30-yr IRS Vet offers his advice about the 2012 27.5% Overseas Voluntary Disclosure program.
[Editor’s note: The Isaac Brock Society does not endorse tax professionals. We endeavour to provide peer-to-peer discussion to help readers (1) to determine better whether they are in a situation that requires professional help; and (2) to gain the necessary knowledge to evaluate the quality of that professional service if they decide that they need it (see OVDI Drudgery for Minnows). The following post is from a 30-yr IRS veteran who is now in private practice at Mopsick Tax Law. We offer it for two reasons: (1) Everyone at the Isaac Brock Society is an adult, able to make decisions for him or herself–thus, our M.O. is not to censor opinions, but to engage in vigorous debate. (2) It may be, given the situation and the risk tolerance of certain individuals, that 30-yr’s advice is appropriate and helpful. Notwithstanding, we will offer critical responses both in the comments and in later posts. Also, we have written a press release, especially for Canadian residents, regarding the 2012 OVD program. Petros]
During the past few days in which I have had the privilege of communicating with you, I have learned something quite obvious which is, everyone who is dealing with the FATCA problem has their own unique factual situation. Despite the IRS’s wishes, “one size” does NOT “fit all” and there is no single solution or strategy for everyone.
Notwithstanding anyone’s opinion about the wisdom of the law or the fact that the United States taxes on the basis of citizenship as opposed to residency, what you decide to do is really based on each individual’s tolerance for risk and uncertainty. Some people will be quite comfortable doing nothing. Some people will decide to “become compliant” from this point forward. Some will make a “quiet disclosure” and simply file FBARs and U.S. tax returns for the past two or three years and for some, the formal IRS Voluntary Disclosure program will be the route they choose to take. Based on my experience, while there is still a high degree of uncertainty under the formal program, it remains, in my opinion, the way to go with the least amount of risk.
Here is why: the formal program almost guarantees no criminal investigation but more importantly because very few of you are really at risk for criminal investigation if the source of the unreported money is legal (not from a criminal activity), there is also a commitment on the part of the IRS that there will be no civil fraud investigation which brings the risk of a 75% civil penalty which can go back for many years, even beyond the eight years of the formal VD program.
For those of you who are considering the possibility of entering the program, here is a brief summary of how it works. The applicant, regardless of how many years there are of a failure to file tax returns or FBARs, or failure to pay tax, must file correct delinquent returns and FBARs for the past eight years (starting with 2004). Any years beyond that period are essentially forgiven by the government and not pursued. The disclosure and the returns must be accurate and entirely truthful. The client must provide eight years of bank records and any other documentation the IRS requires to verify the truthfulness of the returns. If there is a corporation or trust or other entity which the applicant controls, that would have to be disclosed as well. The eight years of delinquent returns must be accompanied by a payment of the tax and interest on the eight years of delinquency. In addition there is a 20% penalty computed on the amount of the understated tax. The kicker for many people is there is an additional penalty of 27.5% of the highest aggregate ONE YEAR balance of the applicant’s previously undisclosed bank accounts during the past eight years.
In exchange for the filing of the returns and the payment of penalties, the IRS will not pursue any criminal investigation and, very significantly, it will not seek a 75% civil fraud penalty which could go back for an unlimited number of years. (there is no statute of limitations for fraud). The applicant would essentially be given “a clean bill of health” with the IRS and agree to remain in compliance in the future.
There is also the possibility of future IRS inquiries regarding other independent IRS investigations of any people who may have purposefully counseled the client to evade or avoid US taxes.
That much is certain about the program and my firm has successfully navigated over fifty families through this program since the first VD program was announced in 2009.
Here is the new part and something which I think has a special appeal to Canadians and other “accidental” US citizens. While there is very little discretion on the part of IRS agents to whom these VD cases are assigned, to show any flexibility on the 27.5% penalty, the 2011 program added a new “opt out” procedure which remains in effect under the new program in which the applicant can elect to leave the program and have the chance to argue that there was reasonable cause for their past failure to file, to meet with an independent IRS Appeals Officer, and present an argument as to why no penalty at all should be asserted.
The “opt out” procedure is brand new and practitioners have yet to have any experience with it but it is there. The IRS says opting out will not result in penalties greater than those for which a taxpayer may be at risk for under the program but we simply have no experience to date on how that is working for people and I do know that Washington has not issued any guidelines to date to the hundreds of field offices around the country where these cases would be handled. I predict that this where all the action is going to be for Canadian dual nationals who choose to enter the program simply because of the equity of their situations and the absence of any real wrong doing.
