Here it is:
Canada: Do Not Get Out Of IRS’s Tax Amnesty Programs Without Knowing The Facts
Direct Link: Roy Berg’s Entire ” Do not get out of IRS’s tax amnesty programs without knowing the facts”
A couple of initial comments I have:
1. My understanding is once you enter OVDI Criminal penalties are off the table opt out or no opt out. Can someone clarify this further?
2. Roy makes a point that himself and others have made before which are that the new super minnow “program” is rather narrowily defined AND as currently exists does not allow for people currently in the OVDI program to enter the new minnow program. (Roy makes a point in the article is this “might” change “someday” in the future).
3. As discussed previously the new minnow “program” really doesn’t solve that many problems despite the fact it has been under development for almost eight months.
4. Roy’s article pours cold water to some degree over the claims of some that you can enter OVDI and opt-out with relative ease.
I don’t really understand point #3 in the section Factors to consider before deciding to opt out of OVDI or OVDP:
3.OVDI and OVDP require the taxpayer to prepare of 8 years of returns, however if the taxpayer opts out and is audited he may be required to prepare several additional years of returns.
Outside of the program, I thought taxpayera were “protected” by the statute of limitations: 3 years if the omitted taxes were not over 20% (or 25% I don’t remember) of the total taxes owed for any of these 3 years, 6 otherwise. Only if the IRS can prove fraud, then the statute of limitation do not apply. If the latter is the case, then the person should better stay in OVDI.
I just find that point confusing. Roy, if you’re reading, can you clarify?
3 or 6 years SOL are not applied to criminal tax evasion/fraud. opt-out certainly does not seem a good choice for those taxpayers.
Criminal Tax Manual (Statute of Limitations) http://www.justice.gov/tax/readingroom/2001ctm/07ctax.htm
But bear in mind there are arcane rules which I have never seen applied (but that may only mean I haven’t found the appropriate cases) regarding “absconding to avoid prosecution”.
Recent caselaw has shown judges quite willing to imprison indefinitely persons thought to have sent their assets abroad, beyond the reach of creditors. This is only one such case: http://www.nytimes.com/2010/01/22/business/economy/22norris.html Jay Adkisson has written extensively on the subject and you may find something in his online book: http://assetprotectionbook.com
This Harvard Law Review note from 1968 may provide some ideas: http://www.scribd.com/doc/109453511/Note-Transnational-Evasion-of-United-States-Taxation. And there is a procedure whereby an injunctive writ, “ne exeat republic” may be issued forbidding a person from leaving the USA, although that would not apply to someone in Canada unless that person were physically brought back to the USA by, say, a bounty hunter or a rogue marshall. There are various permutations of that: Ronald Anderson, Humberto Alvarez-Machain, various alcohol smugglers during Prohibition and recent rendition cases in relation to alleged terrorists.
That said, the IRS will go after the low-hanging fruit and those whose prosecution or civil contempt citation will set a good example. Criminal tax evasion and prosecution for FBAR matters require proof of certain facts. Cases where divestiture of nationality is in question and cases where the defendant is abroad are difficult for the IRS to pursue and even when they prove facts getting physical possession of the tax evader may be impossible: think of Marc Rich, still AFAIK ensconced in his villa in Zug, Switzerland.
I understand that some persons actually pursued by the IRS made their cases easier because they carried laptops, tablets and smartphones into the USA and those were seized by Customs. http://www.mcgilldaily.com/2012/03/why-you-shouldnt-tell-american-border-guards-youre-in-islamic-studies/
In the future I would expect to see more use of terrorism (USA Patriot Act), money-laundering and common fraud proceedings against tax evaders. Bankruptcy law provides further cross-border powers for creditors although involuntary bankruptcy is notoriously difficult to pursue in the USA and the IRS is unlikely to do so in Canada. More likely would be for the IRS to engage the US Bankruptcy Trustee to initiate an ancillary proceeding abroad (in Canada or England, say) to attach foreign assets that they could not reach directly. The Bullen case worked the other way: Bullen, accused of VAT fraud, had his Florida property was seized for his English creditors, notably HM Revenue & Customs.
