December 21st, 2011
Econintersect: There are approximately 7 million Americans living abroad, according to Wendy McElroy, writing at Whiskey and Gunpowder. And some of these have no idea that they are American citizens. An example provided by McElroy concerns a 48-year old woman living in Canada who was born there to American parents and has lived there her entire life. Julie Veillieux only recently learned that she held dual citizenship. It may not sound like a life-changing discovery but Veillieux owes the IRS thousands of dollars in penalties as an American citizen living abroad, even if it turns out she doesn’t owe the U.S. any taxes. Such individuals are required to file U.S. tax returns annually and many don’t.
McElroy says that according to the IRS, only 6% of Americans living outside the U.S. comply with the tax law (400,000 returns each year from 7,000,000 individuals). How many of these don’t even know they are American citizens is not discussed in the article.
From Whiskey and Gunpowder:
Americans and dual citizens living in Canada (or elsewhere) who do not disclose their local checking account — now labeled by the IRS as “an illegal offshore account” — are liable for fines that stretch back 10 years and might amount to $100,000. A family, like the Knolls, in which there are two American parents and two dual-citizen children, might be collectively liable for $400,000.
The Knolls refers to another example discussed by McElroy of an American couple that has lived in Canada since before their teenaged daughters were born, so all four are U.S. citizens under U.S. law. The Knolls, and millions of people like them, are vulnerable to arrest should they ever again set foot on U.S. soil.
The reason for the new attention to Americans abroad is the budget deficit. There can be billions of dollars of revenue forgone in this area. From the article:
So far, the IRS push into foreign territory has been a rousing success by their own standards. In 2009, the IRS offered “amnesty” — that is, lessened but still hefty penalties — to whoever stepped forward to disclose foreign bank accounts. According to Fox Business News, the 2009 program netted
“the government $2.2 billion in tax revenues…and $500 million in interest from the 2011 program, for a total of $2.7 billion…Moreover, the IRS says it has yet to reap penalties from these evaders, which could rake in hundreds of millions more.”
IRS Commissioner Doug Shulman stated:
“we are in the middle of an unprecedented period for our global international tax enforcement efforts. We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”
Source: Whiskey and Gunpowder