This February 7 2017 American Citizens Abroad (ACA) document appears to supersede and replace previous ACA proposals to “replace” U.S. citizenship-based taxation.
It also includes a side by side comparison with the Republicans Overseas territorial tax proposal (I am unsure of the accuracy of the comparison). There is NO comparison of ACA plan with relative merits of renunciation or “doing nothing”.
ACA ASKS FOR YOUR COMMENTS, primarily on the mechanics of the departure tax provision.
You can send your comments
— to firstname.lastname@example.org
— and post on the ACA FB site (https://www.facebook.com/americancitizensabroad)
— and can copy your comment on this Brock website.
Here is the ACA departure tax component of the proposal:
“Departure Tax Provision
— General Rule. Individuals who obtain a Departure Certificate and meet the threshold test of current section 877 (Expatriation to Avoid Tax), would be subject to tax on income as if property was sold on the day before the date of the Departure Certificate. The concern is that if there is not some form of Departure Tax, individuals could accumulate wealth while being a US citizen living in the US, and then avoid any US tax by simply moving abroad. Not only might this be the wrong result from a tax policy standpoint, it would greatly increase the revenue costs of instituting RBT. [Comments on this subject would be appreciated.]
Threshold tests for application of the Departure Tax would be the same as those in section 877, except the $2 million or more figure in section 877(a)(2)(B) would be increased to $5 million and US real estate subject to FIRPTA rules would be excluded. Rules similar to those in sections 877 and 877A would apply to [e.g., CANADIAN, AUSTRALIAN, UK, FRANCE-sourced!] pensions and other forms of deferred compensation. [Comments on this subject would be appreciated.]
— Special Rule for Americans Abroad. Individuals meeting the residency test for RBT for at least 3 years prior to date of enactment of these rules and who certify under penalty of perjury that they have been tax compliant, would not be subject to the Departure Tax. [Comments on this subject would be appreciated.]
— IRS User Fee. Under current law, there is a State Department fee of $2,350 charged for renunciation of US citizenship. Under the RBT approach, there would be a one-time IRS User Fee for issuance of a Departure Certificate equal to the State Department’s then applicable renunciation fee. Americans abroad qualifying for the special 3-year rule, above, would not be subject to this User Fee. [Comments on this subject would be appreciated.]
— Special Rule-“Covered Expatriates”. Under current law, there are special rules taxing bequests and gifts to US persons from a so-called “covered expatriate” (in general, certain US citizens who relinquish citizenship and certain long-term US residents who cease to be a lawful permanent resident). These are taxed to the recipient at the highest estate tax or gift tax rate then applicable. The RBT approach contains no comparable provision. Non-resident Americans are not treated as a “US person” for purposes of these rules.
— Effective Date; Transition Rules
In first year that an individual holds a Departure Certificate, days spent in the US would not count for determining his or her status as resident. For example, if an individual was issued a Departure Certificate on July 1, 2018, but did not of two – begin to reside in – a foreign country until September 1, 2018, days spent in the US during 2018 would not count for purposes of determining the individual’s status for 2018. His or her “beginning date”, however, would be July 1, 2018. The beginning date for residency-based tax status would be the date of issuance of the Departure Certificate. It would not be retroactive to an earlier date. Residency-based taxation, in effect, could be elected for a taxable year by an eligible individual by obtaining a Departure Certificate. Status as a non-resident American would remain in effect so long as the individual qualifies and files an annual certification that he/she qualifies or until the individual files with the IRS a request for termination of election and such request is approved.
Gain from sale or disposition of securities for a 2-year period following issuance of a Departure Certificate would remain taxable as under current law, regardless whether linked to prior employment in the US.Thus, if an individual residing in the US changes were to move abroad (change residence to a foreign residence) and sell or dispose of securities within 2 years of obtaining a Departure Certificate, gain would remain subject to US tax. [Comments on this subject would be appreciated.]
Issuance of a Departure Certificate would require proof that individual is a resident of a foreign country and is subject to taxation in that country on the same basis as others who are residents there. There would be no requirement that the country impose an income tax. For example, an individual could reside in Bermuda, which is a zero-tax country.
Issuance of a Departure Certificate would require proof that the individual in question has met all federal tax requirements. This is similar to the requirement for US resident aliens and nonresident aliens (with certain exceptions) to obtain an IRS tax clearance document, commonly referred to as a “sailing permit”.
Individuals eligible for the special rule for individuals residing abroad (RBT rules, above) would be subject to the Departure Tax, whether or not they are tax-compliant. The date of departure for such individuals would be the subsequent date of issuance of a valid Certificate.
If an individual who was a non-resident American for any of the prior 5 years and was a resident American for any year prior to that period, and again becomes a resident American, then he or she shall be treated as a resident American for each of the prior five years. Otherwise, a returning non-resident American will be treated the same as a non-resident alien who becomes a resident alien for US tax purposes. The concern is that an individual not be able to remove himself from US tax status, then realize income which is not subject to US tax, and subsequently again become subject to US tax rules. This rule mirrors the 10-year rule for expatriates authorized by section 877(e)(5).”
“(Perhaps ACA are reading the current political environment correctly: in Homelanderese, the word for accidental is “anchor baby”, and the current ruling party hates anchor babies, so everyone’s on the same page when it comes to punishing accidentals.)”
