If you are reading the page on our website you already know what it is like to live with the onerous IRS requirement to file US taxes regardless of your actual residence and you no doubt understand the need for the US to switch to a RBT system. That’s where ACA and our research work comes in. ACAGF has gone back to its 2017 reserach study and undated the work done by the highly regarded District Economics Group (DEG) in 2022. ACAGF’s data is the only private-sector research on taxation of Americans overseas. It has already been invaluable in offices ACA has visited with and will be the lynchpin for Congressional hearings.
ACA and ACA Global Foundation can get this done because:
- ACA is on-site in Washington, DC to monitor tax legislation that is on the agenda for the 117th Congress.
- ACA’s meetings with US Treasury and tax-writing committees tell us that individual international taxation will be addressed in upcoming legislative efforts.
- ACAGF has the best private-sector research and data on the overseas American community.
- Freedom of Information (FOIA) requests tell us that the IRS and the US Treasury have an incomplete picture of the community of taxpayers overseas.
- ACAGF’s ground-breaking analysis of baseline information will be key to hearings held on the subject of international tax reform.
- Data and research are the ‘coin of the realm” in Washington, DC and ACA continues to be the reputable and respected "go to source" for this.
Now is the time to continue to donate to ACAGF’s research efforts.
How we got to where we are today
ACA's long history in support of Residence-Based Taxation (RBT) and its body of work on the subject, starting with white papers back in the 1970s outlining the problems associated with the taxation of Americans overseas, led to ACA's development in 2014 of its RBT roadmap or side-by-side comparative which has been updated as the US tax policy has evolved over the years. ACA's work has been key in the educating process of both Congress and the tax writing committees:
- 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 Residence-based gives the Congress and tax writing committees a roadmap for RBT.
- 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 for the Congress and tax writing committees.
Congressman Holding’s “Tax Fairness for Americans Abroad Act of 2018, (TFAA)” was a major step in the process for tax reform. Congressman Holding, a long supporter of tax reform for Americans overseas, introduced legislation in the 115th Congress in December 2018. His legislation proposed a residence-based approach to taxing Americans living and working overseas. This was the first time that legislation in support of American overseas taxpayers was introduced in the US Congress.
The basic principle of the bill mirrors the thinking behind ACA’s residence-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 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.
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.
What is happening now
Congressman George Holding of North Carolina retired at the end of 2020 and therefore did not re-introduce his legislation in subsequent sessions of Congress. Although Congressman Holding is not longer the leading champion for RBT, there are other Representatives in Congress who support tax reform for Americans overseas. The new 117th Congress will take up tax reform legislation later this year (2021). ACA is on the forefront working to insure that individual international taxation has a seat at the table.
ACA is in close contact with the tax writing committees for both the House and Senate, as well as with the US Treasury and the IRS. The tax writing committees - House Ways & Means and the Senate Finance, along with the US Treasury and the IRS are all interested in addressing the tax concerns of overseas filers. ACA's meetings early this year indicate that through ACA's advocacy, its write-in campaign calling for hearings, media coverage and work by other organizations, these offices are paying attention and what these offices want and need is data and research, which ACA is providing.
On November 19, 2021 Congressman Beyer introduced the Tax Simplification for Americans Abroad Act (H.R.6057). The bill provides for a simplified tax filing form for certain Americans living and working overseas and also expands the definition of foreign earned income eligible for exclusion under the Foreign Earned Income Exclusion (FEIE, section 911 of the Internal Revenue Code). New categories of income would be eligible for exclusion such as; pension income, disability payments, etc. As a service to the community, ACA has written a brief explanation of the elements of the bill, however, an official technical explanation may be provided by the Congressional tax writing committees and, when made available, ACA will share with the community along with our commentary. Also, there is no estimation of revenue effects as of this date.
