Warning:  Please read the first two comments to this post before accepting at face value the advice of Medic Blog (the editor).

After entering OVDI/P, American expats later learned that such was only meant for tax cheats and not for them.  Now, it seems that the same may also apply to soft/quiet disclosures.   Are soft/quiet disclosures considered to be a “trap” to punish those who filed old FBARs as being “tax cheats”?  Is there anything that an American expat can do without being accused of being a “tax cheat”?

May 31, 2013

…John and Mary made the mistake of amending their past tax returns and filing their old FBARs. On these returns, they were required to put down account numbers and bank information.John and Mary fell into the  IRS’s trap. Now the IRS has all the information it needs and if audited, the burden of proof is on John and Mary that they did not commit a willful violation of FBAR. A willful FBAR penalty is 50% of account value. And this can be assessed for multiple years.

What John and Mary must do right now about their soft/quiet disclosure

If John and Mary amended their tax returns and filed delinquent FBARs, they have provided the IRS with all the information they need to identify their tax accounts for a possible soft disclosure. Essentially John and Mary have raised their hands and said “WE ARE TAX EVADERS, HERE IS ALL OUR INFORMATION. PLEASE COME AND PENALIZE US AS MUCH AS YOU CAN.”

Then, it is just a matter of time before they will be faced with the most expensive and lifestyle changing bill of their entire lives.

 Get into the OVDP — now!

Read more at Medic Blog

At what point does this become a human rights violation, or better yet, under which conditions is this not a human rights violation?  In relation to Eritrea, the only other nation in the world with a diaspora tax, such behavior is considered as being a human rights violation.

On the basis of NRK information about harassment of Eritrean citizens in Norway, the Norwegian authorities consider taking this up with the Eritrean authorities as a possible violation of human rights, says Imerslund to NRK.

Source: Asmarino Independent

the collection of the 2% tax collected by the Eritrean government from Eritreans in diaspora as extortion is unlawful.

Source: Human Rights concern – Eritrea (HRCE)

I am putting this informative comment into a post where it will garner more attention.

SueBee shares that she and her brother were told at the Toronto US Consulate that US citizenship is a choice — they declined the choice!

I wanted to share my brother’s and my experience today of applying for US citizenship at the Toronto Consulate. We are both Canadian born children of a US parent who is now deceased. Given the information we have taken from the internet, IRS and US citizenship sites, we came to believe that we had to obtain US citizenship (we were never registered as born abroad by our US parent). We completed all the paper work, obtained the documents and booked the appointment and attended for that today. We were to be granted US citizenship, however when we advised them that we actually did not wish to obtain the citizenship and in fact the only reason we had come was because we believed the US required it of us they were dismayed. We were told by the consulate officer and her direct superior that they cannot force anyone who is born outside of the US to acquire citizenship – it is a choice. When we pressed her further stating that this is not the information we are getting she advised clearly that we are not US citizens unless we willingly apply for and accept the citizenship. She stated we can say unequivocally that we are not US citizens unless we wish to be. We respectfully declined the offer of citizenship (to their amazement) and left with our refund and documents in hand. I will certainly sleep better and breathe easier! I hope this helps other Canadian born who are concerned about this.

As promised (and thanks to Peter who resolved my login problems) here is the piece I wrote for the Franco-American Flophouse after we got back from the Brussels meeting.  We learned so much, we met so many interesting people who were genuinely interested in hearing what we had to say, and we got some very good advice about next steps.  This trip was a group effort.  Tim was the one who tipped us off that the meeting was actually going to happen.  One official organization (FAWCO) wrote a letter before the meeting that Ms. in’t Veld read beforehand and clearly used during her talk.  I covered the event for ACA and Ellen of AARO was there with business cards and lobbying experience.  Another person in our group had invaluable experience with the EP.   And hats off to M. who modestly said that he was representing  just “regular folks” –  what he did during and after the meeting was inspired. What he did gave me courage.   Yes,  mes amis, “Il nous faut de l’audace, encore de l’audace, toujours de l’audace…”

Here is Part I of the video of the EU FATCA public hearing that was held in Brussels last Tuesday.  Part II is here.  Many thanks to Tim who put it up on YouTube.  The sound is not always perfect and sometimes it moves from those speaking to the interpreters, but the essentials talks are there.  Transcripts of some of the speeches are being posted over at Isaac Brock in this thread by Just Me.  Also see Lucy Laederich’s (FAWCO U.S. Liaison and AARO President) comments on the meeting and read her letter to MEP Sophie in’t Veld here.

