Just Me offers advice to newbies to the subject of FBAR compliance and OVDP considerations. To join or not to join. That is the question. This is a must read post.
A link to his Case Study of Communication with the IRS through the entire 851 day process is here.
The purpose of this post is to address Minnows who may be new to Isaac Brock. By Minnows, I mean those of you who were not the original target of the IRS offshore account jihad that started in 2009. Those I call Whales. They were the UBS type tax evading “US persons” living in the Homeland and squirreling away their money in “offshore” secret Swiss Bank accounts specifically to hide it from the IRS. If this is not you, then you can read on. If you are a Whale, or if you have already been around the block on all these IRS VD issues and feel well-informed, you can probably skip reading this post.
If you are a Minnow visiting the Isaac Brock Society you are probably concerned about recent IRS programs and what it all means for you as an US Expat, accidental US Citizen abroad, or an immigrant to America. Some of you are now faced with a hard decision as to what your response will be. You want to know whether or not to join the most recent iteration of the Offshore Voluntary Disclosure Program (OVDP) which may be driven by fear as result of a disingenuous marketing effort created by IRS press releases and totally mischaracterized by a compliant and non skeptical US media. This is a very tough decision that many of you are struggling to make. Far be it from me to give you advice on what you should do. You will not find that answer in this post. However, I can point you in the direction that might help you with the decision that only you can make.
Since I am always reticent to provide specific advice on a blog as to what one should or should not do, I want to be sure you understand that information here does not imply that I am encouraging anyone to do anything other than self educate!
I recognize there are others who will advocate strongly for not joining, or will provide more detailed advice then I am willing to do. I would always caution new readers to be wary of specific advice provided in a causal or generalized way in any online forum. Blogs are a great source of information for continuing education, but when it comes to the OVDI issues, they don’t substitute for good legal advice based upon your very specific facts. But…., before you throw good money at a tax practitioner, you need to go down the self-education route. You need to do some drudgery!
Let’s start now. This may be in the category of conventional wisdom, but it is worth repeating.
I have to assume by now, you have read the About Isaac Brock Society, and know this is a great information sharing site with lots of knowledgeable and good bloggers, but I want to direct your attention to some of the excellent information that is also provided on another blog by a tax attorney professional named Jack Townsend. His blog is called Federal Tax Crimes.
There are many other blogs around the internet, but I am going to suggest that you just focus on these two sites right now. Links here at Isaac Brock will expand your learning universe, but at the start of an educational journey you might try maintaining a site specific core focus to begin with, and Jack’s blog might be a good beginning. Then come back here for additional learning and updates. If you start wandering all over the internet and googling everything, you are just going to get lost and confused. There are many attorneys or bloggers telling you what a great thing it is to declare your sins at the OVDI altar and “come clean.” Run away from anyone that tells you that without knowing anything about you or your specific facts.
Jack’s blog was designed for attorneys and students and not lay people. However, with the advent of the first OVDP of 2009, it has become an excellent source for learning for the rest of us non experts. Jack has indulged many lay readers with his time, answers, and advice. He has provided an excellent forum for information exchange amongst novices on specific OVDI procedures. That is why I am placing a high value on it, and why Isaac Brock lists it as an external resource at the bottom of this page.
Between Isaac Brock and Jack’s blog, you should garner enough good information to make an intelligent decision that is right for you. Once you get through all the reading that I will suggest you do, and you update yourself with the new information that is flowing into here daily, you should be well armed with the prerequisite knowledge necessary to approach an attorney for strategic advice and help, if required. That is why I am proposing that do your own due diligence drudgery first, before you run to some unknown practitioner or blog for help in deciding what to do.
Now, I know this is probably the last thing you really want to do. “Why should you have to do it?” you might say. It is absolutely ridiculous that the US government is treating you this way, and you are angry and a bit fearful. You are not alone. We have all felt that way and expressed it.
You maybe overwhelmed and beleaguered by it all. “Now, you want me to do some additional drudgery too?” you might ask. Just accept that as a fact, and do it anyway! I know, I know! Who in their right mind wants to read legalese, endless blog posts, IRS manuals (IRM) and pour over every nuance of the FAQS the IRS issues about the OVDI? None of us do, I think. But you are reading this, so you must know in your heart that you have to.
The tax practitioners know that many of us are either too lazy or not so inclined to dig into these unfathomable subjects. Some of them have spent a lot of time studying the issues and laws, (or not!) and that is why they charge so much to “take care of it” for you.
Information = power = $.
However, if these experts are not up to speed on OVDI issues, and heaven knows a lot of them are not, the last thing you want to do is pay for their education!! If you are overseas it is especially hard to consult with a good knowledgeable one, but it can be done via phone conferences back to the States on Skype. Therefore, because of the communication ease these days, I would almost never rely on an attorney in your resident country (with some notable exceptions in Canada) for advice on how to navigate the OVDI Minnow processing plant!
