I am making what you could call a “noisy” non-disclosure. I have stated that I do not plan to file FBAR. I am no criminal, but because I’ve not done FBARs in the past, and I plan never to file one, actually filing an FBAR creates a substantial hazard because of its criminal penalties. This is the fatal flaw in the FBAR requirement. If there were only draconian civil penalties, no one could invoke the Fifth Amendment in refusing to file it.
But the problem for someone who has relinquished US citizenship like me is that the Form 8854 reveals too much damning and detailed information about assets, giving the IRS the ability to deduce that the person has financial accounts and how much must be contained within them. I have learned that while the Fifth Amendment will not allow a person to make no tax filings at all (remember Al Capone went to jail for that), one may withhold information on a tax form, if that information could lead to a violation of person’s Fifth Amendment privilege. Therefore, here is Part V of my 8854 (I’ve blackened the actual declared numbers, which is actually the necessary numbers in order to make it possible for the IRS to determine that I am not “covered”):
So the IRS will be able to see that my assets fall below the $2 million threshold and they can see that I have owed zero taxes for the last five years. I am not a covered expatriate.
But they have no right, under the Fourth Amendment, to an inventory of my assets, and therefore, I will not provide sufficient information to them so that they can charge me with criminal FBAR. The Fifth Amendment is invoked for the value of all my Canadian assets. For all they know, my house is worth the full amount of the declaration. As for the categories with zero, it will hopefully show to the IRS that all my assets are already “offshore” and therefore safely out of the reach of their grubby hands. In any case, all I have in this life has been earned in Canada, and not subject to the jurisdiction of the IRS.
I invite comments.
Petros, this is dangerous territory.
In order to avoid being considered a “Covered Expatriate” Section 877(a)(2)(C) requires you swear, under penalties of perjury, that you have met the filing and reporting obligations of “this title” (Title 26) for the preceding 5 years. This requirement is found at Question 6, Part IV of the form 8854.
Willful failure to file a return, supply information, or pay tax is a crime under Section 7203. Likewise, making a false statement on a return when that statement is required to be made under penalties of perjury is a crime under Section 7206(1).
NOTE, an argument could be made that the obligation to file FBAR doesn’t fall under title 26, but title 31 (31 U.S.C. 3514). This is a technical argument, though, with a large potential downside. I haven’t briefed the issue (and am not offering legal advice and you can’t rely on these statements) but it appears to be something to consider.
If you don’t file at all the statute of limitations does not run. If you have expatriated for purposes of immigration law but that expatriation is not recognised for tax purposes, you may have no useful argument to make before a US court; but your other country of nationality may be bound to “protect” you. There is no concept known to international law of “tax nationality” without right to a passport (simplifying a bit, but I’m not going to write a thesis here). The Fifth Amendment doesn’t help in civil matters, and for what it’s worth enforcement authorities often waive criminal issues in order to make people talk.
Your argument “one may withhold information on a tax form, if that information could lead to a violation of person’s Fifth Amendment privilege” seems to me to be an urban myth, or worse.
@ punktlich Not urban myth but based on reading in law journal articles. And for that matter, how can the statute of limitations not run out on FBAR? The only case I am aware of is if the person is under indictment. I think you are confusing FBAR statute of limitations with tax filing statute of limitations. I think if you’re going to present information with such an air of confidence, you need to provide your sources.
Now please tell me how or why I would ever be in front of US court with no useful argument? Under what circumstances is that going to happen to me?
Everything you are saying in your argument just confuses the issues. For example, you say the Fifth Amendment doesn’t apply to civil matter. Did I not say that the potentiality of criminal charges in FBAR is actually what creates the substantial hazard? Didn’t I say that that is why I have the right to invoke the 5th Amendment privilege?
@ Roy
What is so dangerous about this? Yes, I answer the question about meeting my obligations, which I do so under the penalty of perjury. I am providing the information that the US government needs to deterimine if I am a covered expatriate. That is the purpose of the form. I am over $1 million under the $2 million threshold. I have had zero tax liability over the last five years leading up to my expatiration. If anything, the United States government is in dangerous territory of violating my right to expatriate under the Universal Declaration of Human Rights.
