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Discussion Starter #1 (Edited)
The U.S. House of Representatives is debating whether to give the President "fast track" authority for the Trans Pacific Partnership (TPP) agreement and also debating associated legislation such as Trade Adjustment Assistance (TAA). TAA consists of a set of benefits intended to help workers who are harmed as a result of agreements such as TPP. TAA requires funding, and Congressional Republicans are trying to find it. Congress has broadly agreed that TPP fast track authority will not be granted unless TAA funding is provided.

According to press reports I've spotted (here and here as examples), one place the Republicans want to get some TAA funding is via reduction in the Child Tax Credit available to "wealthy" (their term) U.S. expatriates. Congresswoman Rosa DeLauro (D-Connecticut) is among those who object. She wants any change in the Child Tax Credit to remain within the Child Tax Credit -- that is, if some taxpayers receive less Child Tax Credit then others should receive more, but otherwise, in her view, CTC tax expenditures should not be reallocated to other purposes, such as TAA funding.

If you also object to this particular proposed tax change, then you can contact Congress, particularly Congressional Republicans who are pushing for the idea.

Let me explain how the Child Tax Credit currently works in relation to U.S. citizens living overseas. First of all it's simply not available to "wealthy" Americans in terms of high income. The Child Tax Credit phases out starting at a modified AGI of $110,000 (Married Filing Jointly). So if income is much above that, there's no Child Tax Credit. Second, modified AGI adds back in the Foreign Earned Income Exclusion (and Foreign Housing Exclusion), so Americans cannot raise their CTC phase out income level via the FEIE. Third, Americans who take the FEIE cannot qualify for the refundable part of the Child Tax Credit (the Additional Child Tax Credit). Americans who wish to take advantage of the refundable part have to skip the FEIE (and rely solely on the Foreign Tax Credit) -- and they're still subject to the modified AGI phase out limit, just like everyone else.

Republicans are apparently upset that some overseas Americans (with U.S. citizen children) who take the FEIE can qualify for some or all of the nonrefundable part of the Child Tax Credit, using that credit to offset (only) current year U.S. income tax on non-earned income -- tax on interest, dividends, and capital gains, as examples. But these Americans are not "wealthy" according to conventional political definitions. (President Obama and the Democrats define "wealthy" at no lower than $200,000 for a MFJ household, for example -- and usually no lower than $250,000. The CTC phases out well before that for everybody, including overseas Americans.) So anything the Republicans want to do here to reduce the CTC is going to hit what most people would consider middle income Americans -- the income phase-outs are already air tight.

Considering all the other ways to raise revenue -- including from truly high income Americans, overseas or otherwise -- this would not be my first choice in how to raise additional revenue.
 

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Discussion Starter #3
The House voted down TAA as presently constructed. Democrats want TAA to be much more generous -- and even include some non-TAA sweeteners -- before they'll even consider supporting it and TPP fast track. So, for the moment, there's some good news on this score.
 

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Discussion Starter #4
OK, I found the exact text of the legislation that didn't pass (yet). It's HR 1314 Section 209, and it reads as follows:

SEC. 209. CHILD TAX CREDIT NOT REFUNDABLE FOR TAXPAYERS ELECTING TO EXCLUDE FOREIGN EARNED INCOME FROM TAX.

(a) In General- Section 24(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
`(5) EXCEPTION FOR TAXPAYERS EXCLUDING FOREIGN EARNED INCOME- Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.'.
(b) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2014.


OK, so what the Republicans are trying to do is eliminate the refundable part of the Child Tax Credit (the Additional Child Tax Credit) for individuals who are (a) middle income (the MAGI-based tax credit phase outs are air tight already); (b) can exclude some of their earned income via the FEIE; (c) have enough non-excluded earned income to qualify to collect the refundable ACTC. These would be middle income (or working poor) Americans who typically qualify for the FEIE due to the bona fide residence test but have some amount of U.S. source earned income.

I don't favor this amendment.
 

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Discussion Starter #5 (Edited)
There are some very interesting U.S. tax-related developments in conjunction with the transportation bill. As background, the U.S. Highway Trust Fund will run out of funds in August. The most straightforward funding solution is to raise the federal motor fuels excise tax -- to index it to inflation, in particular. The federal motor fuels excise tax hasn't been raised, even for inflation, since 1993. For bizarre political reasons the Republican-controlled Congress doesn't want to raise the gas tax even for inflation. But Congress is even less inclined to cut highway funding, so Congressional Republicans keep coming up with short-term funding fixes for the Highway Trust Fund -- including other tax increases. No, this makes no sense, but I'm only the messenger.

