For some time an idea has been considered by ADCT and the letter below is the result of that idea. We have yet to tap into another community who is in a unique position to possibly offer us help – the tax compliance community. There are plenty who have voiced their opposition to FATCA, who think CBT is an abomination, etc. So why not ask them to join us?
We will be sending this letter to a “known” group of professionals which may expand in the future. In the meantime, please consider asking your tax accountant, lawyer or advisor to consider it.
From The Desk of John Richardson
October 18, 2017
Re: Tax Reform as an opportunity to end the U.S. practice of imposing direct taxation on people who live in other countries.
(If you do not have time to read, please go directly to the last page of this letter.)
I am writing to you personally, on behalf of the millions of “hard working” American citizens living outside the United States and on behalf of the “Alliance For The Defeat Of Citizenship-Based Taxation”. American citizens living outside the United States are “Ambassadors For American Values”.
You are receiving this letter because you have been identified as a person who assists Americans abroad with tax, retirement planning, investment counselling, basic financial planning or a combination of the above. You are well aware of the devastating impact that the current rules of “citizenship-based taxation” have on the lives of “every day people” who have chosen to live outside the United States.
As you are aware, the United States is engaged in a process of tax reform. The last major tax reform was in 1986 (how the world has changed). Tax Reform 2017 appears to be a continuation of the work done by the House Ways and Means Committee (2013) and the Senate Finance Committee (2015). A discussion of “International Tax Reform” has featured prominently in these discussions.
Most of the discussion of changes in “international taxation” has been about changes in the rules governing corporations. There is a growing consensus that the U.S. system of “worldwide taxation” is damaging to corporations. As a result, momentum has been building towards changing corporate taxation from “worldwide taxation” to some form of “territorial taxation”. What “territorial taxation” (subject to the specifics) means in broad terms is that:
U.S. corporations would NOT be subject to taxation on profits earned outside the United States.
Individual (DNA) U.S. citizens are ALSO currently subject to a system of “worldwide taxation”.
The effects of being subject to a system of “worldwide taxation” based ONLY on “citizenship” (all other countries impose taxation based on residence) are:
1. U.S. citizens living in other countries are subject to the Internal Revenue Code, as though they lived in the United States, even though they do NOT live in the United States.
2. U.S. citizens living in other countries are subject to taxation on their “worldwide income” which includes income earned in their country of residence.
3. U.S. citizens living in other countries, who own financial assets or have pension plans locally in those countries are required to treat those “local” assets as “foreign” for the purpose of “reporting” to the IRS. This creates the possibility of “every day people” being subjected to punitive taxation and reporting penalties for attempting to live an “every day lives”.
In practical terms this means that a U.S. citizen living in France (who is subject to full taxation in France), is ALSO subject to taxation on his/her French income by the United States. In addition, because that U.S. citizen living in France is subject to all of the rules of the Internal Revenue Code, that individual is also subject to a collection of “penalty laden” reporting requirements that make full U.S. tax compliance difficult and costly. The cost of U.S. tax compliance for U.S. citizens living in other countries must be considered in terms of both “Direct Costs” and “Opportunity Costs”.
“Direct Costs”: U.S. citizens living in other countries are likely to be subjected to punitive taxation on the normal instruments of financial planning because their vehicle for financial planning is (although local to them) foreign to the United States. In addition, the cost of tax return preparation (when competent help is available) is often very high.
“Opportunity Cost”: Compliance with the Internal Revenue Code means that U.S. citizens living in other countries will often NOT be able to benefit from the financial and retirement planning opportunities available to their neighbours who are NOT U.S. citizens. For example, Australia has a public Superannuation plan. It appears that U.S. tax laws would deprive U.S. citizens living in Australia from benefitting from this plan.
“Role of Tax Treaties”: It’s important to recognize that in many cases these problems are not alleviated by U.S. tax treaties. In fact the problems are exacerbated by U.S. tax treaties which contain a “savings clause” which “saves” the right of the United States to impose taxation on (U.S. citizen) residents of other countries, according to the rules of the Internal Revenue Code.
The time has come to end this “relic of the past” which began as a form of deliberate punishment during the Civil War (yes in the 1800s) and continues to be a punishment today.
Significantly, the definition of “U.S. citizen” includes people who have NO CONNECTION to the United States and are residents and citizens of other countries!!!
It’s not Taxation Without Representation it’s Taxation Without Connection
It’s also important to note that the rules of U.S. “citizenship-based taxation” apply to the “citizens and residents” of other countries, who just happen to also be U.S. citizens because they were born in the United States. In many cases, these people have no connection to the United States (sometimes not even knowing that they are considered to be U.S. citizens). In other words, the United States is currently imposing direct taxation on the foreign incomes of people who do NOT live in the United States!
Previous advocacy, comments and requests – from “U.S. tax compliant” Americans abroad
In 2013 a large number of the comments from individuals submitted to the House Ways and Means Committee came from Americans abroad who were trying to comply with U.S. tax requirements.
In 2015 a large number of the comments from individuals submitted to the Senate Finance Committee came from Americans abroad who were trying to comply with U.S. tax requirements.
In 2017 a number of organizations, from across the political spectrum, including Republicans Overseas, Democrats Abroad and American Citizens Abroad have requested a change from the rules that require U.S. citizens living outside the United States to pay U.S. tax on their income earned outside the United States. Although the specific proposals advanced by these groups vary in the details, they all request that:
U.S. citizens living outside the United States, who are therefore tax residents of another country, should NOT be subject to the rules of the Internal Revenue Code that apply to Homeland Americans.
No person should be treated as a “tax resident” of more than one country! The time has come to correct this injustice. U.S. tax laws should be amended so that the United States does not impose U.S. taxation on the:
Non-U.S. source income earned by people who do NOT live in the United States.
So, what am I requesting you to do?
