ACA Urges Congress To Adopt Residence-Based Taxation
by Mike Godfrey, Tax-News.com, Washington
07 March 2014
American Citizens Abroad (ACA) has provided testimony to the Senate Homeland Security and Governmental Affairs Permanent Investigations Subcommittee following its recent hearing on offshore tax evasion, and has recommended that the United States should implement a residence-based tax (RBT) system to avoid penalizing American expatriates.
The ACA, as the principal organization representing Americans overseas, has limited its comments to tax issues which impact US citizens and green card holders resident overseas.
Under the current citizenship-based tax (CBT) system, Americans abroad remain subject to US taxation as though they were still US residents. Under RBT, only US residents, whether Americans or foreigners, would be subject to US income, estate and gift taxation, while Americans resident abroad would be taxed under essentially the same rules applicable to non-resident aliens.
The ACA has proposed that, as part of a general tax reform package, an election should be provided to citizens who are long-term non-resident citizens to be taxed as non-resident aliens if they meet certain conditions – for example, a minimum period of residence abroad, and an exit tax imposed on electing taxpayers where they are deemed to sell all assets at the time of election.
In her testimony, ACA’s Executive Director Marylouise Serrato pointed out “the disastrous effects on Americans living overseas of recent Internal Revenue Service (IRS) enforcement methods,” starting with the first Overseas Voluntary Disclosure Program and culminating in the passage and impending implementation the Foreign Account Tax Compliance Act (FATCA).
She said that the ACA has noted public statements by the IRS and members of Congress that have often referred to “tax cheats” with “no distinction between US residents deliberately hiding assets in foreign bank accounts and overseas residents who by necessity have foreign bank accounts in their local bank.”
Admitting that many Americans resident overseas were still not filing US tax declarations and the Foreign Bank Account Report, she said that this was “largely due to ignorance of their filing obligation, not deliberate tax evasion. In fact, an IRS study has shown that over 90 percent of Americans resident abroad owe no US taxes.”
In fact, Serrato added, “since Americans abroad pay taxes in the first place to their country of residence, it commonly never occurs to them that a second filing to the US is due under the unique US CBT system, … (while), unfortunately, a significant consequence of FATCA legislation is that foreign financial institutions are refusing bank accounts for Americans resident overseas.”
It has become noticeable that even Americans abroad who are in full compliance with US taxes are being significantly affected – “accounts are being closed due to FATCA, investment in local non-US mutual funds is impossible due to the passive foreign investment reporting requirements, and efficient saving for retirement is not possible due to the US tax treatment of contributions to foreign pensions.”
In addition, the 3.8 percent Medicare Tax is being imposed with no allowance for foreign tax credits, “which is blatant double taxation of Americans abroad, (and) is all the more objectionable as Americans abroad do not even have access to Medicare.”
As all of these problems is put down by the ACA to the “unique CBT coupled with aggressive US techniques to stop tax evasion,” and Congress is urged by the ACA “to support tax reform to adopt RBT, the efficient and fair taxation system applied throughout the entire rest of the world.”
My searches are not finding anything that is a .gov record of this hearing.
nice that ACA pushes this, but don’t hold your breath. no political support for all the americans overseas who, by definition, are all tax evaders and money launderers. even if the messiah comes and they abolish CBT today, there would be a 15 year “transition” period.
@Mark Twain
This link now added above:
http://americansabroad.org/files/8813/9402/1820/testimony-aca-to-permanent-subcommitee-on-investigations.pdf
@yomama
It may take that many years to win a Supreme Court challenge too, so we might as well be mentally prepared for the long haul. If we’re lucky, FATCA will simply collapse under its own weight long before then. The expense and effort of a Charter challenge will still be worth it, though, since it will shed a powerful spotlight on everything that is wrong with FATCA, reinforcing the urgent case for RBT.
Whatever- this is a GOOD ( NO GREAT) thing.
It would be just so wonderful if somebody was listening, though.
@deckard I agree the charter challenge is worth it because it is coming from outside the US. History shows that imperialists are only successfully resisted by outside forces, not their own people.
