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 info@americansabroad.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.
Anti-Abuse Rules
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).”
Send your comments on “new” ACA RBT proposal to ACA and copy to Brock.
I don’t trust the ACA with my email address and I don’t use Facebook (anymore), so I’ll just comment here:
With continued taxation until the certificate is approved, an exit tax, yearly forms (which default to taxation when not done), an exit fee, and you know the $10.000 per form/mistake will stay. Then there’s FBAR, FATCA, etc. Of course 5 years past compliance. And you know this will be published in the same manner as FBAR (not) => This is NOT RBT, this is CBT with enough “exceptions” to convince an SC judge that it is constitutional (when it is not).
Not near enough. To quote the British: RBT is RBT and we want hard RBT.
If I still had US slaveryship, I would invest my money in the renouncement option, probably pay the same, and be rid of their BS.
Sorry to post three times in a row, but this really ticks me off.
I think someone needs to explain the words Residency Based Taxation mean to those homelander double agents at ACA:
You are a resident, which means you actually live there, then you pay taxes there; You are NOT a resident, which means you live somewhere ELSE, you do NOT pay taxes (or fill out forms) there, PERIOD.
My comment………it’s C.R.A.P.
This is totally ‘underpants’ as we would say in the UK.
Exit tax again. Were the symmetry for example in the US taxing capital gains that were accumulated before you became a US person and this notion that you can’t avoid paying it when you leave. Stock sales subject to US tax if you leave would include PFIC taxes on dispositions.
@Unforgiven Too. ” RBT is RBT and we want hard RBT.” Amen to that. The only thing that any of these patches do is just prolong the agony of their dysfunctional tax system and those caught up in it.
The US needs to come up with a reasonable means to completely sever any relationship whatsoever with the US tax system for those who wish to leave permanently. Anything less will just be CBT Lite. By reasonable I mean a final settling of tax that might be owing on previously deferred gains or assets which were accumulated in the US. What is not reasonable is having to pay any exit or departure tax on assets or gains that were accumulated before arrival in the US or after leaving the US. And the notion of having to continue to file useless forms after leaving permanently is ridiculous. So is the idea of charging a “fee” (i.e. tax) to file a departure return. If the fee is the same price as a renunciation its not hard to guess which route people are going to go.
Adding more stupidity to an already stupid system is not a blueprint for making it smart.
“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.”
I’m not an American Abroad so I won’t be commenting to ACA but I’d simply observe that the part in bold is problematic. Once again ACA is basing a non-compliant person’s entry into the wonderful world of their version of RBT on first complying with the former CBT system (at GREAT cost, potential penalties and piles of paperwork), despite perhaps having lived outside the USA for almost their entire lives. Why can’t someone simply state, under penalty of perjury, that they have lived more than 3 years outside the USA and have less than $5M in assests and then be given a Departure Certificate without anymore hassle? I think millions of Americans who aren’t filing with the IRS right now are going to still say, “Meh, not worth it.” The rest of the rules just make my head ache so I’ll let others delve into those details.
@ Unforgiven Too, George O, Neill and maz57
While I was working on my little comment I see you all came in with a similar mindset. It seems as though ACA represents only one subset of American’s Abroad … the compliant ones. And now we have a new slogan: HARD RBT. NOT CBT LITE.
ACA’s proposal may have a chance only because, like everything else the US does in regard to taxation, they’ve taken a simple concept (RBT) and bastardized it with so many riders and provisions that it’s turned into a Frankenstein’s monster of tangled, obtuse complexity. What could have been two paragraphs in the tax code will surely add another 150 pages instead. Such a new spiderweb of rules will be another godsend to the compliance mafia and tax lawyers. Which is exactly why it stands a chance of passage.
Correct, EmBee.
Neither am I an American Abroad so will comment here with the same statement I just made for Jim Jatras’ request, http://isaacbrocksociety.ca/2017/02/07/nigel-green-launches-campaign-to-repeal-obama-era-fatca-law/comment-page-2/#comment-7807419:
I do realize that there was teeth gnashing on Republicans Overseas and their TBT proposal. Because of my prior life long long ago and far far away I could see the merits in the RO TBT proposal and applauded Keith because it was simply a very slick way to get what we need actually approved by the Republican caucus and a few Democrats.
