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
—
Oh, I don’t know. May have to file just the post card….after plodding through thousands of pagers of instructions and worksheets.
My comments on the bill – http://fixthetaxtreaty.org/2018/12/21/tax-fairness-for-americans-abroad-act/
Karen,
Thanks.
Many non-resident USC’s will go more or less off the IRS radar if Holding’s bill passes (this is good news) but then I guess the IRS will have more time and manpower to set their sights on non-resident non-USC’s who botched the exit procedure from the land of plenty and petty bureaucracy. 🙁 Still it’s quite an achievement to get this bill presented to congress so I’m grateful for all the hard work by so many who made this happen. If anyone has the direct link to the Richardson-Yue interview I’d like to watch it (can’t find it on ThatChannel). Thanks Karen for your assessment of the bill — very insightful.
I agree, this is a huge achievement. I sincerely hope the Bill passes into law.
Text is now here:
https://www.congress.gov/bill/115th-congress/house-bill/7358
There are no cosponsors listed.
Embee. Nothing will change for those who can’t or won’t for whatever reasons become US tax compliant which is probably a big percentage of the total number of US persons. IRS won’t be getting 8 million extra tax returns from abroad any time soon. Certainly not a million from Canada.
@Biscuit:
This is what it says on the bill summary.
To amend the Internal Revenue Code of 1986 to provide an alternative exclusion for nonresident citizens of the United States living abroad.
If I would write it I would say: To amend the Internal Revenue Code of 1986 to prevent U.S. double taxation and double compliance of nonresident citizens of the United States living abroad.
Otherwise it sounds like “relief” when in actuality it is correction of Un-American injustice and over-regulation.
Fair Taxation For Americans Abroad Act
[I like “Fair” & “Americans Abroad.” “Taxation” sort of implies that such taxation is just and what is addressed is some relief, while what we are after – no double taxation – should not be in the first place. Overall I like the name, & it represents the astounding precedent of the first bill with focus just on Americans abroad]
The proposal outlined below would effectively end the current citizenship-based double taxation and double compliance 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 double taxation on residents of other countries, Americans will become more competitive in the international job market and free to pursue opportunities around the world.
Point of peril: some Homelanders react to having “a go” at citizenship-based taxation as the equivalent to denouncing the American flag. This is not my opinion, this is fact. I have seen it in comment sections of articles for years.
Remedy: insert the word “double” in there as in “citizenship-based double taxation.” In America “double taxation” has evil connotations, and there is some consensus that it is to be avoided and is bad.
We should not care that the historically correct term is “citizenship-based taxation” without the word “double” in there. That term – “citizenship-based taxation” is a term/language used by our oppressors. We don’t object to the “citizenship” part, & we don’t object to the U.S. taxing its resident citizens how they want. We object to U.S. double taxation of residents of other countries, & should use language and yes get out to redefine terms toward our goal: of ending “citizenship-based double taxation.”
Next, as in any legal document we need to define terms, and not let our oppressors do this and assume them according to historical definitions and to their favor. We need to define the key term: double taxation.
Definition of Double Taxation in the context of US taxation and US persons tax resident overseas: A person pays a fair share of tax to their country of residence, and any further US tax paid on nonUS income and assets, or U.S. compliance on such income and assets is considered double taxation.
That is what we wish to end.
Else, the the definition of “double taxation” defaults to the U.S. Treasury Department definition and this is along the lines that the tax is no higher than the highest of the two countries. That might sound reasonable (especially if one lives in a relatively higher taxing country) yet the total tax and sources of income do not all get aggregated together but split into what I call silos, such that we have Obamanations such at the Net Investment Income Tax NIIT 3.8% (among a number of taxes the U.S. has but not one’s country of residence – such as the personal home). With the NIIT the U.S. Treasury will say the NIIT is no higher than the highest of the two countries. The U.S. rate is 3.8%, other countries 0% because they don’t have such tax, then the 3.8% flows on top of all taxes. All fair. NOT!
There is no recognition in the above of the way higher other taxes one may have paid compared to the U.S. Example: the Australian marginal income tax rate of 37% kicks in at $US 62,000 compared to U.S. top rate of 39.6% at $US418,000.
That is why all the above should, IMO, be included in a preamble to the bill, which I do not see.
