Dear Bubbas,

As you prepare your letters and other missives to the Wall Street Journal, the White House, the Congress, etc, you might find the following chronological history of the evolution of U.S. taxation of overseas Americans of some use.

I have been assembling and playing with this for almost thirty years. Sadly there is not a whole lot to be happy about here.

We had a golden window of thirty-six years (1926-1962) during which U.S. citizens who were bona fide residents of a foreign country did not have to pay U.S. taxes on their foreign source income. We’ve subsequently been thrown into a dismal swamp for forty-five years to struggle on an unlevel playing field in international markets.

During the golden window period we were trade positive. Thanks to the subsequent swamp, we have now achieved the world’s largest and most chronic trade deficit.

Senator Grassley says our unique tax burden has nothing to do with this. The source of his wisdom is unclear but his conclusion is quite an interesting attitude for one of the most powerful Republican leaders of the Congress. With the Democrats playing Pay-Go, and our position high up on their sucker list too, this is not a very promising harbinger for positive change anytime soon.

Good luck with your pens and emails.  All the very best and take care,



1913 – 2006
1913 The 36th State ratifies the Sixteenth Amendment to the Constitution thus rendering constitutional the establishment of an income tax.  In October, 1913, the first income tax law is enacted requiring taxes to be paid on all "lawful" income.  Less than 1% of the population is required to pay income taxes. Revenue Act of 1913.

1916 Congress amends the law to remove the ambiguous question of what taxing "lawful" income means, and substitutes instead "from whatever source derived". In the new law, all income is taxable even if it is earned by illegal means. This new language also becomes the basis on which the taxation of overseas source income is included.  (Revenue Act of 1916).

1918 Efforts are made to exempt foreign source income from the U.S. taxation because of alleged competitive disadvantages suffered by American corporations operating branches abroad. (Hearings Before the House Committee on Ways and Means on the Revenue Act of 1918, 65th Congress, 2nd Session 648 (1918)).

A new revenue act is passed increasing taxes on incomes in excess of $1 million per year to a rate of 77%.  The new act also introduces estate taxes and excess profits taxes.  Still only 5% of the population has to pay income taxes.  Americans working abroad are allowed to reduce their federal income tax liability with a tax credit equal to the amount of any foreign income taxes paid.  Until 1918, all foreign taxes were treated as deductible expenses in the same manner as state and local taxes. (Revenue Act of 1918).

1921 Congress enacts a new tax law which is held to also apply to overseas Americans. Treasury Regulation No. 62 is issued applying the tax to overseas Americans under Article 3 of the Act, codified in Treasury Regulations, Section 1.1-l(b), T.D. 7332, 1975-1 C.B. 205,207. (Revenue Act of 1921).

A determined effort is made to exempt foreign income from U.S. tax in the case of U.S. Corporations that derive 80% of their income from foreign sources. The Treasury, Commerce and State Departments favor the exemption, but it runs into strong opposition in the Congress. This provision finally passes in the House, but is defeated in the Senate. (61 Congressional Record 7023, 7026 (1921)). The legislation is finally amended to provide for an exemption for corporate income earned in a U.S. possession but not remitted to the United States. (Revenue Act of 1921, Chapter 262, 42 Stat. 271 (1921)).

1924 In “Cook v Tait”, the Supreme Court upholds the Constitutionality of the taxation of Americans on their foreign earned income.  The Court states:

"The principle was declared that the government, by its very nature, benefits the citizen and his property wherever found and, therefore, has the power to make the benefit complete.  Or to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, if being in or out of the United States, and was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen.  The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal - the government having power to impose the tax."  (Cook v. Tait, 265 U.S. 47(1924)).

1926 After expressions of great concern in the Congress about the competitive handicap caused to U.S. citizens and U.S. corporations abroad, legislation is enacted giving full exclusion of overseas income from U.S. taxation if an American citizen is absent from the United States more than six months in any calendar year.  (Revenue Act of 1926, Chapter 27, Section 213(b)(14), 44 Stat. 9 (1926).

1932 Taxes are cut five times in the 1920's, but the onset of the depression creates a need for new revenues.  In 1932, only $1.5 billion is collected compared to $5.5 billion in 1920. A new tax law is enacted raising tax rates and lowering exemption levels.

The foreign earned income exclusion is taken away from the gross income definition section and becomes codified in I.R.C. Section 116, Exclusion from Gross Income.  The law expands the applicability of the foreign earned income exclusion by permitting profit derived from a trade or business into which both personal services and capital have been injected to be considered 20% income and eligible for exclusion.  (Revenue Act of 1932, Chapter 209, Section 116(a), 47 Stat. 169, 204-05).

1934 Congress narrows the applicability of the foreign earned income exclusion by denying use of the exclusion for income paid by the United States or any federal agency. State Department employees overseas and other Federal employees on assignment abroad lose their tax exemptions.  (Revenue Act of 1934, Chapter 277, Section 116(a), 48 Stat. 680, 712).  (See also Senate Rep. No. 665, 72nd Congress, 1st Sess. 31 (1932)).

