[“American Citizens Abroad (ACA)with 40 years of advocacy on this issue, has led the charge for RBT, proposing a roadmap or outline to Congress showing them how they can get from where the US tax regime is today to where it should be with RBT”.] — From a Forbes article
My reading of the ACA proposal is that it is a “Roadmap to IRS compliance”.
— This post is another opportunity to tell American Citizens Abroad (ACA) what should go into their residence-based taxation proposal. Should you be interested, I am asking for your comments in the form of text that could be included in the ACA proposal.
The discussion with ACA is, in part, whether, to obtain a “departure certificate” (get out of jail card) it makes any sense for a person living permanently outside the U.S., who has:
—no meaningful relationship with the U.S. other than by birth or parentage,
—another citizenship from his/her local country,
—and who does not want to be a U.S. person;should suffer ANY IRS compliance cost and uncertainty (see the correspondence below).
— First, I suggest that you read the ACA RBT proposal.
— Then read my question followed by a response from Mr. Charles Bruce, on behalf of ACA.
Questions include whether non-meaningful/”accidentals” should be mentioned, or not, in the ACA document as a distinct group. Should persons with no meaningful relationship to U.S. be treated differently than consenting, “real” Americans? Is it reasonable or not that anyone should require a departure certificate? The ACA Roadmap requires all affected to enter into some IRS compliance (and potential harm): Can this be morally justified?
I asked ACA the following question:
“Could you please answer this question on your most recent (Sept 27) RBT proposal? You appear to say that in order to waive the Departure Tax or have a Departure Certificate issued, one must first become IRS compliant. Is this correct? You will agree though that there are likely millions of “Americans” living abroad who have zero meaningful relationship with the United States (e.g., left at age three days, never to return).
Can you please confirm that you wish to impose IRS compliance prior to a Departure Certificate or Departure tax waiver on these people? If the answer is “yes”, do you feel that this is reasonable?”
Mr. Charles Bruce, on behalf of ACA, responded to me today and gave me the ok to post his response:
“First let me simply say that the ACA description and side-by-side comparison, as recently revised, are not intended as a proposal, per se, but rather as a listing of issues that we think Congress will want to address. There are a dozen or so issues that, I believe, Members will need to “zero in on”. My guess is that they will want to do this after seeing detailed revenue estimates.
That having been said, I think this is focusing on Americans who are long-term residents abroad and who, for any number of reasons, have very little connection with the US. For example, they might be an accidental American due to birth in the US but having non-US parents. Or they may have been born in the US and stayed there for several years but later moved abroad and have remained abroad for many years, never traveling back to the US.
Upon enactment of RBT, they would immediately be able to claim treatment under its provisions. They would need to do something to identify themselves and, in effect, claim RBT treatment. They would need to obtain a Departure Certificate and, in doing so, state that they fulfill the requirements. They would typically be “grandfathered” (exempt) as regards the Departure Tax. In subsequent years, they would file an annual certification stating that they continue to meet the requirements.
One of the requirements of obtaining a Departure Certificate is proof that the individual has met his or her federal tax requirements. If the individual is out of compliance, they can “catch up”. Most of them, it appears to me, would qualify for the voluntary disclosure program and would not owe any FBAR penalty, assuming their actions were nonwillful. If they fail to pay taxes, typically these would be due; penalties are commonly waived; interest on taxes owed, as you know, are a statutory requirement and cannot be waived. (One might debate the merits and demerits of the voluntary disclosure program, but I think we should not digress at this point.)
Whether or not individuals, in effect, elect RBT, they are subject to US tax until such time as they put themselves within the RBT regime. RBT ends US taxation for future years. It does not go backwards and make the problem of US taxation go away retroactively. In other words, it does not present an “end run” around the existing voluntary disclosure program.
Should individuals wanting to take advantage of RBT have to be tax compliant or, if they’re not, fix this? Members of Congress will need to decide.
It might be noted that in order to renounce US citizenship, one has to “catch up” if out of compliance. The question is should this be different if instead of renouncing the individual wishes to remain a US citizen? Lastly, a rule permitting US citizens to switch to residency-based taxation and not “catch up” on their past tax payments, would lose – permanently lose – tax revenues for the Treasury, and this might make it less likely that RBT will be enacted, unless the revenue loss can be made up some other way.
I appreciate the question/comment. This issue, together with others, will need to be debated, I suspect…
Kind regards.
