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 that Lisa!
Thanks for confirming that one can learn more than the attorneys who want to charge you $100s of dollars an hour for their schooling during your OVDI misfortune!
As for Examining Agents, yes they can be professional and more knowledgeable or helpful than an expensive attorney, but they can also be obstinate and constrained by their Managers and Technical Advisers. It is at that point that the TSA contact becomes most helpful to shake them back into reality.
@usxcanada
I have to agree with your assessment. Even when an agent can see how friggin’ inefficient their time is, and knows that the Minnow should never be in the process in the first place, they will still bury their heads in the rule book (IRM or OVDI FAQs), and proceed to take your money if you don’t stand up for yourself. It justifies their job. My Examiner kept asking why I didn’t just pay my penalty like all the other Minnows she was processing had! That was also the case for IJ and Moby. Agents thought you should just pay the price, sign the 906, and move on, even when in their heart of hearts they knew it was inappropriate.
I think this describes the government efficiency best )
http://www.youtube.com/watch?v=nJpcTrqtAp0&feature=youtu.be
or
…. My Examiner kept asking why I didn’t just pay my penalty like all the other Minnows she was processing had!…… that is a classic ! Bend over and pay your fair share you expats … 16 trillion
reasons 🙂
@Just Me,
I am working my way through the due dilligence part suggested by you elsewhere on this website and I’ve read through your very helpful and detailed OVDP post. In it you mentioned you contacted a lawyer twice to get professional info, once with Jack Townsend and I believe the other time was with Hale Sheppard. You said that both of these were expensive. On Jack’s blog he indicates the cost for a telephone consult but I couldn’t find anything about the cost for Hale Sheppard on his website. Was your contact with these 2 lawyers by phone, email or in person? Did you send them anything specific in writing (either by email or mail) prior to the discussions? I realize that you were contacting them at a different point in this tax compliance process but I’d still like to know. Maybe I’m just being paranoid, but I am very hesitant to send any detailed tax info to anyone in the U.S., tax lawyer or not!
Yes, I did see the list of OVDI lawyers on Jack’s blog and had a look at, but I have 2 concerns with contacting any of these people:
(1) If they are OVDI lawyers aren’t they most likely going to suggest that OVDI is the only solution because that is their bread and butter? I am looking for somebody knowledgeable but that will give me a fair assessment of my options first and then I can decide what to do, not for someone who just wants to make money off of me.
(2) All but 1 of these lawyers is in the U.S. (thus my hesitancy as stated above). The only one in Canada is Moody’s and I’ve seen rather mixed comments elsewhere on the IBS site about them. They certainly seem to have expanded greatly in the past year or so due to this FBAR/FATCA mess and now are proposing to the Canadian government to allow us to deduct the expenses we have to spend to get in U.S. tax compliance, so not sure how objective they will be.
Anybody have any experience with consulting with or using Moody’s in Canada?
I’m lookling for recommendations based on good personal experience with a tax lawyer. Does anyone on IBS site have some recommendations? How do you start this process without exposing yourself and wasting losts of money? I got insufficient/wrong advice previously from a U.S. tax lawyer who was not an OVDP/OVDI lawyer.
@Not that Lisa,
Thanks for your helpful info about the FTA.
It sounds like you didn’t have good luck with your tax lawyer. Any do’s or don’ts you would suggest to me in trying to find a good one? How did you start this process?
@ Albatros, Are you already in OVDP? If not, why are you contemplating entering it? What makes you think that you need a lawyer? Do you mind explaining your situation a little to us. Many people may think they need to enter OVDP or get a lawyer. These can be traps. I cannot think of one reason why a Canadian based person needs to enter OVDP, unless perhaps they have Swiss bank accounts with significant hoards–but then you would also have potential problems with the CRA.
@ albatros
I consulted three tax lawyers, one in Canada, two in the US.
