I am admittedly way behind in reading the many recent good posts and comments here at Isaac Brock. I also have had a couple subjects I have wanted to weigh in on, and create new posts, but for the past couple weeks my time has been seriously constrained. However, this morning a previous post by renounceuscitizenship caught my attention. It was entitled Steve Mopsick – On the “coming into compliance dilemma”. I have been thinking about it all day, and why it is that this QD dilemma is so difficult for so many benign Minnows with the conflicting advice being provided by practitioners.
I thought I would provide some thoughts I have had, especially as it relates to the comments that Michael J. Miller posted. Now I know, I am getting into dangerous territory when I am seen to be taking sides with one good attorney over another. I certainly have no legal expertise or special knowledge that qualifies me to make comments on matters such as this. So, I am sure what I have to say is probably misguided, or wrong in some manner or another, but it is how I see this problem. It is just my novice and naive opinion. Take it for what it is worth.
QD advantages for benign Minnows
If any of you have been reading Jack Townsend’s blog recently, and hopefully you have, Jack seems to be in Michael Miller’s camp about QDs and the risks vs benefits associated with going this route. In theory, if I understand Jack correctly, he says a QD audit examination for the Minnow with benign facts and with IRM discretion applied should not be materially different than an ‘Opt Out’ examination for the benign Minnow with the same discretion applied. In fact, because of this discretion, the penalties outside the OVDI for these benign offenders should be less then the “in lieu of” penalties inside it.
However, the QD does have one significant advantage over the OVDI, IRS advice/protestations aside. It does not require one to spend countless LCUs in an extremely inefficient 2 year process and pay thousands of dollars to a practitioner for advice and help just to get to an Opt Out point where normal IRM discretion should apply in the first place.
Practitioner responsibility.
It does seem to me, on a non legal common sense basis, that a practitioner has a first responsibility to their client and not the IRS! They should present all the various options available for compliance and the risks associated with each, depending on their client’s facts. This doesn’t necessarily mean that they have to covertly compel the client to choose the IRS favorite route over another to reach a compliance objective. I don’t see it as an attorney’s obligation to tell the client they have to join the OVDI, as the only approved route for offshore compliance.
The fact that you have to examine the various options speaks VOLUMES to the stupidity of the OVDI design. The choice for compliance should be a simple straight forward one, not the convoluted, anxiety ridden, perverse and expensive process that it is now. It should be just as easy to become offshore compliant, as it for you to become tax compliant before you become Treasury Secretary!
Taking a side
I thought Michael Miller’s comments about the QD were right on point as related to the article Steven Mopsick cited. With all due respect to Steve, that article looked to me as if it was dictated and written by an IRS ghost writer by the name of Randall P. Andreozzi. I wonder if the IRS commissioned him to write it, or is he a past IRS attorney writing from a perspective that he has a predisposed inclination to support? To me “the tell” were these sentences that indicated this was not just an ordinary unbiased scholarly writer, who was pointing out the OVDI conundrums.
“People will not respond to such a program unless they are sufficiently frightened by or concerned about the consequences of remaining in the weeds. As a result, the government must generate interest in voluntary foreign account disclosure through well-publicized prosecutions and penalties to establish to the public that the risk is clear and it is present.”
That told me all I need to know about the author and where his sympathies and bias lay! I can understand why Steven, 30 years working for the IRS might have similar opinions, and I don’t hold that against him. If I had been there that long, I might self identify with that perspective. Frankly there was some aspects of the alternate way Steven has suggested to Expats about a possible different approach to compliance that I think it merits consideration. In some ways it is a QD with a microphone! Kinda a halfway house to Voluntary Disclosure. Will it work? Don’t know, and haven’t yet formed an opinion, but it has me mulling it over.
