June 4, 2013 by Ellen Wallace“Entrapment” by the IRS resulted in “ruinous penalties” for ordinary Americans
GENEVA, SWITZERLAND – American Citizens Abroad (ACA) has provided evidence “of the arbitrary and questionable IRS (US tax office) management of the Overseas Voluntary Disclosure Programs” (OVDP) to members of three US Congressional committees working together to investigate IRS abuses, ACA said Tuesday 4 June.
The Geneva-based international group says that the 2009 OVDP in particular was “extremely prejudicial to Americans living overseas who sought to become compliant with their taxes due to errors or omissions under the OVDP. Believing they could come back into the system by simply filing the appropriate paperwork and paying any outstanding tax burden, these individuals were later told they would be hit with a standard penalty of 20% of the highest value of their bank accounts over a five-year period.”
Great article. Thanks Ellen!
I tried to leave a comment, but the web site won’t let me do it, even after I logged in. Here’s what I would have said:
The abuse also includes immigrants to the US who kept their home country’s bank account open prior to immigrating to the US and later learned about their FBAR filing obligation.
They were the prey of the IRS and tax lawyers who coerced them into OVDI under the threat of criminal prosecution and even deportation.
Check these stories:
The perils of overseas tax disclosure: An immigrant’s story
http://www.reuters.com/article/2013/01/28/us-column-feldman-immigrants-idUSBRE90R10Q20130128
and
Deporting Green Card Holders for not filing FBAR? Yes!!!
http://www.intltaxcounselors.com/blog/deporting-are-green-card-holders-not-filing-fbar/
And thanks, Swisspinoy for reporting it here.
I’m looking forward to making a submission about the perils of having entered OVDI, about the many whonare being moved by the IRS into Streamlined after having incurred the both the emotional and financial costs of having to submit an extra 5 years of tax returns that weren’t necessary, and how after nearly 18 months we STILL have not received a response.
“…………..ACA members have written several times to the IRS under the Freedom of Information Act to request a breakdown of the participants of the 2009 OVDP between US residents and American residents with regard to taxes owed and penalties imposed. These information requests have been denied by the IRS. This is certainly an issue that Congress should investigate….”
And what, other than a clear indictment of the IRS, and a confirmation of the types of issues already repeatedly raised by the Taxpayer Advocate, could be considered sufficient reason not to provide that information? It can’t be due to legitimate privacy concerns, as they are happy to share our- (and our non-US family’s, and our local church or PTA, or voluntary organization if we have any signatory role such as treasurer or board member, and our non-US employer’s account and financial data without notice to us or them, and distribute it as they see fit from our FBARs.
I’d like to know what reason they gave, if any.
The links to the ACA Press Release and the Letter to members of the House and sent are on the ACA web site…
http://americansabroad.org/
ACA press release…
Letter to Congressional Panel
Here is a separate link not just to the front page of ACA. You can use this for emailing or tweeting…
http://americansabroad.org/issues/taxation/aca-writes-congressional-panel-tax-ause/
or
http://bit.ly/11gk7qX
Nice job, ACA. Happy they mentioned the GAO jihad on QD’s to Congress, and how that may negatively effect USP’s abroad.
Indeed, great job. I wished they had mentioned the immigrants issue, or the perspective of expats returning home, to show that there are a lot of people also living in the US who are caught in this mess and highlight the problem ‘at home’.
I think I’ll do like just me and make a submission to the ways and means highlighting this specific group of people.
I agree that was a positive and timely move by ACA, bubblebustin. I just sent my US sister many links to read regarding our submissions regarding the IRS — and just added the ACA link. The targeting being discussed in the current hearings is so very much parallel to what going on with US Persons Abroad.
@just me
I lost the thread where you posted a comment about a reporter who’s looking for incidences where USP’s abroad have been shut out of banking services.
Apparently we have our first incident in Canada that I know of. Tortured posted on June 4:
“Pacifica777
As I am new to the Isaac Brock Society I had difficulty finding the site where I posted my concerns. Just found it & am so pleased you took the time to answer some of my concerns. I really appreciate it.
Yes, the FBAR penalties would be my biggest liability …. My concern here is the IGA agreement ….. If Canada signs on & the frustrating part is we are left in the dark on that one.
