IRS Yanks OVDPDeal From Taxpayers With Secret Bank Leumi Accounts – Forbes onforb.es/VMlXCI – Kicks those previously accepted out!
— U.S. Citizen Abroad (@USCitizenAbroad) March 7, 2013
The Internal Revenue Service this week sent faxes to tax attorneys nationwide informing them that clients who were previously accepted into its criminal amnesty program for those who disclose once-secret offshore accounts, have “upon further review” been disqualified. The faxes, signed by John R. Tafur, director of of Global Financial Crimes at the IRS’ Criminal Investigation division, affect dozens of American taxpayers who had undisclosed accounts at Bank Leumi le-Israel Ltd., Israel’s largest bank, says Robert E. McKenzie, apartner at Chicago’s Arnstein & Lehr , who queried fellow top tax attorneys on a private email listserve after he received one such fax this week. He called the IRS’ reversal “scary” and “extraordinary”. Edward M. Robbins Jr., of Hochman, Salkin, Rettig, Toscher & Perez, the big West Coast tax defense firm, confirmed in an email to Forbes that “numerous” Leumi related rescission letters have been received.
Complete article is here.
Not related to this post, but I don’t know where else to place this:
Senator Carl Levin announced that he will retire after next year.
I wonder if the IRS has put them now on the drone target list? This is stunning indeed. Accept and then reject. I can see some lawsuits arising out of this. Wonder if any of these “taxpayers” are US Expats living in Israel? Will AIPAC ever raise its head on this one?
OK. So the IRS has an amnesty called OVDP. Suddenly, there are criminals making use of it, so it is yanked away from them. So…what does that say about the OVDP? Only available to non-criminals? Then why the horrific penalties?
This is certainly the MOTHER of ALL ‘BAIT and SWITCHES’. Remember, in 2009 OVDP program, in what the TAS called a “Bait and Switch” they rescinded their FAQ 35, and then would not release the memo that pulled it until a TAD was issued by Nina Olson’s office. This certainly exceeds that fiasco.
Some law suits are coming from this capricious action for sure. These guys at the IRS administering the OVDP are totally out of control. But, then, I guess, given their history, this type of action is not to be unexpected. Frankly, they are NOT to be trusted.
After this action, what would you expect a tax attorney to advise a client about entering the OVDP and IRS assurances? What about those so called “low risk” Expats encouraged to come forward in the so called ‘streamline’ program? Will word of these kind of actions by the IRS help or hinder future compliance? I have an opinion, but never mind.
When dealing with the IRS, just remember the nursery rhyme. “Enter my parlor said the spider to the fly!”
I like how they call it a “criminal offense” to not report a local local checking account to a foreign government that one is not a resident of. A real criminal offense is national origin discrimination, not the act of having a legal local checking account.
@swisspinoy;
Some FBAR riddles I amuse myself with:
When is a ‘local’ bank account not local?
When you’re a US person ‘abroad’ and the US says so.
When is a Canadian dual US citizen’s local bank account ‘foreign’?
When it’s in Canada – because it’s not in Kansas – and the US says so.
When is an American citizen’s bank account suspicious?
When it’s located in the same country where they live – in Canada.
When do you know the IRS is lying? When they offer an amnesty program.
nobledreamer 21 minutes ago
This is truly disturbing news. After the Bait-and-Switch issue of FAQ35 in the 2009 OVDP, it seems the IRS would have realized there are limits (as well as consequences) to changing the rules mid-stream. Nina Olson has certainly addressed that issue and previous Commissioner Shulman simply refused to acknowledge his responsiblity to the TAD. Tax evasion is of course, unacceptable however, when someone has come forward, been accepted into OVDI and even submitted 8 years of amended returns, FBARs etc, where is the justification for these actions? As if the onerous penalties are not enough, how many people will be willing to come forward when there is no guarantee there will be an end (or at least a limit), on the punishment doled out? Especially when the program already can be ended at any time, the penalties can be changed at any time and so on. What sort of reasonable government engages in this sort of behaviour?
