Tax Strategies Employed by Overseas American Individuals and SMEs

Abstract

A study of the tax behavior of overseas Americans, both individuals and small firms is proposed. The researcher aims to discover and model behavior, through text analysis of data collected from a wide range of sources using interviews, surveys, blog and forum postings, published reports as well as personal communications, to demonstrate and inform using the pattern matching method initially proposed by Trochim (1989). Text mining and modeling techniques, using unsupervised machine learning facilitate large-scale analysis, and have been widely deployed in a range of language-based studies, driven by human-machine interaction. Major multinational corporations are excluded, and the study focuses on individuals and the smaller-scale juristic persons such as small and medium enterprises (SME). Behavioral approaches to taxation will motivate a better understanding of the phenomenon tax avoidance and tax evasion, once quantitative modeled. Overseas Americans are taxable, no matter where they reside globally, on the basis of having American citizenship. Non-citizens with a USA connection may also be subject to US taxes. The range of US taxable entities operating overseas include corporations, individuals, estates and trusts, and many of the small businesses filing as flow-through entities under the individual code, namely S-corporations, sole proprietorships, and partnerships, will be included in the study. There are an estimated 9 million taxable overseas Americans corporations and business entities. The Congressional Research Service (Gravelle, 2015), reported that as many as 100 billion U.S. dollars may go uncollected, due to tax evasion and a similar tax shortfall figure of 100 billion dollars is due to tax avoidance. Avoidance tends to be attributed to U.S. origin, multinational corporations and evasion by the smaller entities. The tax collection is exacerbated by changes to the 2018 tax code, which encourages compliance through tax cuts to a fixed 21% rate for the corporate sector, and reduced taxes for individual , opening up new avenues for aggressive tax avoidance strategies. A gap in the literature is the uncertainty regarding changing of the U.S. tax code in 2018 and how it will affect overseas American tax entities.