Also, the bank, upon learning that I was An American
person (born there) refused to allow me to open a joint investment account with my Canadian husband
& threatened to freeze my RRSP account.
Not sure how much it will help but am writing letters to Harper, Flaherty & my MP & hopefully will attend the meeting in Toronto on the 15th.
Tks again”
http://isaacbrocksociety.ca/2013/05/27/traumatized-by-the-irs-and-us-reaching-into-canada/#more-18588
Perhaps you could provide the link to her?
@calgary411, I would argue that thet targetting discussed in the current hearing is nothing compared to the harm done to minnows in OVDI. These people only got sent a questionnaire and their application for tax exempt status were delayed. Most of them are political associations whose tax exempt status is questionable in the first place… Not much harm was done per say. These hearing question the legality of having targeted those specific people and whose responsibility was it. Compare that to the submission of that Canadian retiree who has PTSD and got ruined because of OVDI…
You’re absolutely correct, Chris. Parallel was the incorrect term!
See another example of an IRS bait and switch in thie very recent article;
http://sharptaxlaw.com/wp-content/uploads/2011/06/Navigating-Offshore-Tax-Hazards-An-Update.pdf
“Navigating Offshore Tax Hazards: An Update
by William M. Sharp Sr.
Reprinted from
Tax Notes Int’l
, May 13, 2013, p. 695
“…..FBAR Statute of Limitations
Regarding the U.S. administration of the OVDP as
well as opt-out and related cases, a key issue is the ap-
plicable statute of limitations for FBAR filings. In gen-
eral, under Title 31, the U.S. may review and may take
action on any FBAR under a six-year statute of limita-
tions.
30
However, the IRS apparently has informally
developed a policy that would reopen what would oth-
erwise be a closed statute by execution of the FBAR
consent form, ‘‘Consent to Extend the Time to Assess
Civil Penalties Provided by 31 U.S.C. Section 5321 for
FBAR Violations,’’ on the theory that such execution is
a waiver of a defense. In Title 26, it is black-letter law
that the execution of Form 872, ‘‘Consent to Extend
the Time to Assess Tax,’’ with respect to an otherwise
closed year will not under any circumstances open that
closed year.
31
For the IRS to reach an interpretation to
the contrary under Title 31 without adequate statutory,
regulatory, or even case law support seems beyond the
scope of IRS authority.
Further, IRS representatives, including field agents
and IRS counsel, have informally commented over the
years that similar to the treatment of closed years un-
der Title 26, under Title 31 the execution of the FBAR
consent form would not reopen an otherwise closed
year, even after the execution of Form 872. If the IRS
presses this position, it is unlikely it would prevail in
court. Taking a step back from such a technical per-
spective and reflecting on sound tax administration,
this appears to be another unfortunate situation in
which the IRS has suddenly engaged in what amounts
to a bait-and-switch tactic by articulating a policy posi-
tion that is contrary to decades of practice. ….”
I think this is what you’re referring to, bubblebustin, as commented by Just Me: http://isaacbrocksociety.ca/expat_tax/comment-page-31/#comment-368979
Tortured, can you contact James Jatras (email address: jim@globalstrategicpr.com) so he can forward your information to the person looking for such bank instances — one of which we now have in Canada?
@calgary411,@bubblebustin, @Pacifica777 —
I would like to hear from Tortured as well. If this is true, it is the first in Canada — and that’s news, and I think I can do something with that (in a day or so).
DW
That’s great, Arrow. I hope we hear back from Tortured today on what Canadian bank has taken upon themselves to start the FATCA US Person hunt before 2014. Perhaps Tortured is someone who didn’t know the trap and naively answered questions the bank should not have asked and thus Tortured volunteered the US Person damaging information to a Canadian financial institution. This is very important information that needs to get out there to all US Persons in Canada (and every other Canadian!). You’re our spokesperson (even with all you’re going through!). Thanks.
