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
They know if Canada won’t play ball neither will any of the other big players. Flaherty is a tough negotiator … thank God for him.
@omghe’sstillanamerican
China is still an absolute no and supposedly the US badly wants to get them to yes.
Quote:
Li Xinghao, a spokesman for the China Banking Regulatory Commission, said last month of Fatca that “unless the law is modified, the China Banking Regulatory Commission has no right to mandate Chinese banks to disclose account information of U.S. clients to the U.S. taxing authorities.”
@Everyone
In other news the Republicans are absolutely furious at Obama over Harper’s trip to China in the wake of the rejection of Keystone(I don’t necessarily say this as a Keystone supporter I just find amusing how pro Canada conservative Republicans have become. They really are the Oil and Gas party wherever that oil and gas may be)
Boy they’re really driving us right into bed with China. First the Keystone pipeline and now this…
@omghe’sstillanamerican
For laughs though I have to link to this picture. In my mind it is most defining image of current US Canada relations. See if you can guess who is in the photo. Note the plane in the bankground has the same color scheme as Air Force One so it is a US Government jet. Nothing like a nice welcome to Canada to our friends from the south.
http://www.g7.gc.ca/gallery/landing-atterrissage/23lg.jpg
(Photo might take a second to load)
@omghe’sstillanamerican
If you can’t guess who is in the first picture take a look at this one.
http://www.g7.gc.ca/gallery/landing-atterrissage/21lg.jpg
That looks like Geithner in the front and is that Ben Bernanke coming down the steps wearing two winter coats and at least one scarf? Where does he think he is the north pole?
This relationship is icy…
Flaherty, Geithner, and Bernanke. Wow.
To be fair I didn’t point out they were in Iqaluit, Nunavut up in the Canadian Artic. Notice there how Flaherty is definately used to the cold and quite comfortable where Bernanke appears to turn into a popsicle on contact with that nice artic Canadian air. I think Flaherty viewed bringing all of the G7 minister and central bankers up to Iqaluit as a good negotiating tactic just like some people in meetings open window blinds on purpose to the sunlight glow right into people faces or sports teams turn off the hot water in the visiting locker room. No one at the meeting appeared to happy to be there other than Flaherty. Flaherty was once basically an ambulance chasing trial lawyer in fact his old firm still uses his name so my guess is he was a pretty good negotiator.
http://www.fdemlaw.com/
@Tim Like blow cigar smoke in someone’s face.
But to be fair, maybe he was just trying to avoid the anarchists and occupy movements. Not likely that too many of them would be camping out up there in the winter.
@Petros
There is a new article up at WSJ on FATCA and Canada but its paywalled. Anyone with a subscription might want to take a look.
http://online.wsj.com/article/BT-CO-20120208-719121.html
[editor: try this link]
I read Timothy Geithner recently rented an apartment in the town where he lived before he became Treasury Secretary. He’s spending weekends there so he must just be dying for the day when he doesn’t have to do this job anymore.
He also has a house in the town where he’s renting the apartment but had to rent the house out when he started his new job since he couldn’t sell it due to the downturn in the market.
I’m betting he really hates his job these days.
IJ….
I know you were fearful, but I think you have to seriously consider Opting Out now. I don’t know your facts, but nothing about your case sounds to me like you were a willful whale, so outside the program I think discretion and better result might occur. This is just ridiculous that they are including RRSPs in the base. Before you opt out, call the TAS DC office, and see if that is what they recommend.
Just me,
Thanks…
my case non-RRSP peak value around 68K and RRSP peak value around 50K.
Years of non-compliance since 1999 (when I came US on TN visa, and got green card in 2005).
All fund were earned while in Canada (before becoming a US person).
Paid only Canadian non-resident withhold tax before 2008, and later paid IRS after banks stopped taking withhold (due to new protocol of the treaty).
IRS has all my bank records from 2003 to 2010. Bank does not have earlier years. So there is no problem for audit on my side.
Opt out — I just do not see how I can take argument as reasonable cause — for being a long time US resident.
However, I can argue that I am very stupid/careless taxpayer as I do not know to take any credit which needs a Schedule — such as Moving expense, and Make work day credit etc. So I would be “willful” for both losing money and gaining money from IRS.
That is all… So if I under stand clearly, when I opt out — the FBAR penalty has to be settled in court. That will be DOJ’s job.
To reasonable, I will consider opt out with FBAR penalty of $500/$1000 for each year from 2003 to 2010 — for being stupid. If IRS wants more — then I will let them to take the case to DOJ — settled in court.
