cross-posted from Citizenshipsolutions dot ca

For Americans, tax season gets even more stressful when they leave the U.S. https://t.co/u58zQy2LmF via @business quotes @Kred65

— Citizenship Lawyer (@ExpatriationLaw) March 30, 2016

Yesterday I was forwarded an email which originated from the U.S.
Consulate in Toronto. The purpose of the email (included at the end of
this post) was to give notice of U.S. tax obligations for U.S. citizens
living outside the United States. In other words, the State Department
is assisting the IRS by notifying Americans abroad of their U.S. tax
filing obligations. Put another way, this email represents:

“Tax Education Outreach” from the IRS delivered by the State
Department”

I do NOT recall this in previous years. That said, this email
notification is extremely significant. It means that the IRS can argue
that those who received this email may well have had notice that they
were required to file U.S. tax returns. Over time, this will increase
awareness of U.S. tax filing obligations. The greater the increase in
awareness of U.S. tax filing obligations, the harder it will be to claim
ignorance of those obligations. (This is in addition to the “Educational
Outreach” coming in the form of FATCA letters from your local bank and your friendly
journalists. In both cases, you are being asked to consider the question
of: “Are you or have you even been an American
citizen?“) Although, this is NOT an immediate problem, it seems
logical that sooner or later it will become more difficult for Americans
abroad to claim ignorance of their U.S. tax filing obligations. This may
have implications for coming into U.S. tax compliance.

Q. Who would have received this email from the U.S.
consulate?

A. Anybody who is on the U.S. Consulate email list.

Q. Who would be on the U.S. Consulate email list?

A. It would include almost anybody who has applied for a U.S. passport.

To put it simply:

One who applies for a U.S. passport is now putting oneself in a
position where one will be told about U.S. tax filing
obligations. Since most Americans abroad need a U.S. passport,
it stands to reason that those who apply for a U.S. passport are
creating a situation where they will be told about U.S. “taxation based
citizenship”. You can see where this is going.

This appears to be the next step in the progression that
includes …

1. State Department asking for your Social Security
Number – For some years the State Department has been required
to ask Passport applicants for their Social Security number. This
requirement is found in S. 6039E of the Internal Revenue Code, which
includes:

(a) General rule Notwithstanding any other provision of law,
any individual who—

(1) applies for a United States passport (or a renewal thereof), or
(2) applies to be lawfully accorded the privilege of residing
permanently in the United States as an immigrant in accordance with the
immigration laws,
shall include with any such application a statement which includes the
information described in subsection (b).

(b) Information to be provided Information required under subsection (a)
shall include—
(1) the taxpayer’s TIN (if any),
(2) in the case of a passport applicant, any foreign country in which
such individual is residing,
(3) in the case of an individual seeking permanent residence,
information with respect to whether such individual is required to file
a return of the tax imposed by chapter 1 for such individual’s most
recent 3 taxable years, and
(4) such other information as the Secretary may prescribe.

(c) Penalty

Any individual failing to provide a statement required under subsection
(a) shall be subject to a penalty equal to $500 for each such failure,
unless it is shown that such failure is due to reasonable cause and not
to willful neglect.

(d) Information to be provided to Secretary Notwithstanding any other
provision of law, any agency of the United States which collects (or is
required to collect) the statement under subsection (a) shall—
(1) provide any such statement to the Secretary, and
(2) provide to the Secretary the name (and any other identifying
information) of any individual refusing to comply with the provisions of
subsection (a).
Nothing in the preceding sentence shall be construed to require the
disclosure of information which is subject to section 245A of the
Immigration and Nationality Act (as in effect on the date of the
enactment of this sentence).

(e) Exemption

The Secretary may by regulations exempt any class of individuals from
the requirements of this section if he determines that applying this
section to such individuals is not necessary to carry out the purposes
of this section.

(Added Pub. L. 99–514, title XII, § 1234(a)(1), Oct. 22, 1986, 100 Stat.
2565; amended Pub. L. 100–647, title I, § 1012(o), Nov. 10, 1988, 102
Stat. 3515.)

Note that S. 6039e does NOT include a provision for the denial of a
passport.

2. The 2015 FAST Act: State Department has the authority to deny
you a passport – The “passport revocation” and “passport
denial” provisions in the FAST Act allow give the Government the right
to deny you a passport for reasons of “tax delinquency”. The provisions
are complicated and will (in the short run) be difficult to enforce.
Nevertheless, the United States has now linked taxation with the right
to have a U.S. passport. This is an extremely dangerous provision.