Charles
Charles M. Bruce…”
I think it’s ridiculous for an “accidental American” to have to become tax compliant in order to obtain an Departure Certificate. Let me quote from Obama’s Fiscal Year 2016 Green Book budget proposal, which was too narrow in scope but was a good start:
As a non-accidental living abroad, I would say yes, accidentals / non-meaningfuls should be treated separately from (and better than) me. I believe there is already a working definition of “accidental”, by the way.
I agree that it’s ridiculous for an “accidental American” to have to become tax compliant in order to obtain an Departure Certificate.
Why should I, having been born to Canadian parents attending university in the States and having lived in Canada since I was two and never in the US since, have to pay anything to the US government?
Why should my Canadian born husband be subjected to scrutiny of his bank account & have to pay capital tax on the house that we put in my name but that he saved his hard earned money prior to our marriage to pay the down payment for and has paid all the mortgage payments on for the past 15 years while I stayed home with our children?
Why should any self-employment income that I earn for my Canadian business to help support our family, reduce the burden of my self-employed husband and contribute to our retirement years be subject to US tax?
It’s criminal that I have to feel like a criminal for trying to live a normal civilian life in the country I have lived in since I was a toddler, paid taxes in and receive services from because I refuse to report my non-existent income & taxes to a country I have no affiliation with, receive no services from & will never live in again.
Charles Bruce response: is all about compliance, nothing to do with injustice, or justified taxation.
RT
https://twitter.com/JCDoubleTaxed/status/916533322435588096
JC – totally agree.
I’m going to write to them and tell them that they are dumb.
ACA caves in to support jomelander issues from the get go. Instead of just recognizing homelander points, it advocates for them. ot eants the irs to control a swedish American’s accounts in Norway. it wants a departure certificate. it wants for expats to be taxed in their 1st 3 years. it also advocates for the most ridiculous form heavy solutions. nobody in congress is going to adopt their proposal and run with it. why not just go lobby for what expats want?
ACA caves in to support homelanders issues from the get go. Instead of just recognizing homelander points, it advocates for them. it wants the irs to control a swedish American’s accounts in Norway. it wants a departure certificate. it wants for expats to be taxed in their 1st 3 years. it also advocates for the most ridiculous form-heavy solutions. Nobody in congress is going to adopt their proposal and run with it. why not just go lobby for what expats want?
Stephen, Thank you for this post. I had read the ACA offering last week, but had not gotten around to writing up my thoughts. Your post has spurred me to put together my feedback, which can be downloaded here: https://drive.google.com/open?id=0B4M9V1fcUGYsTWwyTENvR2o3Mlk – any questions or corrections would be welcome.
I agree that those with no meaningful relationship with the US should not be forced into IRS compliance. My opinion is that, as most will have zero US tax due anyway, anyone who is already a tax-resident in another country outside the US should just be allowed to walk away. If that is too radical, the Obama budget proposal quoted by WhatAmI should be the fall back position – compliance under the rules applicable to non-resident aliens.
@Karen
Your document is a nice deconstruction of this ACA proposal. As someone who left the US specifically to avoid the execrable section 877A, in particular its effect on my retirement savings, it is astonishing to see elements of it re-emerge as part of a potential ‘solution’ to CBT.
Between RO’s scattergun territorial tax proposal and now this one, it is extremely difficult to say which of the two is the worst. They both cloud the core problem with so much justification, rationalisation, and balancing tax hikes that it is nearly impossible to see the wood for the trees. As you say, it could be so simple. Yet neither of these organisations seems willing to just tackle the basic issue alone and head-on.
First off, it is so complicated that I already can’t understand it.
People are born outside the US everyday – they never ‘left’ – so why should they enter a system just so they can come like supplicants to beg the US to certify their ‘departure’? People have been outside the US for decades. Now they have to come back in to the US system in order to formalize that?
And I don’t know how Bruce can be so assured that it is going to work so easily for “most”;
“….Most of them, it appears to me, would qualify for the voluntary disclosure program and would not owe any FBAR penalty, assuming their actions were nonwillful. If they fail to pay taxes, typically these would be due; penalties are commonly waived; interest on taxes owed, as you know, are a statutory requirement and cannot be waived. (One might debate the merits and demerits of the voluntary disclosure program, but I think we should not digress at this point.)…”.
We know how many gaping tax treaty gaps exist, and how ordinary local legal life decisions can create an inadvertant US tax bill or potentially a penalty.
