The IRS announced that in early 2017 it would begin sending the list to the State Department which taxpayers owe back taxes requiring the revocation of their passports.
According to Dictionary.com the word onerous is defined as 1. laborious or oppressive 2. law (of a contract, lease, etc) having or involving burdens or obligations that counterbalance or outweigh the advantages. A bill is currently working its way through congress that is onerous to US citizens who live or work abroad. The IRS requiring U.S. Citizens living overseas to file tax returns certainly meets the definition of onerous.
In the fall of 2012 the Orwellian bill titled “Moving Ahead for Progress in the 21st Century Act” passed. The bill has a provision that allows the United States Department of State to “deny, revoke or limit passport rights for any taxpayers with serious delinquencies”. Though the main part of the bill was meant to reauthorize funds for transportation programs, a small section introduced by Senator Barbara Boxer allows the IRS to revoke the passports of U.S. Citizens who owe back taxes.
The tax debt has to exceed 50,000 U.S. Dollars. Furthermore, the IRS will have to file a lien or assess a levy for the outstanding balance in order to suspend or revoke the passport then it can send a certification to the State Department to have a passport revoked. The bad news is that all the IRS has to do is send notices to the last known address of the taxpayer. The problems for many U.S. citizens who reside overseas is that many have not filed their U.S. tax returns for many years, so their last known address may be years or decades old.
The onerous part of the bill for US citizens who live abroad is that through the use of foreign tax credits and exclusions, most will not owe any US taxes when their returns are completed properly. However, the IRS will assume that all their income is taxable in the US until they file a return with the IRS. Thus with FATCA reporting income through international banks without those exclusions and credits, the IRS may assume that the expat owes substantial amounts of tax and move with no knowledge of the expat to revoke their passport.
If you are a U.S. Citizen who is residing overseas you need to come into compliance with your U.S. Tax obligations and your financial account disclosures. The IRS has the power to force International Financial Institutions to report the balances of all U.S. Citizen account holders. While it is possible to avoid penalties by entering certain IRS programs, once the IRS detects non compliance they will move to enforce horrendous penalties of 50 percent of the accounts balance and seize assets and yes revoke passports. By treaty they can deport U.S. citizens from Thailand to face tax fraud prosecutions.
If at any point you believe that you have undisclosed assets or you have not been completing U.S. Tax returns, contact us at James@aitaxadvisers.com for a free consultation. We can help you solve all problems you may have.
American International Tax Advisers is an IRS Authorized Efiler.
The United States reserves the right to tax its citizens on their worldwide incomes regardless of where they are residing at the time the money is earned. If you reside overseas you will still have to file a tax return if you meet certain income levels that depend on your filing status and age. If you live overseas you must file a return for 2016 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table:
|IF your filing status is. . .
||AND at the end of 2016
you were*. . .
|THEN file a return if your gross income** was at least. . .
|65 or older
|Head of household
|65 or older
|Married filing jointly***
||under 65 (both spouses)
|65 or older (one spouse)
|65 or older (both spouses)
|Married filing separately
||any age (if your spouse itemizes deductions)
with dependent child
|65 or older
In November 2016 New York emeritus professor Dan Horsky, pled guilty to conspiring with others to defraud the United States and to submitting a false expatriation statement to the Internal Revenue Service (IRS). Mr Horsky used a series of offshore companies and Swiss accounts to conceal his very successful investments in start up companies. Upon retirement teaching business administration Mr Horsky decided to retire renounce his citizenship. While he had previously failed to disclose the accounts on his FBAR forms and substantial investment in foreign companies and partnerships. Mr Horsky compounded his problem by filing an expatriation statement where he substantially understated the value of his assets.
The IRS has not disclosed how it discover Mr Horsky’s fraud but in their press release they said.
“The Department and its partners within the IRS are receiving a tremendous amount of information from a wide variety of sources, and we are using that information to pursue and prosecute individuals like Mr. Horsky, who violate our nation’s tax laws”.
It’s also important to note that the IRS paid out a record amount of money in whistle blower rewards. The incentive to report someone with undisclosed assets is very real.
Mr Horsky is to be sentenced on February 10th to what is supposed to be substantial prison time.
While it may be easy to see the IRS prosecuting Mr Horsky many U.S. citizens living abroad do not know that they are now in the cross hairs of the IRS international accounts investigations. This is because failure to file Foreign Bank Account Reports (FBAR) on offshore accounts with aggregated high balances over ten thousand U.S.D. during the year may result in fines of up to 50 percent of that high balance and possible prison time, because failure to file the correct forms is a criminal matter not a civil one in the case of foreign accounts. Because the fines are so large the IRS has looked at them as massive revenue stream. The problem for U.S. Citizens living overseas is that many are not filling out the correct forms and still others are not aware they are even required by law to file a U.S. Tax return and FBAR forms, regardless of the length of time they have lived overseas.
The good news for those with undisclosed accounts is that the IRS currently has a series of programs that allow for individuals to come into compliance with minimal penalties as long as they are deemed to not have been willful in hiding assets.
If at any point you believe that you have undisclosed assets, contact us at James@aitaxadvisers.com. We will help you come into compliance with the IRS.
American International Tax Advisers is a IRS Authorized Efiler.