Cross-posted from the Flophouse. Probably the closest I’ve come to losing my temper over this whole business. And thank you for the comments and the encouragement you left chez moi – as always it’s wonderful to see familiar names and to read your words.
U.S. citizens and Green Card holders living abroad are waking up to the fact that their status and connections to the “Land of the Free” brings with it certain obligations. If you’ve ever read The Moon is a Harsh Mistress, one of the great science-fiction classics by Robert Heinlein, you’ll be familiar with the acronym “TANSTAAFL” which stands for “There ain’t no such thing as a free lunch.”
Citizenship is never a “free lunch.” All countries require certain things of their citizens and where there are rights, there are also duties and responsibilities. American citizenship is turning to be a very expensive lunch indeed (a four course meal with wine AND cheese AND dessert) because the United States practices something that is often called “citizenship-based taxation.” That term is a bit misleading and should probably be renamed “worldwide taxation” because its scope includes people who are not citizens of the United States of America: U.S. residents and immigrants like Green Card holders living in the U.S. or abroad. Very briefly what the U.S. tax system requires is that all U.S. persons (wherever they live) report their personal financial information to the U.S. government, file tax returns and pay U.S. taxes on income or investments earned outside of the U.S. every single year. No other country in the world besides Eritrea does this and it brings new meaning to the old term, “American Exceptionalism.”
Most homeland Americans are blissfully unaware of these requirements which is probably normal since they have absolutely no impact on them. What is more disturbing is that until very recently most U.S. Persons (American citizens abroad, Green Card holders and U.S. residents) were also completely in the dark. Overseas Exile has an excellent post about “Expat Alice.” This is a very typical story and I know people here in similar situations. Even with the news reports I am still meeting people in Paris like the two American au pairs I encountered a few months ago who have been here for a couple of years working for French families. They went sheet white when I explained it to them. Yes, both should have been filing tax returns and FBAR’s since they earned a yearly salary that was over the filing threshold and their parents had set them up with bank accounts here with sufficient money to rent studios and pay their tuition for French classes. Even I, someone is more or less clued in, made my own filing error. It had not occurred to me that my daughter who is a U.S. citizen, should have reported her own bank account in Canada. I had to check but it was indeed over the reporting limit because we set her up (like the parents of the au pairs) with enough money to pay her tuition and living expenses. I had to search our bank records from last year, convert the amounts from Euros to U.S. dollars, and then send all that information to my daughter so she could fill out her own FBAR thus adding yet one more piece of paper that the U.S. Treasury must process in 2012.
So, as you can see, this matter is of more than academic interest to me and it is a topic that I write about often. Am I angry about it? Absolutely. Here I am working on a tax return with my accountant that is so thick I could use it to line my cat box even though not one dime of my income or my investments came from or was earned in the U.S. I have an extension to file late but I still had to pay a few thousand dollars to the IRS earlier this year and now I’m paying for someone to help me navigate the bloated U.S. tax code so I can get the paperwork done. That’s pretty expensive cat litter, mes amis. And just for information I am strictly middle-income and have a career as an IT manager which pays decent money but does not, and never will, put me in the millionaire category.
Yes, homelanders, I pay U.S. taxes though I have not lived in the U.S. for years. But apparently many of you don’t. On top of all of the above, and to really add insult to injury, was some news I had from a family member who lives in the U.S. and has about the same income. He did his U.S. taxes and was pleasantly surprised to discover that not only is he not paying a dime in Federal income taxes, he gets a refund* of around 4000 USD. Imagine my surprise to discover that he is not alone. According to this Huffington Post article around 46% of homeland Americans didn’t pay any Federal income taxes in 2011.
How interesting.
So let me see if I have this straight: someone who lives in the US and has about the same income as me and who benefits from all the government goodies like national parks, Social Security, interstate highways, schools and so on can get away with not paying a dime even for the troops whereas someone like me who lives abroad and uses none of the benefits homeland citizens take for granted ends up with a hefty bill.
I understand that life is not necessarily fair and I am not someone who is against the idea of contributing to the well-being of my country of citizenship. I am also aware that the reason many of these homeland Americans do not pay is because they are too damned poor to do so. You have no idea how much I hate that and how ashamed it makes me to have to admit to it.
