The Senate Finance Committee recently issued its Bipartisan Tax Working Group Report (July 8, 2015). The report offers very little in the way of specific recommendations on tax reform, either domestic or international. Essentially the report puts into review the current tax code and highlights areas for focus and attention and also highlights areas where potential reforms could be made.
In keeping with this presentation strategy, tax treatment of Americans overseas is called out in the international report, specifically on pages 44 and 48, with a review of the current tax law and, on page 80 with an appeal for the tax writing committees to take into consideration the recommendations provided to the committees.
ACA is pleased to see the topic of Americans overseas noted in this report, as there was a time when the specific tax issues of overseas Americans were not discussed or seriously considered by the Congress.
It is thanks to the work of ACA and other overseas organizations that the tax-writing committees now address and speak directly to the problems of overseas filers. Overseas Americans should see this report as a positive step forward and a testament to how advocacy work in Washington, DC by ACA has raised the issue of tax reform for overseas Americans to the visibility it has today.
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."
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."