139 thoughts on “Moodys LLP, Part 2: Do You Qualify for IRS’s New Streamlined Procedure to Bring US Tax Returns Current?”

1. *Just Me

   With all due respect I am getting sick and tired of Robert Wood. He just doesn’t seem to get it. Also keep checking Linkedin as my friend Patrick tore into Jeff Mukadi response to you(Patrick response’s don’t seem to get posted right away).

2. @Tim

   I agree. Robert Wood is just like most of the tax lawyers out there, shilling for his own law practice and pocket book. He follows the same process as other lawyers but under the guise of Forbes journalism, i.e.:

   1) Regurgitate IRS press releases

   2) Stoke fear and uncertainty with immigrants/expats

   3) Profit

   BTW: Where is the Jeff Mukadi comment? On the Forbes article? If not can you post a link. I might weigh in.

3. @moby…

   It is an FATCA group on Linkedin.  I saw his Jeff’s response back to me, and frankly I just haven’t gotten to it, as it was one massively long paragraph which I was going to have to break apart into digestible chunks before I answered.  Glad Patrick has taken it on.  The problem with Linkedin conversations, is the delay time between posting and notice. 

   BTW, I am also getting tried of all the sheep on Linkedin, that won’t mention any efforts at opposition. I guess most are just middle to lower level clerks doing their job, but where is one of them venturing something other than, “How do I comply with this?” type of question. They all have their head buried in spread sheets!

   I can try to send you the link separately, although not sure how that works if you are not part of the group.  I will at least send you the comment.   

   @tim, 

   Thanks for the alert, and Robert Wood comment. I take your point.  I am of a more charitable view, for this reason. While I understand he is doing a lot of the same things that other Practitioners advise, he is at least advising caution about jumping into this program.  Frankly, if some Minnow is going to do it, without doing their own due diligence drudgery (that would probably be 99% of them who won’t), then they will need help from a Practitioner who can at least advise them of some of the risks.  I know that means that they “may” get directed down the wrong path, if they get the wrong adviser, but what can you do?  You can not be on record on Forbes telling the IRS to “stuff it”, or encouraging folks to ignore them.  LOL.

   The other thing I appreciate about Robert, is at least he is keeping the American Abroad prespective in the spot light.  I don’t know of any other prominent national Tax Blogger, certainly not at Forbes, who writes so extensively on the offshore dilemma for the Americans Abroad, also many times he links back to ACA.  So he gives a wider more diverse view than most. But bottomline, he is an attorney, and comes from an attorneys background and perspective, and you can never lose sight of that. 

   On a separate subject, I have been real tired of all the FCC (FATCA compliance Complex) putting out their dire warnings in blogs and articles that FFIs need to get cracking to be compliant and use the FATCA delay to get to work, and even if the registration delay is “smoke and Mirrors” as Risk Net said.  I think they are worse than the attorneys.  They all want to suck off the Regulatory Teat, and there have been very few of all the reports out on the delays that have any nuanced understanding of what may be happening behind the scenes.  I think this on at Financial News was the best, of a bad lot of reporting. 

   http://www.efinancialnews.com/story/2012-10-26/fatca-bilateral-agreement-tax-dealy?mod=sectionheadlines-home-AM

   I do think Jatras may have it right, that the IRS is having trouble with these IGAs which are repatriating the costs back to the US banks, and politically, that might be an obstacle for them to acually put into place.  I like that thought.  Not sure it is right, but it seems plausible to me.   

4. *Moby and Just Me

   I do think how you approach FATCA has a lot to do with whether or not you are from a “tax haven” country or not. A lot of people on LinkedIn actually work for/in tax havens. To some degree from a tax haven perspective it might be better to deal with FATCA as is instead of some other unknown future legislation specifically directed at tax havens and not countries such as Australia, Germany, Canada etc. What I think is very telling is the countries that have come out publically and said they will be comply with FATCA are tax havens or countries that have been accused of being tax haven.(In this later group I would include the UK, the Netherlands, and yes New Zealand)(I would also consider to be fair the US itself as being as much of a tax haven as the UK, NL, and NZ). On otherhand Canada, Australia(despite opening a consulation), China,  Russia, Brazil have made no such commitments. Germany and Japan have signed onto Joint Statements with the US but have done nothing to follow up on the. In fact from what Jatras has said Germany seems almost as recalcitrant as Canada.

