Forewarned Is Forearmed: International Tax Compliance Is About To Get Stricter

In the course of our wealth management activities, I have the privilege of meeting many different kinds of individuals with international connections who are subject to US tax regulations. It still amazes me to hear that some of them continue to believe that it’s okay – even smart – to ignore these rules. They haven’t suffered ill consequences for non-compliance so far, and so they don’t believe that they will in the future.

But the world is changing. Money is increasingly digital and more easily tracked. And governments all over share a common incentive to cooperate and share information – and are indeed doing so with increasing frequency and effectiveness. So, in this arena, just as with investing: past performance is not a guarantee of future results.

To support that thesis, you may be interested in the following communique:

The US Internal Revenue Service has launched a series of tax compliance campaigns against international individuals and businesses.

There are six initiatives in all. The campaigns especially relevant to individuals aim to:

  • enforce reporting of ownership of foreign trusts and transactions with them, and those who receive foreign gifts;
  • penalize withholding agents who do not properly withhold, deposit or report payments of US-source income to foreign persons;
  • enforce non-resident alien individual tax treaty exemption claims related to effectively connected income, and to fixed determinable annual periodical income; and
  • enforce the proper deduction of eligible expenses and tax credits for non-resident alien individuals.

According to tax advisors Moodys Gartner, these initiatives will impact many US expatriates, as well as foreigners with US connections, in Canada, Australia and many other countries.

‘It is noteworthy that the [IRS Large Business and International Division] has rolled out a total of 35 campaigns over the past 18 months’, says Moodys. ‘The escalation of compliance campaign initiatives reflects a deliberate move by the IRS leadership towards data analytics and technology to sift through massive amounts of information from various sources. This trend will likely continue as IRS resources are overstretched to the limits, with the implementation of US tax reform taking top priority.’

Moodys notes that, with the imminent end of the Offshore Voluntary Disclosure Program (OVDP) on 18 September, the window for voluntary compliance for delinquent US expats and non-compliant foreign taxpayers is closing.

Forewarned is forearmed.


Sources
IRS
Moodys Gartner