“IN ORDER TO FORM - The Isaac Brock Society

Document Sample
“IN ORDER TO FORM - The Isaac Brock Society Powered By Docstoc
					     “ENOUGH IS ENOUGH”
    AFTER FIVE DECADES OF ABUSE
       IT’S TIME FOR A CHANGE




THIS COMING OCTOBER WE WILL MOURN
        THE 50TH ANNIVERSARY
           OF THE DEATH OF
        A LEVEL PLAYING FIELD
      FOR OVERSEAS AMERICANS
  AND NOW IT’S TIME TO GET IT BACK


   AND AS WE CONTINUE OUR CAMPAIGN
  TO REGAIN EQUAL COMPETITIVE RIGHTS
          ALL OVER THE WORLD



      Here is a Brief Summary of the
   Sad and Immensely Complicated Saga
             of Why and How
     This Lamentable Situation Arose




                   1
                                        INTRODUCTION
Since the early 1960s, the U.S. Government has been experimenting with many innovations that have
profoundly affected the daily lives and careers of U.S. citizens who are bona fide residents of a foreign
country. These changes affecting taxation, citizenship, voting and other issues came about not only via
legislation, but also by creative methods of executive branch implementation, and also via many curious
Federal court rulings.
                       th
As 2012 will be the 50 anniversary of America’s still unique practice of imposing citizenship based taxation
on its citizens living and working all over the world, this is an appropriate occasion to take a careful look at
the historical circumstances in which all of these complicated changes actually took place, and what the
ensuing results have been since then.

New and ever increasingly incomprehensible and unworkable taxation obligations together with onerous
financial reporting requirements are constantly being imposed on U.S. citizens who live abroad. Overseas
Americans were brutally shoved off a level playing field in world markets five decades ago, and have never
again been allowed to compete on the same basis in foreign markets as everyone else.

Surprisingly, in compensation for these unique new obligations, overseas Americans have never been given
their own direct representation in the U.S. Congress where these innovations are enacted, and although they
eventually were allowed to vote in Federal elections, this only became possible more than a decade after
worldwide taxation had already been imposed upon them, and this was only possible via their home states in
the United States. Alas, even this innovation turned out to be a “Potemkin Village” exercise because it has
never had any real positive impact on influencing legislation in the U.S. Congress affecting overseas
Americans. Many overseas Americans who are born abroad also discover to their astonishment that never
having lived in the United States, they don’t even have a home state so they can’t ever vote in any U.S.
Federal elections.

Thus these last fifty years have manifested the quintessence of all of the negative dimensions of a liberal
democratic republican experiment that mistreats its own citizens who live outside their home country.
Especially emblematic has been the reemergence of “taxation without representation”, and other
unwarranted abuses, which ironically, and oh so iconically, were at the very core of the abuses from afar that
had led to the American colonial rebellion against Great Britain two hundred years earlier!
                             th
So, in preparation for the 50 anniversary of the saddest of these self destructive innovations, here is a year
by year synopsis of what happened during the last five decades, written in the present tense to capture the
flavor of what it was like having been around during each of these events.




1960 - THE “EIGHTEENTH AMERICAN CENSUS”: The population of the United States is 179 million, has
        increased by 18% during the last ten years, and is now 70% urban.

        “GDP AND TRADE”: U.S. GDP is $518 billion, with GDP per capita at $2,888, or 1.6 times the level
        of 1950. Total trade, imports and exports of both goods and services, is $48.3 billion, and equal to
                                                                                           th
        9.3% of GDP, and there is a trade surplus of about $3.5 billion. This is now the 67 consecutive year
        with a positive trade balance.

        “FEDERAL GOVERNMENT EXPENDITURES AND REVENUES”: The Federal Government
        spends about $92.2 billion, and takes in $92.5 billion from various sources, leaving a small surplus of
        $300 million. Government spending is now 17.8% of GDP.

        “FEDERAL GOVERNMENT REVENUE SOURCES”: Personal income tax accounts for 44% of total
        Federal Government revenues, 23% comes from corporate tax, 16% from Social Security
        contributions, 13% from excise taxes, and 4% from other sources.

        THE “SIZE OF THE FEDERAL TAX CODE”: There are now more than 14,000 pages in the U.S.
        Federal Tax Code.



                                                       2
THE “FORTY-FOURTH PRESIDENTIAL ELECTION”: Two new States, Alaska and Hawaii, have been
added to the Union, bringing the total number of States to fifty. (Alaska had been annexed by the United
States via Treaty with the Russian Empire on 30 March 1867. The Hawaiian Islands, an independent
Kingdom until 1893, and an ostensibly independent Republic under American protection from 1893 till 1898,
was formally annexed by the United States of America, 7 July 1898.) Of the total population of 179 million
only 109 million (61%) are eligible to vote, and of these, only 63% actually vote. John Kennedy, a Democrat
from Massachusetts is elected with a plurality of 114,673 votes, but only 49.7% of the total popular vote. He
does, however, get 56% of the electoral vote. His Republican opponent is Richard Nixon of California. Harry
Byrd of Virginia receives 15 electoral votes, all 8 from Mississippi, 6 of Alabama's 11, and 1 of Oklahoma's 8.
Kennedy’s Vice President is Lyndon Johnson of Texas.

1961 - THE “CREATION OF THE ASSOCIATION OF AMERICAN WIVES OF EUROPEANS (AAWE)”:
Phyllis Michaux, an American who has been living in France since 1946, launches an initiative to try to bring
about changes in U.S. citizenship legislation that denies U.S. citizenship to some children born abroad, and
also takes away U.S. citizenship from children born abroad who don’t return to the United States by a certain
age to commence permanent residence there. She and a number of friends create AAWE, the Association of
American Wives of Europeans, and this organization will soon become a major player in a number of
overseas American initiatives.

“PRESIDENT JOHN KENNEDY PROPOSES “WORLDWIDE TAXATION OF AMERICANS WHO ARE
BONA FIDE RESIDENTS OF A FOREIGN COUNTRY”: As an important component of a tax reform letter he
addresses to the U.S. Congress, on 29 April 1961, President Kennedy, just three months after taking office,
states with respect to the “Taxation of American Citizens Abroad”:

        “It is no more justifiable to provide tax exemptions for individuals living in the developed countries
        than it is to provide tax inducements for capital investment there. Nor should we permit totally
        unjustified tax benefits to be obtained by those Americans whose choice of residence is
        dictated primarily by their desire to minimize taxes.

        “I, therefore, recommend that the total tax exemption now accorded the earned income of
        American citizens residing abroad be completely terminated for those residing in
        economically advanced countries; that this exemption for earned income be limited to $20,000 for
        those residing in the less developed countries; and that the exemption of $20,000 of earned income
        now accorded those citizens who stay (but do not reside) abroad for 17 out of 18 months also be
        completely terminated for those living or traveling in the economically advanced countries.”

“MISSING DIMENSIONS IN THE KENNEDY PROPOSAL”: It is noteworthy that in his remarks President
Kennedy gives no recognition to any “positive dimension” of the private sector overseas American presence.
This attitude will become endemic and iconic for all subsequent efforts to increase the nature, complexity and
manner of enforcement of taxation of overseas U.S. citizens. The architect and chief shepherd of Kennedy’s
proposed new overseas American tax legislation, Stanley Surrey, Assistant Secretary of the Treasury, states
on a later occasion that he thinks overseas Americans do not play any positive role at all in trade or in any
other dimension of economic significance. He also states, however, that if it could ever be shown that a given
individual really did play such a key role, he would be sympathetic to introducing legislation to exempt “that
particular individual” from U.S. taxation of income earned while living abroad. (Notes from a private
conversation with Professor Surrey at Harvard University in the 1970s)
   RD
“23 AMENDMENT”: The U.S. Constitution is amended to give the District of Columbia three electoral
votes in future Presidential elections. This is equivalent to the minimum number of electoral votes enjoyed by
the other smallest States in the Union.

“CHANGES IN THE ROLE OF GOLD”: Americans are now forbidden to own gold abroad as well as at
home. The central banks of Belgium, France, Italy, the Netherlands, Switzerland, West Germany, the United
Kingdom and the United States form the London Gold Pool and agree to buy and sell gold at $35.0875 per
ounce.

1962 - “REVENUE ACT OF 1962”: Congress, responding to the request of President Kennedy, eliminates
the total exclusion of income for overseas Americans who are "bona fide" foreign residents. A $20,000 per
year overseas “earned income exclusion” is established, rising to $35,000 after three years abroad. Tax
credit is given for taxes paid abroad on excluded income. The Act also introduces separate rules for



                                                      3
"unearned income" abroad, and “Subpart F” rules for “controlled foreign corporations.” (Revenue Act of
1962, PL 87-834, Chapter 11, 76 Stat. 960 (1962)). (See Conference Report No. 2508 of 1 October 1962).

“KENNEDY’S TAX LEGISLATION SIGNING STATEMENT”: On 16 October, when President Kennedy’s
proposal becomes the law of the land, he issues the following signing statement:

        “I HAVE today signed H.R. 10650, the Revenue Act of 1962. This is an important bill - one
        possessing many desirable features which will stimulate the economy and provide a greater
        measure of fairness in our tax system.

        “The bill provides an investment tax credit. In combination with the recently revised guidelines for
        depreciation of assets, this credit will provide added stimulus to investment in machinery and
        equipment, and give American firms tax treatment which compares favorably with their competitors
        in world markets.

        “It includes several provisions designed to reduce tax avoidance on incomes earned by
        American companies and individuals at home and abroad. By limiting the opportunities to
        escape tax liability, it makes the distribution of tax burdens fairer and increases our total tax
        revenues from those sources.

        “Congress did not adopt the withholding system on interest and dividend income which I had
        recommended. However, as automatic data processing is installed by the Internal Revenue Service,
        the interest and dividend reporting requirements in the bill will be helpful in improving compliance
        with the tax laws on these sources of income.

        “In summary, this bill makes a good start on bringing our tax structure up to date and provides a
        favorable context for the overall tax reform program I intend to propose to the next Congress. “

“NEW TAX ORTHODOXY”: It is worth noting his emphasis on the connection between “taxing overseas
Americans”, “tax avoidance”, and “stimulating the economy”. Kennedy has been under considerable
pressure from U.S. labor unions who strongly believe that overseas Americans are a menace rather than an
asset, and who have long advocated taxation of Americans abroad as a positive innovation. The subsequent
evolution of U.S. trade performance and massive new trade deficits in later years to come will put this dogma
into a much more contentious light. President Kennedy ignores the long hallowed historic tradition of treating
taxation as a “gifting” requiring the right of the “gifter” to participate in the legislative process and accede to
such an imposed “taking”.

“STILL NO RIGHT OF PRIVATE SECTOR OVERSEAS AMERICANS TO VOTE”: Although overseas
Americans are now going to be taxed, they are still not represented in the Congress, nor can they even vote
for Members of Congress from their former home states while they are abroad. This absentee voting right will
not be granted for another fourteen years.

1963 – “OECD MODEL TAX CONVENTION”: This model convention, first published in 1963, and regularly
updated since then, becomes the basic reference manual used by both OECD and non-OECD countries for
the negotiation, application and interpretation of bilateral tax treaties coordinating their direct tax systems.

“JOHN KENNEDY’S ASSASSINATION”: On 22 November, John Kennedy is assassinated in Dallas,
Texas, and Lyndon Baines Johnson becomes President.

“LYNDON JOHNSON’S “GREAT SOCIETY”: Lyndon Johnson moves quickly to establish himself in the
office of the Presidency. Despite his previous conservative voting record in the Senate, Johnson soon
reaffirms his liberal roots. He sponsors the largest reform agenda since Roosevelt's New Deal. The
aftershock of Kennedy's assassination provides a climate for Johnson to quickly complete some of the most
important unfinished work of JFK's “New Frontier”. Johnson has just eleven months before the election of
1964 to prove to American voters that he deserves a chance to be re-elected as President in his own right.
Several very important pieces of legislation will soon be passed.

1964 - 24TH AMENDMENT”: On 23 January, the 24th Amendment of the Constitution is ratified. It prohibits
both Congress and the individual States from conditioning the right to vote in federal elections on the
payment of a poll tax or any other type of tax.



                                                        4
“TAX ACT OF 1964”: Congress enacts new legislation reducing the foreign earned income exclusion that
overseas Americans can take for physical presence abroad, and for Americans who are bona fide residents
of a foreign country, to only $20,000, rising to $25,000 after three years abroad. (Feb. 26, 1964, Pub. L. 88-
272, title II, Sec. 237(a), 78 Stat. 128.)

“CIVIL RIGHTS ACT OF 1964”: This new law bans discrimination based on race and gender in employment
and ends segregation in all public facilities.

“ECONOMIC OPPORTUNITY ACT OF 1964”: This law creates the “Office of Economic Opportunity” and
aims to attack the roots of American poverty. A “Job Corps” is established to provide valuable vocational
training.

THE “VIETNAM WAR”: U.S. participation in the conflict between North and South Vietnam has been going
on for more than a decade, but so far only on a relatively modest scale. President Johnson now decides to
increase the role of U.S. forces and this will create a growing funding problem that will endure from now on
up through the early 1970s.

“CREATION OF DEMOCRATS ABROAD”: Democrats Abroad, the overseas branch of the Democratic
Party of the United States, is founded by Toby Hyde in London and Al Davidson in Paris. Funds are raised
and local committees are formed in both cities. Overseas U.S. citizens in the private sector, however, do not
yet have the right to vote in U.S. federal elections, and will have to wait for another twelve years before they
can do so.

“SCHNEIDER V. RUSK”: The Supreme Court rules on another citizenship issue. Mrs. Schneider, a German
national by birth, had acquired United States citizenship derivatively through her mother's naturalization in
the United States. She came to the USA as a small child with her parents and remained there until she
finished college. She then went abroad for graduate work, became engaged to a German national, married
in Germany, and stayed in residence there. She declares that she has no intention of returning to the United
States. In 1959, she is denied a passport by the State Department on the ground that she had lost her
United States citizenship under the specific provisions of Paragraph 352 (a)(1) of the Immigration and
Nationality Act, 8 U.S.C. Paragraph 1484 (a)(1), by continuous residence for three years in a foreign state of
which she was formerly a national. The Court, by a five-to-three vote, holds this statute “violative of Fifth
Amendment due process” because there is no like restriction against foreign residence by native-born
citizens. The dissenting Justices (Mr. Justice Clark, joined by Justices Harlan and White) base their position
on what they regard as the long acceptance of expatriating naturalized citizens who voluntarily return to
residence in their native lands; possible international complications; past decisions approving the power of
Congress to enact statutes of that type; and the Constitution's distinctions between native-born and
naturalized citizens. (377 U.S. 163 (1964)).

“FORTY-FIFTH PRESIDENTIAL ELECTION”: The District of Columbia is now allowed to participate in
Presidential elections, in addition to the Fifty States. The population of the United States is 192 million, 114
million (60%) of whom are eligible to vote. Only 62% of those eligible actually vote. Lyndon Johnson, who
had become President when John Kennedy was killed in 1963, is reelected with a popular vote plurality of
15.9 million votes. He gets 61% of the popular vote and 90% of the electoral votes. His Republican
opponent, Barry Goldwater of Arizona, carries only six States. Johnson’s Vice President is Hubert Humphrey
of Minnesota.

1965 - THE “VOTING RIGHTS ACT OF 1964”: On 6 August 1965, President Johnson sings this new law
which now bans literacy tests and other discriminatory methods that have been used to deny suffrage to
African Americans. Overseas Americans still cannot vote in U.S. elections.

1966 - “EXPATRIATION IN THE TAX ACT OF 1966” In the “Foreign Investors Tax Act of 1966”, Congress
decides to make an issue of expatriation and tries to impose onerous taxes on exiting wealthy Americans
who relinquish their U.S. citizenship "with the principal purpose of avoiding" U.S. taxes. This is a highly
subjective intention that is virtually impossible to prove. The IRS soon realizes that it can’t prove such "intent"
and very rarely even tries.

“CITIZENSHIP ACT OF 1966”: Congress amends Section 301(a)(7) of the Immigration and Nationality Act
of 1952 to read as follows:




                                                        5
        "Section 301 (a) (7) a person born outside the geographical limits of the United States and its
        outlying possessions of parents one of whom is an alien, and the other a citizen of the United States
        who, prior to the birth of such person, was physically present in the United States or its outlying
        possessions for a period or periods totaling not less than ten years, at least five of which were after
        attaining the age of fourteen years: Provided*, That any periods of honorable service in the Armed
        Forces of the United States, or periods of employment with the United States Government or with an
        international organization as that term is defined in section 1 of the International Organizations
        Immunities Act (59 Stat. 669; 22 U.S.C. 288) by such citizen parent, or any periods during which
        such citizen parent is physically present abroad as the dependent unmarried son or daughter and a
        member of the household of a person (A) honorably serving with the Armed Forces of the United
        States, or (B) employed by the United States Government or an international organization as defined
        in section 1 of the International Organizations Immunities Act, may be included in order to satisfy the
        physical-presence requirement of this paragraph. This proviso shall be applicable to persons born
        on or after December 24, 1952, to the same extent as if it had become effective in its present form
        on that date.” Act of November 6, 1966 (80 Stat. 1322),

“VIETNAM WAR” FRUSTRATES JOHNSON’S REFORM INITIATIVES”: By 1966, Johnson was pleased
with the progress he had made. But soon events in Southeast Asia begin to overshadow his domestic
achievements. Funds he had envisioned to fight his war on poverty are now diverted to the war in Vietnam.
He finds himself maligned by conservatives for his domestic policies and by liberals for his hawkish stance
on Vietnam.

“A VIETNAM WAR DEATH, THE “NEXUS CLOCK”, A CHILD DENIED U.S. CITIZENSHIP”: The untimely
death of a soldier on a battlefield triggers a subsequent "nexus" problem for his progeny. A Master Sergeant
in the U.S. Army dies in combat in Vietnam in 1966. He had earned two Purple Hearts, several Army
Commendation Medals, a Presidential Citation, and the Air Medal. He volunteers to return to Vietnam for a
second tour because he is a dedicated soldier and loves his country so much. This time he does not return
alive. Several years later, when his daughter gives birth to a child abroad, and goes to the U.S. Embassy in
Bern, Switzerland to register the birth, she is told the child is not eligible to be a U.S. citizen. Although she
had lived in the household of her father for seventeen and a half years as an Army dependent, five of those
years had not been after the age of fourteen, as the law then required. Her father had died before she turned
nineteen so the years after his death, when she lived abroad with her widowed mother, were no longer
positive "nexus" years for U.S. citizenship transmission purposes. When his heart stopped her “nexus” clock
stopped too. He gave his life for his country. The United States said thanks, but this was not enough to earn
sufficient “nexus” for your grandchild.

1967 - “TWENTY-FIFTH AMENDMENT”: The Constitution had made no provision for filling a Vice
Presidential vacancy, and such a vacancy had previously occurred several times due to death, resignation,
                                                                                                           th
or succession to the Presidency. Often these vacancies lasted for several years. Under Section 2 of the 25
Amendment, whenever there is a vacancy in the office of Vice President, the President will now nominate a
successor who will become Vice President if confirmed by a majority vote of both Houses of the Congress.

“AFROYIM V. RUSK”: The Supreme Court rules on another overseas American citizenship case. Mr.
Afroyim, a Polish national by birth, immigrated to the United States at age 19 and after 14 years in the USA
acquired United States citizenship by naturalization. Twenty-four years later he went to Israel and voted in a
political election there. In 1960, he was denied a passport by the State Department on the ground that he
had lost his United States citizenship under the specific provisions of Section 349 (a)(5) of the Immigration
and Nationality Act of 1952 (8 U.S.C. Section 1481(a)(5), by his having voted in a foreign election. The
Court, by a five-to-four vote, holds that the Fourteenth Amendment's definition of citizenship was significant
and that Congress has no "general" power, express or implied, to take away an American citizen's
citizenship without his assent," (387 U.S. at 257). It rules that Congress' power is to provide a uniform rule of
naturalization and, when once exercised with respect to the individual, it is exhausted, citing Mr. Chief
Justice Marshall's well-known but not uncontroversial dictum in “Osborn v. Bank of the United States” (9
Wheat. 738, 827 (1824)). The Court says that the "undeniable purpose" of the Fourteenth Amendment was
to make the recently conferred "citizenship of Negroes permanent and secure" and "to put citizenship
beyond the power of any government unit to destroy," (387 U.S. at 263). “Perez v. Brownell” (356 U.S. 44
(1958)), a five-to-four holding in 1958, and precisely to the opposite effect, is now overruled. In dissent (Mr.
Justice Harlan, joined by Justices Clark, Stewart and White) takes issue with the Court's claim of support in
the legislative history, elucidates the Marshall dictum, and observes that the adoption of the Fourteenth
Amendment did not deprive Congress of the power to expatriate on permissible grounds consistent with
"other relevant commands" of the Constitution. (387 U.S. 253 (1967)).


                                                       6
1968 - “ANOTHER CHANGE IN THE ROLE OF GOLD”: The London Gold Market closes for two weeks
after a sudden surge in the demand for gold. The governors of the central banks in the gold pool announce
they will no longer buy and sell gold in the private market. A two-tier pricing system emerges: official
transactions between monetary authorities are to be conducted at an unchanged price of $35 per fine troy
ounce, and other transactions are to be conducted at a fluctuating free-market price.

“FEDERAL VOTING ASSISTANCE ACT OF 1955” IS AMENDED AGAIN: The amendments in 1968
include a more general provision for U.S. citizens temporarily residing outside the U.S. and expand the
number of civilians covered under the law.

“FORTY-SIXTH PRESIDENTIAL ELECTION”: There are fifty States plus DC participating in this election.
The population of the United States is 201 million, of whom 120 million (or 60%) are eligible to vote. Only
61% of those eligible actually vote. Richard Nixon, a Republican from California, wins the election with a
plurality of 510,645 votes, 49.5% of the popular vote, and 56% of the electoral vote. His principal opponent is
Hubert Humphrey, the sitting Vice President, running as a Democrat from Minnesota. George Wallace of
Alabama, a Democrat running separately as the candidate of the American Independence Party, carries five
States in the South which impedes Humphrey’s chance for the presidency. Nixon’s Vice President is Spiro
Agnew of Maryland.

1969 - “TAX REFORM ACT OF 1969”: Congress enacts a new tax law lowering income tax rates for both
individuals and private foundations. (Tax Reform Act of 1969).

“ANTIWAR TAX RALLIES”: Large groups of protesters gather in Washington, D.C., on April 15, the
deadline for filing 1969 federal income tax returns, to picket at the Treasury Department and the Pentagon.
These demonstrations protest the use of taxpayer funds to support the war and other military expenditures.
At the same time, another group of anti-tax protesters throws Internal Revenue Service (IRS) forms into
Boston Harbor, an act meant to recall the Boston Tea Party. During the late 1960s and continuing well into
the 1970s, numerous such antiwar tax protests will occur in New York, Massachusetts, Oregon, Michigan,
and many other locations.

1970 - “NINETEENTH AMERICAN CENSUS”: The population of the United States is 203 million, an
        increase of 13% during the last ten years, and is now 74% urban.

        “GDP AND TRADE”: U.S. GDP is $1.01 trillion, with GDP per capita at $4,979, or 1.7 times the
        level of 1960. Total trade, imports and exports of both goods and services, is $111 billion, and equal
                                                                                     th
        to 11% of GDP. There is a trade surplus of about $2.3 billion. This is the 76 consecutive year with a
        positive trade balance.

        “FEDERAL GOVERNMENT EXPENDITURES AND REVENUES”: The Federal Government
        spends $196 billion in 1970, and takes in $193 billion from various sources, leaving a deficit of $3
        billion. Government spending has now grown to 19% of GDP.

        “FEDERAL GOVERNMENT REVENUE SOURCES”: Personal income tax now accounts for 47% of
        total Federal Government revenues, with only 17% coming from corporate tax, 23% from Social
        Security contributions, 8% from excise taxes, and 5% from other sources.

        THE “SIZE OF THE FEDERAL TAX CODE”: There are now more than 16,500 pages in the U.S.
        Federal Tax Code.

“BANK SECRECY ACT OF 1970”: Congress enacts the “Bank Secrecy Act”, otherwise known as the
“Currency and Foreign Transactions Reporting Act” which requires American financial institutions to assist
U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial
institutions to keep records of cash purchases of negotiable instruments and file reports of cash purchases of
these negotiable instruments of $3,000 or more (daily aggregate amount), and to report suspicious activity
that might signify money laundering, tax evasion, or other criminal activities. (Bank Secrecy Act of 1970).

“SCARSDALE PROPERTY TAX REJECTION”: Voters’ defeat of a proposed property tax increase to
enhance the public school system’s budget in Scarsdale, New York, an affluent suburb of New York City.
The school system proposes a record budget of $ 11 million for 1970–1971 that will require a 4.5 percent
increase in the city’s property tax. Voting in May 1970, the citizens reject the tax increase. Two more


                                                      7
referendums, together with a reduction in the budget, are required before the proposal finally wins approval.
Voters in seventy-five other cities across the nation also reject tax increases for public school budgets in
1970, an indication of a nationwide rebellion against higher property taxes. Another notable example occurs
in Wisconsin, when the Sheboygan County Taxpayers Association protests a $1.6 million increase in the
local school budget by raiding a school board meeting. 400 raucous demonstrators oblige the board to halve
the proposed budget increase.

