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.”
@bharat
No Bharat, we are victims and collateral damage of a welfare state that recognizes no limits to its immoral claims and sheeple who would blindly sentence the rest of us into servitude so long as the they can continue feeding at the trough.
Income tax is immoral everywhere and illegal in the US. A less than 10% voluntary flat rate would be reasonable, but the government taking anything near 50% is outright theft. Anyone who calls someone else avoiding 50% percent tax rates a “tax cheat” is either one of the parasites or a complete idiot.
Once the IRS gets around to telling us who actually qualifies as a low compliance risk, we’ll have a better idea of whether the new procedure can actually be useful to a meaningful number of expats, or whether we should refer to those who can actually use the new procedure and avoid all penalties as a “unicorn.”
As some of you may know, there is in theory a reduced penalty of 5% for certain persons who inherited accounts (and satisfied certain other requirements), but the IRS applied the stated rules in such a stingy, ridiculous manner that the instances in which the reduction to 5% was permitted are commonly referred to as unicorns.
In any case, once we receive more definitive guidance, those who clearly qualify for no penalties under the new procedure will presumably want to take advantage of it — but caution may be warranted. We’ve seen in the past that the IRS sometimes uses language that means something other than what it intends, and when that happens the IRS does not feel constrained to keep any promises that it did not intend to make. (FAQ 35. Enough said!)
For those who are not clearly within the new procedure’s promise of no penalties, all of the options discussed many times previously remain on the table. The IRS’s belated recognition that there are taxpayers with unreported gross income who should not be penalized can only help the cause of those who choose not to enter the voluntary disclosure program and, upon being audited, ask nothing more than a modicum of reasonableness from the IRS in determining their fate.
@sadcdn
You’d better believe that Schulman’s statement “get back into the system” is aimed at the non-resident US person, because the whales never left, they are resident in the US hiding money offshore!
@lisa, yes, I’ve said all along, an amnesty with no penalty! But there’s no money in that is there? However, for us, TAS has given us hope that our capital gain tax penalty on the sale of our home in Canada (not taxable in Canada) may be eliminated by the IRM’s ‘first time penalty abatement’ even within OVDI.
*Janeb
Bubblebustin thinks you are aUSC. I don’t agree. You were born in Canada. You can safely move on and forget this nonsense.
In my case, largely because I have been empowered bu IBS, I have come to the understanding that there is nothing they can do to hurt me. Not one penny and not one piece of paper will go to them.
@Cornwalliscal
‘Bubblebustin thinks you are a USC. I don’t agree. You were born in Canada’.
Under US law, janeb is a USC – she is an ‘accidental american’. However, I, too, think she can safely move on and forget this nonsense. With a Canadian passport, showing a Canadian place of birth, I do believe she would be safe from the long arm of the IRS. That is certainly the hope that I have for my three adult sons, all born in Canada. It is truly an ‘accident’ that their mother was born in the US. As ‘accidental americans’, my belief is they have no obligation to file any tax forms or papers with the IRS or any other US government office. Besides, I have no doubt that they would be protected by their own Canadian government who continues to state that they would not collect any taxes or penalties on behalf of the IRS.
*Tiger , jane b, I guess I didn’t express myself very well. The point I should have made is that we should no longer care one whit about the letter of US law with respect to accidental or even unwilling americans. There is nothing they can do.
@Steven, @Michael, what about immigrants, who would qualify for the de minimus unreported income, but live in the US, and therefore not considered for this new procedure?
What would be the risk of doing it anyway? Being assessed FBAR penalties that wouldn’t be worse than in the case of an audit?
If so it seems people in this situation might just be better off continuing filing forward and take the chance of (not) being audited.
Christophe said:
@Christophe, I can’t responsibly make a one-size-fits-all suggestion for what would be the right course of action in a certain general scenario, but I think that, in many cases, immigrants with de minimis unreported income will be better off outside the program and might well, for example, reasonably decide to do nothing more than comply going forward. Indeed, I recommended that to a client just this morning. Unfortunately, a lot depends in the particular facts involved. I hope that no one would be foolish enough to take a particular course of action based on what I (or anyone else) said on a blog.
Beyond that, I’m not sure I understand your question. If it’s clear, when the guidance about the new procedure is ultimately released, that it only applies to taxpayers living outside the US, then I don’t think it would be desirable for an immigrant taxpayer living in the US to pretend that the procedure is applicable. Of course, if it turns out that the guidance is unclear, I’d have no problem (if it were desirable) filing based on the assumption that the procedure applies and attempting to rely on it — provided, of course, that my client understood the IRS could easily disagree and that he or she would be without the protection of the voluntary disclosure program (such as it is).
