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The Newest 2019 IRS Expatriation Compliance Campaign



John Richardson

On July 19, 2019 the IRS announced six new compliance initiatives.

Of particular interest to U.S. citizens and permanent residents (Green Card holders) is what is described as:

Expatriation

U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.

What is expatriation?

From a tax perspective, expatriation is the process of ceasing to be a “tax resident” of the United States. Both U.S. citizens and permanent residents are taxable by the United States on their worldwide income. A U.S. citizen expatriates by relinquishing U.S. citizenship. A permanent resident expatriates by either surrendering their Green Card or making an appropriate election under a tax treaty.

In the United States, “tax residency” does NOT necessarily follow from “immigration status”. In other words, the IRS rules for taxation may differ from the State Department rules for citizenship and immigration. In effect: the United States has two kinds of citizenship (tax and nationality).

Interestingly:

1. It is possible to have relinquished U.S.citizenship for immigration/nationality purposes, but still be considered to be a U.S. citizen for tax purposes.

2. It is possible to be a permanent resident for immigration purposes, but no longer be a “tax resident” of the United States.

Expatriation and U.S. Citizens abroad – Scratching the surface

It is now almost impossible for U.S. citizens to live outside the United States, be a “tax resident” of another country and comply with U.S. tax rules. As a result, Americans abroad are being forced to renounce their U.S. citizenship. Renunciation (handled through the State Department) may trigger tax past, present and future tax consequences. (Hint: It’s “covered expatriates” who have most of the fun.)

Certain dual citizens may be able to take advantage of special rules designed to mitigate the punitive provisions of the expatriation tax rules.

Expatriation and Permanent Residents AKA Green Card holders – scratching the surface

A permanent resident does NOT end his/her U.S. tax obligations by simply moving from the United States to another country. This is a complex topic. But, to be forewarned is to be forearmed.

About the expected series of articles alerting people to the expatriation compliance initiative

I am not saying that there is no cause for concern. I am saying that you can expect to read a large number of articles/posts that are designed to create anxiety and possibly entice you to immediately (at what could be an indescribably high financial cost) “fix” perceived compliance errors.

The message will play on the uncertainty – we don’t know what could happen!

At the present time there is virtually NO indication what (from a practical perspective) this expatriation compliance program means. It’s true. The blog authors and seminar promoters don’t know any more than you.

The possible impact of tax treaties

Those who have expatriated for tax purposes are almost certainly tax residents of other countries. Some of those countries (Canada – Paragraph 8 of Article XXVI A), France, etc.) do have treaty provisions that may assist you.

What if you expatriated with the intention of following all the rules and filed an 8854?

My guess is that your chances of audit are slim. If you expatriated with the intention of following the rules, the chances are that you have followed the rules. You should NOT spend even one second worrying about this.

Sit tight! Best, to take a “wait and see” approach (I think). But, as always this is not legal advice.

Have a question? Contact John Richardson

 

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The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.