There’s a just released article on the USA TODAY site
Americans abroad find citizenship too taxing to keep
“Passed by Congress in 2010, FACTA is designed — using a controversial dragnet-like method — to catch those Americans thought to be evading taxes by hiding their wealth in foreign bank accounts. The way FACTA does this is by requiring that all non-U.S. financial institutions pass along detailed information about American account holders, or potentially face steep penalties.
But casting such a wide net is producing unintended consequences for some Americans who faithfully pay their taxes from afar.”
Comments seem to be by Facebook alone.
Five comments so far, and only two are on Dems Vs. Repubs. instead of the article. Situation normal.
http://www.usatoday.com/story/news/world/2014/03/08/usa-citizens-relinquish-passports-tax-filing/5859371/
ACA’s efforts are laudable and their proposals are always well thought out and workable as well. It would be great if I thought someone in the U.S. would listen to them. There’s nothing to argue with when you read their submission so the U.S. just ignores them.
No representation..
The scary thing is that the point that the ACA makes about people not being aware of their tax filing requirements is all too true, even now. Two weeks I told a British friend with a law degree to make sure that her American husband, is up to date on his U.S. taxes in the run up to FATCA. She wasn’t sure that he was filing and wasn’t at first clear why he would need to when he wouldn’t owe anything due to high British taxes. Oddly, she had run across FATCA in an article about renunciations in a publication at the U.S. embassy thought it sounded bad, but filed in the back of her mind as something to look into later. Fortunately, by sheer luck, they haven’t fallen into any irreversible gotchas, although if the wife had been the American, they would have run into the whole PFICs in a ‘foreign trust’ pension plan problem.
It is true that Congress doesn’t care, but I would add the word YET. In the U.S. political system groups tend to get dismissed until they get pushed too far and react. In the 1960s, political experts wrote about the WEAKNESS of business interests in the U.S. as numerous bits of regulation were imposed, but business started fighting back hard in the 1970s.. In the early 1970s, conservative Christians were seen as an irrelevant political group and they came on in full force in the 1980s.. In the early 1990s, high-tech groups were known for their lack of involvement in politics. but that hasn’t been true for a long time. That the ACA has been able to move to the U.S. is itself a promising sign. There are some groups that get pushed too far and don’t have the education, money or time to fightback, but I don’t think that that is true of overseas Americans in general.
Boris Johnson. Mayor of London. Born in New York City, left as an infant,. One more evil tax evader to track down and slap in irons. Thank God for FATCA. Why doesn’t he pay his fair share?
There truly is not end to this nonsense if the world co-operates. Will make George Orwell look like a pussy.
oh, that’s rich. the kenyan has had enough of Reggie. would love to see him pop one into Boris’s behind and have it become public. would be great for the cause of ending fatca
Just a thought for dual citizens, legally change your name (or have it translated into the native language), get you new name on you non-US passport, yes it will show a US place of birth, but open your account with a phony TIN or SS number, new address, it would drive the IRS crazy.
FATCA datamining software would find it very difficult to match up at HQ IRS. All they would have is a list of names that would require substantial ‘manual’ research.
Where would they start? Wasting valuable resource only to find out the taxpayer owes zero then they’ll try to go after you for non-filing I suppose, fines or penalties, which would probably be not collectible overseas and remember probably not extraditable either. Not filing an US income tax form, it would be debatable would that actually be a crime anywhere especially if the tax bill is zero.
Would your own country allow you to be extradited for being a non-filer?
It’s deplorable someone has to go to these lengths, but FATCA is to blame.
Hey it’s worth a punt until you decide to renounce.
@Atticus
“There’s nothing to argue with when you read their submission so the U.S. just ignores them.”
So true. Unless it’s to shine a spotlight on the Edwardo Savarins of the world – which I hope a few keep doing, because even with renunciations being depicted in a negative light there is a chance that the truth will eventually be revealed.
@Don
you raise a couple of very interesting points. first, on the extradition thing, my understanding is any extradition requires “dual criminality”–the crime must be a crime in both countries. unless you are in Eritrea, not filing if you are not a resident is a crime nowhere. so extradition seems unlikely although maybe they try to pin another charge like wire fraud, money laundering, or something they can make up from thin air.
on a fake TIN, interesting. i guess the concern would be what happened if the IRS informs your bank that its a bad TIN, then they freeze your account. not a good outcome.
