updated 2:28 PM CEST, May 24, 2023

American expat group reiterates ire over Trump ‘Transition Tax’ at hearing

The American Citizens Abroad yesterday reiterated its strong objections to a key measure contained in President Trump’s recent Tax Cuts and Jobs Act, at an IRS and Treasury Department hearing.

In her testimony before the IRS and Treasury Department representatives, ACA executive director Marylouise Serrato called attention to the fact that in drafting the regulations for the Section 965 element – the so-called “Transition Tax” or “Repatriation Tax” element – of the tax bill, the Treasury had failed to take into account the legislation’s potential effects on Americans living and working overseas.

“Treasury Department, in our view, is not well informed about the situation of Americans abroad,” Serrato said.

“These regulations, in the eyes of tens of thousands of individuals living overseas, are maddeningly cavalier.”

Serrato’s testimony was the latest in a series of efforts the ACA has made thus far this year to call attention to the little-reported but significant problems the Trump legislation – signed by the president just before Christmas last December – has burdened thousands of expat Americans with.

Twice thus far in 2018 the organization has submitted written comments to the Treasury Department on the effects that the Transition Tax and “GILTI” (Global Intangible Low-taxed Income) provisions of the Tax Cuts and Jobs Act (TCJA) are having, and are expected to continue to have, on many of the estimated 5.1 million Americans ACA estimates current live outside of the U.S. (The ACA considers this figure more accurate than the 9 million frequently mentioned, based on its extensive research.) 

ACA argues that the Treasury could repair the damage by simply inserting a "de minimis rule" into the regulations.

As reported here earlier this month, the ACA argues that such a de minimis rule would exclude from Section 965 of the legislation – sometimes referred to as “Transition Tax” or “Repatriation Tax” – those U.S. taxpayers living outside the U.S. who own small non-U.S. businesses, such as shops, bars, law firms and bed-and-breakfast enterprises, which the current legislation treats in the same way as it does the overseas entities of such large multi-national companies as Amazon and Apple.

Such a move, the ACA argues, would remove from the Section 965 regime most Americans overseas affected by the law.

Treasury ‘not done its due diligence’

In her testimony, Serrato also took the Treasury Department to task for not having done its due diligence in determining how small entities, such as the many small businesses owned around the world by American expats, would be affected by the Trump tax law.

This, she noted, represented a failure on the Treasury’s part to properly evaluate the economic impact of proposed regulations on small entities, including small entities abroad, which it is required to do under the Regulatory Flexibility Act (RFA).

“Treasury is not truly in touch with the reality of Americans abroad. Foreign corporations owned by Americans abroad exist in abundance. They are an everyday fact of life,” added Serrato.

The reason a de minimis rule is needed, she said, was because the Trump tax law was created without a thought for such entities as small businesses owned by expatriate Americans. 

"There can be no justification for requiring an American owning and operating a restaurant in Bergen, Norway, with very little in the way of undistributed, non-previously-taxed post-1986 foreign earnings of the business, to calculate and pay the 'transition tax'," Serrato told the Treasury delegates attending yesterday's hearing.

"If he doesn't comply, not only will he owe the tax, but also penalties and interest. In the true sense of the word, this result is absurd.

"Having [these] regulations apply to small taxpayers is a glaring problem that everyone knows exists. Treasury Department and the IRS must fix it." 

Today based in Rockville, Maryland, the American Citizens Abroad is the main non-partisan Washington advocacy group representing American expats around the world, having been founded more than 40 years ago. 

To read Serrato's testimony in full, click here. 

As reported, some critics of the Trump tax reform bill have said that a Republican member of the House of Representatives, George Holding of North Carolina, was planning to introduce legislation that would enable American expatriates to avoid some of the worst aspects of the current U.S. tax regime as it applies to them by giving them the option of replacing the U.S.’s current citizenship-based tax (CBT) regime with a “territorial taxation for individuals” (TTFI) system. Those who would prefer to continue to be taxed under the existing CBT regime could, under this legislation, be allowed to do so.

However, the legislation had been expected to be introduced before the end of September, and as October draws to a close it has yet to appear.