by Karen Alpert
www.fixthetaxtreaty.org
Overview
This feedback addresses the Residence Based Taxation (RBT) proposal from American Citizens Abroad that can be found at these links:
- Residency-Based_Taxation_ACA_Proposal_Side-By-Side_Comparison_161201_Final (1)
- Residency-Based_Taxation_Baseline_Approach_Feb._7_2017
- https://www.americansabroad.org/news/aca-publishes-detailed-descr-of-its-rbt-proposal-and-announces-coalition-to-score-rbt-proposal/
- https://www.americansabroad.org/news/aca-advances-on-residency-based-taxation-rbt/
This proposal starts from the premise that citizenship is an acceptable basis for taxation. Shouldn’t that premise be questioned? Allison Christians, tax law professor at McGill University, argues that citizenship alone is not a sufficient basis for taxation ( https://ssrn.com/abstract=2924925). Every other country on the planet (bar Eritrea) starts from the premise that countries have the right to tax residents to support the services used by residents.
Qualification for RBT
For Accidental Americans – both those born in the US to foreign parents who have not lived in the US as an adult, and those born outside the US who qualify for US citizenship from birth but have never lived in the US – the justification for citizenship based taxation is non-existent. Do these individuals need to apply for a “Departure Certificate”? If so, at what age?
When a person makes a long-term move out of the US, why should they have to wait for 5 years to qualify for RBT? If I move from California to Texas, once I’ve established a residence in Texas, California no longer taxes me as a resident, effective immediately. Why should an international move be any different?
While waiting those 5 years, US tax will cost low income earners much more than it does under the current system. The proposal repeals the Foreign Earned Income Exemption (FEIE). While the level of FEIE is quite high, it is most valuable for middle class and lower socio-economic groups. Other countries have much more generous tax free thresholds and lower tax rates at low income levels. In Australia, for example, an individual could earn up to A$20,000 (US$15,000) before any Australian tax is due. Loss of FEIE will mean tax is due to the US for individuals earning US$10-15k. At the other end of the income spectrum, however, FTC is always a better answer than FEIE. Australia’s tax rates rise to 45% for incomes above A$180,000 (US$135,000). So, repeal of Section 911 FEIE will impact those least able to pay additional taxes and exacerbate income inequality.
The proposal does not address other information returns. Current IRS rules require that forms 8621 (PFICs) and 5471 (controlled foreign corporation) are required even when a tax return is not. For many Americans abroad, the reporting (and associated punitive penalties) is more of a problem than actually paying taxes (most owe no tax to the US anyway). If the reporting continues as long as one is a citizen, then renunciations will continue as well.
Departure Certificate
When applying for a Departure Certificate it appears that the IRS has control over the timing of the issuance of the Certificate and thus the effective date. With the current renunciation process, the potential renunciant has the date of the appointment in advance and can decide on the day whether to complete the process or not. With volatile exchange rates, the timing can affect the US dollar net worth of the individual, potentially subjecting them to the Departure Tax should the value of the US dollar fall relative to their home currency in the time between submission and approval of the application for Departure Certificate. Additionally, lack of control over the timing could cause hardship for those who must be free of US reporting to take up a job, or otherwise have a time-critical need to be free of US taxation.
Annual re-certification is a bureaucratic nightmare. One possible alternative is to collect this information as US citizens enter and leave the country. For those who return to employment in the US, the chance of avoiding taxation is minimal. Similarly, Social Security checks or investment income sent to a US address could be used as a rebuttable presumption that the US citizen is once again residing in the US.
In the Departure Tax section of the proposal it is not clear whether the intention is to use the net worth threshold in section 877(a)(2) and raise that to $5million for both renunciants and citizens opting in to RBT. Given the justification used by legislators for both the exit tax and the Departure Tax, the net worth threshold for both should be linked to the estate tax threshold and similarly indexed for inflation.
At what point does an individual determine that they have been tax compliant. Is it similar to the current Exit Tax procedures where delinquent returns filed before filing form 8854 allow one to certify compliance?
