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.
11. […] “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 have previously been subject to the requirement to file FBAR but never knew about it.’
It’s clear; there is no waiver for failing to file FBAR. The Secretary is only allowed to waive for failing to timely request or file an EXTENSION.
==
ACA: “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.”
One can easily surpass the US$50,000 minimum by having unfounded penalties asserted by colleagues of Monica Hernandez. The IRS might concede in Tax Court that the penalties were unfounded, but without a passport you’re not going to get to Tax Court.
I believe the passport would not be revoked but may be limited to inward travel to the USA – like with most of what comes out of DC with the assumption that everyone with US passport lives in the US.
I may see one may be out travelling, then from one country to the next, then the US passport does not work. Stuck! It would probably be because the IRS sent the notice to the last known US address and could not figure your current address from your tax returns filed overseas.
Another reason to gain a second passport.
To add to my comment. Why one would get stuck. The IRS would require some reply period, with assumption that all mail goes to the US. Then you actually get the notice overseas after the required reply period, and you better be home that day to get that notice. While I know it takes one week for post to go from the US to Australia, I believe I remember with letters from the IRS usually received four weeks after post date.
Updated post with revenue estimates.
@JC: if the US ever get around to setting up that “biometric exit” system, they’ll probably start actually enforcing 8 USC 1185(b) and preventing duals from departing the US on a non-US passport (in particular if the CBP computer has a notation that the person’s US passport was revoked for “tax issues”).
And yes, the issue with overseas folks receiving IRS notices late is systemic & deliberate. They make sure the envelope doesn’t have any franking stamps on it which might show the date it was sent, and by the time you get the letter it’s already past the due date for whatever alleged unpaid tax plus interest they’re trying to get out of you. Then even if you pay the amount on the letter they send you another letter complaining you didn’t pay interest on the interest on the interest (and of course that letter comes late too).
And how does Treasury intend to inform people who live abroad and file this form that there is a new date? irs.gov? Word of mouth? A letter sent to each individual filer of the form (ha ha)? Will there be an automatic extension to 15 June? Many who file this form and live outside of the U.S. file their taxes around the automatic tax extension deadline of 15 June, so for them it was easiest to file the FBAR/FINCEN 114 at the same time their U.S. taxes are filed in June. Geez, anything to make taxes for anyone living outside of the U.S. more complicated and easier to impose penalties upon. Why would anyone consider this new date easier for Americans abroad?
So I read Treas. Reg. section 1.6081–5 and it appears to be the same regulation that allows Americans abroad to file by June 15. It also mentions filing a form to extend the deadline to October 15. Does that mean that Form 4868 used to extend the tax filing deadline automatically covers the FBAR? Here is another instance where the IRS will likely fail again in its duty to inform taxpayers abroad of changes that affect them.
“And yes, the issue with overseas folks receiving IRS notices late is systemic & deliberate. They make sure the envelope doesn’t have any franking stamps on it which might show the date it was sent, and by the time you get the letter it’s already past the due date”
That’s usually 100% correct, but in some exceptional cases there are franking stamps. I have one envelope with a postal meter dated about 5 weeks later than the letter it contains, and several envelopes that are dated more than 1 week later than the letters they contain.
I have a few envelopes from courts that are dated more than 1 week later than the letters they contain.
I have a bunch of letters from the IRS, US Department of Justice, and courts which were not properly served, containing falsified and sometimes perjured certificates of service, falsely stating that they were mailed with first class postage affixed.
I’m trying to understand why they even bothered to change the filing deadline. What is the point? And how on earth is it connected to funding? Unless it’s really, as implied above, to nab a few more penalties from expats who aren’t made aware of this change after 20-odd years of filing by June 30.
And this unwarranted change at a time when they know that US persons abroad are up in arms about the randomness and complexity and irrationality of everything to do with taxes and compliance. Are they just trying to make us angrier?
All of this is utter insanity. I am so glad I am no longer an american citizen. I would never want to be a part of this insane system again.
