Worldwide Taxation of U. S. Citizens Living Abroad: Impact of FATCA and Two Proposals
J. Richard (Dick) Harvey
Villanova University School of Law and Graduate Tax Program
March 1, 2013
George Mason Journal of International Commercial Law, Forthcoming
Villanova Law/Public Policy Research Paper No. 2013-3057
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.
Number of Pages in PDF File: 32
Keywords: US citizens abroad, expatriation, residence based taxation, FATCA, Internal Revenue Code sections 911 877A and 2801, worldwide taxation, estate tax, international tax planning
Date posted: August 30, 2013 ; Last revised: September 7, 2013