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.
Shadow Raider, you’re incredible in your tenacity. The Canadian team of Richardson and Kish, have your same traits. Our admiration, respect and thanks in speaking for all of us directly with US government representatives.
Updates:
1. I had misunderstood what my representative’s assistant had said about my FOIA request. The representative didn’t request the information directly to the Department of State, he requested a status of my FOIA request. Today I received a response, saying that the estimated completion date of my request is July 2014. That’s for the number of cases of renunciation and relinquishment recorded in the CWSS (which I believe they will release). They also gave an estimated date for my older FOIA request, about the number of CLNs (which I believe they won’t release), September 2014. I suppose the CWSS request has a sooner completion date than the CLN request, even though it was sent much later, because in that case the information is stored electronically. Anyway, I guess I just have to wait a few more months.
2. My representative’s scheduler responded to my meeting request. She said that his schedule is very busy until the end of March, but she “will see what [she] can do”. I’ll wait for a meeting date, but in any case I intend to go to the town hall event next week as well.
I wrote a question to ask my representative at the town hall meeting tomorrow. Please let me know if you think I should change something.
Congressman, Americans who live in other countries and recent legal immigrants in the United States have been living a nightmare for the past few years due to unprecedented enforcement by the US government of disproportional penalties on their assets, an extraterritorial law that is closing their bank accounts, and the system of taxation based on citizenship, which is not used by any other country in the world except Eritrea. These people are being forced to renounce US citizenship to just survive. They have repeatedly contacted Congress for more than a year and sent a very reasonable proposal to solve this problem, but they have been completely ignored. Are you aware of this situation, and if so, could you please tell me whether you agree with their proposal, or what other suggestion you may have? Thank you.
@Shadow Raider, short and concise explanation of the problem. Also, thanks so much for mentioning the immigrant’s case. It’s been largely ignored in all IGA negotiations. Their situation can be trickier than Americans abroad in the sense that there is no reasonable official program for them to come into compliance because they’re living in the US. When they ask for advice, lawyers tend to be on the side of caution, given the potential immigration consequences ands lots of them advise OVDP.
I wonder how they’re going to be treated when the data starts flowing next year, but there is a huge potential for abuse here.
@Shadow Raider, please let us know his answer.
@Shaddow Raider…
I have been meaning to acknowledge your frustrations with the lack of RBT in Dave Camps Tax Reform proposal, and your continuing efforts. I too share the “what’s the use” feeling at times, but you press on.
I appreicate it.
As for your question… If you get a follow up, you might ask if your Congressman agrees with the Presidents proposal in the 2015 budget for the full monty FATCA reciprocity (DATCA) has outlined on page 203 of the newest budget proposal. Does he think that such new regulatory imposition (a domestic DATCA) on ALL USFIs is good for the economy and job creation in America?
http://1.usa.gov/OY69ff
BTW, I have also posted this on my DATCA historical thread...
and I see that Eric has put up a separate post about it.
I went to the town hall meeting. It was in a high school, and there were about 300 people there. Representative Chris Van Hollen (D-MD) first spoke for 45 minutes about various topics, like raising the minimum wage, the Affordable Care Act, global warming, and the situation in Ukraine. Then he allowed 45 more minutes for questions. Various people asked questions about the IRS scrutiny over conservative groups, the Trans-Pacific Partnership, college tuition and student loans, very high home insurance premiums in flood areas, and there was even a furious guy who wanted to put in jail all bankers responsible for the housing market crisis. The last person complained that, regardless of political opinion, Congress just doesn’t seem do anything about any subject. The representative answered all questions politely, even if he didn’t agree with some opinions.
At the end of the session, there were many people who hadn’t asked their questions yet (including me), so the representative said that he would stay until he answered everyone. That was nice. I was one of the last ones. I read the question I had prepared (see above). He said that he is aware of the situation, and started talking about FATCA. So I said that I wasn’t complaining about FATCA itself, but CBT. I asked him clearly if he thought that “the US should continue to tax people who don’t live here”. He answered yes, that he agrees with CBT.
