Monday, December 3, 2012

Offshore Voluntary Disclosures Update: Where Is IRS Appeals?

As taxpayers and practitioners get ready to start a fourth year of dealing with the IRS in the area of offshore voluntary disclosures, it's fair to ask, where is IRS Appeals in all of this? For those who don't know, the IRS Appeals Division has a proud history dating back to the early 20th century as the settlement arm of the IRS compliance function.It is responsible for keeping well-over 90 % of all tax controversies from going to trial in either the U.S. Tax Court where 95% of all tax litigation takes place in this country or the various U.S. district courts in certain limited circumstances.

In a regular tax examination, if a taxpayer is unable to agree to a resolution of all the issues in an audit, the taxpayer may reach an agreement on some of the issues and elect to take the unresolved issues to an impartial IRS Appeals Officer or settlement officer. As such, the IRS representative is authorized to make an offer of settlement based on the government’s "hazards of litigation" (its chances of losing the case in court). Under existing written protocols, unresolved cases are supposed to go to Appeals because examining agents and their managers are not supposed to "settle cases" even though they do it all the time. That’s because IRS managers get more credit with their bosses for having a high "agreed case" rate. It is illegal to evaluate case managers’ performance based on revenue collected. The IRS is more focused on the number of cases closed out as "agreed," either with "no change" or a taxpayer concession on the amount of income which should have been reported or deductions taken.

Under the OVDI Frequently Asked Questions on the IRS website, the last section, "Case Resolution" which contains the so-called opt out rules (FAQ’s 49 through 53) makes a brief reference in FAQ 49 to unhappy customers having the privilege of appealing a proposed IRS penalty after the "[imposition] of all applicable penalties," but even though offshore voluntary disclosures have been in the IRS pipeline for three years now, there has been scant talk by either the IRS on its website or in public pronouncements, or in practitioner war stories on LinkedIn, about any experience so far with IRS Appeals involving voluntary disclosures.

That’s because there aren’t any OVDI cases in Appeals yet. A highly reliable source recently told me that there are presently no opt outs in Appeals and if any of them manage to work their way there, they likely will be handled as Appeals Coordinated Issues to assure consistency. An Appeals Coordinated Issue (called "ACIs") is IRS-speak for alerting all local managers to not even think about settling the case on their own because the National Office has removed all discretion from local offices on these cases. Any willingness to settle any case under OVDI will be made exclusively by National Office compliance super-managers and their staff, the highest levels the Office of Chief Counsel, and the national director of Appeals.

My source also says that unless there are unique facts, those unable to resolve their matter through the opt out procedures should not anticipate a much different experience in Appeals. He also added that an inherited account is not a unique fact.

It is suggested that the practitioner make a realistic proposal in the opt out process. There is some bad case law emerging in this area on the definition of willfulness so practitioners should be careful about what they wish for.

My source also reminds me that the Department of Justice is no longer following the UBS process of issuing John Doe summonses and waiting to see what happens. They are getting intelligence directly from many sources. Moreover, my friends in the IRS criminal investigation division are telling me they have so many leads in potential substantial criminal matters they feel like kids in a candy store.

As of this writing we are about a year away from the time when all foreign banks are supposed to cough up the names and account numbers of their American depositors under FATCA. By then it could be too late for some who may have waited too long to enter OVDI. That said, the reality is, the government is simply too busy and too preoccupied chasing a cornucopia of real criminal tax guys with offshore shenanigans. Ironically, IRS CID simply has no time to chase after almost all the people who think they are at risk for a life of ankle bracelets or real hard time. The real challenge here for people with secret offshore accounts is to explore their potential civil penalty exposure if the IRS calls first.




27 comments:

  1. So Steven,

    Thanks for your insider insights!

    Given the IRS 'kid in a Candy store" excitement, and "simply too busy and too preoccupied chasing a cornucopia of real criminal tax guys with offshore shenanigans", I have to wonder.

    Have your views on QDs for minnows versus NDs Noisy Disclosure in a non OVDI manner, changed given the current 'candy store' environment?

    It seems to me that they have sooo many sweets to chose from the bowls on the counter, that they have not inclination to vacuum the floor for grains of sugar to satiate their appetite for all things sweet.

    Nor, do they have the candy factory staff to separate the sugar from the dirt they have sucked up in their 'one size' fits all OVDI machine. Isn't the taffy, candy corn and caramels on the shelf enough for them?

    How much more time and effort are they going to waste on grains of sugar?

    Shouldn't the non compliant minnow, just become compliant going forward as an alternative to the expensive and time consuming, soul destroying OVDI programs? It is called the lottery audit, and BIG Corporations play it all the time, so why not the minnows?

    Isn't the realty now, as you imply, that they are simply swamped in Big Chunks of Sugary Treats now, and maybe their focus will remain there for some time to come!

