The Hill reports that President Obama signed a three-month highway funding extension (H.R. 3236, Pub.L. 114-41), while expressing irritation at Congress for their failure to pass a longer-term highway bill. The short-term bill passed the House on Wednesday by a vote of 385–34 and the Senate on Thursday by 91–4. Among the revenue offsets, there are changes to the due dates of various tax forms, including three which are relevant to the diaspora: Form 3520, Form 3520-A, and FBAR. (Hat tip to Socrates, who alerted us to the bill before it passed in a comment on Wednesday.)
Fortunately, the short-term law does not include Orrin Hatch’s persistent proposal to deny new U.S. passports to, and revoke existing passports of, people who do not provide SSNs. (It is not clear whether his proposal would affect passport applicants who never had SSNs in the first place.) That provision remains, however, in a longer-term highway funding bill which passed the Senate on Thursday. Brad Plumer at Vox summed up the situation: “Congress keeps finding increasingly absurd ways to avoid raising the gas tax”.
Also, just because Congress keeps trying to pick the pockets of the diaspora to pay for highways, it doesn’t mean that any of those highways are actually for the diaspora. My plans for a Christmas road trip from Seoul to Honolulu have been shattered once again.
Details of due date changes
Section 2006(b) of the short-term highway law requires the Secretary of the Treasury to issue regulations modifying the due dates of several tax forms beginning from the 2016 tax year, including:
(9) The due date of Form 3520–A, Annual Information Return of a Foreign Trust with a United States Owner, shall be the 15th day of the 3d month after the close of the trust’s taxable year, and the maximum extension shall be a 6-month period beginning on such day.
(10) The due date of Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, for calendar year filers shall be April 15 with a maximum extension for a 6-month period ending on October 15.
(11) The due date of FinCEN Report 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.
It’s not clear whether, or how, the second sentence of paragraph 11 will affect the waiver of penalties on people who previously have been subject to the requirement to file FBAR but never knew about it. Update: For Form 3520, this appears to be the same as the existing due date (see current instructions), but with a provision for extension of the due date. For Form 3520-A, I’m not sure what changes, since that due date is the same as stated in the existing instructions, and filers could already request an extension on Form 7004.
In any case, the Joint Committee on Taxation’s revenue estimates state the due date changes will raise US$251 million in 2017 and an average of US$8 million per year thereafter until 2025. Why such a sudden drop-off? Though the JCT doesn’t explain, the revenue increases apparently don’t come from the time value of collecting taxes a few months earlier, but rather from levying “GOTCHA!” penalties against people who didn’t know about the FBAR and other due date changes. Even more obviously, this is a source of revenue which will decline sharply in the second and subsequent years as the horror stories of absurd penalties for form crime lead to wider awareness of the filing requirements and their new, earlier due dates.
Update, 5 August: Shadow Raider made a presentation to the Senate Finance Committee about FATCA issues and repealing citizenship-based taxation. In a comment, he reports:
I mentioned that last week Congress changed the due date of the FBAR only to charge penalties on people who don’t know of the change. Tiffany and Eric explained that they the goal was to harmonize the due date of various forms with the tax return and to allow extensions, not to charge penalties, and they did think about Americans abroad. I apologized for the precipitated conclusion and if I sounded too harsh. They said that I was fine, but that others who contacted them seemed aggressive (folks, please be polite, these people are trying to help).
As mentioned below, the Senate long-term highway bill (H.R. 22) included the due date changes as well. I didn’t look at the revenue estimates for H.R. 22 except to confirm that the passport revocation was still forecast as bringing in about $400 million. As it turns out, they also have revenue estimates for the due date changes which differ sharply with the revenue estimates for the due date changes in the the short-term highway act that actually passed (Pub.L. 114-41): $1.4 billion revenue loss in 2017 but $1.9 billion revenue gain in 2025. I haven’t examined the H.R. 22 due date changes closely enough to figure out what the big difference is with the Pub.L. 114-41 due date changes.
Whatever’s actually going on here, one thing’s for sure: after more than half a decade of the “offshore” disclosure and FATCA nightmare, people on the pointy end of these laws generally have lost the habit of making assumptions of good faith when they see a confusing change coupled with a positive revenue estimate (end of 5 August update).
Passport revocation in Senate long-term highway bill
As recalcitrantexpat posted earlier, last week the Senate introduced a long-term highway funding bill (H.R. 22 — a “legislative vehicle” which had nothing to do with highway funding in the form it was passed by the House). That bill included both the tax form due date changes (Section 52105) and Orrin Hatch’s passport revocation provision (Section 52102). The JCT estimates that stripping citizens of their U.S. passports will raise US$398 million by 2025, by trapping them in the U.S. when they come for a visit and refusing to let them leave again until they pay what the IRS claims they owe.
Directly before their vote on the temporary highway bill on Thursday, the Senate passed this long-term highway bill in a 65–34 vote. Lindsey Graham (R-SC), who voted for passport revocation last month and who co-sponsored a bill to exile every single renunciant back in 2002, was the sole non-voter; he also did not vote on the temporary highway bill. The usual anti-diaspora suspects ended up on different sides of the long-term vote: Dick Durbin (D-IL), Chuck Grassley (R-IA), Bill Nelson (D-FL), and Orrin Hatch (R-UT) voted “yea”, while Jack Reed (D-RI) and Chuck Schumer (D-NY) voted “nay”. In other words, the passport provisions did not have a major influence on voting; a few Senators snuck it in as a pet project & revenue raiser, and everyone else voted based on their home state interests and let the diaspora be collateral damage, caught in the Homeland political crossfire as ever.
Mercifully, House Republicans hate the Senate highway bill. The fact that Senate Majority Leader Mitch McConnell (R-KY) put passport revocation into the highway bill also suggests that the Senate won’t push the House to reverse their stance on removing it from the customs bill (if it ever goes to conference).
Position paper by American Citizens Abroad
Last November, American Citizens Abroad issued a position paper explaining why passport revocation is an inappropriate and dangerous means of tax enforcement.
Taxes can be collected without imposition of undue and unwarranted hardship for traveling Americans and for those living overseas. For reasons grounded in principle, law, and equity, ACA strongly opposes the notion of revoking passports for the purpose of collecting tax debts …
Federal tax liens are normally issued in the absence of judicial oversight. Corrections to erroneous tax assessments sometimes have to be made and the actions of IRS collections officers are in many cases successfully challenged. Under the penalty provisions set forth in FBAR and FATCA legislation, one could easily surpass the US$50,000 minimum for simply having failed to declare two accounts over a three-year period. Many American citizens, particularly those overseas, were innocent of any intent to break the law, and had been unaware of the FBAR filing requirement which was unenforced for many years …
Overdue taxes can be collected through less drastic means. US-situs assets are subject to seizure and forfeiture in execution of IRS tax liens. It is a fundamental tenet of law enforcement that the least prejudicial means which effectively accomplishes the objective of the law should be deployed. Administrative means should be wielded in a graduated fashion, and passport revocation in this context constitutes an unwarranted, exaggerated application of governmental power.
At the time ACA issued that paper, there was no legislation under active consideration which proposed revoking passports, and furthermore, all the passport revocation proposals up until then applied only to people with tax debts, not to people without SSNs as in Orrin Hatch’s newer iteration of this proposal. So ACA’s arguments apply even more strongly to the Senate’s long-term highway bill, which would affect people who have never even been determined administratively, let alone judicially, to have any tax debts whatsoever.