Then his chief of staff, Bill Parsons, offered to continue the discussion with me. He said that he had already met with ACA, and that people who don’t want to continue being subject to CBT can renounce citizenship. I replied explaining the problems of the expatriation tax, but he didn’t seem to care. He also said that the banking problems of FATCA are overrated, because there are still many banks abroad who accept US customers. (@Just Me, sorry I forgot to ask about DATCA.) So I mentioned the FBAR penalties, and that finally hit the spot. It seems that he wasn’t aware of those (didn’t ACA tell him about that?), and he agreed that the penalties are really disproportional. I tried to explain everything concisely, that the FBAR also affects immigrants, that the reporting is duplicate with the FATCA form, and the GAO recommendations. I said that the reason why people are so afraid of FATCA is precisely the draconian FBAR penalties. He understood. He asked more details about the penalty structure, and whether they were established by regulation or statute, which I answered. At the end, he gave me his card and asked me to send him my references. I said that I could also meet him in DC later.
I was satisfied to finally hear directly from a congressman what he thinks about CBT, even if unfavorably. The total lack of response so far was really irritating. In sum, they want to keep CBT and FATCA, but not FBAR. That’s not great, but good. As I’ve said before, I think the FBAR is really the worst topic in the entire subject. If I can convince Congress to abolish the FBAR, or at least change the penalties to be proportional to unpaid taxes instead of account values, it will be awesome. I won’t give up trying to convince them about CBT, but it seems that that will take a while. First things first. I’ll keep in touch with the assistant. This time I’m his constituent, so I don’t think he will ignore my follow-up contacts. But let’s not get too optimistic yet.
@ Shadow Raider
Well you got something I’d say. You made a dent. I’m really amazed that your Rep. could know about CBT and FATCA and not be aware of those FBAR penalties. Of course they scare the beegeebers out of people. However, it’s also the 800 lb. privacy gorilla in the FBAR room which rankles people. A report with a person’s detailed financial information does not belong in the hands of any governmental agency. When a government demands a financial asset audit of its citizenry it smacks of being a precursor to asset confiscation by some sort of cooked-up scheme assigned a title written in Orwellian double-speak. It’s more than the penalties that make FBARs and 8938s worrisome but if the penalties struck a chord with your Rep. then that gives you a foot in the door and a chance to try to change his tune about CBT (we hope). Thank you, once again, for being that physical presence that those of us outside the USA cannot be.
@Shadow Raider
It is ok you forgot to ask my question. There really are too many questions and too little time. At least you engaged him, and got his attention about the disproportionate nature of FBAR penalties, and that is a start. On CBT, it would have been interesting to see how he justifies it, as it is NOT an international Norm, and what would he think, if Mexico decided to follow the CBT model and start taxing all those Mexicans resident in America, and then needs it help to round them up, and collect what is due! Or is CBT only an American prerogative?
@Shadow Raider
Thank you for all of your work. I know of Ron Wyden’s work on another issue area and from that would guess that he is most likely to be receptive to those issues related to poorer groups of overseas Americans. At the same time, he really doesn’t like big corporations, so will probably focus on reforming the international tax laws regarding them. I wish him luck with that since corporations have done an excellent job of shifting the taxation burden on to us: for example, the term PFIC was invented solely to ensure that portfolio investors, not corporations, were punished for passive investment abroad.
It is really difficult (but not impossible) to change U.S. laws once they are passed, particularly if you are planning on doing something that is not revenue neutral, since any bill would need to find a compensating source of revenue. One of the reasons that tax provisions concerning overseas Americans end up in crazy places like healthcare bills and employment bills is that we have unfortunately ended up being an ideal compensatory source of revenue, since we haven’t been that well organized politically..
U.S. government debt is currently at 100% of GDP. It’s not quite broke, but that level of debt will reduce growth..More importantly, the percentage of revenues going towards repayment is currently low mainly because interest rates are low. If rates rise, they will be in trouble because they have trouble raising taxes from people who live in the country..
