Some of you are familiar with attorney Hale Sheppard who has written extensively on FBAR issues. Renounceuscitizenship has provided links to his past writing at Looking for Mr. FBAR – In Search of FBAR fullfilment and Consciousness, which is an excellent post that provides history and back ground for the FBAR. In his post, he refers to Hale Sheppard as the FBAR Scholar for his 2006 work EVOLUTION OF THE FBAR: WHERE WE WERE, WHERE WE ARE, AND WHY IT MATTERS If you are still somewhat hazy on this history, and especially if you are going through the OVDI, this is required reading.
I bring this up as an introduction to Hale, as I recently came across some of his writing from 2008 about the Canadian RRSP.
Not being a Canadian, the article didn’t resonate with me, in the past, as something I would be interested in. Up until late 2009, I personally had never heard about the RRSP. But since having the pleasure of experiencing OVDP “slime line” Minnow processing plant, and hearing from Canadians here and on Jack’s blog about their struggles with how the IRS is looking at their retirement plans, I was drawn to this article.
Hale follows the evolving tax treatment of Canadian RRSPs and RRIFs, identifies the relevant U.S. tax requirements and the penalties for non-compliance, illustrates the problem by describing a typical scenario, and explores two major solutions, focusing on the pros and cons of each. The article was published in the International Tax Journal. The title of this work is, When bygones aren’t bygones, exploring tax solutions for US persons with undeclared Canadian retirement plans and accounts.
Is that the same Hale that wrote this fine paper a while back?
The way I read it he’s doesn’t have that much understanding for us expats if he wants to get rid of the FEIE!!!!!!!
Here is my analysis…
If a taxpayer has purely RRSP issue with IRS such as missing f8891 and TDF 90-22.1 form, both private ruling letter (PRL) and amend back to three years filing should do the job. Historically, there has been no single case reported that penalty was imposed.
The 9100 relief is often granted based on assumption a taxpayer’s good faith to correct this election problem, along with no Government loss occurred if such a relief being granted.
The problem of having this issue to be resolved inside OVDI is that a taxpayer may have other non-RRSP noncompliance, and that mix up problem will certainly do no favor to the taxpayer.
IRS would argue “how can we believe you in good faith while you have some real tax issue (non-RRSP) with us ?”
It is true — this is a weak link on the taxpayer who is on his knees for forgiveness on RRSP.
A taxpayer (like myself) can certainly argue “Had I known election on f8891 and made such an election to deferral tax while still not to report non-RRSP part income, I would have been willfully evade tax” — the belief on non-RRSP income has been taxed by CRA on non-resident withhold.
If Tim Geithner who got finest law education and who had been in financial business for so many years could make honest mistake for not reporting his global income (from 2001 to 2004) resulting $47,000 tax loss. He paid zero penalty
Then why some idiot like IJ, who made some kind mistake resulting $3000 tax loss to IRS (it would be far much less if IJ were smart enough to figure out how to use foreign tax credit) should be punished with $30,000 penalty ?
Oh, there is one more thing,
Tim Geithner was caught via IRS audit while IJ discovered his problem himself and voluntary came forward to correct the mistake.
I still believe Mr. Geithner’s innocence as IJ could have been caught if he had not read an article about OVDI/FBAR in early 2011.
IJ, Geithner’s not innocent. He is evidence rather that the rule of law does not prevail in the United States: One set of rule for the ruled, another one for the rulers. That is the opposite of the rule of law, and that is the way that the Obama administration does things: according to its own rules.
Petros,
As someone in the same situation, I would give him the benefit of the doubt.
Correction, Geithner’s total tax due was $43,000 not $47,000
Here is my reference,,,
http://blogs.telegraph.co.uk/news/alexspillius/8174427/Tim_Geithners_tax_evasion_/
Well, I’m not going to give him the benefit of the doubt at all. HE is the reason so many of us at the Isaac Brock Society are suffering. Under the watch of Obama, Geithner, and Shulman, the OVDI/OVDP was done, and unconstitutional money grab, not of taxes owed but of the principle of individuals, making no distinction between whales and minnows. Sorry. You can’t make me look on these idiots with a kindly light. They are, as Steven has said, the brightest lights, the smartest guys in the room. They know exactly what they are doing.
As a Canadian Patriot, I should add, that RRSP should always be OFF LIMITS to the United States. OFF LIMITS!!!
Petros,
I will take this RRSP fight all the way to the supreme court !!!