The IRS “User Fee” of $2,350 per person is a lot of money for those on modest incomes – precisely the people who will be hurt most by the repeal of section 911. The renunciation fee, which the IRS User fee is based on, is already the highest such fee in the world, and a financial hardship for many. Forcing citizens to buy their way out of Citizenship based taxation at this high price means that only those who are already relatively well-off will be able to buy their freedom. Like the current system, the proposal exacerbates income inequality by making it prohibitively expensive for those with incomes below the median to exit the double taxation forced on them by the unfair system of citizenship based taxation. As under current rules, the proposed User Fee also makes it harder and more expensive for US citizens residing outside of the US to leave the US tax system than it is for permanent residents (green card holders) – in this area citizens are treated worse than non-citizens!
Furthermore, setting the IRS User Fee to the same price as renunciation makes renunciation preferable to RBT for many citizens abroad. Those who will not be covered expatriates, who are having trouble maintaining banking relationships, are shut out of jobs due to either FATCA/FBAR reporting or the requirement to report controlled corporations to the IRS, or have no intention of returning to the US will find renunciation preferable.
Anti‐Abuse Rules
Under the Anti-Abuse rules – gain from sale of securities taxable in the US for two years after receiving the Departure Certificate: but individuals must have a foreign residence for five years before they are even eligible for a Departure Certificate, and if their net worth is above $5 million they must pay a Departure Tax. What abuse is it if securities are sold within 2 years of receiving the Departure Certificate?
On page 6: “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.” This appears to contradict the special rule on page 5 which states that these individuals are not subject to the Departure Tax if they are tax-compliant.
On page 6: “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.” (emphasis added) This appears to be saying that anyone returning to the US who has ever been subject to US tax will have to amend their prior 5 years of non-resident returns and file as a resident. The proposal requires individuals to wait for 5 years before they are eligible for RBT, then if their life circumstances change and they move back to the US, they will lose the benefit of up to 5 years of non-resident treatment under RBT?
FATCA and FBAR reporting
There are several reasons FATCA should be repealed beyond the problem of access to banking by US Persons. FATCA costs much more than it will ever generate in revenue. The OECD’s Common Reporting Standard (CRS) has been implemented by financial institutions in many of the countries with FATCA IGAs. Under CRS, institutions collect the tax residence of their clients. If the US were to abandon FATCA and implement CRS (not likely, I know), then financial institutions would not be required to use a separate system for American clients, and they would no longer be subject to the 30% FATCA withholding. Under those circumstances, FFIs would be much more welcoming to American clients. Furthermore, those Americans who qualify for RBT, would be tax-resident only in one country, and only reported to that country. Those who do not yet qualify would be tax-resident in two countries (one being the US) and their data would be reported to the US.
Same Country Exception (SCE): There are many legitimate reasons to hold bank accounts in countries other than where one is resident. In Europe, in particular, it is quite common to bank in another country. SCE does not make compliance any easier for FFIs – they must still keep track of their American account holders and treat them differently should they move across a border or back to the US. Under FATCA, the threat of 30% withholding is so draconian that many banks, especially European banks burned by the DOJ, are not willing to take any risks with US citizen account holders. What concrete evidence does ACA have that banks, especially in Europe, will be any more willing to deal with Americans under SCE?
For taxpayers who qualify for RBT and have received a Departure Certificate, why does the US need to know about their non-US bank accounts and investments? In this circumstance, non-US accounts do not generate income taxable in the US. Requiring FBAR reporting (and form 8938 for any accounts not required to be reported on FBAR) will be seen as a disadvantage to retaining US citizenship. Many NRA spouses and business partners object to joint accounts being reported to the IRS and/or FINCEN.
“One should not forget that the US had very little to do with Europe militarily until compelled twice in half a century to intervene and help sort out huge messes over there.”
The US does enjoy taking credit for Canada’s sacrifice in WWI and the Soviet Union’s sacrifice in WWII.
“Yes, the amount the US spends on its military is greater than what anyone else spends, but that has nothing to do with the US’s need for money. FBAR has been with us since 1970 or so.”
