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
This is good news. He successfully filibustered the Swiss Tax treaty over privacy concerns,, which died in the 2012 Congressional Session, so the loss of privacy related to FATCA would be a sensitive subject for him. The FATCA’s FATAL Security Flaw article is something I would try to print out and leave on his desk!
@ShadowRaider- Let me once again say, congratulations. You are making more progress than I would have ever thought possible. I wish you all the best in your meeting.
*Thanks, ShadowRaider! I used this information to assist me in creating a response to the idea of it being “scary” to “renouncing all rights and privileges”:
*Excellent work, Shadow Rider! Good luck!
following up on the IRS video, here is the other Conklin’s $50,000 reward for finding justification for IRS
http://billconklin.com/2007.08.01_arch.html
“Representation
– While Americans living abroad can vote in US elections, the votes of
Americans living abroad are diluted among the 50 states, causing their
vote to have no impact on issues concerning Americans living abroad”
Being able to cast a vote for a representative in the last state an ex-pat had lived is completely irrelevant. Senators and congressmen represent interests of people physically residing inside their states, they cannot care less about people who previously lived in their states, particularly when those people no longer live inside the US.
The bottom line is that ex-pats have NO REPRESENTATION of their interests in the US legislature.
http://www.intltaxcounselors.com/blog/?p=13511&goback=%2Egde_3731046_member_205256200
Getting your private tax law
Our Congress does nothing and it does nothing very well.
When it comes to tax law, Congress gives the IRS an outline and orders them to write a few hundred pages of regulations for each law. These Regs become the real law. Often loopholes are put into the regulations.
In the early 1980′s, I attended my first IRS hearing. They did exactly what I asked. Ten hearings later, and they continue to respect my ideas. And they will do the same for you.
The magic is boss of the IRS, the Department of Treasury. The boss knows that small business creates 70% of all jobs. Thus, the IRS wants to help small business owners and their advisers.
To get your tax law, you merely ask by submitting a written comment. A few days ago, a simple to use web site to submit comments was created. This web site helps you find the laws that are being written and allows you to submit emailed comments. Here is the link.
@Mark Twain, The reason why some people think that there is no law requiring a person to file an income tax return and pay taxes to the US is because the Internal Revenue Code is very confusing. It starts by saying that income of “every individual” (yes, everyone in the universe) is taxable and lists the brackets and tax rates. The rest of the code is composed of numerous deductions, exemptions and credits, countless definitions of who can use them and on what income (that’s where foreign income of nonresident aliens becomes exempt, for example), and in the end there are many sections requiring the people whose income is taxable to file various returns, pay the taxes, penalties, and more definitions. This website debunks various tax myths.
@ ShadowRaider, re “the Internal Revenue Code is very confusing”:
It is paradoxical and counter-intuitive to think that you can easily be well under the income threshold for even having to file a US 1040 return, or for owing any US taxes, but still end up owing massive penalties – merely based on failure to file FBARs and other financial account reporting forms or making errors on the forms stating the existence and balances of legal, post-tax bank accounts – your own, and those belonging to employers and others where you have no financial interest, and that the FBAR penalties can exponentially exceed the amounts in the
accounts – even where no US or other tax was ever owed, and no interest
ever earned.
If I understand it correctly, it is possible that you could have no reportable, or taxable earned or investment income in any tax year, but with assets totalling 10,000. or more in a ‘foreign’ account, can potentially be made bankrupt by FBAR fines. AND, then, perhaps have to sell your home to pay the fines, which then might result in the person becoming subject to US capital gains tax – resulting in a US tax assessed after all.
US Ambassador Jacobson described a common situation for those abroad; “She didn’t file a US return because she didn’t think she had to. And
because she didn’t owe any US taxes. Nonetheless, grandma could be
theoretically subject to serious penalties.”
It is paradoxical and illogical to think that even in the absence of any actual tax owed, you can be penalized out of existence and potentially charged with a crime.