“OREGON V. MITCHELL”: On 21 December, the Supreme Court rules that States can set their own age
limits for state elections. Petitioner “Oregon” is the U.S. State of that name and respondent “Mitchell” is John
Mitchell in his role as Attorney General of the United States. Congress had passed an act requiring all states
to register citizens between the ages of 18 and 21 as voters. Oregon did not desire to lower its voting age to
18, and filed suit on the grounds that the act was unconstitutional. The Supreme Court agrees with Oregon,
in that it finds that while Congress could set requirements for voting in federal elections that it does not have
the power to set the voting age for state elections.

1971 - “ROGERS V. BELLEI”: The Supreme Court hears another citizenship case. Aldo Mario Bellei, the
plaintiff, was born in Italy on December 22, 1939. He is now 31 years of age. Bellei challenges the
constitutionality of “Section 301 (b) of the Immigration and Nationality Act of 1952”, which provides that one
who acquires United States citizenship by virtue of having been born abroad to parents, one of whom is an
American citizen, who has met certain residence requirements, shall lose his citizenship unless he resides in
this country continuously for five years between the ages of 14 and 28. A three-judge District Court had held
the section unconstitutional, citing “Afroyim v. Rusk” and “Schneider v. Rusk”. The Supreme Court, in a five-
to-four decision, rules that Congress does have the power to impose the condition subsequent of residence
in the country on Bellei, who does not come within the Fourteenth Amendment's definition of citizens as
those "born or naturalized in the United States", and its imposition is therefore not unreasonable, arbitrary or
unlawful. Justice Black files a dissenting opinion in which Justices Douglas and Marshall join. Justice
Brennan files a dissenting opinion in which Justice Douglas joins. (April 1971: 401 U.S. 815 (1971)).
         TH                                    th
THE “26 AMENDMENT”: On 1 July the 26 Amendment now sets the limit on the minimum voting age to
no more than 18. It is adopted in response to student activism against the Vietnam War and to partially
overrule the Supreme Court’s decision in “Oregon v. Mitchell”.

“UNITED STATES OFFICIALLY GOES OFF THE “GOLD STANDARD”: On 15 August, the U.S.
Government terminates all gold sales or purchases, thereby ending conversion of foreign officially held
dollars into gold. In December, under the “Smithsonian Agreement” signed in Washington, the U.S. devalues
the dollar by raising the official dollar price of gold to $38 per fine troy ounce.

“TRADE”: The United States now has its first negative trade balance in 77 years. This negative trade
balance for both goods and services is $1.3 billion with the deficit increasing at the rate of $3.6 million per
day.

1972 - “CITIZENSHIP ACT OF 1972”: Congress amends the “Immigration and Nationality Act of 1952” by
changing section 301 (b) to the new text below; by repealing Section 16 of the Act of September 11, 1957;
and by adding the new section 301 (d) below.

        "Section 301 (b) Any person who is a national and citizen of the United States under paragraph (7) of
        subsection (a) shall lose his nationality and citizenship unless (1) he shall come to the United States
        and be continuously physically present therein for a period of not less than two years between the
        ages of fourteen years and twenty-eight years; or (2) the alien parent is naturalized while the child is
        under the age of eighteen years and the child begins to reside permanently in the United States
        while under the age of eighteen years. In the administration of this subsection absences from the
        United States of less than sixty days in the aggregate during the period for which continuous physical
        presence in the United States is required shall not break the continuity of such physical presence."

        "Section 301 (d) Nothing contained in subsection (b) as amended, shall be construed to alter or
        affect the citizenship of any person who has come to the United States prior to the effective date of
        this subsection and who, whether before or after the effective date of this subsection, immediately
        following such coming complies or shall comply with the physical presence requirements for
        retention of citizenship specified in subsection (b) prior to its amendment and the repeal of section 16
        of the Act of September 11, 1957." (Act of October 27, 1972 (87 Stat. 1289)).



                                                       8
“FORTY-SEVENTH PRESIDENTIAL ELECTION”: There are fifty States plus DC participating in this
election. The population of the United States is 209 million, and 141 million (67%) are eligible to vote. Only
55% of those eligible actually vote. Richard Nixon is re-elected with plurality of nearly 18 million votes. He
wins more than 60% of the popular vote, and more than 96% of the electoral vote. His Democratic opponent,
George McGovern of South Dakota wins in only Massachusetts and the District of Columbia. The GOP
"Southern Strategy" prevails. After an attempted assassination in Laurel, Maryland, George Wallace, running
again as an American Independent drops out of the race.

“TRADE”: The U.S. has another trade deficit of $5.5 billion in 1972, with this deficit now increasing at a rate
of $15.1 million per day.

1973 - “ANOTHER DEVALUATION OF THE DOLLAR”: On February 13, the United States devalues the
dollar again and announces it will raise the official dollar price of gold to $42.22 per fine troy ounce. Dollar-
selling continues, and finally all currencies are allowed to “float” freely, without regard to the price of gold. By
June, the market price in London has risen to more than $120 per ounce.

“CREATION OF A “BIPARTISAN COMMITTEE ON ABSENTEE VOTING”: A “Bipartisan Committee on
Absentee Voting” is founded in Paris by prominent members of the local American community, and succeeds
in encouraging Senator Charles McC. Mathias, Jr. (R-MD) to introduce legislation to abolish domicile and
residence requirements as pre-conditions for absentee voting in federal elections. Local, county and state
officials currently determine procedures for absentee voter registration.

“OVERSEAS CITIZENS VOTING RIGHTS ACT OF 1973”: Introduced in the Senate by Charles McC.
Mathias, Jr. (R-MD), this new “Voting Rights Act” seeks to guarantees absentee registration and voting rights
for citizens residing outside the U.S., whether or not they maintain a U.S. residence or address and even if
their intention to return is uncertain. The legislation does not pass.

“VICE PRESIDENT AGNEW’S RESIGNATION”: During Spiro Agnew’s fifth year as Vice President, in the
late summer of 1973, he is under investigation by the United States Attorney’s office in Baltimore, Maryland,
on charges of “extortion, tax fraud, bribery and conspiracy”. In October, he is formally charged with having
“accepted bribes totaling more than $100,000, while holding office as Baltimore County Executive, Governor
of Maryland, and Vice President of the United States.” On October 10, 1973, Agnew is allowed to plead “no
contest” to a single charge that he had failed to report $29,500 of income received in 1967, with the condition
that he resign the office of Vice President. Agnew is the only Vice President in U.S. history to resign because
of criminal charges. Ten years after leaving office, in January 1983, Agnew will pay the state of Maryland
nearly $270,000 as a result of a civil suit that stemmed from the bribery allegations.

“GERALD FORD BECOMES VICE PRESIDENT”: Following Spiro Agnew’s resignation as Vice President,
                                             th
Richard Nixon, under the terms of the 25 Amendment, appoints Gerald Ford to this office. When the
Congress approves this nomination, Gerald Ford becomes the 40th Vice President. He is the only Vice
President in history not to have been elected to this office.

“TRADE”: Trade in goods and services bounces back to a small surplus of $1.9 billion in 1973, growing
again at a rate of $5.2 million per day.

1974 - “HOUSE WAYS AND MEANS COMMITTEE TRIES TO ABOLISH THE FOREIGN EARNED
INCOME EXCLUSION”. This legislation, “H.R. 17488, 93rd Congress, 2nd Session, Section 311(1974))”
does not pass.

“RICHARD NIXON RESIGNS”: On 9 August, Richard Nixon resigns as President of the United States. He is
succeeded by his Vice President, Gerald Ford, who is now sworn in as President of the United States. He is
the only President in history not to have been elected to this office.

“NELSON ROCKEFELLER IS NOMINATED AS THE NEW VICE PRESIDENT”: On 20 August 1974
President Ford nominates Nelson Rockefeller, a Republican from New York, as his new Vice President.
Rockefeller undergoes extended hearings before Congress, which causes embarrassment when it is
revealed he had made massive gifts to senior aides, including Henry Kissinger. He has, however, paid all his
taxes, no illegalities are uncovered, and he is confirmed. He is sworn in as Vice President on 19 December
1974. Although conservative Republicans are not pleased that Rockefeller has been picked, most of them
vote for his confirmation. However, some, including Barry Goldwater, Jesse Helms, Trent Lott, and others
vote against him. Many conservative groups campaign against Rockefeller's nomination, including the


                                                         9
“National Right to Life Committee”, the “American Conservative Union”, and others. The “New York
Conservative Party” also opposes his confirmation. “Americans for Democratic Action”, despite the fact that it
is a liberal group, also opposes Rockefeller's confirmation because it says “his wealth poses too much of a
conflict of interest.”

“DEMOCRATS ABROAD” BECOME OFFICIALLY PART OF THE “DEMOCRATIC NATIONAL
COMMITTEE”: Toby Hyde in London, and Al Davidson in Paris, who have been working for more than a
decade to promote the Democratic Party overseas, organize the “Democratic Party Committee Abroad
(DPCA)” and encourage the creation of local Democratic Party organizations in other countries. Democratic
National Committee rules in the United States are amended to allow U.S. citizens living overseas to form
their own “Democratic Party” organizations in the foreign countries where they reside, and to permit the
“DCPA” to elect and send voting Delegates to participate at national Presidential nominating conventions,
and other meetings of the Democratic National Committee. Toby Hyde is chosen as the first worldwide
Chairman of the DPCA.

“GOLD IN PRIVATE HANDS IS LEGAL AGAIN”: Americans are again permitted to own gold, other than
just jewelry, as of December 31.

“SIZE OF THE FEDERAL TAX CODE”: There are now more than 19,500 pages in the U.S. Federal Tax
Code.

“TRADE”: The U.S. has another trade deficit in 1974, this time of $4.3 billion with the deficit now growing at
a rate of $11.8 million per day.

1975 - “HOUSE OF REPRESENTATIVES CONTINUES CONSIDERATION OF ABOLISHING THE
FOREIGN EARNED INCOME EXCLUSION”: (H.R. 10612, 94th Congress, 1st Session, Section
1011(1975)).

“OVERSEAS CITIZENS VOTING RIGHTS ACT OF 1975”: Senator Charles McC. Mathias, Jr. (R-MD)
reintroduces legislation to abolish domicile and residence requirements as pre-conditions for absentee voting
in federal elections. Local, county and state officials currently determine procedures for absentee voter
registration. The proposal would guarantee absentee registration and voting rights for citizens residing
outside the U.S., whether or not they maintain a U.S. residence or address and even if their intention to
return is uncertain.

“CONTINUING RESISTANCE TO GIVING VOTING RIGHTS TO OVERSEAS AMERICANS”: By
September 1975, the Mathias bill is still wending its way through the legislative process - committees,
hearings, verifications, more hearings – but never coming to a vote. Several former ambassadors, including
Charles Bohlen, Arthur Goldberg, Averill Harriman and George H. W. Bush, testify on behalf of the bill. But
the Justice department, suspicious of voter fraud, comes out against it. A legal counsel to the Deputy
Assistant Attorney General, Antonin Scalia (who will later be named to the Supreme Court by Ronald
Reagan), holds that it basically seems unfair to permit a person who might have no knowledge or interest in
the state in which he was formally domiciled to cast votes in that state. Phyllis Michaux and AARO create a
“Bipartisan Committee” to support this overseas voting legislation, joining forces with the American Chamber
of Commerce in France, FAWCO clubs, veterans groups, alumni associations, schools, churches, and other
American organization in Europe and elsewhere.

“CREATION OF TAX EQUITY FOR AMERICANS ABROAD “TEAA”: The London and Rio de Janeiro
offices of Burson-Marsteller, a major American public relations firm, promote “TEAA” (Tax Equity for
Americans Abroad) as another “Tea Party” concept to protest against repressive double taxation legislation
in the United States. Similar “TEAA” organizations are promoted by Burson-Marsteller offices in other parts
of the world, including Geneva, Switzerland. The public relations strategy they promote includes sending
letters to Members of Congress together with tea bags to encourage changes in U.S. tax legislation to get rid
of punitive and self-destructive double taxation of overseas Americans by the U.S. Government.

“VOTING RIGHTS “TEA BAG” MOVEMENT GETS STARTED IN PARIS”: AARO sends out a letter to
everyone on its mailing list, asking recipients to make copies and distribute them to as many other overseas
Americans as possible. Everyone receiving these letters is also asked to staple a tea bag to these letters and
mail them to the Members of the House of Representatives and Senators from their home States. The
message is very simple, but also very powerful.



                                                     10
        “In 1773 there was a tea party in Boston Harbor because of no representation.
        In 1975, we mail you this tea bag because of the Overseas Voters Rights Act,
        So that in 1976 we will be able to vote for you.
        Support H.R. – 3211 and S.-95”

“OVERSEAS VOTING RIGHTS LEGISLATION MOVES FORWARD”: By December 1975, the
“Reconciliation version” of the Overseas Voting Bill has passed the House by a vote of 374 to 43. The
Chairman of the House Administration Committee states that the mail received in his office on behalf of this
legislation had exceeded by five or six times the amount that had come in on any other issue during the year.
But opposition by the Justice Department continues, still led by Antonin Scalia, who has now persuaded the
Attorney General to oppose the President’s signature. The representative of the bipartisan committee in
Paris, Gene Marans, decides to go over the head of the Justice Department. He asks Senator Barry
Goldwater to call the legal counsel of President Gerald Ford. Senator Goldwater’s message to the White
House is: “Listen you ___ fools! There are more Republicans in Paris than there are in Detroit! And Ford
doesn’t want to be the first President to veto a voting rights bill since the Reconstruction.”

“TRADE”: The U.S. has a trade surplus of $12.4 billion in 1975, growing again at a rate of $34.0 million per
                                    th
day. This is the last year in the 20 Century that the United States will ever have a positive annual trade
balance for goods and services.

1976 - THE “SENATE RESISTS ABOLISHING THE FOREIGN EARNED INCOME EXCLUSION”:
Although the Senate will not abolish this “earned income exclusion”, they decide that the exclusion should be
                                                        th
modified to "prevent abuse". (Senate Report No. 938, 94 Congress, 2nd Session 210 (1976)).

“TREASURY DEPARTMENT MAKES A STUDY OF TAX RETURNS”: This study of tax returns for tax year
1968 estimates that the revenue gain from enactment of a “total elimination of the foreign earned income
exclusion” would be $60 million. Enactment of the proposed “1976 Tax Reform Act” is estimated to yield a
gain of only about $40 million.

“CONFERENCE COMMITTEE REPORT ON THE TAX REFORM ACT”: This report indicates an anticipated
revenue gain of $44 million in 1977 and $38 million annually thereafter as a result of the amendments of
section 911. When spread over an estimated 102,000 tax returns from abroad, the projected additional tax
burden would amount to less than $500 per return. (H.R. Rep. No. 1515, 94th Congress, 2nd Session. 632
(1976)).

“TAX REFORM ACT OF 1976”: This new law now reduces the earned income exclusion to $15,000 (off the
bottom). The amount for employees of non-profit institutions, however, remains at $20,000. No tax credit will
henceforth be given for taxes paid abroad on excluded income, and there will be no exclusion for income
received outside of the foreign country in which it is earned if one of the purposes is to avoid local income tax
abroad. (Tax Reform Act of 1976, Publ L. No. 94-455, 90 Stat. 1520 (1976)).

“CHANGES IN REPORTING FOREIGN BANK ACCOUNTS”: In the “Tax Reform Act of 1976”, Congress
also revises the law regarding the confidentiality and disclosure of tax return and tax return information
amending Internal Revenue Code (I.R.C.) § 6103. This revision makes fundamental changes in the
treatment of tax return and tax return information that requires substantial modifications in the methods of
filing and enforcement of the FBAR. Consequently, after 1976, access to tax return and tax return
information outside the IRS becomes highly restricted under the new provisions of I.R.C. § 6103. In order for
the Department of the Treasury to maintain access to FBAR information for other criminal, tax, and
regulatory investigations and proceedings and to comply with the original intent of the 1970 BSA legislation,
the Department of the Treasury removes the foreign bank account report from the income tax return and
reissues and renames U.S. Information Return on Foreign Bank, Securities, and Other Financial Accounts
(Form 4683) (the FBAR reporting mechanism from 1970 to 1976) to Treasury Form Report of Foreign Bank
and Financial Accounts (TD F 90-22.1) (the existing FBAR reporting mechanism). It also makes the form
applicable to all U.S. citizens and residents, not just taxpayers. With the passage of the Tax Reform Act of
1976, the IRS’ responsibility is generally limited to FBAR processing operations.

“MCDONALD V. COMMISSIONER”: The U.S. Federal Tax Court holds that the market value of a Japanese
apartment provided by an employer to a taxpayer is “not excludable from the employee's income by reason
of section 119 of the Tax Code”. The court determines that the leasehold arrangement was primarily for the
convenience of the employee, that occasional business use of the apartment does not make the lodging
eligible as "business premises of the employer", and that acceptance of the lodging is not a "condition of


                                                       11
employment" because it is not integrally related to the various facets of the employee's position. In addition,
the court rules that the value of the accommodations to the employee is the rental value (i.e. the local market
value in Japan) of the apartment as negotiated by the employer and the Japanese landlord, rather than the
price the employee would expect to pay for a similar apartment in the United States. (66 T.C. 223 (1976)).

“STEPHENS V. COMMISSIONER”: The Tax Court rules in a second Japanese housing case that the
housing supplied by an employer to an employee is includable in the employee's gross income at its full local
value, despite a specific finding that "quarters reasonably equivalent to (the taxpayer's) style of living are not
available at American prices". (66 T.C. 226, (1976)).

CONGRESS ATTEMPTS TO EXEMPT ITS MEMBERS FROM DOUBLE TAXATION”: In the summer of
1976, legislation to exempt Members of Congress from double taxation of income by a state “other than the
one from which Members are elected” is adopted by large majorities in both the House and Senate, but
President Ford promptly vetoes it and it dies.

“FORTY-EIGHTH PRESIDENTIAL ELECTION”: There are fifty States plus DC participating in this election,
and Overseas Americans also now get to vote via their home States for the first time. The population of the
United States is 218 million, of whom 152 million (70%) are eligible to vote. Only 54% of those eligible
actually vote. Jimmy Carter, a Democrat and former Governor of Georgia, wins with a plurality of 1.7 million
votes, 50.06% of the total popular vote and 55% of the electoral votes. His Republican opponent is the sitting
Vice President, Gerald Ford. In the wake of Watergate, Carter runs a moralistic campaign, but after trailing,
Ford nearly overcomes his initial handicap. Carter’s Vice President is Walter Mondale of Minnesota.

“TRADE”: The United States will start an unbroken trail of 35 years of continuous trade deficits in
1976, with the annual deficit this year of $6.1 billion. The trade deficit now is growing at a rate of $16.7 million
per day.

1977 - “TAX REDUCTION AND SIMPLIFICATION ACT OF 1977”: Congress, following voluminous
complaints from overseas Americans and their employers about the impact of the “1976 Tax Reform Act”,
postpones the effective date from January, 1976 to 1 January, 1977. (Tax Reduction and Simplification Act
of 1977, PL 95-30, Section 302, 91 Stat. 126 (1977)).

“CONSIDERATION OF “RESIDENCE BASED TAXATION”: Treasury Secretary William Simon, as he is
about to leave office, calls for consideration of using the residence principle for taxing international flows of
income. If adopted this could lead to the elimination of the taxation of U.S. citizens who are bona fide
residents of a foreign country. ("Blueprint for Basic Tax Reform", Department of the Treasury, Washington,
D.C., January 17, 1977, Chapter on International Considerations).

“TREASURY STUDY OF THE TAXATION OF AMERICANS WORKING OVERSEAS”: The Treasury
Department carries out a comprehensive study of the 1975 tax returns filed by overseas Americans and finds
that the impact of the “Tax Reform Act” changes are far greater than the Treasury or the Members of
Congress had anticipated. Based on the study of the 1975 data, the Treasury determines that the revenue
gain from the “Tax Reform Act” amendments amounted to $381 million in 1977, rather than the $44 million
that Treasury had estimated based upon its previous study in 1976 using 1968 tax return data. Further, the
1976 Tax Court decisions increased the burden on overseas taxpayers by an additional $65 million in 1976,
yielding a total increase of $383 million over 1975 reporting practice, or an average $2,700 per return. (U.S.
Department of the Treasury, Taxation of Americans Working Overseas (1978)).
                                                                                                       th
“CONGRESS EXEMPTS ITSELF FROM DOUBLE TAXATION”: In 1977, the newly seated 95 Congress
tries again to adopt legislation to “exempt Members from double taxation by States of residence other than
the State from which a Member is elected”. This time the legislation sails through both Houses in less than
three months. The new President, Jimmy Carter, unlike his predecessor, promptly signs this interesting law
on 19 July 1977. (Public Law 85-67). Double taxation obviously does not have ubiquitous virtue. There are
“special rules for special people”!

“NEW PROPOSAL TO “CHANGE U.S. CITIZENSHIP TRANSMISSION AND RETENTION
REQUIREMENTS FOR CHILDREN BORN OVERSEAS”: Congressman Joshua Eilberg, Chairman of the
Immigration sub-Committee, of the House Committee on the Judiciary, introduces a bill to eliminate the
requirement that children born overseas to a U.S. citizen parent and an non-citizen parent must return to live
                                                      th      th
in the United States for two years, between their 14 and 28 birthdays, to retain their citizenship. He also



                                                        12
proposes to eliminate the jeopardy children with two nationalities face of losing their U.S. citizenship if they
live abroad in the country of their second nationality. (19 October 1977: HR 9637)

“CREATION OF THE “AMERICAN CHILDRENS’ CITIZENSHIP RIGHTS LEAGUE (ACCRL)” IN
GENEVA: A new non-profit organization is created in Geneva, Switzerland, in November 1977, to promote
the citizenship rights of U.S. children born abroad. The objective is to make it easier for every U.S. citizen
parent, whether married or unmarried, to transmit U.S. citizenship to a child born abroad, and to abolish any
possible statelessness for any such child born abroad. It will be financed exclusively by donations from
individuals who support the endeavors of the group. Chapters are quickly set up in Holland, Belgium,
England and later also in Greece, Iran and Egypt. There are numerous other cooperating organizations in
Germany, France, Brazil and other countries.

“CITIZENSHIP BILL IS ALSO INTRODUCED IN THE SENATE”: Senator Edward Kennedy, a member of
the Senate Committee on the Judiciary’s sub-Committee on Immigration, introduces a bill in the Senate that
is similar to the Eilberg proposal in the House, but which would go farther and also reduce the prior
residence that an American citizen married to an alien must have in the United States to be able to transmit
citizenship at birth to a child born abroad, from the current ten years of prior residence, to only two years. (15
November 1977; S. 2314).

ANOTHER “CITIZENSHIP BILL IS INTRODUCED IN THE HOUSE”: Congressman Robert McClory (R-IL),
ranking Republican in the House of Representatives’ Committee on the Judiciary, whose daughter and
grand-daughter live in Geneva, Switzerland, introduces another citizenship reform bill, this time co-
sponsored by Congressman Eilberg. The “McClory proposal” would eliminate all prior residence in the United
States for transmission of citizenship abroad, and also eliminate retention requirements for those born
abroad, as well as the jeopardy for those born with two nationalities. (15 December 1977: HR 10232).

“TRADE”: The U.S. trade deficit in 1977 is $27.2 billion increasing now at the rate of $74.5 million per day.

1978 - “CINDERELLA CITIZENSHIP AND OTHER PROBLEMS”: According to a State Department report
in 1978, approximately 14,000 children are born overseas each year with “Cinderella Citizenship” which will
                                    th
expire at midnight on the child’s 26 birthday unless the child has returned to live for two continuous years
before reaching age 28, as required by sub-section 301 (b) of the current citizenship legislation. The State
Department says that in recent years, from 100 to 200 children have been involuntarily expatriated each year
for this reason. An additional 25-50 citizens lose their U.S. citizenship each year through the application of
the current Citizenship law’s Section 350’s ambiguous requirements. The State Department estimates that
about 40,000 children are born to U.S. citizen parents and qualify for U.S. citizenship at birth, with an
unknown additional number of children born abroad with no rights to American citizenship because one
American parent has not fulfilled the present prior U.S. residence requirements. An unknown number of
these children may actually be born “stateless”.

“DEMONSTRATION ON THE STEPS OF THE U.S. EMBASSY IN LONDON”: On May 10, 1978, more than
100 American children demonstrate on the steps of the U.S. Embassy in London to protest U.S. laws that
could cause them to lose their citizenship and possibly become stateless. The organizer of the
demonstration is Toby Hyde, co-chairman of the London branch of ACCRL. Toby Hyde is also still serving as
the worldwide head of Democrats Abroad.

“GAO STUDY ON THE IMPACT OF TAX REFORM CHANGES”: The “General Accounting Office” of the
U.S. Congress completes a two-part study of the impact of the “Tax Reform Act” changes.

        FORECAST OF NEGATIVE EFFECT ON EXPORTS: The first part is a non-scientific sampling of
        367 firms employing Americans abroad. Eighty-five percent of the company officials surveyed
        believe that United States exports will decline by more than five percent as a result of the
        1976 tax law and Tax Court decisions. The companies most severely affected are those operating
        in countries where living costs are high or where minimal taxes are imposed on foreigners. In the
        Middle East and Africa, Japan and Latin America tax increases are on average $4,700 per return.