See the following recent presentation I made on this topic here:

life in the penalty box, and cannot be both U.S. tax
compliant and live a normal life in their country of residence.
Americans abroad, who have no immediate plans to return to the United
States, would be well advised to get a second citizenship/passport. The
acquisition of that second passport may or may not be accompanied by the
relinquishment of U.S. citizenship. It is becoming increasingly
difficult to remain a U.S. citizen and live outside the United States.
More and more people are renouncing U.S. citizenship. They feel that
they have no choice!

On the issue of “renouncing U.S. citizenship” …

“To renounce or not to renounce, whether tis better ” is a difficult question. https://t.co/SlKWmehRxC – to which there is NO happy answer.

— Citizenship Lawyer (@ExpatriationLaw) March 28, 2016

As I recently commented on Rachel Heller’s blog:

@JD and @Rachel

I certainly agree that the question of:

“To renounce or not to renounce, whether tis better …”

is a difficult question.

There is NO answer to this that will not cause pain, hurt, resentment,
anger, and long term pain.

When I consider various categories of Americans abroad, I think it is
useful to distinguish between those who have been filing their U.S.
taxes and those who have not.

First, Those who have been and are U.S. tax compliant …

Those who have been filing U.S. taxes (and are in the tax system) are in
the worst of all possible situations. By entering the U.S. tax system,
they have voluntarily entered a “fiscal prison” that means that they
will always be disadvantaged relative to others in their country of
residence. Those who have been filing U.S. taxes can be further divided
into:

A. Covered expatriates – Subject to the S. 877A Exit
Tax

You will be a “covered expatriate” if you:

– have too much income

– too many assets

– not tax compliant for five years

Those who are “covered expatriates” (particularly those who have
pensions in their country of residence) are in an incredibly difficult
situation. To put it simply, they are likely to have to pay a huge
portion of their life savings to be free of the United States. This is
because of the effects of the S. 877A Exit Tax (Google this). As a rule
of thumb, those Americans abroad with assets that exceed two million USD
(easy to do if you own a house in Toronto, London, Vancouver, etc) will
be very damaged if they “choose to be free”, by leaving the “land of the
free”. I find that most Americans abroad are unaware of this or they
think “that there must be some mistake – this couldn’t possibly be
true”. Make no mistake. The U.S. S.877A Exit tax is designed to impose
confiscatory taxation on (1) assets that exist outside the United States
and (2) that were acquired after the person moved from the United
States.

B. Non-covered expatriates – not subject to the S. 877A Exit
Tax

If you check my site at “citizenshipsolutions dot ca” you will see this
defined and discussed. My message for those of you who are non-covered
expatriates is to get out now! Sooner or later you will be “covered”.

It’s interesting that those who were “dual citizens from birth” (and meet other criteria)
may be able to escape being a “covered expatriate”. This is interesting
because it means that those who are punished the most by the S. 877A
Exit Tax rules are those who were born ONLY U.S. citizens. You can’t
make this up!

Those who have not been and are not U.S. tax compliant
…

All of the evidence suggests that Americans abroad who are “U.S. Tax
Compliant” are in a minority. Because of FATCA and fear mongering they
are under pressure to become U.S. tax compliant. Many of them are coming
into U.S. tax compliance. In fact many of them are coming into U.S. tax
compliance for the sole purpose of being able to (1) avoid being a
“covered expatriate” and (2) renounce U.S. citizenship.

If you want to see what it means to live as a “U.S. tax compliant”
citizen abroad, and why it is a “fiscal prison”, I invite you to read
the following blog post:

How To Live Outside The United States in an FBAR and
FATCA World

There is NO “pain free” answer to the problem of attempting to
live as a U.S. citizen outside the United States!

Here is the “IRS Tax Bulletin” from the IRS which was sent to
those who have applied for a U.S. passport …

Actually it’s a pretty good synopsis to get you started. Of course, one
read of this may make you want to avoid getting a U.S. passport forever.
That said, what is clear is that:

When it comes to those born in the United States: Taxation and
citizenship are one and the same!

United States Consulate General Toronto, Canada

Message for U.S. Citizens: IRS 2016 Tax Filing Information

The @USConsToronto is emailing U.S. tax filing information to those #Americansabroad on its mailing list. https://t.co/tGFfmgKciF

— Citizenship Lawyer (@ExpatriationLaw) March 30, 2016

March 29, 2016

Who Must File?

If you are a U.S. citizen or resident alien living or traveling outside
the United States, you generally are required to file income tax
returns, estate tax returns, and gift tax returns, and pay estimated tax
in the same way as those residing in the United States. Your worldwide
income is subject to U.S. income tax, regardless of where you reside.

Your income, filing status, and age generally determine whether you must
file an income tax return. Generally, you must file a return if your
gross income from worldwide sources is at least the amount shown for
your filing status in the Filing Requirements table in Chapter 1 of
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

When is the 2015 Federal Tax Return Due?

