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!
I left the USA aged 1 in the 1960s, never to return except for vacation. I have no US family, friends, or property; just economic ties insofar as my financial assets are US situs, and that’s because I have little alternative. I’ve been IRS compliant for decades, despite the additional hassles. FATCA legislation and the deplorable treatment of those honest folk who entered the OVDI have got me considering expatriation, but this recent development by the Senate Finance Committee has me thinking twice. It would have been a pity to jump through the IRS’ hoops for decades, only to fold as they were about release me. There is little discussion in this thread about the significance of The Committee’s discussion. Does this reflect a new agenda under serious consideration, or are they merely complying with some statutory obligation to give consideration to matters brought before them (i.e. lip service)? If this is really going somewhere, how long before we feel any benefits? I’m not at all familiar with the US legislative process, so any clarification would be extremely welcome.
There is much discussion in this thread regarding the exit tax, and it seems that most here are agitating for its removal entirely. Everyone’s aware of the $651K exemption, but that would hardly cover the net worth of a reasonably successful middle class homeowner about to enter retirement. A payment of $300K+ to the IRS in order that they leave you alone is Mafia-type extortion if you’ve accumulated your wealth outside of the USA over decades. However, repealing the exit tax entirely would create a ‘millionaire’s loophole’ of epic proportions that would never pass legislation. I’ll use Warren Buffett as an unlikely, but nicely illustrative example.
It’s well known that Buffett has never sold a share of Berkshire Hathaway since he purchased the company back in the late 1960s. Whatever he paid back then is so insignificant, that we can reasonably consider his entire $60B net worth to be unrealised gain. Now Warren is unlikely to expatriate (he’s denying the government it’s tax cut by donating it all to Bill Gates’ foundation), but you can see how legions of hedge fund managers or entrepreneurs with unrealised gains in the billions would be motivated to emigrate for the required period to qualify as long term expatriates before selling their assets, tax free, back in the US.
In my opinion, promoting an agenda to repeal the exit tax will get nowhere. I think the exit tax is fundamentally fair. If you have unrealised gains (inside or outside the US) that accrued while you were a US resident availing yourself of the benefits of the US system, then Uncle Sam is legitimately entitled to his share. On the other hand, if you’ve lived and earned overseas for decades, the idea that the IRS is entitled to 10% of the value of your home or savings is manifestly unfair. I believe Schneider’s paper makes provision for such situations where long-term non-residents left before they were 16, but what about a retiree who left when he was in his 20s?
So, insofar as the posters here have some reach or influence into the US legislative system, I would avoid suggestions to repeal the exit tax. Rather raise awareness of the egregious unfairness of exacting a 10% haircut on the assets of foreigners whose ‘obligation’ exists only because the USA has unilaterally declared that it does.
@Accidental,
Thanks for joining us here and raising your questions.
Unfortunately, none of us here can answer those (or at least I can’t). All we can do is keep the pressure on / make submissions / make comments on slanted news articles / talk with our own government representatives regarding their negotiations with the US re FATCA. The US legislative process is long and convoluted. We have to stay engaged; we have to pay attention; we have to keep telling the unique story of US Persons Abroad who are entrapped by US citizenship-based taxation.
Current discussion is for changing from US citizenship-based taxation to residence-based taxation (as the rest of the world), as well as the repeal of FATCA, not specifically repealing the exit tax, although that is certainly related — and, as it is now, very onerous and unfair for so many. (I believe most countries have some form of exit tax, perhaps not called that, when their citizens permanently move to another country.)
@Accidental
“I think the exit tax is fundamentally fair.”
I couldn’t disagree more. Any income and assets in the USA will be taxed in the USA – regardless of citizenship and regardless of whether there is an exit tax or not. For those assets in the USA, they will be taxed via the exit tax and, at the time of actual sale, via the capital gains tax.
Also, the exit tax provides a means for the USA to additionally tax assets which were acquired outside the USA from income which was earned outside the USA.
No, the exit tax could hardly be more unfair.
good to be discussed
@Accidental,
Sorry, but I strongly disagree with you and side with @notamused that it is illogical and mean-spirited to have any exit tax, in addition to the taxes that all would be expected to pay, to leave the system.
