Not applicable to adult emigrants. No other proposals to simplify income taxes for individuals who don’t live in the United States. No help with the insane reporting requirements on foreign retirement & medical & disability savings plans. Some people may hope it’s a start from an administration which up until now has been totally deaf to the “special concerns and issues of Americans abroad” which the president claimed he would address when he was campaigning for our votes. Others will take it as what it appears to be at face value: a chance to get out while the getting is semi-good. At page 282 of the “Green Book” (all links added by me):
Individuals who became citizens of both the United States and another country at birth may have had minimal contact with the United States and may not learn until later in life that they are U.S. citizens. In addition, these individuals may be citizens of countries where dual citizenship is illegal. Many of these individuals would like to relinquish their U.S. citizenship in accordance with established State Department procedures, but doing so would require them to pay significant U.S. tax.
Under the proposal, an individual will not be subject to tax as a U.S. citizen and will not be a covered expatriate subject to the mark-to-market exit tax under section 877A if the individual:
1. became at birth a citizen of the United States and a citizen of another country,
2. at all times, up to and including the individual’s expatriation date, has been a citizen of a country other than the United States,
3. has not been a resident of the United States (as defined in section 7701(b)) since attaining age 18½,
4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
5. relinquishes his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen, and
6. certifies under penalty of perjury his or her compliance with all U.S. Federal tax obligations that would have applied during the five years preceding the year of expatriation if the individual had been a nonresident alien during that period.
The proposal would be effective January 1, 2016.
This didn’t appear to be covered in the table of revenue estimates. Correction: As Tim points out, the revenue estimate is in the summary tables file on the White House/OMB website, rather than the Treasury website. They estimate it would cost $400 million over ten years, with more than half of that coming in the first three years as people scramble to take advantage of the offer.
Details of revenue estimates
|Deficit increases (+) or decreases (-) in millions of dollars||Totals|
|Provide relief for certain accidental dual citizens||………||60||103||55||23||24||25||26||28||29||30||265||403|
I am quite interested to know the underlying number of relinquishers OMB used make these estimates (and for that matter, whether they have offset those estimates by the $2,350 fee that many accidentals are going to have to pay because they only qualify for renunciation and no other method of giving up citizenship). I assume that the estimates for ongoing deficit increases past 2018 are attributable to one-time losses of revenue from additional relinquishers,rather than ongoing loss of revenue from the initial group of relinquishers.
For example, they may be using the utterly false (and late again for this quarter) Federal Register relinquishment numbers and assuming that all of them would qualify for Obama’s plan. (That would also mean they’re assuming that no non-accidental Americans have ever given up citizenship because of the FATCA mess that Obama signed into law — clearly an incorrect assumption.) In that case they would be saying that in 2020 they’re expecting an average annual revenue loss of $8,000 per person, rising to $10,000 per person by 2025.
If OMB understands that only a small proportion of recent relinquishers qualify for Obama’s plan, then they’re trying to claim that the revenue loss per person would be much higher — which I don’t think is supportable. On the other hand, they may also understand that the actual number of relinquishers is higher and that only a small proportion of them will qualify for Obama’s plan. Though given the dubious earlier models of the effect of cancelling the FEIE, I get the sense that the government does not have this much of an in-depth understanding of emigrant tax issues.
Treatment of businesses owned by American emigrants
Another small mercy: the proposed 19% minimum tax on foreign earnings only applies to CFCs owned by “entities taxed as domestic C corporations” — finally, an implicit acknowledgement that some owners of CFCs are human emigrants rather than multinational corporations. Unfortunately the 14% tax on “previously untaxed” foreign earnings does not appear to include that same acknowledgement.
