The Conscience of a Lawyer and “The FBAR Fundraiser” Revisited

Many of you may remember this outstanding post (below) from the early days……when the incessant torment was massive fear of “#FBAR penalties.” Compounded by #OVDP, (or #OVDI in 2011); FAQ35, minnows, whales, LCU’s, FATCA, DATCA, GATCA, FATCAnatics, JustMe, Opting out, in lieu of FBAR penalty etc ad nauseum. People who were minnows, tax compliant but did not know about FBAR being fined $75,000; Just Me engaging the Taxpayer Advocate to get his ridiculous fine of $172k lowered to “only” $25k. Those were days of real terror. Now time has passed, those who want to be compliant can do Streamlined, many have seen they can remain under the radar. The strong possibility of Tax Reform had everyone feeling “safe” again (relatively speaking). About the last thing expected, was that things would get worse. Well guess what, they did.

Anyone who owns a small corporation is being told a one time transition tax is part of the new Tax Cuts and Jobs Act. Now this is a very curious thing as not one word was said about the expat situation during the House or Senate sessions; all of the talk focused on changing the status of large non-resident corporations to a territorial model. I actually watched a very good portion and listened carefully for any mention of us and for any information about this tax. It was clearly concerned only with these large corporations. How many compliance people watched? Can the intent of the law be determined only from a strict reading without any regard for context? The transition tax was a way of the US extracting something from large multinational corporations’ earnings that would never be repatriated. This is the context, the situation the law was meant to address. Shortly after the first version of the bill was passed by the House, the first Canadian tax lawyer wrote that this same tax would apply to smaller corporations, single-shareholder owners in spite of the fact that they will not be able to transition to a territorial system after this “tax” is paid. An excellent discussion took place at Brock between USCitizenAbroad & Karen.

This is like a repeat of a very bad movie, one which we all should take a close look at.

Like the OVDP, expats are at risk of confiscation of a considerable portion of wealth based on a non-event.

And like the OVDP, the enforcers will not be the IRS but the cross-border tax compliance community.

Remember how strongly OVDP was pushed, due to the fact there would be no criminal charges? It was revoltingly referred to as an “amnesty program.” It was a program for criminals, and was not intended for people who had in no way, consciously chosen to omit filing an FBAR. Virtually no one had ever heard of it and it had never been unforced prior to the Swiss bank debacle.

How about all the hoopla about “quiet disclosures” which were misunderstood (misrepresented?) as amounting to a first disclosure filed without going through the program/without anything to flag it as new (i.e., likely delinquent for FBAR). As I recall, a real “quiet” disclosure was amending a previous return without calling the IRS’ attention to it.

As has been said, the law says “you have to file” it does not say you have to go through the OVDP/OVDI. Fear of being labelled a “quiet disclosure” stopped people from following the actual law, of just entering the system. There was no way many of us would have entered OVDP, even without the FactSheet 2011-13 (which did not say that one had to enter OVDP).

Yet the tax compliance community pushed OVDP and many people who did not belong there went through 2+ years of pure hell plus penalties. And later, so many lamented the fact that it was clear OVDP was not for minnows………….However, the fact remains that the actions of the compliance community at the very least, established themselves as “IRS agents-at-large.” Many feel the influence of the tax compliance community amounts to actually making the law, rather than deferring to what Congress passed (case in point – the “retroactivity” of 877A).

If it were not for the tax community, nobody would have noticed anything in the bill to suggest this idea that small foreign corporations (who do NOT have shareholders resident in the U.S.)would be required to pay the Transition Tax. No one would ever have imagined nor come to the conclusion that this portion of the law would apply to them. While we wait for some kind of indication from Congress as to their intention, the compliance community continues to engage in an education campaign; more and more articles are appearing. Some make reference to the fact it is not entirely clear whether it applies or not yet all are claiming it does. In other words, this is absolutely a creation of the compliance community.

Are we about to see a repeat of the tax compliance community insisting the transition tax applies which will cost people many thousands of dollars just to compute the actual retained earnings figure and an obscene amount of tax that will transition expats nowhere? Let’s not forget that for the 5 countries with Mutual Collection Agreements (Canada, Denmark, France, Sweden & the Netherlands), people who were citizens at the time the tax was incurred do not at this time, have any reason to fear.

As far as we know, RO was unable to get clarification from the Congress before the bill was passed. Guidance from the IRS only gives examples for large corporations. Guidance also here

And while we assume penalties for non-compliance will be threatened, has anyone actually seen, read or heard of anything specific?

Will this be the “straw that broke the camel’s back?” How many will refuse to turn over their pensions to the IRS? Where will this end?

It is still clear that the best protection is renouncing U.S.citizenship.

More Information

The Conscience of a Lawyer and “The FBAR Fundraiser”

Cross posted from RenounceUScitizenship.

Having a license to practise law (bar admission) does not a lawyer make.

