Petros has learned that Steven J. Mopsick made one mistake about Jack and Jill: before paying their OVDI fines, they decide to opt out.
Steven J. Mopsick gave us the following scenario:
Consider Jack and Jill , who are a composite of some of my clients, some of my colleagues’ clients, and perhaps a couple the drafters of FATCA might have had in mind when they drafted this legislation.
Jack and his wife Jill are dual nationals. They were both born in Detroit of Canadian parents but their principal residence is in Montreal and they consider themselves proud Canadians.
Jack has a very lucrative import/export business in Montreal which has offices all over the world. Jack has been filing US tax returns for his entire adult life and he started filing FBARs in 2004 when he first found out about them. Jack uses a big name accounting firm in Montreal to do his family’s taxes. Each year since the 1980′s, Jack would meet with his accountant to give him the information he needed to fill out his Canadian and his American tax returns but each year Jack purposefully fails to disclose to his accountant, the following facts about his financial affairs.
When Jack’s father died in the 70′s, he inherited a Swiss bank account from his father worth $15,000,000. The account was never reported on Jack’s father’s estate tax return and the principle has grown to $30,000,000 as of 2012. During the years, Jack diversified his inherited account by opening new investment accounts in the Cayman Islands, the Channel Islands, Liechtenstein, and Panama. He picked these places on the advice of his private banker who told him that these jurisdictions laugh up their sleeves at the IRS whenever the IRS tries to get the names of their American depositors.
Jack and Jill also have a home in the Hamptons on Long Island, New York but he put the title to the house and another cozy “get away house” on Vancouver Island in the name of a Liechtenstein trust Jack set up for his children. None of this has been disclosed to his CPA in Montreal. In 2011 they bought another home in Malibu California because their daughter was accepted to study at the University of Southern California and Jack and Jill thought it would be nice if she and her friends had place to get away on weekends to party and escape the rigors of academic life in sunny southern California.
Jack’s worldwide investments are managed by a suave and cultured Swiss banker named William. William, Jack and Jill become good friends. Every summer, Jack and Jill go to Switzerland where they stay at their banker’s lovely home on Lake Geneva. Jack had previously made it clear to William that he wanted no mail whatsoever to be sent to him from Switzerland with bank statements or anything else. Jack didn’t even trust the internet or e mail so the annual visits to Switzerland served as an opportunity for Jack and William to review his vast portfolio and make decisions about what to sell and where to invest next.
In the year 2002, William, the Swiss banker, offers Jack a deal. He says, “bring me other clients like you and I will cut my commissions on all the stock trades I do for year each year and I will also give you a kick back on the fees I collect from the new client’s accounts.” These extra bonuses will be paid to you by way of deposits into your Cayman Islands account. Jack takes his banker up on the offer and for the past ten years he has helped a large group of Canadian friends and his cool American friends he met at the Hamptons, to open their own secret accounts abroad. Over the years, his Canadian and American buddies earn small fortunes just from the taxes they are saving from the interest and dividends on their secret overseas accounts which William set up for them just he did for Jack and Jill.
In April of 2012, Jack learns from his accountant that starting with the 2011 tax year he is going to have to file a new form 8938 with the IRS which requires that he disclose all of his foreign assets to the IRS. At the same time William, his foreign banker, calls him up and says his best friend who is also a private banker was just arrested in Switzerland for doing the same thing he did and he is afraid that he might be next!
Jack, almost in a panic, tells his accountant that he has been lying to him for decades, that he has millions of dollars in unreported income and assets all over the world and he is fed up with his own lying, deception, and cheating on his taxes. He cannot sleep at night and wants to know what he should do.
His CPA has a heart attack with this news but from his hospital bed he calls Jack and gives him the name of a reputable Toronto tax law firm and Jack makes an appointment.
His Canadian tax lawyer tells him the IRS may not accept a voluntary disclosure because Jack knew it was just a matter of time before his Swiss banker was arrested and therefore he may not qualify for a voluntary disclosure.
They apply under the 2012 voluntary disclosure program and miraculously, the IRS agrees to accept him into the program as long as he cooperates and gives up the names of his friends and other Swiss bankers he knew were traveling to the Hamptons, Vancouver, Malibu, and Toronto to line up clients who might be interested in getting on the same gravy train Jack has been enjoying for decades.
