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MSP #10: OVERSEAS TAXPAYERS

Taxpayer Outside of the United States Face Significant Barriers to Meeting Their U.S. Tax Obligations

 

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #10-1

Develop a comprehensive customer service strategy for both U.S. citizens and resident aliens abroad and foreign individuals with U.S. tax obligations.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in full.

The IRS is committed to implementing transformational customer services improvements for taxpayers. As part of implementing the IRS Inflation Reduction Act Strategic Operating Plan, the IRS is committed to expanding service offerings across multiple service channels to meet the needs of taxpayers and tax professionals, with a strong focus on currently underserved taxpayer communities such as international taxpayers. We acknowledge the need to adjust policies, services offered, and locations to provide in-person, telephone, and digital services for all taxpayers and tax professionals in a way that is convenient for them. This includes expanding the services available through current customer service channels as well as the exploration of new service channels deemed necessary to meet taxpayer need, including the needs of international taxpayers.

In the short-term, the IRS will continue to execute on and expand the existing IRS customer service strategy specific to U.S. citizens abroad and non-resident alien individuals, which is generally based on areas and/or topics that require clarification and/or education. These areas and/or topics are generally identified by a combination of external stakeholder feedback and requests and relevant IRS initiatives including compliance activities. Toward that end, between fiscal years 2019-2022 the IRS provided outreach at numerous informational events including forums and webinars on topics of interest to overseas taxpayers.

The IRS website (IRS.gov) houses online tools and information for both individual and business overseas taxpayers. Landing pages are present for both individual and business taxpayers that include a wealth of information regarding tax administration. For example, the Interactive Tax Assistant self-directed tool allows taxpayers to find answers to eight common individual tax questions such as claiming the Foreign Tax Credit (FTC), Foreign Earned Income Exclusion (FEIE), and Individual Tax Identification Number (ITIN) eligibility, and we continually explore adding additional tax law topics. Taxpayers may also use the Online Account feature to secure account balances, make payments, and view or establish payment agreements. Additionally, IRS.gov contains over 300 webpages detailing filing requirements for FATCA (Foreign Account Tax Compliance Act), FBAR (Report of Foreign Bank & Financial Accounts), instructions for applying for ITIN and making electronic payments, and tax issues such as FEIE, FTC and FIRPTA (Foreign Investment in Real Property Tax Act).

In 2022, the IRS conducted virtual Volunteer Income Tax Assistance (VITA) training at 22 military bases in Europe and Asia. The military established regular VITA sites in Germany, Japan, Korea, Kosovo, Netherlands, and United Kingdom that generated 3,497 returns. The IRS also had stand-alone Facilitated Self-Assistance sites in Egypt, Germany, Italy, Korea, Kuwait, Saudi Arabia, and Turkey.

CORRECTIVE ACTION: As part of implementing the IRS Inflation Reduction Act Strategic Operating Plan, the IRS is committed to expanding service offerings across multiple service channels to meet the needs of taxpayers and tax professionals, with a strong focus on currently underserved taxpayer communities such as international taxpayers. We acknowledge the need to adjust policies, services offered, and locations to provide in-person, telephone, and digital services for all taxpayers and tax professionals in a way that is convenient for them. This includes expanding the services available through current customer service channels as well as the exploration of new service channels deemed necessary to meet taxpayer need, including the needs of international taxpayers.

TAS RESPONSE: TAS appreciates the IRS’s willingness to increase outreach to underserved taxpayers, particularly those who live overseas. By expanding existing service channels to ensure that overseas taxpayers have access to IRS personnel by phone and online chat, the IRS can make strides toward bridging customer service gaps for taxpayers who live abroad.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Ongoing

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2.

TAS RECOMMENDATION #10-2

Explore ways to partner with the U.S. Department of State to make tax information available through State Department platforms and to provide tax customer service at U.S. embassies and consulates.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement TAS recommendation in full.

IRS has established points of contact with U.S. Department of State, in their Office of Foreign Missions, Passport Services departments. An example of how this communication channel is leveraged was on December 1, 2022, IRS hosted a 2-hour live Webinar for Tax Information for U.S. Individuals in Germany and the United Kingdom (U.K.) per requests from U.S. embassies/consulates in Germany and U.K. This webinar covered topics ranging from U.S. income tax obligations of U.S. citizens and residents abroad to U.S. tax implications of relinquishing citizenship. A U.S. Consular Officer from Frankfurt, Germany spoke to introduce the wide range of services (passport, notary, U.S. citizenship renunciation, partnering with U.S. military, visa, and Embassy website) offered by the U.S. Consular Office with locations in Frankfurt, Berlin and Munich. IRS presenters answered numerous questions on income sourcing, FBAR filing requirements, tax home determination, foreign earned income exclusion and foreign tax credit.

