[“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…”
As many have noted, the proposal is “faux RBT” constructed by carving out an RBT-exception to CBT through overly complicated rules.
However, the Departure Certificate concept has merit. Moreover, a simple adjustment could enable the Departure Certificate to clear out the complications of “Accidental Americans”. Specifically, if you have not been a bona-fide resident of the US anytime after attaining the age of 18.5 years, you should be entitled to a Departure Certificate without cost and without exception. This may even be politically feasible because the IRS processing and enforcement costs for taxing children are clearly not worth the revenue, and even US Congress may recognize that!
As for FATCA . . . it is unsalvageable
JC – your link doesn’t work for me.
I agree with you, Ed, and it could be so if the US had a common-sense mindset and the US tax compliance lobby (those who will benefit when one *follows the money* as Jane points out)…
Similarly, I continue to contend that…
I reject what I was told many years ago, which reflects the rigid mindset of the US in its CBT exceptionality…
In short, if there is the exceptionality of US CBT, CONSENT of any *accidentally US-deemed American* to US citizenship should be the logical and moral requirement. Anything else smacks of entrapment and money grab by the country that calls itself *Land of the Free and the Brave*.
(In fact, in my mind, ACA support of this is analogous to: https://www.rainn.org/articles/legal-role-consent. I’ve had my unproductive discussions with ACA on this and how it affects my son and others like him years ago. I see no change.)
none of these proposals make any sense. For the vast majority, there are only 2 choices that do. Stay permanently under the radar ( relatively easy in Canada- not so much in some other countries) or renounce. Renunciation without compliance is a reasonable option.
ACA has Stockholm Syndrome:
https://en.wikipedia.org/wiki/Stockholm_syndrome
Sorry, this is not an improvement on the present situation at all. The foremost issue is that people with no links whatsoever with the US are trapped into perpetual slavery, or, at the least, asked to pay a completely unreasonable price for their freedom. Can it be explained to the US that this is against the most basic human rights in all other countries in the world? Even Eritrea doesn’t go that far. Anybody who has left the US for more than a year should be able to lose their US nationality without any cost other than taxes owed while living there. Going into past compliance for someone who has never lived in the US is an absolute nightmare (been there) which I wouldn’t impose on my worst enemy and which opens you up to all sorts of penalties which the IRS is quite happy to apply regardless of their immorality. This option is not acceptable at all for accidentals. Will you ever realise what you are doing to us and what it means for other countries’ good will towards America? When some of us start pursuing the slavery aspect, how do you think that will go in our “social justice warriors” society? The only reason it hasn’t yet happen is because all the victims are hiding in the attics but this won’t be for ever as we are left with no escape. If this government fails to address this problem, America will forever be remembered as the last feudal country on earth. Congratulations!
Departure certificate? I don’t need no stinking departure certificate. The fact that I left the US almost half a century ago speaks for itself, when I left with nothing but a beater car and a suitcase full of ratty clothes. Tax that, you idiots.
After not filing anything for all those years now suddenly I’m supposed re-enter their system to ask the IRS for permission to not do what I have already not been doing for all those years? This proposal is about as dumb as it gets; it makes absolutely no sense whatsoever. Even if it passed, (which it won’t), I sure as hell wouldn’t be signing up.
The ACA needs to change their name to something that reflects their core thinking…..”Homelanders Abroad”. They don’t get it and never will.
This proposal is saying white is black, and like many have noted is too complicated and adds too much complexity to what should be a simple situation, You are either a resident of the USA or you are not a resident. Citizenship should not come into the equation. For accidentals, one should not need to go deeper into the system to get out. As long as citizenship remains part of the equation, it will never be true RBT or a solution for accidentals.
Also as long as citizenship remains in the equation, the only real solution that will work is that those suffering from imposed US citizenship should be allowed to renounce on a no fee, no taxation basis. This solves the problem of the USG, homelanders believing that those deemed US citizens possessing the right to enter, live, work in the USA freely are gaining any benefits or privileges from US citizenship without paying for this privilege.
It would also help if the government of their own countries (accidentals) entered into this debate with the USG to force them to find a solution for their citizens being harmed by these laws.
maz57:
Their name does reflect their core thinking, I would say.
Their proposal isn’t aimed at those who don’t consider themselves American, don’t live abroad, and aren’t members or potential members of ACA.
I am sure that’s what happened during the war: the nazis would have been quite happy to stop stealing from and killing the Jews but they couldn’t find a way to do it that was “revenue neutral”!
I don’t belong to a country just because I was born there.
I only accept to pay taxes to the country I live in in exchange for services provided.
Going after expats is illegal extorsion.
That’s why Eritrea was condemned by the united nations for practising citizenship taxation.
Thus, through jurisprudence, that also condemes USA for practising CBT.
Stephen: I know this isn’t as specific as you were hoping for but here are my “general” thoughts. I haven’t yet read Karen’s paper due to time constraints but I will do so later on. I’m sure she provided a very thoughtful critique.
***
ACA’s RBT proposal (2017) launches itself from a premise shared by many of the other proposals designed to convince the US government that it must shift from citizenship-based taxation (CBT) to the international norm of taxation based on residence (RBT). That premise is the attempt to show that the shift will not cost the government anything. This has the issue completely backwards! It is the PEOPLE who are experiencing the severe, negative impact of the CURRENT law, and it is for this reason that the law must be changed.
