Liberty and justice for all United States persons abroad

The Isaac Brock Society

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reposted from citizenshipsolutions dot ca

posted by John Richardson

Introduction: It’s tax reform season and Senator Orrin Hatch wants to hear from you (again)

As reported on the Isaac Brock Society and other digital resources for those impacted by U.S. taxes, you have until July 17, 2017 to tell Senator Hatch what you think needs to be changed in the Internal Revenue Code. After great deliberation, it occurred to me that people who either are (or are accused of being) U.S. citizens or Green Card holders living outside the United States, might want the USA to stop taxing them. After all, they already pay taxes to the countries where they reside. This is your opportunity to “Let your voices be heard” (well maybe).

The Senate Finance Committee is yet again asking the general public to send comments on tax reform. The deadline is July 17, and the email address is taxreform2017@finance.senate.gov.

https://www.finance.senate.gov/chairmans-news/hatch-calls-for-feedback-on-tax-reform

(July 17, 2017 is coming quickly. Please take a few moments to send your thoughts to Senator Hatch. Tell him you feel about FATCA, citizenship-based taxation, FBAR, etc.)

Speaking of “tax reform”: Introducing Jackie Bugion

Jackie Bugnion is a U.S. citizen who has lived in Switzerland for many many years. She has been a tireless advocate for “residence based taxation”. She worked with “American Citizens Abroad” for many years and has recently retired. She was recently honored with the Eugene Abrams Award by ACA- an event that was the subject of a post at the Isaac Brock Society – that described her many achievements (over a long career).

She was the principal organizer of the “Conference on Citizenship Taxation”
which took place in Toronto, Canada in May of 2014. The Conference was widely discussed on the Isaac Brock Society here and here. The live video of the “Kirsch Schneider debate” is here.

I have reproduced a number of her written submissions and posts on this blog, specifically:

Jackie Bugnion – 2013 Submission to the House Ways and Means Committee – Explains the upcoming New American Revolution

The submission referenced in the above tweet describes the history of the construction of the U.S. “fiscal prison” brick by legislative brick!
(Forward it to anybody and everybody with a interest in this.)
 
Jackie has returned with her 2017 submission to Senator Hatch.
 
Jackie Bugnion 2017 submission to Chairman Hatch – reproduced with permission of Jackie Bugnion

 

Jacqueline Bugnion

 

Submission to Chairman Hatch’s request for tax reform proposals

Adopt residence-based taxation (RBT) for Americans resident overseas

 

The Senate Finance Committee and the House Ways and Means Committee have both cited the need to review the way that the United States taxes its citizens and green card holders who reside overseas.
The current policy known as citizenship-based taxation (CBT) is increasingly called into question as it taxes Americans on their worldwide income irrespective of their residence, domestic or overseas. I am an American citizen who has resided overseas for 52 years, as my husband is a foreigner. I have personally observed the devastating consequences of CBT on Americans abroad and strongly urge Congress to adopt residence-based taxation (RBT).

What is RBT?
Under RBT, the U.S. would tax its citizens and green card holders who reside abroad the same way that the U.S. currently taxes non-resident aliens, i.e. through taxation of U.S.-source income only. FDAP (Fixed, Determinable, Annual, Periodic) income would be taxed largely through withholding at source by the paying agent. Effectively connected U.S.-source earned income would be reported on Form 1040NR and taxed under U.S. income tax rules.
Foreign-source income would not be taxable.

RBT would apply to all bona-fide overseas residents.
RBT would be immediate and automatic, but would not be open to residents of Puerto Rico or to military and diplomatic personnel stationed abroad.
As an obvious anti-abuse measure, RBT would not be available to residents of designated tax havens. RBT would not be compulsory; Americans abroad for a short period of time, such as academics on sabbatical, may opt to stay under CBT.

The rules for RBT are already in place as they apply to foreigners with U.S.-source income.
Withholding taxes on FDAP U.S.-source income would lead to automatic, efficient tax collection. In fact, withholding tax at source would in certain circumstances shift taxation from foreign countries to the U.S.

