Excerpted from AngloInfoBlog
Posted on September 21, 2017
by Virginia La Torre Jeker J.D.
My heart fell when I saw this tweet this morning, though I told myself it likely won’t affect any “minnows.” Haven’t we had more than our “fair share” of bad news? Will there never be an end to this perverse & persistent notion that #AmericansAbroad, #AccidentalAmericans et al are automatically guilty of tax evasion?
RS CID Chief: “Significant” International Tax Investigations Under Way
Updates on IRS "Offshore"https://t.co/3LqygkZfkx pic.twitter.com/TE1RohN6rz
— V. La Torre Jeker JD (@VLJeker) September 21, 2017
So the IRS is forming a new International Tax Enforcement Group in Washington DC.The group will be comprised of IRS personnel in DC as well as IRS agents from other IRS locations around the nation, personnel from the Justice Department’s Tax Division as well as international partners.
International partners? What does this mean? Presuming solicitor client privilege will rule out tax lawyers, will accountants be expected to “turn” on their clients? Or does it refer to further involvement of foreign tax agencies? Will privacy of taxpayer information simply disappear completely?
We know that the IRS has a tremendous volume of raw data about US taxpayers and their foreign financial assets. This has been obtained from various sources, including the Offshore Voluntary Disclosure Programs which, in one form or another, have now been running for 8 years. Since 2009 with the inception of the first IRS Offshore Voluntary Disclosure Program (OVDP), numerous taxpayers have provided detailed information to the IRS which has been steadily fed into its E –Trak System. More data was obtained via the Swiss Bank Non-prosecution Program, various whistleblowers and investigative journalist leaks, and more recently from data supplied by foreign governments and foreign financial institutions pursuant to the “Foreign Account Tax Compliance Act” (FATCA). It is planned that this new International Tax Enforcement Group will be more efficiently mining this data and Ford believes that this could result in tax investigations in “other countries” and “other jurisdictions” that have as yet, not been in the IRS criminal crosshairs.
Perhaps this is the “big” moment we’ve waited for from the beginning. A huge (re)action on the part of the IRS that will bring expats together in new ways to fight back? Will we finally see some financial support from people who can truly afford to do so? Civil disobedience? I have often wondered why any of us would worry about info gathered from the Swiss bank program, whistleblowers, the Panama Papers, etc. This would appear to apply only to those with far more money in foreign accounts than any of us have. And good gawd what other countries & jurisdictions ?
But the little nagging bit is the last item – from FATCA. No one save the IRS & the foreign tax agencies know what information has been turned over. And the banks have not adhered to the lower thresholds because the IGA’s allow them to do so. There will probably be many, many mistakes which will cost a lot of grief, time and money when no income tax is even owed.
Here’s the other little gem in the announcement:
One of the campaigns involves “OVDP Declines and Withdrawals”; its focus is on OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. They are now the subject of more intense IRS scrutiny for audit. I know of many frightened taxpayers often telling the same sad story – it usually went something like this — their tax return preparer (or other advisor) convinced them to enter OVDP. However, upon fully understanding the facts of their case, it was determined that entry into OVDP was a clear case of “overkill” and was unwarranted. Some of these individuals successfully withdrew from OVDP and obtained tax compliance perhaps through a penalty-free IRS Streamlined initiative. Now, these individuals may be targeted under this latest IRS “campaign”. How lovely!
This stinks. It has that same aroma of FAQ 35.
From form 14653 (required for Streamlined Foreign)
I acknowledge the possibility that amended income tax returns I am submitting under the Streamlined Domestic Offshore Procedures may report income for tax years beyond the three-year assessment limitations period under I.R.C. § 6501(a). Other assessment limitations periods in I.R.C. § 6501 may allow the Internal Revenue Service to assess and collect tax. If I seek a refund for any tax or interest paid for the omitted income that I am reporting on my amended income tax returns because I feel that my payments were made beyond the assessment limitations period, I understand that I will forfeit the favorable terms of the Streamlined Procedures.
I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.
If one has managed to obtain “reasonable cause” via the IRS Form 14653, (a very detailed 5 page form), filed Streamlined, paid applicable tax etc, why would having opted-out of OVDP automatically invite suspicion? This sounds a lot like this delightful little tidbit; according to the Taxpayer Advocate, the agency assumes individuals with offshore accounts are suspect of fraudulent activity. Or what about if one had already renounced, assuming there were no further issues with IRS and then comes this?