Mission Impossible
When I consider these past 3 years of IRS offshore jihad, for the life of me, I do not understand why the IRS continues to assert / imply with their FAQs, that all those who are FBAR and offshore income non compliant must just join the OVDI. Surely, in the bowels of the beast, the IRS must have one non intellectually challenged analyst who has done projections of the 25-40 million “non compliant” offenders around the world. They must realistically know they would be totally incapable of handling the all these applicants should they decide to follow the OVDI procedures the IRS has created. They could not do it. It is impossible! They do not have the budget resources for the 10s of thousands of examiners necessary to handle the additional workload that their insanely complicated, inefficient and tediously redundant program requires.
Additionally they know, that millions of benignly non compliant Minnows would actually get a better deal outside the program, in an Opt Out, using normal IRM discretion should they be audited. However, since they can not possibly process them all inside the OVDI to the Opt Out point, for the above stated reasons, they are totally disingenuous in their assertions that such Minnows should not do a QD as a route to compliance. Hell, they should be begging them all to do QDs, so they can just pick and choose who they want to audit as a much better way to screen for the egregious failures, while allowing the Minnows reasonable cause escape from the draconian penalties. Let’s face it, just amending and filing back returns and FBARs plus paying some taxes and interest penalties with the associated LCU cost and professional fees is penalty enough for the new found need to be compliant! Why does the IRS want to pile on?
It’s the Penalty Money!
I have come to the conclusion that someone has callously came up with projection of how many they can actually force into the OVDI through their threats of more serious penalties outside the program, and can therefore take them for more penalty money then would otherwise be possible given the IRS resource constrictions and IRM penalty reducing discretion in normal audit processes.
This is not about improved compliance, Commission Shulman’s assertions not withstanding. This is about the best (worst actually) way to produce maximum penalty revenue, pure and simple.
Looking Back
What is obvious to me now, is that going back to when the 2009 OVDP was designed, it was intended for the egregious homeland Whale. It was conceived as “easy money” that could be generated off the UBS client lists about to be exposed, without having to go through lengthy DOJ criminal prosecutions. It then evolved over time to create technical adjustments with lesser penalties for more benign non compliance, as they realized their nets were filling up with Minnows for which the program was never intended. They started to lower the penalty levels and threshold amounts for certain financial conditions, going all the way down to the most “innocent of innocent”, the non resident accidental American who didn’t even know they were American!
Under the program, should this poor non resident fool join the OVDI, they would “only” have to pay a 5% penalty of their entire “offshore” assets for the privilege of now being compliant to an obligation they did not know, could not have known, was required! Say what? Read that again.
FAQ 52.2 states: Taxpayers who are foreign residents and who were unaware they were U.S. citizens,…. is entitled to the reduced 5% offshore penalty.
Why would the IRS insist that a person like this have to join the OVDI process in the first place, and then grant them an “entitlement” of a reduced 5% penalty for a condition by their own definitions has a “reasonable cause” exception to any penalties outside the OVDI program using IRM discretion? For this they are supposed to be thankful and forever grateful for the benevolence of the IRS and the leniency of the 5% OVDI penalty entitlement? Geez, lucky them!
What Should the Penalty Be?
So let me see if I get this right. The IRS uses hyperbolic threats with DOJ press releases of criminal prosecutions, and produces examples of severe penalties in their FAQs, to frighten even these most innocent non resident accidental American Minnow into joining the OVDI, so they can extract a 5% tribute for the new found knowledge of U.S. Citizenship and its bizarre taxation and reporting requirements? That sure is a new definition of an “entitlement” in the perverse world of IRS logic. 5% is 5 basis points too high! They should pay nothing, nada, zilch, zero! Instead, the IRS says, “5% please, thank you very much!” It is stunning when you think about it, and let it fully sink in what they are doing!! I hadn’t really focused on it until Moby pointed it out to me. He is right! It is beyond stunning, it is bizarre! It is the “smoking gun” that apparently shows their OVDP program has now morphed beyond good intentions to ferret out homeland Whales to premeditated and deliberate actions to fleece the most innocent of Expats abroad. I just don’t know how any attorney can defend these actions, and with a straight face blindly follow IRS OVDI guidelines and not advise clients about other compliance routes with this glaring example staring us in the face.