Shifting from CBT to RBT would be close to tax revenue neutral.
Analysis of the IRS 2555 statistics, relating to the foreign earned income exclusion reported by overseas Americans, shows that a significant share of wages and salaries of the highest income groups is U.S.-source, and hence would continue to be taxed by the U.S. under RBT. The top 1% income group account for more than 50% of all taxes paid. In addition, the U.S. today under CBT renounces most claim on tax liability on foreign earned income, by allowing foreign tax credits and the foreign earned income exclusion. These two factors and few minor ones, lead to a neutral tax revenue situation. Any possible difference between CBT and RBT would be utterly insignificant in the U.S. budget – less than 0.001% – so small that it could swing either way.

IRS enforcement costs under the current international tax system are disproportionate to revenue.
The international tax forms create burdensome filing costs for taxpayers and create heavy administrative costs for the IRS; this is terribly inefficient when the vast majority of overseas taxpayers owe no U.S. tax.

Tax collected currently under CBT, other than that linked to U.S.-source income, comes from unacceptable instances of double taxation.
Incompatibilities between the U.S. tax code and foreign tax systems lead to double taxation. The outrage of Boris Johnson, at the time Mayor of London, when the U.S. taxed the capital gain on the sale of his U.K. home illustrates this issue very well.
There are numerous examples of differences between U.S. and foreign tax systems which penalize Americans abroad. To cite just a few:

• IRS does not recognize foreign pension funds and therefore taxes
all contributions; it treats income generated over the years as coming from a PFIC fund, guaranteeing a negative return.

• U.S. legislates double taxation in the cases of the NIIT and the
Additional Medicare Tax since neither allow foreign tax credits. This is particularly cynical since these taxes aim to finance U.S. medical care; Americans abroad pay into their foreign health programs and are excluded from the Affordable Care Act.

• Some countries have a wealth tax on all net assets instead of a
capital gains tax on securities investments. The U.S. taxes the capital gains, but does not allow foreign tax credits against this income.

• Definitions of what is an income tax and what is a social
security tax varies enormously from country to country, with onerous tax consequences for U.S. citizens abroad.

• All OECD countries, except the U.S., have replaced sales taxes by
VAT, which can range up to 20% of the price of goods and services purchased. The U.S. does not recognize VAT paid as compensation for the U.S. tax liability, even though it does accept deduction of U.S. state sales tax.

• Entrepreneurs in countries without a totalization agreement are
subject to double contributions to social security, in the foreign country and in the U.S.

Beyond the immediate issue of taxation, moving from CBT to RBT would have major advantages for Americans abroad, at essentially no cost or lost revenue to the U.S.:

• CBT tax law and related FATCA asset and revenue reporting
requirements amount to a bank lockout for Americans abroad. FATCA reporting rules imposed by the U.S. on foreign financial institutions, accompanied by draconian penalties for non-compliance, strongly discourage foreign banks from accepting American citizens as clients.
In addition, the U.S. Patriot Act know-your-client requirements have effectively cut off Americans abroad from access to U.S. financial institutions. It is difficult to function without a bank account in today’s world.

• FBAR and Form 8938 reporting requirements shut off employment and
investment opportunities for Americans abroad. The FBAR requirement to report bank accounts with only signature authority eliminates jobs in financial positions. Foreign employers refuse to have their accounts reported to the United States, and such reporting is illegal in many countries. Form 8938 requires foreign companies in which an American holds 10% ownership to report this ownership to the IRS. This measure has shut out entrepreneurial and partnership opportunities for Americans overseas.

Consequently, the number of renunciations of U.S. citizenship is skyrocketing from a few hundred in 2008 to well over 5,000 in 2016. And this is just the tip of the iceberg. The blatant discrimination and unfair treatment of Americans abroad at the hand of their own government has created massive anger and frustration in the overseas community of more than 8 million Americans. The financial burden of compliance is far in excess of reporting requirements for U.S. residents and easily runs into the thousands of dollars, which is all the more ludicrous when the vast majority have no U.S. tax liability.

Adopting RBT meets three of the four tax reform objectives cited by Senator Hatch.

• First, it provides relief to middle-class individuals and
corrects major unfairness.

• Second, it removes impediments and disincentives for savings and
investments.

• Third, it makes Americans abroad and therefore the United States
more competitive in the global economy while preserving the tax base.

I thank you for your attention to the above.