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  2. Thanks, Steven, for an interesting insider's perspective.
    I have a couple comments/questions:
    1) You wrote:
    "Moreover, my friends in the IRS criminal investigation division are telling me they have so many leads in potential substantial criminal matters they feel like kids in a candy store."

    Can you give more details about what they consider "substential criminal matters", in terms of taxes due and account amounts. What is the threshold for the IRS to consider people "substantial" criminals?

    2)"A highly reliable source recently told me that there are presently no opt outs in Appeals"

    Why is that? The OVD programs are 3 years old now. It seems that some people should have appealed. What could we infer from that?
    1) The people in OVDI are treated fairly on opt-out.
    2) The legal cost of appeal just outweighs the fines being asserted on opt-outs, and it does not make sense to appeal.
    That is true for most minnows. In some cases, for minnows, the additional legal costs of opting out is not even worth it. Their lawyers just tell them outright that they would be just better off just paying the in-lieu of penalty.

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  3. Steven:

    You claim that the IRS and Treasury now have so many sources to datamine, that they are like kids in a candy store. But really, they have not released any data to prove that those in the VD and OVD programs were actually the targets they were after. Or whether the majority of those stuck in the program were merely ignorant of extraterritorial US tax and financial reporting rules. Or ill-advised as to how to become compliant. Do you really think that compiling lists of legal, local household chequing accounts from those ill-advised people who came forward 'noisily' from countries like Canada will actually reveal masses of secret 'hidden' 'offshore' money laundering, drug proceeds and terror funding activities? How likely is it that in countries where accounts can only be opened with domestic tax numbers, and automatic interest is reported regularly to domestic tax agencies, will uncover masses of information about truly criminal proceeds. That is just a smokescreen, and even US international tax law specialists have written in academic journals with scepticism about those claims - particularly as they apply to US NON-resident duals, vs. US Residents (like several US politicians) who have not reported on their accounts abroad. By continuing to make no meaningful distinction between accounts held local to where the account holder permanently resides and has a dual citizenship, vs. accounts held by US residents in the Caymans, the US is deliberately misleading the public and conflating the two. That may achieve the aims of Treasury and the IRS, but it is dishonest and deliberately duplicitous http://www.merriam-webster.com/dictionary/duplicitous . Hardly laudable behaviour in a US public servant like Geithner or Shulman. Hardly a good example to set for IRS and Treasury staff. Hardly a good example to those abroad who see the only official US reflection of any interest whatsoever, in their existence, to be entirely punitive and deliberately guileful.

    Treasury and the IRS won't even release data on how much of the money they claim to be retrieving was from BSA FBAR and financial reporting penalties, vs. actual US tax assessed and reclaimed. If their claims were true, and their aim was to be honest, there would be no barrier to transparency and public disclosure. Instead, there is the stonewalling of the FOI requests made for that information - aggregated to protect personal information that might identify individuals.


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  4. The IRS knows by now that they are wasting resources chasing after and oppressing the minnows and the krill. Particularly where it is obvious that the bank accounts and assets are held in local accounts, where the individual live, and in high tax jurisdictions with robust domestic bank oversight. Why then is there no process yet established for a krill or minnow to move out of the OVD or VD streams and into the streamlined compliance process? Why would the IRS, who is starved for funding, continue to focus on cases that should never have been in the VD streams, but were offered no choice - since the IRS repeatedly said that quiet disclosures were not acceptable, and would be punished. Many reliable stories, and clear proof exists that those who continued to submit back FBARs and returns quietly, were able to come into compliance in that low cost method, rather than spending tens of thousands enmeshed in OVDI - when they were mere 'benign actors', or had minor footfaults - as the TAS Nina Olson continues to publicly attest. Obviously she would not go out on a limb to continue to assert this if she did not have significant evidence to back her assertions. I expect that her next report to Congress will repeat those warnings again - even though they appear to be falling on deaf ears.

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  5. Meanwhile, the Canadian Civil Liberties Association has issued a letter objecting to privacy and other Charter and Constitutional issues that implementing FATCA raises. This is not helping the US. Even if other countries fall in line with FATCA, the domestic fallout threatens any government party who assisted in an IGA. Does the US really stand to gain much from imposing this on allies and trading partners, where it is highly unlikely that local accounts are equivalent to one in the Caymans being used by a US resident? Harming over 1 million households in Canada is likely to permanently entrench anti-US sentiment - which already exists here.

