Newly introduced legislation on Capitol Hill would implement a residence-based taxation system for U.S. citizens currently living overseas.
The Residence-Based Taxation for Americans Abroad Act, H.R. 10468, sponsored Dec. 18 by U.S. Rep. Darin LaHood (R-IL), would permit Americans living overseas to elect to be treated as a non-resident American, allowing them to be subject to U.S. tax only on U.S.-sourced income and gains.
“This is a non-partisan issue that impacts U.S. citizens with roots in districts across the country,” said LaHood. “In today’s world, Americans choose to live and work abroad for a host of reasons, and that does not mean that they should be subject to more onerous tax and compliance burdens.”
More than five million U.S. citizens are currently living abroad, including both Americans who were born and raised in the United States but have since moved abroad indefinitely, as well as individuals who hold dual citizenship in the U.S. and a foreign country but are unaware of their status as U.S. citizens, according to information provided by LaHood’s staff.
The congressman said he worked closely in drafting the bill with Tax Fairness for Americans Abroad (TFFAA), a U.S. nonprofit organization that advocates for a U.S. tax system for Americans abroad that is based on residence and source, not citizenship.
“For the first time in our lifetimes, Americans abroad can see the light at the end of the long, dark tunnel that has cost them huge amounts in accounting fees, ruined relationships, and made it impossible for them to live normal lives,” said Brandon Mitchener, executive director of TFFAA. “We thank Mr. LaHood for his leadership and look forward to working with him to collect feedback on this non-partisan approach and to help advance the bill to the president’s desk next year.”
If enacted, H.R. 10468 would establish an elective process for a U.S. citizen living abroad to be treated as a non-resident without having to renounce his or her U.S. citizenship, according to a bill summary provided by the lawmaker.
Once the election is made, it would be effective for the current and all future taxable years until terminated, either by the non-resident American self-withdrawing the election or if the individual again becomes a U.S. resident for tax purposes, the summary says.
Also under the bill, for purposes of Foreign Account Tax Compliance Act (FATCA) only, a non-resident American would be able to apply to the IRS for a certificate of non-residency to use with foreign financial institutions, and to help ensure fiscal balance and prevent abuse, the electing individual must also pay a departure tax on deferred income, with certain exceptions, among other provisions.