Taxation

What is the problem?

The United States uses citizenship-based taxation (CBT), rather than residence-based taxation (RBT), meaning US citizens are taxed on their worldwide income regardless of where they live and where the income was earned. 

A US citizen living in London, or Toronto, or Tokyo, or Johannesburg, generally must file U.S. tax returns and pay U.S. tax, even if he or she has never lived in or traveled to the U.S. Taxation is not based on any physical presence test. The source of the income makes no difference either: income exclusively earned and additionally taxed abroad is also subject to U.S. reporting. Moreover, US citizens overseas are commonly taxed twice, for example on some types of investment income and certain retirement-savings vehicles.

In some cases, where an individual was born in the U.S. to foreign parents on a student or temporary work visa who then returned to their home country, those subject to the tax law and its penalties may not have been aware of their status as an American birthright citizen.

CBT is incompatible with the global economy of the 21st century where the tax policy of most industrialized nations is based on residency and not nationality. CBT works against US economic interests in terms of job creation and increasing exports. ACA tracks and advocates some of the worst problems that CBT imposes on US citizens overseas.  Highlighting these to Congress helps us support why RBT is needed.

Enacting tax reform for U.S. citizens overseas.  What are we doing about it?

President-elect Trump has promised to address double taxation of U.S. citizens living and working overseas. On December 18, 2024, Congressman Darren LaHood introduced legislation, "Residence Based Taxation for Americans Abroad Act" (H.R.10468). ACA has provided a Technical Explanation of the bill. Congressman LaHood's bill builds on Congressman Holding’s “Tax Fairness for Americans Abroad Act 2018,” and we’re pleased to note that it mirrors much of ACA's RBT modeling Side-by-Side Analysis dated 2022 and studies. 

To succeed, RBT legislation will require bipartisan and comprehensive advocacy. ACA, as a leading bipartisan advocate for U.S. citizens abroad, together with its research arm (America Citizens Abroad Global Foundation) and Political Action Committee (ACA-PAC), is working with the community, coalitions like Residence-Based Taxation Coalition, the political parties, and all the other advocacy groups to enact RBT.

Congressman LaHood's legislation needs to be "scored" for a revenue number to determine how much it will cost before being re-introduced into Congress.  ACA has provided Congressman LaHood's office with our suggestions on this.  ACA's research, based on our RBT modeling, which mirrors current RBT legislation already demonstrates that RBT is doable. The findings for these research studies support that adoption of Residence-based taxation can be achieved and not cost the US Treasury in revenue and be tight against abuse.

RBT was not included in the One Big Beautiful Bill (OBBB) but this does not mean that tax reform for US citizens will not happen. There are possibly two to three additional tax bills that will follow (OBBB), this year and into next year. There is still plenty of opportunity for RBT to become law. 

What ACA is doing to make this happen:

What have we achieved so far and why they are important steps.

In 2014 ACA developed modeling side-by-side comparative for RBT which has been updated as tax policy has evolved over the years. ACA’s sister organization ACA Global Foundation produced two research studies to determine the size and make-up of the community of US citizens living and working overseas as well as, ran a cost analysis for ACA’s RBT roadmap which indicated that RBT can be made revenue-neutral (no cost the US Treasury) to implement. ACA's RBT modeling and our research has been widely presented and share in Congressional and Administrative offices including the House Ways & Means Committee, Senate Finance Committee, Joint Committee on Taxation (JCT) and the U.S. Treasury. ACAGF has fielded a new study on the cost of Residence based taxation and a study on the community issues and support for RBT. 

Congressman Holding’s Tax Fairness for Americans Abroad Act of 2018 (TFAA) was a major step in the process for tax reform.  Congressman Holding introduced RBT legislation in the 115th Congress in December 2018. This was the first time that legislation in support of American overseas taxpayers was introduced in the US Congress. ACA provided a technical explanation of the bill ACA Explains "Tax Fairness for Americans Abroad (TFAA)" - Residency-based tax bill 

In July and August 2025 ACA held multiple meetings on Capitol Hill and can confirm a bicameral effort for reintroducing Rep. Darin LaHood’s residency-based taxation bill for the 119th Congress this year. Senator Todd Young’s office is coordinating with Rep. LaHood’s office to update the December 2024 "Residence-Based Taxation for Americans Abroad Act" (H.R.10468) and introduce complementary bills in the coming months that move the U.S. to a system of residency-based taxation.

