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.
@Petros
I fear so too. Obama said he was going to use the income from FATCA for infrastructure, I think?
@MonaLisa
I know a few people who have renounced and did nothing in the way of taxes. They haven’t heard anything up till now either. The good news is that with the CLN they could at least keep their bank accounts. I have no idea what the IRS might or might not have in store for them.
@Polly
If they live in a country that won’t collect (and don’t have US assets etc.) it doesn’t matter what the IRS does. The US won’t see a dime.
Plan for dual citizens:
Step 1 – Do nothing. If bank asks about US citizenship, deny.
Step 2 – If banking services at risk due to US birthplace, buy a CLN for $2350 (or produce your own with Photoshop) to make the problem go away. Ignore taxes.
Under no circumstances should you send money to the US. Not necessary.
@Polly says–
“@BC_Doc
I think anybody dealing with millions can apply like a foreigner and can pay his way back in. most countries dont have a problem letting an immigrant in who is wealthy.”
I think it’s an issue not just for the wealthy but also middle class folks who saved up assets for their retirement and then want to return to the Plantation. They risk getting skinned by the IRS too. Once your out your out. “All roads lead to renunciation.”
@Nononymous
Much easier for a Canadian to stay within his country`s boundaries. In Europe, travel is usually close to a necessity. So it gets a lot harder to be jailed within your country, should you be so lucky as to live somewhere which does not collect for the IRS.
BC_Doc
What I am saying is that I am not so sure if a renunciant could not apply as a foreigner to live in America again if they so wish. A friend of mine has enquired as a foreigner, and it has something to do with investing in the state where he lives. I think it might cost him maybe 700000$ to get a residence permit. ( It is either that or marriage!) For a millionaire, that sum might be plausible- or cheaper still a fake marriage with an airtight prenup. So I am not sure, but I could imagine it possible, with enough money, to be able to live in America again. Perhaps. But as for somebody who never paid taxes and still has a US passport and wants to move back- I think they would need to pay up, and I dont know how the IRS would view the nonwillful issue. I know of somebody whose daughter was born in America due to a professional stay of the father. She wants to go back to work there and I told the father about the way things stand. She is 24, I think. And he talked about it with her, and she is now coming into compliance ( I guess streamlined) but I dont think she has much to declare because she is just starting out in life.
@Polly, my problem was that I had always been filing so was already in the system , so couldn’t hide . I was terrified they’d severely punish me with FBAR or a nasty audit, especially due to unreported investment income . I worried I get some FBAR fines too.
But I had misunderstood the treaty and had assumed that I only had to declare my UK investments to the UK tax authorities. In fact, we don’t even have to declare income or capital gains from our investment ISAs on our UK tax returns, so it didn’t seem necessary to declare it on my US tax returns .
I hadn’t been aware about the saving clause. I also assumed that the FEIE included all income, not just earned income. After all, the income produced from my ISAs came from invested money from my wages. I thus assumed that the US wasn’t concerned about gross income below the FEIE which was around $95,000 back then.
If I had never filed, I would have been below the parapet and had more room to maneouvre instead feeling panicked and forced into a quick decision about coming into full compliance. It was back in 2011 when Douglas Shulman was threatening FBAR fines on everyone, even longterm expats…or at least it was fear tactics by the compliance industry.
My accountant played the roll of ‘good cop’. At the time, I felt so relieved and grateful when she reassured me that was optimistic that she could get my delinquent FBARs filed safely with several years amended tax returns instead of railroading me into OVDI.
At least she enabled me to certify five years full tax compliance so I was able to make a clean break and renounce. So perhaps she helped me more than most. At the time , I can recall reading about another long term ex pat living in Sweden who was facing huge taxes and FBAR penalties north of $100,000. I often wonder what became of her.
@Polly, I certainly wouldn’t be wealthy enough to buy my way back into the US! I wouldn’t want to move back anyway, though I resent that that right was taken from me .
I still think now with hindsight that if the US goes after any longterm expats, they will focus on just a few very wealthy expats (with many millions) ,especially if they still have US-cited assets the IRS could grab. Our local banks are a more immediate threat due to FATCA.
“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.”
Thousands is not a lot. How many of these people reside abroad? That’s really key here. I still think that part of their rationale was going after homelanders who put money abroad. I still think that many homelanders, including in Government are not really aware of CBT/RBT and haven’t thought it through.
Most probably the “thousands” of audits concern people they suspect have enough money to be worth going after and can be caught. Basically homelanders with decent sized accounts.
I would hope that they could give this information, but am not holding my breath.
Nonymous: I love your step 2, in parentheses. LOL. Reminds my of my fantasies of just changing my birthplace on my EU passport. Just one stupid word and I wouldn’t be worrying anymore. Imagine, I don’t need a fake identity, just a fake birthplace.
