I attended a U.S. tax seminar yesterday and where the following link was given out on what does not “constitute” reasonable cause for not filing your tax returns. If you use any of these reasons you can be assessed a 5000.00 penalty.
http://www.irs.gov/irb/2007-14_IRB/ar20.html
I can say that after coming out of that meeting yesterday I can only conclude that, unless one took a vow of poverty, it will be well nigh impossible to get out of this mess without incurring a lot of pain. According to the presenter the IRS is coming out sometime soon with guidelines on how dual citizens can become compliant.
@recalcitrant: It was a good idea to republish IRS Notice 2007-30, Frivolous Positions, because this Notice collects in one place, the Top 40 Dumbest Positions and Arguments US Federal courts have ever seen in a tax case. I hope everyone who might be considering taking one of the positions outlined in the Top 40 “Make My Day” Arguments, actually reads this Notice, if not just for the laughs, but also to be reminded, not only what the IRS thinks about crack pot theories, but more importantly what the US Tax Court and the many US District Courts have had to put up with over the years when dealing with people who are determined to put a big target on their backs inviting the IRS to use them as a punching bag for the five or six years it would take one of these cases to go through the audit-appeal-Tax Court–appeal-yet-again cycle.
Some of my long-time favorites are, a taxpayer may “untax” himself at any time or revoke the consent to be taxed and not be subject to the internal revenue laws, or, a taxpayer may lawfully avoid income taxes by sending money offshore including depositing income into a foreign account, or my all time favorite: federal courts may not enforce the internal revenue laws because their jurisdiction is limited to maritime cases only.
I am certain that in posting this Notice, @recalcitrant IS NOT SAYING, “Bummer!! The IRS has taken away all of the good arguments to make in standing up for fairness, justice, and good tax administration!” Please tell me I am reading your post correctly.
Respectfully submitted,
30 Year IRS Vet
Well, it is still a reasonable cause for failure of TDF 90-22.1 which is so hidden in tax return.
http://www.google.com/trends/?q=TD+f+90-22.1&ctab=0&geo=all&date=all&sort=0
VS
http://www.google.com/trends/?q=IRS+form+1040&ctab=0&geo=all&date=all
@stevenjmospick- Thanks Steven. I do hope that it helps anyone who is looking at this issue. My comment of gloom was with regards to the fact that there are so many “gotchas” in this whole affair. Becoming compliant seems like a privilige reserved for only the wealthy. I am just not convinced that the IRS is committed to fairness, justice and good tax administration.
If one has never been a criminal how can you feel any other way about being in a situation where your criminality is assumed. With regards to this I do believe that the IRS is guilty of violating our Constitutional rights. Even the Tax Payer advocate makes the same point in her report. What and how much evidence must I supply to show that I have not committed or intended to commit a crime? And the whole problem stems from the IRS position that defined an offshore bank acccount with reference to U.S. citizenship and not in terms of where does one reside. I am insulted to know that I have to prove to the IRS that I have a good reason for having an “offshore” bank account. The thing is though that even if I make this argument successfully FATCA will nullify.
It is ironic that I technically don’t have to ask for permission to leave the States but once I am gone I have to ask for permission to have a bank account. Now how contradictory is that? Why is it that U.S. law is allowed to trump the law of every other nation on this planet?
There are many of these same 40 arguments that would get the Founding Fathers put in jail if they were alive today. Now isn’t that irony?
The number one frivolous argument for not paying taxes is the Declaration of Independence.
The United Kingdom needs to shut down the “IRS” and send out its “assessments” instead.
An army may also be necessary.
Irwin Schiff and Wesley Snipes sit in jail. Irwin Schiff (father of notable investor Peter Schiff) made many unsuccessful constitutional arguments. I haven’t really looked into his arguments; obviously the courts disagree.
The disadvantage that these two men have is that they live in the United States, and I imagine that most of their wealth is also there. I have a great advantage of living in Canada as a Canadian citizen, and nearly all my equity is here. My reasonable cause is that I am a Canadian and if you want to tax me, you’re gonna have to go through the CRA (my problems with the Revenue Canada are another issue–I’m just trying to keep my nose clean and it is none of IRS’s business).
I have put up a list of constitutional arguments against FBAR (see the right side bar), including one that has been successfully argued in court (Fifth Amendment). I am not a nut-job whack case, but for safe harbor, I plan to stay on the North side of the border.
I believe there already was a guidance statement specifically directed towards dual citizens that was put out back in December. Are they putting out another one?
There are actually some pretty funny arguments people pull in Canada too as to unconstitutionality of the Federal Income Tax. There seems to be a fatal attraction of Canadian anti tax “protestors” towards a particular case decided by the Supreme Court of Canada called Lord Nelson. The link I posted below gives a pretty good overview of all of the failed arguments made against the constitutionality of the Canadian Income Tax.
http://thelongrunblog.wordpress.com/2010/06/30/is-canadian-income-tax-unconstitutional-hint-no/
I agree totally FBAR is a real mess legally on many levels. I just seems as if no one has really challenged it at any level.
