If you haven’t been keeping up with the travails of IJ, on Jack Townsend’s blog, you have missed a remarkable story.
IJ is a Chinese immigrant to America who came to our shores via Canada. He got caught up in the OVDI, and after a long struggle decided to “Opt Out”. He was prepared to fight in the Court of Appeals, if necessary! But, thankfully, reason at the IRS’s Opt Out management review committee did prevail, and he was finally released from this lengthy OVDI torture with just a FBAR warning letter. Frankly, that was all that was ever necessary to obtain a compliance objective. It was the correct decision. You can read more of IJ’s story, at this post.
I am really glad the end result is so minimal but cannot fathom, why he had to experience all of that in the first place. Wouldn’t it be fun to imagine a Senate Committee having a hearing on the utter waste of $$ and resources and making IRS account for all their nonsense? I can hear Uncle Carl now……………LOL
A complete waste of IJ’s LCUs, and valuable IRS resources that should be focused on Whales and Child Tax Credit and Tax ID fraud in the homeland. There is where the money is! But, as it has been said, the “IRS has smaller fish to fry” 🙂
This confirms my suspicion that the IRS does not charge FBAR penalties outside OVDI or criminal investigations.
*Just Me, the latest news suggests that the feds just realized that they have a serious money laundering problem in the States:
@SwissPinoy I just laugh at these lapses…. The banks can’t comply with all the KYC and AML regulations now, and the the IRS wants to heap FATCA on top and expect a different result?
Just me,
I need two crowns on my wearing down teeth, likely due to OVDI stress. Now I have the money to see my dentist -:).
It was you,Moby Anon123, and others on Jack’s blog encouragements, made me change from a rabbit to a pitbull.
Congratulations, ij! It was such a complete waste of your time and IRS resources. The IRS was active on your case from Dec 2011 to Sept 2012. 10 months of torture/uncertainty for you and non-cost effective activity for them. It just goes to show what a fallacy their OVD programs are when it comes to most immigrants and US persons resident abroad.
The new streamlined program does not help anyone much as the program is, as some have said, clearly intended for unicorns. There has got to be a better way for the IRS to manage immigrants and US Persons resident abroad who are acting in good faith to comply.
If ij’s results are indicative of the general policy the IRS will now take with most immigrants and US Persons resident abroad who are acting in good faith AND the IRS can come to a decision quicker when they see these facts, then word will spread and more people will likely comply using whatever means is available,
No one with good facts, no matter how much they want to comply, wants to apply to a program in which an automatic penalty is guaranteed and in which the rules and time frame are not clear. Quiet disclosure, while supposedly frowned on, is not illegal and the SoL period is clear. ij was brave enough to leave the OVDI program and he has shown us that, ultimately, it is your facts and circumstances as contemplated in the
IRM that will make a difference if one is outside of these programs.
*Congratulations to ij – great news for you! So pleased that you have your life back.
@All
I think it would have been VERY significant if the IRS had tried to assess penalties on the “opt out”. In this case, given the simplicity of the facts, and IJ’s obvious attempts to be in compliance, I don’t see this decision as providing much guidance. The real test will be when we see how the IRS deals with somebody with more money, CFCs, foreign trusts, etc.
*Ij, Congratulations!! It has been a long road for you!! Enjoy those new Crowns! Ha!
@ij
Congratulations. I can’t wait for the day our case gets resolved. It’ll be a year in December since we made our submission.
@renounce
My husband and I may be a test case for this. All because of a nice capital gain (and associated tax and FBAR penalty) on the sale of our home in Canada that the CRA didn’t tax us on.
@all,
Thank you all for your well wishes. It was because your kind support — I became the 2nd mouse of this story
“Two little mice fell in a bucket of cream. The first mouse quickly gave up and drowned. The second mouse, wouldn’t quit. He struggled so hard that eventually he churned that cream into butter and crawled out. Gentlemen, as of this moment, I am that second mouse. “
*IJ, I’m also so pleased for you!! 😀 I’ve been following your case since summer last year and was earnestly hoping things would work out fairly…but agree that it’s been a long, drawn-out ordeal! What doesn’t destroy us makes us stronger! I’ve always admired your honesty and determination. 🙂 Best of luck for the future!!
ij, that’s a great analogy. Congratulations on your persistence to arrive at the justice you should have been afforded right from the start of all your ordeal! You give a lot of others here heart. Thanks!
Nothing much to add really besides a big congratulations! Glad that the ordeal is over for you 🙂
@all,
The result was far much better than I had expected. I was thinking of my penalty at 30K if RRSP included, and I was okay to pay 8K penalty — it was like a cat surgery of Just Me. Then I pushed the envelope to reduce to 3.5K penalty at my opt-out request. Surprisingly, IRS gave me zero penalty with a warning letter.
Of course, the cost my LCU, IRS resource is hard to figured out. The process does seem improved compared what Sally and Just Me had been through.
Does anyone have information on what the IRS does for those who made a “loud disclosure” (that is, filing years of late returns with an explanation attached saying why they are late)? I filed 8 years of forms and returns last September, wrote to the IRS and received confirmation that I didn’t owe any taxes, but never heard anything about the late FBARs. I received some strange letters from the IRS saying that they wouldn’t allow my claims for credits (which I never applied for and don’t understand) but confirmed again that my balance with the IRS was zero. The fines for late FBARs were the real concern for me: all my assets, and my joint accounts with my husband, are in Canada. I called the Department of Treasury to ask how I would know if the Department would assess penalties and was told that “You won’t ever know, honey, unless they call you.” (she laughed when she said this: I cried). Is it normal to not hear anything? Is no news good news, and was the woman I talked to correct that there is no statute of limitations?
