The US Internal Revenue Service is failing to adequately compensate American taxpayers living abroad for the closure of overseas tax assistance offices, and “does not sufficiently address the unique needs of international taxpayers”, a new report has stated.
Despite a massive increase in recent years in the number of taxpayers who are being required to file tax returns from outside the US, the IRS has significantly cut back on its overseas taxpayer service presence in an effort to cut costs. The result, the National Taxpayer Advocate said in its annual report to Congress this week, is that taxpayers who used to be able to obtain help from overseas offices “now must either call an overwhelmed, tolled IRS telephone number in the United States or obtain information from the irs.gov website”.
The IRS “eliminated the last four tax attaché posts abroad, citing a multi-year decrease in its appropriations”, at the same time that it is making plans “to expand [its] international criminal investigation locations”, the NTA’s report added.
“Apart from the attachés, the only free option for taxpayers to ask a specific question and receive a response from an IRS employee was the Electronic Tax Law Assistance Program (ETLA), which [allowed the IRS to learn directly from taxpayers what problems and questions they had, and how it needed to update its webpages and publications to provide the necessary information, and which] the IRS terminated in October 2015.
“In conjunction with terminating ETLA, the IRS also discontinued R-mail, a system that allowed customer service representatives to refer taxpayer questions to employees with specific expertise.
“By eliminating ETLA and R-mail, the IRS has shut itself off from [overseas] taxpayers, with no way of knowing, unless the taxpayer makes a mistake or the IRS selects his or her return for audit, whether it is providing the service taxpayers need.”
The National Taxpayer Advocate, the report continues, “has repeatedly written [in past annual reports] about the unique needs of international taxpayers, which the IRS has been slow to address”.
The National Taxpayer Advocate’s report comes as the estimated 8.7 million Americans living outside of the US continue to struggle with the American system of taxing on the basis of citizenship rather than residency, the only major country in the world to do so. Although the system of taxation isn’t new, the US began enforcing it recently, and initially by requiring expats to file foreign bank account reports and then, to meet a package of new rules contained in a 2010 law known as the Foreign Account Tax Compliance Act (FATCA).
Citizenship renunciations have been soaring in response to the tax crackdown, even though the cost of renunciations has also soared.
One of the first things the NTA says the IRS ought to do, to improve its handling of expatriate Americans, is to “reopen the four international tax attaché offices [that it recently closed], and provide funding for TAS to establish one LTA [local taxpayer advocate] position at each” of them.
The Taxpayer Advocate made five other recommendations:
- The IRS should conduct impact studies to determine the effects on taxpayer service, compliance, and revenue that would be achieved by the opening of additional tax attaché offices around the world
- The IRS should re-establish the ETLA (or a similar programme), “with time-frames for responses, and create a process for using the information from ETLA inquiries in updates to IRS internal and external materials, including the irs.gov website”
- The IRS should allocate funding in order to provide [an] additional telephone service, to “accommodate the need created by the expansion of international [tax law] enforcement activities”
- The IRS should create a task force that would analyse and provide a report, within one year, on the barriers to VOIP [voice-over internet protocol] usage, and the possibility of partnering with the US Department of State to employ VSD technology for taxpayers at US embassies and consulates
- The IRS should reinstate a body known as the International Individual Taxpayer Assistance team, which it originally set up in 2012, when the problems being faced by American expat taxpayers were beginning to make headlines. Although the team was “initially instrumental in updating and streamlining various international IRS webpages, the team’s efforts have flagged in recent years”, the NTA report noted — (not helped by the fact that the IRS “declined to adopt the National Taxpayer Advocate’s 2012 recommendations to make the team permanent, with a formal charter and required periodic reporting”) and “not surprisingly… has been largely inactive recently”.