Addition to the above:
Point of Peril : letting the IRS/Treasury define how the “rubber meets the pavement” in terms of translating it all into regulations and compliance forms. From our experience with the Transition Tax and GILTI, with the intent of those laws to impact multinationals, we know that the IRS/Treasury are not to be trusted in interpretation of intent and specification of regulations and compliance forms.
Remedy: State the intentions in a preamble, and be as explicit as possible. Both need to be part of anti-abuse measures against the U.S Government and the compliance industry.
@Karen – Solomon Yue replied to a question about how this affects real property on Twitter and stated: “If u elect nonresident citizen status under TFFAAA…if u sell ur home bought prior TTFAAA, u pay capital gains tax w/ foreign tax offset like before.” His response indicates to me that although the bill states “personal property,” it will affect real property like a personal residence, as this is what the other poster asked Solomon about?
@Liz bill only says “personal property.” Perhaps the intent was different.
@Liz – JC is right. The bill very clearly states “personal property”. I wonder whether they meant “personal use property” – which would exclude any business property, but would include a principal residence. Or perhaps they just meant “property”. The term “personal property” is not specifically defined anywhere in the tax code, but everywhere it is used it clearly excludes real property. I also think they have not considered the impact of section 865. But this is clearly not the final bill – it was introduced way too late in the session to have any chance of becoming law before Congress adjourns. There will, undoubtedly, be tweaks when the bill is re-introduced. There are many other pieces of legislation floating around that are introduced in multiple Congresses (with changes at times). Some never become law. Others are eventually added to a larger bill much like FATCA in 2010.
I want to point out that this legislation is intended both explicitly and implicitly to be rolled into a “larger” package with the majority of provision being totally unrelated to our issues. Thus the issue of revenue offset for example brought up by DA as a political matter is one that by tradition will be brought up during the negotiation of whatever “larger” package is introduced and passed(The likely revenue offsets will have almost nothing to with our provisions). I understand why some might want to prove on a standalone basis symbolically how moving away from CBT can pay for itself but in reality that is NOT how the game is played in DC.
Second I once heard the political definition of compromise is something everyone hates and their is a lot in this bill to cause everyone to hate it. I am actually surprised how much support the bill has gotten here on Brock and the many Facebook groups. People who support CBT will not like the fact that it basically and practically gets rid of CBT. Many overseas American’s won’t like the fact that it still leaves the legal underpinnings of CBT structurally intact and leaves these provisions subject to change by a future Congress. On the other hand proponents of CBT have wanted to get rid of Sec. 911 for years and years with little success so I suspect it is unlikely a future Congress would reverse any of the changes being proposed.
Third, to the extent “anti-abuse” and revenue raising provisions are added to this legislation the game can be played both ways. There are still many things that could be added to clarify and benefit Overseas Americans if some want to go down this road.
Fourth, the biggest challenge is keeping all Expats and Accidentals on the same page. This bill avoids some of the more divisive issues like Exit Taxes and taxation of US source income on the basis of current Non Resident Alien withholding that have the ability to divide US expats. I would like to try to keep it that way for now.
Found the direct link to John Richardson’s “The End of the Beginning” interview on Dec. 20th. Many Gratefuls to John and Merry Christmas to Everyone!
Thanks EmBee and Merry Christmas to you and everyone else here.
TFFAAA is just a beginning, but it’s sure better than the Transition Tax lump of coal many of us got last year!
2019 should prove very interesting. We now have something to pin our injustices to, the unfairness of the current treatment of Americans abroad implied in the name of the bill.
“Fourth, the biggest challenge is keeping all Expats and Accidentals on the same page. This bill avoids some of the more divisive issues like Exit Taxes and taxation of US source income on the basis of current Non Resident Alien withholding that have the ability to divide US expats. I would like to try to keep it that way for now.”
I don’t see why those would be divisive.
As a non-resident Canadian, I had non-resident withholding deducted from Canadian-sourced interest and dividends, which was not refundable and not declarable on Canadian returns (this differs from what the US did because the amount of withholding was correct). If Japan taxed these Japan would give me a foreign tax credit. When US diaspora taxation taxed these the US gave be a foreign tax credit. If both Japan and the US taxed me then Japan would not give a foreign tax credit for US taxes on Canadian-sourced income and the US would not give a foreign tax credit for Japanese taxes on Canadian-sourced income but this is not Canada’s fault.
