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.
@ Phil, yes that sucks.
I stand corrected. The Bopp lawsuit is not going after CBT. Just like the ADCS lawsuit isn’t.
I enjoy a good healthy discussion, but I feel we’re wasting some breath here. What does it matter if some of us support the proposal as a small, but good start to addressing one of the many issues (United States citizenship, extra-territorial taxation, FBAR, and FATCA) and some of us don’t? It’s not like we’re the ones passing the proposal into law or not.
Again, there are MANY issues at hand. None will be solved in one fell swoop. Are some issues more harmful than others? Yes. But in my opinion, that shouldn’t stop us dealing with the smaller issues as well.
I’m very grateful that people around the world have supported the lawsuit in Canada and I hope they continue even though the outcome will not directly affect them. But as some have said here, it’s a start and it may snowball other changes.
Interesting interpretation of the Obama proposal that narrows the passport restrictions even further:
“…The immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States. The relevant part of the regulations is § 53.1(a) which provides as follows:
Passport requirement; definitions.
(a) It is unlawful for a citizen of the United States, unless excepted under 22 CFR 53.2, to enter or depart, or attempt to enter or depart, the United States, without a valid U.S. passport.
*
These regulations were first published in 2006, and rely in part on a Presidential Executive Order made by President Bush (Jr.).
*
Presumably, it is a very small and select group of individuals who obtained a U.S. passport, merely to comply with this regulation, in order to depart the country. How many individuals even know of such requirement and would have applied for a U.S. passport while in the U.S., to legally depart under the U.S. passport requirement regulatory rule? See, Part I of III: Tracking Travelers’ Entries and Exits – Guest Immigration Law Post by Atty Mr. Jan Bejar
*
ASSUMING AN INDIVIDUAL WAS AWARE OF SUCH REGULATORY RULE, THEY COULD NOT QUALIFY FOR THIS PROPOSED EXCEPTION, IF THEY EVER LIVED IN THE U.S. SINCE BECOMING 18 1/2 YEARS OLD. THIS MEANS THAT ONLY THOSE INDIVIDUALS WITH U.S. PASSPORTS WHO (I) OBTAINED A U.S. PASSPORT AS A CHILD (PRESUMABLY THROUGH THEIR PARENTS) WHILE (II) LIVING IN THE U.S. AND (III) DID SO IN ORDER TO COMPLY WITH THIS REGULATION 22 CFR § 53.1 WOULD BE ELIGIBLE. SINCE THE REGULATIONS WERE JUST PASSED IN 2006, ANYONE WHO OBTAINED A U.S. PASSPORT, FOR INSTANCE IN 2002 (EVEN IF THEY NEVER LIVED IN THE U.S.) WOULD PRESUMABLY BE DISQUALIFIED FROM THIS TAX TREATMENT.
ALSO, IF THEY DID NOT GET A PASSPORT WHEN THEY WERE IN THE U.S., LEAVING THE COUNTRY AFTER THE 2006 PASSPORT REGULATIONS WERE ADOPTED, WOULD HAVE BEEN A VIOLATION OF THE LAW…”
http://tax-expatriation.com/2015/02/18/the-proposal-by-the-president-to-exempt-certain-u-s-citizens-from-worldwide-taxation-very-small-select-group/
@ Bubblebustin This proposal is looking more and more like it will be useful to a very few. Not that it is likely to become law anyway. It has certainly prompted a lot of discussion here. Maybe this is also true within the US government. Something good may come of it. The US citizenship laws will continue to create more citizens with “accidental” status. This proposal has acknowledged a problem exists, now will they address the causes?
@All
“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”
Who determines when someone “found out”? What about children, how does this two year limit affect them? They might know as children, does that exclude them, especially those with a US birthplace? Children cannot renounce their US citizenship, they have to wait until they are adults. Children continue to have US tax obligations and information reporting of FBAR and FATCA. Their registered Education accounts and birthday accounts are potentially taxable in the US. This proposal may do nothing for them as long as CBT exists.
@Bubblebustin: Since the regulations were just passed in 2006, anyone who obtained a U.S. passport, for instance in 2002 (even if they never lived in the U.S.) would presumably be disqualified from this tax treatment.
If I understand Mr. Martin’s argument (he is not being very clear), he is referring to the fact that 22 CFR 53.1 only required a “valid passport” and not a “valid U.S. passport” until recently. (The initial version of the regs way back in 1966, and for that matter the underlying statute itself from 1952 to 1994, only required a “valid passport” and not a “valid U.S. passport”. For purposes of argument I’ll just accept his claim that the date of the regs change was 2006, I’m too lazy to fact check that claim myself at the moment.)
FWIW, the State Department (mis)interpreted “valid passport” to mean “valid U.S. passport” at least as early as 1987, and probably going all the way back to 1966.
So basically this comes down to a question of how Kafkaesque the Obama administration wants to be. Do they really want to play “gotcha” with accidentals who were lied to by the State Department about what the law actually said?
@heartsick
I imagine the two years will start ticking for some around the time their bank asks them “Are you a US person?”.
@Eric
Thank goodness there are people like you around here who have the capability if analysing these thing in plain English. My eyes cross when there are too many double negatives and “notwithstandings”!
heartsick and bubblebustin and others
Related to *taxable in the US*, here is correspondence from Mike Sullivan’s office this morning and my reply:
This is incredible / laughable for all of the crossings, land and air, from Canada to the US and return where the border officials just waved people through, with few applying the law that a US citizen must enter and leave the US on a US passport.