Another example is the October 16, 2018 Department of State Office of Foreign Missions Street Festival, held in Washington D.C., where the IRS hosted a booth sharing information on Wages from Foreign Governments or International Organizations – How to Report It to the IRS. The Festival was attended by employees of foreign embassies and consulates who were primarily working in Washington, D.C. Visitors to the booth included individuals working in the human resources department of various embassies and/or consular offices (most notably, Switzerland).

CORRECTIVE ACTION: IRS has established points of contact with U.S. Department of State, in their Office of Foreign Missions, Passport Services departments.

TAS RESPONSE: TAS is encouraged by the IRS’s steps to make tax information and assistance available at U.S. consulates and embassies abroad. TAS requests that, in future years, the IRS expand this initiative to more countries proactively rather than purely reacting to taxpayer requests in particular countries.

Update: TAS reviewed and found that IRS has taken corrective actions. We are closing this recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #10-3

Conduct a study to identify barriers to e-filing for overseas taxpayers. The IRS should use the results to formulate a strategy to reduce those barriers and to increase e-file rates by taxpayers located outside of the United States.

IRS RESPONSE TO RECOMMENDATION: IRS does not agree to implement the TAS recommendation.

The Inflation Reduction Act (IRA) has provided a transformational investment in the IRS, and the IRS has developed an Inflation Reduction Act Strategic Operating Plan and established an IRA Transformation & Strategy Office that will oversee the implementation of the Plan. The Plan includes a primary and substantial focus on methodically evaluating the barriers to e-filing encountered by taxpayers and purposefully moving towards ensuring that all taxpayers, including international taxpayers, will be able to file all documents securely and exchange correspondence electronically. As part of increasing electronic filing and correspondence, the IRS will prioritize improving digital pathways for those taxpayers most affected by barriers to e-filing and electronic communication, which undoubtedly includes international taxpayers.

As outlined in the National Taxpayer Advocate’s Report to Congress, the barriers that international taxpayers encounter to e-filing are both expansive and well-documented. Rather than expend resources to commission a study or IRS human capital resources on executing a study internally, the IRS will use our existing knowledge of the barriers encountered by internationally taxpayers to immediately begin the process of addressing these documented barriers.

CORRECTIVE ACTION: N/A

TAS RESPONSE: E-filing is important for both taxpayers and the government; it enables the most efficient processing of tax returns and is the quickest way for taxpayers to receive their refunds. The IRS should continue to prioritize e-filing access for overseas taxpayers. Because overseas taxpayers face unique barriers to e-filing compared to domestic taxpayers, the IRS should investigate the factors that would facilitate e-filing by overseas taxpayers, such as by conducting the recommended study.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #10-4

Deploy an identity proofing solution available to individuals who do not have and are not eligible for an SSN or ITIN and who need to access the FIRE system.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in full.

The IRS agrees with the TAS recommendation to deploy an identity proofing solution available to individuals who do not have and are not eligible for a social security number (SSN) or Individual Taxpayer Identification Number (ITIN) and who need to access the Filing Information Returns Electronically (FIRE) system. The IRS is evaluating options for individuals who are not eligible for an SSN or ITIN to electronically file Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, and other information returns through the FIRE system.

In the interim, and to support this recommendation, we determined the Transmitter Control Code (TCC) recertification requirement for Form 1042-S foreign filers with a legacy TCC may be extended past the August 1, 2023, deadline. The new proposed date is August 1, 2028, or until the FIRE system retires, whichever comes first. This option will allow these customers to continue filing electronically through the FIRE system without completing a new information return application for TCC.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: The IRS’s efforts to expand access to the FIRE system to taxpayers without the ability to obtain an SSN or ITIN will assist our overseas taxpayers. TAS looks forward to the IRS’s evolution beyond the FIRE system and a permanent solution to this issue.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #10-5

Offer customer callback on the international telephone line and provide more detailed information on the IRS website about the services offered on the international telephone line.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in part.

