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!
“Will privacy of taxpayer information simply disappear completely?”
What taxpayer information privacy? According to the Japan Bankers Association (JPA) they are turning over all the following information, “Name, address, TIN, transaction records (account balances, changes in amounts, etc.)”
“No one save the IRS & the foreign tax agencies know what information has been turned over. “
Well, true for the “etc.” bit.
“International partners?”
Oh, I don’t know, but it seems my regional, non national bank would be included in their number.
Oh, the JBA FATCA letter my bank gave me does not mention any reporting threashold. They are reporting the above on all US persons. The FATCA letter bears the compilation date of 2014.
“obtained tax compliance perhaps through a penalty-free IRS Streamlined initiative. Now, these individuals may be targeted under this latest IRS “campaign”. How lovely!”
Why does this surprise anyone?
“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?”
Same question, why is anyone surprised by this?
“Civil disobedience?”
When they now have the power to to revoke your passport? Are you joking? Can’t do a hell of a lot of civil disobeying against the US locked away in immigration detention.
“though I told myself it likely won’t affect any “minnows.”
If FIs believe they might in anyway be held accountable for serving US persons, bank lock out will become even tighter, and will affect minnows too.
Bedrosian’s win is certainly good news for him, but maybe not that relevant for US citizens living outside the US and holding accounts only in their country of residence. The IRS never tried to impose FBAR penalties on Dewees, even though he was a sitting duck (having entered OVD), because they knew they couldn’t collect.
Bet they were pee’d off when Bedrosian sued for a refund – hence the giant counter-claim, clearly meant to scare him into dropping the case.
Let’s hope the US government doesn’t seek to appeal.
“We know that the IRS has a tremendous volume of raw data about US taxpayers and their foreign financial assets.
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.”
When I have told my wife about FATCA and how it is not raising what they hoped for, she said the data will be monetized. Big data and what can be extracted from it is what she does for a living. It’s not just what is due in taxes now, it’s also about what they can decide to tax in the future. We know the US tax code is punitive toward foreign finances owned by Americans and that Americans in the USA have no sympathy with those punished by that tax code.
Now they are getting to know who has what outside of the USA, don’t expect the punishment to lighten up any time soon. Foreign money grabbed from overseas with no domestic political consequences and nobody to support the victims is too juicy to pass up.
Those hoping that CBT and FATCA will be gone soon had better have a plan B.
Why does the IRS need to know our account balances? The US does not have a wealth tax (yet).
Why do they need to know all our transactions? The US does not directly tax transactions [or do they] (yet).
The IRS wants to know everything about you so it can not only tax you on what you owe now, it can consider further taxes in future.
The massive amounts of data being gathered are not just about punitive taxes today on a group nobody will defend, it’s about taxes tomorrow on a group nobody will defend.
If the IRS discover a big juicy pie outside of the USA that is owned by US citizens, domestic or otherwise, it can demand a slice and the public will cheer.
People keep asking “why do they need to know about XXX when XXX is not taxable?
You need to understand, EVERYTHING that is not in the USA that is owned by US citizen is potentially a tax bonanza regardless if it is fair to US citizens abroad or not.
As far as the IRS is concerned, it is money that US citizens should be keeping in the USA and if it gets taxed and penalized in to oblivion, they should have bought American.
My wife is bang on when she says the data will be used to find additional ways to extract money from overseas, not just enforce the rules as they now stand.
I became simpatico with expats because of a 60 yr friendship with Roger Conklin who pass away 2 years ago. He was not aware of how we got to this sorry state of affairs where nprmal hard working people, who wanted the freedom to live wherever they dam well pleased, would automatically be treated as criminals. He lost a good business because of double taxation.
Karl Marx called for a tax on incomes, of the middle class, in the second chapter of the Communist Manifesto. Our entire government deep down are central planning communist and would like to keep this modified Marxist taxing system, where they allow the proletariat to think they are free to earn and use their incomes, but only after the central planners had taken whatever share they wanted of it.
There is only one way to stop this intrusion into the rights granted by God, ( we hold these rights to be self evident that we are endowed by our creator) We must cast off the intrusion of men taking the rights granted by God from us.
There has been a taxing system bill introduced in every congress since 1999 that would furnish the money to operate the government and distribute the tax burden to everyone within the borders of the U.S.A. We who live here receive all the benefits and those who are outside do not, so we must fix this by getting the deep swamp people to pass the FairTax, which basically strips them of a fund raising power that is evil in the first place.