His lawyer tells him there is only one hitch: Jack has to disclose everything for the past eight years, pay the tax due plus interest and a penalty equal to 27.5 per cent of the highest aggregate balance of his hidden accounts and investment assets for the past eight years. The IRS agent assigned to the case also says, there will be no 75% civil fraud penalty and that the agent doesn’t care about the unreported income he earned from the 70′s to today as long as Jack files truthful and correct amended tax returns for only the past eight years.
Jack and Jill are elated and can hardly contain their glee! They try to figure out how much money they saved in unpaid taxes for all those years but they give up because their calculator doesn’t go that high.
Jack and Jill file the correct amended returns, pay the tax, interest and penalties and are now resolved to file honest tax returns and FBAR’s forever!
Jack gets a call from @Petros who heard he might have gone through a voluntary disclosure and he wants to know if Jack and Jill are willing to get involved in the Isaac Brock Society and help publicize the inequities and absurdity of making a voluntary disclosure.
Jack and Jill are polite and don’t laugh out loud at Petros’ request but they respectfully decline to talk about their tax ordeal preferring to remain quiet about it.
Respectfully submitted,
30 Year IRS Vet
Steven Mopsick got one thing wrong in the above scenario. When Jack and Jill finally got their OVDI fine, they were flabbergasted. They were also thinking about opting out of the program because they learned later that one of their “friends” whom they had referred to their Swiss banker was a member of the New Jersey Mafia, and they became afraid that their lives would be in danger if they revealed his name to the IRS. They didn’t want to go into witness protection, since the United States didn’t offer that program to residents of Canada–and besides, it would really mess up their lives and their businesses.
Furthermore, entering the OVDI program, they had no idea that the fine base would include not just their undisclosed offshore accounts, but all of their accounts and real estate in Canada too: a Whistler Condo (2m), their primary residence in Montreal (4m), and their main office headquarters of their business in Montreal (5m); their investment account at TD Waterhouse (30m); their RRSPs (2m); their RESP for their daughter (500k). Their total fine base including the Swiss account (30m) is $73.5 million. The OVDI fine alone would be $20 million and that is before calculating back taxes, penalties and interest charges.
They also didn’t know that the OVDI penalty would be based on the highest balances in all their accounts over the entire period. But now, all of their investment accounts have suffered from the 2008-9 and 2011 stock market crashes; the actual account balances in their Swiss et al. accounts is now a modest 18 million. Their business has suffered too, from the Great Recession of 2007-2012, and they are running a huge line of credit (currently 5m) and that’s after they used their entire TD Waterhouse account to pay off their business debts. They realized they were going to have either to liquidate their RRSPs, sell a number of properties, or opt out and take their chances outside the OVDI–but how was that now possible since the IRS had enough information to lock them up and throw out the key?
Jack and Jill have finally realized the United States’ extraterritoriality is absolutely crazy; they therefore go to the United States Consulate in Montreal and relinquish their citizenship. They have also closed the branches of their business in the United States, admitting that it is impossible to comply with all of the onerous tax obligations of two countries. This puts 65 Americans out of work. Besides, they had to file the fraudulent US forms as business owners in a foreign company, they could not possibly keep up with all the filing obligations of the IRS and had decided to give a simplified version of their taxes to the IRS, just to make it easier to cross the border when they wanted to visit their daughter.
So they decide to opt out of the 2012 OVDI. Meanwhile, rather than pay the onerous OVDI fines, they quickly sell the houses in Malibu and in the Hamptons–realizing a $10 million capital loss because the real estate market is so depressed; they move their daughter out of the California University back to McGill University (which has very fine programs in both law and medicine). She was starting to take designer drugs on the weekends with the other students at the University of Southern CA who partied with her in the Malibu house; recently, they continued their festive activities on weekdays, and the daughter’s grades had suffered; they decided that they wanted her close to home where they could make sure she actually studied.