What I don’t understand is why the IRS won’t give you automatic tax treaty relief, without extra obscure forms.
Seriously, why should one have to file Form 8891 every year to claim RIGHTS to treaty relief, or lose out? There are almost no circumstances in which you’d want to forgo it. Why isn’t the overwhelmingly most common case the default? And since it’s not, why is there no easy fix to undo past missed filing?
Oh, and don’t even start on retirement savings held in countries other than Canada. Form 8891 is special to Canadian RRSPs only. Anyone else has FAR worse paperwork demons to confront. Is this really all put together by the best and brightest? Because it sure doesn’t look it.
from the second article, in the link from Uncle Tell
“the repeal of the FEIE is nevertheless improbable in the foreseeable future as a result of various political realities, such as …………. a dwindling global presence of U.S. citizens due to fatal diseases and terrorism”
Fatal disease (whatever that is supposed to mean) and terrorism? How about the soon to be “dwindling global presence of U.S. Citizens” due to renunciation because of the idiotic tax laws?
@Watcher
“What I don’t understand is why the IRS won’t give you automatic tax treaty relief, without extra obscure forms.”
According to Phil Hodgen, when f8891 was initially designed with default election, then some smartest/finest educated folks in IRS decided to do opposite the common sense. This annual filing does also add a lot paper work for IRS too. If I don’t believe evil intent theory (let 80% Canadians falling into the trap), then I really don’t understand this “pulling off pants for a loud fart”
@UncleTell
Yes
@JustMe
Thanks for posting this. It is another fine article written by a fine “scholar”. For those who are not inclined to read the complete article, the conclusion reads as follows:
“6. Conclusion
The U.S. international tax rules are complex in general, but they can prove particularly challenging to Canadians who become U.S. residents or citizens. Before moving south, many Canadians engage in some prudent retirement planning by establishing RRSPs and RRIFs, making periodic contributions,
and watching their nest egg grow. Upon arriving
in the United States, these newcomers (mistakenly)
believe that their Canadian accounts enjoy the
favorable tax treatment offered to domestic IRAs,
Code Sec. 401(k) plans, and similar retirement devices. The tax advisors that these newcomers retain often share this erroneous assumption. As a result, the taxpayers fail to make the tax-deferral election contemplated by the Treaty, pay the annual U.S. tax on the passive income accumulating in the Canadian plans, and file all of the necessary information returns each year. Such failures can give rise to significant back taxes, penalties and interest.
As this article demonstrates, all is not lost for those
who find themselves in a similar situation. The important thing is not to compound the problem by
taking shortcuts during the clean-up process. Some
taxpayers bury their heads in the sand when con-
fronted with an unpleasant tax situation. Others try
to hastily resolve the problem by filing the fewest
number of forms and returns possible, rectifying their
behavior on a prospective basis, and simply hoping
that the IRS never selects them for audit. Neither
denial nor corner-cutting is advisable for Canadians
with undisclosed retirement plans because potential
liabilities can be mammoth and assessment periods
for many prior years may still be open. The better
solution is to file an extension request with the assistance of a tax professional who understands the U.S. tax requirements associated with Canadian RRSPs and RRIFs, the elaborate procedures for seeking a PLR, and the intricacies of Reg. §301.9100-3.
Seeking administrative relief at this juncture seems
particularly wise given the recent focus on retirement
plans by Canadian and American tax authorities in
connection with their joint investigation of certain
abusive cross-border tax schemes.”
________________________________________
IMHO, the requirement to file form 8891 is yet another “trap” to catch unsuspecting people who are just trying to save for retirement, using one of the few vehicles available in the high tax jurisdiction that we call Canada. In other words, the fact that it is a real RRSP is irrelevant. What matters is that you file the form. But, that’s what the U.S. is – a nation of forms. If that isn’t bad enough, Mr. Hale makes it clear that there are lots and lots of people who don’t know about these forms: 3520, 8891, FBAR, etc. Why in God’s name would anybody either know about these forms or even suspect to ask the question? But, that is precisely why these forms are of value to the U.S. government – people can be hit with penalties. So, not only is the U.S. a nation of forms, but a nation of penalties. The only kind of person who would even consider moving to the U.S. is somebody who didn’t know about all of this. But, as we know, few people know about these things.