But at some point over the past 10 years homelanders ordered themselves up a four course meal at a fancy restaurant and put the bill on a Chinese credit card. In retrospect this wasn’t such a hot idea but at the time it was politically very popular to order up a filet mignon for some and to order a bottle of wine for those nice folks at the table on the other side of the restaurant who turned out to be non-drinkers and sent it back. But it’s a done deal and arguing over bad past decisions is a fruitless pastime. In fact the national debate in this issue would be vastly improved if every American just accepted that everyone has some responsibility for how things shook out and that the most important thing now is to do the Next Right Thing.
To that end Americans abroad should be given a seat at the national table. We may all be reduced to eating at Mickey D’s but I’m cool with that. Representative Carolyn B. Maloney of New York has put forward a very modest proposal for a commission that would start a dialogue between us. It would cost around 3 million dollars a year, a mere drop in the bucket compared to the overall federal budget – though I suppose if we asked a U.S. military contractor to cater it, it might cost quite a bit more than that. The ACA and AARO are ready with some well researched material about how citizenship-based taxation and other homeland legislation effects us and does no good whatsoever for the homeland.
But don’t you dare walk out of that restaurant and stiff us for the bill while mouthing platitudes about duty and responsibility and how we are all in this together. Clearly that is not the case and one of these days if that doesn’t change, we may be the ones walking and leaving you to do the dishes.
*In my original post I called the money my friend got back from the Federal government a “refund” and a reader asked for clarification. To be precise, it was not a refund of taxes paid but rather a subsidy based on that person’s deductions for children and mortgage interest. It wasn’t much of one but it still represented a kind of social assistance – a bit like an indirect “les allocations familiales” in France.
Obama will win the election, and he will enact such a policy with his administrative powers with the IRS.
The status of the senator races can be found somewhere on the USAtoday site–I lost it and I am behind in my homework.
I met with an NPR state reporter, whose home office is located upon the campus where I am now studying, in a state in the middle of the country. Her interest was peaked, however she is considering it a national issue unless I persuade her that I and others are locally affected. I provided all the background links.
One more chance to be ignored by mainstream media.
@Mark Twain
What are the policies that you are referring to?
Massachusetts Congressman Tip Oneil used to say that “all politics is local”. Keep pushing with the NPR reporter. Thanks for your help. What (in a general sense) are you studying? Great to have interest from the “Homeland”.
Looks like Obama, Holder and Schulman are going to whip the expat inquisition to an even wilder feeding frenzy:
Jailed UBS Employee Gets $104 Million From IRS For Exposing Swiss Bank Account Holders
Implication: Uncle Sam wants you, dear concerned
citizen, to expose all other such evil Swiss bank account holders
(electoral campaign implications here being painfully obvious). You will
be richly rewarded. But watch your back, dear concerned citizen, if you
ever succeed in escaping into the rarefied air of having 2 nickels to
rub together, and decide to save them not on US soil, for some inexplicable reason, but, say, Zurich or Geneva.
@ConfederateH: Your comment and my post must have crossed in Cyberspace. Weird, we both cited the same money quote. Cheers.
*What I love the most about citizenship taxation is the jurisdiction argument. This is what I got back from HUD today on my housing discrimination complaint:
My response:
Citizenship based taxation for Americans Abroad means taxation without representation and no government services.
Can any honest man argue that this is not tyranny?
I am not a Homelander— I am a rirty dotten oreign faccount holder, a fich ratcat living overseas, a whiner and a pex-atriot.
What are the policies that you are referring to? see my comment above with the link, in pretty clear nonwords, Obama’s site implies his objective to end the foreign exclusions and credits to get us fatcats. Directly he calls out the republicans as non supporters of his “reversingp-the-burden-of-proof” HIRE act. Even if he doesn’t have the further appropriate mandates in the houses, he is doing whatever he wants with IRS policies based upon his personal mandates he will get in the election.
What (in a general sense) are you studying? Perhaps if I attend this one semester term, I can become a student with no income and have too little income to have to report it to the IRS. I can also use up some of my locked up IRA prior to it being confiscated.
I am still trying to figure out what is meant by the routinely mentioned cliché that “Americans abroad need to pay their ‘fair share,’ which is often used to justify the concept of citizenship-based taxation.
