Petros has convinced me to try my hand at doing my own posts, so here goes.
Thought I would start with this one. It relates to a recent “victory” of a financial sort for someone who joined the OVDP program back in 2009. We knew him as Moby.
After 27 long months, he won a long struggle with the IRS bureaucracy. He did not “just roll” over and pay out the absurd OVDP penalties designed for willful Whales. Instead he “Opted Out” of the process. This represents a real success if you don’t count the cost in LCUs (life credit units) that he expended in his effort.
I salute him for his decision to no longer be fearful of the process and lead the way for other Minnows! His is only the second report that I have seen. The other was by a gal named Sally. Both have resulted in the equivalent of a “You are forgiven, my son, go and sin no more” letter. For sure, he was in the confessional booth for a long time to get this equivalent of a “Middle Age indulgence.” We can argue endlessly as to why he should not have had to go through this torturous process in the first place. However, setting that aside for the moment, I just want to celebrate Moby’s release from OVDP purgatory. This Minnow can return to swimming freely in the ocean.
So let me start my first post with Moby’s report which has been posted over at Jack Townsend’s blog. I think it is illustrative that the “Opt Out” option is a viable one for those who have already entered the IRS OVDI Minnow hell. The point is, if you are already inside the processing factory, and you don’t want to be turned into fish fertilizer, you are going to have to wiggle yourself off the OVDI penalty conveyor belt. Moby did, and is now free again.
Below is his Report:
And here is the link to more discussions on the subject of Opting Out.
“Opting Out” of OVDI and OVDP; What is Really Happening? (12/12/11)
http://federaltaxcrimes.blogspot.com/2011/12/opting-out-of-ovdi-and-ovdp-what-is.html
Moby writes:
I just received what I think is my “opt out” result.
Key points:
– Situation: Usual story; recent immigrant to US (GC holder), home accounts/affairs overlapped with move to the US. Entered 2009 OVDP; then opted out.
– Problem years: Non-filed FBARs for 2007, 2008. Non-filed 5471 for 2007.
– Schedule B: “No” checked (courtesy of TurboTax… blech!)
– Proposed FBAR penalty: $63K
– Total unreported tax: $14K
– Professional. help: Lawyer for amended returns and initial submission. Subsequent dealings were all solo.
– Reasonable cause: Didn’t know; couldn’t have known.
Results:
Only accuracy related income tax penalty was assessed (no FBAR/other penalties). What appears to be the final letter didn’t say much other than my “opt out” was approved by the committee, a normal examination had taken place, and the results were in accompanying Form 4549 (no changes other than accuracy penalty). So it looks like I’ve just got to return the 4549 with payment. There was no mention other penalties or any wilfulness determinations.
Of course, my inner Admiral Ackbar (“It’s a trap!”) suspects that I might get a subsequent letter demanding money for info returns. I’ll cross that bridge if/when I get to it.
I hope this information convinces more people to opt out. It’s hard to offer specific advice. I believe that the default position for immigrants/expats should be to opt out. I’ve seen some comments to the effect of “ignorance is no excuse”, but I disagree. Ultimately ignorance is the only excuse any of us have, it’s valid as reasonable cause, and it’s not our fault that we didn’t know about an unpublicized and (until recently) unenforced rule.
Things that convinced me to opt out:|
– Just Me: Showed that by fighting like a rabid Jackalope it was possible to get a better deal. Inspirational actions on his part, and doubly so for publishing his struggle for the benefit of the rest of us. I think he also gets lots of credit for getting TAS engaged and ultimately the TAD issued.
– The Canadians: I’m convinced this was a game changer. They got the issue the visibility it needed. With that many angry Canadians screaming for blood and the US ambassador to Canada making lots of soothing statements I figured that the IRS will be making every effort to be very lenient.
– My case: I figured that my case was as sympathetic as it gets. If I couldn’t opt out then no one would; so I felt compelled to do it for the greater good (not entirely my own preservation, anyway). It wasn’t until I sat down to review my 14 page opt-out/reasonable-cause letter (20+ hours to write!) that I realised how good my case was when all the facts were summed up.
– My new situation: By the time my case was assigned for processing I had already moved back to my native country. Easier to put up a fight when you’re no longer in the US, and have no need/desire to return to it.
I’ll continue to lurk in the forums as I would still like to pitch in if it helps. I’m much more flippant about the process now, but at the time it was the most terrifying and stressful episode of my life and no one should have to deal with it.
BTW: I bear no grudge against the agent I dealt with. He and his supervisor were very professional and helpful. Now the people at the other end of the pyramid are an entirely different story.
Moby
Just Me,
I just wonder if opt out final resolution should end up with f906 ?
According to Anon123, he got his 906 (with info penalty) a few months after form 4549.
It is a good news, but may be just too good to be true.
I also should say that Moby is in a very good position for opt out.
