This has been cross posted from RenounceUScitizenship.
In a recent post I suggested that there were two big obstacles to U.S. living abroad being in compliance with tax and reporting requirements. I identified the cost of tax and FBAR compliance as being one. I suggested that the second was the lack of clear guidelines and procedures from the IRS. This post generated a few comments. One of the most interesting was the following:
“I’ve got the fourth reason (following up on No 2): the IRS and US consular network make no efforts to inform citizens of any changes in the tax laws as they apply to those overseas. You’re just supposed to know somehow that the FBARs exist and that there is now a form 8938. If we want to be even more cynical, we could read into the info in Calgary’s post that they will offer no seminars or info meetings in Canada due to budget cuts as evidence of this fact… Maybe they really don’t want you to know when they change something so that they can knock on your door five years down the line and ask for all the penalties on form XYZ No 231 that you failed to file.
Luckily I don’t think that this tactic will work again for them due to the in tune media and the increasing well-informed “US-Person” abroad. Then again, I have a colleague here in Belgium who lived in the US for ten years and became a citizen right when she could at 18, and she had no idea that she even had to file taxes, much less about the FBAR. This was a couple of weeks ago that I told her and she was absolutely dumbfounded and refused to believe me at first. This is why websites like this are so important in getting this message out. I know that the only reason I heard about the FBARs was due to an article in the Globe and Mail…”
This is a “self evident truth”. The simple fact is that almost nobody knew about Mr. FBAR. The Government of the United States has made no effort at all (except in the context of recent OVDI programs) to educate people about FBAR. Yet, the IRS is threatening to use it to “empty the retirement accounts” of hard working Canadians (and U.S. citizens living in other countries). A cynic would say that the IRS prefers that people not know about FBAR. Why? A filed FBAR is of no economic value to the Government. But an unfiled FBAR – now that is a different story. That is worth money. The truly valuable FBAR is the unfiled FBAR. (But, for the record I am not a cynic.)
Clearly people feel tricked, taken advantage of and duped. They didn’t know about FBAR. Yet their savings are at risk because of it. What kind of government can behave in this manner? This view is reflected in an interesting post on the Isaac Brock Society Blog. Who is responsible for promoting awareness of tax and reporting obligations? The author writes that:
One of the things that bothers me the most about this hideous situation is that little emphasis is placed upon the responsibility of the US government/government agencies to notify citizens abroad of their requirements to file tax and information returns. I came across this list of recommendations from the Department of Treasury, Office of Tax Policy, May 1998 report, requested by Congress. This report has been discussed by Schubert1975 with regard to CLN’s being backdated to the expatriating act (with the effect of negating tax liabilities for many “citizens”). At the end of the report, are a number of efforts suggested to improve revenue collection while balancing “legitimate privacy and other interests of Americans living and traveling overseas.”
In my 30 years of living in Canada, I cannot think of a single time I have ever noticed anything that would point to the implementation of any of these recommendations. For example, I have never seen any specialized media releases regarding compliance or any advertised seminars or outreach events designed to inform the public of USC obligations to the IRS.
Does this bother anyone else? Doesn’t it matter at all that we have a legitimate basis for being unaware of these requirements? How justifiable is even a “non-willful violation” at $10k per violation?
(This is a tragic situation. In fact this particular person was so upset that she has renounced her U.S. citizenship. She described this in in a post that generated more than 50 comments.)
In a particularly well organized comment (worth a post in itself), “Just Me” agreed that the Government is doing a terrible job educating people about their tax and reporting obligations. He offers suggestions for how to improve communication. These suggestions should be read by the Treasury.
The U.S. passport informs citizens about tax requirements but is silent about FBAR
A fascinating comment was the suggestion that people should know about FBAR by virtue of having a U.S. passport. Never really thought of that. The comment states:
When I spoke directly to the IRS on the subject of notifying their citizens abroad…the gentlemen on the other end of the line told me that “it says it right there in your passport, so you have no excuse”.
