The IRS is being asked to police far more than taxes these days. As a citizen of the USA, even if you move to the Philippines or other foreign country, you still have federal obligations and the IRS is often used to enforce them. Congress seems determined to increase the power and reach of the IRS. There is also a good deal of misinformation out there about what is required. I am not going to go into the fine details but cover the basics.
People like to hate the IRS but, in most cases, you’re often hating the wrong entity. There were some and likely still are some abuses in the IRS, especially in collections. I use to work there and I saw many changes to curb some of those abuses. Often though, the IRS is doing what is required of them by law.
The Government Accounting Office audits the IRS for compliance to the law. Auditors call it a compliance audit. I sometimes had to deal with officers from the GAO and it is never a pleasant task. They are looking to catch someone doing something wrong and in some cases, they just don’t like the program you’re involved with. I know that the IRS often has to do things they want no part of. Often these extra powers are unwanted. For example, there were objections for using the IRS to enforce compliance for those mandated to buy insurance. I no longer worked there then and what I know I read in the press but they appeared to be concerned that putting it in charge of record keeping for the new insurance regulations caused concern that compliance with filing a return at all would drop.
I am no longer an expert in income taxes or the IRS. I have been away for far too long and much has changed since I was there. Also, in no way, do I speak for the IRS. I’m just an interested observer with some insight based mostly in the past. Consult your tax professional for advice.
Foreign Assets Held Overseas
This is the one that I hear about the most often. People are confused by the word aggregate. From my reading, you are only required to file an FBAR (Foreign Bank Account Report) if at any time during the year funds in all of our foreign accounts combined ever exceed $10,000 at any single point in time.
People have told me several times that if you deposit $10,000 in a foreign bank account over the course of a year, you are required to file an FBAR. I heard this so many time I began to think I was the one that misunderstood. However, I read the law and I went for easier language to understand as well and found that I was correct. One such source I used was CPAs at the firm Universal Tax Professionals.
Also, in some cases, banks must report accounts held by US citizens. This appears to affect accounts with a balance of over $50,000. This is the most confusing part of all of this to me. I think, but I’m not sure, that some foreign financial entities but not all must report if you have an account with a value of more than $50,000.
The IRS regulations include:
Third-party reporting: Foreign financial institutions may provide to the IRS third-party information reporting about financial accounts, including the identity and certain financial information associated with the account, which they maintain offshore on behalf of U.S. individual account holders.
I don’t know how the IRS can require a bank, for example, that has no business established in the USA could require a foreign bank to report these accounts. But, what I just said is also likely to be over simplified. I doubt the bank would need an office in the USA to get snarled up in USA regulations. Probably doing business with banks in the USA is enough to trigger this requirement. The IRS uses the words “may provide the IRS” with finical information.
When the bank closed my account, they had other official reasons but it is possible it was closed because of these reporting requirements. I would never meet them, $50,000 is the lower reporting trigger, and there are additional and higher triggers for US Citizens that live outside the USA for the entire year. The bank though, they may not wish to deal with it considering my small balances. I will never know but it was odd that they suddenly decided to close the account.
Not Even Your Passport is Safe from the IRS
I’ve seen numerous reports that the IRS can direct the State Department to revoke your passport if you owe more than $50,000. For example the Washington Times wrote:
Under a new enforcement provision passed into law earlier this month, the Internal Revenue Service can revoke passports of serious tax offenders who owe more than $50,000 to the government.
If one of your reasons for leaving the USA is to escape the IRS, you probably should change your thinking. Get your IRS situation straightened out before leaving the USA. The IRS can revoke your passport even while you’re already out of the country. I don’t know what the ramifications of that would be but I would not want to re-enter the USA with a revoked passport and if you try to enter another country, you probably will be stranded at the airport or held in a jail someplace.
What are your thoughts and experience with this kind of red-tape? Other than the possible linkage to my closed account, it has not affected me. Probably, if I hadn’t started pulling the money out of my account as soon as it came in, that would have also helped keep my account open. It’s more likely to be a combination of the two things. I’ll eventually open another account here because it is just covenant to have one if you live here. But, keep in mind, you do have a say in all of this, it is when you vote. If you can vote, I really can’t because of the slow mail service in the Philippines, my ballots arrive far after the election and Tn. doesn’t allow me to fax in or fax it to me. Some states do allow that.
Filed under: Finicial Issues for Expats
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