Thursday, May 19, 2011

A Botched Foreign Account Quiet Disclosure Draws Criminal Charges (5/19/11)

The U.S. Attorney for Masschusetts filed an information against Michael F. Schiavo. The information is here. The gravamen of the misdeed recounted in the information is that Mr. Schaivo attempted a quiet disclosure for his foreign account but that, in that attempted quiet disclosure, he was less than truthful and complete. But, the information seems to say more than that. Readers can analyze the complete information at their leisure. I shall just cut and paste some of the key paragraphs that I think are relevant to professionals and students interested in this subject.

2. At all times material to this Information, HSBC Bank Bermuda Limited ("HSBC Bank Bermuda") (formerly The Bank of Bermuda, Ltd.) was a Bermuda bank headquartered in Hamilton, Bermuda. Beginning in at least in or about 2003 and continuing to at least 2008, Schiavo maintained an account at HSBC Bank Bermuda in which the balance ranged from approximately $65,000 to $150,000.

10. The Offshore Account Voluntary Disclosure Program ("Voluntary Disclosure Program") was a program administered by the IRS that was intended to serve as a vehicle for U.S. taxpayers to disclose their previously undeclared offshore accounts and pay tax on the income earned in those accounts. Under the Voluntary Disclosure Program, the participants pay tax on the unreported income, a 20% accuracy penalty on the tax, a 20% penalty on the high balance of the undeclared account, together with interest, related to their failure to disclose their accounts so as to avoid criminal prosecution.

11. A "silent disclosure" occurs when a U.S. taxpayer with an undeclared account files FBARs and amended returns and pays any related tax and interest for previously unreported offshore income without notifying the IRS of the undeclared account through the Voluntary Disclosure Program. A silent disclosure does not constitute a voluntary disclosure. On its website, the IRS strongly encourages taxpayers to come forward under the Voluntary Disclosure Program and warns them that taxpayers who instead make silent disclosures risk being criminally prosecuted for all applicable years.

[Paragraphs 12 - 17 recount efforts to disguise nature of the income payments and direct them to foreign banks.]

18. On or about October 6, 2009, following widespread media coverage of UBS's disclosure to the IRS of account records for undeclared accounts held by U.S. taxpayers and the IRS's Voluntary Disclosure Program, Schiavo made a "silent disclosure" by preparing and filing FBARs and amended Forms 1040 for tax years 2003 to 2008, in which he reported the existence of his previously undeclared account at HSBC Bank Bermuda. He made such filings notwithstanding the availability of the Voluntary Disclosure Program. Schaivo reported on the amended individual income tax returns the interest income that he earned from the previously undeclared account he held at HSBC Bank Bermuda but did not report on the 2006 return the income earned that he earned from Headway Partners.

19. On or about October 27, 2009, a Special Agent from the IRS attempted to interview Schiavo at his home.

20. On or about October 29,2009, Schiavo prepared and executed a second amended individual income tax return for tax year 2006 on which he reported the income earned that he earned from Headway Partners and that had been deposited into his previously undeclared account at HSBC Bank Bermuda.

[For which paragraphs 21 and 22 indict him for FBAR violation for the year 2006.]

JAT Comment:  Readers will reach their own conclusions and ask their own questions. Mine are inherent in the items I have bold faced above.  I hope some of the readers will share their comments, particularly the ones that are not apparent from the bold-facing.  Thanks in advance

JAT Addendum #1:  The DOJ Tax Press Release is here.  Note the caption of the press release:  BANK DIRECTOR CHARGED WITH HIDING FOREIGN ASSETS.  Could one conclude from the caption that DOJ Tax CES wants to make a statement that bank directors should not use foreign bank accounts to cheat on their taxes?  Still, it is interesting that the caption did not read something like QUIET DISCLOSURE OF OFFSHORE ACCOUNT NONCOMPLIACE BRINGS CRIMINAL CHARGE  or even INCOMPLETE QUIET DISCLOSURE OF OFFSHORE ACCOUNT NONCOMPLIANCE BRINGS CRIMINAL CHARGE.  I wouldn't read too much into all of this and, as one commenter noted, there is deliberate ambiguity in the information and the press release.  (Deliberate ambiguity may be the same phenomenon as deliberate ignorance in another context.)


