American Citizens Abroad (ACA) Writes to IRS Commissioner on Unfair IRS Treatment of Americans Abroad

5 Apr
This is reprinted from the newsletter of the American Citizens Abroad  (ACA), which is the voice of Americans overseas, a non-profit, non-partisan, all-volunteer organization that represents the interests of Americans living and working outside the U.S. We urge you to join and support them.
On March 5th, American Citizens Abroad (ACA) wrote to Commissioner Doug Shulman of the IRS to express great concern that he has not yet answered the Tax Advocacy Directive (TAD) which National Taxpayer Advocate Nina Olson issued in August 2011 and repeated in her Report to Congress issued December 31st, 2011. In the TAD and in the Report to Congress, Nina Olson argued that IRS examiners treated some participants in the 2009 offshore voluntary disclosure program (OVDP) unfairly, and she ordered several IRS divisions to take various steps to correct this treatment, including allowing taxpayers who had paid penalties under the OVDP to request a reduced penalty. Many participants in the OVDP program have been Americans living overseas who had no idea they had to make a tax declaration to the United States, which is the only country in the world (besides renegade Eritrea), which taxes on the basis of citizenship instead of residence.

MaryLouise Serrato, Executive Director of ACA and co-signatory of the letter to Shulman, explained, “By imposing large penalties for a simple filing omission, the IRS has adopted a camouflaged policy of taxing assets of Americans abroad through penalties.” Anne Hornung-Soukup, Finance Director of ACA and the other co-signatory of the letter, said, “Our letter to Commissioner Shulman of the IRS makes it clear that ACA is in full agreement with efforts to find and hold accountable tax evaders.” Hornung-Soukup continued: “Many of the U.S. citizens living abroad who entered the OVDP in fact owed no taxes to the United States, since they had paid full taxes in their country of residence. Yet because of not filing their FBAR [Foreign Bank Account Report] forms, they faced IRS imposed fines and penalties amounting in some cases to their entire lifetime savings.”

ACA’s letter explained to Shulman that, on the FBAR form, Americans have to declare even accounts over which they have signature, but which they do not own, as well as joint accounts with non-citizens. This is particularly damaging to the many American women who are married to non-Americans and living abroad. They have often never worked outside of the home, and therefore do not owe any taxes. Yet to come into the system by filing the necessary FBARs, they will have to declare their foreign spouses’ accounts to the IRS and be subjected to heavy penalties, something their non-U.S. spouses are understandably reluctant to undergo.

ACA concluded its letter by stating its position that these huge problems for Americans living overseas are essentially due to the U.S. system of citizenship-based taxation. ACA is therefore strongly encouraging Congress to abandon citizenship-based taxation and to adopt residence-based taxation for individuals at the same time they adopt residence-based taxation for corporations. The full text of the letter can be read at:www.aca.ch/shulman-tad.pdf

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