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).”
@Fred (B)
Trust that if the US went to a tax return on a postcard, postage stamps would cost tens of thousands of dollars.
my comment…go pound sand and get your grubby fingers off money that doesn’t belong to you! My money was earned in Canada and belongs to me to invest or spend in Canada to stimulate the Canadian economy. I am tired and fed up with the silly proposals! I think by commenting on them, you are validating them. They should have no recognition or validation. Period.
@Duality. “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….”
I’m in the same boat as you are. I left over 40 years ago with a suitcase full of clothes and a beat up Volkswagen. Over the years I was lucky and did well. The idea of being required to file annual US tax returns forever or, alternatively, leave the US system by filing an exit tax return for assets accumulated entirely outside the US after I left rubbed me the wrong way. I can’t fathom how those morons can possibly believe that someone would put up with that crap. Screw them and their wretched system. I’ll give it all to a homeless guy before I send the IRS a penny (or another piece of paper, for that matter).
Having said that, just for sport, wouldn’t it be fun to file a Form 8854 listing a rusty old VW as the sole asset?
@Anne#1
I like your style
This IS absolute nonsense!!
“can I please have permission to leave my serfdom”? !
Phil Hodgen was right, get out now, it’s only going to get progressively worse.
@maz57
Ditto. I came to Canada in the early 1990s with a negative net-worth. I was helped out and subsidized through medical school by the Quebec and Canadian governments. All of my net worth was earned/created in Canada.
Through FATCA, Justin Trudeau would like to feed my bank account information to the US, put me on the IRS radar, and have me file tax returns to the IRS. My medical corporation here in British Columbia which is what I will use to retire would not be recognized by the IRS– guess who would skin me alive through back-taxes, interest, and penalties if I ever filed there? So we have Trudeau who would like to see my Canadian earned income and assets transferred to the US government. If the Government of Canada won’t stand up for me, guess who will? Me. Along with our three plaintiffs 🙂
A Canadian is a Canadian is a Canadian.
Head meet brick wall. Pound, pound, pound …
Thanks to Stephen Kish I at least have an idea of what “scoring” is now but ACA still makes my head ache.
http://isaacbrocksociety.ca/2017/01/06/republicans-overseas-white-paper-on-territorial-taxation-for-individuals/comment-page-3/#comment-7808476
I used to be simply a law-abiding Canadian but then somehow I became a recalcitrant, non-compliant, covered US person for tax purposes and now it seems that the ACA wants to add loopy abuser to the list of my miscreant ways. I’m getting to feel as dissed as Rodney Dangerfield but unlike him I am NOT an American.
It is reassuring to see that I am not alone in my views regarding the proposal and ACA. These views were not made overnight but after a few years working on these issues. I truly wish it was different.
@Keith REDMOND as someone who does not participate in social media but I have looked at the public Facebook page…….a great big THANK YOU!!!!!
@EmBee, yes just get over it…..you need to change your moniker to @EvilBee.
@BC_Doc, you would be skinned alive with nothing left…..nothing. But you are one of the fortunate MD’s in that you transferred your medical skills to post FATCA survival skills. I recently met a MD on this side of the pond who was trained here, built wealth here, never lived in the USA, only got a passport to vacation in Florida but is now paying huge sums to lawyers to enter OVDI. His retirement has now been cancelled.
Re EmBee’s quote from ACA: “It is unrealistic to advocate for a platform where individuals simply say, “I’m living outside of the country, so I don’t owe taxes,” without having some parameters to define who is eligible for RBT and how.”
Why do they have to re-invent the wheel? Many other first world countries already have rules that allow just that – move away and stop paying tax! The questions ACA (and others) should be asking is “What is the rest of the world doing? How is that working for them?” There’s always abuse at the margins – you can’t write tax law that someone won’t try to poke holes in. The US got its convoluted/impenetrable tax code by writing the rules with a focus on eliminating abuse. If there’s going to be real tax reform, they should write a new tax code focusing on making it clear and understandable to the 99.9% who want to do the right thing.
@ George O — I think Gwen has priority rights to the Evil moniker but I might consider NaughtyBee.