Admission to the Bar, gives an individual the legal right to conduct oneself as  a lawyer. A lawyer operates within a specific construct of ethics and morality. The American Bar Association Model Rules of Professional Conduct make it clear that

A lawyer has an obligation to the client that is more important than loyalty to any other person or entity. This principle is made clear in Rule 1.7 of  The American Bar Association Model Rules of Professional Conduct.  Rule 1.7 clarifies that a lawyer should not act for a client if there exists any conflict of interest. It reads as follows:

Client-Lawyer Relationship
Rule 1.7 Conflict Of Interest: Current Clients

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

As I argued in a previous post, this must means that a lawyer’s fiduciary obligation to the client must  take precedence over (subject to a duty to tell the truth) any other obligations,  including Circular 230 obligations.

This principle of primary obligation to the client,  has run through the common law, for hundreds of years. It explains the role of a lawyer in unpopular cases. The principle also explains the role of a defense lawyer in a criminal case. On a more general level it explains the role of a lawyer in any case – including cases involving the government.

Many people are familiar with Atticus Finch – the defense lawyer in the book “To Kill A MockingBird”. In this story Atticus takes on an extremely unpopular case. He zealously and competently represents his client against the government. The story of Atticus Finch has motivated many people to become lawyers.

Good lawyers can be found in many different places and capacities – including in this blog of a Military Defense Lawyer. In explaining the duty of a lawyer to his client, the author quotes Lord Brougham in Queen Caroline’s case. Lord Brougham’s description of the duty of the client as follows:

An advocate, in the discharge of his duty, knows but one person in all the world, and that person is his client. To save that client by all means and expedients, and at all hazards and costs to other persons, and, amongst them, to himself, is his first and only duty; and in performing this duty he must not regard the alarm, the torments, the destruction which he may bring upon others.

The Road To Hell Is Paved With Good Intentions

At the beginning, the creation and initial administration of the 2009 OVDP may have been motivated solely by efforts to:

– work with “tax cheats” (exempting Secretary Geithner), who were residents of the U.S.

– who were using offshore bank accounts to evade U.S. taxes

By 2011 OVDP had morphed into OVDI and it was clear that the purpose of OVDI was to extract money from anyone with an offshore bank account who had not filed an FBAR. By anyone, I mean even people who did not know and had no reason to believe that they were even U.S. citizens!

Even those who did not know they were U.S.citizens were required to pay 5% of their net worth to the IRS. As described by Just Me:

What is obvious to me now, is that going back to when the 2009 OVDP was designed, it was intended for the egregious homeland Whale. It was conceived as “easy money” that could be generated off the UBS client lists about to be exposed, without having to go through lengthy DOJ criminal prosecutions. It then evolved over time to create technical adjustments with lesser penalties for more benign non compliance, as they realized their nets were filling up with Minnows for which the program was never intended. They started to lower the penalty levels and threshold amounts for certain financial conditions, going all the way down to the most “innocent of innocent”, the non resident accidental American who didn’t even know they were American!

Under the program, should this poor non resident fool join the OVDI, they would “only” have to pay a 5% penalty of their entire “offshore” assets for the privilege of now being compliant to an obligation they did not know, could not have known, was required! Say what? Read that again.

FAQ 52.2 states: Taxpayers who are foreign residents and who were unaware they were U.S. citizens,…. is entitled to the reduced 5% offshore penalty.

Why would the IRS insist that a person like this have to join the OVDI process in the first place, and then grant them an “entitlement” of a reduced 5% penalty for a condition by their own definitions has a “reasonable cause” exception to any penalties outside the OVDI program using IRM discretion? For this they are supposed to be thankful and forever grateful for the benevolence of the IRS and the leniency of the 5% OVDI penalty entitlement? Geez, lucky them!

The U.S. government, through the leadership of the IRS, has become an organization that is running a massive, institutionalized, immoral  “shake down”. As we know, OVDI was a fantastic deal for criminals (imagine being able to repatriate your illegal earnings for 25% and avoid incarceration – Thank you Mr. Shulman!). So, Mr. Shulman designed a fantastic deal for criminals. The deal was not  good for those who were not criminals.

The reality is that most people who entered OVDI were NOT criminals. They were innocent people who did not know about FBARs, complicated U.S. tax anti-deferral rules, PFICs, etc. Furthermore, many of them did not know they were required to file tax returns. Who could even suspect the existence of something like an FBAR? (The Obama administration appears to operate on the assumption that U.S. citizens abroad are tax cheats.) But, of course, “Form Nation” never conceived of  a form it didn’t like.

The “non-criminals” affected by OVDI were necessarily:

– people who were railroaded into the program by lawyers who did NOT advise clients of all their compliance options;

– people who participated because they believed that the law (no matter how immoral) should be their guiding principle;

– people who had spent their lives saving for retirement and therefore had assets to be stolen from them by the IRS

Notice that the people who were not affected by OVDI are:

– people who are not motivated to follow the law;

– people who had never bothered to save for retirement through the acquisition of retirement funds and assets

In other words, OVDI punished the people least deserving of punishment.