They decide to enter the Canada Voluntary Disclosure Program, which does not include FBAR fines. Thus, the advantage of the Canadian program was that it did not include a fine on the percentage of their accounts; it was only based on taxes owed, interest and other penalties. This saved them tens of millions of dollars. They then liquidate their accounts in Swizterland et al. and bring the money to the Canada, where the Ministry of Finance has indicated that FBAR fines would never be collected. Furthermore, their Canadian lawyer assures them that they cannot be extradited to the United States for taxes or FBAR.
Finally, Jack and Jill fire their tax attorney who frightened them into entering the OVDI program in the first place–and they contemplate whether it would be possible to sue him for malpractice. They hire a new attorney who guides them through the Voluntary Disclosure Program in Canada, and who reassures them that as long as they never return to the United States, they will never have to worry about the IRS again. This they are happy to do, since the United States tried to steal such a large portion of their remaining wealth. The capital losses on their houses in the Hamptons and Malibu help offset the realized capital gains that were in their undisclosed Swiss et al. accounts, and they walk away with paying less than 1 million in fines and back taxes (as most of the growth in their Swiss et al. accounts had not shown any realized capital gains).
At the end, when Jack’s friends ask why he relinquished his US citizenship, he responds: “Hey it just wasn’t worth it any more.” “Ce n’est plus la peine être Americain”.
@ij As a Hong Konger, every single fact about the Steven Cheung case is infuriating to me. A celebrated local boy cannot come home because the British sold out our sovereignty to the U.S. with the 1996 extradition treaty (which conflicts with mainland law over extradition of nations, exempts tax offences from the dual criminality provisions, and does not provide a territorial limitation on the location of the offences). Cheung was not even living in the U.S. at the time of the alleged tax offences (he returned to HK in 1982), and the business income was only considered part of his wife’s income because of community property laws (the IRS is using the same trap to catch lots of Korean housewives in Los Angeles whose husbands live and invest in Seoul).
@Petros
Yes, the IRS and DOJ wants to make you think every person who uses nominees or incorporates in a place other than where he lives is doing it for illegal secrecy. Except of course, one of Cheung’s holding companies was called … Steven N.S. Cheung Inc. Super-secret conspiracy right there.
Back in those days lots of HKers used BVI & Marshall Islands companies even to run HK businesses because they were worried about what would happen to corporate law & governance after 1997. But if they wanted super-secrecy, they should have used a US corporation. In Hong Kong it’s illegal for a company to conceal its register of shareholders; in Nevada and Wyoming it’s standard operating practise.
@Eric
I am somewhat curious as to the details of the Cheung case. We were having a discussion early during North American daylight time about filing or not filing if your an accidental American. It appears one of the mitigating circumstances was he was filing false returns. One of the discussions I was having was if Cheung’s wife was living in Vancouver would he be considered a resident of Canada and my tentative answer was yes. The wife seemed to be the big issue. As I pointed out earlier as to Canadian tax law Rule #1 you can’t leave your spouse in Canada and send her money from offshore while claiming to be non resident. 30 yr IRS vet commented to me that essentially I would not be able to find a US citizen living prosecuted outside the US who under equivilent Canadian law would be considered non resident for Canadian tax purposes.
Jack and Jill “rather than pay the onerous OVDI fines, they quickly sell the houses in Malibu and in the Hamptons–realizing a $10 million capital loss because the real estate market is so depressed;” Wouldn’t the IRS have placed leans on the properties by then?
While the Jack and Jill scenario is an interesting thought experiment and reveals some of the flaws in enforcement, if these were real people I would have absolutely no sympathy for them. They illegally held assets not only from the US but I imagine also from the Canadian tax authorities and acted with absolute precision to minimise their tax burden worldwide.
That being said though, the potential IRS fines are way out of line and it is unreasonable to include assets that had been reported correctly as well. I imagine that this sort of offense would likely include a prison sentence in the US, which I think is a real waste of space though since these people are tax dodgers but not a threat to society. I say give them a big fine and subject their future returns to heavy scrutiny, but there is no need to bloat up the US prison system even further.