Shocked…i thanked him for his ‘kind words’ and went digging for my Passport….
It does mention something about ‘USC that reside overseas must disclose there worldwide income’.
Having said that, my interpretation of ‘overseas’ does not translate to one living in Canada…however I was again corrected that the US classifies Canada as “overseas”
Even if I read this 20 years ago…i still would have assumed that i did not live ‘overseas’ and therefore would have made no efforts to comply.
Wow? Never thought of that. Never had any real reason to read my passport. But, if I had, what would I have found? Could this really be so? Let’s check. What does it say on at least one U.S. passport? (can’t find mine, so here is what it says on another U.S. citizens)
6. U.S. Taxes: All U.S. citizens working and residing overseas are required to file and report on their worldwide income. Consult the IRS at http://www.irs.treas.gov/prod/tax_edu/faq/faqg.html for “Tax Information for Aliens and U.S. Citizens Living Abroad.” See also IRS Publication 54, “Tax Guide For U.S. Citizens and Resident Aliens Abroad.”
Now, I have not clicked on the link (and the site can be continually updated). But, regardless of where the link takes you, is there anything about the language that would suggest anything beyond tax issues. I don’t think so. Here is why:
1. The headline is “U.S. Taxes”
2. It says “file and report on INCOME” – FBAR has nothing to do with income
3. It then provides a link to a site and a publication that is described as being about “Tax”.
I believe that this information from the U.S. Government, on the passport (which is the only document that every citizen living outside the United States has) emphasizes taxes and doesn’t mention reporting requirements.
Do you feel that your U.S. passport informed you about your FBAR obligations?
But, Now I Have Another Thought – The U.S. Government Has Not Been Proactive In Educating People WHO HAVE BEEN FILING TAX RETURNS
Yesterday I wrote a post about the different kind of cross border tax professionals. I noted that there were four groups of people affected by all of this. One group were the people had been filing tax returns but not FBARs. It is VERY CLEAR that the IRS has been accepting U.S. tax returns from U.S. citizens who:
– were clearly living abroad
– had completed Schedule B which identifies investment income from foreign bank accounts
– had checked off the box on Schedule B indicating that they had foreign bank accounts
– had not filed FBARs
Some expats have been filing their U.S. tax returns for many years. Any IRS representative who looked at the return could see that there was an FBAR requirement. Yet the IRS was silent on the FBAR obligation! The IRS made no attempt to notify the taxpayer. But, now the IRS knows wants to impose fines for not filing FBAR. It’s no wonder that American Citizens Abroad refers to this as the “FBAR Scam” and notes that the IRS has used the FBAR to trap innocent hard working Americans.
I started this post by noting that almost nobody know about FBAR. The lack of communication and education from the U.S. government is a large part of the reason. Yet, the IRS is expecting U.S. citizens living outside the United States to pay fines for not filing the FBAR? This is not just unfair. It is very unfair!
The bottom line is this: The IRS should offer a true FBAR amnesty to every U.S. citizen who has been living outside the United States!
Well written…
6. U.S. Taxes: All U.S. citizens working and residing overseas are required to file and report on their worldwide income. Consult the IRS at http://www.irs.treas.gov/prod/tax_edu/faq/faqg.html for “Tax Information for Aliens and U.S. Citizens Living Abroad.” See also IRS Publication 54, “Tax Guide For U.S. Citizens and Resident Aliens Abroad.”
I would also like to add…that even if I read the line in the passport that states;
Consult the IRS at http://www.irs.treas.gov/prod/tax_edu/faq/faqg.html for “Tax Information for Aliens and U.S. Citizens Living Abroad.”
I WOULD not have wasted my time consulting that website as my interpretation of “living abroad” did not include Canada. (My interpretation, albeit wrong, of abroad means oversea’s).