There were reactions to yesterday’s post about some of the events around our participation.   I think we are all genuinely confused by what organizations like the OECD and the EU mean by “public.”  For us mere mortals that word says to us that we, the public and the eggs being broken in the making of policy, are welcome to attend and hear what is being said about things that concern us.   Well, that is clearly a misunderstanding on our part.  For the OECD it was, “Yes, you can attend if there is space once everyone else (the bankers and bureaucrats) has a seat.”  For EP security it was, “The meeting is public but you have to be invited in order to access the building.”

Yes, there was pre-registration process, but this was not mentioned in the draft agenda that was published nor was it clarified in the calls we made to confirm the meeting time, date and place.  We were very fortunate to have someone there who could help us.  Not everyone did and we have a confirmed report of an AARO person who came and was turned away.

About the member of our group who had a chilling close encounter with someone during the meeting, I would like to make it very clear that this gentleman, who held up his passports and had a sign next to his seat, was not being disruptive, nor was he asking to get up and make a speech.  Furthermore, he is an EU citizen, this issue is of direct concern to him, and these were his representatives in that meeting.  There was no reason (and I should know because I was sitting right next to him) for someone to come over and get in his face.

These kinds of things could make one very paranoid.  They certainly lend credence to charges of “policy laundering” – a term that means policy made in secret outside of the open, transparent  democratic process.  Are they afraid of what “the people” will say on this issue?   Perhaps they think we aren’t capable of understanding the complexities around information exchange, FATCA and the fight against tax evasion.  Looks like some of them have decided to do our thinking for us.  And when the public is finally made aware of what has been done – and they will be once the search in the EU for the pesky U.S Persons who are not necessarily U.S citizens  begins – will FATCA and an automatic system of information system be presented as a fait accompli for the good of us all?

The EP meeting resembled the OECD meeting in another respect as well – lots of discussion about the importance of fighting tax evasion, the “nuts and bolts” of implementation, and speakers falling over themselves to prove that they are “cooperating” by revealing their own proposals for their own systems.  The most interesting speaker, I thought, was the gentleman from Action Aid who pointed out quite rightly that such systems and the information they contain must be made readily available to developing countries.  He’s right.  If such systems exist, then the Latin American, African and Asian governments should be able to access the information they want about their citizens in Europe and North America.   I personally doubt that this is what the proponents of such systems in developed countries had in mind, but it would be hypocritical of them to deny access to the poorer sending countries of many international migrants (and their children) who have found themselves a home in more developed countries. I’m sure Eritrea which has a diaspora tax like the U.S., would be deeply grateful for help tracking down their citizens outside the country in order to get them to pay up.

That is a possible impact on global migrants which is a worthy topic but not the focus of this public meeting. It was very startling to see that the impact of information exchange systems on people who are EU citizens was dismissed as being unimportant.  MEP Sophie in’t Veld tried to refocus the discussion with limited success.  She asked about the duals and the Accidentals (those who are not aware of their status as U.S. citizens).  The reply was that member states should be responsible for protecting their rights.  Did the person who responded really think this was a satisfactory answer?  Is he aware of the scope of the problem?  This was a moment where I really wanted to leap out of my seat to ask further questions.  This is what I would have said:

My neighbor who lives in an adjacent apartment building here in France told me that she was born in Texas, USA.  Her parents were in the U.S. for a short time and they (and she) returned to France when she was an infant.  She did not grow up in the U.S., she has never returned to the U.S.,  and she does not speak English.

