The following transcript was generated by AI and may contain inaccuracies.
Hugo: We’ll wait a couple of minutes to give everyone time to join.
Rebecca: Okay.
Hugo: I’m here with Rebecca Lammers. I’ll introduce you in a minute, but we were just chatting and I was saying how this seminar has got a huge amount of interest. I think more people have chosen to watch this than any of the other ones. This is the finale of the conference this year. Thank you very much for joining us.
Rebecca: Oh, is this the last one?
Hugo: This is the last one, yeah. We’ve had a couple previously today, three yesterday, and three on Tuesday. Three days of nine presentations in total, all kinds of subjects. You were saying you’re on the West Coast currently?
Rebecca: Yeah, I was in DC for just over a week. When I’m in the US, I want to take advantage of spending time with friends and family. This is the only call I’m doing in the next few days because otherwise I’m spending it with a friend.
Hugo: It’s good to have some time off. You’ve been working in DC?
Rebecca: Yeah, for Democrats Abroad.
Hugo: I’m sure you’ll tell us more about that in the presentation. Lots of people still joining, so we’ll give them a minute. Did you say you have family in California? Are you in California?
Rebecca: No, I’m in Washington State.
Hugo: Oh yeah, sorry.
Rebecca: I was in California in October last year for my 10-year wedding anniversary. It’s really sad to know that a lot of what my husband and I saw is now gone from the fire. That’s been tough.
Hugo: Yeah, definitely. I’m involved in a fundraiser for Americans in Spain in March. It’s huge, incredible destruction. Let’s get started—a few people still joining, but the rate has slowed down.
Hello and welcome to day three of the 2025 US Expats Financial Conference, sponsored by Expat Focus, the web’s favorite destination for anyone moving or living abroad, and Wise, a leading provider of fast, low-cost international money transfer services and multi-currency accounts for individuals and businesses.
We have a great schedule consisting of nine sessions over three days, covering multiple aspects of financial information for Americans living abroad with perspectives from some of the world’s leading experts in their fields. Today is the third and final day of the conference.
For this third session of the day, I’m delighted to be joined by Rebecca Lammers, chair of the Democrats Abroad Taxation Task Force and board member for Tax Fairness for Americans Abroad. We’ll be discussing what is the new residency-based taxation proposal and how would it benefit US expats?
Before we start, please bear in mind the information presented is for general educational purposes only. You should always seek your own personalized financial advice. While the conference is free to attend, if you’d like to leave a tip for the organizers, you can do so using the PayPal link I’ll drop into the chat window at the foot of your screen.
Rebecca will be answering your questions after the presentation, so please add them in the Q&A popup at the foot of your screen anytime. We’ll try to get through as many as we can, time permitting. Without further ado, over to you Rebecca.
Rebecca: Thanks Hugo. Thanks for the invite to speak at this year’s conference. Should I go ahead and share my slides?
Hugo: Yes.
Rebecca: Can you see them? Is that good?
Hugo: Yes.
Rebecca: Great. Good morning, good afternoon, and good evening, wherever you are in the world. My name is Rebecca Lammers. I’m the chair of the Democrats Abroad Taxation Task Force, and I lead our tax advocacy work to pass residency-based taxation. I’m also a board member for Tax Fairness for Americans Abroad. I’ll talk more about that later.
I’m originally from Ohio and I live in London. I’ve lived there for 18 years now. It’s my pleasure to be presenting this webinar and talking about this really exciting bill and proposal on the table.
I need to do my own disclaimer. Here’s the standard disclaimer slide, but I want to emphasize that I am not a tax lawyer or accountant. This webinar does not constitute any kind of tax or financial advice. Democrats Abroad takes no liability for any actions taken or not taken by participants in this event as a result of information obtained at this event.
No liability across the board. I want to be really clear on that. I’m going to go straight into it. I’ll first talk about how the bill came about before I go into more detail about the contents of the bill and what the change in law could be.
In December last year, a bill called the Residency-Based Taxation for Americans Abroad Act was introduced in the House of Representatives by Congressman Darren LaHood, who is a Republican from Illinois. The reason this bill was introduced was many years in the making, but most recently due to the combined advocacy efforts of groups like Democrats Abroad, Tax Fairness for Americans Abroad, and most of the American abroad organizations.
To take a step back, the bill was introduced at the end of last year, the 118th Congress, and all the bills introduced last year, including this bill, have now died. It will need to be reintroduced in the new Congress this year in order for the bill to pass. The intention is to reintroduce the bill with improvements.
This is a common tactic that many members of Congress use—they introduce a bill at the end of a Congress with the intention of putting it on the record to then reintroduce with improvements in the next Congress. Think of this bill as a draft. The intention was to solicit public feedback in order to improve the bill for its reintroduction.
