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.)
Just more rhetoric that reinforces how out of touch and careless our IRS is in regards to overseas Americans. They simply do not care.
Americans overseas are just viewed as cattle to milk as they deem necessary
George
As a non-resident alien under current rules I would pay US tax on dividends and some interest earned in the US. The general rule is that a US payer of dividends and some kinds of interest is required to withhold 30% in US tax from payments to NRAs or non-US entities. The rate is reduced in most of the tax treaties. The US can withhold up to 15% on dividends paid to an Australian payee, for example. Most RBT countries do the same. Any non-resident investing in Australian shares will have 15% withheld from certain dividends. So, if the US moved to RBT, I would expect that the Bahamian resident in your example would be subject to withholding on his US investment income.
@ George O (for Original Recipe, One and Only and Optimistic)
“My SOLE objective is to rid the world of Citizenship Based Taxation meaning that any person who has LEFT the USA and has NOTHING to do with the USA will never ever have to pay tax to that place or to file a single piece of paper with that place, nothing……..”
Absolutely my SOLE objective too. TNT the CBT! And I would add they must do this without requiring any catch-up filing to the date of inactment.
@ Japan T and Heidi
The very last line of the RO’s white paper says FBARs are to be repealed or an exemption made for non-residents. See this post …
http://isaacbrocksociety.ca/2017/01/06/white-paper-republicans-overseas-on-fatca-rbt/#more-53346
I am not sure that I buy all of George’s arguments but I am unable to study his comments in detail presently.
One thing that struck me immediately however is that someone living in the Bahamas (or Cayman or many other locations) pays far higher Customs duties, different property taxes, Government fees of various sorts etc and often Value Added taxes as well. Thus tax is based on consumption of goods and services. So a US person suffering US tax on that US sourced income will get a double ding if they live in the Bahamas; Full US Income Taxation PLUS higher Bahamian consumption type taxes.
Peace
Happy New Year all
@George (TOR): “Conclusion: Under a TBT model persons in the UK will not have to pay US tax or file US forms unless they invest in the US and if they invest in the US they will receive a tax credit in the UK even if the tax treaty is burned at the stake.”
Except that it is not that simple. Not even close.
UK investors earning below around £10k/year have no UK tax liability, and so have nothing against which to offset the 30% paid to the US. UK investors earning below around £40k/year pay tax at 20% and so can only offset 2/3 of the 30% paid to the US. No UK investor pays more than 20% in capital gains tax, so again the maximum offset would be 2/3 of the 30% US tax paid, and because the UK has an £11k/year capital gains tax-free allowance, most would have little or nothing at all against which to offset the US tax.
And finally, under the terms of the treaty the UK is not bound to credit any more US tax than the US can charge under this same treaty. So if the US suddenly and unilaterally raises tax rates on UK investors, they only way these investor get even the sub-par amounts outlined above is if the treaty is in fact “burned at the stake”. Otherwise, the UK simply does not have to credit anything on interest or capital gains, and need only credit at most 15% for dividends.
In practice then, nearly all UK investors would see a substantial rise in their tax bills from this proposal, and only a few would be able to claim full credits.
When will people realize that the ONLY solution to this never-ending nightmare is to renounce and be rid of links to a country that would treat its citizens, or those it deems to be its citizens in such a terrible way? It’s hopeless and the Government couldn’t give a damn about the endless issues that have destroyed the lives of so many. As long as they can extort money, they will do it. That is all the entire system is about.
Fred. Trying to renounce BUT- 19 weeks and no word since we asked for an appointment using the online Canadian system. No response to follow up email. Anybody know who we can contact in vancouver, Ottawa, or Washington?
Fred: As long as renunciation costs $2,350.00 U.S. and is tied to several years of U.S. tax compliance and six years of FBARS it is out of the question for me. I want complete amnesty from the U.S. government. In fact, what I REALLY want is a presidential apology … but I would have liked to have received it from the outgoing president, responsible as he is for, at least,the FATCA portion of this debacle.
