@Tim alerted us to this “opinion paper” just issued by the Republican staff of the U.S. Senate Finance Committee.
The December 11, 2014 paper, entitled “Continuing the Conversation on Comprehensive Tax Reform” has a section dealing with the question of citizenship-based taxation.
This is a very brief outline “analysis” only and does NOT equal introduced legislation — which I hope will happen during the next two years — and which may well fail to be passed into law.
Go to page 282/293:
“The United States needs to rethink its taxing rules for nonresident U.S. citizens.
If a U.S. citizen is living and working abroad with some permanence, and the primary nexus the individual has to the United States is citizenship, we think it makes sense to tax the individual, as a general rule, only on income from U.S. sources.
A test would need to be developed to determine at what point a U.S. citizen is considered a nonresident of the United States and then at what point the U.S. citizen is considered to be a resident again.
Some factors that may be considered include the permanence and purpose of the stay abroad, residential ties to the United States, residential ties to the foreign country, and regularity and length of visits to the United States.
The test could be adopted, in some part, from the existing rules that are used to determine residency of alien individuals, i.e., those individuals who are not U.S citizens.
In addition, an exit tax could be applied when the U.S. citizen is considered a nonresident and no longer subject to U.S. worldwide taxing jurisdiction. If the U.S. citizen later becomes a resident and then becomes subject to U.S. worldwide taxing jurisdiction, then the individual’s basis in her assets would be the fair market value of the assets at the time she again becomes a resident.”
[—Many readers believe that ANY position taken by the United States is not deserving of attention or comment and will have nothing whatsoever to do with the U.S.
It is irrelevant to them whether the U.S. moves towards residence-based taxation, or not.
Others appreciate that this slight “snippet” of an opinion by the U.S SFC Republicans does not go far enough and is short on details (I don’t like the “exit tax” either). The “opinion” might well have zero future consequence.
The default and expectation is that CBT WILL ALWAYS be imposed on U.S. citizens. The options then include resistance to an unjust law, compliance for life (and beyond death) or compliance for the purpose of renunciation, if one is willing and financially able to afford the costs.
But do we really feel that it would be preferable if the SFC Republicans had NOT stated in a public document an opinion beginning with the sentence: “The United States needs to rethink its taxing rules for nonresident U.S. citizens.” — or if the RNC had NOT passed a resolution moving towards residence-based taxation?
I have asked my (Democrat) reps on the SFC and the House W&M Committee, Senator Maria Cantwell and Congressman Jim McDermott, respectively, to work with the Republicans on the two committees to help introduce legislation during the next two years that will move us closer to RBT. I also emailed Senator Orrin Hatch, who probably will soon be the Chair of the SFC, and asked him to help get this legislation moving.
If you have any interest in the Republican majority introducing legislation during the next two years to kill CBT I suggest that you send your thoughts to Republicans Overseas, your reps in House/Senate (if you have any), Orrin Hatch and other members of the SFC, etc. Be specific and provide your timeline. Appreciate that the positive SFC opinion and RNC resolution are a long long way from legislation.
[You might also want to contact the SFC by sending an email to Aaron_Fobes@Finance.Senate.gov who is the Republican Press Officer for the SFC. Ask him to forward your thoughts to the relevant staffer/Members.]
Also, I asked and will continue to ask that John Richardson, our ADCS legal counsel, provide expert testimony at the SFC hearing at which the RBT proposal will be discussed. The January 2014 submission John Richardson, former IRS attorney Willard Yates, and I made to the SFC can be found here.]
This was a result of the Brock effort for the Ways and Means submissions, which were followed by 2 rounds of submissions to the Senate Finance committee. This groundswell of Brock support made this happen.
The inclusion of this passage is good news, I suppose. But I see three problems.
First, as it’s written, it doesn’t contain enough information to convince a skeptic. Directly above the quoted passage, it mentions the fact that the FEIE is $100k. The skeptic concludes “overseas taxation is only a problem for people earning over $100k, right?” because the opinion paper doesn’t mention the insane taxation and reporting burden of “unearned income” even in small amounts.
Second, even if CBT is repealed, how long will it take non-U.S. banks to figure out that they can start accepting non-resident U.S. citizens as customers again without fear of FATCA — and will they want to?
