cross-posted from citizenshipsolutions
The FBAR Chronicles continue …
First, A Public Service Announcement – Mr. FBAR Get’s A New Filing Due Date
Latest #FBAR filing date is now Oct. 15. Applies even if the 1040 is filed after October 15. https://t.co/3eq1jIICvm
— Citizenship Lawyer (@ExpatriationLaw) March 16, 2017
This is one more of my posts about Mr. FBAR. Mr. FBAR is a mean, nasty vicious thug who has no place in any civilized society.
Thomas Jefferson once said:
Were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter.
My thoughts are that:
Were it left to me to decide whether we should have FBAR without outlaws, or outlaws without FBAR, I should not hesitate a moment to prefer the latter.
Unfortunately, Mr. FBAR has become the new symbol of American citizenship. Furthermore, Mr. FBAR disproportionately affects the local bank accounts of Americans abroad – becoming (in effect) a form of “domestic terrorism” against U.S. citizens living outside the United States.
Mr. FBAR As Applied To The Canada U.S. Dual Citizen …
As reported by CBC news, Global News in Canada, The Isaac Brock Society and various Facebook groups. a U.S. Canada dual citizen (Jeffrey P. Pomerantz – the Defendant) has been sued in Washington State, by the U.S. Department Justice, to collect FBAR penalties for the years 2007, 2008, and 2009. It appears that at the present time, the Defendant lives in Vancouver, Canada.
The actual “Complaint” filed in the Court which summarizes and explains the Government’s allegations is found here. (If you have read this far, you should pause and read the Complaint.)
The facts are horrendous. Basically the Defendant was assessed significant FBAR penalties which increased through interest charges to the point where they had grown to approximately $800,000 U.S. dollars (approximately 1,100,000 million Canadian dollars) by the time the law suit was commenced in 2016. FBAR penalties are frightening, draconian and are really a form of Civll Forfeiture. One comment, as reported on the Isaac Brock Society put it:
On a practical note, there is one commenter in particular, Kathy “Powell”, who could use upticks on the CBC article for her efforts to set things straight … if anyone here has CBC commenting privileges. (I gave mine up when “real names” were required.)
As for Jeffrey Pomerantz who is truly living “a friggin’ nightmare”, there’s just too little information to create a clear picture of his situation. I won’t judge him as others at CBC are doing. I’m just shaking my head at how those without a clue keep tossing in misinfoturds to muddy the waters even more. What is crystal clear to me is that the villain in this scene is the IRS/DOJ and even if Jeffrey Pomerantz is guilty of something he doesn’t deserve to be completely impoverished for it.
The complaint filed by the Department of Justice is here and should be read by all bloggers and other commenters. At first blush one gets the impression that this case is primarily about the IRS assessing an FBAR penalty on a Canadian citizen resident in Canada and that the penalty was based on unreported Canadian bank accounts. This interpretation reinforces the fear (real and legitimate) that the IRS might attempt to attempt to confiscate the wealth of Canadian citizens resident in Canada through civil forfeiture FBAR penalties. I do NOT believe that this is a fair reading of the Department of Justice Compliant. (The situation is bad enough without expanding it’s reach. There is no need to accelerate the “fear mongering”.)
This case is more like a Homelander with unreported bank accounts in Switzerland …
Here is why.
Please note that this story is based on FBAR violations for the tax years of 2007, 2008 and 2009. Based on the Department of Justice complaint, we see the exploration of the following factual allegations.
Factual allegations:
A. Was The Defendant a U.S. Resident Or A Canadian Resident During The Years In Question?
Although it is unclear, it appears likely that the Defendant was a both a U.S. citizen and a U.S. resident during all or some of the years of 2007, 2008 and 2009. The CBC article includes:
While the Justice Department’s complaint says Pomerantz lived in the United States during all three years, documents prepared by Pomerantz’s side found in the court file say he and his wife, a Canadian-Norwegian dual citizen, only lived in California for part of 2008 and 2009 before moving back to Canada.
Assuming that he was a U.S. citizen residing in the United States, his case (presumably) would have been viewed as that of a Homelander with offshore accounts.
B. Where Were The Offshore Accounts That Were The Basis For The FBAR Penalties?
RBC (Royal Bank Of Canada Accounts):
The Department of Justice complaint (paragraphs 12 and 13) describes the existence of RBC accounts which were opened “prior to or during 2007”. A reading of the brief suggests that the RBC accounts were NOT counted towards the FBAR penalties. The RBC accounts were in the name of a Vancouver, Canada based company. Although not conclusive, this suggests the the Department of Justice did NOT target those specific RBC accounts located in Canada.
