Thanks to Bubblebustin for discovering:
Shulman #IRS #OVDP program receives scathing review from Taxpayer Advocate – Adventures in #FBAR http://t.co/t4BRKIayO6
— U.S. Citizen Abroad (@USCitizenAbroad) July 11, 2013
This really is a must read. If Taxpayer Advocate is critical of the IRS creation, administration and “execution” (pun intended) of the voluntary disclosure programs who wouldn’t be? Thanks to the work of Just Me, NotThatLisa, Moby and more we have learned a great deal about the “nuts and bolts”, “continued injustices” and confiscatory nature of the programs. We are also being introduced to a certain breed of lawyer who clearly is NOT working in the interests of the client. Those lawyers who automatically (without taking the time to completely understand the facts) put people into OVDP are committing ethical violations. The tragedy is that there are a number of them out there.
Those who are NOT Twitterliterate will find the report here:
When I saw Bubblebustins’s comments I posted the following comment, which she encouraged me to include with this post.
@Bubblebustin
This is a great find and should be read by all. Taxpayer Advocate minimizes the true damage that the Shulman Voluntary Disclosure programs have done to the IRS and therefore to America, it’s citizens and it’s other residents.
Here is a partial list:
1. Through its unreasonable and immoral behavior, the IRS has reduced ALL incentives to come into compliance. For the average middle class “jay walker”, it’s hard to imagine receiving worse treatment than in OVDP. Why? Assuming minimally competent legal counsel, the IRS has little chance of successfully asserting willful penalties. The unreasonable behavior of the IRS has done nothing except generate contempt for the IRS. Furthermore, by reducing all incentives to come into compliance many rationally believe they are better off staying out of compliance.
2. Through its inconsistency in application (nobody really knows how they will be treated) the IRS has ensured a total lack of trust in the IRS.
3. It’s recent abuse of authority (quite possibly under the direction of the Obama administration) has further eroded confidence in the organization.
4. For many, the IRS has become the face of the U.S. government. This is bad for immigration. It is bad for responsible citizenship. It has resulted in a world where people want to renounce their citizenship. It is simply bad for America and its stakeholders.
5. The design of the OVDP program demonstrates beyond a shadow of a doubt that it is about “confiscating assets”. It’s not about taxation. It’s about confiscation. Just look at what the penalties have been relative to the tax owed. When much of this is related to Americans abroad buying mutual finds in their country of residence it becomes even more sickening and sickening it is.
6. By the fall of 2011the IRS clearly knew that many Americans abroad and green card holders had entered the OVDI program. They knew this was inappropriate. What did the Shulman IRS do? They came out with OVDP 2012 without any change in the rules/qualifications. Absolutely contemptible behavior.
7. They changed the rules in OVDP 2009 – remember the “bait and switch”. They failed to respond to the Order of Taxpayer Advocate to remedy the situation. They set themselves up as judge, jury and executioner to destroy the lives of a lot of good people who believed this was their only way of coming into compliance.
8. They failed to respond to the concerns of the New York State Bar Association concerning the administration of OVDI 2011.
9. In the December 2011 Fact Sheet, they promised further guidance for how Americans Abroad could come into compliance. One would have thought this guidance would have appeared prior to the June 15, 2012 tax filing deadline. The guidance did NOT come prior to the deadline. Rather an announcement was made at the end of June 2012 with a promise of further instructions to come. This did not come until August 31, 2012 (making it difficult for people to deal with their 2011 taxes).
10. What about Green Card Holders residing in the U.S. who want to be in compliance? Right, what about them?
The effects of the Shulman IRS on America have only begun to be felt. This is a sick, sick organization.
If you have read this far and are thinking of entering OVDP, I have a word of advice for you:
Don’t!
Maybe we should go ahead and publish list of trusted lawyers for people to go to.
Publishing a black list of sharks can get us sued, even though a shame list of those who just recommend OVDI without looking at the facts would also be very useful!
