House members want IRS rules for expats relaxed

Democratic and Republican lawmakers are promoting a change in the U.S. tax rules that would create what is called the same country exemption.

If this concept wins approval, it will mean that many U.S. expats in Costa Rica will be freed of reporting about the financial assets they hold here.

And in another development, a leading conservative U.S. lawyer is about to challenge the constitutionality of the entire bank account reporting process.

The two House members are Carolyn Maloney, a New York Democrat, and Mick Mulvaney, a South Carolina Republican.

They also are leaders of what is called the  Americans Abroad Caucus, a group of lawmakers with special interest in the status of overseas Americans.

The 2010  Foreign Account Tax Compliance Act requires some taxpayers to file Form 8938 with their annual returns listing specific foreign financial assets.

That would include bank accounts and ownership of corporations with significant value.

An expat with a luxury home held by a corporation would be among those required to make the report.

The reporting rules are different than those for holders of foreign bank accounts.

American Citizens Abroad, Inc., the Association of Americans Resident Overseas and the Federation of American Women’s Clubs Overseas, Inc., have been urging this asset reporting change for several years.

The two lawmakers are circulating a letter to colleagues in the House for signatures that will be sent to the Secretary of the Treasury Jacob Lew and John Koskinen, the commissioner of the Internal Revenue Service, said American Citizens Abroad. This letter requests that the  Treasury Department adopt recommendations from the Taxpayer Advocate to exclude from  reporting financial accounts maintained by a financial institution in the country of which the U.S. citizen is a bona fide resident, the organization added. The Taxpayer Advocate, an official government office, came out in favor of this change in the  reporting process in April.

The complex reporting process causes problems for U.S. citizens abroad and does not help further the legislative intent of the rule, which is to catch U.S. tax cheats, the organizations noted.

The letter notes that “tax reporting requirements imposed on U.S. citizens living abroad that have created the unintended consequence of limiting overseas Americans’ access to legitimate banking services.”

James Bopp of Indiana is the lawyer leading the constitutional assault on the reporting process. He is best known for Citizens United, the 2010 U.S. Supreme Court decision that said the Federal Election Commission could not restrict campaign expenditures by non-profits.

Bopp contends that the IRS reporting rules are unconstitutional because they involved  agreements between the United States and foreign countries that have not been ratified by the U.S. Senate, as the Constitution requires.

Sen. Rand Paul of Kentucky, a Republican presidential candidate, is reported ready to join the lawsuit.  Paul just proposed a 14.5 percent universal flat tax for every individual and corporation making more than $50,000 a year.

He said in an opinion piece in The New York Times that “the tax code has grown so corrupt, complicated, intrusive and antigrowth that I’ve concluded the system isn’t fixable.”

The 2016 presidential elections are likely to generate discussions by candidates of the U.S. tax situation particularly as it relates to the country’s financial deficit.

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