On Thursday, the IRS released their “Dirty Dozen Tax Scams” for 2017, among which they listed “unreported offshore accounts”. They go into more detail in IR-2017-35:
Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.
In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
Works of the U.S. government are not objects of copyright, which is a boon for stenographers who mislabel themselves as “journalists”: they can just cut-and-paste the U.S. government’s viewpoint on the issues into their magazines without thinking about it, or attempting any analysis.
Anyway, US$450 million is an average of about US$9,400 per Streamlined participant. Not as big as the $13,000 per head they extracted from minnows with two-digit annual tax deficiencies under the 2009 OVDP, but still a sizeable sum from the perspective of the individual.
I’m sure there’s some poor deluded souls in the IRS and the Joint Committee on Taxation staff who are salivating at the thought of getting nine grand per head out of the rest of the millions of diaspora non-filers too — that might help them turn those mythical FATCA revenue estimates into reality. If that’s their aim, however, then forty-eight thousand over four years is a rather slow start.
How big a number is forty-eight thousand?
Smaller than the number of renunciants & green card abandoners
Since “Streamlined” came into effect way back in September 2012, about eighteen thousand people renounced their U.S. citizenship (according to FBI NICS figures, not counting the three thousand entries in the October 2012 “backlog”), an unknown number (possibly of similar magnitude) relinquished citizenship under 8 USC § 1481(a)(1) through (4), while perhaps eighty thousand abandoned their green cards (ten thousand per year from overseas, and ten to twenty thousand per year from within the U.S., according to Shadow Raider’s FOIA request)
That suggests two things. First, many people are likely going into Streamlined with the express purpose of filing Form 8854 right afterwards (though note that not all Streamlined participants reside abroad). Second, many people giving up citizenship or green cards aren’t bothering with Streamlined in the first place. Some might already be compliant; the rest just accept “covered expatriate” status as a cost of getting out of the system formally.
(Not all green card abandoners have to file Form 8854, but those who are deemed to have held it in eight out of the last fifteen years or more do. If they moved abroad and let their actual card expire without formally cancelling their LPR status via Form I-407 for many years — like the unfortunate Mr. Gerd Topsnik of Topsnik v. Commissioner, 143 TC No. 12 (2014) — they could hit that eight year threshold rather easily. Some of these folks might even show up in the “domestic” total of I-407s filed, rather than the “overseas” total, if they were totally ignorant of I-407 until a DHS officer at a port of entry asked them to sign it so they could be admitted in visitor status instead.)
And a tiny fraction of diaspora non-filers
American Citizens Abroad says that there are nine million American citizens abroad, more than double the State Department estimate of four million a decade ago. The United Nations Population Division, based on a mix of census and immigration statistics up to ten years old from 221 states and territories, found 2.8 million Americans in other countries, though their figure undercounts dual citizens, citizens born abroad, and more, depending on each contributing government’s definitions. Of course, however many there might be, not all of them identify as “Americans” nor think of their current location as “abroad”.
The overwhelming majority of those millions do not make any of the paperwork obeisances which Congress imposes on the diaspora and which the IRS refuses to ameliorate through regulations. In 2012, fewer than five hundred thousand people filed tax returns claiming the Foreign Earned Income Exclusion. The Financial Crimes Enforcement Network received about 1.2 million FBARs in 2015. (And if you take the most extreme definition of “compliance” — treating all your local assets as badly as possible under U.S. law in the vain hope of leaving nothing about which the IRS can complain — then the fully-compliant portion of the diaspora is basically a rounding error, given the number of filers of Form 3520-A.)
(Retirees, children, and stay-at-home spouses probably don’t meet the income tax filing requirements in the first place, but those with jobs almost certainly do. Furthermore, FinCEN demands that even those with no income, but who have joint accounts or retirement savings, file FBAR.)
So why aren’t they filing?
Many non-filers are unaware that the U.S. government would consider them to be its citizens if they asked. Some are aware of their deemed U.S. citizenship, but don’t know about the red tape that brings. But certainly, there’s a third group: those who are aware both of Washington’s view on their citizenship, and the resulting tax “information returns”, but who have chosen not to file any of it. Call them “DIY relinquishers”.
Some may never be found, particularly those born abroad, or living in a countries where daily-use identification documents don’t show their place of birth. Some may be untouchable even if Washington finds them, since the U.S. only has provisions for mutual assistance in tax collection in a small number of treaties, and those generally state that the local government won’t aid in collection against its own citizens, regardless of deemed dual citizenship.
And some can’t lean on either of those reeds of protection, but have no other path besides non-compliance: the combination of accountants’ fees for Streamlined, and the knock-on effects of trying to fit their square financial lives into the IRS’ round holes going forward, would ruin them anyway.
And what happens next?
American Citizens Abroad has produced a so-called residence-based taxation proposal which would continue to hold these long-term non-resident non-filers captive in the U.S. tax system, not only for past years but going forward, until they stand up, obtain Social Security numbers, come into “compliance”, and pay $2,350 per family member for a Departure Certificate.
That’s a continuation of citizenship-based taxation, not a transition to residence-based taxation. It’s a horrible deal and many of them would be unlikely to take it, just as they have shown no interest in taking the current deal of Streamlined plus nearly ten grand for a family of four’s Certificates of Loss of Nationality. Instead they would continue to hide.
For those who could hide, I cannot fault them their decision. I’m not a lawyer nor an accountant, just a guy who knows how to do long division. But if ACA’s proposal really were to become law, there would be a backlash from the U.S. government: Homelanders would perceive themselves as “making concessions” to “our representative organisation” in exchange for the promised compliance of all those nine million whom ACA claims to represent, and if seven million of them still refused to come forward, the Homelanders would get even angrier, and the rhetoric about “tax cheats” would only get even louder. Those who stood up to get counted would become the victims of the resulting backlash.
The IRS is not a one trick act. They have many cards up their sleeve and they play with a stacked deck.
And yet they haven’t found you!
“And yet they haven’t found you!”
First: It’s early, program not yet at full speed.
Second: How would you or I know if they have found me?
There a Dutch born Dutch citizen on Quora asking if anyone has any advice for him as his bank has decided he’s a US citizen. He called the US embassy and of course was told he must file or face serious consequences. He called an accountant and of course, was told he must file or face serious penalties. He asked on Quora and the usual suspects warned him that the IRS would be on him at some point, just a matter of time.
A born and bred citizens and resident of the Netherlands with no US TIN, no US social security number and no US passport.
Perhaps it’s when the IRS do attempt to actually enforce their crap on people like this that governments around the world will finally wake up. I’m beginning to think mass lock out of US citizens(duals) attempted deportation and the USA closing down a countries banks might just be what it takes to finally get action.
Of course, there may be some collateral damage, unfortunately.
“There a Dutch born Dutch citizen on Quora asking if anyone has any advice for him as his bank has decided he’s a US citizen.”
But, but this CAN’T happen.
BTW, my sarcasm is not directed at you but towards those who keep saying that this will not or can not happen, especially to my kids.