    You and the US government may get your way, but it may turn out that it was not worth the price. It will become entirely obvious and irrefutable that those affected are not money launderers, drug lords, terror funders, or criminals. They will be seniors, and 'Canadian grandmothers', who the US will tax on the eventual sale of their principal residence in Canada - appreciated in value over many years (and capital gains) - resulting in the US confiscating money that would have paid for their longterm care and retirement here in Canada. Seniors are reliable voters. Their non-US children - who may not be US taxable persons, will have to deal with their estates. How will the US be able to assess and compel estate filings and taxes on non-US executors - liquidating non-US property, that originated entirely using Canadian funds, and sited in Canada? I can't see a Canadian court and Canadian politicians agreeing to assist the US in trying to confiscate the Canadian real property of Canadian estates inherited by non-US persons. Or assisting the IRS to collect from Canadian seniors who suffer losses on the sale of their homes - and thus have not enough money to sustain their care when they become infirm. Canadian taxpayers will be the ones paying for any monies that are sucked out of Canadian pockets by the IRS. That is something that everyone can understand, and it will make for shocking and angry headlines in our media. Not a happy outcome for any pending US trade deals.

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  6. And, the numbers who successfully renounce continue to rise. At one consulate in Canada alone, they have now started offering more than 100-200 spots per month, and they are booked up as soon as they become available. We have seen the writing on the wall http://en.wikipedia.org/wiki/The_writing_on_the_wall and soon it will become even more obvious that the US is so desperate for any possible revenue sources - from Canadian and other 'grannies' abroad, from Canadian taxpayers, Canadian-born dual children and from inventing and imposing draconian and confiscatory regimes under FATCA, FBARs and the like.

    Is it really going to generate the revenue that the IRS and Treasury say it will? No cost/benefit study has been done. It is costing millions for non-US countries and institutions to implement - and it is so unwieldy that no-one knows how it will work. US banks and some politicians are set against any US reciprocation - and several of the IGA agreements are based on US (disingenuous) promises of reciprocation.

    The IRS also continues to defeat itself, by continuing to make our personal and banking information insecure - http://www.federalnewsradio.com/534/3139043/IRS-struggling-to-tackle-massive-surge-in-identity-theft- http://www.usatoday.com/story/tech/2012/10/26/south-carolina-data-breach-36-million-ssns-stolen/1661541/

    Those abroad must provide extensive personal and financial details that go far beyond what is required from US residents. Under FATCA, the range of assets and information is to be exponentially expanded. What at treasure trove for criminals. What has the IRS done to ensure that the extensive personal banking and asset data it forces us to provide - even on accounts whose joint or actual owners are NOT US taxable persons, is secure?

    How will the IRS assist us if we must report on the accounts of non-US employers, business partners, community groups, churches, estates, and family members, and that data is stolen or compromised? If those NON-US, Non-taxable persons sue us for any resultant breaches, what recourse do we have? Does the US think that our courts will clear us based on US enforcement of a US domestic law extraterritorially? Will a Canadian court absolve us of responsibility if we provide information that is later stolen from the IRS, and compromises the banking information of non-US persons? Will the IRS pay damages on our behalf?



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  7. Steven: How would you feel and what would you be doing if California levied a tax on people there who moved to another state? Read this article and let me know what you think. Would you just accept it because "It's the law." Or, would you fight it just as hard as we are fighting FATCA?
    http://therothshow.com/2012/12/high-price-tag-for-leaving-the-wrong-state-or-country/

    Anonymous mentioned CCLA. I have been working through CCLA for months on FATCA. They have advised me it is "premature for court action," but they are now among individuals, organizations and groups standing up to FATCA. Here is a link to Maple Sandbox where you will find more links to Open Letter from CCLA to Ministry of Finance and their e-bulletin in FATCA.
    http://maplesandbox.ca/ccla-registers-fatca-privacy-concerns/

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  8. Beware kids in the candy store. They could be spreading VD!

    VD is just like the other VD. It’s Risky, Bad For Your Health and Highly Contagious. For some VDs, there Is no cure. TAS may provide some symptom relief, but VD is insidious and will recur.

    The standard IRS prescription, (written in illegible handwriting–but finally interpreted) is “Give Us Your Money!”

    Anyone with VD is treated like they are dirty. They are told to “Come Clean.” They are told by the stalking spouse they divorced long ago “It’s Your Fault.” They are accused of “Cheating” when it’s Congress and it’s IRS illicit lover who are the Real Cheats–in bed together behind your back, refusing to communicate with you and spreading VD without no discretion or scruples.

    Claiming “I Didn’t Cheat” or “It Didn’t Mean Anything” won’t help you. After you get VD, you will not be able to plead “Not Guilty. Anyone who enters VD will be tortured until they pay up. Anyone considering VD should be notified they will be reported to the proper authorities for further persecution.

    Explaining “But the US Consulate told me I was renouncing my US citizenship” won’t work in VD. The Consulate has the constitutional right to lie. You were dumb to believe them. You are the sinner because you trusted and believed the Consulate’s deceit all these years. Don’t get trapped again. Don’t get infected with US VD! .

