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.
What RO needs to focus on is the real discrimination of US citizenship-based taxation law for the *Accidental Americans* of the proposal AND all others the US defines as US citizens / persons / expats — anyone who has chosen to leave the US to live and work, become citizens of or not, and pay their taxes in other countries than the US that have residence-based taxation law.
@FromThe Wilderness
I think we can describe Obama as being a ‘top-down tinkerer’ on most everything. DA was obviously blind-side by the announcement of this Obama proposal. DA’s proposed “same-country exemption” only benefits law-abiding (US tax-compliant) Americans abroad, whereas the Obama proposal seeks to exclude others taxpayers from US citizenship altogether – people who are obviously non-compliant. From an optics point of view, wouldn’t the exclusion of one group of non-compliant US citizen by the Obama administration somewhat undermine DA’s efforts, or at least lessen the justification or need for a same-country exemption when a swath of potential taxpayer would be eliminated by the Obama proposal?
@Stephen Kish
I will continue in my flip-flop pattern for the time being, but I don’t want those who clearly support the amendment to construe that as support for its demise…
…but it could be a case of all or nothing.
Notwithstanding anything written above — and indeed anything legislated by Congress — it is impossible to assign citizenship “retroactively” to anybody, without consent. And indeed the statute doesn’t do so, although what it does do is contrary to international law and even the IRS doesn’t apply it literally:
“SEC. 103. FORMER CITIZENS OF UNITED STATES REGAINING UNITED STATES CITIZENSHIP.
(a) IN GENERAL- Section 324 of the Immigration and Nationality Act (8 U.S.C. 1435) is amended by adding at the end the following new subsection:
‘(d)(1) A person who was a citizen of the United States at birth and lost such citizenship for failure to meet the physical presence retention requirements under section 301(b) (as in effect before October 10, 1978), shall, from and after taking the oath of allegiance required by section 337 be a citizen of the United States and have the status of a citizen of the United States by birth, without filing an application for naturalization, and notwithstanding any of the other provisions of this title except the provisions of section 313. Nothing in this subsection or any other provision of law shall be construed as conferring United States citizenship retroactively upon such person during any period in which such person was not a citizen.
‘(2) The provisions of paragraphs (2) and (3) of subsection (c) shall apply to a person regaining citizenship under paragraph (1) in the same manner as they apply under subsection (c)(1).’.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect on the first day of the first month beginning more than 120 days after the date of the enactment of this Act.”
The trouble is that under international law a nationality cannot be assigned to anybody without his/her or a parent/guardian’s consent, other than at birth, adoption or (this is not accepted by everybody these days, and applies mainly in Arab countries) upon marriage. Neither statute nor any court decision to which a person was not a party can change this.
Rev. Rul. 75-357 (cited elsewhere on this forum) acknowledges this: https://groups.google.com/forum/#!topic/alt.lawyers/nFewRxuSV7w A person who has not, subsequently to losing US nationality, availed him/herself of an attribute of US nationality will not be considered a US citizen, for tax (or indeed any other) purpose.
What am I missing? I don’t see what the DA and RO people are complaining about with regards to this proposal. Yes, it does not give same-country FATCA exemption or RBT, but it’s not really targeting US citizens!
@Bubblebustin said:
…whereas the Obama proposal seeks to exclude others taxpayers from US citizenship altogether – people who are obviously non-compliant.
I would re-phrase this as:
“..whereas the Obama proposal seeks to exclude ex-US citizens from paying US taxes on global income – people who are obviously non-compliant.” I say “EX-USCs” because the proposal only applies after one gives up USC. I don’t think the proposal is encouraging renunciations, it’s FATCA and CBT doing that.
Isn’t the definition of “Accidental American” one who never knew, or never wanted USC, or one who thought they had given up USC decades ago and never acted as a USC in any manner whatsoever? This proposal, which is far too narrow in its definition of an “Accidental American” (Mr Kish’s is much better but we all want RBT), makes it easier for people who today don’t even believe they are USCs to shed the taint. It has nothing to do with USCs who want to remain USCs without being reported by FATCA and without paying CBT. I doubt many members of RO and DA are “Accidental Americans”!
