Speaking out again, 30-year IRS Vet tells us that Isaac Brock was a great guy but that FATCA is not the hill that any of us wants to die on.
Steve Mopsick, a.k.a. 30-year IRS Vet, wrote the following comment:
I wish I could address everyone individually. I am going to stick my neck out and predict that as soon as everyone in Washington “signs off” on the current draft of the FATCA WITHOLDING REGULATIONS (which is what was due on January 31,– the form 8938 regs which most of you are concerned about, were published in December) there will probably be an IRS Notice announcing the Service’s position on certain deemed compliant factual scenarios which will cover almost all the accidental American fact patterns and many of the situations described on this blog.
I am also going to stick my neck out and predict (but not necessarily advise) that anyone who chooses to engage the IRS on FATCA and either decides to start filing what is required prospectivly or blows them off until they force themselves into your lives–as long as there is no unreported income which, for whatever reason is due and owing, I do not see the IRS piling up penalties and pursuing any one if they either just start filing if there is an obligation to do so.
Remember, both our government’s have a keen interest in collecting the taxes their respective legislatures have ordered them to collect.
As for the US, the government is looking for people WHO ARE LEGALLY SUBJECT TO IT’S JURISDICTION, and to just pay up if you owe the money or forget about.
When the Bank Secrecy Act came in 1970 and they stared to enforce it 2004, and FATCA followed it in 2010, a whole new concept was introduced with regard to the way our tax was reported to the government. Since the honor system, which is still the basis of our voluntary self reporting system, didn’t seem to be working , the government was now saying, “let’s see what you’ve got and we’ll let you know if we have any questions.” What is new here is there doesn’t have to be a “taxable event” for FATCA to apply. Up until now, there had to be a sale or exchange, dividends, receipt of interest, or earnings from a job before we had to tell the government about it .The theory of FATCA is, if you are going offshore with your property, Uncle wants to see where you are going with it and what you are doing with it.
The corollary to having the inalienable right to “life, liberty, and the pursuit of PROPERTY” is, under that pursuit of wealth, comfort, and a better life for our children, there is the sense, or at least the hope that educated and enlightened citizens would voluntarily report what they earned so that the government could buy the goods and services it needs for our protection and benefit. I am not complaining here, or defending what we have now. It’s just the way it is.
The IRS is extremely limited in what it can do and as a law enforcement agency and it tries to get the most bang for its buck.
Even if there were no Voluntary Disclosure Program, the IRS just doesn’t have the people to do a whole bunch of criminal investigations. That leaves the civil fraud penalty! Probably not, because the IRS has the burden of proof in Tax Court and when I remember having to prepare fraud cases for trial as an IRS trial attorney I recall they were a real pain in the neck to prepare and twice the work of the other cases we had where someone was trying to prove to the Tax Court that they really could live on $50,000 and still afford to pay $25,000 a year to charity. When it came to bringing fraud cases to Tax Court, young IRS trial attorneys are urged to work on the ones we were pretty sure we could win. Slam dunks so to speak– cases where someone’s combination of greed and stupidity were just far enough along the continuum of behavior for the Tax Court Judge to agree with the Commissioner’s hunch that the taxpayer we were torturing for a year or two had been willfully and purposefully arranging their financial affairs in such a way that they were hiding money from their accountant and sometimes their wives, but nonetheless making sure it didn’t show up anywhere on their tax returns which they knew were false and fraudulent when they signed them.
That leaves the FATCA/FBAR penalties. Remember, they were enacted to catch real bad guys. There has to be some wrong doing. You don’t get hit with a $10,000 automatic penalty just because you were standing in the wrong place. This is still America and if the government is being stupid we get to say it. You just have to do so in the right way and it’s usually to your advantage to do it in a way that doesnt make the person working there feel like crap.
I think all the fuss over FATCA for individuals (but not for the banks) is going to result in a big stall in the pipeline until the National Office cuts the field some slack to start waiving penalties altogether. There certainly should not be any penalties if there is no unreported income. If there is unreported income then the government has the right to ask how much, is there a pattern of behavior, and for how long has it been going on. Then in practice, what the IRS chooses to go after is all a question of degree.
