For decades, Americans living overseas have faced the headache of a worldwide tax filing regime enforced by Uncle Sam, contrasting with how citizens in almost all countries pay tax based on residence rather than original citizenship.

A group advocating for US expats argues that they could be taxed based on residence rather than place of birth – without the US Treasury losing revenue.

At present, US citizens must file an annual tax return regardless of where they live, even if they have resided outside the US since childhood. This contrasts with how most nations, such as the UK, Germany and Brazil, to give three examples, tax people based on where they actually live. In practice, many US expats’ local tax codes are considered under double-tax treaties, so they may not pay much if any tax back to the US. Tough US laws enforcing compliance with tax rules, such as the Foreign Account Taxation Compliance Act, have discouraged foreign financial institutions from serving expat Americans.

American Citizens Abroad said its arguments are bolstered by one of its own studies of residence-based tax, produced by the District Economics Group for American Citizens Abroad Global Foundation (ACAGF), ACA’s sister organization.

The study shows that residence-based taxation can be made revenue-neutral, without the US Treasury losing revenue. 

“Long-term American residents abroad could seamlessly move from citizenship-based taxation, the current set of rules, to RBT. No one would be forced to do this. No one would be made worse off, as the existing foreign earned income exclusion rules would remain for those wishing to use them,” ACA said in a statement yesterday.

“Under RBT, US citizens residing overseas would not be subject to US tax on foreign income. They would remain taxable on US income. This was recently made the general rule for US companies, and now it would become the rule for individuals,” it said. 

The ACA said its study backs its campaign for RBT.

The study, which has taken more than 10 months to complete, draws upon publicly available tabulations of tax returns from the Internal Revenue Service, projections of the US economy from the Congressional Budget Office, US Social Security Administration statistics and Census data. These data are augmented with publicly available IRS studies on US non-filers of tax returns and Federal Reserve Board studies of the distribution of wealth in the US, and then integrated with annual United Nations estimates of US migrants residing outside the US, the ACA said.

“From our recent meetings on Capitol Hill and with the Administration, we believe they will be very interested in this new and expanded analysis. ACA also looks forward to working with other groups interested in our work on RBT,” Marylouise Serrato, executive director, ACA, said.

The ACA added that it intends to present the study’s results to Congressional offices and staff at the Treasury Department.