In the case of these non resident accidental Americans who didn’t know they were American, they would surely get a “go and sin no more letter” and no penalties at applied at all if they were audited under “reasonable cause” provisions of the IRM. Now, why would an attorney advise this type of client to enter the OVDI and pay 5%, when this is obviously not appropriate in the first place? If audited, after doing a QD, this Minnow should get the same IRM “reasonable cause” discretion as in an Opt Out or normal examination. In my non legal opinion, it would almost be criminal for an attorney not to provide consideration of the QD, as an alternate route to compliance.
To be truthful, I would wonder why this non resident accidental American would now want to complicate their life with this new compliance regime. The preferred IRS OVDI alternative is actually another form of an Exit tax piled on top of the accidental American who surely would want to renounce their citizenship, if they only they could jump through this newly discovered expensive hoop!
Dystopian Program
So it has come to this. The IRS has created an Orwellian monster in this OVDI program that penalizes the most innocent of innocent, threatens them if they don’t to do an OVDI, presents examples of terrible penalties that can apply outside program, knowing full well, that such a person would never be levied those penalties if they Opted Out, or if they were audited after doing a QD.
It is just morally bankrupt for the IRS to continue to imply that “all” must chose the OVDI route, or threaten attorneys with circular 230 sanctions for advising alternative compliance paths for benign Minnows. Frankly, the cost to the government to process all of them, and the cost in LCUs and practitioner fees to the Minnow just to get to a point as much as 2 years later where they can Opt Out to receive a lesser penalty under IRM discretion than applies inside the program and equal to a QD audit examination represents “Stupidity on Steroids” and is beyond belief.
Why didn’t they redesign the OVDI?
So why, one may ask, didn’t they pause and reconsider what they were doing, as the OVDP nets begin to fill up with Minnows? They should have said, “Whoa!, we need to redesign our OVDP to let these Minnows have a safe harbor escape at the front end, rather than continue a back end Opt Out process. We need to concentrate our limited resources on the Whales.”
However, they don’t think that way. Their mindset is different than yours and mine, and I would say they are not normal rationale operators. They are lost in a technical and legal maze of such complexity that they are trapped in their own Gordian Knot. So it is probably not so amazing that the IRS did just the opposite, by consciously eliminating the FAQ 35 discretionary relief half way through the OVDP. Instead, in its place, they have instituted at the lowest level a 5% penalty to be sure they extracted some pain from those that could not have known they were non compliant in the first place!
They obviously don’t get it, or worse, do get it, and don’t care. This is the equivalent of financial water boarding for Minnows.
This is just a callous attempt to raise revenue on the backs of the most innocent and vulnerable! They just want the money.
In the meantime, millons/billions of dollars are lost to fraudulent anonymous Corporate shell games, that they and Congress don’t have the time to bother with while they continue their offshore Minnow to fertilizer conversions.
Or, maybe, it is just a Big conspiracy with Senator Carl Levin, using little known FBAR penalties and the 2010 Hire Act FATCA provisions to provide full employment for life for their all their examiners! This was job creation after all. (I joke, I think?)
In conclusion, what this tells me, is that the IRS, once it is set upon a course of complete irrationality related to world wide citizenship tax compliance, is like a drone heading for a GPS waypoint. It is locked in, and incapable discerning there are innocent women and children inside that compound it is targeting. And just like the FAQ 35 withdrawl, they remove any discretionary control levers from the hands of the remote operator to assure that the mission remains on auto pilot and can not be recalled. It is frustrating to watch, even now that I am no longer being targeted myself.
Here is an interesting article at Federal Tax Crimes “Family Member Enabler Charge Dismissed re Offshore Accounts” http://federaltaxcrimes.blogspot.com/2012/05/family-member-enabler-charge-dismissed.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FoGeEWy+%28Federal+Tax+Crimes%29
@Just Me
Thank you for this exceptional post.
