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! 🙂
@ Christophe Perhaps if you can convince others, you will eventually convince yourself.
Steep fines are extremely unlikely in FBAR for now. That’s because of eighth amendment. But what is more, ignorance is an excuse in the case of FBAR. Click on the embedded link above.
@Pina1
Read every last comment on the link that Christophe sent you above. Therein is there is your answer. 🙂
Thought I would highlight one excellent comment that Jack has recently posted here:
In this comment, he explains as clearly as I have seen written the negotiation process for obtaining lower FBAR penalties in an Opt Out or in an Audit…
Read this several times, those of you struggling to understand what “might be” possible and how the process works…
Jack TownsendApr 20, 2012 05:05 PM
30 year IRS vet just made some good comments about the OVDI processes related to penalties and interest.
It is located here for your reference…
I found what I think is a very good article from a firm that seems to look after the interests of their customers.
Their thinking seem to be inline with Jack Townsend’s and other reasonable attorneys.
Although the article is a couple years old, the strategy looks like it’s still valid, given the fact that the IRS has not provided better guidance.
@Christophe…
That is a good article, and is in line with the “non fear mongering practitioners” have been saying who were not just tolling for dollars.
There are three other retrospectives on the OVDP and the OVDI which again were good reads and show the inappropriate nature of penalties for non criminal minnows, after the usual patronizing comments about the IRS and how cracking down on tax evasion is important, etc, etc…..
The OVDP here…
The OVDI here…
and tax notes discussion here..
Bottomline, all seem to have the same message, that the OVDP/OVDI is NOT for those who were not engaged in criminal activity, and the IRS could take a big load of so many benign failure minds if they would just come out and say so…
Thanks for providing another link for those that are being intimidated into joining.. Hopefully this will help them better assess their decision.
Thanks, Just Me.
With all this reading, I came to the conclusion that OVDP was not for minnows and people like me.
I want to come into compliance, but right now, the IRS is really not giving many choices for us to do so. I would have liked to do a disclosure and pay what I owed, but then I ran into this article:
Rosemary Sereti, the Director of International Individual Compliance for the IRS, says that
It is pretty sad that she’s saying that to Canadians living in the US or US persons linving in Canada who are not tax evaders. This does not make any sense.
I decided that I should minimize my exposure and just go forward.
I made my choice, but it does not really make me feel better, knowing that I could still be audited and I am scared of tax perjury charges and the consequences that this could have. I think about it every day.
Another way of forward compliance would have been to just close that account that I don’t really need, and not declare anything this year either. Analysing the situation afterwards, I didn’t do it for several reasons:
– I think the main one was fear about the FBAR civil and criminal penalties, if for some reason the IRS found out. Sometimes fear makes you act in an irational way. I don’t think there would have been any way for the IRS to find out in my case.
– I did not really want to close the account.
– When I found out I was not compliant, I wanted to correct the problem, and I did not think about the past until I actually submitted my taxes. I wanted to do it right for 2011.
I apologize for this somewhat selflish post about me.
This site has been somewhat of a therapy since this ordeal started. Thanks for all the support of the people who kindly answered my posts.
@christrophe
With IRS threats and statements like Rosemary’s, they are like the Boy crying wolf and at some point folks will stop listening. They can not possibly enforce or back up their statements without hundreds of thousands of auditors, and with such threats they are totally failing in voluntary compliance objectives, in my opinion. They are pushing more folks into non compliance. Stupid and short sighted.
I think you are working through the problem in a reasoned way, and can understand the route you have chosen. Jack doesn’t believe the audit will be any worse than the Opt Out audit, and the same discretion should apply. Yes, you will have to live with uncertainty for a couple of years, but you would have another set of uncertainties and frustrations for a similar period of time inside their program.
They truly have made their OVDI too onerous for benign failures, and should have dumped it long ago for all non willful non egregious failures.
One bit of additional information that may be out in the future is an alternate strategy that Steve Mopsick is working on. It is not public yet, and not sure when it will be, but he is proposing another way for folks like you to deal with these situations. If I get information about when it will be public, and what it entails, I will be sure to reference it here.
Good luck…you shouldn’t have to go through this Catch 22 situation. Compliance should be easy. It should be the logical thing to do, but if you do the logical, you get hit hard with the non logical penalty expense and big expenditures in LCUs. It should not be sooo hard to do the right thing, but the hard headed folks at the IRS are “willfully blind” to the conundrum of their own making. Rube Goldberg could not have constructed anything better.
@Christophe,
re:
Not at all. We all need to share what we are going through, and we learn from hearing the thoughts and experiences of others. I wish you well. Thank you for your thoughts and for participating here.
