In four years, about 1% of diaspora non-filers chose to come into compliance through Streamlined: IRS

This is cross-posted from Brock. The author, Eric is a long-time writer there who composes excellent analytical posts, particularly concerning the inaccurate numbers of expatriations.

There was a discussion today that made me think of putting this particular post up. This post clearly demonstrates that in spite of all the scares – the FBAR Fundraiser aka OVDP 2009, & the FAQ 35 Bait & Switch, OVDI 2011, OVDP 2012, , OVDP 2014 the FATCA Hunt; the endless clamoring of condors, the media and folks like Shulman and Koskinen going on about The Reed Amendment, the Expatriot Act, “Quiet” Disclosures, 877A is retroactive and last but not least, if you don’t have a CLN you haven’t lost your US citizenship – none of it has made a particularly huge dent on non-compliance of Americans abroad. It is literally making me physically ill to reference all this – a vicious cycle of fines, penalties, interest, scaremongering, & whatever else can be thought of to persecute those who are simply presumed to be guilty i.e., Americans abroad. There can be no doubt whatsoever, that this is intentional. Even with the more-or-less guarantee of no penalties via Streamlined, only a very small number are choosing to become compliant. There are likely many reasons; people have begun to see what the IRS can/cannot do in terms of collection (or even detection); people are no longer willing to enter the U.S., etc. I like to think that some of our efforts to help educate people outside the bubble of American exceptionalism, U.S. Law über alles etc has contributed to opeople making up their minds based upon reason rather than reaction. If I had thought I could avoid filing/renouncing perhaps I would have chosen that too. Yet, large numbers of people remain who were literally destroyed by this shameless persecution and there will be more people who will ruin their lives out of ignorance based upon the falsehood that filing is in their best interests. It is for them that we need to continue…….

Sora Fon The tragedy of “self assessment”, self-enforcement and draconian penalties created to enforce honesty while leaving loopholes for those with influence and wealth. It is all I can do to tell the many indigent US Persons abroad I see, who could never face enforcement or confrontation abroad by an IRS interested only in collections, that (apologies to FDR) the only thing they have to fear is fear itself.

TM Yes and should one publicly caution anyone about coming into the system, there is an immediate swooping of threatening condors always quick to claim one doesn’t know what one is speaking about, what a terrible person you are to advise breaking the law, they will find everybody and blah blah blah.

Sora Fon Just saw this quote which I have to repeat: “A nation of sheep will beget a government of wolves.” — Edward R. Murrow

TM Agreed. It is why we MUST NOT remain silent.

Some of you may be aware of the nonsense Keith Redmond has endured by emphasizing on Twitter that if one is not in the tax system, it may be best not to enter it.
Excerpted from a post on Brock:

I was very surprised to see some of the Tweets on Twitter when Keith Redmond tried to warn Accidentals not to put themselves into the US tax system. It is interesting that without any proof as to the ability of IRS able to collect via QI, he presumes it and treats Keith in a manner I found inappropriate and unprofessional. I believe the point of contention was to prove that actual Accidental Americans had been “outed” due to QI. This was not provided, nor has it been since that time. There were others that ganged up in more “attacks” that I will not put up here. Brock/Wed Rally Tweeps will remember this extremely unpleasant incident.

If there is no repeal of #FATCA and a move to RBT, it will be clear that resistance will become more and more prevalent. I personally would love to see massive, visible civil disobedience. At the very least, the government can count on seeing the low numbers discussed in the post below.
*************************
Posted on February 18, 2017

On Thursday, the IRS released their “Dirty Dozen Tax Scams” for 2017, among which they listed “unreported offshore accounts”. They go into more detail in IR-2017-35:

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.

In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Works of the U.S. government are not objects of copyright, which is a boon for stenographers who mislabel themselves as “journalists”: they can just cut-and-paste the U.S. government’s viewpoint on the issues into their magazines without thinking about it, or attempting any analysis.