I can see this type of scenario happening to the widowed elderly person with no earned income, a very low income from CPP, and few tax credits,
starting to have trouble managing their affairs. They may only have CPP
income, and a paid off home which has appreciated in value over their
lifetime. They may have a RRIF, or other accounts saved, which are
10,000. or more, which they pinch off for living expenses. As dementia
set in, they might fall behind in filing, or file incorrectly, or make
inadvertant errors with the IRS forms and reporting requirements. And
then, can you see them being able to pay out of a very limited budget,
for a US tax specialist to help with the filing? Or to muster the
ability to make a ‘reasonable cause’ or ‘non-willful’ argument if the
IRS starts threatening them with 3520 or FBAR, or other penalty letters and
demands?
Or even, those with a chronic mental illness or other
disability, that is sporadic enough to allow them to not be declared
incapable, but which interferes with life enough to make doing taxes and
reporting to two countries – particularly the US ones from abroad –
extremely challenging. They may have very little earned income, but just
enough to put them over the US reporting threshold.
Ask anyone
who has ever had a relative slide slowly into dementia, or into a mental
health crisis like depression. Even when dealing with the CRA, a physician’s report is required that dates the onset of the incapacity in
order to apply for abatement of penalties. But one cannot force an adult
into the doctor’s office for examination and treatment until and unless things have gotten really serious, (legal and moral and practical obstacles) and so, there
can be no physician’s report, and thus no diagnosis – and most importantly, a
diagnosis DATE of onset establishing incapacity – if one cannot force
them to go. But later, family must try to meet the tax obligations on
their behalf, and try to get penalties waived or abated. And for conditions like dementia, major depression, bipolar,
schizophrenia, etc. there can be a slow and insidious onset, or
fluctuations in the condition over time.
Who wants to subject a non-US spouse or adult child to have to deal with the IRS from abroad, satisfying them on their behalf, and fearing that the day may come when one may not be able to do it themselves – barely can coping with it right now, and fearing unintended errors and pitfalls – even with expensive ‘expert’ assistance. And again, it isn’t mostly the actual return itself, it is all the associated ‘foreign’ reporting like those for ‘foreign trusts’ and ‘foreign accounts”. This all applies even to those who may likely owe no US tax ever – or until they sell their home to move into a retirement home, or longterm care.
Who can expect seniors, or those with a progressive disability, or those who can’t afford expensive annual tax help, to satisfy TWO countries, especially when the one who offers them absolutely no benefit is also the one who demands the most, punishes the most harshly and disproportionately, and is the most difficult to satisfy
@ badger
Once again I have to thank you for finding the words to express what I’m sure worries many of us, deep down deep where we really live. It’s another one into my “Best of Badger” file.
@Shadow Raider,
Another scenario that may arise, is in the instance of a government
agency outside the US, that exists to act on behalf of those deemed incompetent – and handle their assets and their financial and other affairs, where
no relative or other suitable guardian has or can be appointed. Such an agency may be the Office of the Public Guardian and Trustee in Ontario, though there will be equivalents in the other provinces, and perhaps in many other countries.
If you read the descriptions below, you will see that given the sheer numbers (> 1,000,000. ) of those who may be dual Canadian -US citizens and permanent residents of US origin in Canada, it seems quite possible that those deemed by the US to be ‘taxable persons’ in Canada, could be found in the client base served by this agency. Does this agency then assume the US tax reporting and FBAR burden as part of it’s mandate? How will they know who is a ‘US taxable person’? How will that conflict with their mandate to protect their clients from harm? How will banks identify the citizenship of accounts administered by government agencies by proxy? Will the IRS expect this Canadian agency to comply with FATCA and FBARs and 3520s, etc. by proxy ? The US will not allow personal guardians to renounce on the behalf of those deemed incompetent, and neither will it allow those persons to be exempted from all the reporting burdens it imposes on all others that it deems ‘US taxable persons’. So, it seems unlikely that it will exempt those deemed incapable, who are being represented by public civil servants of provincial and federal agencies of non-US countries.
This is another insupportable instance of the refusal of the US to consider the ramifications of defining all ‘foreign accounts’ and assets to be subject to the US system of extraterritorial citizenship based taxation – without exception. It is unlikely that the US Congress, IRS and Treasury can, or would want to be challenged to present a legitimate international case that imposing FATCA and FBARs on these people fulfills a ‘compelling’ social good and US government priority – based solely on some inherited or birth citizenship status.