    Protect Yourself. Know The Risks. Take Precautions. Stay As Far Away From VD and the US as You Possibly Can. Keep Your Money In The Country Where You Live. Always Use A Safe (for your money, of course!).

    Be Responsible. Warn Potential Partners. Avoid Passing VD Onto Your Children Born Outside US.

    Today, the question isn’t “Do You Have an STD?” It’s “Where Were You Born? If the answer is anywhere in US, knowledgeable potential partners will turn and run for fear of catching your VD There is no possibility of marriage. Possible mates fear having their lives and finances ruined by your VD. No one wants to come near you. You are destined for a life alone.

    The only one who wants to screw anyone with VD is IRS. When IRS finishes with you, they toss you aside. IRS rapidly moves on to their next conquest. They gleefully spread VD that originated with them onto others.

    Instead of preventing greater spread of VD, elected officials in Congress get their kicks as a voyeur cheering IRS on.


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  9. To All: In no particular order I will respond to the many comments in one or more posts below:

    1.I responded to Just Me on LinkedIn. Bottom line: prospective compliance is much better than doing nothing. You are never going to get an ethical tax lawyer or CPA to tell you to “just forget about it.” If you get caught you could sue him and win.

    2.What makes a case interesting to CID is a good question. Many, many factors apply such as whether the target is a public figure, prominent person, or an attorney or CPA. Any case where there is an illegal source to the income is a good example. Generally speaking, the government likes lots of documentary evidence that shows multiple transactions. Flagrant disrespect for corporate or partnership form or setting up offshore corporations or other arrangements with no business purpose other than evade taxes. They usually like the amount of income unreported to be a six figure number but there are no hard and fast rules on the threshold number. The hardest thing for criminal investigators to understand is the meaning of willfulness. Therefore the more witnesses, e –mails, or other writing or business records which tend to show that the target’s activity was purposeful is considered a good case. A bad case for criminal tax prosecution is where the taxpayer is just lazy, not too smart about trying to comply with his tax obligations or someone who just didn’t bother to attend to things. Obviously the real hammer here is civil penalties. Civil penalties is where all the action is, not screwy stories about the handful of greedy entrepreneurs who make up the defendants in the cases Jack Townsend blogs about.

    3.What should we infer from the fact that there are no cases in Appeals? Only that the processes of government are slow. They just haven’t gotten there AND you can be sure that the Commissioner has instructed his people to check with the Office of Chief Counsel anytime a manger thinks the government could even appear to be doing something stupid. Not only are there no cases in Appeals, there are no cases where the IRS is pursuing an 85 year old Canadian American in a Calgary nursing home. All the talk about what the IRS COULD DO under the various OVDI programs which was so hot on some rabid web sites never happened. I would know if there were because I have offered to represent pro bono, any FBAR, enforcement or abuse of the opt out procedures, or the OVDI program itself, where the IRS was being stupid for any period of time after a manager was involved.

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    Replies
    1. Not a US goodwill ambassador, abroadDecember 7, 2012 at 8:43 PM

      Steven;
      In response to your comment above; "there are no cases where the IRS is pursuing an 85 year old Canadian American in a Calgary nursing home. All the talk about what the IRS COULD DO under the various OVDI programs which was so hot on some rabid web sites never happened"

      With all due respect, you know that you have absolutely no evidence for that assertion. The IRS has declined to share - even in aggregate, the true nature of what it is doing in the OVD programs. Even to Nina Olson. And, I doubt that all the Canadian dual grannies in Canada have been reading your blog and know that you've made any kind of pro bono offer to them - so the fact that you have not received any requests is no proof at all.

      However, we do know for a fact, that as a kind of 'in lieu of penalty'; many 'Canadian grannies' and their spouses, and their children have been tormented and threatened into paying exorbitant fees to US crossborder tax lawyers and accountants in order to continue to demonstrate multiple years of zero tax owed to the US, and wrestle with the unnecessarily punitive and burdensome nature of the IRS insistence on treating all of our legal local ordinary, post-tax, government-registered assets to a level of scrutiny, penalty and paperwork that ordinary US residents do not face on their US homeland equivalents. This is totally unecessary, and unjustified. The TAS has asserted her criticism of the IRS inflexibility publicly, and I think you can expect that her upcoming report to Congress will assert it again - just as the last one did. She recently was reported to say "Such an approach would increase voluntary compliance and
      would stop terrorizing the entire country of Canada,” Olson observed.” http://oicattorney.blogspot.ca/2012/11/taxpayer-advocate-fbar-penalties.html"http://oicattorney.blogspot.ca/2012/11/taxpayer-advocate-fbar-penalties.html

      In addition, the Canadian Civil Liberties Association has taken an interest in FATCA, and now has a position posted on its website http://ccla.org/2012/12/04/ccla-registers-privacy-concerns-over-ongoing-canada-u-s-information-exchange-negotiations/