   In particular I find the situation of Australia and NZ quite interesting. First as I mentioned previously Australia has only opened a consultation on FATCA they have not made any statements in terms of starting negotiations. I also suspect Australia at the very least to have a very similar demand for recipriciocity as Germany. NZ on otherhand is a different story and one that is quite telling. First if you follow the anti tax haven blogs you will see that on several occasions NZ has been accused of being a tax haven. As unbelievable as this might seem I think there are two nuggets of truth in this accustation. First the NZ Companies Office has done a very bad job both under Helen Clarke and John Key of preventing criminals and other baddies from setting up sham corporations and trusts under NZ law. Now I don’t think anything that happens at the NZ Companies Office is any worse than what happens in Delaware, Wyoming, and Nevada but it is far below the standards of Australia, Canada, and even Hong Kong(Again this is beside the point Delaware, Wyoming et all are tax havens too). Second John Key in 2008 made a big deal during his election campaign of developing an international read offshore financial sector in NZ. In 2008 Key made a bid deal of how NZ needed to be more like Ireland and Iceland until of course both of those countries went broke. Now NZ Revenue Minister Peter Dunne has denied all of these accusations up to now but I think if you actually read his statement on FATCA closely I think he is basically acknowledging that yes NZ is a tax haven and as a result will go along with FATCA. Even if NZ felt FATCA was inevitable the most logical position would be to have a joint negotiating strategy with Australia. Instead Dunne has left Australia behind and basically said NZ will go along with FATCA no matter what Australia does. Again I think this is shocking.

    

5. *

   Article about NZ Companies house:

   http://news.yahoo.com/criminals-abuse-zealands-liberal-company-laws-020944206–finance.html

   In an alarming case two years ago, a New Zealand shell company, SP Trading, leased an airplane that was seized in Thailand while carrying 35 tons of rocket-propelled grenades, surface-to-air missiles and other weaponry. The plane had picked up the cargo in North Korea and was headed for Iran. The crew, four Kazahks and a Belarusian, were incarcerated and charged with possessing weapons.

    

   Some say New Zealand has yet to get serious about stopping abuse. Financial blog naked capitalism has repeatedly accused New Zealand of playing the equivalent of the arcade game “Whac-a-Mole” by knocking down illegitimate operators as they pop up but not dealing with the systemic problems that give rise to the abuse.

   “There are significant gaps in New Zealand legislation, especially concerning the registration and supervision of companies,” said Michalis Rokas, the Chargé d’Affaires for the EU delegation in New Zealand.

   Rokas said EU member states will likely review whether New Zealand can be restored to the white list if and when the country enacts the proposed new laws.

6. *“This agreement will mean we can help to support FATCA’s objectives and play our part in dealing with international tax evasion, while at the same time ensuring that the compliance costs for New Zealand institutions are manageable.”

   Above is what Dunne had to say. Notice the emphasis on our part. CDN Finance Minister Jim Flaherty never talks about “our” part.

7. @Tim

   There are no serious commentators that consider NZ a tax haven. NZ has certainly had a couple of instances of bad things happening through NZ companies but nothing that is a systemic issue, and nothing that was really tax related. They have been plugging gaps in company formation by non-residents by requiring a local agent who carries liability for any bad behaviour. And there is sweeping new AML/CFT legislation coming into effect in 2013. NZ does pride itself on being an outward facing and business friendly country; ranked number 1 internationally in ease of starting a business as of last week. It makes it efficient for everyone, including the crooks.

   And I don’t think there is any pattern with countries signing up to FATCA IGAs being tax havens. I think it is a fairly random bunch so far. I am disappointed that the NZ govt has made such a affirmative move in the direction of signing an IGA without consulting with the public or considering the wider implications for NZers with US connections. The battle isn’t over yet though.

8. For what it’s worth, found this update, go to link and read the whole series of posts, only the latest excerpted here below:

   from http://mnp.ca/en/media-centre/blog/2012/9/2/details-on-new-irs-streamlined-relief-for-americans-in-canada

   Monday, November 19, 2012 – 05:00PM GMT
   |
   Kevyn Nightingale

   “More clarity from the IRS: There will
   only be two categories – high and low risk. No medium risk. The IRS
   acknowledged its resources were limited, so it will come up with further
   internal criteria to sort the wheat from the chaff. Canadian
   corporation and trust filing (forms 5471, 3520/A) will NOT automatically
   move one to high risk. The $1,500 threshold is a guideline, not a
   rule. Filings with tax above that threshold may still be low risk, and
   below that may still be high risk. A taxpayer who has already filed
   2010 or 2011 may still be considered in the Streamlined process (someone
   in this position is not automatically bumped out of the program). ……….”

