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.
FWIW. 1). This probably won’t happen. 2). The passport thing is probably a mistake and if 1) isn’t true then it should be corrected to read ‘ for the sole purpose of leaving or entering the U.S.’ That’s what 22CFR 53.1 is all about.
RLee . Renouncing is one way to relinquish. They probably won’t save the fee. If it passes, they might be able to save the cost of filing for a year or 2 but it might be wiser to keep filing.
Bureaucrats in D.C. love this stuff. Another great make work project which nobody can understand.
@ Bubblebustin Boris has a US passport so unless they change that he cannot use this. I think by “departing” the US, the intention is to recognize that to move to another country you must have a passport to enter the country of your choice. This must be done by the age of 18 1/2, in order ditch the US citizenship.
@ Duke of Devon You might be right about the passport thing, given it refers to 22CFR 53.1, That would certainly recognize that some people have been forced to obtain passports in order to enter the US to visit family etc. It is phrased oddly however.
I’m pretty confused by this (as by most of this $hit). So, you don’t have to pay exit taxes? Do you still have to file 3 years of tax returns and 5 years of fbars before they let you pay $2350 fee and renounce? As it stands right now, I wouldn’t owe any U.S. taxes, I wouldn’t have any exit taxes, what is stopping me from renouncing (and filing) is A) the U.S. government has no business knowing what is in my bank accounts B) I’m too poor and lazy to make the 14 hour drive to Calgary and pay them a (what is for me) large sum of money to renounce. I was accidentally born in the States, left when I was months old.
@heartsick
I agree with what you say is likely the rationale behind the passport restriction, but I also agree with the Duke of Devon that it’s probably something that could be amended because of the fact that we know of many people who’ve successfully relinquished after being forced to renew their passports.
May Smith. Who can blame you for being confused?
The 3years/5 years $hit refers to the so called streamlined amnesty which is meant for those who wish to become compliant and re enter the system. Doesn’t sound like you.
You aren’t obliged to become compliant before renouncing.
If you were to make the trip and renounce, you would be supposed to file form 8854 and certify that you had been compliant for 5 years. There are those who have renounced and not bothered with 8854. You would not be subject to an exit tax under any circumstances.
It’s all ‘a steaming pile of poo.’ Take your time. Perhaps do nothing.
Well, in a small way, I’m encouraged that the parasites in power in the USA are starting to understand that they have no right to bestow the putrid stench of US citizenship onto my children, even after having faced some pointed questioning by border crossing officials suggesting that they ARE US property.
I relish the thought of, at some future date, being denied entry to the USA with my children because they DO NOT have a US passport, which I will happily use as an argument against the arrogant bastards when they pursue their insistence that my offspring are “one of them.” Isn’t every citizen given the “right” to enter the country at will?
@May Smith
You can renounce and then deal with the tax stuff afterwards. When I renounced, they never asked me anything about taxes. They only wanted to verify that I was serious about renouncing and that I understood that once I signed the renunciation papers and raised my right hand in front of the consular, it was irrevocable.
@May Smith
My CLN arrived in about 3 months. The hardest part about the process was booking the first (of two) renunciation appointments. It took time to get an appointment because there was and still is a backlog of people waiting.
I’ve decided to renounce because I didn’t want to have to file tax returns in the US – I will never owe any U.S. taxes and I wouldn’t have any exit taxes. I finally have an interview scheduled for Feb 13/15 at the Vancouver US consulate to renounce my citizenship, I have been trying since Oct/14. A question I have is, after my appointment how long do I have to file my 8854? I would rather not do it at all but I will probably want to travel in the US in the future and I don’t want to take the chances of them holding me at the border because of outstanding tax returns or FBAR’s being filed. Comments?
Is this the work of the DC based lawyer Buterea (sp?) ? I think we don’t stop until we get FACTA ruled invalid and removal of CBT. However, along the way if we can help some of us get out of the US system we need to do everything we can to help them. I say this even though I may not be eligible for this potential program. I meet all the criteria except I have an American passport. Even though in my opinion, getting the passport in no way made me apply, ask for, endorse, or want American citizenship. As I have written before, I only did so when I was 18 and instructed to by a border guard when I had my OMG moment, finding out for the first time I was considered an American. I am an accidental American as much as anyone else is. I only got my USA passport because I was told I was a dual and that dual American’s needed to enter the USA on an American passport and not their Canadian one. I didn’t want one. To think if this proposal gets passed and that is the reason why I would not be eligible for it makes me sick. I have spent the entire day writing letters about the passport stipulation for this proposal, is there any other redress or help I can get to fight to change the passport provision? For once, a small glimmer of hope from the democrats and I might miss out on a technicality. Makes me sick(er).
