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.
Blackie,
Be sure to update your advertising — the price for that CLN has gone up substantially.
I don’t see anywhere in the proposal that there would be a $2,350 renunciation fee. Point #5, refers to relinquishment, not renunciation. Am I missing something?
@WhiteKat
At IBS we often refer to relinquishment and renunciation as 2 different ways to shed US citizenship. As I understand it, the USG considers renunciation to be just one of several ways that one can relinquish (give up) US citizenship. So people who could take advantage of the proposal would still have to relinquish, and one way to do that would be for them to renounce. So, the fee would apparently be intact for those that have to renounce in order to relinquish.
The crossing-the-border-on-a-non-US-passport issue is a real irony, IMO.
First off — my wife and I have been crossing the US border fairly regularly (average annually, I’m guessing), both before and after we met, on Canadian passports showing US birthplaces, since 1978. I had a CLN before I started doing that, but I never thought to bring it with me until the past three years. I have no idea whether the US border types could have known I had a CLN; I don’t recall that they had computers at the border then. But my wife didn’t get her CLN until 2012. Niether of us was EVER cautioned or warned we needed a US passport to get in (to visit our families, or once or twice in my case on a business trip), during that 36-year period (and still counting), though of course now we both have CLNs and know that the border guards know that on their computer systems (since the vice-consul who interviewed my wife for her CLN told her they do, they even know once you’ve sworn the oath and signed the papers even before the CLN has actually been issued).
But what really gets me is that the US, if it really wanted to bring “into compliance” all non-resident US citizens, didn’t need to trample on the rest of the world’s sovereignty and the rest of the world’s banks and financial institutions with FATCA. All they had to do was enforce, simply on US soil, the Reed Amendment requiring US citizens to travel into the US (or leaving the US) on a US passport, coupled with what I think is an executive order now requiring that any passport application or renewal must be accompanied with a declaration, under penalty of perjury if false, that the applicant is fully compliant with US tax law. The US passport has for some time also contained (in nearly illegible blue small print on the back page) a notice that US citizens living outside the US are still required to file IRS tax returns, I forgot how that’s worded but I’ve seen it on one of my in-laws’ recent US passports.
So, with those two simple rules (you can’t get back in without a US passport, and you can’t get or renew a US passport without signing under threat of perjury that you are in compliance with US tax and filing laws), they’d have every US citizen who lives outside the country and who still wants to be a US citizen, by the proverbial short and curlies. Doesn’t catch the genuine tax cheats living in the US and hiding money in overseas accounts, but there were already tax treaties in place to deal with those people (whether effectively or not is another story). But the enforcement of those two things would occur on US soil by US government officials and wouldn’t impinge on anyone else’s sovereignty nor cost everyone else’s financial institutions hundreds of millions of dollars, if not billions, every year in administrative overhead that doesn’t benefit those institutions, except the same way a payoff to a mafia hood benefits you by not having your kneecaps broken.
But that would be less “manly” and “exceptional” than swaggering into the saloon with both six-guns blazing, as is the US way to deal with the rest of the planet much of the time, to mix a metaphor or two.
Another potential complication that I haven’t seen addressed is that this proposal makes it easier for American-born accidentals to renounce (or relinquish) than it is for those accidentals born abroad to an American parent — at least if their births were never recorded at a consulate. Potential renouncers have to begin by proving that they have U.S. citizenship in the first place, something that can be quite difficult for somebody born abroad with no U.S documentation. (Maybe ironically, getting a passport seems to be the most obvious way of doing so.) I’m not sure whether to take this as a signal that the U.S. really isn’t interested in foreign-born and domiciled potential duals, or whether it’s just another indication of how little thought went into drafting this proposal. At any rate, I’m taking it as yet another reason that non-U.S-born children of an American parent who acknowledge only the citizenship of their birth countries might want to continue staying out of the American system — and contribute to the lawsuit instead.
