[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 10468 Introduced in House (IH)]
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118th CONGRESS
2d Session
H. R. 10468
To amend the Internal Revenue Code of 1986 to establish an elective
residency-based income tax for nonresident citizens of the United
States, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
December 18, 2024
Mr. LaHood introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to establish an elective
residency-based income tax for nonresident citizens of the United
States, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Residence-Based Taxation for
Americans Abroad Act''.
SEC. 2. ESTABLISHMENT OF ELECTIVE RESIDENCY-BASED INCOME TAX FOR
NONRESIDENT CITIZENS OF THE UNITED STATES.
(a) In General.--Part II of subchapter N of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subpart:
``Subpart E--Residency-based Income Tax for Nonresident Citizens of the
United States
``Sec. 899. Election by nonresident citizens of the United States to be
subject to residency-based income tax
rules.
``Sec. 899A. Imposition of tax on deferred income of certain electing
individuals.
``Sec. 899B. Certificates of nonresidency.
``Sec. 899C. Regulations.
``SEC. 899. ELECTION BY NONRESIDENT CITIZENS OF THE UNITED STATES TO BE
SUBJECT TO RESIDENCY-BASED INCOME TAX RULES.
``(a) In General.--In the case of any electing individual:
``(1) Residency-based income tax.--The rules of subsection
(b) shall apply for the taxable year for which the election
under this section is made and all subsequent taxable years
until such election is terminated under subsection (d).
``(2) Application of tax on deferred income.--The rules of
section 899A shall apply as of the day before the election date
(as defined in section 899A). A termination of any election
under this section shall have no effect on the application of
section 899A.
``(b) Application of Residency-Based Income Tax.--In the case of
any electing individual, the rules of this subsection are as follows:
``(1) In general.--Section 7701(b)(1) shall be applied--
``(A) by treating any electing individual as an
alien individual,
``(B) by substituting `not' for `neither a citizen
of the United States nor' in subparagraph (B), and
``(C) by treating the United States as including
the possessions of the United States.
``(2) Modification of substantial presence test.--Section
7701(b)(3) shall applied without regard to subparagraphs (B)
and (C).
``(3) Requirement of tax residency.--Notwithstanding
section 7701(b), an electing individual shall not fail to be
treated as a resident of the United States unless such
individual is a tax resident of a foreign country.
``(4) Treatment as united states persons based on
residency.--Section 7701(a)(30)(A) shall be applied without
regard to the phrase `a citizen or'.
``(5) Coordination with fatca withholding.--For purposes of
section 1472, an electing individual with a certificate of
nonresidency issued under section 899B shall be treated as
having established status as an individual who is not a
specified United States person.
``(6) Exemption from certain reporting and records
requirements with respect to foreign assets and transactions.--
Sections 6038D and 6046, and section 5314 of title 31, United
States Code, shall not apply.
``(7) Coordination with rules on expatriation.--Section
7701(a)(50) shall not be treated as applying with respect to
the application of this subpart.
``(8) Waiver of treaty saving clause.--The United States
waives the application of each saving clause in any United
States income tax treaty with respect to electing individuals.
For purposes of the preceding sentence, the term `saving
clause' means any provision which would (but for this
paragraph) prevent the electing individual from benefitting
from a provision of the treaty eliminating double taxation.
``(c) Electing Individual.--For purposes of this subpart--
``(1) In general.--The term `electing individual' means any
citizen of the United States who has in effect an election
(made at such time and in such manner as the Secretary may
provide) to have the provisions this subpart apply.
``(2) Citizens born abroad.--In the case of any citizen of
the United States who is born outside the United States, such
individual shall be treated as a electing individual until such
time as such individual becomes a resident of the United States
under clause (ii) or (iii) of section 7701(b)(1)(A).
``(3) Exception for federal employees.--Notwithstanding any
other provision of this subpart, an individual shall not be
treated as an electing individual for any taxable year if such
individual is employed by the Federal Government at any time
during such taxable year.
``(d) Rules Related to Election.--
``(1) Manner of election.--An election under this section
shall be made at such time and in such manner as the Secretary
may provide and, once made, is irrevocable (but may be
terminated as provided in this section).