And for this reason I maintain that the proposal is not discriminatory for “active” US citizens, and I don’t see how it would undermine the DA’s efforts at all. I would say that the same-country exemption is needed not so USCs can hide from US CBT taxes, but because FIs in some of their home countries don’t want their business if they are USCs, making life difficult. Surely all the DA’s and RO’s file US taxes, right?
What am I missing? Are people (ROs & DAs) worried that the successful passing of this all-too-narrow but unrelated provision makes it harder to pass their larger agenda? What is the track record in US Congress for bills that are opposed and stopped for “not being good enough” to be modified to everyone’s agreement and to pass as such? A bird in the hand…?
Nothing short of RBT is “good enough”. Of course, whenever we say this we are assuming the RBT comes with FATCA same-country exemption.
I tried to post the following comment on the new thread some minutes ago, summarizing the legal team’s results to date, but the thread was closed to comment as I was drafting this follow-up to the one comment I was able to slip in before the thread was closed. So I’ll post here.
Go to Stephen’s new thread summarizing activity to date on the lawsuit. Note that Arvay reacted to Roy Berg’s suggestion that this US administration proposal we’re discussing might nullify the court case of Gwen and Ginny, by indicating it has no bearing on that legal case which can go ahead regardless of whether the two plaintiffs might benefit from this proposal (which hasn’t been put into effect yet and may never be, for all we know). I’m paraphrasing; go to the other thread and read what is said there.
I am delighted to learn that Arvay agrees with my impression (and that of others on this website) that the proposal by the Obama administration to give a relatively free pass to duals at birth with no adult ties to the US, has no bearing at all on the validity or prospects of the lawsuit in Canada. Glad to know my legal if amateur sense about these things is accurate … or at least validated by one of our country’s foremost experts on these things.
So how about let’s all stop fretting over whether that proposal should be rejected or supported as not enough or whatever. That’s a diversion, a red herring. Focus on the legal case in Canada, take whatever birds in the hand we can get, and encourage our friends south of the border to keep pressing the administration on these issues and demanding complete relief for everyone with a same-country exemption from FATCA. These things are NOT mutually exclusive nor contradictory. Let’s move on.
… in case anyone isn’t clear about what I’m referring to in the previous comment, go here
http://isaacbrocksociety.ca/2015/02/17/adcs-adsc-litigation-updates-key-actions-milestones-and-timeline-estimates/
and read Stephen’s summary under 2015.2.11.
A core argument of the ADCS statement of claim is that the Canada IGA Clauses in Bill C31 single out Canadians of one single nationality for discriminatory treatment, based upon their place of birth, in capitulation to the demands of a foreign state, and this discrimination is potentially harmful.
The “Obama proposal” is just a proposal; and it is foreign law, and does not provide relief for the harm caused to the plaintiffs by the FATCA IGA. In fact, they would have to pay $2400 to a foreign state to BEGIN to use the very narrow relief in the proposal.
Why should ANY Canadian citizen have to pay ANY kind of “certification processing fee” to a foreign state in order to receive equal treatment under Canadian law?
The House Ways and Means Democrats are pointing fingers at Paul Ryan on Facebook accusing him of giving up on Tax Reform. I just asked them if they have given up on Tax Reform for Non-Resident Americans. Does anyone think they will answer?
https://www.facebook.com/waysandmeanscommitteedems
There are some very good comments being made by expats over on the House Ways and Means Committee FB page. The more comments we make over there the better. These are the people who make tax policy, they have the “power to abolish CBT.” I just inserted a link to the late Don Whitley’s masterpiece “The Accidental Kenyan” into my comment for them to mull over with hopes that a light bulb or two may turn on if they read it.
http://isaacbrocksociety.ca/2012/06/06/the-accidental-kenyan-what-would-happen-if-the-african-nation-copied-u-s-tax-policy/#comments
@Wondering, if you have been following older comments to this thread, I believe you will see that there is general consensus that the proposal does not make it clear whether or not there will be a renunciation fee. In either case, I suspect that the hypothetical, amended proposal that Stephen is asking us all to voice our approval or disapproval of, could be considered a ‘get out of jail free card’, for US persons who left USA before age 18 and 1/2, and not limited to the born duals. Think of it as a ‘save the children’ proposal.