@WhiteKat
No the proposal doesn’t mention the renunciation fee, it just mentions relinquishment. Which technically is the word that applies to all forms of losing your US citizenship, including renunciation, as listed in the relevant legislation. I’m assuming that in most of the cases covered under this proposal, the only legal way (under current law) of relinquishing would be through renunciation. But then, the fee (whether $450 or $2350) for renunciation but not for the other six ways of “relinquishing” your citizenship, is an administrative not legislative fee, and one might hope in these cases that the State Department wouldn’t apply that fee in such cases. So arguably it might go either way, re the fee, in these cases, if the proposal gets approved. If I were someone for whom this proposal would apply, I’d hope the fee would be waived but would be prepared to shell it out if I had to, it’s still money well-spent IMO considering the alternative of remaining a USC and filing tax returns from outside the country for the rest of your life. The same way perhaps that paying off a mafia hood for “protection” is better than having your kneecaps broken.
@Schubert1975
US citizens are allowed to relinquish at a foreign consulate between the ages of 18 and 18 1/2 at no cost to them. Perhaps this proposal is just an extension of that?
@WhatAmI Yes I am familiar already with the relinquish versus renounce issues. What I am wondering is whether the proposal is suggesting renunciation or not since it does not specify renunciation in the wording.
@Tdott
I would expect this to be on the RO and DA facebook pages because this proposal is of great concern to many CURRENT Americans abroad. The fact that this proposal could help someone terminate their unwanted American citizenship doesn’t change the fact that they are currently Americans living abroad, thus making this an important issue for both groups to acknowledge. I believe their mandate is to advocate for current Americans abroad, not just the ones that hope to remain American in the future. If someone takes the info they provide and then relinquishes at a later date it is irrelevant.
If there were a change in the renunciation fee (like it disappearing), presume they would highlight that fact. All those fees gone might mess with their $$ figures claimed.
@Phil
Perhaps in an ideal world, it would work as you hoped. However, given the world we live in, ask yourself this: What would DA and RA (and RO) gain from helping Americans to give up their US citizenship? How does it further the goals of the Democratic and Republican parties for these organizations to help USCs become non-USCs?
@janeb
You raise a very interesting point.
Persons born outside the US with one or both parents being US citizens at the time, technically are US persons under US tax law. As a practical matter, however, there is almost no chance of those persons being identified under FATCA, at the US border, or any other way really, unless they say something very ill-advised to a banker or a US border officer. Particularly if they are now adults and not travelling with parents. Their birth certificate and passports identify them as not having been born in the US. Unless they still live in a small town where they were born and grew up, it is highly unlikely any banker or financial adviser would have US indicia on them (unless they have major financial dealings across the US border, perhaps). Even if they were registered at birth with a US consulate, if that was decades ago, and especially if they have common surnames or have changed their names through marriage or other means, it is highly unlikely the State Department or IRS would have the will, the time, and the means to identify them. As you note, they’d have to come forward and paint an otherwise invisible “hello I’m a US person” target on their chests and backs, in order to qualify for this proposal. Their best course in most cases is just to ignore all this morass, not come forward, live their lives, and be very careful about what they say and to whom about their parentage. I suspect that is the course of action that most such persons will likely adopt, and good luck and God Bless is all I have to say to them. It’s what I’d do in their shoes.
The real issue with “accidental Americans” remains with those born in the US. Those born outside the US, by and large, don’t have skin in this game. Though of course contribution to the ADCS fund would be much appreciated and worthwhile.
@Shubert1975
I am an accidental born out of USA and I have a lot of skin in the game. Read my situation in several posts earlier in this thread.
@Bubblebustin
No, this proposal is about tax law, not citizenship law.
@WhiteKat
You said you are familar with relinquish versus renounce issues, but you got 2 clear answers and still asked the question again. The proposal says that in order to have this tax relief, you must relinquish your US citizenship. As you know, renouncing is just one of half a dozen expatriating acts. To give up your USC, you must perform an expatriating act voluntarily with the intent of relinquishing USC. This includes renouncing, but when renouncing the intent is quite obvious. Still when renouncing, the consul looks for signs of unvoluntariness (sic?) such as coersion from a family member.
I’ve mentioned renouncing and the US$2350 fee several times, only because at this point most people who would use this provision are ones who either have no past relinqushment claim (government employment or military service), or have a claim later than 2004, or have had their claim denied. If a person gets a government job today, and uses this provision next year after relinquishing based on the government employment, they would not have to pay the $2350 that a renunciant has to pay. This is what I meant by a $2350 signing bonus for getting a government job now.
