Not applicable to adult emigrants. No other proposals to simplify income taxes for individuals who don’t live in the United States. No help with the insane reporting requirements on foreign retirement & medical & disability savings plans. Some people may hope it’s a start from an administration which up until now has been totally deaf to the “special concerns and issues of Americans abroad” which the president claimed he would address when he was campaigning for our votes. Others will take it as what it appears to be at face value: a chance to get out while the getting is semi-good. At page 282 of the “Green Book” (all links added by me):
Individuals who became citizens of both the United States and another country at birth may have had minimal contact with the United States and may not learn until later in life that they are U.S. citizens. In addition, these individuals may be citizens of countries where dual citizenship is illegal. Many of these individuals would like to relinquish their U.S. citizenship in accordance with established State Department procedures, but doing so would require them to pay significant U.S. tax.
Under the proposal, an individual will not be subject to tax as a U.S. citizen and will not be a covered expatriate subject to the mark-to-market exit tax under section 877A if the individual:
1. became at birth a citizen of the United States and a citizen of another country,
2. at all times, up to and including the individual’s expatriation date, has been a citizen of a country other than the United States,
3. has not been a resident of the United States (as defined in section 7701(b)) since attaining age 18½,
4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
5. relinquishes his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen, and
6. certifies under penalty of perjury his or her compliance with all U.S. Federal tax obligations that would have applied during the five years preceding the year of expatriation if the individual had been a nonresident alien during that period.The proposal would be effective January 1, 2016.
This didn’t appear to be covered in the table of revenue estimates. Correction: As Tim points out, the revenue estimate is in the summary tables file on the White House/OMB website, rather than the Treasury website. They estimate it would cost $400 million over ten years, with more than half of that coming in the first three years as people scramble to take advantage of the offer.
Details of revenue estimates
| Deficit increases (+) or decreases (-) in millions of dollars | Totals | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Heading | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2016 – 2020 |
2016 – 2025 |
| Provide relief for certain accidental dual citizens | ……… | 60 | 103 | 55 | 23 | 24 | 25 | 26 | 28 | 29 | 30 | 265 | 403 |
I am quite interested to know the underlying number of relinquishers OMB used make these estimates (and for that matter, whether they have offset those estimates by the $2,350 fee that many accidentals are going to have to pay because they only qualify for renunciation and no other method of giving up citizenship). I assume that the estimates for ongoing deficit increases past 2018 are attributable to one-time losses of revenue from additional relinquishers,rather than ongoing loss of revenue from the initial group of relinquishers.
For example, they may be using the utterly false (and late again for this quarter) Federal Register relinquishment numbers and assuming that all of them would qualify for Obama’s plan. (That would also mean they’re assuming that no non-accidental Americans have ever given up citizenship because of the FATCA mess that Obama signed into law — clearly an incorrect assumption.) In that case they would be saying that in 2020 they’re expecting an average annual revenue loss of $8,000 per person, rising to $10,000 per person by 2025.
If OMB understands that only a small proportion of recent relinquishers qualify for Obama’s plan, then they’re trying to claim that the revenue loss per person would be much higher — which I don’t think is supportable. On the other hand, they may also understand that the actual number of relinquishers is higher and that only a small proportion of them will qualify for Obama’s plan. Though given the dubious earlier models of the effect of cancelling the FEIE, I get the sense that the government does not have this much of an in-depth understanding of emigrant tax issues.
Treatment of businesses owned by American emigrants
Another small mercy: the proposed 19% minimum tax on foreign earnings only applies to CFCs owned by “entities taxed as domestic C corporations” — finally, an implicit acknowledgement that some owners of CFCs are human emigrants rather than multinational corporations. Unfortunately the 14% tax on “previously untaxed” foreign earnings does not appear to include that same acknowledgement.
Will not affect ADCS lawsuit
Update, 6 February: Stephen Kish has already spoken with Mr. Arvay about the Obama budget proposal, and states:
Some you have expressed concern that should the Obama budget proposal, if ever enacted, provide some relief to duals-at-birth, like our two Plaintiffs Ginny and Gwen, this could mean trouble for our lawsuit — because both Plaintiffs are duals-at-birth. Apparently, Canada’s Mr. Roy Berg himself, a U.S tax compliance professional, is mentioned in an article (which I have not seen) which states that should the tax code on duals-at-birth change for the better, this might “spell the death-knell” to our Canadian lawsuit.
