The Taxpayer Advocate Service which, in vain, tried to help me in my recent and still ongoing interaction with the IRS, has issued their 2011 Annual Report to Congress entitled, “Introduction to International Issues: Compliance Challenges Increase International Taxpayers’ Need for IRS Services and May Undermine the Effectiveness of IRS Enforcement Initiatives in the International Arena.” It is available online on the IRS web site as a 144 page pdf file and, as most bureaucratic reports, is lengthy, convoluted, and confusing. Nonetheless, it highlights the problems that the IRS is causing for Expats and is highly critical of them. If you can’t find it, click on the link above and then click on “International” and you’ll download the file.
It starts with the statement, “In recent years, globalization has pushed an increasing number of taxpayers (including small- and medium-sized businesses and individuals) to seek economic opportunities abroad. It also has increased competition among tax administration agencies for tax bases and sources of revenue. The revenue generated depends on governments’ administrative capacities to collect taxes, and more importantly, on taxpayers’ willingness and ability to comply. For this reason, 40 economies made it easier to pay taxes last year. In contrast, a recent World Bank report ranks the United States 66th in time spent to comply and 62nd in the ease of paying taxes among 183 countries surveyed”
“The complexity of international tax law, combined with the administrative burden placed on these taxpayers, creates an environment where taxpayers who are trying their best to comply simply cannot. For some, this means paying more U.S. tax than is legally required, while others may be subject to steep civil and criminal penalties. For some U.S taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship.”
Continuing, they state, “A recent IRS study of taxpayer needs and preferences showed that international taxpayers may have a greater current need for IRS services than the general taxpayer population. Yet while the IRS has substantially stepped up and invested hundreds of millions of dollars in international enforcement programs, it has not adequately improved taxpayer services that would foster compliance.” This concept was included in the letter that I wrote to Congresswoman Carolyn Maloney (D-N.Y.), who supposedly “represents” Expats in the U.S. Congress. She and Congressman Joe Wilson (R-S.C.) formed the Americans Abroad Caucus in 2007. Again, this concept was included in the letters I wrote to Alan Dershowitz, to the President of the United States, Barak Obama, and to others. And none of any of the recipients of my letter deigned to respond. So much for representation of the people and by the people.
But back to the report which, on page 123, they conclude, “The 2009 Offshore Voluntary Disclosure Initiative (OVDP) was a great deal for people involved in criminal tax evasion. They were not affected by the IRS’s “clarification” that it would not consider non-willfulness, reasonable cause, or the mitigation guidelines in applying the offshore penalty because their violations were willful. However, the IRS is perceived as having reneged on the terms of the 2009 OVDP that would benefit taxpayers whose violations were not willful. Many felt the IRS treated them unfairly as compared to similarly situated taxpayers. It placed them in the unacceptable position of having to agree to pay amounts they do not owe under “existing statutes” or face the prospect that the IRS would assert excessive civil and criminal penalties. The IRS’s perceived reversal burdened taxpayers, wasted resources, violated longstanding IRS policy, opened the IRS to potential legal challenges, and was not properly disclosed as required by FOIA (Freedom of Information Act). It also damaged the IRS’s credibility with taxpayers as well as the practitioner community. As a result, the IRS is likely to have more difficulty gaining participation in any future settlement initiatives. This erosion in trust for the IRS among taxpayers and practitioners is also likely to have a negative impact on IRS’s mission and voluntary tax compliance more generally.” This paragraph is, to me, quite confusing, but does damn the practices of the IRS in its treatment of Expats.
There is, obviously, much more to read in this report than I have extracted here. It is well documented and filled with a myriad of details. Who will actually read all this? What effect will it have on Congressional legislation? What, if any, power does the the Congress have in terms of how the IRS treats American Expats? Will anything really change? I am sorry to be the pessimist as regards how I answer these questions, but I don’t think that anything will change. The fact remains that the coffers of the US Treasury are dangerously deficient and they are desperately dodging the deficit bullet. We will continue to be in their sights as they try to squeeze more money out of us. But you can decide the answers to these questions for yourself.