While I was working for the Acting Chief Counsel in Washington I had the honor of visiting your CRA headquarters in Ottawa on IRS business and had a real sense of the difference in the feel for the place as opposed to what I was used to in Washington. Pretty cool place. Calm. Quiet. I have had the good fortune and privilege to fish around Vancouver, and we always feel an affinity for Canadians, whether we meet you in your home, ours, or abroad. We see you as “laid back” like some parts of California, and Oregon, and Washington State.
I read a little about Isaac Brock and got the feeling he was probably a really good guy. He died defending his adopted country because he chose to make a stand for what he thought was right. I don’t think FATCA is really the hill anyone wants to die on. I would respectfully ask some of you to just take a step back and remenber who you are . My prediction is the government is going to do the right thing here so that Canadians can get back to what you were doing before there were FBARs and FATCA
30-Year IRS Vet
First, I want to really thank you for your participation. It is really helping a lot.
What is the fuss about? In 1812, the United States and Britain began fighting because the Royal Navy waylaid American ships and re-patriated their british crew members, forcing them into back into the service of the crown. You Americans thought that this was a casus belli, a reason to go to war, because you felt that everyone should have the right to choose the country that they wanted to be loyal to. Now you are acting like the British, with your extra-territorial taxation and FBAR rules against Canadians–because you will not accept that we are now loyal to Canada because we have chosen our own country.
This extra-territorial tax grab is little different than being conscripted into the navy. Your country is desperate for cash, and wants to get it from everyone except its own tax payers resident in the country, 50% of whom pay virtually no income taxes. We don’t owe you guys anything. We are angry at your profligacy, the biggest consumer nation in the world now looking here and there for cash, trying to make its former citizens pay tribute, though you have not yet conquered the countries that we now live in and to which we have sworn oaths to protect and defend. You borrow 43 cents on the dollar and now you are looking to Canada and abroad to make up the difference. I don’t think so–it’s not going to work. You are just making the rest of the world irate with you and losing what little good will was left for the United States.
Steve, we at the Isaac Brock Society have had our freedom reduced. You describe the laying out of our assets in accordance wtih FBAR and FATCA–the government wants to see it to determine if we owe them anything–that it is not a taxable event. That’s right–my assets are not a taxable event. My income would be if I didn’t owe my taxes to the Canadian government. So the government with the aid of Congress has decided that we need to inventory our assets for them: this is called a general warrant and it is a violation of the 4th amendment. The people in Congress should be required to understand the US constitution, not just swear an oath to it. I will not lay down my Fourth Amendment rights so easily.
I am encouraging other Canadians to stand up for their rights. Don’t lay down your rights because of little intimidation from the IRS. Stand on the protections that Canada has offered you as an immigrant. Don’t let them destroy you like this. Sleep easy at night, and when the Americans come across the border, defend your new country.
If we don’t stand up to FATCA, then what is next? We will draw the line here and defend our country here.
@mopsick as to “As for the US, the government is looking for people WHO ARE LEGALLY SUBJECT TO IT’S JURISDICTION.” : My position is that dual nationals living in their country of second nationality (or in a third country of nationality where they maintain closer ties to their second nationality than to the US) are definitely not subject to US jurisdiction as to their activities in their country of residence; and other Americans abroad are subject to the jurisdiction of the place they live, its tax laws, etc.; hence, also immune to a lesser degree (not that the IRS would agree).
Of course I do not condone banks looking actively for US residents to move their money into Switzerland or elsewhere to avoid taxes (UBS, Wegelin, others), but this is not the case for most Minnows. I believe most Minnows Abroad who are FBAR non-compliant want to avoid double taxation and preserve their privacy.
On the other hand, I do not believe that all US residents who are non-compliant should be reamed by the IRS either. There are plently of examples: ???does anyone have a link for the British guy that moved the the US, didn’t know about FBAR and risks losing his life savings (proceeds of house sold in UK that were sitting in UK bank)??? I also heard a story about Swiss retirees that had worked in the US for decades but also had an account in Switzerland for much longer (a few hundred thousand in family inheritance already taxed in Switzerland) and really got screwed by the IRS.
