Land of the free, eh?

If you’re behind on you’re taxes and planning a trip abroad, you might be out of luck.

A provision in the highway bill, which is currently being reconciled by the conference committee, will allow the Department of State to nullify passports of those owing $50,000 or more in federal taxes, interest and penalties.

In the, err, highway bill?

Lawmakers are in the final stages of negotiation over a bill to provide funding for U.S. highways and transit programs. One provision in it would let the federal government revoke, deny or limit a U.S. citizen’s passport if the person owes more than $50,000 in “seriously delinquent tax debt,” including penalties and interest.

I’m not actually sure that that’s legal under international law.

But I think I can hear the sound of sweaty frotting from Downham Market. Possibly even some fist typing at the thought that he didn’t think of such a repressive measure first. Adter all, you only have your freedom as long as you’ve paid your taxes, don’t you?

66 thoughts on “Land of the free, eh?”

  1. Highway shmighway, the camel’s nose in the tent.

    You can’t take someone’s passport for plotting mass murder, but the IRS can if you owe them money. And thus the priorities are revealed.

  2. Something similar over here but not quite as extreme – if you have court fines or student loans outstanding then you can be stopped at the border and not allowed to leave until they are paid. I imagine the rules are similar with outstanding tax debts.

    Which seems a far more liberal and reasonable system than a blanket withdrawal of your passport.

  3. There’s a similar system here in Qatar. If you owe any taxes or fines then you can’t leave the country. Though I heard you can pay traffic fines while at the airport and then they’ll let you leave.

  4. The US is a frontrunner in the creeping socialist tyranny that is establishing itself all over the West..

    Doing nothing while leftists burrowed into the state and its institutions will probably turn out to finish us all. The vast majority will still kiss the state’s arse even as said state looks to lord it over them. Most ironic and almost-funny of all is that the state claims ever more power under the bogus ruse of protecting “the people” from all the multitude of problems caused by the state having too much power in the first place.

  5. If you owe any taxes or fines then you can’t leave the country. Though I heard you can pay traffic fines while at the airport and then they’ll let you leave.

    Yeah, Dubai does that. But I never had a problem with that: it wasn’t aimed at citizens, it was mainly at foreigners who got speeding tickets. And yes, you could pay at the airport.

  6. Bloke in North Dorset

    Before Schengen it was a common occurrence for squaddies (and I presume everyone else) to be stopped at the German border and not allowed to leave until any outstanding fines had been paid. And if they missed you going out they got you coming back.

  7. So Much For Subtlety

    I believe Britain will pull people out of the queue at Heathrow for unpaid fines. At least I am pretty sure I have seen it done.

    America has been doing it with child support too.

  8. Hhhmmmm. …

    How is this going to work for Americans living abroad? There are over 8 million expats and dual national Americans living abroad and most do not even realise that they are subject to citizenship based taxation. Even if they do not owe any tax, the fines for not filing tax returns could easily take an individual over the $50000 limit.

    So does this mean that the IRS will send out letter the Americans abroad stating that their passports have been revoked and that they cannot return to the homeland? That these Americans will have to slum it poor countries like Switzerland, Canada and Norway?

  9. Bloke in North Dorset

    “So does this mean that the IRS will send out letter the Americans abroad stating that their passports have been revoked and that they cannot return to the homeland? ”

    Having watched a (now former) US citizen go through the rigmarole of cancelling their citizenship I suspect many would welcome such a painless way of losing it.

  10. The latest gimmick of our Student Grant Prof is his series of posts:

    Music for the economy of 2015: [protest song]

    About as compelling as his Venn Diagrams for our times series

  11. I thought this was standard practice pretty much everywhere. You can be arrested at the border in Germany for private debts (if things have got far enough through the courts) let alone public ones.

  12. The USA has a grand history of tacking unrelated (but often contentious) clauses into “important” bills. Usually the host is something that can’t reasonably not be passed, and the tacked on bit is something that the supporters know darn well wouldn’t pass on it’s own.

    Sadly, our own UK government has shown a liking for the same tactic.

  13. When you say stopped at the border in Germany I presume you mean at the airport? There is no land “border” to be stopped at.

    And as Tim says, it’s against international law to remove someone’s passport and render them stateless.

