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.
@WhatAmI, Phil, Heartsick,
So maybe, as long as one never used their US passport to travel to a non-US country, they fit the proposal criteria. This would be easy to prove – no mind reading required as to WHY one has a US passport.
@WhatamI
You wrote: “Yes, your example is exactly their justification for CBT, and why it makes sense that this proposal tries to exclude people who benefited from US citizenship”.
By having a passport after instructed to do so to enter the States as an accidental dual, I didn’t benefit from having an American passport in any way or fashion. This should be looked on a case by case basis. A blanket disqualification from this potential program simply because an accidental has a passport is stupid. As mentioned, there are MANY reasons why an accidental may have a passport. It in no way endorses or embraces American citizenship that was forced up us.
Phil, CBT is absolutely stupid period, not just for people who fit the proposal criteria. And don’t worry about clarification for #4 until when/if the proposal becomes reality, which I suspect is a long shot anyway.
Almost no media coverage of Obama’s “accidentals” proposal. Only thing I’ve seen is Michael Cohn over at Accounting Today, who gives it a one-sentence mention as “a modicum of relief”
http://www.accountingtoday.com/news/government-news/obama-proposes-sweeping-tax-changes-in-2016-budget-73541-1.html
@ WhatAmI I wondered about voting as well. I also wonder about the 2 year limit and the capability of the US to process the surge. They would need to change something.
@WhiteKat You basically said that they would be rewarding those who were ignorant of the passport law or just ignored it, punishing those who did comply. This doesn’t sound like something the US would do, as you said” illogical” Makes sense to me.
@Heartsick, the ‘benefits’ of US citizenship that you took advantage of while an ‘accidental’. would have to corroborated relatively easily somehow no? Determining whether or not you ever voted is probably more difficult than figuring out if you ever travelled to a non-US country on your US passport (presuming the meaning of #4 is to weed out those who ‘benefited’ by their US passport). Maybe this is why voting is not mentioned.
@WhiteKat They could have a record of you registering to vote but not actually voting. You are probably right about something “corroborated relatively easily” We need to think of this as a draft, hopefully the Republicans will look at it seriously and make it better.
@Phil,
Agreed, it would be stupid to make this proposal and then exclude many/most people due to forced use of passports. It only makes sense if they did indeed accidentally leave out the words “or entering”, and if the people they are trying to exclude with the passport reference are ones who, for example, used a US passport to enter a US embassy for some service. I can’t believe that somebody pushed this proposal into the president’s budget with restrictions that make it useless, with the concious plan of only giving the appearance of caring and trying to do good. The fact that they valued this “relief” at $403 million indicates that they think a large number of people will benefit.
I didn’t read the link, but the quote that Eric gaves shows a misunderstanding by the author. The relief from this proposal does not save dual-citizens mark-to-market exit tax, since the people targeted by this proposal are only those born dual and exempt from the exit tax already (as long as they certify tax compliancy). The relief is from paying income tax on US-source income only instead of world-wide income tax.
So what are these ‘fortunate’ duals meant to do until 2016 when their bank presents them with a W9 , or show a cln, or in the case
of Switzerland when they ask you to prove compliance? Try explaining this new crock of s**t to a bank.
@Heidi You must continue to lie at the bank and keep using your fake documents to protect yourself. There is no other way to steer clear of the USA laws enforced on Canadians in Canada until we have success in our lawsuit.
Urgent question!!!
Forgive me if this question has been asked before. I come to this discussion late as I’ve been working on an IBS project and haven’t had time to follow the comments here.
My question refers to No. 4. on p. 282 of the “Green Book” quoted by Eric above: 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,
Why is “the sole purpose of *departing*” singled out? The law 22 CFR §53.1 itself also specifies *entering*. Does Obama’s exemption include people who got passports because they were denied *entry* to the US on their “foreign” passport?
@MuzzledNoMore,
This issue has generated most of the discussion, and is about equally split between people who hope that it’s just poorly worded (and does not exclude people who _entered_ the US with a US passport) and those who believe the US is just pretending to give relief but intend the exclusion to make sure very few people can actually benefit from it.
Thank you, WhatAmI. I just finished reading all the comments and I’ve come to the conclusion that this entire “proposal”, all six points, is definitely a step …. a step out of a quagmire into the quicksand. This is a “fix” for, as someone said, a “small subset” of those wrongly attacked by CBT. We are not done here until CBT is on the ash-heap of history and all its victims are freed.