I think, sir, with all due respect: You need to get a pair. What can the US do to me? What could they possibly want to do to me? Why? Do you think I should supply the information so that they can just sit down and write out a civil FBAR penalty for 50% of my assets, knowing that I must have financial accounts? Why should I waive my Constitutional rights, my Fifth Amendment rights, my Fourth Amendment rights, etc. Do you inform your clients that they are waiving all their rights when they enter OVDI or when they file an FBAR? Do your clients know about their 4th and 5th Amendment rights? Do they know that they can voluntarily waive their rights, and that everything that they disclose to the government can and will be used against them (remember Miranda?).
Of course its dangerous. Is it safer to enter the OVDI and just hand over 27%? Or is it safer to fill out belated FBARs and potentially have 300% fines? Tell me what course of action is safe!
Royaberg is wrong.
Compliance with Title 26 requirements for the preceding 5 years is what you must swear or affirm to have done in order to escape characterization as a “covered expatriate” under §877A.
Title 31 (Finance, money laundering, FuBAR, etc.) is not Title 26. Consequently, the obligations under Title 31 and whether you have fulfilled them is of no relevance whatsoever to your obligations under Title 26.
There is nothing “technical” about it.
“26” does not equal “31” or “18” or “42” or “10”.
It’s really that simple.
PS
I don’t know whether you are likely to find the following observation/prediction more comforting or annoying but here goes:
The IRS could not give a rip one way or the other a) whether you file Form 8854 b) what you put on it c) whether you file your FuBARs, etc.
You are in no danger of attracting the slightest bit of IRS interest.
What you file will not be scrutinized by a carbon-based unit. It will be digitized and forgotten.
Forever.
@Petros: You are being argumentative and unfriendly. I am not your lawyer, but I am trying to bring issues to your attention that you can research or have analysed for yourself.
“And for that matter, how can the statute of limitations not run out on FBAR? The only case I am aware of is if the person is under indictment. I think you are confusing FBAR statute of limitations with tax filing statute of limitations.”
The SOL will not run unless a Form 1040, Schedule B has been filed. Obviously the SOL is irrelevant if the (non-)taxpayer had no foreign account(s).
If you think you can avoid filing tax returns because of the Fifth Amendment then I am unable to be of help to you. You might try searching under in a search engine.
@ punktlich, Roy
I just want to apologize for the harshness of my tone in my comments above. I hit back hard, but that seems unfair to you, since I did invite comments. So I want to thank you, belatedly for making the comments. That they stirred a deep reaction on my part means that the comments are indeed doing what I seek to accomplish on this blog, and that is open and free debate about the best course of action.
@Punktlich, Ok, I admit that it was not a little unfriendly; but my point stands. I am filing my 1040; so there is a statute of limitations because they will have been filed. So your point about 1040 Schedule B is not useful in this case.
Why don’t you try searching Google yourself? I have done that many times. I am suggesting that you are making very bald claims with a great air of confidence, and yet you offer no proof. So I am offering you chance to substantiate your claims. If you can’t then I think the rest of us can safely ignore them.
@ todundsteuer – the issue is not so clear cut as you think. the HIRE act gave enforcement ability for FBAR to IRS, pursuant to the administrative and enforcement provisions of Subtitle F of Title 26. Does that bring FBAR obligaitons unde the purview of Title 26? I don’t know. i’d certainly brief the issue before I advised a client.
@ Petros and punktlich11 – Statute of limitations on FBAR is 6 years even if one is not filed. 31 USC 5321(b)
@ Petros – just trying to help, man. I’ve been doing this for 19 years and have learned that these are complicated issues and caution is always warranted.
@ Petros – thanks for the apology. No offense taken. These are complex, personal issues, and emotions sometimes run high.
Stay the course, fight the good fight.
