The IRS to Seize 362,000 US Passports
Christian Reeves

The IRS to Seize 362,000 US Passports

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The IRS plans to seize 362,000 US passports by refusing to renew passports of anyone with a substantial tax debt and now controls who is allowed to travel abroad. In this article, we’ll look at who is affected by this newfound authority and what you can do to protect yourself from the IRS.

Giving the IRS authority over your passport means that the taxman has the right to determine who travels outside of the country. Only those who have paid unto Caesar what he claims they owe shall be granted the privilege of international travel.

This represents a major change in how the United States government looks at the passports it issues. Americans have thought of a US passport as a birthright… or a right conveyed upon the select few who complete the immigration process. The passport tells the world that we are American citizens and gives us freedom of movement.

This all changed when the IRS asserted control over who is allowed a passport. As of today, a US passport is no longer a right, it’s a privilege. Only those whom the IRS deems worthy may travel. Only those who have paid their taxes are allowed to live and work outside of the country. Only those with clean tax accounts may visit family abroad.

Rest assured that the IRS will use your passport as a weapon to collect whatever taxes they believe you owe. If your passport is frozen because of a tax debt, there’s only one way to get it back. You must pay your debt in full.

Sure, you still have all the rights and protections you had before when battling the IRS. If you wish to dispute the amount owed, you’re free to do so. You can fight it out with the revenue officer, appeals, and finally the US Tax Court or in Federal Court.

But, this will take time. In my experience, an easy tax dispute case takes 6 months. A complex case, especially one involving a large amount of money, can drag on for years. Go to court and you’re looking at 3 to 4 years from the Notice of Deficiency to a resolution.

During this time, your passport will remain frozen. If you’re a US expat living and working abroad, can you really afford to return to the US for months or years to fight it out? Or will you be forced to pay up to get your passport back?

And what about us expats when the IRS begins revoking current passports? So far, the Service has only frozen passports, which means they refuse to renew a passport which has been lost or has expired. But the law also allows the IRS to revoke the passport of anyone who owes the IRS a substantial amount (more than $51,000).

If you’re an American abroad, and your only passport is revoked, you’ll be forced to return to the United States to settle your debt.

In most cases, expats learn of the loss of their passport when they attempt to enter a country and are refused. If this happens, you will be held in “airport jail” until the next flight to the United States. You will then be forcibly placed on a plane and sent home.

Yes, you will be the first fight to anywhere in the US. Whatever happens when you land, and how you pay your expenses once there, is your problem. If you have no family or friends to take you in, best of luck. When your only passport is revoked, the airline is required by law to return you to your home country for free, so they can give a damn where you’re dropped off.

You have no right to appeal or to an attorney. Because you were not allowed to “enter” the country, you have no legal rights. You are not being deported, you’re just being refused entry. The ONLY option at this point is the first flight back to your home country.

And I expect this to become standard practice by US agencies. Now that the government is treating your passport as a privilege rather than a right, I expect other agencies to take notice and get in on the money grab. What about expats with student loan debt, back child support, state taxes, or any number of other debts payable to government agencies?

Here’s How to Know if Your Passport’s Frozen

Basically, anyone who owes $51,000 or more to the IRS will have their passports frozen. This includes tax. interest and penalties. Thus, it’s very possible for a debt to have started out at $20,000 or so and to have grown to more than $51,000 with interest and penalties over a few years.

Also, any expat with a penalty for failing to report their foreign bank account (to file the FBAR form) or any of the offshore reporting forms (5471, 3520, etc.) is likely over the $50,000 limit. These penalties are often $50,000 not including taxes due.

Likewise, anyone who hasn’t filed their US returns should be worried. If the IRS computers have any information on you, they will create what is called a Substitute for Return on your behalf. These computer-generated returns create a tax debt in the system. This automated debt, plus interest and penalties, will then be used to freeze or rescind your passport and your travel privileges.

Quite a few expats end up in debt to the IRS computers because they don’t file their returns The biggest concern is with expats who have unfiled returns and a US brokerage account. The expat earned a small amount of money abroad or maybe was retired. He also had a small gain or loss in his US brokerage account.

