Tax Administration: Nonfiling Among U.S. Citizens Abroad
GGD-98-106
Published: May 11, 1998. Publicly Released: Jun 10, 1998.
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Highlights
Pursuant to a congressional request, GAO provided information on the tax compliance of U.S. citizens residing in foreign countries, focusing on: (1) whether it is possible, given available data, to estimate the prevalence and revenue impact of nonfiling among U.S. citizens residing abroad; (2) factors that may limit the Internal Revenue Service's (IRS) enforcement of the filing requirement or otherwise contribute to nonfiling abroad; (3) IRS' recent initiatives to improve the filing compliance in this population; and (4) the Department of the Treasury's study on the income tax compliance of U.S. taxpayers residing abroad.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To obtain better data on the filing compliance of the U.S. population residing abroad and to promote their understanding of their filing requirements, the Commissioner of Internal Revenue should ensure that IRS assesses the usefulness of country of residence and occupation data, in addition to data IRS currently receives from passport applicants, as a means of identifying potential nonfilers abroad and supplementing IRS' other sources of demographic data on U.S. citizens abroad. The assessment might include reviewing a limited random sample of currently available information. |
Closed – Implemented
IRS reviewed a limited random sample of passport applications to determine the usefulness of collecting country of residence and occupation data. The review disclosed that for a majority of the applications, information on country of residence/addresses and occupation was generally identical to the information currently on file with IRS. As a result, IRS concluded that further extraction of country of residence and occupation data from passport applications was not useful for tax enforcement purposes.
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| Internal Revenue Service | To obtain better data on the filing compliance of the U.S. population residing abroad and to promote their understanding of their filing requirements, the Commissioner of Internal Revenue should ensure that IRS estimates the cost of obtaining the additional data routinely for passport applicants residing abroad, including those who apply in the United States. If the estimated costs appear to be justified, IRS should: (1) prescribe that passport applicants provide the additional items; and (2) routinely obtain and analyze the additional data elements. |
Closed – Implemented
IRS worked with the Department of State to develop cost estimates for routinely obtaining additional data from passport applicants residing abroad. According to the Department of State officials, extracting such data directly from applications would cost about $700,000 annually. This estimate would not include the costs involved in redesigning the passport application, rewriting computer programs, and training personnel. Given the high costs involved and the low direct benefits from obtaining the additional information, IRS and the Department of State decided not to pursue this recommendation further. GAO concurs and has agreed to close out the recommendation.
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| Internal Revenue Service | To obtain better data on the filing compliance of the U.S. population residing abroad and to promote their understanding of their filing requirements, the Commissioner of Internal Revenue should ensure that IRS undertakes additional efforts to enforce the information requirements of Internal Revenue Code section 6039E, including the requirement for applicants to provide their SSNs. One potential effort would be to contact a random sample of adult applicants who did not provide a SSN, using the mailing address provided on their passport application. |
Closed – Implemented
IRS developed and mailed a letter to individuals who failed to provide SSNs on passport applications submitted during the period October through December 1997. Of the 1,029 letters mailed, 640 responses were received with about 70% providing SSNs. Based on its analysis of the responses, IRS determined that it already had the information in related taxpayer databases. Thus, IRS believed that further solicitation of such data from taxpayers was not cost beneficial nor useful for tax enforcement purposes.
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| Internal Revenue Service | To obtain better data on the filing compliance of the U.S. population residing abroad and to promote their understanding of their filing requirements, the Commissioner of Internal Revenue should ensure that IRS revises the instructions for form 1040 and related guidance, such as Publication 17, to clarify that income that qualifies for foreign earned income exclusions must be considered in determining whether one's gross income exceeds the filing threshold. |
Closed – Implemented
IRS included, in the 1998 Form 1040 instructions, a statement similar to the one in Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad." IRS does not believe that Publication 17 should be revised further since it specifically refers to U.S. citizens living outside the country to Publication 54 for special rules that apply to them. GAO believes that IRS has been responsive to this recommendation and that it can now be closed.
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Americans employed abroadIncome taxesNoncomplianceTax administration systemsTax nonpaymentTax returnsTaxpayersVoluntary complianceSocial security numbersTaxes