# U.S. Congressional Republicans Pushing for Tax Increase on U.S. Expatriates



## BBCWatcher

The U.S. House of Representatives is debating whether to give the President "fast track" authority for the Trans Pacific Partnership (TPP) agreement and also debating associated legislation such as Trade Adjustment Assistance (TAA). TAA consists of a set of benefits intended to help workers who are harmed as a result of agreements such as TPP. TAA requires funding, and Congressional Republicans are trying to find it. Congress has broadly agreed that TPP fast track authority will not be granted unless TAA funding is provided.

According to press reports I've spotted (here and here as examples), one place the Republicans want to get some TAA funding is via reduction in the Child Tax Credit available to "wealthy" (their term) U.S. expatriates. Congresswoman Rosa DeLauro (D-Connecticut) is among those who object. She wants any change in the Child Tax Credit to remain within the Child Tax Credit -- that is, if some taxpayers receive less Child Tax Credit then others should receive more, but otherwise, in her view, CTC tax expenditures should not be reallocated to other purposes, such as TAA funding.

If you also object to this particular proposed tax change, then you can contact Congress, particularly Congressional Republicans who are pushing for the idea.

Let me explain how the Child Tax Credit currently works in relation to U.S. citizens living overseas. First of all it's simply not available to "wealthy" Americans in terms of high income. The Child Tax Credit phases out starting at a modified AGI of $110,000 (Married Filing Jointly). So if income is much above that, there's no Child Tax Credit. Second, modified AGI adds back in the Foreign Earned Income Exclusion (and Foreign Housing Exclusion), so Americans cannot raise their CTC phase out income level via the FEIE. Third, Americans who take the FEIE cannot qualify for the refundable part of the Child Tax Credit (the Additional Child Tax Credit). Americans who wish to take advantage of the refundable part have to skip the FEIE (and rely solely on the Foreign Tax Credit) -- and they're still subject to the modified AGI phase out limit, just like everyone else.

Republicans are apparently upset that some overseas Americans (with U.S. citizen children) who take the FEIE can qualify for some or all of the nonrefundable part of the Child Tax Credit, using that credit to offset (only) current year U.S. income tax on non-earned income -- tax on interest, dividends, and capital gains, as examples. But these Americans are not "wealthy" according to conventional political definitions. (President Obama and the Democrats define "wealthy" at no lower than $200,000 for a MFJ household, for example -- and usually no lower than $250,000. The CTC phases out well before that for everybody, including overseas Americans.) So anything the Republicans want to do here to reduce the CTC is going to hit what most people would consider middle income Americans -- the income phase-outs are already air tight.

Considering all the other ways to raise revenue -- including from truly high income Americans, overseas or otherwise -- this would not be my first choice in how to raise additional revenue.


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## Nononymous

[email protected]


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## BBCWatcher

The House voted down TAA as presently constructed. Democrats want TAA to be much more generous -- and even include some non-TAA sweeteners -- before they'll even consider supporting it and TPP fast track. So, for the moment, there's some good news on this score.


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## BBCWatcher

OK, I found the exact text of the legislation that didn't pass (yet). It's HR 1314 Section 209, and it reads as follows:

*SEC. 209. CHILD TAX CREDIT NOT REFUNDABLE FOR TAXPAYERS ELECTING TO EXCLUDE FOREIGN EARNED INCOME FROM TAX.*_

(a) In General- Section 24(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
`(5) EXCEPTION FOR TAXPAYERS EXCLUDING FOREIGN EARNED INCOME- Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.'.
(b) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2014._

OK, so what the Republicans are trying to do is eliminate the refundable part of the Child Tax Credit (the Additional Child Tax Credit) for individuals who are (a) middle income (the MAGI-based tax credit phase outs are air tight already); (b) can exclude _some_ of their earned income via the FEIE; (c) have enough non-excluded earned income to qualify to collect the refundable ACTC. These would be middle income (or working poor) Americans who typically qualify for the FEIE due to the bona fide residence test but have some amount of U.S. source earned income.

I don't favor this amendment.


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## BBCWatcher

There are some very interesting U.S. tax-related developments in conjunction with the transportation bill. As background, the U.S. Highway Trust Fund will run out of funds in August. The most straightforward funding solution is to raise the federal motor fuels excise tax -- to index it to inflation, in particular. The federal motor fuels excise tax hasn't been raised, even for inflation, since 1993. For bizarre political reasons the Republican-controlled Congress doesn't want to raise the gas tax even for inflation. But Congress is even less inclined to cut highway funding, so Congressional Republicans keep coming up with short-term funding fixes for the Highway Trust Fund -- including _other_ tax increases. No, this makes no sense, but I'm only the messenger.

OK, with that background, as the latest development U.S. Senate leaders have unveiled their version of the transportation bill. It's a 6 year bill with 3 years of funding, with the other 3 years to be decided later, after the next election. The funding consists of some Rube Goldberg-esque tweaks to save spending and/or raise revenues (taxes) -- just not raise the federal motor fuels excise tax, even for inflation. I've been scanning through the 1,030 page Senate bill and have found some really interesting tax-related items. Here are what I think are the most interesting:

1. Section 52102: "Revocation or Denial of Passport in Case of Certain Unpaid Taxes." This section of the transportation bill adds a new section (Section 7345) to the Internal Revenue Code. This section provides a mechanism to revoke and deny renewal of U.S. passports for individuals that have delinquent IRS tax leins of $50,000 or more (2015 dollars). Yes, _revoke_ -- if you're not square with the IRS, your U.S. passport can be cancelled and won't function, at least in the developed world. The IRS has to obtain a tax lein (or functional equivalent), via due process, and if you're making at least _some_ effort to pay your tax bill then your passport should be safe. You have to be "seriously delinquent," in other words (and the bill defines that). The State Department also retains the authority to issue passports to seriously delinquent individuals for emergency or humanitarian reasons, and the State Department also retains the authority to mark the passport as valid only for one-way travel to the United States (i.e. to demote a regular U.S. passport to ETD status -- a "99%" revocation, as it were). The law is further amended to give the U.S. State Department the authority to deny U.S. passports to individuals who do not provide valid and correct U.S. Social Security numbers, and there are IRS-State data sharing provisions in the bill. These U.S. passport provisions will go into effect on January 1, 2016, if the bill is passed in Congress and signed by the President.

These provisions are very similar to the existing child support-related passport provisions. If you're delinquent on child support that's another reason you can be denied a U.S. passport.

2. Section 52107 looks like it increases funding for the IRS, specifically for tax compliance personnel.

3. Section 52303 restricts payment of Social Security benefits to fugitive felons. I suppose that would include tax-related fugitive felons.

This is the Senate's version of the bill, and it'll need to be passed in both houses and signed by the President in order to become law.


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## BBCWatcher

I found another interesting provision in the Senate's transportation bill:

4. Section 52105, among other things, changes the filing deadlines for certain financial reports. The new filing deadlines would go into effect for tax year 2016, thus they'll be 2017 deadline dates (for 2016 reports). The new deadlines that will be the most interesting to this forum are for IRS Form 3520-A, IRS Form 3520, and especially FinCEN Form 114. The new standard deadlines will be April 15, but in fact filers will be able to extend their deadlines to October 15. That's great news, I'd say, since the new deadlines are uniform with IRS Form 1040 -- no more need to try to remember different deadlines. FinCEN Form 114, for example, currently has a hard deadline of June 30 with no extensions available, but if this legislation passes you'd be able to extend the deadline to October 15, just like your tax return.

It's a bit hard to tell from the legislative text, but it looks like you'd file IRS Form 4868 to get the October 15th deadlines -- the same, common form to get an extension on IRS Form 1040. (That's a bit ambiguous for FinCEN Form 114, though.) Also, it appears that overseas residents will get an automatic June 15th filing deadline, again the same as tax returns.

I'm not actually sure what the legislative impact is for 3520 and 3520-A. I thought those forms already had the same deadlines as 1040s, but maybe not in every case. Anyway, this section looks like good news since it clearly allows FinCEN Form 114 to stretch as late as October 15 if you need the extra time. Even if the "standard" deadline is shorter for that form, I'd say it's a welcome change.