I am not going to hire an attorney — my case is simple — simple money
Hi, ij,
I just found out this OVDP thing last weekend from a Chinese website. I posted a question for you about RRSP on Jack’s website, and Just-Me kindly provided me some links, which leads to here.
I believe 99% of people on these websites are minnows. Big whales have their own lawyers. We just simply made some mistakes, but the penalty is ridiculous.The government will take 27.5% from us, maybe even including RRSP money.
We came to US in 2006, left our hard-earned money in Canadian Banks as CDs (peak time ~85K). And some RRSP (~100K). We never send US money to Canada. Basically we have unreported interests in 06, 07,08,09 and 2010. All in all the interests are about $1K*5=5K in 5 years.
On top of regular tax, interest and accuracy penalty, I was ready to pay 27.5%*85K=$23,380 to just get over with it, and move on. Now it seems the RRSP is still a question mark. I have not been sleeping well in the past week. Yet, I have to put up a smiley face to comfort my wife and take care of our kids. Life is tough….
Pingback: Moby “Opt Out” update | The Isaac Brock Society
@Civic,
Sorry I was not aware of your comment, and just found it out now.
Your situation is similar to mine but you have a better chance to avoid all this OVDI.
Don’t give up your hard earn money for exchange a smile face from IRS.
Hi ij, thanks for your reply. We came from the same hometown. If possible, would you please drop me a line at libertycivic@yahoo.com. Thanks
@Civic and ij
Did you actually report your foreign accounts on your 1040 or did you just not report the interest and file FBARs?
Yesterday, a lawyer told me I was a criminal for not having done it, that I was in deep trouble and my only choice to get out of it was to pay him $20k and do OVDP. This was an experienced lawyer in those cases. He was just stating everything that is on the IRS site. He said all they want is your money (he didn’t mention he was after it too). He also said my wife was in the same trouble since she knew about the account, and that she needed a lawyer as well.
I don’t know who to believe anymore and what to do.
Like you, ij, I have had suicidal thoughts. My wife is American and don’t want to leave the country if I am deported. I need help, but don’t know who to turn to…
I am inclined to just get into that program, pay the $50k or so that it will cost me to end this nightmare.
That is so wrong to play with people’s fears to get money out of them. I just don’t think the fees are appropriate for the crime. I will loose 3 times what’s on that darn account that I should have closed when I moved here.
I wished I wasn’t married with kids, so that if I get kicked out, it would impact only me…
Christophe…
Relax mate. Dump that attorney. Don’t go back! He is doing you no favors at all. Just recognize that you have to do some personal drudgery to educate yourself before you just sink into despair. I fear you are looking for quick answers on a blog, and that is not the best way to approach your problem. You need to get more familiar with your options and take your time. You are not under a gun yet! You will survive this.
Please please please, take the time for some serious reading. Maybe a couple weeks. I think you will find help in the blogs I have directed you to.
Go back here, and methodically click from link to link and slowly read and digest very comment. If nothing else that will help you see that many feel as you do, and have found answers over time. It will also build your education base for a better decision making.
If you are wondering what to do now that you have knowledge of your failures, don’t complicate matters by remaining non-compliant for tax year 2011. Start this tax year correctly, and then take the time to figure out if you think amending past returns and doing a QD is a good strategy or if entering the OVDI would give you peace of mind. If you read enough, I think you might find that a QD is better solution then entering the OVDI, (which will only extend your torture and not provide the peace of mind you think it will), but of course that depends on your facts and I don’t really know them.
Now, if you have not filed your 2011 taxes yet, file for an extension so you have more time. You have until June 30th to file your first FBAR. If you have already filed, then do an amendment to correct it before Oct 17th, so you are now compliant this year.
Now, if that flags you for an audit, so be it. It is NOT the end of the world. As busy and understaffed as the IRS is, that will probably take a couple years! I really doubt that you will be worse off in an audit than you will be in an OVDI that was not designed for you. If you were criminally prosecuted, as you seem to fear, you would be a “first” , I would say. It is highly unlikely, and I would go so far as to say it would not happen. You are just a Minnow in the scope of things, and the IRS is not going to waste prosecution resources on you! But, again, you may need more time to assess whether or not my statement makes sense and whether or not I am right. It is just my opinion which comes from dealing with this crap for 3 years now.
Hang in there, as many of us have struggled with similar decisions, and your turmoil and fear is not unusual. You are amongst friends. I have empathy for you, but you need some self help, and not attorneys trying to milk you for money right now. You need knowledge, and I don’t know of any other method of attaining it other than doing “the drudgery”.