@tim- the presenter yesterday said that there was suppose to be more guidance coming forth. According to this person it was expected that the new guidance would have been put out last week but it seems that the powers that be are still working on it.
This is according to a conversation that he had with an IRS person that he is friends with.
@Tim
On January 9, 2012 when the IRS announced OVDI 3 – they also announced that they would be publishing guidance for dual citizens. Although this was not entirely clear, you can find a discussion of it here:
http://renounceuscitizenship.wordpress.com/2012/01/10/irs-reopens-the-offshore-voluntary-disclosure-program-and-promises-new-procedures-for-u-s-citizens-living-outside-the-united-states/
@recalcitrantexpat
Who was presenting the seminar you were at and where was it?
@renounceuscitizenship- it was Roy Berg of Moodys Tax Advisors. He is out of Calgary. Unfortunately he is too rich for my blood.
@recalcitrantexpat
I am just a little surpised they would put a specific guidance directed at dual nationals simply because they are in some sense creating a special status for a group of people and will simply create a demand for even more changes in the tax system such as moving away from citizenship based taxation. I would have guessed they would have just said the law is the law and leave it at that. So they are apparently getting policial pressure especially as the rules appear to be being reviewed by “higher” level officials.
@recalcitrantexpat
That’s the guy who comments from time to time here. What were the cost estimates?
@renounceuscitizenship- I didn’t even ask for the cost. Calgary411 is using him so I kind of knew already how much he is. I went to see if he had anything new to say and to ask some questions that I had.
@tim- Mr. Berg did not say anything about what the nature of those changes were going to be, other than to facilitiate easier compliance. I do believe that dual citizens are a unique group since they are citizens who are facing conflicting demands. And the only reason for this conflict is a U.S. that believes that its law should trump the law of any other country and that isn’t right. The U.S. has the effect of nullifying the law of a another country even while you are living in that other country. Now how much sense does that make?
I want to live in Canada as a Canadian and not as an American. I should not have to plan my finances according the IRS rules. Any investment vehicle that I use in Canada and any tax deduction that I take as a Canadian should be my right and should not be abriged by the laws of a foreign power.
In the following news article dated 19th Jan 2011 stated: http://www.theglobeandmail.com/report-on-business/watchdog-slams-irs-for-alienating-expats/article2308778/
The new procedures, along with other information for offshore filers, will be posted “within the next month” on the IRS website, spokesman Dean Patterson said
This is official statement from IRS spokesman, I am waiting for more assurance that FBAR penalties are not imposed on expat bank accounts in their countries.
@renounceuscitizenship- I have to take back what I said above about dual citizens being deserving of special rules. All lawful residents of Canada must enjoy the same degree of protection under Canadian law. The U.S. needs know that it has no right to enforce its laws upon its citizens once they gain lawful residence in another country.
If the U.S. believe that someone is using that other country as a means to escape from U.S. criminal law then the U.S. needs to make that case in a court of law.
@recalcitrantexpat – Your argument and reasoning is perfect.
@stevenjmospick- Why does any one commit a crime and face huge criminal and civil punishments, if they owe little or no taxes.
Their mistake is far smaller than what Mr. Tim Geithner committed. He accepted funds for paying social security, but failed to pay to IRS. The social security taxes are 100 times better known than FBAR.
He paid only for 3 years only after he was caught. He didn’t pay for previous years, until he realized it would become an issue for confirming him as secretary of treasury.
Whole IRS and congress had no problem buying his argument that: “careless”, “avoidable”, and “unintentional” errors.
Is it unintentional he didn’t pay taxes for years 2001 and 2002? Then why did he wait until 2009 only when it became an issue? Why IRS applying double standard?
Most people in this forum realized that they have committed unintentional error. They wanted to rectify it, without admitting FBAR crime. Most of us don’t owe any taxes. If we owe some taxes, we are ready to pay reasonable penalty. Most of them are not making Frivolous arguments, just asking IRS to treat them differently than tax-payers who are living in the USA and deliberately hide millions in tax heavens to intentionally evade taxes.
Although many of believe citizen based tax (or FBAR/FATCA) is not fair, we want to be law abiding and compliant. We are not submitting protest 1040s. But we believe, we have a right to express views and protest in public forums like this.
@India, exactly. I was shocked when I learned I owed a five figure sum to the IRS on what were tax-efficient investments where I live. I resent it but it’s the law so I decided to grit my teeth and pay up. I realise with hindsight that I had completely overlooked my US tax obligations and had only based my financial planning on UK tax laws because I had naively believed that I was protected by the tax treaties.
But I should have known so it’s just one of those things.
@Mona: You are right. Expats need to pay lot more taxes than people living in mainland. For example, my children doing under graduation in top universities in India, but I was told I can’t deduct their tuition fee.
