Nov 15, 2006: Please Share with Your U.S. Taxpayer Colleagues

by AmCham President Andrew B. Somers

November 15, 2006
Moscow

PLEASE SHARE WITH YOUR U.S. TAXPAYER COLLEAGUES 

Members and Friends of the American Chamber of Commerce in Russia,

AmCham Russia continues in relentless pursuit of its objective to secure relief for U.S. expats in Russia for the 2006 tax year, from U.S. personal income tax legislation which severely limits the non-taxable portion of housing allowances paid by companies to its expat employees. Under the law passed last spring with effect from January 1, 2006, housing allowances, which had been essentially untaxed, will now be treated as taxable 2006 personal income, except for a low non-taxable amount with a ceiling of $13,000 per year.

In the summer I reported to you that AmCham submitted to the U.S. Department of the Treasury an analysis of the Moscow residential real estate market and the tax impact of the new housing limitation on Americans working here. The reason for addressing Treasury is that under the new law, Treasury has the authority to grant relief from the new low ceiling to expats in high rent cities. However, Treasury decided to rely exclusively on the August 20, 2006 Living Quarters Allowance table of the Office of Allowances of the U.S. Department of State. Treasury Notice 2006-87 of October 6, 2006 cites the State Department table and gives significant relief to expats in numerous cities around the world, raising the ceiling on the non-taxable portion of housing allowances by a factor of 6-7-8 times, amounting to tens of thousands of dollars in tax relief in each case. The ceiling for Moscow was increased insignificantly, by only $2,780 annually to $14,136.

WHY THIS DISPARITY – AND WHAT IS AMCHAM’S GAME PLAN?

Last week I met with Ambassador William Burns at the Embassy and earlier in the same week in Washington with international tax counsel for Ernst & Young, volunteered to AmCham on an urgent basis by Karl Johansson, Managing Partner, CIS, E&Y.

The following appear to be the sources of the disparity:
- the legislative language authorizing Treasury to grant relief appears to suggest that Treasury should rely solely on U.S. government data;
- Moscow embassy staff rental subsidies are not administered by the State Department's Office of Allowances but by a different agency using a different subsidy principle and hence Moscow embassy staff current housing cost information is lacking in the State Department's Housing Allowance table used by Treasury to derive the new (low) housing allowance ceiling for Moscow expats in Notice 2006-87;
- Moscow embassy staff residential rents are generally on a par with the market (i.e. high), except for some below-market rents agreed between the two governments.

Our game plan consists of two phases:

1. Ambassador Burns has offered to write a letter to the appropriate authorities in Washington to correct the misinformation upon which the Treasury decision was made. Hopefully this will be enough to persuade Treasury to substantially increase the non-taxable ceiling for Moscow housing allowances in reliance on newly available government data;
2. As a backup E&Y will draft language to clarify Treasury’s authority to refer to non-government data, such as the June AmCham Russia study if necessary;
3. Attached is a letter urging Treasury to substantially increase the non-taxable housing allowance ceiling for Moscow and to do so in time for the 2006 tax year.  I ask that you share my message and the attached letter with U.S. taxpayers in your company resident in Moscow who may have an interest in persuading U.S. Treasury to substantially increase the housing exclusion ceiling.  Interested U.S. taxpayers should send to AmCham their erndorsement of the letter by e-mail to Irina Zernova at izernova@amcham.ru or fax +7-495-961-2142 no later than this Friday, November 17, 2006.

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