Caution to U.S. Citizens and U.S./Canada dual citizens who are residents of Canada about the IRS announcement (IR-2012-5) January 9, 2012, regarding Offshore Voluntary Disclosure
On January 9, 2012, the IRS announced a renewed Offshore Voluntary Disclosure program. This is an IRS program designed to bring tax cheats into compliance. During the last two disclosure programs in 2009 and 2011, a significant number of unsuspecting Canadian residents entered these programs to “make it right” with IRS. We strongly warn law-abiding Canadian residents of the dangers of entering this program which is intended to attract tax cheats who live in the United States but have undisclosed offshore accounts.
The United States has dusted off a long neglected, possibly unconstitutional law which requires all United States persons to file a yearly disclosure of foreign financial accounts (FBAR). There is widespread ignorance of FBAR, and up until recently, very limited compliance. A significant number of Canadians learned about the 2011 Offshore Voluntary Disclosure program from the Canadian media and entered it in fear, not realizing that the IRS had every intention of levying fines of 25% of their net worth (or in some cases 5% for those who were unaware that they were United States citizens), even though in most cases they owed no taxes to the United States, had no knowledge of the FBAR reporting requirement, and had innocent and necessary bank accounts in accordance with the laws of Canada. As a result of this crackdown by the IRS, Finance Minister Jim Flaherty went to bat for Canadian residents, insisting that the IRS get off the backs of hard working Canadian residents who had done no wrong and who were abiding by the tax and banking laws of Canada. “Canada is not a tax haven”, he insisted. As a result of Flaherty’s efforts, United States Ambassador to Canada, David Jacobson tried to assure Canadians that the IRS was not out to get grandma’s bank accounts. He said, “My message on this is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.” Law abiding residents of Canada, please do “sit tight”. Do not enter this program out of fear, and do not allow a lawyer to enter you into this program without clearly explaining why you should. If you enter the program, the IRS will surely fine you up to 27.5% of all of your monetary and non-monetary financial assets.
All residents of Canada, who may be affected by the extra-territorial reporting requirements of the United States, should also know the following points:
(1) The Canadian government has said it will not enforce the collection of FBAR fines. Thus the IRS has no means to collect fines from any accounts in Canada.
(2) The Canadian government has said it will not collect taxes for the IRS from Canadian citizens, provided that the person incurred the tax liability while a Canadian citizen.
(3) The IRS cannot be trusted. The Tax Advocate Service, the ombudsman service within the IRS, issued a rare Tax Advocate Directive rebuking the IRS and ordering them to respect the terms of the program and be more lenient, returning to the policy of the FAQ 35 which said that those who enter the program would not be fined more than they would have under existing statutes. To date the IRS has ignored the Taxpayer Advocate Directive. This suggests that the IRS has decided that Offshore Voluntary Disclosure should be a revenue generating instrument and apply the fines of 20% and 25% without regard to the innocence of the people that entered into the program. The IRS presumes that everyone who enters these programs is a tax cheat.
(4) We must stress that the Offshore Voluntary Disclosure program, which the IRS has announced, is not a mandatory law but a voluntary program. Therefore, enter it only if you wish to relinquish voluntarily 27.5% of your hard earned savings and other assets to the IRS.
(5) If you are a United States citizen or Green Card holder and are or were unaware of your filing requirements, we urge you to get sound information regarding your rights and responsibilities from reliable sources. If you are living in Canada and abiding by Canadian tax laws, you are not a criminal nor should you permit the government in Washington D. C. to treat you as one. Know also that “cross border” accountants and lawyers do not have equal standards of competency or morality. Buyer beware!
Peter W. Dunn has written this press release on behalf of the Isaac Brock Society, which is an informal group of individuals who are concerned about the treatment by the United States government of US persons who live in Canada and abroad. We have come together to fight the overreach of the IRS and to provide one another with accurate information, peer-to-peer advice and comfort. Our website is http://isaacbrocksociety.com.
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Here are the Taxpayer Advocate Nina Olson’s recent comments about the OVD programs – as well as her recommendations:
http://oicattorney.blogspot.ca/2012/11/taxpayer-advocate-fbar-penalties.html
‘National Taxpayer Advocate suggests changes to Offshore Voluntary Disclosure Initiative’
“Speaking at a recent international tax enforcement conference, National
Taxpayer Advocate Nina Olson suggested that IRS implement an approach to
its Offshore Voluntary Disclosure Initiative (OVDI) that would only
penalize taxpayers based on their level of non-compliance.”………
“………As
Olsen noted at a conference sponsored by the Tax Section of the
American Bar Association, there may be as many as 5 to 7 million U.S.
resident taxpayers and perhaps tens of millions of nonresident U.S.
taxpayers who are subject to the FBAR rules this year. Only 741,000
taxpayers filed FBAR returns in 2011. So far there have been
approximately 28,000 OVDI filings for 2012.
