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.
IRS discovers a QD and dances a jig over the FBAR penalties extracted…
http://waysandmeans.house.gov/uploadedfiles/irs_dance_video.m4v
On the ACA post –
My understanding of ‘quiet disclosure’ is that it describes efforts by people who actually owe significant taxes, and may or may not have been deliberate tax evaders, to become compliant quietly under the radar. It’s not the right term for people who weren’t filing because they didn’t know they were supposed to, but don’t actually owe any (US) taxes and can document the fact.
Every year, I have to amend a return due to timing of tax liabilities in NZ. It is a 1040x, and I make a disclosure of why I am doing it usually because I get some refund from the IRD more than I anticipated so I over reported a tax credit or something. I have to do one right now for 2011. That is a quiet disclosure. There is nothing wrong with it. The IRS should encourage this, not go looking for more penalties to collect. Compliance not penalties was supposed to be the objective, but they are co-mingled in the minds of the fools in the bureaucracy. They think they need more money to fund their overspending habits, so pull over more speeders on the highway and give them a ticket for being 3 miles an hour over the limit instead of 5. It is morally bankrupt, but that is what our government has become.
If you are interested in this thread, you might want to read the series of comments from a post about the Williams case that begins with this one:
http://isaacbrocksociety.ca/2012/07/23/williams-case-reversed-willfulness-no-longer-means-willful-judges-legalize-irs-tyranny/comment-page-2/#comment-39027
Mr. Parent is a participant in this discussion.
@Bubblebustin
You commented:
“@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.”
I am inclined to think that @Todundsteur is correct, insofar as the IRS (at least until recently) believed, that entry into OVDP or OVDI was an admission of guilt. There are two reasons for this.
1. The first time OVDI was explained to me, it was described as a subset of “Voluntary Disclosure”. Now admittedly there are two kinds of “Voluntary Disclosure” (though CI or not through CI). (Another fairly well known lawyer a commented that many people would not enter OVDI because they did not want to lumped in with “criminals”.)
2. The problem is that entry into OVDI did require pre-clearance from the IRS.
Therefore, I believe that these two factors contributed to an IRS belief that people in OVDI were criminals. In other words, the context (subset of voluntary disclosure and clearance required) gave the IRS license to believe this.
Many lawyers correctly saw that one did NOT have to be a criminal to make use of OVDI. But, the IRS was behaving as though OVDI participants were criminals.
bubblebustin,
You nail it like it is — over and over.
@USCitizenAbroad
I know that a lot of people didn’t like what they felt the IRS was implying about criminal behaviour, but should a protection against criminal prosecution realistically act as a deterrent to entering OVDI, especially when someone was basing their decision on all of the facts as they were presented by the IRS and its commissioner at the time?
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@ USCitizenAbroad
Hi, I recently learned about FBAR requirement. I did not have any idea about the FBAR altogether until this year when I thought to do my tax retrun on my own and came across foreign income and FBAR thing in online filing. My accountant was doing it from last few years and he never brought this to my notice.
All amount in foreign account was earned in USA in last 3 years on non-immigrant dependent visa and in fact post taxed. When I saw this for the time I decided to comply going forward this year, but am in panic and did not sleep. Also, what I am not sure about as if one saved over the last three years and if it is around 100K so would IRS raise a flag looking at this for the very first time ? or it doesn’t matter to them as long as one file it correctly ?
Can anyone here please help & guide 1) Should one consider going forward or 2) what one should do for past years ?
@Lawfulresident, it’s murky, especially as you’re resident in the US. It would depend on your risk tolerance, but as we’re not talking about a huge amount of money, I would guess that you would probably be reasonably safe to comply going forward, especially if the income it produced was small. You might want to seek some professional advice though before making a decision.
I wouldn’t think the OVDI would be appropriate but your accountant might consider amending your earlier tax returns, as you probably will need to file the FATCA 8938 form to the IRS with your 1040, as well. The FBAR has to be filed electronically nowadays by 30 June. You can also file earlier years and the form has an area where the filer can select that they hadn’t been aware that they needed to file the FBAR in past years. Again, you’ll have to make a judgement call as to whether you want to file back or just going forward. Good luck!! At least at the current time, delinquent FBARS filed in good faith haven’t been assessed penalties outside the OVDP, though this could change after FATCA is fully implemented.
monalisa1776 says – Thank you so much ! Actually, the advice I got is for going forward.
But I am still in dilemma. Can you suggest around what amount income is considered small ? Basically, my worry is because of income I start showing suddenly because back in our country the interest rate is around 8-9% so do you think interest of 9K + would be considered small ?
Also, if you can please elaborate how FATCA 8938 form derives filing amended tax returns. Do they ask something specific which gives them information about past ? I have no issues amending my past tax returns if doing so I can sleep peacefully. If you can guide please…
lawfulreident. A million would be considered small. 9K is a rounding error. They have no resources to chase the little guys like us. FBARs are under a different law which is difficult to apply.
They don’t have time to bother you.
Comply going forward. Declare all your worldwide income going forward. Sleep well.
