I wanted to make this a separate post so that it doesn’t get lost in the long line of comments.”
First, thanks to Mr. Mopsick for willing to post on this blog. He is the only lawyer (as far as I know) who has written complete posts. I thank him for sharing his perspectives. After reading the comments: it is worth remembering that his central message is that he is willing to talk to people – everybody has a different situation. Furthermore, the members of the Isaac Brock Society have proven that they are very knowledgeable about this issue and are perfectly capable of evaluating the value (or not) of specific legal advice.
But, the main purpose of this post is as follows:
It’s the trust issue stupid!!
The IRS has demonstrated that it cannot be trusted.
Trust is always important. Trust is pivotal when the IRS says that (to paraphrase): It can change the rules of OVDI at any time – including AFTER YOU ENTER THE PROGRAM. Now I expect that Mr. Mopsick will deny this, but there is no guarantee that if one enters the program that the rules will not change once you are in. Remember OVDP 2009.
Evidence that the IRS cannot be trusted includes:
1. After people entered OVDP (2009) the IRS changed the rules regarding when “reasonable cause” can be raised (this has been well documented in previous posts);
2. Commissioner Shulman was required to respond to the TAD directive by January 26, 2012. He has not (my apologies if I am wrong on this) to date responded. This suggests that the IRS does not think it is bound by the law – rather they think they are the law.
3. The resurrection of OVDI was announced on January 9, 2012. At that time the IRS promised procedures for U.S. and dual citizens living outside the United States to come into compliance. To date (even though we are in tax filing season) these procedures have not been announced.
4. There was no IRS response to Ambassador Jacobson’s infamous “70 year old Grandma” speech.
To use the words of Taxpayer Advocate: “The IRS silence continues to be deafening”.
Almost everybody distrusts the “cross-border professionals”. But, regardless of the quality of the legal advice, one still has to be able to trust the IRS. How is that possible?
The issue is not the “cross-border professionals”. The issue is that people cannot trust the IRS.
Alternatives to OVDI – The December 2011 FS for U.S. Citizens and U.S. Citizens Living Outside The United States
Mr. Mopsick listed a number of options for people to come into compliance. It is interesting that he omitted the possibility of coming into compliance under the terms of the December 2011 FS. Assuming no issue of “criminality”, anybody who is considering OVDI should also consider the December FS. The differences between OVDI and the December 2011 FS are here with subsequent commentary here. These posts described the differences as follows:
Here is a summary of the basic differences between OVDI and the Fact Sheet For U.S. citizens and Dual citizens living outside the U.S.:
1. OVDI presumed “criminality” – the whole point was that a participant would avoid criminal charges. There was NO room for introducing evidence of “reasonable cause” (unless one used the opt out provision and entered into a complete audit – along with the six figure cost).
2. The IRS Fact Sheet does not presume criminal behavior. – The IRS is acknowledging that there are people who were unaware of their filing obligations. As a result, the fact sheet assumes and the IRS is stating the “reasonable cause” is alive and well. This does NOT mean that all taxpayers will able to establish “reasonable cause”.
3.The IRS is delinking the FBAR issue from the tax return issue. (This is what OVDI failed to do). In other words (at least the way I read this), you could owe some tax and still plead “reasonable cause” on the FBAR issue.
4. The IRS has given examples which create a possible basis for a finding of “reasonable cause”. Once again – this is NOT legal advice – 0r any other kind of advice. You and your adviser must read these examples carefully and consider your specific facts. The examples appear to fit the circumstances of many typical U.S. citizens living abroad.
5. The IRS is requiring returns to be filed for the last six years – presumably the 2005 – 2010 years. As you know OVDI required the filing of returns for eight years.
This is not intended to be legal advice (or any other kind of advice), but if you are considering OVDI you should also be aware of the 2011 FS.
Once again thanks to Mr. Mopsick for his participation. His mission: “to boldly go where no lawyer had gone before!”