I sincerely hope none of these people are Americans abroad who were simply unaware of the requirement to file taxes and report their foreign accounts on FBAR. It is most unfortunate that they are so often perceived as tax cheats in the same way as Homelanders who hide money offshore to avoid taxes. It would be extremely interesting to see the IRS acknowledge how much of the money they have collected from the OVDI programs, is actually taxes versus penalties from FBAR
When do you know the IRS is lying?
When they open their mouth.
Actually they don’t have to open their mouths for us to know 😉
When is a tax attorney lying ?
When he says we got you covered.
Without suggesting the ‘Ostrich’ approach, does anyone have any advise/experience for people wanting to enter the so called ‘Streamline’ program (3 years returns with 6 years FBARs; Listed criteria on the IRS website for acceptance met) ?
…….how much of the money they have collected from the OVDI programs, is actually taxes versus penalties from FBAR
I am gonna make a wager that it is in the neighborhood of 25/75%
Oh dear
@Southern….
There has been a lot of discussion on IBS on the so called “streamline” program and the risks that it presents.
You can start by reading this, this or this thread…
I would not rush into this without some serious due diligence, and understand what you consider low risk, and what the IRS considers low risk might be very different. Also, they are given to “bait and switch” practices, shown to be untrustworthy, so entered with your eyes wide open.
I asked an accountant in the UK about the “streamlined” program yesterday; his firm has filed several since it was announced and has received no communication in return–no acknowledgement of filing, nothing, and of course the 2012 returns for those taxpayers will shortly be due.
……has received no communication in return–no acknowledgement of filing, nothing……
unfortunately this goes for everything at the moment : OVDI/P, VD, QD or “streamlined“
It is a waiting game , keeps everybody guessing and speculating and that is part of the IRS strategy.
@ Mike Tarantes
Given government propensity to “massage” numbers, I’ve always wondered how clean the $5 billion number is. I wonder if the $780 million fine paid by UBS or the $200 million collected from Olenicoff are included in those figures. Those two would be 20% of the figure right there.
I would also be interested to know how much of the $5 billion came from original UBS customers. I would assume the vast majority entered OVDI though a few went to Wegelin or some of the Kantonal banks. UBS was requested to hand over 4,450 names of US domiciled customers who hadn’t provided a W-9 with an account size of >CHF 1 million at any time between 2001-2008 (http://www.ejpd.admin.ch/content/ejpd/en/home/dokumentation/mi/2009/2009-11-17.html).
Let’s assume that all of the 4,450 customers entered OVDI. If you assume an average account size of $2 million, 6% average earnings on the account for 6 years (ie $120k/year), a 36% tax rate on those earnings, a 20% accuracy related penalty on those earnings and interest at 5% per year on the tax and penalty, I get $370k for the cumulative tax ($259k), interest ($59k) and penalty ($52k) and $500k for 25% of $2 million. That’s $870k per UBS participant x 4,450 = $3.9 billion. The $870k per UBS customer is derived 57% from FBAR penalty and 43% from tax, accuracy penalty, and interest.
If that is broadly correct, then the other approximately 31,000 participants contributed $900 million or $36k each assuming that the $5 billion wasn’t fudged in the first place.
Several things that can throw off the calculations quite significantly:
– if income was less than 6% per annum
– if income was taxed at a rate less than ordinary income
– if the average account size was less than $2 million
– if the account was held for less than 6 years
@edelweiss
In 2010, my husband and I made a submission to OVDI, to which we are still awaiting a response. It was determined that capital gain tax from the sale of our principal residence in Canada (it sickens me to think about this) equalled X amount. This and the penalty, Y , associated with this tax has been paid into the US Treaury. A FBAR penalty, (still outstanding) represents about 1/3 of what the IRS thinks we should pay them under OVDI. All indications are that we will not pay the FBAR penalty due to reasonable cause. TAS thinks it can have the tax penalty eliminated through something called “first time penalty abatement”. If both eliminations come to fruition, Shulman’s stated haul from OVDI, at least us, should he be combining X,Y & Z in his estimates, will be reduced by about 60%. Of course because of the IRS’s complete transparency, we have no way of knowing how many others are in a similar situation to ours.
