Steven J. Mopsick, 30 year IRS vet, commented on the procedures announced by the IRS 26 June 2012:
NEW FILING PROCEDURE
FOR AMERICANS ABROAD: TOO LITTLE BUT NOT TOO LATE
On June 26, 2012, the IRS announced a new filing compliance procedure for non-resident U.S taxpayers. The procedure provides that current non-residents including dual citizens, who have not filed U.S. income tax and information returns, may file three years of delinquent tax returns and six years of delinquent FBAR’s without fear of IRS punishment. Provided the delinquent returns are (a)“simple returns,” (b) the IRS determines that the taxpayer’s package presents a “low level of compliance risk” (c) and the returns show less than $1,500 of tax due for each year, the taxpayer can expect an expedited review process possibly resulting in no assertion of penalties or further follow up procedures. The notice makes it clear that this new procedure is not a substitute for a voluntary disclosure nor the more formal OVDI 27.5% tribute program and that if a taxpayer has a well-founded worry about the risk of criminal prosecution he better consult a lawyer.
The new program is a good idea and is perhaps more notable for what it says between the lines rather than in its explicit details: the program says to me what I have been saying on these pages since February, namely the IRS has the ability to use common sense and good judgment in culling out the “no brainer” situations where the “one size fits all” approach of the OVDI program just doesn’t make sense. Also, it is an admission on the part of the IRS that they didn’t think the OVDI program through carefully enough to anticipate what must be an overwhelming flood of OVDI applications which are now clogging the system, many of which really do not belong in the program in the first place.
For all the griping and skeptical comments so far, there is clearly good news here because it is a great chance for some people with simple returns to get an almost free pass to the world of future compliance assuming they really care about their status with the IRS.
The problem is the new program will only apply to a tiny fraction of Americans abroad with real tax issues. Moreover, many of the folks who qualify to file “simple returns” with little tax due already have one foot out the door when it comes to American tax compliance and could care less about what the IRS thinks. Also, Petros and other Brockers should feel some sense of vindication because (1) it is an IRS admission that its menacing public pronouncements notwithstanding, its OVDI “bluff” has been called and (2) it is a public acknowledgement that the IRS has known all along that it “ just had to do something” to tell the world that there should be, and can be a mechanism available for low level IRS workers to use common sense and good judgment when they process simple cases.
But the IRS is fooling itself if it thinks that many people are going to jump on the band wagon as a result of the June 26 announcement. Many Americans abroad will read the new program as a better chance to argue “reasonable cause” or “no tax avoidance motive” at some time in the future, if and when the IRS ever catches up with them. The reason is, the IRS will find it hard to argue that the publication of an obscure announcement in tiny print on its web site is sufficient notice to the entire world-wide expatriate community that they are now on notice that they better act now to get into compliance or risk a heavy hammer if they don’t develop a healthy fear of what the IRS could possibly do to them.
It should be clear to even the most paranoid expatriates that ignoring the new program will in no way increase their chances of the IRS opening a criminal investigation against them, nor should anyone believe that the failure to elect the “simple returns” procedure or the draconian 27.5% tribute program will result in the IRS throwing the penalty book at them in the face of the remote possibility that they will get caught by the IRS at some time in the future.
The new procedure is “too little” because my guess is when the IRS announces the details, “simple returns” are likely to include those with only a schedule A and B and not much more. If there is a small amount of “economic activity” in the United States, if a taxpayer is doing business through a corporation or partnership, if there is a relatively small amount of US source income, a legitimate trust or foundation to support an elderly relative, a foreign mutual fund or PFIC, a residency or filing status issue, or any complication at all which would cause a return to require a regular revenue agent’s attention (as opposed to a lower level office auditor) those taxpayers will have to go through the rigors of the OVDI 27.5% tribute program or a noisy disclosure outside the program if the practitioner has the guts to stand fast and look the IRS straight in the eye.