RO and DA organizations: I know nothing of these people, but given that they live overseas and are still highly involved in US issues to the extreme of picking a political party, I would expect them to have little or no sympathy for Accidental Americans who don’t even want to be USCs, just like Congress and the man on the street have zero sympathy or interest in our US citizenship and tax woes. The RO and/or DA put forward “same country FATCA exemption” because guess what, it affects them. This proposal does not, since RO/DA people presumably have no intention of giving up USC. So, My guess is with @tdott, and I am not surprised these organizations haven’t picked up on this.
I also agree with @Schubert1975. I was born in the US to 2 Canadian parents. If I were born elsewhere to a US parent, I would do absolutely nothing as long as I was sure that neither the US government nor any of my financial institutions knew I had a US taint.
@Phil, we can only guess but I’m hopeful that this provision would not exclude you because border officials insisted you get a passport to visit the US.
@WhatAmI,
What is up your butt? I’ve been involved with Brock for 2 and half years now. You make it sound like I just showed up last week.
I mean, I’m not an expert like you are, but I did look into the renunciation/relinquishment crap enough to know that as a born dual who has never performed a relinquishing act that I have to relinquish via renouncing.
The point I was trying to get at is that the proposal does not make it clear enough in my mind(and maybe I am just thick as you are implying), whether or not this narrow group of people would in fact be subject to the renunciation fee. If they had worded it such that they specifically used the word RENOUNCE instead of RELINQUISH then we would be CERTAIN that the fee applied, but since they did not, we can not be sure.
Or am I missing something? It does happen once in awhile. 🙂
I agree with what WhatAmI is saying, but we need to get clarification on the terms of the proposal. Moodys will have on their blog in the next day or so a piece regarding this proposal. Let’s see if they will address some of the points we are contemplating.
Until we see in print otherwise / in the meantime, we should *presume* the definition of terms would be unchanged. From http://isaacbrocksociety.ca/2011/12/12/relinquish-dont-renounce-if-you-can/:
§ 1481. Loss of nationality by native-born or naturalized citizen; voluntary action; burden of proof; presumptions
(a) A person who is a national of the United States whether by birth or naturalization, shall lose his nationality by voluntarily performing any of the following acts with the intention of relinquishing United States nationality—
(1) obtaining naturalization in a foreign state upon his own application or upon an application filed by a duly authorized agent, after having attained the age of eighteen years; or
(2) taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state or a political subdivision thereof, after having attained the age of eighteen years; or
(3) entering, or serving in, the armed forces of a foreign state if
(A) such armed forces are engaged in hostilities against the United States, or
(B) such persons serve as a commissioned or non-commissioned officer; or
(4)
(A) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years if he has or acquires the nationality of such foreign state; or
(B) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years for which office, post, or employment an oath, affirmation, or declaration of allegiance is required; or
(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State; or
(6) making in the United States a formal written renunciation of nationality in such form as may be prescribed by, and before such officer as may be designated by, the Attorney General, whenever the United States shall be in a state of war and the Attorney General shall approve such renunciation as not contrary to the interests of national defense; or
(7) committing any act of treason against, or attempting by force to overthrow, or bearing arms against, the United States, violating or conspiring to violate any of the provisions of section 2383 of title 18, or willfully performing any act in violation of section 2385 of title 18, or violating section 2384 of title 18 by engaging in a conspiracy to overthrow, put down, or to destroy by force the Government of the United States, or to levy war against them, if and when he is convicted thereof by a court martial or by a court of competent jurisdiction.
Further to my earlier comment (which, I admit, was written in the heat of angry disappointment at the realization of the limitations of this proposal) I would never want anyone to think that I would not be happy for those who would be able to win their freedom as the result of the adoption of this proposal. Certainly it may well be an “olive branch” and it would be unwise for us not to consider that. That being said, I remain steadfast in my belief that this is only a partial fix, confusingly presented, and I am very upset that it was not broader in its scope. It means that our work continues and is far from over. We need a whole olive tree!