9. @ badger

   It still looks like a spider’s trap to me. Come on in my little tasties — nothing bad will happen. The only difference is that there is logic and order in a spider’s web whereas the IRS offers only 70,000 chaotic strands of sticky tape which are designed to trap you no matter which way you go. It appears as though they claim you will be called low risk while reserving the “right” to call you high risk anyway. Plus you don’t really find out anything until after you voluntarily enter the program. As for the tax specialists? Well it’s no surprise they would be encouraging you to step right in, knowing you will have to pay them a pretty penny to act as your guide. 

   “It will allow probably 90% or more of Americans in Canada to become compliant, without undue costs.” Then the very next sentence begins, “It will still be expensive”. I disagree with the 90% but agree it will be expensive. AND probably painful too. AND I hate the term “compliant”.

10. I see Nina Olson is still trying to beat some sense into the IRS leadership about how to handle non compliant minnows more fairly!  

    http://oicattorney.blogspot.ca/2012/11/taxpayer-advocate-fbar-penalties.html

    National Taxpayer Advocate suggests changes to Offshore Voluntary Disclosure InitiativeSpeaking at a recent international tax enforcement conference, National Taxpayer Advocate Nina Olson suggested that IRS implement an approach to its Offshore Voluntary Disclosure Initiative (OVDI) that would only penalize taxpayers based on their level of non-compliance.A considerable shortcoming with the OVDI is its “one-size-fits-all” solution to taxpayer non-compliance. Taxpayers who fall into some gray area with respect to non-compliance are nevertheless subject to the same applicable penalty that is imposed under the OVDI as if they had willfully disregarded their FBAR filing obligations. Because many potential OVDI participants do not fit the program very well, they often choose to remain out of compliance. Olson suggested a four-category solution to improve the OVDI experience and encourage additional taxpayer compliance.

    • Category 1: Resident and nonresident taxpayers who properly declared their income, but failed to file their FBARs or other information returns. Olson suggested that such persons be permitted to enter the OVDI and clean up their affairs without being subject to the 27.5% penalty imputing willfulness. Such treatment is currently only afforded to nonresidents who come in under IRS’s streamlined procedures, but Olson suggested expanding the group to residents as well. 
    • Category 2: Taxpayers who failed to properly report their taxable income but whose tax liability is under a certain dollar threshold amount. Olson opined that taxpayers in this group should be treated more liberally than under current IRS practice. She suggested looking at Code Sec. 6662(d) for a threshold dollar amount for the imposition of accuracy-related, but not FBAR, penalties. Code Sec. 6662(d) provides that an individual’s understatment is “substantial” for purposes of the 20% substantial understatement penalty if it exceeds the greater of $5,000 or 10% of the tax required to be shown on the return.
    • Category 3: Taxpayers with a valid reasonable cause exception to willfulness for their failure to file their FBARs. Olson suggested that taxpayers in this category should not be required to opt in to OVDI but subsequently opt out of the program’s civil penalty structure. Instead, such taxpayers should have a special program available, and their advisors would have to make the judgment call as to whether their client fits into this category.
    • Category 4: Taxpayers with fact patterns that suggest a willful disregard of the FBAR rules. Olson suggested that taxpayers in the fourth group continue to be subject to the current OVDI rules.

    With regard to Category 3, in order to determine whether there are valid arguments to claim a reasonable cause exception, the facts and circumstances involving non-compliance would have to be carefully reviewed by practitioners. Olson suggested practitioners rely on the standard of willfulness as established in Ratzlaf v. U.S., (Sup Ct 1994) 510 U.S. 135. In Ratzlaf, the Supreme Court addressed the standard for willfulness in the context of violation of the bank secrecy laws. The standard applied in the case was “a voluntary intentional violation of a known legal duty”—in other words, knowledge of the requirement and the specific intent to disobey the law should be the standard here.

11. @Em, I agree totally. And it has become so convoluted that I would be surprised if the IRS even understood all that it has woven – just look at all the latest FAQs and charts etc. on the IRS site, where now they have somehow tried to combine all the VD and OVD and OVDP and now Streamlined Compliance procedure (which somehow is being described also now as a VD process).

    I hate the word ‘compliant’ too. It smacks of serfs and slaves and submission. And oppression and dominance and injustice. Since when does a democracy require citizens to be ‘compliant’? Were those at the oh so celebrated Boston Tea Party compliant? Were any of the founding fathers and mothers COMPLIANT? Does the oath say anything about being ‘compliant’?