If these people were real though you can bet that this story would be all over the US papers and would be many “homelanders'” first introduction to FATCA. They would view it is a great tool to root out tax cheats and be totally oblivious to the damage that it causes to the other 99% of people who live their lives overseas and just average, law-abiding taxpayers caught in a massive, convulted tax trap. Let us hope that there are no real life “Jack and Jills” whose stories get out to the press, because the damage done would be very hard to reverse.
@Jeff wrote: ‘Jack and Jill “rather than pay the onerous OVDI fines, they quickly sell the houses in Malibu and in the Hamptons–realizing a $10 million capital loss because the real estate market is so depressed;” Wouldn’t the IRS have placed leans on the properties by then?’
Good question. I wonder if the IRS is that well organized that they have already frozen the assets of people in the OVDI. That’s a question of Steven. He didn’t make that particular objection. I would imagine that when collection time comes, the person who refuses to pay will have assets frozen. But they are still in the assessment stage. Is there time to get the assets out? It make a great film in the genre of “Not without my daughter”; “Cry Freedom”; “the Great Escape”. We could call it, “Not without my assets”.
@ Don I do have sympathy for Jack and Jill. Why? Because all of us, whether rich or poor, can become victims of predatory government. Because I too would love to live the good life. Because I too am an employer and would have to lay people off if the IRS goes after me. Because I too have financial accounts in a “foreign” jurisdiction.
They failed to pay taxes. Let them pay the fines in the Canada voluntary disclosure program. That’s what the law requires. Not a confiscation of all their wealth and then some–which is the threat of FBAR.
@Everyone
The US imposes a witholding tax when foreigners sell real estate located in the US but are Jack and Jill foreigners is one question. I think we have to start thinking in terms of how if the US adopted Canadian law as its own would treat non residency I am not sure in the Cheung case or in Jack and Jill either would be non residents of the US as defined by Canadian law. On the otherhand just about all of the contributors here other than IJ and Roger of would be bona fide non residents of the US as defined by Canadian tax law. I think one of the arguments that needs to made is that going to a residency based system would not be as beneficial to the likes of Jack and Jill as some might think as the really rich would in all likelihood want to maintain residential “ties” to places like the Hampton and Malibu. It instead would be much more beneficial to those here who really truly have no ties to the US other than citizenship.
@Jeff, @Petros: good question about the IRS lien. Generally speaking it is illegal for the IRS to make an assessment in an examination setting against a taxpayer until he has exhausted his rights to challenge the IRS in the United States Tax Court. Assume a “normal” opt out if there is such a thing, the taxpayer has an opportunity to confront the agent raising the issue in the first place and either request a conference with the agent’s manager or if the taxpayer chooses not to deal with the agent or his manager, he can request a conference with IRS Appeals which is independent from the Examination function. Appeals has the ability to reverse the agent or compromise the amount of tax and penalties originally asserted by the agent.
If the taxpayer is not happy with Appeals he can request a Statutory Notice of Deficiency in which case he has 90 days or (150 days if he is living outside of the country like Jack and Jill) and file a petition in the Tax Court. While all of this is happening the IRS is prohibited from making an assessment against the taxpayer (that is, entering the liability on the IRS books against the taxpayer indicating a real debt owing to the government). Most importantly perhaps, it would be illegal for the IRS to file a lien against a taxpayer if there was no valid underlying assessment first upon which the federal tax lien is based.
At this point in time, Jack and Jill would have a chance to file a petition in the US Tax Court and actually go to trial over the issue of (1) the correct amount of tax the IRS was trying to collect, and (2) the amount of any penalties asserted.
Only after the decision of the Tax Court becomes filed can the IRS actually make the assessment.
If the taxpayer were to appeal the Tax Court decision to one of the United States Circuit Courts of Appeals, the IRS could make the assessment but usually they would refrain from any collection action until all the litigation is over, including the possibility that the taxpayer wants to bring the IRS before the Supreme Court.
There is one exception to the rules outlined above: if the IRS reasonably believes that the taxpayer who is the subject to the examination, is planning to hide his assets, leave the country, put them all in the name of his dog, or reduce all his holdings to gold, the IRS is permitted to make what is called a jeopardy assessment which means, if the taxpayer is attempting to defeat a tax assessment which the taxpayer knows is on its way, for example as @Jefferson suggests if Jack and Jill quickly try to sell their vacation homes, then the IRS could go ahead and make the assessment so they can have a valid lien to play around with, even though they still have the right to get the notice allowing them to go to Tax Court. It is called a jeopardy assessment because the IRS believes the ultimate collection of the tax is in jeopardy.