The bottom line is that he didn’t think the gains were significant enough to bother filing a tax return… and he would be wrong, very wrong.

Your brokerage reports only sales to the IRS. That means IRS computers see only half of the transaction, the sale. They don’t know how much you paid for the stock and don’t know that you lost money unless you file a return.

You may have sold $1 million in stock for which you paid $1.2 million. You really lost $200,000, but the IRS computers calculate your tax due on a gain of $1 million! This happens all the time, especially with volume traders. A day trader could have used the same $100,000 in cash to generate millions in sales and still lost money at the end of the year.

In these cases, the expat doesn’t file a return and doesn’t receive any of the letters the IRS sends to his last known domestic address. Then the IRS computers take the sale data and create a wildly inaccurate Substitute for Return and a massive tax bill.

A few years pass and the expat mails in his US passport for renewal. Instead of getting a new passport back, he receives a letter saying is passport renewal is rejected and that he must resolve his tax debt in full before he applies again.

As I said above, 362,000 Americans have had their passports frozen and renewals rejected. So far, we’ve only seen renewal rejections. God help us expats when the IRS begins to revoke passports to force us home.

Per the IRS website, If you meet one of the following criteria, your passport won’t be revoked nor your passport renewal denied:

  • Being paid timely with an IRS-approved installment agreement
  • Being paid timely with an offer in compromise accepted by the IRS, or a settlement agreement entered with the Justice Department
  • For which a collection due process hearing is timely requested regarding a levy to collect the debt
  • For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made

Additionally, a passport won’t be at risk for anyone:

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

What Can You do to Protect Yourself

First, don’t lose your passport! If you owe money to the IRS. You won’t be receiving a new passport until your debt is paid in full. Be very careful with your travel document.

Second, move your investments and IRA accounts out of the United States to prevent them from being used to create an automated tax debt. Form offshore structures to hold accounts and maximize both privacy and asset protection. This also protects the accounts from being seized by the IRS.

Third, file your delinquent returns to get right with the IRS and continue filing each and every year going forward. Be sure to report the structures and accounts I suggested you create in #2 above. Even if your gains are small, all US expats should file their returns to prevent the IRS computers for doing it for them.

Fourth, take steps to protect your status as an expat while you have a valid passport. You can do this by a) securing a residency visa in the country where you live, and/or 2) by purchasing or otherwise acquiring a second passport.

A second passport gives you freedom of movement should you lose your US passport. With a second passport, you can leave the United States and travel to any country that grants you entry without a visa. Thus, the more visa-free countries you have, the more valuable the passport.

For example, you can purchase a passport from a country like Dominica for about $125,000. This will give you visa-free access to 122 countries. This second passport program can be completed in a few months

If you want an EU passport, consider Bulgaria. Purchase just over $1 million in government bonds and receive residency immediately and citizenship in about 18 months. This passport will give you visa-free access to 169 countries and territories.

In contrast, residency allows you to live in a particular country and to “earn” a second passport over a number of years. Once you have permanent residency, you won’t be forced out if you lose your passport. You won’t be able to travel, but you can’t be taken back to the US to pay up… you can negotiate from a stronger position and settle your tax debt from abroad on your terms.

The easiest country for a US citizen to obtain residency is Panama. Invest $20,000 in Panama’s reforestation visa program and get residency. You can apply for citizenship and a passport after you’ve been a resident for 5 years.

Keep in mind that you must have a valid US passport to apply for a second passport, citizenship or residency. Once your US passport has expired or has been revoked, you’re stuck. You will need to take action well in advance to protect your right to travel.

Fifth, the only country you can enter without a passport from the United States is Mexico. Any time you travel to a foreign country by air or sea, you must present a valid passport. So, if you fly into Mexico, you must have a passport.

The only exception is when you drive into Mexico. No passport is required and no checks are performed. Then, once you’re in Mexico, you can take a domestic flight to any city in the country using only your valid ID (such as a US driver’s license).

So, anyone who loses their passport can travel throughout Mexico so long as they enter at a land crossing.

