The following comes from a post at the Isaac Brock Society.
So far there has not been one word about what is probably the most abused by the IRS group in the world: US citizens who live and work abroad.
Under Schulman’s leadership the IRS has gone out of its way to financially destroy US citizens who live abroad – many of which are dual citizens of the countries where they live, and in fact where many were born and lived all their lives.
Schulman resurrected the 1970 FBAR law which requires U.S. citizens to file annual reports if they have bank “foreign” accounts abroad, including in the countries and cities where they live and receive their paychecks and buy groceries, or have signature authority over accounts they don’t own, such as issuing checks to pay their employer’s bills or if they work for a charitable organization such as their church or the Girl Scouts.
Failure to file such letter-perfect reports, even though they have fully paid US taxes on earnings of their own accounts,subjects them to an unforgivable minimum penalty of $10,000 per year, up to 50% of the total maximum value of their own and non-owned accounts.
The existence of this old law designed to catch money laundering drug lords was only recently revealed in IRS tax instructions for overseas filers and has been applied without mercy to confiscate their savings for retirement.
These abuses were highlighted in the National Tax Advocate’s 2011 report to Congress, as well as the IRS’s bait and switch schemes to confiscate these funds, but neither Schulman nor Congress has batted an eyelash over this outright abuse. As highlighted in that report there are 16 IRS publications, 667 pages of tax forms and 7,332 pages of instructions strictly for overseas tax filers. This includes the recently-enacted FATCA legislation which is an absolute nightmare for the US citizen abroad.
The instructions and forms are so complex that, according to the Tax Advocate, even after spending thousands of dollars for the best available professional tax assistance, the US citizen living abroad can never be sure their US tax returns are correct.
That’s why renunciations of US citizenship by long-term US citizen resident abroad is up 6-fold in just the last few years just to be able to survive. Once renounced you can never regain US citizenship, and if renunciation is “deemed” for tax reasons you can be blacklisted and be barred from ever visiting the US for the rest of your life for any purpose; not even to visit a dying relative in a nursing home. That’s the law.
No other civilized country double taxes its citizens when they live and work in a country other then their own where they have already been taxed once by that country on their worldwide income. Yet nobody in Washington can figure out why, or seems to really care, with very few American feet on the ground in foreign markets, that the US has a job-destroying trade deficit of $740 billion which last year was 60% of the total trade deficits in the entire world.
I strongly support Roger Conklin’s statement. Over the last five years, the IRS has manipulated the law through its OVDP program which was strongly criticized by the National Tax Advocate.
After 30 years of ignoring and never enforcing the FBAR reporting rules, the IRS applied them in a rigid, confiscatory way, particularly for Americans residing abroad who have most of their assets overseas.
There was zero outreach to the overseas community and the only indication that FBAR filing might be required was a footnote on Schedule B.
The IRS has put some Americans abroad in an impasse. The whole practice of applying penalties for non-filing of a form unrelated to the 1040 should be put into question.
The IRS policy is all the more questionable as citizenship-based taxation on which this international reach is based rests on thin ice, morally and practically. It is time for the United States to adopt residence-based taxation, like the rest of the world.
Thanks for your thoughtful comment, RogelioC. Why is this issue not in the media?
Why did Commissioner Shulman repeatedly ignore the Taxpayer Advocate Service, Nina Olson’s TADs, both for US and international taxpayers?
Will the new Acting Commissioner pay attention and communicate with Nina Olson on the issues she has identified as one of his first responsibilities?
There is serious collateral damage done by the US’s citizenship-based taxation laws — and the IRS is taking advantage of decades of turning a blind eye for now outrageous penalties for $0.00 or very little actual tax owed to the US.
And now we have FATCA. Shameful tactics of the IRS and the US Congress that has built the monstrosity of Tax Code. Faux reciprocity — will the US Congress allow full reciprocity for FATCA to every country of the world?
It is apparent that US Persons who left the US to live in other countries have had and continue to have punitive action from IRS and Congress as they are stated and perceived “traitors”. The real tax evaders, for the most part, reside within the shores of the US, not offshore..
As a dual citizen living in my country of origin after living and working 30 years in the USA I am a casualty of this persecution initiated by Mr.Shulman. I learned about FBARS in 2010 by chance when visiting my son and daughters in the USA. Since then my life has become a nightmare. I live in fear and being 80 years old my health is being affected. I have spend a lot of money and time trying to do the right thing. Since my country of origin has no tax treaties with the USA, I am being double taxed and I pay taxes that Americans in other countries don’t. My choices: return to the USA, renounce my US citizenship, or stop working.
and Finally I wrote:
FBAR! (IRS form TD F 90-22.1)
One of the greatest abuses of all time, and totally ignored by Congress and the press.
The IRS has conducted an offshore Jihad against what was ‘supposed’ to be Homeland tax evaders, (cheats the press says) but extended it in very aggressive and egregious manner.
