For those waiting for further analysis on the new IRS Instructions [Published on Friday, 07 September 2012 15:59 Written by Roy A. Berg JD, LL.M. (US Tax)]
If you are a US person residing in Canada and are one of the unfortunate few who does not have a graduate degree in US tax and who is not related to a cross-border US tax professional you may have missed filing one of the myriad of tax forms that are required every year (the failure to file of which can carry dire penalties). If this is the case, the IRS may have a new streamlined procedure just for you. The bad news is that few will likely qualify and those who do not qualify face serious consequences just for applying.
The new streamlined procedure went into effect on September 1, 2012. Click here to see the full text of the streamlined procedure. The program is designed for expats with simple returns and little or no tax due. But whether by design or defect, it threatens to entrap most of its likely applicants. For those who qualify, the new program may be a breeze. But for those who do not, and we suspect most expats will not, the streamlined procedure is a lot like a lobster pot – easy to get into, hard to live in, and harder to escape
Moodys Further Analysis: Completing the Questionnaire, or Entering the Lobster Pot.
Unfortunately the IRS has not given guidance as to which of the above-listed risk factors or combination thereof, will increase the taxpayer’s compliance risk, and therefore disqualify him from the streamlined procedure. Further, the questionnaire raises a number of extremely serious issues of which every taxpayer considering this procedure should be aware.
The title of this post is:
Moodys LLP, Part 2: Do You Qualify for IRS’s New Streamlined Procedure to Bring US Tax Returns Current?
There are two possible answers to this question:
1. No you don’t because you don’t meet the first objective requirements; and
2. No you don’t, because you are too smart to allow the IRS to determine whether you have have “heightened risk”. In any case you can’t afford the legal fees to pay a lawyer who can’t know either.
Either way the answer is that you don’t qualify for this new “streamlined procedure program”.
Conclusion: Stay away from this period!
The only people who could possibly qualify for these “streamlined procedures” are people who (in all liklihood) have little to worry about anyway.
To Roy Berg: Great analysis of the risks posed by the questionnaire!
Finally, as I suggested in the post I wrote on this topic:
It’s very clear that the IRS doesn’t want people to come into compliance. Just get on with your life.
Thanks Calgary for posting this. Agree with renounce – this is really a risky program. I guess for super-minnows, the right thing to do is what I did – assuming one is going to renounce. Just do the 5 years of 1040’s with 3520A, 3520, 8891 and whatever else, renounce and get out. As far as I have heard, to date, no Canadians who have done this sort of disclosure have gotten nailed.
Sounds like a way to force people in the OVDI with it’s lovely system of fines. Or worse, of course!
@nobledreamer
Yours is the same observation as my lawyer’s: this offers nothing more than what one would receive without it.
@Noble
You were very smart in renouncing as quickly as you did. To delay renouncing US citizenship is very much like delaying entry into OVDI. How so? I predict it will get more expensive every day. After reading, analyzing and contemplating these new “streamlined procedures” I realized that the IRS is NOT being malicious. The IRS, like the US government and the Homelanders simply have NO capacity whatsoever to understand the problems here. The US is a country that operates on what I will call:
“The principle of penalty”.
What is shocking, outrageous, unfair and punative to the rest of the world is just “business as usual” for them.
What does this mean for US citizens abroad?
There are two kinds of US citizens abroad:
1. Those who are in compliance and will pay a particularly brutal price for this. As Mopsick alluded to, one of the purposes of FATCA is to get people to “register their assets”. Once registered, I predict they will try to take them.
For those who are in compliance there is good news and bad news.
The good news is that they are in compliance.
The bad news is that they are in compliance.
2. Those who are not in compliance are at least off the radar, but they have to deal with a different kind of fear and stress.
For those who are not in compliance there is good news and bad news:
The good news is that they are not in compliance.
The bad news is that they are not in compliance.
Just get on with your life. Be happy that you are healthy.
*all,Didn’t really know where to post this..I just received it a few minutes ago..
http://genevalunch.com/blog/2012/09/07/us-presidential-election-overseas-americans-band-together-to-demand-rights/
Thanks, saddened123.