The above on Mexico is based on years of personal experience and not a statement of the law. You should have a passport with you, valid or otherwise, but, once you’re in, you can travel throughout the country on your driver’s license.

I hope you’ve found this article to be helpful. For more information on a second residency or second passport, or to be connected with an expat tax expert, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

The IRS will end the Offshore Voluntary Disclosure Program
Christian Reeves

The IRS will end the Offshore Voluntary Disclosure Program

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The IRS will end the Offshore Voluntary Disclosure Program on September 28, 2018. If you haven’t come forward by that time, you’re out of luck. In fact, the IRS has already begun to ramp down the 2014 Offshore Voluntary Disclosure Program and it’s becoming more difficult to get cases through.

From the IRS website, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

And the Offshore Voluntary Disclosure Program has been a real cash cow for the Service. Since 2009, more than 56,000 Americans have used the program, paying $11.1 billion in back taxes, interest and penalties to keep the IRS from pressing criminal charges.

Of this number, about 18,000 people came forward in 2011. The number of taxpayers using the Offshore Voluntary Disclosure Program has steadily declined with only 600 applications in 2017.

What I call the Mini Offshore Voluntary Disclosure Program brought in another 65,000 Americans living abroad. Properly termed the Streamlined Filing Compliance Program was focused on American expats. Those who might not have known of their US filing obligations and want to get back into the US system.

It appears that most Americans have fallen in line and paid over to Caesar what he claims as his. This, and Foreign Account Tax Compliance Act (FATCA) have made the Offshore Voluntary Disclosure Program obsolete. The government has taken all it can from Americans and is now looking to new sources.

The Offshore Voluntary Disclosure Program, like the attack on crypto traders, was based on fear. The US IRS charged a few people in each big city and each state with crimes for having an unreported account. These criminal prosecutions got the Service all the free press they wanted and, as a result, thousands of people came forward voluntarily.

The Offshore Voluntary Disclosure Program was the most efficient and cost-effective marketing campaign in history. And it seems that the IRS is going to deploy the same army against crypto traders in 2018.

See Top two max privacy options to plant your flag offshore

The bottom line is, if you have an unreported offshore bank account or undisclosed assets, you must file for the Offshore Voluntary Disclosure Program now. Time’s up… no more delay and no more debate. It’s time to come clean or accept the risks.

From the IRS website: “Complete offshore voluntary disclosures conforming to the requirements of 2014 OVDP FAQ 24 must be received or postmarked by September 28, 2018, and may not be partial, incomplete, or placeholder submissions. Practitioners and taxpayers must ensure complete submissions by the deadline to request to participate in the 2014 OVDP.”

Note that, US expats and citizens living abroad should probably use the Streamlined Program and not the Offshore Voluntary Disclosure Program. This article considers ONLY the Offshore Voluntary Disclosure Program.

The purpose of the Offshore Voluntary Disclosure Program is to allow US resident taxpayers to come forward, report their foreign accounts, avoid criminal penalties, and reduce civil fines. Those who come forward will pay the tax plus interest on unreported foreign income.

In addition, they’ll pay an accuracy penalty of 20% and a 27.5% offshore penalty. See IRS FAQ 8 for a detailed calculation. In the example, coming forward cost the taxpayer $553,000 vs being liable for well over $4 million had the IRS been forced to track him down.

These taxes and penalties are calculated on the last 8 tax years for which the filing date of the return has passed. For example, if you were to file an OVDP in July 2018, you would amend and pay taxes for 2017, 2016, 2015, 2014, 2013, 2012, 2011, and 2010.

This is to say, you are to amend your personal income tax returns for these years. You will add on to the return any foreign income, such as interest, rental, business, etc. You will also add on any missing foreign entity forms, such as the Form 5471 and 3520. Finally, you will prepare an FBAR form reporting ALL foreign accounts.

Once all of this is ready, your tax preparer and a representative will prepare an OVDP application that includes a letter of explanation of the facts and circumstances of your situation. Again, all of this must be mailed by September 28, 2018.

