The issue of tax residence has gained so much attention since the “crackdown” on non-resident US Persons began in 2009. It is commonly understood that you pay taxes to the country/state/city-town that you reside in. (For an interesting comparison of differences between countries please see this incredible list compiled by the OECD). It simply does not occur to anyone that they would be required to pay taxes to a foreign government.
However, the United States claims jurisdiction due to citizenship. One does not even have to have touched foot in the U.S., according to U.S. law. Of course, due to the viciousness of the U.S. “FBAR Fundraiser” many people began to resist whether of anger or fear.
Not much has changed* , in spite of all the factors that have contributed to this debacle (and debacle it is, what could one expect when a country tries to take what is someone else’s, based on an idea of fake residence?).
For a detailed discussion concerning the determination of tax residence and related factors, please see here.
In this interview, John Richardson speaks with Olivier Wagner about tax residency and how a seemingly simple concept has become so terribly important in the 21st century.
In a #FATCA and #CRS world – the most interesting thing about a person is where has @taxresidency ESPECIALLY when he has > one. @Expatriationlaw interview with CPA @1040Abroad: ‘Episode 1 of: "A Tax Residency Primer"- Tax, Residency and #TaxResidency" https://t.co/6swfQmJO7i
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 8, 2018
- *DOS says 9 million US citizens live abroad
- *from 2009-2016, 100,000 taxpayers came into compliance via OVDP and Streamlined
- * in 2011 449,277 Forms 2555 (FEIE) were filed; see breakdown by country;
- * in 2011 3,921,628 Forms 1116 (FTC) were filed; see breakdown by country
- *in 2015, 1,163,229 FBARs were filed
- The numbers above strongly suggest that a large majority of non-resident Americans are not tax compliant
“The numbers above strongly suggest that a large majority of non-resident Americans are not tax compliant”
They are perfectly in compliance with the nation where they live and receive services.
Letters from any other country demanding money with menaces should generally be placed in the waste paper bin and be forgotten about.
Just amazing how many scams there are around these days….
At least in Greenland they’re resisting. This blog claims 39 Americans are officially resident there. And according to the IRS statistics linked above, there were 4 US tax returns filed in 2006 and possibly 5 in 2011. That’s a 10-12% compliance rate. The IRS needs to get on their dog sleds and crack down on those Nordic tax cheats!
Par for the course globally, isn’t it? Nine million USCs (est.) and fewer than a million returns? (From memory, may be wrong)
And of course not all returns represent a state of full compliance.
None of those millions has yet reported any visits from IRS dogs oops I mean dogsleds.
Unless I’ve misunderstood things, it looks like a bit less than 7500 Americans in Taiwan filed US income taxes. This approaches the number of non-dual US citizens here, but with the dual citizens included, the total would be more like 40,000 (or so I was told by an ex-AIT head, based on CIA estimates that they made in case all these people have to be evacuated for some reason).
I’ve wondered from time to time what leads a USC to decide to file. I speculate that in some cases it might be because they look at all the horrifying jumble of rules and traps, and they think it must be a rule-based system, and the only way to be safe is to figure out the rules and follow them meticulously – erring on the side of caution when in doubt..
But it isn’t a rule-based system. It’s a loophole-based system. And USCs living outside the US have easy access to the biggest and best loophole of all, which is not to file.
“…based on CIA estimates that they made in case all these people have to be evacuated for some reason).”
That’s a lot of black helicopters…
@Plaxy: “I’ve wondered from time to time what leads a USC to decide to file.”
When we first moved abroad 33 years ago, we’d heard something vague about Americans having to still pay US taxes from overseas. So my husband phoned the local IRS office in San Francisco before we left. A woman there very clearly advised him: “If you’re not earning US based income while abroad, you don’t have to file.”
Next April, filling out our US tax forms for what we thought was meant to cover only the part of the previous year before we moved abroad, we found instructions about the requirement for expats to file. We decided to be good law-abiding citizens and go along with it. It didn’t occur to us that there was anything unusual about the situation, only that it was annoying. With the FEIE it made no difference to us financially. That’s how it all started.
“And of course not all returns represent a state of full compliance.”
I KNOW that many of them are not in full compliance when they think they are. This is why the IRS like to audit overseas filers and why those who think they are in compliance are just laying their necks on the IRS chopping block. Of course, you might get chopped, you might not.
Feeling lucky?
Barbara – that’s very interesting that the IRS woman said there was no need to file. That would be before the vengeful spiteful spirit took hold, I guess.