They used a Draconian penalty structure based upon the failure to file one 1970 form the FBAR. They applied to Homelanders and Americans living around the world alike without regards to culpability. Even new immigrants to America who had no idea of this responsibility got hammered.
For 40 years, the FBAR had not been widely used or reported even by the professional tax practitioner community, until the authority to enforce was delegated to the IRS and they suddenly unleashed its penalty provisions in 2009.
After the new administration, and under the leadership of Shulman and Miller, they pulled it off the shelf and without any warning, education or outreach went after ANYONE, ANYWHERE in the world and applied it without regard to willful or NON willful behavior!
The did NOT get around to mentioning the requirement in their publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad until 2011, and even now you would have to read the publication to find it, as it is NOT listed on the table of Contents.
It is listed under other forms you may have to file on page 8
That seems strange, for a Penalty structure that is so Draconian and the lynch pin of all their offshore crackdown efforts. Why does it still remain hidden for you to search out, find or stumble upon?
In 2009 they created a Voluntary disclosure program, (OVDP) and immediately did a BAIT and SWITCH to hammer everyone in a ‘One Size fits all Penalty Structure’ that especially hurt Americans living abroad who were benignly non compliant.
All faced the firing squad. Benign J Walker and Child murder all received the same sentence.
The National Tax Advocate issued a Directive to Commissioner Shulman to reverse and STOP his non discriminatory penalty practice, but like with IRS testimony in Congress, he STONEWALLED her, and failed to respond as required by law.
She reported on this in her 2011 Report to Congress and Republican and Democrat Politicians alike DID NOTHING.
Read it yourself. It is not long, but it is telling of the abuse and attitude inside the IRS.
Title: The IRS’s Offshore Voluntary Disclosure Program “Bait and Switch” May Undermine Trust for the IRS and Future Compliance Programs
She continues to report about inflexibility IRS administration of their misguided Voluntary Disclosure programs and more generally on the U.S. Citizenship taxation rules and impacts on Americans abroad. Due to complexity and the unique nature of US Tax Practices, it is virtually impossible (and very expensive) to be compliant while living and working abroad.
Where are the Republicans and Democrats that are reading that? Where is the outrage and hearings about this?
Title: The IRS’s Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts
Title: Challenges Persist for International Taxpayers as the IRS Moves Slowly to Address Their Needs
The GAO recently did a report on the OVDP, and drew some wrong conclusions and recommendations that will actually decrease compliance, but if you look at the numbers, of all the revenue ($5.7 billion) that Shulman trumpets as success and the press just repeats without question, ONLY 33.9% was tax revenue collection.
66.1% was Penalties, and will not reoccur as a future tax revenue stream.
THIS IS IMPORTANT.
…The IRS has been using disproportionate FBAR penalty application as a revenue enhancing tool, rather than really employing policies to improve compliance.
If you look at the lowest percentile, it is more shocking what they have done…
For the 10th percentile group, with median account size of $78,315 the total unpaid taxes over the six-year 2003-2008 lookback period were $103 (or $17 per year.)
It would be hard to imagine anyone willfully setting up and maintaining a foreign account to cheat for such an insignificant amount of money, yet the average (in lieu of) FBAR penalty for this group was $13,320 or 129 times the amount of unpaid tax!!!!!!.
Had this been unreported domestic income from Americans living in the homeland, and the highest fraud penalty applied of 75% to the $103 failure, the penalty would have been $77 NOT $13,320.
Now, that is scandalous! What is the moral justification for that level of penalties that is totally divorced from the amount of tax reporting failure?
Compare those real Penalties to some T-party 501(c)(4) groups who were delayed in exemption application, but were NOT legally required to file for the exemption in the first place! This was just IRS regulatory overreach!
If there is any non scribe journalist around, read a full GAO analysis here.
So, you don’t need a special prosecutor or more Congressional testimony to understand IRS abuse of penalty practices, you only have to read their own National Tax Advocate or read the GAO reports.
In my opinion, what the IRS has been doing to average Americans of modest means around the world with administration of FBAR and OVDP…and now FATCA is by far a BIGGER scandal than the T-Party Targeting.
This scandal has had some positive effects, in that it sheds a bright light on the fact that the IRS is capable of doing GREAT harm.
It misuses its regulatory power and discretion. It is bureaucratically muscle bound when it comes correcting policy errors. The leadership is incapable of accepting any responsibility by admitting mistakes, changing practices and doing the right thing to restore trust.
Rep Duckworth said it powerfully. “Shulman, you can delegate authority, but NEVER delegate responsibility.”
Finally, it also turns the mirror onto Congress that creates the Tax code complexity with 4680 tax changes since 2001 and totally fails in its oversight responsibility.
From the Economist: Who will tame the Taxman?
Wake up America, and you Dems with your head in the sand, the T-Party is not the only victims. Even your Progressive publications are beginning to get it.
Examiner: ““we’ve been told to raise more revenue.”
When that becomes the attitude inside the IRS, abuse naturally follows!