Sincerely yours,

 

Jacqueline Bugnion
July 8, 2017

 

Background

BA in Economics, Cornell University, 1962

MBA, Harvard Business School, 1964

Tax Director, American Citizens Abroad, 2003-2015

Publications

Tax Notes International, Volume 62, Number 11, June 13, 2011, Jackie Bugnion, Overseas Americans Should Have a Say in National Tax Reform Debate

Tax Notes International, Volume 66, Number 5, April 30, 2012, Jackie Bugnion, American Citizens Abroad’s Recommendation for U.S. Tax Law Reform

Tax Notes, December 1, 2014, Jackie Bugnion and Roland Crim, Thank you Mayor Boris Johnson for speaking up for many

Tax Notes, Volume 148, Number 8, August 24, 2015, Jacqueline Bugnion, Concerns About the Taxation of Americans Resident Abroad

Tax Notes, May 30, 2016, Jacqueline Bugnion and Paula N. Singer, A Proposal for Fair U.S. Tax Treatment of Foreign Pensions

100 thoughts on “Jackie Bugnion 2017 Residence Based Taxation: To Chairman Hatch’s request for tax reform proposals”

  1. How about just simply. “STOP TAXING THE FUCK OUT OF PEOPLE WHO DON’T USE HOMELAND SERVICES…ASSHOLE!!!”

  3. Jackie Bugnion is one of the very best champions Americans abroad have. Part of her success comes from the way she delivers her message: well-reasoned, factually accurate sentences devoid of rancor and hyperbole.
    Tax justice for Americans abroad in the form of residency based taxation will remain elusive until the mind-set in Washington changes. When it comes to the CBT vs. RBT problem, the current leadership in Washington is likely to see it the way they see health care: you’re on your own with a life situation you are probably responsible for creating. The American in Paris may be a struggling middle-class salaried office worker trying to make ends meet while supporting their families, but Uncle Sam has no duty to bail you out of your mess just because you have to do a little more paper work so that you can enjoy your
    European experience.
    We will all follow Jackie’s lead as she moves forward on behalf of American abroad.
    Respectfully submitted.
    30 Year IRS Vet

  4. @30 Year IRS Vet

    Great article on your blog about Jackie’s submission:

    http://mopsicktaxlaw.blogspot.ca/2017/07/jackie-bugnion-former-tax-director-of.html

    Re your comment:

    you’re on your own with a life situation you are probably responsible for creating. The American in Paris may be a struggling middle-class salaried office worker trying to make ends meet while supporting their families, but Uncle Sam has no duty to bail you out of your mess just because you have to do a little more paper work so that you can enjoy your European experience.

    Thing is that the office worker in Paris didn’t create the problem. The U.S. Government DID create the problem. Test it this way:

    The only people in the world who have a little more paper work if they leave their country of birth are U.S. citizens. So, the problem is not the people leaving. It’s the government imposes that little more paper work if they leave.

    Welcome back to Brock! You should contribute to the conversation here more.

  5. Where you fail to understand, 30YearIRSVet, is that those who decide to live abroad permanently should have no more ties to the United States in any case. As it is now, the cost to divest US citizenship is officially $2,350 (with the ever-present possibility of it going up). We all know that it is more than that with all the filing that has to take place before anyone is allowed to renounce. Each year costing over $2,000 an year…an excessive amount in any case for any low-income family to muster up.

    I am not a US citizen (Canadian born and raised) so, I don’t have that ugly little problem.

    And what about the jus sanguinis rule of unilateral ransmittal of US citizenship and its customary obligation of citizenship taxation to those born on foreign soil? How is it that a baby born to one US citizen and a foreign national is considered by the DOS as a US citizen with all rights and obligations therein without EVER having set foot on United States soil with the intention of living there? And please don’t trot out the jingoistic response of “you receive benefits” because we all know that that is a load of utter bullshit. The Accidental American born abroad to a US parent (who lives abroad) has no other taint other than that of obligatory tax servitude basically because of ONE SINGLE THING: US Exceptionalism.

    Thomas Jefferson once said, “When injustice becomes law, resistance becomes duty” Well, we ARE RESISTING.

  6. @30 Year IRS Vet

    Greetings and welcome to the IBS abode,Mr Mopsick,, California tax Lawyer.
    How is the California weather today?

