See also: part 2 – Taxes overboard!  Americans reconsider the IRS at the Geneva T party

part 3 – What has changed for US taxpayers living abroad

[Update 3, 21 September: note that the IRS has announced it will delay the deadline to 15 October 2009, from 23 September - details here]

Geneva, Switzerland (GenevaLunch) - The Swiss government announced Friday 11 September that it is authorizing its finance and foreign affairs ministries to sign a new double taxation agreement with the US to replace the current one, which dates back to 1996. The step may ease nervousness among some Americans in Switzerland and elsewhere outside the US – as long as it means that details of the new treaty are published soon.

A Swiss government spokesperson told GenevaLunch 11 September that it’s impossible to know when the two Swiss departments will actually sign the treaty. Parliament retains the right to vote on it, as well, once the departments sign, and as yet there is no clear indication if parliament will or will not exercise this right.

Some US citizens and greencard holders who live overseas know that they are considered non-compliant under IRS (US tax authority) rules which are being more stringently enforced in 2009, and they are debating coming in from the cold. Others are only becoming aware they may not be fulfilling their US tax obligations, even though they assumed they were.

The date 23 September won’t mean much to the bulk of US taxpayers, but for many ordinary US citizens living abroad it is a tax date that looms far larger than any April 15 tax date in the past.

This is the deadline the US has given to become a “compliant” taxpayer, meaning all back years of US taxes have been filed with the IRS and information about all bank and financial accounts outside the US, including the account numbers and the highest balance for each quarter, have been filed separately with another US government office which oversees money laundering. Any taxes owing must be paid in order for the taxpayer to be considered compliant. Up-to-date taxes filed in the country of residence are irrelevant for IRS compliance.

The deadline is the latest blow to US citizens resident in Switzerland or elsewhere who have been told in the past year by their local banks that their accounts are being closed, moved, or are now subject to new restrictions.

Non-compliant US taxpayers abroad: a large group, mainly seeking to avoid double taxation

The size of the group of non-compliant taxpayers outside the US is difficult to judge, but three tax consultants (see Ed. note below) have told GenevaLunch their experience shows the number is large, and they cite reasons that vary from anger at what citizens see as the injustice of double taxation to their inability to cope with the complexity and expense of filing, which the advisers generally agree is higher for US citizens resident outside the country. Dual nationality and foreign spouses, as well as different national methods for taxing retirement income, which are perceived as penalizing, are also listed as reasons for not filing.

Those who are simply hiding wealth are a tiny minority, the tax advisers believe. More often, people are seeking to avoid double taxation that can occur because, unusually compared to other countries, the US does not fully recognize other tax systems. The British government, for example, recognizes that a British citizen resident in Switzerland who pays taxes to the Swiss is fulfilling his or her obligations  and will not need to file UK taxes.

The 23 September [Ed. note: 21 September the IRS extended this to 15 October 2009] date is being eyed with particular nervousness in Switzerland, where the new US-Swiss double taxation treaty will clarify what information the US can seek from Swiss banks or authorities, and under what circumstances. The details of it become public knowledge only once the two governments have signed it, although business groups considered to have an interest in it have been consulted. The foreign affairs and finance ministries could sign it Monday, or they could wait until after 23 September. Americans debating whether to gamble and remain non-compliant, or even to give up their citizenship because they consider double taxation unjust, are waiting to see the details, while the many who have just learned of the changes and who want to become compliant are discovering that to do so is not an easy task.

The Geneva T for taxes party

The situation came to a head at a highly emotional meeting in Geneva Wednesday evening 2 September, when 200 American expatriates, citizens and green card holders, gathered at Webster University to learn about recent shifts in the tax situation, what has brought it about and what the implications are. The town hall style meeting was designed to provide clear information about tax filing requirements in the short weeks remaining before an IRS (Internal Revenue Service) amnesty announced in March ends. It was jointly organized by American Citizens Abroad, Democrats Abroad and Republicans Abroad. It was the first such meeting that the organizers are aware of, outside the US, one of them told GenevaLunch. Geneva is home to American Citizens Abroad, an information and lobbying organization.

Four tax specialists provided details to the Geneva audience, whose reactions veered from astonishment and disbelief to bouts of anger, fear and rebellion. A good dose of resignation also coloured the meeting.

It opened with an unusual request: that no names be given or mentioned later, including those of the tax consultants presenting, in order to allow people to speak as openly as possible. And speak openly, the crowd did. See part 2, US taxpayers abroad: Taxes overboard! The Geneva T party

Ed. note: GenevaLunch, with rare exceptions, cites its sources, but given the delicate legal situation for many individuals thanks to new IRS rules and actions, we are not citing any sources for this three-part series. GenevaLunch, a Swiss-based newspaper, does not support the IRS Whistleblower Program, which encourages citizens, through generous monetary rewards, to report fellow taxpayers who might be non-compliant.

Also see part 3: US taxpayers in Switzerland, France and elsewhere: the rules have changed

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