Congressman Beyer’s Bill is a good step forward and indicates that Congress is getting the message that something needs to be done about the taxation of Americans overseas. However, Congressman Beyer's bill is not Residence-based taxation (RBT) nor a replacement for RBT. ACA has been instrumental in getting this message into Congress through our advocacy in Washington, DC and our write-in campaigns calling for the Congress to hold hearings. Hearings are exactly what is needed and are the essential next step in the process of tax reform for Americans overseas. Although the Tax Simplification for Americans Abroad Act addresses some of the cost and compliance issues that have been reported by overseas Americans, it does not address the greater problems associated with the current Citizenship-Based Taxation (CBT) regime which can only be addressed by serious tax reform and adoption of Residence-Based Taxation (RBT).
A key component for hearings is the presentation of good data and information on the community of Americans living and working overseas. An accurate count of the number of Americans living overseas, data on the revenue generated by CBT and data on the asset and income make-up of Americans overseas, are essential. American Citizens Abroad Global Foundation‘s (ACAGF) 2017 research by our contractor District Economics Group (DEG) to provide revenue estimates for ACA’s side-by-side comparative of CBT and RBT has already provided offices in Congress with some of this vital information. ACAGF’s follow-up research project with DEG was completed in early 2022. Surprisingly, the government does not have complete data on the community of overseas Americans, and ACAGF’s research project is providing them with a more complete and accurate picture.
ACA stands firmly behind adoption of Residence-Based Taxation (RBT). RBT is the only way to address all the tax and compliance issues of Americans Abroad. ACAGF’s research work has demonstrated that RBT can be adopted, can be revenue neutral (not cost the government) and super tight against abuse. To see how Congress can pass RBT, listen to the May 25, 2021 ACA Webinar: "Congress can pass Residence-Based Taxation (RBT) Here’s how it’s done."
Meeting with the new Congress and Administration
ACA continues to meet with the Administration and Congress. ACA's advocacy in 2022 is a mix of on-site meetings and virtual meetings given the continued COVID lockdown regulations. ACA has already met with The Joint Committee on Taxation, the IRS and the US Treasury as well as with numerous Congressional offices. ACA will expand its meetings to include the Senate Finance Committee and the House Ways and Means Committee - key committes for tax legislation.
ACA will continue to follow up with Congressional offices identified through our write-in campaign calling for hearings - educating them on the issues and advocating for hearings which we believe will happen. ACA will keep close to existing supporters of RBT in both the Senate and the House.
Why hearings are essential
As Congress takes up the subject of tax legislation, hearings will be held. Offices in Congress have signaled that treatement of individual overseas taxpayers will be part of the discussion and that hearings should be held so that the committees can understand 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 and determine how best to craft legislation to address these problems. Specific treatment of items like Social Security income, income associated with “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 residence-based regime.
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. In September of 2019 ACA launched the "Americans Abroad Fight for Tax Fairness!" write-in campaign, to support efforts for Congressional hearings, making it easy and simple for supporters to send an appeal to hold hearings to their Representatives in Congress, along with the members of the House Ways & Means Subcommitee on Tax Policy. ACA has recently lauched an additional campaign calling on the Chairman of the House Ways & Means Commitee to make hearings a PRIORITY for the Committee: https://www.americansabroad.org/call-on-house-ways-and-means-committee-to-hold-hearings-on-americans-abroad/
This is the second ACA/DEG analysis of a possible version – a so-called “Vanilla Approach” – to Residence-Based Taxation (RBT). The first study was released in November 2017, as the Tax Cuts and Jobs Act was being enacted.
This study analyzes economic issues relating to RBT. During 2017 and 2018, DEG, under contract with ACA, constructed a model of income tax returns associated with US citizens residing abroad and several sets of related public data. This model was employed to analyze policy proposals for RBT. It was used for presentations to Tax Committee Congressional staffs, the US Treasury, and the Joint Committee on Taxation to further their understanding of the baseline data and issues with respect to RBT.
This second study updates the 2017-2018 model, significantly expanding the number of countries in the individual-income-tax-return-to-United-Nations-immigration-statistics-cross-walk (a core feature of the DEG model) in order to refine estimates of US citizens residing overseas (both filers of tax returns and non-filers, and government employees using Departments of Defense, State, and Office of Management and Budget data). The second study is also based upon public data only. It updates the revenue estimating baseline to account for the impact of the Tax Cuts and Jobs Act and the COVID-19 pandemic. It also brings current the revenue estimating baseline for the Congressional Budget Office data for federal fiscal years 2022 through 2031. It analyzes parameters of one possible approach to RBT (“vanilla approach”). The goal was to develop an approach which is revenue neutral, tight against abuse and leaves no one worse off than under existing rules. Related to this is the key goal of making a “vanilla approach” “friendly”, i.e., easy to understand and apply, for existing long-term residents abroad.