@bubblebustin, justice and ethics would dictate that you should owe nothing to the IRS, no tax on your Canadian principal residence, and no penalties. This is a travesty.
I am hoping that the TAS will prevail on your behalf. I hope that the potential for an international and diplomatic incident will make them back off. Because if they go ahead, combined with keeping all those with cognitive disabilities bound in US taxable status, and claiming the property of Canadian seniors and other groups who are obviously NOT international masterminds or terror funders, it amply illustrates the insanity of US extraterritorial tax claims based solely on citizenship. Hang in there.
As more and more Brockers and IBS readers cross over to the other side into freedom from unwanted US status, more will feel able to come forward and speak louder in public to bring these injustices to the attention of the Canadian public.
This is a very real warning to the Canadian government of the damaging consequences if Canada becomes complicit – aiding and abetting the IRS to grab at the legal assets of Canadians and every other country – in order to fill the US Treasury and service the US national debt at the expense of law-abiding Canadian citizens and permanent resident taxpayers living an ordinary life on Canadian soil.
And it just underscores what we can expect under FATCA.
I see that there is further disturbing confirmation of IRS overreach – willing to go around Congress, bypass the US constitution – and trample over all other countries laws and our rights:
See the latest ‘must read’ from Prof. Christians;
http://taxpol.blogspot.ca/2013/03/irs-brushes-aside-constitution-to-make.html
Monday, March 4, 2013
‘IRS brushes aside the constitution to make way for FATCA’
“………the IRS rep casually dismisses any constraints on the Treasury’s attempt to bind the US with these documents as a matter of international law. “……..
………”As I have said before (and have a feeling I will be saying repeatedly), the Executive Branch cannot simply bind the US to any agreement it wants to without doing violence to a constitutional process that has been expressly laid out and subject to decades of analysis and debate by the country’s most preeminent legal minds.
This is why the IRS has been very quietly implying that the IGAs interpret existing treaties. I don’t agree on the merits that this could possibly be true, but the IRS needs it to be true because if it is not true, the only alternative is that the IGAs are sole executive agreements entered into by the executive branch with no congressional oversight whatsoever. That puts them on the most precarious legal ground in terms of foreign policy power in the US, and by this statement Eggert pushes them closer in that direction.”…….
Will no-one rein in the madness?
@Just Me, many thanks your postings as always are excellent.
I have read the original posts most of which are from Sept so I was curious whether now 6 months later anywone has experience to share on STREAMLINE. The IRS just posted last week FAQ and their comments act like they want to be conciliatory. The question is will they act on this or is it just marketing and will they look for any opportunity to shake us down.
@badger. I asked my Senator about the IGA’s, and his legislative tax assistant replied that they were meant to enact the passed FATCA legislation. IF one has a bucket full of Money to fund a constitutional lawyer, I guess it can be challenged in Court.
@bubblebustin The Revenue Agent in charge of my case confirmed to me (after checking) that the First Time Abate (FTA) is a “collection” abatement and can only be applied for if a penalty is assessed. Until your agent actually assesses the FTP and/or FTP penalty, you will not get the money back. So it means that the Revenue Agent would have to assess the penalty as part of closure of your OVDI case. Then you would have to go to a Collections Agent to ask for an FTA. The FTA is not within the scope of a Revenue Agent to grant. It must be granted by a Collections Agent. It was unclear to me how exactly it would work if I were to apply for an FTA, but it was clear that it took more time and required dealing with different agents. This is a real drag as it lengthens the time needed to be free of the IRS and can lead to assessment of additional penalty amounts that are hard to remove if you have not paid up all the penalty when it is assessed. If you use a lawyer, he may charge for the extra time involved to apply for the FTA.
