Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Issues regarding US persons abroad 578 Comments

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.

578 thoughts on “Shadow Raider is rewriting the United States Internal Revenue Code”

  5. *recalcitrantexpat, you bring up a valid point.  When I was writing to my former “representation” explaining the situation, I also had the feeling that they would ignore the situation because I live in Switzerland.  They did indeed ignore it and thus I renounced.  This shows that America is willing to harm its citizens living abroad and to justify such activity.  As such, Americans abroad who are renouncing their US citizenship are doing so for their own protection, since their government has shown that it is willing to justify, tolerate and even support crimes against them.

  6. Thank you for your help with the list of banks. I sent it along with other information to Alec Aramanda, senator Jim DeMint’s assistant, and he asked me to keep him updated.

    I got another meeting for later this week, with an assistant of representative Devin Nunes (R-CA). This representative is a member of the Ways and Means committee, and his assistant quickly answered my email and asked me to send him more information before the meeting. He seems interested in the subject.

  7. @Shadow Raider,

    I have to hand it to you, you are democracy and advocacy in action!  I admire your efforts and applaud them.

  8. *Shadow Raider

    Good work. Devin Nunes is big bigger than either Reichert or Boustany(or for that matter Pat Tiberi). You are starting to close in on the man himself Ways and Means Chairman Dave Camp. I think only Paul Ryan(of Romney VP fame) and someone else are as senior behind Camp as Devin Nunes.

  10. @Just Me, Thanks.

    @Tim, Wow, I had no idea that Devin Nunes was so important. I had never heard of him, I just contacted his office because he is in the committee and his website had a form to request a meeting.

  12. Today I went to the House Office Building, and met with Dan Breig, assistant of representative Devin Nunes (R-CA), who is a member of the Ways and Means committee. This meeting was very different from the previous ones. Dan Breig is clearly older and much better informed, was defensive, seemed a little angry and in a hurry, and the meeting was fairly short. However, he did agree with some points.

    He actually read my presentation and proposal that I had sent to him by email, and had arguments against almost everything. First of all, it seemed that he didn’t like that I wasn’t from Devin Nunes’s district or representing a formal organization, even though I had clearly stated in my meeting request that I wasn’t. I mentioned ACA, and he took note of it. He said that he was aware of the number of Americans living abroad, but justified citizenship-based taxation with the assistance that the US provides for evacuation from unstable countries. I argued that most Americans abroad live in stable countries, and that the assistance has to be reimbursed. He argued that the reimbursement is lower than the cost of the evacuation (the reimbursement is the cost of a commercial airplane ticket), so I mentioned that 91% of Americans abroad end up not owing tax to the US anyway, but have to file all the forms. He asked if the problem was mainly compliance then, and I said yes. He mentioned that if Americans abroad don’t think that their US citizenship is worth the taxes and compliance, they can choose to renounce their citizenship (he didn’t seem to think that renouncing is something reprehensible). Then I explained the expatriation tax and the Reed amendment, of which he was not aware.

    Since he was already well informed and defensive, I backed off and switched to my “plan B”, which is the three most important changes needed, in my opinion, if citizenship-based taxation is kept: abolishing the FBAR, the estate and gift tax on covered expatriates, and the Reed amendment. He seemed a little angry that I hadn’t already highlighted these points in my presentation, so he wrote them down. About the FBAR, he argued that compliance burden is high for all Americans, but I said that the only penalties in the entire Internal Revenue Code that are not proportional to the taxes owed are those on the FBAR and form 3520. About the estate and gift taxes, he said that they affect all Americans, but I explained that for covered expatriates these taxes are actually higher than if they remained citizens. He did not defend the Reed amendment, and wanted to know who Reed was. I was also going to explain that the FBAR is repetitive with form 8938, and that the estate and gift taxes on covered expatriates cover assets acquired even after they are no longer US citizens, but he interrupted me and I didn’t have time to mention it.

    Finally, he agreed with my plan B. He seems to think that the US should tax based on citizenship, but that the compliance burden for Americans abroad should not be so high, and that there should be no penalty if they choose to renounce their citizenship. He hinted that Devin Nunes would agree with my plan B because he wants to simplify taxes, reduce the compliance burden, eliminate the estate and gift taxes completely, and lower barriers to trade and movement of people. He said that the committee has been focused only on the corporate aspect of international taxation and hasn’t considered individuals, so he will explain these issues to the congressman. He suggested that I also contact other members of the Ways and Means committee. I thanked him again and left.

    Although Dan Breig wasn’t sympathetic to the idea of residential taxation, I think that the fact that he is older, actually learned about the subject on his own and engaged in a detailed discussion with me means that he can and will actually do something, unlike the other assistants I met.