At this stage of your education, just take a deep breath, and devote some meaningful time on your personal drudgery. Remember, you are doing this, as much as anything, so you don’t make a wrong choice in the professional practitioner market place, should you decide to go down that route.
It is a “Buyer Beware World” out there. Some attorneys are very good, and know the ins and outs of the IRS VD programs. Some are just looking for your money. There is a lot of good commentary at the Isaac Brock Society to those points, but I want to caution you again. You have to learn to identify them. Self-education is required for you do that.
As fun as attorney bashing can be, don’t discount all of them either. A good attorney who can provide you a sounding board with critical advice at key decision points is worth every penny of the price they may charge. At least that has been my experience.
Should you decide to enter the OVDI program, and again I am not suggesting that you should, there are a lot more strategies now on how to minimize the cost in dollars then there were back in 2009.
The “Opt Out” for all its faults is beginning to look like a good option for Minnows if you are already in the OVDI process. There may be strategies on joining the OVDI and immediately asking to “Opt Out”, or just doing a straight up VD, or a Quiet Disclosure (QD), or just start filing the FBARs and 1040s from now on going forward. There are other approaches too. Some are put forth here at IBS and in other blogs that say you shouldn’t join in the first place. I am not going to advocate one way or the other about that here. Each has its own set of risks and rewards depending on facts and ones need to sleep at night.
Unfortunately, what ever your decision is across the wide spectrum of choices from doing nothing to renouncing your US Citizenship, there will still be a big cost in LCUs. (Life Credit Units). It will consume a lot of your time figuring it all out. You shouldn’t have to this, and we can bemoan it all we want, but there it is. It is what it is! You are going to have to spend something, your money or your time, and it is up to you to work out what you can afford and in what portions.
At this point, I would just say, accept that fact that this drudgery for dummies is something you have to do for yourself. At first, for some of you, it will just be incomprehensible and totally illogical. Don’t get bogged down with whether or not any of this makes logical sense. My wife had a hard time dealing with that, and kept getting distracted on the logic tangent!
For a cynic like me, tax statutes by definition are often illogical, as they are written by lobbyist, passed by politicians for heaven’s sake, defined by technical IRS writers and then interpreted by tax attorneys! And then there is you at the end of the unintended consequence train wreck chain reaction to complexity . You have to deal with the impossible compliance mess that results.
Tax laws can be stupid, arbitrary and capricious, and all that complexity gets magnified every step of way until they are applied to you. We can rant endless about it, but what’s the point other than make you feel better? It doesn’t change anything. So, just get back to the recognition that you have to bear up under the burden of lots of reading and research now to work out what to do. However, if you do it slowly, but surely, the information will seep in and stick in your brain. At least that is how it works for me! You eat this elephant one bite at a time, and surprisingly, you find out that you can digest it!
It is not easy however, and not without heart burn. It took me forever to get my little brain around the legal technicalities of willful, non willful and willful blindness issues and what penalties could apply. Understanding who had the burden of proof, what were the appeal processes inside and outside the 2009 OVDP, what litigation ‘might’ happen or not, took effort and constant re-reading and repetition. These are not natural subjects for me. Then, coming to terms with an honest assessment of where I sat on that spectrum of failure and risk took time.
Trust me on this. If you do the drudgery now, and are disciplined in the incremental learning process, eventually the way forward will become clearer and appear. The right decision for you will emerge.
If you are not already in the OVDI, the “recycled” new one without deadlines for participation, means you have time for that knowledge evolution to occur. That is an advantage you have, that a lot of folks back in the days of VDPs with deadlines didn’t have. Fear, urgency and incorrect practitioner advice drove many to make mistakes in their decision-making process. You now have time to get it right! I don’t think you need to feel rushed into a decision. You also have the advantage of reading about the experience of those who have gone before you on the processing conveyor belt. There is much to be gained from their stories.
As a good example, if you haven’t read Moby’s experience yet, this would be one that you can go to school on. (3/11/2012 Note update at end of this text)
So, if it were me, coming new to this subject, I would start reading the specific blogs which I have listed below. I would systematically work through the ones I provide in a progressive manner, starting with the oldest post first. There will be duplication of information between blog threads, but like any learning experience you need repetition for concepts to stick with you. Some of us need it more than others. And yes, again, it is a drudgery, except for a very few of you sick ones out there that love this stuff! I joke! 🙂 Who could love this? Ah yes, they have the titles like attorney and CPA attached to their names! Mate, they are not like us, but with a little effort, you can become more like them. In these matters you have to, or so it seems to me.
On Jack’s blog I would start reading in May of 2011. I don’t think you need to go back farther than that, although you certainly can using the monthly archives. The selected list below is not exhaustive, or even authoritative, but it represents progressive learning which has occurred as the OVDI was developing, and the controversies surrounding the OVDP were being discussed. I would read every comment and every additional reference provided. If Jack or someone provides a link, I would follow it to see what it says.
