The long arm of the US Internal Revenue Service is getting longer and longer with the help of computers.
So if you are a U.S. expat living in Dumaguete City, and think you do not need to think about your U.S. taxes, you are wrong. The world is getting smaller with the aid of computers.
In addition, more and more governments around the globe are working with each other to catch tax cheats.
The US stands alone as the only major country in the world that taxes its citizens wherever in the world they live, for as long as they live, unless they renounce their American citizenship.
But ironically, the IRS announced in January that it intends to close this year the last three of its overseas taxpayer-assistance centers in London, Paris, and Frankfurt.
One would think the IRS would want to give more assistance to expats living outside the U.S. to deal with the complex tax issues they have to deal with.
The U.S. State Department estimates there are about 7.6 million American expats living abroad like the Philippines, excluding military personnel.
The IRS typically hears from fewer than a million of them. This is a good indication that many who owe U.S. taxes aren’t paying them.
Unfortunately, the IRS has no idea how many are breaking the law by not filing their tax returns.
Until recently, the IRS did not have the ability to estimate how many expats may have a filing requirement. An IRS publication of projected tax returns for 2014 suggests that only about 938,800 1040, 1040-A and 1040-EZs will be returned from outside the 50 states.
As a result, the IRS has taken a lot of flak for this lackluster number.
The ability of the IRS to track down taxes owed by expats has been impeded by the unknown number of U.S. taxpayers living abroad who use a stateside address when filing their returns.
It’s also impossible for them to know whether earnings from abroad exceed the threshold to require a U.S. tax filing (for 2014, $10,150 for a single person under the age of 65; $20,300 for couples filing jointly).
This is changing. The IRS has been aggressively signing agreements of co-operation with foreign governments. Basically, these agreements indicate that the host country can provide information about American citizens living in their country, and that the US will also provide information to the Philippines about Filipinos living in the U.S.
Also, the bank secrecy laws are breaking down. As a result, the IRS is now able to obtain a substantial amount of information about U.S. citizens’ assets located outside the U.S. that was not available a few years ago.
All of which makes it hard to avoid your U.S. tax liability. And it is going to get harder to avoid your tax liability. If you get caught not paying your taxes, the penalties can be severe. Do not say you were not warned.
