I have been in contact with a victim of the current IRS OVDI who is living in Europe. I have been asked to share some details of this person’s situation plus a copy of a recent letter that has been received from President Obama. This was written in response to a letter sent to the White House petitioning for redress of the current IRS OVDI program for minnows.
As a preface to that letter, what follows is an Executive Summary of the situation I am writing about. I have been asked to share this, while maintaining anoymity which I am respecting.
Personal Profile:
Dual national resident outside of US ~25 years.
Lives in a high tax European country.
No family or friends left in the US.
No contacts with Americans in country of residence.
6 days spent in US in last 6 years – transit only.
Only ties left to the US are emotional – from a childhood spent there.
Filing taxes faithfully for all the time out of the US thinking they were done correctly.
Posterchild for Nina Olson’s statement in the 2011 Taxpayer Advocate Report to Congress: “The complexity of international tax law, combined with the administrative burden placed on these taxpayers, creates an environment where taxpayers who are trying their best to comply simply cannot.”
Quote:
‘I filed my taxes faithfully in both the US and my country of residence for all those years. Never had any problems with either country until I realized I may have made an omission in the US taxes and failed to file the required FBARs. I wanted to correct it and pay any taxes if owed. I did not think I owed anything. Taxes owed to the U.S, over 8 years, were de minimis. I was even entitled to some refunds that I never got because I had no clue about them.”
OVDI Participant:
Joined upon advice from a U.S. tax practitioner as the ‘only option’ when client sought advice about FBAR compliance problem. Has already been charged big fees to produce nicely bound documents to send to the IRS. Attorney now wants client to sign the 906 when it arrives. The advice being given is to just pay the OVDI penalty which, after practitioner fees, doubles the compliance cost. Estimated fees for attorney to handle the Opt Out would be as much or more than the current OVDI penalty.
Reason petitioner is sharing this information:
“I want to contribute to the effort to raise awareness of the unjustness of the treatment in OVDI. We should not go it alone. There are many of us who have been affected, and we can contribute our voices to help each other. The Isaac Brock Society and Jack Townsend blogs have been important information sources that have helped me to realize that there are others like me out there. If other people had not been public about their suffering and experience, I would probably still be thinking I was the only person in the world who had made a paperwork foot fault. I would still be thinking I deserved to be indebted to the IRS for the rest of my life for that failure.
Thank you for what you all have contributed to help me see that I am not alone. “
Reasons petitioner wrote Obama:
Wanted to highlight to President Obama the suffering that OVDI was causing normal people, and point out the need for a better way of handling “minnows” to make compliance easier.
“I was gullible in that I still believe that the ‘little people’ can make a difference. I believe that politicians might listen even if you are not a Big campaign contributor. I believe in mutual respect between government and citizens. I don’t want my belief to turn into a past tense.”
What was expected from Obama:
“I wanted some recognition that there are U.S. citizens overseas. I was looking for some statement of what President Obama was going to do to address the issue of innocent overseas citizens who had entered OVDI and were being treated as criminals.”
What was received from Obama:
This is the letter. You are welcome to click on the link below and read it yourself. What you think?
How was the letter perceived by petitioner?
“Honestly, I did not expect anything more than some standard response, but this response makes me feel worse than if he had not answered at all. At least I still had some hope when I did not receive an answer. What I got was a bland, previously composed political statement. It does not address any of the concerns I expressed.”
My (Just Me) Opinion:
This appears to be a 100% re-election campaign statement. It is nothing more than “principles”, with no specifics and only vague promises. Even the first two lines are crafted to apply to anyone writing about any “tax” issue. In my opinion, some staff person looked at the letter and then selected from the menu of pre-programmed form letters prepared for the campaign. I would bet, that every response sent out from Obama on any issue from now until Election Day will be framed around a campaign issue. I would further wager, that this is SOP in the White House for both parties. Very disappointing, but sadly not unexpected!
