This article is the second in a series analyzing the proposed Taxpayer Assistance and Service Act (the “TAS Act”), bipartisan legislation introduced by Senators Crapo and Wyden to improve service and administration at the Internal Revenue Service (“IRS”).  Our introduction to the series is here, and our discussion of Title I is here.

This article examines the provisions of Title II of the TAS Act, titled “American Citizens Abroad.” Title II focuses on the compliance burdens facing U.S. citizens living outside the United States due to overlapping international financial information reporting requirements which can result in errors and significant penalties.

Combined Tax and FBAR Reporting (Section 201)

The IRS must conduct a study on combining and simplifying reporting requirements between Foreign Bank Account Reports filed with FinCEN and tax returns filed with the IRS and eliminating duplicative information requests.  No later than 180 days after  the enactment of the TAS Act, the IRS must make a report to Congress on this study, any actions it has taken as a result of the study, and any legislative recommendations necessary to effectuate the goals of the study.  

Simplification Study (Section 202)

The Government Accountability Office (“GAO”) must conduct a study on the burdens of individual compliance with the Internal Revenue Code, including low-income and moderate-income individuals.  The study must identify compliance problems related to filing tax returns and paying taxes while living outside the United State, electronic filing of tax returns and reports, foreign retirement plans, foreign currency gains, receiving and responding to inquiries from the IRS and FinCen, accessing financial products (such as retirement and bank accounts), access to affordable return preparation services, and the burdens of compliance.  No later than 1 year after  the enactment of the TAS Act, the GAO must submit a report on this study to Congress and make it publicly available.

Currency Exchange Simplification (Section 203)

The TAS Act increases the exemption for foreign currency gains from $200 to $1,000 and indexes it for inflation.  It also allows taxpayers living abroad who sell their homes to offset gains and losses on a qualified residence with mortgage currency gains and losses.  It also allows qualified individuals working abroad to use an average conversion rate for salary received during the year when converting their salary to U.S. dollars.

Simplified Foreign Tax Credit Threshold (Section 204)

The TAS Act increases the threshold for the simplified foreign tax credit election from $300 to $1,000 ($600 to $2,000 for joint returns) and indexes it for inflation.

Math Error Abatement Extension (Section 205)

The TAS Act increases the deadline for taxpayers living abroad to respond to math error notices from 60 days to 120 days.

Conclusion

Title II of the TAS Act reflects a recognition that U.S. citizens living abroad face unique and often disproportionate compliance challenges under the current tax system.  The reforms proposed in Title II represent an attempt to reduce unnecessary burdens on Americans abroad without compromising the interest of the IRS in tax compliance.  As a whole, Title II signals a bipartisan acknowledgment that the current approach to taxing and monitoring Americans abroad is in need of modernization. 

The next post in this series will review Title III, which addresses the jurisdiction and powers of the United States Tax Court