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## BBCWatcher

By the way, the proposed passport revocation/denial legislation isn't new. So far the House of Representatives hasn't gone along with the Senate, but the Senate might get its way this time since it's tied to highway funding and generates revenue (for obvious reasons). House Republicans don't want to raise the gas tax either, so they'll have to find another way to fund transportation if they don't like the Senate's idea(s). Republican Senator Orrin Hatch is among those pushing for tightening up the passport law. Senate Democrats have paused the transportation bill since they want time to review it, but there's broad agreement in the Senate at least that this passport provision has merit. Senator Barbara Boxer (D-California), for example, has long been in favor of such a provision.

Some people argue that passport issuance restrictions are legally improper because they interfere with a right to expatriation (or a purported right anyway). Though the case law is limited, U.S. courts haven't agreed with that argument. For example, Briehl v. Dulles (1957, D.C. Circuit Court of Appeals) affirmed the Department of State's ability to deny a passport to an applicant that refused to execute a statement about his political affiliations. _Functionally_ you can get in your car (or boat) and drive (or sail) beyond the U.S. border -- or just walk across. The U.S. doesn't actually have exit control checkpoints at its borders, unlike most other countries, so nobody from the U.S. government is physically standing in the way of people who want to exit U.S. territory. _Legally_, though, you're supposed to bear a valid U.S. passport if you're a U.S. citizen crossing the U.S. border in either direction. Renunciation in front of a U.S. consular official is only one of the ways to terminate one's U.S. citizenship, as it happens.

Anyway, anybody can file a lawsuit in U.S. court, and maybe one will be coming if the tax-oriented passport law is passed. But plaintiffs can already file lawsuits against the existing child support restrictions to passport issuance, and I don't see how the existing child support restrictions would be legally any different than tax-related restrictions. So if there's a winnable legal argument, it already exists in present law.


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## Bevdeforges

Looking at the progress of this bill, it seems the overall intention has changed at least a couple of times. Added to that, they seem to be throwing all sorts of amendments and amendments to amendments at the bill, in the hope of some of them sticking.

I don't see this as a real threat to most of us living overseas. Sure, maybe if you're under audit and facing imposition of a tax lien. But how many expats do you know (personally, not through IRS press releases in the news) who have been audited recently?

Ultimately, I don't see this changing much of anything for most expats.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Ultimately, I don't see this changing much of anything for most expats.


I completely agree. The vast majority of U.S. citizens are U.S. tax compliant (and certainly not "seriously delinquent" -- a $50,000 nonperforming tax lien is a lot!) and are not fugitive felons.

The one provision that'll be relevant to most U.S. citizens resident overseas, and for the better, is the change in the FinCEN Form 114 filing deadline. Even better would be to merge IRS Form 8968 and FinCEN Form 114 into a single report -- and even merge 3520/3520-A as well, if possible -- but unifying the filing deadlines is a positive step in that direction.


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## Bevdeforges

Even better, just submit the report of foreign accounts as part of your regular tax return. (Including the provision that, if you don't have to file a return, you don't have to report your overseas accounts!) That's how they do it here in France and it seems to work just fine.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> (Including the provision that, if you don't have to file a return, you don't have to report your overseas accounts!)


That's not going to fly, in my view. My prediction is we'll eventually see a single combined, consolidated report, but it'll still have its own, separate filing obligation and filing threshold.


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## ForeignBody

BBCWatcher - thank you for taking the time to keep us informed. It is appreciated.


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## Lonepine

The parasites seem to get fatter by the day.


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## BBCWatcher

Lonepine said:


> The parasites seem to get fatter by the day.


In fact, no -- at least not on this occasion. U.S. government revenue as a share of GDP is rather moderate, and the Medicare trustees' report this week is _spectacularly_ good. Transportation, particularly maintenance/repair and mass transit, really is underfunded in the U.S., and the federal motor fuels excise tax really has fallen in real terms (the only terms that matter).


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## BBCWatcher

The presidential campaigns are starting to lift the lid on their fiscal policy proposals. Hillary Clinton, for example, is likely to propose reducing the current biases in the tax code that tend to favor passive income received by high income individuals. According to the Wall Street Journal her proposal will end the preferential lower capital gains tax rate for assets held less than two years (instead of today's one) and reduce the preference for assets held less than six years. These changes would only apply to the highest income individuals, perhaps even only those with million dollar annual incomes or higher.

I happen to agree with Clinton that the U.S. tax code currently is too generous to the wealthiest (versus the middle class) and to passive income (versus earned income), but my preferred policy solution would be simply to allow indexing of passive income for inflation, taxing the after-tax gains at ordinary rates. That'd greatly simplify passive income taxation overall, especially given that most people are getting 1099s on such income. (Those that aren't can include inflation in their cost basis but would not be required to.) I'd also eliminate the payroll tax cap, extend the payroll tax to all forms of income, and lower the payroll tax rate on the employee/individual side if there's money to spare (after extending the Social Security trust fund projection to 2075 and after boosting benefits a little, in key areas where the benefits really are too low). Finally I'd introduce a new 45% tax bracket starting at about $2.5 million MFJ income (2015 dollars), a simple 30% "Buffet Rule" at the same or slightly higher level, and get rid of the AMT and all its complexity. That said, I think Clinton is headed in the right direction, but I'd be bolder particularly in taking the opportunity to simplify the tax code and put Social Security and Medicare on more solid footing.


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## BBCWatcher

To update everyone on the Senate transportation bill, many senators are upset that the current bill contains a provision to extend the deadline for implementation of positive train control by 3 years. Amtrak will meet the 2015 deadline, but freight railroad industry lobbyists convinced some senators to sneak that delay language into the bill -- probably Senator John Thune (R-SD), specifically, since he sponsored a 5 year extension bill (S.1462). Just a couple months ago 8 people died in an Amtrak train crash in Philadelphia, a crash that simply would not have occurred with PTC. There have also been numerous expensive and deadly freight train derailments and crashes, including several involving chemicals, oil, and gas shipments. Railroads face fines if they don't get PTC systems implemented by the deadline. PTC systems automatically bring trains to a stop when drivers do not obey signals and speed limits and when drivers are non-responsive (e.g. unconscious or asleep).

Some senators are willing to grant the Federal Railroad Administration (FRA) the ability to allow one year extensions on an exception basis, but that's as far as they'd go. The transportation bill in its current form goes well beyond that and simply extends the deadline by 3 years.

This bill is a long way from being finished.


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## Bevdeforges

BBCWatcher said:


> I happen to agree with Clinton that the U.S. tax code currently is too generous to the wealthiest (versus the middle class) and to passive income (versus earned income), but my preferred policy solution would be simply to allow indexing of passive income for inflation, taxing the after-tax gains at ordinary rates. That'd greatly simplify passive income taxation overall, especially given that most people are getting 1099s on such income. (Those that aren't can include inflation in their cost basis but would not be required to.) I'd also eliminate the payroll tax cap, extend the payroll tax to all forms of income, and lower the payroll tax rate on the employee/individual side if there's money to spare (after extending the Social Security trust fund projection to 2075 and after boosting benefits a little, in key areas where the benefits really are too low). Finally I'd introduce a new 45% tax bracket starting at about $2.5 million MFJ income (2015 dollars), a simple 30% "Buffet Rule" at the same or slightly higher level, and get rid of the AMT and all its complexity. That said, I think Clinton is headed in the right direction, but I'd be bolder particularly in taking the opportunity to simplify the tax code and put Social Security and Medicare on more solid footing.


So, when are you throwing your hat in the ring? (And on which side of the aisle?)

What you, me or any of our posters prefer in terms of tax (or any other) policy is pretty much irrelevant, especially in the current political climate. Whoever gets elected still has to push (or drag) their bright policy ideas through Congress - and that depends more on who gets elected in "other" parts of the country.
Cheers,
Bev


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## Lonepine

Bevdeforges said:


> So, when are you throwing your hat in the ring? (And on which side of the aisle?)
> 
> What you, me or any of our posters prefer in terms of tax (or any other) policy is pretty much irrelevant, especially in the current political climate. Whoever gets elected still has to push (or drag) their bright policy ideas through Congress - and that depends more on who gets elected in "other" parts of the country.
> Cheers,
> Bev


One thing for sure is the Republicans are going benefit the rich at the expense of the poor. It's that simple. If the Republicans take control, expect wars, deepening deficits, miseries for the middle class and the poor, more power for the top 1%.