@lawfulresident
You are always free to raise the “reasonable cause” defense to the the FBAR non-filing. What’ is most important is that, once you have an awareness of FBAR, that you file it.
Whether you file back FBARs or not, you are still in violation of the law for not filing them previously. The violation cannot be cured by back filing. So, up to you …
@Lawfulresident, my understanding was that the IRS considers less than $1500 (and possibly up to $5000) per annum definitely ‘de minimus ‘; however, I tend to agree with KalC as I become more familiar with how things seem to work. Accountants and tax lawyers will take a more conservative interpretation, especially as they are obliged to stick to the letter of the law. However, one actually admitted to me that they will sometimes explain that they aren’t always giving specific advice par se , but will instead explain that people are taking certain courses of action and seemingly doing OK.
I amended several years’ tax returns and wound up owing quite a lot (over $10,000) for phantom gains in foreign mutual funds, I.e..’PFIC ‘ taxation. My accountant is an enrolled agent so had to follow the letter of the law; I also wound up owing close to $25,000 in accounting fees. But this lawyer told me that had I made a ‘kovel’ arrangement and had approached an accountant anonymously though an attorney, that they probably would have suggested that I just filed using simple software instead of filing +200 page long tax returns pedantically computing PFIC calculations worth 60 cents!
Like you, I wanted to be able to sleep at night. But hindsight make me believe that KalC is probably correct that the IRS has limited source and will thus probably not have the resources to pursue little people. The OVDP programmes were a great revenue generator for tax attorneys and accountants to make huge bucks out of others terror, including mine. 😉
I’m in another camp… I’ve made a mess of this it seems. I’m an expat working abroad and I have filed FBARS and in 2011 filed amendments. Now I’ve learned that I missed a couple of accounts and that I also made a couple of mistakes on the 2012 FBAR (I got the amounts right, but wrote the wrong account numer by repeating the same account number twice). The accounts I missed were–get this–created automatically by my bank as “options” in case I ever wanted to have long-term savings accounts. So there are two of them with zero balance for several years. This sounds simple except that in 2011 I cashed out euros and the bank used one of the accounts–they said now this is the technical norm–to convert the euro account to local money. So for about one minute one of the zero accounts had money on it.
I know… it’s a mess. In the end I owe no tax, but this is all compounded by the fact that I didn’t check Schedule B on these. I thought the little income I had was earned income (earnings on interest from a foreign account) and that it qualified under my 2555 EZ form.
So now, I need to file corrections on my 1040s, but I still will not owe tax, as I can claim a dependent. But what about the FBAR issues? Will amending them throw me into FBAR hell? Do I need to do a loud disclosure? As I owe zero and did file for those years (with mistakes)… well, what does this mean?
I wish I would have used a tax pro back then, but frankly I didn’t have the money and thought (how wrong I was) that I knew what I was doing…
Thanks for comments… this is all rather humbling to say the least.
K
@Konrad – You don’t owe any tax on the earnings in these accounts so you will not go into FBAR hell. You might want to consider a GF (go forward) strategy.
Lisa,
Thanks for answering. Well, the problem is that I’ve been filing. I want to correct my 1040s as clearly I should have been filling out the B’s. Ugh. It’s insane to have to stress over this.
I actually called the hotline. A woman there said to file the corrected FBARS and that they aren’t going to fine me for accounts that I didn’t know about that had zero on them, etc. So is she telling me to do a quiet disclosure? Or de facto is any FBAR correction a quiet disclosure?
this is all kind of nuts…
K
Your FBAR is an amended FBAR. Your 1040 is an amended tax return. You do not have undeclared income that you owe tax on. Do not drive yourself crazy over this. It is not worth it.
Thanks Not that Lisa!
I do feel a bit better hearing someone sane on this subject…
K
Konrad do yourself a huge favour. Forget about it. Nothing will happen.
@KalC – Thank you so much. So if I understood correctly, having around $ 100-110 K with $10K interest would not create any problem with IRS as I would be filing it first time with all other forms (8939/FBAR). OR 8938 can create some issue for past returns? OR since this hard earned money I saved over three years, this won’t catch an IRS eye based on my gross annual salary which is obviously less than the saved amount. I mean, they wont compare my gross income to the amount in bank and interest. Well, I may or may not owed tax as I am paying taxes in my home country on every single penny. Is my understanding correct and I can go ahead and file everything from this year onward and can sleep in peace ?
Lawful. You must understand that I’m not a lawyer. This is simply my advice based on 3 years of following this very carefully.
@KalC – Yeah, of course I do agree. But I understood it correct..right? Just wanted to double check that I didn’t miss any other important point here in discussion.
Anyway, thanks again !
That’s what I think is best.
This is not really on point, but I understand that favorable changes to the program MAY be coming shortly.
See link http://federaltaxcrimes.blogspot.fr/2014/06/irs-commissioner-koskinens-prepared.html
I assume this will be of interest to many here. Sorry to put this in an obscure location, but hopefully someone will put it (or another post to the same effect) in a more useful location.