``(2) Requirements of election.--An election under this
section shall not be effective unless--
``(A) the tax imposed under section 899A (if any)
is paid (or deferred under section 899A(b)) at such
time as the Secretary may provide, and
``(B) the electing individual certifies under
penalty of perjury that the electing individual has met
the requirements of this title for the 5 preceding
taxable years and submits such evidence of such
compliance as the Secretary may require.
``(3) Termination of election.--An election under this
section--
``(A) shall be terminated as of the close of the
taxable year preceding any taxable year (with respect
to which the election would otherwise apply) for which
the electing individual is a resident of the United
States under clause (ii) or (iii) of section
7701(b)(1)(B), and
``(B) may be terminated by the electing individual
at such time and in such manner as the Secretary may
provide.
``(e) Special Rule for Short-Term Nonresidency.--If an election
under this section by an electing individual is terminated before the
beginning of the fourth taxable year to which such election would
otherwise apply, subsection (b) shall not apply to any taxable year to
which such election would have otherwise applied.
``SEC. 899A. IMPOSITION OF TAX ON DEFERRED INCOME OF CERTAIN ELECTING
INDIVIDUALS.
``(a) General Rules.--For purposes of this subtitle--
``(1) Deemed sale.--All property of a specified electing
individual shall be treated as sold on the day before the
election date for its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this
title, any gain arising from such sale shall be taken
into account for the taxable year of the sale, and
``(B) any loss arising from such sale shall be
taken into account for the taxable year of the sale to
the extent otherwise provided by this title, except
that section 1091 shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence.
``(b) Specified Electing Individual.--For purposes of this
section--
``(1) In general.--The term `specified electing individual'
means any electing individual if the net worth of the
individual as of the election date exceeds the basic exclusion
amount in effect under section 2010(c)(3) as of such date.
``(2) Net worth.--The term `net worth' means, with respect
to any electing individual, the excess (if any) of--
``(A) the fair market value of all assets of such
individual, over
``(B) the indebtedness of such individual.
``(c) Election Date.--For purposes of this section, the term
`election date' means the first day of the first taxable year to which
the election under section 899 applies.
``(d) Exceptions.--
``(1) In general.--Subsection (a) shall not apply to any
interest in the following property of the specified electing
individual:
``(A) Any deferred compensation item.
``(B) Any qualified retirement plan (as defined in
section 4974(c)).
``(C) Any specified tax deferred account.
``(D) Any interest in a nongrantor trust.
``(E) Any real property located in the United
States.
``(F) Any real property located outside the United
States if, during the 5-year period ending on the
election date, such property has been owned and used by
the specified electing individual as such individual's
principal residence for periods aggregating 2 years or
more.
``(2) Deferred compensation item.--For purposes of this
subsection, the term `deferred compensation item' means--
``(A) any interest in a plan or arrangement
described in section 219(g)(5),
``(B) any interest in a foreign pension plan or
similar retirement arrangement or program,
``(C) any item of deferred compensation, and
``(D) any property, or right to property, which the
individual is entitled to receive in connection with
the performance of services to the extent not
previously taken into account under section 83 or in
accordance with section 83.
``(3) Specified tax deferred account.--For purposes of this
subsection, the term `specified tax deferred account' means a
qualified tuition program (as defined in section 529), a
qualified ABLE program (as defined in section 529A), a
Coverdell education savings account (as defined in section
530), a health savings account (as defined in section 223), and
an Archer MSA (as defined in section 220).
``(4) Nongrantor trust.--For purposes of this subsection,
the term `nongrantor trust' means the portion of any trust that
the specified electing individual is not considered the owner
of under subpart E of part I of subchapter J. The determination
under the preceding sentence shall be made immediately before
the election date.
``(e) Election To Defer Tax.--
``(1) In general.--If the specified electing individual
elects the application of this subsection with respect to any
non-readily tradable property treated as sold by reason of
subsection (a), the time for payment of the additional tax
attributable to such property shall be extended until the due
date of the return for the taxable year in which such property
is disposed of (or, in the case of property disposed of in a
transaction in which gain is not recognized in whole or in
part, until such other date as the Secretary may prescribe).
