ExPat Tax Tips: The Death of Foreign Earned Income Exclusions?

President Obama is tagging your Foreign Earned Income
Exemption to help pay for huge federal budget deficits. He
thinks to hide this motive behind recent White House
announcements about U.S. companies, providing smokescreens
such as: "I want to see our companies remain the most
competitive in the world," and "...the way to make sure
that happens is not to reward our companies for moving jobs
off our shores or transferring profits to overseas tax
havens."

The reality is that with tax gaps estimated in the $400
billion range, this administration is hard-pressed to come
up with new sources of revenues to fill the deficit. It is
estimated that offshore tax abuses cause the United States
to lose approximately $100 billion each year in tax
revenues. Recovering these funds represent a substantial
portion of the annual U.S. tax gap, which is why President
Obama has authorized an additional $128 million for the
2010 IRS budget, which includes the addition of 800 new IRS
agents. Do not be fooled, they have declared war on YOU
and are coming after YOUR money.

First, they are going after the companies you work for
because they see companies operating abroad as a viable
source of additional revenues. Currently, companies with
overseas operations pay U.S. taxes only if they bring the
profits back to the United States. They can defer paying
U.S. taxes indefinitely if they keep the profits offshore.
Obama's plan, which would take effect in 2011, cracks down
on these loopholes so that companies would no longer be
able to write off domestic expenses for generating profits
abroad. It is estimated that this change alone would
generate $210 billion in new taxes over the next 10 years,
making a modest dent in the forecasted $1.8 trillion
federal deficit. Rest assured, this administration will
encourage any possible avenue to be able to bring these
monies back into the U.S.

And, they are coming after YOU. The recently released IRS
report on the 2006 tax year indicates that the Foreign
Earned Income Exclusion might be another modest source for
helping to fill the tax gap. In tax year 2006, about U.S.
taxpayers living abroad reported approximately $36.7
billion in foreign-earned income and claimed nearly $18.4
billion in income exclusions. And that was three years
ago. There are more Americans living and working abroad
now than ever. Can't you just see the wheels turning in
the minds of our government leaders? Removing the Foreign
Earned Income Exclusion could add billions to U.S. tax
coffers.

Perhaps you think they won't find YOU. The historic legal
struggle that has cracked Switzerland's renowned reputation
for banking secrecy is part of an on-going IRS quest to
identify nearly 52,000 suspect offshore bank accounts.
When the IRS increases their workforce by 800 new agents,
they won't be hiring new college recruits. They have
announced that they will be hiring the fancy attorneys and
investment advisors that have helped hide those assets
offshore. Now, multiply the number of suspected offshore
accounts by the $10,000 or possibly $20,000 in allowable
fines for non-reporting, and you come up with another
modest number toward the filling of the U.S. tax gap. If
you have been one of those 'tax evaders' thinking they can
hide assets in offshore bank accounts, think again. The
IRS is already searching for you, cracking the
international bank privacy policies and gearing up to hire
professionals to find you.

All of these items add up to making the American Expatriate
look like a great big piggy bank to the current
administration. While there will likely be a huge fight in
Congress regarding closing the corporate loopholes, it is
even more likely that the tax benefits associated with your
Foreign Earned Income Exclusion will be taken from you.
Fines for unreported bank accounts will soon become
automatic bills. This means that for you, the individual
American Expatriate, the stakes are high and getting higher
if you seek to hide your income off-shore or evade paying
U.S. taxes on that income.

What action do you need to take as an expatriate? Stay
abreast of the latest information that develops about the
foreign earned income exclusion. The best way to
accomplish this is to work with a reputable advisor who
will focus on keeping you out of the scrutiny of the IRS by
keeping your activities well above board and within the
law. Your advisor must be well-versed in the nuances of
expatriate tax law, so check with your advisor about
his/her expertise in this arena and be ensure you've chosen
your advisor wisely.

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Nick Hodges, President of NCH Wealth Advisors, provides US
expatriates with the best tools, strategies and planning
techniques to help expats manage their tax and financial
goals and dreams on a day-to-day basis regardless of their
location. To claim your free gift, ExPat Life Portfolio
Kit, visit his site at
=========> http://www.ExpatCFO.com .

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