At the moment, congressional staff are looking for feedback on how to improve the bill and also to improve the policy to eliminate any kind of tax evasion loopholes. This is something Democrats Abroad has been working a lot on. I really want to emphasize—I don’t think I can emphasize this enough—that everything I’m going to talk about on this webinar in terms of the bill’s contents is still subject to change.
As it’s reintroduced and subsequently moves through the legislative process, I want to be really clear on that upfront right now. We’re also in ongoing conversations to make the bill bipartisan as well as bicameral. We’re looking for reintroduction in the House and then also for the bill to be introduced in the Senate as well.
I hope that’s clear in terms of what’s happening. Going into the contents of the bill—again, this is all subject to change and is really high level. On the whole, what the bill does is it creates an optional procedure, and the keyword here is optional, to allow Americans abroad to be treated the same way as a non-US citizen who lives outside the US is treated for tax purposes.
In the tax world, someone who is not a tax resident in the US and is not a US citizen is called a non-resident alien or an NRA for short. NRAs pay US taxes only on their US-sourced income. There are very specific criteria for how an American abroad could be eligible, which I’m going to go into here in a bit.
There are a number of provisions that would prevent someone from using this procedure to evade taxes. Really the overall goal is to create an optional procedure—again, optional is the keyword—to address the main pain points Americans abroad experience regarding tax and financial access problems.
If you were to elect to do this procedure, you would be terminating your US tax residency and be treated the same as a non-resident alien, but you would still keep your US citizenship. Under the current US tax system, which is a citizenship-based tax system, we are all taxed by the US on all of our income sources regardless of where we live in the world, however long we’ve lived abroad, and irrespective of if we have ever even resided in the United States.
The only way to terminate US tax residency right now is to renounce your US citizenship. However, this is not ideal because not everyone wants to give up their US citizenship. Many people feel they’re having to choose between being able to maintain a normal financial life and keeping their US citizenship. No other nation in the world has this type of tax system where people are renouncing due to taxes.
This is a potential new option that would address this problem. Keep in mind that high net worth individuals would be subject to a departure tax on the assets with unrealized gains. Anyone that would elect to complete this procedure would receive a certificate of non-residency, which would be a piece of paper that would prove that you are no longer a US tax resident.
In theory you would be able to walk into your local bank in your country of residence, show them the certificate, say that you are no longer a US tax resident, and then they would in theory accept you as a customer. At least that’s the intention. If you were ever to return to live in the US, you would resume US tax residency and be taxed as any other US tax resident on their worldwide income.
Those who choose to complete the procedure would be exempt from FBAR and FATCA reporting. A non-discrimination provision in the bill is intentionally trying to encourage banks to accept US citizens. With a certificate of non-residency, you would only be liable for filing and paying US tax on US-sourced income, like dividends.
If you completed the procedure and you did owe US tax on US-sourced income, then you would have to file a 1040-NR return, which is simpler than a regular 1040 and would only be necessary in situations where tax has not been automatically withheld from the income. For example, if you own an apartment in the US that you rent out, you would need to file a 1040-NR for that.
Having completed the procedure, the savings clause of the tax treaties would be waived. This is a standard provision in all US tax treaties that basically says that the US reserves the right to tax its citizens however it wants without regard to any provisions in the treaty. This is why US citizens living abroad have suffered from double taxation in certain cases.
In order to make sure that no one can use this procedure to evade taxes, a number of anti-tax evasion provisions have been put in place to make it difficult for this procedure to be abused. These include a departure tax on high net worth individuals, which is indexed to the current inheritance tax rate of $13.61 million.
But this is likely to come down in the next version of the bill, and Democrats want to see it come down as well. You must certify that you’re tax compliant, which means you need to be up to date on your US tax returns for the last five years. All US-sourced income will still be subject to US tax and withholding.
FATCA remains in place if you do not elect to complete the procedure. You absolutely must establish and maintain residency in another country to qualify for the procedure, which means that digital nomads aren’t eligible for this since they don’t have a tax residency in another country.
Then there’s the clawback for those who reestablish residency in the US in less than four years from the time you do the election. You can’t flip-flop back and forth between being a US tax resident and being a non-resident. Those are the things that would change.
What wouldn’t change? The first thing is your US citizenship wouldn’t change. You would still be a US citizen. You would still retain all your voting rights you have today to vote from abroad. You would also retain your right to unrestricted travel to visit and live in the US. Finally, you’d continue to have the right to pass on citizenship to your children.
What kind of person might benefit from this procedure? These are some examples of the types of people that might benefit, but I really want to reiterate here that it is up to each individual to determine if this procedure would be something that you might want to do if this bill were to pass.