      Is this the image that the US and the IRS wants to cultivate with an important trading partner and neighbour? US Ambassador Jacobson is going to continue to have a hard time persuading anyone that the US is our friend. http://news.nationalpost.com/2012/07/05/u-s-canada-relationship-never-been-stronger-american-ambassador-says-despite-paper-saying-otherwise/ The IRS and Treasury have now created anti-American ambassadors out of those who now know US extraterritorial arrogance at firsthand. Do you think that we'll be raising our Canadian children to look on the Canada - US relationship favourably? Nope. When we finish telling them that it is the US that forbids them from saving for university with a Canadian RESP, and the US that prevents them from being able to have a TFSA gift from a doting Canadian grandma, there will be another generation who will view the US with suspicion, and distrust. And try explaining to your local voluntary or professional organization, or your non-US employer in Canada that you'll have to report all their non-US assets to the IRS. Because every account or asset anywhere in the world outside the US - even non-personal ones, owned by non-US owners, is by default automatically a criminal money-laundering, drug and terror funding enterprise, until the IRS and Treasury say it's not - annually, forever and ever.

      That's going to win the US so much favour in Canada. And what a waste of scarce US tax dollars and IRS efforts. Making no meaningful distinctions between Canada and the Caymans. That's what I call making rational use of scarce resources. Just call everyone an criminal first, and sort them out later.

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    2. "All the talk about what the IRS COULD DO under the various OVDI programs which was so hot on some rabid web sites never happened"

      I continue to believe that the assertion from the IRS that there is no other solutions than OVDP to fix foreign accounts issues and their threats of fines so high they will bankrupt you is a stupid approach that goes against compliance AND revenue generation. Many people will choose NOT to enter any "Voluntary" disclosure program, because of the penalty regime, or knowing they will opt out, and will limit their risk by filing forward, instead of correcting the past 3 years of statute of limitation. That part impedes revenue generation. With 6 millions Americans abroad and ~40 million immigrants, a vast majority of whom are not compliant, a campaign to bring those tax payers in compliance without threatening them of bankrupcy if they try would generate revenue. I read somewhere that out of all the 2012 OVDP filings, only about 10% as of now have been assigned agents. The IRS just does not have the manpower to handle the huge number of non compliant people. They must raise the bar for OVDP to some amount of undeclared income and allow minnows below that amount to correct the past by amending returns, regarless whether they live inside or outside the US.
      Why doesn't anyone realize that at higher levels??
      Are they just a bunch of sadists who enjoy terrorizing people?

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    3. Steven;
      You say "there are no cases where the IRS is pursuing an 85 year old Canadian American in a Calgary nursing home. All the talk about what the IRS COULD DO under the various OVDI programs which was so hot on some rabid web sites never happened. I would know if there were because I have offered to represent pro bono, any FBAR, enforcement or abuse of the opt out procedures, or the OVDI program itself, where the IRS was being stupid for any period of time after a manager was involved...."

      How much money would those grandmas have had to pay to professionals for their submissions BEFORE they got to the point where you would agree to represent them pro bono? How much stress, anxiety, money and time would they have to endure to even get to the point where an IRS manager was looking at their file?

      It clearly says here about these Canadian seniors: "But they’re still spending thousands on accounting and legal fees. The Thompsons have racked up $6,000 each SO FAR. Other estimates have put the total cost of compliance at $10,000 to $15,000...."

      http://business.financialpost.com/2011/09/24/u-s-campaign-to-catch-tax-cheats-snaring-canadians/

      The cost for a 'cross-border US tax lawyer' can be anywhere up to 750 per hour and more. And then there are the accounting professionals. Just to ask a quick question can cost hundreds. How can ordinary people even get far enough to take advantage of your offer?

      And, you've said repeatedly that you haven't heard of any of these cases. But how would you? Have you tried to contact the Thompsons sisters or anyone like them? And grannies in nursing homes aren't the only ones suffering. I met a young frightened couple raising their new baby, and trying to make ends meet - they can't pay even to ask a professional for advice.

      All these people earn, bank and pay taxes where they actually live. They aren't hiding anything. They don't owe the US any taxes. Why not make it easy and affordable to come forward if that is what the IRS truly wants? Even the 'streamlined' process has dangers and hidden pitfalls - despite it being labelled a 'commonsense' way to come forward.

      Continuing to treat the minnows the same as the US resident millionaire whales is hurting only the minnows. And what it says to us is that our pain and losses don't count. Some US citizens are more equal than others. Some US citizens count, and those of us living legal everyday lives outside the US don't count. That is why more and more of us will become lifelong 'badwill ambassadors' in the non-US countries where we live permanently. We don't want to live in the US. We just want to live peacefully where we were born or naturalized. We want the US to stop claiming our 'foreign' born children - (who are actually first and foremost citizens of the on-US countries where we live), as taxable and subject to draconian penalties. Our first allegiance is to the country that provides succor and care to us, not the one who offers only pain, threats and penalties on our legal already taxed savings.