@Not that Lisa: Does that mean that Form 4868 used to extend the tax filing deadline automatically covers the FBAR?
I have my doubts. The IRS may claim that Section 6103 bars them from sharing Form 4868 “tax return information” with FinCEN (even though they already claim the authority to share other tax return information with FinCEN anyway).
One solution would be to have Form 4868 extend both tax & FBAR return dates, and if there’s Sec. 6103 issues, have a signature box in which you can authorise the IRS to release a copy of the form to FinCEN.
But I suspect what they’ll actually do is to have a separate FinCEN form which, like FBAR itself, can only be filed online through their absurd PDF & web interfaces. They will make no efforts to publicise the form, and everyone who filed 4868 and assumed it took care of FBAR as well will get a very nasty surprise.
(This is just my cynical speculation. Want the real answer? Have fun remembering to check the Federal Register to find whether IRS or FinCEN issued relevant regulations!)
“Are they just trying to make us angrier?”
I’m sure they don’t mind having that side effect, but their main purpose is to persuade more people to renounce, since some haven’t got the message yet.
===
“The IRS may claim that Section 6103 bars them from […]”
According to courts and the US Department of Justice, section 6103 doesn’t bar US government employees from posting tax return information, including social security numbers, PUBLICLY.
Anyway, the IRS was already processing FBARs in year 2000 if not earlier. We were given a “Treasury” address to mail FBARs to, but complaints came in envelopes bearing IRS return addresses.
@Barbara, “’m trying to understand why they even bothered to change the filing deadline. What is the point? And how on earth is it connected to funding?”
It is not to gain one cent more of tax, its a gotcha game to gain penalties pure and simple.
“And this unwarranted change at a time when they know that US persons abroad are up in arms about the randomness and complexity and irrationality of everything to do with taxes and compliance. Are they just trying to make us angrier?”
The handwriting is CLEARLY on the wall now.
It is impossible if not defacto/dejure FORBIDDEN to be a long term US Expat.
Dual USA Citizenship abroad has now become illegal in all ways except for putting in writing in the US Code.
IF Congress can do shit like this and change filing dates on information returns to simply create PENALTIES on expats and alleged US Citizens, they can next come up with a Patriot Tax on foreign financial accounts.
Seriously think about all that FBAR information? What is Step Two? Step Two is a tax, a small tax at that to “cover the US administrative expense of compiling all that FBAR information.” Step Three is an even larger tax to cover some emergency spending or defense bill in the USA, maybe to fund the State Department overseas.
Hey, how long does anyone think the foreign earned income exclusion will last now?
They can throw it out in “fairness” because retirees with unearned pension income do not get it…LOL
@NotThatLisa
I am commenting based only my reading of this post and the comments, but:
1. Fincen 114 #AKA FBAR is not a Title 26 requirement but a Title 31 requirement. Therefore, I don’t see (assuming that Form 4846 is authorized by Title 26,) how Form 4846 could be used to extend the filing deadline for FinCen 114.
2. My impression is that they are decoupling the Filing of the Information returns *3520 and 3520A from the filing of the main tax return.
This strikes me as unbelievable stupidity from the perspective of administering the tax system.
But, remember that all Bills need Revenue Offset Provisions.
Has the U.S. legislative process reached the point, where they will include anything as a revenue offset provision (even if it really won’t raise revenue)?
On balance, this will continue to drive renunciations.
The best genuine revenue offset provision Congress could have would be to:
Raise the fee to renounce U.S. citizenship and and repeal the exit tax. This would open the door to all 8 million Americans abroad officially renouncing rather than living underground.
Renouncing U.S. citizenship is currently the single best investment that anybody can make in the world. Yet it costs a paltry $2350 when it is worth much more. The USA should simply formalize the principle that:
U.S. citizenship is slavery and that slaves must buy their freedom.
All my friends tell me I am beating a dead horse, for supporting the diaspora tax relief, by super imposing my own version of mainland taxation onto this issue.
