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!
Very well said, Karen. Nice to see a clear coherent deconstruction of the fearmongering that is constantly being generated by the tax advice industry. It would be great to see your comments above turned into a post, and maybe added to the side panel also.
I agree also that the announcement of “significant” international tax enforcement initiatives is likely to be about nailing banks that have sold offshore accounts to US-resident taxpayers. The fruit of the Switzerland bust – using the data they’ve harvested to follow the money that drained away as the whistleblowing began.
“US citizens with accounts outside the US are presumed to be criminals until proven innocent.”
I suspect that all US citizens everywhere are presumed by the IRS to be criminal until proven innocent.
Some of you folks are funny. I think I’ll refer to you as the ostiches.
While studiously ignoring the fact that the very existance of FATCA and FBAR violate the law, she tells how the law limits them.
‘“US citizens with accounts outside the US are presumed to be criminals until proven innocent.”
I suspect that all US citizens everywhere are presumed by the IRS to be criminal until proven innocent.”
More violation of the law.
“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). ” (from Virginia La Torre Jejer’s blog report)
“While CI has traditionally been responsible for initiating OVDP cases, the IRS could benefit from a centralized inventory control point for the entire process, from recording a taxpayer’s request to be included in the OVDP through the certification and penalty assessment phases. The LB&I Division already uses E-Trak to record OVDP information after CI completes its preclearance approval process. In addition, the IRS uses E-Trak to track many types of activities across functional boundaries. If the IRS enhanced E-Trak and put the case and correspondence control in the OVDP Unit, it could reduce the risk of taxpayer documentation being lost between the two functions.” (from the TIGTA report)
“The e-Trak (Voluntary Disclosure Program) VDP system provides the Large Business & International organization the flexibility it requires to store, retrieve, update, and track taxpayer data relative to the Offshore Voluntary Disclosure Program and other Offshore Compliance Initiatives. The main purpose of the application is to gather information from examiners concerning what they see during their offshore certification or examination. The focus is on the banks, countries, and promoters involved in offshore wealth management. This information is used to analyze offshore trends, identify countries and banks that are most involved in offshore asset movement, and to discover new offshore schemes and promotions. e-trak VDP is also used to generate statistics & reports for LBI management, the Department of Justice, and for Congressional inquiries.” (from https://www.irs.gov/pub/irs-pia/e-trak_vdp-pia.pdf)
This privacy impact system, which is dated April 28 2017, also contains the following interesting assertions:
“28. Is the system information used to conduct data-mining as defined in the Implementing the 9/11 Commission Recommendations Act of 2007, Public Law 110-53, Section 804? No”
and:
“29. Will this system have the capability to identify, locate, and monitor individuals or groups of people? No”
This seems to be the definition referred to in the e-trak privacy impact statement.
(from https://www.dni.gov/index.php/ic-legal-reference-book/federal-agency-data-mining-reporting-act-of-2007)
“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.)”
This is the kind of information that can be used in conjunction with tax returns to identify and audit US taxpayers with unreported or misreported passive income from capital deposited in non-US accounts.
Fort has confirmed the “data mining” is largely about following the money that was shifted from Swiss banks, but he also mentions the IRS’s embarrassing international statistic (9 million US citizens living outside the US, 7.9 million not filing.)
“US intensifies fight against tax evasion by using data mining”
https://www.ft.com/content/719544f6-529b-11e7-bfb8-997009366969
@plaxy – my comments on what the IRS can actually collect from FFIs are part of a piece that I have been working on with Tricia – I’ve been sitting on it too long (real life gets in the way sometimes), but hope to finalise it soon.
@Japan T – while I believe that FATCA is unconstitutional, no court has yet agreed with that position. Until they do, FATCA remains law. Whether you choose to believe it or not, the IRS does play by some rules. And, when trying to collect from assets located outside of the US, they must also play by the rules of the host country. In the past year there have been examples of where the IRS has been limited in what it can collect from outside the US. In Pomerantz, they have been unsuccessful in collecting penalties from a Canadian account. In Dewees, they ignored the FBAR penalty as that was uncollectable, and instead substituted a penalty for failure to file form 5471, which they could get CRA to collect for them.
And this seems to be what they mean by “data-mining”:
“Bryan C. Skarlatos [also quoted in the FT article]…said the IRS and Justice Department have also obtained a great deal of data and insight from the IRS’s Offshore Voluntary Disclosure Program that began in 2009. An Oct. 21 news release highlighting the success of this program said the agency has pulled in more than $10 billion from its offshore compliance efforts overall, with OVDP being a large contributor.
