[“American Citizens Abroad (ACA)with 40 years of advocacy on this issue, has led the charge for RBT, proposing a roadmap or outline to Congress showing them how they can get from where the US tax regime is today to where it should be with RBT”.] — From a Forbes article
My reading of the ACA proposal is that it is a “Roadmap to IRS compliance”.
— This post is another opportunity to tell American Citizens Abroad (ACA) what should go into their residence-based taxation proposal. Should you be interested, I am asking for your comments in the form of text that could be included in the ACA proposal.
The discussion with ACA is, in part, whether, to obtain a “departure certificate” (get out of jail card) it makes any sense for a person living permanently outside the U.S., who has:
—no meaningful relationship with the U.S. other than by birth or parentage,
—another citizenship from his/her local country,
—and who does not want to be a U.S. person;
should suffer ANY IRS compliance cost and uncertainty (see the correspondence below).
— First, I suggest that you read the ACA RBT proposal.
— Then read my question followed by a response from Mr. Charles Bruce, on behalf of ACA.
Questions include whether non-meaningful/”accidentals” should be mentioned, or not, in the ACA document as a distinct group. Should persons with no meaningful relationship to U.S. be treated differently than consenting, “real” Americans? Is it reasonable or not that anyone should require a departure certificate? The ACA Roadmap requires all affected to enter into some IRS compliance (and potential harm): Can this be morally justified?
I asked ACA the following question:
“Could you please answer this question on your most recent (Sept 27) RBT proposal? You appear to say that in order to waive the Departure Tax or have a Departure Certificate issued, one must first become IRS compliant. Is this correct? You will agree though that there are likely millions of “Americans” living abroad who have zero meaningful relationship with the United States (e.g., left at age three days, never to return).
Can you please confirm that you wish to impose IRS compliance prior to a Departure Certificate or Departure tax waiver on these people? If the answer is “yes”, do you feel that this is reasonable?”
Mr. Charles Bruce, on behalf of ACA, responded to me today and gave me the ok to post his response:
“First let me simply say that the ACA description and side-by-side comparison, as recently revised, are not intended as a proposal, per se, but rather as a listing of issues that we think Congress will want to address. There are a dozen or so issues that, I believe, Members will need to “zero in on”. My guess is that they will want to do this after seeing detailed revenue estimates.
That having been said, I think this is focusing on Americans who are long-term residents abroad and who, for any number of reasons, have very little connection with the US. For example, they might be an accidental American due to birth in the US but having non-US parents. Or they may have been born in the US and stayed there for several years but later moved abroad and have remained abroad for many years, never traveling back to the US.
Upon enactment of RBT, they would immediately be able to claim treatment under its provisions. They would need to do something to identify themselves and, in effect, claim RBT treatment. They would need to obtain a Departure Certificate and, in doing so, state that they fulfill the requirements. They would typically be “grandfathered” (exempt) as regards the Departure Tax. In subsequent years, they would file an annual certification stating that they continue to meet the requirements.
One of the requirements of obtaining a Departure Certificate is proof that the individual has met his or her federal tax requirements. If the individual is out of compliance, they can “catch up”. Most of them, it appears to me, would qualify for the voluntary disclosure program and would not owe any FBAR penalty, assuming their actions were nonwillful. If they fail to pay taxes, typically these would be due; penalties are commonly waived; interest on taxes owed, as you know, are a statutory requirement and cannot be waived. (One might debate the merits and demerits of the voluntary disclosure program, but I think we should not digress at this point.)
Whether or not individuals, in effect, elect RBT, they are subject to US tax until such time as they put themselves within the RBT regime. RBT ends US taxation for future years. It does not go backwards and make the problem of US taxation go away retroactively. In other words, it does not present an “end run” around the existing voluntary disclosure program.
Should individuals wanting to take advantage of RBT have to be tax compliant or, if they’re not, fix this? Members of Congress will need to decide.
It might be noted that in order to renounce US citizenship, one has to “catch up” if out of compliance. The question is should this be different if instead of renouncing the individual wishes to remain a US citizen? Lastly, a rule permitting US citizens to switch to residency-based taxation and not “catch up” on their past tax payments, would lose – permanently lose – tax revenues for the Treasury, and this might make it less likely that RBT will be enacted, unless the revenue loss can be made up some other way.
I appreciate the question/comment. This issue, together with others, will need to be debated, I suspect…
Charles M. Bruce…”