In their 2012 Report to Congress (and many thanks to ACA for the link on Facebook) they once again take issue with how the IRS is conducting its business with respect to U.S. citizens living outside the U.S. One section concerns folks who were unaware of a little known filing obligation called the FBAR (Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts). Failure to file can lead to fines of up to 10,000 USD per account.
As the word has spread of this requirement many Americans abroad are living in a state of panic and fear. Confusion reigns. There is no clear path to compliance even for those who would be more than happy to provide the information. It's a real mess.
The IRS’s Offshore Voluntary Disclosure Programs Discourage
Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts
TAS says that the IRS has turned this situation into a real nightmare by treating people who made an innocent mistake (many of them lower or middle-income people aka "The Minnows") the same way they treat those who willfully and criminally evade U.S. tax and reporting requirements (the rich tax evaders aka "The Whales").
"As discussed in prior reports, these programs applied a resource-intensive, burdensome, punitive, one-size-fits-all approach designed for “bad actors” to “benign actors” who inadvertently violated the rules."
TAS says that IRS actually discouraged people from fixing the problem themselves (by just filing the damn missing 1040's and FBARs which is called a "quiet disclosure") once they became aware of the requirement by insisting that the non-compliant needed instead to go into one of the special programs for tax evaders (OVD) which meant hiring lawyers and going through a very complicated, bureaucratic (and dare we say it) punitive process. Talking to some of the people who did I can only say that I am surprised that any of them are still sane.
I agree with TAS 100%. I remember reading that IRS FAQ which had these encouraging words, "Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years." So if you made an innocent mistake and try to make it right, we will still consider sending you to jail? How comforting.
That and the horror stories coming out from all around the world of people's experiences in the OVD program had a chilling effect on everyone else who were still trying to determine what to do. People became too afraid to do anything lest they run the risk of losing their houses, pensions plans, life savings and so on. TAS is right again. If the goal of the IRS was to get people to voluntary comply, they blew it.
And TAS is once again right on the money when they talk about the new IRS compliance program for non-resident non-filers. Again the language is very unclear. Apparently one can qualify if one is "low risk" but they don't define what that is. That's not much help and given what went on before, no one trusts them anymore. I would be very surprised if they get many takers.
And for the cerise sur le gateau (cherry on the cake) TAS announces in the report that IRS initiatives to communicate and educate people about their filing/reporting obligations are being abandoned. They are giving up. The FBAR Compliance Initiative Project has been shut down. The FBAR Stop Filer Program never got off the ground and they aren't working on it anymore.
"In addition, the IRS has not conducted in-person presentations about the FBAR filing requirements in foreign countries, even in countries where it has a tax attaché and a significant number of residents are required to file."
Excuse me? I'm not sure I read that correctly. I'm still meeting people here in France who have no clue about FBARs. Welcome to a globalized world. Americans citizens and Green Card holders move in and out of the U.S. all the time. Immigrants are still coming to the U.S. and they had lives before they crossed that border which included bank accounts. Are they really saying that no effort is going to be made so that these folks don't end up in the same pile of merde as those of us who came before?
"This approach sends the message that the IRS will spend resources to punish, but not to educate, U.S. citizens abroad."
Perhaps homelanders will accuse me of being too negative (when they aren't calling me a cowardly, traitorous, guilty until proven innocent, potential evil tax-evading Benedict Arnold) but that is exactly the message I am getting from the homeland government.
And the only bright spot I can point to today is that there is one lonely voice in that government that sees the situation clearly and is trying to get it fixed. From the bottom of my heart, TAS, thank you.