As you may know, Robert Wood is a San Francisco tax lawyer who writes a blog for Forbes. I recommend both his posts and the comments to those posts which add great value to the posts.
On October 23, 2013 Mr. Wood wrote a post titled: “Beware Global IRS Reach” It is a good article with a number of very good comments. That said, here is a comment from Andrew Grossman that really stands out. I intend to build a couple of posts around it. The most interesting aspect is captured in this tweet:
The estimates of US citizens abroad, never mind “US Persons” including present and former green-card holders and even deportees with prior long US residence, are so vague and politicized as to be unhelpful for the analysis of tax noncompliance and revenue potential. Until 2011 the State Department used a working estimate of around 4 million; without explanation they are now proposing the number put forward by American Citizens Abroad, a Geneva-based organization, of over 6 million. The GAO and the Department of Commerce have opined that a census of US citizens abroad is impractical.
From published statistics we know there are 113.4 million valid US passports. From time to time the State Department has published statistics on numbers of passports applied for from abroad; it does not, however, publish the contents of F-77 reports prepared by embassies on the “Estimated Number of Potential Evacuees” (see 7 FAM 040). Numerous countries report the number of US citizens registered as aliens, but this would not include persons also holding the nationality of that country or, within the EU/EEA/Switzerland of a member state. Nor would it include those persons born abroad to one or two American citizens whose birth was never registered with the Department of State for whatever reason, including doubt as to the requisite prior U.S. residence of a parent.
To publish a scare article about the “Global Reach” and the “Very Long Memory” of the IRS is unhelpful. With only five overseas attachés and an obvious priority for collection cases that will yield revenue, the IRS is unlikely to pursue those with few or no ties to the USA nor any assets or heirs there, but who may have a claim to US nationality. Many such persons will not be caught by FATCA because their US connection is so tenuous. Others, who may have no unpaid tax but longstanding failure to declare foreign accounts and, worse, educational or disability trusts, pensions in a non-treaty country and PFIC issues might well be bankrupted by IRS claims. Assuming the abolition of the Lord Mansfield “Revenue Rule”, the cost of compliance for many is astronomical, even impossible.
If there are really 6 million Americans abroad and only a few hundred thousand tax returns filed from foreign addresses, then FATCA and threats of penalties and prosecution — even assuming that nonfiling is assimilated to tax evasion and, with OECD support tax evasion to extraditable common-law fraud and money laundering — are not going to lead to a solution. Are we to expect that the kind of grey-haired grannies that I talk to on this subject should really quake in fear and rush to renounce their citizenship? Are we to think that the IRS will arrogate to itself the State Department and Immigration Courts’ role of determining who are American citizens and US Persons?
I neither seek new clients nor prepare tax returns. But I do hear stories, and I see that American citizens abroad are being denied bank services and that some, nationals also of the country where they live, are demanding to be treated, as public international law provides, as solely the nationals of the country of dual nationality where they reside. I wonder how long it will be before countries, while willing to give up their banks to the USG, aren’t willing to have their grannies threatened by a foreign country. I suspect we will see some countries at least take up their grannies’ claims to be protected from cross-border bullying.
For all the understandable eagerness of tax lawyers to assist those in irregular status — presumably chiefly the US residents among them — to resolve their noncompliance, I detect few or none eager to provide pro bono advice to the expatriate poor.
- Beware Global IRS Reach—& Very Long Memory (forbes.com)
- A Letter to America from the Son of an American – by AJ (renounceuscitizenship.wordpress.com)
- What’s FATCA? Global Banking Meets NSA But Reports To IRS (forbes.com)