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! 🙂
Mopsicks rant about Appeals Coordinated Issues and the “missing” settlement guidelines is nothing new.
The Taxlitigator blog has written about it a few times as well.
……. “For most of these folks this is the hill they may choose to die on as the most significant economic event of their entire lives. “…………………..
He used the same phrase on me numerous times but guess what Mopsick I am still standing and I did not have to choose a hill after all to die on !!
Assessment and Collections of the FBAR penalty a very good presentation by C.C.
Some topics she deals with are:
1. Administrative Offsets and Suits to Collect FBAR Penalties, Including Statutes of Limitations
2. Interest on Unpaid FBAR Penalties
3. Taxpayer Lawsuits to Challenge the FBAR Penalty Under the Tucker Act.
4. The FBAR Penalty in Bankruptcy
https://docs.google.com/file/d/0B0SLTNWD-Z3YTFB4Tnp5SEFoWlk/edit
http://www.federaltaxcrimes.blogspot.ch/2014/03/outstanding-presentation-on-fbar.html
“an OVD opt out case cannot be resolved by any field manager who may try to do so without first “coordinating” with the National Office. This is not to say that every single opt out case has to be reviewed at the highest levels, but rather every settlement of an opt out case is looked at by a lot of people up and down the chain of command either before or after the fact.
IRS managers who slip up here usually get yelled at really badly, sometimes multiple times.”
What a waste of resources and time for people who are not tax evaders. This is appalling.
@noone
It’s called job security. And yes, a waste of resources on all sides.
@anon0percent
Sorry I did not acknowledge your Mar 3 comment. I had not seen that, and so, if I get time today, I might go looking for it. Very busy these days, and not keeping up with my reading… grrrr 🙂
@Seat…
Thanks for drawing my attention to Jack’s most recent. I have not been reading since I last had a discussion with him about Citizenship taxation.
http://federaltaxcrimes.blogspot.co.nz/2014/03/the-scariest-tax-form-scary-is-in-eye.html
I see some interesting debate happening about his partisan views that he is being challenged about… 🙂
http://federaltaxcrimes.blogspot.co.nz/2014/03/fifth-amendment-and-immunity-in.html
Wished I had time to read more…
A pretty good up to date summation of your options, if you decide you want to be compliant.
Before you know it, tax returns will be due. Many Americans living overseas have not filed tax returns or so-called FBARs for many years, even though they citizenship membership in the “Tax, Form, Surveillance and Penalty club” meant they were required to do so.
The Non compliant USC overseas…. What to do, what to do?
Want to really understand how the deck is stacked against you in arguments with the IRS…
Important lesson from a Tax case unrelated to FBAR penalties…
Lesson #2: Incredibly, an ordinary taxpayer can’t use the IRS’ own publication to win a fight with an IRS auditor according to the manual used to train those auditors.
See this about a disallowed IRS rollover.
While this probably applies more to whales, I would encourage folks to read this by Virginia…
Swiss Account Holders – Losing the Right to be Informed About IRS Disclosure
Failure to Give Notice and its Effect on Entry Into OVDP
Currently, it is unclear when notice must be given under Section 3506. The area is ripe with many legal uncertainties. What we do know with certainty however, is that entry into the IRS Offshore Voluntary Disclosure Program will be denied if the notice is not given. See FAQ 21 which provides in relevant part:
“[i]f a taxpayer appeals a foreign tax administrator’s decision authorizing the providing of account information to the IRS and fails to serve the notice as required under existing law, see 18 U.S.C. 3506, of any such appeal and/or other documents relating to the appeal on the Attorney General of the United States at the time such notice of appeal or other document is submitted, the taxpayer will be ineligible to participate [in the OVDP].”
The other thing we know with certainty is that if the IRS learns of an individual’s noncompliance from other sources, the individual will also be ineligible to enter the OVDP. The Swiss have just given the IRS another formidable weapon in its arsenal. Many persons who were on the fence about entering into OVDP may now become more anxious to do so, knowing they may not be advised in advance of a disclosure action.
How Australia does a Voluntary Disclosure Program
http://taxconnections.com/taxblog/australian-tax-office-announces-terms-of-foreshadowed-offshore-income-amnesty/
The ATO yesterday announced the terms of its amnesty for Australian resident individuals with undisclosed offshore income.