That’s a lot of hypothetical situations, but there are layers here. The types of people that would benefit include those who have limited financial ties to the United States, so they don’t have significant US-sourced income like rental property or a US-based business. Someone that was born abroad and has never lived in the United States—those who identify as being an accidental American—and those who plan to continue living outside of the US for an extended period of time.
Those are basically the people who might benefit from this. Who are the people that would potentially not benefit? Someone that might not benefit could be someone that is living abroad on a short-term basis, someone that goes abroad for a two-year work assignment and then plans to go back to live in the US.
Someone who has significant US-sourced income, where a local tax credit would not offset the US taxes. For example, someone living in a country with a low dividend tax. Someone who may benefit from a preferential tax treaty between their country of residence and the US, such as retirees in France who have most of their retirement income in the US.
And those who do not have tax residency established in another country, such as a digital nomad. Digital nomads would not qualify for the procedure anyway. Hopefully that helps.
Then we have what we’ve been referring to as the grandfather provisions. Certain individuals, if the bill were to pass, would be automatically deemed a non-resident if they meet this criteria. They need to be a current American abroad who has lived overseas for at least three of the last five years and can certify tax compliance.
They would be exempt from the departure tax regardless of their wealth level. Those who have continuously resided abroad since the age of 25 or since the enactment of FATCA in 2010 would be exempt from the departure tax regardless of wealth level and past compliance status.
US citizen babies born abroad in the future will be born as non-residents and will be issued a certificate of non-residency at birth. The specific procedures and applicability of the $100 fee would be clarified in future regulations. These grandfathering provisions are intended to recognize the problems Americans abroad have faced and suffered from in the past.
These specific provisions are in place for those who have potentially suffered in the past. Some frequently asked questions: As I previously mentioned, there is no change to voting rights in this bill.
Will I be able to save or invest in my country of residence? In the bill, an individual who makes an RBT election would not be subject to any US reporting or tax on their non-US income. An individual who makes the election would be able to go to a local bank and show the certificate of non-residence to be eligible to open an account.
For example, one can invest in a Canadian tax-free savings account or TFSA if you’re a resident in Canada, or an Individual Savings Account or ISA if you’re a UK resident. Right now those accounts are subject to US tax, but if you were to elect RBT, you would no longer be subject to US tax and information reporting on these non-US savings or investment accounts.
Would I be subject to US capital gains on the sale of a home under the bill? An individual who makes an RBT election would not have to file a 1040 and therefore would not be subject to US capital gains on the sale of their non-US home.
How does the bill impact investing in PFICs? Under the bill, an individual who makes an RBT election would not have to file a 1040 and therefore would not be subject to PFIC reporting or tax.
Will I still have to pay tax on US-based income, including investments made in the US like stocks or shares? Basically you would be taxed in the same way that non-resident aliens are currently taxed on US-based stocks. The way this usually works is capital gains are taxed by your country of residence.
Dividends are taxed so that first the tax is withheld by the US and then taxed by your country of residence. The withheld US tax is credited against your local tax. This is somewhat opposite to what we have now, where local tax in your country of residence is paid first.
Also a frequent question on Social Security: How does the bill impact Social Security payments? Taxpayers who elect RBT would be taxed as non-resident aliens benefiting from any applicable provisions of the tax treaty between the US and their country of residence. Those are the most frequent things that at least I’ve been asked. I hope that helps clarify.
I’m seeing lots of questions pop up in the chat, and I’m hoping we can knock out half of those just by going through those frequently asked questions. I want to do some myth-busting now. There are already rumors and myths circulating around what this bill does or doesn’t do. I want to bust some of those myths about what the bill is not.
The bill is not exempting individuals from US tax on US-sourced income. As I’ve said a few times, you would still be liable for US tax on US-sourced income. Americans abroad will still owe US tax on US-sourced income. This aligns the US tax code with the rest of the world by creating a residency-based taxation option for Americans abroad.
The bill does not create a tax giveaway for the rich. There are tight—what are referred to as guardrails—on the bill to prevent any kind of tax loopholes or tax evasion, sometimes called tax leakage. Inside the United States and within Congress, lawmakers are rightfully concerned about people leaving the country to evade taxes, which does happen.
But what this does is it makes changes in residency an unattractive way to avoid taxes. The bill is not the result of Trump’s pledge to end double taxation for Americans abroad. The policy development for this bill has been in the works for a number of years and it builds on years of research.
There is no way that anyone would’ve been able to develop a policy of this level of detail in only a few months. Some of you may remember that the Democrats Abroad Taxation Task Force last year around this time actually hosted a webinar talking about elective residency-based taxation. This is something that’s been under development for a very long time.
