Congressional hopes for simplified tax filing rules for expats

Congressional Staffer reading through tax code.

Recently Representative Darin LaHood (R-Ill.) introduced the Residence-Based Taxation for Americans Abroad Act (H.R. 10468), aiming to apply residence-based taxation to U.S. citizens living abroad. LaHood expressed his intent to work with Democrats to reduce tax burdens for expatriates. Meanwhile, Republicans on the House Budget Committee are exploring various tax reform options, including potentially exempting nonresident U.S. taxpayers from income tax. The Senate Finance Committee is also addressing the issue, particularly the administrative challenges faced by Americans abroad.

On January 30, Senate Finance Committee Chair Mike Crapo (R-Idaho) and ranking member Ron Wyden (D-Ore.) released the Taxpayer Assistance and Service Act’s discussion draft. The 163-page draft covers multiple areas of tax administration, including proposals to simplify the process for U.S. expatriates. This includes improving customer service, judicial reviews, and addressing long-standing concerns raised by Americans abroad, such as the complexity of tax filings.

The draft reflects years of feedback and research on the tax challenges faced by U.S. citizens abroad. In 2013, the House Ways and Means Committee issued a report identifying key issues, including calls for residence-based taxation and reforms to the Foreign Account Tax Compliance Act (FATCA). The current draft builds on that work, outlining proposals to simplify foreign bank account reporting, increase foreign tax credit thresholds, extend deadlines for certain requests, and ease reporting burdens for low-income, dual-citizen expatriates.

Sections 201 and 202 of the draft are particularly relevant to expatriates. Section 201 addresses the confusion and redundancy in the Foreign Bank Account Report (FBAR) and FATCA reporting requirements. Currently, U.S. citizens abroad must file both forms, despite significant overlap in the information required. While FBAR aims to combat money laundering, FATCA is designed to ensure compliance and assess foreign income. Section 201 of the new draft proposes combining FBAR and FATCA filings into a single submission with the IRS, simplifying the process and reducing administrative burdens. However, the issue of duplicative reporting remains unresolved, as both forms require overlapping information on foreign financial assets.

The National Taxpayer Advocate has repeatedly highlighted the need for Congress to eliminate this duplication and streamline reporting. While the new proposal doesn’t fully address the issue, it marks a step toward improving efficiency.

Section 202 of the draft calls for a study by the Government Accountability Office (GAO) to assess the tax burdens on U.S. expatriates. The GAO will focus on challenges such as understanding and complying with tax requirements, as well as access to services and financial resources abroad. Previous GAO reports have highlighted the problems with duplicative FATCA and FBAR reporting and recommended simplifying the process, but these suggestions have not been fully implemented.

This proposal offers a significant opportunity to address longstanding issues and better understand the scope of the problem. It could lead to recommendations for further legislative changes. Stakeholders have until March 31 to submit comments on the discussion draft, offering a chance to refine these proposals and make meaningful progress on tax reform for Americans abroad.

Overall, the Taxpayer Assistance and Service Act represents a crucial step toward simplifying the tax experience for U.S. citizens living abroad and improving compliance. If enacted, it could reduce the administrative burden, improve the filing process, and help ensure that U.S. expatriates are not overwhelmed by duplicative reporting requirements.