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! 🙂
This from Charles Rettig at Forbes who is being much more nuanced these days…
IRS FBAR Voluntary Disclosure Program and Opt Out Considerations
It, of course, required a response… 🙂
I am personally aware of several Opt Outs, after lengthy time inside the OVDP, that have resulted in IRM discretion for both U.S homeland residents and those residing abroad.
These cases resulted in NO FBAR penalties, but rather just a warning letter of ‘go and sin no more.’
That is how it should be, but unfortunately it still required a lot of personal life credit units (LCUs) of time, and money while others not so fortunate (ill advised) have gotten hammered inside the program because of bad IRS practice and bad guidance by the compliance Tax Practitioner community.
It is very questionable that these folks who received reasoned discretion outside the OVDP in the Opt Out should have been in the program in the first place, but let’s be frank, there were frightened into joining by Tax Practitioners.
There were (and are) many attorneys quite happy to take their money for consulting and guidance fees by directing folks into the OVDP that would have been better served with other compliance strategies. The common refrain is you have no choice but to join. You must enter!
Additionally, many benign unsophiscated minnows, discovering their FBAR non compliance, actually believed all the IRS hyperbolic threats and examples of the worst case FBAR penalties which could (would?) occur assuming egregious willful non compliance with this 1970s law!
The Opt Out, while it can be a successful strategy, is an inefficient and expensive back end to a process that should occur at the front end.
The IRS should be able to have a front end screen that says, “this is not the target of our OVDP, and let’s shunt them off to a IRM discretionary review process and not waste our time and theirs for little return.”
However, I personally think that the Greed and Hubris of IRS commissioner and OVDP leadership failed to consider that not all were bad actors inside their program. They were drunk with excitement about all the revenue they could collect and were quick to trumpet it as success! The media went along with the headlines designed by the IRS, without ONE critical or skeptical question.
There have been anecdotal stories recently that the IRS has now been moving folks, especially those from abroad, into the ‘streamlined’ program even if their tax deficiency is more than what the IRS designated as ‘low risk’.
Low risk was defined in their newest program has having less than $1,500 of tax deficiency over 3 years. They “finally” started the streamline program in response to a lot of protests over the ‘one size fits all” penalty approach inside the OVDP. Unfortunately it says it is only for U.S. Persons living abroad, and they still haven’t been able to consider there are a LOT of benign failures amongst the immigrant community living on homeland shores!
This might be a good story, but anecdotal stories do not a reality make! As you know, it is a black hole for IRS information. There is very little light that escapes the gravitational forces that suck victims in. There is little visibility (transparency) on how the IRS is now processing the benign failures.
Unfortunately, in the past the IRS has had a practice of using the firing squad approach for both ‘j-walkers’ and ‘child murders’. Has that finally been modified? Maybe, but uncertain. We have to use inferred indirect detection methods to discern any potential changes. Kind of the same way that Nasa discovers exoplanets in other solar systems. You can’t see them, but you discover their presence by subtle light changes as they pass in front of the sun star!
Looking at past, as represented in the GAO report, it is obviously that the OVDP was NOT primarily a COMPLIANCE improvement program. It was and is a penalty EXTRACTION program. The GAO makes that even more clear by encouraging the IRS to go after QDs to extract more penalty revenue, which by GAO own figures, represents 66% of total revenues collected to date.
So, I think it is safe to say, that the OVDP is a one off revenue collection process, and will not represent recurring big revenue streams that it is supposed to be about!
The impact of penalty collection as compared to the tax failure in the lowest 10% percentile, shows how egregious this really is.
Tax failure of $103 over 5 years resulted in penalty collection of $13,320 or a ratio of penalty to tax owed of 129 times. Probably, all of those receiving these penalties should have been offered the Opt Out, where penalties would be more appropriate to the tax failure, as in any other Homeland type of tax failure situation. BUT, they WANTED the penalties!
I don’t know if the IRS can EVER get right what it has so badly and immorally mismanaged.
With its roundly criticized FAQ35 ‘bait and switch’; with it willingness to collect draconian penalties from participants that even the examiners realized should NOT be inside the OVDP; with its inability to respond to, or follow National Tax Advocate Nina Olson’s guidance and directives on how to process benign failures, you have a classic case of bureaucratic hubris, bungling, deafness and stonewalling.
Nina has reported on this yet again, in her mid year report to Congress. http://1.usa.gov/1crfsZw
Will the new acting IRS Commissioner Daniel I. Werfel be more sensible than the last “I am not responsible” Commissioner Shulman? Will Congress pay attention? Time will tell, but given how often Nina has been commenting on these issues and ignored year after year, the odds are against it. But if Wefel is really serious about wanting to try to restore some trust, they could start by ending their OVDP penalty abuse, and providing restitution to the NON bad actors that were victims of their processes!
