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)

7.   Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)

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)

14.  IRS Guidance on U.S. Persons with Foreign Assets and, Coincidentally, Quiet Disclosures on FBAR Delinquencies (12/9/11)

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)

18.  National Taxpayer Advocate Report Critical of IRS Implementation of Offshore Voluntary Disclosure Programs (1/12/12)

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)

31.  A Stupid — At Least Unfair — IRS OVDI/OVDP Trick; Denying Overpayment Credit for Barred Years (8/13/12)

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)

40.  More on Opting Out of OVDI and into the Streamlined Program — the Streamlined Program Changes Once Again (5/1/13)

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! 🙂