The new program is not “too late” because it says finally, that (1) there is in fact a de minimus amount of unreported income which will be excused contrary to the OVDI FAQ’s, (2) a noisy disclosure outside the 27.5% tribute program will be ok to show reasonable cause for failure to file income and information returns AND FBAR’s, and (3) legitimate retirement and savings plans are not at risk for IRS abuse or confiscation.
The new program is a good start. We hope that in the future the IRS will continue to issue further guidance and be a bit more broad-minded when defining “no brainers.”
@Steven
Very insightful stuff.As I wrote in a post, I see the June 26 announcement as part of the evolution away from the “hard line” of OVDI.
I agree with you that it is “too little”. It would appear to give a free pass to an insignificant number of taxpayers who probably don’t owe tax anyway. Furthermore, it appears to apply only to people who never filed (excluding those who have filed but could have filed better returns).
What is interesting though, is that is that since 2009, the IRS has created a situation where there is a presumption that it cannot be trusted. To define “low compliance” risk as “simple returns” and little tax owing is ridiculous. What is this supposed to mean? That this group has little chance of owing back taxes?
If the IRS is really interested in compliance and lowering the compliance risk, they should define “compliance risk” as “as the risk of non-compliance” if people know the law. The IRS would have gotten much better results if it had:
1. Gone on an education campaign;
2. Given people a reasonable opportunity to comply after that campaign.
I really believe that most U.S. citizens do want to be in compliance. They just don’t know how to do it. They call lawyers and accountants who say: Enter OVDI. Ridiculous. Few people can even afford the financial cost of such stupidity.
There is only one thing the IRS could do and its very simple.
Give an FBAR amnesty and guarantee no penalties of any kind for people who are willing to come into compliance. That’s it. Nothing less will suffice. As it stands now this June 26 announcement is:
1. Of no comfort to the vast majority of U.S. taxpayers abroad; and
2. By not defining “low compliance risk”, the IRS has succeeded in raising the level of distrust another notch.
The IRS needs to think clearly about what it’s objective really is.
Thanks for taking the time to write such a detailed and insightful comment.
Happy July 4th!
At this point, I think it is unlikely that there is anything the IRS can say or do that will repair the damage done in the last year. The current IRS administration has “poisened the waters” for at least a generation.
*The IRS seems at least to understand now that they must treat Americans Living and Working Abroad as people who deserve respect and can´t be considered criminals or tax cheaters. Of course they will have to differentiate these Americans from the ones who live in the USA and have hided foreign bank accounts to avoid taxes. They should also recognize that wha tthey are doing to Americans Living and Working Abroad is going to take away many votes from President Obama who may need them to win the next election. I fail to understand why Americans Living and Working Abroad would hide any income since they have Exluded Income and Tax Credits. The only thing that will prevent them from sending the proper paper work is the large amount of forms and reports and what they will have to pay to US CPAs and Tax Lawyers. It should also be recognized that Americans Living and Working Abroad are US embassadors and contribute for more jobs to be avaliable in the USA.
@Thatisme
” I fail to understand why Americans Living and Working Abroad would hide any income since they have Exluded Income and Tax Credits. The only thing that will prevent them from sending the proper paper work is the large amount of forms and reports and what they will have to pay to US CPAs and Tax Lawyers.”
I don’t think that U.S. citizens abroad attempt to hide income. The problem is that the IRC is so difficult to understand that many people, who thought they are in compliance, are no learning that they are not. This could be for any number of reasons – but none of the reasons is a desire to hide income.
Examples include not knowing about:
– PFICs
– SubPart F income
– All the foreign retirement savings plans (TFSAs, etc.) which are deemed to be foreign trusts
– Difference in tax treatment on principal residence. The list goes on and on.
So, the reality is that, even people who thought they filing properly are finding out they have not been. I can also tell you that, these issues are so complicated that only lawyers/accountants who deal with internationl tax understand this stuff. To put it another way: the vast majority of lawyers and accountants do NOT know this stuff. So, many U.S. taxpayers abroad, have attempted to be in compliance over a long period of time, but are now learning that they relied on bad fincial advisors and accountants. No accountant was “FBAR literate” prior to 2010 or 2011. Look at the HR Block site for example. There was NO mention of FBAR until the fall of 2011. How many U.S. tax returns were filed with FBAR?
