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.
Is there information on which countries do have Mutual assisstence in tax collection in a small number of treaties? And if this has actually occurred?
“…are salivating at the thought of getting nine grand per head out of the rest of the millions of diaspora non-filers too”
The IRS have lost all legitimacy as a functioning tax authority. Fortunately, the remaining 99% will not be complying so will have to be sued in their foreign jurisdictions by the IRS, right? Of course, the cost to litigate each head will be cheaper than nine grand…
I’m just a retired aircraft mechanic and no genius with numbers by any stretch but just for fun I ran the numbers.
The claim is 9.9 billion in collected tax revenues from 55,800 accounts. By my crude and sloppy calculations this comes to 177,419.355 dollars per declared account. Please tell me if I screwed this up. I divided 9.9 billion by 55,800.
Unless I missed something it does not seem possible that by sheer luck the IRS just happened to tap into 55,800 filthy rich expats owing slightly under two hundred grand a piece. Methinks the US Goverment is cooking the figures, boiling them actually, in order to present the failed abortion called FATCA as a smashing success.
Robert11 – see this post http://isaacbrocksociety.ca/2016/11/01/dual-citizens-of-sweden-france-netherlands-denmark-canada-take-note-your-country-will-not-collect-for-the-u-s/
@Robert11
Interesting page to browse… http://www.gao.gov/assets/590/585300.html
I know this article was meant to be funny and it would be funny if not so close to the truth. Our whole taxing system is meant to punish achievers and demonize anyone who would dare live abroad. The goal of Social destruction is within site, if we keep the Marxist Income Tax. The army of lobbyists are now descending onto every member of the House ways and Means Committee, wit a large “campaign contribution” check, meant to stop any talk of bring up the FairTax for any discussion and to keep mischaracterizing it as a VAT, when they know full well it is the only way to save the republic and drain the swamp. The Marxist Income Tax will keep Trump from doing anything meaningful in 8 years, if he is re elected to another term. The Marxists are so entrenched in every department of government they can withstand 8 years of reform effort and survive to keep their agenda on track.
@Eric
Great analysis as usual. It’s very obvious that the vast majority of “so called” Americans abroad are in one of these four categories:
1. Don’t know that they are subject to the Internal Revenue Code
2. Don’t know the full extent to which they are subject to the Internal Revenue Code
3. Know that that they are subject to the Internal Revenue Code and can’t afford to comply
4. Know that they are subject to the Internal Revenue Code but will not comply.
As an observer of this process since the days of the 2011 “Obama/Democrat/IRS Reign of Terror”, it appears to me that “coming into compliance” is (whether by accident or design) the first step toward renunciation. It is simply NOT possible to live as a fully tax compliant American abroad. To do so is to enter a “fiscal prison” where a normal, happy and productive live is impossible.
As you point out:
The irony is that, it is the non-filers (or those who file incorrectly) who are most likely to be able to retain their U.S. citizenship (if they want it). As groups like the Isaac Brock Society (of which your posts are an important part) and the various Facebook groups continue to educate, people will understand that they are choosing among three options:
1. Come into compliance. Enter a fiscal prison and be forced to renounce.
2. Come into compliance for the express purpose of renouncing.
3. Not come into compliance because they want to retain their U.S. citizenship.
Also, the IRS (as far as I can see) is making NO EFFORT to chase people. By providing the Streamlined Program, the IRS has provided a mechanism for people to come into compliance. The IRS relies on the tax compliance community and banks to “chase people into compliance”. (I do expect that a small number of people will be make an “example of” as FATCA information continues to flow.)
Finally, I think there is a great deal of wisdom in the last paragraph of your post which reads:
Those who have tried the hardest to comply have been hurt the most.
@USCabroad
To your list:
“1. Come into compliance. Enter a fiscal prison and be forced to renounce.
2. Come into compliance for the express purpose of renouncing.
3. Not come into compliance because they want to retain their U.S. citizenship.”
I would add ‘4. Not come into compliance because they can not afford to, to give up their U.S. Citizenship.’