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    4. The length, complexity and threat of the OVDI process is more than torture enough - quite apart from the eventual result. 365-500 or more days of uncertainty - grappling with a large government agency whose position is necessarily adversarial, is more than most people can cope with - from the money needed for specialty assistance and advice, the complexity of the forms, the hours needed to determine and provide information, the stress of uncertainty and lack of any power or recourse. How can you minimize that? Even if like ij, you come through it without paying FBAR penalties, the experience itself is scarring. During that time, can anyone also be an effective parent, spouse, employee, etc.?
      Lots of people experienced fear, anxiety, stress, depression, and the like. That is not imaginary. The TAS has reported on this.

      Delete
  10. You write that:

    "My source also says that unless there are unique facts, those unable to resolve their matter through the opt out procedures should not anticipate a much different experience in Appeals. He also added that an inherited account is not a unique fact.

    It is suggested that the practitioner make a realistic proposal in the opt out process. There is some bad case law emerging in this area on the definition of willfulness so practitioners should be careful about what they wish for."

    When you refer to the "bad case law" I assume you are referring to the Williams case (which imputes knowledge of the contents of the tax return to the taxpayer) So your message seems to be:

    1. An "opt out" is very risky indeed.

    2. Of course to enter the program guarantees (with limited exceptions) the 27.5% penalty.

    So, the real message is that if you attempt to clean up your past problems with the IRS you will be destroyed financially either way.

    Mr. Mopsick, in an environment like this:

    Why would anybody in their right mind enter OVDP?

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  11. Interesting new Posting at Jack Townsend's blog. I think the title might be slightly misleading, as there is no Streamline OVDI, just a Streamlined Program.

    Also,, after Jan 9, 2012, the IRS changed acronyms again form OVDI back to OVDP of 2009 fame. That said, it still has some interesting comments from the IRS, and I have to wonder what it means.

    http://federaltaxcrimes.blogspot.co.nz/2012/12/irs-and-practitioners-comment-on.html

    I think it adds weight to the argument, that the IRS is so busy with the Candy, that even if you don't exactly fit the low risk profile, they probably are limited in resources for auditing. For some, rather than enter the OVDI and then Opt Outing, you might be better just going for the streamlined even if you exceed the thresholds they state, and waiting to see what happens.

    Quote:

    Just because a taxpayer fails to qualify under the criteria as being low risk is not a reason to avoid applying to the program, said David Horton, director of the IRS Large Business and International Division's international individual compliance function. Missing one of the factors only means that a revenue agent will review the taxpayer's application, Horton said at the American Bar Association Section of Taxation's annual National Institute on Criminal Tax Fraud in Las Vegas.

    "That does not mean there's going to be an audit," he said. "It means it's going to be reviewed and could be subject to examination." Some practitioners who spoke with Tax Analysts said they had viewed the program as having strict guidelines and that only those taxpayers who had no indicia of higher risk and who met the dollar threshold could apply.
    * * * *

    The IRS "will not necessarily beat up on a taxpayer just because he's a little bit over or doesn't meet one of the criteria," said Christopher Sterner, IRS deputy chief counsel (operations). "It's just we're not guaranteeing that the returns will just be processed without any further inquiry from the Service."

    End Quote

    This is a "Trust US" environment, and given past practice, I do think there is a deficit in this area. It still is 'come into my parlor, says the spider to the fly' environment, and one needs to weigh up their options carefully.

    These comments still do not address Nina Olson's recommendations on dealing with offshore VD issues as posted here.

    "Speaking at a recent international tax enforcement conference, National Taxpayer Advocate Nina Olson suggested that IRS implement an approach to its Offshore Voluntary Disclosure Initiative (OVDI) that would only penalize taxpayers based on their level of non-compliance."

    http://oicattorney.blogspot.co.nz/2012/11/taxpayer-advocate-fbar-penalties.html

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    1. A Democracy needs citizens who trust their government, and willingly obey laws, for a society to function. What happens when a major portion of those the US claims as citizens are now entirely unwilling and overwhelmingly mistrustful of the US? It can continue to hammer and threaten us, but that only increases the distrust, suspicion and attempts to sever any ties where possible, or continue to lay low. The US approach does not buy compliant citizens or allies or goodwill ambassadors. Scar us enough, and it is a memory we'll never forget. You might be able to get some money by force, but after being forced into compliance, we'll just leave - with nothing left to lose. Doesn't sound like a viable longterm plan to increase tax revenues does it? And, the US seems to forget that we're mostly all citizens of other countries - some who are important trade and security allies. And we can vote in the countries where we actually live as duals (unlike the US taxation with no representation). And the US has just given us really compelling reasons to follow our trade and other treaties with our home countries. And we're going to oppose US interests with renewed vigour.