Robert Woods at Forbes has an article today entitled
IRS ‘Amnesty’…But Prosecuted Anyway?
I used it, and his use of the world ‘smoothly’, to add a comment in response to this statement…
Well Robert, I am probably nit picking here, so I apologize, but I would hardly say that “As it turned out, though, the 2009 program went smoothly”
I will take your point, that in the narrow sense of ‘smoothly’, folks who entered the OVDP were NOT prosecuted! I guess that could be considered ‘smooth’.
However, the famous 2009 OVDP FAQ35 “Bait and Switch” that even Nina Olson vociferously complained about both with a Taxpayer Advocate Directive, (TAD) and in her Report report to Congress, in my mind, doesn’t represent things going “smoothly” http://1.usa.gov/10fs8Qr
Also, they created the program without a procedure for Opting Out which only came much later, when they figured out they had caught a lot of benign actors. It still takes 2+ years to move a person through this back end Opt Out process, for something that should be a front end screen. This is NOT exactly representative a ‘smooth’ (and might I add efficient) program that just assumed all entering their programs were egregious tax cheats.
Finally, only after a couple years did they create a streamline program, narrowly drawn to marginally deal with the fact they were netting the wrong fish. Prior to that, (and in many cases still are) they extracted a lot of penalty revenue out of Minnows as represented clearly in the recent GAO report. Penalties for the lowest 10th percentile, who had total tax failure of $103 over 5 years were still assessed a penalty of 129 times taxes due, or $13,320!!
So, ‘smoothly’, is in the eyes of the beholder, I would think. Nina still doesn’t think they have it right, and I agree. http://1.usa.gov/1crfsZw
Here is an article on the real life experiences of people in the OVD programs. It was published in Tax Notes, the most ubiquitous tax publication in the tax professional community.
http://taxanalysts.com/www/features.nsf/Articles/8E6965DFA3441ADF85257BAA0048E526?OpenDocument
Not that Lisa,
Thanks for the link. I knew the story was coming out, just wasn’t sure it would be visible for the masses… 🙂
Pretty depressing that they didn’t give the immigrant example. Moby or ij’s story would have been a good example.
The closest to that is Just Me’s story, but presented from the perspective of the American married to a foreigner retiring abroad.
Of course, “The OVDI and OVDPs should be reserved for U.S. persons with foreign accounts who reside in the United States”, we fall in that category, so we’re guilty.
Chris you are very right. It is depressing, and unfair. We know from speaking with US residents – even those born there, that they have not heard of FBARs or FATCA or ‘foreign trusts’ either. They have no idea what we are talking about. If they’ve never heard of FBARs either, obviously there are many who are inadvertently and innocently non-compliant who live inside the US.
No-one can conceive of a law like the BSA or an aggregate threshold figure for reporting as low as that of the FBAR, or that our ordinary legal accounts – whether held outside the US where we live ‘abroad’, or where we originated ‘abroad’, could and should be treated as if we are criminals. So how would anyone anticipate this to be a problem? It doesn’t make any sense.
US residents – whether recent immigrants to the US, or those born in the US would never dream that an account they had a mere contingent advance planning POA on for a parent back home would be an FBAR crime, or a student account for a child studying and travelling outside the US, or a birthday account at Canadian Grandma’s bank arranged for a grandchild, or an non-US employer’s accounts, etc.
There are many legal and logical reasons to have a non-US account.
And we have no equivalent to the FBAR requirement to report even contingent or non-personal accounts – including those belonging to non-US persons.
The US doesn’t want the bother of sorting it out. They have no incentive to make any meaningful distinctions. They want penalty revenues. Hence an essential conflict of interest. They will not make it easier to comply, or to rectify past errors, or to proactively and preventively publicize this to would be immigrants. I believe they welcome errors and non-compliance. I believe it is all about the penalty revenue. By now, there is no doubt about this – they have been told by the Taxpayer Advocate and others repeatedly.
@Chris
Don’t be discouraged. I don’t think any immigrants spoke up and contacted Marie with a willingness to be interviewed.
This decision by the publisher to make this story available on its free site speaks to importance they place on the story,, so that is a positive. I have heard that the author got practitioner feedback today, and reports that they are happy to see stories like this in a place where the government is sure to read them.
BTW, I said this about immigrant issue in a follow up email to her…
She replied that she also agrees about the immigrant issue and thinks there are still a lot more aspects of OVDI to think and write about.
So, you too could contact her… Marie_Sapirie@tax.org I am sure she would respect your confidence!