The study in large measure is the gathering and organization of multiple publicly available data sets (baseline data). The next element is construction/refinement of a model for analyzing taxation of Americans abroad, based on the baseline data. This modeling approach mimics, to a great degree, an approach that would be used at the Joint Committee on Taxation, Congressional Budget Office, and Office of Tax Analysis.
|THE STUDY AND ITS PARAMETERS, BELOW, ARE IN NO WAY A LEGISLATIVE PROPOSAL. THE SHAPE OF RBT IS FOR CONGRESS TO DECIDE.|
|THE DESCRIPTION OF REVENUE EFFECTS IS INTENDED TO BE HELPFUL, BUT IT SHOULD BE EMPHASIZED THAT THE ONLY ESTIMATES THAT ARE DEFINITIVE ARE THOSE PRODUCED BY THE JOINT COMMITTEE ON TAXATION.|
To be as useful as possible, it’s helpful to posit some parameters of RBT. Then unofficial revenue projections can be run. These “parameters” should not be read as indicative of any proposal.
The most important parameters of the study are:
Under a residence-based taxation (RBT) system, U.S. citizens residing overseas, in general, would be taxed as non-resident aliens.
Long-term residents abroad would be “grandfathered”, meaning they would be automatically eligible for RBT. They would not be subject to any form of “transition tax” or “departure fee”. A “long-term resident abroad” is anyone who has resided abroad for at least 3 years prior to date of enactment of RBT.
Others – people who are not long-term foreign residents – to be eligible would have to have resided abroad for the most recent 5 taxable years. Relatively wealthy individuals in this category might be subject to a “transition tax”. A one-time user fee ($2,350) would be charged. See American Citizens Abroad Side-By-Side Analysis: Current Law; Residency-Based Taxation, 20 April 2022
The study finds that during the 2022 to 2031 10-year budget period reductions in individual income tax revenues would be offset by “transition tax” revenues and departure fees. This overall result does not rely upon revenues “picked up” from any form of increased compliance or enforcement.
“Hard bits” of the Study include estimating utilization of RBT and, therefore, potential tax “leakage” (revenue loss) to the U.S. tax base. Results are also sensitive to estimates of new RBT elections each year after enactment and new RBT elections with adjusted gross income in excess of $500,000.
The DEG model is built around public data from the IRS, the Federal Reserve Board, the Social Security Administration, the United Nations, and country tax guides to construct baseline data concerning the taxes of Americans abroad. The model’s outcomes are sufficiently “granular” to permit “what-iffing” on key elements. In particular, the model estimates domestic and foreign sources of income by type of income and tax treaty status for U.S. citizens residing overseas. The general work plan was to build a best possible analytical tool. It takes into account the provisions of current law that would need to be addressed in order to arrive at RBT. Work with the model shows that is possible to adjust a list of key provisions, modifying this provision and that provision, in-order-to arrive at zero or near-zero revenue loss (revenue neutrality).
- RBT can be made revenue neutral. Arriving at this result does not depend upon revenue from new compliance measures.
- Long-term foreign residents, those resident in a foreign country for at least 3 years prior to date of enactment (“Long-Termers”), can be made exempt immediately from any transition tax or one-time user fee, without creating a large overall revenue loss over the 10-year budget period.
- RBT can be elective, that is, individuals wishing to avail themselves of RBT benefits would make an election to do so. It would not be mandatory.
- The existing foreign earned income exclusion need not be repealed. Individuals preferring this approach can simply not make the RBT election. (It follows that with preservation of the foreign earned income exclusion and electability of RBT no one need be worse off if RBT is enacted.)
- Individuals who are not “Long-Termers” or who move abroad after date of enactment (“Newbies”) can qualify for RBT by showing that they have been a bona fide resident of a foreign country for the most recent 5 taxable years. Years abroad prior to enactment be counted.