  7. @ 30 year IRS veteran

    Out of curiiosity, I would like to know many of you fellow tax lawyers are lobbying to repeal FATCA or CBT.?
    I do mean lobbying and not just lip service.

  8. @RobertRoss: the answer is none. Not because they are any less ethical than any other specialization within the bar, but because repeal of FATCA and probably CBT is a non-starter in Washington. There is very little support for it. Unfortunately the “smart money” is on FATCA compliance, the multibillion dollar industry spawned in 2010 when the United States formally agreed to join up with the EEOCnot addressing the very valid grievances of Americans Abroad and a broad range of IRS misteps

  9. @30YearIRSVet

    I agree with USCitizenAbroad-nice to see you posting. Hope you are well.

    That said, (and I am not taking this statement as representative of your personal attitude) this:

    When it comes to the CBT vs. RBT problem, the current leadership in Washington is likely to see it the way they see health care: you’re on your own with a life situation you are probably responsible for creating. The American in Paris may be a struggling middle-class salaried office worker trying to make ends meet while supporting their families, but Uncle Sam has no duty to bail you out of your mess just because you have to do a little more paper work so that you can enjoy your European experience.

    is so indicative of the little regard Washington has for its own citizens. The U.S. created this mess itself by passing laws it never enforced nor took responsibility to advise those it then attacked starting in 2009. Who is asking to be “bailed out?” Nobody. Being treated fairly, not assuming one is a criminal, asking for the same level of tax-deferral enjoyed by Homelanders (for government registered plans that clearly cannot be used for money-laundering or terrorism) is asking for fair and equal treatment. Nothing more and nothing less.

    I have never, ever doubted that I made the correct decision about renouncing my so-called, “most valuable citizenship in the world.” In addition to the completely outrageous treatment of those living outside the country, it is appalling to listen to the passing off of 20+million Americans suddenly losing the healthcare they even have. Americans are nothing more than cash cows to the government. Then considering the egregious actions the U.S. takes all over the world, I cannot for the life of me understand why anyone would want to be an American. The reality of what is, is nothing like the myth. I spent the first 27 years of my life there and can see so much more clearly from the outside. For the U.S. government, I have nothing but the same disdain dished out to us.

  10. @30 Year IRS Vet

    I tend to agree on your view and considering the cottage indusry that it generated and a lobby to resist lossing the goose that lays the golden egg,,there isn’t going to been much change Maybe just a little less painful.

    In the long run ,America will not change,its behavior. Too long the top dog. I believe the big nations have to alter their behavior. Then the US will fall in line,slowly but surely.
    Just an opinion.

  11. @Robert Ross & 30 Year IRS Vet

    There are people in the profession who while they may not be actively lobbying, clearly do not agree with the positions taken by the compliance industry/generally supported by the government

    http://isaacbrocksociety.ca/2015/03/03/american-bar-association-recommends-those-who-relinquished-under-ina-prior-to-june-3-2004-be-treated-as-non-citizens/

    http://isaacbrocksociety.ca/2015/05/08/26-u-s-code-%C2%A7877a-the-exit-tax-rules-do-you-see-them-as-applying-prospectively-or-retrospectively-or-both/

    http://www.robertsandholland.com/siteFiles/News/03-05-13_Expats%20Live%20in%20Fear_MJM.pdf

    Certainly John Richardson and Michael Miller represent two such persons………

  12. @Robertross:
    Another thought. It is one thing to point out injustice, it is quite another to devote resources, blood sweat and tears, to something that is not realistic. RBT is a well defined goal and most importantly, it is doable. Repeal of FATCA? Not so much.
    Governments all over the free world know that in order to do their jobs, they have to follow the money. We haven’t even heard yet when the first investigations are announced as a result of the Panama Papers event. The focus today is on increased information gathering, exchange of information, electronic enforcement and unified data bases.
    What is fair has absolutely nothing to do with this. It really has nothing to do with whoever is in power at any given time. Like it or not, this is what tax administration in the 21 Century looks like.

    Respectfully submitted
    30 Year IRS Vet

  13. @30 Year IRS Vet

    Perhaps wishful thinking on my part, yet I sense great momentum in the upcoming tax reform to adopt territorial taxation for companies. This would then spur impetus for some similar treatment for individuals.