Dear Renounce: thank you for this because you’ve reminded me to address one of the biggest common themes I am seeing in all the threads on the IBS blog during the short week we have been writing: the notion that you can think of the IRS and the word “trust” in the same way you might use it if you were talking to a teen age son or your boss. The words “IRS” and “trust” are, as the lawyers say, “inapposite”. But, that doesn’t mean either that the IRS as an institution functions like some kind of 1950’s Soviet propaganda unit. It’s a big chuck of what Washington calls the Federal Triangle which was built in the 30’s between the White House and Capitol Hill between Penn. and Constitution Avenues. The IRS has a lot of buildings in the D.C. area but headquarters, or the National Office in IRS-speak, takes up two huge blocks between 10th and 12th Streets. The IRS is far too big and muscle bound to ever function as a monolithic evil force, ever conspiring to find new ways to make life miserable for the common man. I was an insider. I worked there. It’s not the way you think. The work atmosphere is very congenial and friendly. If anything, in terms of the IRS’s corporate culture, you might say that the people who work there are almost motivated by a sense of fear. They don’t sit around dreaming of ways they can screw people, they sit around and try to figure out how NOT to get yelled at. The IRS is actually afraid of it’s own shadow. The IRS is afraid of a whole bunch of things: criticism from Congress, the powerful National Treasury Employees Union, the press, their own bosses and the other people above them, the GAO, the Treasury Inspector General, the National Taxpayer Advocate, the various bar associations including the ABA and the New York City Taxation Sections. But most importantly they are afraid of you, Renounce, and the Isaac Brock Society. They are afraid that some people may think that the very existence of the IBS means the IRS isn’t doing its job. That ‘s not true but they are afraid some people may think that.
You may also be surprised to hear that the IRS is easy to fight, easy to push back, and when they really mess up badly, there are a lot of people to call to complain to until you get to someone with the power and willingness to use the words “stop” and “no” to their subordinates.
You will be seeing results as soon as the conversations between Canadian Government leaders and key people in Washington are reflected in published relief for the overwhelming number of Canadian citizens who don’t have to worry at all about FATCA.
And then there are the courts. Ninety five percent of all tax litigation is filed in the US Tax Court which is based in Washington and theTax Court is not afraid to whack the IRS when it needs it. Also the various and powerful US DISTRICT COURT judges around the country simply love it when they get a chance to dress down the IRS when they screw up.
I will go over each item on your list and offer an explanation as to why it may look like The IRS cannot be trusted when in reality what you are seeing may have an entirely different reason or cause.
1. “Changing the rules about when reasonable cause can be raised”: the idea of the first 2009 OVDI program was to move through the system, all the people who essentially wanted to take up the IRS on a unique offer of settlement. The IRS was saying, “Here are the terms! Accept the deal on the table. Get in or don’t bother applying.” They didn’t want to hear a bunch of whining and wrangling and excuses about why an exception should be made for them. I will tell you from the vantage point of the clients I helped through the first round, they were damned lucky to get through it as cheaply as they did. Some owed a lot of back taxes and there were plenty of dishonest affirmative acts of concealment during the many years they enjoyed, some luxuriously, the tax free earnings they were making before the stock market crashed in 2008, from their seven figure investment portfolios expertly managed by their sleek and charming Swiss Private Bankers whom they would visit in the summer time for sweet vacations, and shopping in the finest shops in Europe.
2. No offense, but I think it’s almost silly to say the IRS sees itself above the law because we didn’t see a response from the Commish to Ms. Olson supposedly due on January 26. Their offices are right across the hall from each on the third floor at 1111 Constiution Ave. How in the world do you or I know whether or not he ever got back to her? The fact that we haven’t seen anything published could could mean there is a draft of something in someone’s In Box somewhere which they haven’t been able to finalize yet because they were busy putting out some other new fire which flared up during the 12 hours a day they are at work trying to do their jobs.
3. The fact that they haven’t yet published the promised rules on dual nationals doesn’t mean they can’t be trusted. Trust me, that’s a hard writing assignment even for the young IRS attorneys who were selected because they were the best and the brightest of their law school classes. Those tax lawyers are probably at their home computers today on Super Bowl Sunday trying to finish up their work so some one up the line can “sign off” on it and move on to the next task in their over worked and underpaid jobs.
4. Same here. You or I have no idea whether there was a resonse to the Ambassador’s Grandma speech.
30 Year IRS Vet
@Renounce Great post.
@ Steven, thank you very much for the reply.
