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Thursday, July 9, 2015

The International Tax Bipartisan Tax Working Group Report

Americans divided by a common language.

When Americans abroad talk international tax reform, they mean an end to citizenship-based taxation, foreign (local to us) bank account reporting, and the hated foreign account tax compliance act (FATCA) so that US citizens can be just as mobile, global and competitive as the citizens of other developed countries.

When Americans in the homeland talk international tax reform, they mean changing the US tax code so that US multinational corporations can be just as mobile, global and competitive as the corporations of other developed countries.

People versus big business.

Of the 347 submissions concerning international taxation sent in response to the US Senate Finance Committee's call for public input on tax reform, nearly 75% came from Americans abroad.

They asked, we answered.  Ain't democracy grand?

Today Calgary over at the Isaac Brock Society posted the link to the International Tax Reform Working Group: Final Report.

The good news is that Americans abroad got a mention, a nod, even whole paragraphs.

US citizens living abroad: the foreign earned income exclusion (page 44)
"A U.S. citizen who earns income in a foreign country also may be taxed on that income
by the foreign country. As a practical matter, the United States generally cedes the primary right
to tax a U.S. citizen’s foreign source income to the foreign country in which the income is
derived. This concession is effected by the allowance of a credit against the U.S. income tax
imposed on foreign-source income for foreign taxes paid on that income. As described
previously, the amount of the credit for foreign income tax paid on foreign-source income
generally is limited to the amount of U.S. tax otherwise owed on that income. Accordingly, if
the amount of foreign tax paid on foreign-source income is less than the amount of U.S. tax
owed on that income, a foreign tax credit generally is allowed in an amount not exceeding the
amount of the foreign tax, and a residual U.S. tax liability remains."

Income Taxation of Individuals (page 48)
"The United States generally imposes income tax on the worldwide income of U.S.
citizens and residents. Thus, all income earned by a U.S. citizen or resident, whether from
sources inside or outside the United States, is taxable whether or not the individual lives within
the United States. All U.S. citizens and residents whose gross income for a taxable year is not
less than the sum of the personal exemption amount and the basic standard deduction are
required to file an annual U.S. individual income tax return. "

Citizenship Renunciations  (page 50)
"U.S. citizens who relinquish their citizenship and U.S. residents who terminate their longterm
residency may be subject to special tax rules intended to limit any tax benefits from
expatriation. Certain persons expatriating before June 17, 2008 are subject to an alternative tax
regime for a period of 10 years if they meet certain income and net-worth thresholds or they fail
to comply with certain U.S. Federal tax obligations."

Very much a "just the facts, ma'am" style of reporting.  Please note that the above paragraphs are about the rules. No mention is made of the merits or demerits of the system as it actually works (it doesn't) for Americans abroad.  But the report does go into more detail about how US corporations are effected with the focus on how "the United States has become less competitive abroad because of its worldwide system of international taxation."

So, in a nutshell, the issues reported by 25% of the submissions to this committee got a hearing, while the other 75% sent in by citizens and organizations like American Citizens Abroad got a recitation of the rules.  That's disheartening.  That's very bad news.

This report reinforces my sense that Americans abroad and Americans in the homeland no longer speak the same language - that both sides have a context that the other doesn't understand and perhaps even a conflict of interests.  US lawmakers' desire for the US to be more competitive abroad through judicious tweaking of the tax code is limited in scope to big business.  The desire of the American people to be competitive and global simply doesn't merit nearly the same attention.  Our problems are not their priority.

And, yet, at the end - at the very very end - of the report  they did throw out a bone.  A nod to the numbers and all those fine people and organizations who took the time to bring the tax issues of Americans abroad to their attention.

Overseas Americans (page 80)
"According to working group submissions, there are currently 7.6 million American citizens
living outside of the United States. Of the 347 submissions made to the international working
group, nearly three-quarters dealt with the international taxation of individuals, mainly focusing
on citizenship-based taxation, the Foreign Account Tax Compliance Act (FATCA), and the
Report of Foreign Bank and Financial Accounts (FBAR).
While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation
of individual Americans living overseas within the time-constraints placed on the working group,
the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns
articulated in the submissions moving forward."