Randall P. Andreozzi is a former IRS attorney.
http://www.aftaxlaw.com/Professionals/RandyAndreozzi/tabid/69/Default.aspx
“You might be able to take the man out of the IRS, but you can’t take the IRS out of the man.”
I wrote some comments on his article here:
http://isaacbrocksociety.com/2012/05/21/steve-mospick-on-the-coming-into-compliance-dillema/#comment-19824
There is absolutely no doubt that the IRS is using OVDI as a way to raise money pure and simple. It is so immoral that it makes me ashamed to be a U.S. citizen. But, what makes me more ashamed is that, I honestly believe that the IRS doesn’t see OVDI as immoral. That is the bigger problem in the scheme of things. In fact, I have come to see OVDI as nothing more than an:
“FBAR Fundraiser”
On the issue of practitioner responsibility. You say that:
“It does seem to me, that a practitioner has a first responsibility to their client and not the IRS! They should present all the various options available for compliance and the risks associated with each, depending on their client’s facts. This doesn’t necessarily mean that they have to covertly compel the client to choose the IRS favorite route over another to reach a compliance objective. I don’t see it as an attorney’s obligation to tell the client they have to join the OVDI, as the only approved route for offshore compliance.”
You are absolutely right. Some lawyers have admitted that they feared being accused of “Circular 230” violations if they did NOT advise clients to go into OVDI. Really? So, OVDI lawyer – let me get this straight: You are advising a client to enter OVDI, because you are believe that if you don’t, that you are in violation of IRS rules of conduct. What about the ABA rules of professional responsibility? Don’t they require you to disclose all legal options to the client? Don’t they require you to represent the interests of the client? If a client comes to you, who do you think you are representing? The client, the IRS or yourself?
Let me put it this way:
Any person with a license to practise law, who does not educate and counsel the client in terms of all legal options is NOT ACTING AS A LAWYER SHOULD!
The first post I wrote for the Isaac Brock Society was on this very point – that is specifically whether the “cross border professionals” could be trusted.
Next in your post you write that:
“Frankly there was some aspects of the alternate way Steven has suggested to Expats about a possible different approach to compliance that I think it merits consideration. In some ways it is a QD with a microphone! Kinda a halfway house to Voluntary Disclosure. Will it work? Don’t know, and haven’t yet formed an opinion, but it has me mulling it over.”
Yes, I think that Steven’s approach makes a lot of sense. It seems to me that: “QD with a microphone” is:
– consistent with the Dec 11 FS
– really not much different from “traditional voluntary disclosure”
Note to IRS: For God’s sake, people want to be in compliance and want to clean up past problems. Why interfere with this?
If you accept that a lawyer has ethical obligations to the client which include:
– determining the client’s facts,
– researching the law,
– advising the client on whatever existing legal options may be available,
– allowing the client to decide which legal option he wants to pursue
– then assisting the client in pursuing the chosen legal option
then
a lawyer who fails to do this may be guilty of professional negligence.
It would be very interesting to have some lawyers comment on what they see as their ethical obligations to the client.
I think the point about a lawyer’s responsibility to his client to advise on QDs is spot on. Set forth below, word for word, is a post I made precisely to this effect in another forum.
Ethical Representation of Clients With Foreign Account Problems
This is a spinoff question from the thread titled Another FBAR Conviction. Another advisor indicated that his firm’s policy is not to assist clients with so-called quiet disclosures (QDs), at least in connection with foreign assets. As I understand it, they acknowledge that taxpayers have every right to make QDs, but they fear the the Office of Professional Responsibility (OPR) would impose some form of discipline, e.g., because sending in returns “quietly,” hoping no one will notice, seems a bit “sneaky.”
Putting aside the question of whether OPR could justifiably punish tax advisors merely for assisting clients in taking permissible actions they have every lawful right to take, there’s a huge ethical problem here.
