Thoughts on Exit Taxes in the Modern World by @VictoriaFerauge – Do the S. 877A rules go too far?

Thoughts on "Exit Taxes" – In its specfic application the U.S. tax on expatriation – the S. 877A rules – go too far. http://t.co/5tzCrvG7ck

— U.S. Citizen Abroad (@USCitizenAbroad) March 24, 2015

The above tweet references a comment that appeared on post written by Victoria Ferauge on her “TheFrancoAmerican-Flophouse.blogspot.com” blog. It is a old post that was written about “Exit Taxes” in general which she refers to as:

An exit tax is a tax that is levied against an individual or a corporation who wishes to transfer residency or citizenship from one country to another.  It is a tax on emigration and/or expatriation.  How does it work and what is its purpose?:

In general, ET [Exit Taxation] aims at levying the potential or latent gains (also called “hidden reserves”) related with the assets that an individual, a company or a PE located in a given country, economically (eg., through allocation to a foreign PE of a trademark or a shareholding), or physically transfer to another tax jurisdiction. A first feature of ET is, thus, related with the fact that it is imposed when no asset disposal takes place, and no revenue is generated.

It is a tax that the United States levies against certain individuals who relinquish U.S. citizenship. I recommend this Victoria’s post as an objective description of what is meant by an Exit Tax. I also found that I had left the following comment on the post:

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Confirmation from Massachusetts @SenWarren that the Democrats are happy to destroy #Americansabroad

https://www.facebook.com/groups/AmericanExpatriates/permalink/440934592739285/

U.S. Republican senators write to Iranian leaders in attempt to undermine nuclear talks

“The Obama administration believes it has authority to lift most trade, oil and financial sanctions that would be pertinent to the nuclear deal in exchange for an Iranian promise to limit its nuclear programs. For the rest, it needs Congress’ approval. And lawmakers could approve new Iran sanctions to complicate matters.”

One more example of the use of sanctions in foreign policy. On this note see:

Obama tests power of sanctions to limits. My oped on Weaponization of Finance in today's @FT http://t.co/mFHAJOAYNA

— ian bremmer (@ianbremmer) March 4, 2015

Andrew Coyne: Imperious Conservatives and runaway Supreme Court set to collide

Andrew Coyne: Imperious Conservatives and runaway Supreme Court set to collide http://t.co/FHKnXY3EH6 via @fullcomment

— U.S. Citizen Abroad (@USCitizenAbroad) March 10, 2015

Don’t panic, American citizens in Canada: The IRS is not coming to seize your house

Is is the job of a lawyer IN CANADA to protect his client or to assist the IRS? http://t.co/aGNIZ5ibSF via @financialpost – Food for thought

— U.S. Citizen Abroad (@USCitizenAbroad) March 8, 2015

The comments to this article and other comments  express the concern over the content and the purpose of this article.

Two points:

1. U.S. tax law is NOT enforced by the IRS, it’s enforced by the tax compliance community.

2. Therefore, the tax compliance community has a responsibility to NOT “invent” the law that they are enforcing. For example, many tax practitioners in Canada assume that a TFSA is a “Foreign Trust” for U.S. tax reporting purposes. Income from a TFSA is taxable on the U.S. tax return. If it were a “Foreign Trust” it would be subject to additional (expensive) reporting requirements and penalties (think Form 3520). The author of this Financial Post article, Max Reed has been helpful  in taking the position that the TFSA is NOT a Foreign Trust for U.S. tax purposes.