@PL Try asking your question in the article
Ask your questions about:
Relinquishment and Renunciation of US citizenship
menu on the right side
Phil, it says
has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States
Yours was for entering, not for departing.
(You didn’t get it for worldwide travel )
Mark Twain,
I am so tired and exhausted, not thinking straight, your reading of it thinks me having an American passport would not disqualify me from this proposal?
Side question: what happens in the long run to those who renounce without filing any forms? Not legal, maybe, but, what?
Phil, correct. You have to interpret it all yourself.
The wording is for persons who acquired it to use it “for the sole purpose” to EXIT usa and to travel worldwide.
The wording implies that it relieves persons of the exit tax
This is another step along the administrations pursuit of Less Bad policy.
FBAR penalties are unbelievable.
OVDP created to give Less Bad penalties than FBAR—if one begs.
Streamlined 1 created to give Less Bad treatment (high risk & low risk) for an unbelievably narrow segment.
Streamlined 2 created to give Less Bad treatment for a wider segment, and Less Bad assumption of High Risk
FINCEN computer portal opened with the Less Bad characteristic which allows persons to file FBARs retroactively (however not really saying if it is ok or not without Streamlined)
The primary objective of this effort is to give naïve governments the impression that Obama is thinking about their “real” and “nearly-pure” citizens.
What IS encouraging is that the administration IS adopting the lingo of Brock & Sandbox & those enlightened compliance jocks such as Hodgekin’s. At least recognizing a problem.
What this budget proposal does, if successful, is it takes away our best, most egregious example of why CBT is a bad law. CBT will never be a good law, but I can’t help but feel that if what Obama proposes is successful, it may make our arguments against CBT that much more difficult to make. Thoughts?
@Fred
If you renounce without filing tax forms you will be considered a ‘covered expatriate’.
There is no time limit on the statue of limitations for unfiled taxes (compared to 3 yrs if you file). So you will have this hanging over your head forever. Travel to the US will be risky as the IRS and immigration service begin to share info. You could be flagged entering and be detained. Even flying over the US on route somewhere else you may be a risk if the plane has to make an unscheduled stop because of weather etc.
The Reed amendment has sought to bar covered expats from ever entering the US, this so far has been unenforceable but there are a few who have been trying to do just this.
Yes Mark, it just makes CBT a problem for fewer people, but doesn’t get at the source of the disease. Doesn’t reflect well on the US that people are clamouring for any excuse not to be American, does it?
@Heidi. Thanks. I plan to (attempt to) comply now, and am not sure yet whether I will relinquish or renounce or not. But I know of a case in my country, an exact fit for the proposal being discussed here. She renounced but never filed anything. That said she had never had a passport and never earned money. But she does have a US birthplace.
By the way your previous comments to me have made me think I should file 3 delinquent years instead of just going forward, if only to get up to 5 years of compliance more quickly.
I’d like to say I can’t imagine them detaining every ex-American with filing issues at the border, but then I wouldn’t have imagined half the current mess either. Nevertheless,
@PL
http://hodgen.com/when-to-file-form-8854/
@Bubblebustin: Doesn’t reflect well on the US that people are clamouring for any excuse not to be American, does it? — that’s probably why Obama’s proposal includes the apparent non-sequitur about “these individuals may be citizens of countries where dual citizenship is illegal”, which I can’t imagine applies in more than a tiny percentage of cases (e.g. the 28 Kuwaitis who were reported to have renounced citizenship last year).
If his proposal passes, then he can dismiss any future increase in renunciation rates as being driven by unfortunate folks whose mean foreign governments forced them to give up American citizenship. And plenty of the media will believe him because they uncritically quote any old BS that appears in a government document — what Glenn Greenwald called “stenographic treatment”.
@Bubblebustin: I think this proposal is exactly what you take it to be. It can be used in sound bites or on the Treasury website to show how nuanced and concerned they are. Nothing more.
It is along the lines of Democrats’ “same country exception” proposal. “A bandaid on a wooden leg”, if I loosely translate an old French saying (un emplâtre sur une jambe de bois).
@Bubblebustin, This is my concern also.