Month: February 2024
Update: Does the IRS have access to the USCIS immigration data for “current” and “former” lawful permanent residents (LPRs)?
This is a question that concerns those non-U.S. citizens who are aware of the IRS prior position in pursuing tax penalties and adverse tax positions against the millions of “LPRS” residing outside of the United States. The concern stems from the way the government handled cases such as Mr. Alberto Aroeste where more than $3M of information penalties were assessed when very little income tax was assessed and the U.S.- Mexico income tax treaty was ignored. See, 2023 report to Congress by the Taxpayer’s Advocate and footnote 10, reported in Most Serious Problem #9 – COMPLIANCE CHALLENGES FOR TAXPAYERS ABROAD.
Footnote #10: For a recent case illustrating the complexity of applying statutory requirements and treaty provisions, see Aroeste v. United States, No. 3:22-cv-00682, 2023 WL 8103149 (S.D. Cal. Nov. 20, 2023) (holding that a Mexican citizen with U.S. lawful permanent residency status was not a “U.S. person” required to file a Report of Foreign Bank and Financial Accounts).
A prior post explained a bit about the Treasury Department’s TECs database system. See, Should IRS use Department of Homeland Security to Track Taxpayers Overseas Re: Civil (not Criminal) Tax Matters? The IRS works with Department of Homeland Security with TECs Database to Track Movement of Taxpayers. The explanation in the IRM was updated largely in 2018.
A follow-up post will help address the question raised in the title of this post.
Amazing international tax conference in Merida, Yucatán – 20 years in the making
The University of San Diego School of Law – Chamberlain International Tax Institute started 20 years ago –
Panel 1-A: United States-based Cross-Border Real Estate Investments (Advanced)
- John Merrick, IRS Office of the Associate Chief Counsel, International (Washington DC)
- Patrick W. Martin, Chamberlain Hrdlicka (San Antonio)
- Luis Gerardo del Valle Torres, Jaureguí y Del Valle (Mexico City)
Panel 5-A: Aroeste v. the United States: Limits on Government Authority Re: Tax Treaty Law
- Bret Wells, University of Houston Law Center (Houston)
- Michael J. Miller, Roberts and Holland LLP (New York City)
- Michael J.A. Karlin, Karlin & Peebels, LLP (Los Angeles)
- Leo Unzeitig, Chamberlain Hrdlicka (San Antonio)
Panel 2-A: Embracing and Transforming Taxation through GenAI: The Future of Professional Services
- Adrián Guarneros, Ernst & Young (Mexico City)
- Andrés Fuentes, Ernst & Young (Mexico City)
- Roberto Pérez Teuffer, Chamberlain Hrdlicka (San Antonio)
Sunday night speaker’s reception –
Dean Robert Schapiro, and assistant dean, Karen Sigmond from the University of San Diego School of Law
What Questions Need to be Asked if You Live (with a “green card”) in one of the 67 Countries – with a U.S. Income Tax Treaty?
Depending upon the factual circumstances of each individual, they may be able to benefit from the international tax treaty law articulated by the U.S. Federal District Court in Aroeste v United States – Order (Nov 2023). Future posts will explore the legal relevance of some of the following questions to consider:
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- Does the individual reside in one of the 67 countries affected by a U.S. income tax treaty with the United States? See, DHS Report: 3.89M Emigrated LPRs — Who Falls Under the Tax Treaty Escape Hatch?
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- Does the individual have a “green card” they never formally abandoned (has it “expired” on its face; of the document)?
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- Was no USCIS Form I-407, Record of Abandonment of Lawful Permanent Resident filed with the U.S. federal government?
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- If one was filed, when, from where, and how was it filed?
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- Has the individual affirmatively filed USCIS Form – I-90, Application to Replace Permanent Resident Card (Green Card)?
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- Has the individual filed any U.S. federal income tax returns since leaving the United States?
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- Was a professional tax return preparer hired or consulted about the filing of a federal income tax return (e.g., a certified public accountant, an enrolled agent, a full time tax return preparer, ta tax attorney, etc.)?
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- Has the individual been filing IRS Form 1040 Resident Tax Returns in the same way Mr. Aroeste was filing – based upon the advice (that turned out to be erroneous -although given in good faith) from their U.S. tax return preparer?
- Has the individual been filing IRS Form 1040 Resident Tax Returns in the same way Mr. Aroeste was filing – based upon the advice (that turned out to be erroneous -although given in good faith) from their U.S. tax return preparer?
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- Has the individual been filing IRS Form 1040NR, Non-Resident Tax Returns? If so, when and how?
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- Has the individual ever filed IRS Form 8854, Initial and Annual Expatriation Statement? If so, when and how (was it attached to a federal tax return 1040 or 1040NR)?
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- Has the individual ever filed IRS Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)?
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- What steps if any have been taken to notify the U.S. federal government (irrespective of the agency) regarding their physical residency outside the United States?
- What steps if any have been taken to notify the U.S. federal government (irrespective of the agency) regarding their physical residency outside the United States?
