Shadow Raider says
YES! YES! IT WORKED!!! The Senate Finance Committee had its meeting on international competitiveness today (instead of May 23 as scheduled), and it included notes about individuals! It’s considering the proposal in Bernard Schneider’s paper!
Excerpts from the meeting notes (my comments in bold):
“The United States income tax rules applying to cross-border income are based on two core concepts: the residence of the taxpayer and the source of the taxpayer’s income.” (Are they abandoning the concept of citizenship now?)
“Nonresident citizens: U.S. citizens living abroad are generally taxable as residents of the foreign country where they live. They are also required to file U.S. federal income tax returns annually and pay tax to the U.S. on their worldwide income, subject to the foreign tax credit and an exclusion for a limited amount of foreign-earned income. Other countries generally tax their nonresident citizens only on income their citizens earn in their country of citizenship. Some believe certain employers overseas are reluctant to hire U.S. citizens because of the associated tax burden and compliance costs.”
“NON-RESIDENT U.S. CITIZENS
1. Provide an election to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions (Schneider, “The End of Taxation Without End: A New Tax Regime for U.S. Expatriates,” 2013; similar to the law in Canada) (You read it right, they mentioned Canada!)
a. Require a minimum period of residence abroad
b. Impose an exit tax on electing taxpayers where deemed to sell all assets at the time of election
2. Repeal the foreign-earned income exclusion (H.R.2 (108th Congress), Jobs and Growth Tax Relief and Reconciliation Act of 2003, sponsored by Rep. Thomas)”
I can’t believe it! feel like jumping around right now!
“unfortunately, the exit tax craziness was in the ACA proposal, somehow as a pre-emptive negotiation”
“…the ACA proposal, if I remember correctly, it allowed for a judgement of tax havens where there are low taxes or no taxes. The income credits would work only in high-income tax areas.”
Both of these things are fundamentally wrong with the ACA proposal. The question now is, how to roll them back?
well, first confirm if my memory is correct, then persuade ACA to change if so.
In parallel, the low tax areas are a big business interest and also an interest for US presence (middle east).
Exit tax is unfair and can be shown as such. The paperwork is a waste of time for gubbermint. At $2 million, it hits people at retirement age.
….The exit taxes are normally directed at “the rich”…… sorry but your definition of rich is not mine by far !
sorry, it was meant to be sarcastic, in quotations. 2 mil is required in most locales to make it thru retirement. Stuff like that and the form 8938 are devastating to people in that situation. For example, an immigrant inside US retiring, and truly expatriating back to his homeland to live out their years.
o.k. than we agree the exit tax has to go regardless of ST or LT capital gains ! This is rubbish as we all know back to 1939
Still looks like trouble.
The “exit tax” thing is just retarded anyways. I’m sorry, but it just is. Are there asset classes that a NRA from a tax haven cannot participate in? As far as I’m aware there are not.
Listen, I love to rail against the rich fucks just as much as everyone else, but this is retarded. If you want to suck out rich-people money, then do it properly from the beginning. Just leave actual expats the hell alone.
@Joe Smith, good one. It is true that there is a lesser risk in not been seen, ratted on or located.
If you want to start a fight over the “exit tax” the place to do it is in Ottawa not Washington as this proposal is simply following the Canadian system for better or worse. I would say the enforcement of the Canadian exit tax is primarily directed at the wealthy if anyone. Most people moving from Canada simply file their last T1 and pickup and leave.
@Tim, problem is that if we were born outside the US, or lived elsewhere for decades, and acquired another citizenship (by birth or naturalization) we have already left. Our assets are made and held outside the US.
And now, retroactively, the US wants to impose an ‘exit’ tax on assets with no US connection except our birth? That is not how Canada does it
And they get to define the terms – or revise them at any time. That is very dangerous – given how unreasonable, complex and punitive anything that the US crafts to apply to those of us ‘abroad’.
The US would still be acting as if it had a right to us and our non-US assets. And putting this into an exit tax just codifies and re-affirms that.
The big thing, ANON, is that there is real and better awareness of FATCA — comes with the continuing need and opportunity for us to debate it where it is discussed. There are many, many big guns and small guns and ordinary joe’s. It needs everyone of us to explain over and over the folly of the steamroller, FATCA, and in the process, US citizenship-based taxation, as the media lazily headlines with “tax evaders,” “tax cheats,” “traitors”. There are better ways than taking out every US Person family abroad who are, by no means, tax evaders.