It abolishes the despised IRS, nulifies the 16th amendment the Marxist got passed with lies and deception, gives everyone a stake in the game and frees the expats and accidental Americans and makes it a good thing that we have 12 million guest workers, because with tax freedom, companies would flock to the tax haven we had created and we’d need everybody to fill the jobs created by that restoration of the right granted by our creator.(the pursuit of life, liberty and happiness). May God have mercy on us, because we know the U.S. Government won’t.
@Mike,
Yes, I know. I asked so that those that do not may think about how that data, which has no use today, could be used in the future.
Why were the FBAR fines imposed before FATCA? I bet that part of the calculation was for huge numbers of us to run up massive FBAR fines, unbeknownst by most, for FATCA to discover after the fact.
If what I have read is true and Federal fines are now considered a revenue stream that is used in the budgeting process, such as what we now have can be called a budgeting process, then all that is needed to raise more revenue is to make yet another harmless, everyday transaction a financial crime and not act on enforcing laws against it until several years have passed and we all have huge fines to pay, again, for FATCA or some other new monstrosity to discover. And just for shits and giggles, they might even impose the fines retroactively, again.
@Japan – This is why people who have got themselves in to compliance still have a big problem. The mood to punish Americans who put money overseas, and the need to tax and penalize them looks to be growing to me.
You might be fine today as a tax compliant expat, but what about the grossly unfair tax rules they introduce tomorrow that ruins your pension and destroys your job? You don’t need a crystal ball to see the possibility, a history book will do.
As we agree, the data they are collecting now that would appear to have nothing to do with tax today is showing them new opportunities to tax tomorrow.
Fairness will not come in to it, the mood is to punish Americans who put money overseas and 300 million Americans will support it.
“Fairness will not come in to it, the mood is to punish Americans who put money overseas and 300 million Americans will support it.”
They word there is “put” – if you grew up outside the US, worked and paid taxed and saved outside the US, you didn’t “put” money anywhere but your home country. When it’s explained that way, even the dumbest homelander sort of gets it; they then might question why such a person is still a US citizen.
Whether it ever gets explained that way, or whether those explanations have any effect on policy, is another question entirely. I’m not optimistic. But for duals in Canada it’s still a pretty good situation, with tax-treaty protection and really lax FATCA enforcement, non-compliance is a very viable option.
“The word there is “put”.
You don’t need to explain to me, you need to explain to the 300 million. Put, sent, kept, and all in your overseas bank account. Most homeland Americans just hate you for a variety of reasons, they don’t care how you got to live a glamorous life outside of the USA or why you would be so ungrateful as to throw the chance of living in the USA back in their faces.
They just know you keep your money in an “overseas” bank account, live a glamorous life outside of the plantation and that you resent paying your fair share in taxes.
This is why your obvious logic, that you never put your money your American money in an overseas account, and that you put your own local money in your local account often won’t work. They don’t want to know the logic, you’re American and you’re avoiding paying. That is their position and they will defend it until blue in the face.
Until you renounce, you will be taking advantage of US citizenship and all the fantastic advantages that it brings without paying for it, and that makes you the lowest of the low and deserving of all the punishment you get.
Logic does not work, that is how we got here today.
Thanks for the post, Tricia. When the IRS says “significant” I don’t think they’re talking about minnows (though minnows will be caught along with all the whales). I suspect they have found some banks in Hong Kong or Singapore (or elsewhere), that have helped homeland Americans evade their US tax liability, much like UBS in the original Swiss banking scandal.
This is a profit center for the IRS, and they make decisions on who to pursue based on cost/benefit analysis. The benefit of chasing minnows is minimal. Most have no US tax liability, so all the IRS can possibly assess is penalties (which, admittedly, can be substantial). But, for those with no US assets, the IRS will have great difficulty collecting. Oh, I have no doubt that they’ll try to use their big datasets to phish for gullible US citizens who will “voluntarily” pay an assessment. But they have no power to forcibly collect from foreign assets except in very limited circumstances.
As usual, the people who will be hurt most from this are those who are not citizens where they live, those who have significant US assets, and those who try to comply with their US tax reporting obligations.
At one time I was proud to be an American. So proud in fact that I gave my Canadian born children social security numbers. Fortunately, they were born here where the passport say so. And their children?…my gaud, where does it end? My mother ‘s Canadian, one of my grandma’s a Canadian, my great grandparents were Canadian. I AM CANADIAN, more so than American, beer and all, and I plan on staying here for the next 37 years while disliking everything the U.S. government has been doing lately including what Mrs. Clinton and their crooked foundation have been doing through corruption.