@Mona
I know that you feel you have been robbed of your US citizenship but when you think of it , nothing has changed for you except the loss of that little blue book …(and the loss of some money of course.) You are sill a true American at heart in your heritage, your upbringing and your outlook ; they can NEVER take that away from you. You are what you think you are. You said yourself that you had no intention of moving back there and practically nor could you unless you qualified for Medicare. The US medical insurance companies won’t look twice at the uninsured elderly! You can visit up to 120 days/yr if you fancy a winter break in Florida, but personally I would rather go to Greece or Italy.
Don’t dwell on what you think you have lost but rejoice in your freedom.
@Fred B
There is a New York in Lincs England. I know of someone in the UK with a Boston MA birthplace who insisted to his bank he was born in Boston Lincs. When asked why did he have a US accent he insisted it was Canadian , having gone to Canada to college! It worked.
@ FredB
None of those precious CLN’s are numbered, so quite easy to start a lucrative business in forgeries!
🙂
Heidi: don’t tempt me!!!! I’d need to see one up close 🙂
@Fred (B)
Here’s an example: http://www.nostate.com/wordpress/wp-content/uploads/2008/12/certificate-of-loss-of-nationality.jpg
It would not be difficult to produce a reasonable facsimile. You only need to fool your financial institution, not the US government. The bank is the gatekeeper. Stay off the FATCA list and you stay off the radar.
I considered doing this, or falsely signing a W-8, but a simple lie was enough to make FATCA go away.
Obscuring your birthplace on a non-US passport is another route. Since mine has always listed a city in California I doubt I could change that on renewal – presumably they check what the previous one said.
@Polly, @monalisa
As ever, if you want to return to the US one day, or have ties to the US, all bets are off, you may need to become compliant.
But for the rest of us, easiest and safest to ignore any and all US tax filing obligations – even if we are identified by FATCA.
Having filed in the past isn’t necessarily an issue. I filed for a number years when I studied and worked in the US, several decades ago. That was all tied to a US address, with no mention of Canada (let’s just say that I did not report worldwide income – I kept the two countries’ tax returns completely separate). Then one day I disappeared, and of course I’ve never heard another word, even after renewing my US passport twice, by mail.
In her case I would strongly advise not coming into compliance before she moves to the US. Maybe have her gather up any documentation she’ll need to come into compliance once she’s there, but don’t do a single thing before she’s actually bought a plane ticket.
It’s not necessary, and if she didn’t make a move, it would be stupid to have put herself on the radar.
It was a few decades ago, but when I moved to the US in my mid-20s I filed my first return to reclaim tax withheld from working part-time. I received a letter saying we have no previous years’ returns, what’s up? I wrote on the letter that I was as student and had never worked, and sent it back. End of story.
@ Fred (B). Fill your boots!
https://www.state.gov/documents/organization/81609.pdf
Post above referenced @Polly and the first paragraph was meant to be a quotation.
@Nononymous. I see we work well together. I sent Fred a blank one and you sent him a sample fully filled out one. He’s now good to go! I think an old fashioned typewriter from the nearest junk store might produce the most authentic fake. (Knowing the US government they probably still use typewriters at the black hole of an office at State Dept. where they produce those things.)
Not the sort of thing I’d produce at a US border crossing, but it might be fun to flash one at the local bank to get them off my back.
I’ve always wondered why a document seemingly as important as a Certificate of Loss of Nationality of US Citizenship does not have numbers.
The Department of State forms can be found on page 7 of the most useful Consulate Report Directory here at Brock:
Yeah that’s not a document I’d want to carry around on US soil.
But it drives home the point that all you really need to do is fool your financial institutions and the whole problem goes away. In Canada it’s dead easy, a verbal “no” or not checking the US citizen box on an application form is generally all that’s required, and there’s no follow up. They don’t try very hard.
In a country with stricter ID requirements for banking, where birthplace is needed, well, it might call for some low-grade forgery skills.
Thanks all 🙂
[BC Doc:] “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?”
[Me:] I agree this would be foolish. No one like that should keep their savings in the USA.
“None of those precious CLN’s are numbered, so quite easy to start a lucrative business in forgeries!”
https://bancdelasteroideb612.wordpress.com/2014/01/05/we-used-to-sell-us-citizenship-now-we-sell-non-citizenship-to-us-says-black-marketeer/
The author is an IBS author too. Maybe the article should be reposted here.
Now, to add insult to injury, it appears that Sarah Palin will soon be named the US Ambassador to Canada. I’m sure that she will quickly take great interest in FATCA and may well help to get it withdrawn, so that she can claim the FATCA moniker all for herself:
For Alaskans That Can’t Articulate
So friends, there is hope in all of this madness