updated 2:57 PM CEST, Sep 21, 2023

Four House members urge Ways & Means to consider 'simplified tax form for expats' as ACA holds out for RBT

Rep. Dina Titus's Sept. 28 Tweet Rep. Dina Titus's Sept. 28 Tweet

As news broke on Tuesday that four members of the U.S. House of Representatives had co-signed a letter to House Ways & Means Committee Chairman Richard Neal, in which they asked that a simplified, "short form" tax return be provided to American citizens who file their U.S. taxes from abroad, some expat campaigners and advocacy organizations insisted that such a simplification would not be enough.

"While this suggestion is an excellent start to addressing the tax compliance problems for Americans overseas, the only real solution is Residence-Based Taxation (RBT)," the Washington, DC-based American Citizens Abroad said in a statement, echoing the comments of certain others in the global U.S. expat advocacy campaign network. 

In their Sept. 27 letter, a copy of which may be viewed on the ACA's website, Reps. Dina Titus, Carolyn Maloney, Jamie Raskin and Adam Bennett – all Democrats, representing districts in the states of Nevada, New York, Maryland and California, respectively – called on Massachusetts Rep. Neal to include "in the Budget Reconciliation package provisions to simplify tax filing and expand tax compliance for Americans Abroad." The Reconciliation package is part of the ongoing Congressional effort to come up with a Federal budget for 2022. 

Comments on Twitter suggested that Rep. Titus, whose Sept. 28 tweet is pictured above, was the one who had initiated the letter to Rep. Neal, and invited the three other House members to join her. 

"We support a short form certification for those with ordinary salary and wage income, pensions, and other non-wage transfers from foreign governments who owe no U.S. tax," the four members of the House continue, in their letter.

"U.S. citizens living outside the U.S. bear uniquely onerous tax compliance responsibilities that require an understanding of both the U.S. and a non-U.S. tax system, including bilateral tax treaties and agreements. This makes tax filing from abroad inordinately complex.

"Internal Revenue Service (IRS) support is insufficient to enable Americans abroad to easily comply, forcing them to engage professional tax return preparers who commonly determine they owe no U.S. taxes. These services are routinely priced beyond the reach of ordinary middle-class citizens, and therefore result in compliance lapses, which not only causes high levels of stress but also makes citizens reluctant to engage with U.S. government and consular services, including voting.

"This proposal will greatly simplify filing for those who clearly owe no tax, including those utilizing the Foreign Earned Income Exclusion (FEIE), claiming Child Tax Credits, or credits for foreign taxes already paid.

"By implementing a short form certification, the IRS would provide Americans living abroad a more efficient way to annually declare these amounts, and expand U.S. tax compliance."

They go on to add that their proposal would have "no revenue impact" but that it would ultimately "save the IRS resources it would otherwise expend on [collecting] $0 returns."

#Taxed but unconvinced

Among those who remained unconvinced was John Richardson, the Toronto-based citizenship lawyer and campaigner for expat causes. In a tweet on Tuesday, he said the proposed simplification appeared to leave out "anybody who is self-employed, [has] investment income, [is affected by] GILTI, Subpart F, PFIC, has taxes [owing on their]  sale of [their] house and capital gainst taxes generally, [as well as] phantom gains on discharge of [their] mortgage. (That's all I can think of in 30 seconds.)"

In a follow-up tweet he added: "I would add that this is an attempt to divide and conquer whatever unanimity there is among #Americansabroad (which is practically none anyway).

"Those with ordinary salary will become the 'Good Americans' and small business people 'The Bad Americans'. All info reporting [will] continue."

Agreed another expat tweeter: "We still have to do the paperwork to determine no tax owed AND to do that, deal with the complexity of the tax code. This only saves us postage for mailing in fewer pages of paper. #RBT is the only solution."

Other expats, however, and the various overseas operations of the Democrats Abroad, thanked Rep. Titus for her letter, and tweeted messages to their followers urging them, as @demsabroadbe (Belgium) put it, to "call/email YOUR Rep TODAY to tell them this needs their support/signature!

#taxrelief @Dems Abroad." 

The letter was also seen by some expats as a welcome indication, by the four lawmakers who signed it, of their awareness of the issues facing expat Americans, and consequently, their possible support for expat causes going forward.

This was seen to matter now in particular, as both parties – and quite a few expatriate voters – have begun looking towards the 2022 midterm elections. 

The RBT vrs CBT issue

As the American Expat Financial News Journal has been reporting for more than three years now, American expat advocacy groups and individuals have been declaring the idea of moving the U.S. to a residence-based taxation model to be the No. 1 issue to be targeted, but have struggled to get it onto the agenda of Washington lawmakers. 

In August of 2018, for example, the then-chief executive of the Republicans Overseas, Solomon Yue, told a panel of tax and business experts in Toronto that a version of RBT that the Republicans were calling "Territorial Taxation for Individuals", or TTFI, was on its way, and would "get there – it’s [just] a matter of timing.” 

Yue was referring to what soon emerged as a bill aimed at helping expatriate Americans, sponsored by North Carolina Republican George Holding, known as the Tax Fairness for Americans Abroad Act. Holding eventually introduced the TFFAAA in the final days of the 2018 legislative session, but although it received widespread publicity in the American expat community at first, it failed to find a co-sponsor, and sank from view after Rep. Holding lost his seat following a redrawing of his Congressional district in 2019. 

"Territorial Taxation for Individuals" was acknowledged at the time as a response to President Trump's Tax Cuts and Jobs Act, which sought to move the U.S. to a more "territorial" system of taxing its companies, but which failed to take into the damage this could do to certain expatriate American individuals with stakes in such small overseas “companies” as family-owned businesses. 

By the following July the Democrats Abroad was stressing the importance of getting RBT onto the Democratic Party's 2020 election platform, although in the end it didn't make it.

This year, the American Citizens Abroad has taken up the campaign in a major way, launching a fund-raising campaign aimed at obtaining fresh data it says would help make the case for a move to RBT. It has also been urging expats to support its campaign to, in its words, "make hearings a priority for this [expatriate] community so that solutions like Residence-Based taxation (RBT) can be considered."

And in an interview in April, Charles Bruce (pictured left), the legal counsel for ACA – as well as chairman of the ACA's sister research and educational organization, the ACA Global Foundation – told the AXFNJ that the ACAGF "wouldn't be doing this if we didn't think there was a real possibility that [Washington lawmakers] are going to revisit" the idea of a possible move to an RBT system, later this year.

 Yesterday, in a news item on its website about the four House members' letter to Rep. Neal, the ACA noted that these lawmakers' efforts notwithstanding, "broad-based community support to push Congressman Richard Neal to host hearings so that RBT can be considered as a solution" was "still needed."
"Join ACA’s write-in campaign calling on the Chairman to host hearings now," the ACA's news item added, before providing a link to an online form that it is evidently hoped will encourage lots of ACA members and others to add their names to the cause.