Nina Olson, US Taxpayer Advocate: 2014 Annual Report to Congress
The Annual Report to Congress creates a dialogue at the highest levels of government to address taxpayers’ problems, protect taxpayers’ rights, and ease taxpayers’ burden.
The report identifies at least 20 of the most serious problems facing taxpayers and offers recommendations to fix them. Some of the issues, like tax reform and IRS’s need to expand its various taxpayer services, affect virtually every American taxpayer. Others, like the Alternative Minimum Tax, refund delays, and tax-related identity theft, impact large groups of taxpayers.
The Taxpayer Advocate Service (TAS), led by the National Taxpayer Advocate, is your voice at the IRS. Some of the problems discussed in this report were first identified when taxpayers came to TAS for help in resolving problems with the IRS.
TAS is an independent organization within the IRS. The National Taxpayer Advocate delivers this report directly to the tax-writing committees in Congress (the House Committee on Ways and Means and the Senate Committee on Finance), with no prior review by the IRS Commissioner, the Secretary of the Treasury, or the Office of Management and Budget.
Download the Executive Summary
Download Volume One
Download Volume Two: TAS Research & Related Studies
… also includes links for specific sections of the report.
Thanks to Neill for this link, which I’m putting into this post, with related comments.
Neill says
January 14, 2015 at 11:23 am
Taxpayer advocate mentions the raw deal earlier OVDP victims had (me):http://www.taxpayeradvocate.irs.gov/2014-Annual-Report/full-2014-annual-report-to-congress/
Offshore Voluntary Disclosure (OVD) Program Inequities. The report describes the evolution of the OVD program and the disproportionate penalties it says were often imposed, particularly with respect to unrepresented taxpayers. The IRS changed the streamlined program in 2014 in ways that allow many taxpayers to pay lower penalties. However, the new rules do not allow taxpayers who already had entered into closing agreements with the IRS at higher penalty rates to amend those agreements. Therefore, taxpayers who are the most deserving of leniency because they were the first to acknowledge they had failed to comply with foreign account reporting requirements ultimately are paying substantially greater penalties than taxpayers who waited until later to acknowledge their noncompliance. Among other things, the report recommends that the IRS revisit this decision.
Neill says
January 14, 2015 at 11:45 am
The TAS section of OVDP is very reasonable. What they propose could ease the burden of a lot of people (new balance limits indexed to inflation). Changing the closed agreements isn’t going to happen given what we know from the OVDP doc dump. They wanted the money and drove people with uncertainty (that did exist) to accept the deal.calgary411 says
January 14, 2015 at 12:21 pm
Thanks for the link, Neill. This should be a post.Two areas (so far) to review for importance to US expats are the sections on Taxpayer Rights and Legislative Recommendation #6 (that you’ve identified), FOREIGN ACCOUNT REPORTING: Legislative Recommendations to Reduce the Burden of Filing a Report of Foreign Bank and Financial Accounts (FBAR) and Improve the Civil Penalty Structure.
Charl has also identified: Robert Wood’s latest at Forbes: National Taxpayer Advocate Slams IRS Offshore Programs & FBAR Penalties, Demands Change
the right to a “fair and just tax system” says it all.
Fair would be to go to residency-based taxation, yet the NTA advocates to make citizenship-based taxation work. I suppose that’s her job to do so, but at some point when her efforts make it abundantly clear that Congress isn’t interested in allocating funds to make it work for taxpayers abroad, they might be forced look at more viable alternatives rather than continuing to ignore the problem. Keep plugging away, Nina!
It appears that someone is looking at this whole fatca train wreck with a reasonable outlook. The statement “There should also be no penalty at all if the taxpayer resides where the account is located. After all, that wouldn’t really be a ‘foreign account ” makes a large part of our argument that the innocent victims of this is a much much larger number than those who are actually guilty of avoiding taxes. Thank you Nina Olson for being one of the few in the USA to look at this with common sense and not letting it be a human rights violation fundraiser. Mr. Obama, can you comment?? A huge thank you to Mr. Wood for this article and also, for looking at this with common sense.
