New article from Roy Berg on OVDI opt out vs new “minnow” procedure

17 thoughts on “New article from Roy Berg on OVDI opt out vs new “minnow” procedure”

1. FBARs and IRS Offshore Disclosure Program
   http://blog.artiopartners.com/2012/10/08/fbars-and-irs-offshore-disclosure-program.aspx?ref=rss

   If you an American expatriate and you are not sure whether you have to enter the IRS Offshore Disclosure Program, there is some good FBARs news for you. If you don’t know what the FBAR means, read more What is FBAR.

   One Taxpayer who opted out of the administrative nightmare of the IRS Offshore Disclosure Program has been assessed no penalties for late filed FBARs forms.  The taxpayer was a 12 year US resident with unreported  offshore assets equal to about $120,000 at the peak. The taxpayer was ignorant of the special forms required to report offshore assets and the requirement he needed to report the income from these offshore accounts.

   This may provide some guidance to those expatriates who are still trying to decide whether to enter the 2012 IRS Offshore Voluntary Disclosure Program or just proceed with a regular disclosure to become compliant with tax returns on overseas taxes.

   Another Tax Professional reports the following:  One of the  firm’s clients opted out and received no penalties whatsoever and another is opting out and may receive just one $10,000 penalty over 8 years even though the taxpayer had $1M+ overseas financial accounts .This professional fees the reason for these successes is  that OVDI penalties are mandated by the National Office and agents are mandated to assess penalties, whereas if someone opts out then the local office has the authority to close the case (and is typically motivated to do so to clear inventory).

2. I don’t really understand point #3 in the section Factors to consider before deciding to opt out of OVDI or OVDP:

   3.OVDI and OVDP require the taxpayer to prepare of 8 years of returns, however if the taxpayer opts out and is audited he may be required to prepare several additional years of returns.

   Outside of the program, I thought taxpayera were “protected” by the statute of limitations: 3 years if the omitted taxes were not over 20% (or 25% I don’t remember) of the total taxes owed for any of these 3 years, 6 otherwise. Only if the IRS can prove fraud, then the statute of limitation do not apply. If the latter is the case, then the person should better stay in OVDI.
   I just find that point confusing. Roy, if you’re reading, can you clarify?

3. @Christophe,

    3 or 6 years SOL are not applied to criminal tax evasion/fraud.  opt-out certainly does not seem a good choice for those taxpayers.

4. *See this:

   Criminal Tax Manual (Statute of Limitations) http://www.justice.gov/tax/readingroom/2001ctm/07ctax.htm

   But bear in mind there are arcane rules which I have never seen applied (but that may only mean I haven’t found the appropriate cases) regarding “absconding to avoid prosecution”.

   Recent caselaw has shown judges quite willing to imprison indefinitely persons thought to have sent their assets abroad, beyond the reach of creditors. This is only one such case: http://www.nytimes.com/2010/01/22/business/economy/22norris.html Jay Adkisson has written extensively on the subject and you may find something in his online book: http://assetprotectionbook.com

   This Harvard Law Review note from 1968 may provide some ideas: http://www.scribd.com/doc/109453511/Note-Transnational-Evasion-of-United-States-Taxation. And there is a procedure whereby an injunctive writ, “ne exeat republic” may be issued forbidding a person from leaving the USA, although that would not apply to someone in Canada unless that person were physically brought back to the USA by, say, a bounty hunter or a rogue marshall. There are various permutations of that: Ronald Anderson, Humberto Alvarez-Machain, various alcohol smugglers during Prohibition and recent rendition cases in relation to alleged terrorists.

   That said, the IRS will go after the low-hanging fruit and those whose prosecution or civil contempt citation will set a good example. Criminal tax evasion and prosecution for FBAR matters require proof of certain facts. Cases where divestiture of nationality is in question and cases where the defendant is abroad are difficult for the IRS to pursue and even when they prove facts getting physical possession of the tax evader may be impossible: think of Marc Rich, still AFAIK ensconced in his villa in Zug, Switzerland. 

   I understand that some persons actually pursued by the IRS made their cases easier because they carried laptops, tablets and smartphones into the USA and those were seized by Customs. http://www.mcgilldaily.com/2012/03/why-you-shouldnt-tell-american-border-guards-youre-in-islamic-studies/

   In the future I would expect to see more use of terrorism (USA Patriot Act), money-laundering and common fraud proceedings against tax evaders. Bankruptcy law provides further cross-border powers for creditors although involuntary bankruptcy is notoriously difficult to pursue in the USA and the IRS is unlikely to do so in Canada. More likely would be for the IRS to engage the US Bankruptcy Trustee to initiate an ancillary proceeding abroad (in Canada or England, say) to attach foreign assets that they could not reach directly. The Bullen case worked the other way: Bullen, accused of VAT fraud, had his Florida property was seized for his English creditors, notably HM Revenue & Customs.

