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San José, Costa Rica, Tuesday, Jan. 17, 2017, Vol. 17, No. 12
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Feds reject plan to simplify tax reporting for expats
By the A.M. Costa Rica staff

The U.S. Treasury Department has declined to adopt the same country exemption that would free many expats from burdensome reporting requirements.

The announcement of the decision comes at the same time that the National Taxpayer Advocate said the tax-collecting Internal Revenue has in some cases imposed unnecessary burdens and failed to protect the rights of affected taxpayers. That criticism was in reference to enforcing the 2010  Foreign Account Tax Compliance Act.

The tax advocate, Nina Olson, in her annual report to Congress characterized these burdens as additional tax preparation fees and the unwillingness of some foreign financial institutions to do business with U.S. expatriates.

The private advocacy organization, the  American Citizens Abroad, was more blunt. The Treasury Department slams the door on same country exemption for Americans abroad, it said. The Internal Revenue Service is affiliated with the Treasury Department.

The exemption would have eliminated IRS reporting requirements for expats who bank in the same country in which they live.

American Citizens Abroad noted it had worked on the exemption proposal for two years but it said the Treasury officials declined to make changes for fear of the risk of tax avoidance involving money in foreign accounts.

American Citizens Abroad said that tax cheats were a relatively small population of U.S. taxpayers residing in a foreign country and
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banking at their local bank to evade U.S. tax. 

The expat advocacy association and similar groups also are working to change the U.S. Tax Code to use a geographical rule instead of a citizenship rule. Now U.S. citizens must pay taxes on money earned abroad, too, although there are some exemptions. The association prefers the way nearly all other countries tax their citizens on just money earned within the national borders.

The Foreign Account Tax Compliance Act requires U.S. citizens to report their assets held abroad each year when they file a tax return. The law also requires foreign banks to file reports on their U.S. citizen customers, which is why some of the banks have declined to do business with expats. The rule also applies to green card holders, those with double citizenship and spouses of U.S. citizens.

American Citizens Abroad said that the Treasury Department either missed the point or failed reasonably to balance the considerations when it declined to make changes in the regulations.

It said it hopes to bring up the subject again with the new administration.

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