Below is a copy of the submission the Democrats Abroad Global Taxation Task Force submitted to the House Ways & Means and Senate Finance Committees for the hearings held with Treasury Secretary Bessent held on June 11, 2025 and June 12, 2025 respectively. The same letter was submitted for both committees.
Click here to download a pdf of DA's submission in full.
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Dear Chairman Smith and Ranking Member Neal: Democrats Abroad, the official arm of the Democratic Party representing U.S. citizens living outside the United States, appreciates the opportunity to submit this statement for the record for the Full Committee Hearing with Treasury Secretary Scott Bessent. We write to highlight urgent tax and financial concerns affecting millions of Americans residing abroad and to request that the Treasury Department prioritize reforms that will reinvigorate American competitiveness while promoting fairness, reducing unnecessary complexity, and improving compliance. We respectfully urge the Treasury Secretary to prioritize the following four items:
1. Finalize the Proposed Regulations for Foreign Gift and Trust Reporting (REG-124850-08) and Clarify that Non-U.S. Pensions are not Foreign Trusts The IRS has long conflated non-U.S. pensions and savings accounts with foreign trusts, subjecting Americans abroad to onerous reporting requirements under Forms 3520 and 3520-A. This imposes disproportionate compliance burdens and substantial penalties on individuals with ordinary local retirement accounts. In 2024, the IRS issued proposed regulations that offered partial relief. However, the eligibility criteria remain overly complex and ambiguous. Taxpayers and tax practitioners continue to struggle with determining whether local retirement and savings plans are reportable, deterring many from saving for retirement altogether. During the proposed rule’s comment period, in March 2024, Democrats Abroad ran a campaign that generated more than 1,500 comments from Americans abroad, the overwhelming majority calling on the Treasury to expand the exemptions for foreign pensions, clarify eligibility criteria, and ensure that ordinary foreign retirement and savings accounts are not inadvertently caught by rules intended to prevent abusive trust arrangements. We are still waiting on the Treasury to issue final regulations, and we urge the IRS to unequivocally confirm that non-U.S. pensions are not Foreign Trusts and are therefore not subject to excessive reporting requirements.
2. Initiate a Notice of Proposed Rulemaking to Modernize PFIC Regulations The passive foreign investment company (PFIC) regime is especially punitive for Americans abroad who invest in local funds or pension plans and who are barred from purchasing U.S. investments under the laws of the countries where they live. These investments are common in retirement vehicles in other countries but trigger complex U.S. tax reporting (via Form 8621) and harsh tax treatment that often bears no relation to actual income or intent. In response to the Paperwork Reduction Act notice for Form 8621, Democrats Abroad submitted detailed comments on the burden imposed by PFIC rules, and over 1,100 additional public comments were submitted, largely from individual Americans abroad. These comments highlighted the extreme compliance burden, frequent lack of tax liability, and the deterrent effect PFIC rules have on basic financial planning and responsibility. We urge the Treasury to initiate a Notice of Proposed Rulemaking to update PFIC regulations to adjust de minimis thresholds and provide safe harbor rules for publicly available dividend-distributing funds as well as funds in regulated retirement accounts held by bona fide residents of other countries. Americans abroad want to save and invest for their future, but simple regulatory fixes are needed to enable financial participation.
3. Launch a Formal Review of FBAR Requirements Under the Bank Secrecy Act The current FBAR $10,000 reporting threshold has not been adjusted since its introduction in 1970 and fails to account for inflation, everyday banking needs, or the realities of life abroad. FBAR filings are often duplicative with FATCA reporting, creating unnecessary confusion and compliance costs for ordinary Americans. Even minor mistakes can result in devastating penalties. In accordance with Section 6216 of the Anti-Money Laundering Act of 2020, we urge the Treasury to launch a formal, independent review of the FBAR regime to assess the continued utility of the FBAR in its current form, explore options for consolidation with FATCA, and recommend exemptions or inflation-adjusted thresholds that reflect modern banking realities. The overwhelming volume of recent public comments, including bipartisan calls for reform, underscore the urgency of this issue.
4. Improve IRS Tax Administration and Customer Service for Americans Abroad In its 2021 Taxpayer First Act Report to Congress, the IRS acknowledged that Americans abroad constitute an underserved taxpayer population. Compared to domestic taxpayers, Americans living outside the U.S. do not receive the same level of support. While the IRS operates 363 Taxpayer Assistance Centers (TACs) across the United States that offer in-person help, there are no such centers available for the approximately 9 million Americans living abroad (as estimated by the State Department). Until 2015, the IRS maintained 15 tax attaché offices at U.S. embassies around the world to provide local assistance. Since their closure, Americans abroad have been left without direct IRS support, often forced to pay expensive tax professionals or risk falling out of compliance due to the complexity and cost of filing. For these reasons, Democrats Abroad supports several relevant provisions in the Taxpayer Assistance and Service Act discussion draft released by the Senate Finance Committee on January 30, 2025, including especially a request for a Government Accountability Office (GAO) report on the challenges Americans abroad face in complying with federal tax laws.
Conclusion The United States is the only advanced economy that taxes its citizens on their worldwide income regardless of where they live. This citizenship-based system is incompatible with international norms and creates serious harm for Americans abroad, including double taxation, loss of financial access, and barriers to both employment and retirement savings. The hazards of this system’s applicability to the first American pope have even provoked heated discussion in tax journals and the Vatican itself. This is why Democrats Abroad supports residency-based taxation so that the United States is in line with the rest of the world for taxation and financial inclusion in the global economy. The Residence-Based Taxation for Americans Abroad Act (H.R. 10468) introduced in the 118th Congress represents a step in this direction. If Treasury were to address the issues outlined in this letter, it would advance a fairer, more efficient framework that restores financial inclusion and economic opportunity for Americans abroad. Thank you for the opportunity to provide our suggestions and to point out, once again, the unfair, unnecessary, and unproductive obstacles that Americans living abroad face. Sincerely,
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