ACA comments on excise tax on remittance transfers provision included in the House tax bill

June 2, 2025
Washington, D.C.

Excise Tax on Remittance Transfers

The tax reconciliation package, officially titled the One Big Beautiful Bill Act, passed the House of Representatives on 22^nd May.  It is expected to be taken up in the Senate very soon. What the process would be and when votes might be taken are up in the air as of this date.  In any event, as it stands, it would include a 3.5% excise tax on remittance transfers.

Definitions

Remittance Transfer - electronic transfers of funds requested from a Qualified Transfer Provider by a “Sender” (individual or other person) located in any State to any “Designated Recipient” located in a foreign country and identified by the “Sender”.

Sender – individual making the electronic funds transfer to a Designated Recipient.  (Apparently, the provisions do not apply in the case, for example, of a corporation sending funds overseas. Also, there are tax rules treating some entities as individuals or simply as disregarded entities. It's not clear whether these rules are relevant with respect to these provisions.)

State – defined to include the 50 U.S. states plus the District of Columbia.

Designated Recipient – Individual located in a foreign country identified by the Sender.  It's not clear whether a designated recipient can be the “Sender” as well.  In other words, do the provisions apply if the Sender is transferring funds to himself?

Qualified Transfer Provider – bank or other financial institution that has entered into a written agreement with the IRS whereby it agrees to verify status of senders as U.S. citizens or nationals.  (It is not clear whether the Provider might be a non-U.S. institution, although, as a practical matter, this seems unlikely.)

Verified U.S. Sender – sender confirmed by the Qualified Transfer Provider to be a U.S. citizen or national.  (With rare exceptions, almost all U.S. nationals are also U.S. citizens.)

The tax, in summary -

• The target of the tax appears to be transfers of U.S.-based funds by non-citizens and non-nationals transferring funds in the U.S. to recipients outside of the U.S.
• Remittance transfers sent by U.S. citizens and nationals through certain providers are exempted from the excise tax.
• The tax will not apply if the transfer is facilitated by a Qualified Transfer Provider for a Verified U.S. Sender.
• Verified U.S. Senders will need to confirm that the provider is “qualified”.  Transfers not running through a Qualified Transfer Provider, in effect, will not be exempt from the tax.  (Note: These rules make banks the policeman of the system.) 
• The effective date for the new excise tax is transfers made after December 1, 2025.  (Note: There will be a huge amount of work to be done by the banks and persons that frequently act as “Senders” in order to get ready for implementation.)

Details Outstanding

• The rules do not reference the residence of the Sender.  On the face of it, it appears that transfers requested by Senders not located in any State are not the subject of the excise tax.  It's not clear what “located” means.  It is unclear if a transfer is exempted from the tax if the Sender is outside of the U.S. when the transfer is initiated.
• Exceptions for small transfers can be anticipated.  How small remains to be seen.
• None of the rules reference the currency of the transaction, requiring it to be in U.S dollars.
• How the tax is applied to cryptocurrency and other forms of digital or virtual currency is an open, interesting question, which will be closely considered by many.

Rules applying to Remittance Transfers

Most of the important definitions and some of the mechanics of these provisions spring not from tax rules but from the Electronic Fund Transfer Act, which principally deals with regulating consumer banking transactions to prevent abuse.

Anti-conduit rules.  Like other such rules in the Internal Revenue Code, anti-conduit rules will permit the IRS to trace the parties to the transfer should anyone want to avoid the tax by inserting multiple players.

Tax credit for Excise Taxes.  Rules permit claiming a tax credit for excise taxes on transfers of U.S. citizens and nationals.  These rules should not be applied frequently given the exception for transfers by U.S. Senders.

Reporting Requirements

There are detailed rules applicable to the Qualified Transfer Provider, requiring it to file IRS returns that disclose data about transactions that avoided the tax by virtue of the exception for U.S. citizens and nationals.  It's not immediately obvious what the due date for required returns will be.

The Qualified Transfer Provider is also required to furnish to persons named in an IRS return:

• the name and address of the reporting person (presumably the contact in the bank); and
• the information about the named person that was given to the IRS.

The wording of this requirement will probably draw a reaction from banks.

Penalties that can apply to the Transfer Provider (typically banks) for compliance lapses/failures are spelled out.

Impact on Americans Abroad

Americans abroad will expect to qualify for the exception for remittances they send through Qualified Transfer Providers.  However, they will likely be asked by their bank to complete new paperwork for use in the verification process.  The banks, doubtless, will need to push some legal obligations and administrative tasks to the “Sender”, almost always a customer.

Foreign (non-U.S.) banks approached by their American customers overseas asking the bank to facilitate a transfer from a related account in the U.S. to an account at that bank predictably will think here comes another load of compliance problems relating to U.S. tax enforcement.  Many will impose considerable administration fees; others will refuse the service entirely.

Americans abroad will see this as yet another complication arising from what is, for them, an ordinary financial transaction.  They will liken the new paperwork burden to that attached to FBAR reporting – a compliance obligation they bear for holding even ordinary accounts in financial institutions in the countries where they live and work. 

Americans truly residing outside the United States should not be subjected to these new provisions.  Residency-based taxation should be enacted to underpin the exemption to the remittance tax.

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