Also I am facing wired problems due to currency conversions. For example, one deposits 1 million Indian rupees (equivalent to US$21,787) in an Indian bank on 1-1-2011 at an interest rate of 9%, the bank balance at the end of the year 12-31-2011 would be Indian rupees 1.09 million (equivalent to US$20,600). Do I need to report profit of Indian rupees of 90,000 or loss of US$1,187? Also one must income tax of 33% on the interest 90,000 to Indian income tax department, which increases the loss in US dollars further.
Also in 2006 and 2007, the Indian rupee appreciated nearly 20% against US dollar magnifying profit in terms of US dollars, so taxes paid in India may not offset US taxes. That kind of things may result in unexpected tax due. These are just some of the examples of unfair taxation on duel citizens, who were living in their country of birth. This might be a big issue for people living in Canada and Europe.
@india_expat- Yesterday I wrote my former pastor who now is at a church in America, and I told him that he may want to rethink just how long he wants to stay there. I told him about FATCA and about what happens when a Green Card holder lives in America past a certain length of time and ends up becoming a U.S. person for tax purposes.
I explained how if this happens that when he moves back to his home country of Canada that he and his children will be strangers in their own land because the banks will have to treat all of them as U.S. persons. I went into a little about what the consequences of being a U.S. person would mean for them when it comes to their financial life.
When he wrote back to me he thanked me and said that he never knew. No one at U.S.. immigration had ever said one word to him about the fact that he could incur long term tax liability or anything about the banking implications. Now I would think that if the States wanted to play fair with people that they would place this information front and center in the immigration process, but they don’t. They haven’t even told him now. He had to find out from a friend.
How America can think that it is fair of them to alienate people from their own homeland is beyond me. America thinks that it has the power and the right to rule the world.
@ recalcitrantexpat – it was nice to meet you the other day. i hope you found the presentation informative.
@ renouncecitizenship – the cost to get filings caught up vary widely and correlate directly with the amount of work required (number of forms, complexity of forms, and legal arguments required etc). We ask our clients to complete an organizer before we undertake an engagement. once the organizer is completed we have a better idea of the work required, and can estimate fees.
@India, as far as I know, you would only be taxed on whatever your interest was converted into dollars rather than on the value of the saving’s account itself. However, you’re correct that when selling stock the capital gain would be based on how your local currency performed in relation to the dollar.
This could be especially problematic if someone had their capital invested in local mutual funds which would then be subject to the horrendous PFIC rules which would thus subject you to tax on phantom gains even if you hadn’t sold anything in the fund…this is exactly how I got screwed but they would say my ignorance was ni excuse….and with FATCA coming, they would have eventually rooted me out if I hadn’t become compliant.
I do resent though how it was never made clear to me that I would be facing this obscure US taxation on what were tax-free investments in the UK. After all, I was only 23 when I moved to England and as I’ve now lived over half my life here, I simply hadn’t realised.
It’s been extremely frightening even with a quiet disclosure; had I gone into the OVDI, I would have wound up losing around 70% of all my assets which to my mind is crazy when my mistakes were completely innocent.
I will have to wait out the dreaded statute of limitation on my amended returns and it will be another 4 and a half years before I am in the clear for my taxes and FBARS…Unfortunately, I am just the type of expat who they will want to bleed dry.
@mona- the penalty that is attached to holding none U.S. mutual funds is a prime example of how unfair the IRS rules and regulations are to expats. There is no way that we can hold U.S. based mutual funds since we do not live there and yet we are not allowed to hold mutual funds in our country of residence.
The ironic thing is that U.S. based individuals can invest in the same countries in which we reside through U.S. based mutual funds provider.
Now how is this equitable treatment?
@mona, recalcitrant, others: IRS is not reasonable.
Of course it’s unfair but I was frozen in the headlights from fatca. I will have to list every non-US mutual fund on my 8621s and the 8938 along with virtually every financial account including my paypal, travel card and pre-paid cell phone accounts, since these also hold a positive balance. I feel raped by America. My tax return for 2011 is going to be around 250 pages long due to all the obscure complex forms and and my total accounting bill will probably be between $5,000 and. $6,000.
But hopefully next year’s will be a third of that both in cost and length. But even a compliant return will probably run to 70 or 80 pages.
@Mona et al (expats)
I can understand those PFIC rules/offshore reporting requirement on US residents. I can never comprehend these also apply to you folks. The root of the problem is the taxation on citizenship.
Just a couple days ago, I told a Chinese who is also sort of US expat (hold US green card) but always lives in China. He got his green card on investment visa. He does not want to live in US but wants to visit US often (so not to bother to get visa). He does not know he needs to fill form 5471 for his huge ownership of a cooperation. He only files tax return on his income only — once he was told that he had missed a lot forms — then he decided not to keep his green card. Basically he will not land his feet to US again for a long time.
There are a lot immigration law firm in China to help rich Chinese to get a US green card but very few tax law firm to educate those — I am sure once they know they have to file all these forms and pay tax to a country where they do not want to live but hold a resident permit — they will have 2nd thought