The IRS is a political wing of the Obama administration. The Obama administration stands in direct contravention of the Tax Advocate Service and the laws that formed and empowered the TAS. But should that be any surprise at all? The Obama administration has little regard for law or the legislative branch of government and does what it feels like doing, via executive orders, etc.
@Chris
You were an active participant in the thread yesterday with Neill. There is no doubt in my mind that he was simply channeled into OVDI. He himself said that his lawyer didn’t take the time to understand his situation. During the summer of 2011 some lawyers were trying to start the process (with very little interviewing of clients) by getting clearance from CI.
The lawyers are now a bigger problem than the IRS. As bad as the IRS is, they have never told anybody they have to enter the program. A number of lawyers have told people to enter the program by either:
1. Telling people they must enter OVDP;
2. Not telling them about other options.
Nobody should enter OVDP without getting a second or third opinion.
@USCitizenAbroad
I totally agree with you. One big problem is the problem of trust of the lawyers you’re consulting.
After getting a second and third opinion, all different from each other, I didn’t know who to trust and I ended up making the decision myself, hoping that I picked the one that will hopefully lead to the best result for me and my family.
Right now, it seems that there are more lawyers you can’t trust than ones you can, and posting a list of trusted ones might help new people caught in this mess.
@USCitizenAbroad,
From FAQ 17:
>The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report
>taxable income in the past to come forward voluntarily and resolve their tax matters.
It seems pretty clear to me that the IRS does want you to enter this program if you have any tax due. Despite what you guys say it’s not clear to me yet that I had any other option than to enter this program (other than ignore the whole thing).
I have tax due.
BTW, I have had a long interviews and continued email discussion with an editor from Tax Analyst who are doing a story on the OVDP and impacts from some of those who have seen how it works from the inside. As part of the write up they are doing, I supplied them with this reference to this Tax Advocate report. I am hoping it will survive the final editing.
I find the table very interesting. Of the 12,532 2011 OVDI entries, only 3,666 have been closed with an average of 180.5 days to close. There’s no indication that any of these cases are being moved to Streamlined which we’ve been told is happening, only indicating 323 opt-outs. A lot fewer people have entered the 2012 OVDP, with zero opt-outs and 238.9 days to close, possibly indicating that it is attracting a more complex type of taxpayer, but then they may just be understaffed. The Tax Analyst report Just Me refers to will shed some light on that, I suppose. One would guess that with the common knowledge that many of those who entered the 2009 and 2011 should not have, and Streamlined now an option, we will likely see many fewer opt outs in the current OVDP. I’d like to see a similar chart for Streamlined, and of course one that shows how many are avoiding the IRS altogether! The IRS has yet to create an amnesty that works for expats, because none exists in the universe. It’s really no wonder that so many are left with a feeling of disgust when they hear what the options are.
All indications are that my husband and I are in for a very long wait, considering we’re 19 months into OVDI and we haven’t even opted out yet 🙁 Without having been misled into OVDI, we’d likely be through this mess already.
@bubblebustin, it’s hard to interpret these numbers. The only thing that is for sure is that they’re seriously understaffed, and it takes them forever to go through 8 years of amended tax returns.
> One would guess that with the common knowledge that many of those who entered the 2009 and 2011 should not have, and Streamlined now an option, we will likely see many fewer opt outs in the current OVDP.
Not sure about that. Even Mopsick pointed out that while the first couple years attracted some bad people who took advantage of the waiver of criminal prosecution, a lot of what he saw in subsequent years were minnows, that he was still guiding through OVDI (with the intent of opting outs), because that was the only recommended solution from the IRS. I would tend to agree with that. Big fish with their tax lawyers were aware of the crack down early and either entered the program, or made a conscious decision not to do it. What’s left are minnows. I would bet that the vast majority of those who entered the 2012 OVDP are minnows, who, if they’re not too afraid should be opting out.
Time to close the program altogether…
With the recent scandals, congress want to reduce IRS funding further. It’s going to take a while for the backlog to reduce…
@Chris
I agree that many minnows have entered OVDP feeling they have no other option, but with increasing numbers of those becoming aware of their tax filing and reporting obligations combined with the prospect of RBT, we may just see others choosing to do nothing, and in spite of FATCA looming .
