Credit here goes to an unnamed (by request) source who set me on the trail of this topic. A full version of the following report, with documentation, can be viewed at USxCanada InfoShop. [To avoid hassles of reformatting this complex item for a different WordPress theme.]
As the United States attempts to enforce tax and reporting compliance on millions of its extraterritorial citizens, a great majority of them presently noncompliant, what tools can it exercise?
• Threats embodied in voluntary disclosure programs since 2009, with related FBAR penalties
• Future financial institution reporting through FATCA to match against what extraterritorials as individuals have or have not reported
• New annual tax reporting starting with 2011 on Form 8938 of non-U.S. financial accounts, duplicating FBAR
• Passport issuance and border examination of travel documents
This report focuses on steps being taken to make use of passport data.
At present the citizenship functions of the U.S. Dept. of State are quite separated from the revenue functions of the U.S. Dept. of the Treasury (the FBAR agency) and the Internal Revenue Service (IRS). The Foreign Affairs Manual of the State Department makes clear this separation as related to the matter of issuing Certificate of Loss of Nationality: “Consular officers no longer obtain tax information from renunciants” [7 FAM 1243 c].
In the case of passports, this separation of function may be about to cease. On 26 Jan 2012 — less than a month ago — the Federal Register published a “notice of proposed rulemaking.” The effect of this new rule is that all extraterritorials who carry a U.S. passport would also become an IRS file. And IRS can enforce on SSN while Dept. of State cannot: “The IRS may impose a $500 penalty amount on any passport applicant who fails to provide the required information.”
[ Body of report omitted. ]
It seems likely that tax non-compliant U.S. citizens will face increasing difficulties in travelling to the United States. By extension, persons seen to be U.S.-born will likely face corresponding challenge to demonstrate their status if they are not travelling on a U.S. passport.
The U.S. passport seems destined to become a tax enforcement tool, an unsurprising complement to FBAR and Form 8938 and FATCA.
[ Documentation omitted. ]