They are afraid of Renounce and Isaac Brock Society the way that the orcs of Mordor are afraid of Aragorn and Gandalf. They are afraid of their superiors and congress the same as the orcs of Mordor are afraid of Sauron.
Yet the IRS has really blown it with its application of OVDI to minnows. Just Me’s recent post shows why they have lost our trust, and why it was proper for me to lose my citizenship rather than try to comply with Mordor.
Lets try to calm things down for Superbowl Sunday. All I’ll say is clearly as related to FATCA the regs were supposed to be due out before January 1st and its now Febuary 5th so I don’t think if the were going to just re-publish what they put out in July 2011 I don’t think they would take this long. On FATCA I think we have to be vigilent but I am not sure what we can do until the next rule release comes out and people know what exactly they are going to try implement
From Canadian perspective the Canada Revenue Agency has five times the number of employees as the IRS on a per capita basis but people aren’t losing sleep over the Canadian taxes as they are on this issue. The real problem is the people effected here in Canada aren’t the types that use KPMG, Deloitte etc to do their taxes Canadian or otherwise. If your a client of KPMG in Toronto all it takes is a phone call to their NY or DC offices if their is a US tax question. Your typicallly Canadian does not have access to those types of resources. Even your “average” Canadian tax lawyer is not a member of the NY State Tax Bar or the various organizations in the US that are always lining up to Congress, US Treasury, IRS to get their way. The only thing Canada has going for it is an Embassy and Pennslylvania Avenue right between the White House and capitol.
I personally don’t blame the actual people working on the rules. I get American TV and I know what it is like down there especially in the political realm. No one in a junior position wants to have the blame put on them that they accidentally put in some provision that allowed so big fatcat to get a break(I have been a junior person myself. I guess there is a just a huge difference in today’s political climate of how policy is implemented in Canada vs United States. I have been through some pretty big tax changes in Canada such as GST when they couldn’t actually get it passed into law until two weeks before the tax was scheduled to take effect(On a Jan 1st mind you so we are talking right during the runup to Christmas. Its just in that case that they had whitepapers and other materials they had been publishing going back several years so you knew at least what they broad strokes of the tax policy shift was.
@Steven: The words “IRS” and “trust” are, as the lawyers say, “inapposite”.”
Why is this inapposite? Wouldn’t the IRS reneging on agreements made in FAQ 35 be breach of contract? Why does the word “trust” (as in, lack of same) not apply? What precise word *would* lawyers use to describe this action? Is breaking contracts or agreements common inside the IRS?
@Steven: “You will be seeing results as soon as the conversations between Canadian Government leaders and key people in Washington are reflected in published relief for the overwhelming number of Canadian citizens who don’t have to worry at all about FATCA.”
How do you know this? Why the delay? Why was this not considered before FATCA was passed? Where was the congressional discussion on FATCA? There are 194 countries that are neither Canada nor the US; what about the rest of the world?. Why would the IRS suddenly care, when up to now they’ve not given a hoot about US expats living abroad? Why is the IRS incapable of considering expat US citizens a priori?
@Steven: “They [the IRS] don’t sit around dreaming of ways they can screw people…”
How many higher-ups with political aspirations and financial targets does it take for an organization to give off that impression? Can one or two zealots in the management chain have this effect? Can aggressive targets laid down by congress have this effect? If the IRS doesn’t spend all their time dreaming of ways to screw people, might it be that congress does in fact do this and the end result is the same? Why has every US expat tax revision in the last two decades been negative for expats? How much notice does congress take of people with no effective lobbying power, and little to no voting power? What is the view a person would likely take of an organization whose every (oblique) communication begins with a list of penalties it might apply for non-compliance? Will the US notice when immigrants choose countries other than the US when looking for destinations where they can best use their skills?
“The natural progress of things is for liberty to yield and government to gain ground.”
– Thomas Jefferson
@Watcher, I’ll take a few guesses at answering your questions. I may be wrong but I’m a pretty good guesser.
“Why was this not considered before FATCA was passed?” – FATCA probably happened just as the Democrats were about to lose control of the House and were passing as many things as they could … probably didn’t read most of what they passed.
“Where was the congressional discussion on FATCA?” – There probably wasn’t any, they were robo signing … Americans have a tendency to do things like that when they feel they’re about to lose control. Look at all the US banks that robo signed people right out of their houses, when some of those people deserved not to be foreclosed on.
