ACA proposal to resolve non-compliance issues for overseas Americans
Stories are rife in the media today about overseas Americans terrified to "come out of the cold" and comply with their US tax and financial reporting obligations, and about others so confused by those obligations that it seems easier to bury their heads in the sand.
At Overseas Americans Week in February 2013, AARO and its partner organizations spoke to staffers in Congress and the US Treasury about the plight of these otherwise law-abiding citizens who, often through no fault of their own, face daunting penalties because of their double tax obligations (to their host countries, where they already pay taxes, and to the United States, which taxes them merely because of their citizenship) or because of their so-called "foreign accounts" in the countries where they live and work (and must, like Americans in the U.S., have bank accounts for everyday transactions, retirement savings, mortgages, etc.).
AARO's partner organization ACA (American Citizens Abroad) has written to the Treasury Department and the IRS with a simple, clear and eminently sensible proposal to help these Americans who, far from being tax evaders, are, in the main, eager to correct their situation. We applaud their initiative and support their proposal, the full text of which can be found here.
Summary of the ACA recommendation
Since OVDP (the IRS Overseas Voluntary Disclosure Program) is too penalizing, "Streamlined Procedures" are too restrictive and uncertain, and the path of quiet disclosure has been put into question, ACA recommends that the Department of Treasury and "IRS adopt a two-prong strategy to facilitate compliance:
- transform the current "Streamlined Procedures" into a Comprehensive Compliance Program (CCP) exclusively for bona fide Americans resident abroad, with terms substantially different from the current IRS "Streamlined Procedures";
- transform the OVDP into a program essentially for Americans resident in the United States.
There would be two clearly distinct programs for two very different groups of taxpayers. Americans resident in the United States who are hiding assets and related revenues in foreign bank accounts are most likely evading taxes. Americans resident abroad, on the other hand, pay taxes to their country of residence.
The CCP would be open to all non-resident taxpayers who have resided abroad for three years or more, as bona fide overseas residents defined in Section 911 of the Tax Code, and who meet one or more of the following four conditions:
- who have not filed tax returns and FBARs;
- who have filed incomplete or complete tax returns but have not filed FBARs or have filed an incomplete FBAR;
- who have filed FBAR forms, but have not filed tax returns;
- who do not need to file a tax return because total income is below the threshold for reporting but who meet the FBAR filing requirement and have not filed an FBAR.
Both first-time filings and amended returns would be permitted under the CCP for both the tax return and the FBAR.