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## Bevdeforges

Lonepine said:


> One thing for sure is the Republicans are going benefit the rich at the expense of the poor. It's that simple. If the Republicans take control, expect wars, deepening deficits, miseries for the middle class and the poor, more power for the top 1%.


Yeah, but given the current line up of Republican "hopefuls" one has to wonder what sort of a chance the Republicans have to field a viable candidate.
Cheers,
Bev


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## BBCWatcher

The uniform filing deadlines for FinCEN Form 114 (and other forms) is now law. The President signed HR 3236, yet another temporary extension of transportation funding. HR 3236 includes the revision to FinCEN Form 114's filing deadline (and IRS Forms 3520/3520-A). The new deadlines will go into effect for reporting tax year 2016, not the current tax year.

The passport-related language was not included in HR 3236, but Congress will get another crack at doing that in October -- or perhaps earlier since that language has been attached to several bills now. The temporary transportation funding extension is only for 90 days.


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## BBCWatcher

The Senate passed its "DRIVE Act" (HR 22) with a filibuster-proof supermajority, and House leaders promise they'll take up the Senate's transportation bill for debate (and probable amendment) after the recess. HR 22 is the latest iteration of the 6 year transportation bill (with 3 years of funding). The "seriously tax delinquent" passport provision is in HR 22, but the fugitive felon Social Security provision is in the bill.


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## BBCWatcher

I've been digging into the passport denial/revocation provision for "seriously delinquent" taxpayers to see how much revenue that provision is expected to raise. According to the Senate Finance Committee (via the CRFB) the passport provision is expected to raise about $400 million in revenue over the first 3 years -- really over 2 1/2 years it seems since the provision doesn't go into effect right away. Barring Social Security payments from "fugitive felons" was expected to save about $2.3 billion over 3 years, but that provision was too controversial and wasn't required in the end to hit the Senate's 3 year revenue raising target.

So we're talking some decent money here -- $400 million over 3 years is a chunk of change, even in transportation. That's roughly equivalent to two subway line extension projects per year every year. Or the difference between having a National Gallery of Art and not, to pick something outside transportation. Most people would prefer having a National Gallery of Art (or having longer subway lines serving more people) over issuing passports to people with outstanding tax liens. If the House disagrees they'll have to come up with something else that raises (or saves) about $133 million per year that enough Congressmen and the President can agree to.


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## Lonepine

Something is very strange going in the US today, particularly the San Gabriel valley of Southern California: it looks like it's been given to the Chinese. The population of new Chinese immigrants has now exceeded 70%!! Every day there are more new Chinese coming. Now the long time residents cannot even recognize their own cities. Billboards, store signs, and banners in all-Chinese language! It looks like the US government has sold out a good chunk of Southern California to the Chinese!


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## Bevdeforges

Yeah, kind of like what the French here complain about with the "invading" British expats.
Cheers,
Bev


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## BBCWatcher

H&R Block convinced the Republican-controlled Senate to try to make tax filing more complicated, particularly for poor people.


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## BBCWatcher

According to the Wall Street Journal, Time, and several other media outlets, the U.S. passport revocation provision looks set to become law, effective January 1, 2016. The provision is included in H.R. 22, the transportation bill, and (according to reports) it has survived the House-Senate conference committee. The provision is Section 32101 in the bill.

This provision would raise about $398 million in revenue according to Congressional estimates. With a few exceptions, individuals who are "seriously tax delinquent" (defined as having a nonperforming IRS tax lien of $50,000 or more) would have their passports revoked and also be denied passport renewals. This provision is broadly similar to the existing provision concerning child support delinquencies.

The provision has bipartisan support. The $50,000 threshold will be indexed for inflation. The State Department will have the authority to revoke the U.S. passports of seriously tax delinquent individuals in such a way that the passport is only valid for one-way travel to the United States. Moreover, the State Department will also have the authority to deny passports to those individuals who fail to provide a U.S. Social Security Number or who provide a false or incorrect Social Security Number.


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## BBCWatcher

I've been digging a bit more into this new Section 32101 provision which will end up being a new Section 7345 in the tax code. Here are some more points:

1. The $50,000 threshold includes interest and penalties. That is, the original tax liability, as measured at its due date, can be less than $50,000. If you let practically any tax delinquency fester long enough without raising an objection, reaching an agreement, or paying it, it could grow big enough to trigger U.S. passport problems.

2. Some organizations are concerned that the IRS may have problems contacting delinquent taxpayers. Of course your U.S. tax return and other filings can and should include accurate contact information, and the passport-related issues raise the importance of providing an accurate mailing address and telephone number to the IRS. If you're concerned that the IRS does not have your correct and current contact information you can file IRS Form 8822. You can also file IRS Form 4506-T (or 4506-T-EZ) if you would like a free tax transcript. The transcript will provide a summary of your current tax status.

3. I forgot about the "Do Not Fly List," but that's another government-imposed travel restriction. The ACLU has made some legal progress in federal court, based on Fifth Amendment due process arguments, getting relief for plaintiffs affected by the Do Not Fly List. I'm sure legal experts will also take a close look at IRC Section 7345 to see whether there are due process concerns. Bear in mind that the child support delinquency provisions were introduced in 1997, nearly two decades ago. If there was a winning legal argument against those provisions it probably would have been won in court by now. I'm not optimistic there's a winning legal argument against IRC Section 7345, but somebody might surprise me. (Perhaps allegedly tax delinquent plaintiffs will have better legal representation than allegedly child support delinquent plaintiffs?)

4. Speaking of the child support provisions, in 1997 the threshold was $5,000. Ten years later the threshold was lowered to $2,500. The tax delinquency threshold starts at $50,000 and is indexed for inflation, unlike the child support delinquency threshold.

5. I haven't been able to determine whether "pure" non-filing or late filing penalties, such as penalties assessed for failure to file FinCEN Form 114 or IRS Form 3520/3520-A (as applicable), count toward the threshold. I assume they would, but I'll have to do some more research on that point. However, as I understand it, if you owe the "Shared Responsibility Payment" -- a higher tax levied in most cases if you fail to maintain "Minimum Essential (Health Insurance) Coverage" while you're living in the U.S. -- then that portion of your tax bill, if delinquent, would not count toward the $50,000 threshold.

6. You can still have a U.S. passport denied and/or revoked if you're wanted in a criminal proceeding.


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## Nononymous

Thank goodness I have another passport.


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## maz57

Yup, there is a faulty assumption underlying all this; that people actually want a US passport. I tried to return mine and State Dept. refused. Go figure.


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## BBCWatcher

maz57 said:


> Yup, there is a faulty assumption underlying all this; that people actually want a US passport.


It's most definitely not a faulty assumption. People do want U.S. passports, a lot. There are over 120 million valid U.S. passports in circulation, equal to about 38% of the U.S. resident population. Both statistics are from 2014 (the most recent available), and both are all-time record highs. For comparison, forty years ago when the jet age was already in full swing for a decade and 747s connected the world it was still only 3%.

U.S. naturalizations soared in the late 1990s and have stayed high, hovering around 800,000 per year ever since. In 2013, the most recent year available, it was 779,929. In some years the number has been above one million.

The fact is there's *huge* demand for U.S. passports and U.S. citizenship.


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## maz57

BBCWatcher said:


> The fact is there's *huge* demand for U.S. passports and U.S. citizenship.


Not for those who are permanent expats. For unknown reasons the US government makes it very difficult for US citizens to live outside of the US. The interminable wait times at US consulates to renounce US citizenship are the proof of that. 

The Canadian consulates are so swamped many no longer even book appointments. I'd call that a huge demand to get rid of US citizenship. Not likely many of those folks will complain if their US passport gets pulled. This is a non-story outside of the US.


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## BBCWatcher

maz57 said:


> Not for those who are permanent expats.


Yes, also for U.S. citizens permanently residing overseas. Reliable statistics are hard to find, but the available evidence suggests their numbers are at or near record highs, too.

I choose to deal in the world of facts as best they can be determined. The fact is U.S. citizenship and U.S. passports are in high demand -- either at or near record high demand -- no matter how you examine the numbers. There's no serious argument otherwise.

