Yesterday I saw a “planning ahead” question relating to taking into account US citizenship of a prospective spouse before your marriage in a country outside the US (and perhaps even within the US if you as a couple or a family would ever plan to live in another country than the US). Due diligence is better before walking down the aisle than finding out about how you will be caught up in matters of US citizenship-based taxation afterwards. A couple planning a wedding will not find this at all romantic or may not think that it would matter, but they will one day be glad they planned ahead — whatever the decision about the actual marriage. Good financial planning is necessary to protect your assets going into a marriage, as well as those resulting from joining financial accounts with your US spouse-to be. That prompted me to remind persons of another important area in which to think and plan ahead:

We would not readily think about what happens as we or a family member age with an unfortunate mental incapacity caused by aging, by stroke or some accident that results in a brain injury. I have often considered how I could possibly cope with the complexity of U.S. tax compliance, to say nothing of the continued and increasing costs for help with that compliance year after year, if I had not renounced my U.S. citizenship.

From: 7 FAM 1290 MINORS, INCOMPETENTS , PRISONERS, PLEA BARGAINS, CULTS AND OTHER SPECIAL CIRCUMSTANCES (CT:CON – 4 49; 03 – 25 – 2013 ) (Office of Origin: CA/OCS/L)

U.S. Department of State Foreign Affairs Manual Volume 7 Consular Affairs
7 FAM 1290

(U)7 FAM 1293 MENTAL COMPETENCY
(CT:CON-407; 06-29-2012)

a. Because loss of U.S. nationality occurs only when a would-be renunciant or person signing a statement of voluntary relinquishment has the legal capacity to form the specific intent necessary to lose U.S. nationality, cases involving persons with established or possible mental incapacity require careful review. This includes mental disability, mental illness, developmental impairment, Alzheimer’s disease, and similar conditions. It may also include cases of substance abuse.

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There has been past discussion in comments at Brock regarding the U.S. Taxpayer Bill of Rights. Here is a post to bring together further discussion. JC says: “Of interest is 10. Right to a Fair and Just Tax System. This is highly subjective and is at odds of just following the law.”

From the IRS website: June 10, 2014: IRS Adopts “Taxpayer Bill of Rights;” 10 Provisions to be Highlighted on IRS.gov

The IRS released the Taxpayer Bill of Rights following extensive discussions with the Taxpayer Advocate Service, an independent office inside the IRS that represents the interests of U.S. taxpayers. Since 2007, adopting a Taxpayer Bill of Rights has been a goal of National Taxpayer Advocate Nina E. Olson, and it was listed as the Advocate’s top priority in her most recent Annual Report to Congress.

“Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights,'” Olson said. “However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights. I believe the list of core taxpayer rights the IRS is announcing today will help taxpayers better understand their rights in dealing with the tax system.”

1. The Right to Be Informed
Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

2. The Right to Quality Service
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

3. The Right to Pay No More than the Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

4. The Right to Challenge the IRS’s Position and Be Heard
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

5. The Right to Appeal an IRS Decision in an Independent Forum
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

6. The Right to Finality
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

7. The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

8. The Right to Confidentiality
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

9. The Right to Retain Representation
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

10. The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

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Allison Christians has on her blog: Allison Christians, August 12, 2014: FBAR e-filing: violates Taxpayer Bill of Rights, challengeable under Haar.

The FinCEN experience also violates provision 10 in my view. Provision 10 says taxpayers have the “right to a fair and just tax system.” It is neither fair or just in my view to force individuals to register and transmit sensitive personal information on a website that is built for the sole purpose of detecting money laundering, terrorist financing, and other financial crimes, where no evidence exists that the individuals have perpetuated or are planning to perpetuate any such crimes. This process constitutes an intimidation tactic. If you don’t believe it, I invite you to visit the FinCEN website, register yourself, and file an FBAR form as a civics lesson.

I am not saying Treasury doesn’t need the information FBAR requires (though much or most of it is egregiously duplicative with IRS forms that non-resident US persons already have to file). But I am saying there is no way that Treasury needs to extract this information by making individuals register on a website that so clearly transmits the message: “you are a suspected criminal and we are watching you.”

Remember, we are talking about millions and millions of people who have “foreign” bank accounts because they live in foreign countries; most are citizens of those foreign countries where they live; and their banks are local to them. Congress treats these people as if they live in the United States, when they do not. But Congress does not similarly treat their local bank accounts as local (Congress should do so, and would fix many problems if they did, as I argued in a Tax Analysts column in 2012). This mismatch of fiction against fact does not make people money launderers or tax evaders. Many, many of these individuals are unjustly caught up in the US tax net because of the madness of citizenship taxation. Also: consider that the FBAR instructions even say that kids ought to fill out their own FBAR forms. Come on.

Switzerland Commits to Automatic Tax Information ExchangeFrom JDSUPRA Business Advisor, Tax Controversy Watch, October 10, 2014: FATCA Notebook: Former IRS Chief, Taxpayer Advocate, Criticize FATCA

Stephen Miller suggests the benefits of the new information reporting regime imposed by FATCA may not outweigh its costs;

and

Nina Olson says re FATCA consequences: “I don’t think we’ll know that for years. And by that point we’ll actually be a little too late to go, “Oops, my bad, we shouldn’t have done this,’ and then try to unwind it.”

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Also in the article:

Finally, Switzerland announced on October 8 that it would move toward automatic exchange of bank account information with other countries, including the EU and the United States. (See articles here and here.) If adopted, the earliest date for automatic exchange of data would be 2018 and the new reporting regime would require Switzerland to notify an account holder’s country of origin if a Swiss bank account is opened. Switzerland also announced that it would seek to negotiate a Model 1 Intergovernmental Agreement (IGA) with the United States to implement FATCA, to replace the Swiss-U.S. Model 2 IGA that was reached in February 2013.

With another article commented on by “Worldwide” on the Media thread: Switzerland Commits to Automatic Tax Information Exchange

A “Wake Up Call” for U.S. Tax Policy – Inversions, Planning & Corporate Tax Rates http://t.co/xI9Qg2qY1r guest post by John Richardson

— U.S. Expat Canada (@USExpatCanada) October 9, 2014

Although U.S. tax rates are important and must NOT be uncompetitive, the recent discussion of “inversions” and of Americans abroad “renouncing citizenship”, should prompt a rethinking of how the U.S. tax system should work. Who should be subject to U.S. tax? For what reason? On what kind of income?

This article is a must-read as it draws interesting parallels between the plight of American corporations abroad and American citizens abroad. Commenting gives us an opportunity to bring attention to our situation. You can read and comment here.
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