The terms of the amnesty are reasonably generous. In simple terms, the amnesty (with a window open until 19 December) includes-
1. A 4-year cap: back-taxes will only be imposed on offshore income for the previous four years.
2. Non-disclosure penalties will be capped at 10%.
3. Nil penalties for low-level disclosures (<$20,000 pa).
4. The ATO will not investigate disclosures for the purposes of prosecuting a criminal offence.
5. The ATO will not refer disclosures for criminal investigation by another law enforcement agency.
6. Interest will be charged at the ‘normal’ ATO rate.
There are some conditions and disclosures need to be open and full.
@Just Me
Come July 1st, every revenue agency whose country has entered an IGA will be complicit in denying many of their citizens and permanent residents the ability to enter the US’s (un)amnesty program.
I NEED HELP AND ADVICE!
I need advice on whether I should enter the OVDI, the Streamlined Program, or try to do a Quiet Disclosure. Allow to preface this by noting that I have done a great deal of research on this issue. I have spent many hours reading http://isaacbrocksociety.ca/ and http://federaltaxcrimes.blogspot.co.nz/. I know what the options are; I just need to know the best choice for me.
About me:
• US citizen; maintains an American mailing address at parent’s house but lives abroad
• Have stocks and cash in American bank accounts and brokerages totaling ~$150k
• Lived abroad since 2001 (Country A 2001-2004, Country B 2004-2006, Country A 2006-2009, Country C 2009-present)
• Have never made more than $40k while living abroad
• Have no investments, property, etc. other than stocks in the US.
• Unmarried, no dependents
• Filed taxes 2001-2006, always taking the FEIE
• Last filed taxes 2006
• Stopped filing taxes because my tax owed was always $0. Made no stock transactions 2007-2012.
• Have met the Physical Presence Test every year (including the years I have not filed)
• Incorrectly reported my cost basis for stock sales in 2006, resulting in a ~$3k lien
• Received notice of above lien too late, as I had moved from my address and forgot to send forwarding address. Lien was deducted from my American bank account and letter mailed from my bank to my American address notifying me of lien. By then, it was too late to appeal.
• From 2007-2012, had nominal American income (<$500 a year from bank interest); made no stock sales during this time.
• Made stock sales in 2013
• Made excess IRA contributions of ~$2k in 2006 (the last year I filed a 1040), ~3k in 2007, and $5k in 2012. I have not yet corrected these and they are therefore each subject to a 6% penalty per year that they remain uncorrected.
• Have never filed an FBAR.
• Value of foreign bank accounts have never exceeded a combined $50k combined.
• On two occasions I held bank accounts in two countries simultaneously; in 2006 and 2009. This was due to the fact that I was moving from one country to another and needed to leave the first account open until I opened an account in the second country.
I have three options:
1) Quiet Disclosure: Submit 1040X for 2006 to reflect 6% excess IRA contribution tax. Submit 1040s for 2007-2013 that reflect 6% excess IRA contribution tax for 2006 (2006-2013), 2007 (2007-2013) and 2012 (2012-2013) and submit FBARs for 2007-2013.
Pros: Above-board, completely fulfills tax liability.
Cons: IRS frowns on QD; fact that I filed and then stopped filing may be grounds for willful neglect, resulting in devastating penalties.
2) Streamlined: Submit 1040s for 2010-2013 and FBARS for 2007-2013.
Pros: I could get tax compliant for these years. Once I clear streamlined, I could file a 1040x for 2006, 1040s for 2007-2009, and 1040x for 2010-2013 to clear up the excess IRA contribution taxes.
Cons:
• The fact that I had filed overseas taxes until 2006 and then stopped may raise red flags
• The IRS says “This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period.” I have not filed a return since this date; however, I did file one while living abroad in 2001-2006.
• The fact that I held bank accounts in two different countries will raise my risk level
• If I pay the tax on the excess IRA contribution in 2012, the IRS may look back to my 2006 and note that I did not pay the tax on that
• If rejected from Streamlined I cannot apply to OVDI and will almost certainly get audited
3) Enter OVDI
Pros:
• No risk of being accused of dishonesty
• Have the option of opting out of OVDI and/or joining Streamlined
Cons:
• Subject to draconian penalties
• Get caught up in a massive bureaucratic nightmare. From what I have read online, it took years and years for people who made seemingly innocent mistakes to resolve their problems.