To cheer u, IRS Lost Yesterday on #Willful #FBAR penalty https://t.co/UCYgaq9YLM Will try to blog on this soon
— V. La Torre Jeker JD (@VLJeker) September 21, 2017
Bedrosian v United States of America, Department of the Treasury & the IRS
US District Court for the Eastern District of Pennsylvania
September 20, 2017
Mr. Bedrosian was seeking a refund of $9,757.89 paid when he was found to be “willful”in failing to report a 2nd Swiss account on his 2007 FBAR; the government counterclaimed for the entire amount of the penalty of $1,007,345.48. !!!
The Court had posed 2 questions to the parties:
- 1) Does any precedent exist for finding willfulness based on conduct similar to Bedrosian
- 2) Did the government sustain its burden of proof regarding the calculation of the penalty amount
I won’t try to summarize the court’s discussion of all the factors it weighed to determine (non) willfulness. Frankly, I never can follow all the ins-and-outs of the legal process. The court concluded:
“Although we apply the lower, civil standard of willfulness here, we nevertheless do not see Bedrosian’s as the sort of conduct intended by Congress or the IRS to constitute a willful violation. Because we find the government failed to meet its burden as to the requirement of willfulness, we decline to engage in an analysis concerning the calculation of the penalty amount.”
In addition, the court ruled that the $9,757.89 was illegally extracted from Bedrosian and that the government owes him that sum.
After the recent depressing cases of Pomerantz and Dewees, this ruling does indeed, give one reason to smile. The IRS can be beat!
No, I think very little enthusiasm for penalty enforcement, from either banks or tax authorities. The goal for a bank is to credibly claim that they are doing enough to be compliant, nothing more – at least in Canada.
When you look at bank’s FATCA guidance to customers, there’s often a bit about how determining US personhood is a complicated issue, beyond the expertise of banks themselves, customers who are concerned that they might be US persons should contact a lawyer, etc. (Last thing they should do, but that’s another issue entirely.) Which to me is a clear indication that even if a Canadian FI is aware of US birthplace or citizenship, one could get away with quite a lot by spinning bullshit. It’s practically an invitation to lie:
“US birthplace? No, I’m not a US citizen. I relinquished when I joined the Canadian military and swore an oath to the Queen. No, they never sent me a CLN, but I can’t be a US tax resident, and you’ll have to prove otherwise. Oh and all my service records were destroyed in a fire.”
“US birthplace? My father was a diplomat and I cannot claim US citizenship. Prove otherwise.”
“Old US address on file? I was going to school, on a student visa. Never had a social security number, sorry. Lost my old passport with all the stickers and stamps, sorry.”
“I filed a motion for leave to tell the truth and a court denied my motion. The court ordered that I should sign declarations under penalty of perjury under 28 USC 1746, but denied me leave to make the declarations truthful.”
‘“being lied to” is the key. The court ordered you to lie but not to lie to the court. Court does not handle the returns they forced you to lie on.’
The IRS coerced me to lie on returns and courts agreed. The US Department of Justice coerced me to lie on returns and courts agreed.
But when I filed a motion for leave to tell the truth and a court denied my motion, the court coerced me to lie to the court. The IRS and DOJ didn’t care because they already lie to courts in two ways, sometimes not declared under penalty of perjury, but sometimes signed under penalty of perjury under 28 USC 1746 and thereby perjured. Courts want perjury. I don’t know why they swear in witnesses.
‘Ironically, when I tried to explain FATCA to an aquaintance who is a USC and who works for the US Embassy in Japan, he got angry and shouted “This is Japan, US law has no juristiction here!”’
Now you know why guards seize tape recorders at the entrance to the embassy.
“Sent your email address to Mike as requested.”
Thank you. I haven’t received anything so maybe I should clarify that I can probably get his checks cashed in the US.
“The fines referred to in the links I posted are for refusing to answer, not for answering falsely. I didn’t find anything on that. It might just be covered by a more general prohibition somewhere (e.g. thou shalt not lie to the tax man).”
That could be. Canadian and Japanese tax agencies didn’t coerce me to lie.
“The IRS coerced me to lie on returns and courts agreed. The US Department of Justice coerced me to lie on returns and courts agreed.”
