Via TaxProf Blog, we learn that National Taxpayer Advocate Nina Olson has released her 2016 Report to Congress. Like earlier reports, this one continues to identify FATCA and related problems as being among the “Most Serious Issues” encountered by taxpayers, and dares to make the most mild suggestions for improvement, which the IRS will undoubtedly ignore, as they have since 2012.
The IRS has adopted an enforcement-oriented regime with respect to international taxpayers. Its operative assumption appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise. This assumption results in the IRS ignoring stakeholders, dismissing useful comments and suggestions, and misallocating resources.
More quotes after the jump.
Same Country Exception
The Same Country Exception (SCE) represents the tiniest amount of relief that the IRS might provide to U.S. Persons in other countries who have been negatively affected by FATCA. Olson continues to call on the IRS to implement the SCE (p. 225):
As a recommendation to help solve this problem and minimize the burden of FATCA compliance for both individual U .S . taxpayers and FFIs, the National Taxpayer Advocate previously proposed that the IRS and Treasury adopt a “same country exception.” This exception would exclude from FATCA coverage financial accounts held in the country in which a U.S. taxpayer is a bona fide resident, would mitigate concerns about the collateral consequences of FATCA raised by U .S . non-residents, and would reduce reporting burdens faced by FFIs. No action has been taken by the IRS or Treasury with respect to this recommendation. This idea of a same country safe harbor has also been placed before Congress by the National Taxpayer Advocate, American Citizens Abroad, and Democrats Abroad. The National Taxpayer Advocate reiterates her recommendation that the FATCA regime incorporate a same country exception.
Contrary to Olson’s statement, action has been taken by Treasury: they have told the diaspora to go take a long walk off a short cliff:
The information reporting required by FATCA is intended to address the use of foreign accounts to facilitate tax evasion, and also to strengthen the integrity of the voluntary compliance system by placing U.S. taxpayers with accounts held with FFIs in a comparable position to U.S. taxpayers with accounts held with U.S. financial institutions. This is the case even for U.S. taxpayers resident abroad, since U.S. citizens and U.S. resident aliens are subject to U.S. income tax on their worldwide income regardless of where they reside and regardless of whether their accounts are maintained by U.S. financial institutions or FFIs. The Treasury Department and the IRS have also decided that the risk of U.S. tax avoidance by a U.S. taxpayer holding an account with an FFI exists regardless of whether the U.S. taxpayer holds an account in his or her foreign country of residence or another foreign country.
Brockers have criticised the SCE — in particular the implementation suggested by American Citizens’ Abroad, whereby U.S. persons would have to provide their U.S. tax returns to their “foreign” financial institutions — as no better than being “strip search[ed] in the bank lobby“. Whether or not the SCE would be better than nothing, Treasury refuses to provide even this tiny morsel of relief to the diaspora.
Banking issues and renunciations
Further down on the same page:
In a recent survey of U.S. expatriates conducted by Americans Abroad Global Foundation and the University of Nevada-Reno, 91 percent of respondents indicated that FATCA compliance placed them at a disadvantage compared with ordinary citizens from their country of residence. Further, 86 percent articulated the belief that the law should be revised to reduce some of the associated burdens by adopting a “Same Country Exception.” The survey report concludes, “There appears to be a consensus among many respondents that their government does not recognize how the FATCA legislation is negatively affecting them and limiting their ability to maintain banking and financial relationships. Most feel that their government is not doing enough to try and address their concerns and problems.”
Perhaps because of the perceptions expressed in the University of Nevada study, along with other reasons including banking lock-out and the additional compliance burdens imposed by FATCA and related information reporting regimes, the number of expatriates renouncing their U.S. citizenship has continued to rise. In calendar year 2015, a record 4,279 individuals renounced their U .S . citizenship or long-term residency — a 25 percent increase over 2014, which likewise had been a record-breaking year. As explained by one expatriate, “If it weren’t for FATCA and the decision by the bank [lock-out], I’d never be doing this.”
Olson cites the error-prone Federal Register Quarterly Publication of Individuals Who Have Chosen to Expatriate for that 4,279 figure. The FBI actually added 5,426 records of 1481(a)(5) renunciants to the National Instant Criminal Background Check System (NICS) in 2015 — and NICS doesn’t even include 1481(a)(1) through (4) citizenship relinquishers. Comparison of media reports on names individuals giving up U.S. citizenship to the Federal Register list suggests that the IRS has been dropping large numbers of names since 2006.
