As, rightly, suggested by badger for a dedicated post at Isaac Brock:
Jack Townsend’s OPTING OUT, Part 3
and latest comment,
Jack – Good news! I am an OVDI participant who asked to opt out into the Streamlined Program. I have been accepted into the Streamlined Program as a low risk for non-compliance. I have been issued Letter 5062 (acceptance into Streamlined Program) along with a 4549 (tax adjustments – no tax penalties, just interest) and my agent told me today that a Letter 3800 (FBAR Warning) will soon follow.
There is major news associated with this result. It is news that OVDI participants and many tax attorneys will want to know. The news is that the Streamlined Program policy is changing again. It is very much to the favor of OVDI participants. It seems that they are being given the chance to enter the Streamlined Program on the basis of the same years as new Streamlined Program participants. I am a prime example of that. I was a filer who amended returns in OVDI. I thought amending returns made me ineligible for the Streamlined Program. It no longer does. Even Letter 5062 says, “We’ve processed the returns or amended returns you submitted.”
Because I started in the Voluntary Disclosure System before OVDI existed, I first filed 2009 as part of OVDI. According to an IRSTechnical Adviser, they are only looking at 2009 as a criteria. If the
OVDI participant did not file in 2009, that fulfills the conditions of the Streamlined Program. Previous filed years do not come into question for Streamlined Program eligibility if an OVDI participant wants to opt out into the Streamlined Program. That makes sense as these years are all closed anyway if one was a filer and did not have a major reporting discrepancy.
OVDI participants will still be expected to pay any tax if they have open years before 2009. As OVDI participants had to file 2010 and 2011 as part of OVDI, these years do not affect eligibility of the OVDI participant for the Streamlined Program.
The rule appears to be a new approach in the IRS. My agent was not aware of the rule and initially told me my application would be rejected for the Streamlined Program. However, the Taxpayer Advocate has been involved in my case for more than one year and has been monitoring the many different issues I have had to face. When I reported my rejection from the Streamlined Program to the TAS, they insisted that along with allowing amounts higher than $1500, it was also okay to have amended returns. They had the Technical Adviser they are working with in the IRS contact my agent and explain this new policy. My agent said that the policy is little known and needs to be better communicated within the IRS. Lawyers who wish to verify what I say can contact the Sr. Attorney Adviser to Nina Olson.
It has taken my case 2.5 years to get to this point and I would like to thank you (Jack Townsend) for making your blog available, plus for all the information you have so thoughtfully provided.
I would also like to thank the Taxpayer Advocate, who changed my life for the positive and helped me get through the OVDI nightmare. TAS had to intervene at least 5 times including issuing a TAO on my behalf.
I would also like to commend my IRS Revenue Agent who had no clue the Taxpayer Advocate was watching and was an incredible professional the entire time. I could not have wished for anyone more helpful and who explained everything to me. I feel that my agent went the extra mile for me as an individual taxpayer. My ex-lawyers were much more difficult to deal with than the IRS ever was. However, this does not excuse the IRS for the bad policy they created.
I would also especially like to thank the contributors to your blog:
Anon123 – for being the first person I noticed protesting the penalties
Just Me – for his invaluable, indefatigable efforts to educate and share and especially for making me aware of the Taxpayer Advocate
Moby – his words convinced me to revoke my attorney’s permission and go it alone (one of the best moves I made in this process)
Sally – for the information she supplied
ij – for the great support
Asher Rubinstein and Michael Miller as they helped me to understand some issues that seem frightening, but explained them so that I could manage them on my own without panic
I am happy to provide more information to you if requested. There is a lot to tell, but I have tried to summarize the latest, most important news here.
@Not that Lisa!
I just posted a comment over at Jacks blog as a congratulations note, but also wanted to let you know how pleased I am that the IRS, in your case, as finally done the right thing, irrespective of the 2.5 years of LCU loss you have suffered. I also updated my Drudgery for Minnows with this link so your story doesn’t get lost for future drudgery miners looking for help.
