IRS Taxpayer Advocate’s Purple Book Addresses US Expat Issues
Recently, the IRS Taxpayer Advocate published its “Purple Book” for the 2018 tax year. The publication is a compilation of the Taxpayer Advocate’s “legislative recommendations to strengthen taxpayer rights and improve tax administration.”
The Taxpayer Advocate is an independent office within the IRS tasked with helping people resolve tax issues with the IRS and recommending changes that will prevent future problems. It’s always interesting to hear the point of view of the office responsible for taking the IRS to task for its missteps in handling taxpayer issues.
The 2018 Purple Book has three specific recommendations that are relevant for U.S. expats:
1. FATCA-FBAR Harmonization
First, to ease the compliance burden on U.S. taxpayers with foreign concerns, the report recommends that the IRS harmonize reporting requirements for taxpayers subject to both FBAR and FATCA by eliminating duplication on the FATCA form.
This is quite relevant for U.S. expats with substantial assets overseas, who are often required to report the same information (e.g., foreign bank accounts) on the FBAR form and the FATCA form 8938. A harmonization of the forms would certainly ease this compliance burden. It could eliminate the Form 8938 requirement altogether for many expat taxpayers.
2. FATCA Reporting “Same Country” Exception
Second, the report recommends an even more sweeping change, namely to provide a “same country” exception to FATCA for both U.S. individuals and foreign financial institutions (e.g., foreign banks) for reporting financial accounts held in the country in which a U.S. taxpayer is a bona fide resident.
The Taxpayer Advocate states that this would reduce the compliance burdens on foreign banks, some of which now decline to do business with U.S. expats because of the significant costs and risks associated with ongoing FATCA compliance.
3. Extension of Time for U.S. Expats to Answer the IRS
Third, the Purple Book proposes that the IRS give U.S. expats additional time to request an abatement of a math error assessment equal to the additional time extension allowed when responding to a notice of deficiency. Currently, all taxpayers, even those living abroad, must respond within 60 days to a math error assessment, or forfeit the right to file a petition in the Tax Court.
The Taxpayer Advocate recommends an extension for U.S. expats of 60 days, for two reasons. First, mail delivery takes longer in both directions, and second, individuals at least temporarily abroad often do not have access to their tax or financial records, making it difficult, if not impossible, to respond to the IRS in time.
Takeaway for U.S. Expats
The Taxpayer Advocate’s recommendations underlie the current reality that filing U.S. taxes as an expat is no easy task under the current rules.
Expat taxpayers are particularly susceptible to errors because of the complex international issues and additional reporting requirements that can significantly affect the tax return of a U.S. citizen living abroad. On the flip side, there may be a number of unused provisions available to expat taxpayers that can reduce the tax burden or even generate a refund from the IRS.
For these and many other reasons, when it comes to filing taxes in the U.S., your best bet is enlisting the help of an Expat Tax Professional.
By Joshua Ashman, CPA & Nathan Mintz, Esq.