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?
V. Conclusion and Recommendation
It is therefore Treasury’s recommendation that upon the completion of the IRS demographic
study, IRS appropriately allocate its resources to projects and initiatives that properly balance the
goal of efficient revenue collection with the legitimate privacy and other interests of Americans living
and traveling overseas. Based on IRS’ experience in its Middle East Compliance Initiative and other
successful compliance initiatives, such efforts should include:
- analysis of local information sources,
- local financial news media
- DOS and Department of Labor data,
- identify employers of U.S. citizens,
- organizations with U.S. citizenship membership
- education resources used by U.S. citizens or dependents
- to aid in targeting education and compliance projects
- identification of local tax practitioners used by U.S. citizens to provide such practitioners with the resources and education necessary to improve compliance with U.S. tax laws;
- identification of local media outlets accessed by U.S. citizens and
- development of specialized media releases to educate U.S. citizens regarding identified areas of non-compliance
- development and implementation of market segment educationand compliance projects
- conducting outreach and informational seminars
- pursuing appropriate individual examinations and investigations
Absolutely it bothers me. This lack of communication and outreach for educational purposes borders on willful negligence!
Here is something I posted over at Jack Townsend’s blog about this very issue… This was in response to the recent posting by the IRS information for U.S. Citizens or Dual Citizens Residing Outside the U.S.
http://www.irs.gov/newsroom/article/0,,id=250788,00.html
Jack, I read this new IRS guideline and your comments with great interest. Of course, the immediate thought that came to mind was this is about 5 years too late!!
I know it is easy to arm chair quarterback, as they say, but the IRS objective is compliance, and if you are trying to reach as many people as possible, then something like this should have been created day one that the IRS was delegated FBAR compliance as part of its tax enforcement mandate.
I immediately sent the link to a close Chinese friend who has just got her US citizenship. I suggested that she pass around copies at her swearing in ceremony.
Setting aside the argument as to whether or not the FBAR and Citizenship taxation statutes should exist in the first place, here are some recommendations I have Commissioner Shulman.
1. Send this new IRS guidance out with the next mass mailing you do. Include it in the 1040 tax packages each year, starting with the 2012 tax preparation season. Now, with such an overt effort, notice is really served that the IRS is taking this “offshore stuff” seriously. Do not just leave it to the average immigrant or Expat or homeland citizen who owns something “offshore” to search the IRS web site and consider that sufficient notification. Maybe that is fine for most minor tax changes, but when you are involved in major new tax enforcement effort as you have been doing the last 3 years, be proactive for once in your communication. Don’t be a minimalist here, and don’t just rely on fear from DOJ enforcement actions and associated press attention.
2. Work with the Immigration and Visa issuance offices, to be sure this guidance is sent to all new Visa holders at the time a visa is granted. Don’t just assume that all immigrants will immediately turn to expensive attorneys to tell them of their new tax obligations. Better yet, before a person receives a Visa, include it in the visa application package. That might save a few folks the complicated and expensive process of applying in the first place. They may reconsider when they recognize the full scope of their new reporting requirements.
3. Issue a press release about this new guidance to all news organizations. They seem pretty good at acting as scribes for the IRS without question, so this would be reported routinely, and that would get more eyeballs.
4. Make this guidance a blinking alert on the front page of the IRS.gov web site. Since you are collecting a lot of over-the-top penalties for failure, this needs a flashing red alert that gets people’s attention. Don’t make the taxpayer have to search for it. Add it on your top banner home page where you show those happy taxpayers asking basic questions. Maybe you could add one, like… “Do I have to report my foreign earnings, bank accounts and assets?”
5. Put a big notice about foreign account reporting on the front page of the 1040 as was suggested to you by a Congressional Committee years ago. Require Turbo tax to prominently display this information. Don’t leave it as a ‘gotcha’ little check box on Schedule B, or question 35 in a software application which some immigrants and Expats might never complete or see. There is a reason that newspapers work hard on headlines above the fold and on home pages. It gets attention that the stories on page 23, section D do not. Can’t you learn something from that?
So, those are my few suggestions and actions you could take immediately if you really wanted to increase compliance and tax reporting in a meaningful manner. Try it out. It might be more cost affective and less complicated then the onerous and lengthy OVDP / OVDI processes. You are facing budget cuts, so as you send out layoff notices to examiners, look for ways to improve your compliance via communication. Riding on the backs of DOJ enforcement actions to inform citizens after the fact is really not the best way to improve your collection percentages, in my humble opinion.
