Congressman Holding has introduced the “Fair Taxation for Americans Abroad Act” in the United States House of Representatives.
“In 2019, Republicans Overseas will focus on getting the Tax Fairness for Americans Abroad Act passed….The TFFAAA will amend the Internal Revenue Code by offering overseas Americans a status similar to that enjoyed by corporations where foreign-sourced income is taxed in the country where it is earned. ” says Solomon Yue, of Republicans Overseas, who spearheaded this effort.
The direct link to the video (found in Embee’s comment) is HERE:
Here is John Richardson’s description of the Bill:
“Tax Fairness for Americans Abroad
The proposal outlined below would effectively end the current citizenship-based taxation system and instead transition to a system that provides territoriality for individuals – often referred to as residence-based taxation. By taking this first step toward ending the onerous burdens of citizenship-based taxation, Americans will become more competitive in the international job market and free to pursue opportunities around the world.
Under this new system, qualified nonresident citizens will no longer be taxed on their foreign source income while they are resident abroad; however, they will remain subject to tax on their U.S. source income.
In order to qualify for qualified nonresident citizen status, an individual must be a nonresident citizen and make an election to be taxed as such. Individuals will make an annual election to certify they remain in compliance with the eligibility requirements.
Under this proposal, a nonresident citizen is defined as in individual that:
•Is a citizen of the United States,
•Has a tax home in a foreign country,
•Is in full compliance with U.S. income tax laws for the previous 3 years, and
a)establishes that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
b)is present in a foreign country or countries during at least 330 full days during such taxable year
Once an individual meets the qualifications to become a nonresident citizen, he may elect to be taxed as a qualified nonresident citizen.
Those electing to be taxed as qualified nonresident citizens will be exempt from taxation on, and shall exclude from gross income, their foreign source income. This includes both foreign earned income (as defined in section 911(b)) and foreign unearned income (defined as income other than foreign earned income that is sourced outside the U.S).
Under this proposal a qualified nonresident citizen will remain subject to tax on any U.S. source income.
While individuals will not be taxed on gain from the sale of foreign personal property attributable to their time as a qualified nonresident citizen, they will still be taxed on any gain attributable to their time as a resident of the U.S. In other words, if an individual holds a foreign asset prior to their election of qualified nonresident citizen status and then sells said asset while they are a qualified nonresident citizen, the individual will only owe U.S. tax on the portion of gain attributable to the period prior to their change in status.”
The above description and the Bill itself is at this link
Interview with John and Solomon at 16:00 EST on bill being introduced in US House.
Listen for it:
From Solomon about an hour ago:
Holding’s Tax Fairness For Americans Abroad Act (TFFAAA) of 2018 will be introduced in a few hours as a stand alone bill. But Holding will pull a FATCA on them in 2019 by attaching his TFFAAA to a bigger bill for a vote.
BB, I incorporated your comment above into the post.
I’m sure glad this thing is finally getting before the lawmakers, the only people with the power to fix this at its source. Thanks to everyone who has been working so hard to make this happen!
I have just posted John Richardson’s description of the Bill, and a link to the actual text of the Bill.
ACA has provided a press release:
A step forward do doubt:
Yet the 330 day rule worse than the snowbird rule.
“if an individual holds a foreign asset prior to their election of qualified nonresident citizen status and then sells said asset while they are a qualified nonresident citizen, the individual will only owe U.S. tax on the portion of gain attributable to the period prior to their change in status.”
– For that one I think there should be distinction and exemption for those already tax resident abroad for a number of years. I think that someone in the USG is worried about a U.S. resident citizen with foreign assets then doing an Edwardo Saverin to take advantage of this bill, where that example does not apply to the vast majority of those living overseas.
That would not have helped Boris Johnson much on his home in England. Then if the property market spiked or local currency spiked in the year of election of “qualified nonresident citizen” then there is tax on phantom gains.
ACA has provided a press release:
What lies ahead:
The ACA press release posts a rosy picture for expats. Three years of compliance: this could be two years in the U.S. then they move abroad end of December – Christmas Holiday – then by the next December they could declare meeting the requirements, with reduced double taxation under the Act.
I don’t mind the IF THEN. Yet there should also be IF THEN for the many who have lived overseas for a Looong time. For these people then the whole family financial planning would still be on the hook for U.S. double taxation on sales of “foreign” assets up to the year they claim qualified nonresident citizen [while corporations non on hook for that under TTFC?!].