    You must admit novelty in: a Republican Party Platform that includes shift to RBT and repeal of FATCA, a Republican POTUS, a Republican dominated House and Senate, political alignment of the Executive and Legislative Branches, and a heightened climate favoring tax reform and tax simplification.

    In regards to your sentiment for FATCA, for U.S. people tax resident overseas FATCA has incompatibility with RBT (as does FBAR). Agreed there is a global trend to “follow the money” which may be achieved with U.S. adoption of CRS that focuses reporting on nonresidents of a country.

    One opinion I read recently is that there is currently more U.S. focus on catching tax cheats in Switzerland than there is in Delaware. A repeated comment (by Republicans) in the recent FATCA hearing was that chasing money overseas presents less of a return on IRS administrative resources than other areas.

    Speaking of RBT and tax havens, Jackie Bugnion presents this as part of her RBT: to exclude certain designated tax haven countries. Wouldn’t that be refreshing to have more focus on US persons with accounts in identified tax havens instead of treating 100% of U.S. Persons overseas as if they all live in tax havens, when in fact ~92% live in equal or higher taxing jurisdictions than the U.S.

  14. Just would like to know what Jackie Bugnion thought of CBT before FATCA was ever conceived ^
    Would be interested. to know.

  15. Thank you for your latest submission, Jackie. I especially like your cost-benefit analysis of going from CBT to RBT and how doing so meets Senator Hatch’s tax reform objectives.

  16. Re;
    “…. When it comes to the CBT vs. RBT problem, the current leadership in Washington is likely to see it the way they see health care: you’re on your own with a life situation you are probably responsible for creating. The American in Paris may be a struggling middle-class salaried office worker trying to make ends meet while supporting their families, but Uncle Sam has no duty to bail you out of your mess just because you have to do a little more paper work so that you can enjoy your European experience….”

    Too bad there isn’t a penalty in units of 10,000. USD for that kind of utterly willful blindness. Or deliberate obfuscation to divert US resident homeland taxpayers from the special arrangements that some of their fellows enjoy – of whatever political stripe.

    Which is why there will never be any federal commission to even look into the existence of problems created by the US for those outside the US (ex. H.R.6263 ).

    Maybe look closer to home at the kind of people the US has set in charge of the henhouse (ex. https://www.forbes.com/sites/janetnovack/2013/05/02/pritzker-family-baggage-tax-saving-offshore-trusts/#326c2a923ca1 https://www.washingtonpost.com/opinions/obamas-hypocrisy-on-jack-lew-and-his-cayman-investment/2013/02/11/4382c754-73e9-11e2-95e4-6148e45d7adb_story.html?utm_term=.3492c59bdce8 https://www.wsj.com/articles/revised-trust-allows-donald-trump-to-withdraw-funds-without-public-disclosure-1491240970 ).

    As a pre-school child, I didn’t pack my own bags and drive to Canada myself over a half century ago – as families usually do, adult parents tend to take their children with them. My brief US nursery school stint didn’t teach us the Internal Revenue Code. Many of the onerous provisions like the loathsome FBAR hadn’t even been dreamed up yet when we left. The BSA was far into the future. Guess as a UStaxablechild >50 yrs. ago I should have used my special UStaxablecitizenship microchip to remotely follow the minutiae of the actions of the US Congress from my home in Canada and simply sense that the US taxes parentage and birthplace in excrutiatingly punitive and incomprehensible ways – unlike the rest of the world.

    Glad I relinquished.

  17. Wonderful to see a piece by Jackie again! I’m glad to see she hasn’t retired from the fight!

    And speaking of the fight, no one can convince me that I am being unrealistic in *expecting* the US to change to RBT. Women have the vote and African Americans no longer have to ride at the back of the bus. Change … thank God! … is the one constant we can rely on in life!