Thanks for any info you might have.
@aaa
With respect to the FBARs no news is good news. There is a statute of limitations of 6 years on the FBARs. My guess is that you are going to be fine. Question: when you say you included an explanation as to why they were late, did that include an explanation for both the taxes and FBARs? In other words, was the explanation intended to be a reasonable cause letter for FBARs?
Great that you made a conscious decision to avoid OVDI.
Volunteer Disclosure has new meaning for me now. You volunteer hand in huge penalty to IRS even they don’t believe you should.
*How can we be an American if we don´t believe that this is a fair Countryfor its citizens regardless of where they are?
There was a comment on Jack’s blog from another person whose facts were similar to ij’s situation, opted out, and the IRS maintained the inlieu of penalty. Bottomline, the incertainty is definitely there and a lot of it is luck. I would be so interested in getting data on people getting audited without having gone through OVDI. Are they treated worse or similar to opt outs like Jack seems to infer.
http://federaltaxcrimes.blogspot.com/2012/09/a-great-opt-out-result-irs-gets-good.html#comment-680343170
FinishedAtlLast
I finished my OVDI opt out process, received my result and signed my closing form 1-2 weeks back. My background is likely not very different from ij, immigrant to the US, small accounts (about the same size as his), small offshore income, no entities, perfect tax record otherwise etc. In fairness, I have lived for a greater period in the US and possibly have a few more negatives than him. My examiner did recommend no penalties for me, but it was rejected by the opt out committee (or at some level of the hierarchy). My original penalty was not that large (small account sizes, but just > 75K). There was one particular item that I disputed in the in program penalty, but they could not adjust it within the program. On my opt out, that particular item was removed (it was not a lot of money). Taxes, interest for closed years are also refunded (again, not a lot of money). The rest of the in lieu penalty stays. My resolution was clearly not as satisfactory as ij’s, but here are my general comments
The IRS was not draconian. We all know that the non willful penalty is ridiculous if applied per account/per year. Even the 10K/year penalty would have been higher than my final penalty. On the other hand, they were not too generous either, since they did apply the rest of the penalty minus the disputed items. Outside the program, there is some flexibility, but there is not much extra transparency. My examiner was very inexperienced with FBAR matters. Its possible that his inexperience contributed to his recommendation being rejected. I cannot say that their rejection of reasonable cause was totally unjustified, but it does seem like they simply thought I would be content if the disputed item were removed and left it at that. I could possibly have continued in Appeals, but the legal costs and time and energy were not justified for the amounts involved. Indeed, some might have said that my initial decision to opt out (largely occasioned by annoyance over the disputed matter) was somewhat quixotic.
My advise to people considering opt out is to be hopeful, but also realistic. A lot depends on how good your case is, but there is likely to be some aspect of luck of the draw either. And you have to know when to fold them. But for people facing the kind of ridiculous situation that Just Me did (whole house included in penalty), this is an option.
Jack Townsend has a new post that should interest some here… I put up a comment still in moderation.
ABA Tax Section Webcast on Opting Out and FBAR Litigation
The ABA Tax Section is sponsoring a CLE Teleconference and Live Audio Webcast titled: Through the Looking Glass (Parts I and II): Opting Out of the OVDI Penalty Structure and Litigating FBAR Penalties, on January 16, 2013 1-3pm.. The weib site for the presentation, with a link for signing up, is here. The participants are major players in the OVDI brouhaha, so I look forward to learning from them.
Description
This panel will discuss matters relating to opting out of the IRS Offshore Voluntary Disclosure Initiative, including “opt-out” mechanics and procedures, and issues relating to examination, negotiation and settlement expectations arising in various “opt-out” scenarios. The panel will also emphasize procedural and substantive issues that are emerging in FBAR assessments and litigation.
Hi there,
and thanks for this very informative blog.
I have a few questions, if anyone has any thoughts.
– arrived in the US in 2008 on a J-visa. Filed 3 Non-resident Alien Tax returns (1040-NR-EZ) and benefited from a tax treaty for 2008, 2009, and a part of 2010.
– got married in 2011, and became a permanent resident in late 2011.
– filed a 1st joint return (1040) with my husband for 2011. He’s military, and we had our taxes done on base. Nobody mentioned the FBAR requirements to us.
– I was going to do our taxes this year (for 2012), and discovered the whole FBAR process….and the scary penalties.
– according to my calculations, we owe less than $1000 taxes for unreported income.
– I am thinking of amending a return and add a letter of explanation, as well as filling FBAR for 2011.
Any thoughts?
Also, what do you think of arguing that, in this matter, taxpayers are not treated equally: the US residents living abroad vs the US residents / permanent residents living in the US. Why more leniency towards one category? Is it actually constitutional? Do the US residents living abroad have more right to be ignorant of the law than those who live in the US?
I meant US citizens living abroad
nice to hear from you. Mysellf, I don’t know.
@ Hawk
You could go back to the tax preparers on the base and say, “You caused this. You fix it!” It sounds like malpractice to not have told you about FBARs.