From the Press Release:
National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Tax Reform, IRS Funding and Identity Theft
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her 2012 annual report to Congress, identifying the need for tax reform as the overriding priority in tax administration. The Advocate also expressed concern that the Internal Revenue Service is not adequately funded to serve taxpayers and collect tax, and identified ways in which this chronic under-funding harms taxpayers and the public fisc. She also found that the IRS is not doing enough to assist victims of tax-related identity theft and return preparer fraud.
NUMBER ONE Problem: The most serious problem facing taxpayers — and the IRS — is the COMPEXITY of the Internal Revenue Code (the “tax code”).
Yes, we all know that, but of special interest to many readers here is item number 8.
Update from @Lisa. Thank you.
You will want to read the entire thing, but no guarantee that more than one or two Congressman will.
Below is the MSP 8 CONCLUSION:
In conclusion, the National Taxpayer Advocate preliminarily recommends that the IRS:
1. Expand and clarify the Streamlined Nonresident Filing Initiative to encourage all benign actors (including U.S. residents and those owing more than $1,500) to correct past noncompliance using less burdensome procedures that do not unnecessarily drain IRS enforcement resources (e.g., expand and clarify who qualifies for it and further explain
who will be deemed to have reasonable cause for failure to file an FBAR).
2. Send “soft” notices to educate persons with foreign accounts about the FBAR and Form 8938 reporting requirements, encouraging them to self-correct inadvertent violations, as contemplated by the FBAR Compliance Initiative Project and the FBAR Stop Filer Program.
3. Clarify how beneficiaries of Canadian retirement plans can file late or amended returns that elect to exclude undistributed income from those plans by issuing formal guidance to consolidate the seemingly inconsistent guidance provided by Revenue Procedure 2002-23, 2002-1 C.B. 744 (requiring a PLR), IRM 21.5.3.4.9.1 (Aug. 4, 2009) (instructing employees to process late elections), and 2012 OVDP FAQ #54 (requiring a submission to an examiner) in a way that minimizes taxpayer burden.
Below is the MSP 15 CONCLUSION:
In conclusion, the National Taxpayer Advocate preliminarily recommends that the IRS:
1. Make the IITA team permanent, with a formal charter and a responsibility to provide periodic written reports and formal recommendations to the IRS Services Committee, including items for the IRS Strategic Plan and Service wide Approach to International Tax Administration.
2. Develop a systematic and structured plan for implementing the 2012 WIRA Research Study recommendations and inform the public about the timeline.
3. Reinstate mailing of forms and publications to international taxpayers and U.S. embassies and consulates.
4. Allow electronic filing of 1040NR series and ITIN applications for nonresident alien taxpayers, at least those not claiming a refund.
5. Develop a method of simplified tax and information reporting online, modeled after the new online FBAR form for taxpayers incurring foreign taxes higher than the U.S. effective tax rate — resulting in no tax liability.
6. Establish a voluntary compliance program for international individuals, including a combination of simplified filing and relief from all penalties for taxpayers who have no liability.
7. Increase the threshold for the Streamlined Nonresident Filing Initiative from $1,500 of tax due to $10,000.
I have asked my Senator’s and reps what their response is to Nina’s report. Additionally, I asked them to ask about the Jack Lew appointment–as to whether he would also make agreements with foreign governments without Senate approval.
@all
Just to interject the Contrarian view of the NTA report, this from Dan Mitchell
The “National Taxpayer Advocate” at the IRS Is Advocating for the Government, not Taxpayers
Have tuned out US news in the past week due family visiting, so this is the only story about Jack Lew that I have had time to listen to, or read… Just passing it on, in the “for what it is worth, category.
http://www.npr.org/2013/01/10/169007965/obama-expected-to-pick-lew-as-head-of-treasury
@arrow and just me, Thank you for your suggestion and for trusting I could do the subject justice. Let me see what I can come up with.
And I was just reading Bernard Schneider’s excellent article and I saved this line because I loved it so much. THIS is what we need to get them to understand.
“Renunciation is driven not by a desire to escape taxation unjustly, but by the unjust imposition of taxation.”
Perfect.