1. he lives outside US
2. just two/three of non-compliance years
This is good news, Perhaps the IRS is getting the message that if it really wants to encourage people to “comply” with it’s crazy laws, it need to do something besides threaten them. Although it still begs the question of why one has to “opt in” at all.
ij
Yes, but…. Unless you really feel that you were really willful, (you need to search your heart for that answer) and just want to roll over and pay it, I would give serious consideration to the “Opt Out”. Just ask yourself the question, “knowing the intended Whale target of the VDP program and knowing the National Tax Advocate Service report to Congress, when you look in the mirror, is that you? I think that answer might guide you.
Each has to make their own decision, of course, and how much risk they will tolerate. However, after reading your comments for what it seems like years now, I have confidence that you could handle yourself in an audit just fine. I do think immigrants to America, are just a sympathetic, as the US has done nothing to educate or reach out to them about offshore reporting requirements except a gotcha check box on a Schedule B. That is just outrageous to me. This is worse than the fine print in a checking account application that hits you with late fees for an overdraft as a default penalty rather than full disclosure at the front end to allow you to opt in and choose over draft protection if you want it. Instead they just hit you with the big fee as a retroactive surprise! We all can make tax mistakes, and I do think your mistakes should be handled no differently than Geithners.
As for the 906. I asked Moby that question too, and I am sure he will post his reply on Jack’s blog, but as a preface, this is what he said. Do not take this as gospel, as he may want to modify or restate it. I have not examined the details of the response to see if his reading of the situation is correct. My 906 arrived a month or so later too…
Moby said…
My understanding is that the 906 is relevant only if remaining in the OVDP. Normal examinations don’t include a 906, and theoretically I’ve just completed such an examination and the 4549 was the result. I believe you have to “pay for” a 906 by staying in and paying the 20% and that opting out doesn’t give you the same closure.
Check out the IRS pub 3498 (I got a copy with my 4549 today)
http://www.irs.gov/pub/irs-pdf/p3498a.pdf
If I’m wrong then I guess the IRS bods will need to take a flight to NZ to pry the money from my fingers 😉
CanuckDoc
re your: “still begs the question of why one has to “opt in” at all.”
Exactly right…
Don’t have the answer for that one, and each has to decide for themselves what is best for them, but if I had been designing this program… “I would have…” Oh well, never mind, as it doesn’t matter, and the IRS Leadership doesn’t listen.
I have to admit…i am still confused over the OVDI.
Not wanting to rattle anyones feathers here…but my understanding is that you go into the OVDI program if you have not been paying tax on your investments, income, whatever…and want to ‘come clean’ with the IRS under a fixed penalty umbrella.
So the question taunts me…..the text i have read so far indicates to me that there was never a tax compliance issue…in other words people paid their tax in their country of residence but never filed a 1040 or an FBAR…the same boat we are all in. (Maybe i am reading this wrong?).
If this is the case then i have to agree with CanukDoc as to why one would opt in?
I am not going to debate the ‘professionals’ that coaxed individuals into this program…i understand a lot of that was going on.
In my situation, as with many of us…i filed 6 years of back 1040s and FBARs….i do not consider it a ‘quiet disclosure’ but rather a ‘delinquent disclosure. (My understanding is that a QC is filing amended returns without telling the IRS).
Why would i go into an OVDI program when i have paid all my tax in Canada…and have no ‘grand cayman’ accounts?
I hope i didn’t offend anyone…but everytime i hear the words OVDI…i get a little crazy.
@justme, keep posting!! Your efforts are apprecited by me because you have passed though the hardest of parts — and I know the information you put here will help many to come!
I know that due to this blog format, comments get somewhat “buried” but I hope you see this.
Geeze… I see them all! 🙂 Thanks for your comments. It is very much appreciated. That is the reward for the effort, just like your contributions makes us all think!
Mach7…
Absolutely no offense taken here.
Your decision and strategy is certainly one to consider. I can not fault anyone who has decided to take that route. It may be totally appropriate depending on what the IRS thinks you owe them, but since I don’t really know anyone’s facts, except as represented here, I generally am reluctant to make recommendations of what a person should or should not do…
I try to speak in terms of options and considerations, but bottom line, I hate to see people get treated harshly by this jihad, and I am especially distressed by those that got into these programs without really considering there were other options and/or ways off the conveyor belt.
My mission with this post, and with most of the posts I have done else where, is just to give some folks an insight of what was/is going on, and how they can try to avoid becoming fish fertilizer. Things have definitely changed now, since the 2009 OVDP, where the IRS would not even recognize that their program was netting Minnows and not Whales and was treating them harshly. I think that is changing now, especially with the furor in Canada, the TAS TAD and the increasing press about FATCA.
So, basically yours was a Quiet Disclosure, (which the IRS strongly discourages) but that should result in no further issues if you really owe no tax to the US based upon their tax statutes. I hope so. That is the way it should be. Even if you owed tax, you should be able to pay it, with appropriate interest and be done with it, without all this penalty concern. But the US is not as enlightened as the CRA, in this regard.
However, for those that got “into” the OVDP or the OVDI for whatever reason, fear, bad attorney advice, or with real bad willful facts that demanded it, now the question is, what is the best way out.
