I have a current problem with the IRS. I always file, but sometimes a few months late. This was never a problem since we never owed anything.
On our 2000 return, we found that we were due a substantial refund since we incurred a lot of unrecoverable business losses and the IRS had withheld taxes from some US sourced income. (Income from anywhere is taxable, but the Foreign Earned Income Exclusion is applied only to income resulting from work performed outside the US.) The IRS reviewed our return and sent us the check. Our return was unusual enough that I am sure someone at the supervisory level okayed it before they cut the check.
We noticed that all IRS correspondence comes directly to our mailbox. Their letters are clearly marked IRS and contain all of the information an identity thief would need. They are sent by regular post, not registered.
After I complained about the security risk, they started sending TWO COPIES of each letter, both with our names and SSN’s.
However, refund checks are sent directly to the AIT in a diplomatic pouch. The AIT opens them. Then, after whatever investigation they do, they send them by regular Taiwan mail to the recipient. I don’t know what they do with the checks, but they held ours for almost two months. (this was clear from their “received” stamp and the local postmark.)
This would have been OK, but the IRS then changed their mind and decided we had made a mistake on our return. They sent us a bill for the full amount of the tax they said we owed for 2000, most of which they were still holding. They assigned someone to the case whose English was not up to the task (mainland Chinese, I think) and it took a long time to get the bill straightened out. Now we still owe the amount of the refund, plus several hundred dollars. Bear in mind that we lost a lot of money in 2000, resulting in very little net income.
They hit us with something called the “Alternative Minimum Tax”. This is, in essence, where the IRS can simply through out their own rules if they think you don’t pay enough taxes. They ignore all deductions and charge a flat rate (28% I think).
Through this whole thing, the IRS has been unresponsive and behaved in a way that could best be described as “predatory”.
They are still charging interest for the time that my check was sitting at the AIT. The money was in THEIR account. My check was at a US government agency that colluded with the IRS to delay its delivery. I did not have the money and could not possibly have had the money, but they are still charging interest for that time. They have ignored multiple requests for an explanation.
Make no mistake, the AIT and IRS are now working more closely together than ever to collect information about Americans in Taiwan, all under the guise of fighting terrorism.
This whole thing has raised some deeper questions for me. What right does the US government have to tax, or even to know about what I do in another country? I have no representative in the US congress, since my voter registration was canceled because I don’t reside anywhere in the US. I do not enjoy the services or facilities of the US government. The highest authority they can cite is is the US supreme court and Taiwan is outside their territorial jurisdiction. I do not recognize any obligation to provide information on my activities in Taiwan (economic or otherwise) to the US government. (But, until now, I have voluntarily done so.) I think my opinion is as valid as the government’s. The only difference is that the government can use deadly force to impose its opinions on people.
After having experienced the IRS’s wrath firsthand, I have decided to support the “fair tax” plan that is currently in congress. Check it out at fairtax.org. It looks like a good solution, especially for those of us who live abroad. Best of all, NO MORE IRS.
If you fail to claim the Foreign Earned Income exclusion any year, you can not claim it again for three years. So, be sure to at least file a return. Otherwise, you could miss the exclusion.