Based upon this information, what should I do?
@Robert Black…
My condolences… not that it is worth anything to you, you want advice.
Unfortunately, right at this moment, I am in the process of leaving one country and returning to the US and don’t have anytime for a comprehensive response. This is more in the way of acknowledgement of your predicament, and you have obviously done your drudgery, as your detail is quite comprehensive…
May I suggest that you contact John Richardson, who is an attorney who is helping folks sort through the options of what to do, without milking you for fees..
He is the one conducting seminars you note up in the upper right hand corner of this blog… Here is his web site. I would trust his advice.
I would NOT enter the OVDP, as that is NOT designed for you and you note correctly that it is a nightmare.
The one thing I did not see in your run down, is how important is it to you to remain a U.S. Citizen and continue membership in the Tax, form, Surveillance and Penalty Club.
http://citizenshipsolutions.ca/
Stay out of OVDI. Get a good international accountant to figure out what is needed and then file amended returns. If the accountant wants to put you in OVDI, find another one with international experience who does not. You seem to have a bit of an accounting mess more than anything else. You mention that you have been contributing to IRAs while taking the FEIE for all your income. As the FEIE exempts all your income, technically you do not have earned income and are not allowed to contribute to IRAs. http://taxes.about.com/od/retirementtaxes/qt/Individual-Retirement-Accounts-For-Americans-Working-Abroad.htm
The Streamlined Program is okay if you meet their requirements, or are close to them. Before joining that, get your returns done so you understand fully what kind of tax liability you are dealing with,
Finally, you might want to consider a go forward strategy if there are no things in the past that could come to haunt you, I.e., the lien and IRA contributions you should not have been making.
OVDI is a waste of time, money and life credit units when it comes to US persons living abroad.
Also, don’t worry about having accounts in two different countries as a risk factor. Your explanation is reasonable. I had accounts in 4 different countries and it was never an issue for my examiner.
As an additional thought, if you did not owe any taxes for 2007-2009, then you can just file your returns for those years that show that and the FBARs. Even though you may have had income from these accounts, if you do not owe any tax , the IRS will not likely come after you. After all, you are properly reporting, just late. The OVDP FAQs are very clear about this (see FAQ 17 2012 program):
“… if you reported, and paid tax on, all taxable income but did not file FBARs, do not use the voluntary disclosure process. For taxpayers who reported, and paid tax on, all their taxable income for prior years but did not file FBARs, you should file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late. … The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.”
This would bring the issues you have to resolve to the years with IRA contributions and US stock sales. QD, Streamlined or Go Forward all seem like reasonable options. You have to decide depending on your specific financial details and level of risk tolerance. You might also want to consider revising some returns to take tax credits if you have any. That could resolve the potential issue of your contributing to IRAs when you were not technically permitted to do so.
@Robert Black…
Stay away from OVDP – with regards to your facts and circumstances not the right choice.
Unfortunately it is no sure thing either in your case to say that your audit risk is de minimis.
It is small but not zero. I have seen cases where the income level and tax non compliance was ridiculous low, nevertheless the taxpayer was audited.
I think one fact makes you stand out a bit is the tax lien from 2006 with regards to a 1099/brokerage account. If you file a 1040 or 1040X again either with VD,QD or GF this could trigger at some point a normal tax audit (nothing to do with your offshore matters).
When you look at your options keep in mind the different SOLs – either FBAR or tax.
Some remarks with regards to your comments :
1. QD : I would not consider more than 3 years of tax (1040X)2013,2012,2011 and 6 years of FBARs 2013-2008 regardless of IRA excess contribution tax. If you would proceed as you suggest with 2006 you would receive an IRS letter from the PA office saying :
“We received the amended tax return and payment you submitted in the amount of $…. However, the law provides a limited period of time for us to charge and collect additional tax on your Form 1040. This legal period has expired for the tax period of 2006. For this reason, we will not assess tax for the additional income you reported after the expiration date. We will return your payment to you in a separate letter. Before we issue your refund , the law requires us to deduct any other debts you may owe. ”
The emphasis is on the last sentence . I think you know now where I am going with this….let sleeping dogs lie – .