“Why would the IRS suddenly care, when up to now they’ve not given a hoot about US expats living abroad?” – Because right about now is when the banks are probably privately telling the Treasury they don’t intend to cooperate. In this case the Treasury would need the cooperation of foreign governments who are suddenly in a better negotiating position and better able to defend us.
Other governments should watch closely what Canada does before they sign any information sharing agreements with the US. The Canadian Finance Minister is very smart, he will cover our butts from here to eternity after this mess.
I am glad you are on this site.
You are obviously someone who has seen the inside of our unknowns.
For someone like myself who is very stressed out about this situation, I do take comfort in a lot of what you are saying with regards to the IRS.
@Watcher: I agree there are other countries besides Canada and I think all countries need to be considered in this. However, I also know Canada’s Minister of Finance has spoken out against IRS and FATCA. I would like to see him be more forceful, but perhaps he thinks the quiet Canadian way will work better. Have leaders of other countries done the same?
The Minister of Finance has also made it very clear to IRS that, despite tax treaty between the two nations, Canada Revenue Agency will not collect penalties for anyone for failure to file FBAR reports providing no tax is owing. He has also said CRA will not collect tax liabilities for Canadian citizens who may also be US citizens when the tax liability arose.
I think a major international effort of countries around the world is needed. I don’t understand why they didn’t address this at the World Economic Forum in Davos two weeks ago. Or why they are not bringing forward a resolution at the UN to sanction US in the same way they sanctioned Eritrea on the very same issue.
In terms of why they care now about ex-pats now, it’s simple It’s because the US is broke and they want our money.
Thanks appreciate the response. It is clear that you and I are talking about different things when we use the word “trust”.
I am using the word “trust” in this sense:
“believe in the reliability, truth, or ability of: I should never have trusted her”
Your explanation with respect of OVDP (2009) explains WHY the IRS stopped accepting “reasonable cause”. With respect, it doesn’t address the “trust” issue. The fact is that a large number of tax lawyers (and their clients) interpreted FAQ 35 as allowing them to argue “reasonable cause” without an opt out. This changed on Mach 1, 2011 (correct me if these facts are wrong) on March 1, 2011. Taxpayer Advocate made the point that those whose files were processed prior to March 1, 2011 were treated differently than those after March 1. This was the whole reason for the TAD issued against the IRS. This bears on a belief in the “reliability of the IRS” to behave in a certain way. The issue of “trust” is very much an also issue of “perception”. By allowing some taxpayers to have benefits that others didn’t, the IRS both:
1. Behaved in a way that demonstrated that its was unreliable; which
2. Resulted in a perception that the IRS was unreliable.
That is why (at least with respect to OVDI type issues) the IRS cannot (at present) be trusted. Now, they may be able to repair some of that trust by:
– following the TAD directive on this issue;
– make it clear that they will not change the rules for those who enter the current program
2. Remember that “trust” is both a perception and a reality. The FAQ 35 fiasco (described above) created a situation where lawyers no longer knew how to advise clients (see the Michel and Matthews articles). It discouraged people from entering OVDI (see the Taxpayer Advocate Report). Taxpayer Advocate is supposedly the branch of the IRS that is there to represent common people. People need to know how to reliably deal with the IRS. By failing to respond in a public way (at least that much we know), the IRS is allowing a climate of “distrust” to continue. You may call objecting to this “silly”. I think it is a serious problem. It also creates uncertainty with respect to how to come into compliance.
3. Once again, a major part of trust is reliability. There are large numbers of people in Canada who are waiting for direction to from the IRS (as promised) to come into compliance. It has been one month. We are in tax season. How are these people supposed to know how to come into compliance? How can taxpayers trust a system where:
On the one hand they are told they must be in compliance and on the other hand they are not being told how!
Furthermore, they are being threatened with fines for failure to comply. This is the cause of a great deal of distrust.
4. You and I are using the word “response” in different ways. I think that a “response” means a communication to the people affected – that is the U.S. and dual citizens living in Canada. That necessarily means a “public response”. There has been no communication whatsoever to the people affected by this. Therefore, in my view, there has been no response. If I write you a letter, and you write a response to me and not mail it, do you really think there has been a response?