@Just Me,
It is certain that it is not just immigrant US residents who don’t know about FBARs and FATCA. It is probably a majority of those born and raised in the US.
IBS folks have reported that when they talked with US resident family, friends and acquaintances about the problems we face from the US because we live ‘abroad’, none of them knew what they were talking about – including about the existence of the BSA or FBARs.
@Chris – Don’t despair. The article was focused on Americans abroad. The article also states that the OVDP should be for those resident in America with criminal risk. Stories are beginning to emerge that the IRS is recognizing the circumstances of immigrants and beginning to treat them fairly. As immigrants are too afraid to be as vocal as Americans abroad, there is little known about about these cases. Take a look at the first link with the comment from yesterday.
http://www.linkedin.com/groups/OVDI-OptOut-Experiences-4064315.S.129289319?_mSplash=1
Additionally, the lawyer below posted on Jack’s blog that he had some successful opt outs for immigrants.
http://www.patellawoffices.com/blog/protecting-your-assets/opt-out-of-ovdi-program-penalties-to-get-a-lower-penalty/
Thanks for your words of encouragement, Yes, I will contact her.
@Not that Lisa…
Thanks for the link to the Linkedin group. I just joined, and posted a comment to it. It is in moderation!
BTW, do you recall where there is a link to Sally’s story? I have read portions of it in various comments, but can’t seem to put my fingers on it this morning, and thought maybe you knew where it was.
Regarding that Patel Law Offices posting, all I could see and wonder was how much were their legal fees eating up the savings in the Opt Out? I just saw the meter ticking away at $500 – $700 an hour!!!!
@Not that Lisa!
Thanks for the Linkedin link. It will be interesting to read stories from the professionals about how the situation is evolving as I progress toward opt-out.
@Just Me, you are right about those legal fees eating up the savings. If the upfront costs per hour are that great, then what would be left to pay for the ongoing and protracted negotiations with a recalcitrant and willful IRS at and after opt-out? The only reason one would put your savings at certain risk from that size of legal and accounting fees would be because the IRS continues to threaten all and sundry with confiscatory and unconstitutional FBAR penalties, making any estimate of risk calculation very difficult to do. Giving them the power to assess ‘non-willful’ FBAR penalties of such scale, with no relation to the zero or de mimimis amounts of US tax owed was a crime. Continuing to be opaque about how and when they are being applied only forces more minnows and small fry to spend thousands on specialized US tax professionals to get to the point of a FBAR warning letter in the many cases where there was no crime, no tax evasion, no money laundering, all legal source funds – much or all of it already taxed once (either inside or outside the US). That the US Congress did not forsee this, and/or is fully and willfully content to let it continue unchecked is criminal. That they continue to let this be applied to those living outside the US who must have local ‘foreign’ accounts to live, and also refuse to notify immigrants to the US BEFORE they get there, as well as US residents in many innocent scenarios who might need an account outside the US for entirely legal reasons means that Congress is content with allowing Treasury and the IRS to obtain revenue by ANY means, which in these cases are draconian, extortionate and confiscatory.
IRS Seeks Comments on Offshore Voluntary Disclosure Program!
The Internal Revenue Service is asking for public comment on information collection tools relating to the Offshore Voluntary Disclosure Program, according to a notice in the July 18 Federal Register
Notice Proposed Collection; Comment Request on Information Collection Tools Relating to the Offshore Voluntary Disclosure Program (OVDP)
Action
Notice And Request For Comments.
Summary
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning the Offshore Voluntary Disclosure Program (OVDP).
DATES:
Written comments should be received on or before September 16, 2013 to be assured of consideration.
ADDRESSES:
Direct all written comments to Yvette Lawrence, Internal Revenue Service, Room 6129, 1111 Constitution Avenue NW., Washington, DC 20224. Please send separate comments for each specific information collection listed below. You must reference the information collection’s title, form number, reporting or record-keeping requirement number, and OMB number (if any) in your comment.
FOR FURTHER INFORMATION CONTACT:
Requests for additional information or copies of the collection tools should be directed to LaNita Van Dyke, Internal Revenue Service, Room 6511, 1111 Constitution Avenue NW., Washington, DC 20224, or at (202)622-3215, or through the internet at Lanita.Vandyke@irs.gov.
SUPPLEMENTARY INFORMATION:
Currently, the IRS is seeking comments concerning the following information collection tools, reporting, and record-keeping requirements:
Title: Offshore Voluntary Disclosure Program (OVDP).
OMB Number: 1545-2241.
Form Number(s): 14029, 14438, 14452, 14453, 14454, 14457, and 14467.