OK, with that background, as the latest development U.S. Senate leaders have unveiled their version of the transportation bill. It's a 6 year bill with 3 years of funding, with the other 3 years to be decided later, after the next election. The funding consists of some Rube Goldberg-esque tweaks to save spending and/or raise revenues (taxes) -- just not raise the federal motor fuels excise tax, even for inflation. I've been scanning through the 1,030 page Senate bill and have found some really interesting tax-related items. Here are what I think are the most interesting:

1. Section 52102: "Revocation or Denial of Passport in Case of Certain Unpaid Taxes." This section of the transportation bill adds a new section (Section 7345) to the Internal Revenue Code. This section provides a mechanism to revoke and deny renewal of U.S. passports for individuals that have delinquent IRS tax leins of $50,000 or more (2015 dollars). Yes, revoke -- if you're not square with the IRS, your U.S. passport can be cancelled and won't function, at least in the developed world. The IRS has to obtain a tax lein (or functional equivalent), via due process, and if you're making at least some effort to pay your tax bill then your passport should be safe. You have to be "seriously delinquent," in other words (and the bill defines that). The State Department also retains the authority to issue passports to seriously delinquent individuals for emergency or humanitarian reasons, and the State Department also retains the authority to mark the passport as valid only for one-way travel to the United States (i.e. to demote a regular U.S. passport to ETD status -- a "99%" revocation, as it were). The law is further amended to give the U.S. State Department the authority to deny U.S. passports to individuals who do not provide valid and correct U.S. Social Security numbers, and there are IRS-State data sharing provisions in the bill. These U.S. passport provisions will go into effect on January 1, 2016, if the bill is passed in Congress and signed by the President.

These provisions are very similar to the existing child support-related passport provisions. If you're delinquent on child support that's another reason you can be denied a U.S. passport.

2. Section 52107 looks like it increases funding for the IRS, specifically for tax compliance personnel.

3. Section 52303 restricts payment of Social Security benefits to fugitive felons. I suppose that would include tax-related fugitive felons.

This is the Senate's version of the bill, and it'll need to be passed in both houses and signed by the President in order to become law.
 

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Discussion Starter #6
I found another interesting provision in the Senate's transportation bill:

4. Section 52105, among other things, changes the filing deadlines for certain financial reports. The new filing deadlines would go into effect for tax year 2016, thus they'll be 2017 deadline dates (for 2016 reports). The new deadlines that will be the most interesting to this forum are for IRS Form 3520-A, IRS Form 3520, and especially FinCEN Form 114. The new standard deadlines will be April 15, but in fact filers will be able to extend their deadlines to October 15. That's great news, I'd say, since the new deadlines are uniform with IRS Form 1040 -- no more need to try to remember different deadlines. FinCEN Form 114, for example, currently has a hard deadline of June 30 with no extensions available, but if this legislation passes you'd be able to extend the deadline to October 15, just like your tax return.

It's a bit hard to tell from the legislative text, but it looks like you'd file IRS Form 4868 to get the October 15th deadlines -- the same, common form to get an extension on IRS Form 1040. (That's a bit ambiguous for FinCEN Form 114, though.) Also, it appears that overseas residents will get an automatic June 15th filing deadline, again the same as tax returns.

I'm not actually sure what the legislative impact is for 3520 and 3520-A. I thought those forms already had the same deadlines as 1040s, but maybe not in every case. Anyway, this section looks like good news since it clearly allows FinCEN Form 114 to stretch as late as October 15 if you need the extra time. Even if the "standard" deadline is shorter for that form, I'd say it's a welcome change.
 

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Discussion Starter #7
By the way, the proposed passport revocation/denial legislation isn't new. So far the House of Representatives hasn't gone along with the Senate, but the Senate might get its way this time since it's tied to highway funding and generates revenue (for obvious reasons). House Republicans don't want to raise the gas tax either, so they'll have to find another way to fund transportation if they don't like the Senate's idea(s). Republican Senator Orrin Hatch is among those pushing for tightening up the passport law. Senate Democrats have paused the transportation bill since they want time to review it, but there's broad agreement in the Senate at least that this passport provision has merit. Senator Barbara Boxer (D-California), for example, has long been in favor of such a provision.