Personally, I think this is a much bigger problem than the “simple tax return” and “no tax owing” stuff. Until this issue is addressed, the level of distrust will grow bigger and bigger. The most that can be said about the June 26 announcement is that it is a small (very small) step in the right direction.
I don’t believe that the IRS even understands the complexity of this problem.
A final thought to consider: how can these people even afford the financial cost of coming into compliance? Many people are looking at six figure compliance fees.
My problem with the new procedure is that it really gives the IRS too much flexibility. Take for example my 2009 return. I had an adjusted income of 28K and 3K liability (including late fees and penalties), which exceeds the IRS limit ($1500) regarding low risk players. Now, the question I keep asking is this: Does this mean that I am now susceptible to 383% FBAR fines if the IRS finds out through FATCA that I have undeclared offshore accounts.
The IRS is wasting its time and our time, and taxpayers’ money pursuing benign players; it must do better. Offshore citizens are subject to clear cases of double taxation in very common traps set for them by Congress: PFICs, TFSA, AMT, and registered pensions (RRSPs excluded), unearned income (and this will become worse with 3.8% Obamacare surcharge). The $1500 limit assures that only housewives and students with no income whatsoever will receive basic protection from the overreach of FBAR fines.
The requirement of an offshore person to declare a account in the country in which he lives is patently ridiculous and serves no purpose except to harass innocent people. I forget where I read it, if it was Steven or some other common sense advocate of citizens abroad, but the proposal was to eliminate the reporting requirements on accounts in the country where the person is physical resident. This would be common sense. Mr. Geithner, get off our backs.
*I agree with you all. Yes, amnesty to me would be allowing every American Living and Working Abroad to start filing whatever the IRS wants from them. I really believe that the IRS owes us an apology for the pain and suffering it has caused us since 2009. As far as I can tell we are as Americans as anyone else and should be respected as such. And, of course we should have representation.
@Thatisme
‘Yes, amnesty to me would be allowing every American Living and Working Abroad to start filing whatever the IRS wants from them.’
That may be what some on this site want but there are others, like myself, Blaze, Arrow’s wife, Johnnb and more who would just like the Americans to accept the fact that we expatriated years and years ago. We don’t believe we have any obligation to file any forms at all with the IRS or any other US government agency. Amnesty to me would be to publicly acknowledge that peoples like us have absolutely no need to file papers with the US government as we are no longer Americans. Amnesty would also be to acknowledge that children born in other countries (who had one American-born parent), but have never lived, worked or accepted any privilege of US citizenship are forever exempt from any tax filings.
That would be true Amnesty.
*@Steven – Thank you for your comments. I always appreciate hearing your views on things! I agree it is a step in the right direction, but as you point out there are still problems.
As you mention, few Americans abroad have simple returns. I’ve filed US tax returns for close to 40 years, but was hit with a shock last summer when I learned that “information” forms were needed as well as tax returns, and my returns have always been filed by professional tax preparers or accountants. As renounce said, even the professionals didn’t (don’t) really understand what was (is) required. I have no company pension, but have used investment advisors, financial advisors, and accountants to advise me with tax planning, thus I have a situation that triggered numerous information forms. I paid thousands and thousands of dollars last summer to get these forms completed by a professional and in the end nothing changed: there was no tax owing. I had to sell stock in order to pay for pointless paperwork. From a Canadian standpoint, the financial products I’m involved with is all normal stuff – nothing unusual at all, yet the US requires overkill in its reporting requirements. So I agree with you – few people will fall into this category of simple returns.