I will get a CLN to confirm that I relinquished my US citizenship back in 1985 when I became a Canadian.
My mom’s tax accountant in Victoria BC first alerted me to the fact that I needed to better understand my own situation. They won’t take clients unless you have consulted with a tax lawyer first. They recommended:
http://gsblaw.com/ – I contacted their Seattle office, and had a great consult. They understand the issues…and I would recommend them.
If I had gone with the advice given to me by the US tax lawyer based in Canada I would be in the tax game now, and I feel comfortable, based on my consults with lawyers, to just get my CLN, and then get on with my life. Except, I am now going to start being a tireless advocate with the Canadian politicians regarding the issues everyone on this site is facing. As a Canadian citizen, I feel it is my duty to help them understand the unique circumstances that those of us born in the US face.
Not on Jack’s list, but I would recommend Michael J Miller.
http://www.robertsandholland.com/MMiller
He comments regularly on this web site, and won’t recommend OVDP unless you really need it.
He seems to have similar views as Jack’s on this.
As you probably read on Jack Townsend’s web site, Jack has a pretty good analytic approach to help you decide the best path to compliance based on your facts. I did not contact Jack, for the reason that he requires a minimum of 2 hours, and that I did not think that my simple case would require 2 hours of his time.
As you mentioned, some other attorneys will just recommend OVDP either because of circular 230, because of the IRS threats, or because of the result of outlier corner cases. Some will because they think it’s the law and even if your facts are good will funnel you into the program with the intent of opting out.
I could give a couple names of those, but I won’t…
Ultimately, you should trust yourself and your own councel. I shed some $ and contacted a couple different lawyers. For the same facts presented, I got the 3 different possible answers, from OVDI to Quiet disclosure to go forward. So now what? That was very frustrating. I spent money and am not in a better position than I was before.
Ultimately, I had to choose based on the information that I read here and on Jack Townsend’s website.
@albatross
I, of course, don’t know your facts, and I am not a professional, but understand the struggle of trying to figure out what to do, especially if you think you “want or need ” to be compliant going forward. Let me give you some quick answers to your specific questions..
Was your contact by phone, email or in person?
Actually, over 2 plus years, I had contacts with 3 attorneys and it was all done by phone, and some email follow up. I did not send specific tax information via email, just generalized background info.
If they are OVDI lawyers aren’t they most likely going to suggest that OVDI is the only solution because that is their bread and butter?
Back in 2009, I would have said, yes that is the case, but as time has moved on, I do think you might get more nuanced advice based upon your facts. I tend to now think, again depending on your facts and if you are at not at criminal risk, that the OVDP is not the correct approach for many tax payers, in spite of FAQs hyperbolic warnings. If an attorney’s first suggestion is to try to get you to enter, I would say, “Thank you very much, and hang up”
Ideally, it would be good to find someone who has lots of knowledge, but not a vested interest in putting you in an OVDP. I might suggest that you get in touch with @USCitizenabroad, as he does have a legal background and a lot of good perspective. He might be able to help you sort out your facts without pushing you into any particular decision. You could contact him at his blog.
Anybody have any experience with consulting with or using Moody’s in Canada?
I certainly do not, but before I would go that route, I think I would try contacting @USCitizenabroad as stated above. As I have gotten to know him separate from this blog, and do think he would do right by you in helping sort out your facts and alternatives. Not sure what he would charge for a thorough analysis of your situation. Ultimately, he would leave the decision to you, and WOULD NOT do any of the work.
As Petros said, as a Canadian, you may NOT need an attorney at all, so give that some thought. There are definitely traps within it, but again, given your facts, it might be a route you “have to take”. If you were to decide it was necessary, then again, you do NOT need an attorney to do it for you. Of course, if you have more money than time, and like spending big bucks for clerical work, then an OVDP attorney is a route. Again, I think, @USCitizenabroad could help offline. This is NOT an advertised service. I can not really speak for him, and he might just say no and he isn’t able to assist but give it a try. I say that without asking him, so I will send him a side email, and ask him to watch for your contact.
