Volume No. US-19-01
On December 20, 2018, just before the Congressional holiday
recess, Congressman George Holding
(Republican-North Carolina) introduced H.R. 7358, the “Tax Fairness for Americans Abroad Act of 2018”. This is one of two bills introduced by
Congressman Holding, the other being H.R. 7373, the “Spam Calls Task Force Act of 2018”.
During the 114 Congress, Congressman Holding was a member of
the House Ways and Means Committee which is the chief tax-writing committee in
the House of Representatives. On
November 6, 2018, Congressman Holding was elected with 51.38% of the popular
vote, for U.S. House District 2.
For years, Congressman Holding has been a proponent of tax reform for
Americans living and working overseas. He and his staff have been working on
draft legislation since December 2017 when it became apparent that some form of
residency-based taxation, for individuals, would not be included in the 2017 Tax Cuts and Jobs Act (“TCJA”). While the 2017 TCJA made changes to how
corporations were taxed, no such residency based adjustments were made for U.S.
citizens and residents, who continue to be taxable on their worldwide income.
What is being proposed?
Under
the bill, nonresident US citizens who make an election to be taxed as a
qualified nonresident citizen will exclude from income, and therefore be exempt
from U.S. taxation on, their foreign source income including both foreign
earned income and foreign unearned income. All nonresident US citizens, however, will
remain subject to tax on any US source income.
The bill would add Code Section 911A – “Alternative for Nonresident
Citizens of the United States Living Abroad”.
In order to qualify for “qualified nonresident citizen status”,
a U.S. citizen must be a nonresident U.S. citizen and make an election to be
taxed as such. Individuals will make an election and establish that they meet
certain foreign residency requirements.
Under this proposal, a nonresident citizen is defined as an
individual that:
Is a citizen of the United States,
Has a tax home in a foreign country,
Is in full compliance with U.S. income tax laws for the previous 3 years, and
Either:
- establishes that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
- is present in a foreign country or countries during at least 330 full days during such taxable year.
Will this Bill
become law?
Anyone who follows U.S. politics will know how difficult it
is, for what may be termed a private member’s bill, to become law. Proposed laws must be voted in and passed by
both the House of Representatives and the United States Senate and then signed
into law by the President. Those who
remember the 2010 changes to the U.S. estate tax law will recall the vast
number of bills that were proposed that ultimately went nowhere.
The U.S. Federal Government is currently shut down with no
end in sight. The Democrats have retaken
control of the House of Representatives and many Democrats are talking of
impeaching President Trump. Other issues
such as building a wall with Mexico, immigration reform and health care
continue to dominate U.S. politics.
In her 2011 Annual Report to Congress, National Taxpayer Advocate
Nina E. Olson cited (page 152 of Section 1) that there were between 5 to 7
million U.S. citizens living abroad.
With the U.S. population at approximately 324 million (as of 2017) the
number of U.S. citizens abroad represents, between, 1.54% to 2.16% of the U.S.
population. While the issue of U.S.
taxation is a significant issue to those U.S. citizens living abroad, in the
general scheme of things the taxation of U.S. citizens abroad does not appear
to of significantly high importance to either the U.S. Congress or the IRS.
As such, while the passing of the bill may provide tax
relief and simplification to U.S. citizens abroad, it is doubtful that it will
become law anytime soon. Essentially
taxpayers shouldn’t get their hopes up.
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The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.