I’ve just added a new post for this. Thanks for contributing and sharing this link.
*Calgary411, You are so very welcome..
It is a Trap, pure and simple. A political action more than any real attempt to increase compliance. They want to answer the TAS complaints about Americans Abroad, and show that they did something, never mind that it is so narrowly drawn, and so full of risk, that only the very naive would rush to join this. Buyer Beware! They really want you all in the OVDI, so they can collect BIG penalties.
*Quicksand. The IRS does not want Americans Abroad to pay taxes. They just want to penalize them for living and working abroad. And they can do this because they have no representation. Join ACA: http://www.aca.ch
@bubblebustin
I didn’t really understand how tricky the new program was until I read this post with Roy Berg’s observations; am very glad he wrote this as I just spoke with an Accidental American on the phone on Wednesday and understandably, the program sounds good but…..
@renounce
I was just lucky. OVDI 2 had just closed and I came in contact with all of you. I could not live with the anxiety – that 4 months rank as one of the worst periods of my life. Kind of hard to ignore something that was so in-your-face, eh? I agree that much of the US likely is unable to understand all this but my experience is that all the Homelanders I have spoken to have been genuinely shocked and no one, not friends or family, has “disowned” me nor been critical, etc.
They will either try to take the assets, put an extra tax on them or track them in order to charge estate tax, etc. Greed, pure and simple.
I love it: “The good news is….the bad news is” keeps it all clear and simple. ;-P
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Near as I can figure from reading these instructions, it would apply to only people under the age of 22! All others beware. My fellow expats, I can’t help but see this as the fiscal equivalent of the Nazis requiring all Jews to “register” to “comply with the law”. I lived overseas for 27 years, and now back in the US for the past 14. I have NEVER been required to provide all of this information on my US tax return! Indeed, if homelanders were required to fill in all of these details there would be a second American Revolution. The IRS stands behind the law THEY WROTE without any parallelism to tax laws that Congress agreed to, and without any reference whatsoever to either our Declaration of Independence or Constitution, since much of what they are demanding and doing are against both. They’ve cynically calculated that the cost of challenging their actions in the courts – and undoubtedly up to the Supreme Court – would be greater than any fines and/or penalties they will impose so no one will ever do it. In the meantime, they can act as fiscal Gestapo with impunity.
Does anyone have a brother or sister, friend, uncle, or relative with a powerful DC-based law firm? What we need is a law firm who will file a class action suit against the IRS about their procedures. At the very least, these procedures go against the 8th Amendment about imposing “excessive fines”; paying $10,000 for not filing a form when no tax is due is the very definition of “excessive” in anyone’s language – and any who were imposed such a fine should get their money back. Second, the 16th Amendment established an “income” tax, not an asset tax. Indeed, several Supreme Court decisions have been very clear that the Federal government can NOT impose taxes on assets AT ALL! The exit tax in particular is un-Constitutional in its entirety because of this.
The list of un-Constitutional acts the IRS is trying to impose on overseas Americans is long. United we can stand up to the IRS; divided we will all fall. But we can’t stand up without legal help.
Friends, I live back in the USA, but my wife is Dutch and I expect to return overseas – and I’ve been fighting this injustice since 1976 when I was Executive Director of Republicans Abroad. That year I met Andy Sundberg when he was Chairman of Democrats Abroad, and joined him in founding ACA on a bi-partisan basis specifically to fight this absurdity that has simply become obscene. We’ve been at it for 36 years – but we MUST turn the tide against the IRS Gestapo if any of us want our freedom as Americans back.
@Patric Hale
Love your comment. It should be a separate post. Like your analogy too. The time has come to organize our thinking from a legal perspective. This means an identification of numerous issues, and then considering these issues from each of the following perspectives:
1. Legality under US law
2. Legality under various US treaties (NAFTA, etc.)
3. Legality under various aspects of international law including:
– how the individuals are treated (human rights treaties, etc.). I am inclined to believe that the specific way in which the US practises citizenship-based taxation violates the International laws of human rights,
– how the US invades the sovereignty of other countries. As has been noted time after time, things like the FBAR Fundraiser and the taxation of unearned income are examples of “looting” the treasuries of other countries. Canadians who made the mistake of buying PFICs may have to collapse retirement funds to pay the IRS
Finally on the issue of legality under US law, as has been pointed out these IRS “smoke em out” programs are not acts of Congress. These are inventions of the IRS – pure and simple. I don’t think people realize this. The IRS may think it is the law – but at the end of the day it is administrative tribunal that cannot go further than the jurisdiction assigned to it by Congress (example the challenge of the regulation of tax preparers).
