Man is an animal suspended in webs of significance that he himself has spun...

Monday, September 30, 2013

The Empire Speaks, The Myth Replies: The Communication Gap

The underlying message that I hear in Treasury's press release is that the U.S. government really really wants Americans and Green Card holders abroad to comply with the U.S. worldwide tax and reporting system.

However bizarre it may seem to us and our foreign spouses, friends, co-workers and family, they want those bank account reports and that huge pile of paper (1040 plus all the extra reporting like form 8938 and the FBAR) every year from each and every one of us even if we earn no money in the U.S.,  pay tons of taxes locally and don't owe the United States Treasury one dime in tax.   That means every American and Green Card holder (rich, middle or low-income) from Thailand to Timbuktu, from Paris to Moscow, from Sao Paulo to Mexico City, from Libreville to Casablanca.

They are serious and anyone who thinks they aren't is living in la la land.

But three things that are absolutely essential to the success of the U.S. government's grand project are completely missing from the picture:  information, education and support.

Even today with all the hoopla about FATCA and FBAR's, when I hop the train into Paris I am still meeting newly-arrived Americans who have no idea about the tax and reporting obligations of an American citizen or Green Card holder who lives works, and raises a family outside of the United States.

Call this the future crop of American "tax evaders" who are materializing right before my eyes.  On a scale of 1 - 3,  with 1 being "total ignorance" and 3 being "fully informed and demonstrate a clear understanding of the topic," I'd say that the vast majority are at 1, a small minority are at 3 and a precious few are scattered in the middle.  There are even a few 0's - folks who don't know what they don't  know.  Americans abroad who dismiss the notion of citizenship-based taxation as "a conspiracy theory." (I kid you not).

If one of the U.S. government's goals here is to get Americans abroad into compliance with the U.S. tax system, then how about we look at what could be done about the "communication gap" before we get too excited about the overseas filer "compliance gap"?

To be very clear, I do not agree with citizenship-based taxation or FBARs or FATCA.  However, can we all agree is that it is crucial that Americans and Green Card holders at home and abroad are given clear information about the U.S. worldwide tax system and IRS/Treasury reporting obligations if they live or aspire to live outside the United States?

That obscure little note in the back of every U.S. passport about taxes on worldwide income?  Not good enough.  Only two countries in the world tax their emigrants on their wages and assets in their host countries:  the United States and Eritrea.  Why in heaven's name would an American or Green Card holder abroad, or an immigrant in the U.S., think for two seconds that the United States of America has anything in common with a little country in the Horn of Africa that has been condemned in the United Nations for the same practice of taxing its diaspora?

What is needed is an information campaign that gets the message out to everyone - U.S. citizens, Green Card holders, future Green Card holders and anyone the U.S. government considers to be a "U.S. person/taxpayer" -  all over the world.

But that would be hard and costly!

Nonsense, this is an era of mass communication, the Internet and social media. In addition, there are American organizations and institutions the world over that could help.  Like the State Department and the nearly 300 US Embassies and consulates in the world.  Like the American schools, churches, libraries, missions, VFW halls, Chambers of Commerce and many other places where American communities gather.  And, of course, organizations like American Citizens Abroad, the Associations of Americans Resident Overseas and the Federation of American Women's Clubs Overseas.

But that's not our job!

Again, nonsense.  Robert LeBaube and Charles Vehorn put these three things firmly under the responsibility of all tax administrations:

"1.  To support those citizens who wish to comply with tax laws by making the burden of compliance and payment as light as possible (Adam Smith's third maxim of convenience of payment);
2. to minimize the amount of public and private resources diverted from other uses to ensure that taxes are collected (Adam Smith's fourth maxim of economy in collection;  and
3.  to strive through education to increase the number of willing compliers."

My good people, you are public servants and here is your public standing before you ill-served and desperately needing information that you possess.

Furthermore, you have made it abundantly clear that you expect compliance even where there has been years of ignorance and confusion.  So let's clear up the latter and I just bet that you will find it much easier (and cheaper) to get the former.

Now, I have heard a rumor that all this has been proposed before.  That this very suggestion was made to some of the 3 letter agencies in the homeland and the answer was "no."

As in, "No, we will not communicate widely about worldwide U.S. tax and reporting requirements."

I sincerely hope that is not true.  Stretched thin already, I might lose all my faith in my government and the goodness and goodwill of the people in it, if that really was their response to something so basic, so simple, so commonsensical.

But part of me has to wonder because they have to know (as I do) what the possible repercussions would be:  more renunciations of American citizenship, a drop in people seeking Green Cards, fewer high-skilled immigrants coming to the U.S., and fewer immigrants becoming citizens once everyone understands exactly the global reach of the U.S. tax system.

But if the U.S. government and homeland Americans believe that citizenship-based taxation is a Good Thing and that FATCA has "clear, positive benefits" then these repercussions are irrelevant and they have nothing to fear from making a full disclosure in clear language to each and every U.S. Person (or aspiring one) on this planet.

Have the courage of your convictions and staple that to those shiny new U.S. passports, Green Cards and H1B visas.

7 comments:

Anonymous said...

And to add to your fine post Victoria;
The education of those actually living in the US, and those who immigrated there is still sorely lacking. The US does nothing to proactively prevent new immigrants from falling into the FBAR and FATCA trap through ignorance about how this particular unique characteristic of US tax laws work - as applies to the assets they held in their home country before they got to the US, and of which many CANNOT be dissolved prematurely (ex. retirement and pension accounts, insurance, etc.).

I saw this today on a British Expat site, and it was the same story we are so familiar with - even US residents do not know or understand FBAR and FATCA and 'foreign trusts' etc.

