The Streamlined Procedure – streamlined in name only, unless you are a US tax professional

It’s been a few months since my last post, in which I explained why I decided, after much consideration, to enter the US tax system. For those who are not well-versed on the topic of the United States’ burdensome and complex tax treatment of its overseas citizens, I suggest that you read my story from the beginning or just take my word for it that it is not a straightforward decision to make, even for someone has never knowingly broken the law.

In these last months I have opened up a blank Word document to continue writing my story from where I left off a few times, but lately it’s been hard to muster up the energy to keep writing about this.  In her final blog in an excellent series about FATCA and her reasons for renouncing US citizenship, Rachel Heller suggests that many American expats who have passed the initial moments of discovering they are subject to citizenship-based taxation and FATCA eventually start to experience ‘indignation fatigue’.  When I think about how much time I have spent thinking and worrying about the constraints these policies place on my life, the general unfairness of it all for every long-term overseas American, and what seems like a total lack of interest and understanding from US politicians, media and average Joe on the street in the US, I would say that my lack of motivation to keep ploughing on with the blog is in some part to do with indignation fatigue. That, and the fact that I was in the midst of preparing my US tax return and FBARs on my own for the very first time – and there’s only so much of my mental capacity I am willing to devote to this at any given time.

Now that my 2015 return is out of the way, and I’ve had a brief mental vacation from thinking about CBT, here I am – back at the campfire to continue my tale.

Streamlined Compliance Procedure

I decided to enter the tax system using the streamlined compliance procedure, which does not feel streamlined in the slightest. I had to gather information about my bank accounts going back six years, and information about my income and taxes paid in the UK going back three years. Most of it was information I would never need for UK reporting purposes, so of course I hadn’t been diligently keeping the necessary records (for example, what was the maximum, exchange-rate adjusted balance of the random savings account I use to deposit birthday cheques from my grandmothers in 2009? And for all of my accounts, in each year for six years? Should anyone actually care? Well, apparently the US Financial Crimes Enforcement Network does, and I had to find or estimate this information for my stack of ‘Foreign Bank Account Reports’ (FBARs).

I painstakingly got all the information together and spread it all over the living room floor in little categorised piles one sunny Saturday morning to ‘do my streamlined filing’.

Somehow, after eight hours of (frankly) effing around with IRS guidance and my little piles of paper on the floor, I still hadn’t made any significant headway in the so-called streamlined procedure. The sun was gone. Surely it couldn’t be so complicated – why was I finding it so impossible to just fill out some forms?

There were so many little questions that cropped up at each line that weren’t always answered by the guidance. Should I fill that in? What about this? What is the difference between this and that option? Do you just leave things blank if they don’t apply, or do you write ‘N/A’? What if you don’t have an exact record of something anymore? If I’m preparing a filing for 2011 and it’s now 2015, should I be using the form that was issued back in 2011 or should I use the current form and adjust the dates? Which accompanying schedules am I meant to be filing in addition to the 1040? Which 1040 should I even file?

If you are an American used to filing US returns and these seem like stupid questions, might I point out that in the UK, if you are employed your income tax is automatically figured and deducted by your employer, and HMRC (the UK’s IRS) will check at the end of the tax year whether you’ve paid the correct amount or not. In other words, I’d never actually ‘done’ a tax return before – it was always done for me. Now, all of a sudden, I was attempting a multi-year filing to a country where I don’t live, which has rules and terminology I wasn’t familiar with. Reading stories of mistakes in streamlined procedures leading to the IRS rejecting whole filings, I was not prepared to take a best-guess approach.

At this point I started to second-guess myself for deciding to file at all, if this was what I was letting myself in for each year. I tried for another couple of hours before throwing my hands up and enlisting the services of a professional tax preparer specialising in expat taxes. For a mere 1500-ish dollars (the best deal I could find), they could do my streamlined filing for me!

So, I spent the Sunday filling in the tax preparers’ purpose-built survey online, which translates the items on the tax return forms and puts them into words I could understand.  I assume they then press a button and the impenetrable tax return forms are filled in with the correct numbers and schedules as if by magic. It must be a pretty lucrative business model – I guess the ‘streamlined’ aspect is for tax preparers rather than individual filers. Any bitterness I feel about having needed to pay a professional to prove I owed nothing (I repeat, zero dollars) to the US government is squarely aimed at whoever designed these forms and these rules. The company itself was helpful, and I used them again for my next filing (the next year’s deadline came up shortly after I finished my streamlined filing, and I couldn’t bear the thought of trying to do it by myself again).

Some time after sending the preparers my details, I was sent the near-completed streamlined filing and told there was one more step I needed to take before I could sign the forms and send everything off to the IRS, and it was something the tax preparer could not do for me (although they could provide advice at $X hundred dollars an hour): I had to write a statement explaining why my ‘failure to file’ to that moment had been ‘non-wilful’.

It felt more than a little surreal to be penning my life story with justification for why I did not know that I was supposed to file taxes to a country where I haven’t lived since I was a kid – in the knowledge that this would be assessed and judged by some faceless IRS agent. It took a few drafts before I managed to minimise any passive aggression in my response- which is not easy, I learned, when you are trying to justify why you didn’t know something which is patently absurd (I didn’t know because… Like most people I don’t read about foreign tax policy for leisure? Or because no other country in the world besides Eritrea has this arrogant policy?)

As a quick aside, I became aware that the instructions for this ‘statement’ became even more stringent after I did it. Here is an excerpt of the instructions you can access from the IRS website now:

“Note: You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts. The field below will automatically expand to accommodate your statement of facts.”

Do they realise how invasive these instructions are for somebody whose entire life is lived (and thus financed) outside of US borders?

I digress. I finished my statement (which mercifully did not need to go into the detail which is now required), and the filing was ready to go! When I filed the IRS only accepted paper filings for the streamlined procedure, so I had to print it out at an internet café because I didn’t have access to a printer at home. Did I feel comfortable printing out around a hundred pages of personal financial data, including six years’ worth of bank account details (account balances, account numbers), my social security number, my income tax return figures for the last three years, my home address, my employer, etc. etc. in a questionable internet café? No, I did not feel comfortable. But it was the only place I could print at that time and because I was running up against the deadline of the next tax filing year, I feared that my streamlined filing could be invalidated by being out of date. I just wanted to send the damn thing and be done with it.

I stuffed the 100 pages into an envelope and sent it off into the ether of the international postal system. Like, actually into the ether, because the US Postal Service lost my package and it still hasn’t been returned. Who knows where my nice little goldmine of personal data, ripe for identity theft or fraud, is floating around? I sent another filing after a couple of rounds with USPS’ and Royal Mail’s respective customer services departments, who both told me it was the other’s responsibility to figure out where my package was.

After streamlined filing 2.0 was sent off, that was it. I was told not to expect any acknowledgement whatsoever, so one day, about five months later, when I saw a letter on the doormat from the IRS with my name on it my heart was in my throat almost immediately, thinking it could only be bad news.

Well, it wasn’t – they actually sent me a letter to tell me they had filed my returns “under the streamlined procedure as I had requested” or something along those lines. A sigh of relief ensued. I suppose we could call this a small happy ending to the streamlined chapter of my story? One of the things this sorry US tax saga is teaching me (and my god, it is teaching me a lot) is to hunt for that silver lining. So far though, the silver lining has been looking pretty thin.

As always, I welcome your comments. The next instalment should bring me up to the present day of my personal account, after which I’ll start writing about the wider issues of CBT, related policies and dual citizenship for Americans overseas in general.

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The Streamlined Procedure – streamlined in name only, unless you are a US tax professional