``(2) Determination of tax with respect to property.--For
purposes of paragraph (1), the additional tax attributable to
any property is an amount which bears the same ratio to the
additional tax imposed by this chapter for the taxable year
solely by reason of subsection (a) as the gain taken into
account under subsection (a) with respect to such property
bears to the total gain taken into account under subsection (a)
with respect to all property to which subsection (a) applies.
``(3) Termination of extension.--The due date for payment
of tax may not be extended under this subsection later than the
due date for the return of tax imposed by this chapter for the
taxable year which includes the date of death of the specified
electing individual (or, if earlier, the time that the security
provided with respect to the property fails to meet the
requirements of paragraph (4), unless the electing individual
corrects such failure within the time specified by the
Secretary).
``(4) Non-readily tradable property.--For purposes of this
subsection, the term `non-readily tradable property' means any
property other than property which is readily tradable on an
established securities market.
``(5) Security.--
``(A) In general.--No election may be made under
paragraph (1) with respect to any property unless
adequate security is provided with respect to such
property.
``(B) Adequate security.--For purposes of
subparagraph (A), security with respect to any property
shall be treated as adequate security if--
``(i) it is a bond which is furnished to,
and accepted by, the Secretary, which is
conditioned on the payment of tax (and interest
thereon), and which meets the requirements of
section 6325, or
``(ii) it is another form of security for
such payment (including letters of credit) that
meets such requirements as the Secretary may
prescribe.
``(6) Waiver of certain rights.--No election may be made
under paragraph (1) unless the specified electing individual
makes an irrevocable waiver of any right under any treaty of
the United States which would preclude assessment or collection
of any tax imposed by reason of this section.
``(7) Elections.--An election under paragraph (1) shall
only apply to property described in the election and, once
made, is irrevocable.
``(8) Interest.--For purposes of section 6601, the last
date for the payment of tax shall be determined without regard
to the election under this subsection.
``(9) Special rule if election of residency-based income
tax terminates before property is disposed of.--In the case of
any property with respect to which an election under this
subsection has been made, if the election under section 899
with respect to the electing individual terminates before the
beginning of the taxable year in which such property is
disposed of, this section shall not apply to such property.
``(f) Special Rules.--
``(1) Termination of deferrals, etc.--In the case of any
specified electing individual, notwithstanding any other
provision of this title--
``(A) any time period for acquiring property which
would result in the reduction in the amount of gain
recognized with respect to property disposed of by the
electing individual shall terminate on the day before
the election date, and
``(B) any extension of time for payment of tax
shall cease to apply on the day before the election
date and the unpaid portion of such tax shall be due
and payable at the time and in the manner prescribed by
the Secretary.
``(2) Step-up in basis.--Solely for purposes of determining
any tax imposed by reason of subsection (a), property which was
held by an individual on the date the individual most recently
became a resident of the United States (within the meaning of
section 7701(b)) shall be treated as having a basis on such
date of not less than the fair market value of such property on
such date. The preceding sentence shall not apply if the
individual elects not to have such sentence apply. Such an
election, once made, shall be irrevocable.
``(3) Separate application to each election.--In the case
of any individual who makes more than 1 election under section
899, this section shall be applied separately with respect to
each such election.
``(g) Transitional Rule.--
``(1) In general.--This section, and subsection (a)(2) and
(d)(2) of section 899, shall not apply to--
``(A) any individual if--
``(i) as of the introduction date, such
individual meets the ordinary residence test
under paragraph (2),
``(ii) such individual has not been a
resident of the United States (as defined in
section 7701(b)(1)(A)(ii)) for at least 3 of
the last 5 taxable years ending before the
introduction date, and
``(iii) such individual certifies under
penalty of perjury that the electing individual
has met the requirements of this title for the
last 3 taxable years ending before the
introduction date and submits such evidence of
such compliance as the Secretary may require,
and
``(B) any individual who has not been a resident of
the United States (as defined in section
7701(b)(1)(A)(ii)) at any time during the period
beginning on the later of the date such individual
attains age 25 or March 18, 2010, and ending on the
date of the enactment of this section (and such
individual shall be treated as described in this
subparagraph without regard to whether or not such
individual has met the requirements of this title at
any time).
