This is an excerpt from a post at RenounceUScitizenship. Most of the rest of the post already appears here. That said, for those who what more …
I wrote an earlier post that discussed how to select the right tax preparer to do your U.S. tax returns on a going forward basis. Many people fear that the IRS cannot be trusted. But, can we trust the cross border professionals? The purpose of this post is to share some thoughts on how to get the “professional help” required to clean up past compliance issues. This should be considered in terms of (at least) the following four factors:
How to decide who to retain for professional help
First – You have a compliance problem. This is different from a tax problem. The tax problem may have caused the compliance problem, but now your problem is to bring yourself into compliance. Hence, you need a professional who is experienced with U.S. tax compliance issues. You do NOT go to your local tax preparation firm. You do go to a lawyer experienced in compliance issues.
Second – Your specific facts must be understood. The most important principle is to find somebody who will really take the time to understand your situation. There are infinite permutations of facts – some helpful and some not so helpful. Your route to compliance must be based on an analysis and understanding of your specific situation. Any adviser who recommends a specific course of action (for example OVDI or compliance going forward) without a lengthy discussion of your history should NOT be retained. Your decision must be the result of an analysis of you and your tolerance of risk. Your lawyer will need to write “reasonable cause” letters. The effectiveness of the letter is a function of an understanding of your facts.
Third – You need to be able to speak freely, honestly and openly. Because the decision is the result of an analysis of your specific factual situation, you should consult with a lawyer. You need to be able to share all relevant facts with the professional. Consultations with lawyers are subject to “lawyer client privilege”. Consultations with accountants are not. Lawyers cost more, but that’s life.
Fourth – the lawyer who advises you on what to do, doesn’t have to be the same as one who helps you actually come into compliance. Seeking professional advice in the compliance area is similar to obtaining the services of a financial planner. There are “fee based planners” and planners who survive off commissions from the sale of products. There are planners who charge for their advice on an hourly basis. There is an analogy here. The reality is that it is in the financial interest of the lawyer for you to be in OVDI (or something elaborate). For this reason, you might consider:
Using one lawyer to help you decide how to come into compliance;
And use a different lawyer to bring yourself into compliance.
To put it another way, you might consider simply paying for a “compliance consultation” where it is clear that you will NOT be retaining that lawyer to bring you into compliance. This could be the best money you will spend. You can use lawyers for different things or for specific purposes. Then, move onto the decision of what lawyer to use to bring you into compliance. In other words, the decision to undergo surgery is different from the decision of who will be the surgeon.
The complete post from which this was excerpted is here.
The problem with US lawyers of Canadian lawyers is that they will comply with US laws and Canadian laws, or both.
None that I know will say it is ok to not comply with laws.
For that you need specialized off-shore lawyers who can guide you with regards to non-compliance.
I see a philosophical issue. Let’s say Nigeria passes a law that all non-Nigerians have to comply by sending money to Nigeria.
A lawyer, being in compliance mode, will confirm this and advise you to comply. Such are the laws, and such are lawyers. No US lawyer will ever advise you to break the law. If you have broken the law they will not report you, but they will advise you to comply with existing and future laws.
Getting advice on whether to break the laws, how to break the laws, and how to get away with it is very difficult.
This is because lawyers are licensed by the country (or state) they practice in. If they do not support the state, their license can be revoked. In the US they can also be prosecuted for advising clients to not pay taxes for example.
So it is not only a question of which lawyer to choose, but which jurisdiction he practices in.
You need a lawyer who is not affected by the laws of either US or Canada, and who is not therefore biased by those laws.
I strongly suggest an off-shore lawyer. And he need not be a lawyer. Client privilege is only relevant where the adviser is subpoenaed to testify against you.
If you choose a jurisdiction where the US cannot compel testimony, an “off-shore” jurisdiction, then client privilege is redundant.
For an independant appraisal of professionals who are qualified in this area check out Jack Townsend’s blog: http://federaltaxcrimes.blogspot.com/p/ovdi-attorneys.html
Roy
Few lawyers have the testicles/ovaries to go all the way with arguments of unconstitutionality. They often prefer to profit from the way the system works (which is so arcane that somebody that represents himself does have a fool for a client).
@M
Yes, but this post is directed to people who have made the decision that they DO want to be in compliance.
Would any lawyer, licensed anywhere in the world, really advise people to NOT comply with the law?