Will not affect ADCS lawsuit
Update, 6 February: Stephen Kish has already spoken with Mr. Arvay about the Obama budget proposal, and states:
Some you have expressed concern that should the Obama budget proposal, if ever enacted, provide some relief to duals-at-birth, like our two Plaintiffs Ginny and Gwen, this could mean trouble for our lawsuit — because both Plaintiffs are duals-at-birth. Apparently, Canada’s Mr. Roy Berg himself, a U.S tax compliance professional, is mentioned in an article (which I have not seen) which states that should the tax code on duals-at-birth change for the better, this might “spell the death-knell” to our Canadian lawsuit.
Please do not worry. The Arvay team has been quite aware of the issue of specific characteristics of plaintiffs from the very beginning.
Today Mr. Arvay also has confirmed with me, yet again, that our legal strategy is not limited to the specific characteristics of the two plaintiffs, that additional plaintiffs can be added to the lawsuit should this ever be necessary, and that our aim has always been to include affidavits from people who span a range of differing characteristics.
Let’s ask about $US 2,350 for the *right* to renounce — a fee that should not have been implemented in the first place for the *right* to expatriate (especially for those like Gwen and Ginny, Accidental Americans, and all they represent).
From one of my many comments on the subject of Accidental Americans,
Litigation is against the Canadian Harper government and Harper’s Conservative MP’s who heckled my family’s situation and immaturely interrupted a speaker to cry JUST RENOUNCE in the Canadian Parliament! They found it OK to make some Canadians second-class to any others, no matter their national origin or that of their parents, just to go along with the US and bring US law into Canada to override Canadian laws and the Charter of Rights and Freedoms!
As we all know already, no one has a say in where s/he is born or whether or not s/he is born the citizen of more than one country. As generous as this proposed change may seem the problem is that the focus is on a narrow group of people and is nothing more than a use of divide and conquer.
As Calgary 411 has pointed out, the proposal does nothing for the disabled who actually meet all the rules but lack the all important intellectual capacity to avail themselves of this exit strategy. And again I ask where is the fundamental equity? Don’t we still have 2 different classes of U.S. citizens? Isn’t place of birth still a crime?
I hope that we will not be quick to embrace this as an acceptable option just because fatigue has set in. The court case and the human rights complaint should still go forward. The President’s own Simpsons/Bowles budget proposal has called for R.B.T. and this has become a part of the Republican platform. I suspect that the President is smelling the coffee and realizes that C.B.T. is under serious threat. This is just a ploy to retain C.B.T. at some level by buying off the governments and a source of external opposition from other countries.
Sobering words, recalcitrantexpat. RBT or bust!
It’s interesting that Schumer’s supreme leader is making it all about tax, wouldn’t you say? Perhaps Schumer and party is capable of distinguishing Americans abroad from resident offshore tax evaders, but hasn’t yet formulated a way to let us all off the hook without encouraging Americans to flee the US for sunnier tax climes.
“5. relinquishes his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen,”
uh…if I’m reading this right, someone in the accidental position that renounced in 2012 or 2013 would still be screwed?
@recalcitantexpat, to me, it is but one battle within the war. I have a CLN, but I keep coming back because of my outrage for ALL of us in this situation, not just accidentals, not just Canadians, not just CBT, not just FATCA, not just renunciation fees vs. relinquishing for free, not just being labelled a tax evader by homelanders. ALL OF IT IS A STEAMY, STINKY PILE OF POO!
How do duals at birth relinquish EVER, unless they join a foreign army, take an oath of foreign allegiance, work for a foreign government or commit an act if treason?
This is a proposed regulation. Not a law.
It shows that Obama wants to get rid of Americans.
@TheMom, Right on!
The Mom and recalcitrantexpat,
We must continue with the course of action, if only because we have lost an innocence and all trust in either the US or our own governments for matters relating to a taint of US-ness (for ourselves, for our children) — CBT vs RBT and the present IGAs that implement US FATCA law in our own countries making our financial institutions and even our Canada Revenue Agency arms of the IRS. With that loss of trust, we will always wonder what other US laws could pop up in the future to affect anyone defined a US Person.