Also, what about the poor innocents who entered OVDI under duress last year? Will they get their money back? I personally know someone who was born in the US and returned to Canada as a toddler. This person was so frightened last summer after consulting with the “experts” that they entered the program and paid tens of thousands of dollars ( in legal fees, accounting fees, taxes, interest, and penalties) to go through the program. What now? Will they get their money back? Mind you, they would not have had “simple returns,” so no doubt would come under scrutiny, but likely would have escaped without penalties and legal fees if they had waited until Sept 2012.
Also, as renounce and others have said elsewhere, trust has been broken. Who can trust what they say? The IRS seems awfully capricious. The IRS commissioner bragged about the success of the two OVDI programs. He threatened that 2011 was people’s last best chance to “come clean.” He made no distinction between whales and minnows. Now they come up with this new plan starting in Sept, but with all kinds of caveats. And it’s not just that the IRS can’t be trusted, we can’t trust Congress, either. It is very clear they are not concerned with the well-being of Americans abroad.
Also, I personally know others who are receiving “harassing” (their term) letters from the IRS. These are people who, like me, filed returns all along but not some of the information forms. I don’t know the details of their situation, but the fact the IRS is on their case tells me it is still interested, on some level, in minnows. It is causing great distress – people can’t sleep at night. I don’t know for sure, but it may be related to RESPs.
Also, all the talk about penalties (for FBARS, other forms) ramps up the stress levels considerably. The IRS uses such heavy-handed language. Ironically, it probably bounces right off the true tax cheats who hide millions, while innocent minnows take it all to heart. 🙁
In the end, I can’t see how I can keep my US citizenship. It’s simply too expensive to be in compliance with what the IRS requires. Over the decades it will costs tens of thousands of dollars. For paperwork. I’m an ordinary person who has to fund their own retirement – no company pension. In my senior years that large sum of money could make a big difference to my quality of life. Plus, I’m hampered by not being able to take advantage of TFSAs, which the Canadian government actively promotes as a good way to save for retirement.
It all makes me very, very sad. Until last year, I never complained once about filing US tax returns even though I haven’t lived in the States for decades. But the events of last summer and this past year have been the tipping point. This last year has been filled with sadness and angst for me and my fellow Americans abroad. In fact, it even makes me nervous to be posting anonymously on this blog. How sad is that? 🙁
Anyway, thanks Steven for your input and insight. Always appreciated.
@Tiger — Thank you. I’m a regular lurker, very irregular poster, and accidental American. I was born in Canada with an American father, and I lived in the U.S. with him for a few years as a teenager in the late 70s / early 80s. Because he and I were relying on the law at the time I moved to the U.S. rather than when I left, I believed that when I moved back to Canada in the mid-80s, when I was 20, I lost any claim to American citizenship, and I had no doubt of that until this past winter. I’ve lived my entire adult life in good faith as a single-citizen Canadian. Even though my professional life would have been much easier had I been American, I accepted what I believed was the irrevocable cost of choosing to be Canadian. I will not accept now that the U.S. has any claims on my entirely Canadian-earned, Canadian-invested and fully Canadian-taxed income. An “amnesty” that requires me to file tax forms and report my income to a foreign country is simply a joke.
@Steven — Thank you so much for your very level-headed, common-sense approach to this matter. I’ve benefitted a great deal from reading your posts.
@SadCdn,
You have succinctly put into words ANYONE could understand what is going on. Why is this not picked up on? Why? Why?
I am so sorry for what you, I, and all the others on this site have and are going through. I am even sorrier for the many who don’t even know what is happening, many with less funds than I have for paying for all this nonsense from my retirement savings. (And, then the fact that I am denied the right to renounce on behalf of my developmentally delayed “Accidental American” son so he can have the same benefits as others from his RDSP in 22 years when he starts drawing from it — and that I, his parent and his trustee, the “Holder” of his RDSP am taxable in the US for the Grants and Bonds that the Canadian Government has contributed to his RDSP is another sad story.)
What the US is doing to its citizens and supposed citizens abroad is immoral — the stress it has caused and the plain, yes, hatred it has caused. How do we have any choice but to renounce (or the lucky ones, relinquish) and exit the gong show?
