Americans Abroad Propose Tax Changes to Worldwide Income

No doubt about it, the IRS is making headway in their efforts to bring Americans with unreported offshore accounts into tax compliance with the Foreign Account Tax Compliance Act (FATCA) and (FBAR) regulations. IRS enforcement and data sharing from European banks, has made it possible for the U.S. to gather account information on wealthy American clients; something just three years ago was impossible.

But an article in Forbes entitled Expats Lobby for Tax on Residence Not Worldwide Income shows some push back on such regulations specifically from American expats and dual U.S. and Canadian citizens who believe taxing a citizen’s income and not their residence is a bad idea.

American Citizens Abroad (ACA) representing citizens who live abroad recently introduced a tax reform proposal advocating a residence-based tax instead of citizen-based taxation. As it stands now, U.S. citizens and permanent residents with green cards pay tax to the IRS on their worldwide income even if they do not live or work within the U.S.

According to the Forbes article, the ACA argues that citizen-based taxation and FATCA and FBAR regulations make little distinction between American residents overseas who pay taxes to their country of residence than the citizen tax evaders who hide accounts and do not pay theirs. As a result, many Americans living abroad who use foreign accounts on a daily basis could see their banks closing their accounts to avoid potential FATCA penalties.

The ACA sites the following failures to citizen-based taxation to Americans living abroad:

  • Lack of Benefits: Citizens don’t get to use the services they pay U.S. taxes for.
  • Low Revenue Potential: 90% pay higher tax rate in their resident country with not much left over for the U.S. Government coffers.
  • Lack of Administrative Ability to Carry Out the Law: Currently, the U.S. cannot accurately identify international taxpayers in order to determine tax compliance.
  • Heavy Administrative Burden: 91% do not owe taxes, but both citizens and the IRS are burdened with expenses for paperwork receiving little or no return.
  • Lack of Tax Efficiency: Taxes collected do not justify the IRS budget for such a program.
  • Unfair Taxation: Inconsistencies with foreign and U.S. tax structures leads to double-taxation.
  • Infringement on Fundamental Human Rights: Citizens living abroad are penalized for living and working overseas.

While there are some members in Congress that like the proposal because it appears to “level the playing field” there is doubt it will become law. The ACA says the upside of changing to residence-based taxation for individuals would encourage U.S. corporations to send more American staff overseas to represent U.S. interests and promote American-made products thus raising U.S. global competiveness.

If you are an American citizen with undeclared funds in offshore bank accounts, being proactive and disclosing these foreign funds will work in your favor. Consult a certified tax resolution specialist or expert tax attorney to help minimize severe IRS penalties and possible criminal prosecution and help you work out a structured IRS payment plan for tax relief.

More Tax Help, IRS News and Tax Relief Tips:

  1. Treasury Proposes Multilateral Agreement for Offshore Compliance
  2. Doctor Sentenced for Failing to File FBAR Reports
  3. Swiss Bank Wegelin Avoids Court Appearance
  4. Swiss Bank Wegelin Indicted for U.S. Tax Evasion
  5. Offshore Tax Evaders Get Preferred IRS Help

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