To consider that EU countries, and others with generally high taxes and highly developed financial regulations are tax havens and that US persons living there should be treated as tax evaders is insulting. To those countries, to the unwitting US persons, and to common sense.
I had been waiting expectantly for the latest report, and wondering what it would say and how it would be said – since many of the issues have been raised before now.
I am looking forward to reading it.
And later this month (or as they are always late, perhaps early February) to seeing what the overall annual numbers – (at least the one they actually report) are for expatriations for 2014, in the next upcoming Name and Shame listing.
Yes, Badger, those renunciation numbers now that he fee has increased!
There is lots of focus in the report on FBAR and 8938. The language used in the report will hopefully signal changes such as not considering or applying penalties for those accounts in country of residence. Suggesting that even the non-willful FBAR penalty appears to have been aimed at willful violations. Recommends to eliminate or waive the civil penalty for failure to report an account on an FBAR if there is no evidence the account was used in connection with a crime.
We know of Tricia Moon’s figuring out that she could have been up for $455,000 in FBAR and non filing penalties. Nina Olsen provides her own extreme example:
Someone with a total of $10,000 in five different foreign accounts 2,000 in each) could be subject to a non-willful FBAR penalty of $300,000 (six years times five accounts times $10,000) or 30 times the account balance. If the IRS deems the violation willful, the penalty could rise to $3 million (six years times five accounts times $100,000) or 300 times the account balance.
The true story is hinted at here: “Perhaps for this reason, the IRS has developed “mitigation guidelines” whereby it may impose smaller
penalties—generally 5–10 percent of the account(s)—against those with accounts of $1 million or less, provided the taxpayer meets certain threshold conditions.”
Also, of interest mentioning potential Constitution violations: “Some commentators have gone so far as to suggest that FBAR penalties can be so disproportionate as to violate the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution.”
Nina Olsen assumes FATCA as fact and that the account information will be obtained. While there is no question of CBT, there is advocating and pushing for more formal adaption of The Taxpayer Bill of Rights of which #10 is “A fair and just tax system”, against which CBT would not be justifiable.
Finally, some concern about the over complexity of reporting foreign accounts with recommendation to raise the FBAR amount to the 8938 $50,000 level and to combine the two forms into one.
@JC
Is that your interpretation “against which CBT would not be justifiable”? Because I think a lot of people would still be justifying it.
And FATCA IS fact- for now.
“Still shooting jaywalkers. National Taxpayer Advocate Nina Olson has submitted her Annual Report to Congress, and she rips the IRS offshore compliance program. Among the “most serious problems” noted in the report is “Offshore Voluntary Disclosure Programs Undermined the Law and Violate Taxpayer Rights.”…
…”I would go further and make the U.S. tax system territorial for non-residents, to eliminate absurd spectacles like the IRS going after the U.S.-born Mayor of London for capital gains on the sale of his home in London.”
http://rothcpa.com/2015/01/tax-roundup-11515-taxpayer-advocate-rips-offshore-account-enforcement-recommends-fixes-to-congress/
Sorry off topic – Resident UK citizens with US nationality can’t take advantage of UK Pensioner Bonds.
http://www.nsandi.com/65-guaranteed-growth-bonds?ccd=NALBAA
Download the PDF and search under citizen on page 7 and you’ll see the clause.
More FATCA discrimination.
Should all UK citizens have the right to take advantage of this tax break for pensioners?
