Breaking News: Residence-based taxation legislation introduced by Representative LaHood in the 118th Congress

Today (December 18th) Congressman LaHood introduced into the 118th Congress the "Residence Based Taxation of Americans Abroad Act." This long-awaited legislation is a critical step forward in bringing about something ACA has worked hard to achieve over many years. The bill builds on Congressman Holding’s “Tax Fairness for Americans Abroad Act of 2018,” and we’re pleased to note, includes multiple features of ACA's RBT modeling in our Side-by-Side Analysis dated 2022 and studies. 

It's important to point out that the introduction of this legislation is intended to set the groundwork for tax language that will ultimately be included in a new bill in the next Congress, the 119th Congress, which will be sworn in on January 3, 2025. It is not expected that this bill will be passed before the current Congress recesses. 

Moving to Residency Based Taxation (RBT) will help the over 4 million hardworking Americans overseas and will increase global competitiveness for U.S. companies.

ACA has drafted a side-by-side analysis of Congressman LaHood's "Residence Based Taxation of Americans Abroad Act" which provides an overview of the structure of the bill and addresses many of the details. It describes not only what is in the bill but, importantly, what is not.

Some key aspects of the legislation include:

• US citizens, but not “green card” holders, residing overseas (newly called “nonresident US citizens”), in general, would be removed from the category of individuals subject to US income tax and taxed like nonresident aliens (foreign individuals).
• Individuals need to make a one-time election and continually meet residency and other requirements.
• Electing individuals must certify under penalty of perjury that they have met all tax requirements for the 5 preceding taxable years and submit all required evidence.
• Individuals resident in a so-called “tax haven” country can qualify for elective RBT.
• Foreign banks can treat individuals who elect RBT as not subject to FATCA reporting rules provided they obtain a certificate of non-residency and give a copy to the bank. (This is similar to treatment of individuals who renounce US citizenship and file a Form 8854.
• There is a tax, commonly called a “transition tax”, on deferred income of certain individuals electing to be subject to the new RBT rules. The tax applies to a deemed sale of all property. Individuals with a net worth not exceeding $13.6 million ($27.2 million-married couples) are excluded. Tied to estate tax unified credit. These amounts revert to $5 million or approximately $7 million when adjusted for inflation, if the Tax Cuts and Jobs Act (TCJA) is not extended.  
• There are a number of exceptions, including Individual Retirement Accounts (IRA)s, which will not be subject to “transition tax.”
• A special rule, a type of “grandfather” rule, will exempt many Americans residing abroad from the transition rules.

ACA recently launched its 100 Day Campaign to ensure that the new Congress works to enact President-Elect Trump's pledge to end the onerous double taxation of Americans living abroad and enact RBT once and for all. ACA will redouble its efforts in January with the new Congress and Administration to get RBT over the finish line. ACA recognizes the hard work of many groups working separately and as a coalition to develop the legislation as it stands today.

ACA has the experience and relationships with offices on Capitol Hill, with the Treasury Department and with other business and advocacy groups, which we will ally ourselves with. ACA will continue lobbying on Capitol Hill, through its political action committee (ACA-PAC). We will continue to update our research, together with our sister-organization, ACA Global Foundation (ACAGF). ACA is a leader in Washington, D.C. on these issues.

ACA is counting on community support to make RBT happen. Support ACA and ACAGF to make RBT a reality. Remember if you are a member of ACA, you can also donate to the ACA-PAC.