Tax compliance for U.S. citizens living abroad is complicated and expensive. This is the fourth of a series of posts I have written on the recent problems of citizenship-based taxation.
Those interested in this post might also be interested in:
Possible Waiver of Tax and FBAR penalties for U.S. citizens living in Canada – December 2, 2011
IRS Issues Fact Sheet For U.S. citizens and dual citizens living outside the United States – December 9, 2011
Update on the IRS FS for U.S. citizens and dual citizens living outside the United States – No additional relief for Canadians – December 18, 2011
Tax Payer Advocate vs. The IRS: A question of trust – January 9, 2012
This post is related to this discussion.
As I have written on many occasions most U.S. citizens wish to be tax compliant – the problem is that they don’t know how. When one doesn’t “know how” – one seeks professional advice. In this case that professional advice comes from the “self proclaimed” “cross border professionals”. This post is prompted by the following part of a comment to a recent article in the Globe and Mail:
“And finally, ixnay on the infomercialsway– for all those designated “cross-border tax specialists” whom Globe writers have plied as sources since breaking the thread last June. The inevitable tagline? “Phil N. LeBlanc recommends seeking professional advice.” To paraphrase California legislator Hiram Johnson, the first casualty of tax war is integrity”
There are competent professionals and there are incompetent professionals. By competent or incompetent, I mean in a “technical” sense. Do they know the law? Do they understand the context of the law? Have they had experience with the IRS? The vast majority of lawyers and accountants do NOT have the technical expertise to advise you. There is a great line from the movie “The Untouchables” – what was:
“Just like a ___________, brings a knife to gunfight!”
There are also good professionals and bad professionals in a moral sense. The good professionals see the client’s interest as unrelated to the professional’s financial interest. For those who have the money to be fleeced, there is no shortage of “cross border professionals to help”.
Professionals are overwhelmingly comprised of lawyers and accountants. If you deal with a lawyer you have the advantage of “lawyer client privilege”. If you deal with accountants you don’t. Therefore, all other things being equal, I would suggest a lawyer. That is if you can afford one and find one you can trust.
The IRS assault on U.S. citizens living outside the United States has been a frightening interplay among three groups:
1. The Taxpayers
2. The Cross Border Professionals
3. The IRS
Let’s imagine the perspective of each.
The Perspective of the Taxpayers
I suspect that few U.S. expats will forget the events of 2011. It was a year where they realized how quickly life could change. For the most part U.S. citizens living abroad are hard working honest people who are paying higher income and value added taxes than they would be in the U.S. The U.S. uses citizenship-based taxation. Many of them have been filing U.S. tax returns. But, virtually none of them (except those who always had the benefit of specialized and expensive legal and tax advice) knew about FBAR. When they heard about FBAR, OVDI and the rest they were:
– scared out of their minds; and
– wanted to be compliant
It’ just that they didn’t know how. Hence, they did what anybody would do. They sought professional help.
Furthermore, professional help did not come easily. It did not come inexpensively. It was typically like this: “Yes, I will meet with you. But, bring in a money order for $2000 (or more) and we will start the conversation. The conversation usually focused on whether to enter OVDI. Entering OVDI was a logical option, an expensive option, but I believe for most people a bad option. It was also (because it was a new kind of program) something not well understood by the so called “cross border professionals”. Continue reading