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!
That’s why laws requiring the individual to do so are on shaky ground. In countries which claim to respect human rights, treating people less favourably (closing bank accounts, or threatening them with fines) because of their national origin is frowned upon.
The IGAs pretend that place of birth is just one of several “indicia”, but in reality it’s the only one which the individual can’t change. National implementations of the IGA provisions which allow banks to treat customers born in America as US-tax-resident might risk a court challenge.
In practice, that may never happen, as long as the government takes no steps to enforce consequences (such as a fine) on the individual. So even though there may be provision in the legislation to fine a former citizen who refuses to answer a bank’s questions about his/her tax affairs, they may not be keen to try to enforce it.
I can see that, but, reports are that banks either close the account or worse, freeze it until the individual provides the “requested” information.
Yes, in my case online access was blocked. I gathered my CLN and passport and went to the nearest branch and objected very loudly, in the hearing of numerous appalled customers.
The ensuing discussion ended in a face-off: access was restored, but they continued to demand my SSN and I continued to refuse.
http://www.oecd-ilibrary.org/taxation/standard-for-automatic-exchange-of-financial-account-information-in-tax-matters/wider-approach-to-the-common-reporting-standard_9789264216525-12-en
This chapter can’t be downloaded for free, but it can be read online.
“Yes, in my case online access was blocked. I gathered my CLN and passport and went to the nearest branch and objected very loudly, in the hearing of numerous appalled customers.”
And if you don’t have a CLN and the guts to tell the bank where to get off? This is just disgraceful.
Are you enjoying robbing Dutch pensioners of their pension, USA?
“Are you enjoying robbing Dutch pensioners of their pension, USA?”
Yes, Mike, I believe thay are.
Plaxy, thanks for the link. Will read it later. I have long felt that FIs would have reason aplenty to gather and share more than the required data. The second paragraph you posted offers more solid proof.
Plaxy, you are thus far able to use that approach. Many can not.
“And if you don’t have a CLN?”
That might be another weak spot.
If a person with a US birth place can be treated as US tax resident, regardless of whether or not they have renounced and bought a CLN, it’s misleading for the IGA to imply that owning a CLN “cures” a US place of birth.
Let’s hope that eventually someone rich might sue for a refund of the $2350, plus hefty damages.
Plaxy,
I have not heard of anyone experiencing that in Australia, though the IGA only says that banks may elect to treat an account of someone with unambiguous evidence of US place of birth as a non-reportable account if they collect a W8 (or equivalent), proof of non-US citizenship, and a copy of a CLN (or reasonable explanation for a lack of CLN).
“Plaxy, you are thus far able to use that approach. Many can not.”
Of course. I’m not suggesting a strategy for avoiding FATCA. I’m pointing out one reason why a government might not want to risk fining an individual with a CLN who refuses to answer a bank’s questions.
The same reluctance might not exist, if the accountholder had no CLN.
“Let’s hope that eventually someone rich might sue for a refund of the $2350, plus hefty damages.”
That would be a hoot! Probably get thrown out for not having standing.
The problem with a CLN is it does not mean you are not a US tax payer. It means you still have a connection to the USA, you were born there(usually) and may still have a financial life there and that makes you a risk to the bank.
Not too long ago we had an incident where a UK guy banked a US check for $11,000 or so and was subsequently invited to close his account and his name was added to the banking blacklist. The bank refused to give the reasons, but I’m sure it was simply because they were unsure of his “US indicia” and just took the safe option the kicked him out.
This is also the problem with this silly “same country exception” nonsense. It does not protect the bank in any way and indeed gives them yet a new task, ensuring that this person really is resident according to the laws of both countries.
To be safe and sure?
Just get rid of the American.
And what about those of us with accounts in different countries?
Basically, any connection to the USA is now dangerous.
Some time ago on here I said that I have removed all my investments from the USA because they cannot be trusted, and because I hate them.