Which is pretty much what we've been told every time we've gone to Washington to talk to these folks:  "We'll think about it" which we might be forgiven for taking seriously back in, say, 2012, but we'd be idiots to accept once again in 2015.

And that means that we (Americans abroad) need to change our language.  According to Republicans Overseas FATCA Legal Action, the anti-FATCA/FBAR lawsuit led by James Bopp, Jr. was filed in US district court on June 29 with 7 plaintiffs one of whom is Senator Rand Paul.  With that in mind there is a phrase that just about every American at home and abroad knows and understands.  Perhaps these words will at long last get their attention:

See you in court.


For those of you who still believe that persistence and people power stand a chance, here are the names of the politicians on the International Tax Reform Working Group who are being asked to "carefully consider"  the tax issues of Americans abroad.  Let them know what you think about their report and ask for concrete action on their part.   It's worth a shot if you still believe that polite words and well-written pleas for mercy might work.

Senator Pat Roberts (R-KS), Senator Sherrod Brown (D-OH), Senator Michael Enzi (R-WY),
Senator Tom Carper (D-DE), Senator John Cornyn (R-TX), and Senator Mark Warner (D-VA);
Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR).


Unknown said...

Ridiculous to simply restate rules we all have read all too often. Who are they talking to?

I am not the least bit surprised. Now, having seen all the submissions and the scope, it is undeniably clear. This situation began in 2009, some 6 years ago. There have been endless letters, emails, visits to Washington, forums, information sessions, media coverage, a large presence in cyberspace etc etc etc. It is abundantly clear: the US government could care less about the American diaspora and as far as they are concerned, it is perfectly acceptable to simply let this continue. The closing of bank accounts, cancellation of mortgages, taxation of tax-deferred vehicles in countries of residence, capital gains tax on the sale of principal residences not taxed in resident country, unwarranted US citizenship bestowed on people with meaningless tie to US of merely being born there with the same tax and reporting requirements as those who lived there for decades, destroyed marriages, people with stress, anger, depression...and on and on it goes.

And if someone really believes there is anything hopeful in those two paragraphs, I think I would have to just shake my head. Somewhere along the line, those who are abused have to recognize the what, when and the WHO. When you have had enough, it is time to ACT.

"See you in court"


There is legal action in Canada in progress to challenge the IGA

Work is in progress for a new suit in the US against CBT for ALL Americans abroad



July 9, 2015 at 6:05 PM

Ellen Lebelle said...

Exactly! Why repeat the rules and not discuss whether they should be changed, or not? It looks like "these are the rules and these will continue to be the rules." So, discouraging!

Anonymous said...

We need to support Rand Paul

Janet said...

Reading this posting really depressed me. So many people submitted such heart-breaking letters to the tax reform committee. I cried reading some of them. Like you, I too think the only hope is through the courts but even there I have my doubts. I remember reading sometime late last year or early this year, that there are people in the federal govenmant who believe the Bill of Rights only aplies to homelanders.

Inaka Nezumi said...

This was a very depressing development indeed. This had seemed like the last, thin thread of hope there might be for a political solution. Poof.

I don't actually hold out much hope for lawsuits either, given how willing the court has been historically to accept (or even invent) crazy rationales for government tax policies. They basically never try to reign in government abuse in this area. (E.g., retroactive taxes, anyone?)

Still, it is better for the soul to fight back somehow, however hopeless the battle, than to simply lie down and take it passively. So I'll scrounge for some pennies to toss out for the lawsuits, as the steamroller bears down. Can't take it with you, right?

dkim said...

Yes we need a candidate who is committed to kick out FATCA.

Check out
Jeb Bush, Donald Trump, Rand Paul

Inaka Nezumi said...


They would never win, and even if they did, they would stab us in the back. They are politicians, after all.