Anyway, US$450 million is an average of about US$9,400 per Streamlined participant. Not as big as the $13,000 per head they extracted from minnows with two-digit annual tax deficiencies under the 2009 OVDP, but still a sizeable sum from the perspective of the individual.

I’m sure there’s some poor deluded souls in the IRS and the Joint Committee on Taxation staff who are salivating at the thought of getting nine grand per head out of the rest of the millions of diaspora non-filers too — that might help them turn those mythical FATCA revenue estimates into reality. If that’s their aim, however, then forty-eight thousand over four years is a rather slow start.

Continue reading “In four years, about 1% of diaspora non-filers chose to come into compliance through Streamlined: IRS”

#IRS abuse of Americans Abroad – The greater the effort! The greater the punishment!

This post is from the RenouceUScitizenship blog.

serenity

 God, grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And wisdom to know the difference.

We are now more than two years into the Obama/Geithner/Shulman/IRS assault on U.S. Citizens Abroad. It is commonly accepted that the origin of the assault has been – what can now be understood to be – a clear, deliberate, and conscious decision of the Obama administration. That decision is  to equate the day-to-day bank accounts of U.S. citizens abroad with the offshore accounts used by Homelander tax cheats. It’s no longer possible to believe the administration and the IRS are unaware of what they have done. There are  signs that the IRS is slowly trying to change the  rules, change the policies, and change the enforcement. That said, one gets the feeling that the IRS is motivated by considerations of “processing efficiency” and not by considerations of “fairness and justice”.

Two important aspects of the problem are:

1. All bank accounts outside the United States are considered to be “sacred instruments” of tax evasion. Not even the IRS is stupid enough to believe this. Therefore, it’s clear that the IRS is at least threatening (how do you like your freedom now?) to use the day-to-day bank accounts of  U.S. citizens abroad as an  “FBAR Fundraiser“. The IRS is using the  retirements plans of U.S. citizens in their country of residence, to levy fines for failure to file Form 3520. The IRS is using the fact that middle class U.S. citizens invest in mutual funds to subject them to impossible compliance costs and more threats of penalties. This has been documented by Taxpayer Advocate and ignored by the IRS.  We know this. What is different is that in 2011, there was a sense that this “must be some kind of mistake”. It must be “some kind of misunderstanding”. Only a fool would believe that today. The only sane way to view this today is as follows:

The Obama administration is deliberately using penalties and threats of penalties to confiscate the assets of U.S. citizens abroad. Don’t believe it? What’s Form 8938? This is not about taxation. It is about confiscation. But you know that. But, this is not the purpose of this post.

2. The purpose of this post is to explore an aspect of  this that has not been adequately discussed. In the same way that it is a mistake to treat all “non-U.S. banks accounts” the same. It is a mistake to think that the impact of all of this is the same on all. In fact, the people who are the hardest hit  are those U.S. citizens abroad who have tried the hardest.

Group 1 – Those Who Have Been In The U.S. Tax System

This group has  been filing their U.S. tax returns, to the best of their abilities. They are in the system. They are now “low hanging fruit”.  The fact that they have been filing all these years means that they are likely very financially responsible, very aware, very law abiding people. That’s the good news. The bad news is that they are also people who by vritue of having tried to save for retirement have assets that the U.S. wants to confiscate. Obviously this includes the PFIC mutual fund problem.

The problem of owning mutual funds is two-fold:

First, mutual funds are not subject to rules of taxation. They are subject to rules of confiscation.

Second, that in order for the IRS to confiscate them, one must first comply with all kinds of reporting requirements that are impossible to understand and are far too expensive for the average person.

Here is a historical analogy to the IRS treatment of U.S. citizens abroad who have mutual funds:

Jesus was forced to carry his own cross (paying the cross-border professionals to complete the forms) to his crucifixion (the confiscation rules will take it all).

Now, I know that at this moment, at least some readers are howling at the last sentence.  Really! What that tells me is that you:

A. Have not tried to be U.S. tax compliant;

B. Have not tried to use mutual funds to invest for retirement;

C. Probably do NOT feel strongly that one should be tax compliant;

D. Probably are far enough enough away from retirement age so that you can make up the losses.

Just try living this reality!