Ok, they do not like being lied to when they have not told you to lie.
Myself, I ended up a “fraudulant enlistee” by telling the truth, so there is definately something to them not liking being told the truth either.
I was threatened, by the way, with the standard $10,000 fine, ten years imprisonment for fraudulantly enlisting. Many of the papers I have had to sign and turn into to the US gov came with statements attesting to this penalty for providing false information.
“‘Ironically, when I tried to explain FATCA to an aquaintance who is a USC and who works for the US Embassy in Japan, he got angry and shouted “This is Japan, US law has no juristiction here!”’
Now you know why guards seize tape recorders at the entrance to the embassy.”
He told me this while we were drinking in an izakaya. Completely unofficial meeting. Just two former coworkers catching up. I tried to tell him about FATCA and FBAR and he insisted that US law can not touch us here in Japan and got angry at my suggestion otherwise.
“Not unlike the $500 perjury fine with on the US passport application, which I’ve always maintained was a pretty good deal, $50 per year for a ten-year passport is considerably cheaper than paying someone to file your tax returns.)”
I felt the same until the part of delay or refusal of the passport renewal for not providing my SSN.
“I was on a student visa. No, I didn’t keep the paperwork or my old passport. No, I never had a US Social Security Number.”
Twenty years ago, the first place foreign students were taken on my campus was the Social Security office for their SSN. A student’s SSN is their student number. I do not know when this practice started, but saying you were a student in the US but did not get a SSN will get you caught in a lie if the bank knows this fact.
Also, in many states, the SSN is also your driver’s license.
““It’s an unlikely scenario, given that banks do not have place-of-birth information,””
They will, if it becomes a matter of money for the bank, they will.
“Currently it’s well under any FATCA or CRS reporting limits so likely not even being looked at”
I have less than $10. (ten) worth of yen in my bank account and yet my bank tells me it and all others are being reported.
“as long as the TIN is provided to the requestor within 15 days of receipt.” Looks like your wife is off the hook (for this) as she has never received her TIN.
“The fact is, it’s almost impossible for the actual victims – the taxpayers – to even find out what the law requires them to do. No tax agency anywhere seems to have made any effort to inform the people it most concerns. That suggests to me that none of them are going to be enthusiastic about trying to enforce these penalties.”
SAY WHA! What effort has the US made to inform overseas tax payers of the requirements? Are they not enthusiastic in coercing other countries banks to find us and turn us over?
“Oh and all my service records were destroyed in a fire.””
Ok, now you are off into la la land. Fire, smire, copies of military service records are kept by the gov..
The burden of proof is not on the bank. You provide them with the information the ask for or they close or freeze your account. Those whose banks are not yet asking for this information can breath easy for now. Once the US realizes that they eare receiving data on far far fewer than the 9 million they estimate, they will start turning the screws and banks will ask for more and more documentation. Those who do/can not provide it will lose their accounts.
“Twenty years ago, the first place foreign students were taken on my campus was the Social Security office for their SSN.”
ITINs were invented approximately 20 years ago. I bet foreign students are taken to get ITINs now. Though I wonder how they can survive without their passport for several months.
“A student’s SSN is their student number.”
I think the Privacy Act of 1974 applied to state universities but not to private universities.
I’d expect that private universities have stopped using SSNs for student numbers.
“Also, in many states, the SSN is also your driver’s license.”
I seem to recall reading something like that, but I’d expect it isn’t that way any more.
The US is finally even going to issue Medicare numbers that aren’t SSNs.
But if you ever have litigation involving a tax issue, the 9th Circuit ruled that it is correct for the US government to disclose your SSN to the public. The DOJ’s Criminal Tax Manual says that SSNs are only supposed to be disclosed to the DOJ and the DOJ isn’t supposed to disclose them to the public, and court rules used to say that filers have to redact SSNs, but the 9th Circuit wasn’t swayed by those positions.
““as long as the TIN is provided to the requestor within 15 days of receipt.” Looks like your wife is off the hook (for this) as she has never received her TIN.”
She never was on the hook for it; I’m the one on the hook. And she did eventually receive an ITIN; I’m on the hook for having failed to fabricate an SSN for her while the IRS was still rejecting her ITIN applications.
““Oh and all my service records were destroyed in a fire.””