1936 Congress enacts a new tax law but retains the codified language of the 1934 Act.  (Revenue Act of 1934, Ch. 277, Section 116(a), 49 Stat. 1648, 1689 (1936)).

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. U.S. tax laws are first codified as an integral part of the U.S. Code – the Internal Revenue Code of 1939 (IRC 1939).

1941 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. (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)).

1945 Internal revenue collections rise to $45 billion from 43 million taxpayers.

1951 A new tax law is written and Congress reintroduces a "physical presence" rule on the basis of absence from the United States for 17 out of 18 months, and maintains the "bona fide" foreign residence alternative. (Senate Report No. 781, 82nd Congress, 1st Session 52-53 (1951).)  (Revenue Act of 1951, chapter 521, Section 321, 65 Stat 452, 498 (1951)).

1953 Congress attempts to do away with the "physical presence" exclusion again, but settles for a $20,000 exclusion for 17 out of 18 month "physical presence" overseas Americans. Total exclusion for the bona fide foreign resident is unchanged.  (Technical Changes Act of 1953, PL 83-287, Chapter 204, 67 Stat. 615 (1953)).

1954 Congress revises and organizes all tax laws into a single new Internal Revenue Code (IRC 1954). Tax laws enacted in the future will be amendments to the code.  (Tax Act of 1954).

1962 Congress eliminates 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 creditm however, is given for taxes paid abroad even 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 1 October 1962).

1963 The OECD Model Tax Convention, is first published in 1963 and will be regularly updated, It is the basic reference manual used by both OECD and non-OECD countries for the negotiation, application and interpretation of bilateral tax treaties co-ordinating their direct tax systems.

1964 Congress reduces the exclusion for physical presence and bona fide residents to $20,000, rising to $25,000 after three years abroad.

1969 Congress enacts a new tax law lowering income tax rates for both individuals and private foundations.  (Tax Reform Act of 1969).

1974 The House Ways and Means Committee proposes to abolish the foreign earned income exclusion and fully tax overseas income.  (H.R. 17488, 93rd Congress, 2nd Session, Section 311(1974)).

1975 The House continues consideration of abolishing the foreign earned income exclusion. (H.R. 10612, 94th Congress, 1st Session, Section 1011(1975)).

1976 The Senate does not go along with the abolition of the foreign earned income exclusion, but accepts that the exclusion should be modified to "prevent abuse". (Senate Report No. 938, 94th Congress, 2nd Session 210 (1976)).

The Treasury Department produces a study of tax returns in 1968 and estimates that the revenue gain from enacting 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.

The Congressional Conference Committee Report on the Tax Reform Act of 1976 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)).

Congress decides to amend the tax law so that the overseas earned income exclusion will be reduced to $15,000 (off the bottom).  Another important change is that henceforth no tax credit will 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 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)).

The Tax Court holds in “McDonald v. Commissioner” that the market value of a Japanese apartment provided by an employer to a taxpayer was not excludable from the employee's income by reason of section 119 of the Tax Code. The court determined that the leasehold arrangement was primarily for the convenience of the employee, that occasional business use of the apartment did not make the lodging eligible as "business premises of the employer", and that acceptance of the lodging was not a "condition of employment" because it was not integrally related to the various facets of the employee's position.  In addition, the court ruled that the value of the accommodations to the employee was 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)).

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 As he is leaving office, Treasury Secretary William Simon proposes a change to residence-based rules for taxing international flows of income including the taxation of Americans living abroad. ("Blueprint for Basic Tax Reform", Department of the Treasury, Washington, D.C., January 17, 1977, Chapter on International Considerations).

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)). Senator William Proxmire (D-Wis) gives his “Golden Fleece” award to the Treasury Department for having recommended this action.

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.

Because of the critical assumption of in-elasticity 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)).

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)).

The House of Representatives 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 lived in countries other than Canada or Western Europe.  (H.R. 13488, 95th Congress, 2nd Session (1978)).

The Senate approves a proposal, sponsored by Senator Abraham Ribicoff, which replaces 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)).

The Carter Administration introduces 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)).

Congress finally votes for a total elimination of the overseas earned income exclusion to be replaced by the 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.  (Foreign Earned Income Act of 1978, PL 95-615, Sections 201-210; 92 Stat. 3097 (1978)).

The Joint Tax Committee Staff estimates 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 had 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, lst Session, General Explanation of the Foreign Earned Income Act of 1978 (Comm. Print 1979)).

The Court of Claims holds in “Adams v. United States” that the luxurious residence provided to the president of a Japanese subsidiary of an American oil company was excludable under section 119 of the Tax Code. The court stressed that for over 10 years the taxpayer had 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)).

