The following was submitted in the form of a comment:
I’d like to have some opinions about the bill that I’m writing to replace citizenship with residence-based taxation. Maybe someone could move this to a different page if it gets too long. By the way, I’m about one third of the way through with the relevant sections in the Internal Revenue Code.
1. To define residence, I am using the current substantial presence test with all of its rules and exceptions. This is the definition that is currently used for foreigners without a green card, so I am just applying it to everyone. I am also adding an exception to consider US government or military employees abroad as residents, because their salaries are sourced in the US and they would pay higher taxes if they were considered nonresidents. I am also adding that US citizens and permanent residents who don’t satisfy the substantial presence test may elect to be treated as residents for tax purposes by simply filing the normal resident tax forms (1040). I understand that there are some cases where this may be beneficial, and I don’t want to increase taxes on anyone.
2. Because some people may elect to be treated as US residents even if not acually residing in the US, I am keeping the foreign earned income exclusion and the exclusion of income from US possessions available. It may be hard for you to imagine, but there are situations where using the exclusions is better than being a nonresident. For example, this occurs for those residing in a low-tax country or US possession who have income from US sources and a low total income.
3. To be consistent with the concept that citizenship should not be used for taxation, I am removing the requirements that certain dependents be “citizens or residents”. If I changed the requirements to only “residents”, some people might not be able to claim dependents that they currently claim, and again I don’t want to increase taxes on anyone.
4. Also to be consistent with eliminating the use of citizenship, I am repealing the sections that allow higher taxes on those whose country of citizenship or residence impose higher taxes on Americans. (I don’t think this provision has ever been used anyway.)
5. Again to be consistent, I am removing the requirement that the spouse be a US citizen for the estate tax exemption. I am also allowing the exemption from US estate taxes to all residents of US possessions, not just who were born there.
6. I was trying to restructure the exit tax based on termination of residence, but I decided to repeal it completely. My understanding is that the main reason for the exit tax in the US is not to collect revenue on unrealized gains, but to penalize rich people who renounce US citizenship to avoid taxes, because certain dual citizens, permanent residents with less than 8 years of residence, any residents only by virtue of the substantial presence test, and any people not considered “rich” are exempt from it, while those who do not certify current tax compliance are not exempt even if not “rich”. The whole idea of renouncing citizenship because of taxes does not exist in a residence-based system. One could argue that taxes would then be a motivation for terminating residence, but I’m not aware of any US state that imposes an exit tax. Some countries have foreign exchange control but not an exit tax per se. As far as I know, only Canada has a real exit tax, and the Netherlands can only impose it under a treaty with the new country of residence. I also don’t agree with taxing unrealized gains because they are not final and could decrease, just like what happened to Eduardo Saverin’s Facebook shares. Besides, the gains may be taxed by the new country of residence once realized; if it doesn’t tax capital gains, it probably collects more revenue from other taxes or other sources instead, or it spends less. Likewise, I decided to repeal the estate tax on inheritance from “covered expatriates”.
7. I am getting tempted to include in the bill a complete repeal of FBAR, FATCA and even the whole estate tax. It’s very easy to write “section #### is repealed”. But those are separate issues and I guess I shouldn’t try to fix everything, I don’t even know if my bill will be introduced at all. I think it’s better leave the unconstitutionality of the FBAR penalties for the courts to decide, a repeal of FATCA for the banks to lobby, and a repeal of the estate tax for the Republicans in Congress. Citizenship-based taxation is the issue that no one else cares about.
Before you go, be sure to read these comments starting here…
http://isaacbrocksociety.ca/expat_tax/comment-page-33/#comment-387555
@Em, certainly makes some excellent points… as do others…
@Em, Thank you.
@Chris, I included that article as one of the references in my presentation.
@Just Me, The FBAR is a FinCEN form. In 2003 FinCEN simply delegated the FBAR processing, assessment and collection of penalties to the IRS, but the form still remains under FinCEN. From what I understand, both the IRS and FinCEN explain that the FBAR has to be filed electronically, to FinCEN, starting next month. The instructions that say something different are old. Also, according to FinCEN’s instructions and regulations, the $500 penalty is specifically for financial institutions, regarding other reports that banks have to file. I don’t think that it applies to the FBAR.
@Shadow Raider,
I have always wondered, what was the specific “Legal authority” did FinCen have to delegate away its responsibilities for FBAR administration to the IRS?
