[Congressional Record Volume 141, Number 94 (Friday, June 9, 1995)]
[Extensions of Remarks]
[Page E1222]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                   ON THE EXPATRIATION TAX ACT OF 1995

                                 ______


                            HON. BILL ARCHER

                                of texas

                    in the house of representatives

                          Friday, June 9, 1995
  Mr. ARCHER. Mr. Speaker, in March when the Congress was working to 
restore a health insurance deduction for millions of self-employed 
persons prior to the time when tax returns were due, that urgent 
legislation, H.R. 831, was threatened with unnecessary delay by the 
desire of some to include without adequate deliberation a proposal by 
President Clinton to impose a tax on individuals who give up their U.S. 
citizenship or residence. As we learned during hearings in the 
Committee on Ways and Means and the Senate Finance Committee, the 
President's proposal raised a number of serious concerns including the 
scope of the proposal, human rights and constitutional issues, issues 
of administrability, the potential for double taxation, the application 
of the proposal to interests in trust, the impact of the proposal on 
the free flow of capital into the United States, and the impact on 
future U.S. tax treaty negotiations. In light of these concerns, and in 
light of the administration's failure to provide the Congress requested 
information justifying the legislation, the Conference Committee 
determined that the nonpartisan Joint Committee on Taxation should 
provide the Congress a complete report on the issues presented by 
proposals to modify the tax treatment of expatriation prior to our 
taking any action in this area.
  Despite the incredible time constraints placed on the Joint Committee 
on Taxation, it was able to prepare what I believe is one of the most 
comprehensive studies of a tax issue the Congress has received in many 
years. The joint committee's study, delivered on June 1, revealed that 
the administration had greatly exaggerated the amount of tax-motivated 
expatriation, that the administration's estimate of the revenues that 
could be raised by its proposed was significantly overstated, that the 
administration's proposal to combat such expatriation was seriously 
flawed, and that the administration's proposal could encourage tax-
motivated expatriation. The joint committee also found that other 
proposals based on the administration's proposal had similar flaws and 
would raise even less revenue. One such proposal, made by the House 
Minority leader, would lose revenue because its October 1, 1996 
effective date would have provided an 18 month period during which 
wealthy individuals would be encouraged to give up their citizenship to 
avoid taxes.
  In order to address the small and fairly level amount of tax-
motivated expatriation that does exist, and to address certain other 
problems revealed by its study, the Joint Committee on Taxation made 
several recommendations for improvements to existing law. Today, I am 
introducing the Expatriation Tax Act of 1995 which is based on the 
recommendations made by the joint committee.
                       Explanation of Legislation


                         1. Individuals covered

       For purposes of the present-law expatriation tax provisions 
     (secs. 877, 2501(a)(3) and 2107), and U.S. citizen who 
     relinquishes his or her citizenship would be deemed to have 
     expatriated with a principal purpose of avoiding taxes if: 
     (a) the individual's average annual U.S. Federal income tax 
     liability for the 5 years preceding the year of expatriation 
     was greater than $100,000, or (2) the individual's net assets 
     (valued at their fair market value) were $500,000 or more on 
     the date of expatriation. These dollar amounts would be 
     indexed for inflation beginning after 1996.
       However, an individual would not be subject to the 
     expatriation tax provisions if such individual did not have a 
     principal purpose of tax avoidance and is within one of the 
     following categories: (a) the individual was born with dual 
     citizenship and retains only the non-U.S. citizenship; (b) 
     the individual becomes a citizen of the country in which the 
     individual, the individual's spouse, or one of the 
     individual's parents, was born; (c) the individual was 
     present in the United States for no more than 30 days during 
     any year in the 10-year period immediately preceding the date 
     of expatriation; (d) the individual relinquishes his or her 
     citizenship before reaching the age of 18\1/2\; or (e) any 
     other category of individuals prescribed by Treasury 
     regulations. To qualify for this exception, the individual 
     must request a ruling from the Internal Revenue Service 
     within one year from the date of expatriation. With respect 
     to individuals who committed an expatriating act between 
     February 6, 1994 and February 6, 1995 but had not applied for 
     a certificate of loss of nationality (``CLN'') as of February 
     6, 1995, the individual must request such a ruling within one 
     year of the date of enactment.


                    2. Items subject to section 877

       The scope of the items subject to section 877 would be 
     expanded to include property obtained in certain transactions 
     that occur within 10 years of expatriation and on which gain 
     or loss is not recognized. If an expatriate exchanges any 
     property that would produce U.S. source income for property 
     that would produce foreign source income, then such exchange 
     shall be treated as a sale for the fair market value of the 
     property. However, this rule would not apply if the 
     individual enters into an agreement with the Secretary of the 
     Treasury specifying that any income or gain derived from the 
     property acquired in the exchange during the 10-year period 
     after the expatriation shall be treated as U.S. source 
     income. The Secretary of Treasury may provide through 
     regulations for similar treatment for transfers that occur 
     within 5 years immediately prior to the date of expatriation.
       In addition, section 877 would be expanded to include 
     certain income and gains derived from a foreign corporation 
     that is more than 50 percent owned, directly or indirectly, 
     by the expatriate on the date of expatriation or within 2 
     years prior to the expatriation date. Such inclusion would be 
     limited to the amount of earnings and profits accrued prior 
     to the date of expatriation while such ownership requirement 
     is satisfied.


            3. Special rule for shift in risks of ownership

       For purposes of determining the tax under section 877, the 
     10-year period is suspended with respect to an asset during 
     any period in which the individual's risk of loss with 
     respect to such asset is substantially diminished.


                          4. Double tax relief

       In order to avoid double taxation, a credit against the 
     U.S. tax imposed under the expatriation tax provisions would 
     be provided for any foreign income, gift, estate or similar 
     taxes paid with respect to the items subject to such 
     taxation. This credit is available only against the tax 
     imposed solely as a result of the expatriation tax 
     provisions, and cannot be used to offset any other U.S. tax 
     liability.


                    5. Required information sharing

       The State Department would be required to collect relevant 
     information from the expatriates, including the social 
     security numbers, forwarding foreign addresses, new country 
     of residence and citizenship and, in the case of individuals 
     with a net worth of at least $500,000, a balance sheet, and 
     provide such information routinely to the IRS. An 
     expatriate's failure to provide such information would result 
     in the imposition of a penalty for each year the failure 
     continues equal to the great of (a) 5 percent of the 
     individual's expatriation tax liability for such year, or (b) 
     $1,000.


                           6. Treasury report

       The Treasury Department would be directed to undertake a 
     study of the compliance of U.S. citizens and green-card 
     holders residing outside the United States with tax return 
     responsibilities and shall make recommendations regarding the 
     improvement of such compliance. The findings of such study 
     and such recommendations should be reported to the House 
     Committee on Ways and Means and the Senate Committee on 
     Finance within 90 days of the date of enactment.


                           7. Effective date

       The provisions of the bill generally would apply to any 
     individual who loses U.S. citizenship on or after February 6, 
     1995. The date of loss of citizenship would remain the same 
     as under present law (i.e., it would be the date of the 
     expatriating act). However, a special transition rule would 
     apply to individual who had expatriated within one year prior 
     to February 6, 1995 but had not applied for a CLN as of such 
     date. Such individuals would be subject to the new 
     expatriation tax provisions as of the date of application for 
     the CLN, but would not be retroactively liable for U.S. 
     incomes taxes of their worldwide income.
     

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