A Request:
If anyone else has written President Obama (or even a Congress person) and got an answer back that was as unsatisfactory as this one, I would ask you to share it here. I think the reality is, all we are going to see is campaign related responses from now until November, rather than anything that indicates that a petitioner’s pleas were heard. I hope there are some examples that prove me wrong. 🙂
@30 year IRS vet – One other question…there are those such as the ACA that believe all efforts should be put into a repeal campaign of FATCA and lobby for repeal of citizenship based taxation (although they claim because of there charter they have to be “pro-American” and not seen as supporting efforts against the US Government.
However I’m of the belief it’s worth putting legal roadblocks in foreign countries against the IRS especially with respect to dual citizens. Dual citizens have discrimination rights in their own countries and why should the IRS be able to bypass these laws?
If you were a dual citizen would it be more effective to lobby for change in Washington, hedge your bets and lobby Washington while at the same time throw legal roadblocks in the way of the IRS overseas, or as a dual citizen lobby your foreign government where you reside solely.
What do you think?
Thanks for that information, usxcanada, on Professor Williams.
@renouncecitizenship and All,
I have just sent an email to “mauryw” regarding this thread. I’ve asked if he could give an update, preferably on this thread, regarding the response that he may have received from President Obama or The White House. Professor Williams powerful letter can be viewed here:
PS – I’d personally like to communicate to him on the subject of “Accidental Americans” (our innocent sons and daughters who have never had anything to do with the US and are still entrapped).
@All,
And, I’ve just received this very prompt reply from Professor Williams:
There are bunch of different ways to go about this.
I wound argue in the context of Canada the US Canada Treaty on Double Taxation is actually the most important law in question. If the treaty between the US and Canada was like the 80 or so other treaties Canada has ratified(One outstanding question I still have is whether the OECD Model treaty actually truly prevents taxation based on citizenship. I am for now assuming it effectively does) then the US would be unable to tax based on US Citizenship. Thus the Canadian government should pressured as to why they are accepting these terms for the US which they don’t accept from any other country. I’ll note whenever a treaty comes up for periodic negotiation the Department of Finance in Ottawa usually puts out a RFQ for information from Canadian residents who have issues with the tax laws and tax treatments of the other country.
I agree with Steven that FATCA is a bit of a secondary issue. However, I noticed for example HM Treasury in the UK indicated they will put a Request for Comments by the start of summer indicating possible approaches to under UK law to implement the US-EU5 FATCA agreement. If I lived in the UK as a US Citizen I would submit a letter to HM Treasury at the time going over the overall unfairness of the current treaty arrangements between US and the UK involving taxation of US Citizens living in the UK. I also suspect if Canada is forced to make similar legislative changes to implement FATCA it will open up to opportunity here to make a political case against the past negotiation stances of the CDN govt regarding US Canada Tax Treaty negotiations.
@John
After reading your comments above more thoroughly and given that I know you live in the UK I would definitely recommend contacting HM Treasury and HMRC this summer during their FATCA RFQ and I would go as far as to request a personal meeting with them in London(I have no idea whether you will get it but I am certain that all the big banks effected are going to get multiple meetings with HM Treasury over FATCA).
@John
I may have to spoken to soon as whether they would be public consultations on FATCA by HMRC. Here is the exact wording from Budget 2012.
Information powers – The Government announced on 8 February 2012 that it has agreed to work with the governments of France, Germany, Italy and Spain to facilitate exchange of information between financial institutions and the US Internal Revenue Service for the purposes of the US Foreign Account Tax Compliance Act (FATCA), which aims to combat cross-border tax evasion. HMRC will consult with the financial institutions affected about how this can be done, with a view to legislation in Finance Bill 2013.
There does not appear to be any request for PUBLIC consulation. However, I would still consider contacting HM Treasury on the the subject.
Further from Professor Williams, which I am posting in its entirety.
@Tim – here in the UK it’s against the law to discriminate banking services by “place of birth” this is where I think it’s going to become problematic. Also foriegn born US citizens get off the hook because the banks have no effective means to tell one type of US citizen from another.
As for the big 5 intergovernmental approach, the big 5 have no idea themselves how to do this and I think it’s trying to help the US save face on poorly thought out legislation on the US’s part.
The implementation of FATCA will differ from what the US wish list has on it. All I’d like to achieve to is have data on dual citizens restricted and turn the clock back to the way it was before leaving it to the US expat whether they wish to disclose to the IRS or not.
