If you have not seen these two interviews, I encourage you to read them. They provide interesting insight into the “Mind of the IRS” – the institution that “represents the American Taxpayer”.
Who is Bill Yates?
Willard (Bill) Yates, recently retired from the Office of Associate Chief Counsel (International), Internal Revenue Service after 31 years of service. During his tenure as a Chief Counsel Attorney, Bill was the recipient of 10 awards, including the Albert Gallatin Award, Treasury’s highest career service award. The Gallatin is awarded only to select federal employees who served twenty or more years in the Department and whose record reflects fidelity to duty. Bill received the Gallatin award for his work throughout his IRS career, including his work on implementation of some of the compliance requirements of the Foreign Account Tax Compliance Act (FATCA).
Most of Bill’s career at IRS focused on offshore compliance, including his participation in a massive overhaul of outdated foreign trust reporting requirements Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts and Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner). Bill was the principal drafter of the regulations under section 679, Foreign trusts having one or more United States beneficiaries, Notice 2003-75, RRSP and RRIF Information Reporting and Notice 2009-85, Guidance for Expatriates Under Section 877A.
Interview 1 – Form 8938 – Boldly Go Where No Form Has Gone Before
#FATCA Form 8938 – ? Interview with Bill Yates – Former Attorney, #IRS International Let's Talk About: US Tax http://t.co/I6m8jdcEwD
— U.S. Citizen Abroad (@USCitizenAbroad) July 22, 2013
Notable excerpts:
Yates: Well, obviously we were going to have to create a new form. What number should we put on the form? We wanted to use number 8938, but we had to get permission from the “owners” of form numbers; in this case, Forms and Publications. Forms and Publications initially said “no,” but later permitted use of this number. Meanwhile, the clock is always ticking. What should the Form 8938 look like? The FBAR was a good starting point, but section 6038D asks for more information than is required to be reported on an FBAR. As attorneys we didn’t have the software needed to create a form. Only the Forms and Pubs people have it. We got Forms and Pubs to assign a project to one of its people. Then, we had someone to give rough sketches and ideas to in order to come up with a rough “draft” of the form. We were starting from scratch; it was tough. The law as drafted by Congress required we avoid requiring reporting of financial assets that “would be duplicative of other disclosures.” So we had to come up with a list of all “international” forms to determine exactly what kind of information was required to be reported on those forms and so on.
Can you believe it? The United States of America has “owners” of form numbers.
Interview 2 – FATCA and Citizenship-based Taxation
Residence Based Taxation? Interview with Bill Yates – Former Attorney, #IRS International Let's Talk About: US Tax http://t.co/7wh82aSQaj
— U.S. Citizen Abroad (@USCitizenAbroad) July 22, 2013
Notable excerpts:
Let’s talk about US tax: In the final analysis, do you think that RBT has a chance?
Yates: Not really. The Treasury and IRS have too much invested in FATCA to turn back now. It’s really too bad, but something had to happen. UBS and LGT broke the dam, resulting in the flood of compliance measures manifested by IRS OVDIs and FATCA. The OVDIs caught up a whole lot of people who were totally unaware of their U.S. filing requirements. How could they have been? And, FATCA is hitting U.S. taxpayers living overseas with unforeseen consequences, such as having their foreign bank account(s) closed.
The interviews are quite interesting. They make it quite clear that the IRS knows perfectly well how much pain it is inflicting on U.S. citizens abroad. Badger, IRSCompliant and Bubblebustin have an interesting discussion about the second interview starting here.
I always knew that the US government has an active policy of punishing its citizens who chose to live abroad rather than five the breadlines and welfare checks at home.
In any event, the largest debtor nation in the history of the world will slowly be losing its political, military and economic relevance when other nations start demanding real goods instead of IOUs when doing business. If chances of RBT are low, no problem, this just reinforces the message to Americans abroad that a weakened and declining American is in their best economic, social and professional interest. A weakness America is one who’s laws and claims will be internationally ignored.