With respect to the content of this article:
The context of the article is when someone with an RRSP moves from Canada to the U.S. But, all of the same bad things can happen if you live in Canada and don’t make the appropriate 8891 election. This (I think) is the reason why the IRS will not give a clear statement on how RRSPs are treated under OVDI.
Mr. Hale explains how make your mistakes right by hiring a high priced lawyer to clean up your sins. Either way you lose and lose big.
The solution: Stay away from the U.S. Get rid of your U.S. citizenship. Be grateful that you don’t live in the U.S. And leave yourself some room to feel sorry for the people who are trapped in “Form Nation”.
@Petros
“…….The solution: Stay away from the U.S. Get rid of your U.S. citizenship. Be grateful that you don’t live in the U.S. And leave yourself some room to feel sorry for the people who are trapped in “Form Nation”. ”
Amen! 🙂
@Renounce…
Speaking of “Form Nation” … Wonder what and how small business operating overseas are going to deal with the 1099-Ks which are being produced in the Millions now (estimate of 53 million). And, for Obama bashers amongst us, this was signed by Bush, so there is equal opportunity stupidity, and all the more reason to stay bi-partisan in our efforts against “forms gone wild”..
http://www.businessweek.com/articles/2012-01-24/hiding-income-look-out-here-comes-the-1099-k
@JustMe
Thanks for pointing this out. It doesn’t surprise me. The primary obligation of U.S. citizenship is to fill out forms. It is a sad state of affairs when you feel like you have been productive when you fill out some kind of stupid form. But, that’s what it means to be an American. You fill out forms.
Where are all these tax cheats anyway? I don’t know any myself.
@renounce….I guess like alien body snatchers, they live amongst us! 🙂
Just Me wrote: ‘And, for Obama bashers amongst us, this was signed by Bush, so there is equal opportunity stupidity, and all the more reason to stay bi-partisan in our efforts against “forms gone wild”.’
Well, if you want to call the people who say that this suffering of Canadians and expats across the planet is Bush’s fault, so be it. But no one believed that Bush was bringing Hope and Change. I am not so much bashing Obama, as I want everyone to remember when our problems began and under whose watch: http://ijdad.wordpress.com/2012/02/19/reasonable-cause-of-failure-to-report/
Note the spike in TD 90-22 form searches began in 2009. Who cracked down on an FBAR law that was never enforced for 30 something years? Was it Bush? Hardly. This nightmare began when the democrats took over the White House in 2009.
Are the Republicans to blame? Yes, definitely yes. They are to blame. Bush signed HEROES, the reason I decided to relinquish my citizenship: But it was Obama, via Overseas Voluntary Disclosure, that gave me thousands of expat allies, including yourself, at the Isaac Brock Society. Let us not ever forget that. And as for the coming election, the only presidential candidate that I see under whom some of us may get some relief is Ron Paul, and the reason is that he is the only one who has called for dismantling the IRS.
“1913 wasn’t a very good year. 1913 gave us the Federal Reserve, the income tax and the IRS.”
– Ron Paul
Here is an article
http://www.taxlitigator.com/articles/FBar.htm
It seems there was a OVCI in 2003 which IRS did not impose any penalty on missing FBAR. As it says
“The IRS has engaged in a large-scale initiative to seek out taxpayers with undisclosed accounts overseas. On January 14, 2003, the IRS announced an initiative, designated the Offshore Voluntary Compliance Initiative (“OVCI”), to encourage the voluntary disclosure of unreported income by persons having offshore payment cards or other financial arrangements improperly to avoid paying taxes. OVCI grew out of the three-year-old “John Doe” summons investigation beginning in 2000, whereby the IRS has issued a series of summonses to a variety of financial and commercial businesses to obtain information on U.S. residents who held credit, debit or other payment cards issued by offshore banks.(38) Eligible taxpayers who came forward were told that they would not face criminal prosecution, the civil fraud penalty and certain information return penalties, but these taxpayers would still have to pay back taxes, interest and certain penalties”
Well, Petros, with all due respect, you are putting words in my mouth. I did not say or imply that all “this suffering of Canadians and expats across the planet is Bush’s fault.”
Isn’t that what you call a ‘straw dog’? 🙂
I am saying that the tax complexity and stupidity is bipartisan. Both parties have created “Form Nation”.
I will readily concede that the FBAR enforcement started under Obama. However, the jihad was started by an IRS Commissioner who was appointed by Bush! Go figure! And it doesn’t appear that he was just a passive “get along, go along” bureaucrat that was doing all of this against his will or on the commands of the Administration. He wasn’t fighting this program. He seems to have been very active in creating it, and had lawyers over at the Senate working with Carl Levin to create FATCA.
