As has been noted in various news articles (e.g. this one posted by Tom Alciere), the IRS is bragging about FinCEN receiving nearly 1.2 million FBARs last year:
“Taxpayers here and abroad need to take their offshore tax and filing obligations seriously,” IRS Commissioner John Koskinen said. “Improving offshore compliance has been a top priority of the IRS for several years, and we are seeing very positive results.” … In 2015, FinCen received a record high 1,163,229 FBARs, up more than 8 percent from the prior year. In fact, FBAR filings have grown on average by 17 percent per year during the last five years, according to FinCen data.
The growth just before that five year window was even more impressive: in 2011, the number of FBAR filers jumped to 618,134, according to an article by Brian Knowlton article in the New York Times, up by 124% from 276,386 in 2009, an annualised growth rate of nearly 50%. (For comparison, during the five period from 2008–2012, the IRS added 100,000 new Foreign Earned Income Exclusion users — with average incomes of about US$30k, meaning they don’t owe any U.S. tax unless Koskinen figures out some clever new way to extract money from them by imposing obscene fines on them for committing ordinary personal finance or inventing new forms of “income” out of thin air.)
Massive growth is exactly what Ms. Lucy Stensland Laederich of FAWCO told FinCEN to expect nearly six years ago, in response to FinCEN’s laughably low estimates in their Notice of Proposed Rulemaking in February 2010 (75 FR 8844) of 400,000 FBAR filers:
First, however, you note in VI. that the estimated number of affected filing individuals and entities is 400,000. In view of State Department estimates of over 5 million private sector Americans abroad and the large number of Americans and other U.S. persons residing within the United States and maintaining bank accounts abroad, I suspect that your number is vastly underestimated.
Oddly enough, as recently as 2008, FinCEN estimated that they should be getting 13 million FBARs. But three years later, James H. Freis, Jr. of FinCEN responded to FAWCO by covering his ears, ignoring the massive growth in filer numbers right in front of his eyes, and pretending that the 400,000 forms he actually received meant that his agency was getting 100% compliance already (76 FR 10244):
FinCEN received one comment on the estimated number of filers. The commenter believed that the number of filers should be higher. The commenter stated that estimates of Americans living abroad may be as high as 5 million, and that approximately 2 million of those Americans might be affected by the FBAR rules. The commenter did not provide a verifiable source or methodology for arriving at those estimates. As stated above, the rule contained in this document addresses the FBAR rules that have been in existence since 1972. FinCEN’s estimate of the number of affected filing individuals and entities (400,000) is based on the number of FBARs annually filed in recent previous years.
See how much your comments matter to the U.S. government?
Another comment
Also worth a read: the comments to FinCEN by Jacqueline Bugnion (who resigned from the ACA board last year but remains active in the fight against taxation-based citizenship) and Marylouise Serrato of American Citizens Abroad asking Freis to use his clear statutory authority to grant relief to the diaspora:
[T]he overwhelming majority of U.S. citizens resident outside the United States are completely unaware of this requirement (indeed, a significant number of them are not even aware of their citizenship), and it is fundamentally impossible for the Treasury Department to enforce it evenly. The only options, therefore, are either to enforce it selectively, which is grossly unfair, or not to enforce it all, which renders it pointless. In practice, it is difficult to imagine the Treasury Department using this law in any manner other than to pile on an additional legal threat against a company or individual that it is attempting to pressure into co-operation on some unrelated issue. Either one of these two options are unethical and morally indefensible.
And recall Freis’ response to that:
FinCEN does not believe it appropriate to expand the exemptions as recommended by the commenters. Although the commenters noted that certain countries may have a robust set of anti-money laundering laws, the FBAR places the obligation of reporting on the United States person, and individuals and businesses can commit financial abuses and other crimes using financial institutions in those countries. By requiring United States persons to identify foreign financial accounts, the FBAR creates a financial trail that assists law enforcement and other agencies to identify accounts outside of the United States.
With respect to the comments raised by United States persons living abroad, FinCEN does not believe that an exemption is appropriate simply because a United States person chooses to live outside of the United States.
In other words, FinCEN are so bad at solving actual financial crimes that they need a standing general warrant to go through everyone’s papers at any time in order to look for the six lines they need to hang an honest man evidence of drug dealing, money laundering, terrorism, or illegal emigration.