In reading this ACA proposal I can ONLY conclude that this is actually a conspiracy with sleight of hand in order to boost support for RO TBT. Thats the only thing that makes sense because this ACA proposal is C-r-a-p with a capital C.
This proposal was clearly written by not just compliance buzzards but homeland compliance buzzards.
IF the Republic of Ireland proposed this which would affect many Irish Citizens hiding out in America, it would be laughed at by the US Congress. To be honest I want Ireland to start taxing John Kerry and return the millions of ill gotten untaxed gain back to his home in Ireland!!
@ Barbara
Good comment. Safe to say, the USA has never heard of KISS.
@ maz
Adding more stupidity to an already stupid system is not a blueprint for making it smart.
Best line ever. You and George ( OR) are far more polite than I.
What is reasonable? In general terms……..if they simply stripped the savings clause out of Dual Tax Treaties the problem would be almost solved!!
Apply the reasonable tie breaker rules to determine who gets to tax and just in The Highlander….there can only be one.
@Ginny….a belated Valentines to you and your two colleagues fighting for ALL of us around the globe!!
Yes, you came into mind instantly as I read the rules……”whats Ginny going to say if she needs to get a Departure Certificate and pay for it!!”
You know how I often use Ireland in my examples which is on purpose because of the huge number of lawfully Irish in the USA and many of them politicians. We need to set up a group Irish Citizens Abroad to represent the millions of Irish and accidental Irish who are living in Amerika.
OK..ok….I do try to look at the good in everything. But this proposal remains a pig no matter how much lipstick I put on it!!!
The compliance test should NOT be based on US Compliance it should be based on three or five year compliance with your home country. By way of example; “A person who has been resident abroad for a period of three/five years in a Country that is party to a Dual Tax Treaty with United States and has been compliant with said countries tax laws for said period as a resident person, certifying same to be true and correct shall be eligible for a Departure Certificate at no expense.”
@ George O
Sorry to burst your Irish Kerry bubble but …
http://www.irishtimes.com/news/kerry-and-the-non-existent-irish-connection-1.1150521
@Embee….you ruined an otherwise perfectly good story!!!
OK….then its that other Irishman abiding in America…..Vice President Joe Biden. 🙂
Hey, this ACA proposal is absolutely a joke. Its clearly written by the same joker that wrote their SCE proposal that FAILED.
Sorry about that, @ George O.
https://m.facebook.com/story.php?story_fbid=10154429235779072&id=57622739071&refid=17&_ft_=top_level_post_id.10154429235779072%3Atl_objid.10154429235779072%3Athid.57622739071%3A306061129499414%3A3%3A0%3A1488355199%3A-5634666226219045899&__tn__=%2As
I’ve been reading the comments at ACA FB and this one by Larry Feign struck me as being very KISSable.
ACA Press Release states “If this tax reform for Americans abroad can be made revenue neutral and can avoid opening loopholes, Congress and the Administration will embrace it.”
WHEN is a Canadian Citizen resident in Canada albeit being born on the wrong side of the border, who files annual tax returns with CRA paying taxes to Canada, is called a “LOOPHOLE.”
Ginny….You are a Canadian you are NOT a loophole.
@ George O
… not a loophole and not an abuser either (note the Anti-Abuse Rules). I think we know who the REAL abusers are here.
@EmBee. Maybe Congress should seriously consider hiring Larry Feign to rewrite the entire US tax code.
Barbara: right!!!!!
You leave, you stop filing, you arrive you start filing. Simple.
So somebody makes a fortune in the US and then they leave. So effin’ what? The reverse happens all the time. No other developed country prevents their people from bringing their money to the US.
People move around, get the eff used to it, USA. No, everybody is not clamouring to go to the land of the free (cough, cough). Some leave it. Live and let live, right? Don’t tread on me. Live free or die.
Actually I’m not sure what the ACA is doing here. Have they tweaked SCE which they think is a way to transition into RBT? Why do they even want people’s input when they just go to their tax compliance industry consultants to write up their recommendations anyway? And what’s this scoring thing? If they can’t get this into 25 words or less then I’d say fuggedaboutit. Larry Feign did it. Fred (B) did it and Shadow Raider showed the IRS how to edit their tax code to achieve RBT. The ACA should make it simple or just party on with all the abroads for whom the-law-is-the-law-is-the-law.