Note the new Republican campaign to make overseas investors pay full US taxes despite the treaties and leaving many overseas investors paying 60/70/80 percent taxes.
Just distance yourself from that madhouse.
I’d love to distance myself from that madhouse.
I think it will boil down to each FI deciding what the risk to their bottom line is. Once that risk nears a certsin level, then anyone with even the hint of US indicia is going to be thrown overboard. No FI is going to risk foundering for any one of us nor all of us. We are too few in number to be worth risking everything for.
“The problem with a CLN is it does not mean you are not a US tax payer.”
Yes, it proves you’re not a US citizen but it doesn’t prove you’re not a US Person.
When there was only FATCA, customers with no US indicia didn’t get asked to self-certify (provide TIN). It would be easy for a person who wasn’t born in the US to make sure they had no indicia, even if they were in fact US-tax-resident, but it would in most cases be very difficult for a person born in the US to avoid being asked to self-certify (provide TIN). Consequently, there was no risk to the bank in accepting the CLN + non-US passport + self-certification as proof that the account was not reportable, if the account had no other indicia.
Now that CRS has been implemented, all customer get screened, including those who weren’t born in the US but have US tax liability. The banks therefore have a trickier job, to get a TIN from anyone with US indicia regardless of whether they have a CLN.
The US, of course, was heavily involved in the construction of the CRS Standard. It’s not surprising that they took the opportunity to get CRS to finger US-tax-liable customers rather than only US-citizen customers.
“and that makes you a risk to the bank.”
It could make you a risk to the bank if the bank opted to apply the “cure” and one or more parts of your documentary evidence was found to be false. (The CLN, the non-US passport, or the self-certification.)
I wonder if any remember me stating that we need not worry about the IRS searching for us, because they are not. The US has forced everyone else to find us and turn us over to the IRS.
Regarding the Dutch video… I watched that last year, at some point. The most depressing thing about it was the compliance and resignation with which these Dutch citizens simply accepted their fate, ground through the paperwork and paid huge sums to accountants and the US government. So law-abiding! They didn’t even seem particularly upset about it, like it was just one of those things, bad luck, like a flood not covered by insurance, nothing they could do about it.
Since these people were dual citizens who’d grown up and lived in Holland, with no US assets or income, they could quite happily have ignored the whole mess. So you get on the FATCA list – who cares? The IRS won’t know what to do with the information, and presumably they can’t collect anyway. (That being said, I don’t know the details of any mutual collection assistance under that particular tax treaty, but if it’s anything like Canada, dual citizens are fine.)
On the rare occasion that its ever even been an issue, the question asked is always “are you a US citizen”. As a self-relinquisher I happily answer “no” with no qualms whatsoever. The average Canadian bank employee is totally unaware of the complications or subtleties which determine who might or might not be a US tax resident and besides, that’s not the question they asked, anyway.
Am I guilty of fraud? No, because I truly believe that according to US law, I am no longer a US citizen. Its not for me to try to guess what they really mean when they ask “the question” nor is it my job to offer any clarification; just a simple yes or no answer. I sure as hell don’t mention that I was born in the USA; I’m there to open a bank account, not tell them my life story.
Even if they did ask the more general “are you a US tax resident” I could still truthfully answer “no”, because at this point I’m no longer a US citizen, just one who never got a CLN or filed a Form 8854 and is therefore technically a covered expatriate. I like it that way. This could potentially cause me complications down the road but that’s a risk I’m willing to take. (Other than occasional travel there, I make a point of staying the hell away from the US and certainly have no financial connection.)
@Mike
I remember that story about the UK person and the dollar cheque. I think it was a Barclays account and the cheque was for shares sold.
My experience with Fatca in the UK was that I did get asked on an existing account. It appears most UK Brockers have not been asked on an existing account but only when opening a new account. But I did get a letter from an existing account. and the letter was not based on indicia either, all accounts over a certain threshold were sent the letter I later learned. I did not know my social security number at the time so didn’t send the letter back. This actually lead to my discovery of CBT. I also remember that the letter clearly asked for place of birth.