@Albatross, I wouldn’t recommend my accountant for the simple reason that this firm is located in the UK. However, they recognize nuance and believe that many people in our types of situations probably don’t require the OVDP programs or even an attorney. But bear in mind that this is a more aggressive opinion. If someone’s situation is murky in any way, it might be money well spent to enjoy client confidentiality that a tax attorney can provide that a mere accountant can’t.
@albatross – you are getting lots of good tips here. Being a minnow in OVDI, I would heed what Petros is saying. OVDP is a program for those with criminal exposure, or who have millions and have had accounts in Swiss banks, HSBC India or Bank Leumi and your bank is going to turn over your name to the IRS. In those cases, it might make sense to join.
If I had to do it all over again, I would do it differently. The proof of the pudding for me is that after more than 2 years and lots of unnecessary expense, I am back in the same position I was before I was in OVDI. I have opted out and we now dealing with two open years as a normal tax case which is what I had approached the tax lawyer about initially. As for the FBAR penalty, I am giving the same reasonable cause arguments I would given had I filed quietly and been audited.
One could say it is going so smoothly for me because I entered OVDI and I say, bah humbug to that. I was lucky and my agent showed me the math inside and outside the program and on this basis I opted out before the agent had finished the audit. There was no point in wasting more time in OVDI. I was worse off in terms of penalties in the program than outside of it and it is clear that I have no criminal exposure. However, lawyers will err on the side of caution and push you into OVDP as one can never be sure of the amount of the FBAR penalties that will be imposed.
For bona fide long term residents abroad, the lobbying that has been done on our behalf by ACA, Canadians, other OVDI victims and the TAS is bearing fruit. Experienced Revenue Agents understand the situation and will understand it whether you are in OVDI or not. That is my first hand experience.
I can tell you what not to do with a lawyer:
– do not enter OVDP after a 15 minute free consultation in which you are told there is no negotiation, your facts do not matter and the OVDP program is the only proper way to correct your situation.
– do not think OVDP is just a process to follow, it is not. It is living hell. Documentation demands are high and rules change all the time and that will cost you more in legal fees. Additionally, my mailing costs as an overseas resident for submitting all the documentation I had to my lawyer were over USD 1000. Because I have led a normal law abiding life overseas, I am documentation rich. It has helped me, but cost me a lot in terms of mailings.
– take whatever fee your lawyer tells you and double it. That is likely what your real legal cost will be.
– When a lawyer tells you that he will retain the accountant, do not assume the accountant’s fee is included in the lawyer’s fee. It is not.
– if you are truly a minnow, maybe just working with a knowledgeable accountant is enough. I wasted lots of money on what I call the “Kovel Agreement telephone game”. Basically, your conversations with your accountant are not “protected”, so your lawyer will act as an intermediary between you and your accountant if the accountnat has questions. Boy does that wrack up the hours. It was totally unnecessary. What did I need to protect? I lived abroad. I had bank accounts where I lived. After firing my lawyer, I ended up working directly with the accountant. I am getting a better understanding of my situation as a result.
– do not fall into the trap of, “To save you money, I will let my associate do most of the work.” Associates have less experience than the lawyer and get ahead by billing lots of hours. They will use your case to learn and bill you for it. If there are any questions, they call in the lawyer and you end up paying double. Be especially wary if you are assigned the most rookie associate in the firm.
– some lawyers will keep work in-house that should have been farmed out to accountants so they can bill more hours. I had rookie associates reading through each line of my bank statements and asking me questions about things like grocery bills and electricity bills.
So those are just the basics of what to watch out for so you do not fall into the OVDP trap.