Some people argue that passport issuance restrictions are legally improper because they interfere with a right to expatriation (or a purported right anyway). Though the case law is limited, U.S. courts haven't agreed with that argument. For example, Briehl v. Dulles (1957, D.C. Circuit Court of Appeals) affirmed the Department of State's ability to deny a passport to an applicant that refused to execute a statement about his political affiliations. Functionally you can get in your car (or boat) and drive (or sail) beyond the U.S. border -- or just walk across. The U.S. doesn't actually have exit control checkpoints at its borders, unlike most other countries, so nobody from the U.S. government is physically standing in the way of people who want to exit U.S. territory. Legally, though, you're supposed to bear a valid U.S. passport if you're a U.S. citizen crossing the U.S. border in either direction. Renunciation in front of a U.S. consular official is only one of the ways to terminate one's U.S. citizenship, as it happens.

Anyway, anybody can file a lawsuit in U.S. court, and maybe one will be coming if the tax-oriented passport law is passed. But plaintiffs can already file lawsuits against the existing child support restrictions to passport issuance, and I don't see how the existing child support restrictions would be legally any different than tax-related restrictions. So if there's a winnable legal argument, it already exists in present law.
 

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Looking at the progress of this bill, it seems the overall intention has changed at least a couple of times. Added to that, they seem to be throwing all sorts of amendments and amendments to amendments at the bill, in the hope of some of them sticking.

I don't see this as a real threat to most of us living overseas. Sure, maybe if you're under audit and facing imposition of a tax lien. But how many expats do you know (personally, not through IRS press releases in the news) who have been audited recently?

Ultimately, I don't see this changing much of anything for most expats.
Cheers,
Bev
 

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Discussion Starter #9
Ultimately, I don't see this changing much of anything for most expats.
I completely agree. The vast majority of U.S. citizens are U.S. tax compliant (and certainly not "seriously delinquent" -- a $50,000 nonperforming tax lien is a lot!) and are not fugitive felons.

The one provision that'll be relevant to most U.S. citizens resident overseas, and for the better, is the change in the FinCEN Form 114 filing deadline. Even better would be to merge IRS Form 8968 and FinCEN Form 114 into a single report -- and even merge 3520/3520-A as well, if possible -- but unifying the filing deadlines is a positive step in that direction.
 

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Even better, just submit the report of foreign accounts as part of your regular tax return. (Including the provision that, if you don't have to file a return, you don't have to report your overseas accounts!) That's how they do it here in France and it seems to work just fine.
Cheers,
Bev
 

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Discussion Starter #11
(Including the provision that, if you don't have to file a return, you don't have to report your overseas accounts!)
That's not going to fly, in my view. My prediction is we'll eventually see a single combined, consolidated report, but it'll still have its own, separate filing obligation and filing threshold.
 

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Discussion Starter #14
The parasites seem to get fatter by the day.
In fact, no -- at least not on this occasion. U.S. government revenue as a share of GDP is rather moderate, and the Medicare trustees' report this week is spectacularly good. Transportation, particularly maintenance/repair and mass transit, really is underfunded in the U.S., and the federal motor fuels excise tax really has fallen in real terms (the only terms that matter).
 

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Discussion Starter #15
The presidential campaigns are starting to lift the lid on their fiscal policy proposals. Hillary Clinton, for example, is likely to propose reducing the current biases in the tax code that tend to favor passive income received by high income individuals. According to the Wall Street Journal her proposal will end the preferential lower capital gains tax rate for assets held less than two years (instead of today's one) and reduce the preference for assets held less than six years. These changes would only apply to the highest income individuals, perhaps even only those with million dollar annual incomes or higher.

I happen to agree with Clinton that the U.S. tax code currently is too generous to the wealthiest (versus the middle class) and to passive income (versus earned income), but my preferred policy solution would be simply to allow indexing of passive income for inflation, taxing the after-tax gains at ordinary rates. That'd greatly simplify passive income taxation overall, especially given that most people are getting 1099s on such income. (Those that aren't can include inflation in their cost basis but would not be required to.) I'd also eliminate the payroll tax cap, extend the payroll tax to all forms of income, and lower the payroll tax rate on the employee/individual side if there's money to spare (after extending the Social Security trust fund projection to 2075 and after boosting benefits a little, in key areas where the benefits really are too low). Finally I'd introduce a new 45% tax bracket starting at about $2.5 million MFJ income (2015 dollars), a simple 30% "Buffet Rule" at the same or slightly higher level, and get rid of the AMT and all its complexity. That said, I think Clinton is headed in the right direction, but I'd be bolder particularly in taking the opportunity to simplify the tax code and put Social Security and Medicare on more solid footing.
 