@USCitizenabroad…
Thanks for pulling these out of the comments for better viewing. Very interesting interviews for sure. The first interview showed how ‘Form Nation’ goes about creating its forms, which was instructive…
The Second one, has some stunning admissions which shows, that even when someone is involved at a high level with the policy creation, and thinks it is a bad idea, is unable to effect change once the ball is rolling.
and more Badger comments here…
http://isaacbrocksociety.ca/2013/07/16/fatca-how-to-lose-friends-citizens-and-influence/comment-page-4/#comment-444465
A MUST READ interview with very frank criticism of the OVDs, and citizenship based taxation in application – and acknowledgement of the anger felt by those living abroad and the harm that is being done.
http://blogs.angloinfo.com/us-tax/2013/07/22/residence-based-taxation-interview-with-bill-yates-former-attorney-office-of-associate-chief-counsel-international-irs-2/
‘Residence Based Taxation? Interview with Bill Yates – Former Attorney, Office of Associate Chief Counsel (International), IRS
July 22, 2013′
“Today’s blog post is the second of a two-part interview that provides valuable insight from Willard (Bill) Yates, who recently retired from the Office of Associate Chief Counsel (International), Internal Revenue Service after 31 years of service. During his tenure as a Chief Counsel Attorney, Bill was the recipient of 10 awards, including the Albert Gallatin Award, Treasury’s highest career service award. The Gallatin is awarded only to select federal employees who served twenty or more years in the Department and whose record reflects fidelity to duty. Bill received the Gallatin award for his work throughout his IRS career, including his work on implementation of some of the compliance requirements of the Foreign Account Tax Compliance Act (FATCA)…..”
……….”..Whatever, course of action taken by a taxpayer, the OVDI terrified and angered a great many people. I received calls from many practitioners who told me stories about “accidental citizens” who had RRSPs who came forward and eventually were handed a 20% penalty of an account which represented their entire savings. From what I was hearing, an RRSP with approximately $100,000 was pretty much the norm. So, IRS takes a $20,000 chunk out of it. Practitioners told me that many of their clients were in tears when they were informed of what was going to happen to their savings. This is unacceptable….”
….”Yates: In the law dictionary where it lists “arbitrary and capricious,” the definition says, “See IRS OVDI FAQs.”…”…
….”What Congress has to realize is that the current citizenship-based taxation creates a serious competitive disadvantage for the United States and that if FATCA remains, CBT for Americans living and working abroad has to go. Otherwise, having a US passport overseas is simply too much of a liability to keep. Over 80% of Americans abroad are long-term overseas residents, married to foreigners, working abroad. Many have dual nationality – some even born with it. Why should they have to continue to double file, double pay when all of their governmental services come from the country where they reside? CBT does great harm to the US because it prevents US corporations from sending Americans abroad to represent US interests. More freedom of movement of US citizens would enhance US competitiveness around the World….”….
Very very frank criticism of OVDs, and citizenship based taxation – and acknowledgement of the anger and harm felt by those living abroad.
and here…
http://isaacbrocksociety.ca/fatca/comment-page-28/#comment-415818
badger says
July 2, 2013 at 3:00 am
@Just Me, I found that interesting, but also these parts:
“…“no,” there was no legislative history. But, it was understandable. The regulations under section 6038D were to be legislative, rather than interpretative regulations. When regulations are to be “legislative” it means Congress wanted to give IRS great latitude in drafting the rules. Our job was not to provide an interpretation of the new legislation; it was to provide a set of rules to make the statute “effective.” In other words, we had to make the statute work….”……….
