Americans Abroad Demand that IRS Apply Fair Treatment for All U.S. Citizens on Foreign Bank Account Reporting

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American Citizens Abroad (ACA) has written to IRS Commissioner Douglas Shulman protesting the rigid and punitive application of IRS policy towards Americans living overseas, concerning the reporting of their bank accounts. ACA maintains that hard-working United States citizens living overseas are being penalized by the IRS for not having reported overseas accounts on the FBAR form (Foreign Bank Account Report), even though they live in high-tax countries and therefore owe no taxes to the United States.

On November 1st, 2011, American Citizens Abroad (ACA) wrote to IRS Commissioner Douglas Shulman to protest the rigid application of penalties which the IRS has been imposing on United States citizens living overseas who seek to comply with IRS rules concerning overseas bank accounts. Under the FBAR rule (Foreign Bank Account Report), United States citizens must declare any bank account held outside of the United States.

Jackie Bugnion, Member of the ACA Executive Committee, explains in the letter that, “although the FBAR rule has existed for several decades, it was so seldom enforced that even tax preparers were unaware of this obligation. Normal hard-working Americans living and working outside of the United States are now being caught up in a punitive IRS policy which imposes penalties as high as 25% of the total amount in the bank account, even if the individual does not owe any taxes to the United States.”

The State Department estimates that six million Americans are living and working abroad, and they are mostly honest, hard-working average citizens, fulfilling their tax obligations in the country where they reside. Most of them owe little or no tax to the United States due to the application of foreign tax credits and the foreign earned income exclusion. These United States citizens want to comply with United States law, but instead they are being treated like tax evaders and criminals, and their life savings are being confiscated through punitive penalties.

ACA noted in the letter that the approximately one million dual national U.S.-Canadian citizens are so worried by the penalties imposed and the threats of punitive fines, that the United States Ambassador to Canada, David Jacobson, recently indicated that the IRS was looking for a solution which would allow individuals living in Canada to come into the system in a less onerous way. “The United States isn’t out to get honest grandmas who don’t owe anything to the Internal Revenue Service,” said Ambassador Jacobson. “The IRS is exploring ways to accommodate the roughly one million dual Canadian-American citizens living here.”

However, as MaryLouise Serrato, ACA Executive Director, pointed out in ACA's letter, “the FBAR penalties are not only being imposed on U.S. residents of Canada. ACA has collected heartbreaking testimonials from United States citizens living all over the world who have been adversely affected by this heavy-handed IRS policy.”

In its letter to Commissioner Shulman, ACA asks the IRS to apply discretion and fair treatment for all Americans in adapting penalties based on the individual circumstances of the taxpayer, as it is authorized to do. Instead of doing this, the IRS even changed the guidance rules under the first voluntary disclosure program retroactively, making them even stricter and more punitive. The new practice automatically imposed a 20% penalty on the highest balance on overseas financial assets over the prior 6 years. In the second voluntary disclosure program, the penalty was increased to 25% on the highest balance over the prior 8 years.

ACA highlights the recent recommendation to the IRS made by Scott D. Michel, President of Caplan and Drysdale, Washington D.C, and M.E. Matthews, partner in the Washington office of Morgan, Lewis and Bockius LLP: “We suggest returning to the rough justice concept that minimizes IRS resources applied to this class of tax noncompliance by offering the following….A separate path for Americans living abroad whereby they can reenter the system without the imposition of penalties except when there is evidence of fraud or willfulness. Surely a ‘check the box,’ Q & A type system can be designed for those cases, with enough spot checking to deter cheating.”

A copy of the letter to Commissioner Shulman was sent to Nina Olson, National Taxpayer Advocate at the IRS, and to Timothy F. Geithner, Secretary of the Treasury.

To read ACA’s article entitled FBAR Scam, go to the web site http://www.americansabroad.org.

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MaryLouise Serrato
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