The United States, unlike many sovereignties, has exercised worldwide income tax jurisdiction over its individual citizens since the inception of the income tax. Since 1926, however, United States citizens working abroad have received special treatment in the taxation of their foreign earned income. By the use of a tax credit, direct double taxation has been avoided. In addition, various exclusions and deductions have been permitted. Such tax preferences have been justified on the grounds that they promote tax equity and that they serve as incentives to encourage Americans to work overseas.
This Article considers whether the special treatment of United States expatriate citizens is justified on either equity or incentive grounds. It begins by reviewing the concept of tax equity as it relates to the United States tax system and its taxation of American citizens living abroad. It then considers the use of tax incentives to encourage American citizens to work in foreign countries. The Article then traces the history of the foreign earned income provisions, concluding that Congress, over the years, has come to justify this tax preference primarily on incentive grounds. Finally, it analyzes whether, in fact, the provisions have served the congressional goal of acting as an incentive to encourage exports and to further American public interests.
Renee J. Sobel,
United States Taxation of Its Citizens Abroad: Incentive or Equity,
38 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol38/iss1/2