I intend to send a simple request to the various committees working on tax reform, which simply focuses on the result sought with the following request:
“Please amend the Internal Revenue Code so that the United States no longer claims the right to impose U.S. taxation on non-U.S. source income which is earned by people who do NOT live in the United States. For example: The United States should not be imposing U.S. taxation on the French income earned by a resident of France.”
This petition is supported by the following professionals (lawyers, accountants, investment advisors, etc.) who work with non-residents who are subject to U.S. taxation on their foreign income.
This petition is supported by the following professionals:
John Richardson – lawyer
Your name – capacity
All other names – capacity
If you simply reply to this email with your name and capacity, I will add your name to the petition. It’s that simple.
8 DAYS LEFT TO SPEND JUST ONE MINUTE OF YOUR TIME TO SEND TTFI PETITION TO U.S. CONGRESS AND MAKE A CHANGE
Having renounced, I cannot be a Republican, but I do support the effort of hardworking Republicans Overseas (RO) to end citizenship-based taxation and establish TTFI (territorial taxation for individuals).
See below the 10/10/2017 letter emailed to me from RO’s Michael DeSombre.
— The key time sensitive point of this post is that although our letters and petitions (1744) have already been delivered and discussed with White House and some legislative staff, WE ASK FOR YOUR HELP IN OBTAINING EVEN MORE (at least 5000 total) PETITIONS — TO BE DELIVERED DIRECTLY TO CONGRESS BY OCTOBER 22, 2017.
Please take one minute to fill out the petition HERE.
The letter from RO:
“One of the most important items discussed [at the White House meeting] was Republican Overseas’ political strategy for having TTFI included in tax reform. These discussions provided significant positive feedback and insight. With this new information, RO will tailor its lobbying strategy going forward to maximize our chances of ending citizenship based taxation.
The three most important meetings with regards to ending CBT were with Samantha Zager, White House Associate Political Director, and with Matt Stross, Legislative Counsel to Congressman George Holding (North Carolina), and Congressman David Schweikert, a key member on the House Ways and Means Committee.
Ms. Zager was impressed with the letters and the volume of petitions. The White House supports our grassroot efforts to reach out to Congress and to lobby for the inclusion of TTFI. Ms. Zager will help to facilitate meetings with individual members in both the White House and Congress who can help with TTFI inclusion.
While we have White House support, only Congress makes law. We need to ensure that any tax reform bill sent to the President includes TTFI. Congress needs to hear from overseas Americans directly.
What you probably want to know now is: “Have we done it? Is CBT a thing of the past? Is this double taxation nightmare over?” Unfortunately, CBT is not gone yet, but we are definitely in the process of consigning CBT to history.
The next step is to take our fight to Congress.
We are setting up meetings with key members of the House Ways and Means Committee and the Senate Finance Committee on October 23-25, 2017. Republicans Overseas has three goals for this second phase:
— Deliver a petition requesting the inclusion of TTFI in the tax reform package with 6400 signatures from overseas Americans. Our petition campaign will continue until October 22, 2017 in order to gather the necessary signatures.
— Deliver 10-20 letters that will be included as testimony into the Congressional hearings on tax reform.
— Meet with key people who are drafting the tax reform package and ensure that they have heard your voices and understand that TTFI tax reform will benefit America as well as benefiting overseas Americans.
We need your help! Here is what you can do to support TTFI:
— Please sign the petition if you haven’t already done so. I assume all of you have already done so, but if not, please do so right away. The campaign will run until October 22, 2017, and we have a new landing page for the petition. We have your signature if you have already signed—no need to sign again.
— Please go out again to your mailing list or friends and ensure they have all signed the petition. -Ensure you hit both Democrats and Republicans.
— Become a paid member (e.g., Associate level) of Republicans Overseas HERE. RO is entirely self-funded, and your membership fees will be used to continue the legal and political battle against FATCA as well as to fund the political efforts to end citizenship based taxation.
Thank you for your ongoing support! We can’t do it without you. We will continue to fight for the end of citizenship based taxation.
FYI -01 OCT 2017 I submitted my letter 1 hour late/on Oct 1 and it was accepted. Please keep them coming
In the last few weeks there has been a plethora of posts, comments and articles about tax reform, and whether or not the issues of non-resident Americans have been addressed. There have also been calls for letter-writing campaigns; the response has been disappointing. Many reasons have been suggested as to why more have not contributed to this effort. The prevailing point of view seems to be that it won’t do any good, it’s pointless, etc. Nobody understands this feeling better than those who have spent countless hours working to promote change. Please think about that for one moment. Would it be acceptable for the visibly active people to just decide, “well, this isn’t doing any good so I will just not bother anymore.” The problem with this way of thinking is that it is based only upon an expected result. Of course anyone who is engaged in an effort wants to see their goals reached. But that is rarely what happens in life; anyone who is married or has children well knows the compromise required, the sacrifices that have to be made to make a household run, for children to thrive, for a family to function well in the world. Life is messy, random and confusing.
I think the value of this post lies in it’s recognition that this process is not perfect. It is not predictable down to the nth degree. It is not instant. It is definitely not easy. But without it, there cannot be a result that achieves change. THAT is why your letters are needed. They will pave the way for the shift to begin. There is no substitute for it no matter how well-written a submission is, how many hours someone puts in presenting meetings, etc. What is needed is your signature on a petition and a letter that Solomon and Michael can deliver to the White House on Tuesday. You can even just sign the pre-made letter-what counts here more than anything, is numbers. Crass? Maybe, but it is what it is. There is still time to sign the dotted line on these two items. Please help by doing these two simple things.