There are strong indications and statements made by the IRS at ABA conferences and to the TAS that if one does not meet all the conditions of the Streamlined Program, they may still be able to opt out into it. My agent mentioned that large numbers, possibly into the thousands, predominantly Canadians, are applying for this program. The main qualification is that you are a non-resident non-filer. According to statements from the IRS, taxpayers who owe amounts higher than USD 1500 are being considered for admission into the Streamlined Program. If one does not meet all requirements, they will not be ruled out automatically. As you stated in one of your posts that you owed no tax in all years, except for the year you sold your house, even if that amount was a large amount, you may want to consider explaining this to your Revenue Agent (when you get one) and request opt out into the Streamlined Program. Opting out into the Streamlined Program will guarantee you no tax or FBAR penalties if you are accepted.
Unfortunately, as I had filed previously, my agent informed me that I could not opt out into this program so I have opted out and submitted reasonable cause arguments. While I also did not meet other requirements of the Streamlined Program, my agent informed me that it was the fact that I had filed previously that held the most weight and made me ineligible. My agent even said it was a pity that I could not go directly into the Streamlined Program. As the agent kindly said, it would have made things a lot easier.
@ Southerner, there hasn’t been anything that I’ve seen to indicate how it is going with the Streamlined program. You’re right about the tone of the last updated FAQs, but even the Taxpayers Advocate has noted repeatedly in her formal reports (including the most recent one) that the IRS is not bound by the FAQs and similar communications the way they are by the IRM, and that if they’re going to issue the FAQs and similar documents, taxpayers should be able to rely on them in good faith.
There has been indication that there are tens of thousands of unresolved submissions backed up in the OVDs, (see Taxpayer Advocate most recent report to Congress http://www.taxpayeradvocate.irs.gov/2012-Annual-Report http://www.taxpayeradvocate.irs.gov/ ). May also be affecting the Streamlined program. I read that some OVD submissions were lost in the shuffle and limbo of files between offices. Who knows if the Streamlined is experiencing the same kind of chaos. There is no transparency or explanation.
Those who have made Streamlined submissions could try contacting the Taxpayers Advocate http://www.taxpayeradvocate.irs.gov/Home/Contact-Us to find out what they can do next to determine where they are in the queue and process – and maybe the TAS can help. By now, the ‘streamlined’ is going on 7 months old – and perhaps will fit the TAS criteria of an IRS process that is not going ‘as it should’ – whatever that might mean for that program.
See the TAS criteria:
Who May Use The Taxpayer Advocate Service?
The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. You may be eligible for Taxpayer Advocate Service assistance if:
You are experiencing economic harm or significant cost (including fees for professional representation),
You have experienced a delay of more than 30 days to resolve your tax issue, or
You have not received a response or resolution to the problem by the date that was promised by the IRS.
The service is free, confidential, tailored to meet your needs, and is available for businesses as well as individuals. There is at least one Local Taxpayer Advocate in each state, as well as in Puerto Rico and the District of Columbia. Because they are part of the IRS, Advocates know the tax system and how to navigate it. If you qualify, you will receive personalized service from a knowledgeable Advocate who will:
Listen to your situation,
Help you understand what needs to be done to resolve it, and
Stay with you every step of the way until your problem is resolved.
Contact the Taxpayer Advocate Service. http://www.irs.gov/uac/Contact-a-Local-Taxpayer-Advocate
And, perhaps those concerned about any of these issues could also submit a SAMS http://www.irs.gov/uac/Systemic-Advocacy-Management-System-%28SAMS%29
That might get the issue of the silence and lack of progress for those in the Streamlined program noticed – through sheer numbers of submissions made to the TAS. The TAS does take these very seriously and tries to get action on developing and ongoing issues.
@Lisa, re: “While I also did not meet other requirements of the Streamlined Program, my agent informed me that it was the fact that I had filed previously that held the most weight and made me ineligible. My agent even said it was a pity that I could not go directly into the Streamlined Program. As the agent kindly said, it would have made things a lot easier.”
Glad to hear the agent said that. Hope the IRS sees sense and becomes more flexible with the Streamlined criteria as agents start reporting back on the cases they are dealing with that should have been able to benefit from it. Perhaps as they look at the tens of thousands of cases in the OVD and the Streamlined, they will change their position.
Another group who is left out in the cold – without any help from any type of Streamlined program is that of the new immigrants to the US, with existing country of origin accounts, and family accounts back home.