The people making this claim conveniently fail to mention that Americans abroad must also receive their ‘fair share’ of government services and benefits in return such as the ability to use US roads, bridges, dams, power grid, hospitals, schools, police, fire, ambulance services, courts, unemployment insurance, Medicare etc. Anyone with a degree of common sense knows that it is impossible to receive such services and benefits when living thousands of kilometers away from the US.
One of the many ironies of this situation is that some of the people making the one-sided claim about Americans abroad needing to pay their “fair share” are in high level positions in government and academia. Some even have PhDs and justify their claims by applying all kinds of fancy but questionable theories on taxation such as that of “horizontal equity.”
http://www.investopedia.com/terms/h/horizontalequity.asp#axzz26NRws7vS
While writing this, I cannot help but scratch my head and wonder if any of those people have ever read a 6th grade history book let alone the text of the Declaration of Independence. If they did, they would be able to imagine what America’s Founders would have said about such nonsense while under similar circumstances from the British government as America’s ex-pats are facing today.
*@FromtheWilderness, it’s because America is a Religion. LOL
The gap between the American ideology of freedom / opportunity and the reality of being the world’s superpower continues to get wider as the empire expands.
Imperialism and freedom are not compatible and ex-pats are beginning to get a real taste of it.
@Fromthewilderness, Someone left a very good comment summarizing the arguments for taxation on this Flophouse post:
http://thefranco-americanflophouse.blogspot.fr/2012/08/diaspora-taxes-citizenship-based.html
He/she talked about 4 principles that underly an agreement between parties to be taxed: equality, transparency, efficiency and simplicity. Equality is very often what is cited when it comes to supporting citizenship-based taxation – Americans are treated the same wherever they live. The hole in the argument is about benefits since Americans abroad can’t benefit from the things that homelanders take for granted. Nice summary/great comment and worth reading.
Just Me had another take on it that still has me thinking. Forget the benefits/equality argument and think of it more as a membership fee. OK you may not go to the gym on a regular basis to take advantage of the great weight room and heated pool but paying the fee means that you could if you wanted to. That’s not a bad way of looking at it. Of course, just as we all review that gym membership every year after we have failed yet again to make that I-will-go-to-the-gym-once-a-week promise a reality, so we have to make the same kind of cost/benefit analysis of citizenship. Will we go back one day and will we sometime in the indefinite future USE the benefits that come with our membership in the club? Take that projection into the future and weigh it against paying the yearly fees/dues. Is it worth it? When I do this for myself 200 USD sounds about right. 2000 USD doesn’t.
Just out of curiosity, what would be your price?
@ Victoria – As a dual national, when I entered the IRS Voluntary Disclosure Program, I did not even think about the price of US citizenship. What was most important to me was that I was a good US citizen and if I was a good citizen and I possibly owed taxes, I wanted to follow the correct procedure to correct the error and pay them. I was told under this VD program reasonable cause could be argued and it was clear my facts were in line with relief indicated in the IRM. Costs were more than I ever could have imagined, but as Americans are known to be very litigious, this seemed fair enough.
The complete turn around by the IRS, in which suddenly they put all people in VD into OVDI, without the possibility to argue reasonable cause, shocked me and caused me legal and accounting expenses 5 times greater than what was originally quoted and imposed sky high automatic fines on me. My retirement savings were severely depleted and for the first time I suddenly felt that as an American abroad, I was at the whim of a government that had no understanding of the realities of my situation and it was impossible to discuss this with them. I also felt alienated from citizens in the US because the few acquaintances I contacted were of the mindset that as it did not impact them, it was not of concern.
I still have no idea how my OVDI case will turn out. No matter what the results are, whether I continue as a US citizen or not has little to do with a certain price. My accounting fees are reasonable for me – USD 700-1000 per year, although it seems a ridiculous expense when I usually owe no taxes.
What bothers me more is the loss of freedom. I must live as a second class citizen in the country I reside in. I cannot invest in the same things other residents in this country can invest in without being penalized. I have to live in fear of being denied a mortgage. I live under constant threat of huge penalties for what would be normal behavior in the country I live in. While demanding financial resources from me, the US does not even bother to provide its governmental representatives with a good way to communicate with me about matters that concern me.
