IRS again criticised for treatment of expats in US taxpayer advocate’s annual report

Once again, the US National Taxpayer Advocate’s annual report to Congress has criticised the way America’s tax agency handles American expatriates.

Among Nina Olson’s recommendations is that the US adopt something many expats have advocated, which is a “Same Country Exemption” to the Foreign Account Tax Compliance Act. This would exempt expatriates from their FATCA information reporting obligations in the foreign countries in which they are currently living, and, it’s thought, make getting and maintaining such things as bank accounts and mortgages easier.

In the National Taxpayer Advocate’s comprehensive report, which focuses mainly on domestic tax matters, Olson observes that the “IRS has adopted an enforcement-oriented regime with respect to international taxpayers”.

“Its operative assumption appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise,” Olson writes.

“This assumption results in the IRS ignoring stakeholders, dismissing useful comments and suggestions, and mis-allocating resources.”

Instead, the report goes on, the IRS “should pursue a service- and assistance-oriented strategy for the vast majority of international taxpayers, coupled with a data-driven, narrowly targeted enforcement program. This approach would no longer disadvantage the compliant majority in an effort to prevent potential fraud by a few bad actors.”

With respect to the Same Country Exception, the report notes that the National Taxpayer Advocate “previously proposed that the IRS and Treasury adopt [it]”, as this would “mitigate concerns about the collateral consequences of FATCA raised by US non-residents, and would reduce reporting burdens faced by FFIs [foreign financial institutions].

“[Yet] no action has been taken by the IRS or Treasury with respect to this recommendation.

“This idea of a same country safe harbor has also been placed before Congress by the National Taxpayer Advocate, American Citizens Abroad, and Democrats Abroad.

“The National Taxpayer Advocate reiterates her recommendation that the FATCA regime incorporate a same country exception.”

As reported here last week, the US Treasury Department chose not to adopt the Same Country Exemption when it recently published the final regulations governing the Foreign Account Tax Compliance Act, which didn’t contain the proposed clause.

The National Taxpayer Advocate has expressed strong opinions about FATCA and the treatment of American expatriates previously. American expatriate groups have claimed these recommendations have never appeared to have had much impact, although some are still hopeful the Same Country Exemption may at some point be adopted, if FATCA isn’t repealed, as some Republican lawmakers have said they are hoping to do once Trump takes office.

To see the National Taxpayer Advocate’s latest report, which has been published online in sections, click here. 

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