With respect to demand for renunciation and documentation of relinquishment of U.S. citizenship, the 2015 figure looks like it'll end up around 5,000 individuals, though that could include some non-citizen green card holders terminating their U.S. statuses. Is that "high"? In absolute numbers, it's probably similar to the late Vietnam War era. (We don't have reliable statistics, but that's a fair, educated guess.) Does that matter? In a word, no.

Also, if you're seriously U.S. tax delinquent you're (already) seriously U.S. tax delinquent. Renunciation does not and cannot change that fact or anything else in the past. From a _functional_ point of view Congress is saying, in so many words, that they want fewer Americans enjoying the rights and privileges of their citizenship who aren't shouldering the obligations and requirements associated with their citizenship. This provision is _completely consistent_ with the core principles underlying individual renunciations. Both "sides" can play this "game" -- sovereign and individual -- and Congress so far is playing this particular game well among the 200 odd countries in this game.


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## Bevdeforges

maz, you realize you're just encouraging him. Despite the "shock and awe" inspiring headlines, the proposals posted here still only involve those with $50,000 in tax delinquencies assessed against them. C'mon, you have to have been seriously avoiding taxes while still on the IRS radar to run up totals like that.

With the overseas IRS offices now shut down, anyone maintaining their low profile from overseas (whether filing "nominally" or not at all) is going to be hard pressed to run up that sort of recognized delinquency. By definition this stuff applies to those "having a nonperforming IRS tax lien of $50,000 or more" - sounds to me to be far more applicable to the domestic taxpayers. (Ever seen a tax lien placed on overseas assets?) And State is not known for their automatic and unquestioning submission to IRS policy. They may have been "authorized" to withhold passports from those who don't give a SSN on application, but it doesn't mean they'll actually do so, and certainly not in all cases.
Cheers,
Bev


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## BBCWatcher

I generally agree with Bev here. This new provision only affects those individuals that value (and use) their U.S. passports. If you're planning to renounce (or document relinquishment of) U.S. citizenship then by definition you don't value a U.S. passport, even as an option/contingent value. Or at least you don't value it more than your assessment of the obligations of that citizenship plus termination costs. This new provision is simply an effort to encourage payment of taxes (and interest and penalties) legally owed but thus far uncollected among individuals with large outstanding and completely unresolved tax bills. I have no doubt this provision will boost revenue to the U.S. Treasury, just as the child support delinquency provision has recovered child support payments. Most Americans with U.S. passports value their passports.

Jumping slightly ahead, and assuming this provision does boost revenue collection (a safe assumption, I think), it would not surprise me if Congress decided to take further steps along these lines to boost revenue collection further. Specifically, Congress might consider barring other, non-U.S. passport holders from entry into the United States if they are "seriously delinquent." Congress has already floated the idea of raising the Expatriation Tax and barring entry to those who owe it, as another example. This Transportation Bill increases funding to the IRS for compliance programs. Congress is quite happy to recover a greater portion of the estimated 16% of U.S. tax revenues legally owed but not collected, and most Americans love that idea too.

By the way (and completely unrelated), I did take a look to see if I could find the world's citizenship with the most renunciants per month/year. Again, reliable statistics are hard or impossible to find, but there is plenty of circumstantial evidence to suggest that India is #1 in this respect, _probably_ also in percentage terms but more assuredly in absolute terms. The available evidence suggests that India has had millions of renunciants within a generation or less. No, I don't think this phenomenon is a problem for India, even at those levels.


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## Bevdeforges

If there are so few renunciations each year (definitely less than 5000 a year from figures I've seen), and the expatriation tax has only been in effect in what, the last 20 years, then we're talking about a pool of no more than 100,000 ex-US citizens (and that number is remarkably high). Given that some renunciations are "required" in order for people to take the nationality of the country in which they are resident, the potential pool affected by all this is even smaller.

Of the remaining pool of those who have renounced, how many actually have an IRS tax lien against them? I think the potential recovery amounts for the US Treasury simply aren't with either the ex-citizens/taxpayers nor with the run-of-the-mill US expat. And whatever they want to do back there in the Old Country to collect delinquent taxes is their call and I wish them rots 'o ruck with it all.

It's all not terribly relevant to the Expat Forum - unless you suspect that we have a larger than normal portion of our membership who have "fled" the US specifically to avoid taxation.
Cheers,
Bev


----------



## maz57

Bevdeforges said:


> Of the remaining pool of those who have renounced, how many actually have an IRS tax lien against them? I think the potential recovery amounts for the US Treasury simply aren't with either the ex-citizens/taxpayers nor with the run-of-the-mill US expat. And whatever they want to do back there in the Old Country to collect delinquent taxes is their call and I wish them rots 'o ruck with it all.


You've got that right. The estimates of how much revenue could ever be collected from expats has been exaggerated right from the get-go. FATCA was slipped into the back of the HIRE act in 2010 as the legally required offset for the amount they were planning to spend, but I don't think anybody really cared that it was an imaginary number. 

It was far more about a few old Congressional blowhards being able to blather on about how they were finally cracking down on offshore tax cheats. All show and no go.


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## Bevdeforges

Even FATCA wasn't actually "directed" at the expat population. There are way more rich folks living in the US with "offshore" investments attempting to evade taxes. The expat community was just an afterthought. And much of the reason for shutting down the overseas IRS offices was to bring all 12 or 15 IRS employees staffing them back to the Mother Ship, er, Homeland, to concentrate on the domestic tax delinquents.

Most Congressional Representatives have no idea that they have "overseas constituents." Just try to drop them a note using their official website some time. (Especially if you don't have a US address any more.) For "security reasons" they won't open or read snail mail postmarked from outside the US. (Actually, from outside their district.)
Cheers,
Bev


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## iota2014

FATCA might have started out as blather, but it certainly hasn't ended up as all show and no go. The potential for extra-territorial control over capital movement is enormous. Passport revocation acts are trivial in comparison with successfully forcing other countries to deliver their residents' financial data.


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## Bevdeforges

The exchange of banking and investment information is a huge cause being promoted by the OECD and other international NGOs. FATCA just got the ball rolling because the US is the only country that uses the information to enforce its citizenship based taxation. The OECD proposal is quite a bit more reasonable - and focuses on "non-resident" accounts, which is where the main source of abuse is.
Cheers,
Bev


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## JustLurking

BBCWatcher said:


> With respect to demand for renunciation and documentation of relinquishment of U.S. citizenship, the 2015 figure looks like it'll end up around 5,000 individuals, though that could include some non-citizen green card holders terminating their U.S. statuses. Is that "high"? In absolute numbers, it's probably similar to the late Vietnam War era. (We don't have reliable statistics, but that's a fair, educated guess.) Does that matter? In a word, no.


It may not matter to you. And it appears to not matter to congress. However, it may matter greatly to adversely affected individuals.

Comparing the US now to the US during the Vietnam-era is not exactly flattering.



BBCWatcher said:


> ...I did take a look to see if I could find the world's citizenship with the most renunciants per month/year. Again, reliable statistics are hard or impossible to find, but there is plenty of circumstantial evidence to suggest that India is #1 in this respect, _probably_ also in percentage terms but more assuredly in absolute terms.


Not a valid or useful comparison. The US permits dual citizenship, but Indian nationals automatically lose Indian citizenship upon naturalizing in another country. This will heavily skew the numbers.


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## iota2014

Bevdeforges said:


> The exchange of banking and investment information is a huge cause being promoted by the OECD and other international NGOs. FATCA just got the ball rolling because the US is the only country that uses the information to enforce its citizenship based taxation. The OECD proposal is quite a bit more reasonable - and focuses on "non-resident" accounts, which is where the main source of abuse is.
> Cheers,
> Bev


The OECD lacks America's grip over banks and financial institutions. That's what gives the U.S. the power to threaten arbitrary destructive "withholding" penalties. CBT is the sharp end, at present, I agree, but quite a lot of ingenuity has already been devoted to spreading the net beyond actual citizens to encompass non-U.S. individuals (and more significantly "entities").


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## BBCWatcher

Bevdeforges said:


> I think the potential recovery amounts for the US Treasury simply aren't with either the ex-citizens/taxpayers nor with the run-of-the-mill US expat.


