IRS Inconveniences ExPats

WSJ

That line about death and taxes? Both are still unavoidable, even for the 7.6 million American citizens abroad. But now the inevitability is a little more complicated.

The Internal Revenue Service announced in January that it would be closing its remaining walk-in IRS offices within U.S. embassies in London, Frankfurt, and Paris this fiscal year. In November, the IRS shut down its Beijing office. Back in the 1990s, the IRS had offices in 13 countries around the world.

Where does that leave Americans who might have called or visited the offices for questions on their federal income tax? The IRS directs Americans to online tools on its website, covering everything from downloadable forms to a hotline in which expats can call the IRS’s Philadelphia-based International Customer Service site.

The closing of offices is “regrettable,” says Marylouise Serrato, executive director of American Citizens Abroad, a Washington, D.C.-based advocacy group.  Recent changes to the Foreign Account Tax Compliance Act (Fatca) filing requirements have made the process of filing taxes from abroad “a lot more complicated,” Ms. Serrato says. The walk-in offices at embassies were some of the “few resources that were available overseas. Now U.S. citizens don’t have access to those,” she says. American citizens are the only expats in the world who must file income tax reports, unless they renounce their citizenship.

Fatca was intended, in part, to uncover the American tax evaders who might be hiding assets in a Swiss bank account or the Cayman Islands. The additional rules require that foreign banks report the accounts of U.S. citizens to the IRS. One result, say some reports, is the financial institutions dropping the accounts of U.S. expats.

“Where’s the proactive communication to taxpayers?” asks Susan Brown Otto, an international CPA based in New York. “It’s bad enough, it’s complicated enough for people living and working overseas.”

Carol Hipwell, a London-based personal tax advisor with the international tax and accounting firm Frank Hirth, says that the irony is in the timing. “What’s really odd to us is that the IRS is making a huge push to get people compliant, and then there’s no help for them to do that.”

In a statement released in January, the IRS said: “After budget reductions over the last four consecutive years, the IRS is forced to make tough choices during this period of fiscal austerity and these closures have relatively little impact on taxpayers and treaty partners.”

IRS commissioner John Koskinen, during a press conference at the National Press Club in Washington last week, seemed much less optimistic. Budget cuts have created a “truly abysmal level of service,” he said, with more than six out of 10 taxpayers unable to reach an IRS customer service representative. From 2010 to 2015, the IRS said in its January statement, the IRS budget dropped $1.2 billion.

Adding to the confusion, the IRS information on various websites is hard to parse. On the main IRS website, the link for “Contact My Local Office Internationally” explains that the IRS “has full-time permanent staff in two U.S. embassies and consulates,” in London and Paris, complete with walk-in hours listed in both places. But the U.S. Embassy website in London announces that that office “is in the process of permanently closing” and offers links to downloadable forms. The U.S. Embassy in Paris lists walk-in hours, a phone number, an email, and links that revert back to the IRS website, but no details about closing. The U.S. consulate in Frankfurt, Germany, also offers “limited telephone service” and a chance to make an appointment for questions on Tuesdays from 9 a.m. to noon.

The confusion comes about because there is no firm date for the offices closing, says IRS spokesman Eric Smith. “Certainly right now and for the next few weeks” the remaining offices are open, he says. “People can get their questions answered,” he says. Meanwhile, he says the IRS did a survey of American citizens abroad a few years ago and Americans said they wanted more electronic forms and information available.

In addition to the 13 IRS offices around the world in the 1990s, the agency had employees who would travel to different embassies and offer tax advice on a temporary basis, he says. But the IRS has “had to change the way we do business,” Mr. Smith says. “On the other hand, we didn’t have the web back then.” Even the U.S. IRS offices, today around 350, have been cut in half in recent years, he says.

The IRS website does have an enormous amount of useful information, says Ms. Hipwell, but “if you don’t know what you’re looking for, and start cold, it will be hard.”

For foreign citizens who need an Individual Taxpayer Identification Number (ITIN) to do things like sell property in the U.S. or claim dependents on a U.S. tax return, the process could be even more difficult. Ms. Otto, the accountant, says that when she was based in France, foreigners could get an ITIN by getting a notarized copy of their passport and submitting that with an ITIN application to the IRS at the embassy locations abroad.

But now foreigners who need an ITIN have to mail their passport to an IRS office in the U.S. for verification. “What person in his right mind is going to mail his passport to the IRS?” she asks.

They could also verify their passport through an “acceptance agent,” like Frank Hirth, who can sign off that the passport is legitimate and submit their ITIN application, says Ms. Otto. Carol Hipwell in London says that with the changes to Fatca, her company was getting two or three calls a day. “For a while we were just getting so many calls, we were sending them all to the embassy,” she says.

Now, though, she says, “We get multiple calls every day. People have not been filing, or they need to get caught up. We still see people who came overseas and didn’t know they needed to keep filing” tax returns, she says. In addition, her firm sees “a ton of late filers. Or they have a file that they didn’t know that they should have added in some things about their overseas accounts.”

“Having that embassy support – people could use it,” Ms. Hipwell says.

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