It’s almost as though FATCA and RBT are in a race against time to determine the fate of USP’s abroad!
If it’s taking the IRS this long to clear-out the OVDP backlog, imagine the nightmare that awaits in processing FATCA applications from hundreds of thousands of FFI’s when the online registration portal supposedly opens next Monday, July 15th and closes on October 25th. ALL of these applicants are supposed to be vetted, issued GIINs (Global Intermediary Identification Numbers) and have their names published on a new IRS teacher’s pet list on December 2nd. Wonder what the chances are of all that happening on time when the IRS clearly can’t even organize a piss-up in a brewery.
NTA: “Moreover, the IRS has not adopted the National Taxpayer Advocate’s recommendation that IRS send notices to educate those with foreign accounts about the requirements .”
Will FATCA result in mere warning letters?
@bubblebustin, For the local checking account, FATCA basically means that any US person discovered by a bank has to fill out a W-9. Failure to do so automatically defines one as being a “tax cheat” which will result in one getting kicked out of the bank. Guilty until proven innocent.
@SwissPinoy
I guess that’s warning enough for the IRS. Why go to the trouble and expense of sending out notices, as the NTA suggests they do.
@USCitizenAbroad – You made a mistake in your post of July 11, 2013 at 10.58am – You stated that the IRS was not telling anyone to go into OVDI. That is absolutely wrong. The Revenue Agent who managed my case told me that the IRS was telling lawyers back in 2009 and 2010 to put anyone with foreign account issues in OVDI as that would be the most certain way to deal with them. The agent told me that afterwards, the IRS saw that “one size did not fit all”.
I also had friends check with the IRS by calling them and asking what to do about foreign account problems and they were also told if they had foreign account issues, OVDI was the solution.
The IRS created bad policy and the tax lawyers were their henchmen who aided and abetted them in implementing it.
@Not that Lisa!,
Ugh! This is another of the many reasons why the demorepublican dictatorship needs to apologize prior to resigning.
Am I missing something? From 2009- 2012 there were only about 30000 taxpayers who came forward? Of approx 7 million expats? And that brought 5 billion in tax revenue? How much is that per capita because my calculator wont even compute all the zeros.
And if this is true – then how in the world does anybody here think that America will stop this extortion? That would be trillions in tax revenue that they are saying good bye to. Morally right or wrong- who would stop this extortion when there is a law enabling them?
@XYZ: The 30,000 includes homelander/whales and minnow green card holders. Most of the expats I know are ignorant or just choose to be ignorant. Many of them are aware of this, but not the full extent.
I too know very little and my CA looked at my case and asked to file just past three years, since my case is very simple and I owe no taxes. Later learning all this, I filed one more year at the end of 2012, just in case I wish to relinquish in the beginning of 2013 by filing 2012 (total five years).
I feel, almost many expats was trying to avoid the inconvenient conversation. They may be thinking IRS can’t prosecute millions of dual citizens, if they don’t owe little or no taxes. If any one singled out, they just never visit the USA. Some one mentioned, it would embarrass the USA, if they go after a housewife or grandmother left the USA decades ago in foreign courts.
I stop mentioning this, since I feel they may be right and they will get away. I don’t want to push them by scaring them and later they blame me, if ignorance turns out to be bliss.
@NotthatLisa
Thank you very much for your comment at 4:39. Although I don’t have a particularly high opinion of the IRS, I never imagined that they could be as evil as this. But, what I think this tells us is that the IRS doesn’t know that:
1. U.S. citizens abroad exist.
2. Green Card Holders had a life prior to coming to the U.S. and may still have ties to their home country.
3. There are honest banks outside the U.S. that are used for normal banking activities.
They actually believe that some tax cheats use foreign bank accounts, that all foreign bank accounts are instruments of tax evasion.