Just a curiosity? Was your TAS senior attorney Rosty? If it was, could I encourage you later to call him directly and thank him for your efforts. He was excellent with me, but in education and follow up, and I called him. Frankly he was taken back, because no one had every thank him before, but he does get a lot of bitches, so I do think the effort would be appreciated. We need more of these types of civil servants and they need to know be acknowledged and thanked.
Cheers, and now welcome to the CCW world!
I’ve noted an interesting phenomenon that happens when many people actually get their cases before a real live IRS person; fear and loathing turn to relief and gratitude. It’s good to see, but I wonder if it’s Stockholm Syndrome to a certain extent, or is it when a human being is allowed to assess the situation, we are finally given the recognition that we don’t deserve the punishment the IRS said we deserve? There’s some systemic good cop/bad cop behaviour patterns we have to be aware of at the IRS.
No, I don’t think it is Stockholm syndrome. That is too easy of an explanation. For me it was the realization, at lower levels in a bureaucracy there are folks just doing their job as professionally as they can. They can be very helpful / even empathetic if given a chance as unpleasant and anxiety creating as the examination can be.
However, in many ways, the ‘rules and regs” make them victims of the system as much as you are. They are not evil demons, and that is the disconcerting aspect of the experience. In totality, the IRS is a monster, and there is much to loath, but broken into it lower level units, they are just normal people if given the change to assess the situation and use discretion will not be Draconian. If you are forth coming and straight up and truly non willful, non evasive in your behavior and communication you have little to fear, except the LCU cost and normal penalty/interest cost of compliance and not the hyperbolic FBAR penalties the leadership likes to threaten.
If you show contempt for them, then you might get a similar response back that is less sympathetic to your situation. Sure, there may be some stubborn pricks working in the lower ranks, but I personally never ran into any. The TAS officer was absolutely the best.
I now know two close acquaintances who are IRS agents. One, who got a job in the small business division that is running the OVDP and doing all these examinations, and the other works in Criminal Investigations (CI). The one in CI has just as low regard of their leadership as I do, and the other I knew professionally before she started her IRS career. She was good at what she did at the company I worked for, and now seems fascinated (even enjoying) the new role and education she was getting with the IRS. I bet she would be a good examiner, if someone was assigned to her. She would probably be tough and fair, and follow the IRM very closely, but you would have a hard time coming to hate her.
I did come to like my examiner, and kept her laughing even when I lashed out at her bosses or technical adviser. I never attacked her personally, even when we had some strong disagreements. She was of Indonesian descent, and I wondered if there was some cultural aspects about how she dealt with the restrictions her job put on her, like the inability to send me email for gods sake. As I told her, ” I could never do her job, and I couldn’t live like that” within such a rigid system, but on a bigger point, she was good and thorough and I really didn’t have that much of a beef with her. She responded well when the TAS TAO was issued.
I talked to those issues in one of my first posts here, where all were lamenting about how this jihad has changed our lives.
Thanks for that poem. It is a classic that I have to find a way to use. You say you are not a poet, but you do have a knack for this type of word-smithing, so well done. I couldn’t do that!
@Not that Lisa… let me restate that last paragraph that is full of typos and I didn’t express it quite right. (was in a hurry as my wife was calling me to breakfast with her family in Sydney where I am now.)
Just a curiosity? Was your TAS senior attorney Rosty? If it was, could I encourage you to call him directly and thank him for his efforts. He was excellent with me, both in education and follow up. He was really tough on my examiner during one conference call I had with 8 IRS management people, and he really went to bat for me in prosecution style.
I called him a week after my ‘cat surgery’ settlement and caught him at home late on a Friday. He was taken back, because no one had every thanked him before for what he does. He was really surprised to get the call. He says he does get a lot of bitches and complaints, but never a thank you. He seemed genuinely moved by the call, so I do think the effort would be appreciated. We need more of these types of civil servants, and they need to be acknowledged and thanked.