The people most hurt by this are the people who have tried the hardest to comply with the law. I remind you that it was not until OVDP started in 2009 that the IRS enough knew now to deal with mutual funds and not until 2010 that the ruling came from an IRS counsel (that the cross-border professionals are using to deem mutual funds as vehicles of confiscation).

Group 2 – Those Who Tried To Fix Any Past Compliance Problems

It has become increasingly clear that those who entered OVDP or OVDI were simply suckered. After the vicious and frightening propaganda of the summer of 2011, many people were terrorized into entering OVDI. The lawyers were there to usher them in. They are now locked into the program (although there is some indication that some will be moved to “Streamlined Compliance”). Those who waited appear to have better compliance options.

Of course, by December 2011, the IRS had issued the infamous FS which made it clear that, one didn’t need a formal program of voluntary disclosure. Of course, that didn’t stop the IRS, with full knowledge that minnow were being terrorized into the program,  from resurrecting (another Biblical analogy) the corrupt OVDP program in 2012.

My point is a simple one: those who tried to become compliant by entering the OVDP programs have been the hardest hit. The main reason has nothing to do with taxes. It has nothing to do with compliance. It is the fact that many of them have heard nothing from the IRS. Reminds of the Steven Miller (a cousin of his perhaps) song:

Those who entered OVDI have been living in fear and anxiety since entering the program. What have they heard from the IRS? In many cases, nothing.

IRS Bait and Switch Tactics in OVDP and OVDI

One would think the terms of the OVDP programs were abusive enough. But, the IRS didn’t stop there. In 2009 the IRS changed the terms of the program after people had entered the programIn 2013 the IRS kicked a group of people out of the program after accepting them into the program. It is now certain that:

Any lawyer who advises a client to enter the OVDP program should be disbarred!

The only benefit to the OVDP program was certainty of result and now that certainty has been forever compromised. As a letter from the New York State Bar suggests, who could possibly trust the IRS? The trust issue was recently highlighted by former IRS lawyer Steven Mopsick on this blog. (See also the Mopsick Trilogy – a series of posts about OVDP and its impact on U.S. citizens abroad and Green Card Holders.)

So, what’s a law abiding person who believes he is supposed to be tax compliant supposed to do?

I am writing this post in response to a series of comments at the Isaac Brock Society. The post was about PFICs and it generated a number of comments. The interesting comment stream starts here. We are confronted with a situation of a frightened, confused U.S. citizen abroad, who really wants to be tax compliant, did his best to save for retirement, like the IRS knew nothing about the perils of mutual funds, and must now choose between:

A. Financial ruin – all his money must to to the IRS and compliance costs

B. Non-compliance – but having to live as a “tax cheat”

The problem is that this is exactly the situation of many U.S. citizens abroad who have have lived commendable responsible lives. It is worth noting that neither the IRS nor the U.S. government has ever AND TO THIS DAY DOES NOT make any real effort to educate U.S. citizens about their tax responsibilities! The IRS defines “education” as “threats or penalties”. I feel for the children of Douglas Shulman and Steve Miller (if they have any).

I am going to reproduce this comment stream and invite suggestions on how what people like this should do.

  1. @USCitizenAbroad, @Kalc, @Bubblebustin

    “What would you expect a U.S. person with many years of fillings in the system to do?”

    That is exactly the issue. This whole PFIC thing makes me SO ANGRY and FRUSTRATED!
    I don’t see ANY good answer for such persons. No matter what option you look at it spells financial disaster, especially for people who are at or near retirement age. They cannot afford
    to lose all of the money they have invested over many years just to now become “compliant” (i.e.pay big bucks to have some accountant fill dozens of 8621s, pay back taxes, interest, and penalties and more taxes and interest after they sell the PFICs) and they do not have any other regular source of revenue to replace such a loss.

