Wednesday, September 19, 2012

New IRS Streamlined Procedure for Offshore Disclosures

On August 31, 2012, the IRS published the new procedures first announced on June 26 regarding offshore voluntary disclosures.  This is essentially a recognition on the part of the IRS that there are certain “no brainer” fact scenarios which qualify for relief from the more formal, expensive, time consuming and intrusive OVDI procedures which is presently bogged down because of a shortage of  IRS  personnel to work the cases.  We first commented on this new streamlined procedure on July 2.  You can access those comments here. There are no surprises in the August 31 announcement. I still believe it is “too little” because it doesn’t go far enough but not “too late” because it shows the IRS recognizes that the oppressive OVDI “one size fits all” approach simply does not make sense when it is applied to people  who represent the unintended collateral damage of the  FBAR penalties when they are applied literally.


  1. Steven, what about these caveats by Roy A.Berg on Jack's site?

    It doesn't seem, after a second look, that the IRS is really convinced that no-brainers exist. Or at least they still don't want to admit it. Judging by the comments of at least two other experienced US tax lawyers, the questionnaire seems fraught with potential pitfalls, (unintended or not?), either way, still not good for those tiny minnows trying to use this path. Does not look as if it is really designed for the low risk individual to do without expensively prohibitive counsel - which the minnows can by definition be less likely to be able to afford.

  2. And will only unicorns be eligible in the end? Low risk is very vaguely described.

    Why exclude those low risk people in the OVDI programs who might have ended up there through sheer panic and naivety due to the overt threats routinely made in press releases by Shulman and Geithner. There are people in them that don't belong there, and by now that should be very obvious. And how will those who come forward now, but may be just over the nebulous 'low risk' threshold fare now that the FATCA form was added to the long list of draconian and SOL extending requirements?

    Still no relief for the deserving inside the US, like recent immigrants with post-tax legal assets in their countries of origin.

    Was it deliberate on the part of the IRS to let people wait into the Fall for the long-awaited (since January)'commonsense' path into compliance long after the June filing deadlines; so that they would fall afoul of yet another tax year filing penalty, plus FATCA, and plus the 2011 FBAR, plunging even deeper into the seemingly bottomless pit of US liability (specially reserved for those committing the IRS defined 'crime' of being born with US status while living everyday lives, paying taxes and banking where they actually live and work, - outside the US), if they didn't fit the much anticipated guidelines they had been told were coming?

    What does missing the FATCA filing deadline for 2011 do to the SOL and penalty structures that apply to those who now know they won't be allowed to use this path, and or are not considered low risk, but who aren't really high enough risk to genuinely belong or deserve to be in the OVD program?

    Still doesn't seem that the IRS is acting in good faith by releasing the details of this well after those deadlines for filing all three of those requirements for 2011 had passed. Is it really compliance they want....? Or is it really just the penalty revenue they're after, because it reaps exponentially more money than the zero they might have been owed in actual US taxes. This way, even all those with zero tax-assessed returns because of the FEIE and Foreign Tax credits (which the Taxpayer Advocate said was far and away the majority of those who filed from abroad) can end up in the FBAR'n FATCA fundraiser anyway.

    Good to see the no-brainer coming to partial fruition for RRSPs, but what about the other entirely legal, normal registered everyday accounts (for education, for disability, for household savings) that US citizens abroad are still being punished by the IRS just for having? The reporting and forms are still too complex to understand and time consuming to do, expensive to have a preparer complete, and the penalties for even inadvertent errors are still draconian - thought the funds are entirely legal and transparent where they are held. Even though they are government regulated, registered with a tax id number, and reported directly to the Canada Revenue Agency. We can't benefit from the equivalent in the US; though the US and IRS says it wants to encourage US citizens to save - unless it is US citizens that were born and live in other countries. US resident children deserve to have tax deferred or tax free education savings breaks, but not US children living abroad? Aren't all US citizens supposed to be treated equally, and that is the basis for citizenship based taxation?