When I became a non-resident Canadian, Canadian exit tax provisions were supposed to apply to me. I made the declarations and the former Revenue Canada didn’t obey its own published rules, but the rules weren’t divisive.
An accidental born outside of the source country would start from age 0 with 0 assets. An accidental born inside the source country would start from a very young age with very few assets. It doesn’t seem like a problem.
In regards to US tax on gain of the home overseas:
For U.S. residents this tax is justified to compensate for the mortgage interest deduction (a huge one) and SALT deduction. This helps people get into homes and along the way. Yet if they do well, the USG wants some of that back in the way of tax on gains.
However, for US Persons overseas, of which 92.5% live in equal or higher taxing jurisdictions – they get ZERO benefit from these deductions as they are unique to the U.S. tax code. Therefore, the underpinning of such tax on home gains does not apply in the case of US Persons overseas. Someone please use this argument.
If the gain in the overseas home is to be taxed up until the date of election of qualified citizen abroad, then what this indicates is that the double taxation is justified. A key aspect of HR 7385 is that the double taxation is wrong and not justified. Then makes sense that other aspects of this wrongness are acknowledged righted, even retrospectively.
Solomon Yue says that there was a multi month hold up as (it appears one of the “cooks in the kitchen” wanted deemed sale of everything upon election of qualified nonresident citizen status. Yet John Richardson insisted against it (good going John!) Who is that person/faction? To me it seems like an Elsie Bean type person obsessively focused on compliance.
How is this gain figured by JCT? Actual numbers or assumed numbers? If assumed numbers then the offset against the forgone tax could be assumed forfeiture of mortgage interest and SALT deduction.
I made a statement on Twitter that there was noting in it for Accidentals. Solomon Yue came back and said that he negotiated that for the 3 years compliance that there would be exemption from FBAR/FATCA fines and this would mean less compliance for accidentals if they wanted to comply. He seems to think that Holden as co-sponsor can write guidance notes to the IRS. I questioned if it would be better to put such detail in the bill itself? ?? When does a co-sponsor write guidance notes?
There were lots of other things discussed along the way such as automatic election of qualified nonresident citizens when kids reach 18, yet if those are not in the bill then…. ?
I wish the bill well and all those who might benefit from it. However, having read through it myself, I still think I did the right thing by renouncing. It doesn’t appear to solve my FATCA problems, nor the possible grab at the capital gains on my house which is in the UK and to which the US has contributed nothing.
For people whose incomes are lower than the FEIE and have never had to actually pay taxes, it looks like nothing changes. You still have to file and you are still subject to FBAR compliance, which has made opening and maintaining ‘foreign’ bank accounts complicated, if not impossible. Also, the new law puts a heavy burden on business owners overseas, but I don’t see how this bill would change any of that.
Until Americans who live overseas, especially the ones with dual citizenship, are no longer required to report their income to a country where some of them have little or no connection, no tax bill provides relief.
OK, so where in this proposed bill does it say that if you’ve been living outside of the USA for a minimum of 5 years and have no real economic connection to that country, that you have the option to apply for a no strings attached CLN (or green card disposal) at no charge, have no back filing requirements and promise to not avail ones self of any of the so called benefits of a US citizenship/residency, ie, go away you’re home free now? You will be treated as any other non USC in the world.
Let’s face it, this is what most of those affected want. How close are we to this?
Dual citizens with no US financial ties still have no reason to come into compliance, so the bill really doesn’t change anything for them. FATCA is a bigger problem and it has not yet been fixed. But still, a small step in the right direction.
“OK, so where in this proposed bill does it say that if you’ve been living outside of the USA for a minimum of 5 years and have no real economic connection to that country, that you have the option to apply for a no strings attached CLN (or green card disposal) at no charge, have no back filing requirements and promise to not avail ones self of any of the so called benefits of a US citizenship/residency, ie, go away you’re home free now?”
The proposed bill doesn’t need to say that. The Expatriation Act of 1868 already guarantees that.
“OK, so where in this proposed bill does it say that if you’ve been living outside of the USA for a minimum of 5 years and have no real economic connection to that country, that you have the option to apply for a no strings attached CLN (or green card disposal) at no charge, have no back filing requirements and promise to not avail ones self of any of the so called benefits of a US citizenship/residency, ie, go away you’re home free now? You will be treated as any other non USC in the world.
Let’s face it, this is what most of those affected want. How close are we to this?”
Exactly.