It is awful - I'm glad you never had to deal with. It provides little revenue and causes a huge amount of hassle and makes living overseas way more difficult.
American expat here - agreed with the other expats - it’s the filing that really, really sucks. Like really. Breaking the difficulty down in terms of priority.
1 - just trying to work through what all might possibly be owed and not owed to US as well as the country(ies) one operates in.
2 - Identifying through which paperwork to declare it, while also ensuring income / business reporting is copacetic with the tax regime of the country that same is actually earned in. As a business owner, (many operating overseas are looking after a business) I have to complete corporate accounts (which costs $$$$ and takes forever) before I can file American income tax for the same accounting year.
3 - the value of the tax liability itself is a distant third in terms of hassle than any of the above. (I’ll include in this bucket the fact that Americans are taxed on income earned abroad, putting us at enormous disadvantage for work opportunities vis—a-vis peer expats who come from other countries)
And how about they make this service opt-in. I was born in the US but I have had nothing to do with the place for 95% of my life and I don't want their help. Why must I fill out their paperwork every year or pay them money to opt-out (which I can't even do anymore because of the current backlog).
Perhaps the revenue is not very great but if there were a blanket exception I think you’d suddenly find a lot more people gaming then system to not technically be US residents and thereby escape large amounts of liability.
Most countries don’t tax citizens living abroad on foreign revenue, and just forget about them once they become residents elsewhere (unless they still have income from their country of origin).
That's pretty easily dealt with through residency thresholds. We do this in the UK, counting people resident for tax purposes if they spend more than so many days in the UK in a given year. I would be very surprised if the US doesn't already do this to determine non-citizens tax status.
That's how state taxes are dealt with in the US and a number of people go to great pains to make sure they stay exactly the number of days in some high-tax state that lets them skirt liability. I'd be surprised if similar things didn't happen in Europe but I don't pretend to be as familiar with what goes on there.