Should a person who left the US as a young child but was the daughter of two emigrating American parents be any more tax-liable than the young child who left the US but was the daughter of “foreign” parents? There are vastly more people who remain trapped by CBT than are possibly going to be released from its stranglehold by this proposed legislation.
As I have said before on other threads, half-measures (and this is far less than half!) simply create more confusion and more unfairness. Witness the discussion on point #4! CBT must be 100% eradicated. Anything less is unacceptable.
I began my reading today with a glimmering ray of hope. I am now angrier than I have been since last February 5th!
Onward with the fight, ladies and gentlemen! Very little has changed here!
Thank heavens the Democrats aren’t in control of the house and would pass this proposal as it stands or make it worse. As others have already pointed out, the passport to “exit” the USA makes no sense; it should be amended to “enter and exit” the USA, which is EXCLUSIVELY why Boris Johnson and most of us with American passports obtained one. SOMEONE OFFICIAL representing us at ADCS needs to GRAB the attention of the RO (Republicans Overseas) and point this out.
This ALSO means that if US-born people relinquish US passports because of this provision, it is WRONG to be denied entrance to the USA when using another passport. Perhaps the US gov’t should issue a document stating that the passport of someone’s primary citizenship and residence (e.g. Canadian passport) is sufficient for visits in the USA.
Also, Item #6 should be thrown out. Demanding 5 years of filing “all U.S. federal tax obligations” is expensive, invasive, punitive–and frankly–insulting. All the “dual” citizen relinquishing US citizenship should have to do is to supply one or two pieces of I.D. that affirm residence in their non-US country the previous 5 years (e.g. their driver’s license OR their Canadian passport OR Medicare Card OR family doctor’s records) plus proof of their non-US citizenship obtained as a child. These proofs of non-US citizenship and 5-year-previous-residence should also suffice for someone like Carol’s son (entrapped because of mental incapacity) to get out of dual citizenship.
Given that the renunciation fee is about $3000 Cdn. dollars and WAY, WAY above what any other country charges for renunciation, that is plenty of money to hand over to the US bullies. Recalcitrantexpat is right; Obama is lying; the “money” the US claims they’d lose is this is money they’re stealing from Canada and other countries.
Meanwhile, thank heavens for our lawsuit. We have no way of knowing what any dysfunctional Congress will do from one 2-year term to the next, and as it stands right now, our plaintiffs are second-class Canadian citizens with no financial privacy or protection. They can’t even open a bank account here in Canada without answering a “self-certification” form concerning US place of birth, etc. We know they’re Canadian, but the US STILL claims otherwise, while our present gov’t declares they’re “US citizens residing in Canada”.
@Jan,
This provision does not change or create any new citizenship law or any new tax filing obligations. With or without this provision, a person who relinquishes US citizenship simply enters the US as a visitor with their other passport (and CLN) from then on, exactly as you said it should be. That’s already the case. This provision does not create or change anything in this regard.
Point 6 is not new. Is does not create the tax filing obligation. You can’t remove Point 6 because it’s the one that defines the relief provided by the provision! (You may well have meant that the whole provisoin should be replaced by one with wider scope, which we all agree with.) For the people who qualify, tax filing as a non-resident alien means little or no tax filing is required (NONE if they have no US source income). This is huge, because the alternative is 6 years of FBARs, 5 years of taxes including punitive taxation of simple mutual funds as PFICs, etc. Accountant fees for this can cost between $3,000 and $30,000 or more, depending on your finances, not counting any tax payable.
It’s clear in US law that a person who naturalizes as a US citizen is to be treated EXACTLY as a born-US-citizen. It’s spiteful, hypocritical and discriminatory that they treat born dual-citzens differently from naturalized dual-citizens on the way out when they relinquish US citizenship. This is unforgivable.
The main tone of your post is dead on, of course. This provision is far too narrow. Its defiinition of an Accidental American is far too narrow. It should be much easier and (nearly) free to give up US citizenship. The underlying problem always comes back to CBT. Nothing short of repealing CBT is good enough. With a switch to RBT, I think everything is solved and there would be no reason for anybody to relinquish US citizenship as there would no longer be a compelling reason to do so.
