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).”
ACA is dominated by Democrats and Compliance Condors. Hence, the departure tax.
RO’s TBT proposal is far better.
The ACA is an organization of compliance condors disguising themselves as an organization in support of expats:
None of their suggestions have ever reduced the compliance burden, even to the point of increasing it.
Most of the leadership works or has worked in the compliance or financial industry.
They claim to to non-partisan but only 4 of their “caucus” are Republican: 2 from Texas, 2 from South Carolina. Two states known to consistently come up with ever hateful laws (grew up in Texas, so I know how those people tend to think). Ok, they have a link to both Democrats Abroad and Republicans Overseas.
Their “resources” consists of a few links to a few government pages and absolutely irrelevant groups (unless we are not just moneylauderingterroristfinancingdruglordtaxcheats, but wife-beaters, too). Oh, and a tax preparer directory with 1683 IRS-listed companies.
These people need to be shown for what they are.
And, of course, they themselves do not pay taxes because they are just a non-profit organization there to help you find the best tax preparer to get ripped off by.
Has anyone actually written them an email? I’m willing to bet that this whole white paper thing is just a honey pot. You write them with suggestions, they know you are probably an expat, you get “tips” on how to come in to compliance.
They do not act in our interest.
I joined ACA one year. Glad I never renewed my membership.
The thing that slays me is how stupidly nonsensical the US rules are. They get all huffy about the possibility that someone might move to the US, make a lot of money, and then leave and take the money with them. So they came up with the exit tax to screw anyone who tries to do that.
But, if a person who renounces (which they must do if they want to exit the US system) and is wealthy enough to be a covered expatriate who owes exit tax, they then tell that person they don’t want any of the remainder to ever come back to the US. They do that by imposing a 40% tax on anything US heirs inherit from that covered expat.. So they don’t want the money to leave, but if it does, they discourage its return. Go figure.
Clearly they are smokin’ very funny things there at ACA. WHAT ARE THEY THINKING? I join all of you in denouncing this proposal as pure, unadulterated CRAP. Even though I was conned into getting a US passport a number of years ago I have lived in Canada permanently and full-time since the age of five. Passport or no passport, I have been GONE from US shores for damn near 60 years and I will NOT go, hat in hand, to the US government and apply for a “Departure Certificate” or whatever they want to call it.
Shame on ACA for this ridiculous idea. God help us all if they talk Congress into implementing this.
I often wonder what Andy Sundberg, founder of ACA, would have to say about these endless ACA proposals.
http://isaacbrocksociety.ca/2012/09/01/andy-sundberg-passes-away/comment-page-1/#comment-51323
http://isaacbrocksociety.ca/2012/09/01/andy-sundberg-passes-away/comment-page-1/#comment-51329
http://isaacbrocksociety.ca/2012/09/01/andy-sundberg-passes-away/comment-page-1/#comment-51363
”whats Ginny going to say if she needs to get a Departure Certificate and pay for it!!”
I got my DC years ago. It’s called my Canadian passport. It’s the only one I have ever had or will ever have.
The main danger is not the terms of the proposal itself (even though it’s atrocious and Chuck Grassley will undoubtedly make it even worse by closing the obvious “loophole” regarding children born abroad to non-Departure Certificate holders).
The real danger is, if Congress accepts the ACA proposal, then it could end the current tacit acknowledgment from some parts of the IRS (e.g. the Taxpayer Advocate, Keith Redmond’s off-the-record conversation, etc.) that the current system cannot justly be enforced against accidentals.
Instead the US government will perceive that they have “made concessions” to all nine million people whom ACA claims to represent, and now the eight million who still won’t sign up for the new deal deserve punishment.
ACA are sacrificing accidentals so that their core constituents — self-identifying Americans who practice “good citizenship” and reside “abroad” — can get off scot-free. (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.)
Let me just add one more vote against this is 100% USDA approved BULLSHIT! There is no reference, or anything in this, that is the least bit appealing to someone like my wife who’s lived in Canada for 27 years and earned almost all of her worldly wealth here. Like the 90% or so ex-amerikans who left ages ago under the mistaken belief that they were “free,” she is “non-compliant.” This proposal is ridiculous and useless.
