Samuel Spectre was born in the UK in 1940 and trained to be a dentist. In 1965 he emigrated to the USA to make his fortune. Shortly after setting up his clinic in Florida he met and fell in love with Juanita, who had arrived in the USA 10 years ago with her parents. The couple married and in 1968 Bruce Spectre was born.
Samuel prospered and he and Juanita embraced the American lifestyle, feasting on burgers and pizza and typically putting on 7lb in weight each year. Bruce studied hard at school and won a place at Harvard where he studied sociopathy. After graduating he decided on a career in customer care and joined the IRS.
In 1998 Samuel suffered a major heart attack, and in 1999 Juanita suffered a stroke. In 2001 having lived the American dream, they both died the American nightmare. Bruce inherited a large house on the coast and his parent’s savings of $5 million.
6 months before his parents passed away Bruce made contact with his cousin Ian in the UK and they exchanged emails on a regular basis. Sixteen years of email correspondence later, and Bruce decided it was time the cousins met in person, he decided to extend an invite to Ian to fly over and visit him in Florida. Ian accepted the offer and set about checking flights on his office computer. Just then the phone rang. “Spectre, my office, 10.00 am tomorrow”. Ian Spectre recognised the voice; it was James Fortesque-Simmonds from the Treasury.
The next morning Spectre duly arrived at the Treasury. He was escorted to a small office and told to sit down. 5 minutes later Fortesque-Simmonds marched in. “Good morning sir”, Spectre said. “Yes, yes, let’s get down to why I’ve called you here Spectre. We need to raise more tax revenues to meet the growing demands placed on the public purse by the old and the sick. There simply isn’t enough money to keep the NHS and the state pension going. My estimate is that we need to bring in an extra £25 billion a year.”
“That’s quite a lot to raise from normal taxes”, Spectre replied. “Exactly, all our options seem to be closed. We’ve got just about all we can out of stealth taxes and personal debt levels are too high for us to raise VAT or the basic rate of tax. Increasing the higher rate looks good politically but brings in virtually nothing. If we increase corporation tax, big companies will leave the UK and we’ll lose PAYE revenues.”
“How about duty on alcohol and cigarettes”, Spectre said.
“Don’t be stupid man”, Fortesque-Simmonds replied, “If we did that young people wouldn’t be able to get hooked in the first place. Over the years, fewer people would drink and smoke and our tax take would actually fall. Now what I want you to do is think outside the box and come up with a way of raising taxes that we haven’t thought of yet. Now off you go and come back in 3 months with some ideas for me”.
Patrick and Louise Wagner were both born in the USA in 1940. They got married in 1962, and in 1965 they emigrated to the UK. Patrick worked in education and Louise was a nurse working for the NHS. In 1990 they were granted UK citizenship. Patrick had originally filed a US tax return each year but never had any US liabilities. In 1990 he stopped filing US returns and never heard anything from the IRS.
Patrick and Louise both retired in 2005 with good pensions. They had inherited some US shares and built up £1m in savings. About half of this was in ISA’S and the other half was in a range of bank savings accounts. It was something of a hobby for Patrick to check interest rates on offer and move money around.
Two months after his meeting with Fortesque-Simmonds, Ian Spectre arrived at his cousin’s house in Florida. He had yet to come up with a plan to raise anything like £25 billion per year and was feeling a little worried. Bruce placed a cup of coffee in front Ian. Ian’s face reddened, he was already finding American habits infuriating, “Don’t you have any tea?!”, he asked. “Nah, we don’t do that here…”, Bruce replied. The two men talked about customer care and Ian explained the problem that was worrying him.
“Let me take you to meet Howard” Bruce replied. “Howard Springstein is a customer representative who I get along with. Over here they’re called CPA’s. We help each other out from time to time”.
This seemed very odd to Spectre. He couldn’t imagine ‘getting along’ with a customer advisor like Edward Peters, for example.
Two days later Bruce took Ian to meet Howard over lunch at a small restaurant nearby. A waiter brought 3 cups over and poured fresh coffee. “No no, tea for me please!” Spectre barked at the waitress. “Sorry sir, you want a what now?” the waitress asked, pouring Spectre’s coffee.
Over lunch Howard started the conversation. “So Bruce, do you have any new fish on the hook for me today?”, laughing to himself he turned to Ian, “Ian, Bruce and I are particularly interested in individuals living outside the USA who are not aliens. So whad’ya have for me?”
“Like me?”, Ian butted in. “No, you’re an alien. I mean, you’re not from MARS, but you’re still an ‘alien’ to us.”, added Bruce, and the two Americans laughed while Ian looked a little disgruntled. Howard continued “The problem with you Brits is yah don’t understand English. An alien, to us, is anyone who is not a citizen of the USA”.
