U.S. double taxation traps an American in Japan in PFIC-reporting Purgatory

“U.S. Citizenship-Based Taxation has transformed my American nationality into a source of constant stress… The consequences of double taxation and U.S. financial reporting requirements shape my financial decisions, restrict my opportunities, and cloud my long-term future.”

— Andrew in Japan

Dear Members of Congress,

My name is Andrew, and I am an American citizen living in Japan. Living abroad has opened my eyes, but it has also revealed a harsh reality tied to my citizenship: U.S. Citizenship-Based Taxation has transformed my American nationality into a source of constant stress.

I was born in Illinois and grew up in Arizona. After graduating from college and working for several years in California, I was transferred by my company to its Tokyo office. What was initially intended as a temporary assignment gradually became permanent. I built a family here, obtained permanent residency, and came to accept that my life is now rooted outside the United States. I continue to vote in U.S. elections from California, and I remain deeply connected to the country of my birth.

But the consequences of double taxation and U.S. financial reporting requirements shape my financial decisions, restrict my opportunities, and cloud my long-term future.

Financial Catch-22

I work in the financial industry, where strict compliance rules dictate what and where I am allowed to invest. In Japan, this leaves me with access only to locally listed investment funds and exchange-traded funds. Under U.S. tax law, these products are classified as PFICs, even when they simply track U.S. markets and invest in American companies. A Japan-listed S&P 500 ETF, identical in substance to its U.S. counterpart, is treated as a PFIC and subjected to punitive taxation.

The PFIC regime is devastating. The tax rates, combined with the interest charges imposed on so-called excess distributions, can result in paying more to the IRS than the investment earns. Japanese tax-advantaged retirement accounts, which are essential tools for long-term financial security here, are effectively unusable for me because they are also treated as PFICs. As a result, I am forced into low-yield instruments solely to avoid disproportionate U.S. penalties. I am falling behind my retirement goals, not through neglect, but because responsible saving is penalized.

Compliance itself is another barrier. PFIC reporting is so complex that self-filing is unrealistic. Each year, I must rely on costly professional tax preparation, further eroding any potential gains. This is not a system that encourages compliance or financial responsibility. It is one that discourages participation altogether.

A lifetime of financial strain and risk

I have seriously considered renouncing my U.S. citizenship. That is not a decision taken lightly. I hesitate because I want to preserve my ability to visit my family in the United States freely and without fear. Yet I constantly weigh that emotional bond against a lifetime of financial strain and administrative risk. No citizen should be pushed toward renunciation simply to live a normal life abroad.

My experience is shared by more than five million Americans living outside the United States. We work, raise families, and contribute to the countries where we reside, while remaining connected to America. Yet we are subject to a tax system designed without regard for our circumstances, and we have no direct representation in Congress to advocate for us.

The United States stands nearly alone in taxing based on citizenship rather than residence. Only Eritrea, a dictatorship, maintains a comparable system. Residence-Based Taxation is the international norm, and adopting it would restore fairness without undermining compliance.

Residence-based taxation solution

I respectfully urge you to support The Residence-Based Taxation for Americans Abroad Act introduced by Representative Darin LaHood. This legislation offers a practical, balanced solution that would allow Americans abroad to save responsibly, invest normally, and remain citizens without fear of punitive treatment.

I ask you to consider the human consequences of the current system. Behind every PFIC form, every penalty, and every compliance cost is a real person trying to build a stable future. Please act with conscience and responsibility, and bring U.S. tax policy in line with the realities of a global world.

Respectfully,

Andrew  

Japan

(Image generated by AI.)