Also, the bill is not the RBT bill that was introduced in 2018. That was a different bill by a different congressman. This is a totally brand new and totally different RBT bill. This bill does not change the estate tax. The worldwide estate of electing individuals would continue to be taxable, subject to an exclusion amount of $13.61 million.
That’s what the bill is not. What is the bill? It actually helps the majority of low and middle-income Americans abroad to not have to pay high tax prep costs to prove they owe no US tax when they’re already paying a higher tax in their country of residence. I continue to cite the government’s own statistics back to them.
In 2022, the IRS filing statistics said that 58% of tax returns filed from abroad owed no US tax. Most people who file from abroad don’t owe any US tax. The only people benefiting from the current system is the tax prep lobby, basically. Finally, the bill does help Americans abroad save for their future.
The intention here is to help enable Americans abroad to be able to open bank, retirement, and investment accounts in their country of residence. I’ve talked a lot about what the bill is. There’s been a lot of development going on in the background, so I wanted to highlight what are the potential changes that could be on the board for reintroduction in this Congress.
We do anticipate the exit tax threshold will come down, but we don’t know what that level is going to be yet. As I mentioned before, it’s currently $13 million, which is the same as the inheritance tax rate, but they picked that number just to put a marker down. The goal for the bill is to make it revenue neutral.
That means that the bill pays for itself, so it doesn’t cost the government anything, but at the same time, it doesn’t make the government any money either. At the moment, there’s a group within the government, a nonpartisan group of government employees called the Joint Committee on Taxation.
This is a group of a bunch of economists and academics and PhDs who are working on figuring out what the exit tax level would need to be in order to make the bill revenue neutral. No one knows what that number is yet, but that is potentially one of the areas we anticipate change on.
Additionally, it might be the case where FBAR and FATCA are removed. This would mean that the bill is going to be reintroduced as an ideal bill. But in terms of the markup process and as it goes through the legislative process, potentially the FBAR and FATCA elements might be removed, which is not ideal, but it’s still better than having to file complicated tax returns with the IRS each year and being subject to double taxation.
One of the other areas that could potentially change are the grandfathering provisions that could also potentially be removed as well, which would mean that the exceptions would be removed and everyone would have to complete the procedure and come into compliance regardless of how long they’ve lived abroad or even if they’ve never lived in the US.
Honestly, I don’t know. Nobody knows right now. We’ll have to see what happens. The goal is to keep the grandfathering provisions in and also to exclude anyone from filing the FBAR and FATCA forms, but we’re working on the details right now, which leads me to some additional updates that I wanted to share.
I was just in DC. I literally flew from DC yesterday. I’ve been there for over a week. There’s a lot more momentum behind fixing the plethora of American abroad tax issues now more than ever. This is due to the countless hours that myself and the volunteers and the Democrats Abroad Taxation Task Force have put in on these issues.
We’ve done a significant amount of work on FBAR last year, and that work is starting to pay off. The meetings we had earlier this week indicate appetite to address the penalties and the filing threshold on the FBAR. We’re working hard on that to potentially come up with a bill.
Additionally, we’ve been educating members of Congress on how the GILTI tax has killed off American entrepreneurship abroad. Given some of the GILTI provisions are expiring this year, which is one of the reasons why there’s a big tax bill that Congress is currently working on, there’s an open door for reform there. We’re working on that too.
Last week the Senate Finance Committee made public a discussion draft of a bunch of different what are called tax administrative fixes that are a combination of recommendations from the National Taxpayer Advocate, who is the IRS watchdog. It’s a government position. All of those recommendations have been rolled into one bill.
In that, there are 10 sections to that tax admin bill. The second part is specifically for Americans abroad. It’s so important that it’s the second part. We’re still digesting these provisions, but I’m really encouraged by some of it. In particular, there’s a section that addresses the phantom gain and loss of remortgaging on a primary residence abroad.
I know these are little tiny fixes. They’re not something to write home about, but I do get emails from people about these things. These are things where people are double-taxed or they’re unfairly taxed. These kind of things will help people. Be on the lookout for our formal response, which we’re currently drafting right now. We will put that out on our website.
I also wanted to share that—thank you—I’m sure some of you participated in our survey on the bill. I wanted to share some of the high-level results. Over 4,000 people responded to our survey over the last month. Overwhelmingly, 94% support the bill and 84% said that they would do the procedure, the RBT procedure. Lots of support overall there.
Just coming back to start wrapping up here, I would recommend that you spend some time thinking about if this is something that you might want to do. Some things that you can do include looking at what taxes look like for non-resident aliens right now. That’ll give you at least a rough idea of how this non-residency election might look.
