There is no such thing as the “USA citizen database.” There are various databases containing citizens (such as the database of people with US passports, or database of people with Social Security numbers), but there’s no one overarching database of everybody who has US citizenship, mostly because there is no one entity that collects that information. Birth certificates are issued at the state or local level, and jurisdictions vary on the completeness and computerization level of their records.
It’s entirely possible that somebody born in the U.S. who left as a young child, or who was born abroad to citizen parents and acquired derivative citizenship, doesn’t appear in any U.S. databases at all, and if they are using a foreign passport to enter and exit the U.S., nobody (including the IRS) will ever know.
Where expat non-filers (and for that matter people residing in the U.S. who don’t file) will get in trouble in when some other entity provides some information to the IRS. A bank, an employer, the Social Security Administration or other government agency, etc., will file an informational return, and if the feds can’t find it reported on a matching tax return, alarm bells go off. If the amount in question is small, nothing may come of it, because the IRS doesn’t have the manpower to review every suspicious entry. Once the dollar amounts start adding up, however, the chances that the revenue agents investigate likewise go up.
People whose income is below a threshold amount (around $10K for singles) aren’t required to file a return in the first place, so low-wage earners or people who don’t have much reported to the IRS can get away with never filing a return.
“I have always filed my U.S. taxes just as I am supposed to,” says Brian Dublin, 47, an American businessman now based in Zug, Switzerland, who has lived overseas for many years, including stints in Russia.
“However, as a result of FATCA, in the past year I have been kicked out of a Swiss bank that said, ‘Hey, we love you, but we won’t work with Americans.’ I have also been kicked out of a Swiss pension fund. They told me they don’t want any Americans in the fund. They don’t want to work on behalf of the IRS,” he says.
These are examples, in brief, of some of the issues raised by overseas Americans in addressing the challenge of meeting FBAR and FATCA compliance:
Impacts on employment opportunity:
Discriminatory impact on US senior managers in foreign companies where an American signature on corporate accounts triggers a reporting obligation to the IRS;
Loss of job opportunities at all levels for Americans in multi-national corporations due to the cost of compensating for US tax reporting;
Weakening of entrepreneurial opportunities for overseas Americans due to onerous reporting obligations.
Impacts on personal affairs and privacy:
Escalation in tax filing complexity and cost;
Inability to open new financial accounts or forced closure of existing accounts;
Assets and accounts held jointly with non-nationals subject to IRS scrutiny;
Exorbitant and confiscatory penalties for non-compliance;
This thread has devolved in (an interesting way) back to FATCA. What I was really wondering was whether anyone knew when Americans abroad started to pay US income taxes in any numbers, and / or when it started being enforced. It may be that FBAR / FATCA is the answer to the latter.
I know that Americans abroad being able to vote is suprisingly recent, though in California I can now vote even in local elections from abroad. Which is, frankly, dumb, but I like to vote so I do.
Americans voting from abroad is recent? I was doing it from here back in the 1980s. And I don’t remember a time when I did not have to file a tax return.
Relatively recent. This pdf has details of the history for military voters. Basically, at first it varied widely by your state of residence (and if you were born abroad, you may not have had one). The states that allowed it faced logistical issues with getting things out and back through the mail. The main acts that allowed Overseas Citizens to vote came about in 1975 (non-military) and 1986 (military).
So what exactly is the penalty for not filing a return even if you don’t owe any money? As I said, it’s not uncommon to run across Americans here who will admit to never filing, but no one has ever told me just what they were risking. It can’t be considered tax evasion if they don’t owe anything if they did file, can it?
A friend of mine applied for Social Security and mentioned he was working abroad. He said, that they said, the amount he received did not matter. But if worked over 40 hours/week they wanted a piece of it. I thought this was peculiar.
Since Fatca, even a lot of Americans over here who do report their taxes have started putting all of their assets in their Thai wives’ names. The wife and I do that to a certain extent but not because of Fatca. For example, our condo is in her name, not because of Fatca but because Thai ownership requires less red tape than foreign ownership. Plus foreign ownership of units in a condominium is limited, it must be something like less than half the units, so we don’t have to worry about that aspect either. You’d best be able to trust your spouse though – not a few farangs have ended up with a nasty surprise.
Just coming in from the cold after 22 years of not filing. Dual national. Earned zero until two years ago. Part-time student for most of those years and full-time Mom. Now what?! If I come forward now what will happen?! I’ve missed the amnesty. I really have nothing to hide, but feel like hiding.
Just to beat FACTA over the head again - the penalty IIRC for a bank that fails to report is a withholding of 33% on all transactions. Therefore either you report to the IRS or you are excluded from the “club” of international banks or you kick out all your US citizen customers. The last choice is the simplest and least threatening to the business. Presumably the decision to penalize will happen without warning, and any appeals will be made by bureaucrats at their leisure - they are in no hurry to admit their error with a foreign bank. There is no upside to having American customers.
The key change in FACTA was the requirement to report all assets over a certain amount ($100,000?) Many people who use Canadian RRSP’s (much like US’s IRA or 409K) will easily top that limit. The decision to report and put yourself on the radar, or not, was a sudden one - plus try finding an accountant that could do foreign earnings / joint taxes for several years, on short notice.