        ECONOMETRIC PROJECTIONS: The second part of the GAO study consists of an econometric
        projection of the macro-economic effects of the Tax Reform Act changes and the 1976 Tax Court
        rulings. The GAO model assumes that there is a high in-elasticity of foreign demand for United
        States exports, and therefore the net effect of the 1976 changes will actually be an improvement in
        the U.S. balance of payments.


                                                       13
        GAO DOESN’T USE ITS OWN MODEL: Because of the critical assumption of inelasticity of demand
        for U.S. products, the GAO chooses not to base its recommendations on its own model and rather
        recommends to the Congress: "Because of the seriousness of the deteriorating United States
        international economic position, the relatively few policy instruments available for promoting United
        States exports and commercial competitiveness abroad, and uncertainties about the effectiveness of
        these, serious consideration should be given to continuing section 911-type incentives of the Internal
        Revenue Code, at least until more effective policy instruments are identified and implemented." (U.S.
        General Accounting Office, Doc. No. 78-13, Impact on Trade of Changes in Taxation of U.S. Citizens
        Employed Overseas (1978)).

“HOUSE OF REPRESENTATIVES RESPONDS”: The House proposes to repeal the 1976 changes in
section 911 and reinstate computation of the earned income exclusion under the method in effect prior to the
Tax Reform Act of 1976, but to limit the exclusion to persons who live in countries other than Canada or
                                                nd
Western Europe. (H.R. 13488, 95th Congress, 2 Session (1978)).

“SENATE RESPONDS”: A Senate proposal, sponsored by Senator Abraham Ribicoff, would replace the
foreign earned income exclusion with specific deductions for certain excess foreign living costs, including
excess foreign housing costs, educational costs, and cost of living. (S.2115, 95th Congress, 2nd Session
(1978)).

“CARTER ADMINISTRATION RESPONDS”: The White House offers a proposal similar to the Senate bill
including deductions for excess foreign housing and education costs, and for the travel costs of one trip to
the United States every other year, but not including a cost of living deduction. The Administration also
proposes special rules for foreign moving expenses and for deferral while abroad of tax on the gain from
selling a home. (BNA, Daily Tax Report, Nov. 8, 1977, at G-6)).

“FOREIGN EARNED INCOME ACT OF 1978”: Congress finally votes for a “total elimination of the overseas
earned income exclusion” to be replaced by “specific deductions” along the lines of the “Ribicoff proposal”
modified by the addition of several of the features of the “Carter Administration proposal” including the
deduction for one round trip voyage for a family to the United States (at the lowest cost economy fare) per
year. (Foreign Earned Income Act of 1978, PL 95-615, Sections 201-210; 92 Stat. 3097 (1978)).

“JOINT TAX COMMITTEE REPORT”: The “Joint Tax Committee” reports that the 1978 revenue cost of the
Foreign Earned Income Act will be $412 million, compared with $194 million had the 1976 Act provisions
applied that year, and $538 million had the law which had been in effect prior to the 1976 Act applied. For
the overseas American taxpayer, the “1976 Tax Reform Act” has added $344 million to taxes in 1978, and
the “1978 Tax Act” eliminated $116 million. If the pre-1976 Tax Laws would have still been in effect, and had
the 1976 Tax Court rulings not been made, overseas Americans would have paid $228 million less than
foreseen by the 1978 Tax Law changes. (Staff of Joint Committee on Taxation, 95th Congress, 1st Session,
General Explanation of the Foreign Earned Income Act of 1978 (Comm. Print 1979)).

“ADAMS V. UNITED STATES”: The U.S. Court of Claims rules that the luxurious residence provided to the
president of a Japanese subsidiary of an American oil company is excludable under section 119 of the Tax
Code. The court stresses that for over 10 years the taxpayer has been required to live there as a condition of
his employment and that certain rooms had been designed in whole or in part for business activities. The
court also emphasizes that “in Japan business success depends greatly on maintaining high social
standing”. (585 F. 2nd 1060 (Ct.Cl. 1978), 77-2 USTC Section 9609, 40 AFTR 2nd 5607 (J.Rep.,Ct.Cl
1977)).

“BORNSTEIN V. COMMISSIONER”: The Tax Court also reaffirms the “McDonald” decision in, another
Japanese housing case. The Tax Court denies the exclusion of housing allowances and easily distinguishes
this decision from “Adams” on its facts. (37 TCM 1186, P-H T.C. Memo 78,278 (1978)).

“TREASURY DEPARTMENT CARRIES OUT A COMPREHENSIVE STUDY”: The Treasury Department
now studies the 1975 tax returns filed by overseas Americans and finds that the tax impact of the “Tax
Reform Act” changes are far greater than the Treasury or the Members of Congress had anticipated. Based
on the study of the 1975 data, the Treasury determines that the revenue gain from the “Tax Reform Act”
amendments amounted to $381 million in 1977, rather than the $44 million that Treasury had estimated
based upon its previous study in 1976 using 1968 tax return data. Further, the 1976 Tax Court decisions
increased the burden on overseas taxpayers by an additional $65 million in 1976, yielding a total increase of


                                                     14
$383 million over 1975 reporting practice, or an average $2,700 per return. (U.S. Department of the
Treasury, Taxation of Americans Working Overseas 8 (1978)).

“FOREIGN RELATIONS AUTHORIZATION ACT FOR FISCAL YEAR 1979”: In legislation to authorize
appropriations for the State Department, Congressman Dante Fascell (D-Fl) inserts language requesting that
President of the United States prepare and submit a report to the Congress by January 20, 1979, on the
treatment of U.S. Citizens living and working abroad (Act of 7 October, 1978: PL 95-426, Section 611). The
wording of this request is:

        (a) The Congress finds that –

        (1) United States citizens living abroad should be provided fair and equitable treatment by the United
        States Government with regard to taxation, citizenship of progeny, veterans’ benefits, voting rights,
        Social Security benefits, and other obligations, rights, and benefits; and

        (2) Such fair and equitable treatment would be facilitated by a periodic review of the statutes and
        regulations affecting Americans living abroad.

        (b) Not later than January 20, 1979, the President shall transmit to the Speaker of the House of
        Representatives and the chairman of the Committee on Foreign Relations of the Senate a report
        which –

        (1) identifies all United States statutes and regulations which discriminate against United States
        citizens living abroad;

        (2) evaluates each such discriminatory practice; and

        (3) recommends legislation and any other remedial action the President finds appropriate to
        eliminate unfair or inequitable treatment of Americans living abroad.

“BIRTH OF “AMERICAN CITIZENS ABROAD” (ACA)”: On 10 July, in response to the Congressional call
for a study of the problems of Americans living overseas, a group of U.S. citizens living in Geneva,
Switzerland, creates “American Citizens Abroad” (ACA) as an institutional vehicle for carrying out a major
background study of such problems. Andy Sundberg, one of the founders of ACA, had helped draft the
Congressional legislative language calling for this study in Washington. Other key players in the launching
and later development of ACA’s activities in Geneva are Anne Hornung-Soukup, Karl Jauch, Dorothy van
Schooneveld, John Iglehart, Francis Pribula, Don Person, Larry Kohler, Steven Kraft, Madelyn Sheets, Janet
Luongo, Gene and Jackie Abrams.

“ACA’S FIRST REPORT ON THE “PROBLEMS OF OVERSEAS AMERICANS”: ACA’s first report,
addressing fifty different issues, is delivered to the White House on 18 December 1978 and is adopted by
President Carter’s staff as the basic reference document for the study that has to be prepared and submitted
to the Congress in 1979.

“PROPOSAL IN THE HOUSE TO REPEAL THE 1976 TAX LAW CHANGES”: Legislation is introduced in
the House of Representatives to amend Section 911 of the Tax Code and reinstate computation of the
earned income exclusion under the method in effect prior to the Tax Reform Act of 1976, but to limit the
exclusion to persons who live in countries other than Canada or Western Europe. (HR 13488, 95th
            nd
Congress, 2 Session 1978).

“THE SENATE PROPOSES TO MODIFY THE FOREIGN EARNED INCOME EXCLUSION”: Sponsored by
Senator Abraham Ribicoff (D-CN), this proposal would replace the foreign earned income exclusion with
specific deductions for certain excess foreign living costs, including excess foreign housing costs,
educational costs, and cost of living. (S 2115, 95th Congress, 2nd Session 1978).

“REVENUE ACT OF 1978”: Congress eliminates the overseas earned income exclusion which is replaced
by specific deductions along the lines of the Ribicoff proposal, modified by the addition of several of the
features of the Carter Administration's proposal, including the deduction for one round trip voyage for a
family to the United States (at the lowest cost economy fare) per year.

“IMF ABOLISHES AN OFFICIAL PRICE FOR GOLD”: Amended IMF articles are adopted to abolish the
official IMF price of gold, gold convertibility, and the maintenance of gold value obligations. Gold is eliminated

                                                       15
as a significant instrument in IMF transactions with members; and the IMF is empowered to dispose of its
large gold holdings. By Act of Congress, the U.S. abolishes the official price of gold. Member governments
are now free to buy and sell gold in private markets.

“CALIFORNIA PROPOSITION 13”: A campaign is launched to institute a reduction in property taxes in
California that will have significant economic and political repercussions nationwide. As John Charles Daly
summarizes this initiative,

        “This is the year of a new rising by Americans against their government. The shot heard around the
        world this time is Proposition 13…by which some 65 percent of the voters of California slashed
        property taxes by some 60 percent. The phrasemakers are calling it ‘the great tax revolt of 1978.’”

The antitax campaign develops as a grassroots movement spearheaded by the United Organization of
Taxpayers and its chairman, Howard Jarvis, but it actually arises out of reactions to seemingly unfair political
practices and shifts in taxation levels tracing back to the 1960s. By the end of May, the great majority of
voters have moved to support of Proposition 13, which garners a commanding 65 percent favorable to 35
percent opposed vote.

The effects of Proposition 13 are immediate. For 1978, statewide property tax revenues decline by nearly 57
percent, now falling 35 percent below the national average, as a result of the rollback to 1975–1976
assessed valuations and the 1 percent rate of taxation on market value (the previous average rate had been
about 2.5 percent). This huge revenue loss would have caused enormous disarray in the provision of local
public services had the State Government not intervened to provide necessary supplemental funding.
Because of the 1 percent rate limit, the State Government also is forced to devise a new system for taxing
property, a task formerly relegated to County or District agencies, resulting in a complex scheme for sharing
revenues among counties within each district. Proposition 13’s provisions do stimulate economic growth; but
they also accelerate the trend toward an increasingly large portion of the property tax burden falling on
homeowners rather than on businesses.

“TRADE”: The U.S. trade deficit in 1978 is $29.7 billion with the deficit increasing at a rate of $81.4 million
per day.

1979 - “JOINT TAX COMMITTEE STAFF REPORT”: The report predicts that the 1978 revenue cost of the
Foreign Earned Income Act will be $412 million, compared with $194 million had the 1976 Act provisions
applied that year, and $538 million had the law which had been in effect prior to the 1976 Act applied. For
overseas American taxpayers, the 1976 Tax Reform Act added $344 million to taxes in 1978, and the 1978
Tax Act eliminated $116 million. If the pre-1976 Tax Laws would have still been in effect, and had the 1976
Tax Court rulings not been made, overseas Americans would have paid $228 million less than foreseen by
the 1978 Tax Law changes. (Staff of Joint Committee on Taxation, 95th Congress, 1st Session, General
Explanation of the Foreign Earned Income Act of 1978 (Comm. Print 1979)).PL 96-60, Section 407,
amending Section 611 of PL 95-426

“WHITE HOUSE REPORT TO THE CONGRESS ON OVERSEAS AMERICANS”: In 1979, in response to
the 1978 mandate, the President submits a report to Congress replying to the fifty issues of concern to
overseas Americans that had been identified by ACA. The report is considered inadequate by leaders of the
Congress and a new effort is made by Congressional leaders to require something better from the White
House.

“CONGRESS AMENDS THE “FOREIGN RELATIONS AUTHORIZATION ACT FOR FISCAL YEAR 1979”:
Congress requests that the President transmit a new report to the Congress on Federal statutes and
regulations that:

        “treat United States citizens living abroad differently from United States citizens residing within the
        United States or which may cause, directly or indirectly, competitive disadvantages for Americans
        working abroad relative to the treatment by other major trading nations of the world of their nationals
        who are working outside their territory”. (PL 96-60, Section 407, amending Section 611 of PL 95-426:
        October 7, 1978)

“ACA PREPARES A SECOND BACKGROUND REPORT FOR THE WHITE HOUSE”: ACA produces a
new report on the problems faced by overseas Americans which updates the first report and comments on



                                                      16
the report submitted by the President to the Congress. This new ACA study, delivered on 3 December 1979,
is also used by the Carter administration in the preparation of its second report to the Congress.

“PRESIDENT’S EXPORT COUNCIL ISSUES A REPORT IN DECEMBER 1979”: This report studies the
rationale for taxing U.S. citizens abroad and concludes that Americans: "are being taxed out of competition in
overseas markets. The result is a sharp loss in the United States’ share of overseas business volume in vital
economic sectors. The current situation contributes to our negative balance of payments, a loss of U.S. jobs
to our competitors, and the decline in U.S. presence and prestige abroad."

Among the Council’s recommendations is the following:

        "Work should begin immediately to encourage enactment of a new tax law to put Americans working
        overseas on the same tax footing as citizens of competing industrial nations". (The President’s
        Export Council, Subcommittee on Export Expansion, Report of the Task Force to Study the Tax
        Treatment of Americans Working Overseas, December 5, 1979.)

“TRADE”: The U.S. trade deficit in 1979 is $24.6 billion with the deficit now growing at a rate of $67.4 million
per day.

1980 - “TWENTIETH AMERICAN CENSUS”: The population of the United States is 227 million, an
        increase of 11% during the last ten years, and still 74% urban.

        “GDP AND TRADE”: U.S. GDP is $2.7 trillion, with GDP per capita at $12,036, or 2.4 times the
        level of 1970. Total trade, imports and exports of both goods and services, is $563 billion, and equal
                                                                                th
        to 20% of GDP. There is a trade deficit of $25.5 billion. This is the 5 consecutive year with a
        negative annual trade balance.

        “FEDERAL GOVERNMENT EXPENDITURES AND REVENUES”: The Federal Government
        spends about $591 billion in 1980, three times the amount spent in 1970, and takes in only about
        $517 billion from various sources. There is a deficit of $74 billion. Government spending has grown
        to 21.7% of GDP.

        “FEDERAL GOVERNMENT REVENUE SOURCES”: Personal income tax accounts for 47.2% of
        total Federal Government revenues, with only 12.5% now coming from corporate tax, 30.5% from
        Social Security contributions, 4.7% from excise taxes, and 5.1% from other sources.

        THE “SIZE OF THE FEDERAL TAX CODE”: There are now more than 24,000 pages in the U.S.
        Federal Tax Code.

“SECOND CARTER REPORT TO CONGRESS ON THE TREATMENT OF U.S. CITIZENS LIVING
ABROAD”: The President does not include an analysis of current tax legislation because the latest law has
only been in effect for one year. He does, however, provide some general observations on U.S. tax
treatment of Americans overseas. These include the following:

        “CONCEPTS OF INCOME TAX JURISDICTION”: There is no unanimous view of where taxing
        jurisdiction should lie when income involves international transactions. The two major views are
        referred to as source basis taxation and residence basis taxation. Most countries use a combination
        of both, taxing residents or domiciliaries on their worldwide income and taxing nonresidents and non-
        domiciliaries on income derived from sources in that country. The United States is virtually unique in
        taxing income not only on the basis of both residence and source, but on the basis of citizenship as
        well.

        “SOURCE BASIS TAXATION”: Pure source basis taxation would assign the right to tax income
        exclusively to the country where the income arises. Residents would be exempt from tax on all
        foreign source income, while nonresidents and residents alike would be taxed on income arising in
        the country. Pure source basis taxation is rarely practiced, but a number of income tax systems,
        especially of capital importing countries, do rely heavily on taxing income at the source. Argentina is
        an example of a country which taxes income almost exclusively on the basis of source. In such a
        case, source rules are very important. For example, if the country views employment income as
        having its source where the services are performed, it will only tax income from services performed
        within its territory; but if it views the source of employment income as where the payment originates,


                                                      17
it will also tax income from employment abroad if paid for by a local person or company. The latter
view is not uncommon among countries that emphasize source basis taxation.

“RESIDENCE BASIS TAXATION”: In contrast, pure residence basis taxation would assign the right
to tax exclusively to the country of residence of the recipient. Residents would be subject to tax on
their worldwide income; nonresidents would not be taxed. Source rules are important to avoid
international double taxation of residents, but in addition, a definition of residence is essential. In
practice, pure residence basis taxation is rarely if ever practices. Perhaps the closest example is the
Soviet Union, although it taxes on the basis of citizenship rather than residence. The Soviet Union
taxes the income of Soviet citizens, including those who work abroad, and is generally willing to
exempt from tax on a reciprocal basis income derived within the Soviet Union by persons who are
not Soviet citizens. Most countries use both residence and source basis taxation, taxing residents on
their worldwide income, and also taxing non-residents on income having its source in that country.

“RESIDENCE VS. DOMICILE VS. CITIZENSHIP”: Few countries have a single precise definition of
residence for tax purposes; generally a number of factors are relevant, such as the place of
permanent residence or center or economic interests as well as the period of physical presence. A
number of countries employ a broader concept of “domicile” to describe persons who retain ties of
family or home ownership to the country or show an intent to return there even though they may
spend prolonged periods abroad. The United States exercises a still broader jurisdiction in taxing
nonresidents and non-domiciliaries who are U.S. citizens (and in special circumstances certain
former citizens with U.S. income). It is common in such cases to provide special exemptions or
deductions to residents, domiciliaries, or citizens who are employed abroad. These special rules are
described in the next section.

“FAIRNESS AND COMPETITION”: One major goal of an income tax is equity, or fairness in the
sense of equal treatment of persons with equal incomes and in equal circumstances. But the
perception of equity depends on who is being compared.

“RELEVANT COMPARISONS”: For many countries, the relevant comparison is among residents.
Such countries do not tax the foreign income of nonresidents. Thus, individuals residing in the same
country face the same tax rules, regardless of their nationality or domicile. Canada and the United
Kingdom follow the residence criterion; but both extend the meaning of residence to include certain
persons living abroad who maintain significant ties to the home country, and Canada imposes a tax
on departing residents.

“FOR OTHER COUNTRIES, THE RELEVANT COMPARISON IS AMONG DOMICILIARIES”: a
somewhat broader concept than residence. Japan, France and Germany use this approach,
although France and Germany exempt nonresident domiciliaries who are employed abroad in certain
activities.

“FOR THE UNITED STATES, THE RELEVANT COMPARISON IS AMONG CITIZENS”: Thus, a
U.S. citizen residing abroad is, like a U.S. resident, subject to U.S. income taxation on his worldwide
income (with certain adjustments in the case of foreign earned income), rather than being taxed like
a nonresident alien only on income from U.S. sources. Income taxes paid to foreign countries on
foreign income may be credited against the U.S. tax on that income. As a result, a U.S. citizen
whose foreign income tax liability is as high as or higher than the U.S. tax will have no net U.S. tax
liability and will be in the same position as other nationals in that country. But U.S. citizens whose
foreign income tax is lower than the U.S. tax will have to pay an additional tax to the United States
beyond the income tax liability of other nationals in that foreign country. For Americans living abroad
who tend to compare their tax burden with that of their immediate neighbors and colleagues, this
situation is not perceived as equitable.

“IS IT FAIR TO ASK AMERICANS LIVING ABROAD WHERE THE LOCAL INCOME TAX IS LESS
THAN THE U.S. TAX TO PAY MORE THAN OTHER NATIONALS LIVING THERE?” The defense
of citizenship basis taxation rests on the belief that U.S. citizenship confers benefits independently of
residence. It is not necessary that the amount of benefit received be reflected precisely in the
amount of tax charged. Income tax liability is measured by the ability to pay, not, like a user charge,
by the amount of services used during the tax year. But benefit is an important consideration in the
scope of an income tax. Taxing the income of nonresident citizens is justifiable only if they derive
significant benefit from their U.S. citizenship.


                                               18
“THE INFREQUENCY WITH WHICH U.S. CITIZENSHIP IS RENOUNCED SUGGESTS THAT IT
DOES HAVE VALUE EVEN FOR PERMANENT RESIDENTS OF OTHER COUNTRIES”: At a
minimum it assures the right to re-enter and remain in the United States. Many, probably most,
Americans abroad are there temporarily; i.e., they retain a U.S. domicile. For them, the benefits of
U.S. citizenship are more extensive. Typically, they grew up and attended school in the United
States, their children may attend U.S. colleges, and they expect to return to the United States
eventually. They derived benefits from U.S. Government expenditures while in the United States at
the time when their income, and therefore their income tax, was generally relatively low, and they will
derive benefits as residents again when they return. Moreover, even during the period of non-
residence, there is no fixed pattern of distribution of benefits. For example, the benefits of
government spending on education and police and fire protection, which are derived largely by
residents, are financed largely by state and local governments, which tax on a residence basis and
not on the basis of citizenship; while the principal Federal expenditures, for defense and social
security programs, benefit nonresident citizens as well.

“IT MAY BE WORTH NOTING THAT CHANGING TO RESIDENCE BASIS TAXATION WOULD
NOT BE AN UNMITIGATED BLESSING TO AMERICANS ABROAD”: If the practice of other
countries were followed in defining residence or domicile in terms of permanent home rather than
present location, most Americans employed abroad would continue to be treated as residents or
domiciliaries. Special rules would be needed to exempt their foreign income. Alternatively, if
residence were defined more narrowly, for example, by treating Americans absent from the United
States for 17 out of 18 months as nonresidents for tax purposes, their tax on U.S. income could
increase. Nonresidents are subject to U.S. tax at 30 percent of the gross amount of certain U.S.
source income such as dividends, interest, and royalties. Income tax treaties generally reduce this
rate reciprocally, and are in effect with most industrial countries. But there would be cases where
U.S. nonresident citizens, if taxed like nonresident aliens, would incur a heavier tax than at present
on their U.S. investment income.

“COMPETITION”: Income tax systems frequently depart from the equity objective in specific
instances to achieve other desirable goals. An income tax that provides incentives to expatriate
employees, relative to other expatriates and to residents, is generally justified on the grounds of
export promotion.

“CONSEQUENCES”: One consequence of taxing the foreign income of nonresident citizens is that,
when those individuals live in a country where the income tax is lower than in the home country, they
will have a higher tax burden than their neighbors, who are subject only to the lower host country
income tax. Thus they will either be more costly to employ or less willing to work abroad. In either
case, it is argued, exports will suffer. Firms that hire the more expensive employees will lose
contracts to firms using the cheaper labor, which can, accordingly, submit lower bids. Firms which
hire the cheaper foreign nationals will find themselves using more foreign materials as well, as their
employees will turn to suppliers in their own countries with which they are more familiar. For these
reasons, some take the position that the United States should give up citizenship basis taxation, at
least in the case of Americans employed abroad, in the interests of promoting U.S. exports.

“OTHER CONSEQUENCES”: Subsidiary reasons advanced for providing incentives to Americans
to work abroad are that overseas employment increases the total volume of employment available to
Americans and generates greater international understanding and good will. Sending Americans to
work abroad expands the total employment of Americans only if there is a domestic surplus of the
skills of those who go abroad to work so that they would otherwise be unemployed or would replace
other domestic employees, making the latter unemployed. From time to time this may be the case in
certain employments, teaching for example, but Americans working abroad have a variety of skills.
Many Americans employed abroad by U.S. multinationals have supervisory skills that are not in
excess supply at home. Employment of Americans abroad may or may not generate good will. It
would be inaccurate to generalize. In some environments, the presence of Americans abroad has a
favorable impact; in other environments, the impact may be negative. In any event, there is no
evidence that American employees abroad have an advantage in this respect over Americans
abroad in other capacities, as permanent residents, invited visitors, or travelers.

“EXPORT PROMOTION”: Thus, the principal argument for tax exemption of Americans employed
abroad is export promotion. Given that objective, exempting from tax the foreign earnings of
Americans employed abroad is one possible policy tool, which should be evaluated and compared
with other possible alternative measures.

                                              19
“LABOR INTENSIVE INDUSTRIES”: A case where the impact of present U.S. tax policy on exports
could be significant is in labor intensive industries operating in low tax jurisdictions. One such
example is the construction industry in Saudi Arabia (where foreign employees are not subject to any
local income tax). In such cases, the added U.S. tax cost could increase the total cost of the project
by an important margin. If equally competent foreign nationals can be hired without the added tax
cost, they will tend to replace Americans in such situations. And if foreign suppliers can produce
goods of equal quality at no higher price than U.S. firms, the employment of foreign nationals will
reduce U.S. exports as the foreign nationals direct orders to the firms they know best.

“IMPACT ON EXPORTS”: But it is not clear how prevalent this type of situation is, or what its impact
is in terms of overall exports (even assuming no offsetting changes such as exchange rate
adjustments). Americans employed abroad engage in many activities, some of which may be entirely
export related and others of which may have no connection with exports. For those in export
activities, the added U.S. tax cost may cause a significant increase in the export price or it may have
an insignificant effect. And the employment of foreign nationals rather than Americans will divert
demand to foreign rather than U.S. suppliers (and conversely, the employment of Americans will
result in orders t U.S. suppliers) only if the foreign and U.S. equipment are very good substitutes in
terms of both quality and price. A competent engineer or purchasing agent will not write
specifications or place orders for inferior supplies or be ignorant of differences in quality.