There was one good come back that I had not thought about at the time…
Here is another suggestion to add to the list that the Treasury can be expected to avoid like the plague:
Ask the Defense Financial Accounting Service (DFAS), the United States Social Security Administration and the Office of Personnel Management (OPM) for the foreign bank account data of all retirees, survivors and other beneficiaries of their respective organizations who have signed up for direct deposit of their monthly benefits to foreign bank accounts.
Then compose a notice to be enclosed by each of these organizations to the respective beneficiary warning of their obligation to file FBARs. For maximum effect the warning would, of course, include Treasury’s best argumentum in terrorem.
Now what do you suppose the reaction to something like that might be?
Might there be political repercussions?
Equal or greater than the recent mini-tempest out of Canada?
Bravo, Just Me! Going to go back and see if this is mentioned at all in the TAS report.
To be honest, I think that following your very reasonable recommendations is the last thing that they want to do. Here is how I see the IRS’s goals:
Phase 1: Apply FBAR law retroactively without telling anyone, wait a couple of years and then prepare to charge huge penalties. Ensure an absolute minimum of media coverage and almost no official announcements. No mention in US consulates.
Phase 2: Create OVDI programmes to appear to offer a great deal of avoiding criminal persecution whilst guaranteeing a cut for the IRS. Re-issue OVDI programme almost yearly as media attention grows in order to fool more people into essentially declaring themselves to be criminal money launderers. Scare some “US persons” into compliance through a threat campaign shared with copycat media outlets who function as willing IRS announcers and do not offer any analysis or opinion of what is going on. Begin colluding with willing “financial advisors” who see huge gains to be had from terrified “US persons”.
Phase 3: Wait for full FATCA implementation in order to catch the other 90% of “US Persons” who have had no idea for the past 10 years and hit them HARD for criminal tax evasion. This will be the last phase since this will snare almost every US person in the world involuntarily unless they only bank at a local bank or credit union (which I imagine that the vast majority do not do…). Expect another OVDI programme with stiff penalties in late 2013 or early 2014 in order to grab hundreds of thousands of peoples’ hard earned money for sure. Huge media coverage.
It sounds so cynical but could well be right 😛
I think Just Me’s suggestions are right on the money. I also think that Don is right and they don’t have an interest in doing this.
One thought I had (and this would mean a real declaration of war on the part of the Diaspora) would be to have organizations like the ACA, AARO or others take out ads in all the major newspapers all around the world. I think we’d need a lawyer to help us draft something just to be on the safe side. I would be delighted to work with folks in Europe to produce such an ad for Le Monde, for example, or The Guardian in the UK. Let’s get the facts out there and not wait for the U.S. gov to do it for us.
And then let’s see how the host governments and the U.S. respond to this…
The US Government has a hopeless task in communicating with its oveseas diaspora because it does not have the slightest idea who they are or where they live. A significant number of them born abroad to a US parent do not even realize that they are US citizens. Switzerland, however, seems to have excellent information on a very high percentage of its diaspora abroad. At least this is what the Swiss Ambassador to the US told a group of members of ACA and AARO at a private luncheon he hosted for us at his residence in Washington a few years back, arranged by one of our ACA members who lives in Switzerland.
Why the difference: The US, through its extraterritorial tax laws considers its overseas citizens as traitors to be hunted down and terrorized with double taxation because they live abroad, whereas Switzerland considers its citizens abroad as patriots that spread Swiss influence and tell the exports that create jobs and prosperity for their fellow Swiss citizens back home. I don’t know the details but apparently every year the Swiss government holds a meeting in which its citizens living abroad are invited to share thoughts and ideas, speaking in any language they want to use, (that is how he expressed it, as I recall) on how to expand Swiss influence in the countries where they live. Swiss abroad register with their embassies and keep them informed of births, changes of address, etc. The US is at the other and of the spectrum in knowing very little about its citizens living abroad.
Could this have anything to do with why 38.9% of Swiss GDP is generated by exports whereas for the US it is only 8.9%, or why Switzerland’s per-capita exports to China, with which it maintains a solidly positive trade balance, are 9.3 times more than thoe of the US? Somehow I believe this has a lot more to do with how the Swiss and the US treat their expats than being a mere coincidence.
Even the Indians who have had a rather hostile relationship with their diaspora changed their minds once they realized the economic benefit to the homeland.
See the Pravasi Vharatiya Divas celebration.
http://www.pbdindia.org/
Literally, this means “Day of the Indians Abroad.”
Here is what they have to say in 2012:
“The Pravasi Bharatiya Divas ( PBD) has emerged as the flagship event of the Ministry of Overseas Indian Affairs. The PBD provides a platform that facilitates the overseas Indian community with their skills, expertise and financial resources to partner with us and place India on a higher growth trajectory .
