1938 Congress enacts another new tax law but retains the codified language of the 1934 act. (Revenue Act of 1938, Chapter 289, Section 116(a), 52 Stat. 447, 498 (1938)).
1939 Total number of U.S. taxpayers is around 4 million.
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1 The 1941 Revenue Act lowers exemptions and increases taxes on excess profits being made on the war effort. Internal revenue collection increases to $ 7.4 billion. (The Revenue Act of 1941).
1942 The eligibility for exclusion of overseas income is tightened from the 6 months away from home rule to a "bona fide" residence rule for an entire tax year. (Revenue Act of 1942, Chapter 619, Section 148, 56 Stat. 798, 841-2 (1942)).
1962 Congress eliminates of the total exclusion for a "bona fide" foreign resident. 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 "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 l October, 1962).
The Treasury Department makes a study of tax returns of 1968 and estimates that the revenue gain from enactment of 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.
The Tax Court rules in a second Japanese housing case, "Stephens v. Commissioner", that the housing supplied by an employer to an employee was 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 were not available at American prices". (66 T.C. 226, (1976)).
1977 Following voluminous complaints from overseas Americans and their employers about the impact of the 1976 Tax Reform Act, Congress 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)).
Treasury Secretary William Simon calls for consideration of using the residence principle for taxing international flows of income. ("Blueprint for Basic Tax Reform", Department of the Treasury, Washington, D.C., January 17, 1977, Chapter on International Considerations).
The Treasury Department carries out a comprehensive study of the 1975 tax returns filed by overseas Americans and finds that the tax impact of the Tax Reform Act changes were 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 8 (1978)).
1978 The General Accounting Office completes a two-part study of the impact of the Tax Reform Act changes. The first part is a non-scientific sampling of 367 firms employing Americans abroad. Eighty-five percent of the company officials surveyed believed that United States exports would decline by more than five percent as a result of the 1976 tax law and Tax Court decisions. The companies most severely affected were those operating in countries where living costs were high or where minimal taxes were imposed on foreigners. In the Middle East and Africa, Japan and Latin America tax increases were on average $ 4,700 per return.
The second part of the GAO study consisted of an econometric projection of the macro-economic effects of the Tax Reform Act changes and the 1976 Tax Court rulings. The GAO model assumed that there was a high in-elasticity of foreign demand for United States exports, and therefore the net effect of the 1976 changes would actually be an improvement in the U.S. balance of payments.
New IRS rules for taxation of Social Security Retirement benefits 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.
1986 Congress passes the "Tax Reform Bill of 1986" which 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 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 laws limit foreign tax credits for alternative minimum tax purposes to 90% of the alternative minimum tax before credits. This results in clear double taxation by legislative intent.
1988 Congress passes the "Technical and Miscellaneous Revenue Act of 1988" The Act eliminates the marital deduction for property passing from a U.S. citizen to a non U.U. citizen. An annual gift tax exclusion of $ 100,000 is introduced for gifts to non U.S. citizen spouses.
1989 Congress passes the "Revenue Reconciliation Act of 1989" which creates a separate foreign tax credit category for lump sum distributions from foreign pension plans. The law also confirms the denial of marital deductions for property passing from U.S. citizen to non citizen spouse overrides existing treaty provisions for taxable years ending more than three years after enactment.
1990 Congress passes the "Revenue Reconciliation Act of 1990" which raises the maximum marginal tax rates and introduces "phase outs" of itemized deductions for higher income taxpayers.
1992 Congress passes the "Revenue Bill of 1992" which recognizes that Sec 988 of the 1986 Act which established the U.S. dollar as the "functional currency" for individuals had created an impossible administrative burden. Under the 1986 Act, an individual must measure gain or loss on each foreign currency transaction.
The 1992 law provides for non-recognition of exchange gains in personal transactions for gains not exceeding $ 200.
Revenue Ruling 90-79 provides that a loss on a foreign currency mortgage cannot be used to offset taxable gain on the sale of a house in a foreign country. This was 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 but cannot deduct the phantom loss. In reality you actually lost money, but you have to pay tax on a capital gain that never took place! Somehow this meets the cannons of tax fairness.
1993 Congress passes "The Revenue Reconciliation Bill of 1993" which 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 an $ 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.
1996 Congress passes the "Small Business Job Protection Act of 1996" which significantly changes the taxation of foreign trusts with U.S. grantors and/or beneficiaries. Congress also passes the "Health Insurance Portability and Accountability Act of 1996" which states that individuals who have assets of $ 500,000 or more or income of more than $ 100,000 and who lose 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 have comparable treatment.
1997 Congress passes the "Taxpayer Relief Act of 1997" which reduces taxes on long-term capital gains and estates. It also 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 (from 1998 to 2002) to a new maximum of $ 80,000 and indexes for cost of living increases after 2002.
Linear Mode