I also think about the lives of my relatives here abroad. I have no more family in the US so my relatives here will care for me when I get older. Many of them can barely speak English and they will be the ones expected to understand and file US taxes for me as I get older and likely become demented. I am not sure they will be able to do it. I have to set things up to be easy for them.
There is no monetary value I can put on this, only a time limit. I will do everything I can to fight for the implementation of residence based taxation and the general rights which American Citizens Abroad is advocating for Americans abroad. 4-5 years seems reasonable for me considering my age and circumstances. If the situation continues as is, then my course of action is clear.
So I do not mind paying the membership fee, it is just that I get very little out of the membership other than a sense of membership. That just doesn’t cut it when I think how restricted my life has become and how the membership can complicate the well being of the people who will care for me in the future.
@Lisa
“The complete turn around by the IRS, in which suddenly they put all
people in VD into OVDI, without the possibility to argue reasonable
cause, shocked me and caused me legal and accounting expenses 5 times
greater than what was originally quoted and imposed sky high automatic
fines on me. My retirement savings were severely depleted and for the
first time I suddenly felt that as an American abroad, I was at the whim
of a government that had no understanding of the realities of my
situation and it was impossible to discuss this with them. I also felt
alienated from citizens in the US because the few acquaintances I
contacted were of the mindset that as it did not impact them, it was not
of concern.”
Lisa, would you be willing to elaborate on this? When you say you entered Voluntary disclosure, what exactly do you mean? What precise avenue did you think you were taking? What IRS decision are you referring to that put all people who were in VD, into OVDI? When did this happen? Also, assuming you are in OVDI, why not just do an immediate “opt out”? I understand that you may not want to elaborate, but it would but helpful if you could provide some guidance here.
@Victoria
Save Eritrea, the US is the only country in the world that requires it’s non resident citizens to pay this type of membership fee. It’s the citizenship that allows the membership, not the fee. The citizenship would exist without the fee. As with every other country, the US should allow the suspension of fees when there is no draw of services. For gyms, you can choose not to renew your membership at a certain point. Some would like to say it’s because US citizenship is somehow deserving of the price of admittance, implying it’s somehow worth more than others.This American elitism. Citizenship based taxation hurts Americans. Period.
@Lisa
I’m not clear about your circumstances, but I am in OVDI and have been told by the Taxpayers Advocate Service that we may be able to have our tax penalties eliminated under the Internal Revenue Manual. We hope we can prove reasonable cause for the FBAR ones. Have you talked to TAS? I told our lawyer we were going to talk to them and he said “it wasn’t a bad idea”. Our OVDI submission did not require we pay FBAR penalties up front, and we hope to have the tax penalty reimbursed to us under the First Time Penalty Abatement provisions of the IRM. TAS implied that they could negotiate within OVDI and that opt out may not be necessary, but until we get a response from the IRS on our submission we can’t do too much.
I have no problem elaborating as these are all well know facts. They are further proof of “Bait and Switch” by the IRS, which the IRS denies. Most “Bait and Switch” examples address the people who innocently entered OVDP 2009, but the people who innocently tried to correct following official procedures after OVDP 2009 by entering VD are also “Bait and Switch” victims.
If one became FBAR aware during 2010, there was no OVD program available as the 2009 OVDP had closed. If one made the mistake, and yes, that is what I now consider it, of contacting a US-based tax professional about FBAR issues, the US tax professionals were all so terrified of the IRS’ threatening words and lack of clarity on how FBAR omissions would be handled that most were saying that the traditional Voluntary Disclosure was the only process to follow to correct any issues related to foreign accounts. Actually, it is probably more correct to say that they were railroading people into traditional VD. Due to the fear tactics used by the IRS, and the insistence on one size fits all, even though traditional VD has been used largely when there is material criminal risk, the tax professionals were so confused and scared that they drove anybody with foreign accounts in the direction of this program. The tax professionals I used did not explain anything to me about the program other than it was the process to follow. Apparently, there are 3,000 people who entered VD for whatever reason.
Traditional VD allowed reasonable cause arguments. My tax professionals told me that my facts were benign, but that we had to argue reasonable cause in VD because there was no negotiation outside of it. They never mentioned quiet disclosure and poo-pooed a go forward strategy.