One thing for sure, many of us really, really, really salute Canada today and all it has given us. Happy Canada Day each and every one who had the fortune to move to this country, either recently or so many years ago. We’ll get to some closure on all this nonsense one day.
@janeb
Yep, you can pretty much just ignore them entirely. It’s honestly not really a thing you need to worry about in my opinion. What exactly are they gonna do? Deny you a US passport that you neither want nor need? Seize assets in a foreign country where they have zero jurisdiction? Good luck with that.
@janeb
Welcome to the Isaac Brock Society site.
As an accidental American with a Canadian passport that has a Canadian place of birth, you will hopefully be able to ignore all of this.
I have three sons (all born after I came to Canada). I have never thought of them as dual citizens nor have they thought of themselves as dual citizens. I ‘relinquished’ my American citizenship in 1972 when I became a Canadian citizen. All three of my boys were born prior to 1972. My hope for them is that they will never be ‘discovered’. Certainly they are not going to broadcast the fact that they have a ‘born in America’ mother. They all have Canadian passports that show Ontario as their place of birth. Having said all of that, I continue to worry for them. At one point, my oldest offered to go to the U.S. consulate with me when I file for a Certificate of Loss of Nationality. Nice of him to offer, but that is the last place I would take him.
@renounceuscitizenship said: I don’t believe that the IRS even understands the complexity of this problem.
I feel, the IRS understand more than most of us in this forum. They have inside information about suffering of minnows. They have same information as taxpayer’s advocate Miss. Nina Olson has. Both IRS and Miss. Olson have access to the same information, but each one of them came to opposite conclusions. I fee, IRS deliberately ignored and pretend to do not know and continue lucrative FBAR fund raising up on legitimate financial accounts of dual citizens in the countries where they have been living for decades.
If IRS is fair, they should have acknowledged the complaints and Miss. Nina Olson’s TAD and explained why it is unreasonable. The IRS ignoring and not responding, because they have no defense to genuine suffering of expats. The IRS lost trust of all expats and honest tax practitioners.
The FBAR is so ridiculous that my son has to file FBAR, because he has US$4000 (gift from grand parents for paying tuition) and moved between his three accounts, because total of highest amounts of all the accounts is US$12000. He left the USA when he was toddler. If he enters OVDI, IRS must have wasted several months for 5% of US$4000. If he ‘opt out’ it would waste more months. The IRS is giving amnesty to save themselves, because they don’t have resources to process so many cases. The tax refund crime is exploding and IRS is not even pursuing 1% of the cases.
@Steven,
Thanks for your thoughtful comments, and observations. They have taken baby steps, tentative at best, and fraught with additional complications, pitfalls and traps. They just can not do anything in a simple way, can they? I guess it is just not in their institutional make up, but you would know that better than I.
On the very same day this announcement comes out, they also had a press release to brag about their past successes and provide information on an updated 2012 OVDP. Guess what? Look at their updated FAQs dated June 26th. Specifically FAQ 52, example 2. They still want a 5% tribute of all world wide assets from the “foreign non resident who did not know they were a U.S. Citizen”. Match that against the “common sense” rhetoric in Shulman’s other announcement.
Sometimes I don’t think one IRS department communicates with the other before they launch their press releases. I would bet that Commissioner Shulman has probably never looked at any of the ugly detail in the OVDP Camel created by their offshore evasion committee. I truly don’t think they really know the complexity of it all themselves.
With the release of Shulman’s “Common Sense” announcement, they may have thought they cleverly “lanced the boil” of Canadian outrage, but instead I think this will just help spread the renunciation infection as the trust antibiotic is totally gone! One announcement does not repair the infestation of the past.