We’ve been warned that the voluntary disclosure programs might not be around forever, and the terms can change whenever they feel so inclined. They can invent more forms, more penalties, more pitfalls, more hoops, and continue to make opaque what exactly is sufficient proof of ‘non-willfulness’, while issuing statements from time to time to the effect that if people haven’t come forward by now, they must be willfull….
And the US Treasury and DOJ and Congress devils would be lurking – intent to make it more complex and punitive in the details. As we already see in the US kneejerk default punitive and confiscatory treatment of anything ‘foreign’ and the continued description of our local legal accounts and assets as ‘offshore’ and ‘hidden’. The first position is to treat those ‘abroad’ like willful criminals and tax evaders and make us prove we are not – and each new form required will no doubt come with a penalty regime of its own.
Who would trust Congress and the US Treasury not to make it so complex in practice that it would be difficult to qualify for? Those abroad have no power or representation and very little influence. Congress and their friends will be at pains to show US homelanders that they’re not letting any resident millionaires escape – no matter how many ordinary folk outside the US they have to abuse and mistreat to do so.
Their obsession with characterizing those living outside the US as moneylaunderingtaxevadingterrorfundinghumantraffickingdruglordescapeemillionaires or as ungrateful traitors deserving of punishment, and valuable as penalty revenue cows underpins everything they do and have done in relation to those ‘abroad’. Their track record speaks for itself. Look at those comments by Rep. Eleanor Holmes Norton at a recent hearing – hyperbole that now credits and conflates FATCA as a tool for preventing even human trafficking ; “…Let me remind you what it takes in this Congress and what it took in the Congress that passed this to get legislation through, to recoup taxes, or to tax anyone.
The evidence was overwhelming of human trafficking, of — of — of drugs smuggling, of — of tax cheats. So overwhelming that in a Congress which is not known as passing a lot of bills……..
So I have to ask you, when you say you would like repeal, do you really mean you want no law on the books that went after the bad guys so that we could make sure that the good guys weren’t, in fact, caught?….”… transcript April 26, 2017 House Committee on Oversight & Government Reform
http://citizenshiptaxation.ca/9395-2/
This proposal if implemented (again, devil in details) would also be subject to future uncontrollable tweaking, and since those ‘abroad’ have no representation, it is a good bet that it would start narrow and get narrower and more and more restrictive, and that 2350. fee will not be static.
BTW, what is the reason for the IRS fee of 2350. US? What is the rationale for that – an enticement to grease the wheels? Shouldn’t IRS services be a part of those fictional *’benefits’ that the US government bestows on us with our birthright and our unshakeable unwanted UStaxableperson status (ala Cook vs. Tait)? Is it like a Private Letter ruling (ex. https://www.irs.gov/pub/irs-news/other_irs_user_fees.pdf)? Or because it is meant to be a revenue generator (as the current renunciation/relinquishment fee certainly is for the State Dept.)? Or in lieu of taxes the IRS didn’t get? A ransom? A tax on those non-residents who don’t end up owing anything to the US and thus would pay no US tax?
What are the risks of coming forward and entering this system only to try and depart it? We all know how gaping the tax treaty gaps are, so it would require a close look at whether you’ve sold a principle residence or invested in your local government’s tax free savings plans or mutual funds or started a business, or missed an information form, or done any of the other myriad ordinary locally benign things that the US can either tax or penalize you on. And the onus is on you, you’ll have to prove you’re nonwillful – something the IRS wants to make it difficult to do.
And what of minors or those deemed legally incompetent. Can their parents or legal guardians do this for them if it would help them? I bet not.
* Cook v. Tait 265 U.S. 47 (1924)
“……The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in “mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relation to it.” And that power, in its scope and extent, it was decided, is based on the presumption that government, by its very nature, benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it
“belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.”……..”…….
https://supreme.justia.com/cases/federal/us/265/47/case.html
Maybe I’m not adding anything of usefulness with my comments, but I don’t trust the US to be fair or just or reasonable in this since it has not treated those outside the US with fairness or justice or reason so far.
Thank you very much @Karen for that well constructed deconstruction of the proposal and your commentary.
The ACA proposal is NOT a proposal for RBT. On the contrary, this proposal is an “acceptance” of CBT with a “carve out” for those who meet certain requirements.