If you need inspiration, please read and digest the post below. If you came to the expat movement later, you may be unaware of all that has been done. The post speaks to what HAS been accomplished in the last 5 years and what must continue. Giving up on this hideous, painful and expensive situation is simply not an option. We have built a community, a grassroots movement which is making history. We will likely not see another opportunity like this one for a long time. It is so very important not only for our sakes but for our kids and our adopted countries. Please don’t take a back seat now.
I found a quote from J.R.R. Tolkien today which made me dream a little dream of anarchy. I’m sick to death of control, no matter who or what is the purveyor and/or enforcer of it.
“The most improper job of any man is bossing other men. Not one in a million is fit for it, and least of all those who seek the opportunity.”
We can’t just sit back and wish for freedom though. There may only be a slim chance of anything of significance to us coming out of US tax reform but if we don’t push our particular concerns forward in whatever manner is made available to us, slim becomes zero.
Solomon and Michael need petition signatures and letters. I hope they get enough in time.
The comments in this thread have reflected a diverse collection of views. The RO proposal has been severely criticized for various reasons (mostly revolving around the taxation of nonresident aliens). It’s true that the RO proposal has many flaws.
That said, I think it’s important to recognize that in broad terms, the RO proposal will change the impact of CBT as it currently stands. In that respect the proposal is at least a start and that start is described as “Territorial Taxation For Individuals”. It is possible (and I think advisable) to support the broad principle of changing CBT without necessarily agreeing with every aspect (or any aspect) of the specific RO proposal. Some of you may have read the most recent ACA proposal which does a good and interesting job of explaining what “territorial taxation” (borrowing from the language of the RO proposal) could mean for individuals. (Interestingly what “territorial taxation” COULD mean for individuals is what most of us think of as “residence-based taxation”.)
The Isaac Brock Society began in 2011. Since that time, the following things have happened or are happening. All this would have seemed to be nothing more than a fantasy in 2011.
– 2012 FATCA Forum in Toronto (transcripts & vidweos at this link) While naysayers wrote this off since it did not draw crowds, this meeting brought together a set of people whose influence has been enormous. It paved the way for the testimonies given at the Canadian FINA hearings-setting an example for others, spreading information in spite of the fact our politicians did not/would not listen.
All of these achievements (and believe each and every one of these things is a HUGE achievement) involved the tireless efforts OF A VERY SMALL GROUPS OF INDIVIDUALS. But, these SMALL GROUPS OF INDIVIDUALS RECEIVED THE WIND IN THEIR SAILS FROM A LARGER GROUP OF PEOPLE WHO SUPPORTED THESE INDIVIDUALS. This support can from encouragement. This support came from small individuals, who did small things, often by writing small letters (see for example: http://fatca.eu.pn). This support came from the willingness to do the small things that are necessary to make the big things possible!
I am not a fan of the U.S. Government. I am not a fan of their tax policies. I am not a fan of their abuse of Americans abroad. But, (for the most part) I don’t think the U.S. Government has been fully (or in some cases) even partially aware of the effects of the combination of their tax and reporting rules. (They don’t even understand these rules let alone how they impact Americans abroad).
A necessary condition to change these laws is to make those involved in Tax Reform:
1. Aware of what these laws are
2. How these laws actually impact Americans abroad
3. Aware that there is significant awareness and opposition to these laws.
On October 2 two members of RO have made it clear that they will be having direct interaction with those who can make a difference in tax reform. They are asking for your support in doing ONE THING. That ONE THING is to write and “support territorial taxation for individuals”. You don’t have to support their specific proposal to support “territorial taxation for individuals” (which in its most basic terms is a move away from CBT). The purpose of the exercise is to make it clear (awareness point 3) that the current tax policies are a problem. Without this awareness NOTHING is possible.
Even with the awareness, change will be difficult. Change will involved compromises. Change will be time consuming and frustrating. Unfortunately, that’s what the democratic process is about. You/we have lived with the problems of CBT. The lawmakers don’t even know that that CBT exists (let alone the problems). For RO to be able to personally deliver these letters could be a huge step in educating the lawmakers. It’s NOT that the lawmakers are supportive of CBT. The lawmakers don’t even know that CBT exists. On this point, think of Rep Connolly in the FATCA hearings where he said something to the effect that: “All countries tax their citizens” (obviously equating citizens with residents).
I am NOT defending the behavior of U.S. law makers or the administration (few have been more critical than I have been and continue to be). I am simply trying to argue that change will require education. Education will require engagement. Engagement requires personal interaction.
Your sending a letter and/or signing the petition will help RO achieve the personal interaction that they need to engage and educate. If you care about this issue at all, then you must participate.
I don’t believe that the mere fact of sending letters or signing petitions will make a difference. But, I do believe that WITHOUT YOUR EFFORTS and support that NO CHANGE IS POSSIBLE. Therefore, you are really deciding whether you want to act in a way that makes change possible or if you choose to act in a way that makes change not possible. It’s your choice. This is NOT about supporting a specific proposal. This is about behaving in a way that opens the door to discussion about change.
If it matters, I am not a Republican. I am not a Democrat. To the extent that I am political, I would be an independent. I am not primarily a U.S. citizen. So, these comments are not partisan. But, I am deeply committed to the struggle to getting these unjust laws changed. Furthermore, I believe that change can happen ONLY if all those affected create a united front in opposition to CBT. It is the opposition to CBT that unites ALL Americans abroad.
It’s very simple really. Where laws are made through a democratic process: If you don’t make your view known you can’t expect change.
Your participation may or may not make a difference. But, your NONPARTICIPATION will make a difference because it will ensure that no change will happen.
The lack of response to the request for letters makes it clear that Americans abroad are NOT willing to support this important move towards the abolition of CBT. Why not? You don’t have to support every aspect of the RO proposal to support this RO initiative.
This is not a political issue! It is a human rights issue that can be remedied through the political process!
See below for description of meeting/testimonies. The site lists that a live video of the hearing will be available.
