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 reiterate the thanks to Mr Mopstick and Mr. Miller. It is great to have professionals’ opinions on these issues on this web site.
I still don’t understand what benefit the IRS gets to try to funnel everyone into the voluntary disclosure program. I do believe a lot of people are honest and want to get right with the IRS. But the in-lieu of penalty of the program is too much to swallow for a small non willfull mistake.
I wanted to amend my returns for the small amount I owed, but the statements from the IRS that they’ll specifically track those and that I’ll possibly face harsh penalties just to make it right made me choose to just be compliant forward.
I think the IRS is loosing a lot of money from people who would have decided to amend returns, and but instead are not doing it because of the threats.
I would have loved to go to my IRS office, pay what I owed and put that in my past. Unfortunately, that is not an option, and I will have to live the fear of what might happen in case of an audit for some years.
@Christophe, please keep in mind you can (and, legally, of course, you must) still comply properly going forward, even if if you do not file any amended returns or late FBARs. Some may, perhaps, tell you that you must file amended returns but that’s simply not true. A well-informed tax return preparer (if you need one) would gladly assist you going forward regardless of what you do, or don’t do, about past years.
Granted, proper filing going forward itself can potentially draw attention, but probably far less than filing amended returns. And if, for whatever reason, the IRS audits you at some point down the road, you’ll be able to say: “Look, like a lot of people, I went for a long time without knowing the rules. Once I found out, I followed them — and, by the way, I have reasonable cause [hopefully] for the prior noncompliance.” Sounds a lot better than “I originally didn’t know the rules, but once I found out I converted my historically inadvertent noncompliance into willfill noncompliance.”
I hope you will at least consider this option.
@Mr Miller, I wish I had just started complying going forward instead of risking unwanted attention from the amending, but my accountant believed it was safer in my situation to correct the earlier years…I had to trust her judgment.
@Michael, thanks for your answer. Yes, I filed my 2011 taxes properly, declaring the account on the 1040B, declared the interests, and sent my FBAR. I am good for this year and will be from now on.
@monalisa1776, I hope there’s no misunderstanding. I’m absolutely in no position to have any view on whether just complying going forward is better than amending past returns in your case, Christophe’s case, or any other case where I’m not fully versed in all of the facts. I just wanted to make sure, for what it’s worth, that Christophe was aware of all the options to be considered. I hope it works out as painlessly as possible, for all of you.
If audited, would the IRS consider actions towards bringing that account below 10k or closing it all together something that would make me guilty of hiding stuff?
Would it limit my exposure (not next year, when I would have to declare it again), but the year after to just close it?
I would prefer keeping it as it is useful when traveling and visiting family, but I definitely don’t need $18k there. It doesn’t make sense for me to keep that much and pay $100 in additional taxes every year. I already closed the savings accounts that were generating interest and moved the money into the checking that is interest free.
@Christophe, I’m curious what Steve Mopsick thinks about this. He has ideas about what’s “sneaky” or dishonest that are very different than mine. My view is that it’s perfectly permissible to reduce the (aggregate) balance of one’s foreign accounts to not more than $10K if one prefers not to file FBARs, and there’s nothing wrong with that. Whether the reason for wishing not to be required to file FBARs is inconvenience, expense, or possible audit risk (e.g., due to issues for past years) strikes me as not relevant to anything.
Sneaky is the way the IRS is dealing with us. Even the IRS Tax Adviser knows about it.
Why in the world shouldn’t Christophe have every right to do what he wants with his money?!? Why does he have to explain to IRS what he did with $8,000 of his own money which was earned in his home country before he immigrated to US?
That doesn’t sound sneaky to me. That sounds like someone enjoying what they have saved for.
Thatisme is correct. No one is sneakier than IRS. Don’t tell anyone about FBARs. then nail them for atrocious penalties because they didn’t file them.
@Michael, and @to all, I hate how I will have to live with all this uncertainty over what had been an inadvertant ommission.
By the way, I googled Fatca in UK and saw that there are literally HUNDREDs of listings for Fatca compliance jobs. This fatca stuff is for real.
“Don’t tell anyone about FBARs. then nail them for atrocious penalties because they didn’t file them.” This explains everything. I never thought that a government agency of the USA would ever resort to this sneaky trap.
@Thatisme, too true.
And of course, less clear the IRS remain in their trapping (” I hate how I will have to live with all this uncertainty over what had been an inadvertant ommission.”) more business they will promote for US CPAs and Tax Lawyers. Not that I don’t appreciate Mr. Mopsick being around. I do.
Forgot… and how much the IRS will collect at the expenses of innocent people. Is this American?
@Thatisme: Yes, it’s American now.
People have to think twice now about becoming an alien resident or a dual citizen. I wonder if they know this. At the same time someone is trying in the US Congress to facilitate to immigration of highly skilled persons to the USA. Are they going to warn them about what will happen to them if they ever move out ot the Country? It seems that the USA wants to have the cake and eat it at the time. Another trap.
@Christophe
I agree with you that the IRS makes it very difficult for people to come into compliance.
Here is a typical conversation between a person who wanted to be in compliance and a lawyer that took place in the summer and fall of 2011:
Taxpayer: Hello, I have just discovered that I should have been filing U.S. returns and these FBAR things. I simply didn’t know about this and I want to be in compliance.
Lawyer: Well, if you have no outstanding tax owing, then you can just file the FBARs and attach a letter explaining why they are late.
Taxpayer: But, I don’t know if I have any outstanding tax issues.
Lawyer: Well, you can’t just file the FBARs then. You must go into this OVDI thing.
Taxpayer: What? The law specifically requires me to file FBARs and to file 1040s. Why don’t I just do this?
Lawyer: No, the IRS would consider that to be a quiet disclosure and the IRS doesn’t want that?