These requirements include:
1. The willingness to apply for (along with having the financial means) the “departure certificate”; and
2. The requirement to pay the “departure tax” whether one is tax compliant or not. On this note, (if I am reading this correctly) this means that any American who moved from the USA, and in the five years after leaving the USA acquired foreign assets, would have to pay a departure tax that included the recognition of those assets. Again, the USA is attempting to impose a “departure tax” on non-U.S. assets that were acquired after the person left the USA!
The misunderstanding is to imagine that this is a proposal for RBT. It’s a proposal for certain Americans (whatever that means) to “buy their freedom” from CBT slavery in exchange for meeting certain “tax compliance” related issues.
In practical terms, the vast majority of the people who might use this proposal are the people who are already in the U.S. tax system. In this sense, the proposal is NOT directed at the “non meaningfuls” (who are NOT in the U.S. tax system anyway) and will never enter the system (except to renounce).
I certainly agree that “non meaningfuls” should NOT have to go through any compliance hoops to exit the USA. But, they don’t have to exit, because they have never entered. They don’t file taxes. They don’t have a social security number, they don’t even exist (as far as the USA is concerned). They will just continue to do nothing. CBT has little practical effect on them anyway. They were NEVER the object of these unjust U.S. laws. They are being “hunted” NOT by the IRS, but by the compliance industry. They will simply continue to ignore the whole thing.
This ACA proposal is designed to apply to the narrow group of people that the blogs call “Homelanders Abroad”. Why not embrace a proposal, that allows that specific group (which because they are in the U.S. tax system are most abused), to buy their freedom from CBT slavery?
Of course the proposal is ridiculously complex and technical. But, it is a proposal that explains how and under what conditions, those WHO ARE ALREADY IN THE U.S. TAX SYSTEM CAN EXIT THE U.S. TAX SYSTEM AND RETAIN U.S. CITIZENSHIP (IF THEY WANT IT).
“…a rule permitting US citizens to switch to residency-based taxation and not “catch up” on their past tax payments, would lose – permanently lose – tax revenues for the Treasury…”
Your money. They want your money, most of all. Never mind you left at age 1 day, you OWE THEM!
I’m beginning to be not only incredibly disappointed with the US (& those trying to sell this BS), but now becoming disgusted with them all.
I recognize that I am among that minority of experts who would benefit from the ACA proposal: single citizenship, tax compliant for 30+ years. You bet I’d keep at the chance to buy my emancipation.
That doesn’t mean I support the proposal. Not for one moment. It is abhorrent not only in its needless complexity, but in the mindset underpinning it: that the USA owns us, and we have to buy our freedom like slaves.
And of course it isn’t RBT. Not by a stretch.
In any case, it’s a political non starter, and I don’t see how ACA doesn’t see that. It is literally allowing those who can afford the cost to buy their way out of the system: benefiting “the rich”.
As much as I might benefit from this proposal, I don’t think it stands a snowball’s chance in hell.
The ass-backwardness of the whole proposal boggles the mind.
@Watcher says
Well stated.
But, neither of them ever claimed to advocate for RBT:
1. ACA accepts CBT as the core principal of U.S. taxation and is simply arguing for a “carve out”. Furthermore, the “carve out” is designed to work within the confines of the existing Internal Revenue Code.
2. RO also accepts CBT as the core principal of U.S. taxation. A “territorial taxation” proposal focuses on what kind of income is taxed (U.S. source only) and NOT who is required to pay tax to the USA. Under the RO proposal, the filing, reporting and Exit Tax requirements appear to continue.
3. Democrats Abroad claims (recently – where were they all these years ?) to advocate RBT. They have no specific proposal (Better to stay silent and let people think you are ignorant than to say something and remove all doubt) on what RBT means. But, we do know that whatever the proposal is, it could not allow Americans to avoid their tax obligations). And from the DA perspective, all Americans are presumptive tax cheats.
My point is this:
None of RO, ACA or DA actually is advocating for RBT!
Hmmmm …………….
(As shucks, I should never write on a phone. Can some admin please delete my above typo- ridden post?)
I recognize that I am among that minority of expats who would benefit from the ACA proposal: single citizenship, tax compliant for 30+ years. Scared out of my wits. You bet I’d leap at the chance to buy my emancipation.
That doesn’t mean I support the proposal. Not for one moment. It is abhorrent not only in its needless complexity, but in the mindset underpinning it: that the USA owns us, and we have to buy our freedom like slaves.