Don’t be discouraged! What we’re seeing before us is the process in which Abraham Lincoln referred to when he said: “The best way to have a bad law repealed is to enforce it strictly”.
If you use your imagination (with a little wishful thinking) you could project that this might eventually lead to the “purity” of US taxpayer status being determined by residency. It will not bode well for the US that most of their citizens abroad are looking for ways to avoid becoming US citizens, when a simple move to RBT will solve the problem. The US government will eventually have to face the fact that citizenship is NOT synonymous with taxpayer, and to insist that it is is contributing to the US’s own demise.
Oh and here are some other words of encouragement, attributed to Winston Churchill: “The United States invariably does the thing, after having exhausted every other alternative.”
This may be the beginning of the end.
I hope there are people on this board that are able to give clarification on provision #4 and its wording, “for the sole use of exiting the United States”. What does that mean? I have mentioned my situation several times on this thread, (born in Canada to one American parent, found out at 18 that I was considered an American by a border guard who told me to go and get an American passport to enter the United States). I am as accidental American as they come. Following stern orders of an American government official (Customs Officer) and getting passport is not an admission someone wants their forced American citizenship. Why do they think me getting a passport indicates I embrace my forced citizenship? Totally illogical and stupid.
@WhatAmI
A switch to RBT may not solve all the problems unless FATCA changes its US person definition. Would a US citizen’s banking info still be sent to the IRS if they are resident in another country? Right now, ANY US citizen will have their data transferred.
If they went to RBT would FATCA stop including USCs not resident in US?
As well, I can think of MANY reasons to renounce beyond CBT. But yes, it would fix why many are renouncing when they don’t really want to.
Perhaps people could post 2 opinions. One for the Point 4 wording as it is, and one for the case of it being mis-worded such that is actually “enter or exit”.
@Phil, how on earth did the US Customs Officer know you had a US parent?
@Kathy,
Yes, I’m assuming that with RBT, FATCA reporting of accounts foreign to the US would be reduced to only reporting accounts held by US residents. This is similar to what the “same-country exemption” would do, but a same-country exemption while retaining CBT only makes it easier to hide form the IRS and doesn’t remove the CBT filing obligation. I suppose the same-country exemption is similar to this budget proposal in that there will be no end to the argument as to whether such measures undermine attempts to repeal CBT, or help to further the cause by dismantling it brick-by-brick.
@WhatamI
I was travelling from our home country Canada to the United States for a visit. The officer asked why my parent had an American passport and I had a Canadian one. My parent explained that they were American but moved to Canada to get married and have a family. My parent informed the guard that they were American and I was Canadian (reason why we had different country passports). The border guard then scolded us telling us that I too was an American citizen. This stunned us both as we didn’t know the United States automatically gave citizenship to children born abroad to one American parent. Sitting their shocked to learn this, the guard went on to tell me “now that you know your American, you need to obtain an American passport to enter the United States, we don’t recognize dual citizenship”. So for this reason only, I went out and got an American passport, so I could visit the States. Before this incident and now, I have only ever considered myself Canadian. This passport provision pisses me off because it could exclude me from this potential program even though I am a poster child for accidental Americans.Their thinking and logic makes absolutely no sense.
@Phil,
Ah, right. You or somebody else recently explained the “traveling with a parent” scenario.
“Their thinking and logic makes absolutely no sense”, unless there is a simple error in the wording of the proposal. If this is the case, it makes perfect sense and is a “get-out-of-jail-for-$2350 card” for you and me both if we are unable or fail in attempts to claim some past relinquishment.
@Kathy, FATCA doesn’t have its own definition of “US person”, it uses the definition in section 7701(a)(30) of the tax code: “The term ‘United States person’ means (A) a citizen or resident of the United States, (…)”. RBT means erasing “citizen or”, so it would automatically exclude nonresident citizens from FATCA.
I was one, WhatAmI, who commented on the ‘traveling with a parent’ scenario.
I would not put my son, nor me, into such a position at the border. I had one *border incident* which intimidated me into getting my one and only US passport — something I would never do again, knowing what I now know.
@WhatAmI
“…there will be no end to the argument as to whether such measures undermine attempts to repeal CBT, or help to further the cause by dismantling it brick-by-brick.”
Right on. This proposal, however, makes it obvious that the US is willing to continue making policies that basically force people to choose whether they want to be American or not. That in itself is anti-American, and unsustainable, IMO.