You may qualify if you have less than $10,000 in U.S. Source income: Although it was not clear in my article, the Adams family was in trouble with the IRS simply because they had more than $10,000 in dividends from a U.S. based mutual fund. If that single fact were different and they could show the IRS that they never got more than $10,000 from a U.S. source, they could qualify under FAQ 52 category number 3,  provided they have been fully compliant with all the requirements of the Canada Revenue Agency during the years in issue.What makes this provision particularly appealing is the statement in the rule which says,For these taxpayers only, the offshore penalty will not apply to non-financial assets, such as real property, business interests, or artworks, purchased with funds for which the taxpayer can establish that all applicable taxes have been paid, either in the U.S. or in the country of residence.This means that for the Adams family in my article, they can sign up for the IRS’s OVDI program and file the requisite number of back tax returns and delinquent FBAR’s, and exclude from the 5% penalty base, any valuation of his manufacturing company in British Columbia, his business bank accounts, his vacation home on Vancouver Island which he rents out, and Grandma’s trust provided it does not earn more than $10,000 from U.S. sources in any given year.Even more appealing is despite the accounting fees and legal fees the family will need to pay to prove all this to the IRS, the foreign earned income credit and the foreign tax credit is likely to wipe out most or all of any U.S. taxes which might become due from their delinquently filed U.S. forms 1040***.
***Yeah right, probably in Canada, but not in some countries like Switzerland where the taxation structure is very different.
I had an absurd and frightening IRS-related nightmare early this morning. I somehow had made it through immigration without having the hebeaus-grabbus put on me and was visiting the US. I was at some very peculiar shopping mall that had hardware stores in it and a food store with the talking price scanners crooning “Twenty-five-cents, Three-nightly nine, Ten-eighty-eight, Bonus! Coupon!, Five-nighty-five, Tobacco product, ID check!, Five-thirty-four. Pizza special… Two dollars!” and so on and so forth ad nauseaum. Behind the main entrance doors there was a very long ramp that was very steep, heading down to the mall corridor. I made it to the bottom of the ramp near the store where the scanners were crooning, and then the hair on the back of my neck prickled up. I wheeled around.
An obviously derranged and enormously obese lady on one of those electric scooters for handicapped people comes screaming down the steep slope at 25-30 MPH, nearly missing a young Indian girl, whose father yelled “are you stupid, you wanted killed my childs you unsacred cow-woman?”. The mother, in a colorful green sari, was screaming in Hindi or Tamil. The little girl’s bespectacled eyes were just wide with amazement and the fat woman.
Taking in this scene with me was a tall guy with a goatee, short sleeved dress shirt, and a pocket protector and glasses pouch in his shirt pocket. As he turned to watch the stupid lady go by him, I made eye contact with him and he said “can you believe what that woman just did?”. I said something like “since I have been back in the US the past few days, I have seen lots of really wierd stuff”. We then struck up a conversation. Where did I live? What was I doing at the mall? I wanted to purchase a string weed trimmer, an electric one, because the only one I could find in Europe was gasoline (probably not true, but my dream alter-ego seemed to think so and also didn’t think about the voltage difference).
He recommended that I exit the mall and go up the hill to Wal*Mart. Just then the appearantly mentally-disturbed child of the fat lady screamed by on another scooter, and pulled up next to his mother, both of them laughing about something not much of interest to goatee-man and myself. The mother and son duo were eating some sort of messy candies that soiled the fronts of their sweatshirts. Us two guys were getting a little pissed off, and we decided to look for a security guard to report these people’s careless wheelchairing. The guy said that he thought there would be a rent-a-cop in the parking lot, so we climbed up the ramp (so steep I said that it reminded me of climbing in the Rockies).
When we got outside, we couldn’t find the security guard in the parking lot, but the guy pointed accross the street to the Wal*Mart. In the meantime he said it must be really interesting to live in Europe. I said, well, there are some problems I have there because I was born in the US. “Oh, what problems?”. I almost said “ever heard of FATCA, FBAR?”, but interrupted myself with “you don’t work for the IRS, do you?”. The guy said “as a matter of fact, I do”, as he shook his head with disgugst, spat some chewin tobacco in the gutter, turned, and trotted back into the mall.