……..”….Yates: Well, we all knew the reason for section 6038D. Section 6038D was enacted in order to put the kind of foreign bank account reporting required by Form 90-22.1, Foreign Bank Account Report (FBAR), under Title 26, the Internal Revenue Code. FBAR reporting is required pursuant Title 31, the Bank Secrecy Act. Because of this, IRS could not initiate an audit of a taxpayer based solely on an FBAR filing. The taxpayer being examined had to have an underlying Title 26 issue. Only with a Title 26 issue could IRS use account information found on an FBAR in furtherance of an audit or exam of the taxpayer. Hence, Congress gave IRS section 6038D, Title 26 of the Internal Revenue Code. In short, Congress gave IRS its own FBAR….”
http://blogs.angloinfo.com/us-tax/2013/07/01/fatca-interview-with-bill-yates-former-attorney-office-of-associate-chief-counsel-international-irs/
and there are others scattered around. 🙂
Thanks USCitizenAbroad for giving the Yates interviews their own thread – they deserve to be read and re-read.
Thanks Just Me! I was concerned that the interviews would get lost.
I believe that IRSCompliantForever’s assessment of the Yates response as to whether RBT has a chance is probably a lot more accurate than mine. FATCA will not be overturned because of how it effects US persons, but FATCA’s effects on USP’s abroad may just result in a switch to RBT, as he says CBT and RBT are “two separate issues” (wouldn’t it be logical to believe he meant “the CBT/RBT debate and FATCA are two separate issues”?). He clearly supports the fight against offshore tax evasion and understands how FATCA doesn’t mix well with CBT. I’m reading that he believes that the brainiacs in Congress could have come up with something better than FATCA which would have had less of a devastating impact on USP’s abroad (had they considered us at all) but has resigned himself to it now being the law of the land (or is that ‘world’).
Some of the lack of clarity in this interview may be due to editing. I am contemplating sending him an email and asking him to clarify his response to the question about RBT’s chances (to hear it from the horse’s mouth). Interestingly, I sent this interview to my US tax lawyer, and he emailed back letting me know that “He was my main contact in Chief Counsel office for his entire career.” My lawyer has on more than one occasion remarked that I know more about these things than he does. Thank you IBS!!!
If there is any justice left within the US government, they will rid themselves of CBT. I say GO FIGURE IT OUT and leave us the hell alone until you do!
What was striking about the interview was his candid affirmation that within the IRS ranks, it is well known that innocent people are being harmed and badly and yet there is the shrug and “I am just doing my job” attitude that is at the heart of just about every instance of good people standing by and watching others get hurt.
If you needed more proof that most people are basically sheep, this would do it.
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@Yoga Girl
My husband made pretty much the same remark after he read it.
Some in the IRS are rather quietly saying something if that’s possible. The last woman I spoke to with the IRS said the following to me after I had explained our situation. “This is wrong.” I had told her the fact is that many will simply be forced to renounce even though they would never owe them any tax and explained in detail why. Her response “This is wrong.” was at long last very telling to me. She sounded ashamed! For which I thanked her. They know, and the only way they can “do their job” is to simply believe “it’s the law” whether they agree with it or not. However, when you have IRS agents knowing “this is wrong” there is a point at which someone needs to come forward and complain who is not a U.S. citizen abroad. Agents who could have an impact are strapped because if they come forward and complain their jobs are at risk in an economy where having a job is indeed something you don’t want to risk losing.
So we have a situation where those affected know it’s wrong, the IRS knows it’s wrong, the tax payer advocate knows it’s wrong and no one with any power is doing anything about it. There are more of us than there are of “them” I mean the Levin’s and those with zero understanding of who U.S. citizens abroad are. Yes, this is all a punishment for not living there. That’s the only conclusion one can come to.
RBT is the only way out of this mess which would allow them to go after who they say they were trying to get in the first place. Will they do it? Maybe we can help push it along. I don’t know but, I have very little faith in their law makers to do anything resembling a sensible solution.
Many times in history have people obeyed orders to follow “the law”; the consequences have usually been disastrous to mankind. “It’s really too bad, but something had to happen”, how many brainwashed Europeans spouted that garbage in the 1930s?