And of course it isn’t RBT. Not by a stretch.
In any case, it’s a political non starter, and I don’t see how ACA doesn’t see that. It is literally allowing those who can afford the cost to buy their way out of the system: benefiting “the rich”.
Ain’t that absurd? From our point of view, we’re slaves. From the goofyhead Homelanders perspective, we’re drooling dollars.
As much as I might benefit from this proposal, I don’t think it stands a snowball’s chance in hell.
The ass-backwardness of the whole proposal boggles the mind.
@Stephen
Focusing on this part of the response:
I am not convinced (in spite of his use of the words “accidental Americans” that Mr. Bruce is actually talking about what Brockers understand to be “accidental Americans”. I believe that the ONLY focus of ACA has been on those who identify as Americans. This would specifically exclude what Brockers understand to be “accidental Americans”. Again, I interpret Mr. Bruce’s comments to apply to ONLY those who BELIEVE THAT THEY ARE AMERICANS. But, who knows …
The subtext of all of this is that those who are in the U.S. tax system have far fewer options than those who have never entered the system. To date most of the discussion of “unfairness” and injustice has included the possible application of U.S. tax rules to those who do NOT identify with America or do NOT think of themselves as Americans (“accidentals”). What about the life destroying impact of the U.S. tax system on those who actually have been in the U.S. tax system? It’s time to consider the injustice inflicted on them as well!
Tax compliant Americans (some Homelanders abroad) and some (like say Dewees who never became Canadian) have suffered greatly. Their attempts at compliance have provided valuable lessons to the non-compliant. Those who are tax compliant are in a far worse situation than those who have avoided compliance. Although not supporting the ACA proposal, per se, it seems to me that:
The ACA proposal allows a group of people who have been significantly damaged by their “law abiding instincts” to buy their freedom.
Without change:
1. I doubt that Americans abroad who have been complying will continue to comply. They will just stop filing – “to agree that they are slaves or to not agree that they are slaves – that is the question, Whether tis better …”
2. No new people (not living in the USA) will enter the U.S. tax system.
In practical terms, CBT will become obsolete.
@Jane
Of course. This speaks volumes about what they view U.S. citizenship to be. U.S. citizenship is NOT membership in a community. U.S. citizenship is “ownership” by the U.S. Government. If the U.S. owns it citizens, the it owns their property and their income. This is NOT a matter of taxation. It’s a matter of the relationship between the “citizen and the state”.
The good thing about this whole tax reform discussion is that (assuming no change) it will provide the final confirmation that U.S. citizenship is actually a form of ownership.
I can just imagine Justice McKenna writing the 1924 decision in Cook v. Tait:
https://supreme.justia.com/cases/federal/us/265/47/case.html
In spite of his stroke and impairments, Justice McKenna certainly understood what U.S. citizenship is!
@Jane –
I agree with what @USCA has said above – but wanted to add that for the vast majority of expats there’s no US TAX to catch up on – just compliance. In fact, if you ignore the xenophobic parts of the tax code (PFICs, foreign retirement savings, etc) and the penalties for form crime, very few expats would owe any US tax at all. Forcing expats to “catch up” benefits ONLY the compliance industry.
USCA,
I took the word “this” in Mr.Bruce’s response to mean not the ACA proposal itself but the very narrow issue on “accidental” “Americans” that we were discussing and which was, in my opinion, not acknowledged in the proposal or appropriately dealt with. I also believe that he understands exactly the meaning of the phrase.
— Some of you feel that non-meaningfuls should be treated differently than real Americans. For those of you who feel this way (USCA?) then please provide specifics as to the different requirements/conditions you feel should be imposed on the two groups.
The fact is, in most cases the US Government doesn’t have power to impose taxation extraterritorially.
There is no exit tax with the RO proposal. Accidental Americans are better treated in the RO proposal. The RO is not and will not promote compliance. The TTFI is the ONLY proposal being considered in tax reform. The ACA proposal is DEAD IN THE WATER. If one things they will get a PERFECT RBT change, then one will be disappointed. These are the facts.
“Some of you feel that non-meaningfuls should be treated differently than real Americans.”
Some of us feel that being referred to as a “non-meaningful” is even more annoying than being referred to as an “accidental.” Who would want such an identity?
People aren’t any kind of American, real, accidental, or non-meaningful, if they don’t identify as American. Being treated like an American doesn’t turn a person into one.