One of my friends said this is nothing more than ‘gangster” mentality…in fact…he said we would be treated with more respect and fairness if we were dealing with the Mafia!
I am so glad that the Canadian Government will not collect FBAR penalties!.
FWIW my US passport, issued in the early 90s, says nothing at all about taxes.
The decent thing to do is to require FBARS and any tax owed for the last five years, if any.
This is the best recommendation yet – an amnesty for every USC abroad for FBARs. Plus an assurance that reasonable errors would be exempt from heavy-duty (40%) fines. Not only on FBARs but on the hopelessly complex 8938’s, etc. I imagine it would change the tone entirely and they would be a lot closer to their goal of compliance. Why does it have to be so bloody unpleasant, not just for us, but for everybody?
Also an excellent point – proactively educating using filed tax returns as a starting point. Seems reasonable, simple enough and extremely pragmatic.
Alas an FBAR amnesty will not help the duals, the “Accidental Americans” or the spouses of foreign nationals since
1. Many of the duals are still not clear that this a requirement for them (phone call with one dual the other day who said she was French and had been for many years and she didn’t see how any of this applied to her)
2. The accidentals who may not even be aware that they are considered American citizens and even when they find out, flat out refuse that designation. They will not file anything because that would be an admission that they accept US government authority over them.
3. The spouses of foreign nationals who have joint assets and accounts. I’m fortunate in that my husband did agree to let me list everything on my FBARs. Many spouses do not. (Turn MY information over to the US government? Out of the question…) Makes for a very uncomfortable home life.
My take on this is that American citizens or US persons who are legal residents of another country should not have to file ANY FBAR’s. An FBAR should be for those who are resident in the US and have foreign assets or bank accounts. Same goes for the new FATCA form.
@renounceuscitizenship
Excellent post!
The only way to know about the FBAR is probably by reading the IRS 1040 instructions paragraph by paragraph, sentence by sentence, word by word and letter by letter and then if you’re lucky you might just come across a reference to the FBAR. This reminds me of an expression some IT people use when a newbie computer user confronts them with a problem. The abbreviation for it is R.T.F.M. I don’t’ want to go into further details, just pop it into Google an see 🙂 This is probably what the IRS would like to tell us.
30 years ago I left the US for Europe and registered my foreign address with the US consulate. Low and behold as soon as I turned 18 I automatically got mail form the US selective service more or less politely requesting me to register with them for the draft, which I did. How come the IRS is not able to ask us to kindly file our 1040’s and FBAR’s?
These guys, even after 25 or so years, still make me feel a bit better when i’m feel in down 🙂
I dug up my expired US passport issued in 1997. There is a warning about US taxes. Nothing about FBAR, of course.
What’s more amusing is my next passport (issued in 2003). It has a URL listed for further information about taxes while living overseas. Except, the URL is broken, returns a 404 page:
http://www.irs.ustreas.gov/prod/tax_edu/faq/faqg.html
It is impossible to tell how long the URL has been dead, but one indication: the last time the Internet Archive did a successful crawl of that URL was in December 2000! Three bloody years before my passport was issued.
http://web.archive.org/web/200012141016/http://www.irs.ustreas.gov/prod/tax_edu/faq/faqg.html
If anyone is holding a US passport issued after 2003, can you dig it up to see if they changed the URL?
Renounce: this is a great post. But it is wrong to assume that every citizen living abroad has a passport. A passport is merely a travel document, it is not like birth certificate, the sine quo non basis of a passport (for native citizens), which every person should have. Indeed, before 9-11, many Canadian residents didn’t have passports because it was unnecessary to travel to the only foreign country they ever visited, the US.
Now the last I checked, my birth certificate said nothing about having to pay US taxes for the rest of my life, no matter where I lived in the world. Nevermind FBAR (which didn’t exist when I was born).
