Part II: U.S. Department of State Communications to USCs overseas Regarding Tax Obligations with IRS
A recent post discussed a rather surprising development of how the – U.S. Department of State, Starts Communicating with U.S. Citizens Overseas Regarding Tax Obligations with the IRS
There are several observations to be made about this approach.
First, some USCs living overseas will find this a welcome development, as it provides a method of basic education of how U.S. tax laws work. The newer U.S. passports do have an obscure reference to U.S. tax obligations of USCs. In the past, there was generally no communications from the U.S. Department of State to USCs, including newly naturalized U.S. citizens about their U.S. tax obligations.
Second, there is much helpful information provided in the U.S. Department of State’s explanation. The key tax forms that are most relevant for USCs and LPRs residing overseas are explained in the government e-mail. See, USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms
All of the following forms are identified by the U.S. Department of State:
- Substantive Income Tax Forms (Affecting Tax Liability)
- Information Tax Forms (Not Affecting Tax Liability, but with Substantial Penalties for Failure to File)
- IRS Form 8938 Statement of Specified Foreign Financial Assets
- Foreign Bank Account Reports (“FBAR”) – FinCEN Form 114, Report of Foreign Bank and Financial Accounts through the BSA E-Filing System website.
These are the most relevant forms for the majority of USCs and LPRs; although there are numerous other forms and calculations that may be required depending upon the particular circumstances, income, assets, employment, etc. for each individual
The third observation, relates to how employees of the U.S. Department of State will use this information and communicate with USCs? Will they begin asking (even if infrequently) whether a U.S. citizen overseas is in compliance with their U.S. federal tax requirements? What are the consequences to the U.S. citizen if they state yes, no or refuse to answer? What can happen to an individual if they provide a false statement to a federal employee or file a false document? See What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?
The fourth and last observation, is whether the IRS will begin providing USC taxpayer information on a regular basis to the U.S. Department of State? The law provides limitations upon how the IRS can disclose and provide taxpayer information. See, 26 U.S. Code § 6103 – Confidentiality and disclosure of returns and return information
However, there are significant exceptions in the law, that do allow disclosure of taxpayer financial and taxpayer information to other agencies (particularly “Intelligence Agencies,” which presumably includes the U.S. Department of State). See, for instance, IRC Section 6103(i)(7). The statutory requirements of 6103(i)(7) are not particularly rigid.