5. @Christophe

   There are certain kinds of filing omissions that mean that the statute of limitations does not apply. As you might expect they are in the area of information returns – an example would be the 5471. So, it is not as simple as all that. OVDI does bring finality to the situation. Depending on your facts this could be very desirable.

6. @RoyBerg

   Very interesting article. It seems to me that this question would apply to a very small number of people. Let’s say that the IRS says: okay, people who entered OVDI can switch to the new streamlined compliance.

   Obviously, they would have to meet the test for streamlined compliance – “low risk” with the suggestion that one has not filed and has low compliance risk.

   1. I am having trouble seeing how somebody who fits that profile could have been in OVDI in the first place? It would have to be a situation where there was nothing going on for 2009, 2010 and 2011 with a lots of factors suggesting “heightened scrutiny” for prior years. But, the IRS wants to see 6 years of FBARs. It is very likely that the FBARs would provide evidence of things suggesting “heightened scrutiny”. What in your view would be the profile of a person, was actually in OVDI and would decide to use the streamlined process.

   2. If the IRS does allow this, I would imagine a lot of lawyers are going to have trouble explaining why they put the client in OVDI in the first place.

   The real problem is that almost nobody would be eligible (as can be inferred from your previous excellent posts) for the streamlined procedures anyway.

   Thanks for a very interesting article. The compliance question becomes more and more complicated.

7. *@renouncecitizenship, regarding your first question:  Unfortunately, there are lawyers who seem to believe (and certainly give every indication) that every single person with a “foreign account problem” is well advised to join the program.  I find that to be absurd, but those advisors are out there.  Someone who has the ideal profile for the new procedure, but encountered such an advisor, could easily have found himself in the program.  

8. Duelling opinions on Canadian crossborder tax law firm blogs? The SNC Blog entry seems to take a different view than the Moody’s one on the OVDI and Streamlined compliance issues? Any critical consideration and analysis of this? http://www.snclaw.com/cgblog/45/122/Why-opting-out-of-OVDI-should-be-considered-in-light-of-the-new-IRS-streamlined-filing-procedures 

   Again, how can those laypersons seeking to comply cope when even the ‘crossborder tax specialists’ don’t agree?

   Any comments @Michael Miller, or @Roy Berg?

9. *Thank you for your comment Badger. I haven’t read the blog you reference, so I can’t comment on that firm’s position.

   It is unfortunate that there is so much “noise” out there regarding the direction a taxpayer should take. The “noise” is largely the result of: a) lack of clear guidance on the part of the IRS; b) ambiguities and uncertainties in OVDI/OVDP/Streamlined Procedure that the IRS either did not consider or chose not to address. The only factor that is clear is every taxpayer’s situation is different, every taxpayer is different and sweeping generalities about what one should do or not do must be taken with skepticism.

   Because of the foregoing, there are a few practitioners who suddenly “cross border professionals,” when in reality they have very little professional or practical experience in any relevant context, much less the intractable nature of US/Canada tax.

   Living outside the US, it can be difficult to find a professional who has experience with these issues. “Familiarity” is not enough. To that end I would recommend the following:

   • Ask hard questions about the individual’s experience…

   1. How long have you been practicing?
   2. How long in cross-border tax?
   3. Have you ever represented an individual in IRS examination?
   4. Have you ever represented an individual in IRS Appeals?
   5. Have you ever represented an individual in US tax court or Federal District Court?

   • Ask the individual for references
   • “Google” the individual to see whether he or she has spoken or written about cross-border tax.
   • If the individual has written on cross-border tax, what is the depth of the analysis? Have the aricles appeared in peer-reviewed publications? Are the writings little more than infomercials?

   Finally, visit Jack Townsend’s blog Jack’s listing of individuals who do have requisite experience. His blog is here: http://federaltaxcrimes.blogspot.ca/p/ovdi-attorneys.html

10. @Roy Berg. Thank you for responding.

11. Major Caveat: Not endorsing any of these sources or the information that follows. Just trying to help add to the information here, so that readers here at IBS can consider where they might fall currently on the uncertainty/ostrich/compliance/’thank god I’m free’ sliding scale. Pick up bits and pieces, but firm reliable information very scarce.

    Found this comment intriguing, here re the streamlined procedure:

    at http://www.mnptax.ca/insights/blog/2012/9/2/details-on-new-irs-streamlined-relief-for-americans-in-canada#CommentsStart

    ”
    Monday, November 05, 2012 – 01:49PM GMT
    |

    Kevyn Nightingale

    We and other practitioners have
    been in contact with the IRS, asking whether filing of 2011 returns
    and/or FBARs would preclude participation in the Streamlined program.
    The IRS has told them and us consistently that filing 2011 on time would
    not interfere with the ability to participate. This is a good (and
    expected) thing – otherwise people would be penalized for filing on
    time.”