I am sure one of those ‘best and brightest” treasury attorneys that Mopsick has told us about, probably had some “secret ruling” now housed with the NSA, on why they could do that.
Certainly, without a challenge, they can do what the hell they want, but would love to have someone explain to me why they can, or think they can? Maybe I have missed it in my reading.
Could the FAA just delegate its authority on some compliance matter to the TSA, if they thought it was convenient. No legislation or Statue / Title change required?
Just me, just wondering. 🙂
@Just Me, Both FinCEN and the IRS are under the Department of the Treasury, and the law only mentions the Secretary of the Treasury. I don’t know the details, but I suppose the Secretary can delegate its power to anyone within the Department as it wishes. This report has more information about this (see page 17).
Thanks for highlighting that Just Me.
And as for this “…Although FinCEN states that it is working to allow tax preparation software to create and file an FBAR, this capability is not yet in existence. Consequently, after June 30, 2013, tax preparers will be unable to assist their clients in the preparation of FBARs. Clients will need to prepare and submit the FBARs on their own computers.
…”
On their own computers.
There are stats about the technology gap in the US population, and that of other countries. Many people still do not own personal computers or cannot afford internet connections. That leaves them stuck with using internet elsewhere – like public libraries or other public access. There is still a substantial proportion of the population – particularly (but not confined to) seniors and the elderly. How will those abroad protect themselves from fraud and identity theft if they must rely on others to help them file the FBAR electronically, using someone else’s computer, or a terminal in a public library, etc. ?
Can you imagine bringing all your banking documents to the library and spreading them out for all to see in order to file your FBAR?
Or having to ask a friend, family or —– an acquaintance who does have a computer, internet access and enough savvy to successfully file – given the certain and inevitable glitches that already exist with electronic filing.
And guess what USA, there are people living in parts of the world who have no reliable internet access.
This is a priority to bombard the Taxpayer Advocate with. If it is the IRS who is insisting on e-filing the FBAR only, and not FINCEN, then the IRS can change this policy.
Just another reason to renounce if one can.
That and the resurfacing of the attempts to punish those who renounce
http://isaacbrocksociety.ca/2013/06/13/congress-resumes-attacks-on-emigrants-the-ex-patriot-act-is-back/comment-page-2/#comment-387889
IRSgod says you MUST file your FuBAR electronically even though you do not have a computer OR even though you have a computer you do not have access to the internet OR even though you have a computer with internet access it is not compatible with the electronic FuBAR form. BUT don’t expect to take your box of bank statements to a tax preparer to file your FuBAR electronically on your behalf because the IRSgod has not created the necessary software yet for that. So tote that box of bank statements off to the public library or an internet cafe and keep a careful watch over your shoulder for prying eyes and note carefully where the surveillance camera is directed. Oh heck, what’s the use? Write out all those sensitive details on a billboard, march up and down main street and hope a kind passerby with no criminal intent will copy it all into a compatible computer for you and send it off into the ether, hopefully ending up on a Treasury Dept. computer before the date due. My forehead hurts from the palm slaps! 🙁
@Shaddow raider. Thnx…I will have a read. However, just because two organizations report to Treasury still doesn’t answer the question of the ability to delegate something from one Title to another, but maybe the answer is in the TIGTA report.
Shadow Raider goes to Congress, part 2. This time I decided to try a different route to get downtown and it took less time. The meeting was in a building adjacent to the one where I’ve been before, it seemed bigger and newer, with the very high columns at the entrance, in ancient Greek-Roman style typical of many government buildings in DC.
I met with Alex Teel, assistant of representative Spencer Bachus (R-AL), who is “chairman emeritus” of the Financial Services Committee. Before the meeting started, he surprised me by saying that he had read my comments to the Ways and Means Committee (am I getting famous?). I thanked him, but explained that this time I wanted to talk about something more specific. He seemed very interested in the FBAR issue, asked detailed questions and took notes. He agreed that there shouldn’t be duplicative reporting, and that the FBAR penalties are too high. Before I even mentioned my suggestions, he said that the best solution would be to abolish the FBAR and allow the IRS to share the information in form 8938 with FinCEN, as it was the case before 1976. He quickly understood everything. However, he said that it’s very hard for Congress to pass anything these days (they all say this). In the end, he asked me to send him my presentation because he would like to read some of the references such as the TIGTA report. I suggested also reading the reports from the National Taxpayer Advocate.