@ Karen — What you are describing is thinking outside the box. They aren’t very good at that.
@EmBee – “What you are describing is thinking outside the box. They aren’t very good at that.”
So glad I’m living outside the box!
@George TOR– I am proud to say I am willfully non-compliant too. They’d have me back to a negative net worth again in a heart beat. Maybe throw in some criminal penalties to teach all the other recalcitrants a lesson too!
George, I am truly sorry that you didn’t meet the European MD and set him straight before he was spoon fed to the IRS by the compliance condors.
I’ve said this before George but I’ll say it again– you’re explanation of the Master Nationality Rule was a huge help to me. As you’ve pointed out, in Canada, I can only be Canadian. Ditto all the Accidentals born across the border in the small town hospitals of New England then brought back to Canada as swaddled new-borns to live their Canadian lives as Canadians. Even if Stephen Harper didn’t get it, Justin Trudeau doesn’t get it despite playing lip service to it, our three plaintiffs and their esteemed attorney Mr. Joe Arvay will soon teach them that really, a Canadian is a Canadian is a Canadian.
@Keith Redmond– I will echo George. I also don’t use Facebook– a second big thank you for all of your efforts on behalf of expats!
Why are they muddying the waters with this ridiculous “proposal”? Haven’t we all suffered enough already?
My stomach ulcer is just starting to heal. ACA, please be gone from my world.
@EmBee &George
I like naughty Bee best, it’s very British 🙂
ACA does not represent the Americans overseas with whom I am in contact and who contact me. As stated before, ACA is negligent in representing the other populations whose lives are being ruined by CBT and FATCA. Until the leader changes, the organisation will not change. It is important that those who come into contact with ACA know that this organisation is not a representative or advocate for the American overseas community at large or for the associated affected populations. You play in the ACA leader’s ‘playground,’ she will bite back.
@maz57
“I’m in the same boat as you are. I left over 40 years ago with a suitcase full of clothes and a beat up Volkswagen.”
Back in the States, I sold my car (in which I was living for a year due to unemployment) to pay for my air ticket to Europe. I now live in a modest flat and work enjoyably hard. Had I not decided to leave for greener pastures, I would have ended up being a lost soul.
With one luggage of old clothes and a dying laptop, I rebuilt my entire life here in Europe. I am no longer an American and do not need superfluous documents to prove this point. In fact, the ACA lack all legitimacy so should not be “representing” me/us with IRS-friendly solutions so as to comply with extraterritorial financial/fiscal laws. America needs to focus on rebuilding their odious tax system so as to finally comply with OECD standards.
@Keith….someone was positing who does ACA represent?
1. They likely “represent” short termers abroad who are going to Europe for three years then back to Ohio.
2. They may “represent” long termers abroad who do plan to return to the USA for retirement.
In regards to “dual nationals” and lets use French/USA as an example. If that person identifies as French first always and US as secondary they are not likely in the ACA representation. But if that same person identifies as US always and French secondary they may be in the ACA field of interest.
We could set up a group called Irish Citizens Abroad ICA and they would represent persons born or naturalised in Ireland, their children born wherever and even their grandchildren born wherever. There are likely at least 100’s of thousands of said persons that fit that in the USA. But if ICA claimed to represent them and called them Irish Citizens Abroad we would be laughed at.
@George
“If that person identifies as French first always and US as secondary…”
Under FATCA regulations, banks will be “identifying” us, not ourselves. Furthermore, under IRS regulations, the IRS will be “identifying” us, not ourselves. The ACA are “representing” all people affected by US personhood. We ourselves cannot choose our primary nationality, as American citizenship prevails under compulsion. This is the problem, n’est-ce pas?
To add to George’s excellent comment about whom ACA represents: they represent current short termers. They propose screwing future short-termers by repealing the FEIE and not repealing FATCA.
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).
I wanted to clarify some earlier comments of mine. Any new tax legislation will have a budget impact score in it’s entirety however, tax treaties passed by the Senate do not go through this process.