I agree that the IRS doesn’t have the resources to pursure (through DoJ) criminal prosecution in all cases, but they seem to threaten it. If you, as a Minnow are threatened in this way, don’t yield to such manipulation or scare tactics. Tell them they don’t have a case (nor resources to pursue you). After all (and I don’t care about this business of US persons abroad being de-facto DC residents —if we are then why do other laws allow us to vote in a home state) the 6th Amendment guarantees a trial by jury in the state and district where the crime would have been comitted (hence your country of residence).
I also don’t approve of this IRS tactic of threatening heavier retribution to those minnows abroad that don’t come forward. That is why I still say, don’t scream “come and get me” by doing an open or quiet disclosure. Stay off the grid, lobby quitely, blog, and if the IRS does come knocking, show them the UDHR, constitutions of whatever countries or regions involved and ask them nicely to get their nose out of your business. Remember also that most foreign countries have a self-defense clause in their penal codes that allows you to bend the rules if you are threatened.
@Petros “If we don’t stand up to FATCA, then what is next. We will draw the line here and defend our country here.” I think this theory is the real crux of our debate.
@Mopsick as to Petros above : I also do really appreciate your participation here, even though I may be critical of your views.
On the question of dual nationality, the United States follows no doctrine of international law in terms of how to treat dual nationals. There are two:
Dominant and effective nationality
The first says that the country with which you have the most ties is your dominant and effective nationality–so duals living in Canada are dominant Canadians. This is currently the prevailing doctrine.
The second says that while you are physically present in one country, the other country will leave you alone and not try to intervene on your behalf (or should we say to your detriment). This is to respect the sovereignty of the nations.
The United States has no regard for the sovereignty of nations. Nor does it respect international law, despite Obama’s campaign promise to respect international law. The fact is that duals under both doctrines, who are in Canada or other, are not under the jurisdication of the United States. Jeff is absolutely right about this. And that means, that FBAR, which concerns people under the jurisdiction of the United States, does not apply to dual citizens at all, at least not under international law. Now, I wonder, does the IRS have the resources to fight these question in an international court?
@Jefferson, yeah, what’s next? I have seen this “clamping down” on US expats for years, and it’s only getting worse. I respect your decision to keep your US citizenship and fight, but for me, US Citizenship while living exclusively overseas is too risky to keep.
Like Petros said,
If we don’t stand up to FATCA, then what is next? We will draw the line here and defend our country here.
The IRS may issue some regulations which allegedly mitigate the impact of FATCA on expats (except that banks don’t care either — they’re sick of the arbitrariness and the risk of dealing with the IRS too, and they’re handling it by dumping American customers — something that is already happening, whether out of fear or out of a rational evaluation of the potential costs). But for a lot of expats who in the last decade have already had boatloads of garbage piled on them (Form 8858 for foreign sole proprietorships, FBAR enforcement handed over to the IRS, Tax Increase “Prevention” and Reconciliation Act with Chuck Grassley’s last-minute “stacking” provision which no one read, OVDP bait-and-switch), FATCA is the straw that broke the camel’s back and made us realise: our “homeland” keeps making things worse and worse for us, never better, in sharp contrast to the situation for expats from other places in our countries of residence.
@Petros as to “Dominant and effective nationality vs. State non-responsibility”
I am going to veer a bit off course in this post, but I think it still applies to the notion of “if you give ’em an inch they’ll take a mile”.
There is also the “Master Nationality Rule” which to me is a vague amalgam of the two that means that when in one state the other cannot mess with you (whether or not there is a notion of dominant nationality or not). I agree that the US appears not globally to respect either dominant or non-resp but there are some hints of flexibility.
For example, if you refer to the State Dept guide on consular notification matters (target audience = state, local, and other law enforcement) http://travel.state.gov/pdf/cna/CNA_Manual_3d_Edition.pdf there are some phrases in there that “suggest” that if a law enforcement agency apprehends somebody who is US national and who expresses claim to a second nationality (or not US and claims multiple nationalities) that the arresting (or detaining?) agency should respect the wishes of the detainee/prisoner and put him/her in contact with the competent diplomatic authorities of the countries to which (s)he claims allegiance. I am not going to reread that pdf today so I do not provide exact citations, but if you read I believe that you might also find that it is suggested that a detainee be able to contact the consulate of the country where his close relatives are located. Still, the State Department document is only “suggestion” as to some matters. There have been a number of cases publicized in the press where consulates were not informed in the case of non-citizens (as the Vienna Convention on Consular Relations mandates) and where some of the detainees were subsequently sentenced to death.
