Warning: Please read the first two comments to this post before accepting at face value the advice of Medic Blog (the editor).
After entering OVDI/P, American expats later learned that such was only meant for tax cheats and not for them. Now, it seems that the same may also apply to soft/quiet disclosures. Are soft/quiet disclosures considered to be a “trap” to punish those who filed old FBARs as being “tax cheats”? Is there anything that an American expat can do without being accused of being a “tax cheat”?
May 31, 2013
…John and Mary made the mistake of amending their past tax returns and filing their old FBARs. On these returns, they were required to put down account numbers and bank information.John and Mary fell into the IRS’s trap. Now the IRS has all the information it needs and if audited, the burden of proof is on John and Mary that they did not commit a willful violation of FBAR. A willful FBAR penalty is 50% of account value. And this can be assessed for multiple years.
What John and Mary must do right now about their soft/quiet disclosure
If John and Mary amended their tax returns and filed delinquent FBARs, they have provided the IRS with all the information they need to identify their tax accounts for a possible soft disclosure. Essentially John and Mary have raised their hands and said “WE ARE TAX EVADERS, HERE IS ALL OUR INFORMATION. PLEASE COME AND PENALIZE US AS MUCH AS YOU CAN.”
Then, it is just a matter of time before they will be faced with the most expensive and lifestyle changing bill of their entire lives.
Get into the OVDP — now!
Read more at Medic Blog
At what point does this become a human rights violation, or better yet, under which conditions is this not a human rights violation? In relation to Eritrea, the only other nation in the world with a diaspora tax, such behavior is considered as being a human rights violation.
On the basis of NRK information about harassment of Eritrean citizens in Norway, the Norwegian authorities consider taking this up with the Eritrean authorities as a possible violation of human rights, says Imerslund to NRK.
Source: Asmarino Independent
the collection of the 2% tax collected by the Eritrean government from Eritreans in diaspora as extortion is unlawful.
@Swisspony
This article is total BS. The author is a lawyer who attempts to put everybody and his dog in OVDP. The law does not require anybody to go into OVDP. Thousands have simply amended their returns. Honestly somebody should put out a warning about this character. Although it is possible that OVDP is appropriate for a very narrow group of people (if the IRS can even be trusted on it anymore) it is not suitable for most (part of the proof is that the IRS is moving OVDI people into streamlined). Also, the December 2011 FS made it abundantly clear that people should just come into compliance.
I would point out for anybody reading this that the law requires two things:
1. Filing your 1040s; and
2. Filing your FBAR
To file these things is to comply with the law. But, one does need to consider the best way to file. That can be worth a consultation with someone. Also, make sure that any tax problems are cleaned up before the delinquent FBARs are filed.
Just ignore him and frankly, I think the time has come to put together a list of lawyers who improperly herd people in to OVDP. His name can be at the top of the list.
Ignore and warn!
@USCitzen
Agree 100%
Parent is one of those bottom feeders who managed to convince himself that he was ethically bound to put his clients into OVDI.
Note that in the “John and Mary” example he provides (invents?) there is nothing to indicate that anything bad actually happened to either John or Mary as a result of their quiet disclosure.
He says that a quiet disclosure is tantamount to a confession of tax evasion. That is false.
A quiet disclosure is nothing more than an admission of error.
Error does not equate to fraud or criminal intent.
In contrast, applying for entry into the OVDI with its promise of protection against criminal prosecution IS an admission or at least strongly indicative of past criminal intent.
In my view, a lawyer whose client has not privately confessed past criminal conduct with regard to tax or FBAR filing obligations and yet encourages that client to “surrender” themselves to the IRS CID by applying to enter OVDI has committed an egregious ethical violation. It is no different from a criminal defense counsel whose client insists on his innocence and yet nevertheless encourages that client to plead guilty and coaches them on how to get through the “providency inquiry” so that the judge will accept his plea.
The IRS has long encouraged quiet disclosure in every other tax related context and will continue to do so for the very good reason that it enhances revenue and future voluntary compliance at little or no cost to the United States.
The FAQ accompanying the original (2009) OVDI that attempted to dissuade quiet disclosure in the context of OVDI by claiming that the IRS would closely scrutinize amended returns was probably a deliberate lie intended to enhance the short-term headline revenue number. In fairness to the IRS they appear to have had no inkling of the vast number of criminally innocent persons who were in technical violation of the foreign account reporting requirements.