I think the “exit tax” is intended to be directed at people who make lots of capital gains while living and investing in the US and then leave the country and expatriate before actually realizing them. Without it, the proposal might look too much like an oportunity for tax evaders, and never get off the ground.
But wasn’t there something in the original ACA proposal that it would exempt people who had been non-residents for over two years at the time the legislation would be enacted. That would prevent it from applying to people who had lived abroad and made their money where they live over many years. If there wasn’t something like that included, there should be.
Anyway, no time to look it up now. Off to collect my CLN from the Halifax consulate!
@CanuckDoc, I honestly fail to see why that means anything though. Any NRA can make those same investments and not pay US tax on it.
I appreciate that many of you are thanking me, but just because I’m reporting this development doesn’t mean that I did it. I helped a lot, but I think that most of the credit goes to ACA, Roger Conklin and everyone who contacted Congress and sent comments to the Ways and Means Committee.
About the exit tax: ACA’s proposal clearly states that Americans already living abroad for more than two years at the time that the proposal is enacted would not be subject to the exit tax. I also think that the exit tax is unnecessary, I don’t care if some people are able to avoid tax on unrealized capital gains by moving to a country that doesn’t tax them. That’s a very rare case that doesn’t justify burdening everyone else and adding more complexity to the tax code. But since the exit tax already exists for people who terminate US citizenship, I don’t think that Congress would allow termination of US residence without an exit tax.
About tax havens: Bernard Schneider’s paper doesn’t mention tax havens. ACA’s proposal states that the designation of tax havens should be reserved only for countries that specifically exempt new residents from taxes to attract rich foreigners, not for countries that simply have low taxes. I don’t like this idea at all, this is again a very rare case, and countries are sovereign to decide what they want to do internally. However, unlike the exit tax, I don’t think that Congress will implement this idea. As far as I know the US doesn’t have a list of tax havens, and I don’t think Treasury or the IRS would dare to make one. In fact, I challenge anyone to define what a tax haven is and to list them. The OECD list of tax havens has been empty since 2009, and other countries’ lists are notoriously incorrect.
About the repeal of the FEIE: The numbers 1 and 2 in the meeting notes mean that they are alternatives, not part of the same proposal. Look at the notes about other subjects. I think that they just wanted to list a complete opposite alternative for discussion, but based on the main text of the notes I think that most of the committee now supports residence-based taxation.
Another thing: I’m concerned that Congress may be lazy and implement residence-based taxation with an overriding section of law that states that nonresident citizens are taxed as nonresident aliens, instead of modifying the whole tax code to erase all references to citizenship as I did. The tax code should not mention nonresident citizens, it should treat all nonresidents equally, otherwise the section would be seen as a “loophole”, “windfall” or “special provision” specific for Americans abroad, just like the FEIE is now, and could be easily attacked by various congressmen.
By the way, a lot of the credit goes to Petros too. Without this website, I probably wouldn’t even be aware of all these problems or become motivated enough to help.
But let’s not count this development as a victory yet, Congress is still discussing.
@shadow raider
As far as I’m aware, Congress has never discussed the implementation of a residency based taxation. If I’m correct, this is a history making event.
Even if I was just one more in the anti-citizenship based taxation column, I’m so happy that I may have played a part in this coming about, and so proud of everyone else who took the opportunity to do the same.
An exit tax on only U.S. based capital assets that are held in U.S. domiciled accounts is just fine. But there should be no exit tax on U.S. assets that have been purchased using another country’s currency if the U.S. person is a non-resident. Such purchases are actually monetary loans to the U.S. capital markets and therefore should not be taxed by the U.S. government. Since upon the sale of the asset, the value of the capital gain/loss is ultimately reconciled in the currency of the country from which the loan originated.
existing agreements handle capital gains just fine.
Sell real estate? Be charged according to local tax regs. You don’t live there? Get a credit according to the tax treaty.
Sell stock or companies or financial products? Get taxed locally, and apply the credit according to the tax treaty.
Handle it when it is sold, according to existing tax treaties.
Is there something else that needs to be taxed?
I’m pretty much so pissed off, I’m calling all homelanders thieves.
https://fbcdn-sphotos-h-a.akamaihd.net/hphotos-ak-snc7/480278_10151312112610295_718616041_n.jpg – This pretty much says it all “fair share” my ass!!!
For more lovely rants from this born in Canada, 100% Canadian (who is married to an American), go here. https://www.facebook.com/media/set/?set=a.10151556523580295.1073741826.730735294&type=3
And yes, I went there:
https://fbcdn-sphotos-f-a.akamaihd.net/hphotos-ak-prn1/936330_10151608862315295_80128034_n.jpg
Servicemen/women or no, “Serving your country” doesn’t give you a right to invade my wife’s pocketbook!!!