    “If you are a Canadian citizen without US assets, you are protected. Don’t tell your FI if you happen to have been born in the US. Don’t have more than 1 million in one account.”

    It’s not so simple. If you’ve had a long term relationship with your financial advisor, he likely may already know that you are a USC. Many mutual fund portfolios contain a mixture of US and non- US assets, so you likely may have some in your portfolio already. What should you do? Sell them and then what?
    How do you deal with them on the following year’s tax return? FATCA kicks in way below having 1 million in one account.

    “I do NOT believe that the Government of Canada understands this problem in its entirety. Would you be willing to collect these comments (including the one about the interaction between PFICs and SubPart F),”

    I agree totally. If the government of Canada DID understand all the implications and what a horrendous financial burden this will create for U S persons in Canada, when their financial institutions turn over the data about their TFSAs, RESPs, PFICs, and other investments via FATCA, I think they would not be so ready to sign an IGA. Those persons will be financial bankrupted if the IRS gets their data and goes after them. And when these people are left bankrupted, it will be the Canadian government that will have
    to help support them because we all know that the US government won’t do anything for USCs abroad.

    So, please, please do everything that you can to inform them (Kevin Schoom and others) of what are all the implications if they go down the FATCA compliance path. I think this PFIC problem has certainly not been given enough visibility with our government. It is incredulous to me that the IRS could make a policy change in 2010 about Canadian mutual funds without a formal regulation and then apply it retroactively. This is just WRONG and the Canadian govenment needs to stand up for us and fight this.

    Sorry for the rant, but this issue makes me crazy. Reading what USCitizenAbroad suggested as the only solution for the most financially responsible citizens today just makes me feel more depressed about an already depressing situation. Yes, it does help to be able to talk about it here with others but the reality that is looming in the near future if FATCA kicks in as planned is just too awful.

  2. @Albatross

    Here are the solutions:

    Solutions From The Government of Canada

    Any IGA would exempt from its application lawful residents of Canada regardless of their citizenship. Put it another way, the U.S. can’t both have FATCA and citizenship-based taxation. Is this possible? Not unless this issue is really understood which is not.

    Solutions From U.S. Persons Abroad – Take Charge Yourself

    You and I agree that the ones with the biggest problems are the ones who are entrenched in the system. Their options are:

    1. Do not sell their PFICs. The problems kick in when they are sold. Continue to treat the distributions the way you have always treated them on your tax return. Repeat: It’s the sale that triggers the very worst of the problems.

    2. The time has come to recognize that you will never be able to be U.S. tax compliant. Just not possible unless you pay the staggering costs of compliance and all the fines associated with trying to plan for retirement. I would stay away from the lawyers who will scare you to death. Just keep living your life. Don’t do anything that will trigger taxable events. The advice that most accountants and lawyers give is: sell your PFICs. For those who have had them for the long term, that is the worst possible advice. You do NOT sell them. You hold them and simply pay tax on the distributions the way you always have. That’s the best case scenario. Include the income on your taxes.

    3. RRSPs – This may be the exception to my suggestion for holding the PFICs. Assuming that because they are in an RRSP that the sale inside the RRSP is NOT a taxable event, then perhaps you get rid of those (but get competent advice for taking that step).

    4. Don’t listen to the F_____ cross border professionals. Most of them have really not thought this through plus they have trouble separating their interest from your interest.

    5. If all else fails, hide behind the treaty.

    6. Become a Canadian citizen if you are not already. Then start lobbying the Cdn government to pass law saying that all naturalized Canadian citizens were Canadian citizens from birth. This will protect their own tax base and their citizens from the U.S. exit tax.

    7. Just accept that the US considers you to be a criminal. Hell, people live like that all the time. Of course, you should stay out of the U.S. You might even learn to like it. Dress the part. Pick up the language. Learn to talk that way. It might be fun for you. You might get the respect that you think you are lacking. Pick a criminal to model yourself on – say Barack Obama.