I give up. 🙂 I really NEED that edit function Petros… PLEASE bring it back…
” they need to be acknowledged and thanked.”
@Just Me – Thank you. The Sr. Attorney Adviser who worked on my case was Eric. What’s CCW?
@bubblebustin – Stockholm Syndrome – no it was absolutely not that for many reasons. First, I think that once I stopped being angry and afraid, I think I could take what came next with the dispassion of a tax professional.
Second, even though I have lived abroad for a quarter of a century, I had always been aware of the obligation to file taxes. So I had always accepted the need to file US taxes. My big shocks were, “Why are they treating me as a criminal when all I wanted to do was correct a paperwork error?” and “Why do they make it so complex, expensive and punitive to file taxes from abroad?” These feelings cannot compare to what you must have felt which are, at the very least, those two feelings, plus realizing that there was an obligation and also realizing exactly how inappropriate the American tax rules are for the countries in which we reside. In addition, the inconsistency of treatment for those who came forward first vs. those who waited and were able to benefit from the Streamlined Program has been just downright unfair for you.
I accepted that my feelings were irrelevant for what I had to do with my examiner. I very quickly realized that my examiner and I had common goals, which were stated by the examiner in the very first contact. The goal was to correct any errors to get me compliant, then get me out of the system and never hear from me again. That was all I had ever wanted from the beginning.
I was lucky to have an examiner who was very experienced in individual international tax and had seen a lot of OVDI cases. My lack of anger and fear allowed me to listen to what was being said to me. When my examiner explained to me in our first contact that a position I had taken on my tax return would not be allowed under OVDI and was going to cost me a lot of extra money, but there was something called opt out and the position would be allowed outside of OVDI, I did not react. I continued to listen and counted the number of times opt out was mentioned. By the time differences in opt out handling vs. handling in OVDI had been mentioned 7 times, I dared to ask about opt out. With that my examiner explained that when the program had been started there had been a one size fits all policy, but it became clear that it was not appropriate for everyone. Things were different outside of OVDI and the examiner mentioned that, by the way, the examiner had prepared tables f that showed me my penalties outside of the program and was going to send them to me for review. When I got them, the math clearly showed that I was better off outside the program. I confirmed that with my examiner and opted out immediately.
That is absolutely not Stockholm syndrome. It was pure dumb luck in that I was assigned to an experienced, proactive examiner. I have no idea of what the examiner really thinks about the OVDI program, but that has never been relevant. I listened to what the agent wanted me to do in order to close my case and I did it. There was a lot of uncertainty because the agent never revealed views on whether my reasonable cause arguments would be accepted, although after my cases was decided the agent told me that from our discussions, it was clear I had reasonable cause and when my arguments were read, that confirmed the decision.
Just Me has said he made jibes at the IRS. I never did. I just focused on the task that had to be done and what my agent wanted. If I was confused about something, I asked questions and I got reasonable explanations. If I did not understand, I would ask again and try to paraphrase what I understood so the agent could clarify any misunderstandings. Everything else was irrelevant. The result speaks for itself.
@Not that Lisa!
You’ve done a wonderful job of imagining what I might have felt like when I had my ‘oh my God moment’ back in the summer of 2011. Yeah, my predicament is pretty crappy, but at least I can get out one day (I hope). It’s much worse for those who have no viable route to compliance or are deemed incapable of renouncing. Theirs is a true hell and my heart goes out to them.
It’s absolutely imperative that you be as dispassionate as you can be when dealing with what can be one of the most important process you will ever have to go through. They hold your future in their hands. How one has gotten there should be shelved for the moment, but can never be forgotten.