Remember, Schneider acknowledges that it is “unjustified” to think that we are not [already] paying our fair share and that political necessity is the only reason for his suggestion of an exit tax.
No. This can never be supported.
Would you also then embrace the “exit tax” associated with IRS 8854 if you are unlucky enough to have more than $2 million in assets—just to say goodbye?
@Accidental,
exit taxes when levied by the FSU and other countries has been strongly condemned by the US,
and legislation specifically aimed at this practice were passed into law to reduce trade with these countries
Finally ACA posted something about this on their Facebook page although it appears that it hasn’t hit their website yet:
“ACA makes progress on Residency-based taxation (RBT)
Residency-based taxation (RBT) for overseas Americans is “on the table.” ACA has been working for over 18 months, meeting with legislators and key offices in Washington, DC — Senate Finance, Ways & Means, Joint Committee on Taxation. Our efforts have paid off. Residency-based taxation has been cited in two key reports. The first is the Joint Committee of Taxation report summarizing submissions sent to the Ways & Means Working Groups on Tax Reform (https://www.jct.gov/publications.html?func=startdown&id=4517). On page 521 of this document the RBT proposal is referenced. The second report is one in a series of white papers by the Senate Finance Committee, this one discussing International Competitiveness (http://www.finance.senate.gov/issue/?id=0587e4b4-9f98-4a70-85b0-0033c4f14883). Item IV of this report cites the proposal for RBT as well as the elimination of the FEIE. FEIE can be viewed as unnecessary if Residency-based taxation is accepted. However, there are some in Congress who are still call for just elimination of FEIE and ACA is keeping pressure to oppose such elimination as an isolated measure. ACA continues to dialogue with these offices and with legislators and we are encouraged by the fact that the RBT proposal is being reviewed and seriously considered.
JCS-3-13
http://www.jct.gov
Report To The House Committee On Ways And Means On Present Law And Suggestions For Reform Submitted To The Tax Reform Working Groups”
https://www.facebook.com/americancitizensabroad?hc_location=stream
Needs more volunteers.
Sounds like just the elimination of FEIE is on the table too. That’s a 50-50 chance of going to heaven or hell. Anyone got a coin to flip?
Just watched a broadcast on Bloomberg about offshoring & Tim Cook. It basically said that Tim will get smashed in Congress and that territorial taxation is bad. However, one individual did state something like: “US tax code for individuals abroad has been broken for years”
Here’s one from Bloomberg today on the topic, but it doesn’t seem to be the same broadcast:
http://www.bloomberg.com/video/apple-defends-tax-practices-says-system-outdated-UDNg8ne8S1StoXdPtqpm~A.html
SwissPinoy,
This one perhaps: Apple’s CEO Will Be Mauled By Congress: Galloway
…and this: AccountingToday: Apple Executives to Answer Lawmaker Claims on Tax Avoidance
@ SwissPinoy …… how old are you ? you can`t be older than 25 ,haha 🙂
@anon, good estimate, and I have no plans of making my public image less inaccurate. 🙂
@ SwissPinoy …… when I was your age many moons ago I was chasing babes not spending my time with taxes ,FATCA and FBAR`s. 🙂
@calgary411, thanks, that’s the one: “Apple’s CEO Will Be Mauled By Congress: Galloway”. Listening again, only individual tax is briefly mentioned, not individuals abroad at 6:48, but it is in an offshore context.
@anon, the next SwissPinoy is due in a few months, this time without the Ami. Today, my SwissPinoyAmi suggested renouncing the Ami portion if things don’t improve in the future.
http://www.usatoday.com/story/tech/2013/05/21/live-apple-senate/2345527/
Live from Carl Lenin
Levin on the corporate tax code: “Before we change it, we’ve got to understand it.” He also claims companies like Apple are denying revenue to the U.S. by shifting money overseas. “We can’t continue a system where the company — a multinational company — is phenomeonally successful … and can decide where the profits flow.” He questions Apple’s plan to move profits to its subsidiaries. Levin calls Apple’s move on profits a “unilateral decision” deciding where profits are taxed and not taxed. “It’s not right.” He also refers to Ireland as Apple’s “tax haven.”