  1. Jack

    The Feds must have been listening to you. They picked out exactly the sort of situation you described -- a quiet disclosure that was not complete.

  2. Obviously, the characteristics in this case was the quintessential one to start with (incomplete quiet disclosure until the IRS comes knocking). Will DOJ not spread its angst beyond cases having those characteristics? Note that the information states that quiet disclosure does not work to avoid criminal prosecution potential. As that warning is stated, it does not seem limited to incomplete quiet disclosures. Do readers think that DOJ Tax will pursue criminally complete quiet disclosures or will they just be satisfied with a penalty assertion beyond that available in the OVDI programs.

  3. Only one count of FBAR violations ? He seems to be getting off easy. And the account balance mentioned is 65 to 150K only. Talk about greed. Why did he not report that income in his silent disclosure ?

    The Government is definitely sending 2 messages
    at once:

    1) Silent disclosures are not good enough
    2) All disclosures have to be complete.

  4. One other comment. Complete quiet or noisy disclosure means that the amended returns must include corrections of matters other than income and tax related to the foreign accounts. If the taxpayer was playing games in other parts of his tax life, those need to be corrected also. Keep in mind that the return is signed under penalty of perjury. And for those in the program, the closing agreement expressly reserves the IRS's right to address other issues that it may become aware of. Taxpayers making quiet and noisy disclosures who do not correct those other problems are in the same boat as Mr. Schiavo.

  5. Clearly this quiet disclosure was not truthful and or complete. This is a huge mistake. I think IRS will utilize the publicity of the botched quiet disclosure to further discourage quiet disclosures. The dollar amounts are not huge but the facts of this case will serve notice that IRS is in fact looking at amended returns with offshore implications. The question however remains as to what IRS will do with squeaky clean quiet disclosures or amended returns/Fbars pertaining to previously undisclosed offshore accounts. It is hard to believe that this man did a second amended return for 2006 after being interviewed by CID. Kind of reminds of the lady from India that filed false information after being contacted by DOJ Tax. This makes you wonder what kind of legal advice some of these folks are getting.

  6. Jack

    I think this sends a nicely ambiguous message. Was it the silent disclosure that triggered the government's wrath, or the incomplete reporting ? We already know the latter is suicidal.

    But the fact that an agent contacted this guy means that they investigated him. Did they get the truth about his unreported income from him (which would mean the silent disclosure was enough to tick them off). Or did they get this information after asking HSBC Bermuda (which might give the information out if a specific user name was given to them) ? That sends the message that the IRS is investigating silent disclosures.

    A masterstroke of marketing the OVDI program. Much like announcing the program in Hindi, Chinese, Russian etc.

  7. Did this draw the ire of the IRS as there were entities involved? Would the same disclosure have elicited a similar response from the service if it was a loud disclosure that picked up the non disclosed income during the civil phase? Any thoughts?

  8. Jack,

    This is a good example indeed

    Most people choose quiet disclosure to avoid FBAR penalty of 20% (or 25%).

    The difference of quiet and noisy is much more than that in the eyes of IRS.

    For quiet disclosure one does not have to mention the source of the fund but for noisy disclosure, one has also to disclose the source of the fund in offshore banks. Under the penalty of perjury, most people have to be honest where the fund come from.

    Again, money in offshore banks are not under the radar of our Gov, that is why FBAR is needed.

    For this case, it seems to me that the additional earning in 2006 deposited offshore causes alarm to IRS. There is a big jump in total balance, this may lead IRS to investigate (visited him at home).

    I wonder if we can find a prosecuted case that is totally clean and complete quiet disclosure.

  9. Although this quiet disclosure was "botched", I'm not sure that a "complete" (for lack of a better word) quiet disclosure would have ended favorably for the taxpayer. Even if the disclosure would have included all sources of foreign income, because it would still have been a quiet disclosure, it would likely still have been flagged for audit by the IRS.