    'Featured letter: Uncle Sam unleashes tax hounds to hunt a Canadian citizen

    ..."I feel threatened and bullied by our southern neighbour. I tried phoning the IRS’s 1-800 number, but guess what? The number didn’t work from Canada.

    And I’m paying American taxes because …?"

    by Ruth Jordan, Edmonton

    Edmonton Journal September 20, 2012 7:01 PM'

  4. Now if only the Canadian government would tell the US the same as it told Eritrea, stop threatening and extorting extraterritorial citizenship based taxes and invading Canadian bank accounts to fund the US war debt and irresponsible domestic bank and other bailouts.
    'Ottawa forces Eritrea to nix ‘2% extortion tax’ on citizens in Canada'

    Stewart Bell | Sep 20, 2012 10:35 PM ET
    “So the only way to stop the 2% extortion tax is by shutting up the Eritrean consulate for good."

    ...."The government of Eritrea has agreed to stop collecting a controversial “diaspora tax” at its consulate in Toronto after the Department of Foreign Affairs threatened to send home the repressive African regime’s only diplomat in Canada."...........

    ..."The letter is a reversal for Eritrea, which had previously defended its collection of diaspora taxes. ".....

    ..."Therefore, the only way for Canada to protect its citizens and its national interests … is to expel the diplomat Mr. Semere Ghebremariam and close the consulate in Toronto,”"....

    Stewart Bell | Sep 20, 2012 10:35 PM ET"

  5. Thanks for your follow up on this ongoing story and thanks for you support. You have been (and continue to be) an "apostle of justice" for victims of citizenship-based taxation.

    We are approaching the anniversary of Ambassador David Jacobson's speech in Ottawa (October 18, 2011) where he assured dual citizens in Canada that some kind of common sense solution to this would be coming.

    It has not come and it will not come. After one year of dealing with this problem, I have come to see that the IRS has no interest whatsoever in either:

    A. A common sense solution for US citizens abroad; or

    B. Compliance

    Compliance doesn't get the IRS money.

    What the IRS is interested in penalties and threats.

    There is no way for US citizens abroad to navigate the dizzying array of forms and rules of the US tax system. Furthermore, they can't afford the professional fees to remedy past compliance problems.

    The result is that US citizens abroad fall into one of two groups:

    1. Those who can afford to renounce US citizenship; and

    2. Those forced to go underground.

    The August 31, 2012 streamlined procedures apply to virtually nobody. And the few that they might apply to, will be too nervous to risk being subjected to heightened scrutiny.

    Incredibly sad, but true.

    1. If the threshold for IRS 'low risk' is defined anything over 1,500. in tax owed by those of us living outside the US - where we were born or naturalized, then how does that measurement of 'low risk' compare to the amounts understated/unreported and owed to the IRS by Republican VP candidate Paul Ryan because "Ryan had to restate his taxes in 2011 and pay a $59 penalty. When he originally filed, he did not include $61,122 in income from the Prudence Little Living Trust. That oversight resulted in an underpayment of $19,917 in taxes. The Prudence Little Living Trust was founded in 2010 when Janna Ryan's mother, Prudence Little, died, according to financial disclosure forms",0,3111348.story

      Now, let's compare that to what Timothy Geithner didn't report or pay, and the manner in which the IRS treated him: "The IRS audited Geithner in 2006 and found that he failed to pay self-employment taxes on compensation he received as an employee of the International Monetary Fund for tax years the IRS was looking at, 2003 and 2004 (by law, the IRS could not audit him for years before 2003). So Geithner paid $16,732 in back self-employment tax, plus interest. The IRS waived penalties for those years. "

      So, the Republican VP nominee forgot to report $61,122 from a TRUST. And only has to pay a $59. penalty to the IRS.

