Petros responds to Steven J. Mopsick, 30-year IRS veteran latest comment, that some Canadians have probably found that the Overseas Voluntary Disclosure Initiative penalty of 27.5% is actually quite a good deal, since these Canadians are tax cheats and frauds. UPDATE: Steven J. Mopsick responds with a Jack and Jill scenario of a wealthy montréalais couple with a Swiss Bank account.
Are you planning to buy that condo in Florida? Don’t. If you have one already, sell it, even if you have to take a loss.
Are you planning on taking that company transfer to the United States? Politely tell your boss, thanks, but no thanks.
Steven J. Mopsick explains to us why certain Canadians would gladly hand 27.5% of their wealth, including real estate, over to the IRS, who obviously needs the money more than us filthy rich Canadian tax cheats:
To all. I would respectfully ask that you read my post today on the 2% Payroll Tax and what I wrote about the IRS Manual and penalty administration particularly, the duty the IRS has to administer the FBAR penalties in a reasonable manner.
@Petros: may I suggest a change of perspective. You don’t know every Canadian who may have entered into one of the OVDI programs. In fact for some of them, and some Canadians who may be signing up to make one right now, would be embarrassed to talk to you about it because FOR THEM IT WAS A GOOD DEAL! THEY HAD BEEN FILING FALSE TAX RETURNS. In some cases, they would have done jail time had the IRS come to them first. Again, OVDI is not for everyone. Sadly, some people receivd bad advice about OVDI and did not properly weigh their options. I guess some tried to do it themselves. That said,
It’s one thing to be listed in a computer data base. It’s quite another for a government program to hunt for your name and spit it out for special abuse.
If you haven’t had any reason to think of the IRS for a period of the recent ten or twenty past years, you probably don’t have anything to worry about..
Respectfully submitted,
30 Year IRS Vet
If the IRS thinks it is ok to raid the RRSPs of Canadians, the War of 2012 really has begun. I think these two paragraphs tell us more about what is going on inside of the heads of the IRS than anything I’ve ever read; it reveals the mentality of Mordor.
Our Canadian friend, IJ, who made the mistake of moving to the states a few years ago, asks for clarification:
@Steven,
“FOR THEM IT WAS A GOOD DEAL! THEY HAD BEEN FILING FALSE TAX RETURNS. In some cases, they would have done jail time had the IRS come to them first.”Can you be more specific what facts would lead to jail time ?
Filing incorrect return with incorrect perception is not filing false return which IRS has to prove 1. affirmative act, 2. tax due, 3. acting willfully.
Did Tim Geithner file false return ? And so did Charles Rangel ?
IJ, is a Canadian in the 2011 OVDI, and he doesn’t think its a good deal at all. He is a minnow.
Unfortunately, there may be some other Canadians who live in the United States that have taken US citizenship there, but who find the OVDI a good deal. That I may grant. But they live in the jurisdiction of the United States. I just don’t know anyone like that. I don’t frequent the same country clubs.
As for those of us who are actually living in Canada, I can’t think of anyone who would see it as a good deal. I hate the extra-territorial tax reach of the United States. I believe its is evil and wrong. I believe any Canadian resident who pays an FBAR fine is inadvertently weakening the Canadian economy, and that it is a casus belli (Steven, casus belli is Latin for, “a reason to go to war”). Last I checked, Canada was a much needed ally of the United States: so why the hell are you raiding our retirement accounts? That is not the act of a friend but of an enemy.
I have much more to say to Steven, but I am absolutely tongue-tied, because the fury that I feel is keeping me from thinking straight. So I am going to take this to the Isaac Brock readership. Does anyone out there know of any Canadian residents and/or Canadian citizens, who think that the OVDI is actually a good deal because they are tax cheats and they have been filing fraudulent returns?
Originally published 7:33 am February 20, 2012
There are often loud cries from the legislators in Congress about foreigners in the US who are sending remittances to their familiy members back where they came from so they can survive. But then they turn around and support legislation that obligates US citizens who live in foreign countries to send remittances from the fruits of their labors in foreign countries to the IRS to support the profligate spending of the US Government.
You see what that really matters is whose ox is being gored.
