In a House Ways & Means Committee hearing in Washington on Thursday, Republican Representative George Holding called on the IRS to find out exactly how many Americans are currently “living outside of the country, as well as how many are not filing or under-filing” their taxes each year.
Told by the IRS’s chief research and analytics officer, Dr. Benjamin Herndon, that the IRS did “not have data, specifically, on that,” Holding vowed to pursue the matter, because of what he said was its necessity in order to understand better the extent of the issues facing Americans living abroad.
“If we don’t have that data, we [also] don’t have an estimate of the amount of revenue lost due to [these overseas Americans’] non-compliance, because you don’t know that they exist,” Holding, pictured above during the hearing, said.
Holding made his comments during a hearing that was called in an effort to learn more about a so-called “tax gap” of around US$460bn that is said to exist between the taxes American owe each year, and the amount they actually pay.
The extent of this discrepancy was spelled out by House Ways & Means Committee chairman Richard Neal, a Democrat from Massachusetts, said in his opening remarks.
Holding has been emerging as one of Washington’s most outspoken elected officials on behalf of the cause of expatriate Americans in the five months since he introduced his Tax Fairness for Americans Abroad Act last December, which was aimed at making life easier for Americans living abroad.
Holding's interest in the plight of expat Americans stems, he has said, from his being married to a British citizen, which he says has made him more aware than most of his Congressional colleagues of the difficulties Americans abroad are currently facing.
As reported, he has been open about his need for a Democrat to co-sponsor his Tax Fairness for Americans Abroad bill, in order to re-introduce it into the current session of Congress with a hope of getting it passed.
Lack of data well known
The lack of hard data with respect to the number of Americans living abroad is well-known to many involved in expatriate issues, including the American Citizens Abroad, an advocacy organization based in Rockville, Maryland.
Last year, in hearings on President Trump’s 2017 tax reform bill and its impact on small businesses overseas, ACA executive director Marylouise Serrato noted that although “it’s frequently said that there are around 9 million Americans living abroad, ACA believes this number is closer to 5.1 million, after making a number of adjustments, including one for approximately 1.3 million individuals affiliated with the federal government.”
Discrepancies between the alleged number of Americans who live abroad and the numbers reported to file tax returns from abroad have also long been noted, normally without any explanation beyond a general observation that millions of these expat Americans are presumed not to realize that they need to file a U.S. tax return every year, and therefore don’t. Just 600,000 Americans were reported to have filed tax returns from abroad in 2017, while the number of Foreign Bank Account Reports filed that same year was reported to be only around 900,000.
Some, though, have questioned the fact that even the countries thought to have the largest number of American expatriates in them typically only have a few hundred thousand, if that many, suggesting that the 9 million figure could be wildly wrong. The UK's Office for National Statistics, for example, has estimated the number of American citizens living in the UK – a popular destination for Americans – at having been only around 121,000 to 157,000 in 2017. Mexico is said to be home to the largest number of American citizens outside of the U.S., with around 1.5 million reportedly living there.
As reported, a U.S. Government Accountability Office report published in April cited problems with "data quality and management" as being among the issues "limit[ing] the effectiveness of the Internal Revenue Service's efforts to improve taxpayer compliance using foreign financial asset data collected under [the Foreign Account Tax Compliance Act]," the 2010 law which requires non-U.S. financial institutions to send information about U.S. taxpayer assets to the IRS, or else face penalties of up to 30% on their U.S.-source income.
‘Soft power projection'
Also in his testimony on Thursday, Holding called on Congress to “simplify” the U.S. tax code, as well as to “align our system with [that of] the rest of the world” by moving to a residence-based tax regime rather than a citizenship-based one – a system which, he noted, is unique to the U.S. and Eritrea, and not in the best interests of the U.S. or its expats.
By doing this, he said, “we could not only encourage increased compliance by Americans around the world, but greatly improve the lives and career aspects for Americans globally,” which he said was important if the U.S. were to be able to maintain an expat presence “in countries around the world.”
“It’s a great soft-power projection; it’s also good for security," he said, of such a presence.
"I know that a lot of our U.S.-based companies that operate globally would really like to have more Americans in the corporate chain of command overseas.”
The reason they don't, Holding told his fellow Ways & Means Committee members, is because Americans abroad are currently “suffering with onerous burdens of FATCA and FBAR requirements, a myriad of issues caused solely by an outdated code as it applies to American residents overseas,” which are "hamper[ing] the competitiveness of Americans in the global job market” by making U.S. citizens around 40% more expensive to hire than their foreign counterparts."
These difficulties were also behind what Holding said was "a spike in the number of Americans who are renouncing their citizenship every year.”
- Some tax quotations the IRS missed...
- Controversial U.S. bill over free tax-filing services seen unlikely to matter much to non-resident taxpayers
- Revealed: IRS’s sense of humor
- IRS seen ramping up penalties on late-filed foreign trusts, CFCs, FBARs in 2019
- IRS publishes ‘user-friendly guide’ to Tax Cuts and Jobs Act