by Laureen Scharps, FAWCO Deputy US Liaison
Erin Collins, the US National Taxpayer Advocate, submitted a scathing 2025 Annual Report to Congress which castigates the IRS for the unfair treatment of overseas American taxpayers.1
The National Taxpayer Advocate, an independent organization within the IRS, is responsible for protecting taxpayer rights, helping taxpayers resolve problems with the IRS and proposing systemic changes to tax administration.2 The latest annual report includes a laundry list of compliance burdens placed on overseas taxpayers and strong recommendations to overcome these failures.
The IRS is tasked with running a worldwide, citizen-based tax (CBT) system but also has the responsibility and duty to educate, assist and support overseas taxpayers.1 Some of the most egregious failures to educate, assist and support overseas taxpayers include: incomplete notices which can lead to prolonged disputes; delays in processing; lack of toll-free telephone service for taxpayers to call for assistance outside the US; restricted access to systems which forces taxpayers to file paper returns; limited systems that prevent many from receiving refunds or paying their taxes electronically through foreign bank accounts; and limited guidance.1
As a result of the failure of the IRS to live up to its duties, a number of American taxpayers have missed deadlines, had to pay excessive penalties, have needed to hire expensive tax advisors, have had their refunds frozen, and have experienced long-term financial harm. Some have become so confused, frustrated and fed up that they either don’t file a return or they go so far as to renounce their citizenship.1 3
In fact, CBT violates the 14th Amendment which states that “no governmental unit may impose any obligation that shifts, cancels, dilutes, destroys, abridges, or affects citizenship.”3
The overriding theme in the report in a nutshell: the IRS is not capable of handling a worldwide tax system. The US is the only democratic country in the world which enforces CBT instead of residency-based taxes (RBT).
FATCA and FBAR filing
Collins’s report this year pointed out that the government’s insistence that both individuals and non-US financial institutions report on any accounts held by US citizens has led many foreign financial institutions to simply refuse to serve Americans, or charge them extra fees because of the additional compliance burden.2 Collins calls these obligations placed on US taxpayers abroad “complex, overlapping and punitive.”2
Furthermore, Collins recommends Congress exempt US citizens abroad from having to file FATCA forms because they generally have a bona fide foreign residence and they open bank accounts for legitimate reasons and not for offshore tax avoidance purposes.2
Advocacy
For decades, a number of organizations, including FAWCO, Association of Americans Resident Overseas (AARO), Tax Fairness for Americans Abroad (TFFAA) and others have been fighting for legislative and regulatory changes on behalf of overseas Americans.
As a result of the tireless advocacy of these organizations and individuals, Congress has taken a significant step toward reform. Representative Darin LaHood introduced a bill to Congress called, Residence-Based Taxation for Americans Abroad Act in 2024.4 In part, the bill establishes an elective process for a US citizen living abroad to be treated as a non-resident without having to renounce his or her US citizenship.
Under this new tax regime, an electing taxpayer would be subject to US tax only on US-sourced income and gains, distributions from US retirement and deferred compensation plans, income from assets physically located in the US and other US-sourced income or gains.
For purposes of Foreign Account Tax Compliance Act (FATCA) only, a non-resident American would be able to apply to the IRS for a certificate of non-residency to use with foreign financial institutions.
By allowing the non-resident American to establish that he or she is not a “specific United States person,” foreign financial institutions would not be required to undertake burdensome reporting requirements under FATCA, which frequently discourage them from offering banking services to Americans living and working abroad.
Similarly, the non-resident American would be exempt from certain reporting requirements (and substantial associated penalties) with respect to foreign assets and transactions, including Foreign Bank and Financial Accounts Reports (FBAR).4
The RBT bill will be reintroduced in both the House and Senate soon. However, we urge you to let your voice be heard. You can take one or more of the following actions:
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Contact your Representative or Senator and urge them to vote for the RBT Act
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Send your own tax experience to Johanna Dishongh, , so that she can present it to members of Congress during Overseas Americans Week in June
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Join the US Issues Team. There is an opening for the role of Tax and Banking Chair.
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Write an article for the US Issues Bulletin
1 National Tax Advocate Collins, Erin, “2025 Annual Report to Congress” https://www.taxpayeradvocate.irs.gov/reports/2025-annual-report-to-congress/ (January 26, 2026).
2 Tax Fairness for Americans Abroad, “National Taxpayer Advocate lays out complexity and misery US tax system inflicts on Americans Abroad” https://www.taxfairnessabroad.org/blog/national-taxpayer-advocate-lays-out-complexity-and-misery-us-tax-system-inflicts-on-americans-abroad (January 28, 2026)
3 Tax Notes Federal, Volume 190, Snyder, Laura, Taxpayer Advocate to IRS: “Your Task Is to Administer a Worldwide Tax System. Do It.” (February 23, 2026).
4 Lahood, Darin, “LaHood Introduces Bill to Modernize Tax System for Americans Living Overseas” (December 18, 2024).
