The problems with Citizenship Based Taxation are covered throughout this wiki. Under US tax law, US citizens and green card holders are US tax residents regardless of where they actually live. This creates a situation where US tax-residents who physically reside outside the US are treated as tax-resident by two (or more) countries simultaneously and must navigate both sets of tax rules simultaneously. FIXME This introductory paragraph needs to be expanded.

While specific provisions are covered elsewhere, this page covers general problems that result from Citizenship Based Taxation. Topics covered are:

  1. Compliance Issues
  2. Enforcement Issues
  3. Who is a US citizen?
  4. FIXME add other areas for this page

Compliance Issues

FIXME This section should include discussion of cost and difficulty of compliance, such as any hard statistics on average compliance costs, difficulty finding professional help, inadequacy of IRS support for international taxpayers (e.g. closure of international offices).

IRS data on aggregate tax collected from filers of forms 2555 and 1116 is available here. Data on all taxpayers is available here.

FBAR - a history of FBAR penalties written in 2007:

Enforcement Issues

This section is about issues around how the IRS enforces Citizenship Based Taxation on international individual taxpayers.

Offshore Enforcement Programs

FIXME Details about OVDP, OVDI, Streamlined

Here's a good early article by Jack Townsend about the bait and switch tactics in OVDP

Taxpayer Advocate Reports

Each year the Taxpayer Advocate submits two reports to Congress on the major tax compliance/enforcement issues facing US taxpayers. International taxpayers (US expats) have been mentioned in several of the recent reports:

June 2011 - Fiscal Year 2012 Objectives(pdf): on page 23 “IRS's inconsistency and failure to follow its published guidance damaged its credibility with practitioners involved in the Offshore Voluntary Disclosure Program.” - discussed in this post on Isaac Brock.

June 2012 - Fiscal Year 2013 Objectives(pdf): Lists three areas of focus relating to international taxpayers. Page 21: TAS Will Continue Advocating for American Taxpayers Abroad Who Are Expressing Fear and Frustration about FBAR, FATCA and Other International Penalties. Page 26: TAS Will Continue to Advocate that the IRS Modify the Offshore Voluntary Disclosure Program so that People Who Made Honest Mistakes Can Correct them Without Fear of Excessive Penalties. Page 30: TAS Will Work with the IRS on Improving Taxpayer Service Options for International Taxpayers and Alleviating Their Compliance Challenges. - discussed in this post on Isaac Brock/.

January 2013 - 2012 Annual Report to Congress(pdf): On page 262, “Most Serious Problem #15” is Challenges Persist for International Taxpayers as the IRS Moves Slowly to Address Their Needs - discussed in this post on Isaac Brock.

June 2013 - Fiscal Year 2014 Objectives(pdf): Again calls out IRS to be more reasonable on OVDP - discussed in this post on Isaac Brock and this post on OVDP criticisms.

June 2014 - IRS Responses to 2013 Annual Report discussed in this post on Isaac Brock.

January 2015 - 2014 Annual Report to Congress(pdf) - still mentions OVDP as a problem - discussed in this post on Isaac Brock.

January 2016 - 2015 Annual Report to Congress(pdf) - Most Serious Problem #7: INTERNATIONAL TAXPAYER SERVICE: The IRS’s Strategy for Service on Demand Fails to Compensate for the Closure of International Tax Attaché Offices and Does Not Sufficiently Address the Unique Needs of International Taxpayers p72. Among the legislative recommendations is a recommendation for Same Country Exception for FATCA (p353) and an alignment of credit and refund rules for Chapter 3 and Chapter 4 (these have to do with withholding, Chapter 3 is payments to nonresident aliens and Chapter 4 is FATCA). Discussed in this post on Isaac Brock.

January 2017 - 2016 Annual Report to Congress(pdf) - Again mentions FATCA problems on p 220. Discussed in this post on Isaac Brock.

June 2017 Fiscal Year 2018 Objectives. (Press Release) Areas of Focus relevant to US Expats:

#2 The IRS's Certification Program Related to Denial or Revocation of Passports Impairs Taxpayer Rights. (pdf)

#3 The Offshore Voluntary Disclosure (OVD) Programs Still Lack Transparency, Violating the Right to Be Informed. (pdf)

#4 Taxpayers Continue to Be Burdened by the IRS's Approach to International Tax Administration. (pdf)

The June 2017 release also includes IRS responses to the report submitted in January 2017 (Volume 2 pdf). Of interest is the IRS response to the problems with FATCA (on page 122 of Volume 2)

Who is a US citizen?

You can find the rules for citizenship by descent on the US Citizenship and Immigration Services website.

For those born outside the US who have never been registered as a US citizen, there is a rebuttable presumption of alienage (non-US citizenship). Discussed here on Isaac Brock with references. Further discussion on this topic can be found on the Issac Brock Society website here and here. Documented at 7 FAM 085 and 9 FAM 202.1-2

wiki/contents/us_tax/cbt.txt · Last modified: 2018/05/28 02:09 by karen
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