One of you asked if I would be willing to review the facts of people who might be interested in the Program. I would be happy to do so if you want to write to me at my web site or call me at (916) 550-5363.
@Linebacker My family consists of roamers seeking new opportunities and freedom. My great grandfather travelled the Oregon trail on his way to Alaska after his first wife died of typhoid; he settled in Oregon with my great grandmother Luella. His son moved from Oregon to Reno at the age of 89 to avoid Oregon state income tax. My father moved to Alaska to set up his private practice as an Otolaryngologist. On my mother’s side my great-grandparents parents left Korea with my grandparents in tow to work in the sugar cane plantations of Hawaii. Once they were able my grandparents sent their children to the mainland to study. My mother met my father at Oregon State.
@Steven, my family is constantly moving around from country to country. I am in Canada now, hardly a low tax jurisdiction, but when I told my father of my renunciation he shrugged.
My family, vets of the Civil War and World War I (my dad was too young WWII and in university for the Korean War) who fought for freedom, were like me–anti-government people seeking freedom. They would not and they did not cast aspersions upon my decision to relinquish.
I don’t want your damned citizenship. It is a curse, a toxic noose tied to my neck. I cannot tell you how much rage I have that I was not on the 2011 list. Because I am now a Canadian and relinquished US citizenship according to US law and I informed the Toronto Consulate. The United States has become the biggest pig nation in the world, as it attacks its former citizens. It consumes resources in excess of its production, thinking that it can continue borrow fiat money so that it can keep the party going. This is going to end badly, and I think Canada needs to triple its military spending to keep the rabble south of our border from bringing the riots into Canada.
As Linebacker wrote “It is my personal belief that many people renouncing US citizenship today do so for the same reasons that people left their home countries to come the the US years ago.”
I relinquished my US citizenship almost 40 years ago for that reason, to be completely a part of my new country, 100 percent, which I am. Taxes weren’t even an issue; didn’t even know then about US taxation being extra-terrorial.
I have no connections of any sort to the US, but now I’ve discovered that the US reinstated these relinquished citizenships, and I’m caught up in this mess too.
My primary motive in applying for a CLN is to reestablish my status quo ante, which is that I’m not a USC. Why would I want to be? It’s been a foreign country for most of my life.
But, of course, having been dragged into this mess, it will indeed be a major relief to have a future where I don’t have to deal with the US’s tax agency, IRS, whose rules and forms seem to be overly complicated, confusing and capricious, an agency which promulgates the presumption that honest, hard-working people are “tax cheats”. I don’t even owe any money, but the paperwork … holy crow. I’ve dealt with Revenue Canada my entire life as a taxpayer, and I find they run it like a business and I have never heard a Canadian government spokesperson refer to an entire class of people as “tax cheats.”
“This is going to end badly, and I think Canada needs to triple its military spending to keep the rabble south of our border from bringing the riots into Canada.”
This is one of the reasons the rich are fleeing America, the increasing social unrest. Their president is constantly trying to pit the poor against the rich because he has failed at his job and needs to divert attention. Rich Americans are buying land in Canada so they can make their get away when all hell breaks loose.
Also, there are average people in the US desperate to move to Canada just so they can find a job but immigrating to Canada is not easy even for Americans.
To be able to get a work permit here you need a job offer and to get a job offer you need a work permit … kind of a circle jerk. Plus Canada is not going to issue work permits to Americans when there is a qualified Canadian who needs the job.
The Canadian government will protect us better than any US lawyer who thinks we would be lucky not to be criminally prosecuted for what is essentially innocent behaviour. He defends the IRS and the Congress but doesn’t see the inherent injustice of this whole situation.
The Canadian government is not going to give up without a fight. This illegal tax grab is a theft from them too. If Canadians go bankrupt, they will have to rely on more social services here in Canada. The US government certainly isn’t going to offer you any support after they empty your bank accounts. They want to take from you when they have never given you anything and never will give you anything.
The primary victims of this US tax grab in Canada are senior citizens. Canadians are known for taking care of each other. We are not going to let the Americans victimize the most innocent among us. The fight is on!
The current government of Canada has recently made noises that it is going to increase the number of “economic immigrants” which is a category a lot of Americans would qualify for. There are a couple of ways for Americans to immigrate to Canada. One is the their a provision under NAFTA that allow Americans to come to Canada to work on a short term basis in certain profressions. Once they have worked in Canada for over two years the can apply for permanent resdency under a special class and within three years become a citizen. The other way is to directly apply for permanent residency under Federal Skilled Worker class or the immigrant investor program. There are also quite a few opportunities under the various provincial nominee programs which I am not as expert on.