    We have been sensing an increased efficiency on the part of the IRS. In 2009, the IRS was simply overwhelmed by the number of offshore voluntary disclosures, no doubt because of the headlines re UBS and the unprecedented breach of Swiss banking secrecy. Now, two years later, the IRS is finally closing those '09 disclosures. In addition, I have seen many instances recently of IRS efforts against such quiet disclosures. Quiet disclosures are risky and many taxpayers are now finding that the IRS has picked up on them.

    What's also interesting in this case is the amount in the foreign account; not exactly a big target. This goes to show the IRS enforcement efforts regarding foreign accounts large and small.

    Jack, I assume you emphasized HBSC Bermuda in bold-face in order to make the point that DOJ is targeting banks other than, e.g., UBS and HSBC India.

  10. I think in this case the service got hold of information regarding the non disclosed income from other sources, as the taxpayer did not disclose it. I think the bank be it HSBC Bermuda is immatierial.

  11. "Schaivo reported on the amended individual income tax returns the interest income that he earned from the previously undeclared account he held at HSBC Bank Bermuda but did not report on the 2006 return the income earned that he earned from Headway Partners."

    This is reminiscent of a voluntary disclosure client I represented, who asked me to disclose the account in Malaysia, but not the account in Nevis. Obviously, that would have been an incomplete disclosure and, if discovered, would have resulted in the client's ejection from the VDP. (And, needless to say, I did not permit that client's strategy.) An incomplete noisy disclosure is risky enough. An incomplete quiet disclosure seems to multiply that risk.

  12. Asher

    This mentions that an IRS agent (presumably CI) visited him in October itself just 2 days after his filing. So they did find time for him.

    I suspect there's a lot more to the story. Maybe the IRS had already his name from his partner. Maybe he had other larger accounts, including one at UBS ... Or something.

  13. As to the source that led DOJ Tax CES to Schiavo, I just note one coincidence. Presumably the Peter A. Schober named in the information is the same one previously charged for offshore accounts. See my blog titled Other UBS Account Holders are Charged Perhaps he was the source or perhaps there was a common source. Or perhaps ...

  14. To Asher's post on 5/19/11 at 12:56pm, I would suspect that there are more than one noisy OVDI disclosures that are incomplete either as to foreign accounts or as to unrelated income. I would also suspect that there will come a day soon that DOJ Tax CES will focus their attention on at least one to make a public example, both for the OVDI and for voluntary disclosure generally.

  15. Disclosing an undisclosed offshore account in the "noisy" method is risky enough. I could understand doing a quiet in some cases prior to IRS publicly stating it is not valid and could result in higher penalties and possible prosecution. Currently what comes to mind when I think of a quiet disclosure is Clint Eastwood pointing a 357 magnum at my face and saying make my day. Or maybe the guy that used to put a battery on his shoulder and say knock it off, I dare you. Clearly IRS does not want quiets done. It may be that they want every red cent in penalty that they can collect or it may be that they do not want disclosures that have illegal source funds. Ultimately clients have to decide the method to disclose and hopefully attorneys are painting a true picture on risks of doing a quiet disclosure.

  16. Jack

    You are correct -- the DoJ press release mentions that Schober was separately charged for failing to report his UBS account. Doubtless he was the source.

  17. Note that in the allegations by the government against Mr. Schiavo in item # 11 the government states that " a silent disclosure does not constitute a voluntary disclosure". Even though quiets were commonly done in the past, until someone can prove the government wrong on this issue it is not going to be accepted by the government. Does anyone have the resources and or will to test this? Could a person litigate against this in court and succeed?

  18. Unless Gov totally ban quiet disclosure that means once the deadline is passed (April 15), any unreported income should go to VD.

    I just don't understand how the gov can treat people differently (if they correct their mistakes by filing amend fully and clean)

    It has to be a clear rule/law to all taxpayers..

    I have chosed OVDI because I just do not know how to do it quietly given such a long history of wrong doing (more than 6 years).

    For those with less than 3 years wrong, the gov should consider the fact they made mistake and came forward to correct them in good faith and accept their quiet disclousre.

    Gov policy should make taxpayers to gain their trust/confidence on US tax system not in fear of being prosecuted.

