The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group
A prior post explained the green book proposal published earlier in February: Obama Budget Proposal to “Provide Relief for Accidental Americans”? Will the Proposal to Modify the Expatriation Rules Become Law?
The unique consequence of such a proposal, would be to eliminate U.S. citizenship based taxation for a very small, select group of U.S. citizens. See, Co-author. “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.
The group affected would indeed be very small. Most importantly, the requirements that would limit the number of eligible persons to a very small class of individuals are the following:
- [those who] have never held a U.S. passport or . . . held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
- [those who] relinquish . . . his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen.
The immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States. The relevant part of the regulations is § 53.1(a) which provides as follows:
Passport requirement; definitions.
Assuming an individual was aware of such regulatory rule, they could not qualify for this proposed exception, if they ever lived in the U.S. since becoming 18 1/2 years old. This means that only those individuals with U.S. passports who (i) obtained a U.S. passport as a child (presumably through their parents) while (ii) living in the U.S. and (iii) did so in order to comply with this regulation 22 CFR § 53.1 would be eligible. Since the regulations were just passed in 2006, anyone who obtained a U.S. passport, for instance in 2002 (even if they never lived in the U.S.) would presumably be disqualified from this tax treatment.
Also, if they did not get a passport when they were in the U.S., leaving the country after the 2006 passport regulations were adopted, would have been a violation of the law.
Bottom line, it seems nearly impossible that anyone who ever had a U.S. passport would ever qualify for this exception.