Here’s a short quote from the letter I just sent to ACA. It answers their question about “having some parameters to define who is eligible for RBT ….” The answer is: EVERYBODY!
“Your proposal relegates RBT to an electable choice suitable only for a select subset of America’s diaspora. It leaves people like me completely out of the equation. Residence-based taxation must become the law of the land for EVERYONE just like it is on the entire remainder of the globe, with the famous exception of a small African dictatorship. Fine company for America to be keeping! ACA should be asking Congress for nothing less than the full adoption of RBT across the boards.”
Considering that ACA has become an unapologetic front organization for the compliance industry, they might accept a proposal along the following lines. Instead of all the tangled gobbledegook about which US citizens abroad qualify for which brand of CBT-RBT hybrid mix and exit tax based on this-or-that, let’s make it simple:
RESOLVED, that any US citizen who lives outside the USA makes a US$1000 ‘donation’ to any tax compliance company from the ACA-approved list, and thereafter is exempt from US taxation and filing requirements.
Not much different than the requirements of many Caribbean nations selling their citizenships: you purchase a property worth $250,000–which must be from a government-approved development–and then get your passport in the mail. In our case, we pay a fee to an ACA-approved compliance firm, then receive our freedom.
Since ACA is clearly more concerned with compliance firms losing a tidy income source, than with US citizens losing their shirts to the IRS, my proposal is a win-win for everybody.
My loathing for the compliance industry cannot be put into words, so moving on, instead…
I agree – RBT, the same as other countries is absolutely the only way forward (certainly the only way I will support). I think the UK does it like this: move abroad > register with embassy, which gets you put on the list in case of emergency & removes you from HMRC system > live your life abroad in peace & pay local taxes > notify embassy you’re moving home (so you’re removed from their emergency list and put back in the HMRC tax system) > move home & register for council/tv/road taxes… Simples. I’m sure there are complexities if you’re moving large sums of money across the border (never been lucky enough, myself!) but I’m sure the US doesn’t need to invent those protocols from scratch either. If you’re only living overseas for 3 months (like a graduate placement or something)— that’s fine… you’re exempt from US tax for those 3 months. If you’re overseas for the rest of your life– that’s fine… boom. done.
If the US wants to get pernickety about “paying for what you use”, fine. I’ll give ’em $5 every time I use my US passport (or use my UK one instead). That’s just about the most I’m willing to offer, though.
There’s no way I’m living under two sets of laws anymore. Either the US changes (which feels like the biggest pipe-dream I’ve ever wished for), or I’m gone.
Here is what I am thinking of sending to the ACA.
While wealth is not taxed in the US, except with the exit tax, taxes are paid on it as it is earned. Why do we need we pay tax on it a second time just because we are expatriating?
If assets are sold in the US, taxes on the sale are collected regardless of where the previous owner resides or of their nationality. So, we are to be taxed on the income used to buy our assets, taxed again with the exit tax and yet again if/when the assets are actually sold. Why?
If one has assets that are taxed at reparation, where does the cash come to pay the bill?
No can do.
How in the hell does one come up with the cash to pay for pensions and other deffered
compensation before recceiving them? How do we accurately compute the current US dollar value for these, with other horribly complex formula, written in klingon and carrying the standard $10,000 fine for each and every omission and error?
No can do.
If I could be tax compliant, I would be. The complexity of doing my last tax return with penalties for incomplete and or inaccurate information in excess of my yearly earnings compelled me to stop filing. Employers outside the US have their own local laws to comply with and local accounting customs which are ofeten at odds with what the IRS demands. The threat of being fined into financial oblivion for not being for failing to provide information that I have no method available to obtain absolutely prevents me from complying. Can not provide that which is not in ones possesion.
No can do.
Oh, paying taxes is not enough, we must also pay a user fee too! WTFO. We have to pay to use a service we do not wish to use in the first place.
Gee, with friends like ACA on our side, who needs enemies.
Go back to the drawing board but first consider, are US citizens and their non US citizen children property of the US or free born individuals. Your current proposal supports the former case. If this is your belief, state so. If your belief is the latter, propose something that supports the fact that we are not property.