Vantage Point Washington – What We See Happening 

Obviously, there is a great deal of activity by the Administration, Congress, Treasury Department, and the IRS. Much of it is focused on undoing things done by President Obama and his Administration.  Other activity has to do with various investigations relating to the recent presidential campaign and alleged Russian interference. 

Tax Regulations. There is a general “hold” on regulations. This affects Treasury Department/IRS regulations. Regulators are working through this problem now and things may start to move again.  It is not clear how this might affect regulations dealing with the new passport provisions (see below). 

FATCA and Same Country Exemption and Repeal.  A hearing was held by the House Subcommittee on Oversight and Government Reform, chaired by Representative Meadows on 26 April 2017. A Panel supportive of repealing FATCA appeared. One witness spoke against repealing FATCA. There are repeal-FATCA bills in the House and Senate. As of this date, these  do not have many co-sponsors and ACA continues to believe that full-out repeal of FATCA is unlikely given the continued interest of the Congress to combat tax evasion.  Returning to pre-FATCA, where the tax evasion tools in place at the time did not effectively combat the problem, many in the Congress will have a hard time selling their constituents living in the United States that FATCA-like legislation is unnecessary. 

The two legislative efforts to repeal FATCA are Sen. Rand Paul’s Bill in the Senate (S 869 introduced by Sen. Rand Paul on April 6, 2017; with   two Cosponsors:  Sen. Wicker (R-Mississippi) and Sen. Toomey (R-PA) and Congressman Meadow’s bill in the House to repeal FATCA (HR 2054 introduced by Congressman Meadows (R-NC), cosponsored by Congressman Sanford (R-SC) and Congressman David Schweikert (R-AZ).

ACA submitted written testimony at the FATCA Hearing and attended the hearing meeting with witnesses on both sides of the FATCA argument.  Subsequently, responding to questions by the Chairman, ACA submitted suggestions as to how FATCA might be “improved”. ACA’s suggestions are: (a) Adopt a Same Country Exemption; (b) enact in the statute or regulations rules exempting from reporting on Form 8938 interests in foreign pension arrangements, such as, the Australian Superannuation Funds; (c) meld the reporting requirements under FBAR and the Form 8938 rules. 

If FATCA were to be repealed, the push for Residency-based taxation would still be paramount. If FATCA goes away, Americans, including Americans abroad, still have the obligation to report and pay taxes on income earned on foreign bank accounts and to file Foreign Bank Account Reports.  The IRS would not receive reports on foreign bank accounts owned by foreign financial institutions, and therefore it would need to go back to auditing taxpayers, eliciting information from whistleblowers, aggressively going after the foreign banks and people that facilitate tax evasion. Everything would revert to pre-FATCA practices. 

ACA supports same country exemption for FATCA and RBT. The two are consistent and SCE does not replace RBT. SCE gives a measure of relief if FATCA is not repealed. SCE helps Americans abroad as to banking relationships in their home (foreign) jurisdiction. It addresses the lockout problem. RBT helps Americans abroad not only with respect to lockout but also other problems resulting from imposition of US income and estate and gift taxes and related reporting requirements. Qualifying Americans abroad would no longer be subject to US taxation or to the various tax-related reporting rules, including Form 8938, special PFIC rules, the complicated foreign earned income rules (Form 2555), etc. RBT is much broader. We think RBT is better than current law because it puts US tax rules in the same league as the tax rules of other countries. There is no longer a “mismatch”. 

Representative Carolyn Maloney, the day before the House hearing on FATCA, introduced a bill to insert Same Country Exemption in the Internal Revenue Code.  (HR 2136, introduced April 25, 2017.)  Congressman Beyer (D-VA) has cosponsored the bill.

Tax Reform and enactment of RBT.  Since its inception, ACA has always advocated for a move to territorial or residency-based taxation.  This work is not “new” to ACA however  over the last 2-3 years, ACA has done the “spade work” – holding conferences, testifying to the National Taxpayer Advocate, submitting commentary to the tax writing committees.  This work is extremely important as it has helped ACA develop a solid  approach to insert RBT in the Internal Revenue Code. ACA’s work on the subject is not a set-in stone “proposal.” Rather, it is describing all the issues and identifing all the working parts. It has laid out the details in a side-by-side comparison of current law and the “vanilla” approach developed by ACA. It has produced a detailed description of the “vanilla” approach. It has fielded questions and comments from many people and groups; and it has assembled these in “Frequently Asked Questions”  No other group has done the “homework” and dug into the details like ACA. 