I thought it was supposed to be a Saving Citizenship Act, then that should be with explicit focus on USP who have been abroad for sometime, not just directed as those who are about to get an overseas assignment. There should be an exemption with rules applied going forward, IMO.
Also, the focus is on taxation, without hint of compliance & compliance cost.
We will need to see the details of the “Act.”
Hm. Nothing at all in this for green card holders. It’s also surprisingly terse, given the huge lead time to release.
A short act! Is that the full act?
Let me start thinking about all the hints on Twitter over the past year.
Special explicit attention: if you are a USP overseas not filing, you may then file the 3 years without FBAR/FATCA fines. It does not say that. This one it itself would be special recognition of those living overseas for some years.
Can anyone please explain whether the exception above would mean that a personal residence bought before becoming a qualified nonresident citizen would be subject to tax EVEN IF the gain amount does not reach the current 200K capital gain threshold???
@Watcher – yes, nothing for green card holders
@JC – gain rules are for personal property only – real estate will be exempt if sold while qualified nonresident and taxable in full otherwise.
@Liz – personal residence would be real property and fully exempt if a) foreign source and b) sold while a qualified nonresident citizen
Karen has addressed some chatter on Twitter. The discussion could benefit from definitions of personal property and real property with examples.
Green Card Holders , left out as they could not declare themselves “qualified nonresident citizen” as they are not citizens. IMO, should be considered.
@Karen – thank you for the reply. That does put my mind at ease!
Real property = land and buildings. Personal property = everything else.
Personal property would include shares and investments (other than investment in real property).
Personal property is movable and can be understood in comparison to immovable property or real property, such as land and buildings. Movable property on land, for example, larger livestock, was not automatically sold with the land, it was “personal” to the owner and moved with the owner.
In English common law, real property, real estate, realty, or immovable property is land which is the property of some person and all structures (also called improvements or fixtures) integrated with or affixed to the land, including crops, buildings, machinery, wells, dams, ponds, mines, canals, and roads, among other things.
So sounds like real estate is exempt. For shares or other “personal property” investments, for most of us, the tax rates in ones home country are higher and would nix the tax on capital gains, but what about the compliance & compliance cost? It could be nice to have explicit exemption of treaty jumping NIIT and AMT, yet those on on incomes, and should be exempt (from taxation, yet from compliance?)
I’d like to take a moment to reflect on the significance of this bill, and thank EVERYONE out front and behind the scenes who have contributed to this historic moment.
This has always been “a marathon, not a sprint”, and this finally gets us on the track. Now we need to RUN WITH IT!
Damn! Still so many strings attached! I guess it’s a step in the right direction, but this still is of no help to my family. I wish the best to those who can benefit.
Comment from Karen on Twitter:
Yes, that’s the whole bill. Elegant in its simplicity.
Can anyone name who is the Democrat co-sponsor of the bill? We’d been assured there would be. If I’m going to start haranguing my alleged representative, a tax-em-till-it-hurts leftie Democrat, there is no way she will be receptive to a request to support a bill written by one of the most right-wing members of Congress. Same goes for my marijuana-addled-brain homeland relatives who I dearly want to ask for help in lobbying Congress.
Re: my comment on Australia taxes being higher and that for any Capital Gains on “foreign: “personal property” that higher Australian tax would knock out the U.S. tax on capital gains.
Here is a rub: The financial year end for Australia is June. So I think a trick would be to sell January – June so you would get the tax credit in advance for the US Jan – Dec tax year. If sold July – December then the U.S. may claim tax on that. Do I have this right? But then for the next Australian tax July – June financial year then the credit for US tax may be taken, or it may be claimed back from the U.S. I think this is referred to as “loop de loop.”
No mention/thus no exemption for estate tax. What else?
Comment already made about no exemption for FBAR.
FATCA 8938 might be exempted as an important part of that form is saying which line of the 1040 the income from said financial account is reported on. Yet the regs just specify asset value prompting reporting. $US200K for married filing single, or $US400k married filing joint. My Australian super is reported as part of that. So certainly not reporting Australian income would simplify the compliance.
Not even an SCE on these. Greg mentioned a better way would be a Foreign Country Exemption FCE if one lives outside the US.
@patrickmgleason Vice President of State Affairs at Americans for Tax Reform. Forbes contributor: says
Agreed. This problem needs to be fixed ASAP. There is a GOP House Ways & Means sponsor of a bill to fix this (Holding), but it needs a Dem cosponsor to get any traction. Need to find Dem House member to help Holding fix this.