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.
Following foo’s suggestion, 245 out of 347 (71%) of the submissions to the International Taxation working group were about CBT/FATCA/FBAR. You might want a slide which quotes the SFC International Taxation working group’s own report (page 80-81):
“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).”
@ Shadow Raider
You’re slide presentation is excellent. All I want to do is wish you good luck.
@Shadow Raider:
This is some sort of stealth / highly important engagement. Somehow the Shadow Raider is getting in there where it counts. You could have engaged a bit more here on IBS for comments. Somehow Jak Dac figured it out and that is the only other time I have heard of it.
Here are some comments on this presentation. Usually I do best when I have time to think about it all such as overnight or a few days later. No time like the present for this one next day:
Have you ever seen the show “Lost in Space” where the robot detects danger and says “Danger, Danger, Danger,” with arms going up and down and lights flashing? I am referring to the presentation assault on Citizenship Based Taxation which as articulated on a recent IBS feature has dangers as the term is wrapped in the US flag.
Are you out to attack America, and The Flag? Not wise. Perhaps a slide is needed to talk about the terminology. That while it has been called Citizenship Based Taxation, the US really practices a residence based taxation taxing everyone living in the US whether they are a citizen or not. This is what most all countries do. A difference is that the US adds an Extraterritorial Tax component and taxes those US persons living in other countries as if they live in the US. This is unfair as these people are already paying tax in their country of residence. Many live in relatively high tax countries such as Canada, Australia, and the UK – so they are already paying taxes higher than if they lived in the US with the same income and investments. Then the US imposes additional tax and restrictions that impact via tax treaty gaps without any assistance from the Foreign Earned Income Exclusion. A prime example is overseas retirement and pension funds on money earned overseas. The US tax rules do not recognize these as they assume all US persons live in the US and those overseas retirement/pension plans are then unrecognized for US based retirement or overseas retirement. Therefore they treated as unqualified pension funds attracting US double taxation.
Maybe “Change” citizenship-based taxation instead of “Eliminate” it.
Words missing:
“discrimination” “unconstitutional” “constitutionality” respect for “American founding principles” – what is asked for is more American than what the laws that impact on US persons overseas. We have the flag, not them. “Philadelphia Freedom”
“discriminatory treatment compared to US persons living in the US”
With residence-based taxation, then still taxed but as nonresident aliens.
Maybe increase leading between sentences.
I do like that story of Patricia Moon, lived for decades in Canada with her Canadian only husband, earned no more than $11,000k in any of the previous years, paid all Canadian tax, owed no US tax, yet she figured that she would be up for $455,000 in fines from unreported accounts, as reported in The Wall Street Journal (shows not just fatcats but everyday people).
Highly complex and expensive paperwork
What we want.
Do you have a contingency slide to address how you propose to fund it all? Hint: how little it will cost. Will be gains.
I want no matter what happens here to have a tax treaty (Australia) that is completely effective at preventing double taxation with broad exemptions, and not having US taxes flow through just because they have a different name than in your country of residence – as insurance against future silly laws.
WTF: can’t buy US mutual funds, FFI (in US) don’t like overseas address!
@ShadowRaider I would like to be included in comment group in future on your fine presentations.
Thought already: I reemphasize my paragraphs 3 and 4. Whatever SFC does they will have to sell it and put some spin on it, and it better had not be construed as an attack on America. You might show them how they might present it all.
@JC,
Shadow Raider did tell us last week (on the Operation Mosquito thread) that he managed to get this meeting arranged. I think he has a good focus, and especially like the underlined questions on the final slides. Good luck, and thank you, Shadow Raider!
Tomorrow will be a big day! Two lawsuits getting their first days in court, and Shadow Raider getting face time in the lair of the beast. I’m very much looking forward to reading the reports in the following days!
“ShadowRaider” Give them an ” out of this world” presentation. Good point re JC’s comment on ” resident and beyond”. As I live in Oz I would appreciate the plug re our mandatory pensions. We pay in ” I believe like a Roth” taxed on way in ( Questionable re a tax credit for IRS as tax is paid in FUNDS name ) and tax free in OZ on way out. This pension is not recognized as such by the IRS thus taxable. A new Tax Treaty will solve this ( only taxed in OZ) I believe. This is known to the Oz tax treaty people BUT it seems that the US has not played ball on THIS point for TWENTY THREE years when this pension program 21st introduced.
“May the force be with you”
Thank you, Shadow Raider, for your long-term and continued commitment in presenting so clearly on behalf of so many of us.