Is it up to her local French bank to explain to her that she is a U.S. citizen?    Can that bank legally deny her services (access to a checking or savings account, a retirement account or an “assurance vie” or even pull her mortgage) because she is a U.S. person?    Or will she be required to waive her EU privacy rights in her own country in order to retain access to banking services which she needs in order to lead a normal life?

What would happen if she was either turned in by someone wishing to collect the IRS bounty on U.S. tax evaders, or her name came up on the list sent by the French government to the American government?   How would France and the EU respond if the American government decided that she indeed was a “tax evader” and went after her for American taxes?

Is the EU aware that if she wishes to renounce her U.S. citizenship, once she knows she is one, that she may be asked to pay a penalty of 5%  even if she was completely unaware of the ramifications of having been born in the U.S. much less that she might be considered a citizen?

EU citizens in this case, be they duals or accidental U.S.persons, need answers to these questions as do EU citizen spouses of American citizens who have a right to know how this will impact them – will they be considered “guilty by association” and see their private data shooting off to the U.S. or their banks accounts closed, even though they are not U.S. citizens, Green Card holders or U.S. taxpayers?

These are THE questions that regular people, EU citizens and their families, are asking right now.  This forum did not address them adequately.  The reply that this was a matter for member states is a non-answer.  It’s not only ducking the question, it’s almost a slap in the face to those whose lives will be seriously impacted.

MEP Sophie in’t Veld expressed it very well when she said that the question of whether or not to tackle tax evasion has already been decided.  The answer is a resounding “yes” and there is a broad consensus on this.  The MEP’s might be very surprised to learn that many of us who have questions about FATCA and its implementation in the EU don’t have a problem with the basic premise that states can go after people who illegally remove their money from a country with the express purpose of avoiding that country’s tax laws.

The issue on the table right now is how to do it.  What are the unintended and very destructive consequences of the proposed systems of automatic information exchange on EU citizens and their families?   I humbly suggest that if they were brought to light, perhaps they could be mitigated.

What we need is a real public forum where these questions can be asked, answered and possible solutions discussed.  We spoke to some people after the meeting and they were very surprised by what we had to say.  They had no idea of the scope of the problems FATCA implementation might pose for regular EU citizens.

The pro-FATCA MEPs seem to be seizing the day and using FATCA to do for Europe what Europe can’t do it for itself.  Fair enough.  What is not acceptable is that the only concerns they seem willing to raise publicly is how much it will cost financial institutions and access problems for developing countries.

And the cost to their own citizens?  If they can’t raise those questions and get direct answers from their representatives in a truly public forum, then everything I’ve heard about the EU “democracy deficit” is, alas, true.

Will Canada’s hard line on Eritrea’s ‘diaspora’ tax apply to the U.S.?

How nice to see Canada taking a very hard line with the government or Eritrea and its attempts to impose a diaspora tax on Eritrean citizens now living in Canada. This country really does have a backbone when it comes to standing up to oppression and injustice.

How to explain, then, that while we send the Eritrean consul packing and threaten to shut down the consulate, we let U.S. Ambassador David Jacobsen stay put in Ottawa with nary a word of protest over America’s “diaspora” tax?

Read the rest at the Globe and Mail.

http://news.nationalpost.com/2013/05/29/canada-expelling-eritrean-diplomat-for-using-consulate-to-shake-down-citizens-for-national-defence/

From the National Post:

Consul Semere Ghebremariam O. Micael was ordered home Wednesday after a government investigation confirmed his office was soliciting money from expatriates — some of it explicitly for the Eritrean armed forces.

The fundraising scheme was illegal because the United Nations Security Council has imposed sanctions on the Eritrean military over its support for armed groups in the Horn of Africa such as the al-Qaeda-linked Al-Shabab.

“Canada has taken steps to expel (declared persona non grata) Mr. Semere Ghebremariam O. Micael, Consul and head of the Eritrean Consulate General in Toronto, effective immediately,” Foreign Affairs Minister John Baird said in a statement.

Mr. O. Micael must leave Canada by noon on June 5. As is typical in such cases, the government gave no explanation for the expulsion. The statement said only that Ottawa had repeatedly told Eritrea to respect international sanctions and Canadian law.

