On Monday 4 June the IRS made an announcement regarding new rules for Americans who must include Repatriation Taxes in their 2017 tax filing, due next Friday 15 June. On advice from international tax lawyer Monte Silver, our understanding of the impact of the change is as follows: As long as the taxpayer has less than $1m in Repatriation tax liability (which covers persons with about $6.5m in cash or $12.5m in non-cash or a mix of cash and non-cash non-repatriated profits) then they can delay their first payment by 1 year without incurring penalties (though there will be interest accruing) or having the entire liability accelerated (due and payable immediately). That gives us another year to work on a remedy before the worst of the transition taxes cut in for those who can least afford to pay.
Whilst this relief is welcome, it was a grave mistake for the 2017 Tax Cuts and Jobs Act to impose "transition taxes" on American business owners abroad. The provisions were enacted with no thought given to the impact on Americans living abroad. These taxes will cause enormous financial harm and force many Americans abroad to close their businesses.
Democrats Abroad, in association with the other Americans abroad advocacy groups, have been working for months to draw attention to this serious situation and demand a remedy. Nothing less than an amendment by Congress granting a full exemption for Americans abroad from the TCJA transition taxes will be acceptable. The law is double-taxing American business owners abroad - which does nothing to expand job growth and create economic opportunity.
It's not just unfair. It is damaging to U.S. business interests. Errors in tax policy writing like this underscore the urgent need for Congress to act decisively by passing a bill to enact a switch from Citizenship-based Taxation to Residency Based Taxation (RBT).
Under RBT Americans abroad will continue to report their U.S.-based income to the IRS, but will not report the income they earn and already pay tax on in their countries of residence. THAT'S what we have been working so very hard on. And then these new taxes came along! RBT remains the reform Americans abroad are waiting on.
Fortunately there is serious work going on in the House Ways & Means Committee on an RBT bill. We look forward to seeing our RBT advocacy work result in a bill on the floor of the House of Representatives this year. We are working hard to see that happen.
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