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.
*
Heartening to hear about that meeting @Shadow Raider.
Do you think that the person you spoke with, and the representative would read the most relevant portions of the Taxpayer Advocate report to Congress – both this most recent one, and the 2011 one – specifically the parts directed at International issues? If the representative’s family is from abroad, perhaps he can imagine the implications of the practical complexities for those who move abroad, or must direct family finances for a loved one outside the US – thus triggering FBAR, 3520 and other labyrinthine IRS burdens. Just today I spoke with a non-US couple. They are aging, and looking at a catastrophic health issue – but the most responsible close relative has moved to the US (for love!). This makes it impossible or very very complex and risky to give that child a POA for future planning. The IRS considers the POA on accounts reportable on the FBAR (and FATCA for individuals form?) BEFORE the conditions of the POA’s powers are ever triggered and may never ever take place. If the person dies first, the POA is no longer in force. If they are never incapacitated, the POA is not in force – and may never be used. That POA gives them no actual access to funds unless the conditions are met. But, the FBAR and penalties can be enforced for accounts that are not personal, have no direct financial benefit, belong to non-US persons, and are not accessible – since the POA does not authorize access to the accounts until certain specified contingent events occur. The result is that these elderly people must choose between giving POA to a relative they do not trust – but who lives local to them outside the US, and who is not a US person, or to give it to a trusted child – now a US resident – who then brings the FBAR and ‘foreign account’ reporting burden to bear on their non-US accounts. What kind of choice is that? Should very ill and elderly parents – outside the US, with no US reporting or tax obligation, have to bear the burden of the IRS ridiculous treatment of non-personal ‘foreign’ accounts, when they are just trying to figure out how to carry on and plan for incapacity and death? Should they have to risk their economic safety outside the US just because the trusted family member comes with the IRS encumbrance? And the child cannot say no to helping the parents by accepting the POA, but their account balances create a personal IRS jeopardy as soon as they are named on it. There is no credible reason to believe that these elderly people’s accounts where they live outside the US will suddenly be converted into money laundering terror funding operations – as soon as a POA is signed naming a US resident relative – who is by now a US taxable person of some type – to look after them when they cannot do so themselves.
Is the world suddenly safer now, and billionaires suddenly less able to open accounts in the Caymans, and the US suddenly richer when two old people abroad are prevented from having their children look after their affairs? Is that TAX JUSTICE ? Not that the US gives a fig for the wellbeing of it’s citizens, or of any others in this instance. It’s all about some smoke and mirrors.
The big 5 US banks got off with paying a pittance to those they robbed of their homes in the US foreclosure scandal, and no executives were charged or went to jail. The victims displaced got little or nothing. The banks foisted the risky mortgages onto the Federal Fannie Mae, and still made a tidy profit – at huge cost to the US Treasury and US revenues.
But, it’s all of our everyday ‘foreign’ accounts local to where we live, transparent where we live, that is the insane obsessive preoccupation of Treasury and the IRS.
Where is any current mention of the Carolyn Maloney attempt to get a presidential commission to look into this stuff?
@ Shadow Raider
I hope you don’t think you are walking those hallways alone. We are all with you in spirit and so very grateful for what you are doing.
Fantastic work.
I spoke with 3 reps from my previous district and 3 from my new district. None of them are familiar with the issues, and none of them are aware of Nina Olsen reports—apparently it doesn’t make it to the top of the paper pile.
Each and every representative needs to be actively informed in a way such as what Shadow Raider is doing.
Mainstream media helps to exponentially speed up the process.
(in Scandinavia, the media seems to be the only way in which one can have dialogue with the govt)
@Badger
Here it is in the IRS’s FAQ’s for FBAR:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/FAQs-Regarding-Report-of-Foreign-Bank-and-Financial-Accounts-(FBAR)—Filing-Requirements#FR7
Q. Is a U.S. resident with power of attorney on his elderly parents’ accounts in Canada required to file an FBAR, even if the resident never exercised the power of attorney?
A. Yes, if the power of attorney gives the U.S. resident signature authority, or other authority comparable to signature authority, over the financial accounts. Whether or not such authority is ever exercised is irrelevant to the FBAR filing requirement. See Notice 2010-23 for information regarding an extended due date to report signature authority over a foreign financial account.
Shouldn’t the question be: Is a U.S. person, resident in the US or otherwise, with power of attorney on his elderly parents’ accounts in Canada required to file an FBAR, even if the resident never exercised the power of attorney? Otherwise, some may surmise that it only applies to resident USP’s (of course, we know better). As usual, and just as they did when misleading people into OVDI, the IRS proves that they are incapable of giving clear and specific instruction on anything.
I sent links to that report to MY congresspersons and asked them to read the report and give me their comments. Any others?
*a HUGE thank you to everyone for helping me get the word out about my petition!!
I appreciate your efforts and the exposure you are giving the petition in all of your forums, groups, and social circles!!
MarilynW
@MarilynW
We are happy to help, and posting it and tweeting it to the expat community 🙂
*MarilynW, thanks for trying to make a difference! 🙂 The petition won’t do anything for me, since I already renounced, but it might give my offspring one less reason to renounce later on. Currently, I can’t think of any reason why any American living abroad should continue to be a US citizen under the existing conditions, and I don’t understand why stateside Americans are insisting, with their policies, that Americans abroad renounce. Thus, it is nice to see that there are people like you around who still feel that there is hope with US citizenship.
@Shadow Raider
Help me out please. I know you have posted a link to the source of how each country taxes it’s citizens, but can’t quickly find it..