@ Roy Thanks for accepting the apology and taking no offense–that shows that you are big person. Yes, it is deeply personal. But not only so, a lot of people are watching what happens. I am one of first in this group of expatriates to exit the system. Sure, there are now already a whole bunch of people in Europe before me, but I am one of the first in an avalanche of Canadian au revoirs. The manner that the United States decides to punish me for my audacity (isn’t President Obama an expert in audacity?) will force the Canadian government to put its money where its mouth is. Will it stand up for me, the way that the United States stood up for its own naturalized citizens in the War of 1812 and in the Expatriation Act of 1868? Or will it just turn patsy and let the United States have its way?
I think a very vocal, loud and triumphant exit is the safest possible way to exit the system. No more lurking in the shadows for me, when I made my decision to go public, based on the assurances of the Canadian government that it would not collect FBAR penalties. When Canada said that now that I am a citizen, it will not collect for the IRS against me. Thank you Canada, and thank you Mr. Flaherty. Now I want all Canadians everywhere to stand up for their rights and not allow the IRS to take away their ability to sleep at night.
@Petros: “I am suggesting that you are making very bald claims with a great air of confidence, and yet you offer no proof.”
I make no “claims” because I am not your attorney. As for “confidence” I have provided citations where I thought useful. And I always provide copious footnotes for my law review articles.
While I have not researched the issue myself today, others state online:
“What is the statute of limitations for assessing civil penalties for violations of the FBAR requirements?
“Civil penalties can be assessed anytime up to six years after the date of the violation”
http://www.taxmeless.com/FBAR%20Freq%20questions.htm
and I have no reason to doubt that this is correct. (And Form 1040 Sch. B, partially duplicating FBAR, is part of a tax return.) I know from having practised bankruptcy law that the SOL does not apply in the case of nonfiling or where there is a fraudulent filing. Again I apologise for the secondary source but I’m not about to log into RIA for a non-client:
http://www.wwwebtax.com/audits/statute_of_limitations.htm
As it happens, I’ve never known the IRS to go back beyond 6 years even for long-term nonfilers. But their attitude seems to be hardening and penalties are so draconian today that if there are assets to seize, who knows what they will do. I cited to this tax law journal article (and to the IRS Manual regarding its embassy attachés) in another posting, and its scary:
http://newsgroups.derkeiler.com/Archive/Alt/alt.politics.bush/2010-03/msg00155.html Even though the IRS rarely tries to pursue those who have absconded abroad with all their assets. On the other hand I’ve seen close-up the mess that US- based heirs have been left with when a tax-hater moved abroad, set up a Liechtenstein trust, and died never having either renounced citizenship or filed a US tax return.
So, as for “confidence”, all I can say is that what I’ve written is the starting point for further research, that CCH, RIA, Simon’s Taxes and all the other resources I use (and which are not free) ought to have the final word. But so many of the questions asked here have not yet been addressed by the courts so perhaps your guess is as good a mine. And I spent 10 years in the law schools of 3 countries.
@punktlich Claims have nothing to do with whether you are giving legal advice. It is about whether you are right or wrong. This is a blog not a legal consulation. And you tend to write with a great deal of confidence. I appreciate your point of view, now that you have made it more clearly. In the first comment, it seemed that you were indeed confusing the issue between 1040 statute of limitations and FBAR–but as you have now explained, your point was more refined than that, of course, without sufficient explanation until now.
The problem that the IRS will face with me is that I am just an average person who would be off the radar except for the insanity of the current regime in the US. Only recently, in the last few years, did I even make enough that the IRS could have even have the slightest interest in me. As soon as I found out that my wealth, all of which was earned here in Canada and all taxes have been paid dearly in the Canadian system, was now of extreme interest to the IRS, I realized that I must exit the United States tax system permanently. But I am not a whale, a criminal, a tax cheat or any of the above. I am just an ordinary person who lives and works in Canada.