Read up on the concept of income sourcing to better understand what US taxes your non-citizen friends and colleagues might pay. If the bill actually does pass, I cannot emphasize enough that you would need to seek qualified professional advice on what is right for your unique situation, because as we discussed earlier, this is not necessarily an option that will benefit everybody.
This is why myself and Democrats Abroad continue to work on tax reform for Americans abroad overall, not just on RBT. RBT is a very key element, but it’s not going to help everybody. That’s why we’re looking at FBAR and GILTI and all of those other things that also impact people’s lives.
If you’d like to learn more information, we put together a lot of resources, including some mock case studies, so that potentially you might be able to identify with some of the scenarios. I can put that in the chat or send it in the follow-up slides. I’ll do that once I’m done sharing my slides here.
Next steps. I need to emphasize here that I don’t have a crystal ball. I can’t see into the future, but here are some factors to consider when it comes to trying to pass the RBT bill. First, it will have to be reintroduced, as I mentioned before. That’s the first step.
Factors that will help increase its chances of passing include getting bipartisan and bicameral support. Democrats Abroad is seeking a Democratic co-sponsor for the bill in the House, and we’re also looking for senators to step up and introduce what’s called a Senate companion, which is the exact same bill in the Senate.
The more co-sponsors the bill has once it’s introduced, that helps increase its chances of passing. In order to help make that happen, the more Americans abroad that contact their members of Congress to co-sponsor the bill and raise awareness of the issue, the better. We really need a tsunami wave of Americans abroad contacting their members of Congress about this bill.
Some of you may be aware that the Windfall Elimination Provision repeal bill passed at the end of last Congress, and that was a result of decades of grassroots advocacy with hundreds of thousands of people contacting all members of Congress about it. Our numbers as Americans abroad are the equivalent of one state, but our voices are spread out based on where we last lived.
We face an uphill battle to be heard, but it’s not impossible because as we saw with the Windfall Elimination Provision, change is possible. Strategically, we have a big advantage this year. I think it’s important to also clarify that last year’s Congress was one of the most ineffective congresses in history with very few bills passing due to all of the drama that you’ve probably seen in the news.
This year already has been no different. We’ve seen all of the chaos going on in only just two weeks. That said, Congress has to pass a tax bill this year, and there are a number of tax provisions that are expiring. That’s why a tax bill has to pass this year. Most bills are not passed on their own. They often get attached to a bigger bill, and this is the bigger bill opportunity that we want to take advantage of.
What are the chances of this actually happening? Honestly, pretty slim, but it’s not impossible. I’m going to explain in more detail here shortly how you can get involved to help increase the chances to make this become a reality.
This is where I want to tell you a little bit more about Tax Fairness for Americans Abroad, which is a new group that formed to pass residency-based taxation. I’m on the board. Through its efforts of fundraising $100,000 last year, they were able to use the money to hire a lobbyist who then helped get the residency-based tax bill introduced.
They’re now severely low on funds. In order to continue to help make sure the RBT bill passes, please donate anything you can so that they can continue to pay the lobbyist to help make it happen. You can go to taxfairnessabroad.org/donate in order to donate.
I’ve put together some resources that you can read on the Democrats Abroad website, including an explainer on the bill that only takes a few minutes to read. That helps you better understand what’s in the bill itself as well as an FAQ. There’s a lot more resources that are available there, including contacting your member of Congress to co-sponsor once the bill is reintroduced and signing up for our mailing list to stay in the loop on all of that.
I’m going to take two minutes to talk a little bit more broadly about the Democrats Abroad Taxation Task Force, and then we’re going to go to Q&A. I hope I’m doing okay on time. I haven’t really been paying that much attention.
On a high level, Democrats Abroad advocates for a switch to residency-based taxation, relief for Americans abroad from FATCA, exempting American business owners living abroad from the GILTI and transition tax. As I mentioned, we’ve been doing a lot of work on FBAR. We’ve also done a lot of work on non-US pensions.
All of these pain points, we’re looking at reforming the tax code for Americans abroad. You can read more about our work on our blog. In general, we’re a group of volunteers from all over the world who have come together out of necessity and learned about these issues out of necessity.
Most of us are not tax experts. We’ve become tax experts because we’ve had to learn how to do this stuff. What we do on a regular basis is we write official statements for congressional hearings. We also do candidate outreach and education when there’s an election. We just recently visited Washington DC to talk to Congress, the IRS, and Treasury.
We also help host tax education webinars. We did a report—we do a few surveys, and we did a big report in 2022. We do these things in order to help educate people as well. Here’s the link to the report. I do really strongly recommend it if you haven’t read it. Most people who tell me that they read it, they feel a lot less alone in their tax struggles and problems that they face as an American abroad.
