Americans abroad who have not filed their U.S. income tax returns will sooner or later hit a brick wall. They will have to renew their passports.
And when it comes time to renew their passports, they are stuck. Damned if you do, damned if you don’t.
When you renew your passport, you are required to give your social security number on the renewal form. Look at Form DS 82. The State Department is required to collect this information from you because of Internal Revenue Code Section 6039E.
If you give your social security number to the State Department when you applying for (or renewing) your passport, the information gets passed along to the IRS. Now they have identified you as an American abroad. The IRS can double-check your filing history. Have you filed tax returns or not? What about the other fun paperwork that is required?
If you haven’t filed your income tax returns (and the assorted other forms that create the giant paper leash that is the U.S. tax system) then trouble is a-headin’ your way, Bucky.
But what if you refuse to give your social security number to the State Department when you are renewing your passport? Interestingly, the State Department will renew your passport. However, by law they are required to turn over your information to the IRS. Internal Revenue Code Section 6039E(d) says:
Notwithstanding any other provision of law, any agency of the United States which collects (or is required to collect) the statement under subsection (a) shall—
(1) provide any such statement to the Secretary, and
(2) provide to the Secretary the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a).
In other words, the State Department sends a letter to the IRS. Your name and contact information (without a social security number) is given to the IRS. And a giant “kick me” sign is taped on your back.
I haven’t seen evidence of an efficient system at the IRS to review every passport renewal application for tax compliance. Maybe it’s there and I haven’t seen it.
However, let’s just say that hypothetically speaking there might have been a U.S. citizen renewing his passport abroad and refusing to give his social security number when he did it. He didn’t quite say “Go stick your nose in a dead bear’s bum!” but he might as well have done so. What do you suppose the IRS did when they got his information from the State Department?
The moral of this story is that if you haven’t filed tax U.S. tax returns you really should. Every ten years (at least) there is a Moment of Reckoning.
My message of hope to you (from a personal and professional perspective) is that the actual pain of cleaning up your tax mess is generally far less than the pain of living with the fear and uncertainty. (True confessions: there was a point in the late-1980s when I was a three-year nonfiler of tax returns and non-payer of tax; I cleaned it up eventually and only with the help of a CPA friend of mine. And yes I was a lawyer at the time, doing tax work and defending taxpayers against audits ‘n stuff, all the while absolutely petrified that maybe a random IRS agent might run my social security number for kicks and giggles. Been there, lived that.)
Oh. And you really should work on getting a second passport.
Elena Redko, CPA of our firm will be giving a 90 minute webinar on August 16, 2013. She will be talking about normal people, Americans abroad, who are way out of compliance with the IRS tax filing requirements. What are the risks? How can you fix the problem? She will talk about OVDI, the so-called Streamlined Procedure, and quiet disclosures. More information is here. Ten people maximum, and plenty of time for questions.