@AtticusinCanada,
Yes, I agree RBT is the only way out of this mess. Forget about all these ‘amnesty’ programs and free the slaves.
RBT would give you a better life outside the US. You wouldn’t have to give up your citizenship. That presupposes you might want to reenter the US but now with all the problems immigrants have.
Your everyday normal, 37% of the population own them, UK ISA type accounts are toxic. You would need a determination that your life insurance policies are tax deferred etc. You are going to have to file all that rubbish that immigrants have to just so they don’t take 75% of your money.
The key takeaway from the article for me is that they like taking away 75% of the money. Politics is all about finding some people with money. Convincing others that they should be taxed and then taking it. If it takes money from people outside the targets then all well and good.
The RBT proposal is quite happy to have the exit tax apply to rich people. If they are getting a bad tax deal in the US and want to escape it then you can stick it to them. I don’t think that’s right no matter how much money they have. Remember you will be the rich people later either by accident, good fortune or inflation.
Yes, WhiteKat there’s nothing “freeing” about the amnesty programs! I even hate that word “amnesty” Amnesty from what??!! What “crime” is it that I’m being given “amnesty” for?
They took zero responsibility for the absolute FACT that the U.S. was practicing RBT for decades and didn’t mind it one bit and never tried at all to do otherwise until FATCA. Then like the disordered mind of a psychopath they blamed the victim with every excuse in the book. It feels ridiculous because it is ridiculous to state that the persons who are criminals here are those who would never owe the U.S. a dime and those who actively ignored their part in a quiet RBT system are totally off the hook and have nothing to “come forward” for. In fact the U.S. government has employed many tactics of psychopaths with this entire issue. They have used “word salad” when explaining what we’re supposed to do so that no one could understand it. They’ve set up catch 22 situations all over the place just for their own gain. They’ve set up a situation where the victim would need to “thank” the offender for any relief at all. Every professional worth their salt will tell you to completely disengage from such disordered people. So for us to be disengaging/renouncing is the ONLY healthy response to this disordered sick approach the U.S. is trying to implement. Sure you can try to “comply” but, that is crazy making. If you don’t renounce you are then setting yourself up to “comply” with your abuser.
It feels wrong to go into an amnesty program trying to prove a negative to them and then to thank them for the “honour” of having been allowed to call ourselves criminals but, with “amnesty” They are using a bunch of buzz words that are shaming. Because you know, you lived outside the U.S. so this is what they “rightly” think of you. “Come forward” and “identify” your “wrongs” Just like a cult or a cluster b personality disordered person treats everyone in their realm. RBT would resolve most everything in this lose/lose situation and it’s sensible. But I’ve come to think of the U.S. government the same as a disordered person. Someone like that is highly unlikely to admit a wrong and correct it in a moral and fair manner. And they have a lot of nerve just like a disordered person would to blame you for getting out and saving yourself.
ACA is trying very, very hard and maybe the reason they’ve offered this most recent solution is because they can see the writing on the wall. The U.S. is NOT going to RBT any time soon enough to help all the millions caught in this trap.
@YogaGirl says “What was striking about the interview was his candid affirmation that within the IRS ranks, it is well known that innocent people are being harmed and badly and yet there is the shrug…”
I have never forgotten a similar IRS expression of sympathy-with-shrug which appeared in an April 2013 Moodys Tax blog. Two Moodys tax advisors went to DC to complain to IRS that the new Obamacare surtax, by taxing our RRSPs etc., could violate Canada-US tax treaty and result in double taxation.
Like Yates, IRS expressed “sympathy” but was not sufficiently motivated to solve the problem:
“The IRS also appears sympathetic to the double-tax concerns that may arise under the interaction of the NII with US tax treaties, but seems uncertain as to how to technically resolve the dilemma.”
http://www.moodystax.com/new-us-tax-law-may-negatively-affect-canadian-retirement-plans/
…another example of sympathy from the US, as I’ve reported previously (from Washington, DC immigration / nationality lawyer):
Nothing but a full out, revolution is going to wake and shake anyone in the US (or Canada, or any other country in ‘negotiations’ with the USA). No one cares about us ‘collateral damage’ even if they publicly say they ‘sympathize’. This is not going to be solved for ‘US persons’ until it gets ugly, IMHO.