The question comes up also in terms of reciprocity: if the US behaves this way, what position are US citizens in when detained in a foreign country? There was a drive for letters to Congress a few months ago in order to urge Congress to pass enabling legislation for the VCCR. ACA has a page on US (non-) and / or (compliance) on their site; there is also a link to a good amicus brief on the subject: http://www.aca.ch/joomla/index.php?option=com_content&task=view&id=312&Itemid=2
@Steven, you suggest we step back and remember who we are. For 40 years, I have never once forgotten who I am. Like Canada’s Prime Minister, I am “Canadian and only a Canadian.”
It’s the US who needs to remember the clear and strong message they gave us decades ago. That message was that the termination of our US citizenship was permanent and irreversible.
Am I missing something? As someone who did miss out on FBAR, I plan to file my FATCA this April. I have almost nothing outside of bank accounts, so the IRS is welcome to see it.
What I don’t get is why the IRS isn’t making the exemption 400k of assets outside bank accounts (and house). I think they’re going to see a lot of forms with not much on it.
@ ax Do you mean that you plan to file a 8938 or FBAR this spring? FATCA is not something that individuals do. It is requirement that foreign banks must rat out their US clients. See http://isaacbrocksociety.com/2011/12/11/fatca-a-ticking-time-bomb-for-the-economy/
@ 30-yr vet
Your second paragraph states “as long as there is no unreported income, which, for whatever reason is due and owing, I do not see the IRS piling up penalties and pursuing anyone if they either just start filing if there is an obligation to do so.”
Now, if you have been living for the past 40 years as a Canadian or citizen of another country, believing all this time you had “renounced” your former citizenship, don’t you just think in IRS jargon there might “unreported income”. Do you see the logic or fairness in the IRS being able to tax those people and/or penalize those people. If you thoroughly read this blog and others, that is exactly what is happening!
You also imply by your posts that is all we need to do; pay to the American government what they say is their due and be done with it.
I remember being in Rome a couple of years ago and taking a cab from the train station to the apartment that we had rented. (Or so we thought). The “evil” taxi driver dropped us off miles from our apartment, charged us 60 Euros and drove off. Not a pretty sight – 4 past middle age women pulling our suitcases through the street of Trastevere for several miles. Did we feel we had been cheated? – you bet!
Well, that is how most of us here feel about paying the IRS even a dime when in our minds we severed our ties with America years and years ago. Even the U.S. State Department acknowledges the date of expatriation was years ago and yet IRS says better pay up these past 6 years and “oh, by the way, there are also penalties”.
I’ll be filing a FBAR and an 8938 this spring. Almost nothing will be on the 8938 and what will be on it, the IRS isn’t going to understand anyway.
@stevemopsick- I want to thank you for being willing to engage yourself in our discussion and to say that I do appreciate your comments. I would like to say though that when I left America 27 yrs. ago that the little amount of property that I took with me didn’t amount to a whole lot nor was it of significant value. I should also say that all of my taxes were paid up and that there were no hidden bank accounts.
When it comes to the issue of living under the jurisdiction of the U.S. I don’t believe that I have done so. I belong to no Congressional district. the U.S. government cannot legally authorize the expenditure of its revenues within the borders of another country. As an example the government will not even spend tax money on medicare for citizens who retire in other countries. Back in 2007 when President Bush, in an efffort to bolster the U.S. economy, was giving money to taxpayers do you think that any of that money went to compliant civilian overseas filers? The U.S. tax code demonstrates in many ways that it does not consider us to live within its jurisdiction but yet solely for purposes of maximizing revenue it treats as if we do.
I resent being made into a second class citizen in my country of residence and choice. I should not have to constantly look over my back with regards to how I order my finances. The U.S. government should not be telling any of us what Canadian based tax advantages we can make use of.
I think that the IRS would find its life to be a lot easier if it stayed out of affairs that are none of its concern.
@ax Form 8938 has a filing threshold (. If you have nothing to report, then you don’t have to fill out the form. http://www.irs.gov/businesses/corporations/article/0,,id=251217,00.html
@recalcitrant: You say “IRS would find its life to be a lot easier if it stayed out of the affairs that are none of its concern.”