``(2) Ordinary residence test.--An individual meets the
ordinary residence test if such individual is a tax resident of
a foreign country and such foreign country is the place where
such individual regularly, normally, or customarily lives.
``(3) Introduction date.--For purposes of this subsection,
the term `introduction date' means the date of the introduction
of the bill which, upon enactment, enacted this section.
``SEC. 899B. CERTIFICATES OF NONRESIDENCY.
``(a) In General.--Upon application, the Secretary shall issue a
certificate of nonresidency--
``(1) to any electing individual if the Secretary
determines that an election by such individual under section
899 is in effect, and
``(2) to any citizen of the United States born in a foreign
country after the date of the enactment of this section.
``(b) Termination of Certificate.--A certificate of nonresidency
issued under this section shall terminate on the first date after such
issuance with respect to which the individual to whom such certificate
is issued--
``(1) is a resident of the United States (as defined in
section 7701(b)(1)(A)(ii)), or
``(2) in the case of an individual described in subsection
(a)(1), otherwise ceases to have an election in effect under
section 899.
``(c) Publication of Certificate Numbers.--The Secretary shall
maintain a searchable public database and shall--
``(1) promptly upon the issuance of any certificate of
nonresidency, update such database to include the certificate
number and date of issuance of such certificate, and
``(2) promptly upon the termination of any certificate of
nonresidency, update such database to indicate the termination
of such certificate and the date of such termination.
``(d) User Fees.--
``(1) In general.--The Secretary shall impose a user fee of
$100 per application under this section. Fees received under
this subsection shall be available to the Secretary (without
need of further appropriation) for the costs of processing
applications under this section.
``(2) Inflation adjustment.--In the case of any calendar
year beginning after 2025, the $100 amount in paragraph (1)
shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year determined
by substituting `2024' for `2016' in subparagraph
(A)(ii) thereof.
If any increase under the preceding sentence is not a multiple
of $5, such increase shall be rounded to next lowest multiple
of $5.
``(e) References.--Except where the context clearly indicates to
the contrary, any reference in any provision of law to a certificate of
nonresidency issued under this section shall include only such
certificates which have not been terminated.
``SEC. 899C. REGULATIONS.
``The Secretary shall prescribe such regulations or other guidance
as may be necessary or appropriate to carry out the purposes of this
subpart.''.
(b) Clerical Amendment.--The table of subparts for part II of
subchapter N of chapter 1 of such Code is amended by adding at the end
the following new item:
``subpart e--residency-based income tax for nonresident citizens of the
united states''.
(c) Effective Date.--The amendments made by this section shall
apply to elections made after the date of the enactment of this Act for
taxable years ending after such date.
SEC. 3. PARTICIPATING FOREIGN FINANCIAL INSTITUTIONS PROHIBITED FROM
DISCRIMINATING AGAINST NONRESIDENT UNITED STATES
CITIZENS.
(a) In General.--Section 1471(b)(1) of the Internal Revenue Code of
1986 is amended by striking ``and'' at the end of subparagraph (E), by
striking the period at the end of subparagraph (F) and inserting ``,
and'', and by inserting after subparagraph (F) the following new
subparagraph:
``(G) not to have policies or practices that
discriminate against opening or maintaining financial
accounts for individuals who are citizens of the United
States and residents of the country in which the
financial account is to be opened or maintained.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
take effect on the date of the enactment of this Act.
(2) Transition rule.--During the 1-year period beginning on
the date of the enactment of this Act, an agreement shall not
fail to be treated as described in section 1471(b)(1) of the
Internal Revenue Code of 1986 solely by reason failing to
include the requirement of subparagraph (G) thereof if the
institution entering into such agreement satisfies such
requirement at all times during such period without regard to
whether such requirement is included in such agreement.
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