Will Congress Intervene to make USC based Tax Laws More User Friendly to USCs and LPRs Residing Outside the U.S.?

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Today’s article in the Wall Street Journal by Liam Pleven and Laura Saunders is another good explanation of the plight of the “ordinary” individual (if there is such a thing) who is a USC or LPR residing overseas.  See, Expatriate Americans Break Up With Uncle Sam to Escape Tax Rules, Record Numbers Living Abroad Renounce U.S. Citizenship over IRS Reporting Requirements,  (The Wall Street Journal, June 17, 2014).

The U.S. tax and foreign bank account reporting laws regarding foreign assets are burdensome and complex.  Sometimes, only hiring expensive and competent U.S. international tax advisers can help USCs and LPRs residing overseas avoid these penalties.  Even that is not always a guaranty that foot-faults of the law will not occur. 

Indeed, the IRS is eventually expecting to implement automatic $10,000 penalties for individuals who fail to file timely IRS Form 5471.  They already do issue automatic $10,000 penalties for corporations who neglect to timely file such forms. 

FATCA and its application this year will only intensify these issues.

Only Congress along with the President can modify the law.  The IRS nor the Justice Department can modify it.

The law as it currently reads, in my opinion (after some 22+ years of U.S. international tax practice)  is almost always highly over-burdensome for the “ordinary” individual USC/LPR living outside the U.S.  Without a modification of the law, its enforcement is left in the hands of the IRS and Tax Division of the Justice Department.  Those who advise taxpayers vis-a-vis these government officials see in practice the disparate treatment that can befall various individuals, depending upon the approach taken by the particular government official.

Importantly, as the law has grown so complex over the years and expansive, it is not a fair or reasonable burden to expect the IRS can even administer it effectively and consistently.  FATCA and its implementation this year, will only increase this complexity and inability to administer the law consistently and fairly.

Hopefully, Congress will take serious (which they have not to date) the plight of these individuals.  The author has made a serious proposal on the topic, that was submitted to the U.S. Treasury, Joint Committee of Taxation and Senate Finance Committee:

U.S. Citizenship Based Taxation – Proposals for Reform

See, Co-author. Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,”  by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.

 Will Congress and the Administration intervene?


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