Certainly we are all deserving of a presidential apology. From Obama and any other politician responsible for FATCA directly or by default in not speaking out against it. I’m afraid that Trump isn’t going to do any thing about FATCA either, although hope to be wrong about that. It is more difficult for some to renounce than others. My situation was clear and simple. This is not the case for everyone. No one should have to renounce the country of their birth or fear travelling there due to fear of the IRS and CBT.
I agree that Trump will probably not repeal FATCA, FBAR and CBT, despite what’s in the Republican platform. The reason is that he will be persuaded by the DC power structure that continuity is required in US foreign policy, and to repeal something that the US invested so much time, money and energy in, and foreign governments and banks invested so much money implementing, will destroy US credibility when it comes time to bully the rest of the world into future agreements.
Just look at what they’re doing to him now with all this Russia nonsense. They are making it impossible for him to reverse Obama’s hostile, provocative Russia policy and seek rapprochement with Russia.
I`m not really sure if I understand the implications of TBT enough. I have divested away from American for a long time already. I could imagine other people would do the same with TBT. But getting rid of CBT would be a start and it would also signify an acknowledgement that RBT is morally wrong, perhaps (although they would probably say it was an economic decision). But let us just hope that Trump changes something along those lines.
Ooops- I meant CBT- getting rid of CBT. Could the mods correct?
@Bubblebustin,
Trump was correct. CNN is fake news, as is the rest of the mainstream media. They distort, omit and censor in order to control the public mind and promote the agendas of the powerful. On every issue, not just our issues.
The problem with all this Russian stuff is that it is creating controversy even before Trump takes office and repealing Fatca is going to create more. Sadly the homelander American public has been brainwashed into the fair share and exceptionalism mentality and repealing Fatca will make it look like Trump is promoting tax evasion and that some taxpayers will be getting away without having to pay their fair share. No such thing is true of course except for the real tax evaders and they generally can hide their tracks better than the average person with Fatca or without Fatca.
I am still told by some homelander acquaintances that I am getting $100,000 of my wages tax free with the FIEF when no such thing is true. We pay tax where we live.
However we can just hope that while everything is aligned perfectly for change to happen that it does.
@DoD,
I’d try the Western Hemisphere Division Chief for American Citizens Services in Washington. I don’t know anyone in Ottawa to contact at this time. We used to have an excellent person to contact there for problems in Canada, but she’s moved on. The Division Chiefs in Washington have a good track record getting CLNs, which fell through the cracks, issued quickly, some cases of which were due to consulates dropping the ball and/or ignoring communication from the person.
Christine Fagan, 202-485-6289
Division Chief, Western Hemisphere Affairs
Bureau of Consular Affairs, Office of American Citizens Services
Dept of State Telephone Directory
@Red Cabbage
Even a broken clock is correct twice a day.
One of Trump’s supporters just wrote elsewhere, “Trump Needs to stop tweeting. It will be his undoing.”
Trump tweets what’s on his mind, why would anyone want him to hide it? It’s what’s behind the tweets that should be of greatest concern. His press conference was just as bizarre as his tweets. What does the future hold for his supporters? If only Trump would stop holding press conferences, if only Trump would keep his mouth shut…
FATCA is about power – I don’t know if it’s in Trump’s nature to voluntarily relinquish it, I’m sorry to say.
US voters decided they’d rather take a chance on someone who at least will shake things up, rather than more of the same with Hillary. I wonder if they’ll like what they get when the dust settles.
@DOD
Any chance you could have a renunciation/vacation in Iceland or Mexico?
@Watcher, “And finally, under the terms of the treaty the UK is not bound to credit any more US tax than the US can charge under this same treaty.”
You do not fully grasp the UK position on foreign taxes paid. The “HMRC has unilateral relief for when double taxation agreements don’t exist or don’t apply.”
https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet/hs263-calculating-foreign-tax-credit-relief-on-income-2016
By way of example, the UK has NO tax treaties with US States yet the UK provides a foreign tax credit for state taxes paid.
https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt19855a
@Watcher, “UK investors earning below around £10k/year have no UK tax liability, and so have nothing against which to offset the 30% paid to the US. UK investors earning below around £40k/year pay tax at 20% and so can only offset 2/3 of the 30% paid to the US.”