I quite agree and never argued otherwise. Let's look at some rough, back-of-the-envelope math here. There are over 120 million valid U.S. passports but only 8 million of them (assuming the top end of estimates) are in the hands of individuals residing outside the United States. U.S. income tax incidence is about 54% within the United States versus about 6% among U.S. citizens resident overseas. So you've got fewer than 500,000 overseas Americans who could even conceivably be in a position to become delinquent (and with much lower effective U.S. tax rates, making it that much harder to become seriously delinquent) versus over 64 million of their domestically situated compatriots. The math is overwhelming that the lion's share of the $398 million in estimated tax recovery will come from U.S. residents.

I occasionally wonder who the groups purporting to represent Americans overseas actually represent. (Maybe they have at least a few tax delinquent "fat cats"? ) I suppose I could work up to a (completely ignored) $50,000 tax delinquency if I really put a lot of effort into it, but it'd take me (and the IRS) some time to get up there.

Let's take one group's complaint seriously for a moment. At least one group is concerned that the IRS will drop a single letter in the mail, the letter won't get delivered (due to postal problems), the IRS successfully wins a tax lien or tax levy against the individual, the tax lien or tax levy is quite large, the IRS reports the tax lien or tax levy to the Department of State, the Department of State revokes the individual's U.S. passport and denies any renewals, the individual tries to take an international trip to some destination that isn't the United States on a carrier that checks passports, and _then_ the individual discovers there's a problem. (Which is an _inconvenience_, to be sure, but it's not like prison time.) Yes, I suppose that sequence of events is _possible_. But is it likely, at least for anybody who wants to be reachable? Every 1040 I file with the IRS has my phone number, and the phone number works. The Department of State also knows where to find me because I told them, in STEP. (I just got that "avoid crowds" e-mail. Thanks. ) Neither agency has made it difficult for me to let them know how to reach me, reliably, and I let them know how to reach me.

OK, sure, let's make sure the IRS and Department of State have some documented common sense describing how they attempt to contact affected individuals. I'm sure they already have something. Tax liens and tax levies aren't new, even for non-U.S. residents. But isn't it "odd" that the first time this particular complaint is made it's 18 years after child support delinquents couldn't get _their_ passports? In that situation you've got 50 states plus D.C. responsible for notices and enforcement, not a couple centralized federal agencies.


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## maz57

iota2014 said:


> FATCA might have started out as blather, but it certainly hasn't ended up as all show and no go. The potential for extra-territorial control over capital movement is enormous. Passport revocation acts are trivial in comparison with successfully forcing other countries to deliver their residents' financial data.


I was referring more to the career blowhards in Congress that came up with FATCA than I was the law itself. Depending on where one lives, FATCA can have devastating effects even though it raises little revenue. The FATCAnatics know this perfectly well but couldn't care less; they aren't being hurt by it and they aren't paying for it. The individual damage caused by FATCA will gradually lessen as people learn the workarounds (or renounce) and the little revenue raised will decline even more.

If there were ever another court challenge to CBT (revisiting Cook vs. Tait) the outcome might be very different. The argument for CBT, if it were ever true in the first place, ("the government, by its very nature, benefits the citizen") is now unquestionably the exact opposite. The US government has now become a considerable threat to its citizens living abroad.


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## JustLurking

maz57 said:


> If there were ever another court challenge to CBT...


Isn't one already rolling out?


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## maz57

Yes, I remembered that just after I punched the submit button. Too late. 

Unfortunately, I don't believe it has much chance of success. It will happen in a US courtroom and the judges drink the same Koolaid as all the other homelanders. I wish the plaintiffs well.

The damage caused by CBT and FATCA is an expat issue, not a homelander issue. If Congress won't even listen to their own Taxpayer Advocate what chance is there of a US judge listening to a bunch of disgruntled expats?

I prefer to support the lawsuit against my own Canadian government for implementing the IGA. Besides, I no longer have a horse in the US CBT race. I got rid of US citizenship. I just want my own government to treat all its citizens equally, regardless of birthplace.


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## iota2014

I agree the CBT lawsuit has little chance of succeeding.

A different kind of questioning about FATCA (not really a challenge, as yet) was discussed recently in a paper by Allison Christians:

Interpretation or Override? Introducing the Hybrid Tax Agreement by Allison Christians :: SSRN

Even less chance of this line of objection leading to any changes to FATCA, given European reliance on the American markets, but very worthwhile to keep reminding all concerned of the "might makes right" basis of FATCA. Imperialism by another name.


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## maz57

Allison Christians is one of the smartest, most well informed people out there on the subject of CBT, FATCA, the IGAs, and the US tax system. A voice of reason in the midst of all the idiocy. 

If the US had half a brain they would simply hire her to overhaul their system; she would do a far better job than any homelander hack ever could. As an outsider she would slay more than a few sacred cows and they would wind up with more revenue and better compliance. 

She understands the complex legal technicalities and probably knows more about the US system than anyone even at the IRS. Of course, until the US government stops being willfully blind, deaf, and dumb, nothing like that pipe dream is even remotely possible.


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## BBCWatcher

JustLurking said:


> Isn't one already rolling out?


Is a plea for funds "rolling out"?



maz57 said:


> Unfortunately, I don't believe it has much chance of success.





iota2014 said:


> I agree the CBT lawsuit has little chance of succeeding.


Thirded.

Is anyone planning to challenge the Foreign Corrupt Practices Act, the Selective Service Act, 18 U.S.C. § 2423(c) ("Engaging in illicit sexual conduct in foreign places"), or 18 U.S.C. §§ 2251(c) and 2260(a) ("Production of Child Pornography outside the United States"), to pick a few examples? These are also legal obligations imposed on U.S. entities no matter where they are physically located. And they don't even have a whole constitutional amendment like the income tax does (the 16th). So what makes taxes so special among the several legal responsibilities and obligations U.S. entities have? It wouldn't be because rich people don't like taxes, would it? Nah....


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## BBCWatcher

JustLurking said:


> Not a valid or useful comparison. The US permits dual citizenship, but Indian nationals automatically lose Indian citizenship upon naturalizing in another country. This will heavily skew the numbers.


No, it is a useful comparison.

India is a parliamentary democracy, and that democracy has decided how to define its citizenship, including intolerance for acquisition of other citizenships. (And, as it happens, many ex-Indians acquired citizenships in countries that are also hostile to possession of another citizenship. Singapore, for example.) That policy has resulted in the "loss" of millions of Indian citizens. But it's a legislative policy choice. It could be changed.

Now turn to the U.S. Let's suppose there are 5,000 Americans per year renouncing (and documenting relinquishment of) their U.S. citizenships per year. Let's assume all 5,000 are doing so for tax reasons and actually owe tax routinely. (I don't actually believe that, but let's assume that for sake of argument.) Hypothetically the U.S. could change its tax policy and drop that number to zero in this example. Of course that would reduce the tax payments on non-U.S. source income from me and my fellow 500,000 members of the "Six Percent Club" to zero, so that doesn't seem like such a great deal for the U.S. Treasury. (Not to mention the giant fleet of private jets gassing up and heading to St. Kitts, the Caymans, and elsewhere as very wealthy people rush to establish residence or "residence" outside the United States.)

I don't think either India (at some six digit figure per year, probably) or the United States (at some four digit figure per year) are at all harmed with these renunciations. But if any country is harmed, it'd be India, so start there with such arguments and make an argument why India should change its citizenship policies in its national interest. If the argument doesn't work for India at its levels of renunciations, it's not going to work for the United States at its lower levels and with actual revenue implications.

Just to extend this comparison a bit, India's rate of tax collection hovers around 40%. The U.S. manages about 85%.


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## maz57

BBCWatcher said:


> (Not to mention the giant fleet of private jets gassing up and heading to St. Kitts, the Caymans, and elsewhere as very wealthy people rush to establish residence or "residence" outside the United States.)


The solution is obvious; substantially increase the gas tax, at least for corporate jets. This could replace the present exit tax.


