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Dual citizens fear wrath of IRS

Americans living abroad and dual citizens could owe penalties even if they don't owe back taxes -- and that possibility may prevent many from stepping forward.

By MSN Money Partner Dec 30, 2011 7:56PM

This post comes from Laura Saundersat The Wall Street Journal.


A recent Wall Street Journal Weekend Investor cover story -- "What's next for offshore accounts?" -- touched on a burning issue: the plight of dual citizens and Americans living abroad who should have been filing U.S. tax returns but haven't been.


Many of these people are fully compliant with their own country's tax laws. Yet all are supposed to be filing U.S. returns and declaring the foreign accounts, for two reasons.


One is that the U.S. system taxes all worldwide income, regardless of source. (Double taxation is lessened by a U.S. tax benefit and also by tax treaties.) The other is that Congress, alarmed by reports of international tax evasion, passed a law requiring U.S. taxpayers to report accounts abroad or else risk harsh penalties.


Many nonfilers remain, especially among U.S. taxpayers abroad. The Internal Revenue Service receives 1.6 million returns from foreign addresses annually, including some from military personnel. The State Department estimates that more than 6 million citizens live overseas, excluding those in the military.


Since 2009, only 30,000 people have stepped forward to confess having undeclared foreign accounts under two IRS limited amnesties specifically for offshore accounts. Even after allowing for dependents and spouses who file joint returns, there's a large compliance gap.


This is especially true in Canada, where many dual citizens haven't known about their U.S. tax filing requirement. They range from farm wives to New Brunswick Premier David Alward, who was born in Beverly, Mass. Post continues below.

One reason many haven't stepped forward is fear of large penalties. To be accepted into the IRS's limited amnesty and be assured of avoiding criminal prosecution, some confessors had to agree to a possible 25% penalty on the highest value of all their foreign assets since 2003, not just bank accounts. "These penalties could cause financial ruin, even if little or no tax is owed," says Marylouise Serrato, executive director of the Geneva-based American Citizens Abroad.


Last week the IRS published a fact sheet aimed at these nonfilers: Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.


The notice offers a bit of comfort, saying, "Note that penalties will not be imposed in all cases." It even suggests that those who owe no tax and did not know about required foreign account reporting may escape one of the harshest penalties if there was "reasonable cause."


Barbara Kaplan, an attorney with Greenberg Traurig in New York, says the IRS notice is "a small step in the right direction."


"Many expatriates still owe some tax because of the alternative minimum tax," she says, "and we'll have to see how the IRS interprets 'reasonable cause.'"


More on The Wall Street Journal and MSN Money:


Dec 31, 2011 1:15AM
The IRS is a den of lying thieves. Stealing money every which way.
Jan 1, 2012 5:03AM

Why should we pay taxes to a government who gives it away and spends it so freely that we are 14 trillion in the hole and then they come back to the poor tax payer to pay up.


The IRS can go to hell in my books with this so called great government of ours!!!!!!!

Jan 1, 2012 12:11PM
I will say this...if I (as an American citizen) am working in Vietnam...I should not be required to pay taxes to the US...since I had to leave the country to find work...and am not utilizing the State's services.
Jan 1, 2012 5:22AM

The cost of this huge out-of-control animal has become so much that it has to create the right to tax money from every available corner.   Think about it -  Sally the waitress in Paris pays France an income tax and then owes something to the US (just because she does not renounce her citizenship).   Pleeeezeee. 

What is really cool about the IRS code and some of the letter rulings is that it really goes after people who have no general constituency.   Making money in foreign country - who cares - tax them!    Same is true for people who gamble and for small time independent consultants.   But if you are a big oil company or a big bank - then watch the IRS bend over and kiss your ****.  


Some days I really am ashamed of the USA.

Jan 1, 2012 6:48AM

I hate to be the one to say it, but this nation is turning into it's very own abortion. US is the only country on the face of the earth where you have to pay taxes to both countries when you live abroad.

Frankly, I fear the IRS far more than any terrorists. The tax code is corrupt, and who the hell understands it. Look at the people writing it, Congress with it's 5% approval rating. Notice THEY can insider trade, and give themselves tax breaks but don't YOU be late with your cash.


Are you feeling your "freedom" and "liberty"? If I could at least have fries with mine it would be something at least. This is getting disgusting.

 People are dealing with this by deciding it's easier to renounce your US citizenship than to pay taxes twice. Renouncing is your only way to break your shackle and lock.

Our elected leaders have renounced their oaths of office to uphold the COnstitution in the performance of their duties, so sadly a new day is dawning in America.

Jan 1, 2012 9:47AM
i guess this law only applies to it's citizens, god forbid american companies pay taxes on money made abroad, hell they don't even pay taxes on money made in the country, thanks to bought and payed for politicians

the irs goes after the citizen and wants them to pay taxes on their world wide earnings.    but the irs won't do the same for corporations.

what hypocrisy.  is it really worth being a u.s. citizen?   being one means you have to pay to do so. 

and yet many illegals do just fine in this country without paying taxes.

