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Another Attack on Americans Living Abroad

5 Apr

This is reprinted from the newsletter of the American Citizens Abroad  (ACA), which is the voice of Americans overseas, a non-profit, non-partisan, all-volunteer organization that represents the interests of Americans living and working outside the U.S. We urge you to join and support them.

Another attack on the Foreign Earned Income Exclusion (FEIE) is on the way in Congress.  According to H.R. 2495, the FEIE would be reduced to zero, subjecting all income earned abroad to US tax.

H.R. 2495 (“To amend the Internal Revenue Code of 1986 to eliminate certain tax expenditures”) currently in the House Ways and Means Committee contains language (Sec. 402) that would entirely remove the FEIE which allows Americans working abroad to exclude part of their foreign earned income from their US taxable income.  Ironically, the bill does not touch the foreign housing exclusion which allows Americans the possibility of excluding some foreign housing expenses from their US taxable income.

Actually, this particular paragraph in H.R.2495 could hardly be expected to increase tax revenue by the promised amount of 5.4 billion dollars as US taxpayers living abroad would start using various tax credits such as foreign taxes paid in an effort to reduce their US tax bill.  Filing US tax forms will become even more complicated for Americans abroad and tax revenue will not increase.

If anyone is from Massachusetts, please write to John F. Tierney immediately and tell him this is crazy. His bill would eliminate the Foreign Earned Income Exclusion for Americans living overseas and would not bring in very much extra tax money.  We DO pay taxes overseas.  And the US is the only country in the world that taxes its citizens even if they live in another country and pay taxes to that country. Please write to Tierney and the bill’s cosponsors (Steve Cohen [D-TN9], Keith Ellison [D-MN5], Raul Grijalva [D-AZ7], Jesse Jackson [D-IL2], Betty McCollum [D-MN4]) to tell them to remove this paragraph from the bill.

You can find contact information for writing to Representatives in the U.S. Congress at the “Write your Representative” site of the Congress.

Taxpayer Advocate Service Annual Report to Congress 2011

2 Feb


The Taxpayer Advocate Service which, in vain, tried to help me in my recent and still ongoing interaction with the IRS, has issued their 2011 Annual Report to Congress entitled, “Introduction to International Issues: Compliance Challenges Increase International Taxpayers’ Need for IRS Services and May Undermine the Effectiveness of IRS Enforcement Initiatives in the International Arena.” It is available online on the IRS web site as a 144 page pdf file and, as most bureaucratic reports, is lengthy, convoluted, and confusing. Nonetheless, it highlights the problems that the IRS is causing for Expats and is highly critical of them. If you can’t find it, click on the link above and then click on “International” and you’ll download the file.

It starts with the statement, “In recent years, globalization has pushed an increasing number of taxpayers (including small- and medium-sized businesses and individuals) to seek economic opportunities abroad. It also has increased competition among tax administration agencies for tax bases and sources of revenue. The revenue generated depends on governments’ administrative capacities to collect taxes, and more importantly, on taxpayers’ willingness and ability to comply. For this reason, 40 economies made it easier to pay taxes last year.  In contrast, a recent World Bank report ranks the United States 66th in time spent to comply and 62nd in the ease of paying taxes among 183 countries surveyed”

“The complexity of international tax law, combined with the administrative burden placed on these taxpayers, creates an environment where taxpayers who are trying their best to comply simply cannot. For some, this means paying more U.S. tax than is legally required, while others may be subject to steep civil and criminal penalties. For some U.S taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship.”

Continuing, they state, “A recent IRS study of taxpayer needs and preferences showed that international taxpayers may have a greater current need for IRS services than the general taxpayer population. Yet while the IRS has substantially stepped up and invested hundreds of millions of dollars in international enforcement programs, it has not adequately improved taxpayer services that would foster compliance.” This concept was included in the letter that I wrote to  Congresswoman Carolyn Maloney (D-N.Y.), who supposedly “represents” Expats in the U.S. Congress. She and Congressman Joe Wilson (R-S.C.) formed the Americans Abroad Caucus in 2007. Again, this concept was included in the letters I wrote to Alan Dershowitz, to the President of the United States, Barak Obama, and to others. And none of any of the recipients of my letter deigned to respond. So much for representation of the people and by the people.