  14. “And as Tim says, it’s against international law to remove someone’s passport and render them stateless.”

    Aah, but they propose to endorse the passport to be valid only for travel back to the Homeland…

    This is also the 2nd or 3rd attempt to get something like this through.

  15. Ah finally a topic which I can share my 25 years of legal expertise!

    A few points at the outset:

    -A US passport is a travel document of a US citizen, which is used to prove this citizenship at international borders;

    -A US passport is the property of the US government, not the individual named on the identity page. This is confirmed by looking at a US passport itself which clearly notes this. Before the histrionics start, this is pretty standard for every country (just look in your own non-American passport). This means that the US (and other countries) can withdraw or deny the granting of their passport for any reason that they see fit, without violation of any international law. In the US, this already is done for a wide variety or reasons such as a court order or failure to pay child support. Tax debt is just the latest reason.

    -Since the introduction of the Western Hemisphere Travel Initiative, (http://www.cbp.gov/travel/us-citizens/western-hemisphere-travel-initiative) every person entering the US (including US citizens) must present a passport (or other document which you need a passport to secure) to prove their citizenship;

    -The denial of issuance, renewal, or cancelation of a US passport, in no way affects the underlying US citizenship. In short, the individual may be denied a travel document but is still a US citizen and thereby a US person for tax purposes https://www.irs.gov/Individuals/International-Taxpayers/Classification-of-Taxpayers-for-U.S.-Tax-Purposes);

    -An American abroad WHO DOES NOT HAVE ANOTHER CITIZENSHIP (and passport) will most likely experience a great deal of difficulty in their day to day life. This includes banking, renewing their local work or residence status and applying for naturalisation in their new country. All of these activities require an individual to show a valid passport and if the only one they are entitled to is US, then ouch!

    One can argue whether this is “fair” or not. However, it was pretty obvious it was coming and now that its arrival is imminent it will be the latest and significantly effective tool of the US to enforce US citizenship-based taxation (“CBT”). BTW, in anticipation of one of you clever posters talking about the abolition of CBT, I offer you this agnostic opinion (https://www.quora.com/What-is-the-likelihood-that-the-US-will-change-their-tax-law-to-not-tax-foreign-residents/answer/David-S-Lesperance).

    There you have it.

  16. David S Whatever: How nice a–a real genuine arse-kisser of tyranny. Legal-“expertise” and all.

    Who cares how many scummy states practice the same antic? Bollocks to the lot of them. Shame they can’t manage to keep the dangerous and unproductive out–not many passports floating in the Med–never mind trying to extract even more from their own peons.

    There you have it –right up yer arse.

  17. Doing nothing while leftists burrowed into the state and its institutions will probably turn out to finish us all.

    Most big states are on the verge of collapse, precisely because SJWs have taken over all the institutions. When politics becomes priority #1 in an organization, it inevitably fails to do any of the things it’s supposed to be doing.

    Hence, for example, we see the ‘leaders’ of the ‘free world’ pissing around with ‘climate change’ while their economies collapse and they import terrorists by the million.

  18. Let’s all cut back on the coffee here.

    The genesis of this particular provision came from the realization that not a few serious tax cheats were fleeing the county to avoid the consequences of paying their back taxes, banking on the idea that the IRS would not attempt extradition due to the cost/trouble.

    I’ve had experience with that scenario within the past year: A rogue tax preparer (an Arab with dual citizenship) landed himself multiple felony charges and a huge fine from the IRS and then skipped the country. I happened to be the CPA who convinced the IRS and Justice that a few of his clients were victims rather than co-conspirators.

  19. > The genesis of this particular provision came from the realization that not a few serious tax cheats were fleeing the county to avoid the consequences of paying their back taxes, banking on the idea that the IRS would not attempt extradition due to the cost/trouble.

    So? If the only justification you’re interested in is whether something is useful when it comes to catching criminals, then any law can be justified. That’s precisely why some of us push back against such laws on principle.

  20. So, an American failing to pay his dues to the government has some government services withdrawn? Sounds a fairly straightforward business transaction.