The special and unique thing about Jack’s blog is that sometimes he provides excellent and detailed advice around a certain set of specific facts based upon his extensive legal background and knowledge. That is very helpful. He is the professor and is qualified to do so, while I am not! I have found him to be a very valuable resource. Also, he reviews with the readers the decision tree he uses to help some of his own clients decide on their best course of action. I put great weight on what he has to say.
You will also hear many folks asking very similar questions that you may have. You will read about others sharing their experiences and giving novice responses which too can be very helpful. Of course there are plenty of opinions, as we all have one, so take that on board with a grain of salt. Since his site is moderated, if someone gets off on a wild tangent or something, it may not be put up. You don’t have to slug through a bunch of over-the-top rants although, I have had some that have been borderline! LOL
When you get done with all this reading, plus the information you are picking up here at Isaac Brock, you are now armed and ready to talk to an attorney, should you decide you want to (or not). With a strong knowledge background, you can cut to the chase, and not waste a lot of money on an attorney telling you things you already know! They then become a partner in your strategic and tactical decisions, rather than an expert dictator of what you should do!
If you are not willing to do this drudgery than be prepared to pay out BIG $. If you have more money than time, you may be tempted to do that, however you can still incur significant and unnecessary risks in spite of the money spent. By definition those reading here are probably Minnows, and likely not anxious to spend the bucks. You may be a DIY person. I was. You can go through the entire process without giving power of attorney (POA) to anyone. You can learn to trust your own council, if you do what I suggest. Just remember, if you put your OVDI life in a tax practitioner’s hands, how do you judge the quality of the advice you are given? Think about that! If you don’t have a strong knowledge foundation to measure advice against, you are setting yourself up to be fish fertilizer. So, do the drudgery now and become Fool Proof and Process Proof later!
That is the best advice I can give you for now. Hope it helps.
Happy reading!
1. Looking for Mr Fbar (added 3/11/2012)
2. Evolution of the FBAR, Where we were, where we are and why it matters, 2006 by Hale Sheppard (added 3/11/2012)
3. To OVDI or Not to OVDI – That is the Question (Of Quiet Disclosures and Doing Nothing) (5/23/11)
4. Opting Out of the IRS 2009 OVDP and 2011 OVDI (6/14/11)
5. To OVDI or not to OVDI – Part 2 (7/31/11)
6. Of Fear and Hostages: A Mid-Sight Editorial on The OVDI Program and Extortion (8/1/11)
8. Opting Out Considerations by Jeff Neiman (9/10/11)
9. Experiences Inside OVDP / OVDI (9/14/11)
10. IRS Promotes the Success of OVDI and Related Items (9/16/11)
11. Article on OVDI and Beyond – Highly Recommended (10/24/11)
12. Excellent Article on Offshore Accounts – History and Future (11/9/11)
13. IRS will Give Canadians Some Breaks!!! (12/2/11)
15. “Opting Out” of OVDI and OVDP; What is Really Happening? (12/12/11)
16. Tax Notes Discusses Dispute Between the Taxpayer Advocate and the IRS About OVDP 2011 (1/6/12)
17. IRS Re-Opens Offshore Voluntary Disclosure Program (1/9/12)
19. “Opting Out” #2 (3/2/12) (added 3/11/2012)
20. Moby “Opt Out” update (added 3/11/2012)
21. “Experiences Inside OVDP / OVDI #2 (4/4/12) (added 4/5/2012)
22. “Opting Out” #3 (4/4/12) (added 4/5/2012)
23. Open Forum Comments to Congress and IRS Regarding Tax Administration for Offshore Accounts (4/9/12)
24. IRS OVDI June 1st, 2011 Opt Out Guidelines (added 4/12/2012)
25. Article by Scott Michel, a DC attorney on foreign reporting requirements and initiatives. (added 5/8/2012)
Special note on this article, where Scott, good as he is, might have gotten something wrong. This note has been confirmed by Jack Townsend.
Scott says..
Opting out enables the IRS to conduct a full audit, and if the taxpayer can satisfy to the IRS that their conduct was not willful, lesser penalties might be imposed (for example, the non-willful FBAR penalty).
Note: It is not up to the taxpayer to satisfy the IRS, it is up to the IRS to establish willfulness. Anything the taxpayer can present in defense of non-wilfulness is useful, but ultimately, the IRS has to prove willfulness.That requires a high standard!
I think that Scott, like the IRS, slips into assuming “willfulness” if you are in the OVDI. It was what the program was designed for, willful tax evading homeland Whales. However, as we now know, given how it has been administered, and given IRS hyperbolic threats, a lot of benignly non willful minnows were in the program and should be Opting Out now rather than paying disproportional penalties.