Oh yeah? The US didn’t need money for military operations in 1970 or so? Remind me how the US helped sort out that mess, OK?
Trump was right when he said Japan should pay for its own defence, the US should bring home its military, and Japan should spend its defence money in Japan.
RBT is the right way to fund it.
Japan T
This was not my comment.
Wow.
I fail to see you have presented any “facts” – You have indicated how you see the situation and have not backed it up with anything. Same as last time. In fact, I could repeat exactly the same words to you.
The situation with the prisoners at Gitmo appears differently to me than your comparison.Perhaps you could listen to this former CIA operative account of how some of those people ended up there-many were not guilty of anything much less the equivalent of a POW. It simply is not the same situation as WWII and other conventional wars. And with respect, the torture that went on there is not questioned. Disgusting, reprehensible treatment. Were prisoners waterboarded in WWII? Were they subjected to rectal rehydration? There was so much more……Some of it is just beyond reasonable treatment regardless of being a prisoner. If that is passed off as being nothing different, it rather seems to me, you have demonstrated your own words(“People’s political beliefs are like religion. They believe and no amount of facts will dampen their passionate defence of those beliefs. Indeed, they do not even want to hear anything that will challenge their belief”)
John Kiriakou
What difference does it make when the photos were taken? The fact is American soldiers behaved abominably. The fact is, it happened. There is nothing wrong is noticing what that behaviour is.
I doubt I have ever said anything about Obamacare because I do not understand how it was to work etc.
It is not a stretch to question the lack morality of the US.- want to talk about Vietnam? Assassinations of American citizens by drones without due process? My only point was how these things affected my perception. When I saw this kind of treatment, it was not hard to believe the US would find our situation even remotely worth considering. Still waiting.
Ah, my old friend, once again you twist what say. No where in my comments do I say the US was the only nation which helped. However, in WWII, Russia had little choice, being as they where actually invaded. Canada took part as part of the British Empire, GB having been attacked in preparation to planned invasion. Why did the US enter the war in Europe? Because Germany invited us by way of a Declaration of War, doing so in support of Japan who invited the US by bombing the US fleet at Pearl Harbor.
Why did the US enter WWI? Because the Zimmerman (sp?) note make it clear that Germany was trying to get Mexico to attack us to keep us out of Europe.
In either case, there was not enough public support for direct military involvement in either war until invited. But invited we were. And seeing the inability of the European nations to prevent genocide, rightly or wrongly, the US vowed never again and have stayed in Europe. We stayed in Japan for a multitude of reasons, including the fact that if undefended, Japan could count on invasion from at least the nations they invaded or if allowed to rearm, the nations which just so recently suffered under the Japanese military would take premptive action to prevent Japan from becoming militarily strong enough to wage war on its own such was and is the distrust the Japanese have engendered amongst their neighbors.
Trump’s ignorance as to who actually pays for the US forces in Japan can be fixed with education (his). The fact the he and most homelanders believe the US military should quit Japan or at least have the Japanese pay for this defense is a ckear indication that the everyday US citizen is not happy with our military being here. Though, many do recognize the need for the US military to be here (and other places) despite wishing it was not so.
Personally, I’d ask Japan to give a yes or no reply to the question of the US maintaining a military presence in Japan. If the say “no”, I would say very well, we shall go, BUT, if ever we have to come back, what ever is left will become a US state.
“It simply is not the same situation as WWII and other conventional wars.” The war the US is in is not conventional, thus the differences.
Waterboarding is in no way torture. Do you think the US tortures its own service members or intelligence officers for training? No they do not (though being tear gassed sure seemed like it at the time) but they do or did waterboard some of its officers for training. One who has been tortured bears scars, physical and or mental/emotional/social.
“Were they subjected to rectal rehydration?” Probably not. They were most likely left to die of dehydration.
Were WWII POWs tortured? Yes of course. Heaven forbid an allied service member got captured by the Japanese or a soviet soldier by the Germans. And I am sure one could find cases of US soldiers getting into trouble for their own abuses of POWs. But that is not an argument of any meaning. As all groups have their bad actors, the actions of these bad actors is in no way indicative of the group as a whole. The way the group treats these bad actors when caught by the group, however is. That is why when the photos of Abu Gharib were published is very important.