It states this is a “Full Committee Hearing” so it would seem fair game to contact any/all members of the SFC with your concerns/comments. We have been advised earlier than calling is more effective than emailing so telephone numbers are provided as well as Twitter handles and FB pages if available. Emailing seems to be possible only via a form on individual members’ websites however, we do have the assistants’ emails, likely more effective, from earlier campaigns(with thanks to Karen Alpert for latest version). I started by listing the two members who will present at the hearing followed by members of the relevant subcommittee – Subcommittee on Taxation and IRS Oversight. I will add the remaining members’ contact info after this post is up – there is precious little time left. I may also list contact information for the three witnesses (Bret Wells, Kimberly Clausing, Ph.D., Stephen E. Shay and Itai Grinberg).
HEARINGS Full Committee Hearing
International Tax Reform
Date: Tuesday, October 3, 2017 Add to my CalendarTime: 10:00 AM Location: 215 Dirksen Senate Office Building
Check back for live video of this hearing
Orrin G. Hatch (R – UT) Ron Wyden (D – OR) Witnesses
Professor Of Law And George Butler Research Professor Of Law, Law Center
University of Houston
Houston , TX
Kimberly Clausing, Ph.D.
Thormund A. Miller And Walter Mintz Professor Of Economics
Portland , OR
Stephen E. Shay
Senior Lecturer On Law, Harvard Law School
Cambridge , MA
Professor Of Law, Law Center
Washington , DC
How do I submit a statement for the record?
Any individual or organization wanting to present their views for inclusion in the hearing record should submit a typewritten, single-spaced statement, not exceeding 10 pages in length. Title and date of the hearing, and the full name and address of the individual or organization must appear on the first page of the statement. Statements must be received no later than two weeks following the conclusion of the hearing.
Statements should be mailed (not faxed) to:
Senate Committee on Finance
Attn. Editorial and Document Section
Dirksen Senate Office Bldg.
Washington, DC 20510-6200
cross-posted from Brock Posted on February 12, 2012 by Just Me
Forget about the notion that CBT has been with us since the Civil War. Forget about the absurd conclusion of Cook v Tait. The real beginning of our story started 55 years ago on October 16, 1962. This was the beginning of the U.S. government’s campaign of punishment for Americans who dare to live abroad.
Many people have often said that the only way to get the U.S. to understand our situation is to focus not on harms, or fairness, or Constitutionality. Doing that just fuels the clichés and “alternative facts” about all the fatcats abroad, cheating on taxes. Instead, as Roger Conklin tried to do, the Congress, new Treasury Secretary Mnuchin and POTUS should realize that these policies have resulted in a trade deficit for 55 years.
Finally, it merits at least some mention that fifty years ago, before these extra fiscal and financial reporting burdens were put on the shoulders of overseas Americans, and while they were still fully able to compete with the citizens of other countries in the same foreign markets, the United States had enjoyed more than sixty-seven years of unbroken trade surpluses with the rest of the world. During the subsequent decade, after this new toxic tax burden was imposed on those living and working abroad, the U.S. foreign trade position began to weaken, as many had predicted, and a trade deficit appeared for the first time in the 20th Century in 1971. As the tax burden on overseas Americans became increasingly heavy and increasingly incomprehensible, these deficits soon became a permanent fixture of U.S. trade performance, and we are now in our 36th straight deficit year with the cumulative amount of these trade deficits now exceeding $8 trillion.
It is not very obvious so far that the current Administration in Washington , despite the enthralling campaign promises that were made in 2008, has any serious interest in leveling the worldwide playing field for trade. The results for the first eleven months of 2011 already show an impressive deficit for this most recent year of more than $500 billion, which is the worst trade performance of the last three years, and this deficit still grows each and every day at a rate in excess of $1.5 billion. The aggregate trade performance for the first three years of the current administration is now a negative $1.4 trillion! (Update: Year over year, the trade gap for 2011 was up 11.6% to $558 billion.)
This history of the sad and incomprehensibly self-destructive behavior of the United States during the past 50 years, which is unique among all of the major trading nations of the world today, is well worth reading and contemplating.
As has been stated many times before, major world powers don’t always decline due to destruction coming from outside. They sometimes infect themselves with terminal obsessions from within that, alas, seem to then become incurable. This doesn’t have to happen this time to Uncle Sam, but to avoid it something rather urgent needs to be done before it becomes too late.
This is something our oft-criticized fellow expats at ACA understood and have fought for decades. Andy Sundberg is the author of the report which comprises the main portion of this post. Read the entire report and decide if all coming to this situation in the last five years understand the history of this problem better or are entitled to criticize other actions in hindsight. In a recent private email group discussion, a story that came out might offer a useful perspective:
A teacher once told me he was curious why geese always flew in a “V.” So he looked it up and found that the one in the front led until he no longer could and he moved to the back being replaced by the next and so on. In that way they reached their destination.
So no matter whether you come from ACA 50 years ago, or DA, or RO, or AARO, FAWCO, Brock 5 years ago or American Expatriates 3 years ago, we are all trying to get tax reform in order to right this situation once and for all. Each has a part to play in this unfortunate situation. This is much more in keeping with this post’s resolution:
So Let Us Now All Rise Up, Join Together to Throw off These Shackles, and Take Appropriate Action to Prepare for a Much More Positive Future for All of Us, our Heirs and for Our Country.
I wrote this introduction for a program to be presented to tax professionals outside of North America back in March 2017. It was only meant as a general guide for those who might have been completely unaware of our grassroots movement as well as several attempts made by Congress to study our situation. It was not meant to be a complete discussion of the entire history of all our efforts but simply to inform them that we exist. To stimulate them to be more than paper-pushers and blind parrots for the IRS.