  18. So Mr. Hatch wants to know what is wrong with the tax system and overseas Americans will dutifully write, yet again, how terrible FATCA is and then wait, hoping that their input was taken into consideration, let alone noticed or even read. Enough is enough! This writing endless statements about what is going on is a big sham! Nothing else than that. The U.S. Government is sadly not even able to deal with a basic healthcare bill, something that ALL other developed countries have long addressed, refined, intelligently debated and put into action. FATCA repeal, or even RBT will never happen and anybody who naively believes that it will, is fooling themselves and proving, yet again, why U.S. citizens end up with something like FATCA, CBT, no proper universal healthcare, prescription drug prices that are quadruple or even ten times more expensive than in developed countries elsewhere and all of the other human insults and poor governance that they have come to take as “normal”. Instead of playing along with the decrepit and broken system and obediently writing letters to Senators and Congressmen and women, all to no avail, they should ask themselves for how much longer they will put up with the “American Nightmare”. At what point will they realize that FATCA belongs and fits well into the system there, that CBT fits well into the system there, that exorbitant and life destroying fines and penalties for a small overseas tax filing oversight fits well into the system there and all of the other injustices that so many people here know all too well? To imagine a country with a fair tax system, one where a person pays for services where they reside, where healthcare is not a privilege, where basic drugs are affordable, where renouncing ones citizenship is not set-up as a profit center for the government, where only a small percentage of children and people live in poverty, where purchasing guns is discouraged by officials, etc., etc. That country would not be the U.S. How then can any sane and logical minded person imagine that an unjust and predatory law like FATCA being applied to overseas persons and those with absolutely no ties to the U.S. would NOT be a part of a system and a country like the United States?? Folks, you are wasting your time sending messages to Senator Hatch telling, for the ten thousandth time how bad FATCA is for humanity and for the United States as a country. You are wasting your time. Just renounce and turn the page, because the country will not change and by the time it does, you may have watched the best years of your life pass and you be caught up in the most diabolical system in the Western world.

  19. “Americans are nothing more than cash cows to the government”
    Well- doesn’t that sum it up in a nutshell?
    Way to go America! Land of the free! Home of the brave!

  20. @ Tom
    “Just renounce and turn the page …”

    By that do you mean renounce and comply with all US tax form filing and FATCA/FBAR filing, then pay all FATCA/FBAR penalties the IRS might demand while shoveling money into the pockets of whatever “experts” you engage to aid you in that tortuous process? If that’s what you mean then perhaps you should drop the “just” from “just renounce”. Renouncing with full compliance for some people would feel like they are not just selling their soul to the devil, they are paying him to take it.

  21. So pleased to see Jackie is still slugging away, even from retirement. She’s a gem.

    I love the dollars and good sense that Jackie argues in her “revenue neutral” paragraph. Now THAT is where to hit THEM! It always comes down to money, not human decency, when you are trying to engage US politicians. There’s one little point though where she says, “RBT would not be available to residents of designated tax havens.” Who would do that designating? Because the USA, in all its inglorious exceptionalism, could play very loosey-goosey with the parameters for designated tax haven, if that were left up to them.

  22. Yes @Embee, the question of ““RBT would not be available to residents of designated tax havens.” Who would do that designating? ” is very astute. And it struck me that;

    Since the US is on track to be the world’s biggest tax haven standing, and since according to convenient US Treasury fiction those it deems UStaxablepersons ‘abroad’ are considered US ‘resident’ taxpayers, then those ‘abroad’ wouldn’t qualify for RBT relief – because they could be deemed to be residents of the world’s biggest tax haven – the USA!

  23. EmBee: I heartily endorse your comment to Tom. You took the words right out from under my fingers! 🙂 I’m afraid I can’t afford Tom’s method of getting on with my life.

  24. Interesting story from Canada here.

    How can anyone say that Canada doesn’t have the world’s best healthcare when we give our residents access to the world’s best healthcare? Just goes to show that the claim to have the world’s best healthcare should require the ability to deliver it to all of its people, not just the rich.

    http://globalnews.ca/news/3600037/b-c-mother-battling-aggressive-form-of-leukemia-gets-funding-from-health-ministry-for-treatment-in-seattle/

  25. “CITIZENSHIP: All Americans should enjoy an equal right to transmit U.S. citizenship to their children at birth, including children born to or adopted by a U.S. citizen abroad. Children born abroad …”

    That statement is attributed to one Jackie Bugnion. Please enlighten me as to why one should congratulate someone for that .I did not ask for this and why should anyone should be grateful to someone who helped to create the sticky citzenship laws that FATCA profits from.

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