As nice as the IRS agents you and Just Me were in handling your individual cases, it is still a top down operation that at the behest of congress and the GAO is becoming less and less taxpayer friendly. The interface between policy makers and those who actually have to work with taxpayers must be under a significant amount of strain. Nina Olson has done a great job of reporting the conflicts between policy and taxpayer, but short of offering the very narrow Streamlined portal and the possible recognition that OVDI has captured ‘benign actors’, the policies they have in place continue to perpetuate the problems. It’s a pretty bad state of affairs when the choices are between ‘Streamlined’, ‘OVDI’, and the ad-hoc ‘OVDI with opt-out’ routes. The lack of care the IRS has about the amount of hissing a goose makes while being plucked pales in cruelty of the methods they’re devising to catch the goose.
“It’s absolutely imperative that you be as dispassionate as you can be when dealing with what can be one of the most important process you will ever have to go through. They hold your future in their hands. How one has gotten there should be shelved for the moment, but can never be forgotten.”
1. With respect, YOU hold your future in YOUR hands. You are giving them way too much power. You are a Canadian citizen and as far as I can see, if push comes to shove, you can rely on the treaty.
2. We have NOT heard of anybody opting out of OVDI who has been subjected to penalties.
3. It’s pretty clear that that the IRS is overwhelmed with it’s own OVDI process – that’s why they are moving people into streamlined.
I am going to make a prediction, and it’s just my prediction.
You will pay tax and interest on the sale of your house and that will be it – that is if you ever actually hear from them. Don’t want to get your hopes up too much – but there is some objective encouragement.
But, I want you to promise, that if you get the result I think you will get, that you don’t start praising the IRS – okay?
@bubblebustin, “It’s a pretty bad state of affairs when the choices are between ‘Streamlined’, ‘OVDI’, and the ad-hoc ‘OVDI with opt-out’ routes.”
And for many, streamlined is not even an option.
@Not that Lisa! if I remember Just Me’s comment, CCW means Comply, Complain and Warn.
@Not that Lisa, I’m so pleased and relieved for you!! You have had to be tremendously patient too.
Changing the subject slightly, I gather that you had similar issues to me in that you’d been a settled abroad for over twenty years and been a DIY filer. I also believed that the U.S. tax system was relatively straightforward before I learned of all the whole mess and what was potentially at stake!!.
I realize you may not wish to divulge this but was surprised that the IRS had even conducted audits on you whilst you’ve been living overseas. My accountant says that minnow expats are RARELY audited, especially when they have no appreciable assets located in the U.S. The only time I’d ever heard from the IRS was when I’d one time forgot to include a 2555 FEIE form with my 1040.
I can also see the predicament that Bubblebustin is in and of how unfair it all is. She is in limbo until she hears anything, if she hears anything; she can’t do anything with the possible huge tax bill she may have to pay, nor can she make steps to renounce. At least your situation is getting resolved but recall how you had to spend a huge amount in attorney fees which sucks big time.
I agree though that life’s too short to dwell on all the money we’ve lost. I also share your impression that the real culprits are Congress and the GAO rather than the IRS, themselves, who are stuck having to enforce the tax policies. Some of the tax attorneys are predatory and using fear to drum up business. Of course, the whole thing is an industry in which the attorneys, accountants and advisers lobby Congress to keep the tax laws complex so we have to continue relying on their expertise!!
They already have our tax, interest and late filing penalty, submitted under OVDI. As far as we are aware, first time penalty abatement is the means by which we can recover the penalty, and that involves hearing from them first. On that note though, I’m going to call TAS to see if we hurt our position by waiting to hear from the IRS first.
@Bubblebustin, that’s awful. I can’t see what you have to lose in getting in touch with TAS about it.
Does anyone know of a blog or website that addresses the issues of OVDI, FATCA, streamline etc for dual Canadian/U.S. citizens living in the U.S. It is with much fascination mixed with horror that I stumbled onto the Isaac Brock website a few days ago and have been following the various blogs.
I have RRSPs that total around 175K and I have just discovered that I needed to be reporting the RRSPs on my US income tax. I am more than a little paniced and trying to figure out what to do.
