— Citizenship Lawyer (@ExpatriationLaw) March 30, 2016
Yesterday I was forwarded an email which originated from the U.S. Consulate in Toronto. The purpose of the email (included at the end of this post) was to give notice of U.S. tax obligations for U.S. citizens living outside the United States. In other words, the State Department is assisting the IRS by notifying Americans abroad of their U.S. tax filing obligations. Put another way, this email represents:
“Tax Education Outreach” from the IRS delivered by the State Department”
I do NOT recall this in previous years. That said, this email notification is extremely significant. It means that the IRS can argue that those who received this email may well have had notice that they were required to file U.S. tax returns. Over time, this will increase awareness of U.S. tax filing obligations. The greater the increase in awareness of U.S. tax filing obligations, the harder it will be to claim ignorance of those obligations. (This is in addition to the “Educational Outreach” coming in the form of FATCA letters from your local bank and your friendly journalists. In both cases, you are being asked to consider the question of: “Are you or have you even been an American citizen?“) Although, this is NOT an immediate problem, it seems logical that sooner or later it will become more difficult for Americans abroad to claim ignorance of their U.S. tax filing obligations. This may have implications for coming into U.S. tax compliance.
Q. Who would have received this email from the U.S. consulate?
A. Anybody who is on the U.S. Consulate email list.
Q. Who would be on the U.S. Consulate email list?
A. It would include almost anybody who has applied for a U.S. passport.
To put it simply:
One who applies for a U.S. passport is now putting oneself in a position where one will be told about U.S. tax filing obligations. Since most Americans abroad need a U.S. passport, it stands to reason that those who apply for a U.S. passport are creating a situation where they will be told about U.S. “taxation based citizenship”. You can see where this is going.
This appears to be the next step in the progression that includes …
1. State Department asking for your Social Security Number – For some years the State Department has been required to ask Passport applicants for their Social Security number. This requirement is found in S. 6039E of the Internal Revenue Code, which includes:
(a) General rule Notwithstanding any other provision of law, any individual who—
(1) applies for a United States passport (or a renewal thereof), or
(2) applies to be lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws,
shall include with any such application a statement which includes the information described in subsection (b).
(b) Information to be provided Information required under subsection (a) shall include—
(1) the taxpayer’s TIN (if any),
(2) in the case of a passport applicant, any foreign country in which such individual is residing,
(3) in the case of an individual seeking permanent residence, information with respect to whether such individual is required to file a return of the tax imposed by chapter 1 for such individual’s most recent 3 taxable years, and
(4) such other information as the Secretary may prescribe.
Any individual failing to provide a statement required under subsection (a) shall be subject to a penalty equal to $500 for each such failure, unless it is shown that such failure is due to reasonable cause and not to willful neglect.
(d) Information to be provided to Secretary Notwithstanding any other provision of law, any agency of the United States which collects (or is required to collect) the statement under subsection (a) shall—
(1) provide any such statement to the Secretary, and
(2) provide to the Secretary the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a).
Nothing in the preceding sentence shall be construed to require the disclosure of information which is subject to section 245A of the Immigration and Nationality Act (as in effect on the date of the enactment of this sentence).
The Secretary may by regulations exempt any class of individuals from the requirements of this section if he determines that applying this section to such individuals is not necessary to carry out the purposes of this section.
(Added Pub. L. 99–514, title XII, § 1234(a)(1), Oct. 22, 1986, 100 Stat. 2565; amended Pub. L. 100–647, title I, § 1012(o), Nov. 10, 1988, 102 Stat. 3515.)
Note that S. 6039e does NOT include a provision for the denial of a passport.
2. The 2015 FAST Act: State Department has the authority to deny you a passport – The “passport revocation” and “passport denial” provisions in the FAST Act allow give the Government the right to deny you a passport for reasons of “tax delinquency”. The provisions are complicated and will (in the short run) be difficult to enforce. Nevertheless, the United States has now linked taxation with the right to have a U.S. passport. This is an extremely dangerous provision.