Viewed from this perspective, this is important information for the Ways and Means Committee to have. It is a very good argument to abolish citizenship-based taxation. The argument is that the IRS is simply not equipped to deal with non-US residents. Somebody should take the time to really develop this argument and get it to the appropriate people. The submissions to the Ways and Means Committee are examples of how Americans abroad experience the IRS. What we now have is important information about how the IRS experiences Americans abroad.
Interestingly, last night I came across something that (I may or may not have seen before from Taxpayer Advocate). It implies a lot of the same kinds of things.
http://www.taxpayeradvocate.irs.gov/userfiles/file/Full-Report/Most-Serious-Problems-International-Taxpayer-Issues.pdf
Are any of you interesting in taking this on?
@All
On this topic, allow me to remind you of the video and comments to this post.
http://isaacbrocksociety.ca/2012/09/29/interesting-video-from-nyu-law-on-ovdi-et-all-programs/#comments
Here is my comment, but should go there to see more:
@Tim
Thanks for posting this. It is long but worth listening to. My impressions from 1 professor and 3 practitioners:
1. The professor does not understand the reality of voluntary disclosure or anything associated with it.
2. It is clear that OVDP is not working – only 1.5% response rate.
3. Practitioners recognize both what a great deal this is for criminals and what a bad deal for US citizens abroad
4. Practitioners acknowledge the incredible absurdity and unfairness of applying an penalty to those who who did not know they were US citizens.
5. Practitioner recognizes that IRS changed the rules of the game after people entered OVDP.
6. Practitioner recognizes the incredible unfairness of applying the 27.5% penalty to all assets.
Now, what I found most interesting was the question at the end about the obligations of a lawyer in voluntary disclosure (ethical obligations vs. Circular 230 etc – I have posted on this problem). The practitioners made it clear that their practice was to discuss all available compliance options and not simply tell people to enter the OVDP. Thank God for this. (Go to the last 5 minutes of the video for this.)
The clear implication being the OVDP should be entered into after careful consideration of all available options.
If there is anybody out there who is considering doing a voluntary disclosure you should watch this video.
Also I don’t think this participant is FBAR Scholar Hale Sheppard.
ABC
Embarassed?
Sadly I dont think anybody is embarassed.
The NTA reports are virtually ignored. In the meantime, the IRS is to take on the mandate of maintaining US healthcare, Obamacare, effectively dealing with the monstrosity of FATCA with all foreign financial institutions or the tax arms of other countries, at the same time with cuts to its Budget?
It’s nothing but insanity.
@xyz
Shulman in his calculation of $5B was counting his chickens before they hatched, and hasn’t calculated the cost of bringing in millions of egg layers who will produce nothing in the way of eggs.
With the opt-outs and removals to Streamlined, that figure of $5B will be adjusted downward through penalty mitigation, but not knowing how much of that revenue the opt-outs represent, it’s hard to say by how much. I know that in our particular case, if they are including FBAR penalty in their revenue calculations, what we have contributed to their calculations may be reduced by more than 50% after we opt out.
To bubblebustin, the number of optouts should be viewed in relation to closed cases, not to total people who entered the program, since typically people do not decide to optout until they receive the closing agreement.
To swisspinoy, FATCA will work only for native born US citizens who reside in the US. For those with legitimate needs for foreign accounts, FATCA has no teeth. Read the agreement closely. Banks are required to report on accounts over $50K when they know that the beneficial owner is a US person.
@chrisw
Thank you. Number crunching not being my thing, would you say that based on the table, 323/3,666 closed cases have opted out of the 2011 OVDI so far?
A couple notes…
Did anyone notice Phil Hodgen’s recent blog post on Opting Out?
Opt out (of the OVDI) and get out (of the USA)
Also, I got notice that the following article was printed in Tax Notes July 15th. I have a copy but don’t have permission to reprint. Maybe it will become available on Jack Townsend’s blog and if so, I will post a link.
NEWS ANALYSIS
The Personal Impact of Offshore Enforcement
By Marie Sapirie — msapirie@tax.org