@Don. Perhaps readers would like to see the wording without downloading the whole pdf. Note what comes top of the list and the company it keeps. My Member of Parliament has written a complaint to the Treasury Minister in respect of a similar restriction that NS&I places on other of its products. Non-UK readers may wish to know that NS&I is a government-run financial institution, backed by HM Treasury and offers 100% security on every penny invested. This is certainly in breach of the spirit of the UK Equality Act 2010 and EU Lisbon Treaty. I say “in spirit” because it is technically allowable for the Equality Act to be ignored if it conflicts with other laws. Government is supposed make sure that other laws do not conflict with it. Thus far my Member of Parliament has been received no reply from the Treasury minister.
Our 65+ Guaranteed Growth Bonds are a unique investment from NS&I. They’re new and exclusive. You must be aged 65 or over to buy them.
22 General limitations Bonds cannot be:
(a) purchased by a person, or on behalf of a person, who is either a US citizen and/or a US resident for tax purposes;
(b) purchased by a person who is an undischarged bankrupt;
(c) purchased by a person who is 65 years of age or older and operates under a legal disability; or
(d) purchased by one person on behalf of another, unless the application is made in accordance
with paragraphs 19(b), 20 or 21;
(e) held in trust
These NS&I cases of discrimination against dual UK/US citizens make me furious. Had I not chosen to shed my US taint some years ago I would be barred from benefitting from the desirable interest rates offered. I have lived in the UK all my adult life, earned all my money here, receive my pensions from the UK government and UK companies, and am a UK citizen in every sense – holding a UK passport, paying taxes and contributing time and energy to my local community. I am sure many people still holding dual citizenship can say the same. How can this be justified! I too have written to my MP several times over the last two years but have not yet received a reply that states anything meaningful or which actually addresses the issue.
@Old English You might enjoy reading this excerpt from a letter of a Treasury minister:
As a result of the introduction of the US FATCA, the policy of National Savings & Investments (NS&I) to allow US nationals, citizens or residents to hold NS&I accounts which are subject to UK Income Tax has changed. This is because FATCA requires additional record-keeping and also requires institutions to report full details (name, address, account balances and interest paid) of US customers who hold those accounts, to the Internal Revenue Service (IRS).
As the administrative costs of reporting are considered disproportionate and not a good use of UK taxpayers’ money, NS&I is writing to customers affected by FATCA to let them know that we will close and repay the balance of their account(s), unless they are able to confirm that they are not deemed a US citizen or resident for tax purposes.
——————————
My MP has replied
I wrote to you previously about my constituent, who is concerned about the impact of FATCA on his opportunities to save with NS&I. He was born and has lived and paid taxes all his life in the UK, holding dual UK-US citizenship.
His citizenship is creating two issues for him. Firstly, he must pay US taxes in addition to his full tax bill to the UK Treasury. He points out that this to the detriment of the UK since it represents the transfer of funds that would otherwise have been spent, invested or taxed in the UK.
Secondly, having US citizenship in addition to UK means he is affected by FATCA and, as you pointed out in your earlier correspondence, no longer permitted to save with NS&I as a result. His substantive point is that in excluding FATCA-affected citizens, NS&I are in breach of the Lisbon Treaty and the UK Equality Act 2010, which prohibit discrimination on the grounds of nationality.
He is very keen that you respond to his concern that NS&I’s aforementioned policy is inconsistent with the UK’s commitments under the 2010 Equality Act. He suggests it may be possible for NS&I to respect the Equality Act by making accounts available to those who are UK resident, while closing them to those who live outside the UK.
I must admit, it does appear unfair that a person who is a life-long UK citizen and resident taxpayer is impeded in saving for their retirement by dint of their dual nationality, and I would be interested to know if the Treasury has plans to review this policy.
@Polly Re: Tax Payer Bill of Rights. With more “teeth”behind this, it may be used to argue against CBT: #10 The Right to a fair and just tax system. Yet, for any such argument to become effective would require court action for a court ruling.
Another area Nina Olsen points out is a need for a ‘sanity check’ of the rules.
@Richard, this sounds like FATCA induced UK discrimination of US persons – nothing in there about reducing UK taxes for US persons as compensation for reduction of benefits of UK citizenship.
