US expatriates plead for relief from IRS

Lawmakers in Congress who are eyeing a rewrite of the tax code are
getting an earful from Americans abroad who want relief from double
taxation and time-consuming paperwork. 

Letters are pouring in to the House Ways and Means Committee from as far away as Australia, Germany and Bahrain from citizens who say the IRS inflicts a particularly cruel form of punishment on them for living abroad.

{mosads}“For the simple tax situation of one wage and some interest income, my 2012 U.S. tax return, with supporting documentation, is 28 pages!” an American living in Australia wrote to the House committee. “I muddle through as best I can, spending dozens of hours each year on it.”

The group American Citizens Abroad, which is headquartered in Geneva, Switzerland, is organizing the letter-writing campaign in a bid to change how U.S. expatriates are taxed. 

Marylouise Serrato, the group’s executive director, said citizens living abroad want to be heard as lawmakers on Capitol Hill debate closing loopholes and deductions to lower tax rates.

“Our experience has showed that our members get behind our causes. They want to make their Congressman listen. They want to write to Washington,” Serrato said.

The effort shows that tax reformers will face lobbying pressure not only from K Street and giant multinational corporations but also from groups around the world that are affected by the American tax system.

The chairman of the tax-writing Ways and Means Committee, Rep. Dave Camp (R-Mich.), is welcoming any and all comments on comprehensive tax reform. Major corporations and trade groups such as 3M Co. and the U.S. Chamber of Commerce have duly obliged.

But few groups are making as much noise as American Citizens Abroad. Nearly 80 of the comment-writers to Camp’s committee cite the group’s talking points, according to The Hill’s review of the roughly 200 groups and individuals who filed letters.

On its website, the group offers form letters and precise instructions on how to email Ways and Means.

“They want everyone’s opinion — even yours! Your comments are having an effect,” the website says, noting the number of comments that have come from the group’s supporters. “Representatives in Washington and the media have taken note of this.”

The group also had its members lobbying lawmakers and aides in person in February.

The expatriates group is pushing hard to change how the U.S. government taxes U.S. citizens living abroad — from a “citizenship-based” model, which can lead to double taxation, to a “residence-based” one.

“We want to empower Americans who are going overseas who create economic opportunities. We are just not doing that with citizenship-based taxation,” said Serrato, who is helping run the organization out of her Maryland home after moving back from Switzerland last year. “You pay taxes in the jurisdiction where you have earned the income. … You shouldn’t be taxed twice on the same income.”

The United States and the tiny African country of Eritrea are the only nations that tax their citizens’ worldwide incomes. The U.S. system received increased attention last year after Eduardo Saverin, a Facebook co-founder living in Singapore, renounced his citizenship.
U.S. citizens can apply for exclusions on some foreign earnings, as well as credits for some taxes paid abroad, but still generally have to file a U.S. tax return every year.

“I don’t really mind paying my US taxes, which are minimal or zero after deducting and crediting my residency-based Swiss taxes. I do really mind the enormous hassle and final uncertainty of computing them,” one U.S. citizen abroad wrote to Ways and Means.

American Citizens Abroad is also pushing hard against the Foreign Account Tax Compliance Act (FATCA), which requires foreign banks to report U.S.-citizen-held accounts to the U.S. government. The law was created to crack down on offshore tax evasion, but expatriates have complained of foreign banks denying them service due to FATCA’s strict rules.

Serrato said Americans residing in foreign countries should not be subject to the law.

“An American living in France having a French bank account is not an overseas account,” Serrato said. “Let’s exclude those in-home accounts.” 

The bulk of the ACA-inspired letters to U.S. lawmakers have gone to one of 11 working groups set up by Camp to discuss tax reform. Reps. Devin Nunes (R-Calif.) and Earl Blumenauer (D-Ore.) are leading the group on international tax reform.

A House Republican aide said that business issues were the main focus of the international tax reform working group. Lawmakers knew about the issues facing citizens abroad before the letters came in, the aide said.

“We were definitely aware,” the aide said. “This isn’t anything new.”

But the aide added: “Unless we drag in the individual side [of the tax code], it’s kind of irrelevant.”

Blumenauer said the “point of departure” for his working group was corporate tax issues, not the individual code, but said he hopes tax reform “goes beyond that” to “our role in a global economy, how we raise revenues.”

“We don’t want to be in a situation where we’re forcing companies to hire foreign nationals because it’s not cost-effective for Americans to take those jobs,” Blumenauer said.

Serrato said business groups are also concerned about how individuals are taxed. She pointed to a U.S. Chamber of Commerce letter to Ways and Means that said, “no other country taxes its citizens working abroad … any transition to a territorial tax system should take this into consideration and end this damaging practice.”

When it comes to international taxes, the Chamber has pushed for a territorial system, which would shield U.S. corporate overseas profits from U.S. taxes. Camp’s first draft framework on tax reform, released in October 2011, proposed shifting America to such a system.

Lobbying will only pick up as Camp and Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, try to cobble together a comprehensive tax reform bill this year. The House Ways and Means Committee’s deadline for comment letters on tax reform is next week, on April 15. Expect to hear more from American Citizens Abroad. 

“There is tax reform on the table. It doesn’t come around every day. … It’s an once in a lifetime opportunity,” Serrato said. “We are telling our membership that Ways and Means has given you a platform. Take it and use it.”