I just went back a year, and posted something on ACA PR release at Jack Townsend’s blog here… Still in moderation, but it was one of the most recent dicussions on Tax Notes report on the ‘Bait and Switch” and the TAD
http://federaltaxcrimes.blogspot.com/2012/01/tax-notes-discusses-dispute-between.html
@Calgary411 and bubblebustin…
The reporter can be reached via twitter…
https://twitter.com/BLR13
Thanks, Just Me. I wonder if the reports of bank account closures should have its own repository here at Brock…especially since they may have started in Canada.
On that note, our banker knows we are US citizens (I like to deal with things head on, sometimes to my own detriment) and wants to continue working with us and other USP’s (out or not). Apparently its all been sanctioned by their legal department to do so, even to tailor make investments that are “peefick” free.
Thanks, for the twitter link, Just Me. Hoping we hear more from Tortured so we can get more information. I’ve just sent an email to Pacifica to see if she has been corresponding offline.
On the IRS: New York Times: Some Republicans See I.R.S. Troubles as Means to a Big Goal: Tax Overhaul, but no mention of the US Persons Abroad IRS injustices.
In my opinion they are still targeting Americans abroad with stupid tax rules like FBAR and FATCA. The penalites for not filing an FBAR are preposterous! Many of us overseas never knew about this law and neither did our accounts and the IRS didn’t bother to let us know. I read an article about the history, there was no way all of us could have known about this. And with FATCA now, what a disaster.
As I’ve written before, in my opinion the FBAR penalties are the main problem in this entire subject. I don’t mean to disregard citizenship-based taxation, but the situation would be a lot different if the FBAR didn’t exist. The penalties in OVDI would be only a percentage of the tax owed (like all other countries that have voluntary disclosure programs), and FATCA wouldn’t be so scary. For most Americans abroad, the tax owed to the US is zero.
I read Nina Olson’s report again (see pages 149-150), where she mentions a case where Congress created a requirement to report certain “listed transactions”, and the penalty for not filing the form was $100,000 or $200,000. After numerous complaints from individuals and businesses, Congress changed the penalty to 75% of unpaid tax, if any, associated with the unreported transactions. I searched further and found that the law that made this change did not pass through the Ways and Means or Senate Finance committees, but the Financial Services committee. That’s the committee that handles financial reporting requirements like the FBAR.
So, since the other two committees already seem to be handling the residential taxation proposal, I’m thinking about meeting with congressional assistants again, this time those in the Financial Services committee, and propose to either abolish the FBAR (since form 8938 already requires essentially the same thing), or make the penalties proportional to unpaid tax, like they did in the case of “listed transactions”. This would be a very short and simple bill, and it would not touch the tax code at all. Also, the FBAR issue also affects immigrants living in the US, not just Americans abroad, so Congress may be more sympathetic. What do you think?
By the way, Indian immigrants in the US have also been complaining about the FBAR penalties:
Indian Americans seek relief from US tax rules for foreign accounts
@Shadow Raider. That would be wonderful.
For immigrants, in addition to the potentially huge penalties, there are the potential consequences on their immigration status, which can be even more disrupting than any penalty.
Check these 2 articles:
FBAR violation puts green card holders at risk
http://www.jdsupra.com/legalnews/fbar-violation-puts-green-card-holders-02970/
Deporting Green Card Holders for not filing FBAR? Yes!!!
http://www.intltaxcounselors.com/blog/deporting-are-green-card-holders-not-filing-fbar/
The main 2 issues regarding the immigration status are:
1) the decision of the supreme court in Kawashima vs holder that says that filing a false tax return in violation of 26 U.S.C. Section 7206 qualifies as an aggravated felony under the Immigration and Nationality Act when the Government’s revenue loss exceeds $10,000.
2) Regardless of the amount, filing a false tax return (i.e. checking the wrong box on schedule B regarding foreign accounts), amounts to perjury, which is considered a deportable crime of moral turpitude.
I’ve read reports that ICE officers have been using more and more the grounds of moral turpitude to kick people out of the country.
Can congress ease our minds regarding the immigration issue as well? That’s really what scares me most.
@Chris…
I am going to put a link to your comment over on the Ask your questions about FBAR…
@Shadow Raider…
I recall reading that Indian story back in 2011, but have you seen anything since that time. I recall seeing something about a high level meeting, and as far as I could tell, they were totally dissed by Treasury and the IRS. No special consideration.