Unfortunately, the US has always been know for meddling in affairs around the world that are none of their concern. It’s in their DNA–to the detriment of the rest of the world.
@Petros. I understand there is a filing threshold. As I understand the threshold, it is:
if (bank accounts + other stuff) > 400k
then I need to file, even if other stuff is very small. I’d love to know that I am wrong, but I’ve read the instructions a few times, and that’s how I understand them. My “other stuff” is small in value and, what’s more, incomprehensible to the IRS. So they’re welcome to it.
@Blaze: “US has always been know for meddling in affairs around the world that are none of their concern.”
Meddling is expensive business. Now that their meddling has left them broke, they want to meddle more than ever. It will be very interesting to see how this all ends. The ill will they’re creating all over the world is not going to be good for their bottom line but as in the past they won’t see it until it’s already happened.
I do think if you look the recent FATCA regulation release as of an hour ago “progress” is being “made.” I have also been told that with an actual set of regulations being proposed this is now the point the governments such as Canada’s will start to publically comment just they are doing now with the Volcker rule.
@omg: Unfortunately, US often doesn’t see it even after it’s already happened. Did they learn any lessons from Vietnam before they started bombing Iraq?
Historians tell us “If we don’t learn from history, we’re bound to repeat it.” Unfortunately, US never seems to learn–and the rest of the world becomes collateral damage.
Here is an extract from pages 286 and 287 the new FACTA regulations that were released this morning. It looks to me that RRSP’s are now exempt from bank reporting at least.
(2) Exceptions–(i) Certain savings accounts–(A) Retirement and pension accounts.
A financial account does not include an account that satisfies the conditions of paragraph (b)(2)(i)(A)(1) or (2) of this section.
(1) The account is held by a retirement or pension fund that meets the requirements of paragraph (f)(2)(ii) of this section.
(2) The account is subject to government regulation as a personal retirement account or is registered or regulated as an account for the provision of retirement or pension benefits under the laws of the country in which the FFI that maintains the account is established or in which it operates, and meets the following requirements–
(i) The account is tax-favored with regard to the jurisdiction in which the account is maintained;
(ii) All of the contributions to the account are employer, government, or employee contributions that are limited by reference to earned income under the law of the jurisdiction in which the account is maintained; and
(iii) Annual contributions (other than transfers from other accounts described in this paragraph (b)(2)(i)(A) or plans described in paragraph (f)(2)(ii) of this section or §1.1471-6(f)) are limited to $50,000 or less, and limits or penalties apply by law of the jurisdiction in which the account is maintained to withdrawals made before reaching a specified retirement age and to annual contributions exceeding $50,000 (other than transfers from other accounts described in this paragraph (b)(2)(i)(A) or plans described in paragraph (f)(2)(ii) of this section or §1.1471-6(f)).
stevenmopsick: I agree with everyone’s comments here in response to your piece. You need to realize that the two major irritants — the ones that deserve making a last stand over — are:
1. The US refusal to acknowledge that we Canadians are no longer Americans and therefore no longer subject to US jurisdiction. The state department is retroactively reinstating people as US citizens who have been Canadians for 30-40 years just so the IRS can “legally” pick our pockets.
2. FATCA is an extraterritorial intrusion into ALL our affairs, again with the intention of allowing the IRS to pick our pockets and suck capital out of every other country in the world. It is my fervent hope that the entire world eventually tells the US to stuff it.
This has gone way beyond US attempts to control people who are, and want to remain, US citizens. As Petros pointed out, this is just a modern day version of the Royal Navy’s 19th century impressment policies.
@Arrow. I agree 100%. We need our own Declaration of Independence.
Steven J. Mopsick says:
The theory of FATCA is, if you are going offshore with your property, Uncle wants to see where you are going with it and what you are doing with it.
That is a line for a stand-up comedian who specializes in black humor.
The biggest problem here is history and phasing in. U.S. imperialism now wants to grasp not only space all around the world but time already passed as well?
Where is our grandfather clause?
Let the United States smack its resident citizens with one more abuse: confiscatory exit tax, or even deny exit. In theory those remaining citizens elect the politicians who do them in. (1) You spent horrendous amounts of money to beat up on Iraq for years and years. (2) You allowed the banking system to morph insane mortgages into CDOs, then bailed out the institutions and left individual mortgage holders under water. (3) You are so into wealth care that you can never get around to health care.