I never heard of CBT until 2014, after decades of living abroad. The only IRS communication I ever received after leaving America was a refund. So when I learned all those years later that USCs were supposed to file US taxes wherever they were, I knew that the IRS wasn’t going to be writing to me – they’d had plenty of opportunity and never put pen to paper. It was renouncing that caught all my attention, because of the bank situation.
But what really surprised me, was that I encountered many compliant USCs who were bending over backwards to comply and over-comply. They would assure me, for instance, that I was going to have to enter Streamlined and pay a significant sum to the IRS because of my (entirely non-US-source) pensions. Many of them were interpreting the rules by assuming the IRS could tax them in whatever way it chose, because of the Saving Clause.
Those are the USCs I was thinking of in speculating about rule-based systems. They just took it for granted that they must figure out what the IRS wanted and give it to them.
“I KNOW that many of them are not in full compliance when they think they are. ”
Many more report only what they want the IRS to know. Such as the fact that they’ve got x number of children.
“This is why the IRS like to audit overseas filers and why those who think they are in compliance are just laying their necks on the IRS chopping block.”
For instance? Have you seen any reports of non-US-resident USCs in connection with IRS chopping blocks?
“For instance? Have you seen any reports of non-US-resident USCs in connection with IRS chopping blocks?”
Any person trying to comply with the US tax system from overseas has their neck on the chopping block. The ongoing task is to try and prevent the axe falling.
“Any person trying to comply with the US tax system from overseas has their neck on the chopping block. The ongoing task is to try and prevent the axe falling.”
But that is not true. Non-US-resident USCs who are citizens of their country of residence are perfectly safe. Those who don’t have local citizenship are safe if they don’t file.
Have you seen any reports of non-US-resident USCs in connection with IRS chopping blocks?
“But that is not true. Non-US-resident USCs who are citizens of their country of residence are perfectly safe.”
No they are not.
The key word here is “compliant”. If they are going to be compliant that would include complying with paying the bills and the penalties, therefore all compliant US citizens are laying their necks on the IRS chopping block and the ongoing compliance is to prevent the fall of the axe.
If they are not going to pay anything, they are not compliant.
“The key word here is “compliant”. ”
No the key word here is chopping block.
“If they are not going to pay anything, they are not compliant.”
Actually most don’t end up owing US tax even if they do comply.
No chopping blocks have yet appeared, as far as I’ve heard.
Condors try to scare USCs into thinking the IRS can “come after” them in their country of residence. The IRS actually has no power to do so, except insofar as treaties provide for the residence country to collect (which they won’t do if the person is a citizen).
Interesting example of cross-border treaty-mandated tax collection in action:
http://procedurallytaxing.com/why-is-the-irs-collecting-taxes-for-denmark-2/
Very troublesome. Tax agencies don’t like doing it, for obvious reasons. Especially the IRS.
The trouble with CBT is not the tax, it’s the tax-residence. As per the post.
I called the IRS in the US several times from Germany in 1991 when doing my last (1990) taxes from my time in the US Army. They told me more than once NOT to report the foreign income for my non-resident period after ETA AND NOT to bother filing going forward.
@UnforgivenToo. Well at the time in 1990s they had plenty of money to spend their time on useless hunting of expats. Nowadays they have very limited budget and hunting and squeezing or plucking feathers is beneficial for them. The compliance industry has grown into one giant monster who has to feed itself. Guess who is the fodder ?
The point is, they weren’t hunting expats. And aren’t. And can’t.
@Mike
“Just amazing how many scams there are around these days….”
Its more than just a simple scam. Its an IRS extortion racket aided and abetted by greedy compliance condors and periodic scaremongering by sensational media coverage. They managed to get me worried and suck me in for a couple of years before I learned the real story and dropped right back into non-filing (with no repercussions, by the way).
Putting aside the “chopping block”, I want to thank John for doing this podcast and the ones to come. I learned some interesting points about exiting Canada. Did that wrong too (no residency form) but that water flowed under the bridge 35 years ago so I’m not going to stress about it.
@plaxy. It depends on where you live too. In HK unfortunately you can’t live without compliance as the banks and IRS have their sights here trying to find expats. You can’t keep an account or sign a new one as they don’t want to see US passport anymore. My biggest mistake to get residency in HK based on US passport something I regretted later. You are correct about not complying but depends on each case.
Yes, FATCA is a whole other story. They’ve outsourced enforcement to the banks.
I do love those compliance numbers. Hilarious. (Note that the form 1116 total presumably includes US residents.) Not doing well, are they?
Now returning to my previously scheduled US tax non-compliance…