It obviously became apparent to the Service that too many of the IRS’s accomplices in the tax bar were indiscriminately funneling everyone and their cousin into OVDI to line their own pockets and that most did not belong there.
It is equally obvious that the IRS now realizes that its short-term greed for headlines was endangering its carefully nurtured long-term program of encouraging quiet disclosure. and they have been rapidly back-pedaling from their original FAQ ever since.
The recent GAO report which criticized the IRS failure to agressively pursue quiet disclosers is a sad commentary on the technical ignorance and moral depravity of the Democratically Elected Representatives of the American People. Blackmail is apparently something that Congresspersons are familiar and morally comfortable using as an “enhanced revenue technique” in the same way they generally approve of waterboarding as an enhanced interrogation technique.
The IRS, bless its collective pea-picking heart, knows better.
The question is will they be able to withstand the GAO’s pressure for short-term rewards at the expense of long-term trust and the revenues that come with it?
Parent & Parent are accredited by the BBB. If you feel they are not being a “better business”, file a complaint here:
http://www.bbb.org/connecticut/business-reviews/attorneys-and-lawyers-tax/parent-and-parent-llp-in-wallingford-ct-87064657
See link:
“File a complaint against Parent & Parent LLP”
Thanks to Tod und Steuer and US Citizen Abroad for their perceptive and helpful comments.
Clearly, the IRS for many years also encouraged noisy disclosure for delinquent FBARs–I remember this when I first learned of FBAR that if one was delinquent, they were to file the delinquent FBARs with a letter explaining why they had not yet been filed.
For most of us overseas, there should have been no question but to stay out of the OVDI. If Parent and Parent led overseas minnows into the program, AND the IRS accepted such people into the program, then clearly we have a double collusion of abuse from tax practitioners and tax collectors.
@Todundsteur
Thanks for your usual insightful comment. Given the importance of this issue (which is likely to heat up as the “FATCA Fears” increase, would you be willing for the benefit of all (including a number of lawyers), to describe what you believe to be the ethical obligation of a lawyer advising U.S. citizens abroad, who for whatever reason, are not tax compliant.
Second, if you have the time and inclination, I would be very interested in any insights you have on the discussion in this post:
http://isaacbrocksociety.ca/2013/05/29/irs-abuse-of-americans-abroad-the-greater-the-effort-the-greater-the-punishment/
The main issue is how taxpayers already in the system who didn’t know about PFICs, etc. should deal with this situation – recognizing that your comment is of a general nature and is not intended to be specific advice to any specific person.
Thanks very much.
@Petros
The IRS and many (but not all) of these so called “compliance specialists” are business partners. Funny, here is the very first post I wrote for the Isaac Brock Society in December 2011.
http://isaacbrocksociety.ca/2011/12/12/we-cant-trust-the-irs-but-can-we-trust-the-accountants-and-lawyers/
Again, this post was written in December 2011. But, it closed with these thoughts:
@BBC
This is a problem of “legal ethics”, “every day morality” and “empathy” for a group of people who are scared out of their minds. What is the BBB supposed to do about this when he is advocating entering a program offered by your friendly neighborhood government?
Anyone who tells you that facts don’t matter, and that the only possible approach in every scenario, is to join OVDI is someone I can’t take seriously.
@Michael Miller
Welcome back. About a year ago you actually posed a hypothetical to Mr. Parente (on this blog)- asking him whether, given the facts, he would still advise the client to enter OVDP. It was very useful. If you remember where you put it and could repost it that would be fantastic!!
Thanks for all you contributions to this discussion.
@USCitizenAbroad, thanks for the kind words. Happy to contribute.
Here’s a cut and paste of a hypo I posted a while back, along with my analysis. I’m not sure if it’s the specific post you’re referring to (I suspect not), but just in case:
Here’s the hypothetical I promised. Suppose a nonresident alien, Tom, has a single non-US, interest-bearing bank account, which, at the outset of our story, had a balance of say $50,000. Tom sells his old home (outside the US) for $948,000 on December 31, 2009 and the proceeds go into his account, bringing the balance to $998,000. As of January 1, 2010, Tom becomes a US resident. In February 2010, he closes his non-US account and transfers the entire $1,000,000 (including $2,000 of interest since December 2009) to his newly opened US account. Due to Tom’s ignorance of US reporting requirements (and his accountant’s lack of attention to detail about foreign accounts), his 2010 return checked the “no” box (in response to the question about foreign accounts); he failed to include the $2,000 of interest income; and he failed to file an FBAR. Tom’s accountant never asked about foreign accounts, and it never occurred to Tom to bring it up.
