The Legislative Push to End Citizenship-Based Taxation
In 2026, legislative momentum is building around Rep. Darin LaHood’s Residence-Based Taxation for Americans Abroad Act, which would fundamentally alter how the United States taxes its overseas citizens. Currently, America stands alongside only Eritrea in taxing citizens based on passport rather than residence, requiring all Americans abroad to file annual returns regardless of where they live or earn income.
The proposed legislation would allow qualifying expats to elect nonresident status for tax purposes, limiting their US filing obligations to American-sourced income such as rental properties or dividends from US companies. This represents a seismic shift from the current system where Americans in Europe must navigate complex double taxation treaties and foreign tax credits to avoid paying twice on the same income.
Eligibility Requirements and Compliance Thresholds
The bill includes strict safeguards to prevent tax evasion. Individuals must demonstrate full tax compliance for a specified period before electing nonresident status. While the original discussion draft cited a three-year compliance look-back, many tax specialists recommend maintaining five years of clean filings to align with broader US expatriation rules under Section 877A.
This compliance requirement creates an immediate planning opportunity for Americans in Portugal, Spain, and other European jurisdictions who have fallen behind on their FBAR or Form 8938 obligations. The Streamlined Filing Compliance Procedures remain available for those needing to catch up, but the window for penalty-free correction may narrow as this legislation advances.
The Departure Tax Provision for High-Net-Worth Expats
The bill introduces a one-time departure tax for wealthy individuals opting out of citizenship-based taxation, mirroring elements of the Section 877A exit tax that applies to expatriating Americans. However, the legislation includes key exemptions that distinguish it from full renunciation.
Long-term residents who have lived abroad for at least three of the last five years would likely escape the departure tax, as would individuals born abroad who never established significant US residence. This creates a clear advantage for Americans who moved to Europe years ago versus those contemplating a future move to jurisdictions like Italy’s flat tax regime.
For high-net-worth Americans already established in Europe, this represents a middle path between maintaining full US tax compliance and the more drastic step of renunciation with its accompanying Section 877A consequences.
Investment Structure Implications
The residence-based model would fundamentally change offshore investment planning for American expats. Under current law, Americans in Europe face significant restrictions on European investment products due to PFIC rules and US broker limitations. Many turn to US annuities for guaranteed income or offshore fixed interest bonds to move assets beyond direct US reach while maintaining tax efficiency.
If the legislation passes, qualifying expats could potentially access European investment vehicles without the current PFIC complications, though the bill’s final text will determine whether existing anti-avoidance rules remain in place for nonresident Americans.
Timeline and Political Reality
According to 2026 legislative tracking, the Joint Committee on Taxation is currently scoring the proposal to determine its federal budget impact. Legislative insiders expect an updated version to be reintroduced by summer 2026, with proponents aiming to attach the measure to a larger tax package later this year.
The bill has gained bipartisan support and backing from advocacy groups across the political spectrum, suggesting genuine momentum. However, the revenue implications of removing millions of Americans from the tax base will require careful political navigation, particularly given ongoing federal deficit concerns.
How We Can Help
International Wealth Ventures provides dual-licensed advisory for Americans in Europe, helping you navigate current compliance requirements while positioning for potential legislative changes. We manage 401(k), IRA, and brokerage accounts from Europe and explore annuity and offshore options for guaranteed income. Contact our US expat team to review your tax planning strategy ahead of potential residence-based taxation changes.