  19. I am not a top notch lawyer like Jack, but
    1) The courts have ruled that even a noisy disclosure does not grant any substantive rights.
    2) The IRS has been specifically warning about quiet disclosure since 2009 at least.

    I don't see how anyone could have any type of case against the government. No one can say they weren't warned.

  20. Jonf,

    1. A good -- that is complete noisy disclosure otherwise within the parameters of the IRM -- will be honored. Whether it grants any substantive rights per se is irrelevant. Now I am sure there are skeptics as to whether the complete noisy disclosure will be honored, so I suppose that I should caveat that if the taxpayer is otherwise a bad guy (bin Laden, Al Capone, etc.), then perhaps not. But for the guys most of us work with, it will be honored and the IRS and DOJ Tax would be incredibly stupid (they are not) to pursue someone who made a good faith quiet voluntary disclosure.

    2. Now for the specific iteration of voluntary disclosure in the OVDI initiatives, it is true that the iRS has warned that quiet doesn't work. But I think that needs some unpacking. I think a good faith complete quiet voluntary disclosure will like work in most cases with regard to the criminal prosecution exposure because the IRS and DOJ will be very stupid to pursue that case. (Again, they are not stupid.) The key fuzz word there is "most." They are going to do some to send a message to try to heard taxpayers into the OVDI that are sitting on the fence. And, I am speaking here only of the criminal prosecution risk. The significant risk for the good faith complete quiet voluntary disclosure program relates to the civil penalties that will be meted out. That is a sufficient reason to get into the program. Plus, there is always the risk that DOJ Tax CES will pick out some few to prosecute. Who can tell the client that that client will not be one of the few? As I said in early blogs on the email, get in line brother.

  21. jonf,

    not everybody sees the warning sign and not everybody knows such a thing like FBAR.

    this goes back to Jack's intentional ignorance..

  22. Jonf,

    Let me just say that my ignorance is not intentional. :)


  23. Jack,

    sorry, i was trying to refer your previous blog about "willful blindness,"

    but I might say some of DOJ's news release seem to me intentional ignorance -:) and I am sure you did not approve these message.

  24. Jack, my last post was in a bit of a hurry. I was only talking about the possibility that someone could challenge prosecution of a "silent disclosure" in court.

    As a matter of law, almost certainly not.

    You touched on policy and I agree completely with points 1 and 2. The interesting thing is that in other countries voluntary disclosure programs are typically statutory and explicitly guarantee protection against prosecution and close the case assuming the participant meets the conditions. The US conditions seem a lot harsher in general.

  25. jonf,

    other countries (like china, almost 100 conviction rate) have much high conviction rate (due to no jury trial). The accused and the Gov are much close to equal in the court in US criminal system.

    so there is a safe guard in the court, that may protect taxpayers from Gov.

  26. This comment has been removed by a blog administrator.

  27. To SelfHelp,

    As of today, I have set forth the rules for the comments in the pages that can be accessed in the top right column.

    You asked a question about the 5% reduced penalty in the OVDI adminiistration. Your question was a good one, but not relevant to the content of this blog entry. Hence, I decided to delete the post, but encourage you to post it to a relevant blog entry.

    I encourage you (and all readers) to read the rules for the comments so that we can make the blog entries and comments as useful as possible for readers.

    Thanks for your interest in the blog.

    Jack Townsend

  28. In a nutshell, the reason for doing voluntary disclosures are to become tax compliant while avoiding criminal prosecution and reducing penalties. Based on public announcements from the IRS, quiet disclosure will not do this assuming that the quiet disclosure is selected for audit. In my mind it boils down to if the disclosure will be selected for audit. If you pull off a quiet disclosure and the amended returns and Fbars sail through their respective service centers without being selected for audit then you likely have done what Jack called the holy grail of quiet disclosures by becoming compliant without paying penalties. I would think that this would not be a final event until the statute of limitation expired on the amended returns. However, IRS has indicated that they have mechanisms in place to identify amended returns with offshore implications so in my view doing a quiet disclosure is too risky a venture. Per IRS you could face criminal sanctions and full civil penalties. Maybe time will tell if a previous quiet disclosure that is complete and truthful makes headlines. The example of Mr. Schiavo is somewhat distorted because it has some bad facts involved.