Since most of  the “non-criminals” (U.S. citizens living abroad and U.S. immigrants) owed little tax, the IRS weapon of choice became Mr. FBAR. In fact, let’s call OVDI what it really is:

The FBAR Fundraiser

If one accepts that government morality, includes  basic precepts of “fairness” and “justice”, then many would conclude that “The FBAR Fundraiser” is immorality in the extreme. With the “FBAR Fundraiser” the U.S. government made itself eligible  to join the club of  the most immoral regimes in the history of the modern world. Senator Schumer’s Ex -Patriot Act, has guaranteed  U.S. acceptance into that club. As Roger Conklin said:

“The old gray mare just ain’t what she used to be”.

As Thomas Paine noted, in the first of a series of pamphlets published from 1776 – 1783, during the American Revolution:

These are times that try men’s souls“!

Many U.S. citizens abroad  are grappling with how to come into tax compliance. A topic of recent discussion is the issue of OVDI vs. a quiet disclosure. Since, people get their advice from lawyers, the issue then evolved into the ethical obligations of a lawyer in relation to recommending OVDI. I believe that lawyers have an ethical duty to recommend all compliance options. The reality is that any compliance option has the potential to subject a client to “The FBAR Fundraiser”. For those who enter  OVDI  the “in lieu of other penalties” proxy is “The FBAR Fundraiser”.

What is to be done if the IRS decides to assess FBAR penalties? I.e. make good on the purpose of “The FBAR Fundraiser”. What should the lawyer recommend? Should the client fight or pay? Obviously it depends on the circumstances (although I do think that there is a matter of great principle here). The “pay or fight” issue has now emerged in the discussion thread.  Of course this is possible only with the assistance of a lawyer committed to the cause. Mr. FBAR is a particularly nasty piece of work. Mr. FBAR is also vulnerable to challenge on a number of constitutional grounds. This point was recently made as follows:


On historical grounds, the FBAR law, FATCA, 8938, extra-territorial taxation etc. violate the 4th, 5th, 6th (if ever goes to trial), 8th and 9th amendment rights. They also violate the Declaration of Universal Human Rights. The arguments for this, just getting started, are on the side bar. No one, absolutely no one, has said that these arguments are WRONG. Some have said, however, just say that there is no chance of winning in court unless you have millions to spare on a court challenge.

Consider that extra-territorial taxation without representation was at the heart of the abuses which caused the American colonies to revolt against the King, and then you get an idea of how angry the expat community is over these issues. We have no representation, and our wealth is being systematically attacked by the IRS. Many of us, including myself, have given up our birthright to live in the United States just to escape the clutches of the evil monster, the IRS (sorry Steven, the IRS is an evil monster keeping poor expats awake at night in fear and trepidation). This is Hope and Change, Obama’s America. But the Republicans offer us no hope either. Boehner’s support of the Ex Patriot Act is shameful. He is a disgrace.

A challenge to Mr. FBAR is possible only when both the targets of “The FBAR Fundraiser” (anybody with money the IRS can take) and the lawyers are willing to accept the challenge.

I leave you with the following thoughts of Todundsteur:



Are you, Steven or any other practitioner of your acquaintance aware of any case now pending in any US court where the Justice Department is seeking to enforce a civil fine for a FBAR violation?

Are you aware of any such past case that has ever been tried to a verdict?

Were such a case to be filed would the DoJ be bound by a “quantum” previously proposed and challenged administratively or would the court be free to assess a civil fine in its own discretion.

Since both the constitutional validity of the law as well as the quantum of punishment will depend on the gravamen of the offense in relationship to the punishment sought would this not open the door to wide-ranging civil discovery requests directed against the plaintiff by the defendant concerning the past, present and future law enforcement and/or regulatory utility (or futility) of the FBAR itself?

Would such discovery possibilities not also be available to a defendant faced with a criminal FBAR charge?

If after nearly 8 years of the enhanced FBAR penalty regime and nearly 3 years of OVDI no such civil case has ever been filed, one is compelled to ask:


Why has no practitioner yet advised or encouraged their client to “call” the government by refusing to pay any FBAR fine or refuse to plea bargain (at least until after discovery is completed) thus daring Schulman & Co. to bring such a civil enforcement action?

Forget Steven Mopsick’s offer of pro bono assistance to anyone faced with a 300% FBAR penalty. I am ready to offer my assistance pro bono to anyone faced with a FBAR collection suit for ANY amount who is prepared to get it on with the DoJ.

It is time to bring this shameful FBAR farce to an end and either expose the naked venality and lawlessness of Shulman’s revenue enhancement through extortion policy for what it is or go down fighting.


I have not yet begun to fight.

Food for thought: Given the fact that U.S. citizenship has been priced out of the market, it’s not wonder that renunciations of U.S. citizenship are soaring under Obama!