Foreign Government Receives a “FATCA Christmas Gift” from IRS: 1 Gigabyte of U.S. Financial Information
The last post discussed how the director of the Mexican tax administration was critical of the U.S. federal government for not providing FATCA information on U.S. financial accounts. See, Foreign Government Criticizes U.S. Government for NOT Providing FATCA IGA Information on Their Taxpayers with U.S. Accounts, dated December 14, 2015.
The automatic exchange of bank and financial information is driven by the U.S. Treasury driven Intergovernmental Agreement (IGA).
As a follow-up, the Mexican newspaper Reforma reported on the 17th of December that the U.S. just provided Mexico’s treasury with a gigabyte of Mexican taxpayer information regarding U.S. financial and bank accounts. See, Entrega EU un gigabyte a Hacienda, dated Dec 17, 2015.
This news comes on the heals of the earlier criticism by the Commissioner of the Mexican IRS (SAT – Servicio de Administración Tributaria (SAT)), Mr. Aristóteles Núñez Sánchez. The Reforma article quotes Óscar Molina Chié (who is in charge of the large taxpayers division at SAT) generously regarding how and what information was provided by the U.S. federal government.
Finally, the article emphasized that Mexico has sent the IRS information regarding Mexican bank accounts of U.S. citizens.
The question is how much Mexican bank and financial information has actually been provided by SAT of the hundreds of thousands (if not more than 1 million) dual national taxpayers, who are citizens of both Mexico and the U.S.? See, Where the IRS will likely look overseas: USCs are Millions Yet U.S. Tax Returns are Just a Few Hundred Thousand, dated January 28, 2015.
Is the IRS Undercounting Americans Renouncing U.S. Citizenship?, posted Sept. 16, 2015.
The names of U.S. citizens who have renounced is published quarterly pursuant to IRC Section 6039G. See, prior related posts: 1,426 Individuals Give Up Passport: Record Number of U.S. Citizens Renouncing: Quarter 3 for 2015, October 30, 2015.
No one knows for certain if the IRS (including the IRS per some of my conversations) is getting complete data from the Department of State regarding each name and individual.
The graph I have prepared shows the number of names reported quarterly as I track all reported names quarterly that related to clients and non-clients. The latest cumulative amounts for 2015 (which does not include the 4th quarter) shows 3,221 thus far in the year. If there is close to 1,400 as was the case for the last quarter, the total will be a record – by a bunch; i.e., close to 5,000 renunciations for the year.
Anecdotally, I have seen renunciations surge in our practice, largely as U.S. citizens residing around the world (typically in the “Accidental American” category) learn about the long arm of the U.S. tax law by way of their local financial institutions and reporting and documents requested as part of FATCA. See, Why Most U.S. Citizens Residing Overseas Haven’t a Clue about the Labyrinth of U.S. Taxation and Bank and Financial Reporting of Worldwide Income and Assets, posted Nov. 2, 2015.
None of this answers the question of whether there is under-reporting of the names? Indeed, the question will likely not be answered without more information provided by the U.S. Department of State and the U.S. Treasury (i.e., the IRS officers responsible for issuing the names and report in the Federal Register).
The government is also likely to reject issuing information on these details to individuals and their advisers as part of a Freedom of Information Act (“FOIA”) request. I have had similar requests rejected by the government under the so called “Exemption 7(E)” of FOIA. See,
The First Quarter of 2015 saw a large number of published names of former U.S. citizens: 1,335 total for the first quarter.
In addition, the second quarter saw a total of 460, for a cumulative total for the year (mid way through the year of 1,795). At this pace, the year 2015 could be a slight record of U.S. citizenship renunciations compared to the record year of 2014.
The names of each citizen can be located in the list published in the Federal Register.
There are a number of key considerations and strategic decisions that most all U.S. citizens need to consider prior to renouncing citizenship. See, for instance –
Does the IRS have access to the USCIS immigration data for former lawful permanent residents (LPRs)?
Information about former LPRs, such as the individuals names, is not published under the statute, IRC Section 6039G, which only covers former U.S. citizens.
This raises the question of whether the Department of Homeland Security tracks former LPRs – names and addresses overseas and provides that information to the Internal Revenue Service?