I still have a hard time believing effective tax reform for our dilemma will happen. Partially because awareness is not “new.” Since Dave Camp and the W&M call for submissions 4 years ago, there have been no less than 9 different studies, drafts etc and up to now, no real progress, no change. In addition, the general dysfunction of Congress (they can’t get health reform right) and the Trump Administration continues. It is now nearly September. There will be a huge effort needed to deal with Hurricane Harvey.
Will we or won’t we see tax reform?
Can this situation be tolerated as is for years to come?
What do YOU think?
The recent history of tax reform in the United States, as pertaining to American citizens abroad is quite a back-and-forth sort of acknowledgement of the issues with recommendations followed by a complete lack of concrete action to address the problems. A short introduction of the intervening factors is truly necessary in order to evaluate the effectiveness of any tax reform for this unique population of “Americans.”
Once the Swiss bank debacle resulted in successful litigation by the Department of Justice, Americans abroad were swept up in the attempts to gain access to all offshore accounts. The IRS created and tried to steer everyone into the Overseas Voluntary Disclosure Programs/Initiative. (The current 2014 OVDP is derived from the 2012 program). The tax compliance community and the media pushed this avenue of action in spite of the fact that the program was designed for criminals, has no legal basis, and should never have included those who had foreign accounts in order to function where they live. It is despicable that many who had lost U.S. citizenship decades ago and those who were “Accidental Americans,” were told they must enter this “amnesty” program.
Due to serious issues with OVDP, expats became very vocal about their concerns of exhorbitant penalties. Then-US Ambassador to Canada Jacobson had promised relief. Instead, the IRS issued Fact Statement of 2011-13. It outlined how non-compliant expats could file and claim “reasonable cause” for not filing FBARs. (I filed this way with no issues). Some in the compliance community and some expats were disappointed as there was “nothing new” about FS 2011-13. It was simply the way things had always been done. Then Streamlined Program, which appeared on September 1, 2012 was fraught with difficulties. The newer version of Streamlined Streamlined allows filing with strong expectation of no penalties.Based upon direct statements by IRS Commissioner John Koskinen and and then-Acting Assistant Attorney General Caroline Ciraolo, there are some concerns that as more become aware of the requirement to file, the Streamlined Program will be discontinued. This may or may not be a scare tactic, after all, what is required by law is simply to file and reasonable cause (which is what Streamlined uses to mitigate penalties) has always been available to abate penalties. It will likely be impossible to undo the level of fear created by the IRS, the tax compliance community and the media should it become necessary for people to file outside of Streamlined.
The signing of the FATCA IGAs followed by implementing legislation passed in a majority of the world’s countries exacerbated the situation for expatriates. The U.S. government including the IRS and CI departments of Treasury Department, the State Department, the House Ways and Means Committee and the Senate Finance Committee are well aware of these problems. There is now a great deal of pressure on the current Congress to include some relief for Americans living outside the United States. It must take into account an incredibly complicated interplay of U.S. citizenship and taxation law to try and mold into meaningful reform. In addition, non-resident Americans experience different tax laws overall, due to their residence in other countries. Regardless of the U.S. government’s assertion that the tax code “treats all Americans the same” in reality, this cannot be true and is not true.
RESPONSES/DEVELOPMENTS WITHIN THE EXPATRIATE COMMUNITY
Historically, American Citizens Abroad is credited as the primary group lobbying for these non-resident citizens. Of special note are the late Roger Conklin & his testimony before Ways and Means and Jacqueline Bunion and her many excellent submissions & videos.Democrats Abroad , FAWCO and AARO are sister groups located in Europe; all support FATCA as well as a move to Residence-Based-Taxation. A main emphasis has been on the “Same Country Exception”,which would allow tax-compliant Americans abroad to be exempt from FATCA reporting for accounts located in the country they reside in. The Treasury Department recently denied SCE. These measures would have protected approximately 1 million tax-compliant expats from FATCA but would not address the more complicated problems of the other approximately 7 million living abroad.
Republicans Overseas created a set of Resolutions which they intended to be included in the Party Platform. They are the primary backers of the FATCA Legal Action group, funding the “Bopp Lawsuit” which is currently preparing for an appeal (and has since been denied).
After the Isaac Brock Society insistence upon independent research concerning compliance and renunciation, the renunciation numbers began to rise as more and more expatriates realized the true financial risk of remaining American without a matching effort of the U.S. (who cannot seem to find a way to apply procedures that enable discovery of, identification and collection from Homelanders with foreign accounts for the purpose of evading tax versus Americans outside the United States who have legitimate foreign accounts for the purpose of living). The huge amount of non-compliance of this second group, coming to light in 2009 with a much larger wave in 2011, simply speaks to the lack of due diligence on the part of the American government, to educate this population as to their tax obligations and more importantly, their reporting obligations. It is no small thing that FBAR was unenforced for 40 years. Perhaps longer for “regular” filing. There is no excuse for the threatening and punitive campaign pursued by the IRS for this second group.
In addition to the efforts of expatriates, there has been consistent strong support from the Taxpayer Advocate, Nina Olson. She has repeatedly brought attention to the problems in the Annual Reports to Congress .
On May 9, 2013 a paper Senate Finance Committee Staff Tax Reform Options for Discussion was released. This report suggested non-resident Americans could be taxed the same as non-resident aliens; that an exit tax could be implemented and advocated repeal of the FEIE.
Coming quite late in the tenure of the 113th Congress, was The Tax Reform Act of 2014. Regrettably, none of the issues of expats were addressed in this legislation (which failed to pass). For an interesting discussion of the approaches considered that do not necessarily address expat issues see: here & here .
In December 2014, a very favorable report was released by the Republican Staff Committee on Finance United States Senate. A primary consideration was to tax non-resident citizens only on U.S. sources.