The 10th Pravasi Bharatiya Divas Convention is being held in Jaipur , from 7 to 9 January, 2012 with the over-arching theme “Global Indian – Inclusive Growth”. The focus is to further build a borderless platform and enable the global Indian to provide impetus to the India growth story.
We are holding two pre-conference seminars on Social Entrepreneurship – Water; and Solar Energy: Investment in R & D. Areas of focus, they create new opportunities for business to contribute with sustainable solutions through know-how, new technologies and innovative products.
Investment opportunities in Rajasthan, the Partner State at PBD 2012, will be showcased. Avenues to facilitate business will be explored and discussed. Apart from this, the other Indian States will be present to promote themselves as business destinations and participate in an Exhibition. ”
Quite amazing, isn’t it?
Please note that they are actually fortunate enough to have a “Ministry of Overseas Indian Affairs.”
And we have what?
Rien. Zero. Nada.
I think Roger is correct — it’s punishment for not living there. God forbid someone opens a meaningful business and creates economic activity in a different country! Those laws were in place waaaayy before the FACTA was ever mentioned.
Don is right too. The IRS is not reasonable. They want donations from law-adiding citizens abroad. I find it striking that in most cases of debt collection in most countries, someone must be “notified” first that they even owe money and they are able to contest and negotiates amounts. It’s also illegal to call someone a “cheat” without established evidence. I wish someone would sue the US for this. I’m so sick of hearing that we are all tax cheats and we renounce because we don’t want to pay taxes.
Filing a zero return is not difficult for me. But being labelled as a toxic American.. no.. I won’t stand for that.
geeeez – THAT is what is driving me nuts right now. Even people in the US who know me, have seen our 20 year old Ford escort, my kitchen which is incredibly modest, know that I am unemployed and I have a kid in college and one about to be in college and are well aware that I am an IT manager (just another foot soldier for international capitalism) talk about Americans abroad as “rich tax evaders.”
And they just don’t seem willing to give up the old mental map. It’s like talking to a post. I’m not sure how much of this I can take. Fine, folks, I’m toxic, I give up. Let me go. Sell the damn farm for all I care. Know that when you’re old and dying I probably won’t be there at your side. Do your thing, America, but I won’t be there to help sell products, promote understanding between Europeans and Americans, support business partnerships and so on and so forth. I’ll be batting for another team. Is that really what you want?
I am in Belo Horizonte, Brazil. I had a US CPA. I never knew about the FBARS until 2009 when I wen to visit relatives in LA and consulted an Expat CPA. From that day on my life has become a nightmare. Suddenly I was considered a “criminal”, a lawyer asked me 15000 dollars to “defend” me and told me that I would have to pay the IRS 25% of my life savings in Brazil with money that I earned here. To this date I am scared and distressed. I have consulted more than 5 US CPAs and they give me conflicting advises. I would think that the IRS or the American Embassy in Brazil could have notified me about the FBARS. Or my US CPA. I always received other communications from them; I amstill losing sleep on this.
@Mark, it’s this sort of thing that infuriates me: how attorneys and some accountants take advantage expats’ vulnerability.
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.
@Mark, I’m just a few hours away from BH. Are you from Louisiana or Los Angeles? Sorry to hear you’ve been caught up in this big mess as well.
I think that they: IRS/US Gov purposely didn’t warn people of the FBARs because they would lose the advantage if they were actually “honest” about it. Moreover, in Brazil interest is taxed at the source (exception tax-free savings accounts), so any legitimate claim to tax on interest the IRS would never have.
From what I’ve seen from Just Me’s experience, the best thing to do is to call the Taxpayer Advocate. Act like a Brazilian and try to get it negotiated down as low as you can. Heads up though about the FACTA – I’m going to renounce to avoid it. See if you can/will be affected by it as well.
One thing is that overall Americans are fairly uneducated in terms of how other systems of taxation works(even the Canadian system) vis a vis residency status so in some sense you need to educate people in the policy making community as to how tax policy works in other countries. Right in the US most view any form of foreign income exclusion as a form of undesirable “tax expenditure.” The second problem is since the 1960s the US has been putting in all sorts of anti avoidance rules i.e. CFC’s, PFIC’s etc that have nasty consequences for expats that own businesses or have any type of overseas retirement account/investments etc.
There was actually an interesting Bruce Bartlett piece in the NY Times that talks about some of these theoretical arguments in terms of tax expenditures that I linked to below. He actually points out the 1976 Tax Reform Act as(something Roger is quite opionated about) is historically been considered a triumph for “progressive” minded people.