@Victoria, Arrow and Just Me,
I agree with the comments re the theme of ‘trust’, and Victoria’s post.
If you read further in the TAS report, the lack of trust that we have for the IRS – as a direct result of its devious and disingenuous actions and methods towards herding
‘international taxpayers’ into the OVD traps through threats, and treating all benign minnows the same as big whales, comes up repeatedly. She even notes bluntly that some of the IRS tactics and threats are experienced by us as ‘extortion’, and uses that term – and does not challenge the validity of our perception. I’d have to go back to provide the exact citation, but it wouldn’t be difficult to find.
Our experiences to date, IRS public statements, tactics, and the layered possible bankrupting fines (not for US taxes owed, but for forms like the FBAR – ex. possibly exceeding 300% of the account balances) all work against achieving higher rates of compliance from those abroad – IF that is truly what the IRS wants (which I question).
No-one wants to comply, or even contact a government or agency that they have a deep mistrust of. No-one will remain a citizen of such a country if they have any choice. It is much harder to force people to comply than to get them to believe that they should voluntarily behave in the way you want them to – and to offer incentives. We’ve had all stick and no carrot.
Trust, or even the illusion of it allows a State to manipulate its citizens behaviour without additional investments in arms, courts and enforcement. Without it, the State must constantly invest in ramping up surveillance and coercive measures.
A government that relies only on punitive enforcement will find that people who are desperate will weigh their options and the risks, and act accordingly. The stakes here are potentially very very high – even before penalties are assessed – because of the high cost of US tax legal and accounting services in general, multiplied by the magnified costs to access them abroad. The ‘reward’ for coming forward using the methods the IRS prescribes (ex. OVD) are like handing the IRS a stick to beat us bloody with – and there is no way to know beforehand how bad the resulting assault and injuries may be.
The TAS also noted the choice to fund and apply enforcement over ‘education’ and ‘service’ to international taxpayers – and the IRS is still actively making that choice. That is not just a perception of ours – it is grounded in firm evidence. The IRS still refuses to acknowledge in any meaningful way that a large portion of us owe the US no actual taxes, and that we are thus not ‘evaders’, or ‘criminals’. And that when tax is assessed, it is often a result of the essential conflicts between the US system of taxation and ours. The IRS still refuses to acknowledge publicly that if it continues to define all our normal post-tax and registered accounts and assets outside the US as ‘hidden’, ‘offshore’, and ‘foreign’ by default, it is passing preemptive sentence on over 6 million of us and pre-defining all our local accounts as criminal.
There is no way that we can ever trust the US. The President did nothing to address us, or our issues, or to even acknowledge the millions of those abroad. Neither did the other major candidate for the job. We have seen how hard it has been to get the ear of those who are supposed to include us as representatives. We have seen how few services have been provided at our embassies and consulates, and how slow Washington has been to provide CLNs to Canadians. Trust is lost and cannot ever be recovered. Not only among us, but now lost also from all those around us who have become familiar with the true situation. That includes our families, friends, and fellow citizens in the countries where we live.
Where there is no trust, and only coercion, there can only be conflict, resentment, anger and contempt. Many are effectively forced to remain burdened by the US status, and so bound into this abusive relationship against their will – as long as we are bound, so too are our US and non-US households and families.
That is what the US, Congress, Treasury, and the IRS have sown.
What will they reap? Trust does not spring to mind.
@Victoria
The core of your piece is already there in those comments. The ideal op-ed piece shouldn’t go longer than 600-700 words. And it needs a single focus with a good lead paragraph that, in this case, builds on the TAS report (that’s the news tag).
I’m going to be away for 2-3 days, but I’m happy to help you with this when I get back Sunday — particularly with structuring that lead. I wouldn’t change much else in those comments — they were already in good shape.
Big question is — will you put your name on it? Anonymous will be a very hard slog with any newspaper, particularly the Times.
Fair warning — my track record in getting something in the NYT is not good. Many years ago I was a west coast stringer for the NYTimes and got lots of byline stuff in. Not so much lately.