The problem is that the revenue from the crackdown looks really good in the short term. People are dumping their foreign mutual funds and paying lots of penalties. There are, of course, the things they don’t see, Economically, this involves overseas taxpayers moving money out of the U.S and those with foreign spouses transferring assets over to them within the gift tax rules. Politically, it means that all hell is likely to break loose among overseas Americans as more people become aware of FATCA in this mid-term election year. The Republicans have made no secret of their desire to use FATCA as a wedge issue. Then there are the harder to quantify issues of how much it will hurt the U.S. if overseas Americans become less willing to defend the country’s reputation abroad (there are some Brits who seem to feel that Gomer Pile is the average American).
@Shadow Raider
Makes me wonder what else your rep doesn’t know about if he doesn’t know what an FBAR is. Knowing this, I wouldn’t trust his opinion about CBT any more than I would any other un/mis-informed homelander’s, as he clearly doesn’t know what CBT really is and what it means to the future of America in an increasingly globalized world. This flippant attitude about renouncing US citizenship tells how truly ignorant he is – I’ve heard it what seems like a thousand times. This is the denial phase, because a full realization of what CBT means to America is the realization that even just one person renouncing US citizenship because of bad law is one too many – that it’s actually a loss for America.
Contrary to what many people say, CBT is not entrenched in America. How could something no one knows about be entrenched?
This said, an awareness about FBAR may serve as the thin edge of the wedge in opening the crack for which the light will shine in through.
The tragic reality is that nobody, whether it be a legislator or anybody else, is capable of really understanding the truly destructive results of CBT if they have never lived abroad and experienced it “in the flesh.”
The testimony of those of us who have runs off like water off a duck’s back when we try to explain it even to our closest friends and relatives
Roger Conklin,
You are exactly right. And even if one can get the rare person to understand, they won’t do anything about it. “It’s not my problem and anyway I’m powerless to change it. I have more important (for me) things to worry about.”
That’s not going to change.
For the foreseeable future, getting a CLN is the only defence from CBT for US citizens or former citizens living outside the US.
@Roger Conklin
Well they can wear their renunciation numbers with pride then, as the “best country on earth” to renounce from.
Roger, how well you summarize the problem and it matters not which side of the US borders.
No one I’ve asked the question has answered that their US schooling taught them about ‘citizenship-based taxation’. You would think that would be a required course all by itself — for future US taxpayers, whether they come to the US as permanent residents or who start their lives in the US and think they can leave to live and work and make their homes in other countries. We didn’t know about the CBT-enforced tax compliance slavery.
Shadow Raider,
As always — thank you for all you’re doing, including sticking around to give your questions and comments.
@Calgary, I suspect that the reason is that so few Americans actually relocate to live and work in another country. I would bet that the percentage of Americans who do so is the smallest of any developed country in the world. Those who have done so are about as rare as a chicken born with two heads or 3 legs.
To most Americans, the US is a nation where millions are clamoring to move to. People sneak across our southern border to enter, Cubans and Haitians risk their very lives to sail for days across the shark-infested waters in the Caribbean on home-made rafts. Others arrive with forged passports, or pretending to be US-Citizens-by-birth from Puerto Rico with false identitiy documents and Social Security cards , and some even arrive frozen to death in the wheel pits of aircraft: all hoping to be able to find a better life in the United States. Some who arrive sadly miss their families back where they came from but never return to visit them lest they be barred from ever returning to their new home in the US. They live clandestinely, working “off the books” for cash only. They never open bank accounts, never apply for credit cards or even risk detection by obtaining driver’s licenses.
Thus it is totally inconceivable to the vast majority of Americans that any US citizen with a sound mind would ever even think of leaving to live elsewhere in the world, let alone become a naturalized citizen of another country and, heaven forbid, actually renounce their US citizenship. So it is really not surprising that there is not even any mention of CBT in our school system.
But indeed it is so true that sorely lacking is information for new immigrants who come if they have left behind any financial assets or their signatures are included on any financial accounts of parents or other relatives back home. These people are in for some very unpleasant surprises if the US tax IRS authorities find out about their financial assets abroad. They are, in fact, extremely vulnerable to blackmail by others who find out their secrets.
Such sad commentary, Roger, all in the name of “promised freedom of the USA”.