Category-specific approach to FBAR non-compliance. Olsen
reasons that, given the number of taxpayers who are subject to the FBAR
rules, there may be many different reasons for taxpayer non-compliance.
But instead of taking this diversity into account, Olson argued that
IRS’s approach in this area has been driven solely by the view that all
non-compliance stems from a willful disregard to the FBAR rules.
A considerable shortcoming with the OVDI is its “one-size-fits-all”
solution to taxpayer non-compliance. Taxpayers who fall into some gray
area with respect to non-compliance are nevertheless subject to the same
applicable penalty that is imposed under the OVDI as if they had
willfully disregarded their FBAR filing obligations“………..
*
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A MUST READ interview with a former high ranking IRS Attorney – commenting with some very frank criticism of the OVDs, and US citizenship based taxation in application to those abroad – and acknowledgement of the anger felt by those living abroad and the harm that is being done to us. I posted this on other threads as well so that it will not get lost.
http://blogs.angloinfo.com/us-tax/2013/07/22/residence-based-taxation-interview-with-bill-yates-former-attorney-office-of-associate-chief-counsel-international-irs-2/
‘Residence Based Taxation? Interview with Bill Yates – Former Attorney, Office of Associate Chief Counsel (International), IRS
July 22, 2013′
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Am reposting @Frankie’s comment here as well so that it does not get lost.
http://isaacbrocksociety.ca/2012/02/22/irs-is-bluffing-bad-faith-negotiations-in-the-ovdi/comment-page-2/#comment-546653
Very interesting comment from the IRS Taxpayer Advocate:
http://www.lexisnexis.com/legalnewsroom/tax-law/b/newsheadlines/archive/2013/09/25/aba-meeting-taxpayer-advocate-urges-u-s-taxpayers-to-use-caution-on-offshore-voluntary-disclosure.aspx
09-25-2013 | 05:33 AM
Author: TaxAnalysts®
“ABA Meeting: Taxpayer Advocate Urges U.S. Taxpayers to Use Caution on Offshore Voluntary Disclosure
National Taxpayer Advocate Nina Olson said September 20 that taxpayers who are thinking about opting in or out of the IRS’s offshore voluntary disclosure program (OVDP) should talk with an attorney-adviser at the Taxpayer Advocate Service to learn the pros and cons of participating in the program.
Olson spoke from the audience during an Individual and Family Taxation session on reporting foreign-source income at the American Bar Association Section of Taxation meeting in San Francisco. The panel was discussing the possible dangers for taxpayers who decide to opt out of OVDP.”
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Caution: MUST read for those considering the OVD 2012.
See further informed critique of the OVD programs:
http://www.procopio.com/userfiles/file/assets/files1/the-2013-gao-report-of-the-irs-ovdp-2739.pdf
January 10, 2014
‘The 2013 GAO Report of the IRS Offshore Voluntary Disclosure Program Reveals Key Facts:
– There Were Not Billions of Income Taxes Collected
– Few Offenders (378 Taxpayers) Represented One Half of All Collected Dollars – Reported At that Time
– Taxpayers with Smallest Accounts (10th Percentile) – Apparently Owed (Median) of a Few Hundred Dollars per Year in Income Taxes
By: Patrick W. Martin,
G. Michelle Ferreira
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The V stands for Voluntary. Kinda like a rapist who threatens to beat the daylights out of you unless you “voluntarily” do what he says.
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@Tom
Just like the TC in FATCA only stands for Information-Sharing.
I‘Let’s Talk About: US Tax
IRS Plays Dirty in OVDP ‘
Virginia La Torre Jeker
March 29, 2016
“Shame on the Internal Revenue Service (IRS). In a classic case of the pot calling the kettle black, the IRS, in its incessant hunt for “undisclosed” offshore accounts, has been caught with something of its own that was “undisclosed”. US lawyers, James Gifford and Milan Patel, of the Anaford AG law firm in Switzerland recently learned of an undisclosed (or, shall we say, “secret”) IRS national policy. The policy was unearthed through the dogged determination of pursuing an IRS Freedom of Information Act (“FOIA”) request.
