U.S. tax authorities are stepping up their efforts to track down expatriate tax-dodgers in an attempt to recover billions of dollars of unpaid taxes, the Financial Times reports.
Specifically, the Internal Revenue Service is to start checking expatriates' tax status when they apply for new passports.
The IRS will target expatriates in the UK, Canada, Mexico, Germany, Italy, Hong Kong, Australia, Israel and Switzerland.
"According to Census data and estimates of unfiled tax returns and unpaid tax, more tax is owed by Americans living in those countries than anywhere else," Marlene Sartipi of the IRS told a seminar of the Swiss-American Chamber of Commerce in Zurich yesterday. Some 200,000 U.S. expatriates live in London alone, making the UK home to one of the largest American communities outside the U.S.
The U.S. and Libya are the only countries that tax their citizens wherever they live. However, the IRS believes it is losing several billion dollars a year in unpaid tax from the 3 million U.S. expatriates worldwide who have failed to file their obligatory U.S. income tax returns.
"Even if expatriates join the IRS' voluntary disclosure program, it is not an iron-clad guarantee against prosecution," warned Sartipi, "U.S. citizens have to provide their social security number when renewing their passports, making cross-checks with tax returns relatively easy."
Although estimates of the level of unpaid tax vary considerably, Sartipi said the IRS had recently conducted a study based on information from 1,000 passport renewals. Of the 1,000 people contacted, 600 replied, and only 83 of the 600 had filed a tax return. Of the 30,000 U.S. expatriates in Switzerland, about 48 percent are estimated to have failed to file tax returns. Zurich-based Philip Marcovici, of the U.S. law firm Baker & McKenzie, advised that U.S. expatriates not in compliance with IRS rules should try to sort out their tax affairs before the IRS began an investigation.
About 15 percent of taxes collected by the IRS come from tips provided by ex-wives or disgruntled employees.