What a day! Good luck on YOUR part of it.
Thank you all for your comments, I incorporated many of them in my presentation (updated in the same link). Here is my meeting report.
After a subway trip and walking in DC, I arrived at the Senate Finance Committee at 4:45pm. I talked to the receptionist and soon Tiffany Smith came in. She is a senior staff member of the committee and the only Democrat in the meeting today. We went to the meeting room, and soon Tony Coughlan came in with Eric Oman and three other staff members, and said something funny like “the Republicans have arrived”. Tony is also a senior staff member and the one who set up the meeting. I had printed five cards with my contact information and websites of these Facebook groups, and distributed the cards to them. I introduced myself, thanked them for the opportunity, opened my laptop and started the presentation.
Tony Coughlan really liked the map, and said that he thought there were more countries with CBT. I mentioned all the countries that had CBT but abolished it. Then I summarized the problems of CBT (I know that some of you wanted me to cover more aspects, but sorry, I had to be selective due to time constraints).
Eric Oman asked what people are doing after being refused banking services due to FATCA. I said that they are either renouncing US citizenship, or finding a bank that will serve them with only checking and savings but without investments. Tony turned to Tiffany and told her that even Democrats are contacting them and saying how desperate they are with FATCA. Tiffany said that she also met Americans abroad, including a woman from Canada who was afraid of FBAR penalties on her pension. The others asked if she had moved to Canada for retirement, and she clarified that she had been living there for over 20 years. At that point they realized the magnitude of the problem, that we were talking about people who really live permanently in other countries.
I mentioned that last week Congress changed the due date of the FBAR only to charge penalties on people who don’t know of the change. Tiffany and Eric explained that they the goal was to harmonize the due date of various forms with the tax return and to allow extensions, not to charge penalties, and they did think about Americans abroad. I apologized for the precipitated conclusion and if I sounded too harsh. They said that I was fine, but that others who contacted them seemed aggressive (folks, please be polite, these people are trying to help).
I had downloaded one of the video submissions and offered to show it, but they asked me to send them a link later.
When I showed the quotes from the committee reports supporting RBT, things got interesting. They seemed kind of surprised that the text was so favorable, and jokingly accused each other of writing it. Tony pulled a written copy of the report, found the section and read it out loud. Then he confirmed that yes, the Republican side of the committee agrees with RBT, and that some Democrats also agree individually. Tiffany didn’t comment.
I asked if there was any timeline for tax reform, or when they would study international taxation of individuals and not just corporations. They said that they frankly don’t know, and explained that congressmen are the ones who make the decisions. So I asked what we could do for congressmen to see this with a higher priority, but they didn’t really gave an answer.
At the end, they asked me to send them my files, and we thanked each other. Tony remained for a little longer, we had a brief friendly conversation, and he said that we can keep in touch. I thanked him again and left, around 5:30pm.
Thank you Shadow Raider!
Can you please post the summary of the meeting on Citizenship Taxation, American Expatriates and AARO Group Facebook pages?
I would do it myself but am still banned at American Expatriates and AARO group.
@ Shadow Raider
I think it’s starting to sink in a bit. Real people, real problems … need real solutions, real soon! Thank you for spending yet another day in those “hollowed” halls. They’ll need to be filled up with a lot of true information for me to call them “hallowed”. You are making a tremendous contribution.
As always and again — thanks for posting another positive for today, ShadowRaider. More outstanding work to have the ear of these government representatives.
You have my sincere thanks and appreciation, Shadow Raider. Thank you so much for your efforts.
BC Doc
Getting this point across alone is golden.
Deep appreciation, Shadow Raider.
8.7 million strong / Expats and homelanders PLEASE help remember the Revolutionary War ? https://www.youtube.com/watch?v=wLZzi7N4so4
ShadowRaider
Thank you all for your comments, I incorporated many of them in my presentation (updated in the same link). Here is my meeting report.
After a subway trip and walking in DC, I arrived at the Senate Finance Committee at 4:45pm. I talked to the receptionist and soon Tiffany Smith came in. She is a senior staff member of the committee and the only Democrat in the meeting today. We went to the meeting room, and soon Tony Coughlan came in with Eric Oman and three other staff members, and said something funny like “the Republicans have arrived”. Tony is also a senior staff member and the one who set up the meeting. I had printed five cards with my contact information and websites of these Facebook groups, and distributed the cards to them. I introduced myself, thanked them for the opportunity, opened my laptop and started the presentation.