  29. Totally agree with last post,

    I just wonder he would have passed the pre-clearence had Mr. Schiavo tried OVID.

    We really do not have the facts as if this prosecution was due to being caught in quiet disclosure, or if he was already under investigation (which means no matter what kind disclosure, he will face criminal charge), or because incomplete disclosure.

    DOJ's news release seemed to make an example on quite disclosure.

    The Gov certanly has the power to prosecute complete, clean and quite (and perhaps in good faith) disclosure. It is still up in the air if the court will convict (it would look like people trying to correct their past mistake become criminal in this country).

    Regardless, just pay the penalty to make yourself sleep well,

  30. Its pretty trivial to pick out the vast majority of quiet disclosures involving foreign disclosures. It doesn't require a statistics expert (and the IRS does employ those). A simple method would be

    1) Do original return and amended return show a difference in the Schedule B where the taxpayer is asked for information on foreign accounts ? If so, flag.
    2) Were delinquent or amended FBARs filed ? If so, flag

    For both these groups, check either automatically or manually for significant differences in balances or income, and pick out cases of 'interest'. Multiple amended returns and FBARs for older years should be of particular interest. For FBARs, accounts at banks or countries that IRS is interested in should be flagged further.

    [ I said amended returns above, but it could be an original return if filed for the first time]

    In addition, look at returns for other informational forms relating to CFCs, PFICs, foreign trusts etc. Also, look at ALL amended returns that show significant increases in income.

    This should be fairly simple to do. The key question is one of policy for the IRS commissioner and striking a delicate balance -- clearly silent disclosures are preferable to no disclosures, but your voluntary disclosure policy is not likely to find many takers if people can get away with silent disclosures.

  31. Jonf,

    You have stated a good policy reason for prosecuting some quiet disclosures of offshore account delinquencies even if they are otherwise complete and fair. I think it would undermine the OVDI if persons could be seen as getting a better deal by quiet disclosure.

    So, I think, some will be prosecuted but perhaps they will fit the pattern of those currently being prosecuted -- i.e., foreign entities involved. And perhaps as an exercise of prosecutorial discretion only those with more egregious facts would be prosecuted.

    But, still, even for those not prosecuted, I would think that the IRS has some obligation / incentive to assert stiffer civil penalties than available in the program.

    So, depending upon the effectiveness of IRS's procedures to indentify quiet disclosures with foreign account noncompliance, I would expect that the IRS will proceed against them civilly.

  32. Jack,

    I understand that there were in excess of 17000 people who participated in the 2009 noisy disclosure. I cant imagine that all of those filings were clean and complete. How come we have not seen any prosecutions of noisy disclosures? If there are any material issues identified in the civil phase, then they must be getting third chances to correct them?

  33. Interesting discussions. My take on OVDI v/s "Quiet Disclosure" is that both are subject to audits. But like Jack said above, there may be few lucky ones, whose "quiet disclosures" may go unnoticed & prove the lucky ones. But there will always be uncertainty. What about OVDI? Will the IRS audit each and every OVDI especially after considering that people who were thinking of "quiet disclosures" may take the OVDI route because of uncertainty and fear. That just means, we will see a surge in the OVDI applications. So do you think that IRS will have the force and manpower to audit each and every OVDI? Or will there be instances where they may just close some low profile OVDI cases just because there is not enough meat in them? So for people, who are on the border, OVDI does result in high penalties but definitely a "guaranteed" closure.

  34. I would have thought that the service would be "auditing" though less rigourously just about every disclosure. They are requesting financial account statements from all taxpayers in the VDP. Are they just verifying the that the taxes paid with the income disclosed, or do they dig deeper?

    Would like to know the anecdotal experience of other practitioners in this regard?

  35. I just read 2009 VDP Q/A. It does not ask for bank statement. That ended up later to ask statements (for all ? or for most ?)

    For 2011 OVDI, it asks for bank statement for max aggregated balance over 500K only.

    I guess for those under 500K, IRS may select some for verification.