If there were any, reason tells me they would be highly unlikely to identify themselves.
@ Brash This is true. But the thing I am trying to think of is what sort of people could potentially get into such a mess, and that the IRS actually has a right to bash them over the head in the first place? Imagine a rich Canadian/US dual citizen, who has all investment income, and therefore, owes money in the United States according to US law. But that person pays all his/her tax in Canada. Is that the person that Steven is talking about? He files fraudulent US returns because he wants to be able to visit the US? Such a person shouldn’t owe any tax in the first place: if we had moral laws based on international law. But the US citizens abroad aren’t dealing with moral laws, but the laws of thugs and demagogues–extra-territorial taxation laws that unjustly mistreat US expats abroad, and pay no attention to international doctrines of dual citizenship such as dominant nationality.
@Petros, “Dominant Nationality?” You are using a term which has absolutely no meaning when dealing with the IRS or the US Congress. If you hold US citizenship then whatever other nationality you may hold or where you live in this universe, is totally irrelevant to US authoriies. If you have dual natonality in another nation that is of absolutely no concern to the US. The fact that you have US citizenship means that even though you live in a different country you are subject to US tax laws on your world wide income. in exactly the same manner as the person who is born and has never stepped outside of the US in his whole life.
@ Petros, I can’t speak to the legality of the extraterritorial reach of the IRS. But I do think I can express my outrage at what I deeply feel to be its profound unfairness. It seems to stem from a fundamental problem in the American justice tradition that favors “process” over “fairness.” When it comes to the expat community, the IRS is a procedural monster devouring everything in its grasp, without consideration to fairness, circumstance, international laws or decency. It is centered only on its own voracious appetite. You use Mordor as a metaphor; I often think of Goya’s “Saturn Devouring his Son.”
There’s a fascinating article in a recent New Yorker magazine (Jan. 30) by Adam Gopnik about the accelerating rate of incarcerations in the US–the highest per capita incarceration rate in the world. Gopnick cites the late Harvard Professor William Stutz’s seminal study, “The Collapse of American Criminal Justice,” who wrote that the problem with the American criminal justice system goes as far back to the Bill of Rights. To quote a couple of sentences:
“The trouble with the Bill of Rights, he argues, is that it emphasizes process and procedure rather than principles. The Declaration of the Rights of Man says, Be just! The Bill of Rights says, Be fair! Instead of announcing general principles—no one should be accused of something that wasn’t a crime when he did it; cruel punishments are always wrong; the goal of justice is, above all, that justice be done—it talks procedurally. You can’t search someone without a reason; you can’t accuse him without allowing him to see the evidence; and so on. This emphasis, Stuntz thinks, has led to the current mess, where accused criminals get laboriously articulated protection against procedural errors and no protection at all against outrageous and obvious violations of simple justice. You can get off if the cops looked in the wrong car with the wrong warrant when they found your joint, but you have no recourse if owning the joint gets you locked up for life. You may be spared the death penalty if you can show a problem with your appointed defender, but it is much harder if there is merely enormous accumulated evidence that you weren’t guilty in the first place and the jury got it.”
I know this isn’t directly material to our concerns, but the general issues are. Thus my citing.
Read more http://www.newyorker.com/arts/critics/atlarge/2012/01/30/120130crat_atlarge_gopnik#ixzz1mvgJCeCC
@ Roger Everything you say is true.
Yet, the official position of the Obama administration is a desire to come into line with international law. This is why my portrayal of the United States as Mordor is entirely fair. A liar/smooth talker says that he will do one thing and then does the opposite. The Obama administration prides itself in being better than Bush on international law regarding war, then violates it on the tax front and on the banking front, offending allies.
The problems that we have today with the super aggressive tactics towards expats, particularly FBAR and FATCA, are a direct result of the Obama administration. This is exactly what President Obama, wants to happen, and he doesn’t care how many allies he offends. Sure the ground work was laid before by Congress, but the asinine manner of implementing very bad law, I lay that one at the feet of the current administration where it belongs.
@Petros
@Steven
I cannot believe that Steven is referring to any resident of Canada who is tax compliant in Canada. He is simply saying that that “tax cheats” do exist. And interestingly his comment confirms what we all know: that OVDI was/is a fantastic deal for criminals.