Now, IRS Commissioner John Koskinen has stated that “taxpayers abroad need to take their offshore tax and filing obligations seriously”. Some of you might quibble with his wording, but it makes perfect sense to me. The United States is, after all, offshore — the biggest and bestest offshore tax haven in the world, now that they’ve managed to kneecap all their competitors by means of FATCA while refusing to sign on to CRS — and any “obligations” you have to countries other than your country of residence are, by definition, “offshore tax and filing obligations”, as opposed to your onshore obligations to the country where you actually live.
If you do not wish to have offshore accounts, or if you wish to have offshore accounts in a different country of your choosing, then your best bet is to cut your connections to the most hypocritical offshore tax haven — the one whose embassies are directly involved in draining capital out of the community where you live not only by offering you financial accounts in that offshore country, but also refusing to leave you alone so you can get an onshore bank account down the street from your house, near your office, or wherever else you please.
How many people still aren’t filing FBARs?
A late update to this post: the IRS’ bragging notwithstanding, growth in the number of FBAR filers last year has flattened out significantly compared to the spike in 2010, both proportionally and even in absolute numbers. By Koskinen’s own admission, in 2015 FinCEN added only about 90,000 new filers, compared to nearly twice that number of new filers in 2009 and 2010. Meanwhile, there’s an average of about 60,000 native-born Americans moving abroad annually (net) in the last five years, according to United Nations statistics — and that’s not even counting U.S.-naturalised immigrants who have also moved to other countries, or the children of either of the above groups of emigrants. In total, the State Department’s latest guess is that there’s 8.7 million U.S. citizens in other countries.
How many have an FBAR filing obligation? Well, Statistics Canada says, for example, that Canadian family units holding assets or debt had median non-pension financial assets of CA$9,900 in 2012. And that doesn’t account for people who might have had a far higher maximum account balance on one day of the year, for example due to selling some non-financial assets (e.g. their house). Based on that, it seems reasonable to suggest that FinCEN would be getting FBARs from half the diaspora if they had full compliance. (And keep in mind that FBAR is also filed by U.S. residents and businesses who have foreign accounts as well.)
But 1.2 million certainly isn’t half the diaspora. It isn’t even half of the most easily-identifiable subset of the diaspora — those born in the U.S., whom the United Nations estimated at about 2.8 million. — who are most likely to be caught out by banks’ FATCA/CRS-enhanced interrogation KYC procedures, and who thus have been scrambling the hardest to get into compliance with FBAR and all the assorted other U.S. government nonsense in the past five years. In simpler terms, the overwhelming majority of the diaspora are not filing FBAR. They’re either unaware of its existence, unaware that the U.S. Treasury considers them to be U.S. citizens, or are aware of both facts and have decided that their best response is to hide from it.
Incidentally, FBAR non-filers are likely to understand that showing up at a U.S. consulate to demand a Certificate of Loss of Nationality is a very poor way of hiding, especially if they were not born in the United States and the U.S. government has no idea where they are. One country in which non-filers are likely to be found has even produced a helpful instructional video informing them of the principles involved:
This suggests that most of the five thousand or more who renounced or relinquished U.S. citizenship last year, and for that matter the twenty thousand per year who cancel their green cards (since green card holders abroad also have to file FBAR) are drawn from among those 1.2 million who have actually filed FBARs.
The other millions of non-filers are apparently content with the status quo. That’s not to say they are content with taxation-based citizenship (as so many Homelanders like to imply when they compare the number of renunciants to the size of the whole diaspora), but rather that they are content with their “DIY relinquishment” of that unwanted citizenship.
Who came up with all this garbage anyway?
Before James H. Freis joined FinCEN, he was in fact an expat: according to Treasury’s press release back when they hired him in 2007, he served as Senior Counsel in the Legal Service of the Bank for International Settlements in Basel, Switzerland, and also previously worked in Germany. (One tends to wonder whether he was actually filing his FBARs back then, or whether he took his filing obligations as seriously as his boss Tim Geithner did.)
About a year-and-a-half after he wrote that insulting response to FAWCO, Freis left FinCEN. (His successor, Jennifer Shasky Calvery, is a Homelander who worked her way up through the ranks of the Department of Justice.) Freis first joined law firm Cleary Gottlieb in DC, but less than two years later, he apparently went back to expat life again, this time as the Chief Compliance Officer for Deutsche Börse.