In the American system, people are supposed to be more important than government, not the other way around. The US government, regardless of whether a proposal is “revenue positive”, “revenue negative” or “revenue neutral” must do the right thing for its PEOPLE. The kind of invasive reporting demanded by the current system of CBT must be abandoned in favour of the just, equitable (and relatively simple!) system practiced successfully, in most cases for many decades, by all other nations of the world (save Eritrea.) If you live in a country, or if your money is operative (i.e. invested) in a country, you pay your fair share of taxes to that country. That is the essence of residence-based/territorial taxation. PERIOD. The United States government needs to abandon its current CBT practice not because it is economically expedient to do so but because it is the just and right thing to do. Doing the just and right thing always pays dividends!
In my opinion, there is too much wrong with the ACA proposal as it stands to bother picking it apart. It needs to be gutted and rewritten with the above-stated principles as its foundation. In its current form it involves more red tape than what’s in place now! No member of a free society should have to check in with his “mother country” every year to certify that he is still living abroad and worthy of special dispensation from compliance to its tax system. It is the SYSTEM that must be completely revolutionized to underscore that person’s freedom. The SYSTEM itself must be expressive of the principle that it is society’s active participants – its residents – who are responsible for its upkeep.
The ACA proposal makes a poor attempt to exempt a subset of “taxable” people from the CURRENT SYSTEM; instead it is the SYSTEM itself that must be changed for the benefit of EVERYONE. If EVERYONE benefits then so will the government. But the government’s concerns MUST be secondary to that of the PEOPLE if the United States is to truly act as the free and equitable society it purports to be.
@plaxy. Yeah, I know. I simply couldn’t resist a little morning rant. Its just so typical that their so called “solution” to so much complexity and so many forms would be to suggest even more complexity and even more forms.
The real solution, of course, would be to switch to RBT like the rest of the civilized world but that won’t happen, either. They are stuck on stupid which is pretty much why I left in the first place all those years ago. Sigh.
The only thing that will work is a complete tax amnesty, but the “compliant” folks making this proposal at ACA won’t stand for that.
Among other things others have brought up, basing the departure fee on the renunciation fee makes no sense as the renunciation fee was supposedly based on the actual costs for the State Department to process a renunciation. ACA must be looking at the fee for renouncing as revenue that the government would lose should people stop renouncing. A cost analysis for acquiring a departure certificate (if any) is what’s required here, not an appeasement.
To ACA’s credit they did say the proposal is merely a thought exercise. I just hope that it will be lawmakers bickering over which route to take soon – of course with input from those affected. That would be real progress!
There are such awesome comments here that, as an “illogical anomaly” and a “non-meaningful” (unlike plaxy I don’t mind these labels in the least because they define my situation quite accurately), all I really need to add or actually echo is that this ACA faux RBT proposal is absurd and unacceptable. I say meh!
@UK Rose
“You are either a resident of the USA or you are not a resident.”
Unethical American bureaucrats can never understand this.
Embee:
“a “non-meaningful” (unlike plaxy I don’t mind these labels in the least because they define my situation quite accurately),”
I feel entirely meaningful.
Having no “meaningful” relationship with America is normality. Most of humanity has no “meaningful” relationship with America. It’s not a problem. The FATCA witchhunt is the problem. It doesn’t take a thought experiment from an American tax lawyer to figure out what would fix it.
As an ‘accidental American’ who has lived in Canada since the age of 3, I am unable to appreciate any solution that falls short of recognizing that I am not an American citizen. I don’t accept any approach on this issue that requires people like me to follow US-process for exempting ourselves from their tax system. I am disappointed that my own government does not stand up for us and tell this foreign government that Canadian citizens are not required to comply with US tax laws. I’m crossing fingers for the lawsuit against the Govt of Canada.
@calgary411 – Although a court challenge re: the renunciation of someone without the requisite mental capacity would likely fail, I could see a challenge of the imposition of CBT on such people being successful. Cook v. Tait deals with someone choosing to retain their US citizenship while living abroad (and thus if they really wanted to get out of their tax obligations could renounce) – which is different to someone who is “trapped” with their US citizenship. (A similar argument IMO could bring down the $2,350 fee in how it effectively prevents some people from renouncing.)
Good, helpful, diverse comments.
I have no special insight on this, but at the moment my still evolving thoughts lean to:
— A statement of principle in the proposal that, irrespective of the final RBT/TT tax reform legislation, non-resident people deemed to be U.S. persons but having no meaningful relationship with U.S. must not be subjected in any manner to the U.S. tax regime other than filing when necessary as a normal non-resident.
— Those who have non-meaningful and meaningful relationships with the U.S. should be treated the same way by the simple tax reform legislation.
— A statement of principle that citizenship is not to be a factor in any tax reform legislation.
— Kill completely the idea of any departure certificate as being costly, impractical, unacceptable to many/most affected, and unnecessary.
— Amnesty: If you had U.S. source income etc. and did not report it, that’s your problem; complete amnesty (or at least instructions to IRS not to pursue) for past local country income, investments, etc.
ACA: Tax Reform Should Tackle The Worldwide Tax System
GUEST POST WRITTEN BY
Marylouise Serrato
https://www.forbes.com/sites/kellyphillipserb/2017/10/06/aca-tax-reform-should-tackle-the-worldwide-tax-system/#4a59fa946601
Comments open.
I wrote earlier that I was willing to see “non-meaningfuls” get a better deal than people like me. On reflection, this would almost certainly result in an oppressive system of application and certification for this status. For example, one would have to document one’s entire citizenship and immigration history to the satisfaction of the IRS (or whichever part of the US government would supervise this). So it sounds like a trap even for accidentals.
@Juliet
“I don’t accept any approach on this issue that requires people like me to follow US-process for exempting ourselves from their tax system.”
You are absolutely correct. Many people here are proposing roundabout solutions so as to square a circle. No wonder my head spins in circles when I read some of these posts…
Unable to login to post a comment on the Forbes article.