@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.”