Some of the readers of Barrie McKenna’s new article, Watchdog slams IRS for alienating expats, are still unhappy. But I thanked Mr. McKenna for telling this very important side of the story:
It is very nice to see you pick up the story of the Tax Advocate Service, which is the branch of the IRS sympathetic to the plight of Americans abroad. Nina Olson is a glimmer of light in a very dark and sinister place. I thank you for telling that part of a very complex narrative.
You do allow the IRS to assert their formal response, without rebuttal, “measures are in place to prevent taxpayers from being subjected to financially devastating penalties.” The devastating penalties relate to FBAR fines, which can be up to 50% of the a person’s financial wealth per annum for up to six years (i.e., circa 300%). Such fines are not merely devastating but game changing. Congress increased FBAR fines in 2004, to create compliance (!). Is it any wonder that when the IRS offers an “amnesty” of only 20-25-27.5% and then systematically applies it to the 2009 OVDP people, like my good friend FBAR_Compliant whose story is now famous, that the so-called “Amnesty” itself is devastating?
This is why the IRS is a thug organization and why Nina Olson is a great heroine: the IRS fined Marvin van Horn (who told his story to Reuter’s Amy Feldman) $170,000, but the TAS (Olson) advocated for him until the fine was only $25,000 non-wilful fine, an 85% reduction of what the IRS wanted from him!
Yet whether it is $25K or 170K, it makes little difference: it is the deprivation of life, liberty or property without due process of law (5th amendment)–the FBAR law with its attendant fines is a violation of the 4th amendment (creating a general warrant), 5th amendment (self-incrimination), 6th amendment (if ever tried criminally, where would a person have to go? –to the US, a far away land), 8th amendment (Excessive fines of a percentage of a person’s wealth). An FBAR is a procedure whereby a person voluntarily relinquishes his 4th amendment right to a require a specific warrant before handing out papers to the US Federal government–it is the equivalent of a general warrant–a specific warrant requires probable cause, oath or affirmation (of arresting authority), and a description of place to be searched, and the persons or things to be seized. Forcing millions of unnamed people to handover their bank information without a warrant and without probable cause is a circumvention of the 4th amendment and it is thus an illegal law. For in most cases, there is no probable cause of an underlying crime!
Canadian residents should know that the government of Canada will not collect FBAR fines. Furthermore, Canadian citizenship is the best protection against US government overreach.
Thanks again for writing about the TAS. Now, I can put you in touch with some Canadians who have been devastated by these tax issues, so the readers of the Globe can see the other side of the story.
Peter W. Dunn, http://issacbrocksociety.com
Thank you Peter for that re-butt to Mr. Mckenna. (I think you are getting to him :))
It is nice to see an article that does not make us out to be tax evaders or cheats (ie: US-Canadian citizens must come clean).
I hope Mr. Mckenna continues to report on matters from the O.U.R. perspective rather than the I.R.S. perspective.
Ok, I have no idea what this service is or what power of sway they have. What is this six day time limit that “FBAR_Compliant” is referring to in his comment on the article? Is that when the IRS Commissioner is supposed to make an official ruling on the recommendations or what? Does he even have to respond?
The TAS is the watchdog or ombudsman service created by Congress to assure that common taxpayers would have a place in government, empowered with a high level of authority, to complain about their treatment under the IRS. The TAS has issued a rare Tax Advocate Directive, their most powerful tool, to which the Commissioner must respond, by January 21, by obeying it or setting it aside. Afterwards, Nina Olson can take her case to Congress. Olson’s work is damning to the arrogant methods of the IRS, which have taken bad laws and applied them in an extremely uncharitable manner.
McKenna’s article is at least a step in the right direction. He needs to actually interview people being affected by this and write an article from the perspective of US citizens living here in Canada. That would be the only way to balance these stories.
The other thing I’ll mention is while the IRS Commissioner has a five year term in the past several commissioners have left early in particular the last permanent commissioner left at exactly four years in. Schulmann was appointed by George W Bush back in March of 2008 so for him the four year mark is coming up pretty quickly and given the taxpayer advocate report was pretty damming you might see him hang up his hat in the future. Now I am not saying anything will necessarily change with new leadership at the top its I am not sure who would want to stick around and get beat up by a Republican congress in an election year.
I just did a Google search on Ms. Olson’s report. The top two articles that came up:
Watchdog slams IRS for alienating expats (Globe and Mail, Canada);
IRS Called Easy on Criminal Tax Evaders in Watchdog’s Critique (Bloomberg, US).
Spin, Spin …..