@Bubblebustin, I used to assume that it would look less innocent if someone had to amend tax returns which showed that I’d been under-reporting income but now appreciate that at least I was getting my SOL’s running by having already filed. On the other hand, all your recently filed returns will still have completely open statutes of limitations. But I would hope they would realize you genuinely hadn’t known of the filing requirements and thus, put you on a clean slate with the first-time penalty abatement, etc.
As you so rightly say, you would have done all your financial planning completely differently had you been aware all the U.S. tax obligations. Sucks BIG TIME that you hadn’t realized you’d be facing American capital gains taxes on the sale of your Canadian residence. Canada is similar to the U.K. in that our primary residence is exempt from capital gains taxes. The lack of compatibility between to two tax systems makes things impossible.
@milehicanuck, Phil Hodgen deals with that in his practice and will be able to help you:
And I love his sense of humour.
“The lack of compatibility between to two tax systems makes things impossible.”
The tax treaty is supposed to deal with these incompatibilities. The Canadian government has been asleep at the wheel for too long and allowed these things to happen to me and others. And now Canada and the US are behind closed doors talking about how they’re going to spin FATCA?
@bubblebustin, we’re crossing our fingers for you. And hoping that contacting the TAS may uncover some more recent developments that might be favourable to you, or get some movement on your case. Hoping too that the powerful symbolic significance of a Canadian family home being extraterritorially taxed and penalized by a foreign power, makes for really bad diplomatic optics in the long run, that they’d rather avoid.
What has happened to you could have happened to many here in Canada – anyone with the inherited US shackles, who sold their family home for a value that would result in US tax over the exemption threshold, and who didn’t know about the US filing and tax burden. The sale of a family home in Canada is such a common event, and the tax exempt status of the sale of our principal residence so enshrined in the Canadian tax system, that is is a very very powerful symbol of US economic aggression towards Canadians. If under a FATCA IGA more Canadians are outed to the US, how many Canadian family homes will be subjected to US tax?
That alone should make Flaherty and the Harper government think about the blowback of an IGA.
People may not understand what FATCA is, but they certainly understand and viscerally feel any possible threat to a family home. The US is the Big Bad Wolf blowing down our houses and trying to climb down our chimneys. Is it reasonable to have Canadians avoiding buying and selling our homes because of a foreign power that wants to leech on to it? If we need to move, for work or for family, we can’t even opt to rent them out then instead – because that would incur US tax too.
Another good point to use in speaking with our MPs. And picture signs at a rally with a cozy house – flying a Big Canadian flag – with the US eagle on the roof, Uncle Sam at the door, and a slavering US wolf leering in at cute Canadian children. I can see it on Parliament hill now. Or outside the embassy in Ottawa.
I wonder about the issue of what – if anything – in any real way, constrains the IRS to treat ‘similarly situated taxpayers similarly’ in the context of those seeking to come into compliance, filing from abroad. Or for those new immigrants with pre-existing legal post-tax accounts in their home country of origin.
For example I saw this;
on the AICPA site,
“IRS’s Discriminatory Treatment of Similarly Situated Taxpayers; What is your recourse?”
November 11, 2010
by Jack Cummings, JD
“Does the Internal Revenue Service have a Duty to Treat Similarly Situated Taxpayers Similarly?”
Christopher M. Pietruszkiewicz
Louisiana State University, Baton Rouge – Paul M. Hebert Law Center
University of Cincinnati Law Review, Vol. 74, p. 531, 2005 ”
@bubblebustin – I do not really know what you mean by “hurt your position” by waiting to hear from the IRS first. Could you explain that? I doubt you have hurt anything.
As for the FTA, the TAS says it is penalty relief that can be given by an examiner during the examination. My examiner did not agree and said it was relief that was given after the penalty is assessed. I never followed up on who was correct as it became a moot point for my case.