@Christophe…
Absolutely a big DITTO to @badger comments. We have all needed help and advice, and nothing selfish at all in your questions and comments. It helps others that come behind you, so you are contributing to the knowledge base of all who care to read here. Thanks for your participation.
Thank you so much for your replies. I think the most frustrating thing about it all are the different answers given by different lawyers, when I presented them with my simple case. I asked 4, all experienced with the process. Putting aside the one that just tried to scare me into OVDP, the other 3 were very nice but gave me all 3 possible answers: one advised OVDP, one quiet, one just go forward. As Jack mentioned on his blog, all are valid answers, but that doesn’t help much…
I basically decided based on all the reading I did, and the fact that I didn’t want the extra stress of financial problems that OVDP would cause for a benign mistake. I traded that with the possible consequences of an audit. I don’t think I should have any risk of criminal prosecution, but this is really at the discretion of the agent. What scares me most is that darn foreign account checkbox on the schedule B and what they would do with it!
@Christophe…
This should help put your mind at rest about the Schedule B check mark. Even the IRM says that an examiner can not rely on that one check as a determination of willfulness..
Proving Willfulness in FBAR Reporting – Checking “No” Ain’t Apropos
@JustMe, Is QD still the preferred way you guys and Jack are suggesting. I read both the blogs again looks like go forward or QD is the suggested way. Have you guys come across any issues with QD yet for minnows? I am all set to do a QD now, just getting amends done by my CPA, have my previous and 2011 FBAR ready to send it. I am really a small minow over all the previous years, I am owing tax < $1000 and max total assets in the delinquent years <$50k
@ovdikills…
If you have read the lastest comments on Jack’s threads on Opting Out, then you have the latest information as to his thought process on the QD vs the “go forward”, and I have heard nothing to suggest differently. Everything I read from Jack indicates that for Minnows like you, either of those options appears to be the better course than joining the OVDI. You aren’t who they were looking for, so why should you join, is what many are coming to conclude. Of course there is some audit lottery risk, but the IRS doesn’t make it easy to be compliant, just the opposite of what they should be doing…
At this stage, we really don’t know what is happening with QDs that have been done in the past, and I doubt we ever will as there is no visible data base, but if IRM procedures mean anything.
I would also suggest you read this latest post by Jack where he ponders Moneyball statistics.
http://bit.ly/LLOD6N
@JustMe, thanks for your reply. I did read that post from Jack and all the comments up here as well. You guys seem to lean more towards “go forward” than QD. My only concern with “go forward” is that “IF” an audit does happen, they can prove willful violation since, when filing current year we were aware of FBAR regulation and must have filled previous years. From that perspective I feel QD is slightly safer. But issue with QD is raising the red flag, its like standing up in a war and asking to be shot and just hope you are not tall enough to be spotted. And that’s what I am basing me hopes and prayers on. I have collected all the documents from all the banks i have accounts in, in case of an audit. If it happens will have to submit them that’s it. You guys have been a great boon for me. Really appreciate it. Its not perfect, but they don’t want us to be perfect. What a shame!
The decision to either do a Quiet Disclosure or Go Forward is yours to make. Pay Jack for a couple hours of his time if you want him to review your case and advise with all your facts. He said on his blog that it’s all about nuances, but if you think you’re considering Quiet Disclosure, you should also consider Go Forward.
In the end, the decision is personal based on your risk tolerance.
A quiet disclosure might increase your risk of audit vs a go forward , but MAY also position you slightly better in case of audit, even though Jack says the audit result should be the same for QD vs Go Forward. But again, this can be only judged by an expert after he examines your facts. We’re not experts… just people who either went through the process like Just Me and/or did a lot of reading.
It seems you made your desision anyway if you already paid your CPA to amend your returns. That would be a waste of money not to send them 🙂
I personnally got scared by the IRS statements regarding quiet disclosures and how they would really review them and how we could potentially face harsh penalties, so for the moment, I chose to just go forward. I am still not sure that is the right thing to do. It seems that someone who does a QD would be better positioned in case of an audit, so I guess I am still not completely ruling it out.
I think I will wait till the end of June to make a final decision. The rationale is that after that date, one year of statute of limitation will have passed on the FBAR, and that if I send a QD after that date, am audited and they decide to apply FBAR penalties, that will be on 5 years instead of 6.
If you do QD, would you mind sharing the reasonable cause letter you attached to your FBARs, and let us know the result if you ever get audited?
Thanks!
I did a QD in June 2010 – no need to amend returns as they had not been filed in the first place. I haven’t heard anything back. I wish I could say that this makes me feel better. It does a tiny bit, but not nearly as much as I hoped. For one of the years in question, I bought a house and so for that year, after double-counting the money as it passed through multiple accounts for the purchase process, I am theoretically up for FBAR penalties of over a million dollars, several times my total worth.
