Many Americans Overseas wonder if it’s safe to travel to the United States if they had non-willfully never filed their taxes. Strictly speaking a person could be stopped at the border if the IRS issues a notice and/or lien (legal claim for tax). However Americans Overseas hasn’t come across any of these cases up till now.
That could change; On december 4, 2015, President Obama signed a law that requires the Secretary of State to deny a passport or turn down the renewal of a passport to a seriously delinquent taxpayer; anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000. If the IRS uses the bank account information provided through FATCA then Americans that haven’t filed could be put even more in a bind.
However in most cases Americans Overseas who never knew they had to file shouldn’t be impacted because no return of any kind would have been prepared. The IRS needs to know that a person owes more than $50,000 in taxes in order to have their passport cancelled.
The IRS could create a substitute return. A substitute return is a tax filing that the IRS will create for a taxpayer in order to preliminarily calculate the tax due, if a taxpayer neglects to file his or her own return. FATCA provides the IRS bank information but no information on foreign wages information or other income. A substitute return would be (very) inaccurate and may not reflect all the items of income, deductions and credits that should be on the return. It would be hard to assess a $50,000 tax debt.
There are those with (only) investment income. With a back-of the envelope calculation, to owe $50,000 in taxes, one would have to have about $250,000 of investment income (referring to investment income reported under FATCA, not total income). This could be derived from FATCA information and trigger the new law.
However the new law has a provision that additional notice of the potential loss of a passport must be included in collections communications. This would mean that Americans stopped at the border would have had plenty of notice of the IRS of a pending revocation or cancellation of their passport. The IRS is however still notoriously poor at tracking correspondence with international taxpayers as reported by Tigta (a government organisation that did an audit on this subject)
This isn’t the first time Congress has tried such a proposal. Two years ago, the House introduced a similar bill: it never got anywhere. But tucked away in the 1,300+ page bill? It sailed through with virtually no amendments. The new law is effective immediately.
In conclusion travelling to the US as an accidental American seems to be safe for now but the U.S. government is very actively pursuing Americans with a tax obligation and not shying away from any means to find and tax US persons.
Read more about this topic:
Let’s talk about US tax: Lose Your US Passport for Unpaid Taxes