When OVDI was announced, the IRS stated they would be rolling over anyone in VD with foreign accounts to OVDI. OVDI automatically imposed disproportionate fines and required 8 years of tax returns instead of the three in VD. Reasonable cause was denied in OVDI. Documents had to be submitted to conform with OVDI requirements.
To do any opt out, immediate or not, it makes the most sense if one has contact with an examiner. I am now in this godforsaken system for almost two years and have had no meaningful contact with an agent.
@Lisa
Thanks – just for clarification. Traditional voluntary disclosure is a broad term. It can include either going through criminal investigations or it by-pass CI and can simply notify the IRS of your filings but not go through CI.
Could you be more specific about which route you took and also what were the “tax professionals telling you to do in relation to CI.
Also, what in your opinion would the IRS do if you made your disclosure today. I.e. after the December 2011 FS and the fact that one has the option of entering OVDP. Finally, if I may ask, had you been filing your 1040s? Was it just the FBARs that had not been filed?
@Lisa, Just Me sent me the link to a story about the Red Cross which introduced the idea of a “category mistake.” This is when things in one category which have certain attributes turn out to be something else or are flipped into another category. The example would be you going to your parent’s house for Thanksgiving dinner and after the meal having your Mom present you with a bill and asking for a tip. 🙂 The OVDI sounds like that. People came forward wanting to do the right thing and discovered that this was irrelevant. The program was advertised as being for everyone (a way to make it right for people who wanted to do right) while in reality it was designed for criminal Whales (a way to get out of going to jail).
When I looked at OVDI over a year ago I can see now that I had some basic assumptions that turned out to be erroneous. I loved the US and, while I never have agreed 100% with American policy, I did have a certain level of trust in the U.S. government and in the American people. And I tried to “do right” in my daily life abroad as an unofficial U.S. ambassador in my country of residence. How do I feel about it now? Well, it appears that the U.S. is no longer looking for love (loyalty) from its citizens abroad – what the post-recession US wants is money. In an ideal world I suppose they would prefer to have both but since the first is an intangible asset and the other is tangible and can be expressed in cold hard cash, the latter is now the priority. Good to know. So why can’t we play, “Let’s make a deal?” I want my citizenship. They want my money. Surely we can come to an arrangement. But I want it to be explicit and I want to know what my yearly bill will amount to. What scares me the most about this situation is the uncertainty. I cannot know from one year to the next what my citizenship will cost me. Give me a good rate, lock it in for the next ten years or so and send me an itemized bill and I just might stick around. But I won’t pretend anymore that this is something more than just a simple contract between me (citizen) and the state. No more category mistakes. 🙂
@Victoria, any gym that goes out of its way to make itself as inaccessible to you as it can, has a huge membership termination fee, demands that your children and spouse also join, forces you to include them in your will, and then charges you extra if you dare to swim in someone else’s heated pool entirely instead of theirs would have gone out of business long ago.
*Victoria,I don’t know if this makes sense or not, but I think that it would make sense if Americans abroad were more involved with their embassies. I’d like to elect my ambassador. I want to be able to vote on the embassy budget and how much I must spend to maintain it or how much I should pay to renew my passport. I want to vote on what the embassy does. As for what goes on in the states, it is fine with me if stateside Americans vote on such issues. They can choose their senators, their president, their laws and all the things that they want to finance, while I just want to be responsible and in control of my embassy and consulates.
*Americans abroad should also be able to vote on US foreign policy and how much they wish to be financially responsible for such as a regional group. For example, if Americans living in Switzerland wanted for a Fat Cat to deny them banking services locally due to their national origin, then they could vote to financially fatten the cat so that they are denied banking services for being Americans. Or, if Americans in Israel vote to continue financing the their current condition of national origin discrimination in the nation of Palestine, then they should be responsible for the costs related to such, including the protection of Americans in Libya who are endangered with their foreign policy. Americans living in the nation of Palestine or Libya, on the other hand, could vote to not finance national origin discrimination and the related financial cost of such, enabling for themselves to be protected at the cost of those seeking unnecessary aggressions based on national origin discrimination. This would result in national origin discrimination becoming to costly for Americans living abroad to be able to finance, pressuring them to vote against discrimination based on national origin so that they won’t have to pay for it.
