Friday mailbag: A reader falls through the cracks of a broken system.  

Last week I wrote an article about the bizarre US tax liabilities of Leo XIV, the new American Pope.

The basic idea that, as a US citizen, the Pope is required to file and pay US taxes on his worldwide income… even though he is a head of state, and even though he does not live in the United States.

Several news outlets have reported that the Pope’s compensation is around $400,000 per year– which under current US law would be subject to taxes.

A few readers wrote in questioning whether the Pope actually does earn a salary. And there is definitely some conflicting information on the matter given the Vatican’s legendary lack of financial transparency.

What is indisputable, however, is that the Pope receives substantial benefits and allowances, including housing, furniture, drivers, maids, and more. Under section 911(c) of the US tax code, such benefits are considered “lavish” and “extravagant” and therefore would be considered taxable income for the Pope.

I’m not really sure what the fair market rent is for the Apostolic Palace in the Vatican. But my guess is that if you put it up for auction, it would probably fetch a hefty price– all of which would be considered income for Pope Leo.

Now, even if one argues that the Pope receives absolutely ZERO compensation… and even if all the “lavish” and “extravagant” allowances for housing and services are completely reasonable given his position (and I would agree with that argument), the Pope is still subject to offshore disclosure requirements.

One of those is FinCEN Form 114, the Report of Foreign Bank and Financial Accounts; any US citizen with foreign financial accounts totaling $10,000 or more must file this report every year to the Treasury Department.

Again, though, even if the Pope is penniless and has no bank account whatsoever, he is STILL the ultimate head of the Vatican Bank– technically known as the Institute for the Works of Religion.

And FinCEN 114 also applies to US citizens who have “signature authority” or otherwise “control” foreign financial accounts. The Pope certainly has ultimate control over the Vatican’s accounts; therefore he is required to file.

The Pope’s US nationality also makes the Vatican Bank a “Controlled Foreign Corporation” under section 957(a) of the Internal Revenue Code. This means that he is also required to file Form 5471 each year to the IRS.

Failure to file these forms carries a civil fine of at least $10,000 per year, up to a maximum of 50% of the highest account value. My guess is that’s quite a lot.

The Treasury Department can also pursue criminal charges against His Holiness carrying up to five years in prison if they believe his failure to file is “willful”.

Let’s be honest, though: no one in the US government expects a tax return from Pope Leo. And no one is dumb enough to pursue criminal charges.

But if Pope Leo doesn’t have to pay or file US taxes, then why should any other US citizen living abroad?

The reasoning is simple; taxpayers in California have representatives in Congress and the Senate looking out for them. So do taxpayers in Texas, Florida, and the other states across the country.

US citizens who live overseas, however, have no such representation. There are no Members of Congress who exclusively fight for the interests of Americans abroad. Yet expats still file and pay taxes.

This is what the Founding Fathers called “taxation without representation”.

Here’s another example: people who are born and live in a US territory like Guam, Puerto Rico, or the US Virgin Islands, are US citizens. But they neither pay US federal income tax, nor do they have representatives in Congress.

So, in short:

1) US citizens who live in the US have both taxation and representation.

2) For US citizens who live in US territories, there is neither taxation nor representation.

3) And US citizens who live in foreign countries suffer taxation without representation.

If you think this doesn’t matter, here’s a crazy story that puts a human face on it:

After my article last week, we received another email from a reader named Dave— a US military veteran who currently lives in Australia.

Dave’s wife is not a US citizen. But they pay US taxes; recently when they sold a property in Australia, for example, they paid BOTH local taxes in Australia AND capital gains tax to the IRS.

The crazy thing is that Dave and his wife have been trying to move back to the US for the past few years. But their case is buried in the mind-numbing bureaucracy of USCIS (citizenship and immigration service).

They own a house in Florida. They have two children who are US citizens (and currently living in the US). Dave is a US citizen and military veteran. And most of all, they file and pay tax each year to the IRS.

Yet they have been fighting for years just to get a silly visa. And they’ve been told it will probably take a few more years at least until they can move to the US and be with their children… assuming they’re approved.

(Meanwhile the previous administration let millions of illegals across the border and showered them with free taxpayer money…)

Dave has no one in Congress to represent his interests. But he still pays tax. And he’s just one of many, many cases that ‘slipped through the cracks’ of a woefully broken system.

You can hear more about Dave’s story straight from the horse’s mouth in this video.

Source

Simon Black is an international investor, entrepreneur and permanent traveler. His daily letter is both educational and entertaining, and we suggest that those who want unbiased, actionable information about global opportunities sign up for Sovereign Man’s free, actionable newsletter at http://www.SovereignMan.com.

From Simon Black of SovereignMan.com

Source: https://www.schiffsovereign.com/trends/friday-mailbag-a-reader-falls-through-the-cracks-of-a-broken-system-152841/