Pay up, or Opt Out?
That was the purpose of this post, to show that A Minnow Opted Out, and was treated fairly, at last. Unfortunately there is not a web site or database we can go to see results of OVDI settlements, so all we have are these anecdotal ones to help people know what is happening inside the plant.
@ Just me
Thank you for that, i do appreciate everyones perspective.
Just Me,
Thanks,
In my heart I do not believe I am willful but I think I have been reckless and negligent given so many years of skipping my filing responsibility even the real tax evaded could have been just as much as a few hundred dollars if foreign tax credit were used.
The opt out result for Moby is impressive, and it gives a much relief for expats and immigrants and particularly with very few years of non-compliance.
For me, if IRS takes out penalty on my RRSP, I will stay OVDI just for the sake of certainty, and of course a speedy resolution. I would be just as happy as Moby’s is for his opt out success.
ij,
Well, negligence (i.e. not paying attention) and/or reckless is not a capital offense, and the OVDI penalty assumes a capital crime, so to speak. We treat involuntary manslaughter differently than pre-mediated murder, and the OVDI penalty makes no distinction. All are equally guilty, and here is your punishment. Take it or leave it.
So, if you want distinction, it looks the the Opt Out is the only way to get that. If you think you need to be punished that much, than that is your choice, and each has to make their own decisions. I can not criticize you whatever choice you make.
Just be informed, and then have the strength of your conviction and accept the punishment you have chosen.
Hang in there ij. I am following your case with great interest.
Just me,
In my view, the worst part of OVDI is the following
1. penalty on expats and visa workers on FBAR
2. delta function penalty calculation (jump at 75K of highest aggregated balance)
3. penalty on retirement plan
However, I might be able to escape 2 and 3 (1 is irrelevant to me) so if IRS takes off RRSP, and that will put me in 12.5% penalty base, and yes it is still a lot money for my income level but it is “huge discount” compared with “whales” with over 75K.
Also I do think I deserve some kind punishment for being a US long term resident with many years of non-compliance.
Again, I admire you for speaking out for many of us..
@Just Me – thank you so much for that excellent post. I thought about OVDI when I found out about the FBAR’s and in the end decided against it because I could not get a clear answer from anyone about my case. So I just went ahead and filed the darn things and several back tax returns which all equalled zero until 2010 (I paid my taxes for 2010 and so I should be good) By the way I think we left the Pacific NW at about the same time – I left in 1989. 🙂
@Moby – Bravo. Thank you for sharing your experience. Good for you for “opting out”. Sounds like it was absolutely the right decision and I’m so glad it turned out well for you.
Victoria…
I bet we left Seatlle different ways. I left on a sailboat out of Bellingham, and you left on jet plane 🙂
A long time ago!
ij,
I only wish for the very best outcome for you. You are to be admired for your willingness to accept your failures and the penalties that accompany them. The IRS is to be scorned for their treatment of you. American doesn’t deserve your contributions! So it goes… Good luck Mate.
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Just an update — well, I might be wrong (I believed that I was told by my agent — they had internally discussed and decided not to impose penalty on RRSP).
But now, I was told that they would impose the penalty. So, nobody should believe what I have said — as I do not believe what I have been told.
Until I see my form 906 — then I will know the final version of RRSP story.
My apology for any misleading information. IRS has the final say and the taxpayer has the final option — opt out !
@ij No need to apologize to us for the bad faith of the IRS. Goodness knows that we would never blame you.
That is quite a blow to all of us, and when the time comes and you can prove that they are assessing an RRSP then I think we should break out the big guns.
I don’t see how the United States government can defend the assessing of FBAR penalties on a RRSP (Just Me–I know that OVDP is just a game they are playing, but I still think that the game should have a basis in law).
Petros,
I just saw another ovdi participant who has same situation of mine. He was also told by his examiner that RRSP would be included into 25% penalty. He has never cashed out RRSP nor invested any after moving to US. So this hardliner policy of IRS has gone too far —
I am in suicidal mood now, and I feel so guilty to my kids, and my wife whose last year total income was only $300 as substitute child care aid while I would be forced to pay almost 100 times more of her last year annual income as penalty for not clicking on f8891 (deferral tax) and that FBAR form.
Mr. President, do you still want me to believe you ? What kind change are you gong to lead to this country ? Why is fundamental fairness in America ?
@ij — keep communicating here. The bloody b******ds. This whole thing is insane — not you!
@ij You and the other RRSP holder need to get a hold of Minister Flaherty. The US is acting in bad faith. This is evil. Hold on, you’ve done nothing wrong (that I can see). I told you this before–the government is evil and you are not to blame for FBAR and the way the current President is running his regime. I have a sickening dread in my heart about how bad this government really is.
@Petros
According to an article in the NY Times US Treasury officials are privately “hoping” to get Canada on board to a government to government FATCA “deal.” At the moment though Flaherty appears to still be a no unless conditions are met that are beneficial to both Canada and the US. I’ll post more later tonight.