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Repatriation Tax Relief for US Expats
Americans abroad grassroots campaign wins second fix in 2.5 months: one year extension to pay Repatriation tax
By Monte Silver
Yesterday, 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:
An American living abroad who is an individual US shareholder of a controlled foreign corporation shall incur no acceleration of the 8 year payment plan or other penalties, for failing to make the June 15, 2018 payment, if the total tax due from the expat under the Repatriation tax is less than $1,000,000.
In other words, if an expat has less than total Repatriation tax liability of $1,000,000, there is no real reason to make the June 15, 2018 payment!
This is very meaningful relief. To reach $1,000,000 in total tax liability, an expat must have at least $6.5M in earnings and profits held in cash form, or $12.5M in non-cash form. So in effect, the vast majority of expats will benefit from the relief.
To understand what the relief means, one has to understand the Repatriation tax and the US expats’ 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 UK corporation. After paying high UK 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.
With the new relief issued by the Treasury, this expat has tax liability of only $87,700, far less than the $1,000,000. Accordingly, the expat has no reason to make the June 15, 2018 payment.
Two important points: (i) to claim the benefit of the relief, the expat must submit a certain election along with your 2017 tax return, so contact your US tax professional before June 15!! to discuss filing an extension till October 15, (ii) It is important to note that the relief grants a delay, not an exemption, and the payment is due by June 15, 2019. Americans abroad now have one year to obtain permanent legislative relief from Congress.
Monte Silver is a US tax attorney residing outside the US. He previously worked at the Estate & Gift Tax division of the IRS, and at the US Tax Court. He specializes in providing tax solutions to American expats. In addition to having published extensively on the impact of the Repatriation and GILTI taxes on Americans abroad, Mr. Silver has initiated a global tax advocacy effort to exempt expats from these taxes. www.silvercolaw.com