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Congressman Holding’s “Tax Fairness for Americans Abroad Act of 2018, (TFAA)” a major first step for tax reform.  Congressman Holding’s legislation (introduced in the 115th Congress in December 2018) proposes a residency-based approach to taxing Americans living and working overseas.  The basic principle of the bill mirrors the thinking behind ACA’s residency-based taxation (RBT) approach, that is, separating foreign-source and US-source income and excluding from US taxation specified foreign-source income earned when a US citizen is a qualified resident abroad. The toggle switch determining whether an individual is taxable on US income – and not on foreign income – is residency. The bill excludes from US taxation income earned unrelated to the United States for qualified non-resident US citizens. A qualified non-resident is a) a citizen of the United States, b) has a tax home in a foreign country, c) in full compliance with US income taxes for the previous 3 years and either:

  1. establishes that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
  2. is present in a foreign country or countries during at least 330 full days during such taxable year.

A summary outline of the bill, prepared by Rep. Holding’s office, can be found here. Along with a more detailed summary prepared by ACA here.

 

How we got to where we are today. Congressman Holding has long been a proponent of tax reform for Americans living and working overseas and he and his staff have been working on draft legislation. ACA, together with other overseas organizations regularly met and provided Congressman Holding with input, data and suggestions on tax law changes, informing and otherwise educating him and his staff on the critical tax and compliance problems facing Americans living and working overseas.

Important tax compliance advocacy and research work by ACA was key in the educating process of both Congress and the tax writing committees.   

  1. ACA’s side-by-side comparative showing how and where changes needed to be made to the current Citizenship-based taxation regime to make it Residency-based.
  2. ACA data and research by contractor District Economic Group (DEG) to provide data and revenue estimates for ACA’s side-by-side which includes critical baseline data on the asset composition and size of the overseas community, is vitally important to development of the legislative proposals. 

 

What is happening now.

As reported in early December in Politico, Congressman George Holding of North Carolina will be retiring at the end of 2020.  ACA regrets that Congressman Holding will be leaving Congress and thanks him for his work on behalf of US citizens living and working overseas.  Congressman Holding remains a supporter of US citizens overseas and, in his remaining year in Congress, will continue to support our community and our issues. 

Since the introduction of TFAA, ACA and other organizations have been working to educate Congressional offices about the legislation and on the need for tax reform for Americans living and working overseas.  As noted in ACA’s updates, refinements to the TFAA legislation are needed.  TFAA as drafted will have difficulty passing into law without refinements – refining the legislation is key in bringing on supporters and co-sponsors – of which there are many!  The intent of introducing TFAA as a “marker bill” was to begin a conversation with other Representatives in Congress on the subject of Residency-based taxation (RBT).  Conversations and work on refinements is happening.  There are offices in both the House and Senate that are considering the TFAA legislation and looking into the tax compliance issues for Americans overseas.  This has been brought about by Congressman Holding’s work to educate his colleagues as well as the work of ACA and other organizations that are walking the halls of Congress and building support.

Calling for hearings. ACA was the first organization to make a call for hearings. On December 29, 2017, ACA called upon Congress to hold hearings on tax reform for Americans abroad.  Hearings by the US House Ways & Means Committee addressing the wide-range of tax issues facing US citizens living and working overseas is the next step in the legislative process.  In September of 2019 ACA launched the "Tax Fairness for Americans Abroad:  An Idea Worth Fighting For!" write-in campaign, https://www.americansabroad.org/write-to-your-representatives-in-congress/?utm_source=link2&utm_medium=ACATFAAwebpage&utm_campaign=TFAA_Campaign to support efforts for Congressional hearings, making it easy and simply for supporters to send an appeal to their Representatives in Congress, along with the members of the House Ways & Means Select Revenue Committee - the tax writing committtee - to hold hearings on the tax and compliance issues for Americans living and working overseas. 

Hearings need to be held so that the committee can hear about the wide range of tax compliance issues facing the overseas Americans community from stakeholders and citizens.  With knowledge from hearings the tax writing committees and legislators can look at specifics of the legislation for refinement.  Specific treatment of items like Social Security income, income associated with the new “transition tax” and GILTI, and different types of PFIC income, will need more consideration and details will need to be worked out to determine how these income streams will be taxed under a new residency-based regime. 

Webcasts. ACA is continuing its series of Webcasts to educate and update the community and Congress.  ACA management, along with Congressman Holding’s tax counsel Matt Stross, and tax professionals, discuss the bill and provide updates and next steps. Webcasts focusing on European and Canadian markets have been held and more are planned for 2020 for other markets such as Asia, Australia, Israel and Mexico.  

