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.
Thanks for keeping us up to date, Shadow Raider.
It wouldn’t take a genius to realize that the only reason CBT has worked for America is because no one knew about it. I wonder if congress can figure that out.
Thanks for all your work and your updates @ShadowRaider. I will be interested to see what happens, although my expectations are very low. It is too late for many of us, who have already given up on the US and have been forced to renounce/relinquish in order to protect ourselves and our non-US families, but there are many still in ignorance of CBT and the potential penalty obliteration that FATCA will spread.
If Congress should pass this RBT replacement of CBT, then there would be thousands of ex-Americans who would be proud to be Americans again. So legislation like this should also provide for eliminating the “non-recuperable” aspect of renouncing. And the Reed Amendment to the US Nationality Law which threatens those who have renounced their US citizenship for tax avoidance reasons with being barred from even visiting the US for the rest of their lives should also be repealed.
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SENATE WANTS FEEDBACK FOR CITIZENSHIP BASED TAXATION
thank you for sharing the proposed Republican National Committee resolution with me. On November 19, Senate Finance Committee Chairman Max Baucus (D-MT) released an international business tax reform discussion draft. Although this discussion draft did not address changes to the federal taxation of U.S. citizens living abroad, the chairman specifically asked for the public to provide feedback on this issue. You can find more details on the discussion draft and the comment procedures here: http://www.finance.senate.gov/newsroom/chairman/release/?id=f946a9f3-d296-42ad-bae4-bcf451b34b14. As my colleagues and I on the Senate Finance Committee move forward in the tax reform process, I will keep your comments in mind.
Interesting discussion of the possibility that the IRS may start to demand more information about US homeland sited bank accounts – even when they are non-interest bearing.
http://taxfoundation.org/blog/baucus-administrative-reforms-target-bank-accounts-closing-tax-gap-measure
…”Pay close attention to the Senate Committee on Finance Chairman’s staff discussion draft of Tax Administration Provisions, Section C – Closing the Tax Gap. Its first provision requires banks to issue reporting statements (1099 forms) for all bank accounts, even those that pay no interest. Currently, the statements must be issued only if the interest exceeds $10 in a year. The 1099 forms are sent to the taxpayer and to the IRS.
Under the new provision, the $10 minimum would be replaced by $0, a minor change in the legal language, but a big change in practice and reporting costs. There is a big difference between replacing the current $10 de minimus rule with $1 or even $0.01, and replacing it with $0. If an account is non-interest bearing, why is the IRS interested in it? Accounts that pay no interest presumably have no associated tax. So what is the Chairman’s staff’s intent here?
Apparently, the IRS wants to have more information about accounts through which people may transfer funds. Perhaps some of the funds are being transferred abroad, where they may earn interest that the IRS currently has difficulty finding. But this has supposedly been dealt with already by stringent new requirements for individuals to report their foreign account information (with stiff fines for non-compliance) and by requirements for foreign banks to report account information on clients whom they suspect might be U.S. taxpayers even if they claim not to be
…..”So why does the IRS need this additional “metadata?” It would be needed as a first step in gathering data on the assets of Americans, as would be needed if we ever had an annual wealth tax (as in France and Spain for example). (That would be a wealth tax in addition to the once-after-a-lifetime death tax already on the books!) Let us hope that the full Senate pays attention to this proposed enormous expansion of government financial intelligence gathering before it is too late.”
National Taxpayer Advocate Nina Olson released her 2013 Report to Congress yesterday. As always, she included sections on international taxpayers and OVDP, and this time also one on FATCA.
@Shadow Raider…
Thanks for keeping your thread updated with the newest. It is always a good reference for me.
It has been 3 months since I sent my FOIA request to the Department of State (asking for consular workload numbers on renunciation and relinquishment). I sent them an email asking if they had an estimate of when it would be processed, but I got no response. I also tried to contact the very helpful congressional assistant of representative Andy Harris (R-MD) again, to see if she could ask the Department of State directly, but I found out that she is no longer working in Congress. So I decided to contact the office of my own representative, Chris Van Hollen (D-MD). The assistant there was surprised that the Department of State is taking so long to respond, and said that she can intercede on my behalf. Let’s see if they respond now.
Thank you as always @Shadow Raider;
Those numbers are very important as we are always being dismissed as exaggerating the size of the burden the US imposes on those abroad, and as ‘scaremongers’.