If *the law wasn’t the law is the law* (as Mr. Mopsick told us) then how does any of this make sense, especially for family visits back and forth from Canada — no problem for most crossings to this day? And how does it all fit in with the new *proposal*?
Great point about the treatment of minors, heartsick.
Good response from Mike Sullivan, Calgary411, but where’s the NDP and Liberal Party’s policy statements concerning the FATCA IGA Harper’s government brought into law? Should we ask them if their silence is a tacit approval, because you’d think they’d be able to get some mileage out of it somehow…
@bubblebustin,
Good find of this blog:
http://tax-expatriation.com/2015/02/18/the-proposal-by-the-president-to-exempt-certain-u-s-citizens-from-worldwide-taxation-very-small-select-group/
I made the comment below, but it’s awaiting moderation. I may be naive; I may be wrong; but it’s entirely possible. It’s certainly worth seeking clarification, no?
Very nice response, WhatAmI.
This proposal was obviously very poorly thought out, as once again, no consideration was made of its unintended consequences and restrictions. I’m beginning to think that the only reason why passports were mentioned was the recognition on their part that possession of a US passport is indication that the person still wants to be American and they wanted to give that person a break somehow. But as someone else mentioned, why don’t they mention voting in a US election as a disqualifier?
@Bubblebustin
It was I who mentioned voting, as I did in this blog comment along with other indications of claiming US citizenship benefits (registering children as USCs, etc).
I’ve posted many times that this could simply be poor wording, a lame attempt at briefly describing in Points 3 and 4 what “minimal contact with the US by an Accidental American” looks like. It can be that simple.
I don’t think it’s far-fetched, as I said in the blog comment, that the IRS intends to exclude people from this proposal using the same criteria that the DoS uses to rule on our claims of past relinquishment of US cistizenship. “Did you continue to act like an American”? They just did a piss-poor job of it in Points 3 and 4 of the proposal.
Read the proposal’s preamble again. “Minimal contact” doesn’t mean “Zero contact”. When Point 3 says “has not been a resident of the US”, that does not exclude _visiting_ the US. I think the proposal intends that _visiting_ the US is acceptable as “minimal contact”, and of course visiting the US requires using a US passport as per 22 CFR §53.1. It can be that simple.
Seriously, is it not possible for a USC to ask their (Democrat) Congressman to find the proposal’s authors and seek clarification?
Let’s call a moratorium on this to see if it goes anywhere. We’re arguing over how many angels can dance on the head of a pin.
@Duke
I’d rather some USC call their Congressman and ask for clarification!
The people complaining about the perceived exclusion don’t seem to think it’s trivial.
http://tax-expatriation.com/2015/02/12/obama-budget-proposal-to-provide-relief-for-accidental-americans-will-the-proposal-to-modify-the-expatriation-rules-become-law/
The blog above is another that mistakenly writes that this proposal creates a new exemption of the exit tax for certain dual citizens, instead of understanding that the relief being proposed for certain dual citizens is to be treated as non-resident aliens instead of US citizens after relinquishing and certifying the 5-year filing compliance. To be fair, there is a statement in the proposal that implies this, although the longer preample under “Current Law” is quite clear and correct.
I posted a comment but it’s awaiting moderation. This aspect of the proposal is well-known here so I won’t bother quoting my comment!
Yes, absolutely, we should keep asking the NDP and Liberal policy statements re the FATCA IGA brought into law by the Conservative government!
“Seriously, is it not possible for a USC to ask their (Democrat) Congressman to find the proposal’s authors and seek clarification?”
As long as it’s not those who’d benefit from the proposal doing the asking! (I’d assume that contacting your US representative for help disqualify you from the proposal 😉 Ask your friendly USC!
I wonder…does this proposal not HELP our Cdn lawsuit? This proposal by Obama clearly indicates the US recognizes a problem exists between their citizenship and taxation laws.
@The Mom
I’d certainly be inclined to agree with you. This is the hole in the dike; let’s hope the whole structure now starts to crumble. Under RBT no one has these problems, and under CBT coupled with the US’ burdensomely complex tax code, the morass becomes a nightmare. RBT would finesse all of that, as a start. But the US is not known for giving up easily on century-old habits (I read somewhere else that CBT has been around since 1913 and someone else said since the Civil War I think … But then, they did get rid of slavery eventually, and did eventually give women, Blacks and First Nations folks the right to vote — belatedly).
Actually the US didn’t give up slavery. They merely transferred ownership from the private plantation owners to the Federal government. Expats are effectively treated as escaped slaves and the USG is forcing the other countries of the world to help get them back. (Or at least pay the considerable price for their freedom.)
@The Mom
That’s exactly what I have been trying to say. People need to look at the big picture. This proposal is a HUGE first step and is the first time a prominent US politician has acknowledged there is a problem. I think this is the first crack in the dam that will eventually burst. This proposal should be used to our advantage.
OK, I need interpretation and digestion of this answer to my comment there.
and to WhatAmI, the response was:
@Calgary411
More sloppy interpretation and writing over there. I’ll respond there but won’t try to duplicate the discussion here.
Schubert, TheMom, and Phil,
You all make the same very good point! I hope others are listening.
A freeing of the non-American, ‘Americans’ (the ones who never identified as such) from US citizenship (and all that implies) could very well be as Phil says: “the first crack in the dam that will eventually burst”.
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