Senator Carl Levin attempts to defend the right of the U.S. to tax profits earned outside the United States. The Senator doesn’t even once point out that:
1. Inversions do NOT affect the amount of tax paid on U.S. profits; and
2. Does NOT acknowledge that all inversions do is exempt U.S. companies from tax on foreign profits where they already pay tax to those countries.
Levin believes that tax reform is not likely.
Anything to do with U.S. tax is of course complicated. That said here are some basic principles.
The basic principle – you can inherit free of U.S. tax
Whether a U.S. person is living inside or outside the United States:
The above tweet references a post from Jane Bruno about the U.S. tax implications of the “non-American spouse” which includes in part:
If you are married to a non-American and you both live overseas, you may have wondered how this impacts on your U.S. tax filing situation, if at all. As with most concerns involving taxes, the more complicated they can make it, the better Congress likes it! This article will try to present your various tax obligations (and options) with regard to a non-American spouse as simply and precisely as possible.
Read on! To be forewarned is to be forearmed!
The topic of the day:
The problem revealed:
The reason as described by Ms. Jeker in the post:
Another great article from Virginia La Torre Jeker describes the reason for the taxation of gifts to U.S. citizens from “covered expatriates” as:
Controlled Foreign Corporations and Subpart F income were introduced here. Tax professionals about written about the dangers of Americans abroad carrying on business through a corporation. In addition to the tax problems (dividends, Subpart F, etc). there are also extremely invasive, expensive and penalty laden reporting requirements. In fact, Form 5471 is arguably America’s most deadly and dangerous form.
For those who want to understand this difficult topic better …
Well, she has followed through. Form 5471 is the form required for “Foreign Corporations”. She has written this wonderful trilogy of posts on “Foreign Corporations”. Thank you Virginia La Torre Jeker for the following:
“What you need to know about foreign corporations, but couldn’t even imagine to ask “Triology”.
General discussion of how the PFIC rules work in theory:
Discussion of the incredible unfairness and stupidity of the PFIC rules in practice (don’t enter OVDP):
And a comment that says it all:
The deadline is fast approaching. Mr. FBAR has been updated and modernized.
He has a new name (Form 114).
He has a new look.
He must now be filed online.
He is still one of the U.S.A.’s deadliest forms.
But, the question still remains:
What exactly is required to be reported on your FBAR?
Taxpayers “navel gaze” in fear!
Tax professionals continue to educate!
This is a nicely done article by Deborah Jacobs of Forbes.
As you know, a U.S. citizen who is is married to a non-U.S. citizen does not have the benefit of the unlimited marital deduction. Although I recommend the complete article, the following is of particular note:
Are there special rules for married couples?
Yes. The most important one is that the usual limits on lifetime gifts don’t apply. If your spouse is a U.S. citizen, there’s an unlimited marital deduction for most gifts, even if they exceed the annual exclusion amount and you generally are not required to file a return.
A different rubric applies if your spouse is not a U.S. citizen. In that case you must file a gift-tax return if your gifts to him or her total more than $145,000 per year. Additional gifts to a non-citizen spouse count against your $5.34 million basic exclusion and must be reported on the gift-tax return.
As you U.S. tax compliance for “U.S. persons” living outside the United States is very difficult. The reason is that most (if not all of your activities) are considered to be either “foreign” and/or “offshore”. San Francisco tax lawyer Robert Wood recently write a couple of posts that illustrate how the fact of living outside the United States can actually extend the number statures of limitations for an audit. I draw your attention to:
The gist of the posts is explained in the tweets. That said, I recommend reading both of Mr. Wood’s posts/articles. Although they are not written specifically for Americans abroad, they do illustrate how punitive the U.S. Internal Revenue Code is when applied to Americans abroad.
Why so punitive?
The answer is that U.S. tax law is punishes things that “foreign”.
For Americans abroad their lives are foreign.