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?
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!