26. IRS Warning Letters May be Sufficient for Some NonWillful Violations (5/18/12) (added 5/18/2012)
27. Burden on Government to Prove Willfulness in FBAR Matters. (Added 6/08/2012)
– Link to Jack’s discussion and comments
28. The 2012 IRS Offshore Voluntary Disclosure Initiative by Charles Rettig (Added 6/08/2012)
– Link to Jack’s discussion and comments
29. Making Voluntary Disclosures to the IRS, by Jack Townsend (Added 6/10/2012) Abstract: This paper discusses the IRS Voluntary Disclosure Practice, including tips for the practitioner. Topics include noisy disclosures and quiet disclosures as well, in some cases, just making no disclosure at all. The article places particular emphasis on the recent offshore financial account voluntary disclosure program and its alternatives.
30. National Taxpayer Advocate Report to Congress (6/27/12)
32. Tax Advocate Report Identifies IRS’ OVDP / OVDI As Problem (1/9/13) Good stats and discussion of the Opt Out process, and complexities of Offshore tax filings.
33. Report on Webinar on Opting Out and Litigating FBAR Penalties (added 1/17/13 ) This is a Must Read for those currently stuck in the OVDP and considering Opting Out.
34. Warnings on Continued Government Patience for Offshore Account Ostriches (1/31/13)
35. Report of Government Comments on FBAR Penalties at ABA Tax Section Meeting (2/1/13)
36. Article on Taxing Administration for Offshore Accounts (2/2/13)
37. IRS has New Forms for Offshore Voluntary Disclosure Letter and Attachment (3/23/13) (added 3/35/2013)
38. Hale Sheppard Article on Willful FBAR Penalty Cases (4/26/13)
39. More on the GAO Report on IRS Offshore Disclosure Initiatives (4/27/13)
41. Guest Blog: Analysis of the Data in the GAO Report (5/13/13)
42. New York State Bar Letter to Treasury to Restore OVDP Integrity by Not Ejecting Precleared Taxpayers (5/21/13)
43. IRS Modifies Policy for First-Time Penalty Relief (5/31/13)
44. Offshore Items from Report on NYU Tax Controversy Forum (6/11/’13)
45. Rubinstein on the State of Offshore Bank Account Compliance (6/12/13) (note comment by Jack where he infers that U.S. will have some type of triage that will ignore the minnows)
46. Quiet Disclosures That Don’t Stay Quiet – Civil Examinations (6/13/13)
47. An OVDI Odyssey – an Opt Out Success Story (6/16/13)
Finally: Below is the link to my personal story that is told through the letters of communication I had with the IRS through out the entire OVDP process. It starts with my letters to Commissioner Shulman, and ends with the Tax Advocacy Appeal letter that allowed me to have FAQ 35 (consider this an inside the OVDP opt out) relief. That lowered my penalty from $172K to $25k for a ‘nonwillful’ failure. Still a lot of money, and in retrospect way too much for my failure. However, the process does exhaust you, and like a plea bargain, even when you are innocent, it did allow me to put an end to a 2+year process without any willfulness charge or more lengthy appeal process or expense. Without TAS intersession, (the one bright spot in my story) I am uncertain what would have happened. Maybe I would have had even a better outcome like Moby did with his ‘Opt Out’ which came later, or maybe I would have been fish fertilizer, but will never know.
48. My Story: Letters to Shulman, or a Case Study of OVDP communication attempts with the IRS. An insider’s view of the process. (added 3/11/2012)
One final comment, which I would be remiss not to mention. Phil Hodgen’s has up until recently maintained a fine blog on OVDP and OVDI issues. I used it extensively during by own personal drudgery. I checked it daily. You will notice that Isaac Brock has it listed in the resources, and Petros comment in the thread about Phil is right on point. I like Phil’s style of writing, his cynical wit, and his advocacy on behalf of Minnows. I did do some posting there, but since the majority of my experience sharing was on Jack Townsend’s blog, I decided to keep your focus there in your discovery process.
If you read all the threads and comments that I suggest, you will note that there are often links back to Phil, and you should definitely read what he has to say. There are other blogs by attorneys that I could mention also. I have found many to be reputable and very helpful in understanding the history of how this FBAR mess all came to be. Not wanting to clutter a long post any further, I left them out. Again, if you just methodically work through the Townsend threads I have highlighted you will discover them too. It all depends on your personal tolerance level for drudgery. Not many find this discovery process an exhilarating one! 🙂
@Chris… It is a stunning conclusion to me, but I haven’t had time to read the whole thing…
They should be happy with QDs, as they are in the Homeland onshore ones. The ‘Bird in the Hand’ is worth a lot more than the “detect and pursue” bird in the bush! They are so myopic and stupid in government. At least with layoffs and ObamaCare maybe they will continue to be too busy for this nonsense!
@Mike Tarrantes
Yes, that would be good. I see @Not that Lisa is asking questions on the other thread, and maybe later you can summarize your particulars here for others. It would be greatly appreciated.