@Wilton Jere Tidwell
I fear and believe your are correct.
Eric: I’m proud to be part of the other 99%! Thanks for your fabulous analysis, as always!
The IRS self-congratulatory remarks make me think of a local Mafia kingpin crowing to the Godfather: “We’s collected two million smackers from our tire-slashing campaign on the west side of town alone. Imagine the revenue once we muscle in on the east and south sides.”
Just because they’ve extorted money from suffering expats doesn’t make it right. Though of course the Mafia bosses will never be convinced of such.
It is just shameful. It makes me so sad, and angry. People in Denmark pay the highest taxes but they do so voluntarily because they get so many services for their money: a great educational system for their children and great healthcare. This is how it should be. The government should be about benefitting their citizens and not abusing them. America is just about extortion of people who make their money elsewhere, and use services elsewhere.
As for the IRS making “no efforts” to go after expat taxpayers- we dont know that yet. They have collected the information, and we dont know what they are going to do with it. As far as I know Germany will aid in collecting taxes, and I don`t know about England. For those countries which do not collect there might be travel bans for those whose names are on a list. Just read that Polanski wants to be able to visit his daughter in England and visit the grave of his murdered wife in Los Angeles. He has been hiding out in France for decades. Got caught once and was jailed in Switzerland by an overly diligent swiss policeman, but Switzerland ended up not extraditing him to America.
@Polly says:
“As for the IRS making “no efforts” to go after expat taxpayers- we dont know that yet.”
Here’s a hypothetical too Polly. An American leaves the Plantation as a young woman with nothing but the clothes on her back and the shoes on her feet. She is industrious and does well for hereself and pays taxes where she lives but does not file in the United States. A lifetime later, she wishes to return to the old sod but is afraid to. What will happen when she begins filing with the IRS after decades away. Will the IRS demand to know where she was and why she didn’t file for all of those years? Will they confiscate the wealth she built up over a lifetime through back taxes, penaties, and interest for all the years she should have filed? In practice, this expat can never return to the United States.
b c doc In practice, this expat can never return to the United States. why would she want to….sounds like she built up a pretty good life where she did well for herself 🙂 at her age she does not need the headaches of dealing with the irs.
japan t I would add ’4. Not come into compliance because they can not afford to, to give up their U.S. Citizenship.’ or they just don’t care enough about having anything to do with amerika and are hiding in plain sight.
Looks I’m a proud member of the 99 percent. Willfully non-compliant and not losing any sleep about it either.
Also a proud Marxist, as it’s defined here.
“Will the IRS demand to know where she was and why she didn’t file for all of those years?”
Unlikely. She could have been a housewife, or in prison, etc.
“Will they confiscate the wealth she built up over a lifetime through back taxes, penaties, and interest for all the years she should have filed?”
Not without some kind of hearing, and only if they know about it. On the other hand, telltale signs that she is living beyond her supposed means might well trigger an audit / investigation.
“In practice, this expat can never return to the United States.”
Border control doesn’t screen people for the IRS, at least not yet
@Polly, I used to be one of the most scared on here. For over three years I was terrified the IRS could make a harsh example of me, especially as had already been filing and thus in the system. I had loads of PFICs and substantial unreported income on my originally filed US tax returns and hadn’t filed fbars, so feared they might have made an example of me for ‘merely’ making a quiet disclosure instead of entering OVDI (which would have ruined me).
I was still hit quite hard though with owing over $11,000 in US taxes on my investment ISAs, plus over $20,000 in accounting fees to amend several years returns in what turned out to be essentially an early use of the Streamlined back on 2011, though the program wasn’t officially announced till 2012.
Some pro bono advice suggested that in hindsight, I could have probably got away with just filing correctly going forward or even just filing prospectively in a simple way via schedule D instead of worrying about all the form 8621s, etc., especially as we were only talking about a portfolio of a couple hundred thousand dollars at most. As a long term expat based in the UK, with hardly any assets cited in the US, it would have cost the IRS a fortune to pursue me for what might have been at most a mid five figure sum in taxes, plus all the cost of chasing me through the British courts had I refused to pay the taxes I owed.