This information is intended to provide general information about tax expatriation legal concepts under U.S. law to help readers better understand often very complex issues within the U.S. international tax field for citizens and lawful permanent residents. General legal information is not the same as legal advice, that is, the concrete application of law to a specific case with unique and particular facts.
Legal advice also should include strategic planning and advice to a particul
ar case. A legal adviser should be able to assist an individual in taking important decisions and steps, related to the specific goals of the individual, while understanding the legal and tax consequences of each step. There are a range of consequences that the “U.S. tax expatriation” laws impose upon different types of transactions, transfers, reorganization of assets, etc. None of these items are discussed in this Tax-Expatriation.com This is not legal advice.
The University of San Diego School of Law – Chamberlain International Tax Institute in Mérida, Yucatán, Mexico on February 19th and 20th, 2024
I had the good fortune to start this international tax conference 20 years ago with The University of San Diego School of Law. This year’s conference will be amazing with 21 different international tax courses and legal experts from across the North American continent – Register here: – as the place to be for international tax.
Register here: – Merida, Yucatan (19th and 20th)
**February 17-18, 2024 – Pre-Conference Excursions:**
1. **Saturday, February 17th: Celestún Nature Reserve **
⁃ Travel to the biosphere and nature reserve of Celestún
⁃ Explore Celestún by boat, home to a myriad of wild birds, including flamingos.
⁃ Enjoy a fresh seafood lunch on the beach.
2. **Sunday, February 18th: Uxmal Exploration **
⁃ Embark on a full-day journey to the Mayan archaeological site of Uxmal.
⁃ Enjoy a guided tour of the ruins and their history
⁃ Relish a late afternoon lunch at the restored Hacienda Mucuyche
2(b). – Private evening reception for speakers and law school employees – including Dean Robert Schapiro (starting @ 7:00 PM) in the historic part of the city of Mérida next to the archeological museum – Palacio Cantón
– live music with symphonic musicians and hors d’oeuvres and cocktails
- February 19: Monday night reception for all of the attendees and speakers (and significant others: with a maximum attendance of 200) at an amazing venue. Held with special permission from the Mexican Federal Government (INAH) at the archeological museum – Palacio Cantón. All within the same general area, at the historic portion of the city with live symphonic musicians. All near the convention center.
Taxpayer’s Advocate Report – Highlights Massive Gap (?) in U.S. Tax Compliance for Mexican Resident Individuals (Part I of II)
Few people think about how many individuals around the world should or must file U.S. tax returns? When must they file (if ever) when they reside predominantly outside the United States? What are the legal consequences under U.S. law for not filing? This post discusses the discrepancy between the number of individuals who should file tax returns and the actual number of returns filed, particularly focusing on individuals residing in Mexico.
In addition to income tax returns, when are estate or gift tax returns required to be filed under the law of the United States? These comments do not address this question, which will be addressed in a future post.
The 2023 report to Congress by the Taxpayer’s Advocate scratches the surface of this issue in her footnote 41, reported in Most Serious Problem #9. It reads as follows when talking about the number of competent tax return professionals residing outside the United States:
For example, Thailand, a country from which 7,409 individual income tax returns were filed in TY 2021, lists only five preparers, all but one in Bangkok. Mexico, a country from which 10,929 individual income tax returns were filed in TY 2021, lists only 23 preparers. See IRS, Directory of Federal Tax Return Preparers with Credentials and Select Qualifications, https://irs.treasury.gov/rpo/rpo.jsf (last visited Dec. 18, 2023); IRS, CDW, IRTF, TYs 2016-2022 (through Sept. 28, 2023).
- Lawful Permanent Residency Population in Mexico (Emigrated from the U.S.)
How can Mexico, with nearly 1 million Mexican residents estimated to be living outside the United States without formally abandoning their “lawful permanent residency” status, have only 10,929 tax returns filed from Mexico? The DHS Office of Homeland Security Statistics report estimates approximately 3.89 million LPRs have emigrated and now reside outside the U.S., with a significant portion being Mexican.
See, DHS Report: 3.89M Emigrated LPRs — Who Falls Under the Tax Treaty Escape Hatch?
Given that around 25% of this group should on their face be United States persons (without applying the law in the U.S.-Mexico tax treaty), it raises questions about why there aren’t more Mexicans filing U.S. tax returns, many more? This does not even consider the U.S. citizen “expat” community who live in Mexico. Maybe a considerable number of the 10,929 tax returns filed from Mexico may actually originate from United States citizens working, residing, or retired in Mexico (so-called “expats”). The number of U.S. expatriates working and living in Mexico is a factor to consider, given the recent reports on thousands of U.S. citizens now working remotely from places such as Mexico City.
- U.S. Citizen Population in Mexico
According to the U.S. Department of State, roughly nine million U.S. citizens reside abroad as of 2020. See, Most Serious Problem #9, p. 118 and Consular Affairs by the Numbers:
Given this substantial “expatriate population” (including Mexicans who are dual nationals and would never consider themselves as an “expatriate”; but are more of the “accidental American” type), the discrepancy between reported tax returns and potential filings becomes even more significant. It suggests a considerable underreporting of tax returns among U.S. citizens and LPRs living abroad, specifically in Mexico.
. . . more in Part II of Part II –