  21. Jack C: And if all it meant was that you can travel where you like but–because of alleged non-payment of their thievery –you are ineligible for the “protection” or “services” that the US state claims to provide ( FFS they couldn’t even protect their own Ambassador ) then that would be fine. It isn’t up to the scum of the state to say if we can travel or not.

    That doesn’t mean you have a right to settle other peoples countries. How you are received is up to the people already at your destination. If they don’t like or want you, kick you out or won’t let you in–too bad.Tthus the “refugees” have a right to travel but no right to be accepted by the people they are trying to move in on. They are coming because they know that the scum of the state welcomes them. If they knew the actual natives could ( and very prob would ) tell them to piss off they would not set off. The state has no right to tell you you cant travel but you have no right to settle or trespass on the private property of others when and if you get there.

  22. If the only justification you’re interested in is whether something is useful when it comes to catching criminals, then any law can be justified.

    Uh, I’m not quite sure how to push back against that sort of stupid, but what I will do is note that sometimes handing government the tools to combat overt criminality amongst the citizenry is regarded as a Good Thing.

    My own experience with the IRS (30+ years) is as follows: The IRS doesn’t like doing collections work. Period. It’s costly, unpleasant and often dangerous. So, to get to the point where the IRS is going after you full throttle, you’ve had to work really, really hard at not cooperating with them in any manner.

    If you’re over $50K in the hole to the IRS and you’re really not interested in taking the time and expending the effort to resolve the matter, I really don’t know why you’d be surprised if the IRS decided to make your life a bit more difficult.

  23. @Dennis,

    Well, you can get to $50k easily in penalties by forgetting to declare (or making a mistake on the myriad of forms for) a couple of small ISA’s.

    Or ask Boris about the sale of a property in London he’d had for a few years……………

  24. @Roue, indeed, airports, and only when arriving from or departing to non-Schengen destinations. Land and sea borders are a theoretical possibility but as you correctly note, practically highly unlikely (though rather more likely now than a few months ago). M. Lesperance has dealt with the other issues.

    US citizens seem to have trouble getting bank accounts outside the US anyway – purely on account of their being US citizens and thus a huge regulatory risk to the bank.

  25. What you have to remember about CBT is that up until 2008 the IRS had no responsibility in enforcing it outside the USA. It was the responsibility of the state department (US foreign service) who pretty much did sweet FA because they decided that they had more important things to do. To be fair to the state department , they did have a point.
    In 2008 the responsibility was handed to the IRS who have been scratching their heads trying to work out how the hell to enforce it. Frankly it is a fools errand.
    The biggest obstacle is the shear complexity of the law involved and the shear lack of accounts available to do the job. An American in the UK, for example, needs an accountant who understands the uk tax code, the American federal tax code and the tax treaty that reconciles the two.
    There are not that many accounts in the UK who are capable of that. Certainly not enough for the 180000 Americans who live in the UK. The figure that I was quoted was 52. That is 52 accountants for 180000 Americans.

    Fucking madness.

  26. I’m with JackC and DtP. As a citizen of a democratic state, I’m obliged to pay the taxes it imposes – much as though I would prefer a low tax, minimal state. Free-riders who don’t pay their taxes and court fines should be forced to pay what they owe before being allowed to leave the country. WTFITP!

  27. @Theo, the major problem here is that the US applies this to people who live outside the US.

    Imagine if you’re living in Ireland or wherever, and HMRC, due to an error, VAT fraud done in your name or whatever, decided you owed GBP30k, and endorsed your passport only for return to the UK. Now imagine you needed to travel to France regularly for family or business reasons, which would compound the issue.

    That’s the major malfunction here – it’s not so much the “you can’t leave if there’s alledged debt” that’s the problem, but due to the unique way in which the US taxes anyone it considers to be its citizen, it’s more the “we’ll effectively cancel your passport while you’re living abroad except for a return trip”.

  28. Well, you can get to $50k easily in penalties by forgetting to declare (or making a mistake on the myriad of forms for) a couple of small ISA’s.

    In most cases, only a FinCEN Report 114 is required. In some cases, a Form 8938 and/or FinCen Report 105 is also required.

    As to fines for delinquent filings, here’s what the IRS has to say:

    The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs (Report of Foreign Bank and Financial Accounts) and are submitted.