  13. Dear Mr. Dan Breig, take your user-fee evacuation and shove it where the sun doesn’t shine. If you don’t want to protect Americans just because they are Americans, that’s fine.  But that doesn’t give you the right to tax expats who live abroad.  I checked again, and the butt tattoo seems to be fading since I renounced my US citizenship.  I think that if this is an example of a person that understands the problem, then only heaven can help us.  I thank you Mr. Shadowraider. for you efforts, but I would think that I would have given up after talking to such insular provincials after a only few such discussions.  Do you have any idea how livid I am over this attitude that the fact that the United States only charges a portion of the evacuation fee in the view of this baboon, means that they can impose extra-territorial taxation, FBAR, FATCA, 3820, 8555, and a whole host of other forms and penalties?

    I am indeed livid, since all I wanted from the United States in return for my citizenship was the right to return to my place of birth and visit my family, may be take up residence once again at some uncertain point in the future.  I don’t need their protection. Ambassador Stevens found out that US protection doesn’t mean much for high level diplomats, how much less for ordinary citizens?  Please stop protecting me.  (I have the Canadian version of Tony Soprano to do that).

    Now I am exiled like many others. 

  14. excellent job Shadow Raider.  It is important in any work one does to follow up with them.  Minutes of meeting.   Followup call, and a real meetings a 2nd time help to make sure that information isn’t wasted.

         It is not acceptable to have any official to state renunciation as a course of action.

  15. *I don’t know the exact details of the American system but in Canada the funding of consular services is embedded in the cost of a Passport. Watch video from Passport Canada below:

     



  16. @Shadow Raider and Mark Twain

    Let me again thank both of you for your personal lobbying efforts.  I am somewhat chagrined that I have not done some of that myself, as when I was last in the States, if I got off my butt, I probably could have come to DC and knocked on a few doors myself.  

    Kudos to you for walking the tougher road, via the halls of Congress and negotiating with arrogant Staffers.  I don’t think your efforts are for naught!

    Question, were any of the Congressional Staff aware of Nina Olson’s Reports to Congress?  What did they think of them. If you have mentioned it before, and I missed it, I apologize.

    btw, ACA apparently had some good meetings during their lobbying efforts in DC, and will be posting their results on their Web sight in the near future.  Watch for that.

      

  17. @Just Me, Almost every assistant that I met was familiar with Nina Olson, including Josh Lynch who said that he follows her reports and thinks the IRS is “overzealous” (his word). She seems to be well known in Congress. However, none of them knew about the problems of Americans abroad, immigrants, FBAR or OVDI until I talked to them. Nina Olson’s reports are extremely long and technical, covering a wide range of topics, so they don’t pay attention to everything she writes.

  18. @Shadow Raider

    It is true, that they are extremely long and technical, but at least there is a section focused on American’s abroad that one can use to say, “even the National Tax Advocate Gets It!”  Handy reference to have.

  19. *@ Shadow Raider – Congrats on walking into the lion’s den and coming out unscathed.  I’ve been knocking on Congressmen’s doors since 1976 on these issues (believe it or not!), and continue to be stunned that so many myths about the taxation of Americans overseas continue, not least is the idea that they come to our rescue in case of emergency.  That had some validity during the Cold War; today it is simply ludicrous!!  The next time you hear this you might remind them that 70% of overseas Americans reside in Canada and Mexico so you can ask what contingency plans the DoD have for invasion and rescue of these overseas Americans.  Then you can point out that another 20% live in the EU comprising 27 countries.  Expats in China are miniscule and supposedly a “growing threat, so you can ask him what the DoD plans are for invading China to bring US citizens out of that country.  Ironically the only country poised for rescue is South Korea where 30,000 US troops remain deployed 57 years after the Korean War while we are extracting our troops out of Iraq and Afghanistan faster than a jack rabbit.  You could suggest that the South Koreans, now a wealthy country, simply pay to defend themselves and have the savings to the American taxpayers at home credited to those Americans overseas who are trying to sell US exports to create jobs and more taxes at home.  But, of course, what a crazy notion that is….  And your description of the process of evacuation is not accurate; US taxpayers are CHARGED for the evacuation not reimbursed – along with any other nationals in the process who, however, are NOT charged for that evacuation.

    Back in the 70s and 80s when I heard this argument I was brash enough to suggest that they then tax Germany, Italy, Britain, the entire Middle East, South Korea, Japan, the Phillippines, etc., too, since the 1 million men overseas were there to protect them more than overseas Americans.  But again, that seemed too complicated for them to grasp.

    Here is another angle that I suggest everyone use:  Green card holders in America are required to pay US taxes on their worldwide income.  There are over 20 million of them.  The US then wants the 5 million overseas Americans who pay taxes to their local countries to pay money to the USA, too.  Does the word “greed” mean anything?

