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Congressman introduces bill to offer residence-based tax system to expatriates

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Expatriate advocacy groups are applauding legislation introduced this week that would implement a residence-based taxation system for U.S. citizens living overseas.

Rep. Darin LaHood, R-Illinois, a member of the tax-writing House Ways and Means Committee, introduced the Residence-Based Taxation for Americans Abroad Act on Wednesday, a bill that would implement a residence-based taxation system for U.S. citizens currently living overseas.

The bill would enable Americans living overseas to elect to be treated as a nonresident American, allowing them to be subject to U.S. tax only on U.S.-sourced income and gains.

“This is a non-partisan issue that impacts U.S. citizens with roots in districts across the country. In today’s world, Americans choose to live and work abroad for a host of reasons, and that does not mean that they should be subject to more onerous tax and compliance burdens,” LaHood said in a statement Wednesday. “I look forward to working with President-elect Trump and my House colleagues on both sides of the aisle to modernize our Tax Code to ensure Americans are not punished for living and working abroad.”

The issue received more attention this past fall during the election campaign when Donald Trump told the Wall Street Journal, “”I support ending the double taxation of overseas Americans.”

According to recent estimates, over 5 million U.S. citizens are currently living abroad, including both Americans who were born and raised in the United States but have since moved abroad indefinitely, as well as “accidental Americans,” or individuals who hold dual citizenship in the United States and a foreign country but are unaware of their status as U.S. citizens.  The U.S. is the only major country that uses citizenship-based taxation, levying taxes on individuals regardless of where they live or whether they earn income in the U.S.

The bill establishes an elective process for a U.S. citizen living abroad to be treated as a non-resident without having to renounce his or her U.S. citizenship. Under this new tax regime, an electing taxpayer would be subject to U.S. tax only on U.S.-sourced income and gains (such as income from ownership in a U.S. business), distributions from U.S. retirement and deferred compensation plans, income from assets physically located in the U.S. (such as rent from real-estate investments), and other U.S.-sourced income or gains.

The electing individual would be treated for tax purposes like a foreign individual residing outside the United States with U.S.-sourced income.

An electing individual would need to certify compliance with U.S. tax obligations for the five years prior to the election date, with exceptions for certain existing, long-term Americans abroad.

Once the election is made, it would be effective for the current and all future taxable years until terminated (either by the non-resident American self-withdrawing the election or if the individual again becomes a U.S. resident for tax purposes).

Since the election is intended for Americans living abroad over the long term, the bill requires the non-resident American to live abroad for at least three years from the election date or the election would be reversed entirely.

For purposes of Foreign Account Tax Compliance Act only, a non-resident American would be able to apply to the IRS for a certificate of non-residency to use with foreign financial institutions.

By allowing the non-resident American to establish that he or she is not a “specific United States person,” foreign financial institutions would not be required to undertake burdensome reporting requirements under FATCA, which frequently discourage them from offering banking services to Americans living and working abroad.

Similarly, the non-resident American would be exempt from certain reporting requirements (and substantial associated penalties) with respect to foreign assets and transactions, including Foreign Bank and Financial Accounts Reports, or FBARs.

To help ensure fiscal balance and prevent abuse, the electing individual must also pay a departure tax on deferred income, with certain exceptions.

An election would require the individual to pay a departure tax based on deferred income, treating all property as if sold for fair market value on the day before the election with the gains and losses taken into account for purposes of determining the departure tax.

Once the departure tax is paid, the individual’s basis in each asset subject to tax would be the fair market value (stepped up basis).

The bill provides three exceptions to the departure tax, for an individual who:

  • Has a net worth (i.e., fair market value of all assets over liabilities) of less than the applicable estate tax exemption amount ($13.61 million for 2024, $13.99 million for 2025); or
  • Is a tax resident of a foreign country where the individual has regularly, normally, or customarily lived for three of the past five years, and such individual certifies that he or she has been in compliance with U.S. tax requirements for the three years prior to the bill’s introduction; or
  • Has not been a U.S. resident at any time since turning 25 years old or after March 28, 2010 (date that FATCA was adopted) through the date of enactment of the bill.