US persons in the UK are “soft targets” in the UK’s retaliation against the US government for imposing FATCA on them.
@JC- Yes, more “teeth”. But we dont have those teeth yet, do we? Nina wrote a good report last year too- and I do think people are taking note. But those “teeth”? We certainly dont have them. There just seems to be some form of gradual change for something that should be an absolute and urgent priority. ( Not only for expats but also for inversions!)
@ricard: Below is the (nearly) complete text of a letter I received from UK treasury in Oct last year, in response to a direct assertion that NS&I breaks the equalities act. The response took nearly five months, which may or may not indicate something. Synopsis of it: tough luck.
27 Oct 2014
Thank you for your letter of 5 June enclosing correspondence from … about NS&I’s policy in respect of the Foreign Account Tax Compliance Act (FATCA). I am very sorry for the delay in replying.
FATCA and the UK International Tax Compliance (United States of America) Regulations 2013 create obligations to identify and report upon US tax payers. In doing so, they require financial institutions to report any accounts held with them by customers who are tax-resident in the United States (whether they are Citizens, Nationals or have tax residency status). These requirements are additional to NS&I’s current and previous due diligence processes.
NS&I has one purpose, to raise cost effective debt financing on behalf or Her Majesty’s Government. The current systems do not allow for reporting to foreign jurisdictions, and NS&I has had to consider carefully whether the additional administrative activity required by FATCA and the Regulations would run contrary to the best use of taxpayers’ money. Tax reporting to foreign jurisdictions is a relatively recent development and was not foreseen in the design of our systems and processes.
In addition to the US situation, NS&I have had to consider the increasing likelihood that other countries will impose reporting requirements on those resident in their jurisdictions for tax purposes. This is likely to require not only a technical capacity to report to foreign jurisdictions, but also a capacity to report to different jurisdictions in different ways, including different content and different report formats and other requirements.
During negotiations with the IRS, it was agreed that existing NS&I accounts that would become subject to FACTA reporting requirements would be closed and the amounts owing repaid to customers to reduce the administrative burden on NS&I. Taking the situation as a whole (including the likelihood of wider reporting requirements in future for foreign tax-resident customers), NS&I concluded that this was the most appropriate course to ensure that its administrative costs remain within proportionate and acceptable bounds.
In answer to your question, NS&I does not believe it is in breach of the Equality Act for the following reasons:
– US customers can continue to hold NS&I products which are tax free (US lottery and gaming laws already prevent US residents from holding Premium Bonds).
– US customers can continue to hold non-taxable products as these are exempt and no reporting is required.
– Customers who are resident and not citizens can self-certify using a W8 form.
Further, although race/citizenship is a special characteristic under the Equality Act, NS&I’s policy affects a group defined wider than citizenship. FATCA looks to identify US taxpayers and not just US citizens; and furthermore NS&I’s policy is aimed at, and will include, all other foreign tax resident customers subject to reporting requirements, regardless of the country in which they reside for tax purposes.
The policy and associated processes of NS&I are designed to ensure the effective realisation of the department’s remit – the efficient use of tax payers money whilst achieving efficient debt financing for Her Majesty’s Government. NS&I believes that in continuing to allow foreign-tax-resident customers to hold tax-free products it has tried to strike a balance that is fair whilst recognising the constraints that limited resources present.
Regrettably, NS&I is not able to meet the identification and reporting requirements that FATCA presents and recognises that this approach is disappointing for some; but hopes that this letter will serve to clarify its position and provide some context as to why it was chosen.
Please pass on my thanks to … for taking the trouble to make us aware of these concerns.
Yours, etc.
The Republicans Abroad have posted to their site today that they are proceeding with their lawsuit and are actively looking for plaintiffs.
@Watcher, your MP needs another letter.
The UK is a party to The Hague Convention on Certain Questions relating to the Conflict of Nationality. The UKBA has published the premier guideline on the Master Nationality Rule.