And finally, immigrants will still get screwed, because the paper doesn’t get to the deeper point that the US needs to stop treating Australian retirement plans and Korean mutual funds as if they were tax dodges. And if you wait for the tax treaties to solve these problems one by one it’s never going to get done (RRSPs were introduced in 1957, and Form 8891 came what, 45 years later?). It will have to be unilateral action by Congress to waive PFIC/trust treatment for certain types of underlying assets.
The report is making the right noises, however, there’s still a impetus to keep the exit tax. It’s vague about how that would work.
Also on page 59, it’s good news that VAT is being considered. If the US put more emphasis on consumption taxation that would take the press off direct taxation making measures like FATCA unnecessary.
For me the upshot of this report is:
Make FEIE unlimited
Have some sort of presence test (perhaps what they did in 1926)
Keep the exit tax (which is disappointing)
Keep FATCA and it’s intrusive / costly reporting requirements
Not sure how this would all work, but perhaps one step at a time.
Perhaps a few FATCA legal failures abroad will help push the US more towards RBT as well.
At the end of the time, with FATCA or not, trying to collect taxes from 7.5 million people abroad, living in over 200+ jurisdictions, is far more costly, troublesome than reforming the US tax system more towards consumption.
In university the first rule I was taught about taxes is it has to be easy to collect. Collection taxes off ex-pats in over 200 legal systems is not easy to collect. The IRS will keep spinning its wheels on this issue unless something changes.
unfortunately, the exit tax thing came in out of the ACA proposal, which comes with ACA\s advertising. Certainly, their thought was to preload against opposition to their proposal by putting in a concession even before any bargaining might begin.
Exit tax isn’t necessary—-if they really want to tax the gains of your personhood, they could easily do it when any investment account is cashed out. They could figure out their own formula to divide up the gains (between countries) upon any investment which lies in a US fund. In fact, they could probably just try to tax the whole thing in USA when it is cashed out, keep all the taxation themselves, until any taxpayer might want to ask to be taxed 30% by a European country instead of 19% by USA.
By exit tax, could they mean the departure tax that they referred to in their original report? They proposed it would be similar to Canada’s as stated here:
IV: NON-RESIDENT US CITIZENS:
http://www.finance.senate.gov/issue/?id=0587e4b4-9f98-4a70-85b0-0033c4f14883
Below is what Canada’s departure tax looks like. Not nearly as punitive as the current US exit tax, as it doesn’t not include real estate and other investments. Re Canada’s departure tax:
“Does this mean that a wealthy Canadian will owe millions of dollars to the CRA when giving up Canadian tax residency? Typically, the answer is no. With proper planning, the worst-case scenario is simply a deferment of tax. The CRA will allow departing Canadians to defer the tax by posting security equal to the taxes due. Considering that the CRA does not charge interest on the tax, Canadians who depart and choose to defer the tax are no different to those who are still in Canada. In either situation, no tax is due until sale or death. – See more at: http://www.step.org/canadian-departure-tax-obstacle-or-opportunity#sthash.1kBhjDQJ.dpuf”
http://www.step.org/canadian-departure-tax-obstacle-or-opportunity
The ACA should come and denouce CBT and FATCA – Levin & Co only understand one language.
Well Halleluyah. I`m not even going to discuss the content because I am just tickeled pink that they are even considering change for nonresidents!!! Thats insight! The rest will unfold as they take a closer look- but before this they were just looking away.
[Staffer responded one hour after my email saying that he will pass on my email to the Senator — and I believe him. Still, until Congress decides, if ever, to treat US citizens abroad with respect, Sam Adams’s advice below makes a lot of sense.]
No Washington State moss shall grow under Stephen Kish’s feet.
Thanks for your prompt action in following up on your prior discussions and asking that your correspondence re what is stated in the December 11th Opinion Paper be placed in front of your Senator, Maria Cantwell, Stephen, as well as requesting that John Richardson be an expert to testify at the Senate hearing at which the RBT proposal will be discussed.
It is better to keep renouncing. It is the embarrassment of so many Americans abroad saying hasta la vista to tyranny that gets their attention.
The more one finger salutes, the better.
@Samuel Adams – Homelanders don’t understand the ‘standard of living gap’ has disappeared between the US and most G20 countries.
Sam’s time capsule was found in the Mass statehouse this week.
I’m very happy to see mention of RBT in the report, brief as it may be.
I don’t think the exit/departure tax is a concession. It seems to me a very reasonable and fair anti-abuse provision.
I would like to see some special provisions for transitional cases, like an exemption from the exit tax for those who have already been out of the US for more than some number of years. But as a general tax policy, I think an exit/departure tax is actually more fair than not having one.