Passport revocation
Olson also touches on the disproportionality of passport revocation as applied to U.S. citizens in other countries (p. 226)
Another enforcement provision that exacerbates the disproportionate burden on expatriates is the recently enacted law allowing for the revocation or denial of passports for taxpayers who owe the IRS more than $50,000. For U.S. residents, the lack of a passport typically would constitute an irritation; for expatriates, however, it could represent a crisis: “Americans abroad need their passports for many routine activities of daily life, such as banking, registering in a hotel, or registering a child for school, and mistakes could be disastrous.” Additionally, concern has been expressed regarding potentially dangerous in-country events or circumstances to which expatriates might sometimes be exposed because of passport revocation.
The IRS is currently developing processes and procedures relating to the implementation of this additional tax enforcement mechanism. In this process, the IRS should learn from its experiences with Chapter 3 and Chapter 4 refunds and carefully coordinate and collaborate within its own Operating Divisions and within the Department of State. Moreover, the IRS should protect the rights of taxpayers by, among other things:
- Broadly interpreting hardship and other discretionary exclusions;
- Providing an administrative appeal before certifying a “seriously delinquent tax debt” to the Department of State;
- Encouraging the Department of State to adopt expansive definitions of humanitarian and emergency exceptions; and
- Informing the taxpayer of the availability of TAS assistance before passport revocation or denial occurs.
Great care should be taken in the implementation of this law to ensure that its application is reasonable and proportionate with respect to both U .S . citizens residing abroad and in the United States.
See our previous posts on passport revocation for further information.
International mailing delays
The report also touches on international mailing delays and difficulty in obtaining assistance outside of the U.S., which results in difficulties for U.S. persons who face extremely tight deadlines for filing appeals (p. 393):
Taxpayer, a U.S. citizen, relocated to China to assist her company in opening an office in Beijing. The taxpayer properly notified the IRS of her new address before moving abroad. She timely filed her U.S. tax return. On June 5, the taxpayer received a math error notice from the IRS; the notice was dated April 18. The taxpayer found the language in the notice very confusing and did not understand what was wrong with her return. The taxpayer attempted to call the IRS over the course of several days. After a lengthy wait on hold every time, however, the taxpayer was disconnected and could not reach an IRS representative. Next, the taxpayer attempted to find an accountant or attorney in Beijing who specialized in U .S . tax law. With only nine days to respond to the notice, however, the taxpayer was not able to find assistance. Her time to request abatement expired and she was assessed additional tax. The taxpayer lacks financial resources to pay the tax and then pursue refund litigation in district court or the court of federal claims.
Brockers have reported extreme delays in receiving mail from the IRS. I am of the opinion that this is a systemic and deliberately-created problem. (I have never even seen a notice from the IRS where the envelope has a franking stamp with the date on it, suggesting they are trying to conceal the extent of this issue, though Norman Diamond notes that some letters he’s received from the IRS do have date stamps on the envelope.)
sums up the collection of tax “reforms” under consideration.
@JC & Karen.
That’s what happens when the Tax Code is 70,000 pages and growing.
George (The Original Recipe) says
January 13, 2017 at 12:27 pm
@All….back in the day when ADCS was doing its fund raising there were plenty of nay sayers around here and elsewhere.
I remained FULLY optimistic, Fully supportive and encouraging all the way to the efforts of the plaintiffs, the witnesses and the ADCS team. THEY were doing heavy heavy lifting to help and when another human being is doing selfless service to help I refuse to engage in any effort to belittle or discourage them.
I applaud ADCS Canada.
I applaud ADCS with the USA cross border action.
I applaud Republicans Overseas.
I applaud Keith Redmund.
My heartfelt thanks to all the above, none and I repeat none of them are bullshitters.
My sole discouraging remark to Team ADCS is that the litigation may be rendered moot because of political events in the USA!!! We may have FATCA gone before the Court Case starts!!! If thats being a discouragement then my apologies.
My sentiments exactly. Thank you Original George!!
This is evil.