Respectfully submitted,
30 Year IRS Vet
@ Steven: thanks for that detailed response. 🙂 This means probably that Jack and Jill still have time to pull a fast one and get their asses and their assets out of the United States. Cheers.
@30 Year IRS Vet
A question for you: what if the couple had no assets in the US? How would the IRS go about, for example, putting a lien against property in Germany or the UK or Malaysia? Inquiring minds want to know. 🙂
@Victoria : the IRS has absolutely no legal authority or ability to file a lien outside of the territorial jurisdiction of the United States. The only way the IRS could successfully go after the assets of someone overseas who they thought owed them money would be through some kind of treaty arrangement. I have not done any treaty work but I understand it is cumbersome, slow, and somewhat ineffective.
What people are so upset about with FATCA is the idea of the aggressive 30% withholding on the movement of “US Source Income” and the fact that US Source Income includes in its definition, the earnings of US citizens, wherever they live.
This is the crux of the IBS complaint. That said, you seem to be correctly reading between the lines though. There are an awful lot of things to worry about in life but the IRS should not be one of them for people who are effectively disconnected from the US..
30 Year IRS Vet
@Welcome back Steven! You disappeard! The last time was Panama… and this time? I bet you were in Brasil because you disappeared during Carnaval? Sambando in Rio ehhh..? 🙂
I think I’m in a similar situation as Victoria, but I will submit my naturalization papers this week! It’s a shame that this FATCA had to come about. If not, I would be happy to be an American living here like so many other people from other countries live here. People from 1st world countries typically don’t naturalize here so quickly, but I will/have to, just to NOT have any doubt in my mind.
Good to see you commenting, senhor!
@ Steven
Great to have you back with us,Steven.
My late mother used to say to me “Tiger, don’t make mountains out of mole hills”. Having been “effectively disconnected” from the IRS for 48 years, I hope it is a case of my “making mountains out of mole hills”. But my financial advisor asking me to “prove” I am no longer an American really does grate me the wrong way. And I wish I did not have to admit to this, but anything to do with the IRS puts the “fear of God” into me. (Another quote from my mom.) So I guess I do thank you for calming my nerves somewhat when you said don’t throw a bunch of delinquent tax returns at the IRS unless you want to “Make their Day”.
@Everyone
In terms of treaty collection procedures in the of Canada the Minister of Finance has sent several letters to some of the regular contributors here stating that Canada has no obligation to and will not collect any US tax due from Canadian citizens under the terms of the US Canada Tax Treaty. A few points the Canada Revenue Agency has no good way of knowing whether someone is Canadian citizen or just a permanent resident taxpayer of Canada. Thus they could spend a lot of time and resources trying to collect on a non Canadian citizen only to find out the person in question WAS a Canadian citizen stopping the collection effort dead in its tracks. Notwithstanding the complaints many here have I doubt the IRS wants to waste the time of the Canada Revenue Agency on what could be a fruitless endevour. The other points is historically it has been the US Senate which has refused to ratify any tax treaty that would require the US to collect unpaid foreign tax on US citizens. Thus my guess would be all other US tax treaties have similar provisions to those of the US Canada treaty. However, residents of countries other than Canada would be wise to do research on the particular treaty their country of residence has with the US and get some type of Comfort Letter/Private Letter Ruling from their local finance ministry. Historically many European countries such as France have tried to put pressure on the US to collect their unpaid taxes on US citizens living in the US thus they might be more favorable to a treaty collection effort than Canada would be.
@Tiger
What appears to be happening is a more rigourous applicaton of the existing Qualified Intermediary Rules which date back to 2001 and were developed back in the 1990s. The problem is most people have substantial amounts of US securities in their investment accounst. Unfortionately when dealing with US source income we don’t have as strong of an argument as with foreign source income received by US Persons abroad. The original idea of citizenship based taxation was primarily tied to not giving US Citizens abroad the advantage of the generous tax preferences the US has historically(going back 90 years) given for non resident foreign nationals to invest in the US. While this is way before my time I have been told for example before 1967 US Citizens abroad with only foreign source income were not legally required to file a return.