    8. If none of these work, and you have Supart F income, then, well you know my suggestion.

    Curious what you think of those suggestions?

  3. @USCitizenAbroad

    For those entrenched in the system, surely renouncing is still a better option than continuing to have to deal with this BS year after year. At least that frees you from the ongoing obligation. Yes, I accept that it may leave issues from the past and may not be a great idea for those that have a need or desire to set foot in the US in the future.

    Yes, there is still an issue with the 8854 compliance, but there is still a choice on how to play that game, depending on the circumstances and risk tolerance.

  4. @USCitizenAbroad,
    Thanks for your comments on my posting. Here are my thoughts on your suggestions. I’ve included a
    few questions I have on some points you raised.

    Solutions from the Government of Canada
    Yes, I agree that this would be a great solution, but I don’t believe they do understand it.

    Solutions From U.S. Persons Abroad – Take Charge Yourself
    1. Yes, I agree that it makes no sense to sell the PFICs as that will trigger a nightmare.

    2. Yes, the lawyers and accountants that I’ve talked to have all said to sell ALL the PFICs, but of course they don’t have to worry about paying the costs associated with doing so. I concur that there is thus NO
    way to ever be tax compliant in this scenario, unless of course the tax code changes.

    “You hold them and simply pay tax on the distributions the way you always have. That’s the best case scenario. Include the income on your taxes.”
    QUESTION: So I infer from your suggestion that one should not bother with now filing 8621′s and the
    complicated calculation of “income” derived from them, but just continue to include the actual interest or
    dividends or capital gains distributions you receive from the mutual funds on your tax return. Is that what you are suggesting? As soon as you look at filing 8621s for each mutual fund you are talking BIG bucks
    to have an accountant prepare it and these forms are way too complex for the average taxpayer to attempt.
    QUESTION: What happens when FATCA kicks in and the FFI or CRA turns over the details of these funds to the IRS? Won’t they then identify them as PFICs and come screaming for all they back taxes, 8621 forms, etc? Is that where your suggestion 5 comes in?

    3. Don’t know about the RRSPs. This would require more research. For now these are not as
    important since the tax is deferred by 8891.

    4. Agreed.

    5. “If all else fails, hide behind the treaty” Not sure just how one can hide behind the treaty. Can you
    clarify what you mean here?

    6. Definitely a Canadian citizen. Ideas how we can get the Canadian government to pass such a law?

    7. Yes, definitely safer to stay out of the US. Not really a big hardship on that point for many of us.

    8. I didn’t really understand the Subpart F business completely but sure hope it doesn’t apply. I’d hate to think that that would be the only solution.

    I’d be interested in your further comments and answers to my questions above. Your comments are always very informative. I appreciate having the means to exchange thoughts with people like you who do understand this complex and horrendous issue.

    It is clear that this person is in a situation where he completely compromises his financial security by allowing the cross-border professionals and the IRS to confiscate his assets or he must live with the knowledge that the U.S. considers him to be a “tax cheat”, somebody who is worthy of a “FATCA Hunt” or possibly a Whistle Blower’s Retirement Plan.

    It is impossible to live with either scenario.

    The first scenario subjects one to a total rape and having to live with the consequences the rest of your life.

    The second scenario, if not dealt with properly, has the potential to change your own “self image”. On this point though I would say:

    To be considered a criminal by the U.S. government is like being called ugly by a frog. To be a criminal is to have a certain moral stature. In the U.S. there is no correlation between law and morality – in fact, law has become a substitute for morality.

    At a minimum, leaving aside the financial issues, the emotional stress and damage is more than a person who was financially responsible can bear. So, those U.S. citizens abroad who are nearing their retirement years and have most of their wealth in mutual funds must choose one of two options. Tax compliance is possible only in a logical sense. In a practical sense, for many U.S. citizens abroad, tax compliance is not possible.  This is perfectly understandable when issues of “taxation” are confused with “confiscation”.

