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.
@ Sarah’s Pet Dog
Fortunately that was just a doggone rumour. Woof! 😉
http://www.mediaite.com/online/report-trump-administration-promised-canadians-sarah-palin-wont-be-named-ambassador/
Here’s a thought: suppose that someone was born on US territory, as a result of their parents being stationed there in the diplomatic service of another country. That means no automatic acquisition of US citizenship. On the other hand, their foreign passport would contain US indicia (US birthplace), which foreign banks might flag. Such a person cannot apply for a CLN, since they have never had the N. What document (if any) might they produce instead?
Depends on who’s asking. If it’s a bank, a verbal “my father was a diplomat” might do it.
But to your point, there is no such document. Only family records and should a financial institution get suspicious. Consequently a lot of people might decide that their parents were diplomats!
I looked into this once for someone who was born on a US naval base and returned to Canada after three weeks. Turns out that military on exchanges don’t have diplomatic status so he was technically a US citizen. Not sure how it ended but I recommended he Describe his father as an “attaché” in hopes of making the bank believe otherwise. When I did some research I found the reverse problem, diplomats from developing countries were obtaining passports for US-born children because there’s nothing about the parents’ status recorded on birth certificates – it’s really just an honour system, they have no way to control it.
@Zlaòd
US citizenship is based automatically from the mother to the child. So even those born in -say-Canada to an American mother or father are technically americans. It is just harder to prove.
@Zla’od
http://cis.org/birthright-citizenship-diplomats
“Children of diplomats who receive U.S. birth certificates and SSNs have greater rights and protections than the average U.S. citizen because they can enjoy all of the benefits of U.S. citizenship, but also invoke diplomatic immunity if they break a law. A lack of direction from Congress has created what one might consider a “super citizen” who is above the law.”
Consequently, they would not be subject to CBT, FATCA and FBAR (…just guessing…). Residence-based taxation would have sorted this out instantly.
Re:
I think the child of the diplomat would have to prove what position their diplomat parent had at the time of their birth, along with a copy of 8 US Code 101.3. If the bank requires further proof required, get a letter from Legal Affairs at Dept of State.
US Code 101.3 https://www.law.cornell.edu/cfr/text/8/101.3
Important to note that Mr. Feere’s paper, “Birthright Citizenship for Children of Foreign Diplomats?” is addressing the situation that a person who is not born a US citizen (because their parent’s diplomatic position is one on the DoS Blue List) can nevertheless pass themselves off as a USC because their birth certificate shows them having been born in the US. He refers to them “effectively becoming US citizens” (due to birth certificate and SSN – he writes: “The Social Security Administration (SSA) does not investigate whether SSN requests are for children of foreign diplomats. Although the agency does recognize that U.S.-born children of foreign diplomats are not eligible to receive SSNs, there is no mechanism in place for preventing such issuance.”) but he does not refer to them actually becoming US citizens by law.
USCIS also refers to children of diplomats in the context of green cards.
@ Petros….I believe you are correct in your assumption that they will NOT get rid of Fatca and you are right about infrastructure. The circus just keeps expanding! They will never leave expats alone. They want to keep pulling them into the Big Top and taking their money I do believe that all roads Do lead to renounciation/relinquishing.
@Polly
You are wrong about the criteria for passing US citizenship. It’s not automatic in all cases for children born outside the US. There are conditions – I can never quite remember exactly but one parent must have lived five years in the US , two of those years after age fourteen, something along those lines.
In practice this means that anyone born outside the US who is a US citizen can ignore the fact and (a) avoid FATCA by claiming no connection to the US and (b) travel to the US on a foreign passport. (Even if their parents foolishly registered their birth with a US consulate, as I did with my daughter.)
@pacifica
This is a case of all you need to do is prove it to the bank’s satisfaction – not the US or home governments’ satisfaction. Might be easy – a verbal “no, I’m not a US citizen” like anyone can do now in Canada – or it might require paperwork.
You are right that the US-born children of diplomats who fraudulently obtain documents are not legally citizens, but with a US birthplace, SSN and Even passport, they can pretend to be quite easily if they stay out of trouble.
@Duality
Diplomatic immunity isn’t really a free pass to commit crimes without consequence. If it’s serious enough, you are sent back to your home country in disgrace, or immunity is waived so that you can face prosecution.
But apparently it’s quite handy for ignoring parking tickets.
“In practice this means that anyone born outside the US who is a US citizen can ignore the fact and (a) avoid FATCA by claiming no connection to the US and (b) travel to the US on a foreign passport.”
Incorrect Should read:
‘In practice this means that many born outside the US who is a US citizen may be able to ignore the fact and (a) avoid FATCA by claiming no connection to the US and (b) travel to the US on a foreign passport.’
@Nononymous
“Diplomatic immunity isn’t really a free pass to commit crimes without consequence.”
I absolutely agree for genuine crimes (e.g. murder, rape, theft, etc) but not for pseudocrimes (e.g. not filing an FBAR).
@Nononymous
“But apparently it’s quite handy for ignoring parking tickets.”