I think what people – who are assuming there is a fee just because normally the ‘born duals’ would have to renounce – are not considering, is that this proposal is not the normal situation. It is a ‘gift’ of sorts. Who gives a gift and then attaches a price tag to it? Yeah, we know they are all nuts over there and it should not surprise us if there was a renunciation fee attached(and this needs to be clarified), but I tend to think that they really are giving a FREE pass to this select group of people with this proposal. Lets not blow it and let them think we assume we have to pay for it.
@Calgary, re: “I agree with what WhatAmI is saying, but we need to get clarification on the terms of the proposal”
If you agree with him, then you don’t need clarification. If you agree with me, you need clarification.
This is a proposal and, as pointed out by some, the odds for it being passed are slim.
Positively, to me, that such a proposal is made (no matter how deeply buried)…
is an indication that a vast amount of work by everyone here has to have been heard. Someone was / is listening.
Inch by inch in learning more about this proposal and lots more work to be done because it doesn’t cover ALL US-defined US Citizens / Persons Abroad (i.e., among others, those with some mental incapacity unable to renounce, like my son — his accounts identified in my FBARs to the US).
In the meantime, inch by inch with continuing donations to http://www.adcs-adsc.ca/.
@MuzzledNoMore,
You showed up right at the perfect time! Please don’t feel bad. I was envious of the ‘relinquishers’ who had more US ties than I ever did, yet I was stuck with renouncing and backfiling and amnesty programs while they got off comparatively easy. So I think I get where you are coming from although I do not know your personal story.
This still means that they would have to “renounce” their citizenship through the requisite renunciation process though they wouldn’t have to file. And thus one of my sons as well as many other people’s sons who are disabled are still stuck under the “cannot renounce unless you are aware of why you are renouncing” citizenship-hook.
Virginia La Torre Jeker has a good discussion of the issues with Point 4 in her latest column on AngloInfo
http://blogs.angloinfo.com/us-tax/2015/02/05/relief-for-accidental-americans-obama-administrations-2016-revenue-proposal/
I’ll add four more things to that:
a. Some kids’ parents got (or were forced by a consulate to get) U.S. passports for them to take them back & forth to the foreign country of origin when they were babies, but never used them as adults after the parents moved out of the U.S. I can’t see the legal basis for Washington to say that those people should be disqualified for “using” their passports to enter the U.S. as minors, especially when the State Department doesn’t let minors under 16 relinquish in the first place.
b. A person who acquired U.S. citizenship automatically as a minor due to a parent’s naturalisation had the same lack of choice in the matter as a person born in the U.S. It’s possible that a minor’s sole connection to the U.S. was being brought to the U.S. on a green card after the parent naturalised, obtaining derivative citizenship under the Child Citizenship Act, and then moving back to the home country. Nevertheless the Obama budget proposal doesn’t cover them. Obviously in that scenario the parent is trying to game the system, but why is it permissible to punish the minor child for this? Unfortunately this is just an extension of the same discrimination between native & naturalised citizens which is built into the exit tax itself, so I doubt it will be changed.
c. People with one American parent probably have grandparents in the U.S. and thus visited the U.S. If they’re disqualified, it’s yet another example of the U.S. holding people’s relatives hostage to extort compliance.
d. Disqualifying people who used the passport to enter the U.S. means you’re rewarding those who broke the law (whether knowingly or unknowingly) by using a non-U.S. passport. Of course that law is unjust in the first place, but it’s perverse to punish people who did their best to observe an unjust law, especially because of misinformation provided by consulates & border guards (as mentioned on AngloInfo) — instead those who broke the law and those who didn’t should be treated the same.
@ERIC
Great points. My situation fits your point D exactly! In no way do I blame people for “staying in the shadows” after possibly finding out their technically American.However, technically speaking these people were either aware or unaware of their obligation to use an American passport to enter the United States and did not. Under this proposal, these people will be rewarded and people like me who did what we were told will be excluded. Once again, I don’t blame those that may have known or not known their American citizenship, just pointing out the absolute absurdity and unfairness of condition number four of this proposal. Follow the rules and get screwed, don’t follow the rules (for whatever reason) and get rewarded. Hopefully this gets fixed.
This whole passport thing is BS. The only reason why my husband went and got a US passport was because lacking a US birthplace, it was the only proof the US could provide that he was a US citizen – he got a US passport as proof of US citizenship, otherwise he would not be able to renounce!