Should the IRS modify its offshore voluntary disclosure program for U.S. citizens residing overseas? IRS is reconsidering the effectiveness of its offshore voluntary disclosure program. Should it be modified?

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Should the IRS modify its offshore voluntary disclosure program for U.S. citizens residing overseas?  IRS is reconsidering the effectiveness of its offshore voluntary disclosure program.  Should it be modified?

According to Tax Analyst’s “The IRS is reexamining its offshore voluntary disclosure program and considering making modifications to it, according to Michael Danilack, deputy commissioner (international), IRS Large Business and International Division.”

U.S. citizens who have lived most all of their lives overseas should not be subject to the same scrutiny and inflexibility that currently exists for U.S. taxpayers residing in the U.S.  Important differences exist, mostly because of the lack of U.S. citizens residing overseas to understand the complex U.S. tax law system applicable to them; in addition to the country’s tax laws and requirements in their country of residence.

The de-facto U.S. income tax residency regime is a residence based regime for several reasons.  First, the National Taxpayer Advocate estimates there are between 5-7 million U.S. citizens residing overseas.  Second, only a small portion of these taxpayers apparently even file U.S. income tax returns.  The IRS taxpayer statistics office showed that only 334,851 U.S. taxpayers filed a foreign earned income exclusions (for the year 2006, which is the latest year available from the IRS office of tax statistics).   How many of these taxpayers are not even U.S. citizens? The details of U.S. tax returns filed with foreign earned income exclusions can be read here.

Each country’s filings are set out below (notice only 6,112 returns were filed from Mexico, where the largest number of U.S. citizens reside in any particular country; with Canada as the second most populated with U.S. citizens):

    All geographic areas 334,851
North America, total 36,179
Canada 30,067
Greenland 0
Mexico 6,112
Latin/South America, total 13,911
Argentina 751
Brazil 2,696
Chile 902
Colombia 1,870
Costa Rica 1,662
Panama 1,032
Peru 419
Venezuela 705
Other Latin and South   American countries 3,876
Caribbean, total 7,323
Bahamas 1,089
Bermuda 1,758
Cayman Islands 970
Dominican Republic 1,093
Other Caribbean countries 2,414
Europe, total 99,732
Austria 1,361
Belgium 1,881
Czech Republic 1,091
Denmark 1,754
Finland 354
France 9,653
Germany 21,513
Greece 1,484
Hungary 604
Ireland 1,896
Italy 5,199
Luxembourg 219
Netherlands 3,263
Norway 1,215
Poland 735
Portugal 387
Russia 2,495
Spain 2,453
Sweden 1,399
Switzerland 7,093
Turkey 1,199
United Kingdom 28,409
Other European countries 4,078
Africa, total 9,697
Algeria * 241
Angola 398
Egypt 1,658
Kenya 992
Nigeria 906
South Africa 923
Other African countries 4,576
Asia, total 138,795
Afghanistan 5,912
China 12,430
Hong Kong 10,792
India 4,214
Indonesia 1,786
Iraq 18,325
Israel 8,986
Japan 23,529
Malaysia 1,160
Philippines 2,313
Saudi Arabia 5,109
Singapore 3,636
South Korea 6,668
Taiwan 6,588
Thailand 3,643
United Arab Emirates 7,423
Other Asian countries 16,284
Oceania, total 9,724
Australia 6,420
New Zealand 2,518
Other Oceania countries 787
All other countries 19,490



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