Check this out. My question for all is this:
How on the basis of these facts, specifically not knowing about Mr. FBAR in the past, could this be construed to be “willful non-compliance”? Are you saying that the IRS might just make a decision to treat this as willful.? It doesn’t seem to me that in this letter you have:
“now admitted in writing that you are in willful non-compliance with your federal income tax and FBAR filing obligations for the past six years.”
Isn’t the test for willfulness: “The intentional disregard of a known legal duty?” If you don’t know of the duty, how can the disregard be intentional?
This would seem to me to be a very unlikely response from the IRS. If they do respond this way, the outcome is clear:
The word will get out and nobody will ever attempt to bring themselves into compliance again.
Love you hear all your thoughts on this.
Thank you Mr. Mopsick for a very thought provoking post!
Compliance Dilemma For Americans Abroad With No Tax Liability To The United States tinyurl.com/84ukwrj#FATCA#AmericansAbroad
— Mopsick Tax Law, LLP (@MopsickTaxLaw) May 21, 2012
I think one of the real problems and Steven might have more knowledge of this is FBAR and the Bank Secrecy Act have turned out to be one of the governments stronger weapons against “hardcore” tax cheats than the actual Internal Revenue Code. I suspect much of the “tax loss” to the Treasury from hardcore tax cheats occurred in years prior to 2003 when the stock market was roaring. However, it is much more difficult for the government to use the IRC(Title 26) to go back to in time(pre 2000) to tax these unreported gains from the dot com bubble era than its is to use FBAR/BSA to “tax” the unreported account balances that in many(if not all) cases continue to hold these unreported proceeds from the late 1990s boom. (For example under OVDI anything before 2003 is off the table giving people residing IN the US who should be making license plates and had huge unreported capital gains from the dot com bubble a very good deal).
I actually was reading this while you were doing this posting. 🙂
This is an interesting solution for no previous filing, don’t want to renounce, types BUT be sure to read the final paragraph before you say, “Eureka!”
It’s my hunch that minnows might actually get away with this strategy simply because the IRS would go mad trying (or be mad for trying) to come down hard on people who owe little or no tax.
@ renounceuscitizenship
I just want to thank you for your blog. I pop in there frequently.
I’m glad that renounce posted an issue from Steven’s site. Thanks Steven for working with the us. Thanks renounce for posting and bring to our attention!
If one accepts the facts as stated in the hypothetical letter to the IRS, it is evident that the prior noncompliance was NOT willful. Of course, I acknowledge that the IRS may jump to an irrational conclusion.
A separate question is what a good tax advisor would or should say to a client in this situation. One disagreement that Steve and I have had in another forum concerns the quiet disclosure approach. Steve has indicated that his firm’s policy is NOT to assist clients with quiet disclosures. My view is that if the client understands the risks involved, there is no valid reason not to assist a client with a quiet disclosure where the facts indicate it may be to the client’s advantage. For a client who lives outside the US and owes relatively little in the way of back taxes, a quiet disclosure may (repeat MAY) well be desirable.
I guess one advantage to renounciation in THEORY is for purposes of FBAR/BSA you start running the clock on the statute of limitations for past compliance without having problems with compliance going forward(By doing the full Ostrich on the otherhand you don’t just have the problem of the current year’s filing requirement but also any years past within the statute of limitations). I would not make a decision as drastic as renouncing just for this reason.but what I said I do believe to be legally correct and something to keep in mind.
To this date I still don ‘t know how to deal with the FBARs. And I think nobody does.
@geeez
I’m glad you got the gravatar and it’s working.
@all
Hate to be a nitpicker, but didn’t Steven post:
http://isaacbrocksociety.com/2012/05/06/state-bar-of-california-tax-section-on-fatca/#comment-17350
that he would have a paper that solely addresses the issue of American expats who have little or no connection to the US No Later Than the the 13th of May?
Just wondering if I some how missed something 🙂
@Em
Thanks, glad you like the blog.
@Michael
What would be a reason to not assist clients with quiet disclosure?