I wonder how they’d reconcile the taxes some may have paid and the exit tax upon departure if the citizen has been out of the country for years.
It’s nice they are thinking about us but by the time they get around to actually implementing any significant changes there won’t be many expats left. Expats have a need to take action NOW to get the US and the IRS out of their lives. Someone mentioned over on another thread it took the IRS something like 45 years to come up with Form 8891 to fix RRSP problems for Canadians. They still haven’t done anything for similar tax-advantaged saving plans for all the other countries as far as I know. Too little too late.
Samuel Adams is right–keep those renunciations coming, folks! We don’t want them and they don’t deserve us.
I would have preferred something as follows:
“we think it makes sense to tax the individual, as a general rule, only on income from U.S. sources,” as these individuals do not receive US government services as they would if they lived in the US.
or, such taxation infringes on their Constitutional rights, or such taxation imposes unreasonable compliance burden and penalties.
Too many changes to all their laws. It should include an amnesty.
@JC
I like your wording… US source… that would cover all *US Persons* including immigrants… that makes sense… but then… this is the US… they seem to think that everyone thinks they are *special*… special stupid perhaps…
@maz57,
I agree. The expatriations will continue (silent or noisy, overt or covert) – as you say, they don’t deserve us. And our home country government have chosen not to protect us – they’ve chosen to placate the greedy monster by throwing their own citizens into the gaping maw of the predator – Canada can’t even bestir itself to come up with a proper tax treaty to protect the educations savings of Canadian children, and the disability grants and savings of the most vulnerable in Canadian society from US arrogance and predation. For shame.
A social movement needs a range of actions and expressions.
I thought I was a citizen. What a fiction. It turned out I was only property.
Expatriating was one way to regain freedom, and demonstrate utter rejection of the condition I was to be forced to enjoy from the US for the rest of my life – as US property ‘abroad’ – doomed to be deemed guilty of financial crimes and forced to report to the Financial Crimes Enforcement Network annually forever and ever – to prove before the fact that yet again my local legal hard earned Canadian savings (and that of my non-US joint accountholder – the Canadian wage-earner of much of the funds) weren’t the proceeds of money laundering, illicit drug running, terror funding, or organized crime. And that would have been forced on my child/ren too if they had qualified through me for US status. Any country that could seriously post instructions for CHILDREN to personally register and report their birthday and education savings to a Financial Crimes agency is so far beyond the pale that renouncing is the only real response I could see myself able to live with.
Renouncing meant telling the US to kiss my Canadian assets goodbye. And every incomprehensible labyrinthine intrusive form I had to fill out, and each interaction with the US government was confirmation that I was making the right choice. Which was really no choice at all. US citizen-serfdom was impossible for me to live with and be able to maintain any peace of mind or any normal financial life and at odds with the wellbeing of my Canadian family.
Badger, good one re: “…kiss my Canadian assets goodbye”…would make a good slogan for a US consulate protest.
@WhiteKat,
I feel we’re coming to that point. More effective if I spell it out more clearly for the US; ‘Kiss my Canadian “Ass(ets)” ‘. Goodbye!
@Badger, Yes, I was thinking the same thing regarding both your points.
I understand this to read that one wouldn’t want to move to the US if one doesn’t live in the US. So, one might as well just renounce anyways. Paying $14 for a visa to visit the US once every 10 years isn’t so bad.
I have renounced too.
I am so disillusioned by all that went down, that I wouldn’t go back to the USA for vacation if paid me.
For those that are not renouncing, it’s important to do what Stephen did–and write to both of your Senators and your rep. These decisions are based upon quantity of feedback from voters who state that their voting decisions are based upon how this is addressed.
If it was exit taxes based on income from US sources, then it’s a fair situation. But if they’re trying to base it off your foreign earnings then forget it. My wife isn’t going back. She wants her Canadian citizenship, but we just don’t have the money to go through all the paperwork to get clear. All we can hope is that the USA adopts RBT and lay low.
@badger
Amen to all that. I have reached the point of irreconcialable differences with my former Uncle Sam in a very short period of time. If there was a point where morality, decency, or a concern for human rights has guided their hand, I must have missed it. If there is an opportunity to jump off this roller coaster without breaking too many bones, I’m gone. And I can’t see myself getting back on to see what they think up next.
Fool me once, shame on you. Fool me twice, shame on me.