*@bubblebustin — I understand that I would be considered American under current American law, and if I could do anything to change that, I would. The problem is that in order to renounce, I’d first have to prove I’m American by applying for a passport. I have absolutely no documentation, and while my father did spend enough time (though just barely) in the U.S. before I was born to pass on citizenship, he has now been dead many years, and I would have some real trouble documenting that he was in fact there until he was nineteen. I’m not about to take that trouble to reclaim a citizenship to which I fully intended to give up any claims a quarter of a century ago, just in order to say, yet again, that I’m giving it up. So I’m just going to continue “sitting tight,” since this “amnesty” is completely irrelevant to people like me or like Tiger’s sons, who have never believed ourselves to be American. And given that, without an American birth certificate, passport, or any other documentation, I couldn’t at this time vote in an American election, or hold a job there, or get help from an American consulate abroad, I’m not sure what being “American” means, other than the loss of any right to privacy in my entirely legal and entirely Canadian financial life. I do know some dual citizens who want to keep both citizenships and who might benefit from this — I’m happy for them. But as things stand now, I have no access to any of the rights or benefits of U.S. citizenship (nor do I want them!). All I want, though I doubt this will ever happen, is some sort of acknowledgement that as long as I don’t take any steps to claim the rights of U.S. citizenship the U.S. does not have any claims on me.
@janeb
This is a very personal decision. No one can say what the future will bring. Personally, my attitude is the same as Phil Hodgen’s “walk straight into the sh*t storm”, but then I have the ‘property of USA’ tattoo on my butt in the form of a US birthplace. You did spend time in the US as a US citizen however, and I don’t know if this should be cause for concern. You should really talk to a lawyer about either option. There are some good ones out there.
Accounting today, has picked up the ACA press release…
Overseas Groups Applaud IRS Response to Expats
Considering how much they love to make up crap. I wouldn’t trust any claim of being about to rectify FBAR without penalty. All it takes is for enough people to do it that it’s a big enough number to make headlines… and hello reactionary bullshit that screws you for the crime of living overseas… except now, they actually know how much you own and where you keep it.
@Just Me, my comment just got posted on the Reuter’s article from Amy Feldman, under USAImmigrant. Sorry, I don’t feel comfortable using my full name. What’s what fear and paranoia will do to you…
*@bubblebustin — I know you’re right about needing to consult a lawyer, and I appreciate your comments. I went through all the predictable stages of denial, terror, and rage when I first heard about this six months ago, and since then, I’ve been waiting for some sort of common-sense recognition that people with no U.S. ties and no way to claim any U.S. benefits without massive amounts of paperwork and expense are not law-breaking tax dodgers because they pay their taxes to the countries in which they live and work (and in many cases, were born!) Obviously, this new filing procedure was a massive, crushing disappointment. The really sad thing about all this is that even though I chose decades ago (as I believed) to give up any claims I had to U.S. citizenship, I had generally warm feelings about my father’s country. Now I really, really don’t.
Hi, janeb.
Your situation in having no documentation to apply for a US passport to prove your US citizenship to then have the right to pay the US $450 to renounce it is the same absurd process as for my son.
He is developmentally delayed so does not have the capacity to go through the rigmarole himself of applying for a social security number, then applying and paying for a US passport to then be able to renounce the US citizenship (which he cannot do because of his mental incapacity) — and paying for that too. His dad is deceased so he would not have help there or the documentation required from his dad’s side and the only way I would be helping him is under extreme duress as I have been told by the Calgary US Consulate that I (or any other parent, Guardian or Trustee) do not have the right to renounce on behalf of my (our) developmentally delayed or otherwise mentally incapacitated family member, even if I (we) deem it in their best interests.
Why would I do such a thing to my son? It would be shameful.
Steven Mopsick, Michael J. Miller, Roy Berg / our valuable professionals — could you weigh in on janeb’s comment/question of “All I want, though I doubt this will ever happen, is some sort of acknowledgement that as long as I don’t take any steps to claim the rights of U.S. citizenship the U.S. does not have any claims on me.“
*janeb. Do yourself a huge favor. Do NOT consult a lawyer. Many of us made that mistake and got crummy advice. They are not all good. You are home free. I don’t know how else to say it.
Calgary 411. Your son is free as well.
@janenb: Why do you have to get a passport in order to renounce? I’m not aware of such a requirement. I may be wrong about that. Does anyone else know if a US passport is a requirement to renounce for someone born in Canada? My understanding is IF you have a passport, you must turn it in. However, I was not aware that it is a requirement to get one. I think many people here have relinquished or renounced without a US passport.
In fact, it was getting the US passport which put Calgary into the nightmare she is in. Getting a US passport–or filing IRS returns is a claim to US citizenship.
I agree with Tiger and Chester. I personally would do what Joe Smith would probably advise you: Do Nothing.
You are a Canadian citizen. Canada will not collect penalties or taxes on behalf of the IRS on you. You were born here, so your bank will have no way of knowing you may be a “US person” (if they dare to ask.). IRS has absolutely no jurisdiction in Canada or in Canadian courts.
As Schubert says, Don’t Wake The Sleeping Bear.
I’m not a lawyer. That is just my personal advice. If you do go to a lawyer, be sure it is one that has accurate information. I spoke to a US Immigration lawyer several months ago who insisted I am still a US citizen–even though I relinquished prior to 1986.
If Steven or Michael see this, I hope they may be able to give you some input which will put your mind at ease.