Bubblebustin: What no report ever says is that Singapore is very strict about allowing only one (not dual) citizenship. Edwardo had no choice once he decided to take Singapore citizenship but to renouce his US and Brazil citizenship, prior to getting his Singapore passport/IC.
Don: you are correct.
@Steve Klaus
Great info, but doesn’t change the fact the Chuck Schumer finds anyone who’d voluntarily put themselves in a position to be forced to give up US citizenship as being guilty of corrupt thinking, and therefore should be treated with suspicion.
@bubblebustin
Isnt that one of the biggest problems of all: that America thinks it is a beacon of purity and light in an otherwise totally corrupt world?
Then you look at Wall Street, the lobbyists greasing palms, the insider trading in congress and senate, the IRS going hogwild, health insurance only for the wealthy, and the NSA kicking the constitution in the teeth and invading the privacy of everybody in the whole world – and you think: ” SAY WHAT?”
the nations of the world should adopt a policy of reciprocal CBT — you tax your citizens resident in our territory we claim the right to tax our citizens resident in your territory. 13% of US residents are foreign born, if they transmitted citizenship to at least one offspring this would result in more than a quarter of the US population required to file and pay taxes to another country.
Roger C sent this
http://thehill.com/blogs/ballot-box/200274-paul-wins-straw-poll-as-cruz-rises-and-rubio-craters
According to the TV news reports “all 50 states were represented.” But apparently nobody in attendance was representing Republicans Abroad.
Roger also noted that
March 08, 2014, 06:05 pm
Paul clinches straw poll gold
By Alexandra Jaffe
Polly is right too about America a beacon of Purity and Light. RLOL.
Patricia brings up a good point. How would the USA feel about losing tax revenue when their own immigrant citizens would have to pay their mother country taxes.
It is terrible that there is taxation without representation. I am very glad we are having the Charter fight. I am not one of those who say “nothing you can do” That makes me angry.
@yomama
Keep each account under $50,000 is another strategy that could be employed as changing you name.
That way unless the IGA is ruled illegal, and then the IRS moves the goalposts to say every account over $10,000 (that’s what I’d do if I was the IRS), then your covered with the other ‘identity.’
As for freezing accounts, not sure if that is a long term strategy for the IRS, what legal basis do they have for doing that in another country?
@atticusinCanada
Just read the USA Today article. You did so good. T
Many of those from the USA homeland have very negative views of Americans Abroad and it seems do not read the comments in full or at all. Enforces my belief I live in the better country.
northernstar,
We have CHOSEN Canada to be citizens of as we believe in Canadian values. I don’t want to pit one country against another as better. That just gets into the my country is better than your country, patriotic entitlement stuff I want to stay away from, which is what drives those commenters not listening / hearing what atticus or any of us are saying.
@atticus
I was commenting on the comments. I did not comment in the article itself. I have a brother in the USA who would be making theses same negative comments. He has called me a traitor. He told me to give up my US citizenship. So I have been hurt by those same kind of comments that were in the article. Reading them makes me think of him. I hope your relatives are more caring.
@northernstar
Not to be mean… your brother is an idiot. But the sad part… he is not alone with this bs… I too have some people in my family… rah-rah… america… best in the world… U are lucky to be american… here is something.. *surprise*… I ain’t american… Just an a-hole with a gc…. And they know I am far from being rich…
@Don
Is that 50k per account or 50k per bank… Some such as myself.. has that in the bank… But as someone mentioned… they could be going for a lower then 50K & not saying jack to no one so it could be a gotcha type of strategy
@Don you’re right, the IRS can’t freeze accounts. i mean the bank will because it may fear the IRS.
@Don, not sure where you’re getting the $50,000 from, but if you’re thinking the IRS’s 8938 form it’s an aggregate figure. But that figure applies if you’re filing as a US resident. If you’re filing from abroad the figures allowed are higher.
http://www.irs.gov/pub/irs-pdf/i8938.pdf
Your main problem is the FBAR which is only $10,000 aggregate.
And if you tried to file with a false ITIN/SSN then, if the Canadian banks react in the same way as the Swiss ones, they wouldn’t freeze your account, they’d close it. I believe they’d take it as a sign of “willful non-compliance” and as such FATCA/IGA agreement requires they close any such accounts.