(9) Do the minimum in trying to achieve the least bad outcome.
Sabrina: More isn’t always better, Linus. Sometimes it’s just more.
Commentary:
Once your life is in the hands of a compliance condor, fastidiousness becomes the norm, and you will find that IRS requires forms for many aspects of your life that you never knew were even taxable. The compliance industry also has a penchant for telling you that it is better to be safe than sorry. Principle 9 is really a reiteration of the first: (1) What the IRS can’t know unless you tell them can’t hurt you.
It is perhaps best not to tell compliance condors, if ever you engage one, more than a minimum of information–because there is no client confidentiality with a tax preparer. Furthermore, they will not be happy if you tell them about something and do not take their advice to file the correct form.
Doing the minimum may mean doing nothing at all. Not filing and coming into compliance. Not renouncing or even reporting your prior relinquishment of US citizenship to a Consulate to obtain a CLN. In some cases it means renouncing or relinquishing, and not coming into IRS compliance. Each person’s case is different, and because our governments and banks are not protecting us, each person is on their own to find a solution.
In my own case, doing the minimum meant getting out of the IRS system as cleanly as possible, and so I deemed it necessary for myself to relinquish my citizenship and to file my final 1040 tax returns and the exit form 8854. But I did the minimum necessary to escape the IRS and I did not employ a fastidious compliance condor.
Here are some concrete examples of doing the minimum, especially in the Canadian context.
- RRSP (Form 8891): Is it really necessary to file since the IRS will not find about these accounts under the FATCA IGA? If you have already filed for an account in the past, perhaps yes. But why introduce new information to the IRS.
- Fifth Amendment privilege: Not every line of IRS forms has to be filled out. If the information provided could lead to a criminal investigation, it is perfectly acceptable to write “Fifth Amendment” which is a signal to the IRS that you are invoking your privilege. By law, however you are expected to provide all the information that they need to assess your taxes.
- Mortgage FX gains and real estate capital gains: Mortgage foreign currency gains are considered taxable as are real estate capital gain. But real estate transactions are not part of the FATCA IGA.
- TFSA and treating TFSA as a foreign trust: The US taxes TFSA but under the FATCA IGA they will not know anything about them unless you inform them. Furthermore, apparently the IRS has not ruled that TFSA must be treated as a foreign trust.
- CRA forms and Social Insurance Number: My preparer once stapled my Canadian tax return to my 1040. I would say that is a complete no-no. It gives the IRS all kinds of superfluous information that could be used against you in a court of law. Once I took over my own reporting using TaxAct, I sent the minimum of information to the IRS in order to properly report my income. I am not even sure whether the IRS can even require proof of income (such as T4 or T5 in Canada).
- Personal corporations: It may be that a person can do a simple tax return for the IRS without getting fastidious about how some of the actual income was deferred in a personal corporation.
Previous Petros Principles:
(1) What the IRS can’t know unless you tell them can’t hurt you.
(2) Fear makes the IRS more dangerous than it really is.
(3) Haste is the devil.
(4) Those most hurt by the IRS’s persecution of expats have engaged the services of cross-border compliance condors.
(5) Those least hurt have done nothing.
(6) Home is where you live.
(7) An unjust law is no law.
(8) Don’t feed the beast.
About: Petros is the alias of the founding administrator of the Isaac Brock Society. Petros Principles are guidelines that have helped him and others deal with the United States’ world-wide tax invasion.
Regarding No. 3: wont they notice a large influx of cash into your bank after the sale of real estate?
@Yaacov–does the cash have to go into a bank? Are there no alternatives?
Less is definitely better. You don’t have to tell the IRS about anything that they won’t have access to. Do any IRS forms yourself if possible to avoid the condors completely.
@Yaacov
Put any large amounts of money into a local client base FATCA exempt credit union, I don’t know where you are from but in Canada these accounts are not reported to the IRS for Canadian residents regardless of US personhood.