@Jefferson
Actually, the costs of testing the constitutionality of these things is so high (number of issues, appeals, etc.) that a good lawyer (with this particular skill set) could retire off this one case.
How about this. We start raising money to fund a constitutional challenge to the FBAR, etc. Once we have a million dollar pot, then we go find the right lawyer. There are apparently one million U.S. citizens in Canada and six million worldwide. Even at $1 per person, the money could be raised.
I believe that to get the right kind of legal representation for this would be one million plus. The simple fact is that we do have the numbers to raise this money. We have the resources to find the right lawyer. We have can get enough money to motivate that lawyer.
Consistent with my suggestion on how to select the right compliance lawyer (separating the decision from the surgeon), I would suggest the first part of the project would be to use lawyers to find the right lawyer. Then that lawyer would be retained.
I believable that this is quite doable.
What about it?
Lawyers who monitor this board (recognizing that the constitutional arguments are not your area of expertise), any thoughts?
@renounce I think we could raise a fund, but we’d probably incur FBAR penalties and FATCA blockages when we put the money in a bank.
I would suggest that we create a not for profit instittution to hold the money. Perhaps with some non-us-person officers, a set of bylaws (like that of ACA or ACLU). We should do it.
@Jefferson
I agree and strongly believe this should be done. But, I don’t want the bureacracy to kill the objective. Just set up a mechanism to do it simply (whatever that means).
Would be worth getting separate legal advice on how exactly to do this in a completely legal way. What about using the trust account of a Canadian lawyer?
Also, I want to emphasize that we are NOT talking about subverting any U.S. laws. We are talking about the perfectly legal and necessary challenge to U.S. laws that in the view of many violate the constitution of the United States of America.
@ALL
I’ll pledge 100 USD to this fund!
@renounce: It is a good idea. I will contribute at least couple of hundred dollars. Also I agree one must set up a client trust account for others to contribute. Also if it also includes class action suite regarding the infamous “bait-and-switch”, it would be an incentive for the lawyer. I believe the IRS needs to return hundreds of millions of FBAR penalties. The law firm can take certain share of the refunds. This gives additional financial incentive for a law firm, who wish to take up the case. The first million we collect may cover their basic costs with potential for huge reward.
Everyone should know now that before any fund raising can occur, we would have to create a legal entity to hold the funds, and a board to run it and keep it accountable. Pledges of a few hundred dollars at this point are nevertheless useful, mostly as a means of gauging the seriousness of people’s intent.
I wonder if there are any foundation funds (like ACLU) or government project money that would be available.
@all, I will also donate a $100.00
Great Idea!!
This is why opt-out works. The IRS does not want a constitutional challenge.
If you refuse to sign their onerous fines, they opt you out…
So in reality the fine is voluntary, and you don’t have a case in court. Why are you suing if you paid a voluntary fine, in a voluntary process? It was entirely your choice.
@renouncecitizenship You sound ambivalent here. Is the law worth complying with, or is it unconstitutional? Should we comply with the law just until it is found unconstitutional, then it is ok to break it?
You know that according to the US legal system someone has to break the law before it is found unconstitutional. Who would that be? Someone who does not read this post?
Why did you comply with the law, if you now claim it is unconstitutional? Which one is it? It can’t be both a law and unconstitutional. By complying with it you are giving it both legality and “constitutionality.”
I don’t think expats (especially Canadians) are combative enough to fight US laws. And residents don’t have a case to not pay taxes.
I think the money should be first spent on educational programs, organizations, and counseling/advisory programs on how to (gasp) circumvent US laws.
This is how Americans do it. They form organizations to break the law. Then after momentum builds and a majority is behind it, then the crooked politicians and judges are forced into changing the laws, on penalty of being thrown out of office.
In this situation, you would be hard pressed to explain why you don’t have to send money to the US Treasury. Most voters will not be sympathetic, because they are the recipients of the money. Likewise with the politicians and judges: direct recepients of your money.
And Americans consider expats “Americans” still. Disloyal escapees, but who are still part of the “family”, and therefore have to contribute their share.
Furthermore, “expat” does not distinguish between the working poor, working in Canadian fishery for example, or a wealthy investor living in the Caymans. Only the former are worthy of sympathy. The latter should be fleeced, according to public sentiment.