This would be different from the current situation which forces Americans living abroad to pay more for national origin discrimination as they become more successful, without being allowed to vote on the matter, even while such becomes more threatening to their lives.
@renounce My tax professionals told me nothing about CI. They told me that the only process for correcting any omissions and explaining yourself if you had a foreign account was to enter VD. They never asked me anything about my specific finances. They told me to enter VD and after I was in it they would re-do my returns to make sure they were correct and they could explain my situation to the IRS for me. I assumed this was a standard procedure. I was startled when I saw that the letter they submitted went to CI. When I asked them about this, they said this was standard procedure because I had a foreign account.
I blame myself. I was the idiot. I did no investigation. I was totally unaware of the jihad on Swiss banks and foreign account holders that was going on at the time. I had not had any contacts with the US for many years and I had never hired a lawyer before. I assumed that if a lawyer was telling me this was standard policy, well, it was standard policy.
As I began to inform myself about what I had gotten into I realized that I had received bad advice. I believe that a good professional would have first taken a look at my returns and analyzed my situation and explained the options. I now recognize the climate the IRS created at the time allowed certain professionals to take advantage of one’s naivety. What said it all to me is that after I became more educated and I asked the lawyers about why they did not analyze my situation better, they said, “It was just business to us.” I fired them when I heard that.
Here’s a note to Bubblebustin. You have a good lawyer. When I mentioned the TAS to my lawyers, they downplayed the TAS and said they said they could likely resolve all issues before it was necessary to bring in the TAS. Maybe so, but I ask myself, at what cost? It seems anything that might have helped to reduce my costs, they were not interested in.
I was a self filer. The irony is that I thought I was doing everything
right as I was audited twice during a 20+ year period, once pretty recently, and I provided all documentation and I had no issues. I found
the IRS helpful and nice during this process. This is why I had no
issue to just follow what I thought was another standard process.
It’s hard to say what I would do today as I am so much more knowledgeable now. If I had come in contact with the same tax professionals and still had the same level of trust in the government and tax professionals as I did then, I bet they would have steered me into the most expensive option available now, which is likely OVDP.
The reality of my situation is that for the 6 year look back period for FBAR, I owed about $300 in total in tax and all of it in the last 3 years. I was always filing so if I had discovered this today, I would not have been eligible for the streamlined procedures. So forgive me if I am a bit cynical at times. My life has been put on hold, my savings have been depleted and only the TAS seems to care that I am collateral damage of a bad IRS policy. As the IRS has, after almost two years, done almost nothing on my case, I can only wonder what tortures are yet to come. There are positive signs, but until the case is actually worked on, I will be in limbo.
@Lisa
I’m sorry to hear that you were taken advantage of. Yes, thank goodness for TAS. I wish you had a lawyer who had told you that talking to them “isn’t a bad idea”or at least didn’t outright discourage you. That being said, we haven’t tested TAS yet.
I don’t know what kind of person can or will line up for these new streamlined procedures, when the IRS is so nebulous about who they may find as high compliance risk. It’s still to scary for the average minnow to even enquire when reading stories like yours about the sharks they may encounter on the way.
@Lisa
First, can you confirm that you are a U.S. citizen living outside the U.S. Assuming that you are …
The very first post I did on the Isaac Brock Society site (December 2011) was titled:
We can’t trust the IRS – But can we trust the accountants and the lawyers
http://isaacbrocksociety.ca/2011/12/12/we-cant-trust-the-irs-but-can-we-trust-the-accountants-and-lawyers/
Since that time I have written a number of posts and made hundreds of comments. I mention this because I have never felt the degree of anger that I am feeling after having read your last comment. I thank you for sharing this – your comment exposes a system that is corrupt to the core – where the cross border professionals are (in general) a bigger part of the problem than the IRS.
You say:
“My tax professionals told me nothing about CI. They told me that the
only process for correcting any omissions and explaining yourself if you
had a foreign account was to enter VD. They never asked me anything
about my specific finances. They told me to enter VD and after I was in
it they would re-do my returns to make sure they were correct and they
could explain my situation to the IRS for me. I assumed this was a
standard procedure. I was startled when I saw that the letter they
submitted went to CI. When I asked them about this, they said this was
standard procedure because I had a foreign account.”