The numbers are meaningful and significant. They definitely represent some of the status of the canaries in the coal mine of US citizenship/ US taxable status abroad.
It can’t be done on a whim, and has significant risks for tax (and potentially for access to US family) consequences (ex. potential for exit tax, covered expatriate status, potential FBAR and US tax penalties, accounting and legal costs, etc.).
People living outside the US do not stand in line to make scarce appointments and pay significant sums for the sole purpose of travelling (sometimes flying great distances) to the ‘nearest’ (all relative depending on where in the world you are) US consulate/embassy to pay 450. to renounce (which represents more than 2 weeks pay for a worker with insecure part-time employment like me, or by US federal minimum wage standards = 62 hours x 7.25 US) if one cannot qualify to ‘relinquish’, plus figure out how to obtain all the documents demanded by the US (sometimes arbitrary and inconsistent), plus fill out complex forms full of potential pitfalls, plus weather some resistant Consular staff, for NO compelling reason. And then, if in Canada – wait with NO receipt or proof of expatriation now > 9 months for a CLN. And that is with the US knowing very well that if IRS/Treasury stands firm on FATCA’s latest timeline, many will have expatriated, but will not have a CLN if their local bank demands it.
That is apart from the problem of having been forced to give up part of one’s identity and birthright.
Thank you for hanging in there with all of us abroad, and assisting from within the homeland.
With all of your hoop-jumping, you’ll soon have your own Cirque act, Shadow Raider. Thank you.
Shadow Raider … GOODLUCK on the FOIA followup… again reminded of MonaLisa1776 post of ACA Town Hall London UK late Nov 2013 recall that renunciation/relinquishment figure were 5x as much as publicised even without the Greencard official “goodbyes”…. I do so hope that ”
these truths ……self-evident, that all [wo/] men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed [and when the governed are fleeced, they have evey right to regain their equity] .
WE DO NOT CONSENT….to be taxed for no services and no representation
… and as a result of ” a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is [our] right [to renounce/relinquish] , it is [our] duty [to make the world aware of this and our absolute integrity demands] , to throw off such Government, and to provide new Guards [of 2nd passport preparatory to renouncing] for our future security
Shadow raider… 9 trillion kudos toyou for your unstinting efforts. .
Update: My representative’s assistant contacted someone at the Department of State, who said that they have an enormous backlog of FOIA requests, and that my request could take about a year to process. It is not an urgent matter so it cannot be expedited. Therefore, the assistant said that my representative will formally inquire the Department of State directly to ask for the information, and then send the response to me. Nice!
By the way, I’m also frustrated that Canada signed the IGA. I thought Canada would insist on excluding Canadian residents from FATCA, or at least drag the negotiations longer. I’m not sure about Russia and Brazil, but I still think China and India won’t accept it.
Out of the blue, Max Baucus left the Senate to be the US ambassador in China. The chairman of the Finance Committee is now Ron Wyden (D-OR). He is known for making independent tax reform proposals, sometimes against his own party. For example, he has stated that the estate tax should be abolished because it’s inefficient. He has proposed eliminating the FEIE in the past (one item in a much larger proposal), but that was before the “diaspora tax war” so he might have a different view now. If he really likes efficiency and simplicity, I suppose he would agree with RBT.
The problem is that the Finance Committee top staff also changed with the chairman, so it seems that the whole process of contacting Congress is now back at square 1. For example, the committee website no longer shows the link to the tax reform ideas. Ron Wyden said that he would like to do tax reform too, but I don’t think he wants to use any material from Max Baucus. It’s all new.
—
If I may, I’d like to rant a bit now: this is just ridiculous. I’m a very patient person, and I knew it would take time to convince Congress to abolish CBT, but honestly I didn’t expect it to be this frustrating. It’s been almost two years since I found out about the whole subject and started contacting Congress, ACA and others have been doing it for much longer, and absolutely nothing has changed. The congressional assistants mostly don’t care, and the few who do don’t have the power to change anything. They all end up leaving after a while anyway, so there is no progress. Then the congressmen themselves leave, and the new ones want to start everything from the beginning.