“MORE INFORMATION NEEDED”: One approach to evaluating tax exemption of some or all
expatriate American employees as an export incentive would be to gather more information on the
export impact of Americans employed abroad; for example: precisely how many Americans are
employed Abroad; what they do; in which countries their local income tax is below their U.S. tax; how
much the added U.S. tax increases the export price; and how much exports would be likely to
increase if there were no U.S. tax. A related consideration is the significance of the non-tax costs of
hiring Americans; how would the cost of hiring Americans compare to the cost of hiring third country
nationals if there were no U.S. tax on foreign earnings? Other aspects to be considered include the
effects of such other U.S. rules as the anti-boycott and anti-bribery regulations. Is the availability of
credit and insurance a constraint on U.S. exports? How effective are the marketing efforts of the U.S.
firms themselves? Gathering the necessary data and disentangling these various strands would be a
complicated assignment.

“ANOTHER APPROACH”: A more limited approach would be to identify activities which can be
shown to be export sensitive and to devise selective incentives for the targeted areas. As indicated
earlier, construction appears to be the primary area of concern. Even in such cases, however,
further tax relief should be compared with direct spending alternatives. (One obvious drawback to the
use of tax relief is that it entrusts to the Internal Revenue Service decisions that are outside its area
of expertise.

“NO CONCLUSIVE JUDGMENTS SO FAR”: The studies done to date on the issue of Americans
employed abroad do not permit conclusive policy judgments on what changes, if any, would be most
effectively encourage exports.

THE “PRESIDENT’S EXPORT COUNCIL’S TASK FORCE OF THE SUBCOMMITTEE ON
EXPORT EXPANSION”: issued a report on December 5, 1979. It has three recommendations on
the taxation of expatriate Americans:

           Regulations and interpretations in force under the current tax law concerning Americans
            living in camps in hardship areas (Section 911) should be simplified and made less
            restrictive, in keeping with the intent of Congress.

           The current tax law concerning allowances to employees for excess living costs incurred
            while working abroad (Section 913) should be interpreted in the least restrictive and
            simplest manner.

           Work should begin immediately to encourage enactment of a new tax law to put
            Americans working overseas on the same tax footing as citizens from competing
            industrial nations.



                                               20
        THE FIRST AND SECOND RECOMMENDATIONS ARE WELL TAKEN AND WORK IS BEING
        CARRIED OUT TO MAKE APPROPRIATE CHANGES. The third recommendation that Americans
        working overseas be taxed more lightly, if at all, is expressed in general terms. It assumes that tax
        exemption would reduce U.S. export prices, prompting an increase in demand sufficient to make a
        significant increase in the value of U.S. exports. As noted above, the evidence to date does not
        support this assumption. Any such proposal should be compared with other tax or non-tax measures
        in terms of likely effectiveness and relative simplicity. Most U.S. export activity takes place in the
        United States, so measures to reduce domestic taxes or costs of production may be more effective
        and preferred by exporters. Non-tax measures have administrative advantages. Selective tax
        exemption for certain overseas earnings may be beneficial to exports if targeted to be cost effective,
        but the impact may not be large enough to appreciably improve the overall U.S. export position.

“VANCE V. TERRAZAS”: In a new citizenship case, the Supreme Court upholds the constitutionality of
Section 349(c) of the INA. But now the Court says that under this provision, the party claiming that
citizenship has been lost has the burden of proving such loss by a preponderance of the evidence.
Moreover, a person who commits a statutory act of expatriation is presumed to have committed the act
voluntarily, but the presumption may be overcome upon a showing, by a preponderance of the evidence, that
the act was not performed voluntarily. The Court expressly rejects the contention that expatriation must be
proved by clear and convincing evidence. The Supreme Court reaffirms and explains its holding in “Afroyim
v. Rusk” that in order to find expatriation, "the trier of fact must conclude that the citizen not only voluntarily
committed the expatriating act prescribed in the statute, but also intended to relinquish his citizenship". The
court declares that it would not be consistent with “Afroyim” "to treat the expatriating acts specified in the
statute as the equivalent of or as conclusive evidence of the indispensable voluntary assent of the citizen".
As the Court explains: "In the last analysis expatriation depends on the will of the citizen rather than on the
will of Congress and its assessment of his conduct."

“FOREIGN SERVICE ACT OF 1980”: Section 408 of the Foreign Service Act of 1980, as amended,

        "gives the Secretary of State the authority to employ only two categories of people under local
        compensation plans abroad: Foreign National employees, and United States citizens who are family
        members of Government employees.”

This provision will subsequently be interpreted by the State Department as precluding the employment of any
other American citizens in such “Foreign National” positions. In other words, you can be a citizen of any other
country of the world and be eligible for local hiring by an embassy or consulate, but if you are a local U.S.
citizen living abroad in the private sector you are statutorily ineligible for such employment by the U.S.
Government.

“1980 REPUBLICAN PARTY PLATFORM”: includes the following statement concerning Americans living
abroad:

        “The ability of the United States to compete in foreign markets is hampered by the excessive taxation
        of Americans working abroad who contribute to our domestic well being by promoting international
        trade. Increased exports to our trading partners result in jobs and a rising standard of living at home.
        Carter Administration policy has the effect of discouraging the presence of American businessmen
        abroad due to the unfairly high level of taxation levied against them. A Republican Administration will
        support legislation designed to eliminate this inequity so that American citizens can fully participate in
        international commerce without fear of discriminatory taxation.”

“1980 DEMOCRATIC PARTY PLATFORM”: includes a similar statement of support for overseas
Americans:

        “We also recognize the contributions of private citizens living overseas in bringing American ideals
        and culture to other lands, and in helping in the U.S. economy by promoting exports and increased
        trade with other countries. The President’s Export Council has recommended that in order to
        encourage American exports and redress trade imbalances, the United States should conform more
        generally with the practices of other major trading nations. Existing disincentives should be removed
        so that Americans working abroad can compete more equitably and effectively with citizens from
        other nations.”

“FORTY-NINTH PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad participate
again. The population of the United States is 227 million, of whom 165 million (73%) are eligible to vote. Only

                                                        21
52.6% of those eligible actually vote. Ronald Reagan, a Republican former Governor of California wins with a
popular vote plurality of more than 8 million votes. He has just over 50% of the popular vote, but over 90% of
the electoral votes. Sitting President Jimmy Carter, the Democratic candidate is crushed, winning only six
States and the District of Columbia. Reagan’s Vice President is George H.W. Bush, of Texas.


1981 - “PRESIDENT RONALD REAGAN’S SPECIAL MESSAGE TO OVERSEAS AMERICANS”: On the
day of his inauguration, the newly elected President issues a special message of greetings to overseas
Americans. He says:

        “Today is truly a great new beginning for you and for me and for all America. Together we will make
        America strong once more at home and abroad. I want to thank you for your help and your
        assistance in the recent election and to assure you that my administration is aware of the problems
        of Americans living abroad and that we intend to address these problems at an early date. Let us
        salute the future together, united in our faith in our country and our determination to work hard for its
        best interests. Nancy joins me in thanking you all once more for your kindness and for your help.
        God bless you all.”

“ECONOMIC RECOVERY ACT OF 1981”: Congress re-introduces a $75,000 foreign earned income
exclusion for "physical presence" and "bona fide" residence abroad (rising by $5,000 per year until $95,000
in 1986). There are additional deductions or exclusions for excess cost of foreign housing. No tax credit is
given for taxes paid abroad on excluded income. There is no change in the full taxation of "unearned"
income including retirement pensions earned abroad. (Economic Recovery Tax Act of 1981, PL 97-34, 95
Stat. 172 (1981)).

“THE GAO SAYS AMERICAN EMPLOYENT ABROAD IS DISCOURAGED BY U.S. INCOME TAX
LAWS”: The General Accounting Office (GAO), in another report to Congress, states that the 1978 Tax law
“falls far short of its goal of providing equity, and runs counter to the general goal of simplifying U.S. tax
returns.” The report concludes by saying:

        “GAO believes that the Congress should consider placing Americans working abroad on an income
        tax basis comparable with that of citizens of competitor countries who generally are not taxed on
        their foreign earned income, because --present U.-S. tax provisions are widely regarded as
        discouraging employment of U.S. citizens abroad; -- present tax provisions have reportedly made
        Americans relatively more expensive than competing third-country nationals, thereby reducing their
        share of employment abroad by major U.S. companies; -- and, Americans retained abroad by major
        companies are generally reimbursed for their higher taxes, adding to the companies’ operating costs
        and making them less competitive.” (GAO Report to Congress, 27 February 1981).

“ACA SETS UP A WASHINGTON OFFICE”: American Citizens Abroad creates a 501c3 corporation in the
United States to represent overseas Americans in Washington. This organization is run by Bob Angarola, a
lawyer and former White House staff member during the Nixon and Carter administrations. This office will
play an important liaison role for overseas Americans with the Reagan White House, the Cabinet and the
Congress for the next four years, but will eventually be closed for a lack of sufficient on-going funding.

“TRADE”: The U.S. trade deficit in 1981 is $16.2 billion with the deficit continuing to grow at a rate of $44.4
million per day.

1982 - “TAX ACT OF 1982”: The Treasury Department tells the Congress that it needs more enforcement
power overseas to “stop the drug trade”. Congress enacts legislation which defines all overseas Americans
as resident in the District of Columbia for certain legal purposes, including requests for information and the
serving of summons. Overseas Americans are also to be subjected to a new form of request for the provision
of documents pertaining to their work abroad. Failure to provide such documents, even in the case where
providing them is against the law of the country of foreign residence, will subject the overseas American to
civil and eventually criminal penalties in the United States. (Tax Act of 1982 Sections 336, 337 and 342 of
the Act and sec. 7701 and new section 982 of the Code). (For legislative background see H.R. 4961 as
reported by the Senate Finance Committee, sec. 372, 373 and 374; S. Rep. No. 97-494 (Vol. 1) July 12,
1982, p. 298+; and H. Rep. No. 97-760 (August 17, 1982), pages 590+).

“NUMBER OF CHILDREN BORN ABROAD AS U.S. CITIZENS”: In response to a request from a Member
of Congress, the State Department in 1982 prepares a report on the citizenship status of children born


                                                       22
abroad. This shows that in 1981, approximately 40,000 children had been born abroad to U.S. citizen
parents. Of these: 21,600 (54%) acquired U.S. citizenship at birth abroad because both parents were U.S.
citizens; 14,400 (36%) via only one U.S. citizen parent; but 4,000 (10%) had been denied U.S. citizenship at
birth because a U.S. citizen parent had not met the current transmission requirements. Thus in 1981, one out
of every ten children born abroad to a U.S. citizen parent was denied U.S. citizenship at birth. Some of these
babies were undoubtedly born stateless too, although their actual number is unknown because this is not a
specific target in this study. The State Department estimates that about 2 million U.S. citizens were living
abroad in the private sector in 1981.

“AN ICONIC CELEBRATION OF HISTORY BY OVERSEAS AMERICANS IN HOLLAND”: In 1782, John
Adams negotiated loans from Dutch bankers for $2 million for war supplies for the American colonies. On
March 28, 1782, after a petition campaign on behalf of the American cause, organized by Adams and the
Dutch patriot politician Joan van der Capellen, the United Netherlands recognized American independence,
and subsequently signed a treaty of commerce and friendship. In celebration of the bi-centennial of this
treaty, Roberta Enschede, former worldwide Vice Chair of Democrats Abroad, and her friends, decide to
organize a very special evening. Roberta contacts two of the direct descendents of John Adams, both living
in Massachusetts, and invites them and their wives to come to Holland. The Queen’s younger sister, the
Dutch Prime Minister and members of his cabinet, and two U.S. Members of Congress (Ben Gilman (R-NY)
and Steny Hoyer (D-MD) also accept Roberta’s invitations. Roberta then writes a play for this special
evening based upon letters that had been sent by John Adams and his wife, Abigail, while Adams was in
Holland. This treaty between Holland and the United States is the longest uninterrupted relationship that the
United States has ever had with a foreign country. The evening is a great success and is widely covered by
the Dutch press and TV.

“ACA’S ESSAY CONTEST IN WISCONSIN”: In 1982, Senator William Proxmire (D-WI) gives one of his
infamous, headline grabbing, “Golden Fleece Awards” to the Treasury Department, criticizing Treasury for
delaying the implementation of new tax rules to increase the taxation of Americans living overseas. Senator
Proxmire thinks this delay is unacceptable and that overseas Americans should be paying more taxes to the
U.S. Government. ACA decides to respond in a creative way by launching an essay contest for graduating
high school seniors in Wisconsin who could win a $1,000 college scholarship by submitting the best 750
word essay on “why overseas Americans are important to the United States”. In ACA’s contest instructions,
Wisconsin students are encouraged to contact their Representatives and Senators in Washington to obtain
facts and opinions about the important role overseas Americans play. Senator Proxmire receives many
requests for such information, and later congratulates ACA for having used this positive tactic to respond to
his award.

“OVERSEAS AMERICANS ARE DEEMED TO LIVE IN WASHINGTON D.C. FOR CERTAIN PURPOSES
OF CRIMINAL JUSTICE”: At the request of the Treasury Department, Congress in 1982 enacts new
legislation stating that all overseas Americans are defined as living in the District of Columbia for certain
purposes of criminal justice. This is designed to facilitate the U.S. Government’s ability to bring criminal suits
in U.S. Courts against Americans living abroad. The real sting in this legislation is that it makes it mandatory
for overseas Americans to obey Treasury Department requests for information about their economic
activities abroad, even if providing this information will force the overseas American to violate the laws of the
foreign countries of residence. This puts overseas Americans into a very perilous situation because by
obeying one country’s laws, they will thereby be violating the laws of another country. It is a classic lose-lose
situation.

“TRADE”: U.S. trade deficit in 1982 is $24.0 billion with the deficit continuing to grow at a rate of $44.4
million per day.

1983 - “ROWE V. INTERNAL REVENUE SERVICE”: A taxpayer suit to have the Foreign Earned Income
Act of 1978 declared unconstitutional is dismissed with prejudice on the basis of “res judicata”. The suit
repeats claims of the taxpayer which previously have been litigated and dismissed on the merits by the Court
of Claims. The taxpayer has failed in two earlier attempts (summarized at 4 U.S.E.T. 6, 105-106 and 125) to
have the 1978 Act declared unconstitutional because it gives foreign citizens a competitive advantage over
U.S. citizens in working abroad. In this new case, the Court notes that, while it has jurisdiction over a tax
refund suit under Section 1346(a)(1), venue is improper. Venue for a refund action is restricted by Section
1402(a)(1) to the Federal District Court where the plaintiff resides whereas the plaintiff in this case resides in
Honduras. However, in an evident desire to compel the plaintiff to desist from further litigation, the court goes
beyond the venue determination to dismiss the action with prejudice on the basis of “res judicata”. The
general rule of “res judicata” is that parties to a suit and those “in privity” with them are bound not only as to


                                                       23
every matter which was offered and received to sustain or defeat the claim in a prior action but also as to any
other admissible matter which might have been offered for that purpose. (Rowe v. Internal Revenue Service,
83-1 U.S.T.C. 9238 (D.D.C. 1983))

“DEFINING “BONA FIDE RESIDENCE”: the IRS, in conducting audits overseas, attempts to make the
definition of a "bona fide" resident contingent on the overseas taxpayer actually paying an income tax to the
foreign country of "bona fide" residence. This practice, if sustained, will place taxpayers in countries where
there is no local income tax in a far worse tax position than they have ever been in before.

“NEW IRS RULES FOR TAXATION OF SOCIAL SECURITY RETIREMENT BENEFITS”: These new rules
indicate that there will be a zero level of base income above which Social Security Benefits will be taxed
(50% of the benefit will be taxable) for those who file as married filing separately. There is a dollar earnings
base of about $20,000 for those filing a single return, and double this amount for married filing a joint return.
This ruling will be especially harsh for overseas taxpayers married to aliens who have to file as married filing
separately to exclude the non-resident alien spouse's income from taxation by the USA.

“SOME CHILDREN BORN ABROAD TO A U.S. CITIZEN PARENT CAN’T BE CLAIMED AS A
DEPENDENT ON U.S. TAX RETURNS”: The Wall Street Journal reports in its European Edition on
Thursday, June 23, 1983, that:

        "A U.S. citizen living in England since he was nine and wed to an English woman can't claim their
        English-born son as a dependent for U.S. taxes, the IRS ruled privately. To be so listed, a dependent
        who isn't a U.S. citizen or national must live in the U.S. or a "contiguous" country. And the foreign-
        born child of a citizen and an alien isn't a citizen unless the U.S. parent lived here before the birth for
        10 years, at least five after the age of 14."

“FOREIGN PENSIONS INDUCE SOCIAL SECURITY BENEFIT PENALTIES”: The “Social Security
Amendments Act of 1983” contains a special section (Provision 113) entitled "Windfall Elimination". This
stipulates that anyone who has a pension deriving from employment not covered by Social Security
(including pensions from employment abroad) will have their Social Security benefits computed in such a
way that, practically speaking, for every $100 of foreign pension the Social Security benefits will be lowered
by $50. Overseas Americans on very small pensions, and who receive Social Security benefits (because
they have paid for them) as a vital part of their retirement income, are badly hit. There is no provision in the
law to exempt small amounts of foreign pensions (up to a few hundreds of dollars a month) from triggering
this offset. (PL 98-21)

“TRADE”: In 1983, the U.S. trade deficit is $57.8 billion with the deficit growing at a rate of $158.4 million
per day. This is the first year in which the increase in the trade deficit grows at a rate exceeding $100
million per day.

1984 - “NEW WHITE HOUSE LIAISON FOR OVERSEAS AMERICANS”: In July, President Reagan
names Douglas Riggs, a Deputy Assistant to the President, as the official White House liaison with overseas
Americans. He works in the White House Office of Public Liaison, directed by Faith Ryan Whittlesey, former
U.S. Ambassador to Switzerland. Mr. Riggs will perform liaison functions between overseas American
organizations, the State Department, and the Reagan administration. Mr. Riggs makes clear that he cannot
become an ombudsman for individual complaints or queries, but he prefers to work directly with overseas
American private sector organizations.

“FIFTIETH PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad participate
again. The population of the United States is 236 million, of whom 174 million (74%) are eligible to vote. Only
53% of those eligible actually vote. Ronald Reagan is re-elected with a plurality of nearly 17 million votes,
over 58% of the popular vote, and over 97% of the electoral votes. Former Vice President Walter Mondale,
the Democratic candidate, wins only his home State of Minnesota and Washington DC. Reagan’s Vice
President is again George H.W. Bush of Texas.

“SIZE OF THE FEDERAL TAX CODE”: There are now more than 26,300 pages in the U.S. Federal Tax
Code.

“TRADE”: The U.S. trade deficit in 1984 is $109.1 billion in 1984, with the deficit increasing now at a rate of
$298.9 million per day. This is the first year in which the trade deficit grows at a rate exceeding $200
million per day.


                                                       24
1985 - "OVERSEAS UNITED STATES CITIZEN'S REPRESENTATION IN CONGRESS ACT OF 1985": is
                                                              th
introduced in the House of Representatives during the 99 Congress by Bill Alexander (D-Ark), the Chief
Deputy Majority Whip. This initiative would create a seat in Congress for a Delegate to be directly elected by
overseas Americans. It is referred to Committee on Administration’s, Subcommittee on Elections, but never
leaves the Subcommittee. (June 12, 1985: HR 2738).

"OVERSEAS AMERICAN CHILDREN'S CITIZENSHIP EQUITY ACT OF 1985": is introduced in the House
                                  th
of Representatives during the 99 Congress by Bill Alexander (D-Ark), the Chief Deputy Majority Whip. This
initiative would reduce the prior residence time of a U.S. citizen parent to two years in the aggregate to
automatically transmit U.S. citizenship to a child born abroad. It is referred to the Committee on the Judiciary,
but does not leave the Committee. (June 12, 1985: HR 2739).

"OVERSEAS AMERICAN ECONOMIC COMPETITION ENHANCEMENT ACT OF 1985": This legislation is
                                                        th
introduced in the House of Representatives during the 99 Congress by Bill Alexander (D-Ark), Chief Deputy
Majority Whip. It proposes to strengthen the U.S. economy by eliminating the citizenship based taxation of
Americans living abroad. It is referred to the Committee on Ways and Means, but never leaves the
Committee. (Act of June 12, 1985; HR 2740)

“TRADE”: In 1985, the U.S. trade deficit is $122.1 billion with the deficit increasing at an accelerating rate of
$334.5 million per day. This is the first year during which the trade deficit grows at a rate exceeding $300
million per day.

1986 - “NEW CONGRESSIONAL ATTACK ON OVERSEAS AMERICAN TAXPAYERS MAKES THE
HEADLINES”: In August, a Congressional Committee issues a report claiming that 61% of all overseas U.S.
taxpayers are failing to file U.S. income tax returns, with a resultant loss of up to $2 billion per year in
revenues to the U.S. Government. The Sub-Committee on Commerce, Consumer, and Monetary Affairs
(CoCoMo), of the Committee on Government Operations, which has oversight on the IRS, carried out a
study and held public hearings in May 1985 in Washington, D.C. The IRS was asked to submit testimony on
two specific aspects of the foreign source income taxation question: first, the IRS’s response to non-filing and
under-reporting of income by Americans living abroad; and second, the weaknesses in the “Foreign Income
Information Returns Program” (FIRP), under which tax authorities of a number of foreign nations agree to
send to the IRS all available information on income earned in these countries by U.S. taxpayers wherever
they reside.

CoCoMo believes “FIRP” is a vital program because it

        “lies at the heart of the IRS’ ability to detect non-filing or under-reporting by millions of Americans
        who live abroad, and by millions more who live in the United States but have direct and portfolio
        investments abroad.” CoCoMo “conducted its own investigation, interviewed U.S. and foreign
        government tax authorities and evaluated numerous documents bearing on the foreign source
        income issue, including an October 15, 1985, Booz-Allen and Hamilton report on IRS International
        Tax Enforcement Activities (commissioned by the IRS), highly critical of its performance in this area.”

CoCoMo admits, in its report, that

        “Although the tax loss to the Treasury resulting from the failure to collect all taxes due on foreign
        source income is difficult to quantify, the Subcommittee believes that the loss is substantial and that
        the problem deserves swift and aggressive attention by the IRS and the Treasury Department.”

The Subcommittee urges that Treasury’s aggressiveness be particularly directed toward foreign
governments who seem, to the Subcommittee’s surprise, to have no enthusiasm at all for “FIRP”.

“UNIFORMED AND OVERSEAS CITIZENS ABSENTEE VOTING ACT OF 1986”: is signed into law by
President Reagan in August. The main provisions of the law require states to permit absent uniformed
services voters, their spouses and dependents, and overseas voters who no longer maintain a residence in
the U.S. to register absentee (overseas voters are eligible to register absentee in the jurisdiction of their last
residence) and to vote by absentee ballot in all elections for federal office (including general, primary,
special, and runoff elections). States must also accept and process any valid voter registration application
from an absent uniformed services voter or overseas voter if the application is received not less than 30 days
before the election. (28 August 1986: PL 99-410).


                                                       25
“TAX REFORM BILL OF 1986”: This legislation introduces a number of significant changes affecting U.S.
citizens resident abroad. The section 911 foreign earned income exclusion is reduced to $70,000. Separate
foreign tax credit limitations are also introduced for passive income, high withholding tax interest, etc. Source
rules are introduced to treat income from sales of personal property as U.S. source income for U.S. persons
if such income is not taxable in the country of residence. The U.S. dollar is deemed by statute to be the
“functional currency” of U.S. citizens for transactions other than those of a “qualified business unit”. The new
law limits foreign tax credits for alternative minimum tax purposes to 90% of the alternative minimum tax
before credits. This results in clear double taxation by specific legislative intent. (TRA) (Pub.L. 99-514, 100
Stat. 2085, enacted October 22, 1986)

“U.S. DOLLAR BECOMES THE FUNCTIONAL CURRENCY FOR TRANSACTIONS ABROAD”: Sec 988
of the 1986 Tax Bill establishes the U.S. dollar as the “functional currency” for individuals abroad and
requires that a U.S. citizen taxpayer must calculate a U.S. dollar equivalent gain or loss on each foreign
currency transaction. This absurd obligation is generally ignored but fuels a growing resentment and will lead
to losses defined in a foreign currency appearing to be gains when translated into U.S. dollars when
exchange rates fluctuate. It opens the door to “Alice in Wonderland tax situations.”

“IMMIGRATION AND NATIONALITY ACT AMENDMENTS OF 1986”: This legislation amends Section
301(g) (8 U.S.C. 1401(g)) by striking out "ten years, at least five" and inserting in lieu thereof "five years, at
least two". This reduces the prior residence time in the United States necessary for a U.S. citizen married to
an alien to be able to automatically transmit U.S. citizenship to a child born abroad, from the former period of
ten years, five of which after the age of 14, to now only five years, two of which after the age of fourteen
years. This act also: (a) amends Sec 340(d) of the code reducing the period of time after naturalization
before a naturalized citizen can reside abroad from five years to one year; (b) amends section 349 of the
code so that a child, who obtains a foreign nationality upon the application of the parent before the child
reaches age 21 years, no longer has to return to the United States to establish permanent residence in the
United States prior to age 25; (c) amends section 349 so that a U.S. citizen who is a national of a foreign
country and who performs an expatriating act under the provisions of section 349 is no longer presumed to
have acted "voluntarily" if the individual has resided in this foreign country more than ten years. This
reinforces the importance of the individual's intent in performing such an act as a deliberate intent to lose
U.S. citizenship, rather than a mere automatic presumption that such intent existed. Several members of
AARO and FAWCO, including Kathleen de Carbuccia, Lucy Laederich and Tom Rose, play major roles in
encouraging passage of this new legislation. (Act of November 14, 1986; PL 99-653)

“TRADE”: In 1986, the U.S. trade deficit reaches another record high of $140.5 billion with this deficit
accelerating now to $539 million per day. This is the first year in which the trade deficit grows at a rate in
excess of $500 million per day.

