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Reform of US Taxation of US Nationals Living Abroad

Reform of US Taxation of US Nationals Living Abroad. George Simon III ITRN 603. Problem Statement.

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Reform of US Taxation of US Nationals Living Abroad

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  1. Reform of US Taxation of US Nationals Living Abroad George Simon III ITRN 603

  2. Problem Statement • US taxation of its citizens’ income no matter where it is acquired and US requirements of foreign jurisdictions to report US citizen financial holdings results in an onerous burden on US citizens and foreign entities that ultimately reduces US global competitiveness.

  3. Summary • Only two countries in the world, the United States (US) and Eritrea, tax the income of their citizens no matter where it is earned. Additionally, the US requires foreign financial institutions and foreign entities to report any accounts or any substantial ownership interest held by US citizens or entities. Applying extraterritoriality to personal income results in double taxation, significantly increased reporting requirements and costs for citizens living abroad, and constant doubts about accuracy given the extremely complicated reporting requirements. The Foreign Account Tax Compliance Act (FATCA) further complicates citizen reporting and creates a significant hurdle to living abroad where foreign entities or employers decline to work with or hire US citizens. The US should accede to the norm and only tax US residents on income acquired in the US; it should seek bi- and multi-lateral agreements regarding sharing financial information to create a global network that effectively reduces the possibility of tax evasion for all jurisdictions.

  4. Issues • Double taxation • Higher tax rates • Additional filing requirements • Expatriation tax and reporting requirements • Tax treaties creating different tax rules for reporting foreign income • Poor information flow outside the US • FATCA additional reporting requirements • FATCA bilateral implementing executive agreements that allow relief from certain provisions (legislative v. executive branch conflict) • FATCA conflict with pre-existing tax rules • FATCA excessive penalties • Personal tax reform is a lower priority than corporate tax reform

  5. Links to Information • IRS website for international taxpayers: http://www.irs.gov/Individuals/International-Taxpayers • IRS Publication 54, Tax guide for US citizens and resident aliens abroad: http://www.irs.gov/pub/irs-pdf/p54.pdf • American Citizens Abroad, the “premier advocacy group” for US citizens living abroad: http://americansabroad.org/ • US Department of Treasury archive of bilateral agreements for implementing FATCA: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx • Comparison of IRS and FATCA reporting requirements for US citizens regarding foreign assets: http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

  6. Proposals • Eliminate US citizen-based taxation and adopt the norm of territory-based taxation • Implement bi- and multi-lateral agreements for financial information exchange instead of using “imperial overreach” in FATCA • Delay or repeal FATCA • Significantly raise the threshold for reporting foreign assets (USD 1 million instead of USD 10,000) • Simplify the US tax code

  7. Reform of US Taxation of US Nationals Living Abroad George Simon III ITRN 603

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