Now, that they have announced this program, we have to wait for the details, but on the surface it appears to be so narrowly drawn that few will be able to take advantage of it. What “Common sense” does this represent? Is it any better than the lack of “common sense” 3 years ago when they applied the OVDP Shock Doctrine equivalent of riding the back of the Swiss UBS prosecution to roll out their offshore jihad? They were drunk with the hubris of their victory, but had no idea of the unintended consequences they would create in the Expats or immigrant community with their programs. Arrogance trumped ‘Common Sense’ then, and blinded them to the impacts of their actions. With this announcement, it really doesn’t appear that a humbler ‘Common Sense’ Compliance initiative is emerging except in some very limited and simple cases.
I will try to with hold my final judgement until September, but I really feel bad for those struggling to know what to do now.
If it were me, yet undecided, I would do nothing more until I saw what they came up with in September. I would bet they have frozen new OVDP participation for now. Additionally, if I were an minnow immigrant or Expat in the OVDI, without bad facts, I would be opting out using whatever reasonable cause argument I could make. I would not be intimidated by their OVDP criminal threats and outrageous penalty examples! You have to call their bluff.
I will also say what I have said previously…..if the IRS wants compliance out of the vast majority of so inclined minnows, and if they want to create a real viable amnesty to bring millions in the door, then they only need to copy and paste the example from the CRA…. accompanied by a real educational outreach. One little fine print IRS.gov Press release ain’t going to cut it!!
How about 4 simple conditions instead of 55 convoluted FAQs ?
Keep it Simple Stupid (KISS). End of story!
@Bharat
Could I plead with you to make a comment on the Reuter’s piece by Amy Feldman. She is a journalist sensitive to the immigrant issues, (I know from just recent email exchanges) We need immigrants posting their stories on media comments too, so this isn’t just an Expat story. Many are too reticence, I know, but yours is a story totally unknown in the press and it needs more visibility besides just blogs like Isaac Brock. Thank you…
@Just me: I will try, but would like to be anonymous. He already filed all the required FBARs, because we came to know about FBARs and I don’t want him to be willful violator. We invested his funds in Indian stocks and lost 30% in value and Indian rupee depreciated by about 20% during the period. So he lost more than 40% in dollar terms.
As you know, we are all afraid of IRS. Also we left the USA in mid 1990s and mostly ignorant of complex US law. It is scary we might confess to a crime we didn’t commit. I saw a video on this very forum, which states don’t disclose any thing, since it can only be used against us (but can’t be used for us). Without this forum and your great wisdom we are all lost and wish to contribute to our level best (with in our limits, being scared due to ignorance of foreign law and huge costs required to prove our innocence).
Of course, I can avoid visiting the USA rest of my life. But my son likes to study masters and work in the USA for couple of years and experience culture. Of course, he will also return to India like me and settle down here.
@Bharat
I understand the fear, and it is paralyzing, but I think overly so. You can be just as anonymous in media stories as you are here. You can even make up a new alias, and there is no requirement that you give them your actual email account. How do they know? Make up a new hotmail one, if you like. How about FBARCrazy@hotmail.com
In my opinion, I really think more minnow immigrants need to come out of the wood work a bit, and not be sooo very fearful of commenting anonymously on the various news articles that present an opportunity. Immigrants seem quite willing to ask Jack Townsend lots of questions on his blog, or ask and comment even here, but won’t take any action to self help in getting their story out by commenting on media outlets.
They/you need to be a little more assertive, in my opinion. You are not criminals. You are victims, and your story needs to be told. And who best but you? Me? I try, but when I don’t see any immigrants commenting or helping in that effort to reach out to journalist, I begin to wonder why I am bothering to tell a story that so many remain silent on. Maybe I am wrong, and there are few in your category!
Don’t take this as a scolding, but it does sound like one, doesn’t it! LOL. I am sorry. I feel for you guys, and I hate to see America treat it’s immigrants this way.
@Just Me; I posted there and awaiting moderation. Being living in India, just in few weeks, I know the injustice on expats, it is hard to believe that decision makers at IRS don’t know about the suffering of innocent expats who can’t possible know about FBAR (even after many targeted discussion with Miss Nina Olson, and comments and admission of US ambassador to Canada that it is unreasonable and irresponsible).