It’s nice that he was interested and supportive, but from the way that he spoke, it seemed to me that he wouldn’t really take action anytime soon.
I also got a meeting scheduled with Aaron Krejci, assistant of representative Jeb Hensarling (R-TX), who is chairman of the Financial Services Committee. Yes, the actual chairman. Stay tuned for next week’s episode!
Thanks again. Yes, I have always gotten similar responses, that they had no hope to get things through. And that they expected to be blocked as the minority, hence had no interest in beginning the effort.
Then, one thing they could do to bring attention to the problem and get things done is to bring this abuse to light. What are they waiting for? This is much bigger than the tea party abuse, where no one got penalized financially. As Schulman was so good at pointing at: these associations could have just waited to be audited and file their tax return with the tax exemption, without trying to seek the tax exemption status before hand. It seems that that process is optional.
@Shadow Raider, if they keep telling you that won’t/can’t do anything because of they have the minority, maybe you could suggest they expose this abuse to the public. That might lead to actions being taken. They’ve been pretty good at taking advantage of the scandals lately.
I have mentioned this in many Contacts with Rebloodricans, with no result.
Try next Jesse Ventura if someone can get to him.
What the Congress there for? Fire them all if they can’t get anything done. Fooey on their SNAFU!
@Mark Twain…
Regarding Jesse…. OK
https://twitter.com/FATCA_Fallout/status/347539357730742272
@Mark Twain…
Jesse Ventura Nation retweeted you
48m: @VenturaNation Do you want another example of IRS abuse, please RT this from American Citizens Abroad #FBAR penalties http://bit.ly/11gk7qX
and then I sent this…
@VenturaNation Thanks for the RT. Here is what one #Americanabroad was put through by the IRS over 30 months http://bit.ly/16xdmX6 shocking
“And as for this “…Although FinCEN states that it is working to allow tax preparation software to create and file an FBAR, this capability is not yet in existence. Consequently, after June 30, 2013, tax preparers will be unable to assist their clients in the preparation of FBARs. Clients will need to prepare and submit the FBARs on their own computers.
…”
On their own computers.
There are stats about the technology gap in the US population, and that of other countries. Many people still do not own personal computers or cannot afford internet connections.”
…then let them eat cake!
@Shadow Raider,
Your meetings in congress are focused only on FBAR—but if you happen to hear anything, pro or con, on the Schneider-Canada exit tax RBT proposal (or ACA etc.), could you please let us know?
@IRSCompliantForever, I’m focusing only on the FBAR now because I think Congress already got the message about citizenship-based taxation. But I’m still following both issues, so sure, I’ll let you know if I hear of anything.
@shadow raider
Thank you for everything you’re doing and for redirecting me to this thread. I lost getting new posts when Brock underwent renovation a few months ago.
@Shadow Raider, Thanks.
I know that Congress has received a flood of good submissions on RBT. But I cannot help from wondering whether, after these submissions, there now appears to be the slightest hint of new support for RBT in the House W&M Committee.
Today I went to DC again, same building as last time. I met with Aaron Krejci, assistant of representative Jeb Hensarling (R-TX), who is the chairman of the Financial Services Committee. He had never heard of FBAR, FATCA, OVDP etc., and he didn’t ask questions, but paid attention and took many notes. He said that he understood the problem and that he will talk to members of the committee (he said members in the plural). He agreed that the FBAR penalties are not right. He thanked me for explaining the issue because that’s how they find out about things like this. He also asked me to send him my presentation and the reports from the National Taxpayer Advocate (finally someone in Congress will read it!) and from the Government Accountability Office.
Although he didn’t know anything about the subject before the meeting, I got the impression that he is more powerful than the other assistants I met, so maybe now someone will finally do something. I’ll keep in touch with him to see what happens.
@shadow raider
If my memory serves me correctly, you posted your presentation here in the past. If so, would you be kind enough to repost it?
Again, thanks for all you do to get this in the faces of those who stand the best chance of doing anything about it.
Excellent, Shadow Raider. Your continuing work on all our behalf is valued — and impressive. Thank you.
@Shadow Raider…
RE “He had never heard of FBAR, FATCA, OVDP etc., ”
And, if this is the top aide of the Chairman of the Finance Committee, I am just stunned. What hope is there if these guys who advise the guys that vote and create these monsters don’t know about it, what hope is there that the rest of America will know?
Amazing.
Thanks again for your one man lobbying effort. You have probably done as much or more than some of the more organized efforts.