Mach7 – Yes, it says “Disclose Wordwide Income” but I see nothing in there about “Disclosing Overseas bank accounts”!!! Maybe that’s a good defense for some people. Gosh I hate that blue passport!
My bet is though, the future US passports will say “and overseas bank accounts” even though it is getting harder and harder to obtain due to the FACTA.
Ditto what geeez said.
And what’s their excuse for the Green Card holders?
Seriously, if I had an FBAR problem, I would scan a copy of that page and email the IRS.
The only problem is if someone didn’t file, and I’ll bet most people weren’t filing. However, from my understanding, non-filing and NOT owing are one thing, and NOT filing and OWING tax are another.
@Mach7- the problem is that the law makes no sense whatsoever. If I rent an apartment or house and then move out at the end of the month, I am no longer required to pay the rent or utilities. The only way that I would have any obligations with regards to that property would be if I left some of my things or if I failed to take the utilities out of my name.
When I left America though I turned out the lights. I closed all of my bank accounts stateside, removed all of my worldly possessions and paid my last utility bill. I even closed my insurance policy. So why would I have any U.S. reporting obligations on any of my income.
The U.S. logic on this would be comparable to parents who felt that they had the right to eternally charge their grown children a fee for the right to carry the name that the parent gave them and because the child had a right to return to live in the home. Now just how stupid would that be?
In the case of accidental Americans the U.S. law looks even dumber. When the law is applied to green card holders the law is even less logical because these people deliberately chose not to become citizens and yet the U.S. government is treating them like citizens for tax purposes.
The American government’s positon on taxation of non residents is hypocritical and totally self serving. On the one hand the U.S. wants to make sure that people are not giving up their citizenship for reasons of avoiding tax obligations and yet the American government’s interest in these same people is purely for tax purposes. Only an immoral person could live comfortably with such a moral contradiction.
Probably the most egregious example of U.S. hypocrisy in this matter is with regards to the way that it treats the disabled. On the one hand it will not allow a guardian or trustee to renounce on behalf of the disabled person because the U.S. government feels that such an act requires that the person renouncing be able to understand the implications of the act. Yet on the other hand the U.S. government will not exempt these people from any taxation reporting liability based upon the fact that they don’t have the mental capacity to understand the nature of their legal obligations.
However the U.S. recourse in this situation is to then lay the reporting obligation in the lap of the guardian or trustee. The same trustee that the U.S. has said is forbidden to renounce the citizenship of that disabled person. Talk about being a crook.
In the end reunciation is an act of self defense, since any one of us could end up being mentally incapacitated at which point no one else could extricate us from the legal morass.
America has a real god complex about itself and we are its victims.
“On the one hand the U.S. wants to make sure that people are not giving up their citizenship for reasons of avoiding tax obligations and yet the American government’s interest in these same people is purely for tax purposes.”
That is it in a nutshell. Really well said, recalcitrantexpat.
@Victoria, Petros and everybody:
I think it would be a good idea to make a standardized warning to all people who have US Citizenship or green cards *in all the major languages of the world.* I could translate the Portuguese and probably the Spanish version.
When I search on renounciation or US issues in Portuguese, there’s near zero in Portuguese, but I know from travelling to the consulates, there are quite a few duals here. After all, some of theses affected people can’t speak and read English comfortably to begin with.
What few resources there are on the net in the other languages, this site usually beats them in the search rankings.
@, recalcitrantexpat
Really Well Said!
@markpinetree
I, for one, somewhat reticent to provide advice as to what one should do on a blog. There are others, who will of course provide more detailed instructions, but be wary. Blogs are a good source of information, but they don’t substitute for good legal advice But before you spend good money on an attorney and CPAs, you need to go down the self education route, in my opinion.
I think if you are willing to spend the time reading here, and at Jack Townsend’s blog,(links below) you will gain enough information to make an intelligent decision that is right for you. You will then be armed with knowledge should you decide to really approach an attorney for strategic advice and help. That means do your own due diligence, and not rely on an attorney or a CPA to do it for you.
Now, I know it is a DRUDGERY. It is probably the last thing you really want to do, read legalese, endless blog posts, IRS internal manuals (IRM) and pour over every nuance of the FAQS the IRS issues. The attorneys and CPAs know that. Some have spent a lot of time doing it. (or not.) and that is why they can charge you so much to “take care of it” for you. If they are not up to speed on OVDI issues, the last thing you want to do is pay for their education!!