“I think it had to happen. The consulate was warned and ignored the warning,” said David Matas, the Eritrean-Canadian Human Rights Group’s senior legal counsel.

“The people who were being victimized were Canadian dual nationals and permanent residents.  It was essential that the government of Canada stand up for Canadians being victimized on Canadian soil by a foreign government.

https://www.ific.ca/Content/Document.aspx?id=7607&LangType=1033

Somehow I missed this which is shocking because I don’t normally miss anything. I will also add this letter was CCed to our friend Kevin Shoom at the Department of Finance in Ottawa.

 The U.S. through the introduction of the Foreign Account Tax Compliance Act (FATCA) and other means is targeting activities in tax havens – Canada, with its long history of collaboration and effective tax-treaty agreements with the U.S., is clearly not in that category.

In this context we believe the application of PFIC rules, now and in the future, to Canadian mutual funds has a significant adverse impact on American mutual fund investors who are living in Canada. These include: payment of a higher than required level of tax; potential levying of punitive tax charges; and significant compliance costs due to the complexity of the regime. As a result mutual funds may be avoided as an investment and individual securities chosen instead as the PFIC rules do not apply.

Under U.S. PFIC rules, dispositions of Canadian mutual funds along with certain distributions from these funds are taxed at the rates that apply to earned income (as opposed to the preferential tax rates that apply to capital gains). Depending on the timing of the distributions and/or dispositions, punitive interest charges may also be imposed.

The complexity of the PFIC regime leads to significant compliance costs both for the American investor resident in Canada and the Canadian mutual fund company. Our concern is that when faced with the prospect of the punitive tax treatment and/or the additional tax return preparation costs, American investors will choose to divest themselves of their Canadian mutual funds rather than deal with the alternative.

And more:

The IRS estimates that 5 to 7 million American citizens reside abroad. Of that total, approximately 1 million American citizens are estimated to reside in Canada. The implementation of FATCA beginning in 2014 will likely increase the number of Americans residing in Canada who will file US tax returns each year. Although the intent of FATCA is to catch Americans evading U.S. tax by investing offshore, these rules cast a wide net, and will include compliant Canadian taxpayers who are Americans by birth and have lived and worked the majority of their lives in Canada.

As financial services companies in Canada will comply with FATCA, there will be a much greater awareness of who is a U.S. tax filer and how the U.S. tax filings are complicated by the PFIC rules for mutual funds – an issue not well understood to date.

Pritzker Understated Income by $80 Million http://t.co/sQEnh7cbIl via @WSJ – Is some of this from #offshore sources?

— U.S. Citizen Abroad (@USCitizenAbroad) May 25, 2013

“………… after initially underreporting her income by nearly $80 million.

Her attorney, who filed the amendment with the Office of Government Ethics, blamed the omission on a “clerical error.”…………….

Right. And we have to sweat over a dollar in our local account if our total aggregate exceeds the FBAR threshold on any single day in a year? And a tiny local chequing and savings account held within walking distance of my residence in Canada might have been subject to a 50% penalty if it was deemed a willful omission?

But a buddy of Obama and the Democrats can even be considered for a government post like that?

I can’t put down here what I really want to say about this. Where is all the hypocritical BS about ‘offshore accounts’ and ‘foreign trusts’ etc. now?

Canadian duals with disabilities are taxed on meagre RDSPs by the IRS, but US government cronies can forget to report tens of thousands, or millions, and that is okay? The Treasury Secretary Geithner can underpay tax that is owed, and misreport income, but still trumpet that we’re the cause of the ‘tax gap’?

What scale of tax misbehaviour would it take to get some of those US homelanders with money and political connections actually treated the way that the IRS and Treasury treats all of us living legal lives outside the US – who have already paid our home government revenue agencies in full.

Exactly how egregious would US homelander offences have to be for those politically connected in order to actually face some kind of serious repercussions.?

‘Canadian grandmas’ spent legal Canadian funds to file US tax returns and FBARs in order to prove that they owed nothing, but US homelanders and Obama cronies ‘forget’ to report?

A perspective from outside the Homeland looking in

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