Over time there have been three other bills addressing the tax and compliance issues facing US citizens overseas have been introduced in Congress. This is important because these legislative efforts demonstrate to Congress and the Administration that tax and compliance problems for U.S. citizens overseas are not "niche" issues and that Congressional concern is widespread. 

On October 21, 2025, members of ACA heard from our Washington, DC based lobbyist, the BGR Group, about efforts in support of Residence-Based Taxation (RBT). Work on RBT continues even during the government shutdown. ACA Global Foundation (ACAGF) has commissioned a research study to help educate Congress and the Administration with RBT modeling and revenue estimates. ACA will use this research in its meetings with Congressional offices and with the tax writing committees, in particular, the Joint Committee on Taxation (JCT).

As reported by the BGR Group:

  • Staff in both Congressman LaHood and Senator Young’s offices have met with JCT and are in active discussions with them.
  • JCT is actively scoring the legislation, and refinements to the bill are being made.
  • JCT and both Congressional offices are paying close attention to elements of the bill that could result in tax loopholes - these need to be closed.
  • The goal is to get the legislation to be revenue neutral (not costing the U.S. Treasury) or as close to neutral as possible.
  • BGR has long standing relationships with both Congressman LaHood and Senator Young. 
  • There is bi-partisan support for tax reform.  Democrat champions in Congress, including Congressman Beyer and Congresswoman Titus - Chair of the Americans Abroad Caucus, have introduced legislation calling for reforms.
  • BGR is working alongside ACA and its management team to meet with Congressional offices to socialize the legislation.
  • ACA will have an opportunity to review the revised legislative language and provide comment.
  • ACA will share results of its revenue estimates research to inform offices, staying on top of developments and using every opportunity to share its views.

In summary the President made a campaign promise to end double taxation, there is bicameral support for RBT legislation, Congressman LaHood introduced RBT legislation in the last Congress, Committee staff and JCT are analyzing the LaHood Residence Based Taxation for Americans Abroad Act (H.R. 10468) legislation prior to reintroduction, Congressman Hurd has introduced the Holy Sovereignty Protection Act (H.R. 4501) exempting the new American Pope from taxation on foreign income, VISA programs are in development that will allow foreigners to exempt their foreign income from US taxation.  Congress and the Administration see that taxing U.S. citizens on foreign income is a problem that needs a solution.

ACA Research is key to the process!

ACA's original RBT modeling shows current law versus our RBT modeling Side-by-Side Analysis dated 2022 

ACA's updated RBT modeling shows current law and where ACA modeling differs from Congressman LaHood's legislation (differences are in bold text) side-by-side analysis

Why is this important: ACAGF's research work gives Congressional offices the roadmap for RBT, highlights were there will be concerns over tax abuse and how to address them, demonstrates that RBT is achievable in a cost-efficient way. It also gives champions of RBT the confidence to get on board with RBT because it demonstrates how it can be achieved while addressing the major concerns for legislators.

 

How can you help?

 

Remember! The National Taxpayer Advocate is Your Voice at the IRS and its organization, the Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS). The NTA is an important ally in the fight for tax fairness for U.S. citizens living and working overseas.  ACA regularly meets with the National Taxpayer Advocate and comments on her Annual Reports to Congress. Why is this important:  NTA is deeply concerned with all taxpayer issues and in ensuring that the tax code is adheres to the Taxpayer Bill of Rights. NTA has been a great support for our issues highlighting them in her Annual Reports to Congress: https://www.irs.gov/taxpayer-bill-of-rights  

 

Where can I find out more?

In this Section

The Child Tax Credit and Earned Income Credit

Currency Fluctuations and Phantom Gains

The Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credits Foreign Earned Income Exclusion (FEIE)

The 2017 Tax Cuts and Jobs Act (TCJA): Transition Tax and GILTI Regimes

The Net Investment Income Tax (NIIT)

The Pitfalls of Passive Foreign Investment Companies (PFIC)

US Passport Revocation

US Taxes Abroad (update for tax year 2024)

Analysis of Revenue Effects of Residents-Based Taxation

US Businesses Overseas

Tax Fairness for Americans Abroad Act (Holding Residence based taxation bill)

CBT vs. RBT Comparative

Residence Based Taxation for Americans Abroad Act H.R.10468 (LaHood BT Bill)

Side-by-Side Analysis (LaHood RBT Bill)

Technical Explanation (LaHood Bill)