Oh and two more things:
– when you get those monthly bills from the lawyer and you know no one has done anything, but yet you are billed over USD 300 for “document processing” and you call the lawyer to ask what has been done and he immediately reduces the bill by half, this should be a hint that something is rotten in Denmark
– The OVD Programs are in constant flux and remember, the only thing consistent about the IRS is its inconsistency. Had I not fired my lawyer, due to this, I could have easily run up $10’000 more in costs. As the left hand is not coordinated with the right hand within the IRS, collections were started on me twice for not filing, when I had filed under OVDI. This is nothing major, but it takes time to make the phone calls and respond with written documentation. Time is what lawyers bill. Additionally, when your OVDI box finally gets checked before being queued for assignment, you will get a call and letters asking for SOL extensions. Responding takes time and lawyers bill time. Finally, if your Revenue Agent makes an IDR (information Documentation Request) somebody has to organize the info requested and respond. Guess what? That takes time. These are extra costs one does not anticipate when entering the program.
@ albatros, adding to what not that Lisa says, the legal firm I noted above won’t stear you into unnecessary filing, and can provide wise counsel. In order for me to have privledged conversations with my accountant hear in Canada, and the lawyer at that firm was willing to write a letter to the accountant to set things up so that they were engaged by the lawyer, and thus any converations I would have would with the accounant would be protected. I have not done this yet, but may down the road.
@Not that Lisa…
Excellent comments!!!
@ albatros …… another thing regarding those monthly bills : be wary when you see repeated items like telephone call with revenue officer XXX discussing coordination with OVDI/P etc. You know you are paying for somebodys learning curve . I would love to have some transcripts from these phone calls, I think one would be outraged about the fluff that you have been billed for .
Thanks to all the Brockers who have provided comments to me. I am not in OVDI nor do I want to join it! I ‘ve been a DIY filer of US tax returns, but like many overseas filers, was not aware of all the complexities and changes in the tax code and the many information reporting forms that must also be filed. Recently learned that “foreign” mutual funds seem to require very complex and expensive reporting! I am not wealthy, but just a regular person who lives abroad and invested in mutual funds over a period of time in my home country and now seems to have a tax nightmare. I do NOT have big bucks to spend on lawyers and fancy accountants, but I think I need competent tax advice and I am paranoid about giving my tax details to someone unscrupulous or someone who could be a potential whistle blower. I can’t make heads or tails of forms like 8621 and so can’t begin to estimate how much potential tax liability we’re talking about.
@Just Me,
Your suggestion seems to be to start with contacting @USCitizenabroad.
. As you said, ” Ideally, it would be good to find someone who has lots of knowledge, but not a vested interest in putting you in an OVDP. I might suggest that you get in touch with @USCitizenabroad, as he does have a legal background and a lot of good perspective. He might be able to help you sort out your facts without pushing you into any particular decision”
I had a look at USCitizenAbroad blog but could not determine anything about his background. Is he a lawyer? Given my paranoia, how much detail could I safely discuss with him?
@NotthatLisa,
Thanks for all of your comments about OVDI and your experience with lawyers. It makes me even more wary of either!
@Chris,
You suggested Michael Miller. Did you personally have any contact with him or anyone in that law office? I understand your frustration at getting 3 different recommendations after contacting 3 different lawyers. Did you finally decide how you are going to handle it?
@Lagoon,
You suggested gsblaw. If I understood your situation, your case is more related to being a longtime Dual citizen and being able to get a CLN for relinquishment, not a tax compliance issue per se. Would you say that that law firm understands the US tax compliance issues of expats or are they more focused on the relinquishment/renunciation side?
The Bank Leumi Story: Another “Bait And Switch” Or Is It Good News For Some OVDI Practitioners? http://bit.ly/Z3XlB0 via @MopsickTaxLaw
Re: The Bank Leumi Story: Another “Bait And Switch” Or Is It Good News For Some OVDI Practitioners? http://bit.ly/Z3XlB0 via @MopsickTaxLaw
I strongly recommend this latest Mopsick article. I tried to leave this comment at this blog, but wasn’t able to:
__________________________________________________________________________
A very good analysis of this situation – thanks for taking the time to lay this out.
