The uniquely American definition of “tax residency,” which includes the imposition of worldwide taxation on the tax residents of other countries who happen to be American (even if they don't realize it), has left the U.S. Internal Revenue Service in charge of overseeing the implementation of three separate and distinct tax systems: residence, source, and extraterritorial, according to Paris-based attorney and U.S. taxpayer rights campaigner Laura Snyder, Toronto-based U.S. citizenship lawyer John Richardson, and Australia-based, recently-retired university lecturer and FixtheTaxTreaty.org founder Karen Alpert...
Through its system of extraterritorial taxation, the United States taxes the worldwide (including non-U.S. source) income of persons who are tax residents of other countries, the three experts observe, in the introduction to their latest paper examining U.S. tax issues.
This, they say, requires the IRS to "do the impossible: to administer not only a domestic tax system for U.S. residents and a system of source taxation for nonresident aliens, but also an extraterritorial one".
At the same time, they note, "all three of these tax systems must be administered while adhering to the Taxpayer Bill of Rights"...
In their 32-page long paper, which they recently co-authored for a U.S. tax journal that's being posted on SSRN today, Dr. Snyder, Richardson and Dr. Alpert point out that the considerable challenges this mandate places on the perennially cash-strapped IRS, it's hardly surprising that the IRS effectively "denies" and/or "rejects" its responsibility to administer an extraterritorial tax system.
This, they say, was proven yet again in its January 2021 Taxpayer First Act Report to Congress.
(Enacted in 2019, the Taxpayer First Act was a Congressional effort to revamp the IRS by addressing such elements of its operations as its taxpayer servicing operations, enforcement procedures, cybersecurity and identity protection, management of information technology and use of electronic systems.)
As the January report showed, however, international taxpayers, who are subject to the U.S. extraterritorial tax regime, continue to suffer considerably, Dr. Snyder, Richardson and Dr. Alpert say in their paper, before arguing that because of the scale of the IRS's "failure", the U.S. Treasury has no choice but "to take action to eliminate the extraterritorial aspect of the U.S. tax system".
A table from the Dr. Snyder/Richardson/Dr. Alpert paper, pictured at the bottom of this article, indicates the various areas of difficulty the IRS is struggling with that they're referring to.
Reiterating a point they made in a previous paper, Dr. Snyder, Richardson and Dr. Alpert insist that even in the absence of legislative change, the U.S. Treasury can, and must, make the needed regulatory modifications to relieve both the IRS and international taxpayers of what they say are the impossible burdens the U.S.'s extraterritorial tax system places on them – a system that they also argue violates the Taxpayer Bill of Rights, multiple international human rights instruments, and the U.S. Constitution.
To read and download the article from the SSRN website, click here.
SSRN, (www.ssrn.com , formerly known as the Social Science Research Network), is widely-used to share scholarly articles and research with the interested public, in a paywall-free setting.
- AXFNJ Podcast: John Richardson and Frost Law's Eli Noff look at the filing of 'delinquent' taxpayer info
- As AAA announces its new legal challenge to go ahead, expats echo its call for renunciation to be made easier
- AXFNJ Podcast: John Richardson and Frost Law's Eli Noff consider the many little-known info reporting requirements expat taxpayers face
- Q2 renunciation numbers appear to rise, even as appointments to begin the process remain elusive
- IRS secures a court order to obtain U.S. taxpayer info from Panama-based firms