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    2. Exceedingly interested in whether there is really any meaningful differences between these terms; "That does not mean there's going to be an audit," he said. "It means it's going to be reviewed and could be subject to examination"

      Steven:
      What is an audit vs. an examination?

      Delete
  12. and a new one for the readers...

    DOJ Tax and IRS Entreaties to Join OVDP 2012
    http://federaltaxcrimes.blogspot.co.nz/2012/12/i-posted-earlier-blog-on-report-from.html

    1. Per Kathryn Keneally, AAG TAX, DOJ Tax and IRS priority is to identify those who moved money "from one investigated bank to another, especially to those banks that may not have any U.S. operations;" their time is running out. I think this is a bit too cryptic. There's some detail behind it that I could speculate. My speculations are often wrong, so I refrain and spare the reader.

    2. Per IRS Deputy Chief Counsel, the IRS is getting information from "lots of whistle blowers," treaty requests and data mining of information received from other taxpayers in the offshore voluntary disclosure programs.

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  13. @steven
    Are you referring to that rabid web site where Jackie Bugnion currently participates? http://isaacbrocksociety.ca/2012/07/23/shadow-raider-is-rewriting-the-united-state-internal-revenue-code/comment-page-5/#comments
    Sorry, I'm a little crabby today as it marks the one year anniversary of my submission to OVDI and still no word back, not even a Christmas card. It would seem my first class ticket to compliancy has landed me in coach, or worse to a later flight.

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  14. So, Steven, in light of that new statement saying that if even if you don't qualify for all of the criteria to enter the streamline procedure, what would you advise now to immigrants who fall well below that $1,500 of taxes owed criteria?

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  15. Mr. Mopsick, as having worked at the IRS for so long, and still having many friends there, even maybe high up in the hierarchy, would that be possible to plea for a reasonable compliance path for the IT immigrant, who is likely to be no compliant. No reasonable compliance solution are currently available to them. It was disapointing to see that the new streamlined procedure is only available to non-residents. Thanks in advance for anything you can do to help this class of taxpayers.

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  16. Here are some miscellaneous thoughts, some of which may contradict the others in response to the most recent comments posted on my blog:

    1. No one at the IRS except Nina Olson is paying any attention at all to the tax plight of Americans abroad. Expect more of the same for the year ahead.

    2. The IRS is scrambling as fast as its muscle bound bureaucratic hide can, to implement a very, very tough law (FATCA and FBAR enforcement) while at the same time, it looks like negative PR fallout is of no real concern right now to the people at the top of the organization.

    3. Many cross border tax lawyers and accountants have little experience with IRS enforcement and are either trying to panic people because of their own greed and self-interest or by inadvertence.

    4. Some people are neglecting to use common sense when approaching their imagined impending doom at the hands of the IRS. While each person's facts are unique, If you haven't had any connection to the IRS or U.S. source income since the 1960's you can probably rest easy. People's fear of government is not always rational but it makes for great discussion and debate.

    5. There is no one in Washington looking out for tax justice for Canadians. If you want something to happen here you must look to your own elected Canadian officials to do the jobs your votes gave them.

    6. The Canadian Civil Liberties Union is a great organization and the referenced article has reminded me to renew my ACLU membership as soon as possible.

    7. I agree that a lot of Canadian Grannies are worried but its not because the IRS has armed special agents surrounding their nursing homes. There are no cases out there in which the IRS is targeting people just to prove how stupid and heavy handed they can be. If there were you are correct. I may not know about them but you would, because they would be the poster children of the anti-FATCA movement. Where are the actual cases and controversies involving IRS over reaching?

    8. FATCA may be only a symptom of a much broader phenomenon: the 21st Century may mark the beginning of multiple virtual international data bases, banking being only one of them. History will tell.

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    Replies
    1. Steven;
      Curious about #5. "There is no one in Washington looking out for tax justice for Canadians. If you want something to happen here you must look to your own elected Canadian officials to do the jobs your votes gave them."

      If one is a US citizen - and also a Canadian, then why isn't there anyone in Washington looking out for tax justice for those abroad - including the > 1,000,000. just next door at the US trading partner - Canada? I thought that one of the rationales for imposing tax and reporting on Americans abroad (regardless of dual citizenships, and true tax homes), was that citizenship brought with it rights and benefits as well as burdens/responsibilities.

      So it is curious to me that our votes and efforts are to be directed to our home countries - despite the theoretical right to be heard and treated just like any other US citizen.

