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
@Nononymous
“I do love those compliance numbers.”
Really? You must be joking. I know you’re just having a weak moment. Those numbers are way too high. I think its our sacred duty as righteous human beings to drive them even lower by whatever means possible. I don’t just want CBT and FATCA to be failures. I want them to both be EPIC failures!
Spreading the truth here on Brock is a really good start. Excuse me, now I’ve got some non-compliance of my own I need to take care of….
I haven’t heard of one non-resident US tax filer getting audited by the IRS, that is unless they signed up voluntarily to an OVD Program.
Thanks, John and Olivier – a very interesting conversation. And thanks, Tricia, for posting.
Another way to triangulate on the level of compliance by expats – https://www.irs.gov/pub/irs-soi/15in52oa.xlsx available from https://www.irs.gov/statistics/soi-tax-stats-historic-table-2 shows how many returns were filed in 2015 with addresses outside of the 50 States + DC. It shows 751,180 returns with a total of 1,435,880 exemptions. So, at most that represents 1,435,880 individuals (including dependent children). Many of these will be returns from outlying territories or returns of service men/women stationed overseas and their families. But, even if we assume they are all expats, then that’s only about 16% of 9 million (or about 20% of the more conservative estimate of 7.2 million expats). I suspect that the compliance rate in 2015 was substantially lower than 20%.
On the other hand, there’s also this, taken from the same IRS statistics (though I couldn’t locate the original source):
Expats should take careful note of the very high percentage of international returns that were audited in 2015 – namely 4.3%. This represents a likelihood that is over five times higher than the overall average of 0.8%.
https://www.expattaxprofessionals.com/irs-data-book-chances-of-being-audited/
In other words, compliance by stupid expats like me is that much more dangerous than non-compliance.
That’s a sobering thought indeed. Not right, is it? Just not right. I think it’s pretty clear who is being stupid here, and it’s not the expats, it’s the lying liars who abuse the good faith of the people they’re supposed to be serving, and manipulate the laws so that all are lawbreakers and the law can be used to redistribute money from the poor to the rich.
Successive US administrations have undermined and thrown away what good government relies on – the readiness of all to work for the common good, pay taxes for the common good, co-operate internationally for the common global good. The tragedy of the commons, on a massive scale.
They hang the man and flog the woman
Who steals the goose from off the Common
But let the greater villain loose
Who steals the Common from the goose.
@Barbara. Correct I complied too and now I am horrified to find myself in a very dangerous situation. Compliance is a very bad problem. One should not even use US passport to travel and only travel on non US passport. Never trust or tell any compliance condors even tax attorneys as they are very dangerous and will try to force you into compliance or tell on you no matter what their attorney client privilege stated. That is nothing to them as they too are forced by IRS to comply and tell everything on you if you are breaking any laws. Trust me all this info I have collected from several cases.
I wonder if the very high audit international audit rate might be related to the (presumably) very high percentage of international returns reporting foreign accounts.
Harrison: “One should not even use US passport to travel and only travel on non US passport.”
Why not?
@zla’do. The US consulate in your country of residence will know you are living in this country when you try to get your passport renewed or your spouse or your children’s. They will update this info in their systems and IRS these days is very keen on finding expats living overseas if not filing anything . You should use your US passport to travel when it is not renewed from overseas. Travel to USA and get all your children and spouse passport renewed from here not in your country of residence. Then you can travel anywhere. This info passed by a US offshore living advisor living overseas. You can use your US passport to travel anywhere if not renewed overseas. Basically your passport is valid for 10 years anyways. Children have 5 year validity. Stay off the grid when not complying which is common sense these days as I found out that compliance is a big nightmare I can never get out of.
“In other words, compliance by stupid expats like me is that much more dangerous than non-compliance.”
This is an inescapable conclusion really. Most of those with no intention of returning to live in the USA are better doing absolutely nothing to help the IRS, particularly those with the nationality of the nation where they live.
And yes, auditing expats is pretty lucrative because the audit can be as difficult as looking for a form that isn’t there and then sending out monster penalties for “form crime”.
Harrison – there’s been no sign that the IRS is trying to track down non-US-resident USCs who don’t file. Why would they? They’ve got FATCA reports on non-USC-residents coming out of their ears – complete with home address – and can’t do anything with that information.
The passport revocation law seeks those who have been assessed; non-filers don’t get assesed.