@Calgary and @Bubblebustin
The fact that this issue is being considered by Congress is a tremendous achievement – an achievement that was made possible by hundreds (if not thousands) of people who lobbied, blogged, tweeted, helped spread the word and provided support for others. Some were more visible than others. But, no single individual could have gotten this issue to consideration by Congress.
It reminds of a bit of Ronald Reagen when he used to say:
“We can accomplish anything if we don’t care who gets the credit.”
The comments on this thread reminded me of the story “I, Pencil” told by Lawrence Reed. You will find it here:
http://www.fee.org/library/detail/i-pencil-audio-pdf-and-html#axzz2SqPRzgcw
The simple pencil is the result of the work of many individuals, each of who contributes in a small way. The idea is captured in these words:
It is likely that consideration by the Ways and Means Committee will result in an improvement. The issue is what is meant by “Exit Tax”. There is nothing to suggest that it would be the same as the current tax. If they are taking their cue from ACA, then the tax will be manageable for U.S. citizens abroad.
That said, (as @Calgary and @Badger have pointed out), the damage the Obama administration has done to U.S. citizens is irreversible. The best bet is to get out as quickly as your circumstances allow.
As can be inferred from other comments, “US citizenship abroad” has reached the point where U.S. citizens abroad are under constant attack from the U.S. government AND from the compliance industry. As @IRSCoompliantforever noted, most US citizens abroad are NOT aware of the extent of their US tax obligations – he then raises the question of whether they who are not aware should be made aware. I am of two minds on this issue.
On the issue of the compliance industry (“cross border” professionals):
They are as much a part of the problem as they are part of the solution. In many cases they are a greater problem. The reasons include:
1. Professional Obligation: Their primary obligation is to the principle of compliance and to the IRS.
2. Professional Perspective: In the same way that surgeons see surgery in a “technical” way, tax professionals see FBAR, PFICs, etc. as technical aspects of their working lives.
3. Personal Perspective 1: It is extremely lucrative to guide people into and keep people in compliance. It is in their financial interest to promote compliance.
4. Personal Perspective 2: Because they don’t have tax problems themselves and are not being subjected to threats, they really can’t “empathize” with those who are affected by it.
As I say, the “cross border professionals” are as much a part of the problem as they are part of the solution.
U.S. citizens abroad are on the receiving end of extremely immoral laws enforced by an extremely immoral government. In the United States of today, there is no relationship between law and morality. For U.S. citizens abroad, U.S. tax compliance (as noted by Nina Olsen) is simply impossible.
Put it another way (as Roger Conklin has repeatedly noted) : the only way for U.S. citizens abroad to NOT live their lives in violation of the law is to renounce.
Finally – We are only at the end of the beginning:
Our achievement in getting this issue in front of Congress means that the time has come to step up the attack. We must continue to pressure, to educate, to lobby and to be patient. As Tim says: “This is a marathon not a sprint”. All committees need to continue to receive a steady diet of information from U.S. citizens abroad.
Yep, IBS, ACA and others may be making a difference. Here’s a friendly comment from MotherJones:
http://www.motherjones.com/mojo/2013/05/rand-paul-fatca-repeal-offshore-tax-evasion#comment-891715755
No mention anywhere else of what to me should be the news of the year. Not at from ACA, AARO, nobody! Maybe we dreamed it?
This is really great news! Thanks Roger! Thanks Shadow Raider! Thanks Petros! I really believe that with your help and persistence, the US is going to come to its senses.
I was discussing the current US citizenship-based taxation with someone the other day, how it is a law that is very archaic and ripe for repealing. I think there are other US laws that only apply to “residents” and not “citizens”. Dodd-Frank comes to mind.
@geeez,
Corporate persons abroad are residency-based taxed. Real persons abroad are citizenship-based taxed. Both have a US-based corporate headquarters (address). Here is my first attempt to explain this to my Iranian buddies:
http://www.presstv.ir/usdetail/303134.html
With the following, I explained to my left-wing buddies why FEIE applies to real persons rather than to corporate persons:
http://www.alternet.org/comments/economy/ayn-rand-usa-20-years-corporate-profits-are-4x-and-their-taxes-have-fallen-50-meanwhile#comment-896724215
Everything to me suggests that the current status is not only a vioation of national origin discrimination, but also a clear violation of the Equal Protection clause of the United States Constitution. But, hey, I’m just Swiss so no American would ever listen to me. 🙂