“So why are you interested in US citizens living outside the USA?”, Ian asked. “We tax them”, Howard replied. “The problem we have is finding them. So we’ve persuaded banks all over the world to let their home tax departments have details of any of their customers who are US citizens. Those tax departments then tell the IRS”. Bruce took over. “Once we’ve identified them we hector them and tell them to enlist the help of a good CPA like Howard. Let’s say we share snippets of information. In return, from time to time, Howard will let the name of one of his clients slip, then we – the IRS – take a look at them. We raise a hell of a lot of tax and Howard earns a fortune in fees, it’s a WIN – WIN situation, and Americans love to win!”
“But surely there’s a deduction for tax paid in the country these people are resident in?”, Ian asked while he frantically tried to flag down a waitress, desperate for a cup of tea.
“That’s right”, Howard said, “But some US citizens work in countries in the Middle East where there are no taxes. We also charge penalties. Recently we came up with the FBAR system.”
“What’s that?”, Ian asked, becoming more and more distracted as the tea withdrawal started to really kick in
“Foreign Bank Account Report – we love a good acronym here, something we got from you limeys.” Bruce said, “We require all US citizens to file an annual report detailing any foreign bank accounts where they have held more than $10,000 during the year. If this report is not filed within 6 months there are penalties”.
“But surely a US citizen resident in the UK needs to have a UK bank account”, Ian said. “Exactly”, replied Bruce, “and furthermore, where we find a US citizen who hasn’t filed tax returns for some time, we require them to file 3 years tax returns, but 6 years FBAR’s. Howard can generate huge fees just by completing these FBAR reports”.
“And what do you do with these FBAR reports?”, Ian asked.
“Nothing, we just store them in a warehouse”, Howard chuckled, leaning back in his chair with an arrogant grin on his face, “It’s genius, isn’t it?!”
“So, Ian”, Howard said, “why don’t you set up a similar system for UK citizens living outside the UK?”.
For the rest of his holiday Ian researched UK citizens living overseas. He established that there were 5 million such citizens; 1 million were in Middle East countries where there was no tax. He estimated that he should be able to collect the £25 billion Fortesque-Simmonds had demanded.
On his first day back in the office he asked Nigel Erd to come up with a list of customers who reported US income on their tax returns.
“This one might interest you” Nigel said. “This customer, Patrick Wagner, and his wife Louise report dividends from US companies. And their accountant is Edward Peters”. As soon as Nigel left his office, Spectre set about sending an email to Bruce outlining the details of Patrick and Louise Wagner.
That afternoon Spectre requested an appointment with Fortesque-Simmonds. After arriving at the Treasury he was shown to a small office and told to sit down. 5 minutes later Fortesque-Simmonds walked in “Well Spectre”, he said, “what have you got for me?”
Spectre outlined the plan that he and his cousin had devised while in Florida. “That’s brilliant, Ian”, Fortesque-Simmonds said. “Of course, the powers that be in Brussels won’t like it but they won’t be a problem post-Brexit. You might be really onto something here! Now let me sort out some tea. You like it strong with one sugar don’t you?”
“Very strong, yes sir, that would be much appreciated”, Spectre replied, he’d spent the second half of his holiday with the shakes from the tea withdrawal – he really wasn’t quite himself. But since being back in Blighty tea was back on the menu and he felt much more like his usual grumpy self again.
“Ian, you must call me James. Now I want you to let me have details of the costs of your business trip to Florida. I’ll make sure you’re reimbursed”.
The next day Spectre received an email from Bruce thanking him for the lead and letting him know that he had established that Patrick and Louise Wagner were US citizens who hadn’t filed returns for many years.
Two weeks later Patrick Wagner was going through his post and saw a letter from Florida. Opening it he saw it was from Howard Springstein, CPA. The letter asked if he was an American citizen and if he was, was he up to date with his filings. If not, the letter went on, you can call me at any time and I will work on your behalf to get you compliant.
Patrick filed the letter and put the matter to the back of his mind. However, 5 days later he received a threatening letter from the IRS demanding that he brings his tax affairs up to date or face severe consequences.
Patrick telephoned Howard Springstein the next day. “I was born in the USA”, he said. He went on to tell Howard that he hadn’t filed a return since 1990 but that there shouldn’t be a problem as he never had any US liabilities in the 25 years up to that point. “You better get over here in the next week”. Howard said, “You are in big trouble, buddy, and could be facing a stretch in a correctional centre”.
Patrick didn’t do a “stretch” but it took him 12 months to bring his affairs up to date. His tax liability was $3,000 and that only arose because tax free income from an ISA is not tax free in the USA. The tax was not the problem, however. Howard charged $30,000. Most of this was for working through Patrick and Louise’s many bank accounts going back 6 years to prepare FBAR’s.
So could a policy like this be introduced to help the UK raise the £25 billion per year required to keep us ticking along? Perhaps, and indeed it would be easier to enforce post-Brexit. But would it be fair? As far as we know, nothing like this is in the pipe-line at the moment for the UK. But US citizens beware, the IRS are cracking down. If you’re concerned, please get in touch with us ASAP so we can advise you.