When Ronald Reagan assumed the presidency of the United States in 1981, the US National Debt was $862 billion. At the outset of the George W Bush presidency in 2001, the Debt had increased in 20 years to $5.7 trillion. Now that the Debt has exceeded $19 trillion at the outset of 2016, it is clear that the rate of increase is accelerating.
Not surprising one can just browse the bookstore for books warning readers of economic upheavals in the near future: Robert Reich's Aftershock - The Next Economy and America's Future, and Saving Capitalism; James Rickards' The Death of Money; Joseph Stiglitz's The Price of Inequality; Martin Weiss' The Ultimate Depression Survival Guide; and David Wiedemer's Aftershock (not to be confused by Robert Reich's Aftershock).
Wiedemer together with two co-authors of this 2015 publication anticipate a financial meltdown primarily because the government debt bubble must inevitably pop. This pop, they say, will bring down the Stock Market, Real Estate and Private Debt. The authors add that the American government no longer has any wiggle room to prop up the fragile economic system. Contributing to a financial meltdown is the slowing economies of China and the European Union.
For the moment, In fiscal 2015 the government took in $3.25 trillion in taxes but spent $3.69 trillion. This $439 billion dollar deficit will steadily increase in the years to come when it reaches $554b against a $22.5t Debt in 2020. As the debt increases so does the cost of servicing it. For instance, in FY 2015 interest on the debt was $223b - over 50% of the $439 deficit. By FY2020, projected interest of $583b will actually exceed the $554b anticipated deficit. The consequent increases in interest and other budgeted expenditures on the National Debt puts the government under increasing pressure to raise revenue from and cut services to the public.
While Congress debates tax laws and tweaks spending programs, the Internal Revenue Service is pursuing the 6.0 million US citizens Americans abroad that can potentially as $123 billion to US tax revenue coffers. Because the US economy appears increasingly unpredictable and Congress enacts laws that saddle Americans abroad with onerous tax and information filing requirements on pain of heavy-handed penalties for noncompliance, increasing numbers of Americans abroad are giving up their US citizenship and residency.
1. A US citizen living abroad had this experience to report to American Citizens Abroad: ‘I reported more than 100% of all the foreign income already on my original 1040 tax returns. However, the IRS is deeming my failure to file the FBARs and fully disclose my accounts as willful. Either I am subject to huge penalties – which I am advised could exceed $5 million, or, alternatively, I can stay in the Amnesty Program which was launched last year and pay a fine of 20% of the highest balance over the past six years, which in my instance will be more than $1,000,000.’
2. As a qualified resident in a foreign country, JJ, who worked for the US Consulate, consulted with IRS agents based in the Service’s regional headquarters in Paris, France as to whether he could take the Foreign Earned Income Exclusion. The two agents replied affirmatively. So in 2005, 2006 and 2007, JJ excluded his foreign earnings on Form 2555. In 2009 he was audited by an agent in the IRS Service Center in Austin, TX. In the audit, JJ was denied FEIE for all three years with the result that he was compelled to pay taxes on the excluded income plus the 20% Accuracy penalty and interest. His taxes were increased by $21,644. The Accuracy-related penalty was $4,328 plus interest of $2,880.
The Internal Revenue Code contains more than 3.4 million words; printed 60 lines to the page, it would fill more than 7,500 letter size pages. To conserve space, the tax code uses extensive cross-referencing to other parts of the tax code as a substitute for explaining the cross reference in any semblance of English. This forces readers to look up numerous other parts of the tax code in order to understand the scope of any section with cross references. In spite of this mountain of verbiage, every citizen is presumed to be familiar with the entire US Tax Code. – Vernon Jacobs, CPA
3. RJ annually reports his pension income to the tax authority in his foreign country of residence as well as to the IRS. As he pays taxes on this income to the foreign country, he annually excludes this income from US taxation on Form 8833 – Treaty Based Return Position Disclosure, citing the appropriate article from the tax treaty. In 2009 IRS audited RJ’s 2007 tax return, denying him the exclusion. Defeating this audit required many months. After IRS withdrew this audit, RJ was again targeted, this time on his 2008 tax return, for the same issue raised on his 2007 return.
4. EG and her husband have resided on the Spanish Costa del Sol for 24 years. They work together building houses, and as residents of Spain they file an annual income tax return with the tax authority there. During their years of foreign residency, they have filed annual tax returns with the Internal Revenue Service as required, excluding their foreign earnings on Form 2555. In 2009 the IRS assessed Self-Employment (Social Security) taxes on their 2006 net income from their self-employment. In spite of their paying Social Security taxes to the Spanish tax authority and despite a Totalization Agreement between the United States and Spain (which grants Spain the right to assess Social Security taxes on residents), the IRS insisted they also pay these taxes to the US Treasury. An appeals process consumed hundreds of hours of correspondence, phone conversations and supporting documents over an 18-month period.
5. Foreign trust information returns must be filed by March 15 or an extension form must be filed. A return preparer filed this return for his client on March 14th. The IRS imposed a 5% penalty on the $2 million trust because the return was received six days after March 15. Fortunately the return was postmarked as filed in the United States and so the penalty was abated. Had the return been postmarked from a foreign country, the penalty would not have been abated.