@UncleTell
I am sure we will get Steve Mopsick’s next lpaper soon.
@all
The only thing that is clear about coming into compliance is that it is very unclear.
On January 9, 2012 the IRS promised procedures for dual citizens to come into compliance. The IRS has still not issued those procedures.
I just don’t understand. We have a situation of tens of thousands of people who want to come into compliance and the IRS won’t even issue those procedures.
It’s as though, for the IRS, the only value of people coming into compliance, is that it offers up yet another opportunity to penalize people.
In early winter I wrote a post to the effect that “The IRS is the single biggest obstacle to coming into compliance”. It is still true.
http://renounceuscitizenship.wordpress.com/2012/01/17/the-irs-is-the-biggest-obstacle-to-tax-compliane-for-u-s-citizens-living-outside-the-united-states/
Perhaps either Mr. Mopsick or Mr. Miller (or any other lawyer) could tell us what they the IRS seems to delight in keeping it all a big secret. As is evidenced by the comments to this post,not even the lawyers can agree on the route to go. Let, the taxpayers are subject to life altering penalties.
Remember also, that when it comes to Mr. FBAR, the only valuable FBAR is the unfiled FBAR.
Here is the true value and purpose of an FBAR:
http://renounceuscitizenship.wordpress.com/2011/12/17/the-true-value-and-purpose-of-an-fbar/
Finally, if you are waiting to file your very first FBAR, you might find this interesting:
http://renounceuscitizenship.wordpress.com/2012/03/20/life-is-full-of-firsts-including-your-first-fbar/
There is a saying about being careful not to ascribe to vindictiveness what can be attributed to incompetence. In the case of the IRS, I suspect that they are too swamped and understaffed to get the directives out for the minnows whose returns will take up time and yield very little.
@ladyhawk, They also say, “Fool me once, shame on you. Fool me twice, shame on me.”
The United States have passed these laws to punish people who put money offshore. How can we not ascribe to malice when that is the purpose of the legislation? Our money is offshore. Therefore the IRS is just interpreting the legislation in a way that targets us.
I should also add that keeping things nebulous is a great way to encourage the lambs to enter the OVDI, a fairy land where constitutional rights no longer apply and benevolent government offers to take only a fraction of your total wealth rather than 300% of it and throw you in jail for 5 years for every stinking foreign account that you have.
I got another IRS notice today for 2010 for around $65, even though I’d paid a four figure sum for that year and thought it was finally cleared up. It is accrued interest from the check being delayed. I’ve given up on my accounting firm dealing with it, especially as they could easily charge me to ring IRS so have decided to just deal with it, myself.
Getting my mother to write out the check for me. Just want it sorted out…but wouldn’t be surprised if I eventually receive yet another bill for perhaps 11 cents for interest. It’s almost laughable.
Fear is the word for Americans Abroad. And confusion. More the better so that nobody can comply. And stiff penalties. A trap.
My husband and I just paid 5% of our combined income just preparing our US tax return, to owe a couple hundred dollars in tax…depressing.
@ Renouncecitizenship, Steve characterized the quiet disclosure as “sneaky” and, in at least some circumstances, deceptive and dishonest. He also expressed concern that the IRS Office of Professional Responsibility (OPR) might consider an attorney assisting a client with quiet disclosure to have done something akin to making false or misleading statements. These are points on which Steve and I strongly disagree.
Steve also cited the article linked below as having, in his words, “an excellent discussion on the issues surrounding quiet disclosures.” I provided an extremely harsh (but, in my view, well deserved) critique of numerous points raised in the article, and that concluded our discussion on the topic.
http://www.aicpa.org/Publications/TaxAdviser/2012/may/Pages/Hibschweiler_may12.aspx
@Michael J. Miller
I can’t help but wonder if in the case of a minnow, the IRS would just be happy to have the individual filing their tax returns and thus not penalize them under quiet disclosure.