I doubt that Canada and other countries spend public monies grappling with the US, Treasury and IRS over complying with the reporting and US tax obligations that the US could probably impose on the accounts of people deemed incompetent, but because of their insistence on the 10,000. aggregate FBAR threshold, and because they insist that all of those abroad must file US tax returns regardless of country of residence and lack of US income or ties, they create serious human rights and civil rights abuses. Which may ultimately prove so embarassing for the US that they may wish that they had not started applying the Bank Secrecy Act and FBARs so widely – because the underlying assumption is that every US citizens or ‘US taxable person’ must pro-actively prove that they and their funds are not criminal. Proceeding from a presumption that all of those with ‘foreign accounts’ are equally likely to be criminals, has created a monster – which taken to its logical conclusions in application illustrates just how egregious, arrogant and misguided the US jihad against all those living outside it’s borders has become.
I would like to see Shulman, Geithner, and all the merry crew that support FATCA and FBAR and other punitive IRS financial reporting regimes to consider if they want to be called to account internationally in the scenario I am describing here.
And a further complication is that as the US proceeds with this jihad, foreign governments will find that few people will want to take on the IRS reporting and penalty burdens on behalf of others, and offer to participate in advance planning, or take on guardianships if it means shouldering additional jeopardy. Even now, there will be families here in Canada, where the non-US members will not know what they are in for if they agree to be executors or hold power of attorney for US taxable persons here. And vice versa – US resident citizens who will have to add the jeopardy of ‘foreign account’ reporting and penalties to their own IRS obligations if they assist a family member living outside the US. This threatens the wellbeing of families – and adds to the burdens they face when a member becomes incapable, infirm, or dies. People may avoid making these decisions at all, because of the complexities. Some may decide not to make any advance planning arrangements because the IRS makes that so onerous.
http://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/overview.asp
“The Office of the Public Guardian and Trustee (“OPGT”) delivers a unique
and diverse range of services that safeguard the legal, personal and
financial interests of certain private individuals and estates. It also
plays an important role in helping to protect charitable property in
Ontario. Operating within the Social Justice Programs and Policy
Division of the Ministry of the Attorney General, the OPGT has
approximately 400 staff located in six offices throughout Ontario.
Services are provided by multi-disciplinary teams of dedicated staff
with experience in the health care, social work and financial planning
fields. They receive professional support from lawyers, accountants and
investigators. A brief description of many of the services offered by
the OPGT is set out below.”…….
……………
“PROTECTING THE RIGHTS AND INTERESTS OF MENTALLY INCAPABLE ADULTS”
Managing Finances
The OPGT manages the financial affairs of incapable people who have
no one else who is authorized to do so. In this role, which is called
“guardian of property”, the OPGT makes all the financial decisions and
conducts transactions that these individuals would otherwise handle
themselves. This includes receiving and depositing income, making
investments, maintaining and selling property, applying for benefits,
filing tax returns, paying bills and acting in legal proceedings if
required.”…
………..
ADMINISTERING ESTATES
The OPGT protects the interests of potential heirs when an Ontario
resident dies leaving an estate and there is no one who can administer
it.
The OPGT will apply to be appointed estate trustee if:
@Em, thanks, not really deserved, but gives me an outlet and a way to try and contribute ..
@badger,
As always, thank you so much. How important all you write!
@calgary, thanks. This has been on my mind since the beginning, and the stories you and others have shared here at IBS have stuck with me.
@Shadow Raider, I doubt you get time to point out the ways in which the BSA FBAR laws in broad application have reached a point of absurdity, but this hypothetical scenario of a Canadian government agency possibly having to report to the US government (re the example of the Office of the Public Trustee possibly having to report FBARs and FATCA forms on behalf of clients) came to me as I thought about how I felt about my own government of Canada reporting on all of us to the IRS and Treasury without any just cause.
