[The audit is now mentioned in Tax Connections from, I think, a tax compliance perspective]
A commenter on Brock found this link to a recent September 28, 2020 TIGTA audit, a “review to determine the effectiveness of the Internal Revenue Service’s efforts in ensuring compliance with the expatriation tax provisions under Internal Revenue Code Sections 877 and 877A…”
Expatriation is a human right.
However the United States Congress and the U.S. Treasury Inspector General for Tax Administration (TIGTA) aim to discourage anyone who renounces because they don’t want the burden of annually filing those US tax forms — there must be disincentives for these persons.
TIGTA specifically argues that without a much better IRS “Centralized effort, Congress’s attempts to create disincentives for tax-motivated expatriation via I.R.C. § 877A will not be effective”. Of course, the disincentives would be applied also to “Accidental ‘Americans'”.
The audit concluded that IRS tax compliance efforts for expatriates is a mess and found, for example:
“TIGTA found that the IRS database of expatriates was incomplete for 16,798 expatriates who did not file Form 8854. In addition, TIGTA found instances of potential nonfiling, underreporting of income, and/or payment compliance issues by expatriates. From a sample of 26 expatriates who did not file a Form 8854, five had potential unreported income over $6 million. From a sample of 61 expatriates who filed a Form 8854, 15 had potential unreported income over $17 million. Lastly, TIGTA also found that expatriates with high net worth appear to not be paying their exit tax.”
… and TIGTA made some recommendations.
Imagine how much attention they (don’t) pay to expatriates who aren’t worth enough to owe the exit tax.
Almost 17 thousand renunciations without filing Form 8854 is an interesting number though.
This is an important finding for Accidental Americans such as August who are being coerced by Moody’s and others into filing. This paper proves the IRS is incapable of responding to anyone who chooses not to file form 8854 with their final 1040 let alone anyone who files nothing. Filing nothing is the safest course of action.
Moodys would look at this and say, “See, they’ve begun cracking down!”
I am greatly amused by the statistic that 41 percent of CLN records in their database don’t have an associated Form 8854, but reading the fine print I think this refers to the mailing of a duplicate 8854 to Philadelphia, as opposed to attaching an 8854 to the final return that is sent elsewhere (Austin TX possibly). So it’s not necessarily the case that 4 out of 10 renunciants file nothing. But it certainly appears to be the case that there is zero follow-up.
Just more silliness from the US government. This is how I read it:
“Expatriation is a human right. However, the US government will do its level best to discourage (via the high fee and the exit tax) or totally deny (via the COVID consulate closures) anyone who wants to exercise that right.”
People who renounce because they are sick and tired of filing forms decline to file any more forms after they renounce. Who could have imagined that?
I was amused by the recommendation that the State Department collect Social Security Numbers from all who renounce. Had it not occurred to the Inspector General that many renunciants are Accidental Americans who have never possessed such numbers?
“ This audit was initiated to determine the effectiveness of the IRS’s efforts in ensuring compliance with the expatriation tax provisions under Internal Revenue Code Sections 887 and 877A and related efforts to reduce taxpayer burden.“
What a joke. Reduce taxpayer burden indeed. Clearly this whole exercise was a make work project for the deputy inspector general.
Now that’s hilarious. We do know one thing for sure. Renunciation is the absolute best way to reduce taxpayer burden. And what possible use would the SSN of someone who has just left forever be? Totally nuts.
I assumed the SS number was so that the IRS could quickly search for filed US tax returns and 8854.
If the Dems win the Senate and Warren gets her role as Secr of Treasury, will the IRS get the 30% budget increase that she promised in her failed presidential campaign? Will that make Moody’s dreams come true?
No
What a joke indeed.
“From a sample of 26 expatriates who did not file a Form 8854, five had potential unreported income over $6 million. From a sample of 61 expatriates who filed a Form 8854, 15 had potential unreported income over $17 million”
I wonder how they calculate that, and how the samples were chosen. Either the “potential” income is wildly overblown or the samples concentrate on the very wealthy, or I’m completely naive and underpaid!
I can imagine persecuting US citizens abroad, as they do, but do they really think they have any leverage on people who have left??? I guess they do, and maybe people do keep significant finances in the US.
As I’m on a low income, I have no fear that the IRS would bother with me.
However, I guess a possible leverage is refusing to allow the person to enter the USA. As many of us have ties back to the USA, that could be a major problem.
My biggest fear is having difficulty visiting family over in the states. It’s currently very difficult for British passport holders to visit due to COVID. They would have to apply for a special waiver on humanitarian grounds such as if my father was dying.
Who’s to say they might make it more difficult to attain a Visa waiver when they do reopen the borders. They may insist on all social media aliases, insist on special medical exams, etc.
They could also impose a special tax for former citizens on U.S.-cited inheritances. Just things that come to mind, even without worrying about the IRS
I should long ago have posted something here.
Tax Connections did it’s usual numbskulled take on the TIGTA report, but the long comment below from one David Johnstone is one of the smarter things I’ve read on the subject.
https://www.taxconnections.com/taxblog/expat-execution-tigta-audit-recommends-irs-increase-its-enforcement-efforts/