I was scared shitless thinking he was going for somebody to arrest me. I darted into another entrance across the parking lot thinking that I could traverse the mall to the other side. Well, this entrance didn’t have a steep floor, but a sort of conveyor belt going to the next floor. The first floor was a restaurant (Gringo’s Taco Barn) blaring mexican trumpet fanfares and filled with huge people that all weighed more than 300 pounds, a dead end obviously, so I took the conveyor to the second floor. It wasn’t the typical type, I had never seen such a contraption before and it looked like it belonged in a factory. It was silvery metal, and you had to stand between upright posts on each link of the chain. When I got to the top, I realized I was in a sort of hospital ward. The place was a maze of irregular corridors of all sizes and shapes. There were moaning patients in some rooms, and rooms with humming medical equipment and the stench of rotting flesh of the near dying as well as the stink of medicines. There wasn’t a flat floor in any corridor. Every corridor was a sort of ramp that would go up, then down, then up again. There were stairs and split-levels everywhere.
I kept going, searching for another entrance, and wanting desperately to get the hell out of this place so goatee-man couldn’t find me. I came to a large room that looked like a sort of baggage hall or storage room with wire-mesh dollies filled with stuff, lots of shelves, and boxes and suitcases strewn all about in irregular piles. There were two dogs tied in large cages in the middle of the room, and a nurse, who didn’t seem to notice me, was feeding heartworm pills or some other medicine to the dogs. I asked her why there were dogs in a people hospital, she said “oh, we keep them here for the patients that are having major surgery, Dr. Gandu thinks that their presence helps the patients recover more quickly”.
I looked at the tag on one of the dog cages, where a rather huge malemute or husky was giving me curious looks, pawing at the cage, and “woooing” at me as many wolf-dog breeds do when they want to strike up a conversation: dog’s name: “Snatcher”, patient name: “Schulman, D.” Oh shit, I don’t want him to come wheeling around the corner to visit his dog. Goatee boy would not be very far away. Hmm, maybe that is why goatee-boy was around anyway. So I found a door at the other end of the room which led to a metal staircase (sort of a fire escape), and down to a street where I found what looked like some sort of BART or subway station. The fat lady and her son came screaming out of the mall from behind me and raced into the station and flew down the stairs. I then realized that this was getting a bit stupid and couldn’t be real, and started to wake up and the last thing I saw was a yellow train stopping as a loudspeaker in the train barked “Alexanderplatz, umsteigen zu den linien fünf-A, U-sechs…”
Ok, maybe the numbers of the transport lines were wrong, but it was as if the whole US had somehow been in East Berlin.
And I was thinking to myself,
“This could be Heaven or this could be Hell”…
Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
“Relax, ” said the night man,
“We are programmed to receive.
You can check-out any time you like,
But you can never leave!”
I do not understand how the present generation of Adams could still be US citizens, assuming they have lived their lives for several generations outside the US, as the article implies:
The Adams family lives in Vancouver, British Columbia, where Mr. Adams is the
president of a small but successful manufacturing company. Mr. Adam’s
great-grandfather, a U.S. citizen, settled in Canada in the latter part of the
19th century after moving there to take a job building the transcontinental
railroad. Subsequent generations of the Adams family are all citizens of the
United States, although they have no economic connection to it…
My understanding of US citizenship law contradicts this narrative. A child born outside the US is a US citizen if one or more parents are US citizens, the parents are married, and meet a US residency requirement, e.g.
John and Mary, a married couple, US citizens and residents, move to Canada. Their children are US citizens because of their parents early residency in the US. However, their grandchildren are not US citizens because their parents do not meet the US residency requirement.
This is a bit of an oversimplification of a complex area of law. If you want more information, try the Wikipedia article:
Wikipedia is not authoritative, but it is a useful place to start. The notes and external links allow you to follow up with your own research.
Is there something I am missing?
This issue is somewhat tangential to the point being made by Mr. Mopsick. However, the issue of inherited citizenship may be very relevant to some readers of this blog.
@Northernshrike, I think Mopsick’s scenario is in keeping with the expansive view of the IRS that makes US citizenship a blight upon anyone with a loose connection with the United States. Let us be forewarned. This is the way these IRS agents view the whole world, as a place where they may unleash their authority to tax. Try explaning otherwise to Mopsick, and you realize also that the people working for the IRS are also weak in the very weak in the area of area of civics–powerful, greedy people who don’t understand the basic human rights of others are very dangerous individuals.
