I am updating the course materials for my 2012-2013 CalCPA course “Tax Planning and Compliance for Multinational Families.”  In doing so, I went to Rev. Proc. 2011-52 in order to confirm the latest gift tax exclusion amounts.  ($13,000 for 2012, $139,000 for gifts to noncitizen spouses, if you care).

Serendipity

Immediately below the provision I am interested in (Section 3.31), I found the following update to tax.  I bring you, in all of its glory, Section 3.32 of Rev. Proc 2011-52:

Tax on Arrow Shafts. For calendar year 2012, the tax imposed under § 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows is $0.46 per shaft.

USA = loser

I am embarrassed for the United States of America.  Chicken-shit stuff like this is not what winners do.  Tax on arrow shafts, FFS.

Save yourself, _______

Those of you at the Service who are tasked with the enforcement of this tax–you are wasting your life.  Quit and go do something productive.  

At Chief Counsel’s office, there is a lawyer who is assigned to this Code Section.  I won’t mention your name here.  We’ve never met.  I found you listed as responsible for Section 4161 as part of the Office of Chief Counsel Telephone Directory.  

No offense meant, and I’m not picking on you.  I’m not saying you are doing a bad job.  The lawyers I have dealt with at Chief Counsel’s office have been on the ball and on top of their subject area.  You probably are, too.  

I’m just saying that you’ve been assigned an utterly worthless task, and tolerating this in your life will destroy your soul.

Quit.  Or get re-assigned to something that matters.  You only live once.  Make it count.

An email from John Strohmeyer this morning made me laugh:

Important part

At a news conference this morning, Sens. Schumer and Bob Casey, D-Pa., will unveil the “Ex-PATRIOT” – “Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” – Act to respond directly to Saverin’s move, which they dub a “scheme” that would “help him duck up to $67 million in taxes.”

Full article

http://abcnews.go.com/blogs/politics/2012/05/senators-to-unveil-the-ex-patriot-act-to-respond-to-facebooks-saverins-tax-scheme/

Thoughts

• - I’m surprised it took them this long to introduce this.

• - Once we’ve managed to insulate ourselves from the rest of the world and its capital, THEN our economy will take off!

• - Perhaps if our system wasn’t such a nightmare, people wouldn’t want to leave.

Yes, John. It is a full-blown Moronathon on Capitol Hill.  (PS:  Senator Schumer is also a “D”.  Not to say that the “R” people are sane.  Not at all.  I just need to point out that Sen. Schumer is a “D”.  Also from New York.  Wasn’t that the site of a world-famous stock market once upon a time?)

The United States has not had capital controls (i.e., restrictions on the ability to move money out of the country) for a long time.  Here is an article about what it’s like in Iceland where such restrictions exist.

By curious coincidence, the last few years of tax law and tax enforcement are propelling the United States to a position where currency restrictions will be easy to implement.

If you can’t send your money abroad, at least you can jump on a plane and leave the country, right?  Well, funny you should mention that.  

OK.  Time to take off the tin foil hat, Phil.  Red pill or blue pill?

U.S. citizen who is a resident of another country must nevertheless pay income tax to the United States.  And, of course, the country where the citizen lives will also want to collect income tax.

This is called citizenship-based taxation.  The power to tax you is based on your citizenship, rather than your residence.

This blog is all about dispelling hand-wavy knowledge and replacing it with stone-cold fact. It is time to do this with citizenship-based taxation, at least partially.

The hand-wavy answer to the question “Which countries impose income tax on their citizens living abroad?” is usually “The United States, the Philippines, and Eritrea.”  That is wrong.

Philippines

The Philippines taxes its citizens living abroad only on Philippines-sourced income.  National Internal Revenue Code Section 23(B) says:

A nonresident citizen is taxable only on income derived from sources within the Philippines[.]

Eritrea

Eritrea is mentioned as a country that taxes its citizens abroad.  The tax rate is 2%.  In fact, this appears to be an thinly-disguised method of extortion.

I am unable to get any first-hand information from the Ministry of Finance, so you may feel free to treat my conclusion here as entirely hand-wavy.  Or, tell me what you know so we can all get smarter.

EDIT:  I wanted first-hand information, and thank you to reader “Eritrean” for the comment below:

I hold dual Eritrean/American citizenship. As an Eritrean citizen, whom is entitled to Universal Healthcare as well as other services from the government, I am expected to contribute 2% of my income.

The Development and Rehabilitation tax is meant to serve as restoration of a young African nation that suffered much destruction by Ethiopian forces during Eritrea’s 30 year Struggle for Independence among other things.

There’s no harassment for not contributing towards the progress of the country. Many Eritreans proudly contribute much more while a few others don’t.

United States

That leaves the United States, in all of its glory, as the only country that taxes its citizens no matter where they live.

Somewhere in the Far East or Pacific?

An email from a CPA in New York this morning (I won’t tell you her name but her initials are Susan Brown Otto) triggered this blog post.  She mentioned she had heard that there is an island nation in the Far East or the Pacific that also imposes citizenship-based taxation.  She was unsure of this.  I don’t know of any such country.

Again, if anyone out there can bring us from darkness into light, it would be much appreciated.

Last week I flew into Dulles. As I was standing around waiting for the shuttle I looked and who should I see but Will Maguire, an L.A. trademark lawyer and long-time Roxbury friend. He took a picture to prove it really happened. Here I am on the sidewalk outside the terminal at Dulles.