The IRS’ previously secret policy metes out a very harsh treatment to certain estates that have entered into the Offshore Voluntary Disclosure Program (“OVDP”). The policy selectively denies certain estates that had entered into OVDP a deduction for the in-lieu or “miscellaneous offshore penalty” assessed in the OVDP under Title 26. ..”…………….
http://blogs.angloinfo.com/us-tax/2016/03/29/shame-on-the-internal-revenue-service-ovdp/
We don’t hear anything about those still struggling with the OVD programs and Streamlined.
Below is link with reference to a resolution of an OVDP opt-out who faced millions in OVDP penalties if they had not opted out, and who paid twice as much to lawyers and accountants than in actual monies to the IRS:
…..”..I opted out. My OVDP penalty was in the millions. My final opt out FBAR penalty was less than $150,000. The reason was property values, fine art, cars, the asset value of investments, etc. were part of the OVDP penalty. They are not outside the OVDP. Additionally all eight years of my qualified returns once I opted out were free of the 20% accuracy which was part of the OVDP penalty. The accuracy penalty was refunded. I did not commit fraud. The IRS acknowledged that. Years that were closed that I did not sign SOL’s for were refunded. The IRS was tough but played by the rules and were reasonable when I could actually have a one on one conversation. I could have kept fighting and probably gotten the final penalty down to less than $20,000 through appeals but ,the only winners moving forward were the accountants and lawyers. After 4 years I just had enough . I paid over $250,000 in legal and accounting for a $150,000 penalty. If the IRS had started with a reasonable position, they could have saved themselves 4 years of effort and 4 years ago I would have written the IRS a check for $250,000 just to put the matter to rest quickly. But faced with a ridiculous draconia OVDP penalty for millions, left me no choice, but to hire lawyers and accountants to fight for my life’s savings…”…..
http://federaltaxcrimes.blogspot.ca/2014/06/comments-by-irs-personnel-on-new.html#comment-2678410169
See also comment by ‘David’;
http://federaltaxcrimes.blogspot.ca/2014/06/comments-by-irs-personnel-on-new.html#comment-2682277057
‘Blackseal1234’ regularly commented on the Townsend blog. Perhaps someday he’ll share more details of his ordeal. Other commenter ‘David’ mentions that he wrote to the Taxpayer Advocate to tell his story.
Courtesy of Neill on another thread. Worth reading the whole TIGTA report https://www.treasury.gov/tigta/auditreports/2016reports/201630030fr.pdf – to see how rabidly and avidly they assert that much more FBAR penalty revenues should have been pursued and asserted – they are admondishing the IRS that those who opted out or didn’t continue in the OVDP (several iterations of it) should have been penalized with FBAR penalties. And they assert this based on no evidence – especially as the FBAR, reasonable cause, and willfulness is supposed to be based on specific facts and circumstances of each case, not on whether TIGTA or the IRS is unhappy that people opted out or chose not to pursue OVDP and pay the ‘offshore in lieu of penalty.
Ironically, the IRS defence to the TIGTA report cites in part the Taxpayer Advocate’s criticism of the “once size fits all” approach of the OVD programs before Streamlined existed, and the IRS even acknowledges that some who sought to enter the OVD programs had bad professional advice, or misunderstood their US tax situation……
http://www.nysscpa.org/news/publications/thedaily/blog-posts/irs-failed-to-assess-21.6-million-in-fbar-penalties-062116#sthash.fphN4cQe.dpbs
Latest criticism of the IRS OVD programs, in Taxpayer Advocate report – mid 2016
..”.Notwithstanding improvement to the OVD program’s proportionality, TAS still receives significant and valid complaints about them.
A related problem is that some internal OVD-related guidance directly affecting taxpayers was withheld from the public.29 Even information designated as “official use only” (OUO) must be vetted by and accessible to internal stakeholders, such as TAS. IRS business units are supposed to vet and distribute such information by incorporating it into the Internal Revenue Manual (IRM). Over the last seven years, however, the IRS has avoided publishing OVD-related guidance in the IRM, instead distributing program guidance using memos designated as OUO, training materials, technical advisors, conference calls, and secret committees. This lack of transparency and due process fosters the impression that the
IRS administers the OVD programs in an arbitrary and capricious manner, without regard to taxpayer rights. Moreover, when the IRS does not provide TAS with the same access to procedural information as other IRS employees, it obstructs TAS’s statutory mission to help taxpayers and address problems under IRC §§ 7803(c) and 7811..”….
http://lawprofessors.typepad.com/files/tas-ovdp-midyear-2016.pdf