Taxpayer: What’s a “quiet disclosure”.
Lawyer: It’s when you file amended returns which show unreported income and that you owe tax. If you do that, without telling the IRS, that’s quiet.
Taxpayer: But, I really want to pay my back taxes and file my FBARs.
Lawyer: No, absolutely not. You must notify the IRS and the only way to do that is with this OVDI program.
Taxpayer: But OVDI stands for “Offshore VOLUNTARY Disclosure”. It’s not the law, It’s just a program. I don’t think I should pay penalties. I am not a criminal. I just didn’t know about this stuff. I desperately want to comply with Title 26 and Title 31 obligations. Furthermore, I was told that I do not even have a legal duty to correct past mistakes. Wouldn’t the IRS commend me for cleaning up my past mistakes even though I am not required to by law?
Lawyer: No. No quiet disclosures. You must notify the IRS by entering OVDI and pay them penalties.
Taxpayer: How much are the penalties.
Lawyer: 25% of your net worth plus you have to pay the back taxes and interest.
Taxpayer: In other words, I collapse my retirement fund, because I didn’t know about my FBARs.
Lawyer: That’s right.
Time out: Notice that the “Dynamic Duo” of the IRS and Lawyer is creating a situation that obstructs the taxpayer from trying to clean up past problems.The taxpayer wants to comply and the Lawyer says NO. The IRS discourages fixing up past compliance issues with this “quiet disclosure BS”.
Now at this point the taxpayer will do one of four things:
1. Enter OVDI
2. Quiet disclosure or December 11 FS style
3. Comply going forward
4. Never file again.
I would bet that there are a lot more people taking option 4 than one might think. The IRS has created a situation where it is too difficult to comply and the penalties for mistakes are life altering.
It’s quite obvious that most people did NOT enter OVDI. There is simply no way to do it.
It’s very clear that the IRS is far more interested in penalties than in going forward compliance.
There is one very good argument for cleaning up the past five years – you can sign off that you are tax compliant when you renounce.
At the end of the day, the certain losers are the IRS.
.
@Renounce: Christophe won’t be renouncing. He is in US on a green card with an American wife and American born children. He wants to be able to remain in US with his American family. I think he may want to become a citizen in the future and he is worried how his savings in his home country may affect his green card, and citizenship potential.
I know Christophe has said previously he has had many sleepless nights over this. He wants to do the right thing, but worries the right thing is going to land him in trouble now or in the future.
With me it was traumatic. In 2010 I learned, by chance, about the FBARS. Went to a Tax Lawyer who scared the hell out of me saying how much I will have to pay in penalties and also how he would have to defend me criminally. He asked for a deposit on his account of 15,000 dollars. Then I went to an Expat CPA and he was less threatening. Yes, I had to file the FBARS since 2003 with a letter to the Treasury. Then the other CPA advised me that since I sent the FBARS for 2009 and 2010 i did not need to go in the voluntary disclosure program. Then, in a panic, all the way from a country where there is no IRS representative) I consulted others CPAs and Tax Lawyers (total around 5,000 dollars) and to this date I am not sure what I MUST do. In my whole life living and working in the USA for decades and living abroad for decades, I never was in a situation where I had to consult so many experts and still don’t know what to do. I am still not sleeping at night. I am trusting my present CPA, EA. But never sure. This indeed is not an American to be treated. I guess the proper wording: it is not FAIR.
@markpinetree
You are so correct. It is not fair. The IRS talks about ‘reasonable cause’. When professional lawyers, accountants give conflicting advice, how on earth is any average person able to understand what is the right thing to do. Isn’t that fact alone, reasonable cause.
Blaze perfectly summarized my situation.
After living and working so long in the USA I was used to have things like this clarified with a phone call. I used to praise the USA for this. I would give examples of this efficiency to my friends in my country of origin where I am living now. I no longer can do this. The USA suddenly has changed for me and I believe for a lot of Americans Living Abroad. As I said before I have nothing against the IRS going after tax cheaters… but to trap us and place us in this category? I really can not believe this is happening. To be truthful a small part of me still believes that the IRS will not penalize the way the are threatening us. I just can’t believe.
I just read one of Jack Townsend’s recent comments about the OVDI program. Jack is a measured guy, and not given to hyperbole, but this comment regarding the IRS OVDI represented a level of frustration I have not seen expressed before, so I tweeted it. You might want to have a read… Actually the entire thread has some good comments about Opting Out for benign Minnows.
https://twitter.com/FBAR_Compliant/status/205985918832750593
and here is another…
https://twitter.com/FBAR_Compliant/status/205984107921014785
Just to try to clear things uP;
My impression of a Quiet Discosure is filing an amended return confessing to having MORE income than the original, without explaining to the IRS.
It is NOT the same as filing past returns or complying going forward, without explanation.
However, the IRS can and will do as it wishes and demand 6 impossible things before breakfast.
There is no clear direction for any of us. Ask 5 lawyers or accountants what to do and you’ll get 5 opinions and 20 options.
Do your best and hope. Great way to live your life, eh?
I think that what was new in the Dec FS was that the IRS was showing that benign minnows should NOT go into VDI – confirming that there is another option. So I think that makes it a little better than ‘useless’ when a minnow is being told by lawyers and CPAs that VDI is the only way…
For what it’s worth, I’ve been told by two enrolled agents who specialize in expat taxes (one in Europe and one in the US), that I should file amended returns, FBARs, and brief reasonable cause letter. There was no mention of other options like going forward. I understand the reasons for that option (mainly not calling attention to yourself, correct?), but as others have also commented, it seems that if you are audited (say for a sudden FBAR showing $200k when before you reported nothing), it seems you’d be in a less favorable position regarding wilfulness, good faith etc.