Swiss Bank Accounts In The Name Of A Turks And Caicos Corporation
The Department of Justice pleading (paragraphs 8 to 10) allege the Defendant opened:
- five swiss bank accounts in the name of a Turks and Caicos Island Corporation;
- that the Turks and Caicos Corporation performed no active business but was opened for the sole purpose of holding the Defendant’s investments (paragraph 7); and
- that the income from the accounts was NOT reported on the 2007 – 2009 tax returns (paragraphs 22, 36 and 44).
In other words, the FBAR penalties should be seen as penalties imposed on Swiss bank accounts (sounds horrible) which were located outside the Defendant’s country of residence (in a tax haven).
The Two CIBC “PERSONAL CHECKING” Accounts Opened Prior To 2001
Paragraph 5 of the Government’s Complaint describes two CIBC accounts that:
- were opened prior to 2001
- remained open during the years of 2007, 2008 and 2009
- were not reported on an FBAR.
(Because they were “checking accounts” it is unlikely that they generated taxable income.)
Although we can (I think) assume that these accounts were located in Canada, the compliant does not specifically state this.
Nevertheless, my impression is that:
- although the CIBC accounts were included in the group of accounts that were part of the FBAR penalty base (see paragraphs 17, 31 and 41);
- the FBAR penalties were motivated by the Swiss bank accounts opened for the benefit of the Turks and Caicos Corporation.
To summarize …
Nobody deserves the treatment that this defendant was subjected to. It is however, wrong to interpret this case as the IRS attempting to impose FBAR penalties on the Canadian bank accounts of Canadian residents. There is enough FBAR hysteria already! This case should be seen as the IRS attempting to impose an FBAR penalty based on the unreported offshore Swiss accounts that were for the use of an offshore (Turks and Caicos) corporation used to hold personal investment assets.
Although FBAR penalties are (in general) unconscionable, unfair, draconian and a form of civil forfeiture):
this case should NOT be interpreted that the IRS attempting to impose FBAR penalties on the Canadian bank accounts of Canadian residents.
This post has been based largely on the Department of Justice complaint as filed in the Court.
Here’s another FBAR penalty. This time it’s $18.2 million and 24 months in prison. However, this fellow is a homelander who put his money in Israeli banks. He was flagged by FATCA reports. Sarshar actually is a real stinker.
https://www.justice.gov/opa/pr/california-businessman-sentenced-prison-concealing-over-235-million-israeli-bank-accounts
Renunciation definitely worked for me. But then, divorce worked for me too. 🙂
I don’t know what you mean by taking a chance. File FBARs, don’t file FBARs – whatever you decide is best in your particular circumstances. It seems unlikely the IRS will or can or even wants to knock expat heads together: it’s the US-resident heads they’re aiming for – the ones they can get into court.
@Embee – exactly – that’s the kind of case they can take to court without worrying that the defence lawyers might raise the issue of excessive fines. Even by the “preponderance of evidence” standard, bank statements smuggled into the US in a necklace do suggest attempts at tax evasion!
@iota
The chance being, is that if you’re supposed to file FBARs, and you don’t, the penalties are severe for willful non-compliance. That, of course, is on them to prove the willful part.
Even if not willful, the penalty can be up to $10,000.
Therefore, if I don’t want to risk the penalty, and protect her interests at the same time, it won’t be possible for me to retain my US citizenship. Who walks from a good marriage, anyway?
The Taxpayer Advocate noted that;
“………..“Some commentators have gone so far as to suggest that FBAR penalties can be so disproportionate as to violate the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution.”…”
https://taxpayeradvocate.irs.gov/2014-Annual-Report/full-2014-annual-report-to-congress/
And even those who are big US Homelander fans of FATCA (and the FBAR) sometimes balk at what they identify as its vulnerabilities to attack on several fronts such as the Eighth amendment – such as FATCA and the FBAR and other layers of penalties imposed for “form crime”) ex., see http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1759&context=wmborj
1. The point seemingly being made is whether U.S. v. Hosep Krikor Bajakajian https://www.law.cornell.edu/supct/html/96-1487.ZO.html (seizure of cash export not declared to US Customs at airport) can be applied to FBAR cases. Others have considered this elsewhere.
2. I’ve mentioned before the interesting issue of using non-US bankruptcy law to discharge actual and potential US tax debts and penalties. That should work in the UK (England, Scotland, Northern Ireland). Perhaps in Canada too, but there might be exceptions if CRA enforcement provisions of the tax treaty applied. The IRS is unlikely to appear and/or file claim in any foreign bankruptcy now. Without appearing, the IRS cannot attack gratuitous transfers in fraud of creditors (such as gifts of assets to spouse and children). A foreign discharge will not hinder enforcement action in the USA but will immunise those assets in the country of discharge.
The point I was commenting on, which many others have commented on before, is the selective nature of the IRS attempts to impose FBAR penalties. For USCs who live outside the US, don’t hold US assets, don’t carry on US-connected businesses, and don’t have a need or desire for US entry rights, the FBAR penalty risk is clearly small to nonexistent.