The Republicans are sympathetic but they are clueless. They tend to take an issue and keep repeating it ad nauseam without thinking about it, and totally ignoring the response from the public. For example, they say that the estate tax should be abolished because it hurts farms and the ubiquitous “small businesses”. Oh, really? So would it be OK if farms and businesses were exempt? What about the fundamental concepts of what should and should not be taxed, the double taxation aspect, and above all the emotional violence of adding a sudden gigantic tax bill right at the worst event in a person’s life? Regarding international taxation, I’m so tired of hearing them mention territorial taxation for corporations, ignoring that it’s in the case of individuals that the US is the screaming exception in the world. And why does it always have to be about competitiveness, the economy or jobs? So if CBT doesn’t hurt exports, then it’s OK? Again, what about the fundamental concepts and limits of jurisdiction? Regarding FATCA, why is the RNC so stubborn on repealing FATCA but not the FBAR or CBT? Don’t they see that these are the real problems and FATCA is only a recent addition? And later they wonder why they lose elections and why the public thinks they only care about the wealthy and corporations.
The Democrats have a different problem. They care, but they are incontrollably obsessed with not letting the wealthy avoid a cent in taxes. Even if it’s just one person and the revenue change is totally insignificant. It’s almost like they want to punish the rich because they are rich, and they prefer to do so even if other people get hurt in the process and the total tax revenue gets lower. So they prefer to let millions suffer with CBT just to make it harder for the imaginary dozen people who would allegedly move abroad under RBT to stop paying taxes to the US. Never mind that people can already do it under CBT by renouncing citizenship, or by simply moving to Puerto Rico. Likewise, failing to pay one cent in taxes makes a person a “tax evader”, a criminal who must be punished. They don’t care at all what the punishment is. They totally ignore proportionality, the most basic concept of justice. By the way, Republicans don’t care about it either. The constitution is just an interesting collection of nice phrases.
The public and the media, well, I want to remain polite so I’ll just say that they don’t know anything about the subject.
I really don’t want to give up, but I don’t know what else to do. I explained the right things to the right people, did the work for them, and they still didn’t move a finger. And the way things are going, the other countries are just going to keep accepting whatever the US demands. I should have realized it when I saw that they had already accepted the saving clause in the tax treaties decades ago. Petros, you were right, this is completely beyond my power. Sorry, folks.
—
Rant over. Sigh. I’ll keep contacting Congress and waiting. Maybe the real number of renunciations will be released and finally get their attention. Maybe Ron Wyden is more open-minded and more active. Maybe there is a new assistant who cares. Maybe FATCA will collapse, maybe the FBAR penalties will be declared unconstitutional, and maybe CBT will finally be abolished. Maybe. It’s all possible, and I have nothing to lose, so I’ll keep trying. Justice always prevails.
@Shadow Raider, thanks for all the work you’ve been doing on behalf of all the people hurt by CBT, FBAR and FATCA. And thanks for keeping on trying.
The tax reform link is still on the Ways and Means committee. You’ve contacted Dave Camp, right?
Wouldn’t he be the person who would push tax reform?
@ShadowRaider,
Thank you for everything you’ve done. A valuable consequence is that you educated a lot of people, here and in every visit and correspondence you’ve had.
We owe you such great thanks. And praise for your dedication, patience, persistence, efforts, time, understanding and interest in helping your fellows living outside the US. You have done US elected ‘representatives’ should have done on our behalf.
And, this helps to let us know that even with the very best and most dedicated efforts, we are of no real concern to the US political machine. That helps those who were putting off a decision about renouncing or relinquishing (if they could) in the increasingly vain hope that some changes might be made that would stop this train wreck. Some of us have already given up our US birthright while still determined to fight FATCA and CBT as arrogantly imposed on us, our fellow US persons and NOW- on all of our fellow NON-US citizens, taxpayers and accountholders – in Canada and other countries where the US FATCA and extraterritorial IGAs have now been signed (or other countries where they are still in negotiation).
Please continue to check in here. Your knowledge is invaluable, and your insight as to the real ways in which US politicians and staff receive the information you tried to impart. We have no such contact or experience.
Thank you, ShadowRaider. Thank you, badger. Thank you, Petros. Thank you, WhiteKat and GwEvil and on and on — you well know who you are that are my heroes.