The title of this article should have been
“If you like your US citizenship—you can keep it”
“If you like your US citizenship—you can keep it”
“If you like your US citizenship—you can keep it”
“If you like your US citizenship—you can keep it”
“Well, uh, if you don’t like your US citizenship, uh, well, we can make you get rid of it”
That he does, Mark Twain, but usually he likes to fleece them first.
But they can’t get a new bank account until well after implementation of that.
Obutthead closed the door on this yesterday,
Europeans or Canadians cannot open a local bank account without permission from USA. Every local must prove to his bank that he is not an American.
Question 10 http://www.irs.gov/Businesses/Corporations/Frequently-Asked-Questions-FAQs-FATCA–Compliance-Legal#General
Q10: If a Reporting Model 1 FFI or a Reporting Model 2 FFI that is applying the due diligence procedures in section III, paragraph B, of Annex I of the IGA cannot obtain a self-certification upon the opening of a New Individual Account, can the FFI open the account and treat it as a U.S. Reportable Account?
A: No. Pursuant to section III, paragraph B, of Annex I of the IGA, the FFI must obtain a self-certification at account opening. If the FFI cannot obtain a self-certification at account opening, it cannot open the account.
I have a question regarding the US passport issue. One of the points talks about not having a US passport or not having it for some other purpose. I am in my early 30’s, I found out when I was 18 that I was considered an American. I got a passport because I thought I had to, not because I wanted to. I meet all the other requirements of this proposal, am I not eligible because I got a passport? I am confused about the passport part. Its a two part provision.
This part: “has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,”. So since I got my passport not to depart the US, would I still be eligible for this provision?
You raise a very interesting question (about whether this proposal would undermine the legal case brought forward by our two plaintiffs, who would fall under the protection of this proposal if it becomes US law) which I think should be referred to the plaintiff’s lawyers for consideration, assuming they aren’t already aware of this new proposal and haven’t already considered it.
However this is a proposal and until passed into law it would be rather difficult for the Government of Canada to claim no real damage has been or will be done to the plaintiffs. At least that’s my non-lawyer’s opinion.
On the face of a first reading, though, it does rather seem that this proposal gets off the hook all duals-at-birth who have spend their entire adult lives in Canada as Canadians and haven’t ever applied for a US passport except under duress from a border officer under that legislation requiring entry or departure from the US on a US passport if you’re a US citizen. It is interesting to me that the Obama administration appears to be aware of that latter conundrum and willing to accept that particular duress shouldn’t invalidate a dual-at-birth’s ability to get rid of US citizenship without penalties or tax-filing requirements.
This proposal is part of an “omnibus” budget bill and won’t mean anything if the Republicans in Congress, who have a majority in both the House and Senate, don’t approve that bill.
And nothing in this legislation negates the argument that the current Government of Canada, by signing the IGA, violated Section 15 of the Charter which applies to all Canadian citizens (and residents, I gather to be the case from recent related court decisions), regardless of the extent or nature of any harm done by the violation. But again, I’m not a lawyer.
I agree completely with your assessment in a comment further up this chain (which I only came upon late today), that this proposal, IF PASSED INTO LAW, would indeed seem at first reading to be a huge game-changer for duals-at-birth who have lived in Canada (or any other country of dual citizenship) since age 18, never applied for a US passport except perhaps under the duress of being told they had to have one to enter or leave the US, and haven’t failed to file IRS returns that are required of all “non-resident aliens” who have US source income. Which I believe may be the case of our two plaintiffs, hence my agreement with tdott that then may raise a question about what response the government might or might not make to the Statement of Claim (which is I believe couched specifically with reference to those two plaintiffs).
For example, in my case, one of my parents moved up to Canada from the US to get married. I was born in Canada and never knew I was American or thought of myself so until one time I was going through the border into the US with my parent. My parent had a US passport and I had my Canadian one. We had done this many times over the years but this one American border guard asked why we had different passports. My parent explained the family situation and he said that I was American too because of my parent being American and he stated that I needed to make my citizenship official by getting a passport because “Americans” need American passports to enter the US. So under this instruction and worry about being hassled going into the US in the futrue, I went down to the consulate, filled out the paper work and got a passport. It would be stupid if that eliminated me from this proposal.