@Cornwalliscal,
You’re right in a sense — my son is free as well because while I am alive I will ensure that he is not put in a position where he will come face to face with the consequences of the discrimination he is under. Why should he not have the same rights as any other citizen of the country he lives in to cross the US border to visit relatives, to sight see, whatever? He would have to be travelling with me, his mom, born in the USA, and even though I might eventually be able to cross with my Canadian passport and CLN, it wouldn’t take much for the nice border guard to ask him if I was his mom born in the USA, so he was then a US citizen? I don’t want the remote possibility of that for him.
I appreciate so very, very much that my son is Canadian and that he is protected while in Canada. Why must I or any other Parent, Guardian, Trustee have to practice “Don’t Ask / Don’t Tell” because we don’t have the right to renounce on behalf of our family member? That is exactly what I will do, DADT — I just don’t know why I or any others in my family’s circumstances have to do that.
And, yes I know, I’m very OCD on this.
@janeb,
Yes, it was getting a US passport that did me in. I now have to renounce rather than have the ability to relinquish. I came here to Canada in 1969 and became a Canadian citizen in 1975. My first mistake upon learning of all this was to consult a respected cross border accounting firm in Calgary instead of an immigration lawyer to confirm that I had indeed relinquished my US citizenship when I became a Canadian citizen. Then I had my little border discussion where I was told I could cross this time on my Canadian passport, but the next time it was to be with a US passport. So, would they /did they put a note on my file — I was convinced and easily intimidated. Oh, to know then what I know now and I’d make wiser decisions for myself.
@Blaze,
I don’t know — at the very least it is the US law that a US citizen (so is we / is we not?) is required to enter and leave the US with a US passport, not that they have observed the law, which then begs another question, “Is there no precedent for the US letting us over the border and back all these many, many, many times, thereby breaking their own law?”
So many questions, so much that doesn’t make any common sense.
Do yourself a big favour, USA, and get rid of your citizenship-based taxation, another of your entitlements.
@Cornwalliscal, regarding legal advice, sure, some lawyers are being opportunistic but ours was very good. He gave us a free consultation and outlined the many options we could take including “doing nothing” and explained why. We don’t know what kinds of tracks Janeb left while living in the US, and she doesn’t likely know either as her father passed away. Janeb hasn’t given enough information about her time in the US for anyone to determine that she shouldn’t consult with a lawyer.
You don’t need a passport to renounce. Proof of US citizenship, indeed. You must turn in the passport.
The Canadian government came out and said it would not collect for the IRS from a CDN citizen. It also said that it would never collect FBAR fines. The CDN government is saying to Canadians, do nothing. That’s what your government wants you to do. But they of course can’t come out and say it. That requires the smart Canadian people to connect the dots. Unfortunately, I agree that consulting a lawyer may be a very bad idea. They are often required to give advice to cover their American hineys, and that is not always in the best interest of their CDN clients but rather of their American hineys. The US lawyer can’t really recommend anything that may be a violation of American laws.
My lawyer is a friend of mine. He offered a few words and that’s all I needed. I asked if I could be extradited to the United States. He said not over taxes. The same applies to FBAR fines. Stick up for your Canadian rights. That’s the best advice that anyone can give a Canadian on this day after Canada Day on the 200 year celebration of the Canadian victory over the United States in the War of 1812. Janeb, you are a CDN. Stop fretting. Enjoy life.
*@Blaze — Sorry: I haven’t been clear. In order to renounce, you need some proof that you have U.S. citizenship in the first place. In the absence of a birth certificate or consulate registration (neither of which I have), a passport is the easiest option. @Calgary411 — Thank you for your comments. I’ve followed your posts over the past few months with interest and great sympathy, since I had a disabled sibling who died a few years ago but who would otherwise have been in a similar situation to your son. For what it’s worth, you have my deepest admiration and respect for your fight for his rights. @Bubblebustin — I don’t know what kind of tracks I’ve left either. My father obtained a passport for me when we went to the U.S. — I was a minor, it was never renewed, and it would have expired either just before or just after I returned to Canada. The physical document itself has long since vanished. I believed that in returning, and claiming benefits as a Canadian citizen as an adult, I was giving up any claims to U.S. citizenship that I had acquired through my father. The irony, of course, is that even though my father could not legally have renounced citizenship on my behalf when I was a minor, his good faith attempt to keep options open for me by getting me a U.S. passport when I was in my early teens has backfired so badly all these years later.
@janeb,
I’m so sorry for the loss of your sibling who also had a disability. I am glad my mom and dad are no longer here (what a thing to be glad of) to see what is going on with me and with a grandson (and a granddaughter). You likely have similar thoughts. Thanks for your kind words.
I wish you the best in getting to resolution of your situation. Thanks for becoming a part of the discussions we are having here. Your input and questions are valuable.
@Petros.
You are, of course, correct. We have been shown our great Canadian rights. (But, it still is wrong and sure does get in the way of enjoying life, slipping back into the worry and disbelief over and over!)
@Christophe
Thanks for making a comment, and if you know others in your situation, I would encourage them too. I don’t blame you for not using your full name. You shouldn’t. In your situation, it is just “common sense” not to.