Residence-Based Taxation for Americans Abroad Act

Bill: 118-hr-10468
Sponsor: full_name: Rep. LaHood, Darin [R-IL-16]
Introduced: 2024-12-18
Policy area: Taxation
Latest action: action_date: 2024-12-18
text: Referred to the House Committee on Ways and Means.

Summaries:

tv_txt: I 118th CONGRESS 2d Session H. R. 10468 IN THE HOUSE OF REPRESENTATIVES December 18, 2024 Mr. LaHood introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to establish an elective residency-based income tax for nonresident citizens of the United States, and for other purposes.

1. Short title This Act may be cited as the Residence-Based Taxation for Americans Abroad Act . 2. Establishment of elective residency-based income tax for nonresident citizens of the United States (a) In general Part II of subchapter N of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subpart: E Residency-based income tax for nonresident citizens of the United States Sec. 899. Election by nonresident citizens of the United States to be subject to residency-based income tax rules. Sec. 899A. Imposition of tax on deferred income of certain electing individuals. Sec. 899B. Certificates of nonresidency. Sec. 899C. Regulations. 899. Election by nonresident citizens of the United States to be subject to residency-based income tax rules (a) In general In the case of any electing individual: (1) Residency-based income tax The rules of subsection (b) shall apply for the taxable year for which the election under this section is made and all subsequent taxable years until such election is terminated under subsection (d). (2) Application of tax on deferred income The rules of section 899A shall apply as of the day before the election date (as defined in section 899A). A termination of any election under this section shall have no effect on the application of section 899A. (b) Application of residency-Based income tax In the case of any electing individual, the rules of this subsection are as follows: (1) In general Section 7701(b)(1) shall be applied— (A) by treating any electing individual as an alien individual, (B) by substituting not for neither a citizen of the United States nor in subparagraph (B), and (C) by treating the United States as including the possessions of the United States. (2) Modification of substantial presence test Section 7701(b)(3) shall applied without regard to subparagraphs (B) and (C). (3) Requirement of tax residency Notwithstanding section 7701(b), an electing individual shall not fail to be treated as a resident of the United States unless such individual is a tax resident of a foreign country. (4) Treatment as United States persons based on residency Section 7701(a)(30)(A) shall be applied without regard to the phrase a citizen or . (5) Coordination with FATCA withholding For purposes of section 1472, an electing individual with a certificate of nonresidency issued under section 899B shall be treated as having established status as an individual who is not a specified United States person. (6) Exemption from certain reporting and records requirements with respect to foreign assets and transactions Sections 6038D and 6046, and section 5314 of title 31, United States Code, shall not apply. (7) Coordination with rules on expatriation Section 7701(a)(50) shall not be treated as applying with respect to the application of this subpart. (8) Waiver of Treaty saving clause The United States waives the application of each saving clause in any United States income tax treaty with respect to electing individuals. For purposes of the preceding sentence, the term saving clause means any provision which would (but for this paragraph) prevent the electing individual from benefitting from a provision of the treaty eliminating double taxation. (c) Electing individual For purposes of this subpart— (1) In general The term electing individual means any citizen of the United States who has in effect an election (made at such time and in such manner as the Secretary may provide) to have the provisions this subpart apply. (2) Citizens born abroad In the case of any citizen of the United States who is born outside the United States, such individual shall be treated as a electing individual until such time as such individual becomes a resident of the United States under clause (ii) or (iii) of section 7701(b)(1)(A). (3) Exception for Federal employees Notwithstanding any other provision of this subpart, an individual shall not be treated as an electing individual for any taxable year if such individual is employed by the Federal Government at any time during such taxable year. (d) Rules related to election (1) Manner of election An election under this section shall be made at such time and in such manner as the Secretary may provide and, once made, is irrevocable (but may be terminated as provided in this section). (2) Requirements of election An election under this section shall not be effective unless— (A) the tax imposed under section 899A (if any) is paid (or deferred under section 899A(b)) at such time as the Secretary may provide, and (B) the electing individual certifies under penalty of perjury that the electing individual has met the requirements of this title for the 5 preceding taxable years and submits such evidence of such compliance as the Secretary may require. (3) Termination of election An election under this section— (A) shall be terminated as of the close of the taxable year preceding any taxable year (with respect to which the election would otherwise apply) for which the electing individual is a resident of the United States under clause (ii) or (iii) of section 7701(b)(1)(B), and (B) may be terminated by the electing individual at such time and in such manner as the Secretary may provide. (e) Special rule for short-Term nonresidency If an election under this section by an electing individual is terminated before the beginning of the fourth taxable year to which such election would otherwise apply, subsection (b) shall not apply to any taxable year to which such election would have otherwise applied. 899A. Imposition of tax on deferred income of certain electing individuals (a) General rules For purposes of this subtitle— (1) Deemed sale All property of a specified electing individual shall be treated as sold on the day before the election date for its fair market value. (2) Recognition of gain or loss In the case of any sale under paragraph (1)— (A) notwithstanding any other provision of this title, any gain arising from such sale shall be taken into account for the taxable year of the sale, and (B) any loss arising from such sale shall be taken into account for the taxable year of the sale to the extent otherwise provided by this title, except that section 1091 shall not apply to any such loss. Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. (b) Specified electing individual For purposes of this section— (1) In general The term specified electing individual means any electing individual if the net worth of the individual as of the election date exceeds the basic exclusion amount in effect under section 2010(c)(3) as of such date. (2) Net worth The term net worth means, with respect to any electing individual, the excess (if any) of— (A) the fair market value of all assets of such individual, over (B) the indebtedness of such individual. (c) Election date For purposes of this section, the term election date means the first day of the first taxable year to which the election under section 899 applies. (d) Exceptions (1) In general Subsection (a) shall not apply to any interest in the following property of the specified electing individual: (A) Any deferred compensation item. (B) Any qualified retirement plan (as defined in section 4974(c)). (C) Any specified tax deferred account. (D) Any interest in a nongrantor trust. (E) Any real property located in the United States. (F) Any real property located outside the United States if, during the 5-year period ending on the election date, such property has been owned and used by the specified electing individual as such individual’s principal residence for periods aggregating 2 years or more. (2) Deferred compensation item For purposes of this subsection, the term deferred compensation item means— (A) any interest in a plan or arrangement described in section 219(g)(5), (B) any interest in a foreign pension plan or similar retirement arrangement or program, (C) any item of deferred compensation, and (D) any property, or right to property, which the individual is entitled to receive in connection with the performance of services to the extent not previously taken into account under section 83 or in accordance with section 83. (3) Specified tax deferred account For purposes of this subsection, the term specified tax deferred account means a qualified tuition program (as defined in section 529), a qualified ABLE program (as defined in section 529A), a Coverdell education savings account (as defined in section 530), a health savings account (as defined in section 223), and an Archer MSA (as defined in section 220). (4) Nongrantor trust For purposes of this subsection, the term nongrantor trust means the portion of any trust that the specified electing individual is not considered the owner of under subpart E of part I of subchapter J. The determination under the preceding sentence shall be made immediately before the election date. (e) Election To defer tax (1) In general If the specified electing individual elects the application of this subsection with respect to any non-readily tradable property treated as sold by reason of subsection (a), the time for payment of the additional tax attributable to such property shall be extended until the due date of the return for the taxable year in which such property is disposed of (or, in the case of property disposed of in a transaction in which gain is not recognized in whole or in part, until such other date as the Secretary may prescribe). (2) Determination of tax with respect to property For purposes of paragraph (1), the additional tax attributable to any property is an amount which bears the same ratio to the additional tax imposed by this chapter for the taxable year solely by reason of subsection (a) as the gain taken into account under subsection (a) with respect to such property bears to the total gain taken into account under subsection (a) with respect to all property to which subsection (a) applies. (3) Termination of extension The due date for payment of tax may not be extended under this subsection later than the due date for the return of tax imposed by this chapter for the taxable year which includes the date of death of the specified electing individual (or, if earlier, the time that the security provided with respect to the property fails to meet the requirements of paragraph (4), unless the electing individual corrects such failure within the time specified by the Secretary). (4) Non-readily tradable property For purposes of this subsection, the term non-readily tradable property means any property other than property which is readily tradable on an established securities market. (5) Security (A) In general No election may be made under paragraph (1) with respect to any property unless adequate security is provided with respect to such property. (B) Adequate security For purposes of subparagraph (A), security with respect to any property shall be treated as adequate security if— (i) it is a bond which is furnished to, and accepted by, the Secretary, which is conditioned on the payment of tax (and interest thereon), and which meets the requirements of section 6325, or (ii) it is another form of security for such payment (including letters of credit) that meets such requirements as the Secretary may prescribe. (6) Waiver of certain rights No election may be made under paragraph (1) unless the specified electing individual makes an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of any tax imposed by reason of this section. (7) Elections An election under paragraph (1) shall only apply to property described in the election and, once made, is irrevocable. (8) Interest For purposes of section 6601, the last date for the payment of tax shall be determined without regard to the election under this subsection. (9) Special rule if election of residency-based income tax terminates before property is disposed of In the case of any property with respect to which an election under this subsection has been made, if the election under section 899 with respect to the electing individual terminates before the beginning of the taxable year in which such property is disposed of, this section shall not apply to such property. (f) Special rules (1) Termination of deferrals, etc In the case of any specified electing individual, notwithstanding any other provision of this title— (A) any time period for acquiring property which would result in the reduction in the