This too will pass. I don’t think it will be as bad for you as you currently think. Hang in there.
Just me, Thanks for the kind words. Yes, the attorney is dumped 🙂 When I cancelled the appointment, to take more time thinking about OVDI, he said no to bother contacting his firm anymore. He might not have liked the part where I said that I would have liked a more analytic approach like Jack presented in his blog, instead of the scare tactic he used.
My main fears outside of OVDP are the following:
1) Being prosecuted for tax perjury for not having checked the Foreign Account checkbox. This will likely revoke my green card status and I will loose my family.
2) Huge FBAR penalties for being non compliant for all 6 years, and not checking the foreign account will likely put me in a willful case. So I am looking a much higher penalties than inside the program. ($8,000 inside, probably ~$33,000 oustside (I have 3 accounts (checking + 2 savings that were ($50k – 65k in 2004 and 2005, and $18k afterwards). Like ij, it seems that I don’t have a good reasonable cause. I checked no, was grossly negligent, didn’t even know exactly how much there was on this account since I never use it, and I recently learned from my parents that it was about $18k.
I filed my 2011 taxes properly (declared the interest and send my FBAR).
I don’t care about the back taxes due. We’re talking $120 at most per year (except for 2005 when it’s about $3000) and I owe them. I will be happy to pay them plus interest and penalties and I accept the consequences of my mistake.
Christophe….
Well, becoming compliant is a BIG step in the right direction and in my opinion, shows good intention.
There is a BIG difference between being benignly or even grossly negligent and being criminal. Criminal you are not! In an audit, an agent with discretion would recognize that, and your penalties would be much less, in my opinion. I think you can still make a “reasonable cause” argument since it was a family account that you didn’t even know what the amount was, and didn’t think this simple account applied to you.
I would not worry one whit about the perjury issue. Even the IRM says that checking the box no is not evidence enough of willfulness. There is a high hurtle for the IRS to prove willfulness, and since they have non willful penalty ability, they will default to that and in that area there is wide latitude for examiner discretion..
Once you did come to understand that reporting this account applied to you, you became compliant, and that is what the government should want, not retribution for a minor error with de minimis tax consequences. I think you have time to decide what to do, as as time passes, the SOL runs out. The IRS has much bigger problems than you, and you should take your time in deciding on the right course. I think QD to correct mistakes is something to seriously consider over the OVDI. I don’t think you want to go there. It is a black and white world inside the program, and it is a totally unreasonable compliance approach for minnows, in my opinion.
Christophe: please make sure you keep in mind that you have rights under the Constitution of the United States. I have written extensively (see the side bar) about why these
rights have been systematically abused by the FBAR law and more especially, by the IRS in creating and implementing the OVD programs. I think that the most important post is this one: http://isaacbrocksociety.com/2012/02/22/irs-is-bluffing-bad-faith-negotiations-in-the-ovdi/
The IRS is indeed bluffing. It will not, in my opinion, apply steep fines against someone like you if you do quiet or go-forward disclosures. If you voluntarily pay the back taxes and penalties, that will be everything owing to them, and the Eighth Amendment protects you from the seizure of your wealth. Please bear in mind that the most severe FBAR fines have been either (1) whales–big fish stashing millions in foreign accounts; (2) Whales and minnows who have entered the OVD programs. By far, it would seem that the OVDI has collected far more money than fines against those who have done Quiet or go-forward disclosures (of which we have little data and so we could perhaps presume that none of these have yet been fined–probably because the IRS is scared sh–less that the Supreme Court will take their club away from them, i.e., find FBAR unconstitutional as a violation of the Eighth Amendment.
I ask anyone that thinks that I am wrong to contradict me please.
Christophe:
JustMe and Petros are giving you good advice. The most
important thing you need to understand right now is:
Relax and take your time! If you don’t relax you won’t be able to take care of your family which is the biggest issue here.
Your problem is that you have been listening to people who have a vested interest in your fear.
You might find the following post and the comments to be of interest. The comments describe a fact pattern that sounds a bit like yours.
http://renounceuscitizenship.wordpress.com/2012/04/02/chicken-soup-for-the-immigrant-soul-getting-a-good-nice-sleep-for-less-than-10000/
It will help you make a decision.
Make sure that you get yourself compliant on a going forward basis.
Question: Where did find the attorney who pressured to go into OVDI?
@Petros. Thanks for your response.
Do constitutional rights also apply to residents that are not US citizens?