The reasons for this are obvious: (a) it’s hard to build a case against a person who lives abroad, (b) it’s hard to get the person into a US court against their will, (c) it’s hard to enforce collection, and (d) even trying is likely to cost more than it gains.
On top of all that, bringing a FBAR penalty case when there’s no evidence of attempted tax evasion or other financial crime, could risk a constitutional challenge. I myself wasn’t aware of the Eighth Amendment “excessive fines” provision before, but clearly it must be a consideration for the IRS, and for FINCEN, when making decisions about what cases should be prosecuted.
@iota
Yes, they are selective, in that they’ll pop a few easy cases in order to get the rest to fall in line. From my point of view, it’s really all about fear, Not so much collecting penalties. Who needs this?
And yes, if I have no assets in the US, and have no desire to go there, then I have nothing to worry about at the border, because I’ll never be there. However, that US passport also becomes useless to have, as a result. Why have the obligation, without the benefit?
As for the constitutional challenge itself, what constitutional rights do I really have outside the US? From where I sit, I’m under Canadian jurisdiction. I would be best off seeking legal redress under Canadian law if it were to ever come to that point. Especially if I have to return to the US, just to make an argument.
In the end, all roads lead to renunciation for me.
“Yes, they are selective, in that they’ll pop a few easy cases in order to get the rest to fall in line. From my point of view, it’s really all about fear, Not so much collecting penalties. ”
They’re selective mainly because they can’t be otherwise, is my view. They can’t enforce the FBAR penalties effectively on non-residents, it’s just not feasible. But they can get the penalty money from US residents with accounts offshore, if need be by extracting it from their US assets, without the need for any legal action and thus without risking any legal challenges. So that’s what they do – and meanwhile dangle OVDI and Streamlined to lure hard-to-touch non-resident USCs into voluntary disclosure and ongoing compliance. Win-win, from their point of view.
“And yes, if I have no assets in the US, and have no desire to go there, then I have nothing to worry about at the border, because I’ll never be there. However, that US passport also becomes useless to have, as a result. Why have the obligation, without the benefit?”
Depending on circumstances, it’s quite possible, and for some essential, to hang on to the passport without filing FBARs or returns. Personally I had no desire to keep USC citizenship and fortunately could pay the price to get rid of it, and did so with satisfaction. Others choose a different course. There’s no one solution that’s the right one for all.
“As for the constitutional challenge itself, what constitutional rights do I really have outside the US?”
The constitutional challenge would be more likely to come from a US resident. A non-resident has other, less expensive options.
“Yes, they are selective, in that they’ll pop a few easy cases in order to get the rest to fall in line.”
That’s for sure. That’s why I warn people not to tell the truth on US tax returns. The IRS told me that writing honest declarations instead of committing perjury is automatically considered frivolous, the IRS told US Tax Court that my honesty was they only reason the IRS was penalizing me, and I paid penalties for it. They popped this case and I warn others to fall in line and commit perjury.
“As for the constitutional challenge itself, what constitutional rights do I really have outside the US?”
Unfortunately I had no thought of such a question when I was a US citizen doing my best to comply. But from what I’ve learned after finding Brock, here’s a challenge: What rights does anyone have under the 5th and 16th amendments? If the US constitution stops at the US border, the 5th and 16th stop together.
@Norman Diamond
If the US Constitution stops at the US border, then by that logic, it would be very hard to make a constitutional case, unless I was actually inside the US in order to make one. At that point, I would quickly be bankrupted into submission. They have unlimited resources. I don’t.
@iota
So basically, you’re saying that as long as I am here, and I don’t stick my neck out, they’re basically all bark and no bite?
Perhaps FATCA repeal might help me more than I realize.
I wouldn’t undertake to advise anyone. I’m just commenting on the probabilities – and the improbabilities.
“If the US Constitution stops at the US border, then by that logic, it would be very hard to make a constitutional case, unless I was actually inside the US in order to make one.”
The point that the 16th and 5th amendments terminate together at the same geographical border can be made by mail except if you have to be the initiator of a case in a US District Court.
If the IRS sends you a Notice of Deficiency, Notice of Federal Tax Lien, or Notice of Intent to Levy, you can petition US Tax Court by mail.
If you are suing for refund, you can file suit in US Court of Federal Claims by mail. I doubt whether any honest person has a chance of winning in that court but filing can be done by mail.
If the US initiates a suit in a US District Court, you can file your answer by mail.
However, I don’t know a way to get registered mail delivered in the US, regardless of whether you’re sending from outside the US or inside the US. Even when my sister sent US domestic certified mail to a US District Court and the signed return receipt came back to my sister, the District Court ruled that they had not received the mail. (Did you think the IRS’s identity theft gang was limited to the IRS?)