      The Democratic candidate for the Head of the US Treasury, forgets to, or misunderstands his tax obligation, and owed "$16,732 in back self-employment tax, plus interest". And the outcome? The IRS WAIVED the penalties.

      They both live in the US, and have years of experience in the US tax system. They both have high levels of education.

      Contrast that with the treatment of the ordinary dual citizen born or living their whole lives in other countries outside the US. The majority are just everyday individuals. We would be considered 'high risk' if we owed the US >1,500., and face draconian and confiscatory IRS penalties even though we've paid in full all we owed where we actually live and earn - outside the US. And if we owe ZERO US tax - which will be most of us, we will still need to pay thousands to a lawyer in order to attempt to get something even approaching justice from the US and IRS.

      Why the discrepancy in treatment? We owe nothing, and are penalized. They owe huge amounts, and 'forget' to report trusts and other huge reportable sums. We owe nothing, and are threatened and vilified. They owe the IRS, and have penalties waived or minimized.

      IRS defined "Low risk" for us living outside the US has a 1,500. threshold. IRS defined "Low risk" for them is apparently in the tens of thousands and more.

      I thought that IRS commissioner Shulman, and Treasury Secretary Geithner, and his trusty deputy Emily MacMahon said that all US taxpayers should be treated the same, and all must pay their 'fair share'? We are liable to pay in two countries. They can't even manage to report and pay in the one they live in, the US. And which of us gets treated with fairness? Not those of us 'abroad'.

      And lets compare the treatment of those abroad who might have been a beneficiary of a trust - which is suddenly treated with massive penalties if it is unreported from outside the US, vs. the unreporting of the trust distributions from Ryan's family - inside the US. Which one gets the preferential treatment? Guess. The one that belongs to the person born and living an everyday legal life in another country.

    2. To clarify my last remark, it should have read; "Which one gets the preferential treatment - It is the NOT the trust or accounts that belong to the person living abroad - who is liable to two tax systems. Why? Because the US is a big fat hypocrite when it comes to the treatment of those it deems US citizens who were born or live permanently abroad. It won't let us give up unwanted US citizenship without IRS certified tax compliance - for 5 yrs of reporting, and 6 years of FBARs, though we pay in full already where we actually live, but it will waive and forgive glaring omissions in the tens of thousands from Ryan and Geithner - who only have to keep track of one tax system - and one was the head of a huge bank and worked for the IMF.

      And that isn't counting all the other glaring examples of those inside the US who apparently haven't been paying what they owe: "About 98,000 federal, postal and congressional employees owed $1.03 billion in unpaid taxes at the end of fiscal 2010, according to records provided by the Internal Revenue Service. The total number of delinquent employees dipped slightly from 2009, but the amount owed jumped by $32 million."

    3. Steven: Why is it that the IRS won't exempt RDSPs, Registered disability savings plans from being taxed and penalized as 'foreign trusts;? And why can't the guardians of those with cognitive disabilities renounce their US citizenship by proxy, to salvage their disability savings? Those savings plans are one of the only ways their guardians can keep their wards out of poverty. That means that the families of those with cognitive and mental health disabilities, and dementia must deal with the IRS, as proxy on their behalf - for a lifetime, and in terms of their estates - after death. You might have a whole family that has renounced, except for those unable to because of disability and US laws. That is discrimination and I would think it abhorrent for a US federal agency to engage in.

      Why can't the IRS make a rational and fair exemption for these individuals? It loses nothing that it would have gotten from them, but it chisels away at the only assets set aside for their care through the expensive and complex reporting, and through the anxiety generated by the potential penalties on 'foreign trusts'.

      Why aren't US tax professionals speaking out about this - it is a mark of shame that the US treats those with disabilities abroad so punitively. And it just piles on another barrier for those with disabilities, and their families to cope with, while being of no discernible or fair benefit to the US and the IRS.

      You know that we don't have enough money to take it to court - even if that were possible. What do your fellows and former colleagues say about this? It seems so very egregiously unjust.


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