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Discussion Starter #16 (Edited)
To update everyone on the Senate transportation bill, many senators are upset that the current bill contains a provision to extend the deadline for implementation of positive train control by 3 years. Amtrak will meet the 2015 deadline, but freight railroad industry lobbyists convinced some senators to sneak that delay language into the bill -- probably Senator John Thune (R-SD), specifically, since he sponsored a 5 year extension bill (S.1462). Just a couple months ago 8 people died in an Amtrak train crash in Philadelphia, a crash that simply would not have occurred with PTC. There have also been numerous expensive and deadly freight train derailments and crashes, including several involving chemicals, oil, and gas shipments. Railroads face fines if they don't get PTC systems implemented by the deadline. PTC systems automatically bring trains to a stop when drivers do not obey signals and speed limits and when drivers are non-responsive (e.g. unconscious or asleep).

Some senators are willing to grant the Federal Railroad Administration (FRA) the ability to allow one year extensions on an exception basis, but that's as far as they'd go. The transportation bill in its current form goes well beyond that and simply extends the deadline by 3 years.

This bill is a long way from being finished.
 

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I happen to agree with Clinton that the U.S. tax code currently is too generous to the wealthiest (versus the middle class) and to passive income (versus earned income), but my preferred policy solution would be simply to allow indexing of passive income for inflation, taxing the after-tax gains at ordinary rates. That'd greatly simplify passive income taxation overall, especially given that most people are getting 1099s on such income. (Those that aren't can include inflation in their cost basis but would not be required to.) I'd also eliminate the payroll tax cap, extend the payroll tax to all forms of income, and lower the payroll tax rate on the employee/individual side if there's money to spare (after extending the Social Security trust fund projection to 2075 and after boosting benefits a little, in key areas where the benefits really are too low). Finally I'd introduce a new 45% tax bracket starting at about $2.5 million MFJ income (2015 dollars), a simple 30% "Buffet Rule" at the same or slightly higher level, and get rid of the AMT and all its complexity. That said, I think Clinton is headed in the right direction, but I'd be bolder particularly in taking the opportunity to simplify the tax code and put Social Security and Medicare on more solid footing.
So, when are you throwing your hat in the ring? (And on which side of the aisle?)

What you, me or any of our posters prefer in terms of tax (or any other) policy is pretty much irrelevant, especially in the current political climate. Whoever gets elected still has to push (or drag) their bright policy ideas through Congress - and that depends more on who gets elected in "other" parts of the country.
Cheers,
Bev
 

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So, when are you throwing your hat in the ring? (And on which side of the aisle?)

What you, me or any of our posters prefer in terms of tax (or any other) policy is pretty much irrelevant, especially in the current political climate. Whoever gets elected still has to push (or drag) their bright policy ideas through Congress - and that depends more on who gets elected in "other" parts of the country.
Cheers,
Bev
One thing for sure is the Republicans are going benefit the rich at the expense of the poor. It's that simple. If the Republicans take control, expect wars, deepening deficits, miseries for the middle class and the poor, more power for the top 1%.
 

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One thing for sure is the Republicans are going benefit the rich at the expense of the poor. It's that simple. If the Republicans take control, expect wars, deepening deficits, miseries for the middle class and the poor, more power for the top 1%.
Yeah, but given the current line up of Republican "hopefuls" one has to wonder what sort of a chance the Republicans have to field a viable candidate.
Cheers,
Bev
 

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Discussion Starter #20
The uniform filing deadlines for FinCEN Form 114 (and other forms) is now law. The President signed HR 3236, yet another temporary extension of transportation funding. HR 3236 includes the revision to FinCEN Form 114's filing deadline (and IRS Forms 3520/3520-A). The new deadlines will go into effect for reporting tax year 2016, not the current tax year.

The passport-related language was not included in HR 3236, but Congress will get another crack at doing that in October -- or perhaps earlier since that language has been attached to several bills now. The temporary transportation funding extension is only for 90 days.
 
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