There are certain kinds of filing omissions that mean that the statute of limitations does not apply. As you might expect they are in the area of information returns – an example would be the 5471. So, it is not as simple as all that. OVDI does bring finality to the situation. Depending on your facts this could be very desirable.
Very interesting article. It seems to me that this question would apply to a very small number of people. Let’s say that the IRS says: okay, people who entered OVDI can switch to the new streamlined compliance.
Obviously, they would have to meet the test for streamlined compliance – “low risk” with the suggestion that one has not filed and has low compliance risk.
1. I am having trouble seeing how somebody who fits that profile could have been in OVDI in the first place? It would have to be a situation where there was nothing going on for 2009, 2010 and 2011 with a lots of factors suggesting “heightened scrutiny” for prior years. But, the IRS wants to see 6 years of FBARs. It is very likely that the FBARs would provide evidence of things suggesting “heightened scrutiny”. What in your view would be the profile of a person, was actually in OVDI and would decide to use the streamlined process.
2. If the IRS does allow this, I would imagine a lot of lawyers are going to have trouble explaining why they put the client in OVDI in the first place.
The real problem is that almost nobody would be eligible (as can be inferred from your previous excellent posts) for the streamlined procedures anyway.
Thanks for a very interesting article. The compliance question becomes more and more complicated.
*@renouncecitizenship, regarding your first question: Unfortunately, there are lawyers who seem to believe (and certainly give every indication) that every single person with a “foreign account problem” is well advised to join the program. I find that to be absurd, but those advisors are out there. Someone who has the ideal profile for the new procedure, but encountered such an advisor, could easily have found himself in the program.
Duelling opinions on Canadian crossborder tax law firm blogs? The SNC Blog entry seems to take a different view than the Moody’s one on the OVDI and Streamlined compliance issues? Any critical consideration and analysis of this? http://www.snclaw.com/cgblog/45/122/Why-opting-out-of-OVDI-should-be-considered-in-light-of-the-new-IRS-streamlined-filing-procedures
Again, how can those laypersons seeking to comply cope when even the ‘crossborder tax specialists’ don’t agree?
Any comments @Michael Miller, or @Roy Berg?
*Thank you for your comment Badger. I haven’t read the blog you reference, so I can’t comment on that firm’s position.
It is unfortunate that there is so much “noise” out there regarding the direction a taxpayer should take. The “noise” is largely the result of: a) lack of clear guidance on the part of the IRS; b) ambiguities and uncertainties in OVDI/OVDP/Streamlined Procedure that the IRS either did not consider or chose not to address. The only factor that is clear is every taxpayer’s situation is different, every taxpayer is different and sweeping generalities about what one should do or not do must be taken with skepticism.
Because of the foregoing, there are a few practitioners who suddenly “cross border professionals,” when in reality they have very little professional or practical experience in any relevant context, much less the intractable nature of US/Canada tax.
Living outside the US, it can be difficult to find a professional who has experience with these issues. “Familiarity” is not enough. To that end I would recommend the following:
Finally, visit Jack Townsend’s blog Jack’s listing of individuals who do have requisite experience. His blog is here: http://federaltaxcrimes.blogspot.ca/p/ovdi-attorneys.html
@Roy Berg. Thank you for responding.
Major Caveat: Not endorsing any of these sources or the information that follows. Just trying to help add to the information here, so that readers here at IBS can consider where they might fall currently on the uncertainty/ostrich/compliance/’thank god I’m free’ sliding scale. Pick up bits and pieces, but firm reliable information very scarce.
Found this comment intriguing, here re the streamlined procedure:
Monday, November 05, 2012 – 01:49PM GMT
We and other practitioners have
been in contact with the IRS, asking whether filing of 2011 returns
and/or FBARs would preclude participation in the Streamlined program.