Please do not worry. The Arvay team has been quite aware of the issue of specific characteristics of plaintiffs from the very beginning.
Today Mr. Arvay also has confirmed with me, yet again, that our legal strategy is not limited to the specific characteristics of the two plaintiffs, that additional plaintiffs can be added to the lawsuit should this ever be necessary, and that our aim has always been to include affidavits from people who span a range of differing characteristics.
Well, this is disheartening…
http://blogs.angloinfo.com/us-tax/2015/01/20/what-are-the-chances-us-abandons-citizenship-based-taxation-model/
WhatAmI –
Here’s an extract meriting a highlight:
Americans abroad will continue to suffer under CBT until they take action or action is taken against them. Unfortunately, taking action that will help their situation means coming to terms with bringing themselves into compliance with their existing US tax and filing obligations. Once this is done, then they can choose to either sever their future liability or pay for the cost of on-going compliance. Not taking action, will inevitably result in the US finding them and applying the full force of tax, interest and penalties. For those who plan to die before the US finds them, they should realize that they are simply passing this problem to their executors and heirs.
“Not taking action, will inevitably result in the US finding them and applying the full force of tax, interest and penalties. For those who plan to die before the US finds them, they should realize that they are simply passing this problem to their executors and heirs.”
Oooo… bit of shameless scaremongering there from none other than… a tax lawyer. A team of Navy Seals will land in your back garden and cart you off to Guantanamo!
Guess the compliance vultures need to drum up business somehow…
@Lyoba & Fred & Duke of Devon
Perhaps not in your back garden but perhaps if you land in theirs….
http://www.dcclothesline.com/2015/02/06/economist-new-bill-turns-tsa-tax-police/
@Heidi
Agreed. By stepping into their jurisdiction, one would definitely be taking a chance if on a “wanted list”. Common sense, really. But “finding them” (as quoted in “vulture” piece) is rather suggestive of extraterritoriality. And that’s where I would tend to differ.
@Lyoba
But they now have the banks around the world searching you out. Many banks like those in Switzerland are acting as witholding agents if one does not demonstrate to them compliance with fbars. The banks are so scared of this 30% withold that more may follow suit. Who would have ever thought this would happen? That’s why I never say never.
@Heidi
Indeed, CYA policies at Swiss banks have led to some massive human-right abuses. But are they really acting as withholding agents (yet)? If you are not compliant, you cannot open an account. They can also freeze existing accounts (which may not be legal, in fact) or simply close them down if compliance is not demonstrated. Have there really been cases of Swiss banks withholding non-US income?
Walter:
Thank you for mentioning the Human Rights Complaint. If the Complaint had been forwarded to the United States we would have received formal notification that our Complaint had been accepted into the UN complaints process. So far we have heard nothing to that effect. All we know for sure is that our Complaint has been received by the UN. What they plan to do with it is still unknown. There are meetings of the Human Rights Council coming up later this spring so hopefully we will have some definite news soon.
@Lyoba,
Well there was a case reported here on Brock and also another on the English forum where a bank had frozen 30% of a US person’s account and refused to close it and send his money back to the US as he had requested, unless he could show FBAR compliance. He had asked what could be done and some had suggested he take legal action. Can’t remember on which thread, but it’s here somewhere.
PS Lyoba
It was paintbrush on the Fatca Fbar thread
@Heidi
OK. Thanks for the info. Will look into that.
Thanks, Heidi — I’ve found for Lyoba what I think is the comment by Paintbrush in two threads, with discussion in each:
http://isaacbrocksociety.ca/expat_tax/comment-page-93/#comment-5122861
and
http://isaacbrocksociety.ca/fatca/comment-page-121/#comment-5122906
@MuzzledNoMore
“If the Complaint had been forwarded to the United States we would have received formal notification that our Complaint had been accepted into the UN complaints process.”
There are NO secrets within the UN. The US has full access to everything that goes on within it — everything!
