Worldwide Taxation of U. S. Citizens Living Abroad: Impact of FATCA and Two Proposals
George Mason Journal of International Commercial Law, Forthcoming
32 Pages Posted: 30 Aug 2013 Last revised: 7 Sep 2013
Date Written: March 1, 2013
This article addresses several questions, including:
• Do US citizens living abroad face significant tax compliance burdens and have those burdens been further increased by FATCA?
• Do ultra-wealthy US citizens have an incentive to expatriate under current law, and should a deemed estate tax be imposed at the time of their expatriation?
• Does FATCA justify a change from a worldwide system of individual taxation to a residence-based system?
• Do the cumulative burdens on US citizens abroad justify legislative action?
• If so, what law changes should be considered?
The article concludes the answers to the first four questions are: (i) yes and yes, (ii) yes and yes, (iii) no, and (iv) yes. As to the fifth question, the article does not explicitly take a position on a worldwide vs. a residence-based system of taxation. Rather, two proposals are made. The first assumes Congress retains the existing worldwide tax system, while the second assumes Congress takes the unlikely step of adopting a residence-based tax system.
The goal of each proposal is to (i) reduce compliance burdens for citizens abroad, and (ii) minimize fairness and revenue issues. For example, if the US adopts a residence-based system, safeguards will clearly be necessary to avoid a material loss in tax revenue attributable to ultra-wealthy US citizens moving their residence abroad.
Keywords: US citizens abroad, expatriation, residence based taxation, FATCA, Internal Revenue Code sections 911 877A and 2801, worldwide taxation, estate tax, international tax planning
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