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Early Christmas Gift Announcement: US Overseas Taxpayers Subject to Three New IRS Scrutiny Campaigns & Audits Next Year



Since the enactment of FATCA, US persons (citizens and green card holders) overseas have, via lobbying efforts, requested relief from the additional tax compliance burdens placed upon them that appear to be increasing their costs of living overseas (which is generally more expensive than living in the USA anyway).

Their arguments fall into the following three: (1) generally, they file foreign tax returns and pay local tax preparation services but must also pay an additional $2,000- $3,000 for a US tax preparation service specialized in foreign residence; (2) generally the foreign income exclusion and foreign tax credit wash out the U.S. tax burden but for anomalies in definitions between retirement plans that cause undue burden on foreign residents US persons; and (3) US persons must pay more for financial services because they have become the pariah of the financial world.

On November 3, 2017, the IRS responded.  But the response is not exactly what the foreign resident U.S. persons had in mind.  The IRS will subject these foreign resident U.S. persons to three new compliance campaigns to root out the non-compliant, employing audits and other investigatory strategies. The IRS has delivered an early Christmas announcement for US tax advisers of the coming great year! Advising on the new tax code section enacted pursuant to “tax reform simplification” combined with advising the foreign resident US taxpayers that will potentially be caught up in the three campaigns’ scrutiny will deliver strong 2018 fee earning results.

1. Foreign Earned Income Exclusion Campaign

Practice Area: Withholding & International Individual Compliance

Lead ExecutiveJohn Cardone

Individuals who meet certain requirements may qualify for the foreign earned income exclusion and/or the foreign housing exclusion or deduction. This campaign addresses taxpayers who have claimed these benefits but do not meet the requirements. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including examination.

2. Individual Foreign Tax Credit (Form 1116)

Practice Area: Western Compliance Practice Area

Lead Executive: Paul Curtis

Individuals file Form 1116 to claim a credit that reduces their U.S. income tax liability for the amount of foreign taxes paid on foreign source income. This campaign addresses taxpayer compliance with the computation of the foreign tax credit limitation on Form 1116. Due to the complexity of computing the Foreign Tax Credit and challenges associated with third-party reporting information, some taxpayers face the risk of claiming an incorrect Foreign Tax Credit amount. The IRS will address noncompliance through a variety of treatment streams including examinations.

These campaigns represent the second wave of LB&I’s issue-based compliance work. More campaigns will continue to be identified, approved and launched in the coming months.

3. Swiss Bank Program Campaign

Practice Area: Withholding & International Individual Compliance

Lead Executive: John Cardone

In 2013, the U.S. Department of Justice announced the Swiss Bank Program as a path for Swiss financial institutions to resolve potential criminal liabilities. Banks that are participating in this program provide information on the U.S. persons with beneficial ownership of foreign financial accounts. This campaign will address noncompliance, involving taxpayers who are or may be beneficial owners of these accounts, through a variety of treatment streams including, but not limited to, examinations.

Have a question? Contact William Byrnes

Your comments are welcome!

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William H. Byrnes has achieved authoritative prominence with more than 20 books, treatise chapters and book supplements, 1,000 media articles, and the monthly subscriber Tax Facts Intelligence. Titles include: Lexis® Guide to FATCA Compliance, Foreign Tax and Trade Briefs, Practical Guide to U.S. Transfer Pricing, and Money Laundering, Asset Forfeiture; Recovery, and Compliance (a Global Guide). He is a principal author of the Tax Facts series. He was a Senior Manager, then Associate Director of international tax for Coopers and Lybrand, and practiced in Southern Africa, Western Europe, South East Asia, the Indian sub-continent, and the Caribbean. He has been commissioned by a number of governments on tax policy. Obtained the title of tenured law professor in 2005 at St. Thomas in Miami, and in 2008 the level of Associate Dean at Thomas Jefferson. William Byrnes pioneered online legal education in 1995, thereafter creating the first online LL.M. offered by an ABA accredited law school (International Taxation and Financial Services graduate program).

5 thoughts on “Early Christmas Gift Announcement: US Overseas Taxpayers Subject to Three New IRS Scrutiny Campaigns & Audits Next Year

  1. You write:

    “The IRS has delivered an early Christmas announcement for US tax advisers of the coming great year! Advising on the new tax code section enacted pursuant to “tax reform simplification” combined with advising the foreign resident US taxpayers that will potentially be caught up in the three campaigns’ scrutiny will deliver strong 2018 fee earning results.”

    Yes, right from the start FATCA and citizenship-based taxation have been “the gift that just keeps on giving” for tax professionals. Thanks for noting the additional pain and costs inflicted on Americans abroad …

  2. Avatar Nononymous says:

    This is further evidence that dual citizens (“accidentals”) outside the US who are not compliant should absolutely remain non-compliant.

    • Avatar Alex Jones says:

      No, evidence they need to deal with the US rules now! From here this only gets worse. If they don’t like the answer or restrictions then expatriate. Yes giving up US citizenship costs but it fixes the issue and is straightforward for the born dual national individual living in the other citizenship state. The earlier advice is taken the easier this is.

      • Avatar Nononymous says:

        Accidentals can renounce without becoming tax compliant, if they are willing and able to put up $2350. Covered expatriate status is not a problem if they have no connections to the US.

  3. William, you give great advice. Thank you.
    “Advising on the new tax code section enacted pursuant to “tax reform simplification” combined with advising the foreign resident US taxpayers that will potentially be caught up in the three campaigns’ scrutiny will deliver strong 2018 fee earning results.”

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