IT AIN’T FAIR: First (1) taxing me as a U.S. citizen and then (2) taxing me on my relinquishment or renunciation of U.S. citizenship or LPR abandoment and further (3) taxing my children on their inheritance from me!@!@!

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This sums up the argument of many critics of U.S. citizenship based taxation of worldwide income.

Many may agree with this conclusion from an equity or sense of fairness argument.  See proposal below at the end of this post.  IRS Form 1040 p1

However, the argument of fairness has little place in interpretations of Title 26, the U.S. federal tax law.  For example, the U.S. Tax Courts are not courts of equity.  See, The United States Tax Court – An Historical Analysis, Dubroff and Hellwig, footnote 668.

Also, virtually no courts of the U.S. find U.S. tax laws to be unconstitutional.  It is a very rare occurrence that the U.S. Supreme Court even takes up a tax case to determine its constitutionality.  The “Obamacare” with broad application throughout society was a case heard by the Supreme Court which upheld a law signed by President Obama on March 23, 2010, more correctly called the Patient Protection and Affordable Care Act.  That law increased Medicare taxes and imposed a penalty surcharge on individuals who do not maintain certain health coverage.

In contrast, U.S. citizens and lawful permanent residents (LPRs) residing overseas are a relatively small population of the U.S. taxpayer population.  Accordingly, it was only until late the U.S. government even began focusing on this population to collect taxes from them.  See, Is the new government focus on U.S. citizens living outside the U.S. misguided or a glimpse at the new future?, posted March 6, 2014.  Form 8854 Yr 2013

Finally, see various proposals to modify the law:  e.g., U.S. Citizenship Based Taxation – Proposals for Reform –   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.

Executive Summary

This paper proposes to eliminate the U.S. citizenship based taxation and create a consistent exit tax system.  The complex web of the current U.S. tax law has made it nearly impossible for all but the most sophisticated U.S. citizens and lawful permanent residents (“LPRs”) residing overseas to file complete and accurate tax returns. The proposal should bring consistency, tax simplicity for taxpayers residing outside the U.S., and do so in part by eliminating the U.S. citizenship based tax system, which is unique in the world, dates to the civil war and is inappropriate for the global world we live in.

  • Summary of Current Status of the Law

To date, there is no serious and comprehensive proposal to modify the U.S. federal tax law imposing U.S. taxation of the worldwide income of USCs and LPRs residing outside the U.S. 

There are also no serious proposals to repeal the current U.S. “expatriation tax” on (1) mark to market income and gains (When does “Covered Expatriate” Status -NOT- matter?) and (2) the 40% tax on covered gifts and inheritances (see, Proposed Regulations for “Covered Gifts” and “Covered Bequests” Issued by Treasury Last Week (Be Careful What You Ask For!)

4 thoughts on “IT AIN’T FAIR: First (1) taxing me as a U.S. citizen and then (2) taxing me on my relinquishment or renunciation of U.S. citizenship or LPR abandoment and further (3) taxing my children on their inheritance from me!@!@!

    renounceuscitizenship said:
    October 25, 2015 at 11:41 pm

    Hello Patrick – with respect to your second to last paragraph that reads:

    “To date, there is no serious and comprehensive proposal to modify the U.S. federal tax law imposing U.S. taxation of the worldwide income of USCs and LPRs residing outside the U.S.”

    Only a tax lawyer would want something comprehensive so I won’t go there. But here is a serious proposal:

    Stop taxing U.S. citizens and Green Card holders residing outside the United States on income earned and property located outside the United States.

    Is that simple enough for you?

    With respect to your last paragraph:

    Here is a serious proposal:

    Get rid of the tax on expatriation.

    Simple enough for you? After all the United States survived until 2008 without it.

    Simplicity is a good thing.

    expatami said:
    October 26, 2015 at 3:56 am

    Being fair and just has never been the interest of the U.S. government. It exists to wrongly harm the innocent.

    John Brown said:
    October 26, 2015 at 5:52 pm

    Tax morale for non-resident Americans is less than zero.

    expatami said:
    October 26, 2015 at 7:12 pm

    What do you think that Americans living abroad should do? Their votes are diluted among the 50 states and thus they have no representation. No one in Congress or the House represents their issues. They are diverse and spread out around the world, so it is hard for them to organize. They write thousands of letters, emails and make phone calls, yet those are ignored and rejected. They raise their voices in social media’s, but such are denied and condemned. They reach out to the local authorities, but they simply tell them to renounce U.S. citizenship. They file complaints, but those are ignored or silenced. They seek legal action in the courts, but such is turned down and rejected for silly or unreasonable reasons. So, they renounce, but then they are hit with huge fees and exit taxes.

    Yet, all that they want to do is to live peacefully locally while enjoying their heritage. U.S. policy towards its expat population is getting worse and worse, yet for all the wrong reasons.

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