My view is that, if a tax advisor (for reasons relating to the tax advisor’s own self-interest) is unwilling to advise his clients of all permissible, legal options that may benefit the client (such a QD), he can’t properly and ethically advise that client.
I would be very interested in knowing what others think. Thanks in advance for any input.
OVDI is a sucker’s game. More to the point I’m not wasting hours of my time filling in forms to prove to the US government I owe them zero tax.
The US has an awful history of wasting its time and resources on profitless ventures (Prohibition, the Drug War, Citzenship-based taxation, the Vietnam War, Gulf Wars, McCarthyism, and the Cuban Trade Embargo). All these could have been handled in a better way for both the US and the countries / persons involved.
Indeed Winston Churchill, whose mother was American, once said “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.”
And he’s right. The US will never admit it’s wrong until all the collateral damage has been done. In terms of citizenship-based taxation, they are now running out of possibilities (FBAR, FATCA, Expatriot Act etc). Senator there must be something rotten in the US at its core if people choose renunication these days.
@renounceuscitizenship
If I had been more diligent in my reading recently I would have seen your comments, and probably figured the subject had been covered well enough and gone to bed at 3am instead of laboring over this subject which was bother all day yesterday. I appreciate you drawing your attention to them again, as it makes me think that maybe I am not so far off in my thinking, which seems to be to be common sense. But I know common sense has no legal standing!
@Michael Millar. Thanks for your comments back because that is exactly the way I see it. As another attorney who I respect said to me in a private email, the basic reason some attorneys think they way they do, is
and that
I do think, some well meaning folks toiling away within the IRS have clearly have been
and are now working hard to have more abductions in the practitioner community at large!
@John…. The OVDI is not a suckers game for the criminally egegious homeland tax evader. It is a GREAT deal, with the get out of jail free card. It is just a perversion that the IRS creates a better benefit for the overt offender, than it does for the benign failure. The scales of justice tilt again in the wrong direction, but given past practices I guess we should not be surprised.
It’s the money. Easy money. That’s why the IRS is pushing OVDI (I couldn’t find the following scene from Terminator II in English, but at the end, John Conners waves the money and says, “Easy money”!
“FAQ 52.2 states: Taxpayers who are foreign residents and who were unaware they were U.S. citizens,…. is entitled to the reduced 5% offshore penalty.”
As a Canadian who thinks and feels that I cast off my US shackles decades ago, I strongly feel that people like myself, and the Accidental Americans should not have to enter any OVD program, should not even have to worry about any of this crap. What I want (and I know I will never get) is a statement that those of us in this situation have no obligation to the IRS for anything, whether now or in the future. I don’t want a ‘low’ 5% penalty, I don’t want ‘amnesty’ as if I’m a criminal, I want recognition that since I have nothing to do with the US, I have no obligation of any sort to the US. I reiterate a common theme on this site, I just want to be left alone to live my life in my country of choice, without stressing over the IRS ruining my life. However, since this IS a ‘fundraising event’, that will never happen.
@outraged FAQ 52 shows that the IRS is acting in bad faith. They opened up the program to people who shouldn’t at all be in it, and are willing, however, to take only 5%. This is frightening extortion. If you didn’t know you were even American, the problem is that the definition of a US person for tax purposes is problematic, not that you should owe even one red penny to the US treasury. It is unmitigated evil and extortion.
I watch the entire series of the Sopranos. Even Tony Soprano was not infrequently more generous and forgiving than the IRS.
@Petros. Absolutely.
Extortion: “Illegal use of one’s official position or powers to obtain property, funds, or patronage.”
“An excessive or exorbitant charge.”
First it must be remembered that every single case is factually unique. Our firm has been advising people in this area for years and just like the OVDI program’s “one size fits” all approach does not work, there is no blanket rule which says a quiet disclosure is never appropriate.
Yes, a lawyer’s first obligation is to vigorously defend his client and advise the client of all permissible approaches to a given problem, but that doesn’t mean the client’s papers are going forward with my name on them if he chooses a quiet disclosure. Why? Because the IRS has said not to do it this way and if your license to practice before the US Treasury depends on how well you follow the published rules, you don’t play fast and loose with those rules.
