Nina Olson, the US National Taxpayer Advocate, released her Annual Report to Congress this week, and as usual, included mention of failings in the way the Internal Revenue Service dealt with expatriate taxpayers during the year just ended, alongside a lengthy list of the areas in which it didn’t deliver as expected in its treatment of US-resident Americans.
In delivering the report, Olson, pictured left, also unveiled a new publication, dubbed “The Purple Book,” which is described as presenting “50 legislative recommendations intended to strengthen taxpayer rights and improve tax administration”.
Many of the recommendations contained in this book have appeared in previous National Taxpayer Advocate reports, but others are new, according to sources who have scrutinsed the annual stack of NTA documents.
Passport denial and revocation
In the main report, which as in past years focuses mainly on domestic tax matters, issues affecting expatriates that Olson singled out for comment included the IRS’s recently-implemented legislation that would deny or revoke the passports of taxpayers who owe significant sums to the agency.
Under a law passed by Congress in 2015, the State Department is required to deny an individual’s passport application, and is authorised to revoke or limit an existing passport, if the IRS has certified the individual in question as having a “seriously delinquent federal tax debt” (i.e., a federal tax debt exceeding US$50,000, adjusted annually for inflation, including assessed interest and penalties).
In this year’s report, the National Taxpayer Advocate notes that the planned passport denial/ confiscation programme, set to go live this year, “raise[s] concerns”.
Under current procedures, the report points out, the IRS sends the only stand-alone notice to the taxpayer regarding explaining the passport consequences of the debt at the same time it certifies the debt as seriously delinquent — depriving the taxpayer of the opportunity to be heard before the certification is made.
“The failure to provide adequate notice, and to exclude taxpayers exercising certain administrative rights, will harm taxpayers,” the report adds, according to a summary of the report’s key points.
Although the Department of State will hold passport applications open for 90 days before rejecting them, this may not be enough time for taxpayers to resolve their debts and be de-certified, the report notes, adding that while Congress had enacted this law to penalise taxpayers who do not resolve their tax debts and to induce them to do so, it did not intend to abridge otherwise applicable taxpayer rights.
Among the National Taxpayer Advocate’s recommendations concerning these issues are that the IRS make more of an effort to ensure delinquent taxpayers receive adequate advance notice and an opportunity to be heard – 90 days in the case of taxpayers residing outside the US, 30 days for those living Stateside.
‘Same Country Exemption’ to FATCA
As it did last year, the National Taxpayer Advocate’s report to Congress this year again calls for adoption of a so-called “Same Country Exemption” to the Foreign Account Tax Compliance Act for expat Americans – something many expatriate organisations have been lobbying for. This would exempt expatriates from their FATCA information reporting obligations in the foreign countries in which they are currently “bona fide resident”, and, it’s thought, make getting and maintaining such things as bank accounts and mortgages easier for them.
On the subject of FATCA and “international taxpayers”, the report notes, “the IRS has adopted an enforcement-oriented regime”.
“Its operative assumption is that all such taxpayers should be suspected of fraudulent activity, an outlook that causes the IRS to mistrust stakeholders, dismiss useful comments and suggestions, and misallocate resources.
“[As a result], US expatriates have reported suffering significant banking “lock-out” as a result of FATCA, while all US citizens are potentially subject to the revocation or denial of passports in the case of certain tax liabilities.
“[Foreign financial institutions] also continue to face regulatory uncertainty, reputational risk, and ongoing expenditures regarding FATCA and related information reporting obligations.
“The IRS could achieve better results and reduce hardships placed on taxpayers and FFIs if it took a collaborative, service-based approach [to enforcement], that focused on identifying the relatively few bad actors and recognising the good faith efforts of the compliant majority.”
‘Twenty-one problem areas’
Altogether, this year’s report identifies 21 problem areas (Federal law requires the Annual Report to Congress to identify at least 20 of the “most serious problems” encountered by taxpayers, and to make administrative and legislative recommendations to mitigate those problems, according to an overview on the IRS’s website).
These 21 problem areas, the overview notes, are accompanied by “dozens of recommendations for administrative change, 11 recommendations for legislative change” as well as an analysis of the 10 tax issues most frequently litigated in the federal courts, seven research studies, and two literature reviews.
To access the full National Taxpayer Advocate’s Annual Report to Congress, as well as other documents associated with it, click here.