For me, it ends with lying on loan applications and opening bank accounts; I refuse to comply and would be willing to go to jail if I have to but not before standing at the border giving the finger to the U.S. government while holding a sign that says “Fugitive Unamerican Citizen Kicking” back (or “fuck you” for short) . And you’re right…all 300 million+ southern folks will cheer when us “cheats” who strive to survive Canadian taxation and high living costs are brought to “justice” EXCEPT, of course, my 94 year old mom and 60+ siblings who disliked Obama and now Trump, and what many of the American people have become (sheep) following the TrumpET to slaughter.
I am so disappointed in a country my dad almost died for not to mention all those soldiers and sailor that did give their lives, a country that I helped soldiers kill innocent people in Vietnam just trying to protect their land (never mind the Tonkin Gulf Incident), a county that gave presence to the Arab Spring and roots that gave birth to ISIS through Iraq, a country that was build under Jefferson’s vision for justice and freedom, and a country that is now part of a triad for world domination.
And the Canadian government? International Government Agreements (IDA’s)…please! A whole new U.S. agency created to root out “cheaters” not including a few of the one percenters? WTF?!.
I don’t have either the stupidity or spine to appear on the U.S.’s radar, but I do have the courage to give them the finger. If Isaac can take a bullet, so can I. Manifest Destiny? Bull shit. When will the Canadian press and the government stop patronizing the U.S.? When will Trudeau stop messing with our heads with his crap at the U.N.?
Does anyone else feel this way? If the IB Society feels that some of my works are to strong or inappropriate, then bleep them out and print the whole things; some of you feel the same and let your angry feeling say as much. Thank you.
PS…I don’t need permission to leave a job I don’t like. I don’t need anyone’s permission to do something that I feel is the right thing to do. And I don’t need permission to rescind or renounce who I was…I’m just doing it. So…I hereby renounce my “status” as a U.S. citizen. Period.
@ Dave
Great rant … thank you!
I reckon the International Tax Enforcement Group will be short-lived. The entire world footed the Fatca bill for the Americans. Now this? (Yawn…)
“But, for those with no US assets, the IRS will have great difficulty collecting. “
They already have the mechanism. The IRS says “ABC Bank, remove $X from the account of US person John Doe and send it to us or we will impose the 30% noncompliance fee on all US derived earnings.
But the IRS need not do that for those of us who live outside the US. Being asseses taxes from afar p, as bad as that is, need not be a life ending event. Losing the ability to receive pay for your labor IS a life ending event. Not as sudden as as a bullet to the head, but how long can one live without any source of income?
There seem to be at least two distinct groups of US persons. One are those with enough money to be concerned only about losing a portion of it. The others are those without money to be concerned about but who are worried about losing the right to be paid for their labor.
This is how it is currently working. The IRS harrasses a bank over the whales. The bank responses with blanket actions aimed at ALL us persons regardless of the reporting thresholds imposed by law. They are looking ahead at possible and likely future regulations.
Then there are the mistakes, some which may be made accidently on purpose. I know of three times my ID has been stolen. Two of these occured after I left the US and both were due to US gov. not practicing the same level privacy security it requires of private industry. What protections does any USC abroad, be they whale or minnow, have against an ID thief running up a tax debt in their name and losing their passport and thereby, forever losing their family, home, employment, or in short the life they built for thenselves?
It ain’t only about the money.
“I reckon the International Tax Enforcement Group will be short-lived. The entire world footed the Fatca bill for the Americans. Now this? (Yawn…)”
Seems to similar to the “They are only going after the rich, so no need to worry.” argument so often given. How has that been working out?
@Japan T says
No, the IRS cannot do this. Under FATCA (without an IGA), there are two types of withholding: a) US payers must withhold 30% from payments of US-source income to non-compliant FFIs. They don’t look through and see who has accounts in those FFIs. The FFIs are compliant as long as they have registered with the IRS and send the required information about US Person account holders. And b) FFIs must withhold 30% from US-source income (and gross proceeds from sale of assets that generate US-source income) from recalcitrant accounts. If you have identified yourself to your FFI as a US citizen and provided the required information (SSN, etc), then the FFI is not authorised to withhold from your account by FATCA. The IGAs, if anything, reduced the threat of withholding. The other way a FFI might be able to withhold for the IRS is under its Qualified Intermediary (QI) agreement. If the bank knows you are a US citizen, then the only withholding possible under a QI agreement is backup withholding under §3406 – and again this is withholding on US-Source income only (unless your bank is part of a corporate group containing a US bank).