Tony Coughlan really liked the map, and said that he thought there were more countries with CBT. I mentioned all the countries that had CBT but abolished it. Then I summarized the problems of CBT (I know that some of you wanted me to cover more aspects, but sorry, I didn’t have time for everything).
Eric Oman asked what people are doing after being refused banking services due to FATCA. I said that they are either renouncing US citizenship, or finding a bank that will serve them with only checking and savings but without investments. Tony turned to Tiffany and told her that even Democrats are contacting them and saying how desperate they are with FATCA. Tiffany said that she also met Americans abroad, including a woman from Canada who was afraid of FBAR penalties on her pension. The others asked if she had moved to Canada for retirement, and she clarified that she had been living there for over 20 years. At that point they realized the magnitude of the problem, that we were talking about people who really live permanently in other countries.
I mentioned that last week Congress changed the due date of the FBAR only to charge penalties on people who won’t know about it. Tiffany and Eric explained that they the goal was to harmonize the due date of various forms with the tax return and to allow extensions, not to charge penalties, and they did think about Americans abroad. I apologized for the precipitated conclusion and if I sounded too harsh. They said that I was fine, but that others who contacted them seemed aggressive (folks, please be polite, these people are trying to help).
I had downloaded one of the video submissions and offered to show it, but they asked me to send them a link later.
When I showed the quotes from the committee reports supporting RBT, things got interesting. They seemed kind of surprised that the text was so favorable, and jokingly accused each other of writing it. Tony pulled a written copy of the report, found the section and read it out loud. Then he confirmed that yes, the Republican side of the committee agrees with RBT, and that some Democrats also agree individually. Tiffany didn’t comment.
I asked if there was any timeline for tax reform, or when they would propose something for individuals and not just corporations. They said that they frankly don’t know, congressmen are the ones who make the decisions. So I asked what we could do for congressmen to see this with a higher priority, but they didn’t really gave an answer. But Tony said that there is a real possibility for international tax reform on its own, perhaps even this year, and that individuals could be included. Again, no promise, but a possibility.
Eric asked Tiffany if the president’s budget proposal had anything for Americans abroad, and she wasn’t aware. I answered that there was indeed a section, proposing to exempt from the exit tax people who haven’t lived in the US as adults and renounce US citizenship. I also mentioned renunciation and the exit tax a few other times during the meeting, but no one commented.
At the end, they asked me to send them my files, and we thanked each other. Tony remained for a little longer, we had a brief friendly conversation, and he said that we can keep in touch. I thanked him again and left, around 5:30pm.
It appears Tony Coughlan lived outside the United States at one point.
https://www.linkedin.com/pub/tony-coughlan/39/2b8/829
Interesting. Also was a city councilor at one point.
Sorry re repost
Getting it out there as much as possible Twitter, Facebook
Oprah/Hillary-Bill/Jimmy Fallon/Mr and Ms Obama/Ellen/Trump/Louie Theroux/Fox/Brockovich etc.
Senate Finance Committee in recess till Sept 8th many staffers taking a break
Found this link for presidential debate from overseas
http://www.hulkusc.com/watch-fox-news-live-streaming/
It was quite important that the SFC heard your anger about the date changes. You apologized, but they heard it. This helps them to understand why they have received so many not-nice letters.
Interesting
Jak –
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Team Peters
Thank you for contacting me about international tax reform. Its good to hear from you and I welcome the opportunity to respond.
As I have written to you in the past, the United States currently has a worldwide tax system that taxes the income of American residents whether it’s earned in the U.S. or abroad. If an individual has investments overseas any income on those assets are generally taxed by the country in which they are earned. In order to prevent this same income from being taxed twice, once in the foreign country and again in the U.S., a foreign tax credit is permitted. Foreigners who invest in the U.S. are subject to U.S. federal income taxes. Generally, their country of residence similarly provides a credit for taxes they paid in the U.S. or if their home country has a territorial tax system, may not tax income earned by them overseas at all.
The U.S. is one of the few developed countries that continues to tax its residence, whether individuals or corporation, on a worldwide basis. The U.S. worldwide tax system already puts American businesses at a strong disadvantage to their overseas competitors.
As you know, both chambers of Congress have been working diligently this year to come to a consensus on how best to reform the tax code. From the beginning, the Senate Finance Committee has made simplicity, efficiency, fairness, and economic growth the main tenants of any viable tax reform plan.