Expat support

The bill has received support from expatriate advocacy organizations, including American Citizens Abroad and Tax Fairness for Americans Aboard. 

“This long-awaited legislation is a critical step forward in bringing about something ACA has worked hard to achieve over many years,” said ACA executive director Marylouise Serrato in a statement.The bill builds on Congressman [George] Holding’s Tax Fairness for Americans Abroad Act of 2018 and we’re pleased to note, includes multiple features of ACA’s RBT modeling in our Side-by-Side Analysis dated 2022 and studies.” 

She pointed out that the introduction of LaHood’s legislation aims to set the groundwork for tax language that would ultimately be included in a new bill in the next Congress. It’s not expected to be passed before the current Congress recesses. 

The ACA has drafted a side-by-side analysis of Congressman LaHood’s “Residence Based Taxation of Americans Abroad Act” which provides an overview of the structure of the bill and addresses many of the details. It describes not only what is in the bill but also what is not.

Some of the main aspects of the legislation include:

  • U.S. citizens, but not “green card” holders, residing overseas (newly called “nonresident U.S. citizens”), in general, would be removed from the category of individuals subject to U.S. income tax and taxed like nonresident aliens (foreign individuals).
  • Individuals need to make a one-time election and continually meet residency and other requirements.
  • Electing individuals must certify under penalty of perjury that they have met all tax requirements for the five preceding taxable years and submit all required evidence.
  • Individuals resident in a so-called “tax haven” country can qualify for elective RBT.
  • Foreign banks can treat individuals who elect RBT as not subject to FATCA reporting rules provided they obtain a certificate of non-residency and give a copy to the bank. (This is similar to treatment of individuals who renounce US citizenship and file a Form 8854.
  • There is a tax, commonly called a “transition tax”, on deferred income of certain individuals electing to be subject to the new RBT rules. The tax applies to a deemed sale of all property. Individuals with a net worth not exceeding $13.6 million ($27.2 million-married couples) are excluded. Tied to estate tax unified credit. These amounts revert to $5 million or approximately $7 million when adjusted for inflation, if the Tax Cuts and Jobs Act is not extended.  
  • There are a number of exceptions, including Individual Retirement Accounts (IRA)s, which will not be subject to “transition tax.”
  • A special rule, a type of “grandfather” rule, will exempt many Americans residing abroad from the transition rules.

The National Taxpayers Union also praised the bill. NTU president Pete Sepp, an advisor to Tax Fairness for Americans Aboard, which helped LaHood develop the legislation, expressed its support:

“Americans living abroad face some of the toughest financial and compliance burdens that the U.S. tax system can possibly inflict,” Sepp said in a statement. “It is long past time that American tax laws deliver fairness and relief for these citizens. Congressman LaHood deserves praise from all American taxpayers, not just those living overseas, for developing this tax reform in collaboration with TFFAA and other organizations so quickly and holistically. Now taxpayers have a head start for 2025 on addressing a problem that prominent Democrats as well as Republicans (including President-elect Trump) have acknowledged. With this legislation, we have a very effective tool for the job of righting a great wrong for taxpayers.”

LaHood worked closely with Tax Fairness for Americans Abroad in drafting the bill. TFFAA is a U.S. nonprofit organization whose board members have deep personal experience navigating the pitfalls of U.S. tax and financial services laws that affect Americans abroad. The group’s sole mission is to advocate for a U.S. tax system for Americans abroad that is based on residence and source, not citizenship.

“For the first time in our lifetimes, Americans abroad can see the light at the end of the long, dark tunnel that has cost them huge amounts in accounting fees, ruined relationships, and made it impossible for them to live normal lives,” said Brandon Mitchener, executive director of Tax Fairness for Americans Abroad, in a statement. “We thank Mr. LaHood for his leadership and look forward to working with him to collect feedback on this non-partisan approach and to help advance the bill to the president’s desk next year.”

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IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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