    The current U.S. Canada Tax Treaty, as I understand it, does NOT require Canada to assist the U.S. in the collection of taxes on Canadian residents, if the person was a Canadian citizen at the time the “debt” arose. This is information  of possible relevance. It doesn’t mean you don’t owe the money. It just means Canada won’t help the U.S. collect it. I presume that that those renouncing U.S. citizenship would be able to use the treaty to shield them from possible Exit Tax Enforcement. But, to use the treaty is to live with another layer of worry!

    The best solution is always to renounce. At this point the only reason to NOT renounce is because you think the U.S. will move to Residence Based Taxation.  Who knows? Tax reform is on the agenda. U.S. citizens abroad made a number of excellent submissions to the Ways and Means Committee. I don’t know about you. But, there are NO circumstances under which I would want to be a U.S. citizen.

    I am writing this post at time when:

    1. Canada is considering a FATCA IGA with the U.S. I hope Canada understands what it will do to one million Canadians by turning them over to the IRS.

    2. Generalized IRS abuse of taxpayers is under way in Washington. It is possible that this post has relevance to that issue.

    3. Congress is considering moving to Residence Based Taxation. That would solve ALL of these problems.

    In closing, to all U.S. citizens abroad who worked so hard to save for your retirement …

    God, grant me the serenity to accept the things I cannot change,
    The courage to change the things I can,
    And wisdom to know the difference.

    This is for real. You must accept that the U.S. government is not what you thought it was. It has made a conscious decision to attack you, your families and your assets.

    Courage is the willingness to proceed in the face of fear. In this case it requires you to face up to a decision with no good outcome. You must choose between being destitute or being tax compliant. “American  exeptionalism” means you cannot have both.

    Wisdom means finding a way to move beyond this frightening chapter in your life. Look at it this way: there are parts of the world where people have never experienced life without U.S. tyranny. The good news is that you do NOT live in the United States.

    On that note, I will conclude with a thought from Winston Churchill. His wife did not approve of his drinking. One night he came home and she said:

    Winston, you are drunk.

    Winston thought about it a minute and said:

    Yes, I am drunk. But you are ugly and tomorrow I will be sober.

    Put it this way, you can renounce your U.S. citizenship. Every day, for the rest of their lives, Homelanders will wake up in the Homeland!

Never Forget What Happened in 2011 – JustMe and the OVDP, an 851-day Nightmare

 
reblogged from the Isaac Brock Society

A Series of Posts to Explain the Anger and Vehemence Fueling the anti-FATCA, anti-IGA & anti-CBT Movement
 

 

An excerpt from January 5, 2012 post from the renounceuscitizenship WordPress Blog
 
PART I: The Players
 
UPDATED Thursday November 26
 
The Taxpayers Part 2 – Those who ventured into OVDP/OVDI
 
First Part of Post (from yesterday) is HERE
 

Do the drudgery……do your own research
LCU’s……Life Credit Units
minnows…..little guys
whales…big guys
CCW……… Complain Comply & Warn
OVDP……..Overseas Voluntary Disclosure Program
DATCA… Domestic Account Tax compliance Act
GATCA….Global Account Tax Compliance Act

As usxcanada recently said, anyone who cannot guess right away who the above terms come from, needs to learn some Brock History!

MarvinAfter a much-earned vacation from years of FUBAR expat life, “Just_Me” (Marvin van Horn) may not be posting and tweeting much anymore but those of us who were lucky enough to have “known” him cannot help but smile. He was nothing short of a human dynamo, completely wound up in communicating our plight to everyone and anyone.I remember wondering if he ever slept; he would be online when I first got up in the morning and seemingly still there when I would get to bed in the wee hours of the next morning. He was omnipresent! It didn’t seem to matter whether he was in the U.S., sailing on his boat or at home in New Zealand. Marvin was the reason I learned Twitter. Marvin was the reason I joined LinkedIn groups. He taught me how to make a link. He was the reason many of us knew about the Taxpayer Advocate. He educated us about how horrible it was, to enter OVDP. Above all, he was a true example of what a real person is; he was not bitter in spite of an absolutely miserable experience; “took responsibility” for not being aware of filing; tried to do the “right thing” putting himself at great peril. He devoted himself to the “cause” and refused to let it ruin his life. I cannot recall ever hearing anyone having a bad thing to say about him.