DW
@arrow, That is very VERY kind of you. Yes, I will take you up on it. Let’s talk when you get back. I have some time tomorrow and I can work on a draft. We should confer via email. You can send a note to me at v_ferauge at yahoo.com.
I would use my name. No reason not to. For me the ship of anonymity sailed long ago. Anyone can Google me, find the Flophouse or my posts here, and determine right quick where I stand on all of this.
In short, I’m doomed. I might as well work toward getting into heaven at this point. 🙂
@Victoria…
GREAT!
Regarding Just me comments, that Taxpayer advocate is playing for the wrong team, there are examples in the report, such as in the recommendations for legislation section—
Administrative recommendation that the IRS require all businesses to answer two questions on their income tax returns: “Did you make any payments over $600 in the aggregate during the year to any unin- corporated trade or business?” and “If yes, did you file all required Forms 1099?” S 3795 would require the IRS to study whether placing a checkbox or similar indicator on business tax returns would affect voluntary compliance.
Whereas, I have Always noticed in her reports that, regarding FBAR/FATCA issues, she never recommends changing the laws, she only recommends changing the enforcement of the existing laws.
Regarding Christoffe’s comment, I concur.
I received this from my Senator’s aid: “noted that they all suggested administrative action be taken by the Internal Revenue Service (IRS) (see page 153 of volume 1 of the December 31, 2012, report). “
I am researching this in the text. I see that the legislative action sections are categories at the end of the report, and I don’t see that any of them relate to our situation.
And once again, I see the reaction from Congress to range from Carl Levin’s “you are all tax evaders”, to “we could almost care”. For normal US persons without a moneybag for lobbyists, the real answer is to have the media on your side.
@badger
Good comment. Thanks for building on the trust theme. I used this statement for a tweet.
“Where there is no trust, and only coercion, there can only be conflict, resentment, anger and contempt.”
Here is what Accounting Today decided to focus on…
IRS Isn’t Doing Enough to Help Identity Theft Victims
MSP 8 did get mentioned, which is more than any other report I have seen.
MSP 15 was neglected.
@badger, That is so eloquent. I read yours and others comment and wrote something up this morning. You were an inspiration. Thank you.
@Victoria I know that last year we really liked Nina Olsen, but the détails of the effects of double taxation seem to have gotten lost in the shadow of the OVDI issues, or simply ignored.
What really pisses me off is that you had to pay more US taxes on your unemployment insurance benefits than you probably would have had you earned a higher salary. This is really an abomination. You were unemployed, and only drawing the benefits you paid for with taxes, while at the same time dealing with health issues. This is not a progressive tax system, it is more like a Monopoly game where one lands on spots and gets screwed in different ways.
The TAS report mentions that the IRS plans to use the US State Department’s passport records to locate potential non-filers who live abroad and send them “soft reminders”. A possible next step could be to detain US passport travellers at a US border for being an identified non-filer using an extended TECS database. This is currently being done for Americans abroad who owe back taxes to the IRS. Excerpt from a Journal of Accountancy in Aug 2012 called “Taxpayers residing outside U.S. questioned at U.S. border regarding back taxes”:
“Taxpayers traveling to the United States with unpaid U.S. tax assessments can be
detained at the border, questioned, and flagged for follow-up enforcement. If a taxpayer has an unpaid tax liability and is subject to a resulting Notice of Federal Tax Lien, the IRS may submit identifying taxpayer information to the Treasury Enforcement Communications System (TECS), a database maintained by the Department of Homeland Security (DHS).
The database allows the DHS to identify taxpayers with unpaid tax assessments who are traveling to the United States (Internal Revenue Manual (IRM), §5.1.12.26).
U.S. or non-U.S. persons with an unpaid federal tax liability whom the IRS has been unable to contact may be unaware of the tax debt until they come through U.S. Customs and are detained by Immigration and Customs Enforcement (ICE). ICE agents may ask them what assets they have in the United States, the purpose and duration of their trip, where they are staying, vehicle registration information, and similar information. The agents also may inquire about a taxpayer’s employment relationships in the United States or any personal services performed in the United States, to establish wage garnishment opportunities. Thereafter, ICE agents alert an IRS coordinator and
transmit this information through a referral program. Typically, an investigation request is sent to an IRS agent in the region in which the taxpayer is traveling to follow up with the taxpayer.
