• Monte Silver, Tax lawyer

Americans abroad grassroots campaign wins second fix in 2.5 months: one year extension to pay Rep

On June 4, 2018 , and for the second time in less than three months, the Treasury issued Americans abroad significant relief from the Repatriation tax. In technical terms the relief states as follows:

To understand what the relief means, one has to understand the Repatriation tax and the U.S. expats’s obligation under it. A numerical example is helpful: Assume an expat living in London who has been operating a CPA sole practice or family restaurant for 30 years through a U.K. corporation. After paying high U.K. corporate income taxes on all profits, the expat holds $500,000 in the company and is counting on this money for retirement. Under the Repatriation tax, the expat is now personally liable for 17.54% (higher than Google’s 15.5% rate) of that amount, or $87,700.

How is this tax to be paid? Under the law, the $17,540 can be paid in eight annual payments, with the first payment of 8% (or $7,016) or being due April 15, 2018. Should any payment be a single day late, the entire $87,700 liability is accelerated and is due immediately! This is in addition to any late, insufficient or non-payment penalties.

As expats were not the intended target of the tax, and were in no position to understand it or calculate and make the first payment on time, in early March 2018, Americans abroad launched an email petition at americansabroadfortaxfairness.org, naively hoping that we would be able to persuade the U.S. government to exempt them from the Repatriation tax.

The impact of the petition was immediate. Within days, powerful U.S. expat organizations from Washington D.C. contacted and advised us that the petition was causing waves with the Treasury and Tax committees in Congress. Within days, Democrats Abroad, Republicans Overseas and other expat organizations adopted the petition and sent it to their constituents.

Within two weeks of petition launch we were in D.C. meeting relevant senior Treasury and Congressional leaders who were receiving dozens of emails a day from angry expats. It became apparent that a permanent long-term legislative fix would take time, so focus shifted to short term relief from Treasury. The demands were specific and simple:

First, an immediate 60 day extension - from April 15 till June 15 for expats to make the first payment. This request was granted within a week.

Second, an additional one year extension - until June 15, 2019 to make the payment. This would give expats time to obtain permanent legislative relief.

After months of receiving thousands of emails, and realizing that the Repatration tax would force hundreds of thousands of expats out of business or turn them into non-compliance tax payers, Treasury granted the second relief.

What is granted? The relief from Treasury does not exempt expats from the tax, something that the Treasury has no authority to grant. Nor does the relief say that expats are not liable for the first payment. The relief simply states that there is basically no downside for failure to make the June 15, 2018 payment – i.e. there is no acceleration and no penalties. In such case, there is no real reason to make the payment.

Now our battle shifts to Congress. To avoid having to make the first and second payment on June 15, 2019, Congress must amend the law to exempt Expats from the Repatriation (and GILTI) tax. There is consensus that between the November 2018 elections and January 3, 2019 when a new Congress convenes (a two month period knows as the “Lame Duck session”), Congress will pass a tax bill fixing various problems that arose out of the 2017 tax reform. This is the best and possibly only chance expats have to amend the law.

Will expats succeed? While there is sympathy for our cause, there are dozens of problems that need fixing in the report. To succeed, expats must make their issue a priority for the Senate Finance and House Ways & Means committees.

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