Due date for Form 1040: April 18, 2016

The due date is April 18 instead of April 15 because of the Emancipation
Day holiday in Washington, D.C., – even if you do not live in the
District of Columbia. If you live in Maine or Massachusetts, your
federal tax return is due April 19, 2016, the day after the Patriots’
Day holiday in those states.

Possible extensions of time to file tax return:

Automatic extension to June 18, 2016, for taxpayers living outside the
United States and Puerto Rico. No form is required; write “Taxpayer
Resident Abroad” at the top of your tax return.

Caution: This extension applies only for filing your tax return, not for
payment. If you owe any taxes, you’re required to pay by April 18, 2016.
Interest and penalties generally will be applied if payment is made
after this date.

Extension for all taxpayers to October 18, 2016: File Form 4868.

Caution: This extension applies only for filing your tax return, not for
payment. If you owe any taxes, you’re required to pay by April 18, 2016.
Interest and penalties will generally be applied if payment make after
this date.

Other extensions may be available on IRS.gov.

Can I Mail My Return and Payment?

You can mail your tax return and payment using the postal service. If
you mail a return from outside the United States, the date of filing is
the postmark date. However, if you send a payment, separately or with
your return, your payment is not considered received until the date of
actual receipt. You may use approved private delivery services. A list
of approved delivery services is available on IRS.gov.

5. Can I Electronically File My Return?

You can prepare and e-file your income tax return, in many cases for
free. Participating software companies make their products available
through the IRS. Many Free File and e-file partners accept a foreign
address. E-File options are listed on IRS.gov.

6. What Forms Might I Need?

1040, U.S Individual Income Tax Return

Instructions to Form 1040

1116, Foreign Tax Credit

Instructions to Form 1116

2350, Application for Extension of Time to File U.S. Income Tax Return
(for U.S. citizens and residents abroad)

2350 in Spanish

2555, Foreign Earned Income Exclusion

Instructions to Form 2555

2555-EZ, Foreign Earned Income Exclusion

Instructions to Form 2555-EZ

4868, Application for Automatic Extension of Time To File U.S.
Individual Income Tax Return

4868 in Spanish

8802, Application for United States Residency Certificate

Instructions to Form 8802

8938, Statement of Specified Foreign Financial Assets

Instructions to Form 8938

14653, Certification by U.S. Person Residing Outside of the United
States for Streamlined Foreign Offshore Procedures

How Do I Pay My Taxes?

You must pay your taxes in U.S. dollars.

Direct pay option. You can pay online with a direct transfer from your
U.S. bank account using Direct Pay, the Electronic Federal Tax Payment
System, or by a U.S. debit or credit card. You also can pay by phone
using the Electronic Federal Tax Payment System or by a U.S. debit or
credit card.

Foreign wire transfers. If you have a U.S. bank account, you can use:
EFTPS (Electronic Federal Tax Payment System), or Federal Tax
Application (same-day wire transfer). If you do not have a U.S. bank
account, ask if your financial institution has a U.S. affiliate that can
help you make same-day wire transfers.

Foreign electronic payments. International taxpayers who do not have a
U.S. bank account may transfer funds from their foreign bank account
directly to the IRS for payment of their tax liabilities.

Are There Other Reporting Requirements?

You also may have to file FinCEN Form 114, Report of Foreign Bank and
Financial Accounts (FBAR), by June 30, 2016.

Does the IRS Provide Help in Other Languages?

The IRS provides tax information in Chinese, Korean, Russian, Spanish,
and Vietnamese. Go to www.irs.gov and use the drop down box under
“Languages” on the upper right corner to select your language.

Where Can I Get Help?

Contact the International Taxpayer Service Call Center by phone or fax.
The International Call Center is open Monday through Friday, from 6:00
a.m. to 11:00 p.m. (Eastern Time).

Tel: 267-941-1000 (not toll-free)

Fax: 267-941-1055

I Received a Notice from the IRS – What Do I Do?

If you receive a notice from the IRS and need to contact the IRS, call
the number listed in the notice or the International Taxpayer Service
Call Center (contact information is listed in the section above).

Where Can I Get More Information?

For information, see the IRS website about international taxpayers.

For general information about international taxpayers, see Publication
54, Taxation of U.S. Citizens and Residents Abroad.

For information on the Affordable Care Act and taxpayers outside the
United States, see Publication 5187, Health Care Law.

I Haven’t Filed All My Tax Returns – What Can I Do?

If you have not filed all the returns that you should have and want to
catch up on your filing obligations, see IRS makes changes to
offshore-programs.

Note: The timestamp on this e-mail message may reflect Washington, D.C.,
time, which may differ from local time.