But, what Steven’s comment also confirms is that if your are NOT a tax cheat then you should not be entering OVDI (unless a consultation with extremely competent counsel who analyzes your situation suggests otherwise and even then I would get a second opinion). Frankly: that is the message from his comment and I think it is worth a separate post which would be titled:
“30 Year IRS Vet Confirms OVDI A Great Deal For Criminals – But Otherwise Stay Away”.
Personally, I think a lot of people would take comfort in this headline.
I think that Brash is “right on the money” here when he talks about the difference between process and fairness. His point being (and he is correct) that there is a difference between a fair process and an unjust result. For example, even if citizenship based taxation is unjust, as long as it applies to everybody and everybody is treated unjustly then it is okay.
On at least once occasion, Steven has commented that “has no opinion on citizenship-based taxation”. Well okay, let’s have no opinion on the most unjust aspect to the situation. But, as long as everybody in OVDI is treated in exactly the same unfair way (nobody can raise reasonable cause arguments unless they opt out), then it is okay.
Steven’s comments are interesting and valuable. Furthermore, I thank him for his generous participation on this blog. But, the time has come for the IRS to make a distinction between even application of process and the justice of the objective.
But, hold on a moment here. I believe that it is an established fact that Mr. Geithner and Mr. Rangel are tax cheats. Why don’t the rules of punishment apply to them? Well the answer is simple:
The law doesn’t apply to them.
@Steven would you care to comment on this?
@Brash
Actually I think your comment was the most relevant comment. Thank’s for sharing the link to the New Yorker article.
The U.S prides itself on being a nation of laws. The Goddess of Justice is blind (winking only with Geithner and Rangel are in the room). The law in its majesty prohibits both the rich and the poor from sleeping on the park bench.
Your comments are “bang on”. There is a distinction between the “even handed application of the law” and the justice of the law. In other words, who cares how stupid the law is. The more important issue is that it must be obeyed because IT IS THE LAW. Who cares if anybody knows that the law exists? The law must be obeyed because IT IS THE LAW. Who cares if nobody would even have a reason to suspect that such a law exists? The law must be obeyed because IT IS THE LAW. Who cares if the government has ample opportunity to alert people to a law that they don’t know about (FBAR for example). It doesn’t matter, IT IS THE LAW and the law must be obeyed.
The rate of incarceration in the U.S. is not a national scandal. It is an international scandal. The U.S. has completely lost its moral compass (if it ever had one).
“America is in danger, I think, of becoming something of a legal backwater,” Justice Michael Kirby of the High Court of Australia said in a 2001 interview. He said that he looked instead to India, South Africa and New Zealand.
Thanks for an excellent comment/thought. You have hit the nail on the head.
I refer you to the following article in the New York Times:
http://www.nytimes.com/2012/02/07/us/we-the-people-loses-appeal-with-people-around-the-world.html?_r=2&emc=eta1
Although the main point of the article is that the U.S. constitution is not seen as a document with emulating (and to be fair this is the problem of being first). The article opines that (at the risk of oversimplification):
“There are lots of possible reasons. The United States Constitution is terse and old, and it guarantees relatively few rights.
…
In a television interview during a visit to Egypt last week, Justice Ruth Bader Ginsburg of the Supreme Court seemed to agree. “I would not look to the United States Constitution if I were drafting a constitution in the year 2012,” she said. She recommended, instead, the South African Constitution, the Canadian Charter of Rights and Freedoms or the European Convention on Human Rights.
The rights guaranteed by the American Constitution are parsimonious by international standards, and they are frozen in amber.
…
“America is in danger, I think, of becoming something of a legal backwater,” Justice Michael Kirby of the High Court of Australia said in a 2001 interview. He said that he looked instead to India, South Africa and New Zealand. “
Reblogged this on Renounce U.S. Citizenship – Be Free.
@Petros and @ij and all the other good people of Canada who are trying to understand our complex Federal tax system.
