Site icon Tax-Expatriation

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

International Tax Advisor

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:

 

 

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.
*
These regulations were first published in 2006, and rely in part on a Presidential Executive Order made by President Bush (Jr.).
*
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
*

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.

*

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.
 *
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.
 *
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.
Exit mobile version