As I pointed out in my previous comment, there are different kinds of voluntary disclosures – ways of voluntarily disclosing information to the IRS.
Now, you are telling me that you had been filing your 1040s, you owed no tax (okay $300), you had been audited twice and had no problems, they wouldn’t take the time to understand your facts, and their solution:
Send a letter to the Criminal Investigation division of the IRS!
It is NOT true (and never has been true) that every instance of voluntarily disclosing of information goes directly to CI. It is my sincere belief that the reason that you were put into OVDI, is NOT because you voluntarily disclosed, but because what you disclosed was sent to CI. What the IRS probably thought it was doing, was giving you another way to avoid criminal problems. Your situation is the result of legal advice that was either completely incompetent (strong evidence of that) or completely dishonest (proof is that they didn’t even analyze your facts). The only purpose to retaining a lawyer is to get an analysis of your facts. To anybody reading this comment – if a lawyer starts telling you what to do, before understanding and analyzing your facts – you get out of there!
It’s interesting to me that you were using a U.S. based lawyer. First, I would always consult more than one lawyer. But, I am beginning to wonder whether one should consult both a U.S. based lawyer and a non-U.S. based lawyer. Although, I concede that this observation is anecdotal, a lot of U.S. based lawyers (but not all) seem very quick to put people into OVDP without exploring other options. Again, although this is anecdotal I note that MonaLisa (U.K. based) and Bubblebustin (Canada based) are using professionals not based in the U.S. Are non-U.S. based lawyers (in general) more prone to explore multiple compliance options? Are U.S. based lawyers interpreting Circular 230 (IRS rules or practice) to mean that they should advise people to enter OVDP?
I alluded to this question in an earlier post I wrote called:
The conscience of a lawyer and the FBAR Fundraiser:
http://isaacbrocksociety.ca/2012/05/31/the-conscience-of-a-lawyer-and-the-fbar-fundraiser/
I would be interested in comments on this issue. (I note that U.S. based Michael Miller has been very good at suggesting different compliance options.) Although, this comment is likely to anger some of those in the legal community, would be very interested in their comments on your particular situation.
It seems to me that you might have considered compliance on a “going forward basis” and then arguing “reasonable cause” if you needed to. Now, of course you are required to “opt out” and argue “reasonable cause” in that context.
You say:
“I blame myself. I was the idiot. I did no investigation. I was totally
unaware of the jihad on Swiss banks and foreign account holders that was
going on at the time. I had not had any contacts with the US for many
years and I had never hired a lawyer before. I assumed that if a lawyer
was telling me this was standard policy, well, it was standard policy.”
No, you were not the idiot. I will tell you who is the idiot. Your lawyer is an idiot!
You are hiring the lawyer to analyze your facts. They failed to do this.
Finally you say:
“I asked the lawyers about why they did not analyze my situation better,
they said, “It was just business to us.” I fired them when I heard
that.”
Interesting comment from the lawyers – have you considered a lawsuit against them?
Victoria – The train is starting to pull out of the station, and still moving slowly enough to jump onto while the risks of doing so are assessable. Post 2012 is absolutely murky. After decades, taking that action became so much more attractive than wallowing in exponential uncertainty. Sauve qui peut. Only one sleepless night preceded embarkation on the symbolic nine months it ended up taking to eradicate US citizenship. (CLN pending of course.) It has been a great personal comfort — and confirmation — to recite the mantra that issued from guru Phil Hodgen:
Political signals from the United States show that expatriation and tax policies are likely to get harsher. … The cost of expatriation now is less than the expected future cost of expatriation. Better to take the medicine now rather than later. … Expect the same exit tax rules, but more of them, and worse. Expect more expatriations. … Get out while the getting is semi-good. Don’t wait for more time. More time means more laws.
*renounceuscitizenship, my observation so far has been that the IRS has been friendly and helpful, while many CPA’s have been talking about fines and jail time, while offering their services as the means of avoiding such. I have to investigate this further, but it seems that the IRS had created a user-friendly tax portal (which probably accepted foreign addresses), but such was scrapped since accounting firms complained to congress that it would result in a loss in profits. In that case, IRS lost and accounting firms one, resulting in expats having a difficult time using free-file.