    Yeah, you can get smacked with a $10K for “forgetting” to report an FBAR, but only if you conveniently “forget” to pay the taxes associated with the income on said FBAR.

  29. @ salamander
    There are thousands of CPAs/tax advisers in the USA who understand the US tax code. So, use the wonderful internet to find an honest one – not the individual mentioned above by Dennis. You get your UK accountant/tax adviser to prepare your UK tax return and then send the result, plus notes on any income/capital gains not subject to UK tax, to both HMRC and your US adviser.
    In some cases you can prepare your UK tax return yourself – Gordon Brown tried to make it hell on earth so at one stage I needed to do my accounts on *seven* different accounting bases in order to submit them to different bits of the UK government but things have been progressively simplified since 2010.

  30. Perfectly possible to rack up huge ‘debts’ without actually owing them a penny, if they compound their natural incompetence over a period of years. I have personal experience of this with HMRC.

    I moved house but HMRC decided to send a fictitious tax demand to an old address, despite my new address being registered with them via PAYE. Many years later I changed jobs and suddenly this demand found my right address. With interest and penalties it was a large five figure sum.

    Many many fruitless telephone calls later the cheeky cunts offered to settle with a reduced payment. I told them to fuck off and they settled for me not paying the fictitious demand.

    So, perfectly easy to reach this $50k threshold without even trying.

  31. Abacab
    Fair point. The US version is rather draconian; but, even so, my final view on it would depend on the protocols and procedures – thresholds, judicial overview, compensation for mistakes, etc. You will probably tell me that the US version is deficient in all such respects; but I can’t see that is an objection to the principle, only an objection to a particular implementation.

  32. @Dennis, I was under the impression that a UK stocks & shares ISA was treated as a PFIC and thus subject to form 3520 and form 3520A, each with a bewildering array of death-penalty-for-jaywalking-type penalties…..

  33. There are thousands of CPAs/tax advisers in the USA who understand the US tax code. So, use the wonderful internet to find an honest one – not the individual mentioned above by Dennis.

    Doesn’t quite work when you start yakking away to the guy from H&R Block and he says “What the heck is an ISA?” or “a UK Personal Allowance”?

    Sorry, they may be cheap, but for non-resident tax returns your standard US Main Street tax accountant simply won’t cut it. There are just too many straight-forward foreign domestic tax issues that will leave them stumped.

    This is why my US expat-colleague paid annual US taxes of about $1,200 US and a preparation charge of $3,500 each year, for the certainty of knowing that the IRS wouldn’t hassle him upon his increasingly infrequent trips back home.

    He has dual-citizenship, but as one of the refugee’s from Vietnam, still rather prefers his blue US passport to whatever communist pile of shit they serve up in Danang, Vietnam.

    …and yes, Charlie does surf…

  34. And maybe a Form 8621 as well. PFICs are well outside my experience, and tax advantaged UK S&S ISAs are completely beyond my experience.

    Maybe I should set up a blog called Tax Research USA and write a long post railing about the unfairness of tax advantaged UK ISAs towards the US Treasury and how the UK is a fucking tax haven that needs to be punished. Or something.

  35. Doesn’t quite work when you start yakking away to the guy from H&R Block and he says “What the heck is an ISA?” or “a UK Personal Allowance”?

    Sorry, they may be cheap, but for non-resident tax returns your standard US Main Street tax accountant simply won’t cut it. There are just too many straight-forward foreign domestic tax issues that will leave them stumped.

    This is why my US expat-colleague paid annual US taxes of about $1,200 US and a preparation charge of $3,500 each year, for the certainty of knowing that the IRS wouldn’t hassle him upon his increasingly infrequent trips back home.

    Agreed on all points. I’ve happily referred several such folks (whose reporting requirements were very simple, actually) to an accounting firm here in town that has extensive experience in such matters… Not because I couldn’t do the actual returns, but because I couldn’t satisfy myself that I’d be able to successfully identify all potential issues involved in representing the taxpayer.

    As the great moral philosopher Harold Callahan once said, “A good man knows his limitations.”