I feel that a minor could argue reasonable cause about not knowing about PFIC taxation and firm 8621 because, to my knowledge, nothing about them was mentioned in Pub 54 taxation guide for expats .
I believe my enrolled agent accountant thus calculated my taxes in a conservative way that broadly favoured the IRS. At least she kept me out of OVDI but can’t help wondering with hindsight if I could have safely gotten away with taking a more aggressive position and thus not even owing any taxes . She did the Tax returns so complicatedly that there would be no turning back; I was going to be facing ongoing tax preparation fees of over £1500 per year, possibly much higher on a gross income of leads than £25000, so realised I couldn’t afford the ongoing compliance costs, so decided to renounce four years ago.
It seems to me that my biggest threats were thus from the compliance industry and my local banking and investments, who didn’t want to deal with US persons. I believe IRS would have singled me out by now if they were really going to make an example of me, though I believe I still have another three and s half years before all my remaining open statutes of limitation finally close.
I now feel more concern that my renunciation would be more of a potential red flag than the quiet disclosure , which is fully closed now (as of last July). I wouldn’t put it past President Trump to play the demogoge card and threaten former citizens who had the gal to expatriate, particularly by threatening to make it difficult for me to even visit or perhaps try to penalise a future US inheritance. It seems mainly like a racket for the tax accountants and lawyers for me rather than a direct threat from FINCEN and the IRS, though Douhlas Shulman took a much tougher tone back in 2011.
@mettleman True– I agree with you! It’s the human rights aspect of it that makes me a bit angry– lots of good folks who had their birth right stolen from them (right of return)– taxed away by America’s unique Citizenship Tax.
Sorry: my typos meant to say that as a minnow, I could have argued reasonable cause,and that my gross income was less than £25,000.
What really irked me was how I would have been severely restricted with how I went about my retirement planning had I remained a dual citizen.
@Mettleman and @BC_Doc, I also feel that my human rights have been abused in how I my birthright was essentially stolen from me (my right of return) due to America’s Byzantian CBTax. As a matter of being humane, I feel it is only right and decent for the USG to reform these problems and allow people like me to have our birthright restored if we wanted it back.
@Zla’od Say the hypothetical American moved back to the US as a new retiree. She made her million outside the US and of course wants to bring it back with her to pay her expenses in retirement. She was a bad expat (i.e. a typical ex-pat) who stopped filing in the US when she left there as a young woman. How does she bring her million dollars “home” with her? Once she starts filing in the US, I would think it reasonable for the IRS to ask a) Where have you been/why haven’t you been filing? b) Where’d that million dollars come from? c) Where are the taxes you were supposed to pay us while you were making that million dollars? Again, how can the expat return to her place of birth without risking confiscation of a lifetime of earnings? I’m not sure what the answer is. Actually, I think I know what it is– she can never move back to the US.
@monalisa1776 I’m with you a 110%. While I have no desire to move back there, I am upset that my right of return was strong-armed away. Not much of a win for the US either in my opinion– folks like you and me who might spend or invest there are sensibly divesting and staying away. So much for expats being America’s goodwill ambassadors!
Guess USCA’s #4 is my best fit. I don’t know if it’s lucky for me or not but they can’t intimidate me with not being able to visit the USA because I don’t want to go there and I have not wanted to since years before the FATCA SHTF. My reason in part … the death of a family member (a Canadian) in one of the many senseless wars the USA has instigated in the past 2 decades. So I’ll never be a tourist at the Grand Canyon but having “experienced” it by watching an IMAX movie of an ultralite flyover I can say that that’s good enough for me.
The USA isn’t going to get rid of FATCA, is it? Consider the infrastructure problems:
http://www.zerohedge.com/news/2017-02-17/11-deeply-alarming-facts-about-americas-crumbling-infrastructure
@BC_Doc
I think anybody dealing with millions can apply like a foreigner and can pay his way back in. most countries dont have a problem letting an immigrant in who is wealthy.