The IRS has told them and us consistently that filing 2011 on time would
not interfere with the ability to participate. This is a good (and
expected) thing – otherwise people would be penalized for filing on
This is confusing, because the instructions from the IRS seem to say that those who filed a return after 2008 – (for example the 2011 return) were precluded from being accepted for the streamlined process – which would have the effect of penalizing those who filed on time – while anxiously waiting for the IRS to make up its mind about the instructions it briefly alluded to in January – didn’t update us on their pondering until a further announcement on June 26, 2012 (by which time, most people who were going to comply would already have sent the 2011 FBAR – because it had to be received by the IRS before or on the deadline of June 30, this year, rather than be postmarked by that date) – and then finally released the guidelines (such as they are) on August 31st. http://www.mnptax.ca/insights/blog/2012/6/27/new-irs-relief-for-americans-in-canada
Difficult to try and reconcile all the contradictions between the views of different professionals. Some are saying that it is 6 ‘delinquent‘ FBARs in total required – which would then take the person back to the 2005 FBAR (which was statute barred after June 30, 2012) – if they filed the 2011 FBAR on time – in order not to fall further behind in compliance while they awaited the IRSpromised, but long-delayed September 1st guideline details of the ‘streamlined compliance process’. That would be the timely filed 2011 FBAR, plus 2005-2010 FBARs inclusive as the ‘delinquent’ or ‘past’ 6.
Some professionals say that the 6 FBAR total is 2006-2011 inclusive – even if the 2011 FBAR was filed on time in June, while awaiting further illumination by the IRS.
Some comments and blogs allude to the possibility that those in OVDI/OVDP may be able to transition into this streamlined compliance process – but that too is confusing – because many/most would already have submitted far more years of returns and FBARs – which seems to contradict one of the basic conditions of participation (that no returns have been filed after 2008).
Sunday, October 14, 2012 – 10:45AM GMT
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://www.mnp.ca/en/media-centre/blog/2012/9/2/details-on-new-irs-streamlined-relief-for-americans-in-canada
and also here: http://www.snclaw.com/cgblog/45/87/Why-opting-out-of-OVDI-should-be-considered-in-light-of-the-new-IRS-streamlined-filing-procedures
Other participants here have also speculated on whether minnows with the right facts, who jumped into and are stuck in OVDI, but who didn’t belong there, will be redirected into the streamlined process – because this option didn’t exist for them back in 2011.
So far, no publicly available information from the IRS for the minnows. And conflicting advice from the professionals.
There is also this new post from Jack Townsend, part of which reports a brief IRS answer as to what happens to those who applied via OVDI, got pre-clearance letters, and then didn’t finish the process http://federaltaxcrimes.blogspot.ca/2012/11/article-on-tax-crimes-subjects-at.html#more
Any reader who has heard anything from within the OVD/VD programs re transitioning into the streamlined process – who might be willing to report anonymously?
If the IRS wants people to come forward, they really need to work on this. There are too many contradictions and uncertainties.
Would really appreciate some professionals weighing in here to help those tiny minnows and krill.
Michael Miller? Roy Berg? Anyone?
Just for FYI;
See recent exchange between ‘anonymoose’, and Jack Townsend, re current status of transferring from OVDI into the Streamlined compliance process:
Tiny bits of information related to the Streamlined Compliance process.
Any other updates from professionals reading here?
And yet another crumb:
Big Caveat : None of the crumbs posted here are meant to be tax or legal advice, and it is not safe to rely on crumbs picked up on the internet. Merely trying to contrast the different comments – since official clarification from the IRS isn’t available to mere ordinary ‘US taxable persons’ attempting to be compliant.
Just trying to collect and bring back crumbs, and saw this, with usual caveats – ( not advice, not qualified to recommend) just adding to this thread:
See post at http://federaltaxcrimes.blogspot.com/2012/09/irs-instructions-for-streamlined.html#comment-732145641 re OVDI to Streamlined.