..."What on earth do I do regarding this facta/fbar. I am very scared and actually was sick tonight reading about it.

My husband is a US citizen and we've never heard of this before now..."

Much as those of us outside the US have suffered over this, those inside the US, new immigrants, and even just ordinary US residents, don't have a clue either. The IRS and Treasury have not done a good job to educate homelanders, would be homelanders, or those abroad. Basically they would rather characterize their threats and enforcement as 'education' - by beating us bloody after the fact.

Again I question whether they actually really want 'compliance'? Because all signs point to them wanting only punitive and penalizable enforcement after the fact instead.

My US resident family had never heard of any of this either.

badger

Tim said...

Victoria,

You are quite correct in the fact there is no desire on the part of anyone in the US government for any type of education or outreach. In terms of why that is your guess is as good as mine. I do think the most recent Richard Harvey article is probably as good of an insight into the current thinking in the IRS on this issue as any.


Janet said...

Fact not myth: The Treasury Department assumes every "US person" knows that the US tax system is a citizenship-based tax system and that every "US person" is aware of FBAR and FATCA. The consequence of this assumption is that any "US person" who does not file a US tax return and FBAR and FATCA forms when necessary is a tax evader because they are "willfully" not filing. Willful non-filing justifies the leveling of fines by the IRS.

In the past year, I have spoken to many,many Americans who live abroad. The vast majority of these Americans have no inkling that the US tax system is a CBT system and have never heard of FBAR or FATCA. A few weren't even aware that they are Americans.

If compliance is the goal, it is essential that the IRS launch a
worldwide information campaign and provide a penalty free path to compliance. Currently it seems the real goal is to collect as much money as possible by leveling
draconian fines.

Janet said...

Fact not myth: The Treasury Department assumes every "US person" knows that the US tax system is a citizenship-based tax system and that every "US person" is aware of FBAR and FATCA. The consequence of this assumption is that any "US person" who does not file a US tax return and FBAR and FATCA forms when necessary is a tax evader because they are "willfully" not filing. Willful non-filing justifies the leveling of fines by the IRS.

In the past year, I have spoken to many,many Americans who live abroad. The vast majority of these Americans have no inkling that the US tax system is a CBT system and have never heard of FBAR or FATCA. A few weren't even aware that they are Americans.

If compliance is the goal, it is essential that the IRS launch a
worldwide information campaign and provide a penalty free path to compliance. Currently it seems the real goal is to collect as much money as possible by leveling
draconian fines.

Just Me said...

I just have to say, that we have plenty of evidence that Compliance is NOT the goal. Revenue collection via FBAR and FATCA penalties is. It is a fund raiser for them. Hate to be so cynical, but whether by conscious design or misguided application they are like the State Troopers in that quintessential Southern State country town. They don't want you to comply with their speed limit, they want to ticket you!

Greg said...

This article is spot on, and exactly what I see with expats in Thailand. When I talk with expats, many who have lived overseas for decades, about their IRS tax filing obligation and FATCA, they have no idea what I am talking about. Many think I am just exaggerating about their obligations to the IRS, and think by living their life in some remote Thai town in the hills it will allow them to just ignore this. Someday, however, they may want to travel back to their homeland and will find a major problem from their non-compliance. Or maybe their Thai bank will ask them to close their accounts.
And for sure new expats here have never heard of FATCA. It is not something the US news bothers with very much, except perhaps as a cursory notice how the Uncle Sam is going after tax cheats living overseas.
Resistance to FATCA and even resistance to citizenship based taxation needs to be organized --- both within and outside of US borders. We need more attention given to this issue in the establishment media in the US and we need to develop FATCA Resistance people in Congress. Your efforts, Victoria, have been in the a very good start. Thank you.

Victoria FERAUGE said...

@Tim, I'm looking into it because I don't get it either. What is stopping them from communicating more widely about this? I'll post about what I find out. Some clue to how the IRS views this can be found in their 2014 budget proposal. http://www.treasury.gov/irsob/reports/2013/IRSOB~FY14%20IRS%20Budget%20Report~052413.pdf

If you and Marvin could read this and let me know what YOU think, I'd really appreciate it.

@Janet and Greg, Thank you both for your notes. Some email exchanges from folks in Mexico reveals exactly the same situation. Vast majority of Americans abroad simply don't know about this even today. And when they find out and go looking for information, they get even more confused. It's a MESS!

I think waiting around for IRS or State to have a worldwide information campaign is futile. I think what we need to do is start our own. I'm deadly serious about this. I think we need a FATCA/citizenship-based taxation fact sheet that can be sent to every blog and to every local paper.

Folks at the Isaac Brock Society have already come up with a FATCA fact sheet that they will be using at their demonstration in Toronto in October 16.

And that really, Greg, is the one place right now where there is action to go along with the words. Not everyone likes their take on things but they are the only site that seems to have the capacity to empower people and organize them. They just passed 4 MILLION hits. If you want to get involved that's a good place to go.

One thing we could do is to spread around the existing FATCA fact sheet which is here:

http://isaacbrocksociety.ca/what-is-fatca-draft/

Right now I'm translating the above in French and am working on another fact sheet with a person in the UK which is about how FATCA/CBT impacts immigrants.

Between the two, we would probably come up with a Fact Sheet that explains the situation in clear language: a combination of facts about FATCA/CBT with all the relevant links. Target audience would be Americans abroad.

If anyone wants to work on that with me, just send me a note (v_ferauge@yahoo.com). We could take it to Brock or do it via email.

Once we have that I would push it to every blog, every forum where US expats hang out, and to the local media.

We could call it:
"What Every American Expat Needs to Know about the U.S. FATCA and Citizenship-based Taxation."