    @Just me,

    I posted a quote that Nina Olson made at that recent conference, where she rebuked the IRS yet again, and specifically noted that the IRS design and administration of these ‘compliance’ and ‘voluntary’ disclosure programs needlessly punished all categories equally regardless of being benign or relatively benign actors She specifically said there had been no need to frighten and threaten the entire population of Canada.

12. IRS and Practitioners Comment on Streamlined OVDI Procedure 

    Taxpayers who do not necessarily meet all the factors under the IRS’s streamlined filing compliance procedures for previously unreported offshore accounts should nonetheless apply to the program if they are low-risk account holders, senior IRS officials said December 6. 

13. @just me

    …said the spider to the fly.

    IRS, please define “low risk”.

14. What about a 64 year old retired person who has been a Canadian citizen for 33 years but was born in the US and owes no US taxes but has not filed a US return for 33 years believing that reciprocity covered this. The persons spouse is a canadian and*not a US citizen and all assets are joint. What should be done? Would amnesty apply?

15. You may not be a US citizen. What have you done since becoming a Canadian citizen would indicate that you intended to lose your US citizenship? What have you done to show that you wanted to keep it. See, http://isaacbrocksociety.ca/2011/12/16/from-the-archive-did-you-relinquish-here-are-some-proofs-that-the-state-department-uses/

16. Exactly, Petros. First advice.

    As well, renounceuscitizenship has another great analysis:

    http://renounceuscitizenship.wordpress.com/2013/01/15/what-a-fatca-iga-would-mean-for-non-compliant-u-s-citizens-abroad/

17. *John GReen You don’t need amnesty. You are not American and have no obligation to the southerners. “Reciprocity” (not sure what you mean) is not an issue.

18. *reciprocity refers to the agreement between the US and Canada that if you pay taxes in Canada you would ordinarily not be expected to pay US taxes.

19. *no valid US passport has been held for 33 years. Two thirds of the income contributing to assets was earned by the Canadian spouse. A US tax return has not been filed for,33 years. Place of residence has always been Canada for 33 years. The person worked in a government funded health care job.

20. *no valid US passport has been held for 33 years. Two thirds of the income contributing to assets was earned by the Canadian spouse. A US tax return has not been filed for,33 years. Place of residence has always been Canada for 43 years. The person worked in a government funded health care job.

21. @John Green

    If you have been a Cdn citizen for 33 years then you became a Cdn in 1980. Prior to 1980 the US took the position that becoming Cdn resulted in automatic loss of US citizenship.

    Do NOT under any circumstances open the door on U.S. tax issues unless you get an opinion from two competent lawyers that you are still a U.S. citizen for tax purposes. Do NOT ask an accountant or tax preparer!

    There is very good reason to believe that you are NOT a U.S. citizen. You must NOT do anything unless you are have two strong professional opinions that you are a U.S. person.

    And I know that you probably can’t afford to get the two legal opinions. So be happy …

22. @John green,

    If you have done nothing to deem yourself a US Person since becoming a Canadian citizen 33 years ago and have no plans to ever use that US citizenship you do still have (unless you can prove you don’t with a Certificate of Loss of Nationality), you should consider making an appointment with a US Consulate to claim your relinquishment.  We have many documented here who have been able to do so, all similar to your situation.  (There is no such thing as reciprocity for not filing US tax returns in Canada, unless you were below the minimum income for such.  We were all lulled into complacency, often with advice of Canadian tax preparers.  We are all in the same boat without a paddle.  Petros has given you the best first advice — and it sounds like it will work for you.  You now need to do the hard work to make the decision that you think right for you.  There are no easy answers.  Some action is required unless you want to live the rest of your life looking over your shoulder.  View the choices we have at http://renounceuscitizenship.wordpress.com/2013/01/15/what-a-fatca-iga-would-mean-for-non-compliant-u-s-citizens-abroad/ ).  My two cents.

23. @John Green

    @All

    Anybody person who was a US citizen and became a citizen of another country prior to 1986 will find this of interest;

    http://renounceuscitizenship.wordpress.com/2011/11/13/expatriating-acts-the-status-of-your-u-s-citizenship/

24. @USCitizenAbroad

    And a good post it is.  

    thanks for laying out the “how to deal with” options.

25. Two years ago I asked Canadian and US tax lawyers, as well as a US immigration lawyer what to do. I felt that their advice was biased by the opportunity to get a fee. We paid nothing for a brief telephone opinion, but then were left with where to go to get unbiased advice. I really appreciate the feedback on this site. Based on what has been said so far, we will probably do nothing. This means we may well have to live with the possibility of being identified at some point, although apart from not fling a return we have done nothing wrong and owe no taxes–except possible penalties for not filing.