American Citizens Abroad, a group representing U.S. expatriates, has submitted a tax proposal to the Senate Finance Committee recommending a number of international tax reforms, with the American Institute of CPAs also submitting its recommendations to the same committee on tax administration and simplification.
The proposals come in response to a request for feedback from Senate Financial Committee chairman Max Baucus, D-Mont., on one of his recent tax reform discussion drafts (see Senator Unveils Proposals for International Tax Reform).
One of American Citizens Abroad’s main concerns has been with the Foreign Account Tax Compliance Act, or FATCA, and its impact on the availability of banking services to Americans who live and work overseas.
The main proposals from the ACA include residence-based taxation, which the group suggests Congress should legislate as the default mode of taxation of Americans abroad.
In addition, the group recommended that a streamlined, comprehensive and non-punitive compliance program accompany the introduction of residence-based taxation for those Americans who already reside overseas and who have not been in reporting compliance under the U.S.’s current citizenship-based tax rules.
The ACA also recommended that Americans who move abroad should not be subject to an “exit tax.” An exit tax on deemed dispositions should be designed to address Congress’s concern that the few extremely wealthy Americans who may choose to move abroad should pay their fair share on capital gains.
“Ideally there would be no exit tax when Americans move abroad, as this is the practice of most countries worldwide, and the emergence of a tax liability on this occasion is a contingency for which few will have prepared.” said the group. “There would be no fiscal restraint on full international mobility of individuals. However, Congress’ overriding concern that a few ultra-wealthy Americans may move abroad for tax reasons will no doubt require the retention of some form of exit tax.”
AICPA Feedback on Tax Reform Discussion Draft
Separately, the American Institute of CPAs also weighed in Thursday with comments on another of the discussion drafts released by the Senate Finance Committee, on tax administration and simplification (see Baucus Proposes Ways to Fight Tax Fraud and Simplify Tax Filing).
The AICPA said in a letter to Baucus and Orrin Hatch, R-Utah, the ranking Republican member on the committee, that it “strongly supports the efforts by the Senate Committee on Finance on tax administration reform and simplification.”
Responding to the Finance Committee’s Nov. 20, 2013 discussion draft, Senate Committee on Finance Chairman’s Staff Discussion Draft of Provisions to Reform Tax Administration, the AICPA outlined a set of recommendations it believes will reduce taxpayers’ compliance costs, encourage voluntary compliance through an understanding of the rules, and facilitate enforcement actions.
The AICPA recommendations include reforms related to information returns, identity theft and tax fraud, closing the tax gap, expanding electronic filing and tax filing improvements.
The prospects for tax reform this year appear to be dim, however, with Baucus set to retire from the Senate if his nomination as U.S. ambassador to China is approved as expected. In addition, Congressional Democrats and Republicans are unlikely to agree on tax reforms in a midterm election year, but the various proposals may eventually set the stage for future reforms.
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