And while the IRS is not above the law, and any practitioner is free to challenge the IRS in court, the sad truth for people who go down that road is, if you are spending your time and money taking the federal government to court, you have already lost before you even begin.
There is one purpose for a quiet disclosure in the offshore arena, and one purpose only: to try to fool the government into thinking that everything is just hunky dory. It says in effect, “you don’t have to examine me, thank you. Just move on to someone else. I have already decided I am right so don’t waste any time on me.”
A quiet disclosure is a deliberate attempt to deceive the government to avoid the possibility that someone with a statutory duty to do so, might want to take a closer look and see perhaps if your so-called quiet disclosure is incomplete in some way in its failure to address all of the tax issues in the year of the amendment or for years preceding the quiet disclosure or even issues in a future year.
But there is a middle ground which I address in my upcoming July, 9, 2012 article on Tax Justice for Americans Abroad, to be published by Tax Analysts in Tax Notes Today : make a noisy disclosure under Part 9 of the IRS Manual which DOES NOT go through the cumbersome, expensive, maliciously compliant, overly complex OVDI program. Simply put, the taxpayer files his amended or delinquent returns with the appropriate Service Center along with a detailed cover letter from an attorney describing why the OVDI program was not designed to apply to this client’s facts and why the amendments and submissions bring the client in full compliance with the tax laws.
Under this approach there is no ducking and weaving, no sleight of hand. If the lawyer is sure he’s got it right then “man up” and go through the front door and tell the Tax Man why he is right. Under this approach the client has a far greater likelihood of knowing sooner rather than later whether the Tax Man agrees with his lawyer’s analysis or whether the client is to spend the next three years worrying every time he goes to the mailbox whether his lawyer served him well or whether he pushed him down the wrong path.
I think it’s a uniquely “IRS mindset” that something is impermissible solely because the IRS doesn’t like it.
There is no rule against quiet disclosures. If the assertion is that such a rule exists merely because the IRS doesn’t like them, that’s (to use a technical term) way out there.
I also strongly disagree with the statement that “the IRS has said not to do it this way.” The IRS has emphasized that, if one makes a QD, all of their options (civil and criminal) are on the table. And they seemingly have tried to intimidate people who probably have no business being in the program into joining for fear that the IRS will assert the worst, regardless of the true facts. But nowhere has the IRS ever said “not to do it this way.” And nowhere has the IRS articulated any rule that would be violated — by either a taxpayer or the taxpayer’s tax advisor — if a QD is made.
If the assertion is that IRS preference constitutes a rule that taxpayers or their advisors must follow, I’m in utter shock that anyone could actually believe that.
@Just Me, great post, as always. Man, you’re a good writer and analyst.
@Steven, I like the approach you’re proposing. I am ready to sign up 🙂
So what usually happens when bright ideas are proposed on Tax Notes? How long does it take before the IRS officially approves them and make the appropriate recommendations?
The uncertainty is killing me. I want to make it right, but not through OVDI.
@Justme, I think you’re spot on. At least I share the same thoughts and I thank you for taking the time to put them into words.
It’s clear that the IRS is not interested in encouraging compliance as that would require an investment of resources for little return. It’s much easier and cheaper to pluck the low hanging fruit and look like you’re making a success of catching the bad guys. The average American seems to be satisfied with this because it feeds the American exceptionalism delusion that US citizenship is worth a premium. By some miracle, should citizenship based taxation be eliminated I suspect we’d be hearing from these same people how great America is for upholding freedom and liberty for all Americans.
For the record, our lawyer offered several options before we entered OVDI:
Do nothing, file for 2011 only and hope for the best, make a quiet disclosure, or enter OVDI.
@ Steven:
Re: QD; I am not sure what is meant by quiet disclosure. But I am aware of this: when I first read about FBAR in the 2010 Income Tax Information Booklet, the IRS said that if you’d never done a FBAR and you had accounts, that you should file back-dated FBARs with a letter of explanation, and that it was possible that instead of fines a person could get a letter of warning.