Finally, the kind of challenge that is necessary is not going to happen from any existing organization. What is necessary is the following:
1. A specific organization – “The Institute For The Study of the Legality of Citizenship-based Taxation” must be created for the sole purpose of studying and organizing a legal challenge to the various aspects of citizenship-ship based taxation. Sure, it can do political lobbying, but we know that is not going to work.
2. Once ready, then the legal challenges go forth on all fronts in both the US and in other countries. There are all kinds of reasons to challenge the effects of FATCA in Canadian courts.
(The simple fact of the matter is that the US has evolved into a very unjust nation, that is living in its past successes, while the rest of the world passes it by. It reminds me very much of the play “That Championship Season” – which you may remember).
http://en.wikipedia.org/wiki/That_Championship_Season )
A DC (to use your words) law firm should be hired at the end and not at the beginning.
I have suggested this before. But, interestingly, can’t seem to interest anyone.
Those are my thoughts on this.
@renounce and @patric hale,
Great comments from you both. I would love to see a legal challenge since it is apparent things will not change otherwise. I wish other countries would stand up for the rights of their US citizens (and in reality all of their citizens), especially regarding privacy and human rights. I wish I were rich and had education and expertise — it would be a way to give back to the World I live in.
Should I or shouldn’t I put this here, the contribution from my lovely sweet daughter?
@Calgary
The fact that you are asking probably says you shouldn’t 🙂
Your daughter has your chutzpah!
@patric hale and renounce
Wow. Everything the two of you have said has a very powerful effect. Such an Institute would have to include at least, all the major areas that expats are living. I am wondering how such a project could be organized and financed. Somebody has to stand up to that great nasty bully, the US.
@calgary,
love that, maybe we could create an image? LOL
Thank you @renounce and patric hale. It’s not that we’re not interested, just that we don’t know how to go about doing what you propose re the Institute.
Also note that sometimes embarassing a government on the international stage is effective in getting change. Like trying to take this issue to the UN – as basically the US is holding us hostage through it’s citizenship laws – coupled with extraterritorial citizenship based taxation. And, it’s convenient that ACA has headquarters in Geneva – couldn’t we and they try to initiate something with the UN?
FATCA is analyzed in the National Law Review today:
http://www.natlawreview.com/article/foreign-account-tax-compliance-act-2010
@bubblebustin
That one reads like “Shills for FATCA” to me, or put another way. “FATCANTICS”
@bubblebustin, and Just Me, the National Law Review article, and the IRS and Treasury propaganda never acknowledges that their use of the term ‘stakeholders’ deliberately excludes individuals deemed US citizens, and duals living abroad with local accounts where they actually live and work. We have everything to lose, and nothing to gain, and have an imposed burden and huge potential confiscatory penalties based on mere reporting and information forms, yet we’re never dignified with the role of ‘stakeholder’. And neither are the AARO, or the ACA, who represent the interests of groups of us outside the US. The fact that we and our non-US households are not even dignified with being considered ‘stakeholders’ having a life altering stake in how FATCA is applied to our legal and entirely transparent, post-tax assets and accounts where we live, is to me a human rights crime. We can face the confiscation of assets and penalties in the tens of thousands, but that’s not a ‘stake’ in the outcome?
Now that it seems that only mostly imaginary creatures are likely to
benefit from these new guidelines, I am wondering what 30 year IRS tax
vet would say about the intent and actions of the IRS and their workers of goodwill? What does
this newest offer from the IRS confirm for us about how the US views us?
What does it tell us about President Obama and his views on US citizens
living outside the US? What does it tell us about Congress and how much
it values it’s brothers and sister citizens living abroad? We’re valued
only insofar as the IRS can weigh up and confiscate our legal post-tax assets, even
though they are generated, taxed and held where we live – outside the
US.