@Roger Conklin
Just not new immigrants either. Even long term immigrants knows nothing about this. Long term immigrants have 2 lives.. one in the US… one in their home country… who aren’t rich but they saved & invested well.. middle class. When they arrived in the US… it was never mentioned they had to tell them all what they had. Things in the home country could be savings, investments, inheritance… etc or things done after tax funds from the US. When I speak to some… mention the situation… they don’t believe me when I use the term… tax-evader because they think… its the rich… no… its immigrants also. I hear.. what is it the US’s business when things were done in the home country that was not made in the US or its after US tax money and taxes are paid in the home country… I paid on it already… When the US uses the term *foreign institute* its not foreign to the immigrants… its down the street in their home country. Even my own family has this view… for the US… its easy way to collect money… rob u blind before they deport u back to your home country after.. I feel like I am talking to a wall & no one gives a damn… Immigrants have no voice at all in the US… only voice we have is in our home country… who are also betraying us
US_Person_Foreigner,
Your in-the-USA story needs to be told. Who will tell it effectively? Who will listen? It is horrible for you, living right there in the middle of “Free America”.
@calgary411
U got that right… Since I have no voice in the states… I am trying to share the side of the immigrants’ plight. I think the group that is being raked over the coals are the asians who send *after tax* money to their home country for family support &/or saving for later return home or have signature on accounts, they pay the taxes in their home country. I hear about the horror stories about the so call professionals pushing them into OVID which I am totally against. They have workshops.. all these fear mongering tactics they use. They want to do the right thing… so they bow their heads & do what these so called sharks are telling them and are robbed of their hard earned money… The sad part is that alot of the sharks are their own people… instead of protesting with their votes & voices… they rob their own people to make a buck….
In whatever small way we can from outside the US, US_Person_Foreigner, this fight is for all of you too. Your taxes should be on that earned as permanent residents in the US, as ours, US Persons outside the US, should be only taxes to the country in which we live and earn our income. US citizenship-based taxation is evil – and even more so when there is no good education on this for all of us and especially for those of you who move to the US as permanent residents. If you had known about US citizenship-based taxation, would the US have been your family’s destination?
Roger Conklin wrote with regards to illegal immigrants who come to the US:
“Some who arrive sadly miss their families back where they came from but never return to visit them lest they be barred from ever returning to their new home in the US. They live clandestinely, working “off the books” for cash only. They never open bank accounts, never apply for credit cards or even risk detection by obtaining driver’s licenses.”
The same is now starting to happen to “ILLEGAL EMIGRANTS” who leave from the US.
The US needs EMIGRATION REFORM just as bad as it needs immigration reform, perhaps even more so.
@ Roger Conklin
> The tragic reality is that nobody, whether it be a legislator or anybody else, is capable of really understanding the truly destructive results of CBT if they have never lived abroad and experienced it “in the flesh.”
I don’t know what’s difficult to understand about your testimony to congress and the loss of business due to CBT. It is obvious that it is harmful.
The testimony of those of us who have runs off like water off a duck’s back when we try to explain it even to our closest friends and relatives
Chuck Schumer on IMMIGRATION REFORM:
We must help 11M US illegal immigrants! Lots of potential new votes here.
.
.
Chuck Schumer on EMIGRATION REFORM:
We must punish and banish forever 7.6M US emigrants! No votes here, so off with their heads.
.
@calgary411
Don’t get me wrong… our time in the US allowed my family members to earn a decent living. We knew nothing about taxes… our logic was… earn here… pay here… earn there… pay there… very simple it seems. Stupid us.. CBT… what the heck was that… ohhh… Citizen… I am an immigrant… its not me… I am canadian so to me… that was logical… I wasn’t living there.. see the logic… Even homelanders who never lived in other countries know nothing about CBT… they think I am joking. I wish I was. To them… tax evader… are rich… & deserve to have all their funds taken…
If this web site was not here… I would think I am alone… But to stop being long winded… if I knew what I do now… I would have never agree to get a green card… never… Use to be.. people were proud to have the US gc or citizenship & considered lucky…. cause in canada… lots of people had one or the other cause the US was so close & in the ye olde days…lol… no one thought of the problems that has happened. Now.. anyone want a used GC… u can have it for a price of an Aero bar…