Nearly a year ago, in the waning days of the 118th Congress, Representative Darin LaHood (R-IL) introduced a groundbreaking piece of legislation that sent ripples through the expatriate community and the international tax world: the Residence-Based Taxation for Americans Abroad Act (H.R. 10468). As I detailed in my earlier Forbes article, this bill represented a bold step toward aligning the U.S. tax system with the rest of the world, shifting from America’s citizenship-based taxation model to a more equitable residency-based approach for the estimated 5 million Americans living and working abroad.
At the time, the LaHood proposal faced an uphill battle. There were fiscal concerns, as well as enforcement challenges, and the stress of the scramble at the end of Congressional session. Today, while the bill remains in legislative limbo, powerful new voices have emerged in its favor. Two former top IRS officials, Charles P. Rettig and Tom Cullinan, argue that modernizing the U.S. tax code is very important, not only as a matter of fundamental fairness to the millions of Americans abroad, but to place Americans in a position of being invaluable global ambassadors for their country.
In a recent op-ed for Tax Fairness for Americans Abroad, Mr. Rettig, who served as IRS Commissioner from 2018 to 2022, and Mr. Cullinan, former Counselor to the Commissioner, laid bare the human and economic toll of the current U.S. tax system. Their endorsement isn’t mere rhetoric. This is a wake-up call to Congress from top-placed insiders who know the IRS’ inner workings intimately. As we approach the midpoint of the 119th Congress, their intervention could be the catalyst needed to propel LaHood’s bill from the sidelines to serious consideration. Residency-based taxation is more urgent than ever at this time of economic recovery, global mobility, and persistent expatriate advocacy.
The Persistent Burden of Citizenship-Based Taxation
LaHood’s bill would allow eligible Americans abroad to elect treatment as nonresident aliens for U.S. tax purposes, subjecting them only to taxation on U.S.-source income. This election isn’t a free pass. It demands a sworn certification of compliance with U.S. tax obligations for the prior five years, plus proof of foreign residency submitted to the IRS. Once approved, the IRS issues a “certificate of nonresidency,” exempting the individual from a slew of U.S. tax reporting requirements, including those imposed under the Foreign Account Tax Compliance Act.
Foreign financial institutions are often reluctant to deal with American clients due to FATCA’s stringent reporting mandates. These institutions would no longer need to report on the individuals who present them with the IRS-issued certificate of nonresidency. This might alleviate banking problems experienced by many Americans abroad who find they are not welcome at foreign financial institutions and are denied mortgages, life insurance, or even basic savings accounts.
Under LaHood’s framework, certificate holders would be FATCA-free, allowing them to reintegrate into local financial systems seamlessly. The bill carves out protections for Americans born abroad who automatically qualify unless they establish U.S. residency. Green card holders cannot make this election, which makes sense. They are excluded likely to avoid immigration entanglements since green card holders must meet U.S. residency requirements to maintain their status.
Of course, no reform comes without safeguards. High-net-worth individuals (those with assets exceeding the estate tax exclusion, $13.99 million in 2025) face a “departure tax” upon election, taxed as if selling their worldwide assets at fair market value. Grandfather clauses exempt certain individuals from this departure tax (for example, individuals who have spent significant time abroad since age 25 or post-FATCA enactment in 2010, or individuals meeting criteria based on their foreign residence and having full compliance with U.S. taxes for the last three years). Application fees, retained IRS audit powers, and of course, the departure tax, aim to neutralize revenue losses.
When I wrote about the LaHood proposal last December, the bill’s prospects seemed dim. The 118th Congress adjourned without action, and similar efforts at an earlier time had simply fizzled out. However, as 2025 unfolded, we have seen glimmers of hope from the lobbying of advocacy groups and significant media coverage.
Residency-Based Tax: A Timely Endorsement From IRS Insiders
Messrs. Rettig and Cullinan’s intervention carries clout. In their TFFAA piece, they draw on decades of IRS experience to humanize the debate. Together, they pose a piercing question: “The U.S. is one of the only countries in the world, along with Eritrea, that taxes its citizens based on nationality rather than residence. When it comes to fair tax treatment of citizens, does substantially every other country in the world have it right, or do we?”
Their critique echoes my original analysis but amplifies the expatriate plight with the gravitas of seasoned insiders. These 5 million Americans—entrepreneurs, educators, and everyday workers—aren’t tax dodgers; they’re global ambassadors embodying U.S. values. Yet, they endure “disproportionate penalties” for minor or unintentional mistakes, communication barriers with a stateside IRS, and compliance costs that carry a high personal cost in terms of anxiety, time and money, year after year.
LaHood’s vision, supercharged by these powerful and knowledgeable IRS alumni, offers that fairness. It’s time for American tax laws to modernize treatment of U.S. citizens overseas, not just for equity, but for keeping America’s place in a borderless economy.
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