I wondered the same thing. I guess there could be some complicated I’m My Own Grandpa – type back story, but in the normal course of things the Adamses would have lost their claim to US citizenship some time in the early 20th century, or maybe, in an era where women took their husbands’ nationality upon marriage and voting in a foreign election was expatriating, a lot faster than that.
If I am right, the current generation of the Adams family has no US citizenship, end of story. The US, with good reason, does not want US citizenship to be handed down, generation after generation, to persons no longer having any ties to the country, IRS not withstanding.
As Canada did in only 2009:
A new law amending the Citizenship Act came into effect on April 17, 2009. The new law gives Canadian citizenship to certain people who lost it and to others who are recognized as citizens for the first time. It also protects the value of citizenship by limiting citizenship by descent to one generation outside Canada.
This latest Mopsick article is interesting on a number of levels. He quotes from the (presumably current) Q. 52 or the OVDI (reproduced at the bottom of this comment). I don’t believe that the Q. 52 during the 2011 OVDI included the provision that exempted non-business assets from the OVDI penalty base.
This is extremely important because it is a reminder that the “in lieu” of penalty in OVDP is based on a penalty base that goes way beyond financial accounts! I am under the impression that many people still believe that the “in lieu” of penalty is a proxy for the FBAR penalty. Not so!
But, back to the current Q. 52. It says that a taxpayer will get the benefit of this rule only if he can (among other things) demonstrate that he received less than $10,000 US source income in any of the 8 years. This is worth some serious consideration and “forward thinking”.
First, the OVDP program is of indefinite duration. There is no reason why one could not start now purging oneself of any US source income. Of course we don’t know how long OVDP will be available, but you should purge yourself of US assets regardless. At this stage I would think that one would want to sell anything with any US association. Stocks, bonds, real estate, the works. Remember that US assets will always present an estate tax problem down the road (whether US person or not).
(Non US spouses of US persons need to understand the implications of “Non-US Spousehood”.)
Second, remember to stay tax compliant in your country of residence (but anybody who is concerned about this issue is probably compliant).
Third, remember to make sure that your tax returns include all income that should have been reported on your US return.
Although Mr. Mopsick’s article demonstrates that he continues to do a good job for his clients, I am very disturbed by his referring to the penalty as “a mere 5%”. For most people, this “mere 5%” means far more than 5%. Let me explain why. Unless one has the “mere 5%” in hand, obtaining the money will require selling one or more assets. If you are unfortunate enough to sell an asset that has appreciated in value, you will have to pay an income tax (in both Country of residence and the US) on that gain. If you happen to sell a mutual fund or other PFIC then it is possible that the PFIC rules could wipe out the gain completely. So, this “mere 5%” (unless you have the money in your back pocket) will unleash a number of additional tax problems. Obviously, funds to pay penalties should be generated from assets where there are little or no gains. Now, just imagine if you are dealing with what Mr. Mopsick refers to as the “monster” 27.5% penalty. You can see that obtaining those funds (unless you are the criminal that OVDP was intended for) will be the end of your life. Nobody who is NOT a criminal can afford the risk of OVDP. Seriously, think about it …
To put it simply the United States of America through the OVDP programs is encouraging a tax resolution that will end the lives of and completely wipe out the assets of US citizens abroad including those who did not even know they were US citizens. Why? In most cases because they failed to fill out FBAR reports that neither they not their advisers knew anything about. This is absolutely immoral. I invite some of the “cross border professionals” to join the debate on this. For a country to survive its laws must be rooted in some basic principles of proportionality and morality.
The US legal system and tax system continue to demonstrate no correlation between law and morality. Citizenship-based taxation is immoral. The way that the US applies it is and I believe will – as time goes on – be understood to be a crime against humanity. As @Rich noted in a previous comment, we begin with moral bankruptcy, spiritual bankruptcy and eventual financial bankruptcy. The OVDP program in general and in particular its focus on US citizens abroad and those who did not even know they were US citizens (is that not “reasonable cause”?) – is consistent with the behavior of some of the most nasty States in history. The pity is that the “Homelanders” don’t have a clue what is going on. Those Homelanders who are told what is going on, don’t believe it. They think there must be some kind of mistake. Not so!
It’s no surprise that very very few people enter OVDP and the other programs. These programs are ridiculous and are absolutely proof positive that the IRS does not want compliance. If one wants compliance once offers conditions that make it possible to comply. The average person can’t even begin to afford the professional fees to come into compliance.