So – if you have no US Source income and your bank is a local bank, the IRS cannot even withhold from income paid into your account – and they certainly cannot just grab $X out of your account. Look at the trouble they had collecting from Pomerantz. (you might have to worry if you’re only a US citizen and you live in one of the five countries with mutual collection agreements, as your local tax agency could collect on behalf of the IRS – see Dewees)
I know that the condors out there sow fear by suggesting that the IRS is all-powerful; but there are limits to what the IRS can do legally. I also know that there have been circumstances where the IRS or its employees have not followed the law; but these are the exception rather than the rule.
As for your point that this is not all about the money – I agree. But, really all you need to do to bank in most countries (other than, perhaps, Switzerland) is to own up to being a US citizen and provide your SSN. Sure, they’ll report to the IRS – but what? Under most IGAs, all that is reported is balance and interest income, which is not enough information for the IRS to create a substitute return.
That is how things stand today. As a bank balance has nothing to do with taxes, there is no need for the IRS to ask for this information, and yet they are getting it.
The IGAs do NOT protect FIs from future noncompliance fees. What is the nature of the IGAs? Governments that allow the US to dictate to them what their banking laws in their own jusristictions get favorable treatment. Why would anyone think that this will be the last case of the US extorting every country in the world? The IRS may not be all powerful, but it is powerful enough to force every nation in the world to ammend their own laws and so far I have seen nothing to suggest that their power is in decline.
You speak of what the IRS can do legally. If the law was followed, FATCA and FBAR would not exist. There are no legal protections unless you are rich enough to challenge the gov. in court and even that is in no way a robust defense.
Having to give my US issued SSN to my bank in Japan is no small thing. Being forced to allow my bank to provide information to the IRS that is not required of homelanders is no small thing. Being forced to allow my bank to provide data that has NO connection with current tax law nor rules is not a small thing. The IRS has plans for this information.
Beyong the points discussed here, there is a hell of a lot more behind this. There has been talk for years in the US of complelling companies outside the US that employ USCs outside the US to comply with all the reporting and witholding laws and regs that domestic companies must comply with. I can not believe that the US will not use the exact same tactic with the companies that employ us that it has successfully used with the banks that hold our deposits.
The situation as it stands today is not their end game.
“Seems to similar to the “They are only going after the rich, so no need to worry.” argument so often given. How has that been working out?”
Quite nicely, thus far. Duals and accidentals with no US income or assets are basically untouchable, under current rules have nothing to fear from the IRS. If you think it’ll get worse, renounce; if not, save yourself the time and money and pretend you’re not American.
Permanent residents with only US citizenship are of course at greater risk. But hey, presumably you could be deported for a criminal DUI or something so ultimately not having that second citizenship can bite you in other ways too.
US citizens abroad with modest means earn below the FEIE and owe nothing; they can even collect $1,000 per year for each child if they have a low earned income.
“Permanent residents with only US citizenship are of course at greater risk. But hey, presumably you could be deported for a criminal DUI or something so ultimately not having that second citizenship can bite you in other ways too.”
That’s why I do not drive after having even just one drink. See the difference?
Untouchable by the IRS, yes. I am not concerned about the IRS. I am concerned what my banks and employers will do and the risks of having all my private data and that of my household family readily accessible to anyone who cares to have it for whatever reason. As a three time victim of ID theft, I am very concerned about having my passport yanked because of whomever the USGov gave my info to ran up a tax bill in my name. Even been a victim of ID theft. I ain’t no joke.
And again, “under current law”. Under current law, the IRS has no use for much of the data it is demanding. why are they demanding it then?
“As a bank balance has nothing to do with taxes, there is no need for the IRS to ask for this information”
A bank balance has everything to do with FBAR penalties. Who says we have to wait for laws to change?
Yep!
But not taxes. I still maintain that FATCA is the enforcement mechanism of FBAR. Still too much focus on taxes, I feel.
The IRS is demanding balance info because they’re thinking of FBAR / FATCA as a way to catch drug dealers and criminals. US citizens with accounts outside the US are presumed to be criminals until proven innocent. The implied presumption that only the US can catch money launderers is highly disrespectful of the AML practices in other countries (though with the recent scandal faced by Commonwealth Bank here in Australia…).
Yes, they can change the rules in the future – but all we have to work with is the current rules. As Nononymous says, if you’re worried about rule changes, renounce.
Current law requires a warrant for bank balances.