I have three American born friends (all have been in Canada between 12 and 42 years – none have become Canadian as yet) – all three decided as of last year to just start filing US returns going forward. They also filed FBARs. All would most definitely be ‘minnows’. They filed their 2010 returns and now their 2011 returns. They have not heard anything from the IRS.
Fear, confusion, absurdity (5% of bubblebustin and husband’s combined income to prepare tax returns). Part of it is economic and time discrimination of people outside the US, all of us, in complying with all this for little or no $$$ owing to the U.S.
Why are we second-class citizens in our own countries, unable to benefit from our countries’ various tax-protected savings plans, for example, in Canada, RDSPs, TFSAs, RESPs, mutual funds?
Who is to carry out reporting and tax returns for us and at what cost when we are not able to for some dementia related condition as we age?
Who is to do this for my (developmentally delayed) son as the US says I cannot renounce on his behalf?
Why does the estate that I have worked diligently for and will leave my children, and my son especially, have to be lessened with the expense of reporting costs year after year — with little or no $$$ owing to the US?
Why would it make any sense for what I leave in my estate to be lessened by the cost for an executor to continue this absurd yearly exercise?
Why will we, year after year, be saddled with the continuing stress of this, the waste of valuable hours of our life, with little or no $$$ owing to the US?
Why are some of us subjected to the absurdity and some (and I agree they should NOT be affected) remain unaffected by this because of absolutely still not knowing or choosing to ignore (which I will do with my son)?
How much longer shall we be called traitors, tax evaders, made second-class citizens in our own countries of choice, barred from the country of our birth in many cases?
How much longer will the US continue to shoot themselves in the foot with citizenship-based taxation, both economically and their own PR rating in the world?
How much longer before the US realizes it is not the greatest, entitled, exceptional country most have been led to believe. In fact, it can no longer be defined by its democracy. It must be defined by entrapment of people both within and without its boundaries. Proper education, instead of continual blind patriotism brainwashing, might be a better tool for the strength of the USA.
And, while I’m asking, why must we continue to pay for the unending wars and support of the USA’s Military Industrial Complex?
ETC.
Don’t forget what Phil Hodgen wrote after his busy day of meetings in DC (I especially like the poo-flinging part):
“If the government wants to impose FBAR penalties on you, they have the burden of proof. And it would be an act of spectacularly poor judgment if the government picked out your FBAR filing and filed a Federal court case to tag you with FBAR penalties.
Diplomatic hilarity would ensue. Trust me. Even the ever-polite Canadian politicians would be inclined to fling poo at the IRS.”
http://isaacbrocksociety.com/2012/05/08/phil-hodgen-meets-with-irs-to-solve-rrsp-problems-thank-you-phil/
@Michael, I almost wonder if he is the proverbial wolf in sheep’s clothing??
It’s occuring to me that I have been far too open about my personal situation and that I could be laying myself open to whistle blowers, especially as he would have argued that I should have entered OVDI. I almost feel I should have all my posts deleted. He almost sounds like an apoligist at best and a mole at worst.
@mona, some people are inclined to fly between being good-cop-bad-cop. It may have something to do with training.
@Calgary, I completely agree that it’s wrong how we cannot make use of tax-protected savings and investments, and especially mutual funds. Triple whammy for me and all done completely unintentionally. But could be a poster child for all they care. I’m thus a second-class British citizen. Oh God, please spare me…:'(
@Bubble, true. But it’s making me increasingly ambivalent about him, I’m sorry to say.
Re: Steven Mopsick
I may have got a different impression than some here about Steven’s latest article. I kind of thought he was giving a solution with a bit of a wink-wink because he couldn’t out and out say do this, knowing that strictly by the book it isn’t what the IRS “says” it wants. I’ll admit I’m not good with reading between the lines though.
@all –
My understanding of the term “quiet disclosure” is that it refers to people who have actual tax deficencies and try to solve their problems by sliding amended returns in quietly, hoping they won’t be noticed. People who didn’t file at all out of ignorance, but don’t owe any taxes, are in a different and less dangerous situation, given that the penalty for an unfiled return is a percentage of taxes due. .