The agency also mentioned that the OVDP, along with the Foreign Account Tax Compliance Act, which requires financial institutions around the world to report their U.S. account holders, have taught the IRS how to spot avoidance trends. This makes it harder for U.S. taxpayers who are abusing the system to remain undetected.”
https://www.bna.com/irs-expands-offshore-n57982079267/
I think this means: if we find that one or more accounts have been shifted from X bank in Switzerland to Y bank in Z country, we’ll search the data for Y bank accounts to see if a lot of US citizens have been attracted there because the bank is offering to help them evade US taxes; and if we find evidence of that, we’ll use the US tax treaty with Z country to get Z country to help us audit the shifters and prosecute Y bank.
With regard to what banks report under FATCA:
The Australian IGA states that Australian FIs must provide the following for each US Reportable Account:
* Name, address, US TIN of account holder and controlling person in the case of entity accounts
* Account number
* Name and identifying number of FFI
* Account balance
* For custodial accounts, total income paid or credited during the year and gross proceeds from sale or redemption of property in the account
* For depository accounts, total interest paid or credited
* for other accounts, total gross amount paid or credited with respect to the account
(see page 10 of the IGA, which can be downloaded here)
As far as I can see, this matches up with the reporting required under Treas. Reg §1.1471-4(d)(4)(iv).
If Japanese banks are reporting transaction records or changes in amounts, then they are reporting more than is required of Australian banks.
“The agency also mentioned that the OVDP, along with the Foreign Account Tax Compliance Act, which requires financial institutions around the world to report their U.S. account holders, have taught the IRS how to spot avoidance trends. This makes it harder for U.S. taxpayers who are abusing the system to remain undetected.””
Tax avoidance is not a crime. Avoiding taxes is not busing the sytem.
“Some of you folks are funny. I think I’ll refer to you as the ostiches.”
Where the IRS is concerned, I definitely favour the ostrich approach:
https://www.natgeokids.com/uk/discover/animals/birds/ostrich-facts/
“Lay low and blend in” is the safest course for most US citizens living outside the US.
“29. Will this system have the capability to identify, locate, and monitor individuals or groups of people? No””
Perhaps not today but will in the future. Do a little research into what the US gov. said of SSNs back when they first started conned our ancestors into accepting them and compare that with how they are used today.
“Lay low and blend in” is the safest course for most US citizens living outside the US.“
Says one who is not an occidental living in an oriental nation.
“Tax avoidance is not a crime. Avoiding taxes is not busing the sytem.”
They’re not talking about tax avoidance, they’re talking about reporting avoidance. Avoiding reporting “foreign” accounts is indeed a crime under US tax law, but is not necessarily tantamount to “abusing the system”.
People who have accounts only in the country they live in are usually not committing any kind of abuse, as they have no foreign accounts. They may not be complying with US tax law, but that’s not abuse. It’s US tax law that’s abusive, not its victims.
“Says one who is not an occidental living in an oriental nation.”
That’s why I said “most” – it depends on circumstances.
““29. Will this system have the capability to identify, locate, and monitor individuals or groups of people? No””
Perhaps not today but will in the future.”
Today is what’s relevant. The answer to this question (“No”) is relevant for people alarmed by Fort’s publicity release, because it’s consistent with what Fort has said elsewhere – e-trek is being used to consolidate and correlate data already in their possession.
“Lay low and blend in” is the safest course for most US citizens living outside the US.”
How does one do that when when they are required to show their passport when opening a bank account?
I do not know what the Japan IGA states, nor do I care. The only thing that concerns my is what they are actually doing.
As we are on the subject of IGAs, it has been reported that there is no legislative authorization for IGAs.
Oh, and the Australian IGA is plenty bad enough without reporting transactions.
Since when is the IRS law enforcement for crimes other than tax related? The argument that the need to know our account balances to fight money laundering doen’t hold water. Even if it did, they still need a warrant and all that entails.
“Tax avoidance is not a crime. Avoiding taxes is not busing the sytem.”
“They’re not talking about tax avoidance, they’re talking about reporting avoidance. Avoiding reporting “foreign” accounts is indeed a crime under US tax law, but is not necessarily tantamount to “abusing the system”.
People who have accounts only in the country they live in are usually not committing any kind of abuse, as they have no foreign accounts. They may not be complying with US tax law, but that’s not abuse. It’s US tax law that’s abusive, not its victims.”
Ok, that I see now.
Thanks.
““Says one who is not an occidental living in an oriental nation.”
That’s why I said “most” – it depends on circumstances.”
There in lies the rub. One can not say it csn not happen when there are many to whom it can happen, depending on their circumstances.
It depends on circumstances leads Homelandes to not care a wit as none live under any of the various sets of circumstances we live under.
The SSN was billed as nothing more than similar to an individual’s bank account number. I was said to NEVER BE USED as a national identification number. And now it is used as a national indentification number and a whole hell of a lot more.
Answering the AEOI questions is analogous to the part of the ostrich that remains visible after the neck is stretched out along the ground: it’ll probably never be noticed.
“Today is what’s relevant.”
Then why the constant drum beat of “Renounce before it’s too late.”