I also wanted to take a minute to tell you guys about our upcoming tax webinar series. We have a number of tax webinars coming up. We have one a month over the next few months, and then we also have country-specific tax webinars that we’re hosting. Some of the ones that are already on the schedule include for the UK, Switzerland, and more. You can check out more on our events page on our website.
I would be remiss if I didn’t remind everybody to register to vote. I know this year is an off-election year. However, there are a lot of special elections and your vote matters. As an American abroad, your vote carries so much weight. I know a lot of people feel their vote doesn’t matter, but it really does. Let me tell you why.
Every time an American abroad votes, your vote is counted in the statistics. We know how many—we don’t know how many Americans abroad there are. The State Department has estimates and lots of groups have different estimates, but we don’t actually know. The only time we know how many Americans abroad there are is when we vote. All of those votes are counted.
Every single time I go into a congressional meeting, one of the first things I do is I share the voting statistics. I say, we don’t know how many Americans abroad there are, but this is how many voted in your district in the last election, or this is how many voted in your state in the last election.
Congressional staff are always really surprised to hear how many of their constituents live overseas. Just to reiterate that you are a constituent based on the state where you last lived, or if you’ve never lived in the US, where your parent last lived in the United States. You have representation and you should use it. That includes using your vote.
Go to votefromabroad.org today. It’s really super easy to do. It only takes a few minutes. If there’s a special election happening this year, vote. It’s that simple and it really helps us out in terms of our tax advocacy work, but it also helps in terms of making sure that your voice is being heard.
These are just a few small actions that you can take. Again, I think the slides will go out so that you can follow up there. I think that is it. There is my contact email if anybody wants to get in touch. I think I’m going to stop sharing and then we’re going to do Q&A.
Hugo: Alright, Rebecca, thank you very much for that presentation. Excellent detail. I’ve got loads and loads of questions. I haven’t read any of them.
Rebecca: Yeah, I can see that.
Hugo: There are lots of similar questions, so I’ll read out and do the best I can, hopefully pick ones that are relevant for most people. If you’ve got a very specific question, Rebecca, maybe you can drop your email address if you don’t mind into the chat. I think when it’s a very specific question, may be better to reach out directly. Let’s dive in.
Somebody says there are a few questions about when you opt in—is it permanent, is it timed? How often do you have to opt in? In the bill as it was, can you decide year to year? What if somebody pays an exit tax but then they move back to the states, or if they don’t pay an exit tax and move back to the states? Can you shed any light on those questions?
Rebecca: Yeah. If you are a long-term resident abroad, you do the election, that is it. If you return back to the United States, then you become a US resident and therefore US tax resident again. You are therefore liable for filing taxes in the country that you live in.
If you then move abroad again, you can then choose to do the procedure again if you want to. However, if you did pay an exit tax, there is no refund. That is how it works. It is specifically done in a way where people need to seek advice or they need to carefully consider their circumstances to determine if they’re financially better off from doing the procedure or financially better off staying in the system.
Hugo: Thank you. There are a couple of questions about if, for somebody who made that election, does it affect their ability to have bank accounts in the US and other financial accounts, IRAs and so on? Once you are, well, you’ve elected to say you’re a resident abroad?
Rebecca: The bill hasn’t passed, so this is all really highly theoretical. Nothing has actually happened. But I am very well aware of the US banking access issues that Americans abroad experience. This bill does not change that problem. That will continue. We had some meetings this week where we talked about and raised awareness of the US bank account access problems that Americans abroad experience. That is a separate issue. This bill will not change that.
Hugo: Nice. As I understood, somebody who makes the election will still pay US tax on US-sourced income. Can they then claim foreign earned income exclusion, foreign tax credit on that income?
Rebecca: You would not be filing a 1040, so you wouldn’t be filing a return at all. Therefore you would not be eligible for the foreign tax credit or the foreign earned income exclusion.
Hugo: So you’d potentially be double-taxed essentially, because you wouldn’t be able to, or potentially you could claim tax credit in your country of residence if you were in a country where you were taxed on your worldwide income and you were taxed by the US on your US source of income?
Rebecca: In that case, you credit the other way around. You would need to refer to the tax treaty in your country of residence to see how they tax that particular source of income.
Hugo: Nice. You mentioned you spoke about PFIC issue, so that would in a sense go away for people who had made the election. Somebody says, how does this benefit somebody who has Social Security in the US, annuity, and is permanently living abroad?
Rebecca: I did have a slide on that. It would not change how people receive Social Security, their eligibility, and how they would receive it. However, the tax on the Social Security potentially could change depending on what’s in the tax treaty for your country of residence.