Reps and Dems sure seem to be able to hold hands when it comes to making life more complex and miserable for tax payers.
So….. we can have these types of political blame game arguments forever, but there is blame enough to go around. You were probably very astute in making your move when “Heroes” was passed. I didn’t even know that it happened, so you were smarter than me.
Like I say, it is a bi-partisan systemic problem that has created 72,536 pages of Tax Code, and as far as politicians go, you are probably right, that only one on the horizon, Ron Paul, would “attempt” to give us some real change in regard to the IRS. But as we know, he tops out at <20% of the GOP, primarily because he has a rationale foreign policy that runs up against GOP NeoCon hegemony beliefs. Also, it is pretty apparent that one person alone in the White House really can't change much when he is up against a massive "special interest, lobbyist, Congressional, Practitioner and IRS complex" who have a vested interested in keeping things very complex and beyond stupid.
I wished it were more black and white for blame. I wished it was as easy as changing the guy in the White House to make a difference. I might actually support a party instead of being an independent, but trust me, if and when a GOP Candidate takes over the White House, nothing will change. There is nothing about the last time they were in power that gives me any comfort that they are anything more than hollow "small government" rhetoric. So, as Romney would say, "Want to bet $10,000?" I joke, but after another 8 years of GOP leadership, I think it is safe to stay the Tax Code will be larger, not smaller.
So, a pox on both their houses! I have bi-partisan disgust! 🙂
and Petros, I am glad you are here and creating this forum. It is a great service and outlet. I enjoy having a discussion with you. Please don't take this personally. It is just my opinion, and I could be wrong!
@Just me. No I don’t take it personally. You make great points. I am critical also of Bush. He signed HEROES in 2008. And also the increase in FBAR penalty regime by Congress, that was 2004, while Republicans ran Congress (Reed Amendment–passed in 1996 under Newt’s watch–signed by Clinton, so bi-partisan like HEROES). So yes, I too have bi-partisan disgust. But then, I’ve never really been much of a party man, though republicanism has run in my family for at least four generations (since Civil War, of which my great-grandfather [who was definitely a Republican], and great-great grandfather [likely also a Republican, though I don’t have it on the record] were vets–on the side of the victors, the North). I am too new on the Canadian scene to have even joined a political party (since February 28, 2011), though I did vote in both Federal and Provincial elections for the first time.
Oh, and the straw dog, I concede (actually, I call it a “straw man” argument). I apologize for putting words in your mouth. I just wanted to say that I may have bashed Obama in an earlier comment for OVDI because it happened on his watch, but I am not an “Obama-basher” (at least not here at Isaac Brock, where our common goals make us want to avoid partisan warfare). Shulman was a Bush appointee. So it is Bush’s fault, in part. Shulman’s boss is Geithner. Geithner’s boss is Obama. Obama has no boss.
FBAR under Bush was mainly tracking terrorist finance.
But under Obama, it has been taking money from all minnows, immigrants and expats — and that is not only limited to financial assets, but land, art work, cash, coin collections, whatever has value on it.
@Petros
Sorry, I can not be politically neutral. Even though at my income level and what I am doing for living, I should support Obama. But I can not forgive him for letting his Taxman going wild!
Under Bush, FBAR Compliance Initiative (2003) did not have any penalty
Bush was as he said “a compassionate republican”
Under Obama, the FBAR Compliance Program penalty increases in the much same phase as his spending! Obama is a true liberal democrat.
Ok… guys… We have had our rant. and Petros you are right… “Straw dog” was a movie, and it is a Straw man! Duh,… I should edit out, so I don’t show my stupidity, but then again that wouldn’t be fair… LOL As heaven knows I do some stupid things at times, like thinking that logic and reason would prevail inside the OVDP…
And, ij, I understand why you feel that way. Obama has disappointed me, as did Bush, as did Clinton, as did Bush, as did Reagan, and continuing all the way back to my early political days which were Republican. In the current administration of the OVDI and the FBAR penalties, there are many Devils that have come to bear for this moment in time. Just like the financial Crisis. Although it happened under Bush’s watch,he was certainly not responsible for all the events that converged starting back in the 1980s when the first Mortgage Backed Securities were created. Many partisan Dems want to blame Bush, and I am not one to bash him solely either.
Cheers