The fact that the IRS actually encouraged people to do this, suggests that something at least akin to QD was actually encouraged? Or is this what is called noisy disclosure. I’ve been reading about this whole b.s. for about two years now, and even I am confused by the terminology. Here are my working definitions:
(1) OVDI— go in the front door, and pay 27.5% extortion fines of your financial wealth, including the value of your principle residence (if it is abroad).
(2) Go-forward disclosure–report your accounts from this point forward, forgetting about the past. This may lead to questions (hence an audit) about when these accounts originated and where the money came from.
(3) Quiet Disclosure – filing going forward, and sending back dated FBARs–with a letter saying that you were heretofore unaware of the filing requirements. If the IRS doesn’t accept your reasons, then they have all the information that they need to assess up to 300% fines of your financial wealth.
(4) The Petros Approach: Renounce your citizenship, tell the IRS to put their FBARs where the sun don’t shine, and live happily ever after, keeping your real estate and retirement funds fully intact. This approach works if you live in Canada or some other country which has promised not to collect taxes for the IRS from Canadian citizens and not to collect FBAR fines ever. It requires no legal fees and few filing fees if any. It may result in permanent exile because the United States is a barbaric country and a pariah among the nations.
(5) Full-ostrich approach — just keep living your life as if this nightmare wasn’t even happening; don’t file taxes and don’t file FBARs. Or if you file your taxes, pretend that FBARs don’t exist. This option may be impossible with FATCA around the bend.
@petros, Yup! Great incentives there (to jump off a bridge).
@Petros
So there was no mention of FBAR in the 2009 or prior tax information booklet.
In a strict legal sense from the perspective of FBAR renouncing is a quite valid legal solution even from the sole perspective of US law. FBAR has a six year statute of limitations thus for someone lets say who renounced in 2011 and have had an FBAR due on June 30th 2010 the clock is ticking quite fast for the US government to do anything at this point nor do I think they would at this point(My sense is they would want to go after someone who they could nail for both current year and ALL past six years not someone for three years pre 2010). I also think it might be good idea for anyone who renounced in 2011 to take an automatic extension for the 2011 return and Form 8854 in advance of June 15th. Again run the FBAR statute of limitations clock out some more. Are they going to want to spend late 2012 and early 2013 dealing with FBAR issues from pre 2010 of people who are no longer US citizens and haven’t been citizens for almost two years.
@petros, Steven, my apologies for speaking out of turn. That rang true for me in my assessment of the situation last summer.
@Tim I was just mentinoning when I first heard about FBAR and how the instructions said to remedy the situation. Perhaps my understanding is incorrect: that the filing of late FBARs with a letter is what Steven calls a noisy disclosure and quiet disclosure is just simply to file without any cover letter?
@ Just Me
“If I had been more diligent in my reading recently I would have seen your comments …”
This is a very prolific forum (mea culpa lately too) and it’s nearly impossible to read everything. I’ve taken to doing screen shots of the Recent Comments section just so I can keep track of where I left off. I’ve had the time recently to almost keep up here but with all your travels we knew you wouldn’t be able to, nor were you expected to, keep up. We just value each and every one of your contributions whenever you find time to graciously give them … and for heaven’s sake sleep is important too!
I bite my nails every day…
@petros, I heard that a cover letter only draws more attention to your returns ..Who knows what’s best??? I think it is a gamble any way you look at it.
@ saddened — draws more attention, and that is perhaps why , I think, Steven is calling this a “noisy” disclosure. But doing the late FBARs is noisy no matter what. They are going to see that their late, right? Or do they not even bother to read the envelopes. Sort of like how the Ark of the Covenant, crated, in Area 51, was still there in the last Indiana Jones movie. Your FBAR is just sitting somewhere in its original envelope unopened in with millions of other unopened envelopes. Who the knows what the government actually does with this crap?