- Individuals who are resident in a tax haven are not eligible for RBT. They can continue to use the foreign earned income exclusion under current law.
- Individuals electing RBT are not subject to US income tax on foreign income. They continue to be taxed on US-source income. (In other words, they are taxed like nonresident alien individuals. This follows the residency approach of almost all other countries.)
- Individuals electing RBT need no longer be subject to the FATCA reporting regime for the country in which they are resident.
- FBAR reporting is not changed.
- Individuals electing RBT are required to make an annual election confirming that they remain eligible, i.e., they have not moved back to the States.
- The plain vanilla RBT revenue effects, total for the 10-year budget period, approximately +$0.67 billion, after taking into account one-time user fee and transition tax revenues. (One-time user fee and transition tax are not applicable to Long-Termers.)
- The small revenue increase result does not depend upon additional federal income taxes that might be paid by individuals who are resident overseas but who currently do not file income tax returns. Under RBT, some of these individuals might decide to comply, file, and pay U.S. income taxes for prior years, and establish the 5-year overseas residence requirement so that they would be eligible for RBT. This would generate additional tax revenue, but these effects are not included in this estimate.
- Based on this analysis, ACA believes that if RBT is enacted, in excess of 2 million Americans abroad could, over the 10-year budget period go from being taxed on worldwide income to being taxed the same as nonresident alien individuals, that is, taxed only on US source income.
Nuts and Bolts
These are a few of the interesting estimates from the ACA Study.
Number of US citizens abroad in 2022 – 3,921,240.
US citizens resident overseas as filers in 2022 – 2,292,000.
US citizens resident overseas as non-filers in 2022 – 1,629,000.
Income and asset makeup of the community of US citizens overseas consistent with US domestic statics. US citizens overseas are not significantly more wealthy than domestic filers.
The breakdown of Adjusted Gross Income of Americans abroad appears to be approximately 26% domestic and 74% foreign. For individuals with AGA in excess of $500,000, the breakdown appears to be 25% domestic and 75% foreign.
It is possible to identify the income and returns in foreign countries by category – zero tax, low and moderate tax, greater than US rate. For example, the share of earned income after section 911 exclusion, in zero tax countries, is 12%.
 The first study and this second study were financed in separate crowdfundings by American Citizens Abroad Global Foundation, a tax-exempt charitable organization, which is the sister organization of American Citizens Abroad, an exempt non-profit membership organization. ACAGF, intends to license the underlying data for use by interested parties. They will also periodically update this data.
 The Study is referred to as the "ACA Study". "ACA" commonly refers to American Citizens Abroad, Inc. and its sister organization, American Citizens Abroad Global Foundation. The sponsor of this study is American Citizens Abroad Global Foundation. Economic analysis was performed by District Economic Group, a non-partisan economic consulting firm which provides specialized economic analysis and insights into federal and state budget, legislative and regulatory policymaking processes.
 This figure does not equate to the number of “tax cheats”. Individuals may not have a sufficient level of income to need to file. They may genuinely not understand the rules.
Revenue Neutrality and ACA research and data
Many people ask, which is the better argument for RBT– making the argument for “fairness” or arguing “on the numbers” that it not be a revenue loser? Answer is both. Fairness can get attention and backers. But if it loses revenue, RBT will be swimming up the waterfall known as budget reconciliation. Proponents of RBT will probably want it added to a big budget bill designed to pass under the reconciliation process. If it’s a revenue loser, it would be barred under established guidelines. No “ifs” “ands” or “buts”. That’s why the ACA/DEG exercise grinding the baseline data and revenue estimates, which lead to making it revenue neutral and tight against abuse, are ABSOLUTELY CRITICAL. Listen to Marie Sapirie of Tax Analyst talk about Reconcillation rules and how they impact the passage of legislation, making the need for good numbers essential. Listen to Marie Sapirie of Tax Analyst talk about Reconcillation rules and how they impact the passage of legislation, making the need for good numbers essential American Citizens Abroad TaxCast (podbean.com). Read about Senate Reconciliation Rules and the Byrd Rule here.American Citizens Abroad TaxCast (podbean.com). Read about Senate Reconciliation Rules and the Byrd Rule here.