To be entered into TECS, the taxpayer must live outside the United States and its commonwealths or territories (or “is about to depart to reside in a foreign country” or “travels outside the United States … on a frequent basis and [IRS agents] have not been able to contact the taxpayer”) and be subject to a filed Notice of Federal Tax Lien (IRM, §5.1.12.26.5.1).”
http://www.journalofaccountancy.com/Issues/2012/Aug/20125795.htm
The results of improving compliance——
http://www.bbc.co.uk/news/world-us-canada-19112837
Vermont farmer in tractor crushes seven police cars
Thanks @Victoria, happy to see you with energy to write here, as well as at the Flophouse (which I visit regularly but usually have nothing of note to add) – always enjoy hearing your voice and perspectives – so finely crafted.
@Just Me, glad to provide fodder for tweeting.
@Innocente, saw that really important public acknowledgement of the growing relationship and use of the US passport to enforce US extraterritorial taxation in the TAS report.
Perhaps the upside (?) might be that the more obvious twisting and abuse of the one aspect of US citizenship that homelanders are so fond of pointing to as a significant right – entering the US – will become so fouled, tainted and confounded by its association with US coercion and extraterritorial citizenship-based taxation, that it may just attract more unwanted public scrutiny of how US citizenship is becoming more and more burdensome – more about the assessment and collection of US taxes – from as many people as possible, by whatever questionable means they can engineer.
The coercion of making even duals travel only on a US passport (or renunciants/relinquishers with a CLN in hand), in order to even fly over or go through the US, makes the State Department closer (and perhaps not entirely willing?) partners with the IRS. How does the State Department feel about having its role and mission confounded or co-opted even more by the IRS? Especially since it seems that the IRS has co-opted the role of defining who is a US citizen – since apparently, no matter what US law and international law says, a US citizen will be deemed a US citizen forever and ever, even after performing any number of deliberate expatriating acts with full intent and notifying the State Department of the same – until the IRS says they have been fully satisfied. Since when did Congress put the IRS in ultimate charge of conferring and certifying US citizenship and determining US citizenship law?
At some point, some famous and notable dual who is not in compliance will be passing into/through the US and get stopped by some hapless border guard who does not know who they are (choose from the list of potential candidates we were compiling elsewhere – like Boris Johnson, or the King of Thailand?). There will eventually be some very embarrassing incident, or so many incidents involving lesser notables, that an unwanted spotlight will shine light on this shady US tactic.
Since single citizenship Canadians, and those from other preferred countries who can enter the US without visas can travel there without those restrictions, we are actually afforded less access than non-resident citizens of other countries.
Basically, we’re asked to pay an admission fee in the form of a IRS toll on something that non-citizens and other non-residents can do without charge. Even though many of us most often owe zero US taxes, we pay the substantial costs to demonstrate ‘compliance’ annually for life – as the cost of access to the US – which is supposed to come free with citizenship.
So, that demolishes one of those spurious claims that we’re getting some special services conferred on us by our US parentage or birth – in exchange for the unwanted lifelong US burden.
At some point it will become so obviously egregious that the US may decide to back down. It may be unconstitutional to restrict our travel in/through the US.
It will certainly decrease crossborder shopping and tourism. After all, a Canadian family with even a single non-compliant US taxable member is not going to be able to take those traditional Canadian winter/March break family vacations in Florida anymore. Or go to Disneyworld/land/whatever, or fly to gamble away our dollars in Las Vegas, etc. Or buy those timeshares or retirement homes in the US. Or visit those convenient border outlets. The US should really stop and consider whether it wants the ongoing cash in hand from that type of retail and economic activity, OR keep giving us AND our whole families, undeniable incentives to avoid the US entirely, for life. And it’s going to outrage any non-USpersons we’re travelling with.
If we’ve formed a non-US company or operate a business, we’d have to plan never to have to rely on actually travelling there.
And anyone who hasn’t yet got a US passport will avoid ever getting one.
