Happy New Year, from the IRS.If you have an US passport and you have not yet filed your US taxes up-to-date there may be a surprise waiting for you as you try to enter the US… Have you heard about FATCA?
Beginning January 1st, 2016. IRC 7345 kicked in which allows the IRS the ability to share information on delinquent tax accounts with the State Department and the State Department gains the authority to deny or revoke the passports of US citizens who owe more than $50,000 in taxes to the US government, or, if there is no Social Security Number (SSN) associated with their passport.
As with much of the recent IRS global tax grab legislation, this addition to the Internal Revenue Code has a lack of clarity on how the statute will be enforced and ambiguities in use of the term “seriously delinquent tax debt.”
Does the vagueness of that term mean this legislation is aimed at current US Persons who know they owe taxes and have known for many, many years, or was that language intended to be so vague that it could also apply to dual-citizen Canadian snowbirds, forcing them to file and pay or risk losing their US passports.
As well, if the IRS was really concerned about the delinquent tax filers, why set the threshold at $50,000, which is a relatively low monetary threshold if that amount includes both penalties and interest.
Unlike Canada, there are filling requirements for US Persons of not only their annual tax returns, but also a requirement to provide annually to the IRS a Foreign Bank Account Report (wow called FinCEN 114) and penalties for failing to provide those can add up VERY quickly!
Getting filed up-to-date with the IRS and remaining up-to-date is now even more important for US Persons because of the passport denial and revocation provision. Even though not part of FATCA, SSN’s are required for US citizens to file their tax returns, so by making the SSN a requirement to hold or renew an US passport the US government has found a tool to get chronic non-filers into the IRS system.
Even more interesting is that there exists a requirement that US citizens use only US passports for travel to and from the US, so any US person who enters or leaves the US without using their US passport do so illegally. This is particularly important for Canadian residents, not only because many travel frequently to the US, but because of the large number of US persons with permanent residence in Canada.
So it is likely that any US person would be warned first about travelling to and from the US without a valid US passport, and after providing their address, would then receive their official notice of your tax debt letter from the IRS, and then be subjected to passport seizure the following trip, but the SSN requirement does not provide such leniency, and in fact, poses a larger problem for US persons who need to get a SSN because of the lengthy requirements needed to do so.
For example, US persons who were born outside the US, or who left the US at a very young age and do not / no longer have proof of US birth (like a birth certificate) will need a passport in order to apply for a SSN. Unfortunately, without a SSN, they cannot apply for an US passport.
Additionally, for US persons living in Canada, it’s not so easy to pick up and head across the border to a SSN office in order to get your SSN because of the potential trouble at the border whereby a passport might be seized for failure to have a SSN…
Nonetheless, the IRS wishes you a Happy New Year and hope that you have everything filed by April 15th, 2016… Or else!
If you need US tax returns completed, please contact us at email@example.com and we can put you in touch with our recommended US tax preparers.