I don’t have a problem with merely reporting the interest earned annually on our perfectly legal, post-tax, CRA and SIN# registered and personal accounts – which the CRA already totes up annually, but I refer to the singular action of separating us out, and setting us apart from our fellows by virtue only of our dual citizenship, or permanent resident (of US origin) status and being subjected to automatic reporting of every deposit, transaction, and balance. Not because any of it is illegal, but because of the underlying rationale of the FBAR, and precursor of FATCA – the Bank Secrecy Act, and the application of it after 2001, which presupposes our guilt as money laundering, tax evading, terror funding, drug lords and criminals – there is no way for either Canada or the US to get around that as the rationale. There is plenty of information about the history of the FBAR, which FATCA builds on, and it was intended and designed for criminals – thus the draconian and confiscatory penalty regime, and the manner in which it is administered.
@all,
I can’t accept this from the US, but having Canada, the country I swore allegiance to, and my home by choice, treating me the same way – and being complicit in the US presumption of guilt without reason, is a tacit slander that is insupportable. The US insists on the fiction that any accounts located outside the US are inherently questionable, and ‘foreign’ simply by geographical location in relation to itself. But, when Canada is complicit by supporting that same fictional presumption – and tacitly agrees via its actions to enforce the US delusion that ALL accounts held by someone of US status through a parent, or by birthplace or naturalization are also all criminals in waiting if the accounts are located in Canada, it becomes even more surreal and hallucinatory. Basically, through an IGA, Canada joins in the US created fiction, and agrees to act as if Canada is home to > 1 million suspicious criminal persons – predicated only on the flimsy basis that the accounts are – wait for it – not located in the US! When it is viewed that way, it seems incredible that our Canadian federal government would enforce a law based solely on a baseless and absurd presumption that Canadian accounts located in Canada are criminal primarily because they are not in the US.
Today I met with Joyce Meyer, assistant of representative Paul Ryan (R-WI). She seemed much more experienced than the other assistants I’ve met. To my surprise, she already knew almost everything that I was saying, but still politely allowed me to finish my presentation. In the end, she said that my suggestions made a lot of sense, that if proposed in Congress it would most likely pass the House, but not the Senate given the current partisan configuration. She also explained that Paul Ryan, as chairman of the Budget committee, coordinates with other congressmen but doesn’t introduce tax or spending bills himself.
She was highly critic of the Democrats. She said that they think part of people’s income truly belongs to the government, and that’s why they are so aggressive in trying to collect taxes from those who supposedly avoid them, especially if it’s on foreign income. She said that when Democrats talk about tax reform, they mean increasing taxes and revenue. I explained how residential taxation may increase revenue, and she said that was an argument I should explain to a Democrat, implying she already agreed with me. But she seemed very pessimistic, and concluded by saying that she doesn’t see any way that tax reform is going to pass the current Congress.
We thanked each other, and I left the room. As I was walking in the hallway, I saw the door of a big office that read “Committee on Ways and Means”. I felt like getting in there and doing something bold, but I came to my senses and just went home.
I think the easy part is finished. Time to revamp my presentation and contact the Democrats now.
*Good work
On the Republican side it may be worth to try to meet with the staff of Dave Reichert or the big man himself Dave Camp. Joyce Meyer though is probably correct to say you need to start working on the Democrats. My guess is your ideas have filtered up on the Republican side and it is not like Dave Camp and his staff are in charge of everything either on Ways and Means.
More thoughts to come
@Shadow Raider,
Thank you once again for your noble efforts. IMO Ms. Meyer described a very realistic picture of the political environment:
“She said that they [Democrats] think part of people’s income truly belongs to the government, and that’s why they are so aggressive in trying to collect taxes from those who supposedly avoid them, especially if it’s on foreign income.”
People like that make renunciation of US citizenship the only path from bondage to freedom for ex-pats.
*More on House Republicans
WILLIAMSBURG, Va.— House Republicans, criticized as being the “party of no,” will use this session of Congress to offer a comprehensive plan for major tax reform.
No specifics have been released so far, but at their retreat at the Kingsmill Resort Thursday, House Republicans discussed the idea of tax reform extensively during closed-door meetings. From the accounts of all the lawmakers who talked to Human Events, House Ways and Means Committee Chairman Dave Camp (R.-Mich.) was the major force behind pushing a tax reform agenda.