Inside the program (absent an opt-out), Tom must pay a 27.5% penalty of $275,000. Absent some other, very bad, facts, I would say that any attorney who advises Tom to join the program and pay the $275,000 is incompetent (or, worse yet, more interested earning fees than serving his client). Outside the program, Tom could expect to pay an accuracy penalty, equal to 20% of the tax owed, and perhaps a single penalty of $10,000 for a nonwillful failure to disclose the account on a 2010 FBAR. On these facts, even talking about the penalty for a willful failure to disclose the account on an FBAR is ridiculous. Moreover, the maximum possible penalty, even if the violation were willful, is $100,000 because the 50% would be based on the balance on the date the FBAR was due, which is zero. (Just to clarify, the max penalty for a willful failure (per account, per year) is the greater of $100,000 and the balance of the account on the date the FBAR was due, i.e., June 30 of the following year.)
And, just to complete the loop, I would think it should be obvious, but I’ll say it anyway, this simplified fact pattern would (absent other, very bad facts) present no risk whatsoever of criminal prosecution. If I were Tom in this instance, I might or might not amend my 2010 return, but I’d laugh if anyone told me to do a voluntary disclosure.
I’d also be disinclined to file a late FBAR for 2010 in this scenario, but this is a point about which I believe reasonable minds can disagree.
For three years now, as an American Abroad I have been trying to do the right things. I have spent a lot of money and time with US tax lawyers and CPAs. It is like walking in a minning field, full of traps. Dangerous. I guess I have three choices: go back to the US, stop working or renounce citizenship. And I have no Representative to go to…
@Thatisme, the blog the OP quotes is the view of one tax guy and I haven’t found anything yet to support those claims which have been strongly criticized by others here. You should be fine as you are, hopefully. I didn’t spend any money and didn’t file any old FBARs, so it makes no sense for you to be bothered for being compliant. And, if you were bothered like how the OP article threatens, then the IRS would lose all credibility. The IRS said that it wants to get expats into the system, not forever out of it!
I just want to extend my gratitude to Michael J Miller for his contribution to this blog and valuable advice.
Thanks Michael!
@todundsteuer
You wrote:
“In contrast, applying for entry into the OVDI with its promise of protection against criminal prosecution IS an admission or at least strongly indicative of past criminal intent.”
You may want to have a discussion with my lawyer about this, as he says that it is not an admission of guilt. Just to be clear, he was not one of those lawyers who herded people into OVDI. The IRS and IRS alone misled my husband and I into OVDI, and it seems they are finally beginning to realize and act upon their misdeed by moving people to Streamlined on their own.
Here’s another doozie:
“THE US INTERNAL REVENUE SERVICE IS ON THE WARPATH”
Well, that we know is true, but the rest is pure fear mongering:
“US Tax Surveillance
US persons living in Canada who are in denial about their US tax filing obligations should get ready for a shock – a big shock. The US Internal Revenue Service is taking increasingly tough measures to locate you – both non filers and tax evaders. Here are a few ways the US Internal Revenue Service (IRS) may detect non filers or scare the bejeebers out of those who haven’t filed so they start to take this more seriously.
Checking your place of birth shown on your Canadian passport when you enter the United States.
Applying draconian penalties for non compliance.
Sharing information between the IRS and Canada Revenue Agency.
Requiring Canadian financial institutions (starting in 2013) to report details of bank transactions of US citizens to the IRS under the Foreign Account Tax Compliance Act. Checking your record of US tax compliance when you decide to move back to the United States
The US borders are well armed. You will find US customs, US immigration and Homeland Security all there, at the ready, and working with extensive databases.”
To which your only hope is to do a quiet disclosure as there are no OVDP’s offered at this time.
http://www.finplans.net/documents/The%20US%20Internal%20Revenue%20Service%20%20is%20on%20the%20Warpath.pdf
I entered the 2011 OVDI as directed by my lawyer. I did have to pay a $1589 FBAR penalty. If I had it to do all over again would I chose the OVDI? Knowing what I know now, no way. Most of the people I know fall into two camps. Those who have done silent disclosures or those who don’t care. The folks who don’t care are generally Canadians who are accidental Americans or have been in Canada for a long time. I should mention that I don’t know anyone who has done a silent disclosure that has any problems…yet.