To the best of my recollection, Marvin had been posting on Jack Townsend’s blog and when Peter read his comments, he invited him to become an author at Brock. For Marvin, the 2009 OVDP program was an 851- day process. I have taken excerpts from a couple of his posts to try and capture his story: OVDI drudgery for minnows and Letters to Shulman or a case sudy of OVDP communication attempts with the IRS
 

Just_Me writes:

Rightfully or wrongly, I came to the conclusion that joining the OVDP was my only option. My logic was probably flawed, but it went like this…

Prior to the moment I heard about the IRS program on NPR during the family visit back to the Seattle area, I didn’t know that a FBAR existed or understand foreign income reporting requirements. Those considerations never enter your mind when you are sailing the Pacific in a small yacht, or gardening in NZ. Maybe that represented some due diligence failure on my part for not staying fully aware of all the complex tax rules and reporting requirements even for my simple existence. I had never visited the IRS.gov web site in my life.

From that moment in late September, 2009, until I submitted my letter in October 12th there was a very stressed and compressed journey. First I had to convince my wife this was something that we could not ignore and had to do. There was the scramble for knowledge. I had to search out attorneys, and CPAs for a cram course of discovery of what my obligations were. There were returns to amend, and the almost unfathomable foreign tax credit form 1116 to complete that the CPA couldn’t even do correctly. There was a long distance bank record compilation effort that was extremely difficult to do in the time frame I had. There was the embarrassment of your predicament which meant you didn’t want family and friends to know. Then came the very hard, emotional and lonely decision which ended with you walking into the Seattle IRS Criminal Investigation (CI) division offices feeling like a criminal. I did all that, because I had reluctantly came to the conclusion, that once I was aware of my failures and aware of the IRS program, I had knowledge and could not escape it.

I KNEW! Therefore, now, I had to do the right thing.

So, what was the choice given my knowledge? To me, None! I had to enter the OVDP. My big mistake was assuming that the IRS would realize that I was a Minnow and not subject me to the harsh 20% penalties. I naively thought my appeals to Shulman would result in logic and reason prevailing. They would do the right thing, and not treat me as a Whale. How wrong I was!!
Continue reading “Never Forget What Happened in 2011 – JustMe and the OVDP, an 851-day Nightmare”

Never Forget What Happened in 2011

reblogged from the Isaac Brock Society

 
A Series of Posts to Explain the Anger and Vehemence Fueling the anti-FATCA, anti-IGA & anti-CBT Movement
 

 

Perspective:

This post was written approximately 3 months after the mass hysteria (there simply is no other word for it) of late Fall 2011. Brock was less than a month old. We had only just started to gather information, starting at the ExpatForum. Renunciation was a very scary topic only slightly less than the terror of imagining losing everything due to FBAR penalties. IMHO, FBAR will prove to be the number one issue that fueled the expat movement, hands-down.
 

An excerpt from January 5, 2012 post from the renounceuscitizenship WordPress Blog
 
PART I: The Players
 
RenounceUSCitizenship writes:

 

The IRS assault on U.S. citizens living outside the United States has been a frightening interplay among three groups:

1. The Taxpayers

2. The Cross Border Professionals

3. The IRS

Let’s imagine the perspective of each.

The Perspective of the Taxpayers

I suspect that few U.S. expats will forget the events of 2011. It was a year where they realized how quickly life could change. For the most part U.S. citizens living abroad are hard working honest people who are paying higher income and value added taxes than they would be in the U.S. The U.S. uses citizenship-based taxation. Many of them have been filing U.S. tax returns. But, virtually none of them (except those who always had the benefit of specialized and expensive legal and tax advice) knew about FBAR. When they heard about FBAR, OVDI and the rest they were:

– scared out of their minds; and

– wanted to be compliant

It’s just that they didn’t know how. Hence, they did what anybody would do. They sought professional help.