Your response to my post seems to be something like:
Well, it’s really not that way at all. The IRS is made up of good people, who work hard, etc, etc.
All of that may be true. But, it is completely irrelevant to the “trust issue”.
You say that:
“The words “IRS” and “trust” are, as the lawyers say, “inapposite”.
Since I don’t know what “inapposite” means I don’t know what you mean. So, I will go the dictionary again:
out of place; inappropriate:
Do you mean that it is “inappropriate” to trust the IRS? Or do you mean that it is “inappropriate” to use the words IRS and trust together?
Anyway, I want to repeat that I really thank you for your posts and thank you for participating on this blog. Although I disagree with some to the things you have said, this is in no way personal. It’s just that these are very very important issues.
I hope that you can see from these responses how deeply hurt, frightened, and damaged many U.S. citizens in Canada have become because of the past and continuing actions of the IRS. This is why so many are considering renouncing U.S. citizenship. For many renunciation is an act of self defense.
U.S. and dual citizens in Canada want very much to come into compliance. But, they can’t turn over 27.5% of their retirement funds in order to do so. Furthermore, you need to appreciate the stress and damage to people who are law abiding people in their country of residence.
Now, on to more important issues:
Who do you think will win the Super Bowl?
“These are the times that try men’s souls.”
– Thomas Paine
@ Steve: Thomas Paine was a tax collector before he became a Patriot.
@renounceuscitizenship: Actually, it’s been longer than longer than a month since Canadians were told something to wshould clarify soon. It’s been several months since US Ambassador told us the US was “not unreasonable” and we should “sit tight,” Well, my bum is really sore from sitting tight waiting for something to happen.
I response to who will win the Superbowl: Who Cares? Now, that should prove I’m not a US citizen or even a US person if nothing else will!
First some fun. A one-up for Blaze. SuperBowl? What’s that? The big black ball with holes for your fingers instead of the little one that you cup in your hand?
Now to business. Tim said: The real problem is the people affected here in Canada aren’t the types that use KPMG, Deloitte etc to do their taxes Canadian or otherwise. I wasn’t that type either for years, and then hit a totally opaque situation in the strange universe of the dual citizen.
I had one of those very big-name accounting firms “hose” me, to use the phrase of the honest guy I managed to switch over to. Those skunks (1) Billed at an excessive rate (2) Demanded horrendously tight timelines – early submission and late return (3) Threatened to refuse to undertake the work without those timelines (4) Made serious mistakes (5) Did unauthorized work out of the blue and then sent a big bill (6) Redid work without authorization, got the same result, and charged (7) Took routine questions and turned them into opportunities to “do research” and print out expensive boilerplate (8) Treated all clarification of the prepared return as additional billable time.
The United States and the IRS enable these racketeers by putting conscientious extraterritorial citizens into the paranoid double-bind of (1) having to deal with a situation that cannot be understood, and then (2) hoping to solve the problem by paying “professionals.” [There’s a great movie called The Professional … his name is Leon.]
Q. How do you deal with a rigged game of craps?
A. Do whatever it takes to get out of the game.
By the way, it looks like this game is about to get a whole lot harder to play – and already has become so for those who have never yet picked up the dice.
I am starting to think we need to narrow our focus and make the lives of certain US politicians particularily difficult. In that sense I am thinking that we need to targets members of the Senate Foreign Relations Committee that approves Double Taxation Treaties and “refuses” to approve any DTT without the “infamous” savings clause.
I think a couple of key members on this committee to target are:
Chairman John Kerry of Massachusetts
Ranking Member Dick Lugar of Indiana
Barbara Boxer of California
Bob Corker of Tennessee
Response to Steven – BRILLANT!!!!! I applaud you and wish I were as articulate. I also thank you.
Or…we could go the opposite way re: IRS.
It has become my understanding that there are many more deductions enjoyed by USC’s south of the border than we have here in Canada. (mortgage interest, property taxes, etc).
For the average salaried family, instead of doing our US returns to get to ‘no tax owing’…why don’t we just pile on the deductions until they start sending cheques north of the border.
How long do you think that will last?
Reblogged this on Renounce U.S. Citizenship – Be Free and commented:
This is a post I wrote a while ago. The comments are quite interesting.
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