See the following recent presentation I made on this topic here:
The writing is on the wall …
The United States is on the way to linking the retention of a U.S. passport to U.S. tax compliance. This is extremely dangerous for Americans abroad who, live life in the penalty box, and cannot be both U.S. tax compliant and live a normal life in their country of residence. Americans abroad, who have no immediate plans to return to the United States, would be well advised to get a second citizenship/passport. The acquisition of that second passport may or may not be accompanied by the relinquishment of U.S. citizenship. It is becoming increasingly difficult to remain a U.S. citizen and live outside the United States. More and more people are renouncing U.S. citizenship. They feel that they have no choice!
On the issue of “renouncing U.S. citizenship” …
“To renounce or not to renounce, whether tis better ” is a difficult question. https://t.co/SlKWmehRxC – to which there is NO happy answer.
— Citizenship Lawyer (@ExpatriationLaw) March 28, 2016
As I recently commented on Rachel Heller’s blog:
@JD and @Rachel
I certainly agree that the question of:
“To renounce or not to renounce, whether tis better …”
is a difficult question.
There is NO answer to this that will not cause pain, hurt, resentment, anger, and long term pain.
When I consider various categories of Americans abroad, I think it is useful to distinguish between those who have been filing their U.S. taxes and those who have not.
First, Those who have been and are U.S. tax compliant …
Those who have been filing U.S. taxes (and are in the tax system) are in the worst of all possible situations. By entering the U.S. tax system, they have voluntarily entered a “fiscal prison” that means that they will always be disadvantaged relative to others in their country of residence. Those who have been filing U.S. taxes can be further divided into:
A. Covered expatriates – Subject to the S. 877A Exit Tax
You will be a “covered expatriate” if you:
– have too much income
– too many assets
– not tax compliant for five years
Those who are “covered expatriates” (particularly those who have pensions in their country of residence) are in an incredibly difficult situation. To put it simply, they are likely to have to pay a huge portion of their life savings to be free of the United States. This is because of the effects of the S. 877A Exit Tax (Google this). As a rule of thumb, those Americans abroad with assets that exceed two million USD (easy to do if you own a house in Toronto, London, Vancouver, etc) will be very damaged if they “choose to be free”, by leaving the “land of the free”. I find that most Americans abroad are unaware of this or they think “that there must be some mistake – this couldn’t possibly be true”. Make no mistake. The U.S. S.877A Exit tax is designed to impose confiscatory taxation on (1) assets that exist outside the United States and (2) that were acquired after the person moved from the United States.
B. Non-covered expatriates – not subject to the S. 877A Exit Tax
If you check my site at “citizenshipsolutions dot ca” you will see this defined and discussed. My message for those of you who are non-covered expatriates is to get out now! Sooner or later you will be “covered”.
It’s interesting that those who were “dual citizens from birth” (and meet other criteria) may be able to escape being a “covered expatriate”. This is interesting because it means that those who are punished the most by the S. 877A Exit Tax rules are those who were born ONLY U.S. citizens. You can’t make this up!
Those who have not been and are not U.S. tax compliant …
All of the evidence suggests that Americans abroad who are “U.S. Tax Compliant” are in a minority. Because of FATCA and fear mongering they are under pressure to become U.S. tax compliant. Many of them are coming into U.S. tax compliance. In fact many of them are coming into U.S. tax compliance for the sole purpose of being able to (1) avoid being a “covered expatriate” and (2) renounce U.S. citizenship.
If you want to see what it means to live as a “U.S. tax compliant” citizen abroad, and why it is a “fiscal prison”, I invite you to read the following blog post:
There is NO “pain free” answer to the problem of attempting to live as a U.S. citizen outside the United States!
Here is the “IRS Tax Bulletin” from the IRS which was sent to those who have applied for a U.S. passport …
Actually it’s a pretty good synopsis to get you started. Of course, one read of this may make you want to avoid getting a U.S. passport forever. That said, what is clear is that:
When it comes to those born in the United States: Taxation and citizenship are one and the same!
United States Consulate General Toronto, Canada
Message for U.S. Citizens: IRS 2016 Tax Filing Information
— Citizenship Lawyer (@ExpatriationLaw) March 30, 2016
March 29, 2016
Who Must File?
If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns, and pay estimated tax in the same way as those residing in the United States. Your worldwide income is subject to U.S. income tax, regardless of where you reside.
Your income, filing status, and age generally determine whether you must file an income tax return. Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status in the Filing Requirements table in Chapter 1 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
When is the 2015 Federal Tax Return Due?
