The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group

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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 forWorld Map 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,US Passport

 

  • [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.

(a) It is unlawful for a citizen of the United States, unless excepted under 22 CFR 53.2, to enter or depart, or attempt to enter or depart, the United States, without a valid U.S. passport.
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These regulations were first published in 2006, and rely in part on a Presidential Executive Order made by President Bush (Jr.).
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Presumably, it is a very small and select group of individuals who obtained a U.S. passport, merely to comply with this regulation, in order to depart the country.   How many individuals even know of such requirement and would have applied for a U.S. passport while in the U.S., to legally depart under the U.S. passport requirement regulatory rule?  See, Part I of III: Tracking Travelers’ Entries and Exits – Guest Immigration Law Post by Atty Mr. Jan Bejar
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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.

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Further, the two year rule, would seem to exclude most all other foreign resident USCs (of course, virtually none of whom could ever have had a U.S. passport).  Once an individual becomes aware they are a U.S. citizen (even if they are unaware of any U.S. tax or bank reporting requirements), the two year window starts ticking.  If they do not renounce their U.S. citizenship within that time frame, they too would also not qualify for such an exception.
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Finally, it is worth noting that it often takes several months to get an appointment with the U.S. Consulate or Embassy to even renounce in the first place.
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Therefore, in conclusion, even if the Obama proposal were to make its way into the law, those who could actually obtain relief would be a rare group of individuals.  In short, U.S. citizenship based taxation on worldwide income, will continue to be the law of the land.

This entry was posted in Immigration Law Considerations, Tax Compliance.

One thought on “The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group”

    WhatAmI said:
    February 19, 2015 at 5:01 pm

    I’ve read blogs from the four corners of The Earth just like this one, which point out the absurdity in the passport restriction of this proposal. Those who complied with 22 CFR § 53.1 and used a US passport to both enter and exit the US are excluded, but those who violated the law and did not use a passport can benefit from the proposal. Really?

    Do we really think the people who conceived and drafted this proposal are that stupid or mean or deceitful? Can it be that within the 312-page Green Book there are no mistakes or poorly-worded statements? Perhaps this statement is simply poorly worded?

    If they meant to say “enter and depart” to match the 22 CFR § 53.1 regulation they refer to (which itself is only one sentence) then everything makes perfect sense. Isn’t that more likely?

    The preamble to the proposal says “Individuals who became citizens of both the United States and another country at birth may have had minimal contact with the United States”, referring to the “Certain Accidental Dual Citizens” in the provision’s title. Points 3 and 4 of the requirements attempt to define “minimal contact” as not having lived in the US after the age of 18.5, and not using a passport for anything other then entering and exiting the US as is required by the law 22 CFR § 53.1. Point 3 only restricts “living” in the US after 18.5 years of age, not “visiting” the US. And visiting the US requires a US passport to enter and exit as in regulation 22 CFR § 53.1.

    I’m suggesting that the passport reference in Point 4 is poor and incomplete. Surely what they have in mind is similar to what the Department of State looks for and asks when citizens make a claim of a past relinquishment: did you thereafter continue to “act like an American”, such as vote in US elections, use a US passport to seek aide of protection from a US Embassy abroad, register your children born abroad as US citizens, etc? The DoS rules that people who do such things after a past relinquishing act clearly did not intend to give up their US citizenship. I believe the author of this proposal intends that Accidental Americans who do such things clearly have more than “minimal contact” with the US and should not be considered Accidental Americans for the relief the proposal provides. Indeed, people who exercise these rights of US citizenship while living abroad are precisely to justification the US uses for citizen-based taxation in the first place.

    Can somebody please contact their (Democrat) Congressman to seek clarification of Point 4 regarding passport usage? Didn’t they mean to say “for the sole purpose of complying with 22 CFR § 53.1”?

    Reply

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