amount of gain recognized with respect to property disposed of by the electing individual shall terminate on the day before the election date, and (B) any extension of time for payment of tax shall cease to apply on the day before the election date and the unpaid portion of such tax shall be due and payable at the time and in the manner prescribed by the Secretary. (2) Step-up in basis Solely for purposes of determining any tax imposed by reason of subsection (a), property which was held by an individual on the date the individual most recently became a resident of the United States (within the meaning of section 7701(b)) shall be treated as having a basis on such date of not less than the fair market value of such property on such date. The preceding sentence shall not apply if the individual elects not to have such sentence apply. Such an election, once made, shall be irrevocable. (3) Separate application to each election In the case of any individual who makes more than 1 election under section 899, this section shall be applied separately with respect to each such election. (g) Transitional rule (1) In general This section, and subsection (a)(2) and (d)(2) of section 899, shall not apply to— (A) any individual if— (i) as of the introduction date, such individual meets the ordinary residence test under paragraph (2), (ii) such individual has not been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for at least 3 of the last 5 taxable years ending before the introduction date, and (iii) such individual certifies under penalty of perjury that the electing individual has met the requirements of this title for the last 3 taxable years ending before the introduction date and submits such evidence of such compliance as the Secretary may require, and (B) any individual who has not been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) at any time during the period beginning on the later of the date such individual attains age 25 or March 18, 2010, and ending on the date of the enactment of this section (and such individual shall be treated as described in this subparagraph without regard to whether or not such individual has met the requirements of this title at any time). (2) Ordinary residence test An individual meets the ordinary residence test if such individual is a tax resident of a foreign country and such foreign country is the place where such individual regularly, normally, or customarily lives. (3) Introduction date For purposes of this subsection, the term introduction date means the date of the introduction of the bill which, upon enactment, enacted this section. 899B. Certificates of nonresidency (a) In general Upon application, the Secretary shall issue a certificate of nonresidency— (1) to any electing individual if the Secretary determines that an election by such individual under section 899 is in effect, and (2) to any citizen of the United States born in a foreign country after the date of the enactment of this section. (b) Termination of certificate A certificate of nonresidency issued under this section shall terminate on the first date after such issuance with respect to which the individual to whom such certificate is issued— (1) is a resident of the United States (as defined in section 7701(b)(1)(A)(ii)), or (2) in the case of an individual described in subsection (a)(1), otherwise ceases to have an election in effect under section 899. (c) Publication of certificate numbers The Secretary shall maintain a searchable public database and shall— (1) promptly upon the issuance of any certificate of nonresidency, update such database to include the certificate number and date of issuance of such certificate, and (2) promptly upon the termination of any certificate of nonresidency, update such database to indicate the termination of such certificate and the date of such termination. (d) User fees (1) In general The Secretary shall impose a user fee of $100 per application under this section. Fees received under this subsection shall be available to the Secretary (without need of further appropriation) for the costs of processing applications under this section. (2) Inflation adjustment In the case of any calendar year beginning after 2025, the $100 amount in paragraph (1) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year determined by substituting 2024 for 2016 in subparagraph (A)(ii) thereof. If any increase under the preceding sentence is not a multiple of $5, such increase shall be rounded to next lowest multiple of $5. (e) References Except where the context clearly indicates to the contrary, any reference in any provision of law to a certificate of nonresidency issued under this section shall include only such certificates which have not been terminated. 899C. Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this subpart. . (b) Clerical amendment The table of subparts for part II of subchapter N of chapter 1 of such Code is amended by adding at the end the following new item: Subpart E—Residency-based income tax for nonresident citizens of the United States . (c) Effective date The amendments made by this section shall apply to elections made after the date of the enactment of this Act for taxable years ending after such date. 3. Participating foreign financial institutions prohibited from discriminating against nonresident United States citizens (a) In general Section 1471(b)(1) of the Internal Revenue Code of 1986 is amended by striking and at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and inserting , and , and by inserting after subparagraph (F) the following new subparagraph: (G) not to have policies or practices that discriminate against opening or maintaining financial accounts for individuals who are citizens of the United States and residents of the country in which the financial account is to be opened or maintained. . (b) Effective date (1) In general The amendments made by this section shall take effect on the date of the enactment of this Act. (2) Transition rule During the 1-year period beginning on the date of the enactment of this Act, an agreement shall not fail to be treated as described in section 1471(b)(1) of the Internal Revenue Code of 1986 solely by reason failing to include the requirement of subparagraph (G) thereof if the institution entering into such agreement satisfies such requirement at all times during such period without regard to whether such requirement is included in such agreement.