@Just Me, All,
Speaking of Obamacae…
IRS Makes Progress on Implementing ObamaCare
Is there no end to what those who run the US want as entitlements? Now Congress Wants to Exempt Itself from Obamacare
@Calgary411…
This is off subject, but if you have time, I recommend you listen to this podcast. Disability Benefits are the new Welfare in America. It is exploding… This is even bigger than FBAR penalties and offshore jihad for impact to the Treasury… 🙂
http://www.thisamericanlife.org/radio-archives/episode/490/trends-with-benefits
@Just Me, thanks for posting the Hale Sheppard article on willful penalties. This one is scary.
As Steven Mopsick and Antony Parent put it, the McBride case is bad case law.
They went after him with willful FBAR penalties for account balances that weren’t that high.
The prosecution made statements like:
“Even if [Accountant] Taylor was fully aware of the [MSA] scheme, yet failed to properly advise McBride to report his interests in the foreign accounts, this would not excuse McBride.”
The court then explained that Accountant Taylor’s facilitation of McBride’s “willful blindness” the following year, 2001, “by failing to dispense proper advice” about the FBAR filing requirement, did not make McBride’s failure to file an FBAR for 2001 less willful.
They did not use the clear and convincing evidence standard.
How could McBride have been “willfully blind” in 2001 if, according to the district court, Accountant Taylor was “fully aware of the [MSA] scheme yet failed to properly advise McBride to report his interests in the foreign accounts?
And the article finishes with
“With two victories under its belt already, and with the large number of U.S. taxpayers who
have yet to become fully compliant, the U.S. government is likely to continue asserting and then litigating “willful” FBAR penalties in the coming years.”
@Chris…
Hale is good, but he finished writing this before the latest Judge chastised the aggressive IRS prosecution. I wonder what he has to say about this?
http://federaltaxcrimes.blogspot.co.nz/2013/04/sentencing-judge-on-offshore.html
Jack as a bunch of good posts recently, that I really don’t have time right now to fully digest, but this from the JCT caught my eye too…
http://federaltaxcrimes.blogspot.co.nz/2013/04/jct-staff-report-on-selected-tax.html
Whether penalties encourage voluntary compliance
One criticism of the current regime is that many of the penalties which have been enacted, particularly over the past decade, seem to be designed for the purpose of raising revenue or punishing taxpayers rather than encouraging voluntary compliance. To support this assertion, practitioner groups and others have pointed to the strict liability penalty created under section 6662(b)(6) which imposes a penalty on transactions which lack economic substance and the strict liability penalty provided under section 6707A for failure to disclose reportable transactions. They argue that the lack of a reasonable cause defense under these provisions eliminates the opportunity, and the incentives, to remediate and to become compliant. Under section 6707A, for example, the penalty may be imposed even if the failure to disclose the transaction is not willful but instead inadvertent (perhaps because the taxpayer could not identify whether a transaction was a reportable transaction).
On the other hand, the fact that revenue increases due to penalties is not dispositive of this point and Congressional intent in enacting penalty legislation has generally been to improve compliance. Thus, if a penalty is effective it will raise revenue though the penalty is never in fact assessed.
Whether standards in some penalties are sufficiently clear
Practitioners point out that penalties relating to potentially abusive transactions has made this area inconsistent and confusing with respect to disclosure and reasonableness of questionable positions. For example, if a substantial understatement penalty imposed on an individual is attributable to a transaction with a significant purpose of tax avoidance that is not a reportable transaction and that has economic substance, that individual can raise a defense to the penalty by relying in good faith on the opinion of a professional tax advisor, without disclosure and without establishing that the position had a “more likely than not” level of confidence.
On the other hand, for listed transactions (and transactions substantially similar to listed transactions) and other reportable transactions having a significant purpose of tax avoidance, disclosure, substantial authority and a reasonable belief that the treatment was more likely than not the proper treatment and the presence of economic substance are prerequisites to a reasonable cause and good faith defense, and special rules apply to determine whether the tax advisor or tax opinion is “disqualified.” For the same reportable transaction, if a taxpayer is able to demonstrate a lack of a significant purpose of tax avoidance or evasion, and that the transaction is not a listed transaction or substantially similar to a listed transaction, no penalty will apply if the taxpayer discloses the relevant facts relating to the questionable position and can demonstrate a reasonable basis for the tax treatment.
Perception that automatic assessment of penalties lacks procedural fairness
The IRS automatically assesses penalties through the application of its automated matching system under section 6038(b)(1) for failures to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and under section 6651(a)(1), for failures to file.
Practitioners and others have noted that when penalties are imposed automatically, there is no mechanism in place to first determine whether the taxpayer’s error was the result of particular conduct of a type that merits a penalty. Though such penalties may later be abated, one group has argued that in many cases, taxpayers pay penalties even if they are unwarranted because of the difficulty and expense involved in challenging an assessed penalty.