I hope you’ve found this article on the ending of the Offshore Voluntary Disclosure Program to be helpful. For more information and to be introduced to an expert who can assist you with an OVDP or Streamlined Program, please contact us at info@premieroffshore.com or call us at (619) 483-1708  for a confidential consultation.

IRS can take your passport
Christian Reeves

Expats, the IRS is Coming for your Passports

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Back in December I told you the IRS has the power to revoke your United States passport for past due debts. Now I’m telling you that the IRS has begun its attack on American expats… that the battle for your passport on… that the IRS has set the field and the first shots are about to be fired.

Here’s my original article: Warning: The IRS Can Now Revoke Your Passport (posted December 9, 2015)

To read the bill that takes away your freedom of movement, see: H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act (signed by Obama on December 5, 2015)

As you read my comments below, remember that a United States passport is a privilege, not a right. Your government can take it away from you for any reason it sees fit.

The IRS has begun working with US Embassies and Consulates around the world to deny and revoke passports of Americans abroad who have not filed or owe the IRS.  If you are living outside of the United States, the IRS is coming for your passport.

Per this post from the The United States Embassy in Brazil, as of October 1, 2016, anyone attempting to renew their passport through the Embassy will be required to provide a Social Security number. That number will be used to review your IRS records before approving a passport renewal.

This means that, anyone who owes more than $50,000 to the IRS will be denied a passport. If you’re caught by local authorities without a passport, or overstaying your visa, you will be removed from the country and returned to the United States to face the collector.

It also means that anyone who has not filed their tax returns will likely have their passport renewal denied. Here’s how they will take your passport for not filing:

The law says your passport can be revoked or denied if you owe more than $50,000. When the IRS finds out that you are abroad and have not filed, they will prepare a Substitute for Return for you. They’ll estimate your income and assets and all manner of penalties, such as FBAR and offshore financial statement, and generally guesstimate a tax bill for you.

The resulting “substitute” balance due will certainly exceed $50,000. Thus, the Service will withhold or revoke your US passport for failure to file after inventing that phantom tax bill. You will be left with one option – return to the United States and negotiate a settlement.

It should be clear to everyone that the US IRS is waging a war on expats. The government wants to limit your freedom of movement and your right to live, work, invest, and hold money where you see fit.

Assuming you’re not the type to bow down, bend over, and be herded back to the United States like a lamb, what can you do to protect your right of self determination? What can you do if your United States Passport is revoked by the IRS?

You must have a passport to travel from place to place and live in any country outside of the United States. Also, a valid passport is often the only acceptable form of identification. Without it, you won’t be allowed to open bank accounts, transact business or execute wire transfers.

The best way to protect yourself from your own government is to buy a second passport. Many small nations sell citizenship and second passports. If you have a second passport, you have a safety net regardless of what happens with your US passport.

Here are a few of the best second passport options for Americans. For a more complete list, see: 10 Best Second Passports and Citizenship by Investment Programs For 2016

As you can see, a second passport is expensive. The next best option is to become a permanent resident of your country of residence. For example, if you’re living in Panama, you can become a permanent resident by investing $20,000 or setting up a business in the country.

Becoming a permanent resident will allow you to remain in the country no matter what happens with your US passport. But, a few words of warning:

  • You won’t be able to travel outside of your country of residence without a passport.
  • You won’t be able to renew your residency (if applicable) without a valid passport.
  • You must complete the residency process before your US passport is revoked or expires.

Buying a second passport can be completed in about 90 days once your documents are submitted. Becoming a permanent resident is usually completed in stages, often requiring a 2 year period as a temporary resident.

I also note that both of these processes will require a clean report from the FBI. Click here for more on how to request this report. Typical processing time is 60 days.   

Considering how aggressive the IRS has become in the last year, and the time it takes to process residency or a second passport, I suggest anyone concerned with the IRS, or the state of our government, should take action immediately. Once your US passport is gone, it’s too late to protect yourself or your family.

I hope you’ve found this article on the IRS coming for your passport to be helpful. For more on how to buy a second passport, or obtain residency in Panama or Mexico, please contact me at info@premieroffshore.com. All consultations are confidential and free.