As a member and also on the board of directors of ACA – American Citizens Abroad, a Geneva based organization that stands tall and fights very hard to defend and protect the rights of US citizens living outside of the US, I would be most appreciateive if you could provide details of US citizens in Canada who have been devastated not only FATCA but the US policy which began with the Tax Act of 1962, signed by President Kennedy, which instituted this unique US policy of extraterritorial taxation subjecting all persons with US citizens to US taxation, even though they have never held a US passport, never lived in the US and never received any services whatsoever from the US government, just as if they lived in the US.
You have my email address so if you wish to forward this information privately, that would be fine. But on the other hand the more publicity given to these specific cases the more likely the spreading of the word will open the eyes of the US government to the massive damage this legislation is likely to do to discourage Canadian tourists from visiting the US. This factor alone can result in a devastating loss of US jobs in tourism.
The US prides itself in being the World Champion of Human Rights, but is totally blind and deaf to how this double taxation of US citizens abroad is one of the most blatent examples of the US violation of Human Rights.
This needs to shouted from the housetops not only in Ottawa, Toronto and Montreal, but also on Capitol Hill and at 1600 Pennsyulvania (the White House) in Washington, DC.
For you or others not familiar with the Tax Advocacy Service, and haven’t read about it here before, I will provide some links for you.
Shulman must respond to TAD by January 26th. Six days to go to do the right thing!
Here is where I first heard about it…
Jack Townsend’s blog… (2 reports)
Tax Notes Discusses Dispute Between the Taxpayer Advocate and the IRS About OVDP 2011 (1/6/12)
National Taxpayer Advocate Report Critical of IRS Implementation of Offshore Voluntary Disclosure Programs (1/12/12)
and later other attorneys started writing about it.
This is a long long one, that doesn’t seem to accept comments…
“National Taxpayer Advocate battles IRS on terms of offshore voluntary disclosure program.”
There are others, and I think I have probably tweeted all the significant stories in the media but there have been few. Last night was an avalanche of two, Barrie and Globe and Mail plus Bloomberg.
The Bloomberg story is here…
IRS Called Easy on Criminal Tax Evaders in Watchdog’s Critique
Frankly, I do not have expectations that any reporter is going to get the story entirely right, from my perspective. I just appreciate any light that is shed in the media, so I do try to limit critical comments and accentuate the positive aspects of their efforts. Of course, either by email or by comments, I do provide them with additional questions and or perspectives that they may have missed.
Finally, just in the name of continuing education, and understanding of the value of the TAS, I told a lot of my story in the comments section at Jack Townsends blog. It seems like years ago! I have nothing but praise for the TAS, Nina Olsen and her staff who fought the good fight on my behalf. Without them, I was hosed! If all government agencies were like hers, we would not be sooo cynical and angry, actually. America would be a better place.
Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)
I had not yet created the Just Me name, so my comment starts at….Anonymous Aug 29, 2011 09:27 AM. I think you can follow them. I also told a lot of my story and answered questions from other Minnows about the OVDP in another thread on Jacks blog. If you are interested, and I can understand you may not be, it is here…
Experiences Inside OVDP / OVDI (9/14/11)
Lovely morning here, and probably should do something else besides recall the 26 month nightmare which Shulman calls “highly successful” From his end of the hunting rifle, looking down his narrow field scope, I am sure that he sees it that way. Wonder what the deer feels?
Thanks for this note:
“Schulmann was appointed by George W Bush back in March of 2008 so for him the four year mark is coming up pretty quickly and given the taxpayer advocate report was pretty damming you might see him hang up his hat in the future.”
I guess, I was not aware of this, but then I haven’t followed administration appointments closely.
This just makes my point, that these attitudes and efforts by government are really non partisan, and Dem or Rep you get officials who don’t understand the impacts of the programs they designed.
Who would have thought that W picked this guy to lead the IRS? So, when I want to blame O, I pause, and consider. It matters not who is in the White House!
Did you ever see the “Yes Minister” or the “Yes Prime Minister” BBC series? If you haven’t, they are classics.
And who really dictated the policies and the direction of government or thwarted the will of the Minister at every turn? The British Home Civil Service, in particular his Permanent Secretary, Sir Humphrey Appleby. In every administration, there are these characters, and maybe, in this regard, Shulman is playing the role of Appleby! I would like to think so, but then what do I know? I am just me with no special inside knowledge 🙂
Just Me, my wife and I enjoyed that series. It is true that the civil service in the US is also an obstacle no matter who is president. I look back not only to present administration’s very bad application of the law, but to the Congress and presidents who passed the bad laws in the first place. In that sense, we are the victims of bi-partisan legislation. There is plenty of blame for everyone, democrats and republicans alike.
That’s brilliant, thank you. I’m currently reading through the links now.