What is the current status of Philippines? They used to tax citizens living abroad, and that has changed, right? I think it has, but looking for the reference.
thnx
Thanks @bubblebustin. The wording is very unclear.
*Just Me, here’s a pretty good link on the topic:
@SwissPinoy…
Thanks for that. I found this one too.
http://www.gti.org/Services/Tax-services/Expatriate-tax/Expatriate-tax-ebook/Philippines/basis-of-taxation.asp
@Just Me, It’s all summarized in the Wikipedia article on international taxation, with exhaustive references. I wrote most of the section on taxation systems in that article. The main reference is Ernst & Young’s Global Executive Guide, which covers 152 countries and territories. Most of the other references are explanations from the country’s tax agency, from accounting firms, or the country’s tax law itself.
The Philippines abolished the tax on foreign income of nonresident citizens in 1997, effective 1998. But it’s not just the Philippines, other countries that had this practice also abolished it, and a few others apply it in limited circumstances, as explained in the article.
*Thanks, Just Me. We don’t have any income in the Philippines and the Philippines is always happy to see us without demanding anything, so I don’t need to study these links for now, but they may become an issue in the future if we retire there or make the switch from spending money to making money. 🙂
This is an interesting video clip (follow links to the long version) of former IRS agent Sherry Jackson, a whistle-blower, who has an insider’s take on the operations of the IRS. She was put in prison and Ron Paul was instrumental in helping her when her health deteriorated there. Make what you will from it but I think she is quite credible.
@Em
I followed her on twitter for a while. She is really on a mission! 🙂
@Shadow Raider
Thanks for that / those links. That was what I was looking for. I was trying to answer someone on Linkedin who asserted that Philippines taxed Citizens living abroad like the US. I knew they had stopped/changed, but wanted to be sure that I had a good reference and not just an assertion. I like to be careful about my claims or counter-arguments in that forum.
To address the point raised by Dan Breig (representative Devin Nunes’s assistant who justified taxation of citizens abroad claiming that the evacuation assistance provided by the US is not entirely reimbursed), I tried to find out how much these evacuations cost and how much is reimbursed. The only number I could find was from a couple who was evacuated from Haiti after a devastating earthquake in 2010 and described the experience in their blog. They showed that they were charged $841.11 each for a one-way 45-minute flight to the Dominican Republic, and that an equivalent flight normally costs about $59. I don’t know how much the evacuation actually cost, but from the large discrepancy it seems to me that the US government is trying to get reimbursed in full. (By the way, the couple was living in Haiti at the time, the husband was working as a journalist and the wife was working in a non-profit organization. They stayed there for almost two years.)
Also, the latest financial report from the Department of State (see pages 116 and 119) shows that US embassies and consulates are profitable. In 2012, their cost of operations was $3.744 billion but they earned $3.897 billion, mostly in fees for passports, visas and other consular services, with a net revenue of $153 million.
There you go. There is absolutely no unpaid benefit that US citizens abroad receive from the US government, and therefore there is nothing that can justify the US taxing the foreign income of its nonresident citizens.
@Shadow Raider as to January 16, 2013 at 2:55 pm. That was an excellent comment. You should create a thread just to document what you said for future reference.
Have a look at the fees from the US Embassy in Ottawa– its a real cash machine:
http://canada.usembassy.gov/consular_services/fees/passport-fees.html
http://canada.usembassy.gov/consular_services/fees/consular-fees.html
http://usvisa-info.com/en-CA/selfservice/us_fee_payment_options
I searched the Embassy website to see if there were any services that are provided to Americans abroad for free and this is what I found on the FAQ page:
Q: Why are you changing the fees at this time?
A: To ensure that the Department of State recovers the true costs of consular services through user fees, as required by law. The proposed changes to our fee schedule reflect more accurately the true expenditure of doing business. This way, services of direct benefit to individuals, organizations, or groups are paid for by the users rather than by taxpayers in general.
http://canada.usembassy.gov/consular_services/fees/questions-and-answers.html
So I am still on a quest in search of the US government services and benefits that Americans abroad receive that justifies the peculiar institution of citizenship-based taxation.
http://www.youtube.com/watch?v=zK4PGCQQ4Oc
The harder one looks at Cook vs. Tait, the weaker the claimed “presumption” of benefits argument becomes.
WOOHOO! I got a meeting for next week with Paul Ryan‘s assistant!
Paul Ryan (R-WI) is an influential member of the Ways and Means committee and, of course, was the Republican candidate for vice president last year. His assistant for taxes is Joyce Meyer, and I just found out that her parents are immigrants from the Philippines (the country that abolished citizenship-based taxation in 1997). This should be very interesting.
@Shadow Raider… good move! Good luck with your meeting.
That is GREAT!
Paul Ryan understands what Americans abroad can do for promoting US exports. Taxing ex-pats for services they don’t receive just pisses them off, forcing them to return to the homeland or renounce US citizenship. Paul Ryan and Rand Paul are friends of ex-pats. Ryan sponsored a bill to eliminate the the cap on the Foreign Earned Income Exclusion.
http://www.thepoliticalguide.com/Legislation/House/109/H%20R%205986/
I think you’re going to have a great meeting. Ryan will immediately understand the increasingly destructive results of citizenship-based taxation and the poisonous cocktail of FATCA and FuBAR for ex-pats.
fantastic. Good luck. I lived in his district during Super Bowls 1,2, and 3. Wear your Packers jersey for the meeting.