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.
Eligibility
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
•Either:
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 yearTax Treatment
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
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@Barbara – if there is a Democrat co-sponsor, it will show up when the bill is posted on congress.gov – this will probably take a day or two, but once it’s there, you can sign up for email updates whenever anything happens (like added cosponsors).
The inside information we had was that there is already a Democrat cosponser.
Congressman Beyer – D (former US ambassador to Switzerland) was slated to co-sponsor, then I heard he wanted to hold hearings on it…
And what will they do to the non-compliant, who neglect to apply for annual certification as expats? Treat them as domestic scofflaws?
While this bill will directly benefit me and my husband, I find the 330 day rule to be excessive. Every other country I can think of has a 6-months-plus-one-day cutoff for tax residency. Essentially this bill imposes a financial penalty on any US expat who chooses to take a 6-week summer holiday in the US, or who visits homeland relatives for a couple weeks twice a year. So, as much as I support the bill, it nevertheless continues to portray and treat US expats as pariahs: “If you don’t want to pay tax, then don’t come back!”
Not that I ever intend to spend that much time in the Land of the Free. Even if this bill passes, and I pray it does, it doesn’t erase the damage inflicted on my health and sanity by the US government.
@Barbara agreed. There could be some acknowledgement of the injustice and atonement for the past.
Heard from somewhere: This bill is not final. There will be anti-abuse measures added, apparently.
I asked if the anti-abuse measures would include those against U.S. government abuse AND compliance industry abuse.
I’ll bet my last red renminbi that any final form of this bill will still require detailed reporting of all foreign income, trusts, royalties, etc., with a “new” 2555 to exempt all of it, plus even more forms to “prove” that reported “foreign” income isn’t just through some dummy corporation or account. The latter is the sort of anti-abuse measure the US government would probably want. Which will mean the same old complexity and compliance costs. While I still hope it passes, it doesn’t yet put a damper on my intention to renounce.
Fair taxation for everyone would be a National sales tax as the only tax that could be required to be paid.
They will want to claim less compliance.
“Essentially this bill imposes a financial penalty on any US expat who chooses to take a 6-week summer holiday in the US”
No, it only penalizes people who aren’t bona fide residents of countries where they claim to live. A bona fide resident of Canada who spends 5.99 months outside of Canada but pays Canadian taxes for the full year doesn’t have to worry about the physical presence test.
@Norman, I’m not sure how else to interpret the part that defines a ‘non-resident citizen’ as (quoting the actual bill): having “a tax home in a foreign country….AND” (note the word and on page 4 line 92) “is present in a foreign country or countries during at least 330 days during such taxable year.” So I can claim a tax home in Canada or wherever, but if I do a camper van trip around the USA for 6 weeks, then my “foreign country” presence is reduced to 323 days, which then makes me liable for full US double taxation of all foreign income.
The underlying message, in other words, is “get out and stay out!”
A question is can one claim qualified nonresident citizen retrospectively? Back to when one moved overseas? Or does that only start in the year one claims qualified nonresident citizenship status?
Example, Australia only claims tax basis on personal property (situated in the US) back to the date of entry into Australia. Would the U.S. then end its claim from that date?
One might imagine an exemption back to when one started up residence overseas.
“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.”
How come I get the feeling that this is all just lip service and window dressing? I cannot believe anyone in Congress, especially democrats, give a flying crap about American overseas.
To start on the positive note, all in all, it is positive that something is being done. Something is hopefully better than nothing, and even if imperfect, I think it’s commendable that something is at least getting out there. Quoting Barbara:
Unfortunately, the wording in the text also makes me think this will be the case. Exempt in US form speak seems to mean detail everything and then subtract it out later, not just ignore completely. I also wonder how or if this will relieve any compliance “obligations” at all. There is nothing in the text to make me think that the FBAR problems will go away, nor that FATCA headaches will be reduced. For actual IRS form headaches, I guess it really depends on how it’s implemented. If it’s the case that you tick a box self-certifying that you can apply for this status, and then only fill in any US-source income such as interest in US-based accounts (ignoring all “foreign” stuff), then I think this could be something good. If it is like Barbara noted (which I unfortunately think is likely), then it has a lot less utility and might even lead to more compliance headaches than it solves.
That being said, a simpler way of excluding income above the 2555 exclusion for earned income and an exclusion for “non-earned” income is welcome. If it’s just ticking one box, that would actually not be too bad, except for the 3 years of compliance thing, and the fact that a box needs to be ticked at all.
This doesn’t sound like it will ease bank access problems to Americans abroad if FBAR reporting and the 30% threat to banks is still in place.
As far as I understand it, this bill applies only to US citizens and will not affect the tax treaties of US sourced pensions of NRA’s?
#I’m not sure how else to interpret the part that defines a ‘non-resident citizen’ as (quoting the actual bill): having “a tax home in a foreign country….AND” (note the word and on page 4 line 92)#
I read this in the posting here:
“, and
•Either:
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”
Is the bill different?
Norman, you quote the bill exactly. I was merely abridging it to make my point. I don’t want to get into syntactical arguments, but following but in IRS speak, the way I’ve always interpreted form 2555, “an entire taxable year” means 365 or 366 days, not 6 months plus one day. Hence, the simplified interpretation would be:
EITHER:
1) You lived outside the USA for the full year (365 days), or
2) You lived outside the USA for at least 330 days
Either way, it’s very restrictive.
But let’s not argue over this. It’s trivial compared to the enormity of what this bill would achieve if passed.
That’s exactly why bona fide residence is distinguished from physical presence, and you only have to meet EITHER.
agree with Norman. there is a big difference in the two statements: once one is established and continues as a bona fide resident then one would be exempt from the second part.
Some of the lead up discussion was that children turning 18 would automatically have nonresident citizen status. Maybe that is in the IRS interpretation of such bill is passed. Yet how are they supposed to guess that part if not in the bill?
If this passes would it alleviate burdens of owning a controlled foreign corporation?
Please Retweet/Like on Twitter
Americans Overseas
Thank You @RepHolding
For H.R. 7358 The Tax Fairness for Americans Abroad Act
to end the double taxation of Americans living overseas.
https://twitter.com/JCDoubleTaxed/status/1076070115160911872
If I could comply for three years I wouldn’t need any of this. Does not seem to help anyone too poor to comply. Hope it at least helps somebody.
“A question is can one claim qualified nonresident citizen retrospectively? Back to when one moved overseas? Or does that only start in the year one claims qualified nonresident citizenship status?”
Boy, that would be great. Was compliant way back then. Doubt it though. The USGov can change things retroactively. Doubt they’ll let us in this case.
“Individuals will make an annual election to certify they remain in compliance with the eligibility requirements.”
So Uncle Sam will, at the very least, insist on us filing a bunch of useless paperwork every year and forevermore. The chances of this certification paperwork being fileable on a postcard seem slim.