The problem is as follows:
The IRS after having cleared people to participate and receiving their filings kicked them out of the program. Although, it may be that there were reasons that would justify the reversal in a “legal sense”, the manner in which this was done, coupled with the 2009 “bait and switch” leaves the impression that the IRS is prone to act in an unprincipled and unreasonable way – in short that they simply cannot be trusted.
How can the IRS possibly administer OVDP unless people are entitled to rely on the “pre-clearance” as comfort that they can enter the program? My point is a simple one:
The IRS should have honored what was perceived by all to be an agreement. Now, I expect you would take the position that the IRS is NOT in breach of any agreement (as per the points made in your post) but this is clearly inconsistent with the “reasonable expectations” of taxpayers who entered the program. It would be interesting to see the result of a “breach of contract” lawsuit against the IRS.
I do agree that – strictly speaking – there is nothing about this that suggests that OVDP is dead. But, I predict that few will enter OVDP from this point on. People enter OVDP because it was a guarantee of certainty – that’s the only reason. Now, the perception is that OVDP will not guarantee certainty.
So, we are back to traditional voluntary disclosure.
The success of OVDP (to the extent that you can call it success) is dependent on a perception that (within reasonable limitations) the IRS will honor its agreement. That perception has been shattered. What the IRS needs to do (and we know it won’t) is explain:
1. Why those taxpayers were disqualified; and
2. Why it is okay for the IRS to do violence to the reasonable expectations of those entering OVDP.
In closing, thanks again for your thoughts on this – very interesting analysis!
@Just Me, …”leaves the impression that the IRS is prone to act in an unprincipled and unreasonable way – in short that they simply cannot be trusted.”
Exactly.
We are being held hostage to US caprice, and in lifelong bondage to this monster if we cannot find a way to successfully renounce.
The only thing we can count on is that there will be more of the same unjust and punitive treatment for all of us born and or living outside the US.
@USCitizenAbroad
I too had problems posting a comment and lost it I sent your comments directly to Steven who appreciated it. The worst aspect for the IRS is the impression it leaves. Perception is reality and with the speculation right now, they are getting more and more of negative press, which is not good for them.
I saw this from a Swiss based Wealth management service this morning, and chuckled. The “best and the brightest” continue to shoot themselves in the foot when their actions lead to further negative speculation.
FATCA TAX EVADER BAIT & SWITCH – IRS AMNESTY PROGRAM TO ORANGE JUMPSUIT
@UsCitizen…
Re ur “So, we are back to traditional voluntary disclosure.”
My comment was along the lines that clients might as well just do a QD if they want to be compliant, and play the lottery audit. In actuality, the IRS should be happy with that. It gets compliance and revenue, and then can pick and choose who it wants to examine further for orange suit measurements. They can dispense with all the time consuming and inefficient OVDP process which has to be a drain on IRS sequester restrained resources. It does cut a lot of Tax practitioners out of some big fees, shepparding their clients through the 2 year long process.
@just me
Here’s another comment just dripping with sarcasm (I’m in that kind of mood today): maybe the IRS should charge us a fee for having to process all of those pesky offshore nil returns.
@USCitizen…
This article gave me a little window of insight into the High Net Worth, and Very High Net Worth Individual that the OVDI program was supposed to be all about. Just the practical problems of secrecy.
https://offshoretaxevasion.wordpress.com/2013/03/05/the-new-reality-of-offshore-tax-evasion-for-u-s-citizens/
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@bubblebustin, re; …”maybe the IRS should charge us a fee for having to process all of those pesky offshore nil returns”… well, they are probably losing the US significant money in staff time and resources for many of the filers ‘abroad’. Yet they want > 6-7 million to file anyway.