On February 2, 2015 the Obama Administration tried to address some of the problems involved for “Accidental Americans. In the “General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals”also called the “Green Book,” it was proposed that certain dual citizens could renounce their US citizenship without the fear of penalization, particularly with regard to being“covered” and liable for the Exit Tax. While not tax reform per sé, it represents awareness on the part of the government. It also, for better or worse, raised the hopes of expats everywhere that something was going to be done. The same proposal was put forward a year later, adjusted for changed dates.
On March 11, 2015, the Senate Finance Committee established five working groups to address reform one of which was the International Group chaired by Senator Rob Portman (R-Ohio) & Senator Chuck Schumer (D-N.Y.). Expatriate submissions are < href=http://fatca.eu.pn/ ). The committee report was released in July 2015. It contained a
mere two paragraphs with no specific recommendations.
In June 2016, Republican members of the Ways & Means Committee created a working paper “The Better Way.” It is expected that this will lay the foundation for new legislation. One aspect of this paper is the intent of the GOP to repeal the estate tax and the GST but does not address the gift tax. A concern is that an individual could gift an asset to someone in a lower bracket before a taxable event and have it returned once the income been taxed. It also does not say that a capital gains tax should apply at death (due to no estate tax). The blueprint fails to mention eliminating the step-up basis to FMV that is now available at death nor is there a carry-over provision that would make tax due once an heir sells the property. Whether this is what the Committee intends is not clear.
Unfortunately for expats, this paper has only one sentence pertaining to expats which does not tend to suggest that many of the much-discussed possibilities are likely to find way into actual tax reform legislation
SOME DESCRIPTIONS FROM TAX REFORM PROPOSALS OUTLINING MAJOR NEEDS OF AMERICANS ABROAD
3. U.S. citizens residing abroad – Numerous comments were received that relate to the taxation of U.S. citizens living abroad. These comments include the following recommendations:
Repeal or revise the Foreign Account Tax Compliance Act (“FATCA”);
Provide an unlimited foreign-earned income exclusion for permanent residents of a foreign country;
Expand the foreign-earned income exclusion to include passive as well as earned income;
Repeal the special rules on passive foreign investment companies;
Repeal the provisions imposing tax responsibilities on those who expatriate by relinquishing U.S. citizenship or residency, including the ban on issuance of visas to expatriates who avoid payment of taxes;
Adoption of residence-based taxation (see below);
Residence-based taxation should not include a provision for imposing 30 percent withholding tax on U.S.-source pensions;
Any move to residence-based taxation implies the need to eliminate the savings clause from new and existing tax treaties;
Creation of a bipartisan commission responsible for studying the impact of Federal laws and policies on U.S. citizens living abroad, especially those provisions and administrative programs that require disclosure of financial information. The Commission would report to Congress with recommendations and submit a follow-up report on any remedial administrative response to the report.
The Working Group also received technical comments related to the computation of income tax when a portion of income is excluded under the foreign-earned income exclusion. Adoption of residence-based taxation. Many comments proposed adopting a residence-based tax system to treat certain U.S. citizens domiciled abroad in the same manner as foreign persons, applying withholding taxes to U.S.-source income earned by such U.S. citizens and taxing effectively connected income as under the present law rules. The proponents of a residence-based tax system suggest the following elements:
U.S. citizens that meet certain requirements could continue to be taxed under the rules of present law or could elect into residence-based taxation.
1. Provide an election to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions (Schneider, “The End of Taxation Without End: A New Tax Regime for U.S. Expatriates,” 2013; similar to the law in Canada)
a. Require a minimum period of residence abroad
b. Impose an exit tax on electing taxpayers where deemed to sell all assets at the time of election
2. Repeal the foreign-earned income exclusion (H.R.2 (108th Congress), Jobs and Growth Tax Relief and Reconciliation Act of 2003, sponsored by Rep. Thomas)
Whereas, In 2010 Congress passed the Foreign Account Tax Compliance Act (FATCA) in an effort to catch tax evaders; but this Act has inadvertently ensnared every United States Citizen living overseas due to its overzealous invasion of privacy and punitive taxation and enforcement; Whereas, The United States is one of the only two countries in the world that taxes foreign income of its citizens living abroad who already pay taxes where they reside; Whereas, FATCA creates enormous reporting burdens for American taxpayers living overseas and puts them a great risk for even the slightest innocent mistake; Whereas, FATCA requires foreign financial institutions, to enter into an agreement with the Internal Revenue Service (IRS) to identify their U.S. account holders and to disclose the account holders’ names, taxpayer IDs, addresses, and the accounts’ balances, receipts, and withdrawals (sometimes in violation of foreign privacy laws); Whereas, FATCA has resulted in Americans living and working overseas finding themselves, and their companies, shut out from access to banks, insurance loans and investment opportunities, as many foreign financial services providers have concluded that doing business with Americans is simply too much trouble thus decreasing America’s competitiveness overseas; Whereas, FATCA’s primary mechanism for enforcing compliance of foreign financial institutions is a punitive withholding levy on U.S. assets, creating a strong incentive for foreign financial institutions to divest (or not invest) in U.S. assets, resulting in capital flight, hurting the U.S. economy; Whereas, Time magazine reported a sevenfold increase in Americans renouncing U.S. citizenship between 2008 and 2011 and has attributed this at least in part to FATCA and another surge in renunciations in 2013 to record levels has been reported in the news media, with FATCA cited as a factor in the decision of many of the renunciants; and Whereas, FATCA forces Americans living abroad to make a horribly unfair choice between renouncing their citizenship and abandoning their businesses abroad because foreign financial institutions won’t handle their transactions or accounts; therefore be it RESOLVED, The Republican National Committee hereby presents this Resolution to each Member of Congress and urges the U.S. Congress to repeal FATCA and to allow those U.S. citizens who renounced their citizenship under FATCA to regain their citizenship; RESOLVED, The Republican National Committee urges the IRS to cease inflicting damage on the United States and on the global financial system in an attempt to vindicate FATCA’s misguided approach to tax enforcement; RESOLVED, The Republican National Committee by presenting this Resolution to each Member of Congress urges them to increase the competitiveness of Americans overseas and remove inappropriate invasions of American citizens’ privacy; and RESOLVED, The Republican National Committee hereby presents this Resolution to each Ambassador and Representative from every foreign nation and warns them that the privacy rights of their own citizens are at risk due to reciprocal agreements.