@USX re: “Americans abroad will continue to suffer under CBT until they take action or action is taken against them. Unfortunately, taking action that will help their situation means coming to terms with bringing themselves into compliance with their existing US tax and filing obligations…”
Were these your words or are you quoting someone else? Since they are easily decipherable, although I disagree with the message, I assume they are someone else’s.
@ WhiteKat
Those are the words of Virginia La Torre Jeker.
http://blogs.angloinfo.com/us-tax/2015/01/20/what-are-the-chances-us-abandons-citizenship-based-taxation-model/
Thanks Embee. So I presume, that although they are not USXCanada’s words, he does agree with them. That explains a lot.
The quote by USX is from Virginia La Torre Jeker’s blog, but they’re actually the words and opinion of Toronto tax lawyer David Lesperance.
I don’t think Virginia necessarily shares his opinions, but felt it to be an article worth discussing. She introduces his piece as follows, with a link to the site where it first appeared.
@ pacifica
Ah yes, our old fiend David S. Lesperance. I should have read that first paragraph more carefully. Thanks for catching that.
It seems to me this budget proposal is unnecessarily restrictive. Why not give the same target group (duals at birth) the option to op-in as well as to op-out? If this group can renounce without filing past returns or FBARs, why not give them the option to become compliant by just coming forward and start filing for the 2016 or 2017 years? This would give them the year 2015 to get their affairs in order. Close their TFSA, sell their mutual funds, take their capital gains, or whatever tax planning strategy they wish to follow.
Wouldn’t this make the proposal revenue neutral as these individuals who have existed outside the system would now be in it for future years?
While many of us here have made the decision to relinquish and move on, I can understand that others may wish to retain their US citizenship, but have not become compliant because of the excessive costs involved.
@Riven, patience.
@Eric
After communicating with Virginia La Torre Jeker, she has amended her statement with the addition of two words, “by naturalization” to now read:
“Many individuals will not qualify for the benefits of this proposal because the tests are very stringent. For example, the individual must have attained his dual nationality at birth – he must have been born both a US citizen and citizen of another country. Obtaining another country’s citizenship by naturalization later in life due to eligibility from a parent or other ancestor will not count.”
http://blogs.angloinfo.com/us-tax/2015/02/05/relief-for-accidental-americans-obama-administrations-2016-revenue-proposal/
This makes it clear that naturalized, not natural born citizens of other countries are being eliminated from the Obama proposal
@Bubble. It appears that this new proposal is aimed at Canadians. My wife was born in the USA to a Canadian mother. When we went to get her citizenship, her document shows she was a Canadian when she was born. The certificate clearly states that she was a Canadian from and her birth date was inserted at that point. Could there be other countries that do this as well?? For this reason, it makes me wonder if Obama is looking north for this proposal…
@NativeCanadian,
That is interesting. I was dual from birth, but my citizenship card does not indicate this. It has a date on it which is the date of issue of the card.
So, how is one supposed to prove one was a Canadian from birth without what your wife has?
@Native Canadian and WhiteKat
Ireland does it from the date of registration, not from the date you were born.
“CHILDREN BORN OUTSIDE IRELAND TO IRISH PARENTS
If either of your parents was an Irish citizen who was born in Ireland, then you are automatically an Irish citizen, irrespective of your place of birth.
Irish citizen parents born outside Ireland
If you were born outside Ireland to an Irish citizen who was himself or herself born outside Ireland, then you are entitled to become an Irish citizen. If your parent derived Irish citizenship in another manner, for example, through marriage, adoption or naturalisation, you can become an Irish citizen.
However before you can claim Irish citizenship, you must have your birth registered in the Foreign Births Register, which is maintained by the Irish Department of Foreign Affairs and Trade – see ‘How to apply’ below. If you are entitled to register, your Irish citizenship is effective from the date of registration – not from the date when you were born.”
@Heidi, thanks for explaining how things are done in Ireland.
I am still wondering whether or not most duals from birth in Canada, have what NativeCanadian’s wife has. I don’t, and I know I was dual from birth (two Canadian parents who registered my birth abroad with the Canadian government), yet my citizenship card does not indicate the date my citizenship was effective. It would be interesting to hear from other ‘duals from birth Canadians’.