Hugo: Thanks. Yeah, I think there are two or three questions on Social Security there. It wouldn’t be retroactive. No, it wouldn’t be retroactive in any sense, would it? The election?
Rebecca: It’s not retroactive. No. It would start from either the time that the bill passed if you qualify for the grandfathering provisions or from the time that you make the election.
Hugo: Yeah. And you mentioned tax treaties, so they wouldn’t be affected?
Rebecca: No changes to the tax treaties.
Hugo: Yeah, so there are some tax treaties that I think the UK, France, a handful of other countries with provisions to avoid double taxation on pension income, and so those would remain. Okay.
Can you go into more depth on the exit tax on unrealized capital gains? I guess that includes real estate in the US. Yeah, I guess it’s a complicated calculation, but that would be something for a tax professional to work out.
Rebecca: Unrealized capital gains on your US-sourced assets. Yeah, it would very much depend on your personal circumstances there.
Hugo: I think you mentioned it obviously doesn’t affect your rights as a citizen in any way, such as passing on citizenship to your children, ability to vote. None of that’s affected. It’s simply a kind of, it’s intended to be a one-time election?
Rebecca: You can do it more than once. If you move back to the United States and then move abroad again, then you could choose to do the election again.
Hugo: Yeah. Okay.
Rebecca: I can’t imagine that many people would be doing it multiple times though, because potentially people who move abroad or know that they’re moving abroad temporarily would not want to do this, especially if they know that they’re going to go back to the US. This is really intended for long-term residents abroad, people who are living abroad for a very long time, not people who are going back and forth a lot.
Hugo: Yeah. Somebody says, do you think this bill will be voted on as a standalone bill or part of a bigger, let’s call it beautiful bill, part of a bigger bill on, I suppose, taxes or on anything?
Rebecca: It’s highly unlikely for it to be passed as a standalone, as is the case with any tax or any bill right now, to be honest. The intention is to get this attached to a bigger tax bill, and then it would get voted on as a whole.
Hugo: Okay. And FBAR and FATCA. Just to clarify again, somebody who’d made the election would or wouldn’t have to—I suppose FATCA as part of the tax return, so that’s definitely not required. And FBAR neither for somebody who’s made the election as the bill was introduced?
Rebecca: Yeah, it would not require filing for FBAR or FATCA. This is one of the items that is currently being discussed where it could potentially—in particular on FATCA—may have to change. It won’t happen with the reintroduced bill, but it could potentially happen if the bill gets attached to a reconciliation bill, which is really insider baseball stuff.
Essentially what’s going on in Congress right now is the Republicans have a trifecta. That means that they have the White House, they have the Senate, and a majority in the House. Given that they have a majority, they can pass their own bill if they want to, which they do. But in order to pass a tax bill in the Senate, normally you need 60 out of 100 votes to vote for it.
The majority in the Senate is 56 or 57, I forget. Anyway, they don’t have 60, so they’re using another strategy that’s called reconciliation. There are a lot of rules and restrictions in terms of what you can and can’t do on a reconciliation bill.
But one of the rules is that it has to score. Basically that means it has to either make or save—it can’t be revenue neutral for the government. That includes provisions within the bill. If FATCA is included as it currently stands, that in and of itself doesn’t have a score. So it would have to come out if it were to get attached to the bigger reconciliation package.
That’s one of the potential disadvantages of passing through reconciliation. One of the other disadvantages of passing through reconciliation is that all the provisions are temporary. They can—I think it’s, don’t quote me on this, but I think it’s up to 10 years. If the bill does pass under the Republican’s reconciliation, this RBT provision would only be temporary. It would only be up to 10 years.
That’s a potential disadvantage when we know that everybody wants this to be permanent. This is why Democrats Abroad is working so hard to make this bipartisan. In the case where the Republicans can’t get their ducks in a row to do a reconciliation and then they turn to the Democrats in order to make it bipartisan, we want this to be a bipartisan bill so that it increases its chances of getting passed in a bipartisan tax package.
There’s a lot of strategy going on behind the scenes in terms of helping increase the chances of the bill’s passage. Sorry, I know that was really insider baseball, but I hope that kind of helps clarify in terms of the logic of where we’re coming from in terms of trying to help this progress.
Hugo: It’s amazing anything gets done. I know, right? It’s so complicated. Seriously. Yeah. As you say, they’ve got the trifecta now, and that should make things easier to get things done, but yeah.
Rebecca: Honestly, the meetings that we had, especially with Democrats—it was really hard this week being there on the ground and seeing lots of government employees losing their jobs overnight. There’s whole neighborhoods of families who are now unemployed, specialist government employees that have nowhere else to go because they only work for the government.
