A Series of Posts to Explain the Anger and Vehemence Fueling the anti-FATCA, anti-IGA & anti-CBT Movement
Streamlined, as inadequate as it is, would not have come to be were it not for the blood spilled by these in OVDI. https://t.co/lgEJ1RQYnS
— U.S. Citizen Abroad (@USCitizenAbroad) November 23, 2015
This post was written approximately 3 months after the mass hysteria (there simply is no other word for it) of late Fall 2011. Brock was less than a month old. We had only just started to gather information, starting at the ExpatForum. Renunciation was a very scary topic only slightly less than the terror of imagining losing everything due to FBAR penalties. IMHO, FBAR will prove to be the number one issue that fueled the expat movement, hands-down.
An excerpt from January 5, 2012 post from the renounceuscitizenship WordPress Blog
PART I: The Players
The IRS assault on U.S. citizens living outside the United States has been a frightening interplay among three groups:
1. The Taxpayers
2. The Cross Border Professionals
3. The IRS
Let’s imagine the perspective of each.
The Perspective of the Taxpayers
I suspect that few U.S. expats will forget the events of 2011. It was a year where they realized how quickly life could change. For the most part U.S. citizens living abroad are hard working honest people who are paying higher income and value added taxes than they would be in the U.S. The U.S. uses citizenship-based taxation. Many of them have been filing U.S. tax returns. But, virtually none of them (except those who always had the benefit of specialized and expensive legal and tax advice) knew about FBAR. When they heard about FBAR, OVDI and the rest they were:
– scared out of their minds; and
– wanted to be compliant
It’s just that they didn’t know how. Hence, they did what anybody would do. They sought professional help.
Furthermore, professional help did not come easily. It did not come inexpensively. It was typically like this: “Yes, I will meet with you. But, bring in a money order for $2000 (or more) and we will start the conversation. The conversation usually focused on whether to enter OVDI. Entering OVDI was a logical option, an expensive option, but I believe for most people a bad option. It was also (because it was a new kind of program) something not well understood by the so called “cross border professionals”.
The Decision To Enter OVDI
For many there was no “decision” to enter OVDI. The entry into OVDI was an “emotional reaction” based on fear.
What happened was something like this:
1. Media publishes articles written by journalists who don’t have a clue what they are talking about. Yes, the IRS is going after U.S. taxpayers who don’t reside in the U.S. Yes, there is OVDI and you must get in the program by August 31, 2011. No, OVDI is not amnesty – but let’s pretend that it is and enter it. I have said before and I will say again that some people entered the OVDI program, without a consideration of their individual circumstances, following the advice of the so called “cross border professionals”. They will regret this.
It is interesting that the advice from a number of lawyers was something like:
“You must enter OVDI” – the IRS frowns on quiet disclosures, etc. These lawyers either did not think that “reasonable cause” was available or that the IRS would not consider arguments based on “reasonable cause”. The important point is that there were “cross border professionals” who did NOT inform their clients that:
A. OVDI was an optional program
B. Filing of FBARs was mandatory
C. The FBAR statute recognizes that “reasonable cause” was and continues to be a defense
(It is interesting that the effect of this advice was to deter people from doing what was mandatory (just file the damm FBARs) and encourage people to do what was voluntary (enter OVDI).
The purpose of OVDI was to go after people who were using foreign banks and other entities to evade U.S. taxes. There is nothing illegal about having a foreign bank account. Most U.S. citizens living outside the United States had local bank accounts for the purpose of living their lives. On the other hand, the IRS has publicized the cases of U.S. citizens living inside the U.S. who used foreign bank accounts for tax evasion. Those of you who are aware of (outside of OVDI) anybody paying FBAR penalties based on willfulness, please leave a comment.
Anybody could have entered OVDI – why would the IRS stop you? By entering OVDI you are simply agreeing to pay them penalties. Furthermore, the range of assets subjected to penalties in the OVDI program is greater than what is required to be disclosed on an FBAR (something not explained by some lawyers). Hence, it is clearly to the advantage of the IRS that people enter OVDI (plus the IRS doesn’t have to waste time on “reasonable cause” arguments).
It is important to note that OVDI is a program which is designed for criminals and removes “reasonable cause” from the discussion. The only way to get “reasonable cause” into the discussion is to “opt out” and subject yourself to a full audit along with all the risks and high costs associated with it.
“Reasonable cause” has always been a defense to FBAR penalties. S. 5314 of the FBAR statute bars the imposition of FBAR penalties if two conditions are met:
1. Failure to file FBARs was due to “reasonable cause”; and
2. The FBAR is filed
Now, I understand that there is no clear definition of “reasonable cause”. I also understand that this is a determination made by the IRS. My point is that the same “reasonable cause” arguments must be made either inside OVDI (after an opt out) or outside OVDI.
While OVDI was going on, few “cross border professionals” talked about “reasonable cause”. Maybe, they thought that the IRS wouldn’t recognize or apply the law. Who knows? I invite a lawyer who encouraged clients to enter OVDI to comment on this.
Now, if you came to the “expat movement” in say, 2013 or so, you might not think there is so much new info here. But in early 2012, this was very unusual. To find a concise and correct assessment that did not favour the completely chaotic viewpoint of the media and tax compliance community was not only life-saving (literally) but became the base for what we have become today: those who would dare fight back when the U.S. government came knocking, coming after you, your families and your hard-earned, non-U.S. money.
Next: stories of expats in the 2009 OVDP/2011 OVDI