At this point it appears it’s all worked out for me, although I haven’t mentioned how much I paid the tax lawyer to get me through the OVDI. That’s the real scam. American tax lawyers coming to Canada to serve US citizens. Almost sounds patriotic. Well, I can say they have a really good business plan. I do appreciate the lawyer running defense for me but I still paid too much.
After I entered the OVDI I started the process to renounce US citizenship. It will be even more interesting to see what happens since my final closing documents from the OVDI will cross my final tax filing for 2012, including the 8854.
@itacaf, $1589 seems very low. Did you opt out to get that penalty?
@all…
I noticed tonight that ACA has an article Contributed by Virginia La Torre Jeker J.D. and ACA Country Contact
Quiet Disclosures – The Jig is Up?
Certain findings and recommendations by the Government Accountability Office (GAO) about offshore tax evasion and the IRS efforts to combat it have many taxpayers worried. The GAO is an independent, nonpartisan agency that works for Congress and is often referred to as the “congressional watchdog.” It investigates how the federal government spends taxpayer dollars and makes recommendations as to how a governmental agency can be more efficient and effective.
A recently issued GAO report: “Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion” information about the IRS’ offshore voluntary disclosure initiatives. More importantly, however, GAO indicates its review of IRS data shows that the IRS is missing what appear to be rampant “quiet disclosure” and “new account” filings.
“Quiet Disclosures” / “New Account” Filings
With a “quiet disclosure,” taxpayers quietly amend past tax returns and FBARs reporting previously unreported income and accounts. With “new account” filings, taxpayers report the existence of any offshore accounts as well as income from the accounts on the current year tax return, without amending any prior years’ returns. They often also disclose the existence of the accounts by filing FBARs for the current calendar year making it appear as if the account was just newly opened.
GAO takes the IRS to task for not finding enough “quiet disclosures” and “new account” filings which lose billions of tax and penalty dollars and can undermine the effectiveness of the offshore voluntary disclosure programs.
The report states:
IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest, and penalties that would otherwise be owed, but based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so. GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to IRS about taxpayers’ possible offshore activities, and found many more potential quiet disclosures than IRS detected. Moreover, IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent monies owed, thereby missing opportunities to help ensure compliance. From tax year 2007 through tax year 2010, IRS estimates that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest, and penalties by not participating in an offshore program, but instead simply amending past returns or reporting on current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness.
In the Money
The offshore voluntary disclosure fixed penalty is currently 27.5% of the highest aggregate value of all offshore accounts (and value of foreign assets that in any way related to tax noncompliance – think purchase of an apartment in Dubai with unreported income). In addition, participation in the offshore voluntary disclosure program requires payment of other penalties such as the 25% failure to file penalty and / or the 20% accuracy-related penalty. Losing out on these amounts to undetected “quiet disclosures” means the IRS is losing billions of dollars in potential penalties.
In the case of a “new account” filing, a taxpayer slipping under the wire would avoid paying any delinquent taxes, interest, or penalties, unless audited.
Even though those who are caught disclosing offshore accounts outside of one of IRS’s offshore voluntary disclosure programs risk steeper penalties and criminal prosecution, based on the particular facts and circumstances of the case, GAO wants more. GAO wants the exits plugged and wants those filing quietly or on a “prospective basis only” to be caught.
GAO Tells IRS What To Do
GAO’s recommendations to the IRS include the mundane such as further education to the public about their reporting duties with respect to offshore assets. Of importance to those wondering about making a “quiet disclosure” or complying on a “prospective basis only,” GAO has told the IRS it should:
Explore options for employing a methodology for identifying and pursuing potential quiet disclosures to provide more assurance that actual quiet disclosures are not being missed and then implement the best option.
Conduct an analysis designed to measure the extent that taxpayers are reporting existing foreign accounts on the Form 1040, Schedule B or on FBARs for the “first time” and catch these taxpayers who are trying to circumvent taxes, interest, and penalties that would otherwise be owed.