I think this is achievable. I know you’re risking the fines etc, but at least the IRS is being starved of data.
Now if the US wants to hassle people at the airport by turning those Homeland Security goons into tax collectors, I can’t stop that. However what I can hopefully do is shut off the flow of information.
I think there will be more global exchange of information but not on the scale the US would like. The US can’t change one basic fact, they’re the only ones using citizenship-based taxation, and will always cause more work for everyone else – so why should other countries have there FFIs and governmental agencies spend all that time and resource when in return they receive very little back including the US for that matter. The pot of gold the Levin and Grassley thinks exists is not there.
@all- I remained convinced that the only thing that will get the U.S. to change its policy on extraterritorial taxation is for the other nations of the world to do what the U.S. does which is to take unilateral action. FATCA is not a side issue at all. It is the last nail in the enforcement of extraterritorial taxation.
If all of the countries that currently have tax treaties in place with the U.S. were to bar U.S. immigrants and exchange students from those who are allowed in then it would be up to the U.S. politicians to explain to their constitutents why they can’t go to where they want to go. I know that many of you out there will say don’t hurt the children but this is all out war. The U.S. has already declared war on our children and we should have no qualms about returning the favor.
All countries should also change their oath of citizenship to include a section just for Americans that incorporates an formal renunciation statement.
When Americans can no longer apply to live in New Zealand, Austrailia, Canada, England, Holland etc. then you will see the you know what hit the fan. These restrictions would hit American residents hard and you will see them take up the cause with zeal. It will be then that the ears of Congressmen and Senators will burn.
@John
Automatic information exchange already exists between Canada and the US but Canada sends information to the US on persons with US addresses not US Person Canadian domestic taxpayers. There has been discussion from the Canadian side that Canadian institutions would be exempted from FATCA on the basis of this existing exchange of information arrangement akin to the five EU countries. (One issue is CRA sends info to the IRS on dividends, interest, and trust distributions but not sale of property/securities). Now I have no idea whether these commentators in Canada are completely talking through there hat or not but there have definitely been intergovernmental discussions between the US and Canada going back to at least the fall. I actually though at one point there would be a joint statement released.
info from McCarthy Tetrault
At the same time as the release of the proposed regulations, Treasury and the governments of five European countries (France, Germany, Italy, Spain and the United Kingdom) released a Joint Statement indicating that the United States and each of their governments had agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange, based on existing bilateral tax treaties.
It is understood that an acceptable approach, if one can be determined, would serve as a template for arrangements with other countries. Such an approach would address concerns raised in the consultation process that requirements imposed on financial institutions to report account holder information to the IRS would contravene applicable privacy laws.
Canada was not a party to the Joint Statement, but it is understood that there are ongoing discussions between Canada and the United States relating to the application of FATCA, having regard to:
1. the relatively large number of U.S. individuals who reside in Canada;
2. the fact that Canada is not a low-tax jurisdiction; and
3. the fact that the Canada Revenue Agency (CRA) already automatically exchanges information with the IRS with respect to certain payments made to persons with U.S. addresses.
Publicly available documents indicate that the CRA automatically exchanges details of payments made to U.S. addresses and reported on Canadian NR4 forms such as dividends, interest and trust distributions. However, as U.S. taxpayer ID numbers are not collected in Canada, the information provided is not associated with U.S. taxpayer ID numbers that would facilitate matching. It is also understood that there is no exchange of information relating to proceeds from the sale or other disposition of property. In addition, payments to entities in third countries that may be owned by U.S. persons are not reported.
I got this form reply twice from the “contact the White House” page to submit comments:
January 11, 2012
and,
Needless to say, these form replies have absolutely nothing whatever to do with the issues I raised regarding the reporting and penalty burdens imposed on US citizen/’persons’ ‘abroad’. Not even a mention of taxation, or anything remotely related. I was sending these sometimes 2x per day, for more than a month – figured it might be like the lottery. Got this twice, and the one other form reply, other than that, nothing.
So much for: “President Obama is committed to creating the most open and accessible administration in American history.”