“We didn’t just talk about a tax cut, but serious reform of the tax code that would make our economy competitive enough to create new jobs,” Rep. Lee Terry (R-Neb.) told us after emerging from one of the sessions of his colleagues.
House Budget Committee Chairman Paul Ryan (R-Wis.) was also a strong proponent of the party pushing tax reform as a major part of the GOP agenda this year.
“It’s definitely one of the options,” Ryan told reporters. “We’re serious about doing tax reform. That would be a big step toward getting rid of crony capitalism because it is made possible through the tax code. Ending crony capitalism would lead to better international competition and that would create jobs. One way or another, let’s do it.”
@ShadowRaider- good for you. I’m glad to see that you were able to meet with Joyce Meyer and to hear that she was so receptive to your presentation. I hope that the democrats turn out to be as willing to listen but somehow I doubt they will.
Maybe when it comes to making your presentation to them it may help to use the following argument. If I were there I would try to point out to them that taxes are not levied on people on the basis of their status but they are instead levied on the basis of the economic activity that they engage in with the treasury of the taxing authority. In other words taxes are a levy on the productivity of the financial activities that an individual conducts under the auspices of the account that he/she holds with the treasury of the taxing authority and are NOT a levy that is based on his/her status with the state. This is why it is perfectly legitimate for governments to tax the financial activites of those who reside in within their borders but are not citizens.
The implications of this understanding are amongst other things that we see the U.S. Congress cannot subsidize the financial activities that are conducted outside of the Constitutional boundaries of the U.S. Treasury because those boundaries are the same as those of Congress of which the treasury acts as the financial agent. Any monetary activity that takes place outside of the U.S.’s consitutional boundaries is completely unaffected by Congressional tax policy. This is because Congressional tax policy can only effect tax liability changes with those who are account holders of the U.S. Treasury. This is because only account holders can be affected by a shift in the account holder’s taxation burden through the burdent shifting effects of subsidies, exemptions and exclusions. This is the essential universal nature of legislative and monetary policy.
Since a tax is a levy on financial transactions that are conducted within the account holdings that one has with the taxing authority then this means that legitimate taxation is based on citizenship and not RESIDENCY. Citizenship is not a necessary condition for taxation and it is an error to equate citizenship, residency and taxation. Therefore citizenship based taxation is actually theft from the treasury of the taxing authority of another country.
The U.S. equation of citizenship with residency is a legislative constuct that has no logical basis since no person can be present in two places at once. It is just used as a means for the U.S. government to try to legitimize citizenship based taxation. And yet it is also a tacit admission by the U.S. government that residency is ultimately the only legal basis for taxation.
Maybe they can wrap their heads around that?
In the continuing tax reform battles, this is an interesting consideration I should have known, but really did not think about it until now…
Firms Keep Stockpiles of ‘Foreign’ Cash in U.S.
I am wondering, what impact DATCA IRS bulletin 2012-20 might have had on these funds if it was more broadly written. Right now interest is not reported or taxed in the US, but the money is here anyway! 2012-20 seems to have deliberately avoided this issue as is only directed towards non resident aliens. Again, the double standard. One set of rules for paper people and one for DNA people
@Tim. Senator Enzi’s legislative tax assistant indeed stated that tax reform is THE task of the winter quarter.
Senator Enzi’s LA in the D.C. office provided the following:
“The repeal of FATCA as well as rules that tax U.S. citizens that reside outside of the United States are long-term initiatives. We would be happy to keep you informed if progress is made on those two fronts.The odds of repealing the FATCA legislation in the foreseeable future are slim, particularly given that Sen. Enzi’s party is in the minority in the Senate and does not control the White House”
One needs to look at what Senators might be up for vote in 2014.
http://en.wikipedia.org/wiki/United_States_Senate_elections,_2014
Senators up for re election. Lots of Demonicrats, but people vote mostly for what is familiar.
@ShadowRaider
Here is the finalized OAW tax reform proposal, which is an updated version of the ACA November 2012 paper.
The web link to the article is: http://americansabroad.org/files/5113/5935/9841/oaw2013rbttaxpositionfinal.pdf
looks quite professional.
Do you mean that last year’s work was quite similar to this year’s?