Tax-Expatriation

Too Much? – Treasury Proposes Changes in the Expatriation Tax Law – per Green Book (2023 Fiscal Year) – Part I of II

Posted on July 14, 2023

The Administration made specific proposals in its Fiscal Year 2023 Revenue Proposals to modify key provisions in the law associated with “covered expatriates.” Importantly, they proposed two key concepts that can have far reaching consequences –

1. Creating, in effect, a new monitoring system of those who become “tax expatriates” – specific to filing of IRS Form 8854 – and
2. Extending the statute of limitations period indefinitely in the event IRS Form 8854 is not filed by the “tax expatriate”.

What does this mean from a practical perspective to individuals around the world? Specifically, to (i) citizens who formally renounce their citizenship, and (ii) lawful permanent residents who have left the U.S. and did not formally abandon their immigration status with USCIS?

See, Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part I)

First, anyone who fails to file IRS Form 8854 with their tax return or files a false or inaccurate form has to be concerned under current U.S. tax law.

The U.S. federal tax law has a specific crime, for making a false statement or signing a false tax return or other document – which is known as the perjury statute (IRC Section 7206(1)).  This is a criminal statute, not civil.  Some people are also under the misunderstanding that a false tax return needs to be filed.  The statute is much broader and includes “. . . any statement . . . or other document . . . “.

(1) Declaration under penalties of perjury

Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or . . .

The  IRS Form 8854 has a specific penalty of perjury signature requirement independent of any U.S. federal income tax return to be filed. See the current language below:

See a prior post –

* Filing False Expatriation Tax Form – IRS Form 8854

Filing a false IRS Form 8854 . . . becomes problematic quickly for any individual who carelessly discloses inaccurate asset information (or no asset information at all). See, the 2016 indictment of a NY business professor discussed previously here: Expatriation Tax Form 8854 is Part of Criminal Tax Case

Whether criminally or civilly, taxpayers should never underestimate the importance of filing complete and accurate tax returns; specifically including IRS Form 8854, Initial and Annual Expatriation Statement.

In addition to these cases, the Department of Justice has been actively involved in pursuing criminal charges against various individuals associated with tax expatriation cases. See the U.S. Supreme Court of last year to take up a criminal case – Regarding an Unnamed Law Firm that Advises International Tax & Expatriation Matters. A petition for a writ of certiorari to the U.S. Supreme Court was unsealed regarding the 9th Circuit case, In re Grand Jury, case Nos. 21-55085, 21-55145. In that case a law firm and a company was held in contempt of court: Re: a Grand Jury Subpoenas –

The panel affirmed the district court’s orders holding
appellants, a company and a law firm, in contempt for failure
to comply with grand jury subpoenas related to a criminal
investigation, in a case in which the district court ruled that
certain dual-purpose communications were not privileged
because the “primary purpose” of the documents was to
obtain tax advice, not legal advice.

Importantly, the IRS and the DOJ currently have extensive legal tools at their disposal to pursue taxpayers who may owe taxes as a result of becoming a “covered expatriate.” The above criminal cases reflect their interest and appetite in pursuing such cases. 

 

In addition to criminal exposure, the civil tax exposure can be extensive and the IRS is not shy about assessing tax and international information penalties (even if the assessment for penalties such as not filing IRS Form 5471 are unlawful, as determined by the U.S. Tax Court recently – ). See April 3^rd, 2023 decision by the United States Tax Court (the “Tax Court”) – Farhy,^[6] stating that the IRS does not have statutory authority to assess penalties under section 6038(b).