I was not chased to send the self-certification back. I renounced since then so happy to answer now if they ever pursued it again. Not sure why they never followed up and I am still banking there. Since then I also have signage on my employer’s accounts at work so I am relieved to hold that CLN.
I also had some US shares, inherited but I quickly liquidated after renouncing and now will make sure I never have any dealings again with the USA.
The new proposal does not mention the exit tax does it? or any changes to that so my advise to Brockers is that the clock is always ticking.
also what i mean about the clock always ticking is that one must try to renounce before hitting the 2 million threshold. which is not hard to do in London with property prices.
Where FATCA enforcement all falls down, in my view, is that US birthplace doesn’t automatically mean US citizenship or personhood – many of us are “discovering” that our parents were Canadian diplomats. (Who knew? What a funny family secret!)
Similarly, lack of US birthplace doesn’t mean lack of US citizenship or personhood. And you could even renounce, proudly display your CLN, and still be a US person by virtue of overstaying as a snowbird.
In other words, (Canadian) banks’ FATCA compliance criteria aren’t worth the paper they’re printed on, so tell them what they want to hear and make your life a whole lot simpler.
@Nononymous. Amen to that. Our Canadian bank employees don’t give a damn about any of this unless the customer rubs their nose in some sort of US indicia.
I had a look at the Canadian CRS guidance, specifically self-certification and penalties associated with, shall we say, an inadvertent lack of truthfulness in one’s response.
Crickets… Nothing in the official guidance.
If you look at the self-certification forms the government has provided for FIs to use (which are only recommended, not required, and simply kept on file rather than submitted to CRA) both versions (with and without an extra line for US “tax residency”) contain only this warning in the footer:
“Failure to provide this information may result in interest payable, penalties or other actions.”
Now what’s interesting (amusing, even) is that if you’re a good Canadian taxpayer, there can’t be any penalties or interest owing to the Canadian government. Failure to declare US tax residency means you’re cheating the US, not Canada. And as we well know, Canadian citizens are protected against any US attempt to collect. So save for the undefined “other actions” there’s not a whole lot of teeth there.
“The US doesn’t stamp passports on exit, so anyone who has a US entry stamp in their passport might be unable to prove that they’re not US tax-resident.”
‘How about the entry stamp of the nation we live in?’
Sometimes. Japan stamps my Canadian passport, but if I were living in Canada I bet Canada wouldn’t stamp my Canadian passport.
A bit of bored searching leads to this, concerning penalties in Canada.
1. From Section 162 of the Income Tax Act:
Failure to provide identification number
(6) Every person or partnership who fails to provide on request their Social Insurance Number, their business number or their U.S. federal taxpayer identifying number to a person required under this Act or a regulation to make an information return requiring the number is liable to a penalty of $100 for each such failure, unless
(a) an application for the assignment of the number is made within 15 days (or, in the case of a U.S. federal taxpayer identifying number, 90 days) after the request was received; and
(b) the number is provided to the person who requested the number within 15 days after the person or partnership received it.
It’s not clear to me in what context a US tax number is being required here – it might have nothing to do with FATCA or CRS.
Also this from an article dated September 2016:
Previously, the draft CRS legislation released by the Department of Finance in April 2016 included requirements for the collection of information identifying reportable persons, including name, address, residency, taxpayer identification number (“TIN”) and date of birth. The 2016 Legislative Proposals now supplement the earlier draft legislation by introducing a $500 penalty for the failure by a reportable person to provide their TIN when required.
I’ve seen no evidence of this specific fine in the CRS Guidance published earlier this year.
Otherwise there’s lots of stuff in the Income Tax Act about punishment for misrepresentation, omission, etc. but that all concerns Canadian taxes, and the penalty is generally a percentage of tax owed – to Canada.