The bad actors serving in the US army at Abu Gharib were caught by the US army and punishment underway and reported to the press by the US army before the public outcry over the incident. The public outcry only came after the photos were published. The story before the release of the pics was that the US army discovered the crimes at Abu Gharib on its own and were punishing those found guilty. That still remains the truth of the matter, it is public record, you are free to look it up. However, once the pics became public, the incident has been used to paint the entire US army, US armed forces as a whole and the US government as immoral. That simply is not the case, it regards to Abu Gharib.
Yes, the crimes at Abu Gharib were particularly ugly. But the perps were caught and punished by the US army. That should be the end of it, yet it continues to be used as an indictment against the whole nation, which it is not.
If, however, the US army, the government and the population at large had a “yeah, well who cares.” attitude and the perps were allowed to keep their freedom, then you’d have a point.
This issue is one I deal with on a constant basis. People here love to point to Abu Gharib as say, “See, see, the US is no different than what the Japanese did in WW II” to which I reply, “Oh? Then please show me the cases of Japanese servcemembers standing trial in Japanese court for their crimes.” No one has as of yet.
I in no way defend those idiots at Abu Gharib but I do defend the organization to which the belonged for finding them and bringing them to justice before the public demaded it of them.
The time line is of the greatest importance.
I did not mention assignations and droning because those are genuine cases of abuse.
There are many legitimate cases that demonstrate that the US does not care about us or our situations. Why water down the argument with politically charged nonsense like Abu Gharib and Gitmo. If one thinks the conditions at Gitmo are bad, why not take a trip to where ISIS are in control and compare there treatment they met out to just about everyone to what those in Gitmo receive?
It was not you who said anything about Obamacare. But as I went to the official sites and found the actual figures used by the goverenment yet these were disreagarded, I feel the example fit.
Look, the people lying in the press about us and our situations are the same who reported on Abu Gharib, Gitmo and everything else. We know they are lying about us, why trust them on anything?
@JapanT
Calm down, please, of you would.
You complained about a Homelander argument for CBT, I agreed with you that it was bullshit and brought my own rebuke to it based on my personal opinion based on what I see happening in the world since the end of WWII.
Off topic HERE means this is a post about a useless “RBT” proposal which is anything but real RBT.
This is at least the second time you have attacked me for agreeing with you, so just let it go and I promise I will try not to comment on any of your comments in the future. We are supposedly on the same side when it comes the CBT/FBAR/FATCA issues as well as the US extraterritorial interference in other countries sovereignty.
@ Japan T
The guiltiest of all (the ones at the top of the chain of command, the psychological warfare specialists, the complicit medical supervisors) have not been punished and the case will never be closed until they are (not likely ever going to happen though). THIS is an indictment against the whole nation, in my opinion. Anyway the Wednesday hearing has given me something positive to focus on and I welcome the respite from the constant fear bombs bursting in air these days.
“This is at least the second time you have attacked me for agreeing with you”
That just sums up rather perfectly what makes a good chunk of this message board both highly amusing and a complete waste of time.
“US Supreme Court opts to leave CIA ‘torture report’ secret”
https://www.yahoo.com/news/us-supreme-court-opts-leave-cia-torture-report-211622481.html
In other words, those in charge of the country do feel the entire country should be blamed.
“The guiltiest of all (the ones at the top of the chain of command, the psychological warfare specialists, the complicit medical supervisors) have not been punished and the case will never be closed until they are (not likely ever going to happen though). ”
Eh, were they behind the bad behaviour of those who were caught? How so.
The democrat party lost. They have been losing big over the last 8 years. Despite keeping the White House, the democrats have lost well over 1000 elected seats nation wide. Those whose help we need turn off at the mention of Abu Gharib and/or statements to the effect that the US fiscal mess can be solved by reducing military spending. “Oh brother, another leftwing looney” is their thought and they do not care what else you have to say. Creditability is destroyed by these comments.
