The Unacknowledged Realities of Extraterritorial Taxation

Abstract

The U.S. extraterritorial tax system has evolved such that today it is more consequential than one century ago. The system, conceived in the stigmatization of overseas Americans, consists of highly penalizing taxation and banking policies that make it difficult for overseas Americans to live normally. The IRS is also a victim: it is unable to administer the system.

Many have sought to educate policymakers and the public. Detailed survey reports have been issued, documenting how overseas Americans experience the system. Research articles have been published, exposing certain problems of the system and, in some cases, proposing solutions.

To date, such efforts have failed to effect change. This is for several reasons: the continued stigmatization of overseas Americans, the high complexity of the system and misunderstandings about it, and the lack of political influence.

The academic press is replete with theories about why overseas Americans should be subject to worldwide taxation by the United States. For change to occur, it is important that the academic press looks beyond those theories to acknowledge the full import, complexities, and consequences of the system in place today.

Keywords: Extraterritorial Taxation, Citizenship-Based Taxation, Residency-Based Taxation, Emigration, Internal Revenue Service, IRS, Regulatory Authority, Tax Treaties, Stigmatization, Citizenship, Advocacy, Human Rights, Taxpayer Bill of Rights

JEL Classification: G21, G23, H20, H23, H24, H35, H26, H27, H30, H87, J26, J61, K33, K34, K37