    This is confusing, because the instructions from the IRS seem to say that those who filed a return after 2008 – (for example the 2011 return) were precluded from being accepted for the streamlined process – which would have the effect of penalizing those who filed on time – while anxiously waiting for the IRS to make up its mind about the instructions it briefly alluded to in January – didn’t update us on their pondering until a further announcement on June 26, 2012 (by which time, most people who were going to comply would already have sent the 2011 FBAR – because it had to be received by the IRS before or on the deadline of June 30, this year, rather than be postmarked by that date) – and then finally released the guidelines (such as they are)  on August 31st. http://www.mnptax.ca/insights/blog/2012/6/27/new-irs-relief-for-americans-in-canada

    Difficult to try and reconcile all the contradictions between the views of different professionals. Some are saying that it is 6 ‘delinquent‘ FBARs in total required – which would then take the person back to the  2005 FBAR (which was statute barred after June 30, 2012) – if they filed the 2011 FBAR on time – in order not to fall further behind in compliance while they awaited the IRSpromised, but long-delayed September 1st guideline details of the ‘streamlined compliance process’. That would be the timely filed 2011 FBAR, plus 2005-2010 FBARs inclusive as the ‘delinquent’ or ‘past’ 6.

    vs.
    Some professionals say that the 6 FBAR total is 2006-2011 inclusive – even if the 2011 FBAR was filed on time in June, while awaiting further illumination by the IRS.

    Some comments and blogs allude to the possibility that those in OVDI/OVDP may be able to transition into this streamlined compliance process – but that too is confusing – because many/most would already have submitted far more years of returns and FBARs – which seems to contradict one of the basic conditions of participation (that no returns have been filed after 2008).

    See here:
    ”
    Sunday, October 14, 2012 – 10:45AM GMT
    |

    Anonymous

    In a recent call to the OVDP hotline,
    they informed me that people going into the streamlined procedure will
    receive a letter in response to their submission (either case closed or
    please send more documents) Lets hope this is true. They also informed
    me that they are working on a procedure to transfer OVDI clients into
    the streamlined procedure and bypass the opt-out procedure. This could
    be good news for a lot of folks too. At this point, as neither is
    official policy nor have we seen any evidence of this happening, this
    information is speculative.” http://www.mnp.ca/en/media-centre/blog/2012/9/2/details-on-new-irs-streamlined-relief-for-americans-in-canada

    and also here: http://www.snclaw.com/cgblog/45/87/Why-opting-out-of-OVDI-should-be-considered-in-light-of-the-new-IRS-streamlined-filing-procedures

    Other participants here have also speculated on whether minnows with the right facts, who jumped into and are stuck in OVDI, but who didn’t belong there, will be redirected into the streamlined process – because this option didn’t exist for them back in 2011.

    So far, no publicly available information from the IRS for the minnows. And conflicting advice from the professionals.

    There is also this new post from Jack Townsend, part of which reports a brief IRS answer as to what happens to those who applied via OVDI, got pre-clearance letters, and then didn’t finish the process http://federaltaxcrimes.blogspot.ca/2012/11/article-on-tax-crimes-subjects-at.html#more

    Any reader who has heard anything from within the OVD/VD programs re transitioning into the streamlined process – who might be willing to report anonymously?

    If the IRS wants people to come forward, they really need to work on this. There are too many contradictions and uncertainties.

    Would really appreciate some professionals weighing in here to help those tiny minnows and krill.

    Michael Miller? Roy Berg? Anyone?

12. Just for FYI;

    See recent exchange between ‘anonymoose’, and Jack Townsend, re current status of transferring from OVDI into the Streamlined compliance process:

    http://federaltaxcrimes.blogspot.ca/2012/09/irs-instructions-for-streamlined.html#comment-729448507

13. Tiny bits of information related to the Streamlined Compliance process.

    http://www.mnp.ca/en/media-centre/blog/2012/9/2/details-on-new-irs-streamlined-relief-for-americans-in-canada

    Any other updates from professionals reading here?

14. Another crumb:

    http://hutcheson.ca/cross-border-tax-qa/opting-out-of-ovdi-into-irs-streamlined-filing-procedures

15. And yet another crumb:

    http://www.snclaw.com/cgblog/52/122/OVDI-Opt-Out-Update

    Big Caveat : None of the crumbs posted here are meant to be tax or legal advice, and it is not safe to rely on crumbs picked up on the internet. Merely trying to contrast the different comments – since official clarification from the IRS isn’t available to mere ordinary ‘US taxable persons’ attempting to be compliant.

16. http://federaltaxcrimes.blogspot.ca/2012/12/irs-and-practitioners-comment-on.html

17. Just trying to collect and bring back crumbs, and saw this, with usual caveats – ( not advice, not qualified to recommend) just adding to this thread:

    See post at http://federaltaxcrimes.blogspot.com/2012/09/irs-instructions-for-streamlined.html#comment-732145641 re OVDI to Streamlined.