DoD, around 20 weeks seems to be the sweet spot. In early May 2016, I requested an appointment for Calgary, and received the confirmation email in early September for an appt in late April 2017. My 17-year-old son sent in his request in early July 2016, also for Calgary, and received confirmation email in early November for an appt in late June 2017.
Yes, the system in Canada changed in 2016, with all email requests for appointments going through Vancouver rather than your desired consulate. My daughter renounced earlier this year after applying in 2015 and while the wait for the appointment was nearly as lengthy, the confirmation email was sent within a few days.
I’d like to be pleasantly surprised about FATCA after Friday (perhaps the only possibility for a pleasant surprise) but I’m not holding my breath for the Republicans to keep any of their platform promises; after all, the current platform states, “We support maintaining and, if warranted, increasing sanctions, together with our allies, against Russia unless and until Ukraine’s sovereignty and territorial integrity are fully restored. We also support providing appropriate assistance to the armed forces of Ukraine and greater coordination with NATO defense planning.” I’m furious at Obama and the Dems for FATCA, but I’m terrified of Trump and the Republicans, who seem to have thrown all norms and conventions out the window in their pursuit of self-enrichment.
Here it comes.
“Ten things you need to know about passport restrictions on delinquent taxpayers
By Jim Buttonow
Published January 31 2017, 9:02am EST
“The law was effective on the day Congress passed it, but given the complexity of implementing it, the IRS needed time to work out the details. Now, the IRS is ready to start the program in late March.”
“Who is an individual with seriously delinquent tax debt? Section 7345 defines this person as owing a legally enforceable tax liability of more than $50,000 (unpaid taxes, penalties and interest combined), with:
A lien filed, and all administrative remedies for lien relief have lapsed or been denied; or,
A levy issued.”
“4. What will happen to the person who owes seriously delinquent tax debt?
Starting in late March, the IRS will send Letter 508C, Notice of certification of your seriously delinquent federal tax debt to the State Department, to the taxpayer’s last-known address to notify the taxpayer that they are certified as owing seriously delinquent tax debt. At that time, the IRS will also send the certification to the State Department.
The State Department then has the authority to deny issuance or renewal of a passport, or fully restrict or limit its use. The State Department will notify the taxpayer in a separate letter about the passport restrictions.
Before the State Department revokes a passport, the State Department may limit the passport so that the individual can only travel back to the United States. It’s unclear how the State Department will use its discretion on limiting and revoking passports.
However, when taxpayers are applying for or renewing a passport, the FAST Act requires the State Department to deny the passport to any individual with seriously delinquent tax debt. Per the IRS Web site, before denying the issuance of a passport, the State Department will hold the passport application for 90 days to allow the taxpayer to:
Resolve any erroneous certification issues;
Pay the tax debt in full; or,
Establish a payment alternative with the IRS
Taxpayers won’t get a similar grace period for resolving the debt before the State Department revokes a passport.”
“5. How can taxpayers get their passport restrictions lifted?
To get out of the passport restriction, individuals must get back into good standing with the IRS. For most taxpayers, that will mean paying the entire tax bill or, more likely, setting up an installment agreement with the IRS.
After taxpayers get into good standing, the IRS will send the decertification list to the State Department, which then lifts the passport restrictions. The IRS will also reverse the certification within 30 days.”
“7. Can taxpayers appeal their seriously delinquent tax debt certification?
Under Section 7345(e), taxpayers can appeal their status in federal district court or U.S. Tax Court. But the taxpayers’ passports will remain restricted while they appeal.
Expect further legislative and administrative remedies to allow taxpayers to contest their status at the same time they learn about passport restrictions. One reason we should see these additional remedies is the uncertainty of international mail. Many taxpayers may not be receiving IRS letters about their unpaid taxes. In fact, they may first find out about their passport restrictions when they try to travel to another country or return to the United States. A 2015 Treasury Inspector General for Tax Administration study reported that the IRS had no idea whether U.S. taxpayers living abroad had received the 855,000 notices it sent.”
“8. What if taxpayers don’t think they owe the tax?