How would they or your bank know that you are a US citizen? The problem isn’t the people whose parent left decades before you were born - the problem is the people who were born in the USA, but let’s say, left at age 3. Unless you can persuade your current government to lie on your passport, they all contain date and location of birth. If you ever applied for any US immigration documents, you will be in their database. Perhaps not if that was before computers, but those people are getting older and older. Plus, if you show up at the US border with a Kenyan passport and it says birthplace “Hawall” that will certainly make customs wonder. If you fly through, into, or over the USA that information now hits the US system. And so on… As someone said, the IRS can wait. They are in no hurry.
As for “when did the have to start paying?” Is there any evidence they never had to? Most other countries seem to have started with the presumption that you pay taxes on what you earned in that country, and if you are a resident, pay taxes on what you earned elsewhere as well. Logically, to avoid people paying more than 100% tax, credit for taxes paid locally.
Anyone who doesn’t take into consideration that chip in their passport, and that we live in a computer age, is hugely kidding themselves in my opinion.
These records don’t show up, don’t automatically cross reference, etc. YET.
But you gotta know in the not too distant future, they will. Then all these stories of people just blowing off this kind of stuff, will take on a different tone entirely.
It’s a changing world, to be sure, but you don’t need to be psychic to see this coming.
Just for the record, I have been filing US tax returns since I left in 1968. I do not know of any other country that requires non-resident citizens with little or no US income to file tax returns. First all my income was excluded by the FEIE and, since I retired, by the foreign tax credit. So I have never paid any US taxes, save for small amounts on my US bank interest (which generates a tax credit against Canadian taxes). Thus it was a small headache generating no US revenue. One year, they wanted me to pay SS taxes, in clear violation of a tax treaty with Canada. What I did was photocopy the portion of the US tax instructions that said that SS taxes were not payable if you lived in a country that had the equivalent. This was followed by a list of the countries including Canada. I sent it back to them and never heard another word.
All this was relatively benign until FATCA came along. My banks don’t know I am a US citizen and have apparently come to some agreement with the IRS that avoids the paperwork. In the meantime, I have created my own version of the report so that all I need is to update the amounts of money in my local accounts and print out the new one. They have never complained that it is not the official form. Since the information is the same, I also use it instead of the other report I am supposed to use.
thsi is the problem - if the bank of Lower Slobovia, for example, does not realize their customer is a US citizen and fails to file th paperwork - well, they have to rely on the goodwill of some IRS bureacrat ( cue appropriate guffaw) to avoid the penalty. If they make a typo or file late or it’s lost in the mail or misplaced within the IRS, it could trigger the penalty. Then, they are screwed until the IRS invstigates and says “I guess you’re ok”.
If it’s like US softwood lumber tariff on alleged Canadian dumping - that took years to settle, and the USA kept the tax they had collected (illegally, according to GATT and NAFTA). Why would a bank give itself that exposure when all they ahve to do is kick out their American customers.
As I said, the guy whose parent wa born in the USA may never be fingered as a citizen unless he brings it to their attention. However, all the passport applications I’ve seen ask you parents’ birthplace. (Canada and UK) What are the odds this information may not be shared? The cozy five - UK, Canada, USA, Australia and NZ - appear to share an inordinate amount of intelligence, and even do “favours” for each other when local laws prohibit the local agency from capturing data or conversations of its own citizens. How long before they have fingers in each others’ passport databases?
However, anyone born or naturalized in the USA, or has brought their US connection to the attention of the authorities, has probably now been entered in the US database as soon as they fly near or cross the US borders or apply for any papers.
What I would advise you to do is contact American Services at the US Embassy and ask for a list of local tax advisers familiar with American tax law. The US Embassy in Bangkok has such a list handy, and such people are available in Thailand, so I’m sure a place like Britain won’t be short of them either. Talk to one and ask his advice. You may also want to talk to an actual tax lawyer in addition to a tax adviser/accountant, and I have no doubt someone will be available in Britain too. See what they have to say.
I can tell you that as long as you’ve not actually owed anything all these years – i.e., you’re really not a tax cheat – then you’re probably not looking at any heavy penalties if you backfile. But talk to them and see what they say.
Also, if it’s true that you earned zero for many of those years, then you would not have even been required to file anyway. There is a threshold below which you do not have to file. It’s pretty low, but “zero” is definitely below it.
As for how long Americans have been paying income tax, while the first one was levied in 1861, it did not become a permanent feature until the 16th Amendment to the Constitution was ratified in 1913. So 1913 is really the start date, as any of the previous ones were short-lived.
In my case (American citizen born abroad, Air Force veteran from early 80s to early 2000s), my state of residence was the state in which I joined… and I kept that residence since I lived there long enough to consider it “home town”.
You raise another concerning point. I do have 25% ownership in a US property with my parents and my husband (British). He paid for my share and his and like an idiot I insisted that I have my name on the deed. It was his retirement money. All of these years, my father has filed/paid the taxes, but we’ve given him the money for our tax payments. He said there was no need for me to file. I suspect I sound like a fool and I suppose I am - left the US before I really held down a job so I don’t understand the system too well. When following my husband all these years (civil servant moving overseas often), it had not occurred to me to file. In all overseas postings, spouses were not permitted to work so, yes, I truly did earn zero until a two years ago.
I was attracted to Straight Dope because of the tag ‘fighting ignorance since 1973’ - I think I’ve been in that state for as long. What to do. Tax lawyers handling this matter are upwards $800 an hour. I still don’t feel I’ve done anything wrong and wish to do the right thing, but at that kind of cost - I can’t.