Let’s assume that Shulman thinks all of her points are correct. To what extent can the IRS determine the application of the law with regards to how the FBARs and FATCA are implemented? I mean, does he have the power to say, alright, we’ll give everyone an amnesty up to this point and anyone who is an accidental American or is a US person just due to his or her parents needn’t worry any longer about filing? I realise that he can’t unilaterally declare that citizenship taxation, FBAR, FATCA and the lot are gone in one go. More of a theoretical question, mind you, because I doubt that he will change anything at all.
What is really interesting is Schulman has no previous experience in tax law or government something that would tend to block you from holding the same type of position at the CRA. Most of his previous experience was working for the NASD/FINRA which is the self regulatory organization for the US securities industry equivilent to IIROC. Now there have been other commissioners who have served five full years but in this case if he did and Obama were to be a one term president Obama would never have had a chance to appoint his own person. In Canada the chief clerk of the privy council typically serves for no more than three years which easily gives the government the ability to put their own person in.
I would say a lot Bush’s latter appointments were pretty bad i.e. “Brownie”, Michael Chertoff, Hank Paulson etc.
My understanding is, that he has wide discretion regarding application of tax statutes. He can not do away with the Statutes that created the FBAR and FATCA and Citizenship taxation, but he has lots of latitude on how he implements them.
Also, like any Statute, some Administrations just decide not to enforce them. Kinda like the arguments going on about illegal immigration and whether or not new Statutes are needed, or just enforce the ones already on the books which various administrations have decided to ignore.
Same with the Financial crisis, where the SEC and the Fed and other regulatory authorities didn’t use the powers they already had to thwart the housing bubble.
On the OVDI, and OVDP program, he created it, so he can modify it.
Additionally, FBAR Statutes were delegated to the IRS from the DOJ to enforce. Congress writes those Statutes with very careful language. Penalties are always couched in “mays” not “must” or “shall” and have a maximum limit. That is where the IRM instructs the Examiners the wide discretion they have with the penalties they can apply. It can be nothing but a warning letter “the go and sin no more approach” to maximum penalties, the current favorite threat the IRS uses to get people into their “successful amnesty program”. (I hate that characterization)
When you realize how much latitude they do have, you begin to understand how untenable the “one size fits all” approach in the OVDP was, when this all started, with its “in leiu of penalty” of 20% of your highest aggregate amounts of offshore bank accounts and assets This penalty assumed that all entering the program must be Whale tax cheats of the UBS type, and so that penalty was deemed appropriate. Actually probably a great deal, if you were a willful criminal starring down a prison sentence.
Claims now that Minnows can opt out ring hollow, as the IRS did not create a procedure for this until June of 2011, and the OVDP started Oct 15, 2009. Additionally, it is just crazy that a person has to go through the current OVDI programs and then “Opt Out” at the back end of a very lengthy and stressful process. If they are going to allow “Opt Outs” , then they should have had a ‘front end’ process to winnow out the Minnows, and I have been arguing for that since the first day I entered the OVDP. But no one listens at the IRS, but never mind, I write them anyway!
FBAR’s are actually under the authority of the Treasury Department delegated to the IRS so in some sense Treasury could change the rules. I don’t how at all there is any law enforcement reason to want FBAR’s on accounts in Canada. Canada has an agency similar to US Treasury Fincen called Fintrac as do quite a lot of countries such as Australia. The following is actually an interesting article I just came across about how “snowbirds” and other short term Canadian visitors to the US such as NAFTA TN visa holders could be effected by FBAR.
Tim, you are right. I misstated that in my hurry to finish the post and go for a swim this morning. It is not the DOJ it is Treasury as you say. Thanks for correcting me. I need to be careful to be accurate when I post something, so need to slow down, but know there are good editors like you! 🙂 Appreciate it.
BTW, thanks for that link. if you want another good historical write up about the FBAR, this one below is very good.
Title EVOLUTION OF THE FBAR: WHERE WE WERE, WHERE WE ARE, AND WHY IT MATTERS
This was written by Shepard Hale and if there is anyone reading here, that is in the OVDI or contemplating it, I would arm myself with the background knowledge here or the link Tim provided.
It was written in 2005. Wished I had seen it then, but why would I have? I wasn’t looking for it, and had no idea something like this existed. I certainly went to school on it after I entered the OVDP and used it extensively in my epistles to my Examiner and Shulman.
Prior to 2009, I didn’t know an IRS.gov web site existed. Obviously I was not paying attention to complex tax matters as I should have been. I naively thought my tax life was a simple one. Now I fear that buried in some bill coming out of Congress, there is another “Levin bomb” that if IRS.gov isn’t my browser home page, I will face another $10K “nonwillful” penalty per browser failure! LOL It seems absurd, but prior to this, if someone had mentioned FBAR or FATCA, I would have thought that absurd too!
