Biden Administration’s Fiscal Year 2025 Green Book Tax Proposals
American Citizens Abroad, Inc. (ACA) is a leading advocacy organization representing Americans living and working overseas. Headquartered in Washington, DC, ACA is nonpartisan, non-profit (section 501 (c)(4)), with a 45-plus-year history of advocating on behalf of the community of Americans living and working overseas. Alongside ACA is its sister charitable (section 501(c)(3)) research and educational organization, American Citizens Abroad Global Foundation (ACAGF).
ACA is pleased to provide comment on the Biden Administration’s Fiscal Year 2025 Green Book Tax Proposals. In summary our concerns are as follow:
Child Tax Credit full refundability, regardless of income earned, has a residency requirement, as it did when it became law as a component part of the American Rescue Plan. Families living abroad who qualify for the CTC should be afforded full refundability, on a par with qualifying U.S.-based families.
Families who are otherwise qualifying for the CTC must also have U.S. residency in order to receive the CTC as a series of monthly payments rather than at the end of the year. The IRS is making online accounts accessible to U.S. citizens living abroad. These accounts should be utilized to arrange CTC monthly payments to qualifying U.S. families living abroad.
U.S. citizens abroad subjected to tax on capital gains attributable to exchange rate fluctuations (rather than on an uplift in the asset value over the holding period) are to be eligible for an $600 (indexed for inflation) exemption rather than a $200 exemption. While we are pleased to see some recognition of the injustice of the taxation of a phantom gain, we believe the injustice will be fully remedied only when the laws permit taxpayer abroad to disclose the gain/loss in the functional currency.
The retroactive increase in the Net Investment Income Tax (from 3.8% to 5%) for some taxpayers and now also assessable on the pass-through business income of some taxpayers is especially uncomfortable for taxpayers abroad who are impacted. The NIIT was established as an offset for costs related to the Affordable Care Act, which is not accessible to U.S. citizens living abroad. Citizens excluded from the ACA should be exempted from the NIIT.
The new Foreign Redetermination Rules for Foreign Tax Credits are going to be too complex for many households to comply without the support of expensive tax return preparers expert in both the U.S. tax system and the tax system of the country where they live. The proposed exemption from the foreign redetermination rules for U.S. individuals who incur $300 ($600 for married individuals filing jointly) or less of creditable foreign income taxes on passive investment income is much too low.
The proposed increase in GILTI rate and other proposals expected to increase GILTI taxes and expand the cost and complexity of GILTI tax filing callously ignores the enormous financial burden GILTI has placed on Americans abroad who support their families with small and medium-sized businesses registered as companies in the country where they live. There needs to be some overall accommodation for these U.S. citizens abroad with respect to GILTI. Their companies are not and never were the target of this reform aimed at creating a territorial tax system for U.S. corporations.
Overall, we are seeking reforms that make the U.S. tax system more just in its relative treatment of Americans abroad. These proposals from the 2025 Green Book do not take us in that direction.
TAXATION AND AMERICANS ABROAD
The Taxpayer First Act has identified U.S. citizens living and working overseas as an underserved community and the IRS is working to create systems and provide support to these taxpayers. This cannot come fast enough for theestimated 4-5 million U.S. citizens living and working abroad[1]. Tax filing for U.S. citizens living and working outside the U.S. is complex, costly and confusing, results in onerous taxation of foreign investments considered Passive Foreign Investment Company (PFICs), involves duplicate reporting regimes like the Foreign Account Tax Compliance Act (FATCA) Form 8938 and the Financial Bank Account Report (FBAR)(FinCEN Form 114), is unfair with regard to the application of certain tax credits for non-residents (Child Tax Credit and Earned Income Credit), exposes filers to double taxation with the (proposed to be expanded!) Net Investment Income Tax (NIIT) and now with the possible disallowance of FTCs, and involves wading through many regulations that overlap with U.S. corporate international tax.
This is just a sampling of the problems on the individual side of reporting, not taking into consideration the filing requirements for small business operations run by U.S. citizens overseas that need to deal with the Transition Tax and (proposed to be expanded!) Global Intangible Low-Taxed Income (GILTI) regimes (and are denied access to programs available for small businesses through the U.S. tax code such as the Employee Retention Tax Credit and Paycheck Protection Program).
RESIDENCE-BASED TAXATION
ACA has throughout its 40-plus year history advocated for the adoption of residence-based taxation (RBT) and has produced key documents and research that support the move to RBT, which can be made revenue neutral and tight against abuse. ACA was the first organization to develop a side-by-side analysis that indicates where in the current tax code changes could be made in a move to a system of taxation based on residence (excludes from U.S. taxation foreign earned income). ACA has fielded two research projects on the subject with District Economics Group (DEG), Washington, DC-based economic consulting firm – one in 2017 and one in 2022 that provide valuable information on the income, assets and taxation of U.S. citizens living and working overseas. This data, one of a kind, supports our position that RBT can be adopted, and no one will be any worse off, the U.S. Treasury would not lose revenue and the provisions would be protected against tax abuse.
ACA regularly meets with Representatives in Congress to present our research, our proposals and to inform them of the serious issues facing US citizens living and working overseas. Recently we submitted three testimonies on issues related to taxation and compliance for US citizens overseas to the Senate Budget Committee, the House Ways and Means Committee and to the US Treasury/IRS.
ACA submits Statement for the Record to the Senate Committee on The Budget April 10, 2024 Hearing “Sunny Places for Shady People:
Offshore Tax Evasion by the Wealthy and Corporations”(April 29, 2024)
ACA submission to the US Treasury with commentary on the Fin-CEN-114 (FBAR) form (April 29, 2024)
For more information, please visit the ACA website https://www.americansabroad.org/.
Thank you for your attention to this important subject.
Marylouise Serrato
Executive Director
American Citizens Abroad, Inc.
Charles Bruce
Legal Counsel
American Citizens Abroad, Inc.
Chairman, ACA Global Foundation
[1] ACA and District Economics Group estimate that the total number of Americans abroad at present, excluding members of the military and other government employees and contractors, is approximately 3.9 million individuals.