The IRS agrees to explore the TAS recommendation to offer customer callback (CCB) on the international telephone line. The IRS will have to determine the possibility and feasibility within the IRS call center infrastructure as international callers are unable to use the toll-free lines and must use a special toll line.

The IRS agrees with the recommendation to provide more detailed information on the IRS website about services offered on the international telephone line and will collaborate internally to determine the right content and placement on IRS.gov.

CORRECTIVE ACTION: The IRS agrees with the recommendation to provide more detailed information on the IRS website about services offered on the international telephone line and will collaborate internally to determine the right content and placement on IRS.gov.

The CCB exploration will start in September 2023. The IRS is focused on expanding customer callback to additional toll-free applications by August 2023 to reach 95% of Customer Service Representative call demand as directed by the Treasury Department. International telephone line procedures will be updated by April 30, 2023.

TAS RESPONSE: TAS urges the IRS to find a way to expand customer callback to as many international taxpayers as possible, even with existing restrictions on toll-free lines. Ensuring that these taxpayers have access to this direct communication with the IRS is essential for supporting overseas taxpayers and giving them the tools to comply with their U.S. tax obligations. The IRS’s willingness to provide more detailed information on the IRS website about services offered on the international telephone line will be helpful to taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 4/30/2024

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6.

TAS RECOMMENDATION #10-6

Revise correspondence and employee procedures to give overseas taxpayers an extended timeframe within which to provide responses to all requests for information or to otherwise take action.

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in full.

The IRS already provides additional time for overseas taxpayers to respond to correspondence. For certain specialized international programs, we include a local fax option for overseas taxpayers to use for submitting responses. The IRS Internal Revenue Manual requires we provide an assistor’s name, telephone number, and a unique identifying number so international taxpayers can make direct contact with respect to correspondence and gives direction for allowing additional response time.

We currently allow international taxpayers additional response time to provide missing information needed for complete return processing. Letter 4087C, International Return Incomplete for Processing: Form 1040-NR,1040-NR-EZ, 1040, 1040-SR, 1040A, 1040EZ, states in the first paragraph a response is due within 30 days from the date of the notice. Similarly, Letter 2894C/SP, Incomplete for Processing of Form 1040-PR – Spanish Version, allows for the same 30-day time frame. In contrast, Letter 12C, Individual Return Incomplete for Processing: Forms 1040 & 1040-SR, grants domestic taxpayers a shorter 20-day turnaround time. These letters also include fax numbers as another option to using regular mail service for overseas taxpayers to provide a timely response.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: The extended timeframes accorded to overseas taxpayers to provide a response are often insufficient. Thus, the IRS should make the initial timeframes for response longer, and taxpayers’ ability to seek extensions and submit late responses for consideration should be clearly stated and well-publicized.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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7.

TAS RECOMMENDATION #10-7

Offer virtual TAC appointments to taxpayers overseas. These appointments should offer all services available to taxpayers in the United States, including identity verification for individuals whose returns were flagged for possible ID theft and verification of identity documents for ITIN applicants.

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in part.

The IRS agrees with the concept of providing international taxpayers similar service offerings as domestic taxpayers, but concurrently has concerns about how to accomplish that goal given certain technological and security considerations for effective communication with overseas taxpayers.

The IRS is committed to implementing transformational customer services improvements for taxpayers. As part of implementing the Inflation Reduction Act Strategic Operating Plan, the IRS is committed to expanding service offerings across multiple service channels to meet the needs of taxpayers and tax professionals, with a strong focus on currently underserved taxpayer communities such as international taxpayers. We acknowledge the need to adjust policies, services offered, and locations to provide in-person, telephone, and digital services for all taxpayers and tax professionals in a way that is convenient for them. This includes expanding the services available through current customer service channels such as the TACs and phones as well as the exploration of new service channels deemed necessary to meet taxpayer needs.

CORRECTIVE ACTION: As part of implementing the Inflation Reduction Act Strategic Operating Plan, the IRS is committed to expanding service offerings across multiple service channels to meet the needs of taxpayers and tax professionals, with a strong focus on currently underserved taxpayer communities such as international taxpayers.

TAS RESPONSE: TAS understands that the IRS still faces barriers to implementing this recommendation; however, the IRS is committed to doing so only when these obstacles can be overcome. We urge the IRS to continue working to find mechanisms for furnishing the recommended virtual TAC appointments to overseas taxpayers. Offering a full suite of services via these appointments would provide overseas taxpayers with crucial, long-overdue support.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Ongoing