Furthermore, professional help did not come easily. It did not come inexpensively. It was typically like this: “Yes, I will meet with you. But, bring in a money order for $2000 (or more) and we will start the conversation. The conversation usually focused on whether to enter OVDI. Entering OVDI was a logical option, an expensive option, but I believe for most people a bad option. It was also (because it was a new kind of program) something not well understood by the so called “cross border professionals”.

The Decision To Enter OVDI

For many there was no “decision” to enter OVDI. The entry into OVDI was an “emotional reaction” based on fear.

What happened was something like this:

1. Media publishes articles written by journalists who don’t have a clue what they are talking about. Yes, the IRS is going after U.S. taxpayers who don’t reside in the U.S. Yes, there is OVDI and you must get in the program by August 31, 2011. No, OVDI is not amnesty – but let’s pretend that it is and enter it. I have said before and I will say again that some people entered the OVDI program, without a consideration of their individual circumstances, following the advice of the so called “cross border professionals”. They will regret this.

It is interesting that the advice from a number of lawyers was something like:

“You must enter OVDI” – the IRS frowns on quiet disclosures, etc. These lawyers either did not think that “reasonable cause” was available or that the IRS would not consider arguments based on “reasonable cause”. The important point is that there were “cross border professionals” who did NOT inform their clients that:

A. OVDI was an optional program

B. Filing of FBARs was mandatory

C. The FBAR statute recognizes that “reasonable cause” was and continues to be a defense

(It is interesting that the effect of this advice was to deter people from doing what was mandatory (just file the damm FBARs) and encourage people to do what was voluntary (enter OVDI).

The purpose of OVDI was to go after people who were using foreign banks and other entities to evade U.S. taxes. There is nothing illegal about having a foreign bank account. Most U.S. citizens living outside the United States had local bank accounts for the purpose of living their lives. On the other hand, the IRS has publicized the cases of U.S. citizens living inside the U.S. who used foreign bank accounts for tax evasion. Those of you who are aware of (outside of OVDI) anybody paying FBAR penalties based on willfulness, please leave a comment.

Anybody could have entered OVDI – why would the IRS stop you? By entering OVDI you are simply agreeing to pay them penalties. Furthermore, the range of assets subjected to penalties in the OVDI program is greater than what is required to be disclosed on an FBAR (something not explained by some lawyers). Hence, it is clearly to the advantage of the IRS that people enter OVDI (plus the IRS doesn’t have to waste time on “reasonable cause” arguments).

It is important to note that OVDI is a program which is designed for criminals and removes “reasonable cause” from the discussion. The only way to get “reasonable cause” into the discussion is to “opt out” and subject yourself to a full audit along with all the risks and high costs associated with it.

“Reasonable cause” has always been a defense to FBAR penalties. S. 5314 of the FBAR statute bars the imposition of FBAR penalties if two conditions are met:

1. Failure to file FBARs was due to “reasonable cause”; and

2. The FBAR is filed

Now, I understand that there is no clear definition of “reasonable cause”. I also understand that this is a determination made by the IRS. My point is that the same “reasonable cause” arguments must be made either inside OVDI (after an opt out) or outside OVDI.

While OVDI was going on, few “cross border professionals” talked about “reasonable cause”. Maybe, they thought that the IRS wouldn’t recognize or apply the law. Who knows? I invite a lawyer who encouraged clients to enter OVDI to comment on this.

 
Now, if you came to the “expat movement” in say, 2013 or so, you might not think there is so much new info here. But in early 2012, this was very unusual. To find a concise and correct assessment that did not favour the completely chaotic viewpoint of the media and tax compliance community was not only life-saving (literally) but became the base for what we have become today: those who would dare fight back when the U.S. government came knocking, coming after you, your families and your hard-earned, non-U.S. money.
 
Next: stories of expats in the 2009 OVDP/2011 OVDI