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## BBCWatcher

....Or Canada could improve its tax system per Financial Post columnist Diane Francis's ideas:



Diane Francis said:


> ....This is why Canada should not be exempt from taking on the rich or near-rich or any tax dodger for that matter. It should target expatriates who leave to avoid taxes legally but have benefitted hugely from taxpayers in the past and can do so in the future under the current, flawed laws.
> 
> The worst offenders — and my pet peeve — are wealthy Canadians who leave the country for tax purposes and live luxuriously, part-time in The Bahamas, Lyford Cay, Mexico and elsewhere. The rules require only to make a one-time departure tax payment of 25%.
> 
> But there is an industry in Canada of lawyers and accountants who can jurisdiction shop and move RRSPs and other assets offshore without incurring anywhere near the 25% tax. That should be stopped by amending all tax treaties or passing an overriding law to that effect here.
> 
> There are also hundreds of thousands more Canadian immigrants who bought a condo, got citizenship, get entitlements for themselves and their families and then leave, often returning back home to Hong Kong, Europe or wherever they originally came from. These people never pay taxes again and, in fact, the Government doesn’t know where they are.
> 
> Remember the thousands of Canadians in Lebanon who had to be suddenly evacuated a few years ago?
> 
> Worse yet, expats are allowed to return to Canada, if they become tax residents again, for medical treatments, or nursing home slots. And they can leave their money behind elsewhere or bring it in slowly without paying taxes on it. They can join Provincial health care schemes within three months of re-establishing Canadian tax residency and get a pension, if they don’t already have one....


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## JustLurking

BBCWatcher said:


> Is a plea for funds "rolling out"?


Yes.


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## maz57

As I recall, Diane Francis is not only a fan of CBT, she is the loopy journalist who argued that the US and Canada should amalgamate into one giant, monumentally disfunctional country. Fortunately, that idea was (and still is) a non-starter.


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## BBCWatcher

I've having a bit of fun with my Canadian friends here, of course. But in all seriousness the fact is that strict RBT regimes experience tax "leakage," often significant, as wealthy citizens flee (or "flee"). Lifecycle and intergenerational factors are very real. Whether that leakage problem -- and it is a genuine problem -- requires particular policy responses or not is up to the voters and their democratically elected representatives to decide. Diane Francis thinks there should be policy responses.


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## BBCWatcher

*Update*: The Senate approved and President Obama signed the FAST Act (H.R. 22, now Public Law 114-94) on December 4, 2015. The FAST Act adds Section 7345 to the Internal Revenue Code's Subchapter D of Chapter 75. The new section provides for the revocation and/or denial of U.S. passports in certain tax delinquency cases, as mentioned above. One minor change is that instead of going into effect on January 1, 2016, the new provision went into effect as soon as the President signed the bill into law.


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## BBCWatcher

As another update, the omnibus spending bill that the House just approved that looks likely to be passed in the Senate and signed into law has some good news for many U.S. citizens with documented U.S. citizen children living overseas. The refundable Child Tax Credit (and Additional Child Tax Credit) will be extended indefinitely. This tax credit is worth up to $1,000 per year per child in free money from the IRS. If you have low or moderate income from work, do not take the Foreign Earned Income Exclusion (but can still take the Foreign Tax Credit), and have U.S. citizen children living with you overseas, you're likely able to collect this tax credit.

Of course the Child Tax Credit also is available to qualified U.S. residents.


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## iota2014

BBCWatcher said:


> *Update*: The Senate approved and President Obama signed the FAST Act (H.R. 22, now Public Law 114-94) on December 4, 2015.


I wonder, what is the reasoning behind the provision that allows revocation/denial of passports without SSN / TIN?



> In addition to the revocation or denial of passports to delinquent taxpayers, the Secretary of State is authorized to deny an application for a passport if the applicant fails to provide a social security number or provides an incorrect or invalid social security number.


http://transportation.house.gov/uploadedfiles/joint_explanatory_statement.pdf

If there really is a push on to track down and identify expat citizens you'd think they'd positively _encourage_ the missing citizens to get a number and a passport. Instead, it's apparently increasingly hard to get a number, yet without one it's impossible to "become compliant" or, now, to apply for a passport. 

Seems illogical, from their point of view. Or is the assumption that citizens with no SSN are all (a) criminals and (b) very stupid criminals who will obligingly send in passport application forms complete with photo and home address but with a blank where the SSN should be?


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## Bevdeforges

> the Secretary of State* is authorized to deny* an application for a passport if the applicant fails to provide a social security number or provides an incorrect or invalid social security number.


Please note the part I've put in bold. Yes, the Secretary of State "is authorized" to deny the passport application - but it's not an automatic, nor a given that every application without an SSN will be denied.

This has been the case in a number of other laws. The Attorney General is similarly "authorized" to deny a visa (of any sort) to someone who has renounced their US nationality. But it isn't obligatory for the AG to do so for every former US citizen who attempts to visit the US - and apparently it isn't invoked except in particularly notorious cases.
Cheers,
Bev


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## iota2014

Thanks Bev. I see what you mean.


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## BBCWatcher

iota2014 said:


> If there really is a push on to track down and identify expat citizens you'd think they'd positively _encourage_ the missing citizens to get a number and a passport.


Why do you assume that?

This law is exactly as it seems. It denies(*) one of the many privileges of U.S. citizenship documented U.S. citizens enjoy to those citizens who have not lived up to one of the few obligations of that citizenship (and of U.S. residence, more typically). That seems transactionally straightforward. If you're not a documented U.S. citizen this law will not impact you. It does not change any of the processes for documenting an individual's U.S. citizenship (e.g. Consular Report of Birth Abroad).

Also bear in mind that the vast majority of U.S. passport holders are U.S. residents.

(*) Yes, it _authorizes_ denial. Considering from the available evidence that the IRS and State Department cooperated with Congress in drafting this legislation, and considering that the State Department already enforces a similar provision to combat child support delinquency, I'm not expecting much daylight here.


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## iota2014

> If there really is a push on to track down and identify expat citizens you'd think they'd positively _encourage_ the missing citizens to get a number and a passport





BBCWatcher said:


> Why do you assume that?


Give each one a number and then it's easier to keep track of them.

Correct, these provisions don't affect me personally. I'm just engaging in a little amateur Kremlinology.



> Also bear in mind that the vast majority of U.S. passport holders are U.S. residents.


Indeed. One tends to assume it's easier to keep track of the residents than the expats, but that may not be the case.



> Considering from the available evidence that the IRS and State Department cooperated with Congress in drafting this legislation, and considering that the State Department already enforces a similar provision to combat child support delinquency, I'm not expecting much daylight here.


Daylight?


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## BBCWatcher

"Daylight" is a word that also means a gap between two elements, in this case a gap between authorization to deny/revoke and denial/revocation. "I'm not expecting much daylight here" means "I'm not expecting a big gap here." See Dictionary.com's entry for example: "4. a clear space or gap...."

English is a fun language.


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## Bevdeforges

One big gap to consider in this legislation is the matter of "accidental Americans" - those born overseas who may not have been registered at birth by their US parent. Many of these folks reach adult age without a social security number. And, if you look at the Consulate websites, they are generally advised to enter all 0's in the space for SSN on the passport application. It can be a long and circuitous process to get a social security number for the first time as an adult from overseas.

The fact of the matter is that there are lots of citizens (mostly overseas, I would reckon) who don't have social security numbers. It remains to be seen how this will play out in light of the new legislation, as there does seem to be something of a rivalry between State and the IRS regarding State "enforcing" IRS rules. 
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> And, if you look at the Consulate websites, they are generally advised to enter all 0's in the space for SSN on the passport application.


As far as I can tell the new law does not change this specific practice in the particular circumstances when this practice applies. If you don't have an SSN (yet) then you still follow Form DS-11's or DS-82's instructions (as applicable), truthfully, and that's still OK. If you do have an SSN then you're required to disclose it and to disclose it accurately.

I don't think the State Department has any urgent need to update either Form DS-11 or DS-82. It looks like they were anticipating for this legislation -- the 2013 forms are just fine as is.


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## iota2014

Bevdeforges said:


> One big gap to consider in this legislation is the matter of "accidental Americans" - those born overseas who may not have been registered at birth by their US parent. Many of these folks reach adult age without a social security number. And, if you look at the Consulate websites, they are generally advised to enter all 0's in the space for SSN on the passport application. It can be a long and circuitous process to get a social security number for the first time as an adult from overseas.


Yes. And although I take your point, that the new legislation probably won't be used against such individuals, the fact that it's on the books may add to the "bad news" side when accidental Americans are deciding whether to keep or lose their American citizenship. 