2. The SFCP …submit 1040s for 2011-2013 and FBARS for 2008-2013. The one thing I do not like are some of the questions in the Taxpayer Questionnaire.
http://www.irs.gov/pub/irs-utl/non-resident_questionnaire.pdf
It is a bit of a gamble because even if your tax non compliance facts are zero or de minimis other facts might get you into trouble which could mean rejection for other reasons and you are back to square one.
Btw. even if you would be cleared (which is possible) you would leave tax years 2006-2010 afterwards alone.
3. An option you have not mentioned : a “noisy disclosure” alternative as better suited given the facts and your background. This approach is called “voluntary disclosure” which is “noisy”. The approach involves filing 6 years of FBAR plus 3 years of 1040X but no IRS questionnaire. Each amended return makes reference to some IRM section and explains what the taxpayer is trying to do.
http://www.irs.gov/uac/Revised-IRS-Voluntary-Disclosure-Practice
For this option you need not the help of a tax attorney … a good CPA with some international experience will do.
Imo. because of your tax lien issue in 2006 your chances of an audit are higher going forward with regards to domestic issues no matter what option you choose with regards to offshore issues.
It is a tough call between VD and GF.
The impacts of the OVDP on immigrants has been posted by Janet Novack on Forbes…
Welcome to America, now give me your money….
http://www.forbes.com/sites/stephendunn/2014/05/12/foreign-accounts-dont-rush-into-ovdp-2/
Not bad article, but I disagree with most of his examples:
example 1: the guy had properly declared his accounts. So not tax due. OVDP should not even be an option.
But the guy advised OVDP for examples 2, 3 and 4, REALLY??
Basically, the lawyers says if you did your taxes yourself and checked No on scheduled B, you may be found
usefulwillful and hence enter OVDP.should read willful
Recent generous sharing of important opt out story:
http://isaacbrocksociety.ca/2012/03/10/moby-opt-out-update/comment-page-2/#comment-1908459
http://ovdioptingout.blogspot.ca/
Thank you @OVDIoptingout, it will help many others in a similar position.
Thanks for posting that one Badger. I had not seen it.
Good to see an immigrant sharing their story. I have to think this is just a very small tip of the iceberg
Very sad to see 4.5 years of LCUs lost to Obama’s offshore jihad. That is the real cost of this Democrat obsession.
An interesting tidbit was the foreign tax credit issue, and that the IRS would not allow anything more than what the tax treaty provided for. If you were taxed too much by the foreign government tough. Another example of double taxation not previously discussed.
A particularly satisfying comment was to see that IJ and Moby are getting recognition of there help in sharing their reasonable cause arguments. IJ’s story and
Moby’s story have been told here previously on IBS. We all went to school on Jack Townsend’s blog.
This latest story by OVDIoptingout continues the chain of unrelated people with nothing to gain helping each other escape this offshore jihad morass by simply sharing anonymously their stories. You could say, this is the modern day version of “paying it forward”.
Wow. $40k of now willful FBAR penalties. That’s harsh. I would have expected a case like theirs to end up with just a warning letter.
Too bad they did not give an idea of the amounts involved. The IRM calls for 10k penalty if the aggregate amount of the accounts exceeds $250k. I would be interested in knowing if the IRS followed the revenue manual. I hope they do.
After rereading carefully the blog. It looks like their max balance was $1.4 million and $360K for their daughter. (25% of max was $350K).
@Just Me,
Thanks to you and to all like OVDI, ij, moby, sally, Not that Lisa who have shared their opt out stories and materials – thus paying it forward in a big way in order to help others.
Shameful conduct by the IRS and Treasury that the whole thing is so mysterious and so very adversarial for the minnows and benign actors trying to come forward and become compliant. They could have just played the audit lottery, complied going forward, etc. And while the IRS is wasting its staff time and dollars on those trying to comply, the ‘real’ targets are busy at new work arounds. Way to punish those with pre-existing accts from their homeland and those with legal local accts held where we actually live. Like our children’s RDSP and RESPs.
May we get at least part of what we lost in LCUs, and costs such as useless expensive compliance fees back in satisfaction at assisting others from being swallowed up by the unjust and unethical quicksands and morass created by CBT and the US ‘offshore’ crusade (“FBAR ‘n FATCA Fundraiser” levied against people’s legal, local savings abroad.