Americans should know but they don’t that many of the first Anglo Canadians were United Empire Loyalists fleeing the American revolution. These are essentially one of the founding peoples of Canada. There are monuments to this group of people in many citiies in Southern Ontario and Atlantic Canada.
“It is not what a lawyer tells me I may do; but what humanity, reason, and justice tell me I ought to do.”
– Edmund Burke
Cato….You must have a book of Libertarian quotes. LOL. I think your last one certainly applied to Moby! He did exactly the right thing to weigh his attorneys opinion’s with his own council and negotiate his own outcome. It did not appear from both his writings and conversations that I have had with him that his attorney was directing him properly.
I don’t object to attorneys, as they have their role and their opinions can be very helpful in showing you a way through the minefield, but one must always be mindful that their fee for hourly service does put them in conflict with your need to control the cost of dealing with the government. So, that is why I continue to say, you have to do your own drudgery. You have to have a knowledge base to balance against the advice an attorney provides. Moby did his drudgery, and saw that his attorney was not working for his best interest.
He got a better outcome than his attorney was directing him towards. He was not a fool. He would have been a fool to put the entire process into an attorney’s hands. Now litigation might have been a different matter, but in regards to the OVDI and Opt Out up through appeals, a competent person is capable of navigating those waters, if they are willing to do some drudgery.
But, I too understand 30 year vets comments and the perspective from which he comes. I just take them with a grain of salt that isn’t separated from his own self interest. He is not in the advice game for altruistic reasons. He is parlaying his years of government work and knowledge toward income production. That is the American way, and it is ok. That fits into the marketing narrative that comes from attorneys, and it plays into how we are conditioned to think these days. “Oh my god, the IRS is just too complicated for you dear citizen. You need me to guide you through the process.” That may or may not be true for you, and if you don’t have any knowledge base, how can you know?
True, the process is intimidating, especially when we are conditioned to be fearful, and at every turn there is a new penalty or threat of criminal prosecution. If you have no back ground in these matters, it plays very nicely into the attorney marketing campaigns that sprouted up right after the 2009 OVDP program was announced. But Moby and Sally, and I to a lessor degree show you can DIY the OVDI process and actually be “fool proof” rather than fish fertilizer.
I better appreciate comments like this from Jack Townsend, another IRS/DOJ vet who has a more measured statement.
To Researcher Jan 25, 2012 03:21 AM
Keep in mind that opting out does not move into litigation but rather into an audit. I have no doubt that many of the minnows could go through an audit without having an attorney involved at all and achieve a better result than they could have obtained had they not opted out. And, to be more specific, I think many — perhaps even most of them — could achieve as good a result as they could have with attorney representation. They will have to pay attention to the procedures involved in the audit, but by being attentive and responsive to the agent’s request, it should run fairly smoothly.
Now, only if you don’t get an acceptable result in the audit will litigation loom as a possibility. For most taxpayers, litigation will require an attorney. Actually does not require; individuals can represent themselves in litigation but there are many difficulties in doing so.
Ultimately, it was my own council that led me to the TAS, even though the last council an attorney gave me for free (and I appreciated it) was pretty negative as what to expect if my case went to appeal. I took it on board, and weighed it with the other advice I had been given, and it helped shape my appeal to the TAS. While my outcome was not as good as Sally or Moby, my fees for an attorney to work as my POA did not add the problem, and I was able to make a business decision that did not require adult diapers. It did not double the cost for dealing with the IRS, and it greatly reduced the penalty being asserted by my examiner.
Moby was right on point in his comments. I understand them perfectly and the heated nature of the reply! I am sure he has cooled down this morning… It is a lovely day down here. LOL 🙂
I am compiling/writing one.
Here’s one especially for you:
“No occupation is so delightful to me as the culture of the earth, and no culture comparable to that of the garden.”
– Thomas Jefferson
@Cato… Well you have some good ones! Thanks for inserting them here.
@Cato… I like that one. I should post it in my garden! thnx
On the facts of Sally’s case:
She represented herself. Initially, when she fell for the 2009 “switch and bait” tactics, she thought, “Paying a lawyer when you never owed any taxes is kind of like paying taxes.” Later in the game, she thought that representing herself fit better with her “reasonable cause” argument.
But she did talk to a lawyer. Not for long, so it worked out to an “outrageous” hourly wage. But it was money well spent, as it really reduced her anxiety level.
She also talked to the TAS. Also a good choice.
She even talked to the examiner, who understandably couldn’t tell her what to do, but was helpful in explaining requirements and options.
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