“Norman Diamond says
April 24, 2017 at 6:30 pm
“US Supreme Court opts to leave CIA ‘torture report’ secret”
https://www.yahoo.com/news/us-supreme-court-opts-leave-cia-torture-report-211622481.html
In other words, those in charge of the country do feel the entire country should be blamed.”
How so?
@UnforgivenToo
You can agree with me 99.99% but the moment you make your comment on military spending, our argument is labeled as nothing more than the lunatic rantings of left wing looneys.
@ Japan T
A “how so” example:
http://tortureaccountability.org/geoffrey_miller
Note the final sentence:
“Miller retired in August 2006. At his retirement ceremony, he was awarded a medal for distinguished service and a citation for “innovation” in his career.”
Wouldn’t you rather be thinking about Wednesday which might pave the way to ending at least one US created injustice?
A site for sore eyes. Here’s another one:
http://tortureaccountability.org/john_yoo
And I repeat myself:
https://www.youtube.com/watch?v=zPqjCM6e5oM
If you torture me, I’ll confess to 3.11.
(U.S. viewers might say that if you torture me, I’ll confess to 9.11. But I think confession to setting the earthquake explains it better.)
Let me make this very clear:
The argument was about RE-building.
You have to RE-build what is run down or destroyed.
The infrastructure has not been destroyed, so therefore run-down.
Something becomes run-down when neglected.
Keep it up and you don’t need to RE-build.
That was my argument.
True at 0.01%, 2%, 50%, 99.9%.
Nothing loony left wing about it.
Wonder if rebuiding falls under mandatory funds. I imagine that infrastructure is like maintenance and should be mandatory.However,demolition is not basic funding and therefore discretionary and part of the 16%.
Let’s face it ,the Americans alone won WW2 in Europe and America knows best.
Lighten up.
@Robert Ross
“Let’s face it ,the Americans alone won WW2 in Europe and America knows best.”
Well actually the Soviets did most of the work.
True, but the Americans took the credit. As usual.
@JapanT
Eisenhower ‘s speech,
‘ Beware the Industrial Military Complex’
Would you say he was Looney Left?
http://coursesa.matrix.msu.edu/~hst306/documents/indust.html
@EmBee
That’s a joke, right. I mean, seriously, you’re just jerking my chain, right?
There is not a single instance of torture given in the document the link sends me to. Not a single one. Much of the techniques cited are used by the military upon certain members of the military for training purposes. Other techniques are quite common in the every day life a US service member. Not a single instance of torture, not a one.
I hope, I really hope that was a joke.
@UnforgivenToo
“Let me make this very clear:
The argument was about RE-building.
You have to RE-build what is run down or destroyed.
The infrastructure has not been destroyed, so therefore run-down.
Something becomes run-down when neglected.
Keep it up and you don’t need to RE-build.
That was my argument.
True at 0.01%, 2%, 50%, 99.9%.
Nothing loony left wing about”
I agree.
However, the moment you cite military spending as the reason there are not funds to rebuild, the whole argument is treated as leftwing loonyism.
@Heidi
“Eisenhower ‘s speech,
‘ Beware the Industrial Military Complex’
Would you say he was Looney Left?”
16% percent of the national budget during wartime fits?
What was the percentage of the US budget spent on the military under JFK?
AND when have the US NOT been at war? It seems to be their raison d’etre.
http://www.washingtonsblog.com/2015/02/america-war-93-time-222-239-years-since-1776.html
His speech was all the more pertinent coming from a Military man.
http://www.npr.org/2011/01/17/132942244/ikes-warning-of-military-expansion-50-years-later
Yes, words of wisdom from Ike. But compared to percentage of the budget or GDP where is the massive expansion in US military spending compared to that of JFK’s administration?
But back on topic. Cutting US military spending to zero would do nothing to solve the fiscal problems the US faces.
Constant focus on an area of the budget that would not, can not solve the nation’s fiscal issues is not only a waste of time, but destroys the creditibility of our argument.
This thread has been well and truly hijacked. Give it a rest.