Comprehensive Tax Reform for 2015 and Beyond
By Republican Staff Committee on Finance United States Senate
The United States needs to rethink its taxing rules for nonresident U.S. citizens.
If a U.S. citizen is living and working abroad with some permanence, and the primary nexus the individual has to the United States is citizenship, we think it makes sense to tax the individual, as a general rule, only on income from U.S. sources.
A test would need to be developed to determine at what point a U.S. citizen is considered a nonresident of the United States and then at what point the U.S. citizen is considered to be a resident again.
Some factors that may be considered include:
*the permanence and purpose of the stay abroad,
*residential ties to the United States,
*residential ties to the foreign country, and
*regularity and length of visits to the United States.
The test could be adopted, in some part, from the existing rules that are used to determine residency of alien individuals, i.e., those individuals who are not U.S citizens.
In addition, an exit tax could be applied when the U.S. citizen is considered a nonresident and no longer subject to U.S. worldwide taxing jurisdiction
Proposal Under the proposal, an individual will not be subject to tax as a U.S. citizen and will not be a covered expatriate subject to the mark-to-market exit tax under section 877A if the individual:
1. became at birth a citizen of the United States and a citizen of another country,
2. at all times, up to and including the individual’s expatriation date, has been a citizen of a country other than the United States,
3. has not been a resident of the United States (as defined in section 7701(b)) since attaining age 18½,
4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
5. relinquishes his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen, and
6. certifies under penalty of perjury his or her compliance with all U.S. Federal tax obligations that would have applied during the five years preceding the year of expatriation if the individual had been a nonresident alien during that period.
F. Overseas Americans
According to working group submissions, there are currently 7.6 million American citizens living outside of the United States. Of the 347 submissions made to the international working
group, nearly three-quarters dealt with the international taxation of individuals, mainly focusing on citizenship-based taxation, the Foreign Account Tax Compliance Act (FATCA), and the Report of Foreign Bank and Financial Accounts (FBAR). While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation of individual Americans living overseas within the time-constraints placed on the working group, the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns articulated in the submissions moving forward.
The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows “unreasonable search and seizures” but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.
In addition to these important reforms that will create a modern international tax system for businesses, the Committee on Ways and Means will consider the appropriate treatment of individuals living and working abroad in today’s globally integrated economy
As I write this post, my mind goes back to one of my very first posts about U.S. compliance issues. This post was called “What you should consider before contacting a lawyer“. Since that time I have written hundreds of post describing the problems faced by Americans abroad.
More recently …
In Dewees 1, I explained the importance of the Canada U.S. tax treaty and how it provides “some protection” to Canadian citizens from U.S. tax debts.
In Dewees 2, I explained some of the characteristics of the OVDP program and how Mr. Dewees got caught in it.
In Dewees 3 (this post), I am suggesting some possible lessons that can be learned from the story of Donald Dewees.
Ten thoughts on U.S. taxation, non-compliance, Americans Abroad and the U.S. taxation of Americans abroad
In an earlier post I explained why the Canada Revenue Agency assisted the IRS in collecting a $133,000 U.S. dollar penalty on a Canadian resident. The bottom line was that he was presumably NOT a Canadian citizen and therefore did NOT have the benefits of the tax treaty. This post is to explain where the penalty came from in the first place.
Will you walk into my parlour?’ – #Americansabroad and IRS “amnesty” offers in the 2009 #OVDP
It has been widely reported that a U.S. citizen residing in Toronto, Canada since 1971, paid a $133,000 U.S. dollar penalty for failing to file IRS forms disclosing that he was running a business through a Canadian corporation. How did this fly get caught in the spider’s web?
The Spider and the Fly is a poem by Mary Howitt (1799–1888), published in 1829. The first line of the poem is “‘Will you walk into my parlour?’ said the Spider to the Fly.” The story tells of a cunning Spider who ensnares a naïve Fly through the use of seduction and flattery. The poem is a cautionary tale against those who use flattery and charm to disguise their true evil intentions.
Can the common law “revenue rule” be used to stop the enforcement of U.S. “citizenship taxation” on non-U.S. residents?
What the United States calls “citizenship taxation” is actually U.S. taxation of certain citizens and residents of other countries. The U.S. claims the right to impose full U.S. taxation on the “world income” of certain people who do NOT even live in the United States.
Prologue: In August of 2017 it was widely reported that the Canada Revenue Agency had assisted the IRS in enforcing a massive penalty ON A CANADIAN RESIDENT levied under the U.S. Internal Revenue Code. The penalty was imposed on that Canadian resident was for failing to report to the IRS, that he had been carrying on a Canadian business, through a Canadian Controlled Private Corporation. At the time of collection, the penalty was for approximately $133,000 U.S. dollars!
Q. How did this happen? A. He entered the 2009 IRS OVDP (“Offshore Voluntary Disclosure Program”). Those who entered #OVDP were basically “signing up” to pay penalties to the IRS. Those interested in reading about the horrific treatment of another Canadian resident, who tried to “do the right thing” by entering OVDP should read this.
Federal Tax Crimes: Court Sustains $10,000 Per Year § 6038(b) Penalty https://t.co/cx26P98rDV – imposed on U.S. citizen residing in Canada
The “imposition of direct taxation” on the “citizen/residents of other nations” evolved from “citizenship-based taxation”. “Citizenship-based taxation” was originally conceived as a “punishment” for those who attempted to leave the United States and avoid the Civil War. I repeat, it’s origins are rooted in PUNISHMENT and PENALTY and not as sound tax policy.