I agree in principle, @Petros. I often feel that I might have got a better result had I had my OMIGOD moment a year or two later and had found Isaac Brock. A sympathetic attorney might have been willing to arrange my filings in a simple way via a Kovel agreement rather than via the Enrolled Agent I used who ‘dotted all her i’s and t’s’. But I can see both sides:
Unlike most others who were still below the radar because they hadn’t already been filing, I had been filing for years and thus in the system. I also was ‘wealthy’ enough that I had to file 8938, which SPECIFICALLY asks on the form whether you have PFICs. It was a quandary because had I lied, it could have been deemed WILLFUL.
My accountant was also sensible enough to keep me out of OVDI and use a quiet disclosure, though would have probably used Streamlined had it been available five years ago. I also believe using an attorney could have been a gamble because some would have deemed me a tax evader and pushed me into OVDI. I could be wrong, but I suspect that someone like Steven J Mopsick or possbly Roy Berg would have railroaded me, or the guy with the Federal Tax Crimes blog.
I sense that John Richardson is unique in that he actually appreciates what we’re facing. So in spite of my huge setbacks, I still believe I drew a middle straw vs a short straw. The best outcome would have been had I waited a year probably but at least I have it behind me now and wasn’t completely wiped out.
Every person’s situation is different. I feel that my circumstances were very much in a grey area so probably still required it have to resolved properly due to the technicalities I got messed up in. Someone with below the 8938 threshold filing requirement and with simpler affairs (no PFICS!!) could have done things the ‘simple way’.
Thankfullly over fives years have passed without a nasty audit from the IRS or FINCEN for the FBARs. However, I’m still technically not out of the woods till my 8854 statutes of limitations has expired, either in June 2017 or 2020, depending on whether the IRS deems a three or six years SOLs. I would guess that any year you certifiy full tax compliance on 8854 is thus still open to audit until it’s SOLs close, even if normally some of those tax years would normally be considered closed.
Not to be too brief, but Form 8891 is no longer in use.
One does not need to do this at all, for some number of years now……..
@Petros
I find this to be the most interesting of your “Petros Principles” so far.
BTW, very small point – the 8891 for the RRSP is no longer required at all.
“Less is definitely better”. In an earlier comment to one of your “Petros Principles” posts, I suggested that the goal should be “defensible compliance” and not “over compliance”.
It’s also worth remembering that this issue applies to those who ARE “U.S. citizens”, Green Card holders, etc. People must first begin with an analysis of their citizenship. For those who are NOT U.S. citizens, as you point out: “Doing the minimum may mean doing nothing at all. Not filing and coming into compliance. Not renouncing or even reporting your prior relinquishment of US citizenship to a Consulate to obtain a CLN.”
But this post seems primarily focused on using “compliance people” to help come into compliance. The point I would make is this:
Before coming into compliance (whether you do it yourself or use a lawyer/accountant) it is imperative that you know WHY you are coming into compliance. What is your goal? Is to because you want to formally renounce U.S. citizenship and want to avoid being a “covered expatriate” or is it because you are U.S. citizen and agree that you should obey U.S. laws.
What I have observed is that the people who are under the most pressure to renounce are the ones who are already in the tax system. The U.S. tax system is the most punitive for those who have been in the system the longest and are now subject to the insane rules (PFIC, etc) that nobody knew about. It’s also most punitive for those whose DNA is “I should obey the law”.
Put it another way:
If you are in the U.S. tax system you will be under enormous pressure to renounce.
So, people should think about their objectives.
There is NO DOUBT that the compliance people create problems (sometime intentionally and sometimes not) for people. Those who use U.S. compliance people will possibly (but not necessarily) be more compliant but at much greater cost. There is “in effect” at “penalty” that all who use compliance people will pay.
It seems to me that you need to be careful of the compliance people who take the position “Well we don’t know if this is form is really required, nobody knows for sure, but why don’t we file it just to be sure”.
Once you start filing certain forms it is difficult to stop filing them.
Finally, never forget, that there are two kinds of people with a U.S. birthplace who have problems.
First, those who are NOT U.S. tax compliant.
Second, those who ARE U.S. tax compliant.
In other words, you are just trading one set of problems for another. There is ONLY one thing that is clear:
Either U.S. citizenship or the accusation of U.S. citizenship is a problem.
Renounce and rejoice!
@USCitizenAbroad, very true about how coming into compliance effectively forced me to renounce…otherwise, I would have been facing ongoing huge accounting fees, as wouldn’t have been able to file it myself! The PFICs were my nemesis.