Today is October 2, 2012. On October 18, 2011 Jacobson made his famous “70 year old grandma” speech. In January of 2012 TaxPayer Advocate made its views known to the IRS. Nothing has improved. The lack of improvement speaks for itself.
There is no point in worrying about what you can’t do anything about. Just be happy and live your life.
Do you take pride in your US citizenship?
Here is the text of Q. 52 (as footnoted in the Mopsick article)
FAQ 52: Under what circumstances would a
taxpayer making a voluntary disclosure under this initiative qualify
for a reduced 5 percent offshore penalty?
who are foreign residents and who meet all three of the following
conditions for all of the years of their voluntary disclosure: (a)
taxpayer resides in a foreign country; (b) taxpayer has made a good
faith showing that he or she has timely complied with all tax
reporting and payment requirements in the country of residency; and
(c) taxpayer has $10,000 or less of U.S. source income each year. For
these taxpayers only, the offshore penalty will not apply to
non-financial assets, such as real property, business interests, or
artworks, purchased with funds for which the taxpayer can establish
that all applicable taxes have been paid, either in the U.S. or in
the country of residence. This exception only applies if the income
tax returns filed with the foreign tax authority included the
offshore-related taxable income that was not reported on the U.S. tax
This discusses obtaining US citizenship from a grandparent when the US citizenship parent cannot meet the physical requirement of “at least 5 years of physical presence in the United States, 2 years of which are after the age of 14”. (The Grandparent Clause but not the Great Grandparent Clause?)
Tomorrow is a good day to wear my US Person tag. I want to make sure that I can be identified by the president’s folowers while he is discussing the Economic Non-patriots and the Global Elites. My FBAR and 8938 penalties can help them to fund the jobs bills that are promised for 2008-2012.
Note that the New York Times has timed another Romney Foreign Account article for today, the day before the debate.
Kind of off topic but vaguely on the subject of “inherited problems” and citizenship…
I was talking with a Swiss colleague recently who said his mother once visited the US for the first time in her life, in the early 80s.
Back in the 80s, the US was the big destination for the Swiss (unlike today, when most of them seem to take their holidays in Australia). His mother took their children to Disneyland.
When they arrived at a US airport, the immigration officer checked their passports and told them to exit the line and wait in a small holding room nearby. One hour went by, then another, and then another. They waited for a few hours, not knowing why they had been flagged, and missing their connecting flight. It was a confusing situation for the mother, who had absolutely no connection with the US.
An official finally came to see them, and it turned out that she had a connection. Her grandfather had been a Swiss immigrant to the United States, where he found gainful employment until WWI started. He then served in the US Army, fighting in France. Maybe he thought it would be a good route to citizenship, but the war somehow transformed his thoughts about his plan. When he found that his unit was stationed somewhere near the Swiss border, he decided spontaneously to ditch his uniform and rifle, and to head over the border. That was the last that his unit ever saw or heard of him.
But the US government did not forget. His name was put on some kind of deserter’s list, and when his granddaughter traveled to the United States, the name somehow came up. Maybe her maiden name was also in her passport. They were afterwards let go and they could finish their vacation without further problems. My colleague stated that after all that hassle, no in the family wants to travel to the US again.
Here’s a post that I saw on Jack’s blog, that is worth reposting here and might even deserve its own post. It might be an opportunity to get our voice heard:
On November 8-9, a seminar will be held in New York
International Tax Enforcement. See http://meetings.abanet.org/meeting/tax/ITE12/media/ITE12-brochure.pdf
seminar, Nina Olson will chair a seminar entitled,
International Tax Enforcement from the U.S. Taxpayer
Advocate Service and Its
One of Ms. Olson’s speakers will be J. Paul Dubé,
Ombudsman, Office of the Taxpayers’ Ombudsman, Ottawa, Canada. Mr.
Dube can be reached at Telephone
1-866-586-3839; Facsimile 1-866-586-3855; E-mail:
If you are Canadian, please
contact Mr. Dube and tell him
about your experiences with the IRS and its
draconian disclosure policies,
penalties, etc. If you are not
contact him anyway and tell him about your experiences. What
harm can it
Thank you and keep fighting
Thanks for the notice. I’ll send him a copy of my Pre-2013 Budget Submission I sent to the Canadian government’s finance committee.