@calgary411, (and by proxy, Professor Williams);
thank you for sharing the letter to President Obama, and your other attempts to contact and lobby people. Was it on a blog post here at IBS that you didn’t get any responses re the plight of our children? If so, I think it might be because we don’t quite know what to do – in the short term, as well as the longer term, other than making sure they are, or become duals and then as possible, to renounce or relinquish.
@mauryw,
read your excellent letter re: “I’ve attached a copy of my second letter to Obama if you are interested. I suspect that among other things my letters were too long for anyone to take the time in Wash to read. Professor Williams — Obama letter Nov 2011”. I agree about the plight of the children.
@John “here in the UK it’s against the law to discriminate banking services by “place of birth” this is where I think it’s going to become problematic. Also foriegn born US citizens get off the hook because the banks have no effective means to tell one type of US citizen from another.” Probably true in the assertion of discrimination, but the US law does not recognise local law as an excuse for not complying. In fact it specifically states that this is not allowable.
Also, the obvious intent of the inter-governmental agreements is to circumvent such issues by relaxing the requirements for withholding and account termination in the participating countries and making ‘FATCA’ regulatory in these countries. This will allow the detection and reporting to go ahead without impediment, as is the US goverment’s wish.
The data is what they want. The inter-governmental agreements on data exchange are the ultimate aim of all of this.
@30 year IRS vet
I just re-read your post of APRIL 22, 2012 AT 7:12 PM
I had skimmed it quickly earlier today, between chores, and wanted to come back to it tonight and mull it over.
I think I like the strategy of going for a “no-brainer” issue that anyone could see without triggering immediate opposition. It is like chipping away at the foundation without trying to remove the “corner stone” in one go.
I think you may be right, that if we can win on one subset issue, we may open the door for a whole new set of common sense rules and exceptions for expatriates abroad, EVEN IF we cannot change the law on citizenship based taxation. Let ACA fight that battle, (with our support, of course) but in parallel, lets work on something we can bit off and chew separately. It doesn’t mean we stop advocating for the end of citizenship taxation. We just go after one of the legs of the stool. Let’s face it, we are NOT going to repeal FATCA. As Victoria said, we probably need to focus on “Mitigation for Minnows.”
That is essentially what Corporations do with their lobbying. They never try to kill the whole bill, they just try and get their exception or special provision. Of course, we don’t have the money, or the horse power to do this in the back halls or Congress or in the watering holes of DC, so would have to be won on the merits in the open arena or public debate and media spotlight. That is a tough go, but you never know unless you try, I guess.
Thanks for offering some good ideas to mull over, and your kind offer of advice assistance. Some of us should get together and talk with our voices on a phone to come up with a strategy to build on a little momentum we currently have, instead of just working with our fingers on this blog.
Anyway, just thinking aloud. Thanks again.
Chester12….
Re your question:
I personally have not seen or heard anything. I have emailed her multiple times, and there is no response.
@p33t – you’re right the intergovernmental gets around the privacy issue, but over here governments have to treat citizens equally and that includes the government – discrimination is another issue all together.
if you “rat” on one citizen by “place of birth” but allow another citizen in similar circumstances to “get away with it,” that could be grounds to demand a checking system that is foolproof and demands all citizens be vetted in the same way.
Of course it would be politically difficult to implement such as system when the Britiish go hoopy over Brussels telling them what type of crisps they should eat.
I’m not a lawyer but I feel that there could be mileage there to be gained. For example a number of years ago, a man brought the government to court over different ages to collect your pension between men and women to an EU court and forced the UK to equalise the ages – it can happen over here.
The UK may play lapdog to the US, but an EU court might think differently. I think the real danger for the US is even a British court may take the side of its citizens (which would in turn apply to EU citizens) and tell the US sorry resident citizen’s data is not available to the US.
I think an EU government who practices resident based taxation will have a tough time justifying in court why they turned over a resident EU citizens tax data to the US when they have no US financial connections.
I believe Americans with American only passports will end up being stuck with the IRS, dual citizens a matter where they make their residency. The US will be forced to accept “resident based” taxation in terms of data. Of course the US can continue wasting its time hassling US ex-pats and receive minimal tax revenue in return instead of coming to grips with their financial problems with vote killing tax raises and budget cuts.