  36. @ John Galt
    I didn’t mean H&R Block who sell forms for filling in US tax returns (well, they did when my colleague bought some share for our US investment portfolio 40+ years ago). I meant a professional. And it’s not that bloody difficult to say an ISA is something exempt from UK taxes on investment income and gains – I mean you don’t an IQ of 100 to grasp that.
    “they may be cheap” – I didn’t ask for cheap, I asked for competent.

  37. I didn’t ask for cheap, I asked for competent.

    But that is exactly the paradox, because by definition, someone who understands both the foreign tax aspects of the IRS and also is able to balance that against local country tax advice is a rare beast. These are not a dime-a-dozen CPA’s, but tax specialists.

    This is why the figure of 52 accountants in the UK to support 180,000 locally resident (primarily London resident), US Citizens does not surprise me in the least, neither does the fees they charge, which seem to be merited if they are both US and UK recognised specialists.

  38. US Supreme Court has already ruled that state cannot remove citizenship (for now at least), but I can’t see that endorsing a passport to restrict travel other than back to US falls foul of that, removing their passport if abroad would certainly put it closer to constitutional territory I would think.
    I assume this refers to air borders, you can cross the Canada US border with an enhanced drivers licence ID card near us.
    Doesn’t US have very low passport rate? Though I would think post schengen it’s low in some of the euro countries and joining would likely hit high UK levels

  39. @ John Galt
    “someone who understands both the foreign tax aspects of the IRS and also is able to balance that against local country tax advice is a rare beast”
    Sad!
    Either the tax codes are appalling or US tax advisers are, in general, mentally deficient. I’m not an accountant and I’ve always done my own tax (admittedly it took one whole night every year in the late-70s under Wilson/Callaghan).

  40. Jack C

    So, an American failing to pay his dues to the government has some government services withdrawn? Sounds a fairly straightforward business transaction.

    Sorry, not buying it. A state has a responsibility to identify its citizens. It is not a “service”.

    Consider this: The state requires me to obtain a programmers license to work. I grumble and pay the fee. The state then gets pissed off with me and cancels my license. Now I can’t work and eat.

    What “service” exactly has been withdrawn? BTW the communists used to do exactly this in the USSR.

  41. I forgot to mention, the fee you pay for the passport covers the cost of issuing the passport, so you have paid for the “service”.

    What the US is proposing is more like denying me healthcare because I haven’t paid my TV license. i.e. withdrawing one paid for service for non payment for another unrelated service.

  42. Dear Mr. Ecks: I describe the world as it is (whether fair or not) rather than how some (including myself) wish it was. Unfortunately, as the unwanted harbinger of reality, I am sometimes the target of unwanted slings and arrows from the outrageously indignant.

    This action by the US was pretty predictable, as are acts like FACTA, etc. It may not be fair, but tax law is rarely if ever “fair”. The US knows it has leverage in this area, and they are just using it.

    What people spend money on jokers like me, is to identify effective and efficient solutions to problems such as these. The smarter ones also count on advisors like myself to anticipate the predictable and to avoid trouble before it happens.

  43. “And maybe a Form 8621 as well. PFICs are well outside my experience, and tax advantaged UK S&S ISAs are completely beyond my experience.”

    And that’s the problem. Something as totally banal as an ISA can land you in a whole heap of hurt if you make a small mistake on the numerous forms that may or may not be required.

    And then the issue that US persons living outside the US are prevented from saving tax-free for a pension (a US person in the US can save tax-free for a pension; a foreign person in the US can also; a foreign person in foreign can too; but a US person in foreign cannot).

  44. Either the tax codes are appalling or US tax advisers are, in general, mentally deficient. I’m not an accountant and I’ve always done my own tax (admittedly it took one whole night every year in the late-70s under Wilson/Callaghan).

    The US tax code is horrendous and exacerbated by the fact that things which don’t apply in domestic US activities, do apply for American’s resident overseas (FBAR, FATCA, etc.) as well as how to treat things like foreign investment accounts from a US perspective (i.e. not get crucified for tax) as well as the “Foreign Earned Income Exclusion”and the “Foreign Tax Credit.”

    https://americansabroad.org/issues/taxation/us-taxes-abroad-dummies/

    The penalties for non-filing, late-filing and mis-filing are equally horrendous with fines starting at $5,000 or 1-year in jail per incident.