1987 - "OVERSEAS UNITED STATES CITIZEN'S REPRESENTATION IN CONGRESS ACT OF 1987"
                                                                               th
This Bill is introduced again in the House of Representatives during the 100 Congress by Bill Alexander (D-
Ark), the Chief Deputy Majority Whip. This initiative would create a seat in Congress for a Delegate to be
directly elected by overseas Americans. It is referred to Committee on Administration’s, Subcommittee on
Elections, but never leaves the Subcommittee. (May 28, 1987: HR 2534)

"OVERSEAS AMERICAN CHILDREN'S CITIZENSHIP EQUITY ACT OF 1987": This Bill is also introduced
                                                       th
again in the House of Representatives during the 100 Congress by Bill Alexander (D-Ark), the Chief Deputy
Majority Whip. This initiative would reduce the prior residence time of a U.S. citizen parent this time to just
one year in the aggregate to automatically transmit U.S. citizenship to a child born abroad. It is referred to
the Committee on the Judiciary, but does not leave the Committee. (May 28, 1987: HR 2535).

"OVERSEAS AMERICAN ECONOMIC COMPETITION ENHANCEMENT ACT OF 1987": This legislation is
                                                                          th
also introduced again in the House of Representatives during the 100 Congress by Congressman Bill
Alexander (D-Ark), Chief Deputy Majority Whip. This is the same proposal to strengthen the U.S. economy
by eliminating the citizenship based taxation of Americans living abroad. It is referred to the Committee on
Ways and Means, but never leaves the Committee. (May 28, 1987: HR 2536).

“TRADE”: In 1987, the U.S. trade deficit reaches another record high of $153.3 billion increasing at a rate
now of $692 million per day. This is the first year in which the trade deficit grows at a rate in excess of $600
million per day.



                                                       26
1988 - “TECHNICAL AND MISCELLANEOUS REVENUE ACT OF 1988:” One of the provisions of this
Act, passed in September 1988, provides that people who are not U.S. citizens are no longer entitled to
inherit all property from their spouses free of U.S. Federal taxes. Prior to these changes an individual could
leave or "gift" an unlimited amount of assets to a husband or wife tax-free. Additionally, one was allowed to
leave a total of $600,000 at death or during a lifetime to others without federal estate or gift tax. One could
also give $10,000 per year to various people without being taxed and without that amount being included in
the $600,000 exemption. Under the new law, as long as the surviving spouse is a U.S. citizen there will still
be a total exclusion of estate taxes on an inheritance from a spouse. A non-U.S. citizen spouse, however,
will pay U.S. inheritance taxes on assets inherited over $600,000 at a rate beginning at 37% and increasing
up to 55%. Assets subject to this tax include all properties, securities, personal assets and life insurance
proceeds owned by the deceased spouse. The new law also provides that effective July 14, 1988, the first
$100,000 of gifts per year to a non-citizen spouse will not be subject to gift tax, but all gifts in excess of
$100,000 will be subject to tax or will offset the $600,000 lifetime exemption. This is a rather bizarre concept
of tax equity.

“OVERSEAS AMERICAN “FAVORITE SON” PRESIDENTIAL CANDIDATE”: In early 1988, Andy
Sundberg, former worldwide chairman of Democrats Abroad (1981-1984), runs as a “favorite son” candidate
in the Democrats Abroad worldwide primary. He has delegate candidates pledged from several different
countries. He campaigns actively in Asia, Europe, and South America, and wins the popular vote in five
countries. He comes in third in the total popular vote, with one out of eight overseas voters supporting his
candidacy.

According to the New York Times:

        “The Massachusetts Governor (Michael Dukakis) got 41.5 percent of the vote to 14.5 percent for the
        Rev. Jesse Jackson in a tally of 2,385 ballots cast today at the Queen Elizabeth II Conference
        Center or mailed earlier from expatriate Americans in 39 countries participating in the international
        primary, which was conducted by the Democratic Party Committee Abroad, the party's official
        international organization. This was the fourth such primary held since 1974, when Democratic Party
        rules were altered to allow foreign residents to send a voting delegation to the national convention. In
        the discouraged view of party leaders here, the primary today generated about the same amount of
        interest among Democratic Presidential candidates as it did in 1976, 1980 and 1984.

        “There were no pom-pom girls, but the Democrats, having learned the ways of their party in the
        United States, were living with an arcane feud that split their leadership and will probably result in
        credential challenges among their delegation at the convention.

        “The feud occurred during the primary election because Mr. Sundberg, a businessman who lives in
        Geneva, decided to run for President as the ''favorite son'' of Americans abroad who believe they
        receive too little attention from the Democratic National Committee and too much from the Internal
        Revenue Service. The top leaders of Democrats Abroad split into pro- and anti-Sundberg factions.
        Mr. Sundberg's supporters wanted a delegation that would mount protests at the national convention
        about what they regard as the disfranchisement of the two to four million Americans who live abroad.
        His opponents wanted a delegation that would have no agenda other than to join in the fun at the
        convention. All the Sundberg delegates were defeated today. Although his candidacy is
        controversial, Mr. Sundberg's sense of aggrievement is widely shared in Democrats Abroad.

        “Peter Alegi, a member of the Democratic National Committee who lives in Rome, said the primary
        was a ''reminder'' of the limited political rights of Americans living abroad. ''The cost of doing this is
        enormous, and it's basically a small group of party activists paying out of their pockets,'' he said,
        estimating the expense of the primary at $5,000. ''We get no allocation, either from the party or the
        Federal Election Commission.''

        “Mr. Worcester, the 1974 organizer of Democrats Abroad, said: ''It has been a long, slow, painful
        process over the last 20 years, first getting the right to vote, then getting the right not to pay state
        taxes for voting in Federal elections. We're the only Americans in the world, Democrats Abroad, who
        have to pay for voting out of their own pockets. It's outrageous.'' As bad as the Democrats may feel,
        they have it better than members of their counterpart organization, Republicans Abroad, who have
        no international primary and must vote by absentee ballot in their home states.” (New York Times, 23
        March 1988).”



                                                       27
“FIFTY-FIRST PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad participate
again. The population of the United States is 244 million, of whom 183 million (74%) are eligible to vote. Only
50% of those eligible actually vote. George H.W. Bush, the current Vice President, running as a Republican,
is elected. He has a popular vote plurality of 7 million votes, over 53% of the popular vote, and over 79% of
the electoral votes. Former Massachusetts Governor Michael Dukakis, the Democratic candidate carries only
ten States and the District of Columbia. Bush’s Vice President is Dan Quayle of Indiana.

“TRADE”: In 1988, the U.S. trade deficit falls back to $116 billion increasing at a more modest rate of only
$317 million per day.

1989 - “REVENUE RECONCILIATION ACT OF 1989”: This new legislation creates a separate foreign tax
credit category for lump sum distributions from foreign pension plans. The law also confirms that the denial of
marital deductions for property passing from a U.S. citizen to non citizen spouse overrides existing treaty
provisions for taxable years ending more than three years after enactment.

"OVERSEAS UNITED STATES CITIZEN'S REPRESENTATION IN CONGRESS ACT OF 1989": This bill is
                                                                  st
introduced again in the House of Representatives during the 101 Congress by Bill Alexander (D-Ark), This
initiative would create a seat in Congress for a Delegate to be directly elected by overseas Americans. It is
referred to Committee on Administration’s, Subcommittee on Elections, but never leaves the Subcommittee.
(March 14, 1989; HR 1378)

"OVERSEAS AMERICAN ECONOMIC COMPETITION ENHANCEMENT ACT OF 1989": This bill is
                                                                 st
introduced again in the House of Representatives during the 101 Congress by Congressman Bill Alexander
(D-Ark). This is the same proposal to strengthen the U.S. economy by eliminating the citizenship based
taxation of Americans living abroad. It is referred again to the Committee on Ways and Means, but never
leaves the Committee. (March 14, 1989; HR 1379)

"OVERSEAS AMERICAN CHILDREN'S CITIZENSHIP EQUITY ACT OF 1989": This bill is introduced in
                                                  st
the House of Representatives during the 101 Congress by Bill Alexander (D-Ark), This initiative would
reduce the prior residence time of a U.S. citizen parent to one year in the aggregate to automatically transmit
U.S. citizenship to a child born abroad. It is referred to the Committee on the Judiciary, but does not leave
the Committee. (March 14, 1989; HR 1380).

“LOSS OF SUPPLEMENTAL SOCIAL SECURITY INCOME FOR THOSE LIVING ABROAD”: A provision
of Federal law cuts off monthly “Supplemental Social Security Income” (SSI) benefits for people who live
outside of the United States for more than 30 consecutive days. According to NAVY TIMES (March 27, 1989)
this not only affects benefits to children of U.S. citizen civilians living abroad, but it also hits families of U.S.
servicemen who are stationed abroad on duty. The article tells the story of a Sergeant in the U.S. Army
whose daughter has cerebral palsy. She was making good progress under medical care paid for by SSI
benefits. When he is transferred to duty in Germany, these benefits are cut off. Now, if she is to be treated,
the payments will have to come from his Army pay. The article quotes Frank Battistelli, a spokesman for the
Social Security Administration, as saying he was not sure why the federal government chose to limit SSI
payments to people who live in the United States. There are several hundred U.S. servicemen assigned
abroad facing this same type of problem.

“CONGRESSIONAL HEARINGS ON OVERSEAS AMERICAN ISSUES”: On November 8, 1989, the House
of Representatives, Committee on Foreign Affairs, Subcommittee on International Operations, holds special
hearings on overseas American issues and invites overseas Americans to testify. Andy Sundberg, of ACA in
Geneva, presents a list of such problems, including the following:

        “DILEMMA OF AN UNWED AMERICAN MOTHER”: A single American woman, who is expecting a
        child, faces a difficult choice. She could marry the father and legitimatize the child's birth, or she
        could remain unmarried and ensure that the child acquired American citizenship at birth. She had to
        choose one or the other. She has grown up overseas, and has not lived enough years in the United
        States to qualify to transmit citizenship to a child born abroad. Both her mother and her father are
        U.S. citizens and her father had been performing useful services to the private sector of the United
        States. Had her father been working for the U.S. Government, she would not have had any problem.
        She's lucky she has even this choice. The law makes it five times easier for an unmarried mother to
        transmit citizenship to a child born abroad than a mother married to an alien. What is the message
        here?



                                                         28
        “THE SON OF A WORLD WAR II VETERAN HAS A STATELESS CHILD”: A young man living in
        Holland was recently informed by the U.S. Consulate that his child does not qualify for U.S.
        citizenship. Since the father had grown up abroad, studied abroad, and married abroad he had not
        accumulated the requisite number of years of prior residence in the United States to qualify to
        transmit U.S. citizenship to his child. He went overseas in the first place as a military dependent
        because his father, a World War II veteran, was then serving in the U.S. Army. When his father
        retired, he chose to live in Germany, where he then began working for an American insurance
        company. The young man's alien wife did not transmit her citizenship to the child either. This
        grandson of a World War II veteran is deemed stateless.

“TRADE”: In 1989, the U.S. annual trade deficit grows more slowly at $92.3 billion, or only $253 million per
day.

1990 - “TWENTY-FIRST AMERICAN CENSUS”: The population of the United States is 249 million, an
        increase of 10% during the last ten years, and is now 75% urban.

        “GDP AND TRADE”: U.S. GDP is $5.7 trillion, with GDP per capita at $23,060, or 1.9 times the
        level of 1980. Total trade, imports and exports of both goods and services, is $1.15 trillion, and equal
                                                                                                              th
        to 20.1% of GDP. There is a trade deficit of $81 billion, or $222 million per day. This is the 15
        consecutive year with a negative trade balance.

        “FEDERAL GOVERNMENT EXPENDITURES AND REVENUES”: The Federal Government
        spends about $1.25 trillion in 1990, more than twice the amount spent in 1980, and takes in only
        about $1.03 trillion from various sources, leaving a federal budget deficit of $221 billion. Government
        spending is now to 21.8% of GDP.

        “FEDERAL GOVERNMENT REVENUE SOURCES”: Personal income tax accounts for 45.2% of
        total Federal Government revenues in 1990, with only 9.1% now coming from corporate tax, 36.8%
        from Social Security contributions, 3.4% from excise taxes, and 5.4% from other sources.

        THE “SIZE OF THE FEDERAL TAX CODE”: There are now more than 34,000 pages in the U.S.
        Federal Tax Code.

“REVENUE RECONCILIATION ACT OF 1990”: This new legislation raises the maximum marginal tax rates
and introduces “phase outs” of itemized deductions for higher income taxpayers.

“THE CREATION OF FINCEN”: The U.S. Department of the Treasury establishes the Financial Crimes
Enforcement Network (FinCEN) to support law enforcement by establishing a government-wide financial
intelligence and analysis network. That responsibility is still at the core of FinCEN’s operations. FinCEN
oversees the maintenance of a database with approximately 180 million records of financial transactions and
other reports. This data represents the most broadly relied upon and largest source of financial intelligence
available to law enforcement authorities at the Federal, State, and local level. FinCEN analyzes this data and
makes it available to other government agencies for use in criminal law enforcement, tax, and regulatory
investigations and proceedings, and certain intelligence and counter-terrorism matters.

“FIRST WORLD CONFERENCE OF AMERICANS LIVING ABROAD”: On July 5 & 6, 1990, ten Members
of the U.S. Congress travel to Paris to meet with private sector Americans living in Europe. The
Congressional delegation is led by Representative Mervyn Dymally (D-CAL). Several State Department
officials led by Betty Tamposi, Assistant Secretary for Consular Affairs, also participate. Overseas American
groups participating include AARO, FAWCO, ACA, the European Council of American Chambers of
Commerce, Democrats Abroad and Republicans Abroad. Two hundred U.S. citizens living in the private
sector attend. Several panels discuss overall policy toward overseas Americans, business competitiveness,
taxation, citizenship, social security, Medicare, education and voting rights. At the conclusion of the
conference, Congressman Dymally proposes that:

        An Inter-Agency Group should be set up to address the problems identified by Americans living
        overseas;

        A Congressional Task Force should be created to study the problems of overseas Americans;




                                                      29
        A Joint Overseas Committee should act as a lobbying group to respond to the Task Force, and
        should present issues directly to President George H.W. Bush; and

        A Follow-Up Meeting should be held in Washington next year.

1991 - "OVERSEAS UNITED STATES CITIZEN'S REPRESENTATION IN CONGRESS ACT OF 1991":
                                                                                             nd
This legislation is introduced again in the House of Representatives during the 102 Congress by Bill
Alexander (D-Ark), This initiative once again seeks to create a seat in Congress for a Delegate to be directly
elected by overseas Americans. It is referred to Committee on Administration’s, Subcommittee on Elections,
but never leaves the Subcommittee. (May 22, 1991: HR 2428).

"OVERSEAS AMERICAN CHILDREN'S CITIZENSHIP EQUITY ACT OF 1991": This legislation is
                                                                     nd
introduced again in the House of Representatives during the 102 Congress by Bill Alexander (D-Ark), This
initiative would reduce the prior residence time of a U.S. citizen parent to one year in the aggregate to
automatically transmit U.S. citizenship to a child born abroad. It is referred to the Committee on the Judiciary,
but does not leave the Committee. (May 22, 1991: HR 2429).

“A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986": This legislation is introduced again in
                                              nd
the House of Representatives during the 102 Congress by Congressman Bill Alexander (D-Ark). This is the
same proposal to strengthen the U.S. economy by eliminating the citizenship based taxation of Americans
living abroad. It is referred again to the Committee on Ways and Means, but never leaves the Committee.
(May 22, 1991: HR 2430).

“MORE CONGRESSIONAL HEARINGS ON OVERSEAS AMERICANS”: Congressman Howard Berman
(D-CA), Chairman of the Subcommittee on International Operations, of the Committee on Foreign Affairs,
invites overseas Americans to testify on 21 June 1991. Andy Sundberg, representing ACA, testifies on
"Citizenship, Closing Of Consulates, Employment of U.S. Citizens at U.S. Embassies & Consulates, And
Other Matters".

        “THE CLOSING OF U.S. CONSULATES ABROAD”: “Two months ago, the American community
        in Geneva, Switzerland, learned to its surprise that the U.S. Embassy in Bern, Switzerland, had
        decided to close the Consular Branch Office in Geneva. There had been no warning. There were no
        prior meetings with the American community in Geneva to discuss the situation. The U.S.
        Ambassador to Switzerland told ACA that there was no reason for any discussions of any kind with
        the American community in Geneva, or with American businessmen in Geneva, about this decision
        of his because he knew we would be opposed to it, so what was the point of any such meeting. The
        Embassy in Bern then sent formal notification of the termination of employment as of the 31st of July
        of this year to the two Swiss nationals working in the Consular Office in Geneva. In addition, no
        arrangements were made to bring in a replacement for the Consular Officer whose assignment to
        Geneva is coming to an end on 31 July of this year. The American community reacted with alacrity,
        and with alarm. Many letters were written to the U.S. Ambassador, to the State Department, and to
        the Congress. And then something curious happened. A letter to one of the Directors of ACA from
        your colleague and full Committee Chairman, Dante Fascell, informed us that the press release
        announcing the closing of this Consular Office was "premature". According to statements made to
        him by the State Department upon his inquiry in this matter, neither the European Bureau nor top
        officials at State had yet approved the recommendation to close this facility. It would appear,
        therefore, that the actions taken to close the Consular Office in Geneva were taken in excess haste.
        According to Congressman Fascell, there is legislation that prohibits the closing of Embassies or
        Consulates without prior notification of Congress of the intent of the State Department to close a
        facility, and there is also a requirement that State justify such a closure to the Congress. The
        precipitous actions of the U.S. Embassy in Bern, in moving to close the office in Geneva before there
        was any approval by the State Department, and before formal notification of Congress, would
        appear, therefore, to have been a violation of the law. We still do not know what the final result of this
        situation will be. We do know, however, that the Overseas American community in Geneva feels that
        the present procedures for preparing such an action are unacceptable to us, and need to be
        improved.”

        ACA'S “PROPOSAL FOR FUTURE CLOSURES OF CONSULATES”: “What do we propose? ACA
        would like to propose that an additional element be included in the standing procedures leading up to
        a recommendation to close a Consular facility abroad. ACA proposes that all U.S. Ambassadors and
        heads of Consulates abroad be required to inform their local American Communities which will be


                                                       30
affected by such a closure, in advance of the submission of any such recommendation. ACA further
proposes that preliminary meetings must be held with representatives of Overseas American
Communities to discuss why such a recommended closure is being proposed, and that the American
community representatives be invited to submit their written comments about the impact that such a
closure will have on their community. These written comments would then form part of the official file
which accompanies any such recommendation to the State Department, and would accompany any
submission by the State Department to the Congress. In essence, this is an "American Community
Abroad Impact Statement". ACA would further recommend that all U.S. Ambassadors and heads of
Consulates abroad be instructed to seek on-going dialogues with representatives of their local
American Communities so that issues of concern to these local communities can be communicated
through the Embassies and Consulates on a continuing basis back to the State Department. Finally,
ACA recommends that a new Assistant Secretary of State be appointed with responsibility for the
promotion and protection of the Overseas American Communities around the world. This new high-
level institutional vicar of Americans Abroad should be required to report to your subcommittee once
a year on: how well overseas Americans are being treated; the issues that overseas Americans feel
need attention; and be accompanied by recommendations from the State Department as to
appropriate forms of redress.”

THE “EMPLOYMENT OF U.S. CITIZENS AT EMBASSIES AND CONSULATES ABROAD”:
“Another issue concerns the question of why U.S. citizens are not eligible to be locally hired abroad
to work in a U.S. Embassy or a U.S. Consulate. Ms. Lauralee Peters, Deputy Assistant Secretary of
State for Personnel, in a letter addressed to ACA dated June 15, 1990, stated that Section 408 of the
Foreign Service Act of 1980, as amended, "gives the Secretary of State authority to employ only two
categories of people under local compensation plans abroad: Foreign National employees, and
United States citizens who are family members of Government employees. That provision has been
interpreted as precluding the employment of other American citizens in Foreign National positions."
Ms. Peters adds in her letter, "The Department believes Congress' intent, in making an exception to
allow American family members to be employed in FSN jobs, was to provide employment
opportunities abroad for spouses and other dependents of U.S. Government employees. We heartily
support that provision, in that it provides job opportunities for Foreign Service dependents, and thus
serves as a recruitment tool for our employees going to countries where         dependent employment
on the local market is difficult to obtain. The Department of Defense has similar legislation for its
dependents."

ACA’S COMMENTS ON THE INELIGIBILITY OF U.S. CITIZENS TO WORK FOR THE U.S.
GOVERNMENT ABROAD: “ACA wonders why it is necessary to make any distinctions at all in
terms of who is eligible and who is not eligible to work for the U.S. Government outside of the United
States? What is the purpose of setting up FSN posts that allow individuals of any nationality other
than American, to be able to be paid by taxpayer dollars, and to make exceptions for some U.S.
citizens to also be eligible for these same "FSN" positions, and then to simply render all other U.S.
citizens ineligible. It seems peculiar to legislate this way, and to say to civilian taxpayers, that you
alone cannot work in jobs where your own tax dollars are being expended. This prohibition has
already led to some very bizarre results. In several instances, U.S. citizens have voluntarily
relinquished their U.S. citizenship so as to be eligible, thereafter, to work for the U.S. Government.
Surely this is an absurdity. We would welcome an initiative by this subcommittee to amend this
legislation so that the U.S. Government becomes an equal opportunity employer for all positions
abroad at U.S. Embassies and Consulates, to the extent that this is possible without breaching any
bilateral treaties or agreements. We request that this subcommittee undertake the amendment of
Section 408 of the Foreign Service Act of 1980, as amended, to bring about full "equality of
employment opportunity for all U.S. citizens".

“EEOC VS ARAMCO & BOURSELAN VS ARAMCO”: On the 26th of March, the Supreme Court, in
a 6-3 decision, rules that Title VII of the Civil Rights Act of 1964, which prohibits discrimination on the
basis of race, color, religion or national origin, wasn't meant to apply outside the USA and its
territories. The case was brought initially by Mr. Ali Bourselan, a naturalized U.S. citizen who was
born in Lebanon. He alleges that he was harassed by his supervisors and eventually fired because
of his race and religion while working in Saudi Arabia for ARAMCO. According to the Equal
Employment Opportunity Commission (EEOC), which intervened on behalf of Mr. Bourselan, more
than 2,000 U.S. firms operate 21,000 subsidiaries in about 121 foreign countries worldwide.

ACA’S COMMENTS ON “EEOC VS ARAMCO”: Since this Supreme Court ruling, two bills have
been introduced in the House which would extend Title VII to citizens working abroad for U.S.

                                               31
        companies. ACA supports this extension of protection of U.S. law prohibiting discrimination against
        employees on the basis of race, color, religion, or national origin, and invite the Members of this
        subcommittee to co-sponsor legislation in this direction.

        “UNITED STATES, ET AL., PETITIONERS V. MARCUS S. SMITH ET AL”: The Federal
        Employees Liability Reform and Tort Compensation Act of 1988 addresses the rights of U.S. citizens
        to sue the U.S. Government for tort claims, and limits the relief available to persons injured by
        Government employees acting within the scope of their employment. In such cases, the Act
        provides that "the remedy against the United States under the Federal Tort Claims Act (FTCA) is
        exclusive of any other civil action or proceeding for money damages." In certain cases, the FTCA
        allows a person alleging injury by a Government employee, acting within the scope of his/her
        employment, to seek tort damages against the Government. There is an exception, however, which
        bars such recovery for injuries sustained outside the country. Mr. Marcus Smith, a U.S. Army
        Sergeant stationed in Italy, claimed that Dr. William Marshall, who was serving on the medical staff
        of the U.S. Army Hospital in Vicenza, Italy, was negligent during the birth of his son, Dominique in
        1982. This child was born with massive brain damage. The suit was brought in the United States
        District Court for the Central District of California in 1987. The Government intervened, and sought to
        have itself substituted for Dr. Marshall as the defendant under the relevant provisions of the
        Gonzalez Act, 10 U.S.C. Þ1089. This Act provides that in suits against military medical personnel for
        torts committed within the scope of their employment, the Government is to be substituted as the
        defendant and the suit is to proceed against the Government under the FTCA. The Catch 22 here is
        that once the FTCA is invoked, the prohibition of claims for injuries committed outside the country
        becomes operative. Mr. Marcus, the FTCA language not withstanding, tried nevertheless to seek
        damages from the particular Government employee who caused the injury. The Court by an 8-1
        majority held "that the Liability Reform Act bars this alternative mode of recovery." Justice Stevens,
        in dissent, said that the majority ruling is not consistent with the intent of Congress. According to Mr.
        Stevens, "For claims not covered by the FTCA, such as for those claims arising in foreign countries,
        the Gonzales Act authorized medical personnel to be insured or indemnified by the Federal
        Government. By that arrangement, Congress protected Government doctors from personal liability
        for services performed in the course of their overseas duties, and at the same time, preserved the
        common law remedy for American victims of medical malpractice." Mr. Stevens concludes that "the
        question is whether the Liability Reform Act withdrew the remedy for malpractice claims arising
        outside of the United States that had been expressly preserved by subsection (f) of the Gonzalez
        Act. The net result of this Supreme Court ruling is that U.S. citizens living overseas can no longer
        expect to win any tort suits against the U.S. Government for negligent acts committed overseas by
        doctors or other Government employees.