    How about this:  FATCA, according to the Joint Committee on Taxation, scored the revenue gain from this monumental nonsense to be a mere $800 million a years (really!).  Congress for some bizarre reason likes to multiply by 10, so this number comes out at $8 billion.  (Our Congressmen clearly hadn’t heard that the 5-year plan is what killed Communism during the Cold War so they thought a 10-year plan somehow would be so much better…).  The International Bankers Association have said it will cost global banks over $10 BILLION to implement FATCA.  Now I think most of you readers here can figure out this simple math, right?  Amazing how neither Congress, the US Treasury, or the IRS can – and you wonder why America has a debt crisis looming!

    How about this for another tact:  According to the Federal Reserve, more than $150 BILLION each year is sent out of the country in cash, presumably by illegal immigrants and drug dealers vis Western Union and other means.  So a 1% transaction “fee” (tax) = $1.5 billion – DOUBLE what that cockamamy FATCA scheme is supposed to raise.

    Then there is the obvious:  If overseas Americans pay the same taxes as those inside the USA, where are the same services from the Federal government to those overseas Americans?  Where is the support for education?  Healthcare?  Roads?  Bridges?  Etcetera?  If they want to roll out the old saw on “military evacuation”, that’s OK – but that’s only the DoD budget – what about the rest?  Or why don’t we examine the percentage of how much “protection” and “services” overseas Americans receive from the Federal government and then pay “our fair share”?

    Their arguments are myopic, unintelligent, nonsense, devoid of any concept whatsoever what happens outside of our borders, irrelevent, greedy, unproductive, counterproductive, and insulting to every American’s intelligence – yet the stupidity continues decare after decade with the same lame excuses….

    Congrats for taking it on – everyone should support ACA!

  21. @Shadow Raider, re: “….He said that he was aware of the number of Americans living abroad, but
    justified citizenship-based taxation with the assistance that the US
    provides for evacuation from unstable countries    “….

    That should be easy to rebut – Canada has the second most numbers of US persons abroad, and it cannot be described as an ‘unstable country’, and secondly, citizenship-based taxation doesn’t pay for evacuation. Mexico has the highest numbers, and I have yet to hear of the US sending planes and ships to evacuate mass numbers of US persons from Mexico – regardless of the serious problems with corruption, drug wars, etc.

    And,”He mentioned that if Americans abroad don’t think that their US
    citizenship is worth the taxes and compliance, they can choose to
    renounce their citizenship     (he didn’t seem to think that renouncing is
    something reprehensible). Then I explained the expatriation tax and the
    Reed amendment, of which he was not aware.    “

    Greatly admire your persistence and dedication in making these appointments, and the keen way you have with your arguments, and how strategically you choose your points to emphasize.

    Hard to believe the level of willfull US ignorance on this issue.

  22. I tried to push that Nina Olsen had written a report to them, and therefore they should respond to Nina Olsen, publicly.  Carrot is the population of 7 million whom might support them.  Little reaction.  Thinking about what to say when I go back in about 10 days from now.

         Even with the same people, letters/emails get little reaction.  Priority is to meet face-to-face.  Secondary is to call.

         Talking to ourselves here on Brock feels good, but for the ones who must remain citizens the needed action is to engage.

         Hopefully Shadow Raider finds the same route to medias—60 minutes or somesuch.  Anything.  Jim Jatras mentioned star power.  Perhaps Johnny Depp has had some horrendous experiences.

  23. @Patric Hale, thanks for reminding us of the long history of these myths. Seems the US founds it’s treatment of US persons abroad on a shaky foundation of prejudice, irrational magical thinking, and ignorance. But it’s rock solid – even when confounded by fact.

    Wondering what is the progress on the attempts to get funds and mandate an inquiry into the situation of Americans abroad? http://www.nytimes.com/2012/07/31/us/politics/presidential-commission-sought-on-us-expatriates.html?_r=0 

    saw this exchange, while looking for an update on the proposal;

    http://www.linkedin.com/answers/personal-finance/personal-taxes/PFI_IVT/1048935-123523

  24. *Congratulations to Shadow Raider for your efforts in rewriting the tax code and in visiting Congressional offices.  You have some very interesting ideas in your proposal.  I don’t know if you have seen the ACA proposed tax reform which is on the website at http://www.americansabroad.org.  I’d be interested in dialoguing with you about your revisiion.  I just returned a week ago from 3 days in DC meeting several offices in Congress to present the ACA tax proposal.  It opened a dialogue.  Let’s talk. +4122.960.0650.

  25. Thanks, Jackie Bugnion and Shadow Raider for all you’ve been doing. I hope you two are or will be talking. Thanks for commenting here, JackieB.

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