@ Shadow Raider
Your rant is totally justified. Words always fail me when I try to express how much it means to have someone over the border trying so hard to help and how grateful we all are for your hard work. So again I simply say thank you and hope you know there is a great more depth to my appreciation than those two words can convey. BTW, there isn’t much depth to Max Baucus — I could see that when I was watching him chair the health care reform meetings with all the corporate connivers sitting alongside him.
@Shadow Raider:
You wrote:
“The constitution is just an interesting collection of nice phrases.”
Your patience is remarkable. Your rant is more than justified and you have everything in perspective. Mine was lost so many years ago, I decided to declare my personal independence and renounced.
I care deeply about my brethren Americans, but the US government can stick it where the sun don’t shine.
Thomas Jefferson also had it in perspective when he wrote:
“God forbid we should ever be twenty years without such a rebellion.
The people cannot be all, and always, well informed. The part which is
wrong will be discontented, in proportion to the importance of the facts
they misconceive. If they remain quiet under such misconceptions,
it is lethargy, the forerunner of death to the public liberty. …
And what country can preserve its liberties, if its rulers are not
warned from time to time, that this people preserve the spirit of
resistance? Let them take arms. The remedy is to set them right as
to the facts, pardon and pacify them. What signify a few lives lost
in a century or two? The tree of liberty must be refreshed from
time to time, with the blood of patriots and tyrants.
It is its natural manure.”
@all, You’re welcome.
@noone, I didn’t contact Dave Camp because he wasn’t very accessible, but I contacted other members of the Ways and Means Committee. I only talked to assistants, not the congressmen themselves. Anyway, this committee is also pushing tax reform, but they have been silent about it for months, so in the meantime I was just waiting and following the Finance Committee instead.
Well, it seems that the wait is finally over! Today, I just read news that Dave Camp plans to release the tax reform proposal next week. They had been really working on a bill all this time. I have no idea if it will include RBT, but we just have to wait a few more days to see. I’m hopeful.
That’s big news indeed, Shadow Raider. Thanks for being our eyes and ears in Washington, even if what you see and hear isn’t very encouraging. All of it helps us in our decision making.
The media is saying that the tax reform proposal will be revealed tomorrow, but some details are already starting to leak. For example, according to this article, besides lowering tax rates, the proposal would eliminate the separate tax rates on capital gains, and instead tax them as regular income with a 40% exclusion. This is what is done in Canada (with a 50% exclusion). If they are taking ideas from the Canadian tax system, that’s a good sign. More details coming soon.
You have probably seen my recent comments in this other thread. I reflected for a day and decided not to give up yet. No one in Congress has actually said anything about the suggestions we sent, so I shouldn’t assume that they rejected them. Most likely they haven’t had any real discussion about the subject, as it’s not exactly one of their priorities. So I’m revamping my process of contacting Congress and I intend to be more assertive, demanding a response from a congressman. I’m tired of just talking to assistants that never follow up, sending comments to committees that never read them, and politely waiting for a response that never comes. And I’ll stop fooling myself with wishful thinking. That’s it.
I’m contacting my own representative, Chris Van Hollen (D-MD), who is the ranking member of the Budget Committee, and again one of my senators, Ben Cardin (D-MD), who is in the Finance and Foreign Relations committees. I will insist on talking to them directly, which I believe I can do because they supposedly represent me (unlike the other congressmen I contacted). This time they will have to respond, and I won’t stop until I get an answer. If they clearly state that they don’t agree, then I may give up. But I’m very confident that once I can engage them in a real conversation about the problem, they will indeed agree because CBT is just not logically justifiable, and the FBAR penalties are clearly disproportional.
Coincidentally, I got a pamphlet in the mail inviting me to a town hall meeting with my representative next week. I intend to go there and ask some questions. I know that other people will have no idea what I’m talking about, but I don’t care. Someone has to do this.
@ShadowRaider, You just made my night. Thank you. 🙂
I was quite bummed out the other day when you said you were giving up.
@ Shadow Raider
From day one I couldn’t believe how lucky we were to have you working so hard within the USA (Washington, DC in particular) to try to introduce logic and justice into congressional offices regarding CBT and FATCA. I don’t blame you one bit for being disheartened by the lack of response … and yet you are willing to continue at least awhile longer. If there was just a fraction of your honour and spirit in those congressional offices the deed would be done by now. Your efforts, in a rational world, would have been more than enough. It’s just a sad reality these days that those you are speaking to do not measure up accordingly.