      Don't millions abroad deserve a voice and fairness just like those that live within the US? If not, it is all the more like 'taxation without representation'.

      And if you're offering merely pragmatic advice vs. philosophical, then, pragmatically speaking, it seems that you are telling us to renounce - that there is absolutely no future in remaining US citizens, and that there is no chance that anything will change from the status quo - or worse - because no-one in the US cares about our wellbeing or our hardship. Why keep the status any longer than we have to then?

      And how can the US justify this ethically?

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    2. Re:
      "Some people are neglecting to use common sense when approaching their imagined impending doom at the hands of the IRS. While each person's facts are unique, If you haven't had any connection to the IRS or U.S. source income since the 1960's you can probably rest easy. People's fear of government is not always rational but it makes for great discussion and debate"

      I don't see the many pitfalls represented by 3520/A s, and all the other financial reporting forms as an 'imaginary' fear. Many of our normal life events outside the US are fraught with potential penalties and US taxation. Like all of our registered savings. Like holding Canadian mutual funds. Like selling our primary residence. Like having co-signatory powers over our non-US employers accounts, or trying to find a non-US business partner who will welcome partnering with someone who brings with them the obligation to report on those non-US assets, and complex accounting and legal costs.

      You know how complex the forms are. You know that the penalties can be layered, and are out of all proportion to the legal funds they are based on. And how even a smidgen of US tax liability magnifies the reporting failures.

      Please explain, if we are so fearful for no reason; why Geithner, and the VP candidate Paul Ryan paid no penalties, and had such an easy time with the IRS - though their reporting and tax failures were exponentially bigger than the 1,500. threshold in the Streamlined Compliance procedure risk category?

      Please contrast the treatment and threats faced by a low to middle income US citizen 'abroad', with:

      Ryan "and his wife had forgotten to report $61,122 in income from 2011. That raised their total income to $323,416 and increased their taxes by $19,917 to $64,674 " http://www.examiner.com/article/paul-ryan-forgot-to-report-61-000-income-on-2011-tax-return

      Geithner's tax and reporting failure: "In 2006, the IRS audited Mr. Geithner's 2003 and 2004 taxes and concluded he owed taxes and interest totaling $17,230, according to documents released by the Senate Finance Committee. The IRS waived the related penalties.

      During the vetting of Mr. Geithner late last year, the Obama transition team discovered the nominee had failed to pay the same taxes for 2001 and 2002. "Upon learning of this error on Nov. 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years, plus interest," a transition aide said. The sum totaled $25,970." http://online.wsj.com/article/SB123187503629378119.html

      The difference is partly that different ways in which failures abroad are treated vs. failures where there are no 'foreign' estates, or 'foreign' asset reporting forms and laws in the daily life of the US homelander.

      We're no more likely to be criminals with our local savings, than Geithner or Ryan were supposed to be.

      Why won't you acknowledge that instead of pretending that we are just paranoid?

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  17. Thanks for your perspectives and thoughts.

    If you are right, and you may well be. then if you are going to live abroad for anything more than a short vacation, you are going to have to consciously decide if you want to remain a member for the U.S. TAX, Form and Penalty club.

    It comes down to the basic cost/benefit analysis with a little irrational emotionalism thrown in.

    I think FATCA is terribly destructive for America and will do it serious economic harm. It will generate little in the way of new tax revenues to offset the cost to the economy. But it will be like our War on Drugs. Hasn't worked, costs a fortune, creates a huge enforcement complex whose vested interest is against ending the war, and so we persist as it becomes a moral crusade. It is a war against human nature and it will NEVER be won.

    Regarding number 8. Absolutely right. With accelerating BIG DATA evolution, GATCA is coming, as sure as the tide rolls into my NZ bay. Don't like it, but it is a force of nature. We better learn to swim with the tide, as seawalls are just going to be breached.

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  18. Steve --- great blog! Thank you so much for this. I have NO opt-outs in appeals. And I have an OVDI I filed in December of 2009 (right after the deadline for the 2009 OVDI).

    The bad law Steve is referring to, BTW, is McBride. I spoke with Mr. McBride. It is real bad case law. The judge goes to invent new law of "tacit" control as actual control. Unprincipled.
    Here is link to it here: http://www.irsmedic.com/2012/12/11/fbar-defendant-jon-mcbride-speaks/

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  19. Mr Mopsick,

    There was an ABA Tax Section Webcast on Opting Out and FBAR Litigation yesterday.

    (The ABA Tax Section is sponsoring a CLE Teleconference and Live Audio Webcast titled: Through the Looking Glass (Parts I and II): Opting Out of the OVDI Penalty Structure and Litigating FBAR Penalties, on January 16, 2013 1-3pm.)

    Did you by chance attend and would be willing to report on it?

    Thanks a lot in advance.

    Best regards

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