Abstract: The IRS is offering people with undisclosed income from offshore accounts an opportunity to get current with their tax returns. Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. The objective is to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws.
Current Actions: There are no changes to the burden estimates previously approved by OMB.
Type of Review: Extension of currently approved collection.
Affected Public: Individuals or households.
Estimated Number of Responses: 456,000.
Estimated Time per Respondent: 1 hour 35 mins.
Estimated Total Annual Burden Hours: 726,500.
The following paragraph applies to all of the collections of information covered by this notice:
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Request for Comments: Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collectionof information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
Approved: July 10, 2013.
Allan Hopkins,
IRS Reports Clearance Officer.
@Just Me
Re IRS Seeks Comments on Offshore Voluntary Disclosure Program!
Where do we BEGIN?
Via @Badger…
More mention of Marie Sapirie’s July 16, 2013 taxanalysts article ‘News Analysis: The Personal Impact of Offshore Enforcement’
http://www.taxanalysts.com/www/features.nsf/Articles/8E6965DFA3441ADF85257BAA0048E526?
OpenDocument in July 17th, 2013 piece by Joe Kristan on the Roth & Co. site. http://rothcpa.com/2013/07/tax-roundup-7172013-stories-of-wounded-jaywalkers-and-checking-in-on-rashia/
“Marie Sapirie of Tax Analysts has an excellent piece about how the IRS offshore account enforcement program treats the thousands of ordinary Americans abroad — and many green card holders living in the U.S. — as presumptive tax criminals when they try to remedy foot-fault paperwork violations in reporting offshore accounts….”
He particularly notes;
“…The taxpayer, like many others, sought help from a congressional representative in reaching a satisfactory resolution with the IRS. The response that the lawmaker received from the IRS — that the taxpayer could renounce U.S. citizenship — was disappointing….”
“When the IRS is telling people to expatriate themselves, something is very wrong.”………
Here’s an update on what it is like trying to conclude an OVDI Opt Out that is considered successful. Part of my success is that I am entitled to large refunds of taxes and tax penalties that were paid unnecessarily. Within 30 days of my case closing, I got a check for 85% of my refund.
Roughly two weeks later I got a small check which brought the amount of the refund up to 87% of the total. After that, nothing. 5 weeks after that, which was last week, I got a letter dated July 22 saying that the amount in the small check was going to be sent to me in the next 3 weeks. Oops. The IRS has coordination and timing problems.
I heard nothing about the other 13% I am owed so I called my Revenue Agent this week. The agent checked and said the Processing Unit had not entered the corrections. Te agent re-faxed them to the Processing Unit. The Agent said this is all that the Agent can do.
I contacted the Taxpayer Advocate Service and this is an area where they have lots of tools to help move the process along. So my Case Advocate is doing whatever needs to be done and we are hoping that I will get my final refunds in a month. That would mean roughly 34 months from start to finish in the VD/OVDI process.
I should also add that the amounts of my refunds were incorrect and this was an area that had to be addressed. IRS Technical Advisors were even called in to verify the amounts. We are still discussing some really small amounts, but hopefully we will agree them within the next month. The difficulty was apparently caused by the way OVDI posts and processes payments made while in OVDI. Check the amounts in your refunds carefully and don’t be afraid to bring up any discrepancies no matter how small. A small discrepancy led to the discovery that I was entitled to $2000 more in my refund.
For those in OVDI, be prepared to be vigilant until you have that final refund. The system was not set up for handling opt outs. Also, once your opt out is accepted, if you are entitled to a refund, be prepared for more waiting – likely months. I am waiting close to 3 months since my case was officially closed.
@Notthatlisa…
Good comments about the refund process. I too watched over it carefully, and had created a spread sheet with daily interest rate calculations exactly the same way the IRS calculates and had what I was due down to the penny. It took about 6 months to get it all resolved, and I think I have previously said, the checks that arrived, out of order, added up culmulative to more than what I had calculated, and frankly I could not make sense of how they calculated the amounts. I started to put some effort into reconciliation, and in the end, since it was more than I was expecting, I said, wtf, and let it go.
Yours looks a little more complicated than mine, but your advice about being vigilant on that final refund is right on point. Everywhere in my process, I was creating reconciliations and countering the examiner constantly to be sure we were in accord, (I corrected her multiple times), so in the end, I was pretty confident about what to expect. Getting a little more, was just a bonus, I guess. 🙂
@not that Lisa!
Can you just verify something for me? Are these refunds from years outside of Streamlined that the IRS considered closed? In other words, have you paid any money in tax from the 5 years preceding Streamlined, or has everything you paid in tax in those years been refunded to you because they are considered closed under Streamlined?