A prior post discussed the newly published USCIS immigration form I-407 for LPRs who must now use it when formally abandoning LPR status. See, More Information and More Information: USCIS Creates New Form for Abandonment of Lawful Permanent Residency
The new I-407 Form requires much more information and is 2 pages in length. The old form had only 6 lines and was less than 1/2 of a page in length. These forms are set forth here. The new form requires the address overseas of the individual.
As readers here know, the names of former U.S. citizens are published quarterly by the U.S. federal government for the world to see. See a prior post, The 2014 Third Quarter Renunciations Is probably the New Norm –
The complete set of lists going back to the mid-1990s can be reviewed here. Quarterly Publications.
Of course, the IRS can easily select and identify individuals for audit, by simply drawing from the published names of former U.S. citizens, which is currently tracking at an average of about 850 former USCs quarterly. In contrast, the number of former LPRs who have filed USCIS Form I-407 is tracking at an average of about 4,000 to 5,000 individuals quarterly.
While citizens are often the focus of the public press and Congress regarding “expatriation taxation”; the statute also wraps in so-called “long-term residents.” These are individuals who had or continue to have “lawful permanent residency status.” There are numerous technical considerations in this area, but needless to say, the number of former lawful permanent residents who have simply filed Form I-407 – Abandonment is far in excess of those U.S. citizens who have filed for and received a Certificate of Loss of Nationality (“CLN”) – Form DS-4083 (CLN). The graph reflects the enormous difference.
On a related post, the question was raised –What are the Number of LPRs who Leave U.S. Annually without filing Form I-407 – Abandonment?
This is important, since many LPR individuals will have “expatriated” without actually having filed USCIS Form I-407. See, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware! International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9
While the IRS has specific information about U.S. citizens, it is not clear whether the Department of Homeland Security via the USCIS provides data to the IRS regarding lawful permanent residents who have filed Form I-407? If such an individual becomes a “covered expatriate” under the U.S. tax law, the range of adverse tax consequences can follow them and their future beneficiaries and heirs, including as follows:
- “mark to market” taxation on their worldwide assets,
- 40% inheritance tax to U.S. beneficiaries,
- 40% tax on gifts to U.S. beneficiaries,
It seems fairly easy, from a legal perspective, that the IRS can request the names, addresses (and indeed the newly completed form) from the USCIS of all individuals who have filed USCIS Form I-407. From the USCIS records, the IRS will be able to determine if the individual was a “long term resident” based upon the number of years the individual had such status.
Assuming the IRS determines the individual is a long term resident, they can then simply check to see if the they have received IRS Form 8854 from the former LPR; in order to determine if she or he satisfied the certification requirement of Section 877(a)(2)(C). If not, the IRS will necessarily know the individual is a “covered expatriate.”
Record Number Gave Up U.S. Citizenship or Long-Term Residency in 2014: WSJ: By, Laura Saunders (10 Feb. 2015)
Her most recent article has a number of excellent observations, including the following regarding an academic study of those citizens living abroad:
According to a recent survey of 1,546 U.S. citizens and former citizens living abroad, 31% of participants have actively considered renouncing their U.S. citizenship and 3% are in the process of doing so. Many who were considering the move cited increasingly onerous and intrusive financial reporting requirements. The survey was conducted between Dec. 5 and Jan. 20 by Amanda Klekowski von Koppenfels, a researcher at the University of Kent in the U.K.
For other articles written by Ms. Laura Saunders, on this related subject, see the Media: News & Articles section –
Wall Street Journal: Expats Left Frustrated as Banks Cut Services Abroad Americans Overseas Struggle With Implications of Crackdown on Money Laundering and Tax Evasion, (The Wall Street Journal, 11 Sept 2014) By –Laura Saunders
IRS Eases Up on Accidental Tax Cheats: Agency Lowers Some Offshore-Account Penalties, Raises Others (The Wall Street Journal, June 18, 2014), By – Liam Pleven and Laura Saunders
Much has been made about the number of citizens who have been renouncing their U.S. citizenship over the last few years. In historical terms, it is a relative explosion. See, earlier post – The 2014 Third Quarter Renunciations Is probably the New Norm –
However, compared to the number of lawful permanent residents (LPR) who are leaving the U.S., the number is relatively small. See, earlier post The Number of LPRs “Leaving” the U.S. is 16X Greater than the Number of U.S. Citizens Renouncing Citizenship
On a related post, the question was raised –What are the Number of LPRs who Leave U.S. Annually without filing Form I-407 – Abandonment?
