Today, the Senate Finance Committee released a discussion draft bill called the Taxpayer Assistance and Service Act. This is a bipartisan effort "of common-sense fixes to Internal Revenue Service (IRS) procedure and administration." The second part of the bill is specifically to address problems faced by Americans abroad.
The Taxation Task Force is pleased to see a range of legislative fixes to some key tax administration pain points we hear from Democrats Abroad members about regularly. Although we do not think the FBAR provision goes far enough, we are particularly encouraged to see a fix to the currency fluctuation for remortgages and a non-partisan government report specifically written to address the majority low and middle income Americans living abroad. The public are encouraged to write in their feedback on the bill, more information below. The Taxation Task Force is working on its own comment, which will be published in due course.
We continue to support legislation that will help reform the tax code for Americans abroad and this also includes our continued fight for residency based taxation. We do not see this bill as being mutually exclusive for any of our other tax priorities. We are pleased to see legislative progress being made on multiple fronts to help Americans abroad especially in the last few months, with the aim of all of these reforms being added into the bigger tax package due to pass before the end of this year.
The American abroad section of the Taxpayer Assistance and Service Act is made up of 6 parts including:
1. Combined Tax and Foreign Bank and Financial Account Reporting. Persons with a non-US bank account would file both the FATCA and FBAR forms together with their tax return. The IRS would then transmit the FBAR to FinCEN. This would eliminate the need for Americans abroad to have to send the FBAR to the Financial Crimes Network and help reduce the chances of someone missing out from filing it and reduce the chance of them receiving a penalty.
2. Government Accountability Office (GAO) Study and Report on low and middle income Americans abroad tax issues. A non-partisan government report to the Treasury and Congress on the burdens of complying with federal tax laws on citizens living abroad. Within one year of the report, the Treasury Secretary is required to report to Congress on the actions taken by Treasury to address any problems identified from the report and any recommendations for legislation to address such problems.
3. Simplification of Currency Exchange Rules.
- Increase the exemption for foreign currency gains from $200 to $1,000 and index it annually for inflation.
- When a taxpayer sells a home, allow certain home mortgage currency gains and losses to offset gains and losses on the home.
- Allow refinancing a mortgage on a home that is denominated in a foreign currency without recognizing gain or loss on the currency, provided the home is located overseas.
- Allow an average conversion rate for income received during the year instead of a different conversion rate for each payment.
4. Increase in Threshold for Simplified Foreign Tax Credit Rules and Reporting from $300 ($600 in the case of a joint return) to $1,000 ($2,000 in the case of a joint return) and index it for inflation.
5. Extension of Time for Persons Outside the United States to Request Abatement of Math Error. Give taxpayers who reside abroad an extra 60 days (i.e., 120 days) to respond to a math error notice.
6. Reduced Burden for Lower Income Dual Citizen Expatriates; Clarification of Limitations Period.
- For lower-income individuals who do not meet the income or asset thresholds to be treated as a Covered Expatriate, authorize the Secretary to waive the filing certification requirement with respect to an individual who is a dual citizen with limited contacts with the U.S., a tax home outside the U.S., and who files Form 8854, Initial and Annual Expatriation Statement, provided the amount of unpaid taxes is reasonably likely to be de minimis.
- Also, clarify that the income tax limitations period with respect to the expatriation year does not begin to run until a taxpayer files Form 8854 (Initial and Annual Expatriation Statement).
- For lower-income individuals who do not meet the income or asset thresholds to be treated as a Covered Expatriate, authorize the Secretary to waive the filing certification requirement with respect to an individual who is a dual citizen with limited contacts with the U.S., a tax home outside the U.S., and who files Form 8854, Initial and Annual Expatriation Statement, provided the amount of unpaid taxes is reasonably likely to be de minimis.
- Also, clarify that the income tax limitations period with respect to the expatriation year does not begin to run until a taxpayer files Form 8854 (Initial and Annual Expatriation Statement).
The text of the full discussion draft is available here.
The Senate Finance Committee's section-by-section of the legislation is available here.
We encourage everyone to submit their own comments on this discussion draft which are due March 31, 2025. Please send your comments to [email protected] and cc [email protected].
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