Private Tax Debt Collectors
Christian Reeves

Private Tax Debt Collectors Hired to Track Down Expats

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Back in 2015, the US government mandated that the IRS begin passing cold collection cases off to debt collectors. Last week, those contractors were hired and tax information sent out.If you owe money to the IRS, your private tax data is now in the hands of a third party collection agents.

You can now expect harassing calls, emails, and visits from collection agents after October 15, 2016. This is the next tax deadline and it’s common for the Service to launch new programs around this time.

Your collection case will be sent out to a private debt collector if:

  1. The IRS is unable to collect or work your case because of a lack of resources or because they can’t locate you or your assets.
  1. More than ⅓ of the statute of limitations has passed and no IRS employee has been assigned to your case. The collection statute is 10 years, so this means that about 3.5 years have passed without your case being worked.
  1. Your tax matter has been assigned for collections, but more than a year has passed without any interaction. This means you are ignoring their letters and they have not bothered to visit you at home or work.

This development is especially troubling to the expat. The IRS is outsourcing collections to agents who might be willing to make the effort to find you and your assets, where an IRS agent is not. Also, it eliminates the protections afforded by standard IRS operating procedure.

Namely that the IRS will contact you by mail or in person, never by phone. If you’re living abroad, and your assets are protected, there was little chance you’d be harassed. Those days are gone because independent collection agents are allowed to use any and all tools at their disposal.

The reason the IRS doesn’t contact taxpayers by phone is simple: it opens up the collection process to scammers. The IRS could give a damn about bothering you at dinner… they’ve been known to show up at people’s work just to embarrass them. Agents don’t call because it creates more headaches and risks… the costs greatly outweigh the benefits.

Private debt collectors are not required to follow this precedent. They can call you at all hours of the day and night and harass the hell out of you. And you can expect the scammers to be following closely behind.

For years the IRS has warned of debt collection scams. Just last week (October 6, 2016), the US shutdown a call center in India that managed to scam taxpayers out of $47 million.

The week before, a student was conned into putting $1,762 on iTunes cards to pay IRS. The “collection agent” kept calling and calling until the student gave up and gave in. For more on the story, see ABC News.

You’ll find these phone scams all over the IRS and FTC sites. Allowing private debt collectors to skirt the procedures in place will only embolden the scammers.

Considering the above, and the new passport rules, expats with tax debts or unfiled returns are big time targets of the IRS. If you are at risk, you need to take action immediately. You should also spend the time to understand your rights (see below).

  • New this year is the IRS’s ability to revoke or block the renewal of your United States passport.

If you decide to cave to the pressure from these private debt collectors, note that they cannot accept payments. Any money you pay must always go directly to the IRS. Anyone asking you send money to them to be applied to your IRS account is a scammer.

I’ll conclude by noting that the Fair Debt Collection Practices Act applies to these private debt collectors hired by the IRS. You have the same rights and protections against these collectors as you do against someone harassing you for any other type of personal debt.

For more on these rights, you might start with the Federal Trade Commission page on debt collection. For a list of illegal debt collection practices, checkout Nolo on Debt.

I hope you’ve found this post on IRS debt collectors to be helpful. For more on how to protect your assets abroad, please contact me at info@premieroffshore.com for a confidential consultation.

retained earnings
Christian Reeves

Watch Where You Invest Those Retained Earnings – IRS Tracking Luxury Home Purchases from Offshore Companies

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According to the N.Y. Times, The IRS has begun tracking homes bought through offshore companies and shell corporations in the United States. If you’ve setup an offshore structure, and used your retained earnings to buy real estate in the United States, you’re probably a target of the IRS.

Even if your offshore company is tax compliant, you still may be in trouble with the tax man for using those retained earnings for your personal benefit. You may be living in the property at below market rent or taking the rents as personal income.

If you’ve managed to avoid the worst of the pitfalls, investing retained earnings in the United States might have converted them to taxable distributions to the parent company. For more information, see: How to Manage Retained Earnings in an Offshore Corporation

The bottom line is that offshore retained earnings are best held offshore. Unless you have a tax plan and written opinion from a reputable firm, leave the money alone and allow it to build up inside your operating company.