We’ll see how this plays out but anything said here in this blog or by the IRS will not be the last word. Final regulations for this intergovernment bullsh*t won’t be out for sometime.
Failing all that I’ll be interested in 30 year vet’s response to the extent of IRS’s collection powers overseas if he chooses to answer it.
The IRS can hop up and down and threat you with death, but if they have no means to collect and only can hassle you at US airports (or bring you to a US court) all this is a bloody waste of time instread of going after homelanders.
John, when I fill out my self-assessment, my accountant considers me UK tax resident but non-UK tax-domicled. So in spite of my permanent residency plus dual nationality, I believe my dominant citzizenship would still be US in spite of having lived in UK for over 20 years…I have even voiced my concerns with HMRC but they say they can’t protect me from the IRS due to clauses in the tax treaty that allow for double taxation for US persons.
I think it’s more a case of how aggressively the IRS will be willing to pursue taxes and fines owed across borders. I would assume that wealthy expats with substantial assets still held within the US would be more easy to target and levy than someone with virtually all their assets offshore, though they might choose to make random examples of minnow expats as a deterent.
@monalisa1776 – just out of interest when you originally came to the UK, I have always registered as an Irish citizen and never disclosed my US nationality.
I pay only UK tax and considered a UK resident. If it’s worth it for you to be considered a non-dom maybe that’s changes your position somewhat with regards to the IRS.
The tax treaty may give the IRS certain rights, but it doesn’t give the HMRC the right to treat like EU citizens differently because of “place of birth” or let a foreign-born US citizen off the hook because there’s no foolproof method to identify them. For exmaple my kids are duals but the HMRC, the banks, or other FFIs have no way to identify them if they choose not to disclose the fact that they’re US citizens. Also they haven’t renewed their US passport in years, and enter the US on their UK passports because it seems the US systems can’t effectively deal with foreign-born US citizens on their system. Perhaps in future Homeland Security may be able to tie up bio-metric data and start hassling duals at the airport but that day hasn’t arrived yet.
I’m just dead against citizenship-based taxation and take the view once I leave the US, it’s none of the IRS’s business what I do. Financially I disconnected from the US years ago.
@monalisa1776 – also I forgot to mention, if for example Boris Johnson, Zoe Wanamaker, Ruby Wax, and other famous dual US nationals haven’t renounced and the HMRC turns a blind eye to (especially Boris Johnson) and doesn’t assist the IRS why should I? What’s fair for one should be fair for all when it come to a foreign tax authority (the IRS).
The US Embassy in Stockholm responded relatively well to someone in the Swedish community who wrote the Ambassador about FATCA. This response is below. There are no answers or actions, but at least there is a tacit acknowledgement that there are concerns:
—-
“The Ambassador has asked me to look into recent changes in U.S. tax laws that will affect United States citizens living overseas. We understand how this law may affect U.S. citizens such as yourself living abroad.
Our Embassy has not been given any information on the consequences of this new legislation. U.S. Embassies around the world in general do not get involved in taxation issues. The Embassy in London does have an IRS representative that can answer questions, and you may wish to contact that office.
We encourage you to let your elected representatives in the Congress know how this change in law may affect you and other Americans living overseas. Sometimes it can be difficult to follow these issues from far away, but that does not mean that your point of view is not important.”
Regards,
Martin B. Tatuch
Consul
U.S. Embassy — Stockholm
—–
Considering this, it would be positive if we could see President Obama at least consider the needs of overseas U.S. citizens. Writing him as suggested by Steve and Just Me will may be small steps, but as Steve suggests and as Petros has achieved in the radio broadcast, awareness is key. It is a prerequisite for action.
The Obama robo response letter does not even mention overseas U.S. citizens, which is very disheartening for those US non-resident citizens who supported and voted for him. This combined with his lack of delivery on promises made to overseas Americans before the 2008 election is encouraging them to look at other candidates who at least recognize that there is a community of non-resident Americans out there. They are looking at candidates who address territorial taxation in some way.