Here, taxpayers are in a pickle, because time is of the essence. For example, if the IRS assessed tax on an unfiled return (that is, the IRS filed a return for the taxpayer, called a substitute for return), or through a completed audit or underreporter inquiry, there’s not much the taxpayer can do to quickly contest the tax assessment and remove the seriously delinquent tax debt certification. Filing an original return or contesting the tax through IRS administrative options or courts may take a long time.
To get immediate relief, the only quick option is for taxpayers to pay the balance, or more likely, set up an installment agreement, and contest the tax later with the IRS.””
“Who is an individual with seriously delinquent tax debt? Section 7345 defines this person as owing a legally enforceable tax liability of more than $50,000 (unpaid taxes, penalties and interest combined), with:
A lien filed, and all administrative remedies for lien relief have lapsed or been denied; or,
A levy issued.”
In other words, even when the lien is entirely fraudulent, and when the IRS has administratively denied admitting that the individual doesn’t owe the penalty, there is no relief.
“Taxpayers won’t get a similar grace period for resolving the debt before the State Department revokes a passport.”
Right. The passport is revoked while the person lives in their country of residence, and the US can even prevent the person from going to the US in time for calendar call in Tax Court.
“Under Section 7345(e), taxpayers can appeal their status in federal district court or U.S. Tax Court. But the taxpayers’ passports will remain restricted while they appeal. ”
Right. So even if the IRS had the idea of admitting AFTER calendar call in Tax Court that the person doesn’t owe any penalty, AFTER the person had to pay for plane tickets and take absence from work etc., well, the US already prevented the person from appearing for calendar call so the person forfeited and the IRS doesn’t have to admit a thing.
They’ve sure got that wrapped up.
Anyone who still thinks you don’t have to renounce before things get worse, you’d better think again.
P.S.
“Starting in late March, the IRS will send Letter 508C, Notice of certification of your seriously delinquent federal tax debt to the State Department, to the taxpayer’s last-known address to notify the taxpayer that they are certified as owing seriously delinquent tax debt.”
No they don’t send it to the taxpayer’s last-known address, except by accident. I moved on 2016-01-07, mailed a Form 8821 change of address notice to the IRS on 2016-01-12, and reminded them numerous times in letters, but they still kept addressing letters to my old address. That building has been torn down. The post office has stopped forwarding. If the Japanese post office has to try to guess where to return an undeliverable letter to, the return address often ends in the international standard abbreviation for Panama (PA) so that’s where the post office should guess to return the letter.
When I tried to file evidence in Tax Court about the IRS’s malfeasance in addressing letters and the fact that a letter wasn’t returned doesn’t prove that the letter was delivered, the IRS persuaded Tax Court to block the filing of my evidence.
Well, if I were still a US citizen, they could even block me from appearing in Tax Court. Luckily I’m not.
If only I could renounce. I can’t so……
Olson had an op-ed in the WSJ last Monday calling for tax simplification
https://www.wsj.com/articles/complexity-is-the-root-of-all-evil-at-least-in-the-tax-code-1492469801 (archived: https://archive.fo/U3Q0B)
Doesn’t mention anything about filers outside of the US, though
Surely the US government will ignore the Taxpayer Advocate’s blog posting just like they ignore everything else she writes.
https://taxpayeradvocate.irs.gov/news/the-irs-s-new-passport-program-why-notice-to-taxpayers-matters-part-1-of-2?category=Tax%20News
Is it anybody’s job to listen to Nina Olson, or is her job just a waste of taxpayer’s money?
https://www.taxconnections.com/taxblog/new-passport-program-how-lack-of-notice-harms-taxpayers/
TAS fights back.
“For taxpayers who were already certified prior to seeking TAS assistance, I have issued interim guidance to TAS employees authorizing all taxpayer cases involving revocation, limitation, or denial of passport under section IRC § 7345 to be accepted under TAS Case Criteria 9 if they do not meet any of the other TAS Case Criteria. Under Criteria 9, TAS accepts cases when I have determined that a compelling public policy warrants assistance to an individual or group of taxpayers. Given the imminent, irreparable harm that taxpayers may face by the loss of their passports and the right to travel internationally, there is clearly a compelling public policy for assisting any taxpayer subject to passport certification.”
https://www.taxconnections.com/taxblog/irs-rolls-out-passport-certification-program-refusing-to-adopt-taxpayer-protections-and-exclude-taxpayers-working-with-tas/