Update on the tax advocacy relating to the Transition and GILTI taxes
Updated: Nov 27, 2018
Below is a summary of the advocacy effort since June 2018, and a description of the road ahead. For the first time since we began this advocacy, donations are required to enable us to proceed. I am also making myself available until December 15 to assist on Transition tax matters, in exchange for donation to the cause.
This email impacts Americans who have interests in non-U.S. corporations. Unless our tax advocacy is successful,
1. Many American small businesses have until December 15 to file their 2017 U.S. tax return with the Transition tax attachments.
2. Many American small businesses have paid some Transition tax and will pay more in the coming 8 years.
3. A huge number of American small businesses must comply with GILTI every year from 2018 onward.
The first part of this email discusses developments since June till today. The second part focuses on next steps.
Part 1 – from June 4 till the present
On June 4, due to our efforts, the Treasury granted small businesses with less than $1M in transition tax liability a one year extension to make the first payment of the tax. Since that time my focus has been to secure small businesses – both U.S. and foreign based - permanent relief from the two taxes. As set forth below, the attempt to resolve the exposure of American small businesses (abroad and in the US) to the Transition tax and GILTI by friendly dialogue appears to have fallen on deaf ears.
Congress-facing activity: In June 2018 I met with senior staff of 37 members of the Senate Finance Committee and House Ways and Means, and engaged in extensive follow up. One Senator's office was kind enough to produce a draft bill to exempt small businesses from the Transition tax. However, that office made clear that there was no support for the relief among any members of the Senate Finance Committee he talked to. In my opinion, Congress will not grant small businesses any relief from these taxes, even in the lame duck session.
Treasury-facing activity: In August 2018, Treasury issued proposed regulations for the Transition tax. In October 2018, Treasury issued proposed regulations for the GILTI tax. After investing hundreds of hours reviewing these proposed regulations, researching various procedural laws and talking to relevant US legal experts, I conclude as follows: in issuing these proposed regulations, Treasury seriously violated at least 3 federal procedural laws – (i) the Regulatory Flexibility Act (RFA), which expressly gives Treasury the authority to exempt small businesses from the Transition & GILTI taxes; (ii) the American Procedure Act (APA) and the Paperwork Reduction Act (PRA). These violations give small businesses the specific authority to sue Treasury in a relatively expedited proceeding, and the courts have the specific power under these laws to provide small businesses effective relief.
Since August, I have repeatedly sent Treasury Secretary Mnuchin and senior officials at Treasury/IRS and other agencies well-thought-out analysis citing clear-cut Congressional reports, legislative history and case law all supporting my claims. I asked that a compromise be reached in order to put this matter to rest. But Treasury simply ignored my analysis, or at best simply concluded without any explanation that these laws did not apply to the proposed regulations, At this point, and based on written and oral feedback from senior government officials, I have concluded that Treasury will not grant small businesses any exemption in the proposed regs.
Part 2 – Next steps
There are five options, which can all take place in parallel. The first four involve me helping individual small businesses lawfully avoid Transition/GILTI taxes. The fifth option, which will seriously enhance options 2-4, involves suing the Treasury for violating three federal laws and getting the court to give us relief.
1. Very small businesses with little Transition tax liability that have yet to file 2017 returns: Until now, on a pro-bono basis I have helped many people who needed to file their Transition tax returns but did not know how to do so. I will continue to do so until December 15, in exchange for an agreeable donation to the cause.
2. Larger businesses with above average Transition tax liability that have yet to file 2017 returns.*
3. Larger businesses that have already filed 2017 returns and made Transition tax payments. *
4. All businesses with GILTI filing obligations and tax liability from 2018 moving forward. Same as options 1-3 with regard to GILTI filing obligations and tax liability *
* As to options 2-4 - please contact me for details.
Together we have achieved two wins from Treasury and brought broad awareness to our cause. I have every intention of continuing the battle and winning. Together (and only together) we can do it.
Under Federal and State law, this message constitutes a solicitation. Also, nothing herein constitutes legal advice or should be relied on.