The simplest taxation issue to address appears to be “mitigation for minnows” related to OVDI. As someone else suggested, it is also good to mention the connection to ACA’s campaign for residence based taxation as they likely have the resources and connections to achieve action in this area and support for their stated goals can help them to achieve them.
Years ago when I opened my various accounts it never occured to me not declare my US citizenship because hadn’t been aware of all the potential hazards at the time. I don’t agree with the citizenship-based taxation laws but feel obliged to obey them nonetheless. I blame myself for not having received the correct financial and tax planning years ago. As I had to use a specialized accounting firm to do all I could to clean up the huge mess, I will also have to use them to do my self-assessment for 2011-12 because I will also suffer UK double taxation on my US-based mutual funds which I sold in January and remitted the cash to the UK.
Turns out that HMRC treats these as pooled offshore investment funds whose capital gains will be taxed as ordinary income at my highest rate of income tax…..these ‘income gains’ are thus not covered by any capital gains allowance in the UK, so I’m being screwed here as well as the US…I’m not a happy bunny.
But, again, I blame myself for having been a DIY investor instead of using a financial planner from the start…in fact, I regret that I even invested in the first place! In hindsight, would have probably been better off (and certainly less stressed) just sticking to straightfoward savings bonds. Oh well, just want to get all this sorted and behind me.
At the end of it all will have wound up having to pay about $25,000 in double taxation to both countries due to incabilities between the tax systems plus about $18,000 in accounting fees!!
It’s frustrating to hear about all this double taxation, but at least you’ll only have one tax master to serve going forward because in theory UK tax credits and foreign exclusion should wipe out liability to the US. For Social Security remember if you fall out with the IRS in future, I believe the max they can withhold is 15% under current law if they deem you “owe” them taxes – something you may want to check into.
As for me everything gets moved over in small chunks (under $10,000 per transfer) over time. I avoid the US bank reporting – that’s all I want to achieve. I’m happy to pay the HMRC tax on piddly interest – there’s no capital gains involved.
The only real business between me and the IRS in future will be the small Social Security I’ll collect. What I’ll probably do is keep a US bank account, give the IRS a US address and just withdraw it out of the ATM over in the UK – it’ll be pub money. That’s unless of course they start a withholding tax on ATM transactions which I would put pass the idiots in Congress.
I’ve got plenty of time to think about eveything – but we’ll have to see what happens with FATCA and citizenship issues in future.
But going back to basics – if you’re a British citizen and have “disconnected” from the US financially, why shouldn’t you be treated the same as every other resident British Citizen with regards to the HMRC reporting to the IRS? If we can legally get the HMRC to report data on a resident-based taxation model, at least the IRS doesn’t get its hands on the data.
The HMRC doesn’t give a toss about the IRS as long as they get paid what is owed them.
@John, you’re correct that some of the double taxation will be cancelled out by foreign tax credits so it’s not quite as bad as I’ve made it sound. As I only work part-time, if my gross income (including the capital gains for the sold US mutual funds) comes to under around $45,000, I will hopefully not even owe any capital gains taxes to the IRS because I’d still be within their 15% band and thus owe no US taxation on any longterm gains.
However, would still owe HMRC income gains taxes at 20% but these will hopefully produce foreign tax credits to offset future US income taxes.
They’re using form 1116 rather than relying on 2555.
I should hopefully get tax refunds both later this year and next year which could go towards my estimates for 2013. I hope that this will be the last year I even owe any US taxes because I have switched out of mutual funds and put my assets into a local building society savings/checking account and a FATCA US compliant brokerage account over here.
Once I get through my statutes of limitations, I will probably be able to use a less expensive accountant or hopefully barter down to a lower cost with the same firm because I like her, plus could have more complications in future if my much older spouse predeceases me or needs longterm care.
Though I don’t like FBAR and 8938, I am prepared to fully disclose everything and have become a meticulous record keeper. At least I have greatly simplified my situation by consolidating. But I will have to continue budgeting for at least a thousand pounds per year towards accounting costs and probably a few hundred dollars per annum in double taxation, especially as the personal exemtion/standard deduction for a US person filing as married filing separately is less generous than the UK’s personal allowance.