Bill to End Overseas American Taxation Expires, But Could it Make a Comeback? Experts Doubtful

Congressman Darin LaHood (R-IL) introduced the Residence-Based Taxation for Americans Abroad Act on December 18, 2024. The legislation expired on January 3, 2025, however, when the 119th Congress convened, though LaHood may reintroduce it.

The bill had proposed a significant overhaul of U.S. international tax law. It would allow U.S. citizens living abroad to elect non-resident status without renouncing citizenship, requiring proof of tax compliance for the previous five years.

Citizens born outside the U.S. would automatically receive this status until establishing U.S. residency.

The legislation included significant treaty benefits and waived the standard “saving clause” that typically allows the U.S. to tax citizens regardless of tax treaties.

Electing individuals would receive exemptions from major reporting requirements, including Foreign Bank Account Reports (FBAR) and Foreign Account Tax Compliance Act (FATCA) filings.

Jimmy Sexton, CEO of Esquire Group, highlights how, currently, Americans abroad pay “little or no income tax” due to the foreign earned income exclusion and foreign tax credit, yet face “complex tax rules and oppressive compliance obligations.”

The exit tax provision sparked controversy due to its broader application than current expatriation rules. David Lesperance of Lesperance & Associates notes that all those who would select this option would have to pay an exit tax similar to the one paid by those who renounce their US citizenship or relinquish their long-term (8 out of 15 years) green cards.

He points out a critical distinction: while current exit tax rules only affect “covered expatriates” worth more than $2 million USD or those exceeding $206,000 in annual net income tax liability for 2025, this bill’s exemption only applies to those below the gift/estate tax threshold of $13.99 million.

Lesperance questions the bill’s appeal to wealthy Americans abroad: “For those Americans living abroad who have a net worth above this threshold, why would they undertake compliance with this new income tax relief including paying a departure tax only to be subject to the far more onerous US estate tax?”

The bill would exempt three categories of individuals from the exit tax: Those whose net worth falls below $13.99 million in 2025, foreign tax residents of three years who proved compliance, and those who haven’t resided in the U.S. since age 25 or after March 2010.

The election would require maintaining a foreign residence for three years to prevent retroactive reversal. KPMG analysts note this could affect U.S. citizens on long-term foreign assignments, as their benefits would disappear if they return before the three-year mark.

A genuine attempt, or just political posturing?

While LaHood maintains the right to reintroduce the bill, Sexton doesn’t think it will matter. He doesn’t “see the bill passing as a standalone bill. He says a bill like the current one “gets proposed every few years, but never passes.”

“Realistically, this bill was always destined to die a quick death in committee,” Lesperance explains, noting it would require “a massive rewrite of the US tax code and a complete renegotiation of all US double tax treaties.”

He suggests the timing gives the incoming administration the “ability to say they tried to fulfill one of incoming President Trump’s off-the-cuff campaign promises, but it was killed by others.”

The legislation must progress through committee review, markups, and floor votes in both chambers of Congress—a process that typically spans months or years.