So, just take your time. When it comes to attorneys and CPAs it is a “Buyer beware world.” Some are very good, and know the ins and outs of the IRS VDP programs, and some are just looking for your money. You have to learn to distinguish them. But don’t discount all of them either, as good ones, providing you critical advice at key decision points are worth the cost.
Should you decide to enter the program, and I am not saying that you should, there are more strategies now on how to minimize the cost in dollars. Unfortunately, there will still be a cost in LCUs. (Life Credit Units), as it will consume a lot of your time. You shouldn’t have to this, but there it is. You are going to have to spend something, your money or your time, and it is for you to work out what you can afford.
I would just say, accept that fact that this is drudgery is something you have to do for yourself. At first is will be incomprehensible, but slowly but surely the information will seep in and stick in your brain and the way will become clear and appear. The right decision for you will emerge. There have been a lot of folks that have gone before you, and so there is much to be gained from their experience.
In addition to reading everything, and I mean everything here, I would also start with a few older blogs at Jack Townsend which I have listed below and progressively, slowly read through them.
This would be my reading list starting in May of 2011. I would read every comment, as you will see many asking very similar questions that you have had, and you will hear folks providing their experiences. When you get done with those, you will more be ready to talk to an attorney, should you decide you want to.
That is the best advice I can give you for now. Hope it helps.
To OVDI or Not to OVDI – That is the Question (Of Quiet Disclosures and Doing Nothing) (5/23/11)
http://federaltaxcrimes.blogspot.com/2011/05/to-ovdi-or-not-to-ovdi-that-is-question.html
Opting Out of the IRS 2009 OVDP and 2011 OVDI (6/14/11)
http://federaltaxcrimes.blogspot.com/2011/06/opting-out-of-irs-2009-ovdp-and-2011.html
To OVDI or not to OVDI – Part 2 (7/31/11
http://federaltaxcrimes.blogspot.com/2011/07/to-ovdi-or-not-to-ovdi-part-2.html
Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)
http://federaltaxcrimes.blogspot.com/2011/08/taxpayer-advocate-service-to-smooth.html
Experiences Inside OVDP / OVDI (9/14/11)
http://federaltaxcrimes.blogspot.com/2011/09/experiences-inside-ovdp-ovdi-91411.html
Article on OVDI and Beyond – Highly Recommended (10/24/11)
http://federaltaxcrimes.blogspot.com/2011/10/article-on-ovdi-and-beyond-highly.html
Excellent Article on Offshore Accounts – History and Future (11/9/11)
http://federaltaxcrimes.blogspot.com/2011/11/excellent-article-on-offshore-accounts.html
“Opting Out” of OVDI and OVDP; What is Really Happening? (12/12/11)
http://federaltaxcrimes.blogspot.com/2011/12/opting-out-of-ovdi-and-ovdp-what-is.html
Tax Notes Discusses Dispute Between the Taxpayer Advocate and the IRS About OVDP 2011 (1/6/12)http://federaltaxcrimes.blogspot.com/2012/01/tax-notes-discusses-dispute-between.html
IRS Re-Opens Offshore Voluntary Disclosure Program (1/9/12)
http://federaltaxcrimes.blogspot.com/2012/01/irs-re-opens-offshore-voluntary.html?
National Taxpayer Advocate Report Critical of IRS Implementation of Offshore Voluntary Disclosure Programs (1/12/12)
http://federaltaxcrimes.blogspot.com/2012/01/national-taxpayer-advocate-report.html
@Just Me: Something like your last comment would be a good post to make, and probably could be listed among the “our resources”, and give a title like: “Advice to the Newbie on how to educate yourself US expat tax issues”
Justme, how is it “just and sound” when even the “professionals” aren’t sure of the rules. If you overpay, are the lawyers going to give you money back? I doubt it.
When I lived in America for the brief period before moving here, I heard on the radio “Do you have IRS issues? Call us to settle your IRS issues for pennies on the dollar!!” or commercials to that extent. That’s the only left – internet advertisements to settle FBAR issues!! 🙂
Petros.
I thought that too, as I was just typing it out this morning in a hurry before our walk/swim. Will try to get to it later today.
Geeze… I know your question is rhetorical, and of course it is not “Just and sound”. I don’t have a specific answer.
As for those commercials I too have seen or heard all those crap add for settling your IRS cases for pennies on a dollar. I put them in the category as the ones to invest in gold coins. They depend upon the culpability of the listener as many Americans that are too lazy to educate themselves and think they actually get information from AM radio and Commerical TV. One needs to arm themselves to be “Fool Proof”, as our marketing and advertising world depends on fools. We are all subject to it, and I too have been a fool, but have learned my lessons.