@Peter, I think he/she is mentioning this because Mach7 (I believe) was told by the IRS he had “warning” of paying taxes because of his passport. With the FBAR, there were clearly no warnings.
eric: in my passport, the link is http://www.irs.ustreas.gov/prod/tax_edu/faq/faqq.html
haha, what a joke! The link in my passport gives an error! not found!
@geeeez, I like the post. It just made the error of saying that every US person has a US passport. I think that is likely very far from true. Many duals in my wife familiy for many decades went back and forth without a passport. It is only since after 9-11 that a passport is necessary to cross the Canadian-US border (and that it is even more recent than that–like less than 2-5 years that it became mandatory).
@geeeez:
That’s probably a really old link.
Here’s what you are looking for:
http://www.irs.gov/newsroom/article/0,,id=250788,00.html
I would guess that virtually none of my relatives in the States holds a US passport. It is me who has travelled to see them, and that had been OK and I had done so for all those years on my Canadian passport.
Besides my US passport saying “, …and that government of the people, by the people, for the people, shall not perish from the earth, Abraham Lincoln”, it states:
“Dual nationality may hamper efforts to provide U.S. consular protection to dual citizens in the foreign country of their other nationality.”
So, let me have only the nationality that I choose, Canadian — I’ll deal with it.
The link shown on the last page of my hardly-used, still stiff, US passport, issued 25 Feb 2009, does work:http://www.irs.gov/publications/p54/index.html, and then I need to go to: Other Forms You May Have To File, http://www.irs.gov/publications/p54/ch01.html#en_US_2011_publink1000221096, to get to FBAR and 8938 requirements.
@bushwhacker — well yeah, but there’s no reason for an old link to be broken, especially if you print it in millions of passports. Any halfway-responsible website manager who’s moving content around will leave 301-redirects from old addresses to new address. This is a basic principle among search-engine optimisation folks: you preserve the “google juice” of all the incoming links pointing to the old address, and you help your users find the content at the new address. E.g. when the New York Times redirected iht.com to nytimes.com a while back, they broke this expected behaviour, and pretty much the entire blogosphere started screaming at them until they fixed it.
The URL being broken is just a tiny, stupid thing. But it’s symptomatic of the much larger problem that people were talking about on the other thread too: the IRS simply doesn’t take seriously its mission to educate Americans living overseas about their filing requirements.
Calgary 411- I again, am probably thinking way to far into this. But, what do you think is the chance of a border official questioning myself or your son for that matter if traveling with someone who has renounced with a US birthplace and the border guard then looking at the child (with canadian passport and Birthplace) asking if they are US citizens. I dont know if my question makes sense. I am more or less thinking in the chance I travel with my US birth place mother (which may happen) and they look at me, going hey there, arent you a US citizen as well. I just wonder how far will this go with this insanity. Or perhaps we are all so terrified of all the “what-If’s” its making a mountain out of a mole hill. Whats your thoughts on that if you are in a situation like that traveling with your son? What on earth would you say that is not a lie, but to avoid being detained at the border.
Inannightmare. You are taking this too far. You and calgary 411’s son are Canadians. Accept the fact that you are fortunate.
I know, thats my personality and its a fatal flaw…to worry endlessly until I have made myself a bag of nerves!! They must enjoy the worldwide chaos this has caused.
I can just imagine my son, if he were travelling with me in his naivete saying — “Yep, that’s my mom — she used to live in the US and I have aunts and uncles and cousins there that we are going to visit.” Hopefully, I would be able to convince him to only answer the question — were you born in Canada? and not give extraneous information. If they pried further, I guess our nice trip to see those aunts and uncles and cousins would be cancelled and we’d go back to our Canadian home.
If you were challenged in some way, but hopefully not as you have a Canadian passport that says you were born in Canada, you can honestly answer the question of where you were born — you are a Canadian. I can’t see them going further than that for you, at least at this point.
But, why should you and my son even have to worry about this — I think you are Canadians, but then I’m only a mom, yadda, yadda.