American embassies are notorious for this.
@Nononymous
“But apparently it’s quite handy for ignoring parking tickets.”
“American embassies are notorious for this.”
Not just parking tickets. The US embassy owes millions of dollars in London congestion charges for the big black limos that use and clog up London streets on the basis that they claim that it’s a tax, and they are exempt from tax. Well, it would suite them to call it a tax.
However, London mayor Boris Johnson gets hit with thousands in taxes simply because he was born in the USA, but uses nothing at all. Just another example of the epic hypocrisy of the USA in these matters.
Considering the vast amount of money they are collecting for processing renunciations you would think they would share some of that windfall with their host city just to keep the peace. Where is Donald Trump and his much touted deal making ability when he is really needed? Oh wait, Parliament is still debating whether or not he should be allowed to set foot in the UK and thus it may not be possible for him to solve this problem.
Maybe the City of London should simply invest in a few tow trucks and create a “premium” towing service to clear some of that congestion. They could charge a flat fee of $2350 (plus mileage and storage) for allowing a limo to “renounce” impound. Naturally, the City would periodically publish a “name and shame” list of individual limos that have chosen to leave the storage yard.
@Eric
There is nothing in the ACA proposal that would improve compliance, just as there was nothing in their SCE proposal that would entice foreign financial institutions to begin accepting Americans again.
@USCA @Japan T
5. Fall out of compliance because they can no longer afford to comply.
Imagine with tax reform, the corporate repatriation tax becomes a reality. Many non-resident US persons with “foreign” corporations cannot or simply will not pay the tax. The move of compliance goal-posts (something there is never any guarantee against) will result in many ceasing to file. Is the IRS more or less likely to go after someone who does this than the same person renouncing US Citizenship with this outstanding tax debt?
@BB
I don’t think the IRS will go after such people. Instead, they will continue to coerce our FIs to do the IRS’s dirty work. The result of which, while it may not provide the IRS with anything, will cause huge and varied problems for anyone with any links to the US.
BB:
Good question. Perhaps “equally unlikely” would be the answer: one of the reasons for the reluctance of the IRS to go after any non-US-resident “US Person” is surely the wish to avoid the risk of a court challenge they might not win.
It has occurred to me to wonder whether this “corrective” tax bill which has been talked about, might include amendments intended to make sure the shift to corporate territoriality can’t be endangered by court action brought by the collateral damage.
Good point, plaxy. Thanks.
We’ll see what if anything comes out of the sausage making machine in the end.
“Good question. Perhaps “equally unlikely” would be the answer: one of the reasons for the reluctance of the IRS to go after any non-US-resident “US Person” is surely the wish to avoid the risk of a court challenge they might not win.”
Why? Can’t challenge it in court until you’ve paid the bill. The fines being so high that only few can pay, as long as they do NOT go after the whales, no need to worry about any court challenge.
“Can’t challenge it in court until you’ve paid the bill.”
That’s if the victim is the one doing the suing. The IRS can sue at any time, except for waiting periods under some conditions.
“That’s if the victim is the one doing the suing. The IRS can sue at any time, except for waiting periods under some conditions.”
Does the IRS need to sue to get payment? Before FATCA, they had to sue banks to get data but now it is automatically provided. If they say you anything, they just send the bill and if unpaid then they can use existing tax treaties to either collect or extradite.
“Does the IRS need to sue to get payment? Before FATCA, they had to sue banks to get data but now it is automatically provided. If they say you anything, they just send the bill and if unpaid then they can use existing tax treaties to either collect or extradite.”
What bill? How can they assess a tax bill when I never filed a tax return?
How can they send a bill? Extradite? Well, that’s probably what we need to get governments to take note, resident citizens extradited to the USA for failing to pay taxes to a country where they don’t live and in some cases, never have.
Seriously, the more the U.S. up’s the game of persecution and theft from the resident citizens of other nations, the more chance of the rest of the world taking note of what is going on here.
“How can they assess a tax bill when I never filed a tax return?”
By creating what’s called a Substitute For Return, where they’re supposed to contact payers to find out how much they paid you but I think they’re allowed to pull numbers out of their own mouths, and where they ignore all the credits you’re supposed to be entitled to.
“How can they send a bill?”
By sea mail from Estonia, with no date in the Estonian postal meter. In the past they’ve sent sea mail from Germany and the UK, and I don’t think that’s all. On occasion they send International Surface Air Lifted directly from the US, without even a postal meter let alone date. Though no one knows when any of these are mailed, the delivery date is usually more than a month after the date written in the bill (with a demand for payment within 10 days). Also usually the last alphabetic characters in the return address are PA, which is the international standard abbreviation for Panama, so post offices in destination countries can see which country to return undeliverable mail to.
“What bill? How can they assess a tax bill when I never filed a tax return?”
As all FIs are reporting US Persons to the IRS, not hard to do. This round won’t net everyone but once it is discovered that the low hanging fruit is nowhere near what they believe to owed, they climb higher up the tree,
They may not be able to assess a tax without a tax return but they sure can levy penalties and possibly revoke one’s passport.