I hope Freis is having as much fun as the rest of you using that godawful FBAR website which his subordinates forced on the entire diaspora after he went back out the revolving door. Or perhaps he considers it no more than a minor inconvenience in exchange all the money he’ll make until retirement as a fully-qualified member of the Compliance-Industrial Complex, advising his deep-pocketed institutional clients on how to manouevre through the mess he helped create. (Unfortunately for Mr. Freis, those clients will also demand a higher standard of competence than he exhibited during his time at FinCEN in his efforts to estimate the number of FBAR filers.)
As for the rest of the plebs who can’t afford his fees? Too bad for you!
Eric: Thank you for another extremely informative and useful post!
Eric:
Thanks for another excellent post.
It occurs to me that some of the newer readers here at ISB may NOT be aware of how the IRS – between 2009 and 2012 – via the Offshore Voluntary Disclosure Programs – used the threat of “FBAR Penalties” to intimidate many Americans abroad into paying 25% of their net worth to the IRS!
This must NEVER be forgotten. Those who are unaware of the FBAR Fundraiser are invited to read the following post by Trish Moon:
http://isaacbrocksociety.ca/2015/11/24/never-forget-what-happened-in-2011/
and perhaps the series of “posts in real time” which were linked to in the following post:
https://renounceuscitizenship.wordpress.com/2012/01/05/the-taxpayer-the-irs-and-the-professionals-where-to-go-from-here/
It is impossible to believe that people like Freis, Geithner, IRS Commissioner Schulman, and a recent American winner of the “Nobel Peace Peace Prize” were NOT well aware of what they were doing to Americans abroad.
It wasn’t called “The FBAR Fundraiser” for no reason.
Just goes to show how politicized the Treasury Department and IRS are. Here’s some basic math: lack of accountability + lack of transparency = corruption.
By my reckoning the real adjusted FBAR limits over the years in question are say:
2010 $10,000 <- set base line
2011 $9,694
2012 $9,497
2013 $9,360
2014 $9,211
2015 $9,200
These values are still above say the average bank balance in the US but if you assume some kind of normal distribution around that value (say $5k) then the number of people reporting should be growing very rapidly as more get sucked into the net. Of course any kind of pension savings in a foreign country is likely to put you over the top but of course what has to be reported is confusing.
Never filed a FBAR and never will. Full stop.
@Don,
Be careful. They would love to get willful penalties and you are clearly that. I know it’s shit but it is what it is.
Take it from somebody who had a lot of money stolen by the OVDP and that’s not as bad as even my non-willful penalties would have been.
They have added this stuff clearly to extort money from people. People look at me like I am mad when I say this. Then I explain 2520 penalties and ask them to explain how that’s anything but what I just said. Lights go on.
People who live in other countries have relatively cheap ways out via streamlined. No closure but the CLN gets you clean away after a number of years.
Lots of threats. The article suggests many/most are not sending in FBARs. And thus far, pre FATCA they are getting away with it. Only those that comply seem to get caught out – Boris Johnson with tax on the gain of his London property. That must have been because he flagged it to the IRS on some form in some way? (How was he “caught?”)
The Tax Payer Advocate did suggest the burden is on those complying and that burden is inordinate on those who comply.
Then with FATCA there have been additional problems with accounts (being denied) and FBAR (employer reporting requirement limiting careers/job prospects). These impacts would happen if one is compliant or not. Of course renunciation would alleviate these and that requires compliance.
Yet there is the fear of travel to the US (visiting relatives) and the fear of noncompliance being caught either in the passport process or in the actual travel. Lately, with losing one’s passport.
State sponsored terrorism!
@Neill — Yes, the limit should be adjusted for inflation (as should the net worth limit for covered expatriate and the income threshold for NIIT). From the Tax Expatriation blog – $10,000 in 1970 when the current limit was set would have been worth $61,194 in 2014 (and very similar now). That’s still low enough to catch you if your retirement accounts are reportable, or if money flows through your account for a home purchase, but most expats would be below that threshold.
Looking at it from the other side — if $10,000 2016 dollars buys as much as $1,636 bought in 1970. So today’s threshold is equivalent to a $1600 threshold in 1970 when the limit was last changed.
@Eric,
Thanks for the interesting post. Growth in numbers seems to be slowing down — it will be interesting to see if numbers fall off as more people renounce.