I believe there are couple papers out there the actually argue that FBAR could apply to so-called cross border workers such as Canadian truck drivers and airline flight crews that could be argued to be “carrying on” business in the US. Now no one is actually going after these groups but in theory the law could be apply to them too(Air crews are probably somewhat more protected because there is an Air Services Treaty between Canada and the US that exempts Canadian airlines from most US taxation and vice versa).
How do you feel air crews could be carrying on business in the US?
They would not be considered ‘cross border workers’ as they are working for a Canadian corporation like Air Canada.
If anyone would have to fill in paperwork would be the Airline…not the employee.
Miss. Nina Olson fighting harder than Canadian politicians to save their own innocent duel-citizens (from irrational and unreasonable punishments even according to official statement of the US ambassador to Canada). Canadian duel-citizens please wake up your leaders. Please write letters stating statements of Miss. Nina Olson and the US ambassador to Canada, who admitted it is unreasonable and irresponsible.
I agree with you that, until I see some further conversation from our Canadian government representatives, it screams that Nina Olson and the IRS Taxpayer Advocate Service care more about the citizenship-based tax injustice to US persons abroad, having laid facts out in the TAS Report to Congress and the TAD.
The US Ambassador to Canada has certainly been silent since he told us to sit tight and wait because the US is not unreasonable. I’m in countdown, hoping beyond hope to hear something substantial from IRS Commissioner Shulman by January 26. Mrs. Shulman, please stop the discrimination and stop purposely painting US persons in Canada and around the world as tax evaders!
#WillShulmandotherightthing? 3 days left to affirm Tax Advocacy Directive to treat Minnow Expats & Immigrants fairly http://bit.ly/y11z7J
I am aware of all these issues as I have filed a tax return for the past 19 years I have not lived in the USA. So I am not in the same boat as many are. I was truly annoyed however, with the new requirement that I have to report any bank account or investment that I own abroad that is over $10,000, even though I haven’t lived in the USA for 19 years. I think this is ridiculous!
I think people should understand that if you were born abroad, and have never lived in the USA, you aren’t necessarily considered a US Citizen automatically. I recently found this out when I looked into reporting my children as born abroad. Because I haven’t lived in the USA for so long, my children are not deemed US Citizens, because I haven’t physically resided in the USA (at least 2 years after they turned 14), even though I have filed a tax return every year of my working career inside and outside of the USA.
I purposely avoided filing the forms of their birth so they wouldn’t have to deal with the taxation issues, but now that I want to move back, I may have a hard time getting my family across the border.
I find the irony that I am required to pay taxes, and report my life’s savings on earnings I have obtained while working and living abroad legally, only to have my children denied citizenship appalling. The IRS wants the best of both worlds, and I am sick to death of jumping through hoops to ensure I am compliant with all the rules that shouldn’t even apply to me. Now we have the Obama care taxes to contend with even though we do not personally benefit from these healthcare reforms. I think this is absolutely ludicrous, but who am I, just a lowly taxpayer, living abroad, whose only consolation is to try to be poor so that I don’t have to face any US Tax related penalties.
Sandra, I am not sure I understand about your kids. Are you saying that you personally didn’t reside in the US for at least two years after you were fourteen?
But if that is the case, do you have a parent who lives in the US? Because your children can also qualify for citizenship through their grandparents – according to what I have read.
No, I am saying I haven’t lived in the States since either of my children turned 14, which is the requirement for reporting births abroad. This requirement makes little sense to me, as how on earth are you going to know when they are born that you may not live back in the USA after they turn 14.
Did you live in the US for at least two years after you turned 14?
Re: “Because I haven’t lived in the USA for so long, my children are not deemed US Citizens, because I haven’t physically resided in the USA (at least 2 years after they turned 14)…” — that requirement for you passing US citizenship on to our children is for YOU having lived in the US, not your children. If only that were the case, how loverly that would be for many, many.
It is a boon that your children do not have passports that identify them as having been born in the US so their US citizenship will not as readily be identified going across the border. However, your children as my adult son (who is developmentally disabled and he cannot and I do not have the right, as a Parent, Guardian or Trustee on his behalf, to renounce that acquired US citizenship on his behalf) are US citizens. I can refer you to all of the legal advice I have had on this. Your children, unlike my son or me as his Parent / Trustee on his behalf, do have the right to renounce their US citizenship if the wish to do so.
And re FBAR’s, “the new requirement that I have to report any bank account or investment that I own abroad that is over $10,000” — that is the aggregate, i.e. the total of ALL of your accounts (highest balance of each account in the year) being over $10,000, which is your requirement then to report all bank accounts with their account #’s, bank, bank address, and their highest balances. It is not a new requirement, just a newly enforced requirement. The new requirement you should be aware of is the one relating to FATCA — IRS form 8938.