Screw you amerika! It’s about time you GREW UP. Pay your own freaking bills and leave us out of it!
How about not having a “departure” tax? What are we, the Soviet Union?
(That was a rhetorical question.)
” What are we, the Soviet Union?”
Not quite yet, but with the new guy in charge, getting closer every day.
The changes since the early December iteration are minimal – so there’s really no change to the comments I made then (on FB):
and
You can find the original FB thread here: https://www.facebook.com/groups/citizenshiptaxation/permalink/1228643740558705/?match=YWNh
This proposal is a full employment act for bureaucrats and tax professionals. No other country has such convoluted rules for its expats. In Australia, if you move overseas, you just stop filing tax returns. If you have investments or property, you owe Australia capital gains tax – explained here. It’s not rocket science – and there’s no asking the ATO for permission.
And ACA has a bit to learn about negotiating. You don’t start by putting a compromise on the table. Let’s start with a proposal that gets us where we want to be.
@maz57
“They get all huffy about the possibility that someone might move to the US, make a lot of money, and then leave and take the money with them. ”
In my case, it has been the reverse. I left the States for Europe, made money for many years, and kept my money over here. However, they are still huffy. Damned either way…
”What are we, the Soviet Union?”
Uh, well, you have a wall going up, an administrative iron curtain, disregard for basic human rights, an autocrat whose close staff tries to write laws and lots of Russian secret-service influence, so, um, yes. To be fair, however, the current buffoon and his loony aides are not those responsible for FATCA. It is entirely possible for them, however, to make things worse. If the GOP is as effective at reforming FATCA and CBT as it is with health care and running the country unobstructed, this non-believer says “God help us”.
I need to re-read this ACA sh!t pile, but it seems to make things worse. Frankly, who could think this junk up? A Departure Certificate? What the eff is the matter with these people. I think they’re going to get quite a few “Departure Certificates” sent to them, and not the kind they like…
I believe a previous version suggested the IRS user fee be $5000 but I cannot find it now. Maybe I’m wrong, but I can remember being shocked. Anybody else remember this?
@ Fred(B),
It’s mentioned in this ACA document of 1 December 2016, top right-hand box on page 5. “Residency-Based Taxation: Side-By-Side Analysis: Citizenship-Based Taxation (Current Law) / ACA’s Residency-Based Taxation Proposal“.
Thank you pacifica777! I was worried that I was imagining things. But no, it was true. Troubled minds, these people.
The ACA proposal is painful to read. But, it is an opportunity to dialogue with ACA and others who are engaged in the process of tax reform and its application to Americans abroad. I wonder if a separate site/Facebook group or something could be dedicated to the specific issue of “Tax Reform and Americans Abroad”. But, anyway …
The specifics of the proposal are a diversion from what I believe is the real issue. The real issue is the assumptions that ACA (and to be fair) the vast majority of Americans abroad bring to the table.
ACA proceeds from the operating assumption that American citizens are nothing but slaves to the U.S. Government and the IRS. ACA has absolutely bowed down to the United States of America and acknowledged the absolute servitude of Americans to Congress and the IRS. ACA has done this NOTWITHSTANDING THE FACT that most Americans abroad do not (and apparently will not) file U.S. taxes, FBAR and the other components that have stripped Americans of their liberties. (Donald Trump would probably say that those who do not file are “smart”. Why? Because the rules of U.S. style CBT are so punitive that in most cases it is safer to not file at all. Well, assuming you can even understand what is asked of you.)
Because ACA begins by accepting the principle of slavery, they then begin by asking for a “carve out” for certain slaves. These are slaves who have been particularly good and compliant slaves. The principle of “carve out for exceptional slaves” was last seen in the FATCA same country exemption proposal.
Understand the following two points:
1. FATCA SCE was a proposal that was absolutely in support of FATCA, but asked for an exemption for ONLY those Americans abroad who could demonstrate compliance with their tax slavery.
2. The current proposal (RBT not) ABSOLUTELY ACCEPTS CBT AS THE OPERATING PRINCIPLE, but asks for an exemption for those who have been particularly compliant with CBT. Because of the emphasis on “compliance, compliance, compliance” there is NO relief for Accidental Americans (and similarly situated people). The proposal makes NO mention of dual citizens and to what extent dual citizenship should play a role. As the Titanic is going down, ACA is proposes to save “tax compliant” (the good slaves) Americans from going down.