When I started to read Phil Hodgen’s blog who published Voluntary Disclosure Program stories, I realized that the United States was unleashing a persecution against expats of unprecedented proportions. Now it had become a financial war against the wealth of expats. I am hoping that we can share what rights and protections that we have in order to fight this battle.
@all- I have personally come to the conclusion that it matters little what you do or don’t do. Either way there is not going to be any justice for those who have lived out of the country for most or all of their lives. The odds are great that you would have engaged in one of the “forbidden” fianancial asset purchases. Trying to reason with the U.S. on this issue is about as producted as it would be to talk about the joys of life with a dead man.
Fundamentally what we have here is an unjust tax policy that is backed by a conceited government. This is why the young must leave before they can trip any of the “gotchas”.
I have made it this far as a US citizen living in Canada without any contact with the IRS. I have now renounced and so I am no longer considered to be a US citizen. As a Canadian citizen living in Canada what legal right does the IRS have to ask me to fill in any forms. I’m thinking it may be to late, they should have asked me at the consulate.
@TrueNorth, I totally agree. I’ve said as much here: http://isaacbrocksociety.com/2011/12/19/forget-about-form-8854-filing-last-5-years-of-tax-etc-usa-law-establishes-a-right-to-unilateral-expatriation/
But as yet, I had not decided whether to file a Fifth Amendment 8854 or whether to ignore the requirement. The only advantage that former course of action has, in my view, is that IRS may permit closure. But if you ignore the requirement, they may leave this exit procedure over your head for the rest of your life.
I shouldn’t even try to comment on something that is so legal intensive because I’m not qualified but fools rush in they say. I know that if I abandon my old expired green card I will probably be told to fill in an 8854 too. Like you Peter I have not filed FBAR’s on my individual accounts because I am Canadian since birth, always have been Canadian, and I do not accept the right of a foreign country to extract private banking details from me, something even my own government in Canada does not require of me.
Note: My husband and I have always filed jointly but only because we have a couple of joint accounts and I didn’t know how to separate things out. Then I didn’t know what to do about my individual accounts so I put the income from those on our joint returns too. We took the standard deduction so I felt all income should be included. So absolutely all of our income has always been there on our 1040 forms all along. We even sent copies of our Notices of Assessments every year.
Now back to 8854. My assets are way below the $2M mark and my income (interest only) way below the $147K mark. The income part is obvious to the IRS from our 1040’s. It knows about my interest income and also my bank’s name from our Schedule B’s. As for the assets part, I had thought of just getting a signed statement from my bank manager stating that my accounts total less than say $1M (no revelation of account numbers or exact balances). I think I would try to get a signed statement from my bank manager that he will not reveal any of my personal banking details directly to the IRS, just as a bit of insurance (probably not legally binding but worth a shot).
Do you think that would satisfy the 8854 rules without risk of penalty? I still will not do FBAR’s and not the 8938 either. Same reason for both — far too much information for a Canadian to be sending off to a foreign government. (My husband has to and will do both because he is American until he has a precious CLN in his hands.)
8854 rules are instituted so that the IRS can assess whether the expatriate is a covered under 877A or not. The letter from the banker is a substantial hazard as far as I am concerned. If he say less than 1 million but does say less than $10,000 aggregate, then you could be (though unlikely) be charged under FBAR.
As I’ve shown above in Form 8854, the IRS could be dealing with a person whose assets are 99% in his house and RRSP (which is already declared–but let’s see if the IRS will set off a diplomatic incident by charging me 300% fine for my RRSP account which has been declared yearly in my 1040. The RRSP is protected under the tax treaty. So which is the higher law? The treaty or the Bank Secrecy Act? Well according to the Constitution, treaties are supreme law.
@Petros: Article 6, US Constitution: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land”
In fact, “supreme Law of the Land” is constitutional jargon. Except for the Constitution itself, the latest in time to be enacted trumps any earlier. For this reason although treaties need only be ratified by the Senate they are often legislated (as they are in “dualist” countries generally. For the avoidance of doubt.