@iota
That’s fine. Having as much information as I can get, helps me to better determine my own course of action.
PRACTICAL PROBLEMS WITH THE FBAR.
In addition to its many constitutional and privacy-related issues, the mandatory electronically submitted FBAR has a whole bunch of practical nuts and bolts problems.
Probably the most annoying is that you can’t just edit last year’s FBAR and resubmit it for the following year. You have to download the form again and make a new submission from scratch. If you try editing last year’s FBAR, when you submit it to the Financial Crimes Enforcement Network, you will get an email informing you that it has been rejected due to an ”invalid XML Schema” if I recall correctly.
That means that you have to enter all the information, all the 16 digit account numbers, for all your accounts anew each year, painstakingly trying to avoid a $10,000 error penalty for getting a digit wrong. If you have a lot of accounts, this is a big hassle.
You are forced to install the Adobe Reader bloatware on your computer, even if you don’t want to. The program takes up a huge amount of space and also uses additional phantom space on your hard drive. No other program will work with FINCEN’s system. (Seems fitting that a bloated bureaucracy like the US government would demand we use bloated software)
If you try to enter the data directly online instead of uploading a PDF, you will find that the online system hangs after a short time and you can’t make a successful submission.
Because we all know that FINCEN regards us as criminals, I don’t trust FINCEN’s website to not put a virus, trojan or spyware on my computer, so I never submit the FBAR from my home. I have to go to an internet cafe to submit this very private information, with all the risks and vulnerability that my information could fall into the wrong hands.
For me, the reporting is so burdensome that I often pass up the opportunity to earn higher interest on my savings because doing so would mean opening a new account with a new account number to be reported. I have left my money in low interest accounts for extended periods because of this, thus lowering my retirement living standard. All of my life savings is in CDs and other savings accounts and I already have around 20 accounts to report.
Also, some of my banks automatically deposit the interest from the CD into my passbook account. They are unable to tell me if that interest is reported via FATCA as being part of the CD’s balance or if it is only reported in the passbook account. So I cannot be sure that my maximum balance reported on FBAR will match the figures the bank sends via FATCA.
These are some of my major problems with the FBAR, which I find much more oppressive than FATCA itself.
@Pachyderm
If you are in Canada, I’m pretty sure the bank reports the balance from the end of the year, not the highest balance.
‘If you try editing last year’s FBAR, when you submit it to the Financial Crimes Enforcement Network, you will get an email informing you that it has been rejected due to an ”invalid XML Schema” if I recall correctly.’
I never had opportunity to observe that, but it is excellent. I would save that e-mail as proof that I submitted the FBAR, and do nothing futher.
Great suggestion, @ND!
Yes, thanks for the suggestion, Norman. But in that particular case, I was intimidated and did submit a freshly downloaded FBAR, for fear of the consequences if I didn’t. It would be so much easier if I could just edit last year’s form to change the maximum balances.
Isn’t there some rule about not having to submit details of your accounts if you have 25 or more? I think the form says something like that, and I have thought about just opening a few more accounts to reach 25. But I figured that it would be a red flag that would get more scrutiny and make me even more of a suspected moneylaundererdrugsmugglerhumantrafficker than they think I am now!
@Pachyderm
I believe they’ve done away with the consolidated FBAR report, unfortunately.
Have you developed a thick skin because of all this US tax and reporting garbage?
“Isn’t there some rule about not having to submit details of your accounts if you have 25 or more?”
The paper form used to say that. I didn’t look to see if the on-line version says that.
In case there wasn’t enough proof that the US’s intention was to penalize ordinary people and leave genuine money launderers alone, this should be a big help.
Pachyderm: my situation may be different than yours, but I don’t sweat the FBARs. I have decided to identify the accounts with partial account numbers and part of my name. Any human seeing the data submitted by Belgium to the IRS and my FBARs can easily put them together. However I did NOT want to submit the full account number because of privacy and piracy concerns. Well-documented past problems with data leakage show that one should, if possible, be careful with data submitted to the US Government. I am prepared to tell them this if they need to hear it. Another thing is I have small (a couple thousand euros) mutual funds that my banks wanted me to have. I declare these as savings accounts. Because for all practical purposes, that’s what they are. I don’t get money from them, they just fluctuate in value a bit.
And of course I relish in all the zero-sum accounts I send in. Basically what I send in is truthful but not readily useful. It’s so low in value that any time they spend on it is wasted. I also just started filing a couple years ago, and filed 3 back years. No explanation given. I’m also not sure whether some local retirement accounts are exempt or not. Tax treaty says they are, and IGA seems to deem them non-reportable, so they’re not on my FBARs.
Cheers.
More on the Pomerantz case:
http://federaltaxcrimes.blogspot.co.uk/2017/10/government-fbar-suit-amended-complaint.html