Whether penalties are disproportionate
Some penalties are not in proportion to each taxpayer’s degree of non-compliance. For example, the failure to file penalty under section 6651 of the Code is five percent per month with a maximum penalty of 25 percent. Thus, although a taxpayer who files five months late is penalized more severely than a person whose delinquency is cured after 30 days, he is penalized the same as a person who files one year late or a person that never files. Another example that has been noted as presenting the possibility of being disproportionate is the penalty for failure to maintain lists of advised clients with respect to reportable transactions under section 6708. That penalty is $10,000 per day with no cap if the IRS determines that efforts to timely produce documents are not sufficient, without regard to the number of persons omitted.
Jack comment
This is by no means a detailed presentation of the quirks and problems in the penalty regime. Indeed, it seems very, very basic. But then, I suppose, the Report is directed to Congressmen rather than practitioners or even taxpayers.
@Just Me. Thanks for the link. A wide range of people said to have a disability, perhaps all being painted with the same brush. What an escalation of ‘incidence’ in the US. There is only so much funding to go around — the cheque book must be balanced. Access to supports and cuts in funding for a range of developmental disabilities is happening even in the province where my family lives, a province which is much, much better off economically than most places.
That there are some scammers and lawyers seeking to ensure them disability benefits (used more as welfare) is sad as it will eventually mean the most vulnerable have a very weakened safety net, which very much threatens their lives. It will lead to isolation, unemployment, poverty, decreased quality of life, physical, social and emotional problems, loss of skills, crisis, abuse and neglect, and sometimes death. It can often end with costly tax payer funded institutional placements. Proper education and guidelines, cuts of real waste, assessing what works best, adequate remuneration for disability workers and continuity of supports as needed will save dollars in the end by preventing more costly consequences to society as a whole. Adequate supports to encourage employment and greater degree of independence is positive, perhaps with less hours, etc. When that is possible it’s a win / win and benefits the person by letting him or her really know they do have value.
@calgary411
No, they are not all being painted with the same brush, and the almost exponential rise has many reasons, some of them not immediately apparent. The usual canards of “scammers” or “no hopers” don’t apply. It was interesting listening to the journalist struggle to get beyond the CW narrative to understand what is really happening and what it means. It was one of the more fascinating podcasts I have heard recently…
Update from Jack Townsends blog on streamline program acceptance… @anon5percent or @Not that Lisa
http://federaltaxcrimes.blogspot.ca/2012/04/opting-out-3-4412.html#comment-879851153
and the new post here…
http://isaacbrocksociety.ca/2013/05/01/more-on-opting-out-of-ovdi-and-into-the-streamlined-program-the-streamlined-program-changes-once-again/
An opportunity to share your experiences and insights on the IRS OVDI programs…
From Jack Townsend’s blog..
Readers of this Blog Willing to Share Their Personal Experiences in the OVDP/I Programs (5/2/13)
I can not confirm, but I understand the reporter is David Kestenbaum.
http://www.npr.org/people/2100747/david-kestenbaum
If so, that would be a very positive development. He is very good, imho.
Pingback: The Isaac Brock Society
Great article on Marketwatch regarding offshore issues and the way to handle non compliance for ‘benign actors’.
http://www.marketwatch.com/story/be-sure-to-report-those-overseas-assets-2013-05-13?pagenumber=2
So what is an innocent person to do?
In discussions with the tax professionals in the LinkedIn U.S. Tax Court Group, the general consensus is ‘silent disclosure.’ What does that mean?
It means, stay out of the OVDI program altogether. File the required forms late. If the accounts had earned any income during those years, make sure that income was reported on your tax return. If not, file amended returns to report the income. If there is an audit, or if penalties are assessed, it will be handled by the regular IRS agents. In fact, although the examinations might be handled by the same people who are on the OVDI team, they are not locked into the rigid rules of the OVDI program when the returns and forms are filed without requesting the OVDI amnesty.
In this case, if your reasons for not filing are legitimate, you might be able to get the penalties waived altogether, or at least limit them to $10,000. Some good reasons:
•You had no idea that you were responsible for filing these forms
•You didn’t think of it as your account, since it was really your parents’ money
•You never used the money or intended to use it—since it wasn’t really yours
•You have not gotten any reports at all for years, and didn’t realize how high the balance was
•The money was seized by the U.S. in raid on the foreign bank account and you don’t have access to, or control of, those funds
What if the IRS assesses the maximum penalties anyway? You can request an appeal. And if that doesn’t work, you can file a tax court petition—as long as you file within 90 days of the statutory notice of deficiency. Don’t miss that deadline. Tax court is the only court where you can file a protest without paying the taxes, penalties and interest first. Miss the deadline and you have two other federal courts where you may file. But you must pay the bill in full, first. That could wipe you out financially.
Of course, if your negligence was deliberate, OVDI might well be the best way for you to go. Your penalties will be lower than if the IRS goes after you aggressively, but higher than those people who may have had reasonable cause.
Taxpayer Advocate recommends leniency
In the Taxpayer Advocate’s most recent report to Congress , Nina E. Olson points out that there is a big flaw in the OVDI program with respect to ‘benign actors’—taxpayers who did not comply inadvertently. She also notes how difficult it is to opt out of the OVDI program once you get into it.