It makes sense to me for expats to support the FairTax, a sales tax that replaces all federal taxation, and is collected only within our borders. Who should give a Rats Behind where anyone keeps their money or earns it for that matter. The FairTax would return prosperity to the U.S. and would fully fund a bloated federal government without borrowing or creating money out of thin air, as the Federal Reserve does before they loan it to the people of the U.S. and the Treasury of the United States.
To my friends and anyone else who shares their view—Giddy Up you dead M.F.
Beating a dead horse? That’s what some people would’ve said in Boston before the Boston Tea Party.
Rob Wood has an article about the audit period changes also in the temp. highway bill
http://www.forbes.com/sites/robertwood/2015/07/31/irs-audit-period-just-doubled-from-three-years-to-six/
@USCitizenAbroad: Yet it costs a paltry $2350 when it is worth much more
Don’t give them any ideas. They could raise the fee as high as they want; they’re already authorised under 31 USC 7109, “”Fees and charges for Government services and things of value”
My impression is that they are decoupling the Filing of the Information returns *3520 and 3520A from the filing of the main tax return. This strikes me as unbelievable stupidity from the perspective of administering the tax system.
It took me a while to figure it out but think the only change to 3520 & 3520-A is to allow extensions of time to file, unlike the change to FBAR which also changed the due date. (3520-A always had a funny due date IIRC, cuz the trust is also supposed to send a copy to the US person beneficiary before the beneficiary’s own tax return date, though it doesn’t always work out if the trust itself has a funny tax year).
Okay, the American Bar Association says it is already possible to extend the 3520-A due date by six months by filing Form 7004.
http://www.americanbar.org/publications/probate_property_magazine_2012/2013/july_august_2013/article_kayan_weyenberg_foreign_trusts_form_3520_and_form_3520a.html
I officially give up on trying to figure out why Congress bothered to put Paragraph 9 into the bill.
Just a commentary on 3520-A instructions.
In 2012 and earlier, my 3520-A’s (for the *foreign trust* RDSP that I hold for my son, as well my TFSA for me?) were filed by the funny due date.
Will the new FBAR due dates be effective for the 2016 returns, which are due in 2017? Or will it be for 2015 returns, which are due in 2016? I suspect the former. Treasury needs all the time it can get to make decisions, new forms, etc. and fail to inform the public properly.
If you are not tax compliant, why would you want to go to USA?
If USA dropped FATCA and had this law instead would you accept it?
If some member of congress can accelerate the due date to presto steal a couple hundred million…
Why not accelerate the due date to March 15? That would bring in more penalty money.
How about a FBAR due date of Feb 15?
Better yet, lets make Mr. FBAR due on January 2.
Wait….make it due 30 December and everyone will be late or if the meet that deadline, you might get them on the wrong 31 December balance information.
THEFT……..THEFT.
Sending in extension forms for the 1040 and now the FBAR (NO, FinCEN, you will always be FuBAR to me) but in what form? Paper? You’ll need proof you mailed it on time. Electronically? You’ll need your computer and their computers to be working tip-top to get proof you did it. In order to file his one and only and thankfully final FBAR my husband had to update Adobe Reader and since he did not want the latest version on his main hard drive (he has his reasons which I wouldn’t understand even if he tried to explain) he used a secondary hard drive to get the deed done. Some people (like me) might have to hire a techie to do that. Not only do we need privacy and security to be restored, we need simplicity too.
Speaking of shake downs and can kicking;
http://www.zerohedge.com/news/2015-08-01/latest-government-trust-fund-go-bankrupt
We probably need a new thread to think up seriously all the ways that congress can screw over expats to shake some more money out of our pockets.
This idea of accelerating the due date of an information return, not a tax return, is pure shakedown to get penalty money.
The writing is on the wall.
If you are a long term non dual national expat….you need another citizenship….find one.
If you are a dual, you need to relinquish or renounce.
If you relinquish without a CLN, you need to bury your USness.
And as sad as it is to say this, I get this sick feeling that a relinquisher getting a CLN might come back to haunt them!!! There is NO clean way to break away from these bastards.
@George
They have to get those highways fixed! And they dont have the money to do it.