This post will give an example of a person or family who still might think a voluntary disclosure is a really good deal and it might serve as a response to @ij who was looking for an example of a situation where making a voluntary disclosure might avoid a jail sentence. Consider Jack and Jill , who are a composite of some of my clients, some of my colleagues’ clients, and perhaps a couple the drafters of FATCA might have had in mind when they drafted this legislation.
Jack and his wife Jill are dual nationals. They were both born in Detroit of Canadian parents but their principal residence is in Montreal and they consider themselves proud Canadians.
Jack has a very lucrative import/export business in Montreal which has offices all over the world. Jack has been filing US tax returns for his entire adult life and he started filing FBARs in 2004 when he first found out about them. Jack uses a big name accounting firm in Montreal to do his family’s taxes. Each year since the 1980’s, Jack would meet with his accountant to give him the information he needed to fill out his Canadian and his American tax returns but each year Jack purposefully fails to disclose to his accountant, the following facts about his financial affairs.
When Jack’s father died in the 70’s, he inherited a Swiss bank account from his father worth $15,000,000. The account was never reported on Jack’s father’s estate tax return and the principle has grown to $30,000,000 as of 2012. During the years, Jack diversified his inherited account by opening new investment accounts in the Cayman Islands, the Channel Islands, Liechtenstein, and Panama. He picked these places on the advice of his private banker who told him that these jurisdictions laugh up their sleeves at the IRS whenever the IRS tries to get the names of their American depositors.
Jack and Jill also have a home in the Hamptons on Long Island, New York but he put the title to the house and another cozy “get away house” on Vancouver Island in the name of a Liechtenstein trust Jack set up for his children. None of this has been disclosed to his CPA in Montreal. In 2011 they bought another home in Malibu California because their daughter was accepted to study at the University of Southern California and Jack and Jill thought it would be nice if she and her friends had place to get away on weekends to party and escape the rigors of academic life in sunny southern California.
Jack’s worldwide investments are managed by a suave and cultured Swiss banker named William. William, Jack and Jill become good friends. Every summer, Jack and Jill go to Switzerland where they stay at their banker’s lovely home on Lake Geneva. Jack had previously made it clear to William that he wanted no mail whatsoever to be sent to him from Switzerland with bank statements or anything else. Jack didn’t even trust the internet or e mail so the annual visits to Switzerland served as an opportunity for Jack and William to review his vast portfolio and make decisions about what to sell and where to invest next.
In the year 2002, William, the Swiss banker, offers Jack a deal. He says, “bring me other clients like you and I will cut my commissions on all the stock trades I do for year each year and I will also give you a kick back on the fees I collect from the new client’s accounts.” These extra bonuses will be paid to you by way of deposits into your Cayman Islands account. Jack takes his banker up on the offer and for the past ten years he has helped a large group of Canadian friends and his cool American friends he met at the Hamptons, to open their own secret accounts abroad. Over the years, his Canadian and American buddies earn small fortunes just from the taxes they are saving from the interest and dividends on their secret overseas accounts which William set up for them just he did for Jack and Jill.
In April of 2012, Jack learns from his accountant that starting with the 2011 tax year he is going to have to file a new form 8938 with the IRS which requires that he disclose all of his foreign assets to the IRS. At the same time William, his foreign banker, calls him up and says his best friend who is also a private banker was just arrested in Switzerland for doing the same thing he did and he is afraid that he might be next!
Jack, almost in a panic, tells his accountant that he has been lying to him for decades, that he has millions of dollars in unreported income and assets all over the world and he is fed up with his own lying, deception, and cheating on his taxes. He cannot sleep at night and wants to know what he should do.
His CPA has a heart attack with this news but from his hospital bed he calls Jack and gives him the name of a reputable Toronto tax law firm and Jack makes an appointment.
His Canadian tax lawyer tells him the IRS may not accept a voluntary disclosure because Jack knew it was just a matter of time before his Swiss banker was arrested and therefore he may not qualify for a voluntary disclosure.
They apply under the 2012 voluntary disclosure program and miraculously, the IRS agrees to accept him into the program as long as he cooperates and gives up the names of his friends and other Swiss bankers he knew were traveling to the Hamptons, Vancouver, Malibu, and Toronto to line up clients who might be interested in getting on the same gravy train Jack has been enjoying for decades.