That’s just on top of the Trump executive order. Sorry, I didn’t mean to get political there, but it was very hard to have these discussions with Democrats given literally the house is on fire on the doorstep. We had to basically walk in and be like, look, I know, we know it’s really hard what’s going on right now, but all we can think of doing is just business as usual. We really are trying our best here.
Hugo: Yeah, it’s, yeah, I don’t envy your situation there. Look, there are several questions about what is and what isn’t US-sourced income. I don’t know if you’d like to try and answer those. I guess a lot of US retirement income or Social Security, pension income, annuities. I guess if it’s in the US, it’s US-sourced income?
Rebecca: If it’s in the US, it is US income. If you own a property and you rent it out, that’s US-sourced income. If you have US stocks and you sell them, anything US is US-sourced income, basically.
Hugo: So there are some more good ones. I was just looking at, yeah, who would—what kind of professional would give impartial advice? But I guess I think all CPAs—I think there’s an amount of suspicion that they have vested interests in keeping clients, but I think within the law they have to give impartial advice. I guess there are lots of good, I think, expat tax CPAs.
Rebecca: There are. I would really—I’ve written blog posts on this. Basically, one of the main things I do recommend people do is check the professional’s credentials so that you understand and know exactly what kind of advice they are regulated to be able to give.
I think one of the biggest mistakes people make is that they get tax advice from a financial advisor who is not a tax advisor, or vice versa. They’re getting investment advice from a tax advisor. I know it gets really complicated really quickly, and I think people can get confused with taxes and finance and finances, but they are different things. Just be sure to check the credentials of anybody that you’re speaking to is my main pointer there.
Hugo: I suppose coming back to the US-sourced income, so for retirees, of course there are millions of Americans who retire abroad. If they have income coming from the US, if they made the election, they would still pay US taxes on that and they would potentially have to claim tax credits in their country of residence to avoid double taxation, which wouldn’t be too dissimilar. If your main source of income is in the US anyway, it’s a similar situation.
Rebecca: Yeah. This is where it gets down to personal circumstances. You need to do the calculations on both sides. Do you want to—what does it look like under RBT and what does it look like under the current situation? Run the numbers and then see which one works best for you.
I think the main thing here is that this creates an option for people so that they don’t feel their only option is to renounce their US citizenship. That’s not something that anybody should have to face—choosing between keeping their US citizenship and maintaining tax compliance. That’s just crazy. It just creates an option for people.
Hugo: Somebody else, would the new bill number be the same or would it change?
Rebecca: The bill number will change because it’s a new Congress.
Hugo: Could you explain a little bit more about the grandfathering provision?
Rebecca: I went through it before, but basically it’s for anybody who is currently living abroad or has lived abroad for three out of the last five years would automatically be deemed a non-resident. The only thing that you would have to do is pay the $100 to get your certificate of non-residency.
You wouldn’t have to catch up and file the last few years—you wouldn’t have to be, you also wouldn’t be subject to the exit tax as it currently stands. But again, potentially these things might change with the reintroduced bill. We don’t know yet.
Hugo: So just to recap, lots of questions about whether the bill would affect having a bank account in the US—it won’t. And about PFIC, there are lots of people asking about PFIC, but if you made the election, you wouldn’t have to file a US tax return, and so PFICs wouldn’t be an issue anymore because that is normally part of your US tax return.
I think we’ve got time for one more. Yeah, it’s lots more about US banks and brokerage accounts, but that situation wouldn’t change. How about the timescale? Is there a likely or potential timescale at this stage, or we spoke a little bit about this earlier?
Rebecca: Yeah, if you follow the news, you’ll see a lot of, oh, Trump wants one big, beautiful bill, and that’s the intention on the House side right now. But then I met with the Senate side yesterday, and I think they were a little bit more realistic in terms of nobody knows how or when any of this is going to move.
If anybody says they know right now, they don’t know. Nobody knows. Not even the Republicans, not even Trump. Nobody knows. They’re still figuring it out. I would say I would not be surprised if they’re voting on a bill on December 31st this year. Whether RBT will be in that, I don’t know. But we’re going to try. That’s the main thing.
Hugo: The intention. Rebecca, thank you very much for joining us.
Rebecca: Yeah, thanks for having me.
Hugo: Thanks to everyone for joining us today. This brings to a conclusion the 2025 US Expat Financial Conference. We will be emailing out recordings of the sessions, a link to recordings probably early next week. If you’d like to leave a tip for the organizers, there’s a PayPal link on the US Expat Conference website. Yeah, thank you very much and wish you all a very pleasant rest of your week.