To be clear (as the “Change you can believe in” guy used to say):
This is NOT a proposal for residence-based taxation. This is a proposal for “taxation-based citizenship” with an exemption for certain groups of people. Therefore, under NO CIRCUMSTANCES should this be referred to as an RBT proposal. This is a proposal to worship at the altar of taxation-based citizenship, but exempt the “high priests” from the burdens.
That said, as a practical matter, if you can fit yourself into the one of “taxation-based citizenship” exemptions, it does provide benefits. But, as @Eric notes, this proposal will institutionalize “taxation-based citizenship”.
More, on the specifics later.
As I reflect further on the structure and specifics I wonder:
How was this developed?
What sort of person wrote this?
Why is it so technical?
Why can it not just suggest that the USA join the world and legislate tax rules of “tax residence” that are similar to those used in other nations?
The reason is because these proposals (who else has the expertise to even engage in the conversation) are written by lawyers and tax accountants who understand (but not as well as they think) the provisions and structure of the internal revenue code but do NOT understand the way these rules affect peoples lives.
Notice how the ACA proposal takes place “inside the structure and provisions of the current IRC”. This is absolutely idiotic.
Tax reform is far too important to allow the tax professionals to have any part of the discussion.
As @Fred and others have pointed, the solution is really quite simple (except in the mind of a tax professional).
The solution works like this:
“Mr. Trump! Tear down this wall!”
(But, this is too simple for the average mind!)
For Americans abroad, as the title of the post read:
“When it’s all said and done: All Roads Lead To Renunciation!”
The ACA proposal demonstrates why.
@USCitizenAbroad
“Because the rules of U.S. style CBT are so punitive that in most cases it is safer to not file at all.”
Many of us already fall under this category; we are merely spectators of the American fiscal circus, not participants…
@USCitizenAbroad
“When it’s all said and done: All Roads Lead To Renunciation!”
I’m prepared to post my relinquishment form to the local American fortress (sorry, embassy) with a hundred dollars enclosed. Will this do?
“Tax reform is far too important to allow the tax professionals to have any part of the discussion.”
Unfortunately these parasites consider themselves to be stakeholders, but they are nothing more than the fox guarding the henhouse. With this proposal, ACA is only showing how corrupt it has become.
“It is difficult to get a man to understand something when his salary depends upon his not understanding it!” (Upton Sinclair?) Might apply to compliance industry.
Bubblebustin: reminds me of “La guerre! C’est une chose trop grave pour la confier à des militaires.” – “War is too important a matter to be left to the military.” – Georges Clémenceau. In this case he might have said “tax matters are too important to be left to tax lawyers”.
What ever happened to the tax return on a post card, a Reagan idea I think?
When I read through this new ACA proposal, I only thought to myself how lucky and happy I am to have renounced my US citizenship three years ago. I knew then, and it is only confirmed to me now, that Americans in general simply don’t get it and will most probably never get it. They seem fixated on some sort of total control and monitoring of their fellow citizens, including those that live away from their homeland. Their insatiable greed, obsession with money, obsession with control all wrapped up in a very perverse morality of “pay your fair share” brings us these monstrosities, such as this half-baked proposal from ACA.
I agree with so many on this blog that ACA is most definitely not out to defend and fight for rights for overseas Americans, but rather serve the interests of the “system” and maintain tax slavery for many and offer a few crumbs of relief to a select group. Why don’t these people ask themselves why no other major world economy treats its citizens living “abroad” in such a terrible, draconian, totalitarian way, by imposing taxes and reporting on them. Why do other nations manage to have vibrant overseas communities, contributing to the national economy of their original home country and at the same time have higher standards of living than the U.S., without extorting funds from them?
I too would advise all reading this to tell ACA to stop coming up with alternative tax slavery proposals and either fight for tax equality with the rest of the world’s citizens living outside their home countries, or cease their operations. I think that they are nothing more than a bunch of subservient operatives helping to ensure that the U.S. tax system can continue holding its “U.S. citizens/persons” tax hostage while they enjoy a taste of freedom outside of the U.S.