However, the number of individuals who wish to come to the U.S. to become citizens is far in excess of the number who are renouncing their citizenship. According to the USCIS, there are about 700,000 individuals annually who become naturalized citizens. In the year 2008, there were more than 1 million naturalized citizens. See table:
Compare these numbers to just about 3,000 annually of individual who are renouncing their citizenship.
Of course, everyone has their own story and reasons for either coming or going, but in relative terms, those who find it desirous to renounce citizenship (at least in absolute numbers and relative terms) represent a small speck (less than 1/2 of 1 percent), compared to those who are becoming naturalized citizens.
Finally, for anyone who wishes to become a naturalized citizen, they must be aware they cannot “reverse” the decision without having potentially adverse U.S. tax consequences. See, Why a Naturalized Citizen cannot avoid “Covered Expatriate” status under IRC Section 877A(g)(1)(B)
A prior post identified the number of lawful permanent residents (LPRs) who file Form I-407 to formally abandon their lawful permanent residency. See, The Number of LPRs “Leaving” the U.S. is 16X Greater than the Number of U.S. Citizens Renouncing Citizenship
These numbers of I-407 forms filed annually were obtained through a freedom of Information Act (“FOIA”) request and provided by the USCIS. See tabl:
Of course, this statistic does NOT identify the number of the approximate 13.3+ million LPRs who leave the U.S. to live elsewhere in another country without completing Form I-407 and formally abandoning. The estimated number of LPRs was 13.3 million for the year 2012 as reported by the Office of Statistics of the DHS. See, Estimates of the Legal Permanent Resident Population in 2012.
Maybe the number of individuals who fall into this latter category (i.e., moving out of the U.S. without filing Form I-407) is several hundred of thousands of individuals annually?
Importantly, from a taxation perspective, anyone who moves and lives in a country with a U.S. income tax treaty (the list of these countries is set out below – from the IRS website), needs to be careful not to be deemed to be a “covered expatriate” due to the application of IRS Form 7701(b)(6). See, IRS Notice 2009-85.
See, the following posts with further explanation of the tax law for LPRs who move and live in one of the countries listed below. Countries with U.S. Income Tax Treaties & Lawful Permanent Residents (“Oops – Did I Expatriate”?)
Becoming a “covered expatriate” has U.S. tax consequences not just to the “former long-term LPR”, but also to their family and friends who are “U.S. persons” (as defined under Section 7701. See, The “Hidden Tax” of Expatriation – Section 2801 and its “Forever Taint.”
The Number of LPRs “Leaving” the U.S. is 16X Greater than the Number of U.S. Citizens Renouncing Citizenship
The focus of Tax-Expatriation is to discuss legal matters of U.S. citizenship renunciation-relinquishment and lawful permanent residency abandonment.
There have been a great deal of resources discussing the number of USCs residing outside the U.S. and those who ultimately renounce citizenship.
See prior posts related to this topic –
There has not been any detailed discussion of the number of LPRs who leave the U.S. annually. The data provided by the U.S. Citizenship and Immigration Services reflects about 16 times more LPRs formally abandon their lawful permanent residency status by filing Form I-407 compared to U.S. citizens who renounce. The chart here shows a comparison for the years 2000 through 2013 of the total (i) USCs who have renounced compared to (ii) LPRs who have formally abandoned that status.
Note that for the year 2013, it is only through May 2013, so the total abandoned for the entire calendar year 2013 could well exceed 20,000.
Of course, this statistic does NOT identify the number of total current 13.3+ million LPRs who leave the U.S. to live elsewhere in another country without completing Form I-407 and formally abandoning. The estimated number of LPRs was 13.3 million for the year 2012 as reported by the Office of Statistics of the DHS. See, Estimates of the Legal Permanent Resident Population in 2012