        ACA'S COMMENTS ON “UNITED STATES VS MARCUS SMITH”: ACA requests that legislation be
        introduced by Members of this Subcommittee that would amend the “Liability Reform Act of 1988” in
        such a way as to permit U.S. citizens living abroad to regain the common law right to seek redress
        for torts committed overseas by individuals working for the U.S. Government overseas.

“SENATOR JAY ROCKEFELLER ELIMINATES THE OBSTACLES TO LOCAL HIRING OF U.S.
CITIZENS IN THE PRIVATE SECTOR BY U.S. EMBASSIES AND CONSULATES”: When Senator Jay
Rockefeller (D-WV) subsequently learns of this discrimination against the local hiring of U.S. citizens in the
private sector overseas for employment by the State Department, he introduces legislation to change this
law. It is eventually adopted and become law. The State Department drags its heels in implementing this
change because it will make it more difficult now to always give preference to wives and other dependents of
U.S. State Department employees for such positions. Eventually, when the new conditions are finally in
place, these local hires will be called “Rockies” in honor of their Congressional sponsor.

ANOTHER “BILL TO AMEND U.S. CITIZENSHIP LEGISLATION”: Congressman Norman Minetta (D-CA),
who was born in San Jose, California to Japanese immigrant parents who were not U.S. citizens at the time,
and who was later interned for several years in the Heath Mountain internment camp near Cody, Wyoming,
along with thousands of other Japanese immigrants and Japanese Americans during World War II, has long
had an interest in citizenship legislation. Together with five co-sponsors he proposes to amend Section 301
of the Immigration and Nationality Act to provide the children of female U.S. citizens born abroad before May
24, 1934 and their descendants with the same rights to citizenship at birth as children born of male citizens
abroad. It is referred to the Committee on the Judiciary, but does not leave the Committee. (November 26,
1991: HR 4007).



                                                       32
“OVERSEAS AMERICAN INCOME TAX PAYMENTS TO THE IRS IN 1991”: In 1991, 220,166 U.S.
citizens living abroad file a Form 1040 U.S. income tax return together with a Form 2555 claiming a foreign
earned income exclusion. These taxpayers pay an aggregate of $919 million to the Treasury, in addition to
$893 million they have already paid to other governments on the same income. Taxes paid to the IRS are
52% of the total aggregate tax they pay both at home and abroad.

        Overseas Americans are the only overseas citizens of any major trading nation in the world who
        have to pay taxes to two sovereign nations on the same income. They are paying more than twice as
        much tax on their incomes as individuals of all other nationalities.

“TRADE”: In 1991, the U.S. trade deficit is $30.7 billion, with the deficit increasing at a rate of $84 million per
day.

1992 - “REVENUE BILL OF 1992”: This new law recognizes that Sec 988 of the 1986 Act, which
established the U.S. dollar as the “functional currency” for individuals, has created an impossible
administrative burden. Under the 1986 Act, an individual must measure gain or loss on each foreign currency
transaction. The 1992 law does not abolish this obligation, but only provides for non-recognition of exchange
gains in personal transactions for gains not exceeding $200.

“REVENUE RULING 90-79”: This ruling states that a loss on a foreign currency mortgage cannot be used to
offset a taxable gain on the sale of the same house in a foreign country. This absurdity is later upheld in
court. In practice this works as follows: you borrow foreign currency to buy a house. You sell the house for
less than you paid for it in the foreign currency. Yet, during the same time the dollar has appreciated so that
the actual foreign currency loss looks like a dollar capital gain. You pay tax on the phantom income increase
that appears in dollar terms, but cannot deduct the phantom loss that also appears when converted to
dollars. In reality you actually lose money, but you have to pay tax on a capital gain that in reality never
actually took place in the foreign currency!

"OVERSEAS UNITED STATES CITIZEN'S REPRESENTATION IN CONGRESS ACT OF 1992": This
                                                                              nd
legislation is introduced again in the House of Representatives during the 102 Congress, this time by Bill
Alexander (D-Ark) together with Ben Gilman (R-NY) as a co-sponsor. This initiative would create a seat in
Congress for a Delegate to be directly elected by overseas Americans. It is referred to Committee on
Administration’s, Subcommittee on Elections, but never leaves the Subcommittee. (March 25, 1992: HR
4560).

"OVERSEAS AMERICAN CHILDREN'S CITIZENSHIP EQUITY ACT OF 1992": This bill is introduced
                                                              nd
again in the House of Representatives during the 102             Congress by Bill Alexander (D-Ark), with
Congressman Ben Gilman (R-NY) as a co-sponsor), This initiative would reduce the prior residence time of a
U.S. citizen parent to one year in the aggregate to automatically transmit U.S. citizenship to a child born
abroad. It is referred to the Committee on the Judiciary, but does not leave the Committee. (March 25, 1992:
HR 4561).

“A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986": This bill is introduced again in the
                                          nd
House of Representatives during the 102 Congress, this time by Bill Alexander (D-Ark) together with Ben
Gilman (R-NY) as a co-sponsor. This is the same proposal to strengthen the U.S. economy by eliminating
the citizenship based taxation of Americans living abroad. It is referred again to the Committee on Ways and
Means, but never leaves the Committee. (March 25, 1992: HR 4562).
         TH                                                                       th
THE “27 AMENDMENT”: On 7 May the Constitution is amended for the 27 time and states that any law
that increases or decreases Congressional pay shall not be put to effect until the next term of office of the
Representatives begins.

“NEW OVERSEAS AMERICAN CHILDREN'S CITIZENSHIP EQUITY ACT OF 1992": This bill is introduced
                                                          nd
again in the House of Representatives during the 102 Congress by Bill Alexander (D-Ark). This time the
proposal is to eliminate entirely all prior residence time in the United States and thereby enable all children
born abroad to a U.S. citizen parent to be automatically a U.S. citizen at birth. It is referred to the Committee
on the Judiciary, but does not leave the Committee. (October 6, 1992: HR 6189).

“FIFTY-SECOND PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad
participate again. The population of the United States is 254 million, of whom 190 million (75%) are eligible to
vote. Only 55% of those eligible actually vote. William Clinton, former Governor of Arkansas, running as a


                                                        33
Democrat, is elected. He has a popular vote plurality of 5.8 million votes, only 43% of the popular vote, but
over 68% of the electoral votes. Current President George H.W. Bush is defeated in his bid for re-election.
Ross Perot's third party candidacy prevents the two major candidates from capturing a majority of the
popular vote in all but 4 states. Clinton's pluralities in many big States, however, enable him to win the
election. His Vice President is Al Gore from Tennessee.

“TRADE”: In 1992, the U.S. annual trade deficit is $38.7 billion, with the deficit continuing to grow at a rate
of $106 million per day.

1993 - “REVENUE RECONCILIATION BILL OF 1993”: This new law raises the top regular tax rates from
31% by adding two new brackets of 36% and 39.6%. The act also raises the maximum alternative minimum
tax rates from 26% to 28%. It increases the portion of social security benefits that are taxable from 50% to
85% for high income taxpayers (who are defined as those earning $34,000 as a single person and $44,000
for a couple). The act also increases the amount of income earned by controlled foreign corporations that is
currently taxable to U.S. shareholders.

“FOREIGN RELATIONS AUTHORIZATION ACT FOR FISCAL YEARS 1994 AND 1995” In the Conference
Report accompanying the introduction of this legislation, the House of Representatives urges the Department
of State, in cooperation with other relevant Departments of the U.S. Government, and with the active
participation of the overseas American community, to:

        “Undertake a review of U.S. laws and regulations that may impede the ability of American citizens
        abroad to compete in world markets with citizens of other nations on a level playing field.”
        (Conference Report accompanying legislation that will become PL 103-236 on 30 April 1994).

        “The committee of conference further believes that a process should be established so that
        American citizens abroad can contribute their ideas and suggestions for improving the promotion and
        protection of the interests of the United States throughout the world. The committee of conference
        urges the Department of State to, consistent with available personnel and resources, consult
        American citizens abroad at embassy and consulate locations.”

“THE STATE DEPARTMENT IGNORES THESE CONGRESSIONAL REQUESTS”: Because this
Congressional request is not contained in the text of the new legislation itself, the State Department
subsequently just ignores it, and will never carry out any such review of problems faced by overseas
Americans in cooperation with the overseas American community.

“TRADE”: In 1993, the U.S. trade deficit is $71.9 billion increasing now at a rate of $197 million per day.

1994 - THE “IMMIGRATION AND NATIONALITY TECHNICAL CORRECTIONS ACT OF 1994”: This new
law amends several sections of the Immigration and Nationality Act, and takes effect on March 1, 1995.
Amended Section 322 permits children born overseas of a U.S. citizen parent to be eligible for a certificate of
citizenship if either a U.S. citizen parent or a U.S. citizen grandparent had been physically present in the
United States for at least five years, two of which after the age of 14, prior to the child’s birth abroad. This
provision also applies to a child adopted abroad. Amended Section 301(h) gives back U.S. citizenship to a
person born before noon (Eastern Standard Time) May 24, 1934, outside the limits and jurisdiction of the
United States of an alien father and a mother who is a citizen of the United States who, prior to the birth of
such person, had resided in the United States. Amended Section 324(d)(1) allows former U.S. citizens, who
lost their citizenship through failure to meet the former conditions of physical presence in the United States to
retain their citizenship, to regain their citizenship without having to file an application for naturalization. The
law also allows U.S. citizen parents to apply for U.S. citizenship from abroad for their foreign-born children
under the age of 18, provided the child is physically present in the United States pursuant to a lawful
admission when the citizenship is granted.

“EXPANSION OF THE ROLE OF FINCEN”: In 1994, the Secretary of the Treasury delegates to the Director
of the Financial Crimes Enforcement Network (FinCEN) the authority to implement and administer regulatory
functions under Title II of the Bank Secrecy Act (BSA). Thus, FinCEN’s operations will be subsequently
expanded to include regulatory responsibilities.

“TRADE”: In 1994, the U.S. trade deficit is $101 billion, with the deficit increasing at a rate of $277 million
per day.



                                                        34
1995 – “THE CREATION O FTHE EGMONT GROUP”: FinCEN is one of 15 Financial Intelligence Units
(FIUs) from around the world that meet to establish the Egmont Group, an information-sharing network to
combat money laundering and other financial crimes that cross national borders. FinCEN has already
established a large and growing network of law enforcement agencies, regulators, and international
representatives who benefit greatly from analysis of financial transaction information reported under the Bank
Secrecy Act (BSA).

“SIZE OF THE FEDERAL TAX CODE”: There are now more than 40,500 pages in the U.S. Federal Tax
Code.

“TRADE”: In 1995, the U.S. trade deficit is $100 billion, with the deficit increasing at a rate of $274 million
per day.

1996 - “SMALL BUSINESS JOB PROTECTION ACT OF 1996”: This new law significantly changes the
taxation of foreign trusts with U.S. grantors and/or beneficiaries.

“HIPA – THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996”: This new
“HIPA” law has some financial implications for expatriation. It states that individuals who have assets of
$500,000 or more, or income of more than $100,000, and who give up their U.S. nationality “are deemed” to
have expatriated themselves for income tax avoidance purposes. Non U.S. citizens who have been long-
term U.S. residents now face comparable treatment.

“C.J. QUIJANO V. US”: US citizens (and Green Card holders) are required to use the US Dollar as their
"functional currency" for all "personal" transactions, including the purchase and sale of a foreign residence.
For most US expats, there are actually two separate taxable transactions that occur when you sell a foreign
residence - "Capital Gain" from selling the residence, and "Exchange Rate Gain" from paying off a mortgage
denominated in a foreign currency. (96-2 USTC P 50,441).

        Taxation of Capital Gain: The current tax rate on the gain from selling a personal residence is 15%
        (as long as you have held the property for at least a year). The gain is calculated by translating the
        purchase price using the exchange rate at the time of the purchase, the cost of capital improvements
        using the exchange rate at the time the improvements were made and the exchange rate at the time
        of the sale, rather than by using the exchange rates at the time of sale in all three cases. If you meet
        the requirements of IRC Sec. 121 (you owned and used the property for 2 of the 5 years prior to the
        sale or meet one of the exceptions), you are allowed to use the $250,000 ($500,000 if MFJ)
        exclusion available to properties located in the US. If the result is a capital loss, this is considered a
        personal, non-deductible loss.

        Taxation of Exchange Rate Gain: The Exchange Rate Gain from paying off a mortgage
        denominated in a foreign currency is treated a separate transaction and is calculated by translating
        the amount of the loan using the exchange rate at the time the loan was originated and the exchange
        rate at the time of the loan was paid off. The resulting "gain" is taxable as "ordinary income" using
        your marginal tax rate (maximum 35% for 2008). Again, if the result is a capital loss, this is
        considered a personal, non-deductible loss.

        Note that you cannot use the loss from the mortgage payoff (which is what most people have these
        days) to offset the capital gain from the sale of the home (Revenue Ruling 90-79, 1990-2 CB 187).
        These rules may look harmless enough, but the results can be devastating and should be taken into
        account if you are considering selling (or before buying) a foreign residence.

“OVERSEAS AMERICAN INCOME TAX PAYMENTS TO THE IRS IN 1996”: In 1996, 279.759 U.S.
citizens living abroad file a Form 1040 U.S. income tax return together with a Form 2555 claiming a foreign
earned income exclusion. These taxpayers pay an aggregate of $2.169 billion to the Treasury, in addition to
$1.748 billion they have already paid to other governments on the same income. Taxes paid to the IRS are
55% of the total aggregate tax they pay both at home and abroad. Overseas Americans are the only
overseas citizens of any major trading nation in the world to have to pay taxes to two sovereign nations on
the same income. They are paying more than twice as much tax on their incomes than individuals of all other
nationalities.

“FIFTY-THIRD PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad participate
again. The population of the United States is 269 million, of whom 196 million (73%) are eligible to vote. Only


                                                        35
49.1% of those eligible actually vote, which is the lowest participation rate since 1924. W illiam Clinton,
running for re-election, defeats Republican candidate Bob Dole of Kansas. Clinton has a popular vote
plurality of more than 8 million votes, still only wins 49% of the popular vote, but over 70% of the electoral
votes. Clinton carries 31 states and DC. His Vice President is again Al Gore from Tennessee.

“TRADE”: In 1996, the U.S. trade deficit is $108 billion, with the deficit increasing at a more rapid rate of
$297 million per day.

1997 - “TAXPAYER RELIEF ACT OF 1997”: This new law reduces taxes on long-term capital gains and
estates. It provides for a $500,000 exclusion of gain on the sale of a principal residence. The foreign earned
income exclusion is increased by $2,000 per year (for each year from 1998 to 2002) to a new maximum of
$80,000 with provisions for an indexing for cost of living increases after 2002. The Act also allows US
Individual Retirement Account holders to buy gold bullion coins and bars for their accounts as long as they
are of a fineness equal to, or exceeding, 99.5% percent gold.

“TRADE”: In 1997, the U.S. trade deficit is $110.2 billion, with the trade deficit increasing at a rate of $302
million per day.

1998 - “MILLER VS. ALBRIGHT”: The Supreme Court, in a 6:3 decision, holds that it is constitutional for
Section 309 of the Immigration and Nationality Act (8 U.S.C. Section 1409) to give U.S. citizen mothers more
rights to transmit U.S. citizenship to a child born out of wedlock abroad than to U.S. citizen fathers. There are
three separate opinions on the majority side and two opinions on the dissenting side.

“TRADE”: In 1998, the U.S. trade deficit is $169 billion, with this deficit increasing at a rate of $462 million
per day.

1999 - “PROPOSED AMENDMENT TO SOCIAL SECURITY LEGISLATION FOR OVERSEAS
AMERICANS”: Congressman Barney Frank (D-MA) introduces a bill to amend the “Windfall Elimination
Provision” (WEP) of the Social Security Act (Provision 113 of the Social Security Amendments Act of 1983,
PL 98-21) to provide for a $ 2,000 per month exclusion for foreign source pensions before the elimination
provisions would thereafter incrementally apply. It is referred to Committee on Ways and Means,
Subcommittee on Social Security, but does not leave the Subcommittee. (25 February 1999: HR 860).

“TRADE”: In 1999, the U.S. trade deficit is $262 billion, with the deficit now growing at a much more rapid
rate of $718 million per day. This is the first time that the trade deficit has ever grown at a rate in excess of
$700 million per day.

2000 - “TWENTY-SECOND AMERICAN CENSUS”: The population of the United States is 281 million, an
        increase of 13% during the last ten years, and is 81% urban.

        “GDP AND TRADE”: U.S. GDP is $9.7 trillion, with GDP per capita at $34,500, or 1.5 times the
        level of 1990. Total trade, imports and exports of both goods and services, is $2.5 trillion, and equal
        to 25.9% of GDP. There is a trade deficit of $376 billion, growing at a rate of $1.02 billion per day.
                       th
        This is the 25 consecutive year with a negative trade balance, and the first time that the trade
        deficit grows at a rate of more than $1 billion per day.

        “FEDERAL GOVERNMENT EXPENDITURES AND REVENUES”: The Federal Government
        spends about $1.79 trillion in 2000, about 1.4 times the amount spent in 1990, but takes in $2.02
        trillion from various sources, leaving a surplus of $236 billion. Government spending is now only
        18.4% of GDP.

        “FEDERAL GOVERNMENT REVENUE SOURCES”: Personal income tax accounts for 49.6% of
        total Federal Government revenues in 2000, with only 10.2% now coming from corporate tax, 32.2%
        from Social Security contributions, 3.4% from excise taxes, and 4.5% from other sources.

        THE “SIZE OF THE FEDERAL TAX CODE”: There are now more than 50,000 pages in the U.S.
        Federal Tax Code.

“WASHINGTON D.C. CONGRESSIONAL VOTING RIGHTS”: There is a quiet protest in the District of
Columbia (D.C.) spearheaded by the “Coalition for D.C. Representation in Congress” that adopts as its motto


                                                       36
the Revolutionary War era’s mantra “No Taxation Without Representation.” When the District of Columbia
was created in 1790, the residents continued to elect Representatives to Congress in their former states of
Maryland and Virginia. In 1800, however, Congress assumed complete control of the District, ending D.C.’s
representation in Congress. Then in 1871, when Congress established a territorial government for D.C., it
created the position of an elected Delegate from the District to serve in Congress but without the power to
vote on legislation. A mere three years later Congress revoked D.C.’s territorial status and abolished its
nonvoting Delegate. Finally, in 1961, the Twenty-third Amendment received ratification, for the first time in
history granting residents of the District the right to vote in presidential elections, with a number of electors
equivalent to D.C.’s having statehood. In 1970, the U.S. House of Representatives restored the position of a
nonvoting Delegate from D.C. to serve in the House, and Congress passed the Home Rule Act in 1974,
granting D.C. its first locally elected Government (a Mayor and Council) in 100 years.

Four years later both houses of Congress approved, by two-thirds majorities, a Constitutional Amendment
awarding D.C. residents voting rights, but by the seven-year deadline in 1985, only sixteen of the required
thirty-eight states had ratified the Amendment, and so it failed.

In 1993, the House of Representatives voted in favor of allowing Delegates from D.C. and the nation’s four
Territories to vote on the House floor as part of the Committee of the Whole—previously they could vote only
in committee meetings—but with the limitation that in cases where these delegates’ votes proved decisive a
second vote must be taken with the Delegates barred from voting. Only two years later the House of
Representatives, now under Republican control, again reversed itself, removing the D.C. Delegate’s name
from the official House roster, and terminating the Delegate’s voting privilege. These Congressional actions
over a 200-year period disenfranchising district residents instigated formation of the D.C. Vote movement.

In 2000, residents of the District of Columbia bring before a Federal Appeals Court a case to provide District
residents full voting rights and representation in the Congress. The case fails by a two-to-one vote, and the
U.S. Supreme Court declines to review the appeal. This same year, the District of Columbia adopts a new
motto for its license plates: “Taxation Without Representation.” President Bill Clinton has a license plate
bearing the motto installed on the Presidential limousine and publicly supports full enfranchisement for
residents of the District. When George W. Bush becomes President in 2001, he signals his disapproval by
having the limousine’s license plate replaced with one lacking the motto. This same year the district’s
Delegate to the House of Representatives, Eleanor Holmes Norton (D-D.C), joined by Senator Joseph
Lieberman (D-Conn.), sponsors and introduces in both Houses of Congress the “No Taxation Without
Representation” bill, which would exempt Residents of the District of Columbia from paying Federal Income
Taxes until they received full voting rights. “D.C. Votes“ is the most recent and ongoing tax movement in the
United States to evoke the very issues that had eventuated in the Stamp Act Congress and the American
                      th
Revolution, in the 18 Century.

“COMPARATIVE OECD DIASPORA STATISTICS”: According to the census data collected by the
Organization for Economic Cooperation and Development (OECD), in 2000, the overseas American
Diaspora living in other OECD countries is the smallest percentage of home country population of all 28
OECD Members who participated in this study. The OECD estimate is that only 0.51% of the U.S. domestic
population was living abroad in other OECD countries, a smaller percentage than all other members,
including even Japan. The OECD average diaspora population in other OECD countries is 3.45% of the
home country population.

"THE CHILD CITIZENSHIP ACT OF 2000": Sponsored by William Delahunt (D-MA), and often referred to
as the “Delahunt Act”, this new law modifies the Immigration and Nationality Act by making it easier for minor
children of US citizens (both foreign-born and adopted abroad) to become citizens of the US. The law has
the following effects: (a) A child adopted abroad becomes a US citizen immediately upon entry into the US
as a lawful permanent resident; and (b) A child born abroad to parents, one or both of whom are US citizens,
but who is not recognized as a US citizen for various reasons, can also benefit from the new law, i.e. that
child also becomes a US citizen immediately upon entry into the US as a lawful permanent resident. In the
case of US parents residing permanently abroad with no immediate intention of returning to the USA with
their children (either natural or adopted), it is also possible to file from abroad for immediate naturalization
under a revised Section 322 of the Immigration and Nationality Act (also modified by the new law). This
procedure enables Americans abroad to obtain US citizenship for their children, not otherwise eligible to be
citizens at birth abroad, through a special “naturalization procedure”, which does not require that they move
back to live permanently in the United States. All the papers are filed from abroad, and the American parent
and child/children then travel to the chosen District Office in the United States to finalize the process on the
day of a previously arranged appointment. (30 October 2000, PL 106-365)


                                                       37
“FIFTY-FOURTH PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad
participate again. The population of the United States is 281 million, of whom 206 million (73%) are eligible to
vote. Only 51.3% of those who are eligible actually vote, the second lowest rate of participation since 1924.
George W. Bush, son of a former President and himself a former Governor of Texas, comes in more than
540,000 votes behind his Democratic opponent, Al Gore. Bush, however, is the eventual winner of this
election, by 271 electoral votes to 266. He is the first president since Benjamin Harrison in 1888 to receive
fewer popular votes than an opponent and still win the presidency. This comes as the result of a very strange
5:4 decision (all 5 votes are by Republican appointees) of the U.S. Supreme Court on a Florida recounting
case. Bush’s Vice President is Richard Cheney, of Wyoming.

2001 - “TENNESSEE INCOME TAX PROTEST”: A protest takes place in July at the Capitol in Nashville
against the General Assembly’s attempt to reinstitute a state income tax. One of nine states that have no
income tax, Tennessee relies on a 6 percent sales tax for revenues, with localities adding as much as 2.75
percent to the sales tax to fund their programs. Urged on by talk show hosts at two radio stations, over a
thousand demonstrators gather at the Capitol on July 12, shouting, “Tax revolt” and “No income tax.” Police
lock the doors after about 200 of the protesters cram into an area outside the Senate chamber, some
accosting legislators approaching the chamber while others bang on the chamber’s doors and break
windows. A protester hurls a rock through a window of Governor Don Sundquist’s office. Despite the violence
of the protest, police make no arrests. The protesters succeed in their objective. Their cheers rise as the
General Assembly passes a budget that omits the proposed income tax. It is the third time in three years that
an income tax proposal suffers defeat.

The final outcome hardly looked promising, however, as the Governor, a Republican, proposed levying a 4
percent sales tax on businesses that had previously been exempt and remain so in most states, including
health care, prescription drugs, home energy, legal services, and other professional services. The existing 6
percent state sales tax would be reduced to 4 percent under the Governor’s proposal. Democratic legislators
proposed a 3.5 percent income tax and a reduced sales tax, but these measures fall by the wayside, with the
General Assembly deciding instead to cut programs by $339 million and to require state agencies to find an
additional $100 million in savings. In addition, to balance the final budget, the legislators authorize use of
$560 million of Tennessee’s tobacco settlement funds. Sundquist, who had campaigned in 1998 with a
promise of no income tax, subsequently vetoes the budget because it lacks the new sales tax. This is his
second budget veto in two years for this same reason. On August 7, the General Assembly reconvenes to
override Sundquist’s veto and to uphold the ban on the income tax. In 2001, Tennessee’s deficit reaches a
record $890 million.