Persons who have already abandoned your failing, self-destructive state bear no responsibility for current costs. An honest regime would exact its exit tax at the border and leave its nonresident citizens alone. That is what Canada does.
Untold millions of us have already gone offshore, some many years ago. Most of us are ordinary folk in good standing with our other governments. Why continue to beat up on us with complex meaningless filings and mismatch taxation?
One example: No mortgage interest deduction for you, but hey, you owe us capital gains anyway. One more example: We have tossed our currency into the ditch, and we want to drag you in with us, because you live and pay in a place that has managed better – so you have phantom currency gains that you owe us.
Uncle is an American who grows uglier by the hour.
@Terra Nova: If RRSP’s are exempt does this mean I don’t have to file an FBAR with my tax return? I am planning to file because I want to renounce as soon as possible. My income is so low that I barely qualify to even file, and the only bank account I have with any money over $10,000 is my RRSP.
I agree with those posting and commenting on Steve Mospick’s post: the big issue is not how the IRS will be nice to us and consider “reasonable cause”, but the ridiculousness and unfairness of citizenship based taxation. Surely Mr. Mospick must know American citizens who were born in other countries but have been living in the US for decades. How would he feel if Cuba, Iran or Ireland came after his friends/relatives demanding that they file and maybe pay taxes for a country in which they no longer live? Then threaten to fine them for not filing or letting them know that they dared to save money for retirement, and making it costly and difficult to get rid of their unwanted citizenships?
The long awaited FATCA Regs were published today. I just got through them. My version is 338 pages long. These are the withholding Regs. under the amendments which added new Code Chapter 4 (sec. 1471-1474) in 2009 as opposed to the Regs for new section 6038(D) (the authority for new form 8938) which has to be attached to this year’s 1040’s The latter Regs we have had since last December.
Not surprisingly, these new bank Regs are only in “Proposed” form which means the lowest level of authority for reliance purposes, but the disclosure of foreign asset Regs (new form 8938) were published as “Temporary and Proposed” meaning they won’t change much.
The new Regs make changes in response to the international financial community’s comments largely related to how they are going to figure out how to identify all their Americans clients, get them to waive their privacy rights so they can turn their records over to the US, what to do with existing account holders, and how strict is the IRS going to be about their certification of citizenship.
NOTHING AT ALL was signaled today with the Treasury Department’s publication of the FACTCA Bank Regs, which indicates that the government has yet to address the issues raised by the Isaac Brock Society which need to be addressed immediately.
The accidental American and the expatriates in Canada have a tough problem on their hand but I believe that what you are all seeing is the FATCA train has left the station and Canadians are going to need Canadian political help, working with the office of the IRS National Taxpayer Advocate, to get the IRS to focus on what should be their next FATCA job which publish guidance which shows where FACTCA doesn’t apply simply on the basis of common sense, reasonable cause, fairness, good government, whatever.. you will get help and should not worry about losing your homes or properties if you have no history of ignoring mail from the IRS. If it doesn’t seem reasonable to you that you should be hit with anything like a $10,000 penalty and the IRS never said you owed them anything then forget about FATCA.
If on the other hand you have a history of ignoring your mail from the IRS that is a different story. That can be fixed but you will need a good lawyer for that. If you have blown off (ignored mail) the IRS for any period of time in your life you have to set things straight so you don’t have to worry when you cross the bridge to visit your parents or family, about whether some mindless computer program is going to cause the friendly border guy to give you a hard time about anything. Besides, whatever you do, IRS enforcement in Canada is not likely to be one of the highest priorities on the list of things the Congress wants the IRS to do. Congress has a lot of control over what programs the IRS tackles.
The Regs put some meat on the statute for the financial institutions but two things are clear, the United States Government is saying to the entire worldwide financial community, “if you want to play ball with us, you have to let us see your banks’ books. “
There was something new today… five countries have agreed to support FATCA and the Treasury Department’s effort to make every bank in the world (who has anything at all to do with a transfer from, or to, a US person,) a withholding agent under the Code for the United States.
Possibly inflammatory comment: I think what I described above shows in a simple way why the IRS is not above the law. Yes? No? What about this was the IRS above the law?