    For "fat cats", IRS want to know the money movements.

    Maybe, this is just for efficiency

  36. It would be good to get an idea of what are high profile accounts or "fat cats" according to IRS. In the OVDI 2011 brochure, the penalty starts with "less than 75000". Does that mean, the IRS will not pursue those cases if they are clean? Do we know of any cases where the tax applicant was prosecuted & had a small balance, less than 75000?

  37. here is a case for less than 75K. i don't think the amount money matters, it is the evidence.

    certainly "fat cats" are more visible and profitable for IRS to pursue.

  38. tj,

    Perhaps a quibble. I think amount does matter, but DOJ Tax has to prosecute a few (over time) with lower amounts so that no one thinks there is a free pass for lower amounts. But, proportionately in terms of persons prosecuted, the bulk of the prosecution bullets will be fired at taxpayers (perhaps nontaxpayers) with larger amounts. And, when they do pick on smaller amounts, I suspect that there will be other factors that make the person an attractice target for prosecution (such as use of entities which are usually not cost justified at lower amounts or other attempts to conceal, etc.).

    Just my thoughts, but I am not in charge of criminal tax enforcement.

    Jack Townsend

  39. Jack,

    I wish you were still with DOJ/tax (I might just take a chance to quite -:).

    Gov should have a policy not to make "thin cats" miserable. Good example would be for some immigrants who do have small amount money in their home country, and they are not so rich here in USA -- in the low tax rate. There is no "greed" factor for them to "hide" money offshore other than for convenience such as taking care family members there. There would be no real gain for them to put money offshore (as they are also subject to local tax withhold).

    While "fat cats" are more out of greed, and they can certainly afford being cut off some "fat".

    By the way I am not a commie, but I think that will be a good policy for this country.

  40. The main thing that people with small accounts and without other 'bad' facts have to fear are the civil penalties rather than the criminal penalties (which are very rare). This may be the only area of tax law (well, technically the FBAR is not part of the IRC) where the civil penalties for otherwise legal source income are so horrendous. Even asset forfeiture doesn't go beyond 100%.

  41. jonf,

    If Gov raise FBAR limit to 50K or 100K (like Canada), that may save a lot "thin cats" in fear..

    Given this country is in such debt crisis, I don't think it will be a good move for any politician to propose a raise on FBAR limit

  42. ij, that case you sent about the woman hiding money in Swiss bank, is actually for 750K and not 75K.

    The reason I talk about small amounts is because there are ton of immigrants (probably in millions) from China, India, Canada, Europe & other parts of the world, who typically have some offshore connection to their native countries. It could be for family support, real estate or just for their future planning. I'm an immigrant & when I first came to the US, I had no idea of how long I will be in the US. So obviously, it does not make sense to close my offshore accounts or sell assets. Now, those are clean accounts/assets as far as that country's tax law is concerned. People like me, have no clue about the complicated / complex US tax code & there is always that probability that people would make a mistake. To add, even many CPAs do not know anything about FBARs & offshore accounts.

    I was talking to a CPA agent & he is handling few OVDI cases. One case he talked about is related to an Indian immigrant who came to US in 2009, is compelled to take part in OVDI and pay thousands of dollars in penalties because of not reporting the existing assets that were controlled from US. The problem is that there is no consideration for special cases in this scheme.

    The only bright side of this is that hopefully the foreign banks, who also have been penalized, may issue special instructions to future immigrants who would inherit their accounts when they come to US.

  43. To the last post,

    Not only US, most countries require residents to report global income and pay tax.

    As long as immigrants report global income only missing report FBAR, IRS does not impose any penalty.

    Other countries may not have FBAR (or with high reporting limit like Canada), so it may not have hash punishment as US for offshore violations.

    OVDI does take consideration for "poor" so 12.5% rate is for those with less than 75K offshore assets. This may not be "fair" to immigrants as they may have more assets left in their home countries.

    The case about this India immigrant, I would suggest him make quiet disclosure. This can be very well explained as simple mistake. It would be a very weak case for the prosecution in the court (or in the civil case) -- I am not a lawyer, it is just my view based on my trust/confidence in this system.