@Shadow Raider
I know that there are a multitude of variables, but with your knowledge of how things work in Washington, how long do you think this change to residency based taxation would take? My lawyer’s office thinks it will be years.
@Bubblebustin
I have never talked to a member of the tax compliance industry who believes that citizenship-based taxation will be abolished period. So, I wouldn’t pay much attention to what they think.
Personally, I think it will either be part of tax reform or it won’t. If it is part of tax reform, then it should happen in the very near future.
Question: Do you really think that the IRS really wants to be involved in taxing U.S. citizens abroad? I rather doubt it.
@USCitizenAbroad, @bubblebustin, I’ve switch my background noise at work from tunes to Bloomberg. I’m actually surprised that I can entertain my subconscious with such chatter, yet maybe something valuable might evolve from it. In anycase, there’s never any talk about individual taxation abroad. They talk the whole day about everything else going on around finance in the world, but not that. Given such great non-interest on the topic, how could anything change anytime soon?,
Bernard Schneider is my hero. Here is his submission that the caught the Committee on Tax Reform’s attention enough to consider a change to residency based taxation:
http://waysandmeans.house.gov/uploadedfiles/schneider_wg_comment_1.pdf
@bubblebustin, what a well written submission. So very happy to see for the first time outside the IBS, someone note the contradiction between the FBI National Instant Criminal Background Check System numbers plus the reports by non-US governments of the ACTUAL numbers of those renouncing their US citizenship; vs. the seriously undercounted and flawed Federal Register totals:
“…According to the quarterly reports published in the Federal Register pursuant to Internal Revenue Code Section 6039G only about 12,000 individuals have renounced their U.S. citizenship or relinquished their LPR status since those reports began to be published. These numbers are clearly an undercount. They do not include anyone not covered by Code Sections 877 or 877A and appear replete with processing errors. In addition, records issued by the FBI in connection with the National Instant Criminal Background Check System and reports by foreign governments suggest that the actual numbers are considerably higher….”
Of course I found important omissions, like the human rights issue of the lifelong tax and citizenship shackles imposed on those with disabilities which result in them being deemed incompetent to renounce – and the US lifelong taxation of their non-US disability savings, plus the insanity of requiring the complexities of the 3520 and 3520A for our legal registered government savings – such as the RDSP or any other savings plan like the TFSA which might help to provide some security for the vulnerable.
And given that the threshold for taxing estates is so high, why require the 3520 and 3520A reporting from those beneficiaries or estates who would owe zero US taxes due to the small size of the amounts involved?
I of course hope that the Ways and Means Committee understands that what goes around comes around. Those US citizens in hiding, and those who renounce are already duals, or will soon hold a non-US citizenship. Those who are seeking CLNs for a long past relinquishment have not seen themselves as US citizens for decades and even for half a century. We are voters, and participants in politics where we live. Some are actually already holders of office or power here outside the US. Our children are now becoming aware of the jeopardy, and see how it has affected us. All will bear the costs, scars and memories of this situation. How many will be therefore be forever suspicious of, and disposed unfavourably towards US interests?
The US has given the millions of us abroad considerable reason to be wary and suspicious – and to oppose US political and economic interests that the US pursues in our non-US home countries. Is that what Congress, Treasury, and the IRS intended? Even those ‘abroad’ who might ordinarily feel that they personally benefit from deals with the US can see now that the US cares not one whit about any fallout from what it sees as it’s best interests – sacrificing it’s own citizens and their children to do it.
So there are seemingly no limits to what the US will do to pursue whatever it sees as it’s self-interest. Certainly it does not let ethics, reason, injustice, law or even the US constitution get in the way. A lesson to keep in mind, and to pass on to our US and non-US children for the future.
@badger
Yes, Schneider uses no hyperbole and has the street creds to be respected. The issues facing USP’s abroad are only on the very fringes of the USG’s radar and it’s amazing what progress an issue can make when it’s looked at on its own merit and not yet been politicized. As USCitizenAbroad said, it will either be a part of tax reform or it won’t. In other words, it will or won’t be important enough for those who make these decisions to include it. Leaving the issue out would surely be an act of passive aggression against its own citizens, and as you imply, they can expect blowback. This is a cause for increased pressure, not celebration (yet)!