@bubblebustin – The refunds I am receiving stem from two reasons: 1) Closed years and 2) Refunds from different calculations of PFICs when one opts out. I will elaborate on the second reason.
In OVDI, if one has a foreign mutual fund, i.e., a PFIC, the modified 1296 MTM (Market to Market) method of calculating PFIC tax must be used. A 20% accuracy related penalty is also added under this method. As an OVDI participant, you are supposed to be delighted and think this is a fair way to calculate tax as you may not have documentation going back to when the account was established. According to my agent, the OVDI program does not allow foreign tax credits to be applied against this alternative MTM calculation because the alternative MTM calculation of PFIC income and tax is not considered to be passive income. It is a line item by itself added onto the 1040 return. Therefore, foreign tax credits you have for taxes already paid on passive income cannot be credited against it.
Outside of OVDI, you must use the default 1291 calculation method for PFICs. This method can be very punitive tax wise, but that depends on the behavior (number of distributions) that were made, which is easy to figure out if you have all your documentation. I had all my documentation and it turned out I owed far less using this method. Additionally, the application of passive foreign tax credits is allowed outside of OVDI. I had lots of those. So in the end, I owed almost nothing and almost almost all the tax penalties and taxes I paid to OVDI are being refunded to me. I am also getting a small amount of interest so I will receive back more than I paid to OVDI.
Note that once you opt out, you must continue to use the default 1291 method for the rest of the life of that foreign mutual fund.
I hope this helps.
@bubblebustin – I realize that I did not fully answer your question. Even if you opt out into the Streamlined Program, unfortunately, the 8 years you supplied in OVDI are still counted. I had many closed years upon opt out from OVDI and received refunds for all tax, interest and penalty payments for those years.
I had two open years in OVDI (2003 and 2009). I owed PFIC taxes in only 2003, but as I stated above, the 1291 default PFIC tax calculation method was better for me and even though I had to pay some taxes, they were far less than those calculated for 2003 using the modified 1296 method in OVDI. In 2009, the tax credits wiped out any tax due. So a large part of what I paid as taxes for the two open years was also refunded to me.
I hope that makes it a little clearer.
To be blunt about it, no, opting out into the Streamlined Program does not close any years before 2009. It stinks, but that was how the rules were applied. The OVDI Hotline told me that before I was assigned an agent. Once I opted into Streamlined, that is the position that the agent took. In my case, all years before 2009 were closed because I was a filer and while I had not reported my income on the correct forms, there was no major discrepancy from what I had originally reported. I did not file in 2003 and 2009 and that is why they were open.
I know that this policy is really unfair to you because you sold your house only one year before 2009, which is as far back as the Streamlined Program goes. My sincerest hope for you is that the IRS realizes that just because someone in OVDI opts out into the Streamlined, they should not be forced to pay taxes for more years than are considered in the Streamlined Program. It is wrong. The IRS is punishing those people who followed their instructions early on and rewarding those who waited knowingly or unknowingly.
If the IRS changes its “Opt Out into Streamlined” policy by the time they get around to processing your OVDI return, let us on Brock know. You can bet I will then start screaming at them for the same treatment for the taxes I paid for 2003.
This is extremely value information, Not the Lisa!, and thank you for your detailed posts about it. I’ve got a special file for this kind of information for when the time comes that we’ll need it.
I know that our treatment as non-filers will be different from yours. We’ll see if the IRS treats similarly situated non-filers the same in Streamlined, and what that treatment is. At this point, I just want it to be over. My husband made a joke about how IRS agents are probably walking a wide circle around our banker’s box of paper.
IRS finally does the right thing…
In Reversal, IRS Gives Amnesty To Owners Of Secret Israeli Bank Accounts
However, hardly an Amnesty…
The Bank Leumi customers who got their “do not go to jail” cards yesterday will not get off for free. Taxpayers accepted into the current version of the OVDP must file eight years of amended tax returns, pay all back taxes, interest and penalties due (including a 20% accuracy penalty on offshore-related underpayments) and also pay a penalty for failing to file a Report of Foreign Bank and Financial Accounts (or FBAR) with the Treasury—a penalty that in most cases equals 27.5% of the maximum held in the undisclosed offshore accounts during the eight year period. For taxpayers not in the OVDP, the FBAR penalty can be up to half the value in a foreign account for every single year they failed to file; Warner, according to a statement from his attorney, has agreed to pay a $53.6 million FBAR penalty for his undisclosed account, which prosecutors say was worth about $94 million in late 2002 when he transferred it from UBS to another Swiss bank, Zürcher Kantonalbank. The penalty represents half the account’s highest balance.