> ...there does seem to be something of a rivalry between State and the IRS regarding State "enforcing" IRS rules.


At least in the Consulates. Poor darlings, they used to be grand representatives of US superpower abroad, now the power has shifted to the market and the banks, and consular staff find themselves in rôles that are more bureaucratic than diplomatic. I got the distinct impression, when I emptied my wallet and piled $2350 on the counter, that the lady tasked with counting my dollars and issuing me with a receipt was feeling a bit miserable about it. However, she may have just been wanting to get back to her coffee.


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## BBCWatcher

iota2014 said:


> And although I take your point, that the new legislation probably won't be used against such individuals, the fact that it's on the books may add to the "bad news" side when accidental Americans are deciding whether to keep or lose their American citizenship.


I don't follow. What's accidental about applying for or renewing a U.S. passport? "Ooops, I filled out a DS-11, submitted a photo, and paid the fee by accident"? It doesn't make sense.


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## Bevdeforges

BBCWatcher said:


> I don't follow. What's accidental about applying for or renewing a U.S. passport? "Ooops, I filled out a DS-11, submitted a photo, and paid the fee by accident"? It doesn't make sense.


Unfortunately, nationality doesn't come with a user's manual these days. The term "accidental American" probably doesn't really address the real issues involved, but there are plenty of folks who only discover late in life some of the "encumbrances" of a situation they may or may not have been aware of. Not all Americans living overseas keep up with developments back in the "Homeland" - especially those who have another nationality for the country where they are resident, or with which they more closely identify.
Cheers,
Bev


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## iota2014

BBCWatcher said:


> I don't follow. What's accidental about applying for or renewing a U.S. passport? "Ooops, I filled out a DS-11, submitted a photo, and paid the fee by accident"? It doesn't make sense.


Accidental _American_, not accidental passport applicant.

For example, someone:

a) born in the US to a non-US-citizen parent, or to a dual US/non-US parent; the parent soon returns to their home country and the child grows up as a citizen of their home country

or

b) born outside the US to a US citizen parent or a dual US/non-US citizen parent, where the parent has no strong ties to the US, does not know about CBT, and does not register the child as a US citizen born abroad.

In both these cases, the child may easily grow up without knowing that the US regards them as taxable, and indeed as delinquent, simply for having an American parent. These have become known as "accidental Americans". (I agree with Bev that it's not exactly descriptive of the problem.)

When as adults they learn that the US regards them as taxable, these persons have to decide whether to renounce their US citizenship, or retain it and make use of the benefits they're being taxed for, such as a US passport. The new law makes it look potentially risky to apply for a passport without a SSN/TIN - which is hard to get. Although, as Bev says, the law probably wouldn't be used against them, they don't necessarily know that.


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## JustLurking

BBCWatcher said:


> I don't follow. What's accidental about applying for or renewing a U.S. passport? ... It doesn't make sense.


Accidental American


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## iota2014

Phil Hodgen gives a nice clear definition of an accidental American as a person "who, due to birth, has an unwanted U.S. citizenship that creates an overload of legal and tax complication."

The Expatriation Chronicles of an Accidental American, Episode 1


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## BBCWatcher

Again, this new provision, as far as I can tell, changes _nothing_ about whether and how an individual ("accidental" or otherwise) without a U.S. Social Security number can apply for a U.S. passport. Also, there are no changes to the legal requirements associated with when and where U.S. passports must be used.

I wasn't asking for a definition, actually. I was asking what the connection is to this new provision. I still don't see a connection.


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## iota2014

BBCWatcher said:


> Again, this new provision, as far as I can tell, changes _nothing_ about whether and how an individual ("accidental" or otherwise) without a U.S. Social Security number can apply for a U.S. passport. Also, there are no changes to the legal requirements associated with when and where U.S. passports must be used.
> 
> I wasn't asking for a definition, actually. I was asking what the connection is to this new provision. I still don't see a connection.


Bit of confusion here, it seems. Your question was:



> What's accidental about applying for or renewing a U.S. passport? "Ooops, I filled out a DS-11, submitted a photo, and paid the fee by accident"? It doesn't make sense.


Since it seemed from your question that you had not understood the term "accidental American", you got responses offering explanations and definitions.

As for the connection with the new law - clearly, a law which states that passport applications without valid SSNs may be rejected, has implications for any US citizen who doesn't have a SSN. How it works out in practice remains to be seen.


----------



## BBCWatcher

iota2014 said:


> As for the connection with the new law - clearly, a law which states that passport applications without valid SSNs may be rejected, has implications for any US citizen who doesn't have a SSN.


It doesn't have _new_ implications of that sort because _that was already the law_. The 2013 passport application forms already reflect that fact. There is no change to whether and how an individual without a U.S. Social Security number can apply for a U.S. passport.


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## iota2014

Apparently, Congress doesn't agree with you, since they've taken the trouble to make this law.


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## Bevdeforges

OK, OK, we've resolved (or not) how many angels can dance on the head of that pin.

It's not only an issue regarding taxes. Many overseas Americans without strong ties to the US get caught up in the "US citizens must enter the US only on their US passport" when they don't have one. Daughter of a friend of mine got caught last year on this one because she was born in the US - but has not been back there since the family moved back to France and the daughter was something like 10 years old. Getting hauled into the interrogation room for an hour or more while your Mom frets outside, wondering what the problem is ain't exactly the kind of "welcome back to America" either of them was expecting. (And I seriously doubt that the daughter will head back to the US in this lifetime.)
Cheers,
Bev


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## iota2014

Yes, I know a number of families who've unexpectedly run into that rule.

I'd have let my US passport lapse when I naturalized, if it hadn't been for that rule. Since I had to have a US passport in order to be able to visit family in the US, there didn't seem any point in acquiring a UK passport as well. Wish I had, and had relinquished then, when it was free!


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## maz57

Meanwhile, I travel to the US fairly regularly on my Canadian passport with US birthplace and have had no issues whatsoever. I know for a fact they have noticed that US birthplace because they have mentioned it in a conversational way. Maybe they have a special rule for the Canada/US border because there is so much traffic of people back and forth. Who knows? The enforcement of this whole business seems to be so haphazard.


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## BBCWatcher

iota2014 said:


> Apparently, Congress doesn't agree with you, since they've taken the trouble to make this law.


Perhaps you're misunderstanding the new law and its (very limited) extent. The new provision has zero impact on individuals that have no SSNs. Before this law you could apply for a U.S. passport even if you didn't have an SSN, and after this new law you can still do the same.

Before this new law if you had an SSN you were required to provide it, truthfully, on your passport application or passport renewal form. There was a penalty if you violated that requirement. (It even said/says so, right on the form.) After this new law you are still required to do that.



Bevdeforges said:


> Many overseas Americans without strong ties to the US get caught up in the "US citizens must enter the US only on their US passport" when they don't have one.


Perhaps, but this new law does not change that. Before the law U.S. citizens and U.S. nationals were legally required to use U.S. passports to enter the U.S., and after this new law the same thing is true.


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## iota2014

BBCWatcher said:


> Perhaps you're misunderstanding the new law and its (very limited) extent. The new provision has zero impact on individuals that have no SSNs. Before this law you could apply for a U.S. passport even if you didn't have an SSN, and after this new law you can still do the same.
> 
> Before this new law if you had an SSN you were required to provide it, truthfully, on your passport application or passport renewal form. There was a penalty if you violated that requirement. (It even said/says so, right on the form.) After this new law you are still required to do that.


What's new is that passport applications without a valid social security number can now be refused, and existing passports without a valid security number can be revoked. Previously, that was not the case. KPMG gives a summary:



> The FAST Act also authorizes the Secretary of State to deny or revoke the passport of any individual who fails to include a valid Social Security number with a passport application. The Internal Revenue Code requires passport applicants to provide a Social Security number or Taxpayer Identification Number; however the failure to provide such number was not a basis for denying an application. Rather, the State Department reports the failure to the IRS and the IRS may fine the applicant $500.
> 
> Under the FAST Act, the Secretary of State now has the power to deny a passport application if an individual does not include a Social Security number or “willfully, intentionally, negligently, or recklessly” includes an incorrect or invalid social security number. Exceptions are permitted, and a passport may be issued, in emergency circumstances or for humanitarian reasons. The Secretary of State also may revoke any passport previously issued if the application did not include a valid Social Security number, or may limit a previously issued passport (or issue a new limited passport) to such individuals for short-term use to return to the United States.