“auditing expats is pretty lucrative because the audit can be as difficult as looking for a form that isn’t there and then sending out monster penalties for “form crime”.”
Not really.
Non-filing USCs living outside the US cannot be forced to pay IRS fines and penalties for not writing to the US to confess to having a bank account.
A USC living outside the US who tries to comply may be at risk – especially if they live in one of the collection-agreement countries and don’t have citizenship. The moral is a) get citizenship and b) don’t file.
“A USC living outside the US who tries to comply may be at risk”.
So why start your post with “not really” in response to what I said when I describe just that situation?
“In other words, compliance by stupid expats like me is that much more dangerous than non-compliance.”
You sure have a lot of nerve calling yourself stupid. You can’t hold a candle to me. I’m the most stupidest stupid former complier in this half of the Milky Way galaxy.
Because USCs need to know that they aren’t vulnerable to easy auditing.
International audits aren’t an easy lucrative option for the IRS. They can’t just “look for a form that isn’t there” and collect. Regardless of whether the person has citizenship.
Those who try to comply, live in a collecting country, and don’t have citizenship, are at more risk, but in most cases those who try to comply will have filed all the required forms.
ND – it’s the lying liars who are stupid IMO, not us that get lied to.
“Because USCs need to know that they aren’t vulnerable to easy auditing.”
They are, they filed and an audit is easy and if the US citizen wishes to remain compliant, they will comply with the audit.
“International audits aren’t an easy lucrative option for the IRS.”
They can be particularly easy when all that is required is to look for a form the IRS know that many fail to file, even if most compliant citizens do.
“They can’t just “look for a form that isn’t there”
Yes they can.
“and collect.”
Usually not, but AGAIN, we are talking about the US tax compliant who “do the right thing” including paying their penalties.
You continue to suggest that everything I say is wrong because non compliance is an option while I am talking about those who are complying.
Really Plaxy, what you are saying here is compliance is usually optional and I am saying that compliance is dangerous. Do you think we might leave it at that seeing the message is essentially the same?
“Usually not, but AGAIN, we are talking about the US tax compliant who “do the right thing” including paying their penalties.”
Yes, I agree, those who try to comply can suffer immense, irreparable damage. But those who through trying to comply, find themselves being ordered to pay huge penalties, may still be able to ignore the demand.
“You continue to suggest that everything I say is wrong ”
Sorry if you feel I’m trying to prove you wrong. I’m not – I’m just repeating the point that people needn’t be scared. There’s been a lot of fear, largely due to the condors. I may sound like a broken record but it’s just because I feel like people need to know that the IRS has very little power outside the US.
“those who through trying to comply, find themselves being ordered to pay huge penalties, may still be able to ignore the demand.”
And similarly, USCs who’ve tried to comply and suddenly find themselves threatened with an irrational lunatic demand for payment of a gigantic retrospective tax such as the transition tax, cannot be forced to pay, just because condors shake their heads, draw their breath in through their teeth and say it can’t be avoided.
@plaxy everything you stated makes perfect sense. From all my experiences now and on this blog from your statements I also believe compliance is over rated and a major problem for those who comply. It’s better to avoid it as only you hang yourself with the rope in their hands.
Condors and vultures will feed on you if you try even.
“I also believe compliance is over rated and a major problem for those who comply.”
So do I, yet many do comply, particularly those who wish to maintain links with the USA.
My advice to my local barmaid is to place any communication in the waste paper bin. Her application for permanent residency is well advanced.
BUT, she keeps worrying about being able to go back and see her sister.
cee –
Have a look at maz57’s comment at http://isaacbrocksociety.ca/2018/02/12/what-is-tax-residency-episode-1-with-john-richardson-olivier-wagner/comment-page-1/#comment-8137958
Also, many people (including me) stopped filing on departure from the US and never filed again. The IRS never so much as wrote to enquire.
@cee
If you choose to go non-compliant and are worried about banking, move to a different bank and answer the citizenship question with a no. Problem solved.
But if you’re renouncing anyway, just report that fact and you should be good.
Further compliance not necessary or advisable, I’d say.
@plaxy you stopped filing after you left US and never filed from outside USA. That is the best option they never know where you are at now. This is exactly the proper way. Finding you are overseas always makes them hyper active (not that they can do anything if you don’t file and they can’t do anything if your assets are overseas too ).