I try to put the fear behind me, but every day I compulsively search this site, Phil’s blog and Jack’s blog to find any news that might reduce the uncertainty.
I live in a higher tax country and have done so since I was a small child. I owe no tax to the US, but due to currency fluctuations, if I sold my house today I would have to pay hefty extra US capital gains tax even though I would actually be selling at a loss.
The only plus – these nearly two years of anxiety have seen me lose a lot of weight!
t@Gabriel, The IRS clearly says that if there is no tax due, you don’t have to go through OVDI. Filing past FBARs with reasonable cause is OK.
You didn’t even received a warning letter?
@Christophe…
Good comment, and thanks for helping OVDIKills out.
The nuance thing is the hardest part of the decision process. Either way, my bottomline belief is, the IRS is not going to waste the DOJ energy in prosecution for a “willful” penalty should an audit eventuate, and frankly, I would almost dare them to do it should an audit occur. They will try to intimidate you, and if you don’t allow yourself to be intimidated, then they will settle for reasonable discretion instead. Do not expect them to be moral in their actions. They have been quite happy to take serious money from minnows in the OVDI who they know were not the category of offenders they were looking for. They are below contempt for this, in my opinion, but as the tough guy poker players they are, they know how to fold them too, when they have played their bluff too far.
Thanks Just Me.
One question: are charges always pressed by DOJ? Sorry for always coming back to that, but that’s what I am scared to death.
Say they want to press “Filing a False tax return Charge” because of the darn checkbox. How does the process work? IRS makes recommendation to DOJ to do that, who might or might not agree?
I heard in some cases, they offer “deals” to people where they ask them to agree to plead guilty for such a crime in exchange for no jail/low fines. But for that deal to happen, the charge must have been filed, right? I can’t find much information on how that works. This is potentially a big deal for immigrants, because if they take the deal, it’s basically their ticket out of the US. ICE will learn about it and deport them for “crime of moral turpitude”. And not taking the deal and go to trial would be risky as well, especially when you see all the comments on the Miami Herald
I wouldn’t trust a Jury to be fair to people in this situation, mainly because the “crime” is related to a yes/no question, and you’re basically guilty or not.
Jack says that going to trial is also expensive.
In my case, I am really not afraid of the potential penalties outside of OVDI, with my low balance, even with 6 years of non compliance, if they follow the IRM manual, the cost for non willful would be equivalent to the in lieu of penalty inside OVDI (and that is on a per account, per year basis! That would be much lower if they just apply the non willful penalty once per year). If they consider me willfull, it will double, but with the extra cost associated with amending returns with a CPA, and potentially hire an attorney for some part of the process, and may be opt out in the end, OVDI would still be more expensive. It’s really the impact of my residency outside of the program that I am worried about.
@Christophe…
I know you are fearful, but I think it is misplaced fear.
It takes a very high standard for the IRS to recommend that the DOJ go after someone for willful tax evasion. They aren’t that silly to waste resources on minnows over some small benign failure to file a FBAR or report some offshore account in their homeland. Even if they had that as such a mission, it is a numbers game, and they don’t have the resources anyway. What they are good at doing is instilling fear, and making you feel like a criminal so you voluntarily get onto their fertilizer processor belt. You have to stop letting them make you the victim! Put the responsibility for “failure to inform” and guilt for terrible administration right back where it squarely belongs, on their shoulders. 🙂
@Cristophe
I am not sure what specific language you are thinking of, but those “OVDI doesn’t apply to you” disclaimers (like FAQ 17 for 2011) are written in a way that would not apply in the case where the tax returns had not been filed on time. And because there are so many complex rules that apply only to expats, it is not possible to be sure that everything has been reported correctly anyway.
I have received nothing. A warning letter would be great!
I have some concerns about QD vs. Going Forward which I will refer to as GF.
Hhmmm, I wonder If I just created a new acronym :-).
My concern is: What happens when a person decides to start GF this year and files 8938’s and FBAR’s for 2011 and since their accounts weren’t opened in 2011 they didn’t check the corresponding box on the 8938, which therefore means they most likely should have filed FBAR’s for 2010????
This seems to be a MAJOR red flag if you ask me.
@Christophe…
Well, then it really just comes down to a cost / benefit analysis then. Is ‘the certainty’ that you want about your residency worth the price of the OVDI? Would you feel better about America for paying that price, or would it leave a bitter taste in your mouth? How much is that Green Card worth to you? I can’t answer those questions, but I understand how you would be struggling with them now. It is a terrible dilemma for the IRS to put immigrants in, but they don’t care. While there are just normal folks with empathy operating as examiners, collectively the organization has no morals, or soul. They are just a penalty collecting machine running on technical rules and regs and are blind to the consequences of their administration. Truly, they are operating the worlds biggest and best “Catch 22” machine.