The US Treasury, the IRS and Congressional offices lack much of the detailed data and research on the overseas taxpayers. Recent Senate Hearings held on May 11 have show this. The US Treasury and the IRS have some data from tax returns using the FEIE (flags an overseas resident) and FBAR filings but these offices lack comprehensive data on the size and make-up of the community. ACA has been able to provide offices with more data with its landmark 2017 research project funded by ACA's sister organization, American Citizens Global Foundation.
The 2017 and 2022 research projects was done by District Economics Group (DEG) using ACA's "side-by-side" roapmap for residence-based taxation as a basis, the report provided data on the size, geographic hic location, income make up and tax reporting for overseas filers. This research is in the hands of the tax-writing committees and the Joint Committee on Taxation but needs to be updated and expanded. ACAGF has raised the funds for this expanded research which will be a key document in hearings held on tax reform for overseas taxpayers. The importance of updating this research cannot be overstated. ACAGF's research work is the best private-sector data and ACA and DEG are respected as the "go to source" by the offices directly involved in tax reform. See our recent webinars "Parting the Veil: Analyzing the Revenue Effects of Residence-Based Taxation (RBT)" and "Digging Deeper Analysing the Revenue Effects of RBT" with an extensive discussion of the importance of revenue neutrality for RBT with panelists Charles Bruce, ACAGF Chairman and Legal Council and District Economics Group (DEG) principal, Michael Udell.
ACA joins the RBT Coalition
ACA joined the RBT Coalition, a group of organizations representing Americans overseas, tax advocacy organizatsions, think tanks, Ameircan business and social organizatsions (American Chambers of Commerce, Americans Clubs) and tax and investment professionals who are calling for adoption of RBT. The Coalition will not posit any platform for RBT but will bring awareness to the compliancy issues facing Americans overseas and demostrate that support for RBT comes from a wide-range of organizations. Coalitions such as this are key to building support on Capitol Hill for change. Learn more about how to join/support the Coalition here: RBT Coalition.
On July 7, 2021, ACA hosted a webinar "Parting the Veil: Analyzing the Revenue Effects of Residence-Based Taxation (RBT)" with panelists Charles Bruce, ACAGF Chairman and Legal Counsel, and District Economics Group (DEG) principal, Michael Udell. Learn about the important of data and research to support RBT and why revenue neutrality is so important. DEG is an independent, non-partisan economic consulting firm providing specialized economic analysis and insights into federal, state, legislative and regulatory policymaking. Click here for presentation slides.
On May 25, 2021, ACA hosted a webinar on how Residence-Based Taxation (RBT) can be passed by the Congress. What is the current landscape in Washington, DC, what work needs to be done, what data and information does the Congress and Administration need, and how can organizations like ACA and individuals help make this happen. Click here for presentation slides.
In 2019 and 2020, ACA held a series of Webinars to educate and update the community and Congress on Congressman Holding’s "marker bill" outlining the general principal of Residence-based taxation. The tax-writing committees will need to run through the code, item by item, to determine how income streams will be treated for taxation in order to refine an existing bill or draft a new bill. This why Congressman Holding's work is still important and why hearings are key to advancing on this work. Only by understanding the breath of problems and issues can Congress understand how to treat these in legislation.
ACA is hosting webinars with various groups and organizations that are interested in, and support tax reform for Americans overseas. To see the complete list of prior webinars and upcoming events, click here.
ACA also hosts monthly podcasts with updates on ACA's work.
Working with stakeholders
ACA is working alongside other groups advocating for tax reform; The RBT Coalition, Association of Americans Resident Overseas (AARO), Democrats Abroad, Republicans Overseas (RO) and various US Chambers of Commerce, Americans for Tax Reform (ATR), National Taxpayer Union (NTU), Adrain Leeds Group, Expat Exchange, and others. ACA will continue to bring in new stakeholders in order to grow the consortium of advocates for tax reform. Some of the groups have already joined the RBT Coalition and we welcome others to join as well.
What can you do today to support ACA's efforts