You likely have no material criminal risk so your options appear to be:
1. Opt out to the Streamlined Program – if you are accepted, all penalties are waived.
2.Opt out to the Streamlined Program and get rejected – You will then get a normal examination and you can argue reasonable cause. If your reasonable cause arguments for the tax penalty are not accepted, then at some point before the exam closes, you can apply for an FTA.
3. Opt out to the regular program – Same as #2 above
Thanks for those links yesterday. I hope I’ll have time to read them in their entirety today.
Yikes, I mean ‘start’ reading them today. Actually, on first glance I know I won’t be able to understand most of it, as it is the stuff of lawyers.
@bubblebustin, I know what you mean, but there were some interesting nuggets once you get started. One of the papers (Pietruszkiewicz) was cited in a footnote in a Taxpayer Advocate Directive (see below).
I saw this interesting tidbit of wording in the context of the Taxpayer Advocate Directive 2011-1(Implement 2009 Offshore Voluntary Disclosure Program FAQ #35 and comply with
the Freedom of Information Act) http://www.nixonpeabody.com/webfiles/TAD_2011-1_16AUG2011.pdf:
“Delegation Order No. 13-3 grants the National Taxpayer Advocate the authority to issue a TAD to mandate administrative or procedural changes to improve the operation of a functional process or to grant relief to groups of taxpayers (or all taxpayers) “when implementation will protect the rights of taxpayers, prevent undue burden, ensure equitable treatment Or provide an essential service to taxpayers.”
It goes on to say that the issue at question, in this particular TAD “………. violates taxpayer rights, imposes undue burden, results in inequitable treatment of taxpayers, and has likely undermined respect for the IRS and the tax system”…………
I am wondering whether there is anything developing re OVDI 2011 and the Streamlined process because of similar concerns? Minnows who heeded the IRS threats and advice that OVDI was the only option available, were disadvantaged vs. those minnows who were able to consider the option of applying to the Streamlined program.
Under this new program, individuals can also request and receive retroactive tax relief relating to Canadian registered retirement savings plans and registered retirement income funds. The IRS will permit taxpayers participating in these plans to make retroactive elections to defer U.S. tax on income generated inside these plans until the funds are withdrawn.
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I had been reading that a taxpayer was entitled to ask his agent the following question: “On what you now know what would be opt out result?”
I have now been told: “The agents have recently been instructed to NO LONGER entertain nor answer the question.
Has anyone else had any experience with this issue and is this a fact ????
@Nikola – Unfortunately, this is case. Agents are not allowed to tell you in advance what your result will be. I never asked and was not sure until the agent told me that a decision had been made. With that said, I would listen carefully to what an agent tells you. If your agent, without being asked, starts talking to you about the history of the program and tells you that the IRS is realizing not one size fits everyone and something called opt out exists for those for whom the penalties are not a good deal and who might also want to argue reasonable cause, that is valuable information. It is pure fact, which is all the agent can give, but in my case, I interpreted it as if a door was opening.
The decision what to do ultimately has to be yours. The agents can give you the facts about what you would be paying if you opt out in terms of tax and what your maximum potential penalties outside of OVDP would be vs what they would be in the program, but there is no certainty until you have completed the opt out process and then the tax and FBAR exams. If the agent is willing to help you calculate the penalties outside of the program, make sure you ask what both the willful and non-willful penalties would be. You are within your right to ask for examples of what kind of behavior is considered willful and non-willful.
The process is as follows:
If you opt out into the normal opt out, you must be accepted as an opt out. There is uncertainty until that happens. After that, the agent completes a tax and FBAR exam and sends you the decisions. That is when you know for sure.
If you opt out and are accepted into the Streamlined Program, then you can be pretty sure you will not get any penalties, although an FBAR exam is still done as part of this acceptance – at least that is what happened to me. I am not really sure why this was done as the Streamlined Program seems to indicate that if you are accepted, no penalties will be assessed.
The bottom line is that there is no certainty until you have the documents stating the results in your hands.