And now, here’s the rest of the story:

As I said above, the IRS is targeting luxury home sales involving offshore companies. Because buying US real estate is a common, if risky, use of retained earnings, this investigation is likely to net many offshore entrepreneurs.

The first stage of this investigation is now complete. It was focused on Miami and Manhattan, where over 25% of the all-cash luxury home purchases made using offshore companies or shell corporations were flagged as suspicious.

Today, officials said they would expand the program to areas across the country. The IRS will target luxury real estate purchases made with cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco, and the county that includes San Antonio.

The IRS says that the examination, known as a geographic targeting order, is part of a broad effort by the federal government to crack down on “money laundering and secretive offshore companies.” As we know, “money laundering” is basically code for “tax cheats.” For every one drug kingpin caught in their net, they’ll land 1,000 tax cases.

Cases will be selected based on the purchase price of the property. Only all cash sales will be targeted in this round of audits. The dollar values involved are as follows:

  • $500,000 in and around San Antonio;
  • $1 million in Florida;
  • $2 million in California;
  • $3 million in Manhattan; and
  • $1.5 million in the other boroughs of New York City.

You might be thinking, that the IRS doesn’t have data on every real estate purchase in the United States. How the heck are they going to audit every single transaction over these amounts.

Never fear, the IRS thought of that. All they needed to do is issue an order to every title insurance company in the United States. Basically, they’ve drafted title insurance agents into the IRS army (unpaid, of course), to search through their records and select those who should be investigated.

  • Title insurance companies are involved in just about every residential and commercial real estate transaction in the United States.

And these insurance agents aren’t just providing information on the home in question. They’re identifying the escrow agent, the US and offshore banks involved, all paperwork from the offshore company, etc.

Once the IRS has the bank account information, they’ll summon your account records. This will enable them to chase down all inbound and outbound wires.

Here’s the bottom line: investing retained earnings into the United States opens up a pandora’s box of trouble. I’ve been telling clients this for years and now it’s come to fruition.

If you have an active business offshore, keep your retained earnings offshore. Don’t make you and your cash a target for the IRS. Even if you’re 120% tax compliant, avoid the audit, avoid the battle, and protect your hard work from the Service.

I hope you’ve found this article on the IRS’s targeting of offshore retained earnings to be helpful. If you have questions on structuring a business offshore, you can reach me at info@premieroffshore.com for a confidential consultation.

IRS Fees
admin

IRS Fees

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If you have a tax debt, there are a number of IRS fees for setting up a payment plan or installment agreement. These IRS fees can add up quickly if you default and need to reapply.

The IRS fee for setting up a payment plan on direct debit from your bank account is $52. This is the least expensive because you are authorizing the government to debt your bank account and the risk of default is lower.

The next IRS fee is $120 for an installment agreement if you will send in a check each month or have the money taken out of your paycheck (payroll deduction). With a payroll deduction, your employer must send the government a check on your behalf. As you can imagine, these are not very popular with taxpayers because of the embarrassment involved.

I will note that the IRS sometimes requires a payroll deduction rather than allowing you to send a check. If you have defaulted more than once, or without good cause, the government will want some assurances that it won’t happen again … which they believe they get with a payroll deduction.

If you have very limited resources, you might qualify for a $43 installment agreement, rather than $52 or $120. There are a number of low income categories, so, suffice it to say, you will need to be about at the poverty line to qualify for a low income installment agreement. To be honest, very view people who must make payments, and are not listed as uncollectible, qualify for the discounted rate. If your income is low enough for the discount, you probably don’t need to pay anything.

These IRS fees apply equally to payment plans setup online, through a professional, or by mail. If you owe less than $50,000, you can set up a streamlined payment plan online. If you owe $25,000 in payroll taxes, you may set up an online payment plan and these IRS fees apply.

I hope this post on IRS fees has been helpful. Please take a read through my more detailed articles on resolving your IRS tax debt.