At about the same time that the tax revolt evolves in Tennessee, protesters take action in other states as
well. The residents of Newington, New Hampshire, a town of only 850 population, voice their desire to
secede from the State as a means of precluding use of their property taxes to support school systems in
poorer towns and cities in the state. About 700 protesters in North Carolina stage what they term a “Tar Heel
Tea Party” at the Capitol in Raleigh in opposition to a tax increase proposed by Democratic legislators. And
in Massachusetts tax protesters begin a movement to abolish the State’s income tax.

ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001”: This new Federal law
phases in certain deductions and benefits that have sunset provisions by 2011. Middle income taxpayers
assume the burden for repealed estate tax provisions by now paying capital gains income tax on decedent’s
built in gain.

“IRS ESTABLISHES A “QUALIFIED INTERMEDIARY PROGRAM (QI)”: This is to attract foreign investors
to U.S. securities (more than 7,000 foreign banks will participate in the program). The IRS allows the banks
to promise to identify clients, withhold any taxes due on U.S. securities in their account (typically 30%) and
send the tax money owed to the IRS.

“USA PATRIOT ACT OF 2001”, which stands for Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act is adopted by the Congress (Pub. L.
107-56).

        “EXPANSION OF THE ROLE OF FINCEN”: The Act significantly expands FinCEN’s authorities and
        establishes the organization as a bureau within the Department of the Treasury.

        “BIG BROTHER PROVISIONS”: The Act increases the ability of law enforcement agencies to
        search telephone, e-mail communications, medical, financial, and other records; eases restrictions


                                                      38
on foreign intelligence gathering within the United States; expands the Secretary of the Treasury’s
authority to regulate financial transactions, particularly those involving foreign individuals and
entities; and enhances the discretion of law enforcement and immigration authorities in detaining and
deporting immigrants suspected of terrorism-related acts. The act also expands the definition of
terrorism to include domestic terrorism, thus enlarging the number of activities to which the USA
PATRIOT Act’s expanded law enforcement powers can be applied.

“MONEY LAUNDERING”: Title III of the Act, called the "International Money Laundering Abatement
and Financial Anti-Terrorism Act of 2001," is intended to facilitate the prevention, detection and
prosecution of international money laundering and the financing of terrorism. It primarily amends
portions of the Money Laundering Control Act of 1986 (MLCA) and the Bank Secrecy Act of 1970
(BSA).

“THREE MAJOR STEPS”: The bill is divided into three subtitles, with the first dealing primarily with
strengthening banking rules specifically against money laundering, especially on the international
stage. The second attempts to improve communication between law enforcement agencies and
financial institutions. This subtitle also increases record keeping and reporting requirements. The
third subtitle deals with currency smuggling and counterfeiting, including quadrupling the maximum
penalty for counterfeiting foreign currency, such as the Hans Vierck case of 2001.

“MORE RECORD KEEPING”: The first subtitle tightened the record keeping requirements for
financial institutions, making them record the aggregate amounts of transactions processed from
areas of the world where money laundering is a concern to the U.S. government. It also made
institutions put into place reasonable steps to identify beneficial owners of bank accounts and those
who are authorized to use or route funds through payable-through accounts. Anti-money laundering
software from companies such as Lexis-Nexis, coupled to databases of high risk individuals and
organizations developed by companies like World Compliance help financial institutions perform this
due diligence. The U.S. Treasury was charged with formulating regulations designed to foster
information sharing between financial institutions in order to prevent money-laundering.

“MONEY LAUNDERING ENFORCEMENT”: Along with expanding record keeping requirements it
put new regulations into place to make it easier for authorities to identify money laundering activities
and to make it harder for money launderers to mask their identities. If money laundering was
uncovered, the subtitle legislated for the forfeiture of assets of those suspected of doing the money
laundering. In an effort to encourage institutions to do their bit to reduce money laundering, the
Treasury was given authority to block mergers of bank holding companies and banks with other
banks and bank holding companies that had a bad history of preventing money laundering. Similarly,
mergers between insured depository institutions and non-insured depository institutions that have a
bad track record in combating money-laundering could be blocked.

“RESTRICTIONS”: Restrictions are placed on accounts and foreign banks. Foreign shell banks that
are not an affiliate of a bank that has a physical presence in the U.S. or that are not subject to
supervision by a banking authority in a non-U.S. country are prohibited. The subtitle has several
sections that prohibit or restrict the use of certain accounts held at financial institutions. Financial
institutions must now undertake steps to identify the owners of any privately owned bank outside the
U.S. who have a correspondent account with them, along with the interests of each of the owners in
the bank. It is expected that additional scrutiny will be applied by the U.S. institution to such banks to
make sure they are not engaging in money laundering. Bank must identify all the nominal and
beneficial owners of any private bank account opened and maintained in the U.S. by non-U.S.
citizens. There is also an expectation that they must undertake enhanced scrutiny of the account if it
is owned by, or is being maintained on behalf of, any senior political figure where there is reasonable
suspicion of corruption.

“DEPOSITS IN FOREIGN BANKS”: Any deposits made from within the U.S. into foreign banks are
now deemed to have been deposited into any interbank account the foreign bank may have in the
U.S. Thus any restraining order, seizure warrant or arrest warrant may be made against the funds in
the interbank account held at a U.S. financial institution, up to the amount deposited in the account at
the foreign bank.

“INTERNAL BANK CONCENTRATION ACCOUNTS”: Restrictions are placed on the use of internal
bank concentration accounts because such accounts do not provide an effective audit trail for
transactions, and this may be used to facilitate money laundering. Financial institutions are

                                               39
        prohibited from allowing clients to specifically direct them to move funds into, out of, or through a
        concentration account, and they are also prohibited from informing their clients about the existence
        of such accounts. Financial institutions are not allowed to provide any information to clients that may
        identify such internal accounts. Financial institutions are required to document and follow methods of
        identifying where the funds are for each customer in a concentration account that co-mingles funds
        belonging to one or more customers.

        “DEFINING MONEY LAUNDERING”: The definition of money laundering is expanded to include
        making a financial transaction in the U.S. in order to commit a crime of violence; the bribery of public
        officials and fraudulent dealing with public funds; the smuggling or illegal export of controlled
        munitions and the importation or bringing in of any firearm or ammunition not authorized by the U.S.
        Attorney General and the smuggling of any item controlled under the Export Administration
        Regulations. It also includes any offense where the U.S. would be obligated under a mutual treaty
        with a foreign nation to extradite a person, or where the U.S. would need to submit a case against a
        person for prosecution due to the treaty; the import of falsely classified goods; computer crime and
        any felony violation of the Foreign Agents Registration Act of 1938. It also allows the forfeiture of any
        property within the jurisdiction of the United States that was gained as the result of an offense
        against a foreign nation that involves the manufacture, importation, sale, or distribution of a
        controlled substance.

        “ASSISTANCE TO FOREIGN BANKS”: Foreign nations may now seek to have a forfeiture or
        judgment notification enforced by a District Court of the United States. This is done through new
        legislation that specifies how the U.S. government may apply for a restraining order to preserve the
        availability of property which is subject to a foreign forfeiture or confiscation judgment. In taking into
        consideration such an application, emphasis is placed on the ability of a foreign court to follow due
        process.

        “INFORMATION ON WIRE TRANSFERS”: The Act also requires the Secretary of Treasury to take
        all reasonable steps to encourage foreign governments to make it a requirement to include the name
        of the originator in wire transfer instructions sent to the United States and other countries, with the
        information to remain with the transfer from its origination until the point of disbursement. The
        Secretary was also ordered to encourage international cooperation in investigations of money
        laundering, financial crimes, and the finances of terrorist groups.

“OVERSEAS AMERICAN INCOME TAX PAYMENTS TO THE IRS IN 2001”: In 2001, 294,763 U.S.
citizens living abroad file a Form 1040 U.S. income tax return together with a Form 2555 claiming a foreign
earned income exclusion. These taxpayers pay an aggregate of $3,947 billion to the Treasury, in addition to
$3.339 billion they have already paid to other governments on the same income. Taxes paid to the IRS are
51% of the total aggregate tax they pay both at home and abroad. Overseas Americans are the only
overseas citizens of any major trading nation in the world to have to pay taxes to two sovereign nations on
the same income. They are paying more than twice as much tax on their incomes than individuals of all other
nationalities.

“NGUYEN V. INS”: The Supreme Court, as in the previous “Miller v. Albright” case, holds that a child born
overseas to unwed parents (an American father and a foreign mother) is not a U.S. citizen unless paternity is
established before an established age (in this case 18). This child had been brought to the U.S. before his
sixth birthday and raised by his father. However, after a criminal conviction, deportation was ordered. The
accused resists claiming U.S. citizenship. His citizenship is denied by the Court because his paternity had
not been established prior to his 18th birthday. The Court upholds the existing interpretation of the law, once
again affirming that Congress has the power to define citizenship outside the citizenship dictated by the 14th
Amendment (citizenship by birth). (533 U.S. 53 (2001)).

“TRADE”: In 2001, the U.S. trade deficit is $358 billion, with the deficit growing at a rate of $980 million per
day.

2002 - “UNIFORMED AND OVERSEAS CITIZENS ABSENTEE VOTING ACT OF 1986 IS AMENDED”: In
2002, changes in overseas voting are imposed by both the “Help America Vote Act” (P.L. 107-252) and the
“National Defense Authorization Act of 2002” (P.L. 107-107). The “National Defense Authorization Act of
2002” permits a voter to submit a single absentee application in order to receive an absentee ballot for each
federal election in the state during the year. The “Help America Vote Act” subsequently amends that section
of the law to extend the period covered by a single absentee ballot application to the next two regularly


                                                       40
scheduled general elections for federal office. The “Help America Vote Act” also adds a new section that
prohibits a state from refusing to accept a valid voter registration application on the grounds that it was
submitted prior to the first date on which the state processes applications for the year.

“OTHER VOTING LAW CHANGES”: the “Help America Vote Act of 2002” requires the Secretary of
Defense to establish procedures to provide time and resources for voting action officers to perform voting
assistance duties and establish procedures to ensure a postmark or proof of mailing date on absentee
ballots. It requires secretaries of the armed forces to notify members of the last day for which ballots mailed
at the facility can be expected to reach state or local officials in a timely fashion; requires that members of
the military and their dependents have access to information on registration and voting requirements and
deadlines; and requires that each person who enlists receives the national voter registration form. It also
requires each state to designate a single office to provide information to all absent uniformed services voters
and overseas voters who wish to register in the state. It requires states to report the number of ballots sent to
uniformed services and overseas voters and the number returned and cast in the election; and it requires the
Secretary of Defense to ensure that state officials are aware of the requirements of the law and to prescribe
a standard oath for voting materials to be used in states that require such an oath.

“TRADE”: In 2002, the U.S. trade deficit increases to $418 billion, and is now growing at a rate in excess of
$1.1 billion per day. This is now the second year that the trade deficit grows at a rate in excess of $1 billion
per day.

2003 - “PROPOSAL TO AMEND TO THE UNITED STATES INFORMATION AND EDUCATIONAL ACT
OF 1948”: Congressman Henry Hyde (R-IL) proposes a new bi-annual study of the role of the American
private-sector community abroad, and to add an overseas American to the US Advisory Commission on
Public Diplomacy. The legislation is adopted by the House of Representatives, but does not pass in the
Senate. (Section 604(c)(2) of the United States Information and Educational Exchange Act of 1948 (22
U.S.C. 1469(c)(2)).

“IRS IS GIVEN RESPONSIBILITY FOR FBAR ENFORCEMENT“: The Financial Crimes Enforcement
Network (FinCen) delegates responsibility for FBAR enforcement to the IRS in April 2003. Up until now, the
FBAR filing requirements were not well known, non-compliance was the norm, and the requirements were
rarely enforced. (68 Fed. Reg. 26,489 (May 16, 2003))

“TRADE”: In 2003, the U.S. trade deficit is $489 billion increasing at a rate of $1.3 billion per day. This is
now the third year that the trade deficit grows at a rate in excess of $1 billion per day.

2004 - “SENATE PROPOSAL TO “ELIMINATE SECTION 911 HOUSING DEDUCTIONS AND
EXCLUSIONS”: This proposal, which would greatly increase the taxation of some private sector overseas
Americans, receives strong support from both 2004 Democratic Presidential candidate Senator John Kerry
(D-MA), and future 2008 Republican Presidential candidate Senator John McCain (R-AZ). It passes by
unanimous consent in the Senate, but it is defeated in the House of Representatives.

“ELIMINATION OF THE LIMITS ON FOREIGN TAX CREDITS”: In other tax legislation, Congress goes in
the opposite direction and finally removes the 90% limit on foreign tax credits for Alternative Minimum Tax
purposes.

“THE OFFICE OF TERRORISM AND FINANCIAL INTELLIGENCE”: The Treasury Department establishes
a new Office of Terrorism and Financial Intelligence (TFI). The Director of FinCEN reports to the Under
Secretary for Terrorism and Financial Intelligence. FinCEN directly supports the Department’s and TFI’s
strategic goal of preventing terrorism and promoting the nation’s security through strengthened international
financial systems. FinCEN also contributes to each of the other Treasury Department strategic goals by
promoting proper use of government finances, promoting market integrity as an essential component for
financial stability and economic growth, and exercising efficient management and organization.

“BANK SECRECY ACT REGULATIONS”: All Financial Institutions are now required to submit five types of
reports to the government. (This is not a full description of these reports):

        “FINCEN FORM 104 CURRENCY TRANSACTION REPORTS (CTR)”: must be filed for each
        deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial
        institution, which involves a transaction in currency of more than $10,000. Multiple currency
        transactions must be treated as a single transaction if the financial institution has knowledge that: (a)


                                                       41
        they are conducted by or on behalf of the same person; and, (b) they result in cash received or
        disbursed by the financial institution of more than $10,000. (31 CFR 103.22)

        “FINCEN FORM 105 REPORT OF INTERNATIONAL TRANSPORTATION OF CURRENCY OR
        MONETARY INSTRUMENTS (CMIR)”: Each person (including a bank) who physically transports,
        mails or ships, or causes to be physically transported, mailed, shipped or received, currency,
        traveler’s checks, and certain other monetary instruments in an aggregate amount exceeding
        $10,000 into or out of the United States must file a CMIR

        “DEPARTMENT OF THE TREASURY FORM 90-22.1 - REPORT OF FOREIGN BANK AND
        FINANCIAL ACCOUNTS (FBAR)”: Each person (including a bank) subject to the jurisdiction of the
        United States having an interest in, signature or other authority over, one or more bank, securities, or
        other financial accounts in a foreign country must file an FBAR if the aggregate value of such
        accounts at any point in a calendar year exceeds $5,000. (31 CFR 103.24)

        “TREASURY DEPARTMENT FORM 90-22.47 AND OCC FORM 8010-9, 8010-1 - SUSPICIOUS
        ACTIVITY REPORT (SAR)”: Banks must file a SAR for any suspicious transaction relevant to a
        possible violation of law or regulation. (31 CFR 103.18 − formerly 31 CFR 103.21) (12 CFR 12.11)

        "DESIGNATION OF EXEMPT PERSON - FINCEN FORM 110”: Banks must file this form to
        designate an exempt customer for the purpose of CTR reporting under the BSA (31 CFR
        103.22(d)(3)(i)). In addition, banks use this form biennially (every two years) to renew exemptions for
        eligible non-listed business and payroll customers. (31 CFR 103.22(d)(5)(i)) The BSA also requires
        any business receiving one or more related cash payments totaling $5,000 or more to file form 8300.

“FBAR PENALTIES IN THE AMERICAN JOBS CREATION ACT”: Prior to October 22, 2004, there was no
penalty for a non-willful failure to file the FBAR forms, and the maximum civil penalty for willful violations was
capped at $100,000. Now, there is a maximum civil penalty of $10,000 for each non-willful failure; and if the
government establishes the failure was willful, the maximum penalty is the greater of $100,000 or 50 percent
of the balance of each undisclosed account each year. Thus, a person may be liable for FBAR penalties of
300 percent of the account balance for willful failures continuing over a six-year period, and criminal
penalties of up to $500,000 and 10 years in prison may also apply. The IRS can unilaterally decide if your
failure to file was “wilful”. (Pub. L. No. 108-357, Title VIII, § 821(a), 118 Stat. 1586 (Oct. 22, 2004) (amending
31 U.S.C. § 5321(a)(5))

“GAO ATTEMPTS TO COUNT THE NUMBER OF OVERSEAS AMERICANS”: The “General Accounting
Office” (GAO), which is now renamed the “Government Accountability Office”, launches an experimental
study in 2004 of the overseas U.S. citizen population in three randomly selected countries to see if counting
overseas Americans could be feasible during the 2010 Census. The study concludes that it “would not be
cost effective” to do so, and refers also to the Census Bureau’s acknowledgment that currently “no accurate
estimate exists” on the number of Americans abroad. The several reports to Congress by the Census Bureau
and the GAO on this issue do not even attempt to give a range or an estimate of the number of Americans
overseas. (U.S. Gen. Accounting Office, Report to the Subcommittee On Technology, Information Policy,
Intergovernmental Relations and the Census, Committee on Government. Reform, House of
Representatives, “2010 Census Counting Americans Overseas as Part of the Decennial Census Would Not
Be Cost Effective”, GAO-04-898 (August 2004)).

“OVERSEAS VOTE 2004 PROJECT (OVO4): Susan Dzieduszycka-Suinat, based in Munich, Germany,
launches the OVO4 project to help overseas Americans register and vote in the 2004 U.S. federal elections.
She designs and puts into operation the first-ever UOCAVA Internet-based voter registration system which
enables 80,000 voters in the military and the private sector to register to vote in their home states using the
OV04 online voter registration wizard in the twelve weeks prior to the 2004 election. In addition, thousands of
requests for help from UOCAVA voters are personally answered by her OV04 team.”

“FIFTY-FIFTH PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad participate
again. The population of the United States is 294 million, of whom 221 million (75%) are eligible to vote. This
time 55.3% of those eligible actually vote. George W. Bush is re-elected with a 3 million vote plurality, 50.7%
of the popular vote, and 53% of the electoral votes. His Democratic opponent is John Kerry of
Massachusetts. For a second time victory depends on the results of a few critical states. There are a number
of new allegations of voting irregularities, especially voters left off the voting rolls, and problems with the
functioning of voting machines. Bush’s Vice President is again Richard Cheney, of Wyoming.


                                                       42
“SIZE OF THE FEDERAL TAX CODE”: There are now more than 60,000 pages in the U.S. Federal Tax
Code.

“TRADE”: In 2004, the latest annual U.S. trade deficit is now $611 billion increasing at a rate of $1.67 billion
per day. This is now the fourth year that the trade deficit keeps growing at a rate in excess of $1 billion per
day.

2005 - “CREATION OF THE OVERSEAS VOTE FOUNDATION”: In 2005, Susan Dzieduszycka-Suinat,
together with Chip Levengood, and Richard Vogt, use the lessons learned during the “OVO4” project in 2004
as a blueprint for the creation of the “Overseas Vote Foundation” (OVF). Based in Munich, Germany, and
operating on a permanent basis, it establishes a very effective working relationship with key voting-related
organizations in the United States including the Federal Voting Assistance Program (FVAP: based in the
Defense Department); the National Association of Secretaries of State; and the League of Women Voters.
OVF Advisors include Roland Crim of ACA; Lucy Stensland Laederich of FAWCO; and Leslie D. Reynolds,
Executive Director of the National Association of Secretaries of State. Susan Suinat, who is the President
and CEO of OVF, spearheads the functional specification, development and launching of Internet-based
voter services available online today. OVF's suite of six software applications is the first of its kind, and a
direct outcome of Susan's vision for overseas and military voter services that need to conform to today's
security constraints. Her understanding of the real and practical needs of overseas and military voters,
coupled with her ability to translate these needs into logical, easily accessed technology solutions is clearly
visible on the current OVF website.

“TRADE”: In 2005, the annual U.S. trade deficit reached $717 billion increasing now at an even faster rate
of $1.96 billion per day. This is now the fifth year that the trade deficit grows at a rate in excess of $1 billion
per day.

2006 - “TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 2005 (TIPRA)”: This new law,
enacted in May 2006, changes the maximum amount of foreign earned income and housing costs that may
be excluded from gross income under section 911 of the Internal Revenue Code. It significantly increases
the tax bills of thousands of U.S. expatriates and makes it much costlier for companies to place workers
abroad. The law, which is retroactive to Jan. 1, however, also raises the amount of income Americans may
exclude from their taxable earnings from $80,000 to $82,400, but beyond this new threshold, all foreign-
earned compensation will be taxed at a much higher rate. (Pub. L. No. 109-222, 120 Stat. 345 (TIPRA))

“OVERSEAS AMERICAN INCOME TAX PAYMENTS TO THE IRS IN 2006”: In 2006, 334,851 U.S.
citizens living abroad file a Form 1040 U.S. income tax return together with a Form 2555 claiming a foreign
earned income exclusion. These taxpayers pay an aggregate of $4.269 billion to the Treasury, in addition to
$4.907 billion they have already paid to other governments on the same income. Taxes paid to the IRS are
47% of the total aggregate tax they pay both at home and abroad. Overseas Americans are the only
overseas citizens of any major trading nation in the world to have to pay taxes to two sovereign nations on
the same income. They are paying almost twice as much tax on their incomes than individuals of all other
nationalities.

“TRADE”: In 2006, the U.S. trade deficit is $758 billion, now growing at the astonishing rate of more than
$2.0 billion per day. This is the first year that the trade deficit grows at a rate in excess of $2 billion per
day, and the sixth year that the trade deficit is growing at a rate in excess of $1 billion per day.

2007 - “SOCIAL SECURITY FAIRNESS ACT OF 2007”: Congressman Howard Berman (D-CA) introduces
a bill to repeal the Social Security “windfall elimination provisions” (WEP). Overseas recipients of Social
Security benefits would no longer lose part of these benefits because they receive a foreign pension. It is
referred Committee on Ways and Means, Subcommittee on Social Security (4 January 2007: HR 82). Five
days later, the same bill is introduced in the Senate by Diane Feinstein (D-CA) and sent to the Committee on
Finance. (9 January 2007: S 206). Neither of these bills will be enacted.

“TRADE”: In 2007, the U.S. trade deficit is $708 billion, increasing at a rate of $1.9 billion per day. This is
now the seventh year that the trade deficit grows at a rate in excess of $1 billion per day.

2008 - “HEROES EARNING ASSISTANCE AND RELIEF TAX (HEART) ACT”: This legislation, introduced
on 16 May 2008 by Congress Charles Rangel (D-NY), amends the Internal Revenue Code to provide tax
benefits and incentives for military personnel. It is to be funded in part by heightened taxation of persons
renouncing U.S. citizenship. The change generally subjects certain U.S. citizens who relinquish their U.S.

                                                        43
citizenship and certain long-term U.S. residents who terminate their U.S. residence to tax on the net
unrealized gain in their property as if such property were sold for fair market value on the day before the
expatriation or residency termination (“mark-to-market tax”). Gain from the deemed sale is taken into account
at that time without regard to other Code provisions. Any loss from the deemed sale generally is taken into
account to the extent otherwise provided in the Code, except that the wash sale rules of section 1091 do not
apply. Any net gain on the deemed sale is recognized to the extent it exceeds $600,000 ($1.2 million in the
case of married individuals filing a joint return, both of whom relinquish citizenship or terminate residency).
The $600,000 amount is increased by a cost of living adjustment factor for calendar years after 2005. Signed
into law by President George W. Bush on 17 June 2008. (Public Law No.110-245).

        “INDIVIDUALS COVERED BY THIS CHANGED CITIZENSHIP RENUNCIATION LAW”: The mark-
        to-market tax applies to U.S. citizens who relinquish citizenship and long-term residents who
        terminate U.S. residency (collectively, “covered expatriates”). The definition of “long-term resident”
        under the proposal is the same as that under present law. As under present law, an individual is
        considered to terminate long-term residency when the individual either ceases to be a lawful
        permanent resident (i.e., loses his or her green card status), or is treated as a resident of another
        country under a tax treaty and does not waive the benefits of the treaty.

        “EXCEPTIONS TO AN INDIVIDUAL’S CLASSIFICATION” Exceptions to being classified as a
        covered expatriate are provided in two situations. The first exception applies to an individual who
        was born with citizenship both in the United States and in another country; provided that (1) as of the
        expatriation date the individual continues to be a citizen of, and is taxed as a resident of, such other
        country, and (2) the individual was not a resident of the United States for the five taxable years
        ending with the year of expatriation. The second exception applies to a U.S. citizen who relinquishes
        U.S. citizenship before reaching age 18½, provided that the individual was a resident of the United
        States for no more than five taxable years before such relinquishment.

“JOHN MCCAIN’S CAMPAIGN STATEMENT TO OVERSEAS AMERICANS”: In 2008, John McCain
opens his presidential campaign message to overseas Americans as follows:

        “US citizens living abroad may be distant, but they are not disengaged. In fact, as unofficial American
        Ambassadors, they play a vital role in the life of the nation. Not only do Americans abroad vote and
        pay taxes, they are often the first contact other nationalities have with our country and you
        experience firsthand the impact that our government’s policies have overseas. No matter where
        Americans may find themselves, John McCain cares about their welfare, hopes and fears. As
        President, John McCain will work hard to improve the United States’ image in the world. But image
        is not everything. Above all, John McCain is committed to protecting the lives and livelihoods of all
        Americans and defending their personal freedoms. Through reform he will tackle the severe US
        trade deficit and strengthen the dollar, while providing a more inclusive, peaceful and prosperous
        future for all Americans.” (Campaign Statement, Summer 2008).