Here is an article quoting one of those featured on IBS earlier (Amanda Klekowski von Koppenfels) –
who was surveying expatriates to get a better picture of who we might be. Her findings disputed the
caricature of us as wealthy ne’er do wells moving abroad to hide our
money from the US.
http://www.nytimes.com/2012/08/27/us/politics/votes-from-expatriates-could-play-crucial-role-in-election.html
“ In surveys of nearly 1,000 Americans living primarily in Western Europe,
Amanda Klekowski von Koppenfels, director of migration studies for the
University of Kent in Brussels, found that the largest single group —
nearly one-quarter — were overseas because of marriage to foreigners.
Only 10 to 15 percent had been sent abroad by their company or had
accompanied a transferred spouse.” So, we’re not millionaires, we’re
not being paid salaries by large US corporations to live abroad
temporarily. We’re living outside the US for birthplace, non-US family
or other reasons that have nothing to do with amassing wealth and hiding
it from the IRS. But hey, why let facts get in the way of the
progaganda behind the justifications for the FATCA’nFBAR fundraiser?
I see Robert Wood at Forbes Tax Blogs is also advising to proceed with caution on this deal..
http://www.forbes.com/sites/robertwood/2012/09/27/consider-irs-relief-deals-carefully/
@Roy Berg, in light of your blog posts, could you comment on the issues raised in these posts below:
1. of claiming a legitimate refund (ex. child tax credit), and related risk of being ineligible for the streamlined procedure
2. Which FBARs are actually required if the 2005 is statute barred?
3. In the instance of people who filed the tax return for 2011, and the FBAR (and FATCA form) this summer, timely – because the IRS dragged out the streamlined process details until late August. Will those that filed in 2011, in good faith, pending instructions, be penalized by not being eligible?
These issues are germane to the IBS readers struggling with these issues, similar to these comments found at another site:
Friday, October 05, 2012 – 09:47PM GMT
|
Anonymous
The Streamlined method of compliance
seems to work for me in every way except that I filed both taxes and
fbar for 2011. I did so because I felt I should. I only learned about
this tax issue in August 2011 (when many other dual citizens learned
about it) and decided then I would wait until the dust settled. I chose
to be currently compliant and filed 2011 tax/fbar by the requested
deadlines. I am confident that I am an extreme low risk as my income is
very low and has been for years. What kind of risk am I facing if I
submit my delinquent forms under the streamlined initiative even though I
have filed for 2011?
Tuesday, October 09, 2012 – 09:39AM GMT
|
Kevyn Nightingale
Some clarifications: The Streamlined
method requires tax returns for 2009-11, and FBARs for 2006-11. The
2005 FBAR is now statute-barred – you can’t be penalized for failing to
file it. Claiming a refund on one or more of the 2009-11 returns does
not make you ineligible – it simply raises your risk profile (Note – if
you wait too long, you may be too late to actually receive the refund
you were otherwise legally entitled to). From my discussions with the
IRS, claiming a refund for a child tax credit or making work pay credit
will not raise your risk.
Sunday, October 14, 2012 – 10:45AM GMT
|
Anonymous
In a recent call to the OVDP hotline,
they informed me that people going into the streamlined procedure will
receive a letter in response to their submission (either case closed or
please send more documents) Lets hope this is true. They also informed
me that they are working on a procedure to transfer OVDI clients into
the streamlined procedure and bypass the opt-out procedure. This could
be good news for a lot of folks too. At this point, as neither is
official policy nor have we seen any evidence of this happening, this
information is speculative.
http://mnp.ca/en/media-centre/blog/2012/9/2/details-on-new-irs-streamlined-relief-for-americans-in-canada
Caveat to all, I post these excerpts not as tax advice, but only in the interest of trying to highlight, and sort out the lack of helpful information from the IRS for those considering this streamlined process – which has many unanswered questions and issues for those who are now considering this route to compliance.
Thought I would update, with another post by Robert Wood at Forbes today…
Should U.S. Citizens Abroad Pick Streamlined IRS Program Or OVDP?