The Mopsick posting and the SadCdn comment make a beautiful diptych.
A 30-year IRS veteran says that the provisions of June 26 offer no incentive whatsoever for “even the most paranoid expatriates” to make any disclosure move on the basis of the announcement. In essence, this is instant (that’s time as measured in the IRS universe) replay of the 7 Dec 2011 nothing-new policy hash that Ambassador Jacobson heralded on 18 Oct 2011 with his infamous grandma-sit-tight nostrum. Something never-ending that goes backwards is called infinite regress, a condition that entails imponderable absurdities. Since this thing is moving forward, assume that the IRS is manufacturing a sui generis category for itself?
SadCdn does a fantastic job of laying the rubber down on the road — and proposing that the only sane response of a compliant person is to get the hell out of Dodge while the going is semi-good. What heretofore noncompliant minnow fool would lay out cash that could run into six figures to demonstrate absolute innocence when the prosecutor does not even know the case exists? Or alternatively, launch a do-it-yourself mission into a gotcha situation with an adversary that routinely churns out compounding computerized threats with glee and never answers a telephone — or else answers multiple times with wildly differing “information” that is allowed no standing?
“We are not unreasonable. We are not unsympathetic. We are not irresponsible.”
SAYS WHO?
IRS Commissioner Shulman supposes his rogue org is upping “the risk calculus for the next generation of taxpayers.” Fail!
@USX, excellent comment. I think that Flaherty would even encourage Canadian residents to do nothing by his statement that the Canada would not collect FBAR fines or taxes on Canadian citizens. He’s saying if you are not CDN, become one ASAP. He’s saying if you have bank accounts in Canada, tell the IRS to shove off. But he’s not saying it in so many words, because the Harper government is wanting this thing to blow over, with no adverse consequences to the status quo. But that can only happen if Americans in Canada get a pair, and begin to ignore the IRS. But this requires also that those of us with investments in the US get our assets out of the US while the getting is good.
The latest IRS attempt to segment its non-resident taxpayer base is only slightly better than its one size fits all approach. Little has been achieved and the majority of non-resident US Taxpayers who lead “normal” financial lives are now likely considered “complicated” and “high compliance” risk by the IRS. This is a situation that none of us want to be in.
If the IRS really wants to show good will and eliminate inefficient processing, then the first step they need to take is to advise all OVDI victims participants who were resident outside of the US during the entire OVDI period that the IRS will accept their returns and the OVDI victims participants will receive Warning Letters and that they should go forth and sin no more.
This will be a great source of relief to OVDI participants and still allow Mr. Schulman to gloat about his USD 5 billion collected as I doubt most minnows are even statistically significant in their contributions to this sum and their “in lieu of” penalties ,while life altering for them, will add little to the overall sum.
While this may look risky to the IRS, the IRS has set up procedures within OVDI that are inherently inefficient and without taking an action like this, Revenue Agents will have to wade through years of boring and uninteresting returns that bring little value to the IRS.
Any non-resident “minnow” OVDI participant will stay in OVDI and let themselves be examined as much as possible there. More examination in OVDI means that there is less to question in the supposed “Mother of All Audits” upon opt out.
After the exam is done, the participant will then have their Revenue Agent verify their calculations for a 5% penalty so that is as low as possible. I can imagine several months lost to communications about whether an account can be excluded or not because it is a retirement account.
And, when that is all done, any OVDI participant who has done nothing but live a life outside of the US will see the substantial similarity to the cases mentioned in the updated FS-2011-13 and opt out.
So now, how many years are we into the process?
OVDI participants have to live with the absurdity of tax compliance policy by people in the IRS who have likely never done more than a vacation outside of the United States and who clearly cannot conceive of the different realties of the 6 million individuals living outside of the US borders.
