Wednesday, August 6, 2014

Christians on Regulating Tax Preparers: A Global Problem for the IRS

I have a new column this week in Tax Analysts: Regulating Tax Preparers: A Global Problem for the IRS, in which I discuss the challenges of protecting a global taxpayer population from fraud and abuse and make (yet another) plea for sanity in the form of abandoning citizenship taxation and turning to residence-base taxation. Here is the gated published version; here is the SSRN version (ungated). And here is a brief abstract:

The IRS recently announced that its mandatory registration regime for paid tax return preparers, struck down in the Loving decision, would henceforth be offered as a voluntary program. But the authors of this program appear to have forgotten that the US system is perfectly global in reach, thanks to its permanent inclusion of citizens and others with legal residence status no matter where in the world they live. Protecting a global taxpayer population from fraud and abuse is an enormous task, with massive legal, administrative, and even diplomatic factors to consider. Citizenship taxation plagues the project of tax return preparer regulation, just as it does all aspects of US tax law. Accepting the universally practiced norm of residency-based taxation is the only viable solution. If Congress cannot do so, it will always be the case that for the IRS, thinking locally truly means acting globally.
Just as this was published, a friend sent me an email about a growing problem of FBAR fraud, in which criminals attempt to get personal & financial information from people by sending them serious looking notices. Here's an example, from Tax-Expatriation blog:

I'm sorry I didn't see this before I published my column, as I would have mentioned it as a significant issue. Capitalizing on the ignorance and fear of regular (non-rich) US persons outside the United States will be all too easy for criminals, I am afraid. I hope that the IRS and FinCEN can figure out a way to warn people--but I don't see how they can really do that on a global scale, especially since FATCA's job is to funnel information about millions of people to the IRS, and not the other way around. At minimum, every government that signs an agreement to implement FATCA should be sending out the warnings, since each is undertaking a huge responsibility in implementing US citizenship taxation on their own residents.

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