Cultivating supporters. ACA is meeting with the legislators supportive of tax reform that have already been cultivated and ACA is bringing on new legislators. ACA is following up with offices identified through the write-in campaign - educating them on the issues and advocating for hearings.  ACA is is also monitoring Congressional offices and committee assignments.  The new 117th Congress will begin in January of 2020 and ACA will continue its work to evaulate new assignments in key offices like the tax writing committees and at the Treasury Department, the IRS and the State Department.  

Refinements to the Bill. Congressman Holding’s bill was written as a "marker bill" with somewhat general language in order to start a conversation on the issue of tax reform for Americans overseas. However, the tax-writing committees will need to run through the code, item by item, to determine how income streams will be treated for taxation.  Again, hearings are key to making refinements.  Only by understanding the breath of problems and issues can Congress understand how to treat these in legislation. Currently Congressman Holding and others in Congress are looking at refinements and revisions to the legislation with plans for re-introduction in 2020.

Data and research. A key piece of knowledge for Congress is ACA’s revenue estimates our side-by-side comparative.  ACA’s work includes data on the makeup of the community of Americans overseas, their tax filing status and asset makeup, as well as demographic data.  ACA will continue to use the data we have developed and share this with offices we meet with and stakeholders that we bring on board.  ACA, through ACAGF, will field additional research projects to help provide more data on the community. This research will certainly be presented at hearings.

Working with stakeholders.  ACA is working alongside other groups advocating for tax reform; Association of Americans Resident Overseas (AARO), Democrats Abroad, Republicans Overseas (RO) and various US Chambers of Commerce, notably the Asia Pacific Chambers of Commerce (APCAC), Americans for Tax Reform (ATR), National Taxpayer Union (NTU), etc. ACA will continue to bring in new stakeholders in order to grow the consortium of advocates for tax reform.

 

What can you do today to support ACA’s efforts. 

 

Join ACA's write-in campaign calling for hearings!

"Tax Fairness for Americans Abroad:  An Idea Worth Fighting For!" write-in campaign, https://www.americansabroad.org/write-to-your-representatives-in-congress/?utm_source=link2&utm_medium=ACATFAAwebpage&utm_campaign=TFAA_Campaign

 

DONATE to ACA and ACAGF! Two ways to donate today, you pick! 

First, American Citizens Abroad Global Foundation (ACAGF, which focuses on education and research) is continuing to raise monies for additional analysis leading to improved database and detailed revenue estimates. Detailed revenue estimates on different pieces of the “Tax Fairness for Americans Abroad Act of 2018” and similar proposals are extremely important because they help refine and reshape the legislation. The Joint Committee on Taxation and other tax-writing offices on Capitol Hill will not release detailed estimates – in effect their working papers. Also, is important that stakeholders, like ACA, representing Americans abroad, be able to delve deeply into the numbers so as to be creative as possible and to avoid needless mistakes. Donations to ACAGF are tax deductible. ACA has already raised $85,000 over about 8 months last year.  Donate today.

Second, ACA, which advocates (lobbies) for legislation is raising funds to do just this – lobby for enactment of a residency-based taxation regime. It will pound the pavement and walk the hallways of the Capital, meeting with Members, Members staffs and staffs of the committees, like Joint Committee on Taxation, House Ways and Means Committee, and Senate Finance Committee. It will hold meetings with other “players” to educate and get everyone pushing in the same direction. It will work to activate others that, in turn, will lobby in favor of legislation. As part of last year’s “tax reform” law, TCJA, corporations spent millions lobbying for territorial taxation for US corporations. Individual Americans abroad will not be able to spend as much on this effort, but ACA will be able to raise and wisely expend significant amounts. The effort needs to be as well-organized and executed as the corporate effort. Enactment of residency-based taxation will not happen by itself. We all need to put our shoulder to the wheel. This effort will cut off at the point when we think that a sufficient amount has been raised. Donations to ACA for lobbying are not tax deductible. At this time no ceiling on this effort is anticipated. ACA will register as a lobbyist, as it must do under applicable rules. Tax-deductible funds raised by ACAGF will not be used for lobbying. Donate today.

 

Click to see ACA's past efforts on RBT:

ACA Explains "Tax Fairness for Americans Abroad (TFAA)" - Residency-based tax bill

RBT November 2018 Update

RBT and the 2018 Midterms. What’s Next?

Tax Cuts and Jobs Act (TCJA). What Happened? What’s Next?

RBT 2017 Update