What did Bill Yates mean by “alpha filing” in regards to FBARs? I’ve never heard that phrase before.
@Whitecat, you’re probably correct. Time will reveal whether the IRS starts aggressively auditing Expats if and when FATCA becomes fully operational. However, I now suspect that they will continue to focus on egregarious cases though the compliance industry will continue to milk us…
@monalisa1776 –
The IRS is understaffed. Audits are a lot of work. Prosecutions are a whole lot of work .
Penalty generation, on the other hand, can be automated – that’s what I’d be afraid of. It’s economical enough that they could afford a high failure rate behind the scenes.
I’m also concerned about the IRS getting it together with border guards. Two scenarios:
– USC crosses the border. Officer asks if he’s been filing taxes, reminds him that he should be (this happened to me at pre-clearance at Pearson). A year or two later, USC starts filing, argues reasonable cause for his FBARs based on ignorance, gets turned down and punitively fined.
– USC (Canadian-born dual) crosses the border, shows a valid US passport as US law requires. Officer asks why he’s entering – turns out it’s a business trip, USC is on the board of a pipeline company in Calgary, owns part of it. He then gets a letter about his $10,000 penalty for not filing Form 5471, also his $10,000 penalties for not filing all the previous years it should have been filed.
Unfortunately I think a lot of this kind of thing could be carried on fairly economically. The GAO criticized the IRS for not maximizing penalty revenue for offshore disclosures more effectively, remember – I’m sure that represents a certain strain of thinking in Washington.
@A broken man on a Halifax pier
Just to be clear, US border agents asked you about US taxes? ACA wrote to me that they only heard of this happening anecdotally.
@bubblebustin
Yes: preclearance at Pearson, February 2012.
@Calgary411, you said “From DOS point of view, US citizenship is precious.” I would add “From Congress and IRS points of view, only the assets of US citizens abroad are precious, not the citizens themselves.” Comments by Yates like these make that clear:
And Yates states the case of US citizens abroad very clearly when he says
Forget waiting for the US to change to residence-based taxation. The only way to finally escape from the IRS form-filling maze is to get a CLN.
@AnonAnon,
Of course getting a CLN implies becoming ‘compliant’ (presuming you want to exit ‘cleanly’) which implies big costs (accounting, legal, possible penalties, PFIC issues, etc). Of course one could just renounce and forget about compliance, but that strategy is full of pitfalls and future uncertainties.
So, one is damned if they do (get a CLN) and damned if they don’t. Lets face it, there is NO WAY OUT.
Right on, AnonAnon.
Yates could have been referring to someone like me ‘who cold not possibly figure out how to do her own return’ and my Canadian certified accountant who will not do further US taxes for anyone as she cannot justify the cost she would have to pass on to her clients for preparation of the FATCA 8938 form. Thus my march to expensive ‘getting into compliance’ so I could have a sense of real freedom.
I continue to ask the same question that Mr. Yates does:
My husband, my daughter and I have escaped the chains of US citizenship and have our CLNs. I wish my son and others like him could escape! I would like to make the determination for my son, not some official or anyone with the ‘entitled USA mentality’ who thinks that we all agree that the gift of US citizenship is precious. My son’s Canadian citizenship is precious; his supposed US citizenship, which I have unwittingly passed on to him, is a curse, an entrapment into the administrative insanity of US citizenship-based taxation when he would never owe the US anything. Again, where is there any common sense? There is only punitive obfuscation for persons with no connection to the US (save family who live there, family from whom they are threatened to be separated from).
@WhiteKat, There is a way out of the maze, but Congress and the IRS have built it with a very high exit toll. That shows how much they value their citizens.