“BARACK OBAMA’S PRESIDENTIAL CAMPAIGN STATEMENT TO OVERSEAS AMERICANS”: In his
campaign statement to Overseas Americans, Barack Obama says:

        “Barack Obama believes that the U.S. government should pay close attention to how American
        citizens are treated in the private sector while they live and work abroad. Our government must
        work to ensure that overseas Americans have every chance to compete on a level playing
        field, and he will work with Americans abroad to identify and understand problems they may face as
        a result of U.S. government policies.” (Campaign Statement, Summer 2008).

“IRS PROPOSES QI AMENDMENTS”: in mid-October 2008, IRS Commissioner Douglas Shulman issues a
set of proposed “Qualified Intermediary” (QI) amendments for comment which he believes:

        “will make QI audits more useful and help give the IRS a clearer line of vision and transparency that
        we need in tax administration. Under the proposed changes, financial institutions that are QIs must
        provide early notification of material failure of internal controls. They must also improve evaluation of
        risk of circumvention of U.S. taxation by U.S. persons. And they must include audit oversight by a
        U.S. auditor.”

“DEMOCRATS ABROAD PRIMARY ELECTION”: In this worldwide overseas primary election, 23,105
votes are cast by Americans living in 164 different countries. More than half of these votes come from just six


                                                       44
countries: the UK, Canada, France, Mexico, Germany and Italy. Two thirds of the voters choose Barack
Obama, and one third Hillary Clinton. About half of the votes are cast via the Internet.

“FIFTY-SIXTH PRESIDENTIAL ELECTION”: Voters in fifty States, DC, and Americans abroad participate
again. The population of the United States is 304 million, of whom 231 million (76%) are eligible to vote. This
time 57% of those eligible actually vote. Barack Obama, the Democratic candidate from Illinois, is elected
with an 8.5 million vote plurality, 50.4% of the popular vote, and 67.8% of the electoral votes. His Republican
opponent is John McCain of Arizona. Obama wins a larger popular vote plurality than both George W. Bush
and Bill Clinton in their two elections, and a larger electoral vote majority than George W. Bush in his two
elections, but he has a smaller electoral vote majority than Bill Clinton had in both of his elections in the
1990s. Obama’s Vice President is Joe Biden of Delaware.

“TRADE”: In 2008, the U.S. trade deficit is $681 billion, growing at a rate of $1.87 billion per day. This is the
eighth year that the trade deficit grows at a rate in excess of $1 billion per day.

2009 - “SOCIAL SECURITY FAIRNESS ACT OF 2009”: Congressman Howard Berman (D-CA) introduces
a bill to repeal the Social Security “windfall elimination provisions” (WEP). Overseas recipients of Social
Security benefits would no longer lose part of these benefits because they receive a foreign pension. It is
referred Committee on Ways and Means, Subcommittee on Social Security (7 January 2009: HR 235). A
month later, the same bill is introduced in the Senate by Diane Feinstein (D-CA) and sent to the Committee
on Finance. (25 February 2009: S 484).

“TAX SITUATION AND OTHER PROBLEMS FOR OVERSEAS AMERICANS BECOME MUCH WORSE”:
Despite the promises that were made by both John McCain and Barack Obama during the 2008 election
campaign, there is no effort by the new administration, or the Minority leadership of the Congress, to alleviate
the double taxation or other heavy reporting burdens on overseas Americans. In fact, things start to quickly
become much more ugly.

“DOUGLAS SHULMAN, COMMISSIONER OF THE IRS, TESIFIES BEFORE CONGRESS:” In his March
2009 testimony to the Congress, Mr. Shulman explains the very aggressive new enforcement strategy that
the Obama Administration will now impose on everyone with a bank account abroad, including those who are
bona fide residents of a foreign country. This strategy, in Mr. Shulman’s words, includes the following:

        “CHANGES TO THE QI PROGRAM: The IRS and the Treasury Department are considering
        additional changes to the QI program to expand the information reporting required for U.S.
        customers holding accounts overseas, which I will describe later in my testimony.

        “WHISTLEBLOWERS: Informants are another part of IRS’ enforcement net. Since the inception of
        the Whistleblower Office in 2007, the IRS has received hundreds of tips on financial institutions and
        individuals with foreign accounts and international compliance issues. Some of these have become
        significant cases. Dozens of these tips involve the names of individuals with offshore accounts;
        others involve the names and practices of financial institutions in those countries that typically have
        strict bank secrecy laws. And keep in mind that the value here is far greater than just the names of
        specific individuals. With additional development, these tips provide information that can lead to a
        John Doe summons – our next important tool.

        “JOHN DOE SUMMONS: The IRS generally uses the John Doe summons authority to identify
        individuals, groups or classes of US taxpayers (1) whose member identities are unknown; (2) who
        may be involved in specific areas of tax noncompliance; and (3) who cannot be identified through
        other mean. For example, we would employ this type of summons when we strongly suspect US
        taxpayers are using offshore bank accounts to avoid paying taxes, but do not know their identities.
        While the John Doe summons is a powerful tool in the civil arena, the IRS has also deployed
        significant resources to criminal tax investigations. The IRES is increasing its resources devoted to
        investigating the misuse of foreign entities an the use of foreign bank accounts to de taxable income
        and is currently pursuing hundreds of criminal leads involving U.S. taxpayers potentially involved in
        offshore tax evasion.

        “CRIMINAL INVESTIGATION AGENTS: The IRS has established a group of Criminal Investigation
        agents that focuses solely on international matters. As part of this effort, the IRS participates in an
        interagency team led by the Department of Justice to review suspicious activity reports focusing on
        individuals and businesses based in foreign countries. Another group of IRS Criminal Investigation


                                                       45
       agents on the West Coast focuses on international matters that arise on the Pacific Rim. This project
       is part of a long-term strategy for enhancing bilateral law enforcement cooperation to combat
       offshore tax evasion, money laundering, and related financial crimes. For FY 2008, IRS-developed
       cases related to foreign and offshore issues resulted in 61 criminal convictions, and the average term
       for those going to jail was 32 months. For the first fourth months of FY 2009, there were 20
       convictions, and the average jail term was 84 months.

       “EFFECT OF IRS ACTIONS ON OFFSHORE TAX AVOIDANCE: In recent months and years, the
       IRS has concluded a number of significant cases where U.S. citizens have been caught attempting
       to hide assets and income overseas.

       “CREATION OF AN ENVIRONMENT OF FEAR: A much less quantifiable, but no less certain effect
       has been the creation of an environment in which offshore tax evaders fear detection and
       prosecution. The tax evader on the run is especially vulnerable. Every instance where that individual
       withdraws or moves money creates a paper trail. That is because foreign banks are providing new
       information to the IRS or the IRS is investigating similarly situated taxpayers. This generates greater
       scrutiny of the transaction and increases the potential for suspicious activity to be spotted.

       “THESE ACTIONS ALSO CREATE GREATER LEGAL JEOPARDY FOR THOSE WHO BREAK
       COVER: Once these activities occur, it if far more likely that the IRS will uncover them through
       whistleblowers, other non-tax related investigations or through JITSIC and our treaty partners.”
       (Testimony before the House Ways and Means Committee, Subcommittee on Select Revenue
       Measures, March 31, 2009)

“DOUGLAS SHULMAN’S SPEECH TO THE OECD”: In June 2009, the Commissioner of the IRS once
again addresses these same issues and includes the following points in his address to Members of the
Organization for Economic Cooperation and Development (OECD):

       “IN THE U.S., INTERNATIONAL TAX ISSUES HAVE MOVED TO CENTER STAGE. It is a major
       priority for President Obama, and last month he outlined a bold suite of international legislative
       proposals. At the same time, the IRS has been stepping up enforcement measures in this area. We
       are aggressively tracking down tax evaders hiding their wealth overseas and the promoters who aid
       and abet these schemes. We are steadily increasing the pressure on offshore financial institutions
       that facilitate concealment of taxable income by U.S. citizens. Indeed, I have made international
       issues a top priority since "Day One" of my tenure as IRS Commissioner and it's not just because we
       live in a global world.

       “IN TODAY'S ECONOMIC ENVIRONMENT, IT'S MORE IMPORTANT THAN EVER THAT THE
       AMERICAN PEOPLE FEEL CONFIDENT THAT EVERYONE IS PLAYING BY THE RULES AND
       PAYING THE TAXES THEY OWE. On the world stage, the global economic downturn and recent
       tax evasion scandals have spurred urgent calls for fairness and transparency of the tax system. In
       April, the G-20 heads of state agreed in a show of unity to act against tax havens that impede
       legitimate tax enforcement.

       “THE TIDE IS INDEED TURNING AND I AM PROUD TO LEAD THE IRS' RENEWED,
       REFOCUSED AND REINVIGORATED ENFORCEMENT EFFORTS. All the right pieces are falling
       into place. And with the continued cooperation and commitment among nations and organizations,
       such as the OECD and JITSIC, we will create the right climate – an inhospitable climate for tax
       evasion and offshore secrecy.

       “AND TODAY, I WOULD LIKE TO DISCUSS IN GREATER DETAIL WHAT THE UNITED STATES
       IS DOING TO TAKE US TO THAT NEXT LEVEL. I believe we have a good foundation for the future
       of international tax administration. But more is required to get us on top of our international game.
       Let me sketch out some of the key points – what I call the "must haves."

           “FIRST, for too many years, the IRS was in the position of not having the resources to go toe-to-
           toe with taxpayers operating in the international markets. They had deep pockets and could hire
           a cadre of legal and tax experts. Some observers said, "We were outmanned and outgunned."
           To meet this challenge, we must keep existing personnel current on emerging techniques and
           hire top examiners, lawyers, economists, special agents and financial specialists who can
           unravel the sophisticated and complex world of international tax issues. These enforcement
           resources can produce real victories, such as the recent Xilinx decision by the 9th Circuit Court

                                                     46
    of Appeals surrounding a transfer pricing issue. The IRS claimed that Xilinx was liable for taxes
    and penalties relating to transactions between the company and its Irish subsidiary.

    “SECOND, the IRS is an information intensive organization. Data is our lifeblood. It informs all of
    our activities – from service to enforcement. But it's not just about getting the data, but rather
    analyzing and making the best use of it. For example, we know that those taxpayers who have
    their taxes withheld and reported to the IRS through third parties are the most compliant. On the
    other end of the scale, those operating without withholding and reporting are the least compliant.
    What's the lesson here? Simple – better information reporting can boost compliance and we
    need more of it from foreign countries and foreign financial institutions.

    “THIRD, regulatory and legislative changes and enhancements are needed. For example, the
    Qualified Intermediary program gives the IRS an important line of sight into the activities of U.S.
    taxpayers at foreign banks and financial institutions. But it's not problem-free. We need to shore
    up the QI program and enhance, improve and strengthen it. Last fall, and in the President's 2010
    fiscal year budget, we issued a set of proposed changes to the QI program which we believe will
    give us a clearer line of vision and transparency that we need in tax administration.

“QI IS NOT THE ONLY WAY TO GAIN TRANSPARENCY. The President's 2010 budget also calls
for additional information reporting on cross-border wire transfers, which will allow the IRS to focus
examination resources on the areas of highest risk.

“NOW, I WOULD LIKE TO FOCUS ON THE PRESIDENT'S PROPOSALS AIMED AT
INDIVIDUALS AVOIDING TAX BY HIDING INCOME IN OFFSHORE ACCOUNTS. These proposals
will enhance information reporting, increase tax withholding in certain situations, strengthen
penalties, and shift the burden of proof to make it harder for offshore account-holders to evade U.S.
taxes. They will also provide the enforcement tools we need to crack down on offshore tax abuse.

“THE CORE OF THE ADMINISTRATION'S PROPOSALS IS TO STRENGTHEN AND EXPAND
THE QUALIFIED INTERMEDIARY SYSTEM. The overall goal is to make it easy for individuals to
comply with U.S. tax law, and make the intermediaries who facilitate the flow of funds across borders
our partners in ensuring people pay the right amount of tax. The other part of the proposal is to
create disincentives for those U.S. taxpayers who chose to do business with a financial institution
that has chosen not to be a QI. I should note the OECD has also been studying best practices, data
templates, outside auditor requirements, and other guidelines for building QI-type networks. We
believe the enhanced QI system proposed by the President is a good starting point eventually for a
multilateral QI system.

“THE PRESIDENT'S PROPOSED ENHANCEMENTS TO THE QI PROGRAM REMIND ME OF
WHAT SOMEONE ONCE SAID. "GOOD LAWS MAKE IT EASIER TO DO RIGHT AND HARDER
TO DO WRONG." Although the multi-faceted proposal is complicated, I would summarize it into five
key components.

    “FIRST, U.S. financial institutions and QIs will be required to determine the true beneficial owner
    of a particular account. Similar to the issues the EU has had with enforcing its Savings Directive,
    we have found that many U.S. taxpayers have formed shell entities to hold offshore accounts.

    “SECOND, we want to encourage Non-QIs to become QIs. Thus, the Administration proposes to
    impose significant withholding tax on transactions involving non-Qualifying Intermediaries.
    Specifically, it would require U.S. financial institutions and QIs to withhold 20 percent to 30
    percent of U.S. payments to individuals or businesses who use non-QIs. To get a refund for the
    amount withheld, investors must disclose their identities and demonstrate that they're obeying
    the law. In addition, the President's plan would create a legal presumption against users of non-
    Qualifying Intermediaries. This is a real game changer. U.S. citizens who send money to
    foreign banks that don't cooperate with us will have to provide convincing evidence to
    prove they're not breaking U.S. tax laws. Moreover, these presumptions will make it easier for
    the IRS to demand information and pursue cases against international tax evaders.

    “THIRD, the Administration's plan would increase various reporting requirements. For example,
    QIs would be required to report worldwide information on their U.S. customers to the same
    extent that U.S. financial intermediaries do. In addition, U.S. persons, U.S. financial institutions,
    and QIs will be required to report cross-border transfers to Non-QIs. On all of the QI issues, let

                                              47
           me note that we understand that these changes will require a commitment and resources by
           financial institutions in the QI program, and we look forward to discussing the proposals with
           them and ensuring a smooth and orderly implementation.

           “THE FOURTH component of our plan is to improve the ability of the IRS to successfully
           prosecute international tax evasion. For example, the proposals would double certain penalties
           when a taxpayer fails to make a required disclosure of foreign financial accounts.

           “FIFTH, the Administration also asks Congress to extend the current statute of limitations on
           international tax enforcement from three to six years after the taxpayer submits required
           information. As discussed earlier, these cases are often highly complex and require additional
           time to resolve beyond the current three-year statute. The President is also putting resources
           behind his plan. The Administration's proposed FY 2010 budget for the IRS will allow us to make
           unprecedented investments in the people, tools, and overall coverage in the international arena.

       “AS PART OF THE PRESIDENT'S BUDGET, THE IRS WILL BE FUNDED TO HIRE NEARLY 800
       NEW EMPLOYEES DEVOTED SPECIFICALLY TO INTERNATIONAL ENFORCEMENT, SUCH AS
       AGENTS, ECONOMISTS, LAWYERS AND SPECIALISTS. This would increase the IRS' ability to
       crack down on offshore tax avoidance and evasion. It would also give us more resources to devote
       to complex international corporate tax issues such as transfer pricing and financial products.

       “LASTLY, WE HAVE BEGUN A DIALOGUE TO TAKE INTERNATIONAL COOPERATION TO
       THE NEXT LEVEL. I believe this should include joint examinations with other nations and working
       towards joint definitions around information reporting requirements. Such new cooperation and
       coordination would, if done right, decrease burden on businesses and individuals trying to comply
       with the law, and help tax authorities consistently enforce the tax law on a global basis.” (Remarks of
       IRS Commissioner Doug Shulman, before a meeting of the Organization for Economic Co-Operation
       and Development (OECD), held in Washington, DC, June 2, 2009.

THE “NATIONAL TAXPAYER ADVOCATE REPORT OF 2009”: On 31 December, the National Taypayer
Advocate, a division of the IRS, issued its annual report. One of the special sections addressed the
concerns of U.S. taxpayers living abroad. This report said, in part,

       U.S. taxpayers living abroad may be unaware of their filing obligations, confused by the complexity of
       international tax law, or overwhelmed by the prospect of figuring out what is required. IRS
       Publication 4732, Federal Tax Information for U.S. Taxpayers Living Abroad, illustrates the
       complexity of the filing requirements. The publication refers to at least eight other relevant IRS
       publications, totaling 563 pages. Further, the additional documents referred to by each publication
       listed in Publication 4732 include 4,727 pages of instructions, 667 pages of forms, and another 1,928
       pages of form instructions, for a total of 7,322 pages.

       Many taxpayers also remain confused about mandatory self-reporting on foreign financial accounts,
       which is required even if no tax is due. For these taxpayers, even inadvertent noncompliance may
       result in steep penalties. U.S. taxpayers located or conducting business abroad need efficient and
       accessible taxpayer service as close to their country of residence as possible. Yet the IRS has
       decreased the number of overseas posts devoted to taxpayer service from 15 to four since the
       1980s, providing substantially fewer resources to this group of taxpayers than it offers to their
       domestic counterparts.

       The IRS provides in-person return preparation assistance to domestic low income taxpayers through
       a network of Taxpayer Assistance Centers (TACs). In addition, the IRS Nationwide Tax Forums offer
       case resolution services to tax professionals and their clients in several American cities each year.
       However, the IRS does not provide similar services overseas. Many U.S. citizens abroad may either
       be unaware of the Tax Forums or unable to participate because of geographical location or cost of
       travel.

       The IRS does maintain overseas posts devoted to taxpayer service, but has decreased the number
       of tax attaché posts in foreign cities from 15 to four. For example, in 2003 the IRS closed the tax
       attaché post in Mexico City and relocated it to Plantation, Florida, depriving over one million U.S.
       citizens residing in Mexico of in-country taxpayer service.



                                                     48
        The four remaining attachés (Frankfurt, London, Paris, and Beijing) conduct regular outreach to
        American citizens and organizations overseas, but the IRS does not track this outreach or record the
        number of participants at each venue. Moreover, the tax attachés mainly focus on examinations and
        the exchange of information with foreign governments; only a limited number of attaché employees
        are assigned to taxpayer service. The IRS has also suspended overseas assistance tours at U.S.
        embassies because these tours were not cost-effective and “minimal in relation to the number of
        taxpayers living abroad. While the IRS plans to add ten additional tax attaché positions at various
        foreign locations to assist with criminal investigations, it does not intend to increase the resources
        allocated to taxpayer service in any of the top ten foreign countries where Americans reside.

“TRADE”: In 2009, as a major recession begins, the U.S. trade deficit falls to $380 billion but it is still
increasing at a rate of $1.04 billion per day. This is now the ninth year that the trade deficit is increasing at a
rate in excess of $1 billion per day.

2010 - “TWENTY-THIRD AMERICAN CENSUS”: The population of the United States is 309 million, an
        increase of 10% during the last ten years, and more than 81% urban. Although private sector
        overseas Americans are once again not counted, U.S. citizens working overseas for the U.S.
        Government now number more than 1 million.

        “GDP AND TRADE”: U.S. GDP is $14.870 trillion, with GDP per capita at $49,075, or 1.4 times the
        level of 2000. Total trade, imports and exports of both goods and services, is $4.1 trillion, and equal
        to 28% of GDP, with is a trade deficit of $495 billion, growing at a rate of $1.35 billion per day. This is
               th
        the 35 consecutive year with a negative trade balance, and the tenth time that the trade deficit
        grows at a rate of more than $1 billion per day.

        “FEDERAL GOVERNMENT EXPENDITURES AND REVENUES”: The Federal Government
        spends $3.72 trillion in 2010, 2.1 times the amount spent in 2000, and takes in only $2.16 trillion
        from various sources, leaving a deficit of $1.55 trillion. Government spending is now 25% of GDP.

        “FEDERAL GOVERNMENT REVENUE SOURCES”: Personal income tax accounts for 43.2% of
        total Federal Government revenues in 2010, with only 7.2% now coming from corporate tax, 40.4%
        from Social Security contributions, 3.4% from excise taxes, and 5.7% from other sources.

        “SIZE OF THE FEDERAL TAX CODE”: There are now more than 71,200 pages in the U.S. Federal
        Tax Code.

THE “HIRING INCENTIVES TO RESTORE EMPLOYMENT (HIRE) ACT”: On 18 March, with the enactment
of the ”Hiring Incentives to Restore Employment” “HIRE” Act, new “Foreign Account Tax Compliance”
measures impose increased disclosure obligations for beneficial owners of foreign trusts; enhanced
penalties for underpayments attributable to undisclosed foreign financial assets; extended limitation periods
for assessment of underpayments, and requires US shareholders of a passive foreign investment company
to file annual informational returns. This new law, PL 111-147, also expands definitions of US beneficiaries of
a foreign trust.

“FOREIGN ACCOUNT TAX COMPLIANCE (FATCA) ACT”: This Act, which was incorporated into the
HIRE Act signed on 18 March, imposes major new obligations for the automatic exchange of information
about U.S. Persons with foreign Financial Accounts. “FATCA” also subjects Foreign Financial Institutions
(and other foreign entities) which invest their own funds or clients’ funds in the United States, to a 30 percent
U.S. withholding tax on U.S. source income, unless the Foreign Financial Institution (or other foreign entity)
agrees to disclose to the U.S. Government information about foreign Financial Accounts of U.S. Persons.
This imposes an automatic exchange of information, not between foreign governments and the U.S.
Government, but between Foreign Financial Institutions (and other foreign entities) and the U.S.
Government. The FATCA rules will apply to all payments after December 31, 2012, except that no U.S.
withholding tax will be required by FATCA on any obligation outstanding on March 18, 2012.

“MANDATORY AUTOMATIC EXCHANGE OF INFORMATION”: This “FATCA” legislation is quite
remarkable in that the United States will in effect now require an automatic exchange of information about
U.S. Persons with any and all foreign Financial Accounts. But at the same time the United States still
provides de facto bank secrecy to Foreign Persons making passive investments in the United States,
especially through the U.S. “Qualified Intermediary” (QI) program. The U.S. QI program limits – intentionally
– the ability of the U.S. Government to exchange tax information with foreign governments.


                                                        49
“NEW MANDATORY FILING OF A STATEMENT OF FOREIGN FINANCIAL ASSETS”: In November, the
IRS introduces a draft Form 8938, Statement of Foreign Financial Assets, with a call for comments. In future
years, U.S. taxpayers with at least $50,000 worth of foreign financial investments will be obligated to file this
new form each year to declare all of their foreign financial assets. This will be in addition to the report of
Foreign Bank and Financial Accounts (FBAR) that already must also be submitted each year to the IRS prior
to 30 June.

2011 - “THE STRUGGLE TO IMPLEMENT FATCA”: Voices of outrage are raised all over the world, by
overseas Americans, as well as bankers and politicians of other countries complaining about the complexity
and cost of the forthcoming FATCA implementation and warning that this could have some very negative
blowback implications for the U.S. economy. While the Treasury Department continues to struggle with the
wording of the final rules and filing procedures, and the date of full formal implementation is put back to
2014, overseas Americans will nevertheless be required to start submitting these new forms in 2012.

“STILL NO LEVEL PLAYING FIELD ANYWHERE ON THE HORIZON”: Despite the noble sentiments
expressed in President Obama’s 2008 presidential campaign pledges to overseas Americans, there is no
visible evidence of any intention on the part of his Administration, or of the Congress, to enable U.S. citizens
who live and work abroad in the private sector to regain competitive equality and once again have
comparable access to a level playing field in world markets.
                           th
“TRADE”: 2011 is the 36 year of continuing trade deficits and the eleventh year in which the U.S. trade
deficit continues to grow at a rate of more than $1 billion per day. The United States how has a cumulative
trade deficit of more than $8.2 trillion, which is the equivalent of 53% of GDP in 2011.




This report was compiled from many different public and private sources by Andy Sundberg, Fellow
and Secretary of the Overseas American Academy in Geneva, Switzerland. Andy is a graduate of the
U.S. Naval Academy who served as a Naval Officer in the Cuban Quarantine and in Vietnam, and studied
Philosophy, Politics and Economics as a Rhodes Scholar at Oxford University in England. He has been living
in Geneva since 1968, and has worked as a consultant helping many corporations, governments and
international organizations evaluate public and private sector projects in many countries of the world. He was
a founder of the American Children’s Citizens Rights League in Geneva in 1977, American Citizens Abroad
in 1978, and also helped set up the local branches of both the U.S. Democratic and Republican parties in
Switzerland. He was the Chairman of Democrats Abroad in Switzerland from 1976-1980, and then served as
the worldwide Chairman of Democrats Abroad from 1981-1984, and also as a member of the Democratic
National Committee in Washington from 1981-1988. In the early 1980s, while living in Geneva, he flew
regularly to Washington where he served part-time on the staff of the then Chief Deputy Majority Whip in the
U.S. House of Representatives.

You can contact him with your comments and suggestions at: andy@sundberg.com.




                                                       50

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:5/12/2013
language:Unknown
pages:50
yaofenjin yaofenjin http://
About