working or earning income abroad are still subject to American taxation regardless of the fact that they are physically located outside of the jurisdictional confines of the United States of America. There are many who do not agree with the current tax policies regarding individuals resident abroad, but as the law currently stands Americans must pay taxes even on income earned outside of the USA. That said, from a practical perspective there are some benefits accorded to Americans residents abroad. To quote further from the same page of the Internal Revenue Service website:

If you reside overseas, or are in the military on duty outside the U.S., you are allowed an automatic 2-month extension to file your return until June 15. However, any tax due must be paid by the original return due date (April 15) to avoid interest charges.

Of further note to Americans resident abroad is the foreign earned income exclusion which may allow Americans resident abroad to obtain a exemption from paying taxes on earned income up to a certain specified level. To quote directly from the Internal Revenue Service’s web page regarding the Foreign Earned Income Exclusion:

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011). In addition, you can exclude or deduct certain foreign housing amounts.

It should be noted that “living abroad” should not be construed to mean short term periods of residence outside of the USA. In fact, one wishing to claim the aforementioned exclusion would likely be required to spend a substantial period of time outside of the USA. In fact, the IRS currently uses a Physical Presence Test in order to determine whether or not an American who has been abroad qualifies for the foreign earned income exclusion. To quote further from another page of the IRS.gov website:

You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 qualifying days do not have to be consecutive. The physical presence test applies to both U.S. citizens and resident aliens.

This posting is merely intended to act as a primer for those interested in American tax issues and how United States tax rules impact Americans resident abroad. This posting should not be viewed as a complete or comprehensive analysis of an individual’s current tax situation. Those interested in obtaining advice regarding American tax matters are well advised to contact a licensed professional. At the time of this writing the Integrity Legal Network includes an American attorney licensed to practice law before the United States Tax Court.

For related information please see: Expat Tax Return.

more Comments: 04

The hiring of a lawyer is an important decision that should not be based solely on advertisement. Before you decide, ask us to send you free written information about our qualifications and experience. The information presented on this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.