Take Back The EIP From Needy Widows, Give It To Wealthy Foreigners

[BobKamman]

The Washington Post has this interesting anecdote about EIP's:

Tens of millions of Americans are still waiting for their $1,200 stimulus checks — but some payments have already gone out to people who don’t even remotely qualify as Americans in need. Elizabeth B., a British national who asked that her last name not be used for fear of backlash, was shocked to find that her U.S. bank account had received a direct deposit from the IRS for $1,200. She received the payment on April 15.

Elizabeth worked for several years in New York under an E-2 investor visa as a communications consultant. She had a Social Security number and paid taxes, as required under the conditions of her visa. In 2018, she earned $13,000 over a few months before returning to Britain. Had she remained stateside for the rest of the year, her annual income would have put her beyond the $99,000 individual cap for a stimulus payment.

Comment:  Many young American men from my generation chose immigration to Canada over the military draft and the possibility of coming home in a body bag from Vietnam, where today a lot of our health professionals buy their PPE.   President Ford in 1974 gave some of them a partial amnesty in return for their working two years in a public service job, and three years later President Carter granted a pardon to most draft evaders without a requirement of public service. 

Many returned to the United States, but many found new lives in Canada.  They kept their Social Security numbers, though, and in some cases worked and filed tax returns in both countries.  I wonder how many of them have "earned" $1,200, either by surprise or by a trip through the IRS Non-Filer portal. 

[itonewbie]

For Elizabeth, I am inclined to believe that she didn't file the proper dual-status nonresident return for 2018 and that was probably what triggered the EIP.  Had she filed the proper return, I doubt the IRS would have sent her any money at all.

As for Americans overseas, I was surprised that Congress decided to use AGI instead of MAGI, which would be more common for this type of tax credits and didn't change that before the bill was passed.  They must be feeling generous.

[IRonMaN]

Dead people and foreigners - I'll just mention one more time - pickup trucks (or the optional drones) would have worked better.

[BobKamman]

It will be interesting to see whether the 2020 Form 1040-NR has a line for the EIP credit.  In some cases, NRA's are allowed the child tax credit, childcare credit, foreign tax credit, and even the residential energy credit. The law says that NRA's are not eligible, but does that mean they had to be an NRA all year?  If someone dies in June 2020, they get the credit, but if they just leave the country and go home, they don't?  

The one thing I learned from my days issuing Alien Tax Clearances in Washington DC is that most of IRS is clueless about taxation of non-citizens.  Congress is ignorant, also, in its best bipartisan way.  My friends around the world are laughing at us, and I can't blame them.  

[itonewbie]

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@BobKamman wrote:

I wonder how many of them have "earned" $1,200, either by surprise or by a trip through the IRS Non-Filer portal. 

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These individuals may have to cough up more than the $1,200 they receive when the IRS gets hold of their details and starts to probe their accounts as part of their ongoing international compliance effort.  Over the years, I've seen expats being sent IRS notices for overseas income they didn't report, thanks to TIEA.  This, ultimately, may be a bigger surprise than the check or direct deposit for EIP, at least for some of them.

[itonewbie]

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@BobKamman wrote:

The one thing I learned from my days issuing Alien Tax Clearances in Washington DC is that most of IRS is clueless about taxation of non-citizens.

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You can say that again.  There's been more than one time I had to be transferred to different specialist units because the agents didn't understand the technicalities.

When I first joined this business doing international tax, there was a tax director who used to work for the HMRC (UK equivalence of the IRS).  He told me that agents there relied heavily on manuals (much like the IRS) rather than actual tax code and regulations.  Our value to client is to understand the law better than the agents so that we are able to make a strong and convincing argument for their cases.

[BobKamman]

Meanwhile, Politico's morning tax letter reports:

Thousands of foreign workers who were recently employed in the U.S. received stimulus payments. "College-age workers who spent time in the U.S. in the last two years — some of whom returned home long before the coronavirus pandemic — have been surprised to find $1,200 checks deposited into their bank accounts," a Politico writer reports.

The error stems from foreign workers turning to TurboTax and other e-filing systems without knowing that they're designed only for U.S. residents; they should file non-resident paperwork instead. Accountants who specialize in non-resident taxes have been flooded with calls about mistaken payments.

But with no clear guidance on how to return the money, those who received the surprise check are holding onto it or racing to spend it before the IRS realizes the mistake.