The Internal Revenue Service (IRS) got an earful in May 2016 and learned a lot about the community of US persons living abroad who are struggling with the complexity of the US tax system.
IRS “Future State”
The American Citizens Abroad Inc., (ACA) a non-profit organization, presented testimony at the National Taxpayer Advocate Forum on May 17, alongside other community groups to educate the IRS, the public and the media on certain key topics involving overseas Americans. The topics included how the IRS Future State might impact these Americans and the considerations the agency should take into account to best serve this group’s distinct needs. For those of you who may not know, the IRS Future State is a project proposing to use electronic and on-line services in order to simplify tax compliance and to better serve US taxpayers. You can read more about this IRS initiative here. While ACA acknowledged its belief that automation can help facilitate the filing process for Americans abroad, it emphasized that this alone is insufficient for this unique group of taxpayers who are faced with the most complex tax reporting and the greatest lack of competent tax resources. As ACA so aptly stated “for Americans overseas, the complexity of the US tax code grows exponentially…”
What I found most significant about ACA’s testimony was how it so skillfully used this speaking opportunity to educate the IRS, the media, and all of its audiences about the overseas American taxpaying community in order to dispel certain misperceptions about US taxpayers abroad and to make their unparalleled needs clearly known. Rife among erroneous beliefs are that this community is extremely wealthy and inordinately cheating on US taxes.
Tax Noncompliance is Often “Nonwillful”
I found that the topics discussed by the ACA involved the real (and in many cases, surreal) problems faced by many Americans abroad in being tax compliant. It was comforting for me to find that the discussion list mirrored many of the reasons included by my own clients in their Statements of Fact for the Streamlined Foreign Offshore Procedure to demonstrate that their tax noncompliance was not “willful” . In many cases, when the facts do not clearly go in one direction, professionals will struggle for guidance in making the determination of “nonwillfulness”. The ACA’s testimony can assist not only the IRS in understanding the issues faced by this group, but can assist professionals in fully appreciating the unique situations faced by their overseas clients and in making their Statements of Fact more robust.
Let’s take a look at some of the factors raised by ACA:
- In examining the total number of US tax subjects abroad, ACA noted that an accurate number is simply not available and that this information should be obtained. It also noted that “[n]on-filers exist for a number of reasons, including a low income level, ignorance of their filing obligation and confusion over the process of filing and forms required to file.”
- It examined demographics finding that of the Americans living and working abroad, over one half earn under $99,000 per year and that a high percentage are dual-nationals, including individuals for whom English is not their native language. Not only are the US tax rules exceedingly complex when it comes to the overseas taxpayer, many US tax subjects living abroad simply lack a good command of the English language to navigate the IRS website and other aspects of the tax “system”. Automation will not be of great help to these individuals who will clearly need tax help from human beings.
- ACA and other community groups “receive hundreds, if not thousands of communications annually from Americans overseas who want to comply with their tax obligations but lack the resources and information and need assistance” which they cannot find.
- ACA urged the IRS to consider the servicing needs of Americans abroad who have special needs many of whom do not have access to the internet and up-to-date technology. ACA explained that the community groups hear from retirees, mentally and physically disabled and low-income taxpayers “who lack the necessary resources to understand the tax code as it applies to them and their filing requirements”.
- On top of all this, Americans abroad suffer from subpar internet access or quality; subpar mail delivery services in their home countries, with IRS communications (if they arrive at all) arriving with action dates already past due. They also suffer from “subpar service from the IRS” with a lack of IRS offices internationally.
- Americans abroad live in different time zones, have different holidays and even different “weekends” to the US. Yet, given the extreme complexity of the tax rules impacting this group, it is the group in most dire need of IRS help that is readily accessible despite such differences. Unless the tax laws are significantly simplified, the “diverse community of Americans living across the globe, dealing with many home-country investment and local tax requirements, will continue to have more servicing needs than their state-side counterparts.”
- While data and identity theft are a serious problem for all tax filers using on-line and internet systems, the problems are exacerbated for overseas filers . Many security monitoring systems for data and identity theft do not exist internationally putting Americans overseas at an increased threat of being identified and targeted by kidnappers or terrorists. Many of my own clients in the Middle East region have expressed fear of identifying themselves to their financial institutions as US persons; others will not work online for any US tax matter preferring by-hand tax preparation (is such a thing even possible?) and sending a couriered package to the USA.
The ACA also mentioned that in order for the Future State to become a reality, tax payments need to be made in US dollars to the US Department of the Treasury; refunds must be remitted to a US bank account. The numerous Americans abroad lacking a US residence or mailing address faced an almost insurmountable challenge to open or maintain a US bank account. This all changed when ACA helped solve the problem earlier this year. Now, Americans abroad can open a US bank account quite simply even if they have absolutely no US presence.
Thanks to ACA for all of its hard work on behalf of overseas Americans! Your impact will be felt by millions with gratitude.
For those with further interest, it is easy to become an ACA member.
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