Most of our troubles were given us by the last ruling party, so why not give the current ruling party a chance to fix this without blame for doing things they do not do and without blame for things thought they will do.
@JapanT: Most of our troubles were given us by the last ruling party, so why not give the current ruling party a chance to fix this without blame for doing things they do not do and without blame for things thought they will do.
I think the Republicans will continue on with their track record, so why don’t we have a look at that track record:
Grassley gave us every single bit of successful messing-around with the FEIE over the past three decades (though admittedly the Democrats made many unsuccessful attempts on that one). 13 out of 18 Republicans on the House Judiciary Committee — including all the ones who got elected due to the “Republican Revolution” (which if I dare say, was achieved due to similar voters as those who showed up for Trump) — voted in favour of the Reed Amendment, and two of the five who didn’t turned around six years later and sponsored the SAFER Act which would have banished all renunciants anyway. Ronald Reagan gave us phantom gains and PFIC. Joe McCarthy gave us burden of proof for relinquishment of nationality. Shall I go on?
This appears to be the republican House of Representatives blueprint for comprehensive tax reform. Nary a word about Americans overseas. Not a mention of RBT.
To my mind, expecting salvation from the Republicans is desperate and delusional.
Maybe if we’re lucky FATCA will be wiped away, if not directly then indirectly via the IGAs, collateral damage in a fury of regulation-reducing executive orders. If so, great, I benefit. Take away FATCA and we can all go back to living peacefully under the radar, no reason to concern ourselves with the absurdity of US tax policy.
I think that’s actually our best chance. Kill the IGAs because they’re an “Obama regulation” – I’d be fine with that.
But the idea that Republicans are somehow ideologically disposed to better look after the interests of citizens abroad, and will replace CBT with RBT, is just naive. The Democrats were bad, but that does not automatically imply that their opponents will be good.
I can see a couple of different ways in which this won’t get better:
The “anchor baby” angle is an interesting one, not something I’d considered. Eliminate birthright citizenship and you’ve at least saved the offspring of future graduate students from all kinds of grief. But the converse is, those who have it must pay for the privilege, even if they can’t afford to get rid of it.
Or, continue to demonize the “offshore tax cheat” and the “unpatriotic expat” to deflect attention from tax cuts that benefit the wealthy and the kleptocratic mess in and around the White House.
I hope I’m wrong, but I’m cynical enough to think that I won’t be. Honestly, I’d be surprised if the current administration manages produce anything at all beyond unenforceable executive orders, angry tweets and demonstrable untruths.
“If their proposal really were to become law, I expect that very few of the next generation of English tutorial school teachers in the Gulf monarchies, Southeast Asia, and other low-tax destinations would be Americans. Mostly Australians and Canadians instead, I’ll bet.
This may seem insignificant — “so what, a few college kids don’t get their trip around the world” — except that English teaching is a pipeline to other educational industry jobs in the country of residence, in particular as university admissions advisors for local high schoolers. Fewer Americans and more Brits and Ozzies means more people pushing the kids to apply to British and Australian universities. That means decreased tuition revenue for American universities from international students (who usually pay full freight, unlike domestic students who pay in-state tuition and even get financial aid).”
You and I get this but the homelanders I talk to laugh at that prospect. They believe that the great opportunities of the US markets trump all other considerations. However, as I am in a position to advise students, schools and companies and their employees, I have been advising that they do not send nor go themselves to the US lest they become deemed US Persons for tax purposes.
“@JapanT: Most of our troubles were given us by the last ruling party, so why not give the current ruling party a chance to fix this without blame for doing things they do not do and without blame for things thought they will do.
I think the Republicans will continue on with their track record, so why don’t we have a look at that track record:
Grassley gave us every single bit of successful messing-around with the FEIE over the past three decades (though admittedly the Democrats made many unsuccessful attempts on that one). 13 out of 18 Republicans on the House Judiciary Committee — including all the ones who got elected due to the “Republican Revolution” (which if I dare say, was achieved due to similar voters as those who showed up for Trump) — voted in favour of the Reed Amendment, and two of the five who didn’t turned around six years later and sponsored the SAFER Act which would have banished all renunciants anyway. Ronald Reagan gave us phantom gains and PFIC. Joe McCarthy gave us burden of proof for relinquishment of nationality. Shall I go on?”
True as those are, questions remain. By following Orin Hatch, Republican, and his efforts to get the passport revocation provision passed, I learned that voting records of Senators have little meaning. I never knew that a Senator could at the last minute, swap the text of one bill with that of another while keeping the name of the first. How many senators have voted for bills that are different from their beliefs because of this trick or others?
As far as Reagan giving us this or that, was this something he supported or was it something sent to him by a democrat controlled congress?
Yes, there are republicans who are in no way our friends, but which party has fixes to our issues in their platform, and which refused to address our issues in theirs?
I am not saying we should just sit back and do nothing, we should be reminding the party as a whole that these are part of their plarform and educate them on the damage to the economy if these remain in place. And we should call out those individuals who have been thorns in our collective side, but I do not think that actual blame rests in the current controlling party as a whole.
Some individuals have certainly earned blame by their actions, many more a taint of blame for their inaction, but again, who is it that has repeal of FATCA and switching to RBT in their platform?