There was an intriguing comment or two by a reader here at IBS, (possibly in Spring of 2012?) who mentioned that (her accountant or the IRS?) had in decades past said that the IRS was telling people not to file nil returns or discouraging that (as a waste of IRS time and resources?). I had asked if she recalled the time period, since I thought we might be able to find past IRS documentation that demonstrated that if it was actually a policy. She didn’t have any of the details, so it came to nothing in the end, but I have wondered about it. Practitioners who’ve been around long enough, and even ex-IRS staff themselves would know the history of this type of change in practice – even if it wasn’t formalized.
Filing nil returns would have gotten some filers the ‘Making work pay credit’ and the matching refund in the tax years of 2009 and 2010 right? That is money that the IRS had to pay out to those abroad who ordinarily in the past hadn’t been filing – and thus wouldn’t know about it in order to claim it? So not only didn’t they get any extra revenue from us, they actually had to send some out of the US to those abroad who qualified.
The only reason I can think of for pretending that they can get taxes out of the bulk of those ‘abroad’ is that they are actually after the account and asset data, (not assessed taxes per se) collecting all that financial account and asset data and hoarding it in their great big database http://www.reuters.com/article/2013/03/13/usa-banks-spying-idINDEE92C0EH20130313
Or, they want to have the data in place for any future imposition of a ‘wealth tax’ for those living abroad – in lieu of the taxes they haven’t been able to assess because of the FEIE and Foreign tax credit offsets. A la Cyprus.
Or, just because they can – as a lever to get penalty revenues out of anyone they manage to get hold of in the future who hasn’t filed the FBAR, 3520, and other reporting forms that have the extortionate penalty provisions – even though no actual tax was owed.
They are so short staffed, and can’t even hope to process those returns they have managed to get from ‘abroad’, or give those close scrutiny, yet they want each and every one of the >6-7 million abroad to file?
They don’t have the staffing or ability to actually process all those files – unless they think that down the road it can all be automated.
Or maybe they actually have no coherent rationale.
@Just Me, that the article seemed to give some kind of estimate of the size of those ‘high net worth’ individuals in terms of FATCA, was very interesting in light of the Taxpayer Advocate criticism of the OVD programs, the failure to give minnows any sanctioned options to come forward without being treated like whales, and the lack of any filter to divert minnows at the front end of OVD’s rather than process them all the same through the whole opt out procedures. Even the new Streamlined process still excludes minnows or small fish who don’t fit its ridiculously narrow conditions – and the recent immigrants to the US with pre-existing homeland accounts.
There is a huge unbridged gap between those the Streamlined program targets , and those HNW individuals (probably also all US homelanders) the article addresses.
The article says ……”However, the majority of tax evaders most likely to be caught by treaties and FATCA alone cannot be considered truly HNW and UHNW. They are more upper middle class with undeclared assets in the range from the mid-five to upper six figures; a few, here and there, might have $1,000,000. But, there is an abundance of them with combined assets estimated to be in the billions.”……https://offshoretaxevasion.wordpress.com/2013/03/05/the-new-reality-of-offshore-tax-evasion-for-u-s-citizens/
But then what is the point of keeping the FBAR threshold so low then, if the FATCA reporting form threshold is (for now) much higher? http://www.forbes.com/sites/robertwood/2012/04/10/fbars-fatca-form-8938-maddening-duplication/ That means that the FBAR still affects minnows, whereas they seem to be filtering out some of the smaller fish with the FATCA form 8938. And the IRS cannot hope to process > 6-7 million of us abroad – much less pursue each and everyone.
@Badger “But then what is the point of keeping the FBAR threshold so low then, if the FATCA reporting form threshold is (for now) much higher”.
Yes, that is nonsense. I think they should not even have a separate question about interest in a foreign account if you don’t meet the criteria for reporting.
I’ve read that people who are under the threshold are actually more at risk of audit, because they don’t file form 8938. Nonsense.