If you find yourself in over your head, do consider contacting the Taxpayer Advocate Service for help. You can reach them at http://www.irs.gov/advocate or 1-877-777-4778.
@Chris…
Thanks for the link to that story. I have just scanned it quickly, but I agree.
This is raising the visibility of the problem for Immigrants, which is good. I noted the lead…
The State Department better start handing out the most recentPublication 54 with all new Visa Processing paperwork, so new immigrants are given “fair warning” the type of Tax, Form and Penalty Club they are joining. 🙂
and to your question, So what is an innocent person to do?
Given the GAO recommendations, and the IRS acceptance of them, that they should be bearing down on Quiet Disclosures for review and examination, it means few will even want to attempt that!
It is amazing how stupid application of tax policy can be and just compound into practices that discourage future compliance. The bureaucratic mindset that harsher and harsher punishment and actions to ferret out failure and collect penalties is the best way to improve compliance seems to be the American Way…
@Chris…
I see Robert Wood has written another..
IRS Gives Big Break To Some Offshore Account Holders
Good opportunity for you or others to comment about the QD issue….
I will try to do something, if no one else does by late tonight…
Pingback: The Isaac Brock Society
@bubblebustin – This article on the First Time Abate (FTA) just came out in taxprotoday. I requested a First Time Abate when I opted out of OVDI in order to have some of the tax penalties for open years reduced. The Taxpayer Advocate had told me that, according to the rules, I should be able to get an FTA applied to two years in the period if there was a 3 year gap between them without penalty. Upon opt out, I fit this definition. This article clarifies that only one year is possible.
IRS Modifies Policy for First-Time Penalty Relief
The article does not clarify two things:
1) What happens if you have an FBAR penalty or a 3520 penalty? Or a 5471 penalty? Do these disqualify you? Are these event based penalties?
2) Is the FTA an examination abate or a collection abate? The Taxpayer Advocate said it could be granted by an examiner during the exam. My Revenue Agent said it was a Collections Abate and the penalty had to be assessed before it could be relieved, which meant the Agent would assess it and then you had to apply to the Collections Agent for relief. I decided to play it safe and asked for it in my opt out letter. As I was accepted into the Streamlined Program (which I also asked for in my opt out letter), the FTA was never an issue so I did not follow up on it. Both the TAS and the regular IRS escalated to their Technical Advisors. Judging from the article that came out today, the regular IRS has made clear the policy they told me.
I am adding a couple entries about to my list of endless reading. This in light of some recent discussion on the GAO report on the OVDP which is blogged about here on IBS.
Jack has commented on Charles Rettig’s Forbes article that focused on the QD aspect of the GAO report..
(see my response to it below)
Quiet Disclosures That Don’t Stay Quiet – Civil Examinations (6/12/13)
http://federaltaxcrimes.blogspot.com/2013/06/quiet-disclosures-that-dont-stay-quiet.html
I will also add the excellent analysis of that GAO report which was also done on Jack’s blog by a guest commentor…
Guest Blog: Analysis of the Data in the GAO Report (5/13/13)
http://federaltaxcrimes.blogspot.com/2013/05/guest-blog-analysis-of-data-in-gao.html
Back to Charlies..
I posted a comment to him that I see is still there, but will put here to correct a couple typos I made in my haste and peek at his focus just on the QD…
I said..
One important part of this GAO report that you didn’t mention, is the disproportionate penalties for the so called “evasion” that unlike homeland American tax failures are usually related to amount of tax due.
Not so, if you an American abroad who benignly failed to file an FBAR and made the mistake of entering the OVDP that the IRS said, you MUST do!
The IRS can beat their chest all the want about how successful their efforts are at raising revenue, and the GAO can focus and tell the IRS to “go get them” (the QDs) in all they want, but if you spend just a few minutes really looking at some of the numbers this report provides, it gives lie to the mission’s morality which is worse then ‘greed’ and ‘evasion’ to portends to be fighting.
http://bit.ly/18fI3mS
Of total $5.5 billion in revenues collected, $3.8 billion were penalties or 66.1% of total. Further analysis of the report shows that these penalties were not even closely relevant to tax failure as would be the case in any homeland tax audit.
What the report fails to do, and FOIAs have failed to find out, is what proportion of the “participants’ had offshore addresses, and what was the real “Target Whale” ratio to the “Benign Minnow” that they so eagerly extracted penalties from in a “One Size fits all” penalty routine so roundly criticized by Nina Olson, the National Tax Advocate, and ignored by the IRS.
http://1.usa.gov/VRJVsc
So, ask yourself, what’s wrong with this picture. Did you miss it in your eagerness to talk about the Quiet Disclosure threat of these bullies? I guess your audience is the Wealthy readers of Forbes, so I forgive you!