His lawyer tells him there is only one hitch: Jack has to disclose everything for the past eight years, pay the tax due plus interest and a penalty equal to 27.5 per cent of the highest aggregate balance of his hidden accounts and investment assets for the past eight years. The IRS agent assigned to the case also says, there will be no 75% civil fraud penalty and that the agent doesn’t care about the unreported income he earned from the 70’s to today as long as Jack files truthful and correct amended tax returns for only the past eight years.
Jack and Jill are elated and can hardly contain their glee! They try to figure out how much money they saved in unpaid taxes for all those years but they give up because their calculator doesn’t go that high.
Jack and Jill file the correct amended returns, pay the tax, interest and penalties and are now resolved to file honest tax returns and FBAR’s forever!
Jack gets a call from @Petros who heard he might have gone through a voluntary disclosure and he wants to know if Jack and Jill are willing to get involved in the Isaac Brock Society and help publicize the inequities and absurdity of making a voluntary disclosure.
Jack and Jill are polite and don’t laugh out loud at Petros’ request but they respectfully decline to talk about their tax ordeal preferring to remain quiet about it.
Respectfully submitted,
30 Year IRS Vet
The comment about Canadian “tax cheats” is open to a lot of interpretation The accountant I talked to said “anything you do to decrease Canadian taxes” will get you into trouble with the US.
For example, there are lots of Canadian physicians (but not me) who are incorporated, which saves a bit on Canadian tax. I know one who turns out to be an “accidental” American. As far as I know he hasn’t yet figured out if he owes US tax, but he may, in which case he is “non-compliant” He certainly hasn’t been filling out US tax forms. Does this make him a “tax evader” Maybe by Steven’s definition? He is not up to date with his FBAR’s having just found out about them. Has he been “hiding” his “undisclosed accounts” from the IRS? Is this the sort of person Steven is talking about?
There are all sorts of clever things used by people living (Mitt Romney for one) in the US to save on taxes. .My friend’s “crime” is to structure his finances to comply with the local (Canadian) tax conditions rather then the US tax conditions, (which he probably couldn’t do anyway, not that it would do him any good, since it wouldn’t work for Canada)..
So if this is the sort of people to whom Steven is referring, yes there may be quite a few, but is the description of them as “evading tax” fair? It really seems to be more about technicalities than fairness. Is this the sort of person for whom OVDI is a “good deal”?
I can’t see how anyone living in Canada and complying with the CRA can be worthy of the labels that have been tossed around. There may be Canadians who are “hiding” their money from the CRA and then if they are dual nationals .and hiding from the IRS too, it might fit.
The rest of us are just trying to live normal lives and no amount of talk of “undisclosed accounts” is going to turn us into criminals.
I think Jack and Jill will need to enter the witness protection program … nasty people!
@Steven,
Many thanks for the Jack & Jill story. I would be happy to get a job from Jack/Jill as handyman, and as a maid for my wife -:)
@CanuckDoc: In theory your MD friend should be filing Form 5471, which the IRS itself estimates takes 38 hours to complete – though tax experts say it could take far longer. Failure to file it comes attached to a $10,000 fine – per year the form should have been filed. 5471 is an informational return, not connected with actual taxes.
Jack and Jill are not representative of the majority of Canadians. .They are “whales” and they are non-compliant with the CRA as well, and they would have been caught by criminal investigations. There are criminals in Canada, but that doesn’t justify a policy that threatens to punish large numbers of us who are “technically” guilty of “non-compliance” with the IRS, but otherwise completely compliant with the local rules.
So now that Jack and Jill (whose principle residence is Montreal) have declared their money and paid their penalties to the IRS, they will be taxed on the income by the CRA, and get tax credit with the IRS for doing so. They will just be more careful how they set up their accounts so they can avoid tax legally now!
@ Steve,
Your story about Jack and Jill is quite amusing. But comparing them to most folks posting on this site, is a bit like comparing Watermelons to gogi berries. I think we all get that the disclosure programs were a good deal for the Jack’s and the Jill’s – not so much for the rest of us.