The Tax Court also reaffirms the “McDonald” decision in “Bornstein v. Commissioner”, 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)).

1979 The President’s Export Council, headed by Reginald Jones, Chairman of General Electric, sends a letter on December 10th to President Jimmy Carter urging the abolition of the taxation of Americans living overseas. A special report on the negative consequences of this taxation, prepared by the Export Council, states:

“Americans at work overseas direct business to our domestic economy. If we are to increase exports in order to bring our trade accounts into balance, we must encourage more U.S. citizens to accept assignments with American business overseas. Concurrently, we must continue to be sensitive to the geo-political ramifications of having more Americans working abroad. Overseas employees of American business are seen as representatives of our country. Through their participation and visibility in international business affairs, they can function as goodwill ambassadors whose work exemplifies America's ideals and values.

“To achieve these benefits will require, among other things, that current tax laws bearing on foreign-earned income be changed. At present, our nation's tax policies discourage the employment of Americans overseas. Many American companies dong business overseas, especially in manpower-intensive industries, are sending American employees home in order to keep some vestige of market share. 

“The principle underlying the taxation of Americans working in other countries should be to encourage, rather than discourage, employment with U.S. business overseas. The implementation of this principle through changes to the Internal Revenue Code will increase the number of U.S. citizens who are willing to work overseas, resulting in an increase in American exports.”

Export Council recommends: “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 countries.”

1981 Congress reintroduces a $75,000 foreign earned income exclusion for "physical presence" and "bona fide" residents abroad (to rise by $5,000 per year until it reaches $95,000 in 1986). There are additional deductions or exclusions for excess cost of foreign housing.  No tax credit will be 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)).

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+).

1983 In 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 repeated claims of the taxpayer which previously had been litigated and dismissed on the merits by the Court of Claims. The taxpayer had 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 present case, the Court noted that, while it had 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 went 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 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))

The Internal Revenue Service, 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 worse tax position than they have ever been in before.

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.

1985 Congressman Bill Alexander (D-Ark), Chief Deputy Majority Whip, introduces the "Overseas American Economic Competition Enhancement Act of 1985" (HR 2470), to eliminate the taxation of overseas Americans. He also introduces the "Overseas United States Citizen's Representation in Congress Act of 1985" (HR 2738) to create a seat in Congress for a Delegate to be elected by the overseas American community.

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.

1987 Congressman Bill Alexander (D-Ark), Chief Deputy Majority Whip, introduces the "Overseas American Economic Competition Enhancement Act of 1987" (HR 2536), to eliminate the taxation of overseas Americans.  He also introduces the "Overseas United States Citizen's Representation in Congress Act of 1987" (HR 2534) to create a seat in Congress for a Delegate to be elected by the overseas American community.

1988 Congress passes the “Technical and Miscellaneous Revenue Act of 1988” which 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 Congressman Bill Alexander (D-Ark), Chief Deputy Majority Whip, introduces the "Overseas American Economic Competition Enhancement Act of 1989" (HR 1379), to eliminate the taxation of overseas Americans.  He also introduces the "Overseas United States Citizen's Representation in Congress Act of 1989" (HR 1378) to create a seat in Congress for a Delegate to be elected by the overseas American community.

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.

“Revenue Ruling 90-79” declares that a loss on a foreign currency mortgage cannot be used to offset a taxable gain on the sale of a house in a foreign country.  This 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 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. 

1991 Congressman Bill Alexander (D-Ark), Chief Deputy Majority Whip, introduces HR 2430 to “Amend the Internal Revenue Code of 1986” to eliminate citizenship based taxation of Americans living abroad.  He also introduces HR 2428 to “Create the office of Delegate for United States Citizens Abroad.”

1992 Congressman Bill Alexander (D-Ark), Chief Deputy Majority Whip, and Congressman Ben Gilman (R-NY) co-sponsor HR 4562 to “Amend the Internal Revenue Code of 1986 to eliminate citizenship based taxation of Americans living abroad.”  They also co-sponsor (HR 4560) to “Create the office of Delegate for United States Citizens Abroad.” Congressman Gilman later in the 1990s becomes Chairman of the House Committee on International Relations.

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. The burden on overseas taxpayers remains enormous and this provision is rarely if ever obeyed.

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.

2001 Congress passes the “Economic Growth and Tax Relief Reconciliation Act of 2001” which 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.

2004 Legislation is introduced in the Senate to greatly increase the taxation of many overseas Americans by eliminating the Section 911 housing deductions and exclusions. This proposal receives strong support from Senator John Kerry (D-MA) and Senator John McCain (R-AZ) and passes by unanimous consent with no opposition in the Senate. It is defeated in the House of Representatives. 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.

2006 The Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, 120 Stat. 345 (TIPRA), 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 bill of thousands of U.S. expatriates and make it costlier for companies to place workers abroad. The law, which is retroactive to Jan. 1, 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.

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