So, if this gets adopted, my niece would be ineligible but my nephew would be eligible. She would be ineligible by virtue of the fact that her parents were law abiding citizens cognizant of 22 CFR 53.1 who took her to the US when she was about 18 months old. Punishment for children for the sins of the parent.
On the other hand, someone could be born in the US and live there to age 18, get a passport to leave the US, renounce prior to 1 Jan 2018 and still be eligible. But a 2 week vacation in the US at age 1 will disqualify you. Go figure.
I wonder how they’re going to handle things after 1 Jan 2018? What is the standard of proof that an individual is renouncing within 2 years of learning they are a US citizen? You, of course, can be aware that you’re a US citizen without being aware that you are required to file and pay US taxes.
Will there be enough consulate slots to cover the people that want to get out before 1 Jan 2018 if this gets adopted?
If someone applied for a passport, received one, but never signed it which is required in order to validate it, would they meet the definition of having “held a US passport”?
@EdeilWiss, re: “You, of course, can be aware that you’re a US citizen without being aware that you are required to file and pay US taxes.”
YES exactly. Why is it a BAD THING to be aware of US citizenship to the extent that that awareness is justification for USA to consider you a US taxpayer, even if you left USA as a child?
I posted earlier on this thread exactly those thoughts. If a child was born abroad and lived abroad all his life, but his US parent got him a US passport as a child in order to take him on a brief visit to his US based grandparents would he then be ineligible for the ‘relief’? The passport would have been used to ENTER the US as well as EXIT. There is nothing in the proposal stating an exemption for someone obtaining/using a US passport under duress only in order to comply with the US law. So, once again your screwed simply for the crime of having US relatives.
Actually there is a revenue estimate on the OMB website for this proposal.
Provide relief for certain accidental dual citizens .. ……… 60 103 55 23 24 25 26 28 29 30 265 403
It is expected to cost the US Treasury 403 Million dollars between now and 2025.
I don’t understand point 6:”certifies under penalty of perjury his or her compliance with all U.S. Federal tax obligations that would have applied during the five years preceding the year of expatriation if the individual had been a nonresident alien during that period.”From the point of view of the U.S., what is a “nonresident alien”? Someone who doesn’t live in the U.S. and is not a citizen of the U.S.? Doesn’t that describe the entire non-American population of the world?
Does that mean that a child, born in Canada while a parent was still an American, who met the other 5 requirements, would have to prove that they had paid U.S. tax for the preceding 5 years? How is that any better than the current regulations? I don’t understand this at all. If I knew of such a hypothetical child, she or he might want to get rid of their recently-acquired “US Personhood” curse, but would this proposed legislation be worth while for them to pursue?
Here is my take on the answers to your question:
Sure, you could say that the “entire non-American population of the world” falls under the category of “non-resident alien”. However, the IRS only cares about NRAs who have more than the $3K or so exemption of US source income.
You asked, Does that mean that a child, born in Canada while a parent was still an American, who met the other 5 requirements, would have to prove that they had paid U.S. tax for the preceding 5 years?
No. Such a person only has to “certify under the penalties of pergury” that they have complied. They do not have to “prove” it. Certification, on Form 8854, is a Yes/No checkbox. If what I wrote in a previous post above is correct, then if they have less than the exemption of about $3K in US source income, then they don’t have to file at all, and can truthfully certify they have complied for the previous 5 years. They didn’t file, but they didn’t need to. They have complied.
The current regulations are that such a person has to apply for a Social Secutrity number, file 5 years of taxes, 6 years of FBARs, pay punitive tax on mutual funds, etc. I know cross border tax accountants who won’t even take you as a client if you have mutual funds or any other 3520(a) filing obligations.
For the people who qualify, which is not an insignificat number of people whom I’ve seen on IBS in the last 3 years, this is an outstanding development.