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U.S. Citizens Living in Foreign Countries and Not Filing Federal Income Tax Returns

Published: May 08, 1985. Publicly Released: May 08, 1985.
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Highlights

Pursuant to a congressional request, GAO commented on the problem of U.S. citizens who live in foreign countries and do not file federal income tax returns. GAO stated that: (1) the Internal Revenue Service (IRS) has been hampered in its effort to quantify the extent of the problem because the Privacy Act precludes IRS from accessing certain nontax information which may be useful; and (2) there is little information available from other countries concerning U.S. citizens that IRS could use to identify nonfilers. GAO also stated that the tax liability of U.S. citizens could be affected by tax benefits such as foreign-earned income and deductions of certain foreign housing expenses from taxable income. Early IRS attempts to identify overseas nonfilers began with an effort to complete an IRS tax form when citizens applied for passport and registration services and was the only source of information available. However, because there was no legal requirement that the form be filed, refusal to complete the form did not prevent a person from receiving a passport, and there were complaints that the form violated privacy rights. Presently, IRS has several programs to match information and indicate possible nonfiling situations, but it is unable to process a significant portion because the information is incomplete, untimely, or unusable. GAO also examined IRS attempts to contact individuals in an effort to resolve the problems and found that: (1) contact was usually made through a series of notices, which made no mention of special statutory provisions applicable to U.S. citizens living abroad; and (2) the notices only asked the taxpayer to file a return or explain why a return need not be filed. GAO believes that the provision of accurate information to taxpayers regarding filing and tax requirements would have a positive effect on compliance.

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