But back to the report which, on page 123, they conclude, “The 2009 Offshore Voluntary Disclosure Initiative (OVDP) was a great deal for people involved in criminal tax evasion. They were not affected by the IRS’s “clarification” that it would not consider non-willfulness, reasonable cause, or the mitigation guidelines in applying the offshore penalty because their violations were willful. However, the IRS is perceived as having reneged on the terms of the 2009 OVDP that would benefit taxpayers whose violations were not willful. Many felt the IRS treated them unfairly as compared to similarly situated taxpayers. It placed them in the unacceptable position of having to agree to pay amounts they do not owe under “existing statutes” or face the prospect that the IRS would assert excessive civil and criminal penalties. The IRS’s perceived reversal burdened taxpayers, wasted resources, violated longstanding IRS policy, opened the IRS to potential legal challenges, and was not properly disclosed as required by FOIA (Freedom of Information Act). It also damaged the IRS’s credibility with taxpayers as well as the practitioner community. As a result, the IRS is likely to have more difficulty gaining participation in any future settlement initiatives. This erosion in trust for the IRS among taxpayers and practitioners is also likely to have a negative impact on IRS’s mission and voluntary tax compliance more generally.” This paragraph is, to me, quite confusing, but does damn the practices of the IRS in its treatment of Expats.

There is, obviously, much more to read in this report than I have extracted here. It is well documented and filled with a myriad of details. Who will actually read all this? What effect will it have on Congressional legislation? What, if any, power does the the Congress have in terms of how the IRS treats American Expats? Will anything really change? I am sorry to be the pessimist as regards how I answer these questions, but I don’t think that anything will change. The fact remains that the coffers of the US Treasury are dangerously deficient and they are desperately dodging the deficit bullet. We will continue to be in their sights as they try to squeeze more money out of us. But you can decide the answers to these questions for yourself.

Repeal of Foreign Earned Income Exclusion

7 Nov

Can you believe that there are those who want to repeal the Foreign Earned Income Exclusion? This has been the cornerstone of the legal way to avoid being taxed by two countries. Everyone agrees that it is not fair to be taxed twice on the same income.

Here’s what the ACA has to say about this issue. I do recommend that you join them (free membership) and get on their mailing list to stay up on issues that involve American Citizens Abroad, the Voice of Americans Overseas:


Foreign Earned Income Exclusion


Impending United States Tax Legislation that directly affect Americans outside the United States may be placing the Foreign Earned Income Exclusion (FEIE Section 911 of US Internal Revenue Code) that has assisted in minimizing the double taxation impact of working and living abroad for US citizens – against the competitive tax cost efficiency of living in the United States – up on the chopping block again. Revenues will need to be raised to offset these programs, and “it is currently thought by some members of Congress that elimination of Foreign Earned Income Exclusion would generate additional tax revenues”, according to the non-profit American Citizens Abroad Executive Director, Marylouise Serrato.


Ms. Serrato further stated in the ACA letter to the U.S. Super Committee of Twelve Lawmakers that eliminating the FEIE today would destroy the network of Americans representing US interests in areas such as the Middle East, Hong Kong and Singapore all fast growing markets, vital to the development of U.S. exports.


For full details see:


Congress must not repeat the mistake made in the late 1970’s when FEIE was eliminated with the Foreign Earned Income Act of 1978 (P.: 95-615).


I suppose that even if they do repeal this part of the tax code, one will be able to reduce one’s tax burden by deducting the taxes paid to the foreign country of residence from that amount which would be due the US. Is there any way to have your voice heard in this legislative discussion? Sure, you can write to a Congressperson, but not as your representative. You just don’t have a representative. This is again, an issue of taxation without representation.