Ok, now you are off into la la land. Fire, smire, copies of military service records are kept by the gov..”
Kept on the same hard drives with Lois Lerner’s e-mails and Ameritrade’s Form 1099’s, right? The IRS was on the customer list of my employer before I joined the company. They probably used machines designed by my co-workers to erase their records.
““A student’s SSN is their student number.”
I think the Privacy Act of 1974 applied to state universities but not to private universities.”
My university is a state university. I graduated in 2000.
““Also, in many states, the SSN is also your driver’s license.”
I seem to recall reading something like that, but I’d expect it isn’t that way any more.”
That would be surprising as the feds have bedn pushing states to change their DLs to a standardized format designed by the feds. States that are not doing so are seeing their DLs not being accepted as ID to enter certain federal properties.
My home state allowed for a nonSSN to be used on our DLs, we coul choose either, but that was not the case with neighboring states.
“The US is finally even going to issue Medicare numbers that aren’t SSNs.”
This is surprising and good news, so maybe the above is also true.
“Kept on the same hard drives with Lois Lerner’s e-mails and Ameritrade’s Form 1099′s, right? “ He he! I am truely waiting to see that defense used. That would be a hoot.
If researchers can get the records of servicemen from the civil war (1861-1865) I am certain that a bank official would not be swayed by the argument that one lost theirs in a fire.
My proposed lies were somewhat metaphorical. For now, in Canada, it’s enough to merely say “no, I’m not a a US citizen” and one is not challenged.
I hope for you and all Canadians it remains thus.
“He told me this while we were drinking in an izakaya. Completely unofficial meeting. Just two former coworkers catching up. I tried to tell him about FATCA and FBAR and he insisted that US law can not touch us here in Japan and got angry at my suggestion otherwise.”
People get angry when you tell them about FATCA, the US tax code, and what this means in real life. The get angry for several reasons and there is a tendency to shoot the messenger.
They get angry because it cannot be true, the USA has no jurisdiction in their country and no way would their government roll over to these US demands. Except it is true.
Americans get angry that you could be so rude as to call the USA a human rights abusing bully that has effectively made the USA the largest open prison on the planet, and they definitely like to shoot the messenger rather than look at the evidence provided.
I have provided link after link to court cases, this website, Republicans overseas, youtube videos of the FATCA hearings, links to the fact that people are renouncing in their thousands only for the American to say – You’re lying!
I think it’s known as denial.
Norman – Thanks for the offer of help with the checks, but my local barmaid has just offered to get them cashed for me when she returns to the States in a few weeks. It’s going to charity anyway.
Mostly true in my case. The embassy employee is an American working for the US embassy. He definately fits much of what you experiece.
The Japanese I have talked to are not as universally dismissive. Perhaps they have learned a thing or two from history. Never had any get angry.
I have never yet had another USC tell me “You’re lying” though they have communicated it on certain smaller points. I usually get “You owe you pay!” or just “You pay! You pay!”.
No signifacant difference from your experience though.
Re: Driver’s licenses and SSNs – Most states require that you provide your SSN to the DMV for identification purposes, but most (now) don’t actually put it on your license as your DL number (they make another number for that purpose) so it won’t automatically be visible to others who see your license.
I must say I a shocked, plesantly so, to learn that some of this has been rolled back. It not as often as it should be that once such bad policies are in place that they are rolled back.
“Because Australia is using the “wider approach” to CRS – US tax-residents will be included in the CRS reports to the ATO as well as the FATCA reports.”
I just came across a tax adviser’s website claiming Australia requires banks to report to the Australian tax agency on all accountholders, whether they’re tax-resident elsewhere or not:
From a quick search, this seems to be true for UAE but not for Australia?
The ATO guidance says
The Wider Approach comes from the provision that “All jurisdictions (other than Australia) are to be treated as Reportable Jurisdictions.” – which is found in section 396-120(3) of the TAXATION ADMINISTRATION ACT 1953 (added by the CRS implementing legislation).
So, it appears that Australia is not implementing the “widest” approach. However, I have been told that the ATO can access anyone’s banking information without a warrant – and that this is not new under FATCA or CRS.
Thanks Karen. I’m not sure this “widest approach” is really part of the OECD standard. It may just be a UAE thing, which this condor has picked up on and mangled.