@Everyone
I have a feeling people are being asked about the US “status” right now by their financial advisors right now because the filing deadline for US 1099’s is coming up in the next few weeks so my guess is Canadian Qualified Intermediary’s are taking a close look at who the feel they need to submit ones for. Having said that I don’t believe they will issue a 1099 to someone who filled out a W8-EN as almost everyone in Canada does. The whole 1099 filing issue is what got that British Lord Russell into his current predicament.
@geeez:
The renunciation consequence of FATCA is heart wrenching to me because for some, it probably is something that is not absolutely necessary. Everyone is different. For some people, they are approaching it with a huge amount of emotional baggage. But for others, it really should be approached as if it is a business decision. Make a list or do a cost benefit analysis, and see whether it makes sense as family business matter to renounce and establish your citizenship as just plain Canadian AND NOT AMERICAN or something else.
For some it may not matter.
@blaze re declaration of independence:
I read all the way up to the part where you were making a reference to what sounded to me like a statement of huge numbers of IRS troops on the ground and stopped there to remind myself to write to you about it. I have asked my staff to research on line what is available to the public on IRS staffing at posts of duty in Canada and report back to you. I could be wrong but I doubt they have very many people up there in Canada as a percentage of their staff. Maybe someone can take this on as a Freedom of Information Act request.
The first part was good though, where you reproduced the actual text of the Declaration and began to weave the IBS message into it. I thought it broke down though and I didn’t read it through to the end.
I also believe in “self evident truths” and that implies I have a sense of “things that ain’t gonna happen.”. One of them is, the IRS is never going to be a problem in Cecelia’s,Victoria’s, or Geez’s life.
That said, how many people believe the thought of Canadian banks making their depositors’ identities known to the IRS is their modern day Queenston Heights ? I really don’t know. It seems as though a lot of you have given it a lot more thought than I have.
Respectfully submitted,
30 Year IRS Vet.
SJ Mopsick – The IRS has already been a big problem in all our extraterritorial lives, and the looming uncertainties make the situation intolerable. Not even US residents have any idea of what onslaught is coming after 2012.
For us, start with the nasty set of mismatches for Canadian residents. Then go on to the annual burden of a second set of incomprehensible and usually unnecessary paperwork that costs many of us dozens of hours and hundreds – up into thousands – of dollars to have prepared.
My accountant is already warning that US preparation costs will jump this year. All cost, no benefit.
@Steven
I guess the frustrating thing from a Canadian perspective is that both countries cooperate on many areas of concern that the average person in either country doesn’t even realize. Unfortionately this particular area does not appear to be one of them at least not yet. I am perhaps differing from most of the contributors here in suspecting at the end of the day both countries will find a way to work something out however, it is hard for me to think of an issue in the recent past that has created as much grief as this one in the recent past among the people effected. I will also go as far as to say both Ottawa and Washington bare blame for not handling the issue better.
@Steven – Thank you very much for your reply. I’m an American married to a foreign national and like many our finances are all mixed together after 23 years of marriage (and two kids and two cats). Here’s the problem for so many of us – our spouses are not at all amused at this situation. They don’t like the FBAR requirements, they are worrying about what is going to happen to joint accounts under FATCA, and the fear for their assets. Under those circumstances a lot of us are being pushed (or strongly encouraged) to fix this by various means which include renunciation.
In my case all that I possess is in France. I don’t earn any money in the US (last time I worked over there was when I was in my early 20’s) and I have absolutely no assets in the homeland. I was talking to an accountant in the homeland last summer and at some point I realized that the advice he was giving me was based on the assumption that I had something in the US to lose. When I told him that wasn’t the case, he about fell out of his chair. Nothing? he said. Nothing, I replied. Oh. 🙂
@Steven
I think that many are indeed upset with the 30% withholding rule, but I believe that for myself and many others this is not really our primary concern with FATCA. My problem with FATCA has been its unintended consequences (or maybe they were intended all along…): one of my bank accounts has recently been closed due to having a US birthplace and the rest are under threat, whilst I have been denied signing authority over corporate and voluntary accounts due to FATCA since both companies could not legally release their financial information to a foreign government.