@Patricia USCitizenAbroad, on 8891:
The “less is better” principle thus works. I did the 8891 for my 2011 taxes and now the IRS doesn’t even require it; so in principle this unnecessary form, which never generated any revenue for the IRS, is still unnecessary and recognized to be so by the IRS itself.
Thanks for the heads up.
I wonder if pleading the 5th amendment also works on most sections of the renunciation/relinquishment forms. Aside from verifying that you may have once been a US citizen and now don’t want to be, State has no need to know anything else.
@Renaud: If an answer will incriminate you (that is of a federal felony), you never have to answer it. I am not sure why an answer on the expatriation forms would incriminate someone. The answers, if correct however, speed along the expatriation process.
@Petros–thank you, makes sense. I suppose if someone joins the North Korean army, that would be an expatriating act, but also incriminating. This is not the case with me but I just have a general antagonism about giving extra info.
I too would have saved 15,000 if only I had joined IBS sooner …what a waste of money and a whole year of stress in my OMG year. The accountant took me to the cleaners with 22 pages of forms each per year for my son and me. So sad
I heartily agree with these principles. I’ve been following this story for about five years now and am very glad that I’ve taken no action. (Dual citizen with US birthplace, living in Canada, cheerfully “non-willfully” non-compliant with US taxes.)
It’s not difficult to avoid FBAR issues. Use credit unions, keep your money in RRSPs and TFSAs and other non-reported accounts, or be less than truthful with financial institutions. (In my case after some back-and-forth with an investment advisor I chose to lie and not report US citizenship, despite not having reportable accounts, because I didn’t fully trust the bank.) Beyond that, if you have no US assets or income, there’s just no reason to become compliant.
I’ve only been hassled once by US immigration for a Canadian passport with US birthplace, on a short business trip that they claimed was “working” but I don’t as a rule enter the US more than once every few years so that’s not become an issue.
PS on #3, regarding capital gains on the sale of a house. Note that quite frequently when you buy a property or refinance a mortgage, a very large sum of money can sit in your chequing account for a few days. That would show up on FBAR if the bank had you down as a US person, but there was no sale.
@2terrified2sleep, the fve years of tax returns that my accountant filed came to almost 900 pages in total!!
Thanks Petros for all of your postings!
I have a T-shirt. It says “Even a fish could stay out of trouble if it kept its mouth shut.”
@John Canuck
Where can I find a shirt like that?
I’m a Canadian, born n’ bred; my wife and kids are the ones in the targeting scope. So we’ve pretty much done the “ostrich” impression. And they can go fornicate themselves with a blunt broomstick. My message to them is, “Y’see that mirror over dere. Go stand in front of it, your backside to it, eh? Then hang a roger or a larry with yer head n’ look-see in the mirror. Y’see dere’s yer arse… When you see that, you can take yer FBAR forms and stick ’em up it…eh? Y’know…give’r…”
Suggest those interested in the “over compliance” vs. the “minimal compliance” issue read the comment thread beginning here:
http://isaacbrocksociety.ca/media-and-blog-articles-open-for-comments-part-3-of-3/comment-page-81/#comment-7631894
with @Publius
@USCA
You are correct in saying those already in the system are the most screwed. We’re also the most disenfranchised from any party we might vote for if CBT didn’t exist.
I had a heated discussion with a non-tax compliant non-resident American who feels the moral need to vote against the party which would “Make America Great Again”.
I guess if you don’t pay US tax, US tax law doesn’t affect you and you can vote on other local issues like gun control and gay rights. Me? If I vote at all in the US while living in Canada, I’m not going to vote in the US on local issues (I do that in Canada), but instead will vote in the US on issues facing Americans living abroad, namely FATCA and a return to RBT. Everything else is irellevant.
@The_Animal
The easiest is to go to Vistaprint and design it. They are quick and reasonably priced.
@The_Animal1970
Yes…when considering FBARs the F_ _ _ word always comes to mind! Personally, I renounced but didn’t file any.
Also would add something posted by another Brocker recently which might tone down our anger:
“Let us not look back in anger, nor forward in fear, but around in awareness”
-James Thurber