It marks a transfer of responsibility, regarding the SSN request/requirement, from the IRS to the actual issuing authority, the DoS. The IRS could only pile on yet more uncollectable penalties, but the DoS can withhold or revoke the passport. So it's not insignificant, though how it will work out in practice is yet to be seen.

It may not be a bad thing, on the whole. They can hardly tax people who can't get a passport. A passport refusal/revocation might in practice be as good as a CLN - and much cheaper.


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## BBCWatcher

iota2014 said:


> What's new is that passport applications without a valid social security number can now be refused, and existing passports without a valid security number can be revoked.


No, that's just not correct. You're absolutely wrong about this, sorry. (And KPMG may be, too. Wouldn't be the first time. ) Let me quote from the new provision:

(f) REVOCATION OR DENIAL OF PASSPORT IN CASE OF INDIVIDUAL WITHOUT SOCIAL SECURITY ACCOUNT NUMBER.—
(1) DENIAL.—
(A) IN GENERAL.—Except as provided under subparagraph (B), upon receiving an application for a passport from an individual that either—
(i) does not include the social security account number *issued to that individual*, or
(ii) includes an incorrect or invalid social security number willfully, intentionally, negligently, or recklessly provided by such individual, the Secretary of State is authorized to deny such application and is authorized to not issue a passport to the individual.

(Emphasis mine.)

In legal and statutory interpretation one must give at least some weight to every word unless words are in conflict. Here, they are not in conflict. The words I highlighted above, as with all words, must be given weight and meaning. Consequently this new provision has *no impact on individuals without SSNs*. Individuals who have not been issued SSNs are not included in that phrase above. That was true before, and it's still true today. Individuals never issued SSNs could apply for U.S. passports, and they still can. The passport application and renewal forms _already_ cover the situation of SSN-less U.S. citizens/nationals.

In fact, 26 USC 6039E _already_ required SSNs from passport applicants (who have them), so there's really nothing new here in (f). The only thing (f) does, really, is authorize the State Department to deny or revoke passports if you have an SSN and don't provide it. Previously the only penalty was a fine,(*) but at least in principle you could still get your passport. _That's_ the difference.

If there's a legal requirement that all U.S. citizens/nationals must obtain SSNs, I'm not aware of it -- and the State Department's passport application instructions certainly suggest there isn't such a legal requirement. It may be _awkward_ not to have an SSN, and there are occasions when an SSN is legally required, but it isn't a violation of the law per se not to have one. If you can find such a law that says otherwise, please let us know.

(*) Although it appears that you could have also been prosecuted for the general offense of lying to the government on an official form. But the Internal Revenue Code provides a "do not pass go" $500 fine for any SSN mischief _if you have an SSN_.


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## Bevdeforges

I wouldn't spend too much time parsing the language in the legislation down too fine. What will really be important is how things are interpreted the first time the issue goes to court. And, even if the Secretary of State is "authorized" to deny an application or revoke a passport already issued, that only means that State has the authority to do that. Remains to be seen how often State exercises that new found authority and under what circumstances.
Cheers,
Bev


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## iota2014

Bevdeforges said:


> I wouldn't spend too much time parsing the language in the legislation down too fine. What will really be important is how things are interpreted the first time the issue goes to court. And, even if the Secretary of State is "authorized" to deny an application or revoke a passport already issued, that only means that State has the authority to do that. Remains to be seen how often State exercises that new found authority and under what circumstances.
> Cheers,
> Bev


Yes.


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## BBCWatcher

According to (f), Congress did not give the State Department the authority to deny a passport to a U.S. citizen or U.S. national on the basis that that individual was never issued an SSN. That's the important point here, and it doesn't take an advanced legal qualification to figure that out. It's how the law was written.

But this won't go to court at all because the State Department already understands this situation. Just look at the 2013 editions of the passport application and renewal forms. The new law is in effect, and those forms are still current. If the forms change and remove the instructions on how to fill out the form if you don't have an SSN, then get back to us/me. But I wouldn't predict that at all.


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## BBCWatcher

I'm using this thread to provide updates on U.S. political developments that might have bearing on tax policies as they apply to U.S. citizens and permanent residents living outside the United States.

President Obama has proposed the final budget of his presidency for Fiscal Year 2017. Politically speaking this budget proposal is "aspirational," meaning that his successor (particularly if a president from his party) would ordinarily use this budget proposal at least as a starting point. The Republican Party controls Congress at the present time, and the Republicans (it's quite safe to say) have numerous disagreements with the President's budget priorities -- so many that for the first time in modern federal budgeting history the Republicans are not even inviting the President's Budget Director to testify. That's really quite petty, and it's even self-defeating since Republicans can use such a hearing to advance their views if they wish. But the Republicans really are a different breed these days.

Anyway, for the record, here's what I can find in the President's budget proposal that looks "interesting." In no particular order:

1. The President proposes consolidating the Lifetime Learning Credit with the American Opportunity Tax Credit (AOTC). The refundable portion of the AOTC would then increase to $1,500. The AOTC is a _fantastic_ deal for overseas Americans, and it would become more fantastic under the President's proposal. The current AOTC provides up to $1,000 in free money from the IRS per year even for those who take the Foreign Earned Income Exclusion (FEIE), so an increase to $1,500 per year is obviously nice. The AOTC is available to those who incur qualified higher education expenses, including expenses at many (but not all) non-U.S. institutions. Here's one of the areas of the tax code where it literally pays to be American. Relatedly, the President wants to pull Pell Grants out of the "top line" income calculation, making them tax free instead of taxable (and sometimes taxed).

2. The President wants to increase the Earned Income Tax Credit (EITC) particularly for those lower income workers without children. The EITC is also a refundable tax credit, and it's sometimes available to overseas Americans who skip the FEIE.

3. The President proposes creating a Second Earning Tax Credit for married couples when both spouses work. It's not clear whether the SETC will be partially or fully refundable, but it appears in the same section in the budgetary summary as the EITC expansion, so one could reasonably guess it would be.

4. Under the President's proposal it would be possible to withdraw up to $50,000 from U.S. tax-advantaged retirement savings accounts without negative U.S. tax consequences if/when involuntarily unemployed. There's some benefit here to overseas Americans. For example, that money could be used to finance an overseas move to a lower cost country for an earlier retirement (or semi-retirement).

5. The President would increase the top marginal tax rate on capital gains to 28 percent, inclusive of the 3.8 percent Net Investment Income Tax (NIIT). That's up from 23.8 percent. A 28 percent rate would be the same as the 1980s rate under President Reagan.

6. Itemized deductions would be limited to 28 cents on the dollar, meaning that higher income individuals and families (above about $250K/year) would have somewhat less generous deductions, such as the famous/infamous mortgage interest deduction.

7. The "carried interest loophole" would be closed, a loophole that hedge fund managers (among others) exploit in order to pay significantly lower (or near zero) income tax rates. This loophole is a pure giveaway to very wealthy people for no legitimate public policy reason except that those same wealthy people provide massive campaign contributions to their supporters in Congress.

8. The President wants to close a loophole that allows some high income professionals to avoid certain Medicare taxes.

9. The President's budget would adopt the "Buffet Rule," setting a minimum effective tax rate of 30 percent on those with million dollar incomes or more. Presumably the Foreign Tax Credit would still be allowed in the Buffet Rule calculation but little else would be.

10. The proposed business tax changes mainly relate to large businesses. However, for small businesses (including sole proprietors presumably) the President proposes moving practically everyone to simpler, straightforward "cash" accounting.

11. The President would repeal the taxability of student loan debt forgiveness. What is already an _amazing_ benefit to overseas Americans (income-based student loan repayment terms combined with the Foreign Earned Income Exclusion) might become even more incredibly generous if the President gets his way. (Or not. It's possible the President would close this particular loophole and that the Modified Adjusted Gross Income calculation would start to include the FEIE.)

12. The President wants to increase the Child and Dependent Care Tax Credit, a tax credit that many overseas Americans take.


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## Bevdeforges

It may not be worth a whole lot of time analyzing the "what ifs" of this budget proposal, however.
Republicans decline to hear president's budget | MSNBC

Cheers,
Bev


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