Due date for Form 1040: April 18, 2016
The due date is April 18 instead of April 15 because of the Emancipation Day holiday in Washington, D.C., – even if you do not live in the District of Columbia. If you live in Maine or Massachusetts, your federal tax return is due April 19, 2016, the day after the Patriots’ Day holiday in those states.
Possible extensions of time to file tax return:
Automatic extension to June 18, 2016, for taxpayers living outside the United States and Puerto Rico. No form is required; write “Taxpayer Resident Abroad” at the top of your tax return.
Caution: This extension applies only for filing your tax return, not for payment. If you owe any taxes, you’re required to pay by April 18, 2016. Interest and penalties generally will be applied if payment is made after this date.
Extension for all taxpayers to October 18, 2016: File Form 4868.
Caution: This extension applies only for filing your tax return, not for payment. If you owe any taxes, you’re required to pay by April 18, 2016. Interest and penalties will generally be applied if payment make after this date.
Other extensions may be available on IRS.gov.
Can I Mail My Return and Payment?
You can mail your tax return and payment using the postal service. If you mail a return from outside the United States, the date of filing is the postmark date. However, if you send a payment, separately or with your return, your payment is not considered received until the date of actual receipt. You may use approved private delivery services. A list of approved delivery services is available on IRS.gov.
5. Can I Electronically File My Return?
You can prepare and e-file your income tax return, in many cases for free. Participating software companies make their products available through the IRS. Many Free File and e-file partners accept a foreign address. E-File options are listed on IRS.gov.
6. What Forms Might I Need?
1040, U.S Individual Income Tax Return
Instructions to Form 1040
1116, Foreign Tax Credit
Instructions to Form 1116
2350, Application for Extension of Time to File U.S. Income Tax Return (for U.S. citizens and residents abroad)
2350 in Spanish
2555, Foreign Earned Income Exclusion
Instructions to Form 2555
2555-EZ, Foreign Earned Income Exclusion
Instructions to Form 2555-EZ
4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
4868 in Spanish
8802, Application for United States Residency Certificate
Instructions to Form 8802
8938, Statement of Specified Foreign Financial Assets
Instructions to Form 8938
14653, Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures
How Do I Pay My Taxes?
You must pay your taxes in U.S. dollars.
Direct pay option. You can pay online with a direct transfer from your U.S. bank account using Direct Pay, the Electronic Federal Tax Payment System, or by a U.S. debit or credit card. You also can pay by phone using the Electronic Federal Tax Payment System or by a U.S. debit or credit card.
Foreign wire transfers. If you have a U.S. bank account, you can use: EFTPS (Electronic Federal Tax Payment System), or Federal Tax Application (same-day wire transfer). If you do not have a U.S. bank account, ask if your financial institution has a U.S. affiliate that can help you make same-day wire transfers.
Foreign electronic payments. International taxpayers who do not have a U.S. bank account may transfer funds from their foreign bank account directly to the IRS for payment of their tax liabilities.
Are There Other Reporting Requirements?
You also may have to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), by June 30, 2016.
Does the IRS Provide Help in Other Languages?
The IRS provides tax information in Chinese, Korean, Russian, Spanish, and Vietnamese. Go to www.irs.gov and use the drop down box under “Languages” on the upper right corner to select your language.
Where Can I Get Help?
Contact the International Taxpayer Service Call Center by phone or fax. The International Call Center is open Monday through Friday, from 6:00 a.m. to 11:00 p.m. (Eastern Time).
Tel: 267-941-1000 (not toll-free)
I Received a Notice from the IRS – What Do I Do?
If you receive a notice from the IRS and need to contact the IRS, call the number listed in the notice or the International Taxpayer Service Call Center (contact information is listed in the section above).
Where Can I Get More Information?
For information, see the IRS website about international taxpayers.
For general information about international taxpayers, see Publication 54, Taxation of U.S. Citizens and Residents Abroad.
For information on the Affordable Care Act and taxpayers outside the United States, see Publication 5187, Health Care Law.
I Haven’t Filed All My Tax Returns – What Can I Do?
If you have not filed all the returns that you should have and want to catch up on your filing obligations, see IRS makes changes to offshore-programs.
Note: The timestamp on this e-mail message may reflect Washington, D.C., time, which may differ from local time.