Additionally, you may be interested to know that on top of the numerous discussions to reform the tax code at the staff level in the current and previous Congresses, the Senate Finance Committee has held five hearings regarding tax reform in the first half of this year alone, including a hearing on February 10 where the former Chairman, Bob Packwood, and Ranking Member, Bill Bradley, of the Finance Committee who helped pass the last comprehensive tax reform in 1986, testified. Everyone on the Committee agreed is necessary to learn how progress was made in the past in order to advance going forward.
During his testimony, Senator Bradley advocated that any tax proposal should be consistent with efficiency, equity, fairness, and simplicity; the four principles agreed upon by Congress and the Administration. In essence, any proposal that didn’t align with those principles would not be incorporated into law no matter who advocated for it.
Additionally, it was emphasized throughout the hearing that the “prestige and clout” of the White House and the Treasury Department is essential in navigating unforeseen, but inevitable roadblocks along the way. This is something we haven’t seen yet during discussions, but I remain hopeful that the Administration will make it a priority as President Obama’s term winds down.
During the first half of this year, the Chairman convened five bipartisan working groups to focus on the various sectors of tax reform. I was named a co-chair of the individual income tax working group, one of five separate bipartisan Finance Committee tax working groups convened by the Chairman and Ranking Member. The other working groups are business income tax, savings and investment; international tax; and community development and infrastructure.
Tax policy affects the lives of every American, that’s why I made it a priority to get feedback when the working groups were first created. Fill out a survey on my website in February with their thoughts on how to improve the tax code. Rank priorities and share views on individual tax breaks that are important to their households and I appreciate the responses I received . Additionally, I joined a forum with tax professionals and business leaders in Des Moines with the same goal of tax reform. Tax simplification and fairness were common themes expressed throughout the forum and tax survey.
As you acknowledged in your letter, the international tax working group’s efforts along with the results of the four other working groups can be seen at http://www.finance.senate.gov/newsroom/chairman/release/?id=e9eefc66-7e11-4276-939f-3eca6fd6d959.
I understand that our current tax code rewards some at the expense of others. Often, those who can afford a high priced accountant and tax lawyer benefit from the growing complexity of our tax code. Taxpayers shouldn’t have to hire a professional just to file their taxes.
Congress should get serious about comprehensive tax reform. Our economy and the wellbeing of Americans across the country can’t wait. I’m glad to offer my experience to this effort, and I’ll work to incorporate the feedback I hear all the time about their frustrations with the tax code. In closing, we need a tax code that is simpler, fairer, and more conducive to economic growth.
Again, thank you for contacting me. Representative government works best when there is constant communication between you and your representatives. Please keep in touch.
Sincerely,
Chuck
http://www.grassley.senate.gov
“Our economy and the wellbeing of Americans across the country can’t wait.”
BUT, those with an American tattoo that do NOT live in the country can wait forever….too bad, so sad.
One might think with all of those meetings, feedback and the immense focus they have on this most pressing issue there would have been a least a modicum of reform.
“…one of the few developed nations…”??? How about the ONLY developed nation. And a few….few meaning two? Funny they never mention their CBT “bedfellow”. Could they be ashamed?
He only seems to focus on tax credits, does he NOT understand the remainder of the fallout destroying the lives of those abroad or is this just willful ignorance? Every single damn letter I have read from the US politicians just makes me angrier. (I now have a collection of 8 copies of the very same robo response re CBT/FUCTA from Elizabeth Warren….EVEN after I write her back stating she did NOT answer my questions, INFURIATING).
http://www.nytimes.com/2015/08/17/us/politics/obama-administration-warns-beijing-about-agents-operating-in-us.html?emc=edit_na_20150816&nlid=71884491&ref=cta&_r=0
“A fugitive is like a flying kite, he said. “Even though he is abroad, the string is held in China.
CBT ?????
The US Is About to Become an Even Bigger Tax Haven / FATCA
http://www.nestmann.com/the-us-is-about-to-become-an-even-bigger-tax-haven?inf_contact_key=0a7240b077d7f925bb0706c03667de7836c9f8e5e35c4a924930ee533285f75a#.VdOvPPmqqko
Tax treaty update – Treasury’s proposed revisions to U.S. Model Tax Convention
http://www.kpmg.com/us/en/issuesandinsights/articlespublications/taxnewsflash/pages/2015-1/tax-treaty-update-treasury-proposed-revisions-to-us-model-tax-convention.aspx
Also heard approx. half a dozen tax treaty negotiations are on hold