Month: October 2014
The University of San Diego School of Law – Procopio International Tax Institute Covers Topics of Interest for Expatriation
The 10th annual conference, going on right now in San Diego, covers several courses of interest to those who are considering renouncing U.S. citizenship or abandoning their lawful permanent resident status.
The courses include the following (October 30 and 31):
Course 2A: Recent Developments in Individual International Tax Compliance
David Horton, Esq., – Director, International Individual Compliance – IRS
Patrick W. Martin, Esq. – Procopio
Course 5A:International Tax Audits & International Tax Appeals
Moderator: Eric D. Swenson, Esq. – Procopio
Ms. Ursula Gee, Esq. – IRS Examination Division
Russell McGeehan, Esq. – IRS Appeals Division
Lic. Sergio Luís Pérez – PriceWaterhouseCoopers
Beth Wapner, Esq., Vice President Tax and Trade – Qualcomm Inc.
Lic. Sergio A. Lopez Solano – Representative of the International Tax Audit Administration– SAT
Government Report Focuses on International Enforcement and Collection Overseas
Report: IRS Must Enhance its International Collection Efforts
The Treasury Department, through the Treasury Inspector General for Tax Administration (“TIGTA”) has highlighted what the U.S. government should be doing in the 21st century to collect U.S. taxes owed under U.S. law, against overseas taxpayers and their worldwide assets. The highlight of the report is set out below and the complete report of 12 Sept. 2014 can be read here TIGTA Report:
WASHINGTON – As international tax noncompliance remains a significant area of concern for the Internal Revenue Service (IRS), its collection efforts need to be enhanced to ensure that delinquent international taxpayers become compliant with their U.S. tax obligations, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
The overall objective of TIGTA’s review was to evaluate the IRS’s collection efforts on delinquent taxpayers residing in foreign countries. Income received from international transactions of these taxpayers is subject to U.S. tax rules and reporting requirements.
“The IRS faces many unique challenges in collecting taxes from international taxpayers,” said J. Russell George, Treasury Inspector General for Tax Administration. “In today’s global economy, businesses and individuals are becoming more and more involved in international transactions. Accordingly, the role of an international revenue officer is very important in helping taxpayers comply with the tax laws and improving international tax compliance.”
TIGTA’s review found that ineffective management oversight has contributed to several control weaknesses in the International Collection program. Moreover, the IRS does not have reliable statistics on the rate of noncompliance of these taxpayers with their U.S. tax obligations.
For example, International Collection does not have:
• Adequate policies, procedures, position descriptions, or the training needed to ensure that international revenue officers can properly work International Collection cases.
• A specific inventory selection process that ensures that the International Collection cases with the highest risk are worked.
• Performance measures and enforcement results reported separately from Domestic Collection.
• A process to measure the value of the “Customs Hold” as an enforcement tool.
TIGTA recommended that the IRS: 1) develop a formal International Collection Strategic plan; 2) update International Collection guidance to provide specific policies and procedures to international revenue officers; 3) evaluate and update the current international revenue officer position descriptions; 4) develop a formal International Collection training plan using Subject Matter Experts to develop and teach international specific courses; 5) evaluate the International
Collection inventory selection criteria; 6) develop separate performance measures and track specific enforcement results for International Collection; and 7) continue to pursue direct access to the Customs Hold information.
IRS officials agreed with all of TIGTA’s recommendations and have taken or plan to take corrective actions. However, while the IRS has implemented some corrective actions to improve the selection of International Collection inventory, develop separate performance measures, and track enforcement results, TIGTA does not believe that the IRS’s completed corrective actions fully addressed the recommendations.
It seems that every time TIGTA issues a report, and demands the IRS modify their methods and procedures, the IRS takes action. If the information and premises in the TIGTA report are valid, then the IRS changes in policy can be for the good.
The IRS has already dedicated tremendous resources to the area of international taxation. It will be interesting to see if the IRS will dedicate even more resources to this area in response to the TIGTA report?
I have posted a number of posts related to the enforcement and collection of taxes against taxpayers residing overseas, including:
How will the IRS collect tax and penalty assessments against former USCs and LPRs who live exclusively outside the U.S.?, posted 8 October 2014.
U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations, posted 5 July 2014
IRS Releases Clarifying rules for U.S. Citizens Living Outside the U.S. – Re: Streamlined Filing Guidance
In June of this year, the IRS announced a new administrative method by which taxpayers can file late or never filed tax returns and information returns. See, The Risks to USCs and LPRs – Filing Late U.S. Income Tax Returns via the so-called “Streamlined” process
I previously posted a note about the so-called “Streamlined” process the IRS [which are now gone and removed from the IRS website] had announced in June 2012, Why the so-called “Streamlined” Process is “Much Ado About Nothing” – Legally Speaking. I explained that legally speaking, there is no legal protection to the taxpayer provided by this administrative procedure.
The IRS again just announced further clarifications to this program and just released on the IRS website a description of the streamlined filing compliance procedures (“SFCP”) for U.S. taxpayers residing abroad and related “FAQs”. These FAQs can be reviewed here: Specific Instructions for the Streamlined Foreign Offshore Procedures
FAQs are all the rage these days with the IRS, as the government does not take the time or spend the resources to follow the Administrative Procedures Act or similar requirements which are required in order to issue binding rules and regulations. See a previous post regarding these requirements, specifically regarding those who renounce U.S. citizenship or abandon LPR status and have not complied with IRS Notice 2009-85. See,Does IRS Notice 2009-85 regarding expatriation have the “force of law”? Posted on April 14, 2014
Hence, these SFCP are not legally binding on the IRS and they can pick cases as they choose for audit, review and penalty assessment in any manner they think is consistent with the law. Sometimes they do it in a manner that is not consistent with the law.
Of course, most practitioners do not think the IRS will “willy-nilly” ignore their own FAQs procedures for taxpayers who file under the SFCP (at least not across the board); lest taxpayers lose confidence in the IRS.
At the end of the day, any particular U.S. taxpayer residing overseas, should understand carefully these legal implications of the SFCP before “jumping in the pan”; which is hopefully not a “frying pan”.
How will the IRS collect tax and penalty assessments against former USCs and LPRs who live exclusively outside the U.S.?
How will the IRS collect tax and penalty assessments against individuals who live exclusively outside the U.S.?
This is a practical problem for the U.S. federal government who has laws that extend far beyond its borders. See, for instance, HUGE NEWS – China has “Reached an Agreement in Substance” for a FATCA Intergovernmental Agreement (IGA) – its Affect on USCs and LPRs Living in China and Hong Kong
However, the limits on the enforcement and collection of taxes overseas, beyond U.S. borders is more problematic for the government. Some of the tools at its disposal are as follows:
- Enforcement at the entry at the border (e.g., at points of immigration entry at U.S. airports and border crossings in Canada and Mexico). See an earlier post that discusses the TECS database and its usage by the Internal Revenue Service in U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations
- Limited enforcement authority via income tax treaty. For all practical purposes, it has been nearly impossible for the federal government to use tax treaties to enforce U.S. civil tax judgments against overseas assets of individuals who also reside outside the U.S.
More on this topic will be discussed as case law and policy develops. For now, this may be the weak link in the global enforcement efforts of U.S. law that imposes worldwide taxation on worldwide assets of U.S. citizens residing overseas. 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.