Also, Steve still waiting to hear your response to Hijacked on your blogspot re pre-1994 expatriation!
@ Steven: Why is it that Jack and Jill owe anything to the IRS? They are dual citizens and as you said, they live in Canada. I disagree with the extra-territorality of the USA taxation.
This is a casus belli. I want the IRS out of my country.
@Petros,
Not that I support taxation on citizenship, here is an argument
Jack’s daughter went to LA for college. I would assume that she is also treated as a US citizen. That means there could be some advantage over non US citizen and non-resident aliens. Having been non-resident alien myself for long time, I know the difference. For example, I would have to pay double tuition to take a class at a local University simply because I had non-resident visa even in fact I had paid the same tax as US citizen/green card holders.
I don’t know about LA, but my daughter who is also a UK citizen (through her father) moved from Canada to Wales to go to graduate school. She paid foreign student tuition, despite her UK passport, because the tuition is based on residency, not citizenship, and I’m pretty sure that applies in most places. The benefit of the UK passport is that she can stay and work in the UK, but it didn’t save her any money!
Steven:
For every “Jack and Jill” who deserve what they get, there are probably 1000 “Dick and Janes” whose only crime is that they thought they were done with America and were loyally paying their taxes to their new government in Canada. No Swiss accounts, no mansions in several countries, and certainly nothing like $30 million in a bank account anywhere.
So the question for you is, do you think that 1000 people as collateral damage is a legitimate sacrifice in order to nail Jack and Jill to the wall — never m ind that they richly deserve that nailing?
That’s the issue — and I know it doesn’t relate directly to OVDI. All these attempts to nail Jack and Jill, whether it’s through FATCA, citizenship-based taxation, or whatever, is creating an explosion of collateral damage that is ruining ordinary peoples lives.
@CanuckDoc,
I remember it very well even in Canada there was a differential fee for international students. I paid double when I was in Nova Scotia.
Same, when I was in US, I worked for a college where they would let me to take 2 credits course a year for free. When I went to register, I was told that I still had to pay as international fee. I was considered as resident only on tax purpose, not on immigration paper.
@IJ The scenario above says that Jack and Jill own a house in California, not that they are bonafide residents of the United States.
@Arrow I agree that it is an issue of collateral damage. But it is also a question of Canadian sovereignty. We have to get that into our heads. Jack and Jill are Canadians and they live in Canada, meaning that they have dominant Canadian nationality. If they have to make amends to anyone it is not the United States, but Canada. The United States bashing Canadians over the heads with FBAR and FATCA is a serious casus belli, and we need to get our politicians to understand this. It does Canada no good at all for Jack and Jill to settle in an OVDI with the IRS, and yet, by all counts, they owe their taxes in Canada not in the United States.
@Steven: IRS learned well from Bill Clinton: “It depends on what the meaning of is is.”
With IRS, it seems to be “It depends on what the meaning of the word RENOUNCE is,” US Consulate said that word to many of us clearly, firmly and directly 20, 30, 40, or 50 years ago. Neither we nor the Consulate had any question about what the meaning of “renounce.” Suddenly, IRS doesn’t know the meaning of renounce if it happened decades ago.
IRS seems to be clear about only four words in the English language: “We want your money.”
Steven, you seem to be an intelligent fellow who understands the meaning of the words “Yes” or “No.” Like Tiger, Hijacked and many others, we’re still awaiting a simple “Yes” or “No” answer to this question: Do those of us who expatriated before 1995 have any obligation to the IRS. “Yes” or “No” should not be difficult.
Petros said: “It does Canada no good at all for Jack and Jill to settle in an OVDI with the IRS, and yet, by all counts, they owe their taxes in Canada not in the United States.”
And the Americans wonder why nobody wants to play their FATCA game. They’re so blind to their own greed and arrogance, they can’t see how the world sees them.
Petros said: “If they have to make amends to anyone it is not the United States, but Canada.”
You are right of course. For the US to automatically assume that these evaders belong to the IRS is arrogant in the extreme — and unfortunately typical of US behaviour on a number of fronts. It would never occur to the US that Canada is the aggrieved party here, and that the IRS has no claim at all to any taxes owing.