In 1924, the U.S. Supreme Court in Cook v. Tait upheld the U.S. practice of “citizenship-based taxation”. This means only that (assuming the validity of the decision almost 100 years later), the U.S. has the right to impose “punishment and penalty” (Justice McKenna actually said that “government by its very nature benefits its citizens”) in the form of “citizenship-based taxation”. This does NOT mean it’s a good idea to do so. Cook v. Tait should be considered in terms of (1) the evolution of citizenship and (2) the evolution of taxation.
The United States has (at least in theory) been imposing direct taxation on Americans abroad (who are mostly the citizen/residents of other
countries) for over 100 years. During this period, there has been no serious discussion about ending this unfair and destructive practice.
See the following article in the New York Times (from the Titanic era) – March 7, 1914.
“See no evil”: Few people even know about U.S.
“citizenship-based taxation”. What you can’t see you can’t know.
1. Almost NOBODY (including – some but not all – U.S. based tax
professionals) even knows that the U.S. imposes taxation based U.S.
citizenship (which is conferred by a U.S. place of birth”). It is simply unknown to the overwhelmingly majority of Americans (how could their country do something as stupid as this?). For a country where citizens are defined primarily as taxpayers (“taxation-based citizenship”), there is little attempt to educate the masses.
2. Citizenship-based taxation is NOT explicitly required anywhere in the Internal Revenue Code. It’s true. The Internal Revenue Code mandates taxing “individuals”
and taxing “nonresident aliens” (“nonresident aliens on U.S.
source income only). (This suggests that “nonresidents” are NOT required to pay tax to the USA.) It is ONLY through “Treasury regulation”, that “individual” is defined as “citizen or resident”. I kid you not. Read the Internal Revenue Code yourself.
3. Those who do know that the U.S. imposes taxation based on “citizenship” often, equate “citizenship” with “residency”. They think
“citizens are residents” and that “residents are citizens”
“All countries tax their citizens” when he really meant “All countries tax their residents”.
In other words, the U.S. population and Congress actually believe the United States has “residence-based taxation”! Well, everybody knows that “U.S. residents” are subject to U.S. taxation. But few know (and it would never occur to them), that U.S. citizens who establish residence in another country, are still required to pay taxes to the United States!
“Hear no evil”: Those who know about “citizenship-based taxation” don’t know how CBT actually operates – by subjecting people who live in a “foreign country” to the Internal Revenue Code – as though they live in the United States.
4. “Citizenship-based taxation” is discussed ONLY by academics. I have yet to see A SINGLE paper written by a U.S. based “academic” who understands or even mentions the “Alphabet Soup” list of problems faced by Americans abroad which include: FBAR, FATCA, CBT, PFIC, CFC and Forms 5471, 8621, 8938, 3520/3520A, etc. At most they have some “vague idea” that “citizenship” should include the requirement to pay U.S.
taxes. They do NOT discuss this issue in practical terms that hint at what it really means.
In other words: Those who know of or advocate citizenship-based taxation simply do not understand the problems that it causes.
5. Those who support or tolerate “citizenship-based taxation”, see the problem in terms of Americans leaving the United States (if they have the “wherewithall”) and NOT as Americans leaving the United States and then having becoming subject to BOTH the U.S. tax system and the tax system of their country of residence. In many cases they don’t even seem to understand that all countries require you to pay tax if you live there! In other words, they see this as a “mobility issue” and NOT as “trying to live your life issue outside the USA issue”.
6. “Expatriate taxation” is a narrow and highly specialized area of practice. It is complex and has a long “learning curve”. It is therefore not surprising that many U.S. based tax professionals do NOT understand its practical implications. Many of them do not have the skills to inform and advise Americans abroad.
“Speak no evil”: It is almost impossible to get anybody to “listen to” and “speak about” the problem. It is hard to get the attention of Congress
7. Those impacted by CBT (“Homelanders abroad” and the “citizen/residents” of other nations) do not have political representation in the United States. (Of course it is questionable whether Homeland Americans have political representation either. Such is the reality of a two-party system that dominates the political process.) For the most part, legislative change in the USA is accomplished ONLY through “lobbying” and “money”.
Bottom line – U.S. legislators fall into two
First, those who don’t know what CBT is – that the U.S.
is imposing taxation on “Homelanders abroad” and the “citizen/residents of other countries”; and
Second, those who are not “paid to care” whether the U.S. is imposing taxation on “Homelanders abroad” and the “citizen/residents of other countries”.
8. The U.S. political system makes it difficult to pass any law. This means that it is both hard to pass new laws and hard to get rid of old bad laws.
9. Congress and Treasury are completely indifferent to “Homelanders abroad” and the “citizen/residents” of other countries. (Indifference being one of the worst forms of abuse.) Therefore, when Congress makes a law or Treasury makes a regulation there is NO consideration given to the effects on persons outside the United States. This indifference would be reasonable if U.S. tax laws did NOT have “extra-territorial application”. But, the indifference is unreasonable when U.S. tax laws do have “extra-territorial application”.
10. The “tax compliance community” is uniquely positioned to advocate for the repeal of “citizenship-based taxation”. Yet it does not do so.
(The repeal of “citizenship-based taxation” would hurt their business
interests.) I am not aware of any tax professionals who have or are actively lobbying for (not even letters to House Ways and Means in 2013 and Senate Finance in 2015) for a move to “residence-based taxation”.
Perhaps “clients” should pressure their “tax professionals” to lobby (either individually and/or through their professional associations) for the repeal of U.S. “extra-territorial taxation”.
Is a Congressional change in the law really needed?