Jan 3, 2012 10:02AM
If you worked in the U.S, then you should file taxes. However if you are living and working outside the U.S, you shouldn't have to file taxes except in that country. The government has been ripping off the U.S citizen's for to long. Maybe if they realize that they're the one's that need a pay cut,  quit raising taxes fo make up the difference,and the oil companies quit raising gas prices, maybe then and only then will everything else fall into place
Jan 3, 2012 10:49AM



Lots of stupid lemmings out already this new year.  I see my wish for world intelligence went unanswered again.  *Snap*


So let me state this so that I have the monkeys position correct.


You reside outside the US but are a US citizen, or are a dual citizen.  You make money and live in a foreign land.   Yet simply for the privilege of having that citizenship you have to pay for eternity a byzantine government, called the US, a percentage of your income, regardless of if you actually utilize any of the services of this country?  If you read the story you realized that even a Premier in Canada this penalty would qualify against.  That alone should tell you how incredibly silly this entire thing is.

Are you people stupid?  Wait, already answered, never mind. 


Jan 1, 2012 11:50AM
I have travelled around the world and what I've found lowers my opinion of our freedoms in the US.  There are few other places in the world that make it as difficult to open a new bank account, fly on an airplane...or do any routine things someone needs to get done.  It is truly remarkable how "the land of the free" is so very un-free and encumbered by a law against nearly everything...or those that require you to jump through a bunch of silly hoops.
Jan 1, 2012 9:37AM
Past time to get rid of IRS and replace 16th amend with a Fair Tax.  Flat, simple, consumption tax.  IRS needs to go.
Jan 1, 2012 9:53AM
@cowgirl...  overseas absentee ballots ARE not counted...  I was in the USAF stationed overseas fro 1996 until 2011 and saw this first-hand...  It became public knowledge that ballets were not considered/counted during the 2000 presidential race.

taxation should not equate to citizenship....  Last time I checked it meant what was on your birth certificate or citizenship change application.   Money is the root-evil and the central problem of the USGOV.  Who prints money, without collateral (i.e. gold) to back it...  Answer, the corrupt USGOV.

BTW, being a patriot does not mean being loyal to an elected official or government.  i sure as hell am not loyal to the pres or congress as they are all self-serving.

Jan 1, 2012 5:15AM
I would say the hell with the USA for it is now owned and operated by Banksters.  The Government is nothing but a sorry ****''' puppet with strings leadin back to Wall Street.
Jan 3, 2012 1:44PM

Lets see... I fI understand this correctly.  Only 2 countries in the world require their citizens to pay taxes although they no longer reside in their country of birth or naturalization.


The USA and North Korea.  Wow... I guess all the other countries of the world respect the citizenship of their people?

Jan 1, 2012 9:44AM

I wonder when Americans will figure out that their government is out of control and power mad. And they want your money to fund it, whether you live here or not. Any legal hook they can use, to make you pay for the machine, they will.


Free country my behind.. NWO is more like it...

Jan 1, 2012 12:26PM

This issue can be settled permanently based on the fact that the Constitutional amendment regarding income tax was NEVER ratified by enough of the State legislatures to become law!!!!! 

But because the US government wanted to begin collecting the income tax they went ahead and stated that the amendment had been passed - which is an outright falsehood!!!


Which means that NO ONE is required by law - because no such law exists!! - to pay ANY amount of income tax to the US government!!  And the other side of that coin is that the US government should be required to refund ALL the money the IRS has stolen from the US taxpayers over the years......


Do the online research and find out the truth for yourselves!!!!  The IRS is a protected form of organized crime working for the US government operating a protection racket.  Either you pay what they say you owe or the IRS will hound you and intimidate you, steal your house and bank accounts and whatever else they can think of.  AND GET AWAY WITH IT!!!!

Jan 1, 2012 12:08PM

If you have dual citizenship and the money you make is made abroad, then there is no reason to pay taxes to the US Gov't. The states and the federal gov't is totally broke, so they are trying to grab at any dime they think they are owed ..... even if they aren't owed the money. If you're citizenship is in a country like Australia or Canada ... then who cares about paying the IRS. Tell the IRS that you can take your US citizenship and stuff it!!!


Especially if Obama is re-elected!!!

Jan 1, 2012 3:11PM
" When you come here for naturalization you swear to renounce all former citizenships"

No you do not.
Maybe that happened in the past. I don't know.

You are required to pledge allegiance to the U.S. before any other country but are not required to renounce your other citizenship.

I am a case in point.
Jan 3, 2012 8:52AM
They let corporation get away with no taxes because their home office is in another country that has a cheaper corporate tax level.So I guess they want us to give uo our citizenship and stay somewhere else.Well I guess that's what we will do. Goodbye IRS
Jan 3, 2012 11:34AM
Pardon me, while I bend over a bit further. We all should be fed up with this molestation.
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