However, do some soul searching here. When you have a program, that is willing to extract 129 times the penalties as compared to tax revenue due over 6 years from the most benignly non-compliant (lowest 10th percentile) of a FBAR filing requirement, you have to take pause and ask yourself, where is the justice and moral high ground in this?
Average high aggregate $78K, average unpaid tax $103 spread over 6 year look back, average penalty paid, $13,200! If you assume a fraud penalty in a normal homeland audit of 75% of taxes due, what would the penalty be? Put that in your excel spread sheet and see!
Could it be that the ‘good intention’ of the offshore jihad net is sweeping up the wrong fish, but unable to make a distinction or throw back the by-catch in its eagerness (greed) for revenue to cover the politicians sin of over spending and the huge deficits? Why doesn’t the GAO mention that? Are they myopically blind (willfully so) to the damage their programs are doing to voluntary compliance.
Then, of course, you have forgotten apparently about the IRS “Bait and Switch” practices, as an example of IRS ABUSE far worse than the current T-party scandal. American Citizens Abroad just put out a press release about this. You could have chosen to write about that. The GAO report, could have mentioned it, but NO!
http://bit.ly/11gk7qX
The GAO just ignored it, in their immoral and scandalous attempts to raise more revenue off penalties. This whole thing gives lie to Ex “I am not responsible for that” IRS Commissioner Shulman’s claims that the OVDI was intended to increase compliance. Obviously, this effort was/is purely a Revenue enhancer, and penalty extraction process.
As for compliance, the dire warning on QDs that you repeat here, is sending Expats running to the Consulates to give up their Citizenship, never again to provide the recurring stream of revenue that compliance would provide. How short sighted and greedy is that?
The surveillance State and Big Brother ever expanding blob has no soul, and neither do those in the Compliance Complex that just repeat and support its messages of fear without regard to impacted victims.
I also added to my list, Lisa’s article about first time penalty abatement, and then this one too
Offshore Items from Report on NYU Tax Controversy Forum (6/11/’13)
I especially wanted Minnows to note this comment that is contained there…
4. On a complaint “that many nonresident taxpayers may find they owe a lot of tax but otherwise lack fraud indicia,” “McDougal responded that taxpayers with deficiencies larger than $1,500 might as well try the streamlined disclosure program provided they have no other risk factors.”
A detailed account of a successful OVDI opt out, along with the types of reasonable cause arguments used and letters received and sent is to be found at Jack Townsend’s Federal Tax Crimes blog:
http://federaltaxcrimes.blogspot.se/2013/06/an-ovdi-odyssey-opt-out-success-story.html
@Not that Lisa…
I just updated my list to reflect this, and as I asked on my other thread, may I post this as a separate Post. It needs to be headlined.
2 yrs. 16 pages. Clear. Wow.
Your Words on the non-scariness of the FBAR penalties, and the Words from Shadow Raider about the difficulty of FBAR penalties being applied can lighten some loads. I hope we hear more about that.
Yet, the IRS/DOJ Tax is doing nothing to make them less scary:
http://federaltaxcrimes.blogspot.com/2013/06/us-civil-suit-for-4-years-of-willful.html
In this post, Jack mentions that the IRS is suing for 4 years of willful penalties – i.e. 4 years x 50% of the high balance – or twice the amount in the foreign account.
Maybe this is a good thing – a case that will go all the way to the supreme court that will rule that the FBAR penalties are unconstitutional. It might take a while, though.
First time I’ve seen Jack using such strong words against the IRS. Another example of abuse that should be reported to the ways and means. This guy was obviously a whale, but this is the first time the IRS tries to assess more that one time 50% of the high value for more than one year. The trial is likely to be real expensive for the tax payer. Hopefully the court will decide in his favor and rule such a FBAR penalty unconstitutional. Are they even aware of that. Why are they even trying that? Doesn’t make sense.
I don’t understand why there is not more protest from the community of lawyers involved in foreign stuff.
@Chris…
I don’t know why more attorneys aren’t outraged and raising a fuss. Circular 230 an issue for them, or do they like to get audience and rub shoulders with IRS big shots via conferences, and so keep their opinions and real feelings in check…
http://federaltaxcrimes.blogspot.co.nz/2013/02/report-of-government-comments-on-fbar.html
Pingback: The Isaac Brock Society
Further to the discussion on the required internet filing of FBARs after July 1, 2013, below is a list of internet penetration for the top 10 countries with American diaspora. There will likely be electronic filing issues in countries such as Mexico, the Philippines, Liberia (!) and Costa Rica due to lack of internet availability:
American Diaspora Top 10
Internet Penetration
Mexico 36.5%
Philippines 33.0%
Israel 70.4%
Liberia 0.5%
Canada 81.6%
Costa Rica 43.7%
S. Korea 82.7%
UK 84.1%
France 77.2%
Australia 89.8%
Sources:
https://en.wikipedia.org/wiki/American_diaspora
http://www.internetworldstats.com/list2.htm