@all. Please see and read carefully, Internal Revenue Manual Part 9, (criminal investigations) specifically, section 9. 5. 11. 9 on Voluntary Disclosures which has been a Justice Department/IRS policy for decades, long before anyone ever dreamed up the so-called offshore voluntary disclosure initiatives. This section describes what a noisy disclosure is. Any time you file an amended or delinquent tax return with the IRS that includes a letter describing how and why you screwed up, “just found out” about something, or just woke up from a coma for the past 20 years, that is a noisy disclosure.
@Petros, that Booklet you read in 2010 about FBARs was describing a noisy disclosure and it went on to state that “if you owed no tax” for the years you should have been filing FBARs you may qualify for simply a warning letter.
@all: once again I find myself in the role of “contrarian” on the pages of the IBS society but here goes again: you can think and say all you want that the IRS just slaps penalties around haphazardly because it’s a slick way to attack the budget deficit but it is simply not true. As Billy Pilgrim said over and over again in Kurt Vonnegut, Jr.’s Slaughter House Five about the fire bombing of Dresden, “I was there! I saw it with my own eyes!!” The IRS doesn’t do that. It may be a mindless, muscle-bound bureaucracy but it NEVER adopts or pursues a policy just because it is a revenue raiser. They do that on Capitol Hill and perhaps at Treasury but not at the IRS. They may be bone-headed, insensitive, unfathomable, and impossible to deal with, but it’s entire corporate culture is based on how to carry out its mission of somehow trying to figure out what the hell Congress was trying to say when it enacts, what it calls “tax legislation. ”
Here’s an example of a quiet disclosure: let’s say a taxpayer has been earning $100,000 a year for the past ten years from a card game he runs out his house which he never reported on his tax returns. He loves the game and has no intention of ever giving it up so he decides to just start including the $100,000 a year he makes from the game from now on into the future. Here’s another example of a quiet disclosure: the guy prepares amended returns for the past three years including the $100,000 per year as “other income” and files one of them with the Ogden Service Center, a week later he files another one at the Fresno SC, and a week after that he files the third one at the Austin SC. He does this because he couldn’t find anything in the Internal Revenue Code, the Regulations or the Manual in which the IRS has said not to do it this way. He also does it because he knows the IRS thinks amended returns are just fine and his tax advisor tells him there is no law which says your returns have to be filed at the same place every year. Also, the Petros Approach may be a fine idea for some folks who are not expecting any social security payments, annuities from the US, or other fixed and determinable regular payments from a US source, but for a dual national who is depending on a future income stream from the United States, renunciation or telling the IRS to go pound sand may not be the smartest thing to do once the anger and rage subsides.
@Christophe: there is no direct connection between floating out bright ideas in Tax Notes and anyone at the IRS either reading them or suggesting that they be considered. There is a higher likelihood that my article about tax justice for Americans abroad may be the butt of a bunch of jokes by a group of IRS guys sitting around their desks with their feet up at lunch time.
That said, for all its faults, this is still a free country and if I get pleasure out publishing an article telling the whole world that the IRS is wearing a funny looking hat I can do that and maybe someone outside the IRS who knows more big shots than I do will also read it and think perhaps I have a good idea.
(5) Full-ostrich approach — just keep living your life as if this nightmare wasn’t even happening; don’t file taxes and don’t file FBARs. Or if you file your taxes, pretend that FBARs don’t exist. This option may be impossible with FATCA around the bend.
WHY NOT? ASSUMING THAT THE BANKS WILL BE ALLOWED TO VIOLATE CANADIAN LAW, WHAT HAPPENS EVEN IF YOU ARE REPORTED TO THE IRS? (WHICH I DOUBT WILL EVER HAPPEN IN CANADA). WHAT IS THE DIFFERENCE BETWEEN WHAT PETROS DID AND THIS OPTION?
Fatca guidelines indicate only an electronic search for US identity on accounts less than one million dollars.