A comment from Robert Black over on the RO FB page reads:
“My take on the ‘Accidiental’ opt-out proposal is that the Administration’s tactic is to start by offering the lowest bid possible (and it is not for the benefit of these ‘accidental’ Americans’, however, a political mitigation effort to ensure votes in 2016 of DEMS). It is a game of divide and conquer and is reminiscent of game theory (most people will do what is best for them in the end, however, how many people will this cover is the question and can it deflate the Americans Abroad ‘movement’). This is a clear sign that this issue has creeped its way higher up the chain. No matter what, Democrats have only made a political opening bid and it would be self destructive to let up our resolve in fighting for general Freedom and Liberties in which other countries grant their citizens. All Americans Abroad counter should still be to persue a full repeal of (CBT/FBAR/FATCA). At this point, empty promises should not distract our effort in standing Americans Abroad ground.”
IMO, Obama’s proposal is not genuine. It is part of an effort to short-circuit the lawsuit in Canada, hoodwink expat voters into thinking he is helping them, and divide the expat community for the purpose of preserving the status quo for FATCA, CBT and FBAR. As Robert pointed out, Obama made his opening offer, which was quite pathetic to say the least. We need to stick together and launch more lawsuits. IMO, the lawsuits and the embarrassment of increasing renunciations is the best strategy for bringing the issue to a head, so that “real” change can be made.
@Walter, may I ask, what is your answer to Stephen Kish’s question?
@All, I notice so far that not one person has said for sure that they are against Mr. Kish’s ‘new and improved version’ of the Obama budget proposal, several have said they are for it, and several have given unclear, noncommittal answers.
@Stephen, I guess the unclear votes don’t count, and you have your consensus so far: all in favour!
My answer is to NOT take Obama’s bait. There is strength in numbers, we need to stick together.
Walter, you still did not answer Stephen’s question.
@Walter, I don’t understand why people might fear that if some of us are set free, we will stop fighting for our less fortunate comrades. Some of the most ardent fighters in this battle have already escaped from the dark side, yet they are still working to help get the rest of us out as well.
@WhiteKat
I left the US at age 26. No tweaking, no twerking — RBT or Bust! — Now is the chance to do it.
Any news about the Bopp Lawsuit? I expect it to be a game changer.
@WhiteKat
If you really want to grasp at Obama’s leg to save yourselves go ahead and do it. I’m not going to try to stop you.
For me, the fight continues!
@Walter, but what if RBT is just not possible RIGHT NOW?
What if all that is possible RIGHT NOW is the ‘new and improved proposal’ as outlined by Mr. Kish?
What would your answer be then?
@Walter, if RIGHT NOW, I was set free, I would continue to fight for all the others.
“F” the proposal. Its disingenuous.
We shouldn’t roll over and take the first offer of breadcrumbs or variation thereof that comes our way.
Let’s see what Bopp comes up with.
Walter, I do not think Mr. Kish was being disingenuous with his hypothetical, new and improved (quite a bit improved actually) version of the Obama proposal.
@WhiteKat
I was not talking about Stephen Kish, I was talking about Obama.
“No tweaks, no twerks — RBT or Bust!”
Do what you want, but I’m not going to bless the Obama administration’s dirty games of empire.
Walter, by supporting Stephen Kish’s ‘new and improved’ proposal, I do not feel that I am blessing the Obama administration in any way.
How about proposing RBT for everyone NOW!
Is that new and improved enough for you?
Walter, what if RBT is just not possible right now, but the ‘SAVE THE CHILDREN’ proposal (i.e. new and improved) is possible right now?
I believe this is what Stephen Kish is asking us to consider before we say ‘yes’ or ‘no’.