American Expats Lobbying For Residence-Based Taxation

By Hans Esser, for 08 December, 2016

In a recent proposal, American Citizens Abroad (ACA) has set out a detailed description of its proposal for the enactment of residency-based taxation (RBT), rather than the existing citizenship-based taxation (CBT) system, for American expats.

Under the current CBT, Americans abroad remain subject to US taxation as though they were still US residents. Under RBT, only US residents –whether Americans or foreigners – would be subject to US income, estate, and gift taxation, while Americans resident abroad would be taxed under essentially the same rules applicable to nonresident aliens.

ACA therefore proposes that, as part of a general tax reform package, an election should be provided to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions – for example, a minimum three-year period of residence abroad.

ACA believes that the next US Congress will consider amending the US tax code to an RBT approach to taxing individuals, as the United States is the only industrialized country that still taxes using a CBT regime.

It has previously said lawmakers should enact RBT because it would reduce compliance burdens for expatriates, provide more efficient taxation, and improve competitiveness. ACA has pointed out that, according to the National Taxpayer Advocate, about 82 percent of all Americans abroad owed no US taxes, and that CBT causes hardship to Americans abroad in terms of the cost, time, and legal risks involved in complying.

However, ACA has noted that, while a change to RBT has been discussed for a long time, what exactly it might entail in the way of changes to the existing tax code has not been spelled out. It has therefore laid out a side-by-side analysis between the two systems, which then can be examined and modified, and to provide a starting point for developing revenue estimates on the cost of switching from CBT to RBT taxation.

Tags: Individuals | Expatriates | Inheritance Tax | Compliance | Tax | Tax Compliance | Gift Tax | United States | Tax Reform | Individual Income Tax | Expats | Tax |


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