    Tax law is complicated, that is why we have CPA and tax lawyers (like Jack and Jonf). Immigrants may pay attention more on immigration law and less on tax law -:).

    Law does not have to make one to understand but one has to make himself/herself to undertand the law. So we all have to pay the price to learn this lesson.

  44. ij, agree 100% with you. My point is that the IRS makes it more difficult for even the tax experts to understand. You talk to the best tax attorney in the country & even he or she won't be able to say for sure whether a person in the above scenario should make a "quiet disclosure" or not. That is because IRS has made the OVDI very complicated.

    Also, another interesting article I read is that if IRS really wants all tax evaders ( cheaters as well as honest ) to pay back-taxes, then they could have made it more easier, penalize based on how many years of evasion has occurred. That way, people who are on the borderline, would take the OVDI route and avoid "quiet disclosure" (QD). People doing the QD are doing so to avoid the high penalties but risking criminal investigation. If IRS really wants to audit each & every QD, then they will be wasting their resources behind people who are not the real cheaters. Instead, they should have worked hard to see if they can make those QD applicants pay manageable penalty and come clean.

    Just the fact we are having all this discussion indicates that it is so complicated. And not all CPAs and tax lawyers understand it either. You are the experts, no doubt about it & I appreciate your comments.

  45. I am not an expert but Jack and Jonf are. I know a lot better now than two months ago after I became aware I had been tax evader myself on my offshore accounts.

    My problem was just simple ignorant plus careless. I thought local tax (withhold) was enough.

    Many times, I got correction from IRS they gave me credit that I did not claim, for example 2009 "making work pay credit", I did not know and skiped. Later IRS sent me $800 more refund.

    I know a lot people (friends) who have much worse problem and they just don't want to join OVDI (I am the only one). They even don't want to do QD. They count on 1. FBAR 5 years limitation, and tax is 3 years limitation (if less than 25% under report income -- for most offshore thin cats like myself, it would be less than 2% under report). They can just close all the accounts. FATCA will take time to be fully implemented.

    I could have done the same, but I just can not sleep well kowning what I have doing wrong. So I decided to join OVDI while they are watching...

    For me, if money can bring peace in mind, that is worth to do so. Of course, some people would take risk being in jail for money -- that is just a matter of choice.

    I do hope our Gov will treat all people in good faith. Sometime a bad policy (or injustice) will cause more harm to the soceity than the policy is intent for.

  46. I don't see any reason why someone who first came to the US in 2009 should apply for OVDI unless said person has some serious fear of immigration consequences or is a Nervous Nellie :-).

    In such a case, a quiet filing of 1 delinquent FBAR and an amended return should fix matters.

    For people who have been here for longer periods of time (6-10 + years) and are permanent residents, US citizens or the like -- I think that its their responsibility to learn and follow US tax laws (assuming that they are not elderly immigrants joining their children). I don't mean to sound too holier than thou -- objecting to taxes goes back centuries in America -- to the Whiskey Rebellion, the Boston Tea Party and the like.

    And certainly, the low number of people who report sales tax to their states on items bought online indicates that native born Americans are as likely to avoid paying taxes as anyone else.

    For foreign accounts though, the penalties for non reporting are very severe (almost confiscatory). That means that a minor amount of foreign tax due is a far more serious matter than if the same amount of US source tax were due.

  47. I still need a clarification after reading all these posts. If your foreign bank account has never had more than 10,000 dollars in it at any one time, but you made 300 dollars in interest in a given year (which remained in the account),would you need to disclose that you even have this account? The FBAR states that you must fill out the form only if you have had 10,000 dollars in it,so is it okay by them to just not fill this out?

    1. Yes, the FBAR is required only if aggregate highest amounts in foreign accounts for the year exceed $10,000. Your only failure is to report the $300 interest income on the U.S. income tax return. You may consider filing an amended return to report the additional tax due (likely to be substantially less than $75, but doing that would require far more processing costs for you and the IRS. So you might consider just forgetting about it (worse that can happen is the IRS discovers it and sends you a bill with, at worst, a 20% accuracy related penalty). Hardly worth fooling with.


      Jack Townsend


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