Those in the know are already not investing in the US, not buying property there, not travelling there, and realizing that in order to do any saving for retirement we have to renounce or relinquish in order to use Canadian mutual funds, and Canadian registered savings.
The implementation of the ‘soft’ notices may only serve to tell far more of us who are still unaware of the true situation, that we’ve got to renounce or relinquish if we can.
@Badger.
Really interesting analysis of how the US is evolving into sort of an IRS-state, for lack of a better term.
I’d been feeling for the past year, since I became aware of this stuff and have been reading about it, that it really seems that Americans today consider the core value at the heart of the concept of citizenship is taxation. I really don’t believe they thought that way years ago.
Your point that former USCs are no longer treated like normal visitors when entering (as we now require a CLN (which they never even told us existed before)) really illustrates that. For 30 years, I always entered the US as a normal Canadian visitor. But of course, now they require a CLN because now citizenship (to the Americans) is all about taxes.
I never really thought about that point much before. I did think it sounded sort of like a Soviet-bloc type of thing, and that the US is getting weird. Like you used to have to prove you were a Something (Canadian, whatever), just like any other foreigner, to get in for a visit — makes perfect sense — but now, you’re in a special class, you also have to prove you’re not an American. I wonder if any country requires that of its former citizens. Anyway, it makes sense in the context of the US’ trend to have both the concept and the practical application of citizenship IRS-driven.
@Pacifica, perhaps a whole new post topic there – “The (NEW) United States of IRS”, or mock headlines; “NEW! IRS to relieve US State Department of Citizenship and Passport responsibilities: IRS says Commissioner now responsible for determining current and former US Citizenship status, Border patrol, entry and Passports”? “IRS Announces new entry and exit Tolls for former and current Citizens abroad” “You’re a US Citizen (and TAXABLE person) Until WE say you’re not (and that includes your children)!” or something similar?
@Innocente
Thanks for your on JofA and drawing the connections which I don’t think are unreasonable.
I remember writing a comment (to NPR I think) back in 2009, when I first was aware of FBAR. In it I wondered if my thoughts along that line were the paranoid ramblings of a too active imagination. I asked that very question about linked data bases. I was thinking that in the not too distant future, the day was coming when crossing the border would result in checks for income taxes paid or FBARS filed.
So, as time passes, we see the theme be raised in articles like the JofA and even the NTA report! (Nina, what are you thinking???!!! Don’t give them any ideas!)
https://twitter.com/FATCA_Fallout/status/290527712035102720
I have always looked at FBAR, FATCA and the current global mission of the OECD to create a Gotcha GATCA as laid out in IRS bulletin 2012-20, as part of a mega trend towards that total surveillance state. BIG DATA will get you! “On the Media” last week, there was a good program on Privacy and surveillance which I recommend to all Brockers. While tax and assets transparency, the proclaimed goals of the FATCAnatics was not mentioned, it certainly fits perfectly into the issues they discussed.
THE PRIVACY SHOW
@all
Just drawing your attention to a Forbes article by Tax Girl
Tax Code Hits Nearly 4 Million Words, Taxpayer Advocate Calls It Too Complicated
I took the opportunity to make a comment about the issues around complexity for Americans abroad.
justme 5 minutes ago
It is beyond too complicated, it is ridiculous.
It is even more so for Americans abroad with the FWhat? forms FATCA and FBAR and all the extra complications of converting mutual fund holding in foreign country IRA equivalents and reporting non realized gains in USD in form 3520. Then there is the Foreign Tax Credit form 1116 which I defy anyone to read the instructions and actually understand it.
To Nina’s credit, she does point out some of the woes of Americans living abroad who try to remain compliant with unique complex and expensive US citizenship tax requirements.
I would recommend reading two of her major issues that the media zip right over and ignore.
MSP 8 The IRS’s Offshore Voluntary Disclosure Programs Discourage
Voluntary Compliance by Those Who Inadvertently Failed to file FBARs http://1.usa.gov/VRJVsc
MSP 15 Challenges Persist for International Taxpayers http://1.usa.gov/TLFb9l
One scary note in MSP 15 is where she mentions that the IRS is planning to use the US State Department’s passport records to locate potential non-filers who live abroad and send them “soft reminders”.
