A modest proposal: End the inefficient, unfair double taxation of Americans abroad

Dear Congress,

As the Trump Administration explores ways of reducing government inefficiency, unfairness and terrible customer service, we’d like to nominate a candidate for scrutiny: the Internal Revenue Service’s double taxation of Americans abroad. 

We were inspired to write this article by the recent question President Donald Trump put to his supporters: Should the new Department of Government Efficiency (DOGE) “audit” the IRS?

We are fully aware that recent actions by DOGE have been controversial. We believe that most U.S. government employees are normal, hardworking Americans like the rest of us, and that they perform important public services, from keeping us safe from aviation and nuclear accidents, unsafe products, and dangerous pollutants to maintaining our national parks. We also believe that government fraud and mismanagement are the exception, not the rule.

That said, we would welcome any light that DOGE could shed on the double taxation of Americans abroad, a policy that President Trump has rightly and repeatedly attacked. Aside from occasional reports by the National Taxpayer Advocate highlighting the Kafkaesque challenges that U.S. tax law imposes on Americans abroad, the IRS has rarely documented the cost-benefit analysis of its enforcement of U.S. tax laws on people who are already subject to local taxation in the countries in which they live.

Did you know that the United States is the only free country in the world that insists on the double taxation of its citizens living abroad, and imposes draconian penalties for failure to comply with the U.S. filing obligations, even if inadvertent? Double taxation puts Americans abroad–and all U.S. businesses–at a competitive disadvantage globally by making it more expensive to be or hire an American than to be or hire a non-U.S. citizen. 

If you are new to this topic, we would be happy to provide you with more background and examples than you would need to get your heads around it. Our blog includes many testimonials of the costs of double taxation and other, related U.S. filing obligations, including the Foreign Account Tax Compliance Act and Report of Foreign Bank and Financial Accounts forms, which demand largely the same information every year, but on separate forms, and impose draconian penalties for non-compliance.

Embrace residence-based taxation

As a candidate, Donald Trump promised to end the aberration of the double taxation of Americans abroad. Representative Darin LaHood (R-IL) has offered a solution in the form of the Residence-Based Taxation for Americans Abroad Act introduced in December. We expect that bill to be re-introduced in Congress shortly and to make its way through the legislative process. We know how long that could take.

An estimated 5.5 million Americans abroad would love to see a real, detailed cost-benefit analysis of taxing Americans twice. We already know, thanks to the National Taxpayer Advocate, that most Americans living abroad don’t owe any U.S. taxes, and that the IRS consequently collects very little revenues from Americans living abroad. Yet the policy of taxing Americans on the basis of nationality as opposed to residence remains the law of the land.  

Double taxation hurts Americans abroad in lots of different ways: 

• It’s uniquely burdensome: The United States is one of the only countries that taxes its citizens based on citizenship rather than residency. This means that even if an American citizen lives and works in another country, they are still obligated to file U.S. taxes–on top of whatever taxes they already have to pay locally.

• It’s costly for individuals: Americans abroad often incur significant costs in complying with U.S. tax laws, including hiring specialized tax professionals and navigating complex regulations.

• It’s costly for financial institutions: Financial institutions that work with Americans abroad face increased compliance costs due to the need to report financial information to the IRS.

• It’s costly for the IRS: The IRS must process millions of tax returns from Americans abroad, the vast majority of which generate no tax revenue. This diverts resources away from other important functions.

• And after all that… the vast majority owe no U.S. taxes! Due to various tax treaties and exemptions, the majority of Americans living overseas do not end up owing any U.S. taxes. This means they go through the time and expense of filing and IRS officials review their declarations for no apparent purpose. .

The current system of taxing Americans overseas is inefficient, costly, and unfair. It places a significant burden on individuals, financial institutions, and the IRS, while generating little to no tax revenue. It's time to end the double taxation of Americans overseas. We would be grateful for any help we can get.

Sincerely, 

Tax Fairness for Americans Abroad