ACA believes that for RBT to be embraced by Members of Congress who will push it, it needs to be revenue neutral – i.e., not cause tax collections by the Government to go down measurably – and not be open to abuse. If it is open to abuse, opponents will use the potential for abuse to relentlessly point out how this person or that person will “make out like a bandit under RBT” 

ACA is currently raising funds for the revenue estimates and ACA has fielded phase one of the revenue estimation project. Only through revenue estimating can a revenue neutral proposal be developed. ACA continues to raise funds to help sell RBT to the Congress and Administration., Please consider making a donation to help.

To support its advocacy work for RBT ACA is currently  meeting with Members and Congressional Staffs about RBT. ACA is working with the major media outlets to get articles and op-eds published on the topic of tax reform and RBT. ACA also worked to garner support from organizations concerned about the tax policy of Americans overseas , asking them to sign an Open Letter to the Administration and Congress in support of tax reform for Americans living and working overseas.  Along with ACA and ACAGF, the Asia Pacific Council of American Chambers of Commerce, Swiss-American Chamber of Commerce, AmCham Abu Dhabi, Americans for Tax Reform, US Wheat Associates and the Association of Accidental Americans have signed onto the letter.  ACA continues to receive requests from organization and individuals in support of our letter.  ACA will update members as new organizations sign-on.    

While impossible to predict now, we believe Congress will enact some form of so-called tax reform; this will include major provisions affecting corporations; these corporate provisions will change the taxation of foreign income and foreign subsidiaries of US corporations.  Several approaches are being considered. All of these include some form of “territoriality” for corporations’ taxation.  Taxation of individuals sits nicely alongside taxation of corporations and, historically, when one is considered the other is considered as well. The existing rules – foreign earned income exclusion and housing allowance exclusion/deduction – are a form of partial territoriality for individuals. RBT expands this. RBT fits comfortably alongside any of the territorial approaches being contemplated for corporations. 

The greatest threat to enactment of tax reform and, as part of tax reform, RBT, appears to be the pending controversies about interference with the recent election. 


Other Legislative Concerns for Americans Overseas 

Passport Revocation Provision: Late in 2015, Congress passed a provision buried in the Surface Transportation Act.  The provision calls for the revocation/denial of passport for certain specified Americans with a tax debt of $50,000 or more.  This is a provision which ACA has opposed for many years as it has been proposed various times before.  ACA was able to get some ameliorative language inserted in the Managers’ Report at the last minute. It is anticipated that Treasury Department will issue proposed regulations, at which time ACA will testify. It will attempt to further narrow the provisions. 

Private debt collection efforts affecting Americans abroad. The Surface Transportation Act adopted a provision enabling private sector collection agencies (PCAs) to collect, on the government’s behalf, unpaid tax debts. ACA wrote on May 5, 2017 to IRS Commissioner Koskinen to add overseas Americans to the list of those exempted from transfer to PCAs.  The IRS recently announced that it accepts this position. Private debt collectors will not be chasing Americans abroad. 

The Border Wall Funding Act of 2017 (HR 1813) proposes a 2% tax on remittances from the US to a list of principally Latin American and Caribbean Countries – approximately 44 and all, including Mexico, the Cayman Islands, the Bahamas, Panama, the British Virgin Islands, Barbados, Ecuador, Peru, Brazil, Bolivia, Chile, Paraguay, Uruguay, and Argentina.  While apparently intended for non-Americans legally or illegally in the US, the Act would likely impact Americans living in those countries too. ACA opposes this legislation.  In our opinion, this legislation, while on it’s a face, extraordinary, must be watched closely.  At present, it has more cosponsors, 9, than both of the pending repeal-FATCA bills combined, and it strikes us as the type of legislation that might “jump up” given the current climate.