We are moving closer and closer to a surveillance state that restricts movement based upon tax filings as data bases between the IRS and State Department are connected.
This is a worrying Mega Trend which is being exasperated by FATCA’s global data collection to identify and report a broad brush of financial data on all Americans Abroad living everywhere on the Globe.
The next frontier in Security and Identity theft issues which the NTA lists after Complexity, will be for U.S. Expats when all this data gets into 3rd party hands and subject to hacking. Sadly, no one in the U.S. Homeland is paying any attention to these issues, but it is certainly noted abroad.
Security is FATCAs Fatal Flaw. http://bit.ly/X1J8ES
A great read from that other foreign country, Alaska, and the frustration of lack of IRS services. Sound familiar?? Thanks @Blaze for alerting me to this…
Colorful language…
“The purpose of this crap is to exhaust you and make you go away; to steal your money.” 🙂
https://twitter.com/FATCA_Fallout/status/290538758477070337
Jack Townsend weighs in…
The Big Boys Get Better Treatment in Our Tax System Than Do Minnows (1/12/13)
@Badger just posted this good reminder, that the IRS Leadership is capable of ignoring their subcommittees as will as Nina Olson…
Instead of dealing with FBAR overly broad reporting, they have piled on with FATCA form 8398. Go figure.
badgerJanuary 17, 2013 at 5:29 pm
Just found this important resource again:
It is also interesting to note that there used to be a page on the IRS website:
See the “SMALL BUSINESS/SELF EMPLOYED SUBGROUP REPORT” that said that the “The Filing Requirements for the Report of Foreign Bank and Financial Accounts (FBAR) are Confusing and Extremely Overbroad“.
http://webcache.googleusercontent.com/search?q=cache:iYqME6gorHQJ:www.irs.gov/Tax-Professionals/SMALL-BUSINESS-SELF-EMPLOYED-SUBGROUP-REPORT+&cd=1&hl=en&ct=clnk&gl=ca&client=firefox-a
It is worth reading in entirety, and does not address many of our
complaints, but several of the recommendations would lighten the burden
somewhat, which the IRS in its wisdom has refused to do.
Excerpt:
Recommendations
later than the time for filing income tax returns so that the
individual’s tax advisor will be able to timely discuss the filing with
taxpayers. By using October 15th, all filers will have a consistent due
date.
filing system, just as state tax returns are similarly accommodated. A
separate electronic filing portal should be available to non-income tax
return filers. Some filers will have hundreds of accounts, making manual
filing needlessly cumbersome.
filings, just as it applies to federal income tax filings (see IRC §
7502). It is unreasonable to hold individuals responsible for delivery
delays beyond their control.
inadvertent non-filers should be limited to six years with the IRS agent
able to take advantage of the ability to require additional returns if
necessary consistent with Policy P-5-133. This would include cases in
which income from the account has been reported and existence of the
account has been noted on the annual income tax filing either by
checking the box for its existence in the case of income tax returns
that do not include balance sheets or by reporting on the entity’s
balance sheet for other persons. The existing relief from penalties is
not sufficient to encourage compliance when prior years’ filings are
numerous and compiling information is excessively burdensome.
authority to exercise discretion in waiving/abating FBAR related
penalties based on well-founded reasonable cause exceptions applicable
to the person’s facts and circumstances. The minimum $10,000 penalty for
non-willful violations is too severe and does not encourage compliance
in many cases.
exemption from FBAR filing for accounts with de minimis balances and
minimal activity during the year. The cost of compliance for these
accounts outweighs the benefit of the
information collected. In addition, the current limits should be adjusted annually for cost of living increases.
This is just a partial excerpt. The whole page (Page Last Reviewed or Updated: 2012-08-04) is worth reading – to see what the IRS has refused to do.
@Just Me, the IRS also ignores TIGTA and the GAO reports as well as the TAS. Is it now the United States of IRS?
Will no one reign them in? How does the State Department feel about the IRS conflating and equating US citizenship with taxpayer status?
What if FATCA ends up tainting foreign relations?