FATCA is ruining my ability to have normal financial affairs and affecting my professional life in my country of citizenship and residence.
@Petros
Agree to disagree I guess! I think that Jack and Jill should pay any relevant fines to Canada and not to the US of course, but their having covered up ownership of a house in the US is their own fault and they should suffer whatever the financial penalties for doing so are. In my own opinion you buy US real estate at your own risk.
Prison time is a waste of government resources under any scenario. Real life “Jack and Jills” would only hurt other “US persons” legally resident abroad and tarnish their image even further, so I sincerely hope that a real life version of this couple do not appear in the press!
@Don Who said they covered up their ownership of a house? A house is a pretty big thing to cover-up, isn’t it? If you agree that Canada is owed the tax and penalties on the offshore accounts, not the US, then we agree.
As you can see from the post above, they lost 10 million in capital gains on the sale of the houses. I.e., there is no tax owing on the sale of their houses (pretty typical scenario these days in the USA). They also wrap up their businesses in the US, which puts 65 people out of full time work (is that what the US wants? everyone to leave the US?–it sure does seems so); they were losing money on that too, so it was a good business decision. The IRS with their draconian OVDI program helped them to make the right decision.
The question was asked whether the IRS could freeze these properties to make sure that Jack and Jill pay their OVDI fines without opting out. From what Steven says, it looks like that wouldn’t happen.
@ Victoria I agree with your statements: the FBAR law forces the spouses to relinquish US citizenship, or at least to make that the best choice. For me the decision to relinquish US citizenship was a no brainer in the sense that my wife did not deserve (1) to make me rich; (2) and have the United States take it all. Since she earns much more than I do, I would be exposing her to the United States capricious rapacious and desperate. I refuse ever to do that. I will never step into that country again if I have to. I must protect my family.
@Petros
I think this was due to a misunderstanding on my part from this line:
“Jack and Jill also have a home in the Hamptons on Long Island, New York but he put the title to the house and another cozy “get away house” on Vancouver Island in the name of a Liechtenstein trust Jack set up for his children.”
I just saw the mention of “Liechtenstein trust” and found it to be suspicious! We are definitely in agreement, because I believe that only Canada is owed tax and penalties and that the capital gains issue is hogwash.
You make an excellent point about the effect of FATCA on medium sized industries. Large multinational firms are less likely to be able to “jump ship”, but it will simply start to make financial sense for everyone smaller to pack up and leave. The US certainly seems to want to do everything possible to undermine its own attractiveness as a financial and business hub.
I still don’t have any sympathy for “Jack and Jill” on a moral level though, since they would be serious tax frauds even if they were just Canadian citizens living in Canada. Any US penalties though, whether they be a few hundred dollars for “grandma” or hundreds of millions for “Jack and Jill 2.0”, I view as being the moves of a hostile and unjust government with no right to steal any of these peoples’ money, which is exactly how I view FBAR penalties and the lot: legalised theft. Pure and simple.
@ Don,
My bad. I forgot about that part of the original scenario. Vancouver Island is in Canada. As far as I know, however, they committed no Canadian crime by owning houses with the foreign trust. The foreign trust itself, however, must be disclosed to the Canadian government, if total foreign assets exceed $100,000. That is one reason that they need the Canadia voluntary disclosure program.
They tried to hide assets and income, but they are not the worst people, and they decided that they want to stay out of prison, but they don’t think that they should have to pay the exorbitant FBAR/OVDI fines on top of all the back taxes, penalties and interest associated with late payment of taxes. They find the Canadian voluntary disclosure more generous and decide to leave the United States definitively.
Part of what my revised scenario was trying to show is that for a US-resident whale the deal is good because they have a few offshore accounts. For the Canadian resident OVDI is a rip off because the IRS now see everything they have in Canada, including their primary residence, their RRSP (and any TFSA, RESP, RDSP), as part of the fine base. That is ridiculous and they are probably much better off under the mercy of Canada than under the “amnesty” of the IRS.