The fact that GAO has told the IRS to examine the Schedule B is significant. The Schedule has the taxpayer check a box whether he has a foreign account. If it is being checked “yes” for the first time, but the taxpayer has lived and worked abroad for many years (as determined by prior tax filings) this will surely raise eyebrows. Information can also be cross-checked on Form 8938 regarding whether the asset being reported was acquired or closed in the current tax year.
The IRS agreed to all of the GAO recommendations. This could portend a rise in the number of audits and deeper investigations in the offshore area. Only the future will tell.
(May 2013)
Virginia La Torre Jeker J.D., is an ACA Country Contact and ACA Professional Tax Advisory Council member located in Dubai. Find out more about Virginia here.
btw, any one wanting to take on the IRS with a lawsuit in America about its FBAR or FATCA practices , I think I found your man…
John Whitehead On Protecting Individual Rights
For more than 30 years, civil rights lawyer John Whitehead and his Rutherford Institute in Virginia have been coming to the legal aid of Americans who are fighting some element of their government. Whitehead discusses protecting individual rights for everyone no matter their political affiliation.
According to Lisa Smith, bank accounts outside of US jurisdiction are now a “top priority” for easy money:
http://www.iexpats.com/irs-wants-more-money-to-chase-tax-dodgers/?utm_source=rss&utm_medium=rss&utm_campaign=irs-wants-more-money-to-chase-tax-dodgers
Last time it was $7. Now it is $5. Wonder what it will be tomorrow?
Using FBAR against innocent expats and dual-citizens who owe little or no taxes is cruel and draconian punishment. Assume there was law passed 40 years ago, which no one knows, where the law considers wearing red-shirt on select days (e.g. May Day or 1st of May) is openly supporting communism and treason. If it is not widely publicized, there is no way immigrants or expats living most of their lives in their native countries to know such law could possible exist. What would be the reaction, if the punishment is no different than FBAR punishments for each violation? There are many valid reasons (e.g. retirement plans or insurance plans) for immigrants and USPs who worked abroad for many years in foreign countries to have foreign accounts.
The IRS is shooting itself in the foot by using FBAR and FATCA against innocent and benign J-walkers, by alienating 6 million strong US-expats (most of them have little or no ties with the USA). If the US treats them like criminals and closing all the possibilities to come in compliance, most simple ignore and go into hiding (since the IRS can’t go into a foreign country and prosecute them for FBAR penalties or ask for extradition for not knowing they should not wear red shirt on some days, if they owe no taxes).
@Just Me, I am not sure Virginia La Torre and ACA are really helping by communicating the GAO report, essentially spreading the message that everyone should do OVDI.
While this might be in Virginia’s interest, this kind of information only serves to spread panic and corner even more non compliant people, making them want to do nothing and making them now willful.
ACA should know better. Instead, they should use that information to push Congress and the tax advocate to do something.
Maybe it’s time to get back in touch with Nina Olson and see if she’s making progress with her recommendations to Congress regarding the fix to the Voluntary Disclosure Programs.
@Chris…
I guess my answer to that article is that is not one of advocating a position but a pretty accurate portrayal of the GAO report and the concerns taxpayers have. Should one ignore it? I do not see the message that folks should join the OVDI. It leaves the conundrum unanswered. As you know, there are NO answers that come without risk.
The point is the GAO wants penalty revenue, pure and simple. This is not about fairness, justice or compliance. It is revenue collection pure and simple, and the GAO is telling the IRS how to do it.
The article is ended with ‘Time will Tell” and not a “Call me for help”, or enter the OVDP NOW! The goal, it seemed to me, was education by raising the question. ACA has a group of attorneys that are part of their advisory council, and they probably asked for an opinion about the GAO report and their thoughts about the recommendations the IRS made.
One has to wonder if Shulman’s stonewalling of the NTA was commanded by the chief during at least one of those 157 meetings in the White House.
According to the GAO, anyone who suddenly starts ticking the FBAR box after living abroad for some time should be subjected to a full scale audit? It’s funny (in the weird sense) that an office which has the function of studying the ebb and flow of money within government would totally dismiss the cost/benefit of implementing such a thing. The fact that those wishing to become compliant would instead run for the hills seems to have no bearing on anything at all its seems. The USP living abroad may have been overlooked in the beginning, but now that it’s speculated that there’s gold in them thar foreign hills, better go and git it!