The UK Government needs to answer the following question. For all public and private purposes, is a UK Citizen resident in the UK, with clinging US Nationality or any other unwanted clinging nationality, recognized solely and absolutely as a British Citizen under the laws of the United Kingdom?
I believe the answer is that a UK Citizen is solely a British Citizen regardless of what any other country thinks.
Based on that understanding, Boris Johnson or any similar situated person should be able to open a NS&I account.
If the Master Nationality Rule is valid, then FATCA is defanged with respect to UK Citizens with clinging nationality.
“FATCA looks to identify US taxpayers and not just US citizens;”
Whatever the goals of FATCA may be, it is completely irrelevant to the discriminatory actions of NS&I which is the only subject at hand in this case.
“… and furthermore NS&I’s policy is aimed at, and will include, all other foreign tax resident customers subject to reporting requirements, regardless of the country in which they reside for tax purposes.”
Last I checked there’s only one country of origin that NS&I seeks to single out from the crowd. Unless they single out everyone for the same identical nefarious purpose, then it’s clearly discriminatory.
I say that no matter where you reside, you must refuse to comply. No action will matter if we all willingly line up for slaughter.
Regards,
Middle Finger
Wondering why this, on page 87 of Volume One of the full report, footnote 41:
“…..The IRS recorded data on Canadians who opted out separately
from other taxpayers. IRS response to TAS information request (July 30, 2014). It also combined streamlined examination results with the results of examinations of Canadians who opted out. Id.”
See also”Canadian opt-out
and streamlined” at the bottom of this figure:
FIGURE 1.7.6, Opt-out and removal examination results 41
MOST SERIOUS PROBLEMS — OFFSHORE VOLUNTARY DISCLOSURE – page 87
Why was the IRS recording Canadian specific results? How did the Taxpayer Advocate find out that the Canadian specific results existed in order to pursue it with an information request?
Victoria notes the following article;
‘Thursday, January 15, 2015
IRS Closes International Tax Offices
From Bloomberg: IRS Will Shut Last Overseas Taxpayer-Assistance Center’
http://www.bloomberg.com/news/2015-01-14/irs-will-shut-last-overseas-taxpayer-assistance-centers.html
From Victoria’s Flophouse blog:
“……They report that IRS offices in Beijing have already been closed down and the Paris, London and Frankfurt offices will be closed soon. These offices were located at the US Embassies in those cities. All the staff will be sent back to the US and all international taxpayer assistance will now be done from the US.
Great timing. As more and more US Persons abroad are being FATCAed, they are desperately in need of reasonably priced assistance and reliable information. Now as they try to make sense of US tax rules and reporting requirements that they never heard of and don’t understand, they have fewer resources to make good decisions and get compliant. ….”
http://thefranco-americanflophouse.blogspot.ca/2015/01/irs-closes-international-tax-offices.html
Yes, Badger, what’s this Canadian connection all about?
Nina Olson proposed the tax payer bill of rights last year, the IRS adopted them.
Now she is pushing for more recognition and adherence to the bill of rights.
HERE is the significance. Up to last year, all we heard is that CBT was the law and all US persons should comply because it was the law. NOW as increasingly part of IRS/Treasury Department Guidelines the law must align to the tax payer bill of rights. #10 is the right to a fair and just tax system. So no longer one should comply because it is the law but the compliance is to be to laws that are fair and just – and that is from within the IRS/Treasury Department. This is a good development and let us all hope that Nina Olson strengthens adherence to the Taxpayer Bill of Rights.
Adopted by the IRS on June 10 2014: Tax Payer Bill of Rights:
The Right to Be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’s Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
The Right to Retain Representation
The Right to a Fair and Just Tax System
@JC
Re: Tax payer bill of rights
Is that for real or did you make it up?
Because aside from The right to retain representation, I can’t see any that they haven’t openly violated. Maybe it’s just their idea of humour, to make their job more fun.