Simples….Do Not Invest in USA.
When I left the USA, full stop on my investing there.
FWIW, I do not invest in Canada because I do not know what the rules are there and to be blunt Canada is foreign to me.
@George
That may be so for the UK but not for many other countries. It has took me 4 yrs to get a credit for US soc security taxes paid.
@George
I cannot decide NOT to invest in the USA, I have a US IRA, I am locked in. Most countries depend on a tax treaty, which would have to be renegotiated to give them any kind of tax credit.
I also believe TBT will result in a loss of investment in the US markets. Those countries who have low or no tax due on capital gsins, will cease to invest there. I think TBT is a non runner.
@Embee, “Absolutely my SOLE objective too. TNT the CBT! And I would add they must do this without requiring any catch-up filing to the date of inactment.”
Thank you, CBT has got to go……….
I am simply and solely stating that the homelander political argument is more favorable for TBT than RBT. Why? The same problem for the last friggen eight years which has been DEMOCRATS. It was not Trump, Bush or the GOP that did it to us it was Obama, Hillary and the Democrat Party, full stop.
I was disgusted at the Podesta emails and the “let them eat cake” attitude that was exposed.
Again, Obama, Clinton and every Democrat is GUILTY.
Sadly we need a few of them to get rid of CBT on capital hill.
The above is the cold unvarnished reality.
I do not give a damn if Trump tells crude jokes, reads penthouse or drinks like a fish. The one thing I do know is that my families problems were not caused by him because his hands are clean.
In my neck of the woods I personally know an OAP that overdosed on pills because of FATCA stress and I know more that are talking about taking their own lives. I do know we have a written promise by the GOP in the manifesto, I know good people like Keith Redmund and Republicans Overseas are working like hell to make these promises reality so the last thing I am going to do is talk down their hard work.
This idea that Trump is not going to do this or not going to do that is absolute bull shit, he is not even President yet. But I do know over at Democrats Abroad they appear to have abandoned any pretense of trying to help expats, they have now abandoned us.
There is ONLY one thing I can tell OAPs that are talking about taking an overdose or a warm bath and a razor blade and that sole thing I will continue to tell them is Help is on the way!!!
@Heidi, “I think TBT is a non runner.”
Keith Redmund and Republicans Overseas are working like hell to get rid of CBT.
I refuse to be a RBT martyr and say RBT or bust meaning CBT remains.
There are plenty of folks that believe TBT can be work and they are working on Capital Hill to get it through.
My Dads favorite expression was Money talks and bullshit walks.
Folks that are supportive of RBT need to come clean and state if they are in favour of retaining CBT over TBT.
Folks that are supportive of RBT need to get off the pot and fly to Washington and start pressing the flesh just like Keith and Republicans Overseas are doing. Letters are not going to do it, it needs to be full court lobbying.
Keith and Republicans Overseas are not bullshitters as my Dad would say and I applaud them and thank them.
@Heidi, “I cannot decide NOT to invest in the USA, I have a US IRA, I am locked in. Most countries depend on a tax treaty, which would have to be renegotiated to give them any kind of tax credit.”
The UK on its own takes a unilateral position for foreign tax credits. It is up to you and your countrymen to lobby your governments for what is fair in your country. It is not a USA problem for once it is your countrys problem.
Your IRA would remain a IRA under US Law so again the problem is for you to lobby your Government on how your country treats it. It is NOT a US problem, for once.
You can also close your IRA and pay the applicable tax that is due. When I left the USA I did just that and paid significant tax, federal and state, plus the 10% penalty. I LEFT the USA and that was part of the price considering I had relinquished and essentially burned the bridge.
Heidi. Not Iceland or Mexico. Will be in Sweden but only for 3 days and don’t know if they will commit to a specific day.