And to be accurate, the working poor cannot afford to travel abroad, therefore expats must be people of some means.
I think you underestimate the public and political sentiment in the US, and therefore the degree of protection expats need.
I believe, all our emails don’t get IRS attention. A law suit against FBAR and “bait-and-switch” will get their attention, because they have to state facts before a federal judge. Also must provide internal data such as how many duel-citizens were unfairly penalized for FBAR fines on the money in accounts in the country where each of them has been living for decades (and owe little or no taxes).
The IRS has been ignoring TAD’s directive and ACA’s request for information under freedom of information act. The IRS can’t ignore court directive and they know it. Both jury and press will be more informed about persecution of innocent dual-citizens, who doesn’t know an obscure FBAR requirement. Even to US ambassador to Canada called it unreasonable and irresponsible.
A good lawyer can dig more uncomfortable facts about IRS practices, which forces them to be fairer in all their dealings instead of using high handed approach in dealing with dual-citizens. We can’t each afford a lawyer, but a pending law suite forces them to be fairer with all of us. The potential that each high-handed unfair penalty (just because each Minnows can’t hire a lawyer and it is cheaper for him to pay the penalty) might end up hurting their defense in the court, which keeps IRS more honest and transparent.
We are only fighting for justice and upholding the constitution, which I believe our patriotic duty. This short sighted persecution of citizens living abroad causing more harm to the USA in alienating strong overseas supporters (it’s own citizens). I pledge to contribute US$200 initially and will contribute more each quarter as this makes progress or if more funds are required.
Also many of them still in OVDI can join the case with incremental cost to present their genuine suffering (i.e. they may need to pay cost to evaluate their situation and if qualified they need to pay cost to present their side). It is much cheaper than engaging a new lawyer to pay him for his investigation and education.
An effective law suite can be 100 times more effective than all the blogs and all the camping done by all the organizations such as ACA or IBS.
I wish to add one more thing to my above post. The law suite can be a platform for others to join. For example, I am in the process of filing 5-year back taxes and relinquishing. I left the USA 15 years back and I can avoid visiting the USA for rest of my life, but I have some money left in 401k. If IRS demands huge FBAR fines, I would rather spend that money defending my innocence and honesty rather than paying fine and admit that I am guilty of a crime (that I know I was innocent). By choice I wish to live honestly and this FBAR could make me a criminal, without even my knowledge. Since I feel FBAR is unconstitutional and unethical, I feel I must defend my innocence (if I can afford).
I feel the money is well spent, if I can here IRS’s justification for treating whales and minnows in the same way. The FBAR penalty is levied on a dual-citizen’s whole life’s savings, even if the money is earned honestly and no tax is due to the IRS. In case of citizens living in the USA, most cases only 20% of their total assets are saved in tax heavens. So the FBAR penalty is applied only to the illegally earned money and intentionally hidden from IRS to deliberately evade taxes. Also most of the whales are wealthy and can afford a lawyer to defend and minimize their penalties. The minnows can’t leave their jobs in their countries and move to the USA to hire a lawyer to defend their innocence. His anger and feeling of betrayal only hurts him, because he can’t do any thing about it. This kind of law suite may help at least some of them be heard in the court.
A lawsuit requires a victim, or several. The IRS has not prosecuted minnows, only whales.
Most expat minnows filing are wasting their time and money (unless they wish to remain on good terms with the US). If you are out of the system, I would think it best to wait until the IRS and Congress adjust the laws.
Those minnows renouncing are also wasting their time and money (unless they need the documentation for FATCA banks).
(In my opinion.)
I feel a lawsuit can also apply for injective relief for FBAR penalties for dual-citizens in OVDI, who owe little or no taxes. Also the suit could request court to ask IRS to respond to TAD or ‘bait-and-switch’. There can be many related issues. To name one more, ACA requested data for, how much money is collected using FBAR penalties on people living abroad, under freedom of information act. The IRS didn’t respond to that request of ACA. By law IRS must provide a response with in 20 to 30 days. These are all just few examples. A good lawyer can find many such acts.
ACA does good work. You should send them the money and earmark it for a “litigation fund”.
Voluntary disclosure (OVDI) is exactly that: 100% voluntary, as is paying the fines.
Only an idiot would voluntarily join a program, voluntarily send reams of signed paperwork, voluntarily pay the fees, then sue for his money back. He would be laughed out of court.