Taxes are not intended to “do justice”. (In fact, neither is the law, or the courts: http://uniset.ca/terr/art/dojustice.html ) Taxes are there (1) to raise money and (2) to respond to political convenience.
My take on all this is that Petros is waving a red flag to a bull. Nor do I believe that expats and accidentals were the target for all these FATCA laws and FBAR. I actually believe we’re collateral damage though, especially those who naively or thru bad advice were screwed in the OVDP/OVDI programmes.
I don’t deny that the IarS saw the unintended revenue potential by introducing the 5% penalty for Uad persons abroad.
But what I fear is that while top people in the IRS such as Nina Olson and close affiliates such as Steven Mopsick are generally sympathetic to our plight, they could change their minds if we’re defiant.
It could cause an even worse hardening of attitudes because they too could close ranks. I’m obviously in an awkward situation but intuitively feel that being completely honest and also respectful (even pleading for mercy) is probably more likely to cause them to be merciful than to have a ‘f**k you’ attitude.
I also made sure I got an accountant who calculated everything correctly so that I could swear that I had paid back everything I owed (quite a lot, in fact).
Of course it embitters me that if I had simply invested in blue chip stocks, I wouldn’r even have owed any taxes but if I had done my homework, would have learned not to touch foreign mutual funds.
I agree it’s outrageously unfair and this is what Petros gets the hump about. But what I can’t understand is the extreme extent of his hatred. I honestly doubt if the IRS will hit Canadians with FBAR penalties of %300 for instance.
If anything, I feel that I could be a perfect case for being made an example of, and yet, I still feel a duty to do the ‘right’ thing and put it right. I’m doing the complete opposite and making a full disclosure and praying for their humanity, though also realise that Peter Dunn has used his name openly on here.
I pray there will be reform but in the meantime, i fear that overt defiance could cause reprisals.
@punktlich11- if taxes aren’t there to do justice then why does the U.S. government have the concept of “horizontal equity” which it uses as the rational for being able to restrict the financial activities of citizens outside of the country?
Taxes can’t just be a “naked fact” that we all subscribe to without knowing or asking why. I know that that is the way that the U.S. wants to play the game because then they don’t have to face any opposition. But the doesn’t that make the U.S. government no different than a monarchy, absent the monarch? Basically the argument is the same as “the divine right of kings” argument of long ago.
@Petros
Here is my advice. Don’t do anything in terms of form 8854 yet. I believe there are STILL a couple of months left to file it(I think we will know more by June). Second if you want to fight this requirement my best advice is to contact CRA’s Competant Authority Services office in Ottawa. CRA CAS in the entity responsible for dealing with tax treaty matters with the US. I have been meaning to do a post on CRA CAS for weeks because I think the advice they give is awfully relevant and important. Another option is to do what 50% of people in the past have been when renounciating simply file your last return and forget about form 8854.
All I can say was my grandfather the US Tax Court Judge was one of the most honorable people I’ve ever kmown…I want to honour his memory by doing all this correctly. Obviously, I have convoluted and mixed feelings about the consequences of my US citizenship. It’s a love-hate relationship. I feel torn between choosing expediency or honour to country. Not easy decision
@punktlich Your view that the latest law trumps earlier law is not consistent with the ability of the United States Supreme Court to annul laws on the basis of their unconstitutionality. Certainly, the Constitution remains supreme when this can happen, or rather, the Supreme Court’s interpretation of the the Constitution.
That the United States government craps on treaties is nothing new. It shows the bad faith of the United States government.
@Tim I only intend to ask for the CRA to rule or to get involved in the matter when the IRS decides that I owe something or when they issue a warrant for my arrest. Until then, I stand on the encouragement of Flaherty to resist FBAR because the Canadian government will not collect it. My reason for filing is as I said–I am hoping that in this manner, I might put closure to the situation. if the IRS refuses to recognize and acknowledge my 4th and 5th Amendment rights, I doubt seriously that I am any worse off than if I do not file it. In any case, I am not a covered expatriate–provided I file the idiot 8854.