    The IRS doesn’t screw around and will happily fuck up your life and give zero fucks.

  45. Either the tax codes are appalling or US tax advisers are, in general, mentally deficient. I’m not an accountant and I’ve always done my own tax (admittedly it took one whole night every year in the late-70s under Wilson/Callaghan).

    Actually it’s a matter of professional ethics. I have to be able to convince myself (and my peers, if necessary) that I have the requisite education, training and experience to complete that tax work in a manner than meets professional (and IRS) standards.

    You’re free to fuck up your own taxes if you wish to. As a CPA I am obligated not to… and if I cannot do that then I am obligated to walk away.

  46. “And maybe a Form 8621 as well. PFICs are well outside my experience, and tax advantaged UK S&S ISAs are completely beyond my experience.”

    And that’s the problem. Something as totally banal as an ISA can land you in a whole heap of hurt if you make a small mistake on the numerous forms that may or may not be required.

    No, actually it isn’t a problem. It’s a matter of supply and demand. We don’t have much of an UK presence here in Central Ohio, so the odds of running into someone needing tax/reporting work for the UK is rare. On the other hand, with Honda of America parked here, we have numerous CPA firms in the area with all sorts of experience in dealing with tax and reporting issues related to Japan.

    My practice centers around entities involved in home health and child day care, as well as construction and certain types of nonprofits (social service and religious). I also work with a fair whack of tradesman. In 25 years I’ve had exactly two people approach me about doing tax work for them for the time they were overseas. I referred them on to a firm in town that has that sort of expertise.

    Supply and demand.

  47. The US tax code is horrendous and exacerbated by the fact that things which don’t apply in domestic US activities, do apply for American’s resident overseas (FBAR, FATCA, etc.) as well as how to treat things like foreign investment accounts from a US perspective (i.e. not get crucified for tax) as well as the “Foreign Earned Income Exclusion”and the “Foreign Tax Credit.”

    And all that means is that if you are going to reside/work outside of the US, you have to take the time and make the effort to ensure that these matters will be taken care of correctly. It’s no different that the requirement for those living/working in the US.

    And let’s be clear here: Most companies that send employees overseas on work assignments have already put in place a network of professionals to help their employees with this. Honda doesn’t just tell their US employees to pack up their families and head off to Tokyo for a couple of years. They are given the names of doctors, CPAs, lawyers, bankers, real estate agents etc. that are part of the Honda network and who have genuine expertise in dealing with US/Japan issues for incoming employees. Honda doesn’t want their (expensive) US employees fucking around trying to find housing and doctors and CPAs when they should be working. They do it for them. And Honda is not unusual in this regard.

  48. @Dennis
    This logic works if you are an adult American who moves abroad to work.

    This does not work if you are an accidental American. An accidental American is a person who was born in American territory to non us parents and then grew up outside the USA.

    Such people typically have lived all their adult lives outside the USA and were unaware of the US tax filing obligations. In some cases they might not even be aware that they are American citizens.

  49. In some cases they might not even be aware that they are American citizens.

    Then chances are they don’t have a passport in the first place.

    That sort of nullifies the threat of passport nullification.

  50. There are all sorts of strange cases eg a friend of mine, born in Switzerland to a US father and Scottish mother. She speaks with an American accent and used to have an American passport, although she had never spent any great period of time in the USA – a few weeks in summer every year with the grand parents. She eventually turned in her US passport as she resented the tax burden and the time and expense it took to calculate.

    John77, the battle cry was “no taxation without representation”. Except that my friend was taxed without any right to vote in the US.

  51. @diogenes

    My kids are duals (US/UK, no real ties to either) living in a third country. Can’t wait for the civics lessons in school on financial planning when they’ll be the only kids in the class without a bank account.

  52. I think my friend decided that paying tax to a country when the only meaningful right she had would be to live there if the world got buggered had a negative NPV. It knocks the joy of tax idea on its head, as if that were necessary

  53. Great to see the “no taxation without representation” battle cry appear on this thread.
    The suffragettes marched under its banner. Alas not many take it seriously any more, so the 2 million+ EU nationals in the UK can’t vote in national elections of the country where they pay their taxes, but they can vote in national elections of the country where they don’t.
    And nobody’s bothered.

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