What you should know about Residence-Based Taxation

Jacqueline Bugnion, former director of American Citizens Abroad and a frequent AARO partner at Overseas Americans Week, published an article in Tax Notes on August 24, 2015, concerning her personal observations of the devastating impact of U.S. taxation on the community of Americans abroad. She makes a clear and powerful argument in favor of Residence-Based Taxation, showing how it would do away with many of the terrible hurdles facing overseas Americans due to the current system of taxation worldwide on the basis of citizenship. The article is reproduced here with permission of the author and Tax Analysts.

FBAR filing date extended

Quietly and with no fanfare, a bill was signed into law by the President on July 31 that  comes in direct answer to proposals made for several years by AARO and its partner organizations, as well as the National Taxpayer Advocate.  Beginning in 2016, taxpayers (including overseas filers) will file FinCEN Form 114 at the same time, and subject to the same extensions, as their 1040.

HR 3236, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015”, dealt with a host of things that have nothing to do with transportation or health care, including extending the IRS filing date for certain partnership, corporation and trust forms as well as the “FBAR” (Foreign Bank Account Report), due up to now on June 30 with no provision for extensions.  It also gives the Secretary of the Treasury discretion to waive certain penalties for first-time filers.

The new law [Section 2006 (b) (11)] states:

“The due date of FinCEN Report 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension under rules similar to the rules in Treas. Reg. section 1.6081–5*. For any taxpayer required to file such Form for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.”

It goes without saying that this extension will be welcomed by great numbers of overseas filers.

* the section of the Treasury Regulation that provides for an automatic extension to June 15  for overseas filers, with the possibility of a further extension to October 15.


IRS videos assist international taxpayers

As almost everyone knows today, most US citizens and greencard holders are required to file an annual tax return on their worldwide income, whether or not any tax is owed (see page 7 of the 1040 Instruction booklet for the minimum filing thresholds).  Whether we like taxes any more than equally inevitable death, we do need to stay informed and know our responsibilities!

While AARO officially protested to the IRS regarding the closing of their last offices abroad, we must applaud their virtual outreach efforts to provide assistance to international taxpayers in other ways.

One of these is an International Individual Taxpayer Assistance (IITA) program which has, to date, released six videos covering basic questions that most overseas Americans ask themselves at one time or another:

  1. International Taxpayers – Introduction to the International Taxpayers Web page
  2. Filing requirements
  3. The Individual Taxpayer Identification Number (ITIN)
  4. The Foreign Earned Income Exclusion
  5. Filing Status if married to a Nonresident Alien
  6. The Foreign Tax Credit

While these do not take the place of an actual IRS agent to whom you can speak, they are clear and helpful, and are specifically designed for the overseas population.  So far, they do not appear to have been viewed by many people, and we encourage our readers to share this information with others!

Two other helpful resourses are the dedicated website for international individual taxpayers, and the international index of tax topics


Taxpayer Advocate: Most Serious Problems & Recommendations

In her Annual Report to Congress for 2014, National Taxpayer Advocate Nina Olson addresses certain issues (her "Most Serious Problems") and makes certain Legislative Recommendations specifically related to overseas taxpayers.

We need actively to support her recommendations that seek to alleviate both the loss of access to IRS service abroad and the excessive burden of our mandatory filing of a Foreign Bank Account Report (now using FinCEN Form 114).

Most Serious Problem #1 concerns IRS budgetary allocations that prevent it from providing the optimum service that could increase compliance.

Most Serious Problem #3 concerns the elimination of a functional geographic presence, with IRS employees understanding the needs and circumstances of a specific geographic economy.

Both of these issues relate directly to FAWCO’s concern with the closure of the last IRS offices abroad.

Most Serious Problem #7 once again charges that the IRS Voluntary Disclosure Programs violate taxpayers’ rights.

Most Serious Problem #15 concerns the delay in implementing and maximizing Virtual Service Delivery to enhance taxpayer services.

For the global community, now losing its last effective access to IRS support and services, VSD represents one of the best opportunities to assist overseas taxpayers.

In addition, Ms Olson makes specific recommendations that could vastly improve the situation for both US citizen and Non-Resident Alien taxpayers abroad:

Legislative Recommendation #3 calls for the development and implementation of Virtual Service Delivery.

Legislative Recommendation #6 addresses ways to reduce the burden of FBAR filing.

You can add your voice to hers!

Write to your legislators (Representatives can be found at www.house.gov and Senators at www.senate.gov) in support of one of these recommendations - remember that it is said that 1 email = 10 voters; 1 phone call = 50 voters; 1 letter = 100 voters!

The entire report can be accessed here.

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