We are victims and collateral damage in the cat-and-mouse game played by tax cheats and IRS. I just read an article in local paper, in that, it stated that many tax-evaders converting the bank balances into Swiss francs, art or precious stones like diamonds and depositing in lockers. To accommodate their needs the Swiss printing 1000 franc notes. About US$50 billion worth 1000 frank notes in use for this purpose alone. Few security companies planning to get into business of renting safe deposit boxes. The IRS set up form-trap for their off-shore activities and we expats living normal life would walk in to it. I am afraid that the next Commissioner extracts billions from expats and call us tax cheats.
Only way expats can stay compliant is by relinquishing, if the US continue to over react and try to catch each and every cheat by using one size fits all traps (without taking into consideration of unique situation of expats in various countries). First the IRS must give FBAR exemption for expats living in other countries for many years. It is common sense approach.
I see that American Citizens Abroad has put out their press release…
Balanced to the political realities. You need to congratulate the IRS sudden found ‘common sense’ approach publicly, while calling for more relief…
http://www.aca.ch/taxrelief.pdf
*@Calgary411 – My heart breaks when I think of your situation. 🙁 Yes, what the US is trying to do is simply immoral. It makes no sense and is generating an incredible amount of ill will towards the US as more and more people find out about your situation and others’. In a recent column, Phil Hodgen made mention of American ex-pats “grumbling at cocktail parties” about the US. Hah! What an understatement. I know from personal experience and from what others have told me, that when we are gathered with friends and colleagues at social events people sit and listen to our stories wide-eyed and slack-jawed, horrified at what they are hearing. And then they go tell their neighbors and friends. I often say “I’m not making this up,” and “I’m not exaggerating.” I have cautioned people about buying homes in the US, spending too much time in the US, and thinking twice about taking work in the US. I tell them it’s very important that they do their research first on what tax obligations they may take on and THEN make their decision.
@usxcanada – Those are the EXACT words I say to myself whenever I get teary-eyed about renouncing: “You’ve got to get the hell out of Dodge!” I can’t even wrap my brain around the idea of paying tens of thousands of dollars for tax prep fees over the coming years to and getting nothing in return. NOTHING. ZERO. No social security, no medicare, no other benefit of any kind at all. Why would I do that? It’s like taking a match to a big pile of money. Previously, my US tax returns have been prepared for fees ranging from $100 – $300 (increased as the years went by) and I was willing to pay that price. But the events of the last year have changed the game completely.
Thanks for including a link to that Bloomberg article – I had missed that, if that article was posted previously. “Lance the boil” – well, if that’s the analogy people want to use, then that means I’m covered in pus and as Just Me said, there is no “trust antibiotic.”
Also, Doug Shulman’s comments in that article only make me more anxious: “Change the risk calculus” and “there is still money out there” and “get back into the system.” That tells me they are focused on minnows as well as whales and that means (to me anyway) ever increasing scrutiny of ex-pats.
@Bharat – Yes, it’s so, so unfair what they are doing to immigrants and it is an untold story. I’m so sorry you and your family are suffering at the hands of the IRS.
What a nightmare this all is . . .
*The Bloomberg article says, “The IRS announcement recognizes anger building among U.S. taxpayers around the world because of the government’s enforcement efforts, said Charles Bruce, tax counsel of American Citizens Abroad, an advocacy group.”
This is part of the problem. The US media defines us as “U.S. taxpayers around the world”. The United States owns our asses. Therefore their media definition of who we are fits: we are US taxpayers. Not Canadian taxpayers, French taxpayers, British taxpayers, Japanese taxpayers, but US taxpayers, who are not paying our “fair share”. We are not normal, good people who work and save, but US taxpayers. That is what we are.
@janeb, I don’t know of anyone here would condemn you being a conscientious tax objector. Although you can probably fly under the radar, fact is you are a US citizen and will remain so until you can position yourself to renounce.
@all, I’m sure that the IRS is trying to come up with some diabolical plan for how to extract what they feel they are due without clogging up their system with worthless tax returns. Unfortunately for them and us the proof is in the paper. Perhaps they feel it might benefit them to start charging a fee to taxpayers filing from outside the US? Be prepared, I really wouldn’t put it past them.