Some of the source articles seem to be unclear about whether they are counting FBAR forms filed or number of taxpayers filing FBARs. I suspect most have multiple accounts. Thus, 1.1m FBARs is equivalent to 400k FBAR filers if the average number of FBARs per filer is 2.75, which doesn’t seem unreasonable. Am I missing something here?
Again, thanks, Eric.
Karen, I believe one FBAR / FINCEN114 per person per year. My FBAR’s, one back-filed for each year required, listed ALL of my accounts, including a section for joint accounts and another for the accounts I held on behalf of my son. FBAR / FINCEN114 *must be* filed when the total of all accounts (or aggregate) is US$10,000 or more, using the highest yearly balance on each of the accounts to arrive at the total to determine whether or not in that year there is a FBAR / FINCEN114 requirement to file that form. (Mine were filed before the online filing requirement went into effect, but I presume still the same?)
The fact $$$ requirements have not been adjusted for inflation? – Exceptional.
Calgary – thanks for that. I must have misunderstood.
@Don
“Never filed a FBAR and never will. Full stop.”
Agreed; you’ve got my full support.
@JC
After all his objections, Boris Johnson thought it best he become US tax compliant.
Boris had an easily discoverable US taxable event occur in 2009 – before he learned about his US tax filing obligations. Under Streamlined, he would be forgiven any FBAR penalties for not knowing he was a US taxpayer, but he would not be forgiven the tax. If Boris filed for the first time last year, including 6 years of FBAR’s, that would leave Boris with his pants down. Entering Streamlined doesn’t guarantee that you won’t be audited, and there’s no statute of limitations on tax returns that were never filed.
He was hooped and he knew it.
The sale of a house isn’t that easily discovered; my guess is that Boris Johnson’s professional help got him into trouble. Frankly, if I sell real estate, there is no way the IRS will know, and it’s not going to be obvious on my FBARs either. If one is proactive the money can be diverted to paying off outstanding mortgages, taxes, to escrow accounts, and to accounts in someone else’s name. Nothing illegal concerning the country where it happens. But also not showing up on the IRS radar. Of course professional help would advise differently.
@Fred
Of course there are ALL KINDS of things you can do to legally avoid paying US tax on the sale of a home, if you happen to know BEFORE you sell your home!
Boris Johnson might not have known he was going to get hit for US CGT but his minders certainly would have been aware. It was interesting that he talked about renouncing, but very characteristic that he soon realized he didn’t want to lose his US citizenship.
It will be even more interesting to see what transpires now he’s favourite to succeed Cameron. Becoming PM really would require him to renounce. And, of course, pay the exit tax.
@iota
I doubt he knew. I’m pretty sure he would have found some legal way to avoid paying the tax if he had. Who wouldn’t?
Boris would be exempt from the exit tax because he’s tax compliant and was born a “dual” citizen.
@iota
Sorry I read your post wrong. I’m sure his minders would have suggested legal ways Boris could have avoided paying the tax. Why wouldn’t they tell him?
@Bubblebustin – you may be right. I had forgotten that at the time the property was sold, FATCA had not yet descended and most people had never heard of CBT.
Would he qualify for the dual citizen exemption? He’s in and out of America a lot, endorsed Obama, uses his passport… but yes, I just checked, and those things don’t matter. So he should be able to renounce if he really wants to. And if he’s compliant he surely must be paying a lot of income tax to the IRS at present, so that should be some consolation for the loss of the passport.
@Bubblebustin – our posts crossed. I realised I was wrong – possibly at the time of the sale they may not have been aware.
Hmm…maybe he’s just working through five years compliance”
@iota
If he paid tax on a house sold in 2009, he’s got his 5 years of tax compliance in the bag.
Me thinks that if Boris needs to renounce in order to lead GB, but visits the US enough to disqualify himself from the exit tax exemption for “duals”, then he’s not competent enough to run a country 🙂
@Bubblebustin – ha ha, you may well be right!
Whatever the explanation, he can certainly renounce if he wants to, so I guess time will tell.
Maybe this will spur him on to get his mojo together and leave.
http://www.telegraph.co.uk/news/politics/boris-johnson/12200562/Boris-Johnson-I-was-mistaken-for-Donald-Trump.html
🙂
@iota
The financial advice available, even in London, wasn’t necessarily up to scratch before FATCA. There were even advisers who told Americans to leave their employer pension scheme to participate in a self-invested pension, which is generally not good advice.