Monday, August 29, 2011

Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)

Some readers have commented about the use of the Taxpayer Advocate Service ("TAS") of the IRS to intermediate differences between the IRS and the taxpayer regarding the seemingly rigid application of OVDP 2009 and OVDI 2011, thereby producing harsh results.  The TAS may also play a role in opt outs where the fear is that the IRS will be punitive or in audits for taxpayers who never joined either initiative where the same fear exists.  I thought it would be helpful to offer readers a blog and thread devoted to just the advantages and limitations of the Taxpayer Advocate Service in these IRS initiatives.  Readers thoughts and experiences are solicited.

The Taxpayer Advocate Service website is here.

I do encourage those who have submitted comments on the TAS to re-post them here, modified as appropriate for subsequent developments.  I can assure you all that you will be doing a service for a lot of people in stress.

38 comments:

  1. " The TAS may also play a role in opt outs where the fear is that the IRS will be punitive or in audits for taxpayers who never joined either initiative where the same fear exists "

    Jack - So does that imply that TAS will indeed intervene for people who have not joined either OVDI or OVDP or will they help ONLY those who have joined the program and opted out ?
    Its possible that for some people even opting out might involve heavy fines and penalties so in those cases will the TAS help if they decided to stay outside the programs? Didnt see anything specific in their objectives so was just curious.

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  2. What is typically a qualification criteria for getting help from TAS? Is it only for low income group of people? Nothing against attorneys but for some people taking part in OVDI, the high attorney fees are draining those individuals further. Can this be an alternative for those people?

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  3. I am not an expert on the TAS. I only speak to my experience. It is a positive one.

    I did appeal to the TAS. They were very helpful. They issued a Tax Advocacy Order (TAO). I have received relief as provided in the IRM discretionary penalty guidelines 4.26.16. I won’t be specific here, as while the penalty has been paid, the paperwork is not finalized. Safe to say, it was more reasonable than the rigid, one size fits all penalty, in the 2009 OVDP.

    I can not make a general statement as to whether or not this avenue of appeal works in all situations. Facts and circumstances are different for each tax payer. My appeal related to the denial of FAQ 35 which had been removed from the 2009 OVDP. There were protests by Practitioners as to the “bait and switch” application of this rule. The TAS complained about it in their report to Congress. I have to think that played a role in my outcome.

    See Asher’s posts… http://www.assetlawyer.com/wordpress/?p=1041

    I was not a “willful” tax cheat or hiding funds in secret off shore accounts that the OVDP was targeting. I was a small fry now living overseas, and upon discovering my errors realized I had to disclose my FBAR and tax failures.

    I was strenuous in this “non willful” assertion through out the entire process in every written communication including several to Commissioner Shulman and all my Congressman. My agent got tired of my long treatises, but I was relentless in my writing and documentation.

    While sympathetic to my plight, and the inappropriate level of the OVDP penalty given my failures, my agent had no discretion, nor did her Technical Advisor or her Manager. I did not blame them. They are victims of the OVDP/OVDI rules as much as you are.

    When I reached an impasse point, and faced with “Opt Out or be “Forced Out”, I appealed to the TAS.

    I have nothing but positive praise for this office’s Director and staff, plus the Officer and the Attorney that were assigned to my case. They were amazing.

    While I damn Congress for the Statutes that have created the FBAR rules, I have admire the Statutes the created the Tax Advocacy Office. The former has many unintended negative consequences, and the latter works as intended!

    The TAS are strong advocates for you. They are responsive, polite, professional, and importantly, meet all their timeline commitments as to actions and responses. This is one of the best bureaucracies I think I have ever dealt with in the Federal Government.

    It is not a foregone conclusion that they can assist. They assess your particular set of facts. They issue orders (TAOs) as they deem appropriate. They can get extensions of deadlines, if necessary, and Auditors have to respond. It does get attention and seems to break the rigidity of the non discretionary rules. However, it is important to note, an auditor’s office can disagree with their TAO finding. There is a multi step upward appeal process that ends at the IRS Commissioner’s office. He has the final say. If he disagrees with a TAO, no further appeal is possible. He does, however, have to report that denial of appeal to Congress. Generally speaking, that is how it works.

    In conclusion, based upon my limited experience, I would say this. If you strongly feel you are a non willful offender, feel the 25% penalty doesn’t fit the benign crime, so to speak, and fearful of the opacity of the “Opt Out”, I would consider a TAS appeal before you make that “irrevocable” decision.

    For Opt Out guidelines and comments read here. http://federaltaxcrimes.blogspot.com/2011/06/opting-out-of-irs-2009-ovdp-and-2011.html

    I do not know if they will accept you, but it might be worth the effort. I do think there is sympathy for your plight in their office. I would encourage you to read their report to Congress which was posted here on Jack’s Blog.

    http://federaltaxcrimes.blogspot.com/2011/06/taxpayer-advocate-criticizes-irs.html#comments

    Hope this is helpful to some anxious non egregious offenders out there.

    Good luck.

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  4. Anonymous August 29, 2011 11:27 AM

    Thanks for some hope. Can you please share your view on following 2 questions.
    1.FBAR penalty was assesed for single year or multiple years ?
    2. Is IRM 4.26.16.4.7 - 4 was respected or not.
    "Given the magnitude of the maximum penalties permitted for each voilation, the assertion of multiple penalties and assertion separate penalties for multiple voilations with respect to single FBAR form, should be considered only in the most egregious cases."

    Thanks for sharing.

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  5. To Annon - August 29, 2011 4:48 PM

    Regarding your questions...

    1. FBAR penalty was assessed for multiple years that were still viable under the Statute of Limitations. In this case 5 years.

    2. Re IRM 4.26.16.4.7 Was it respected? Most definitely. The answer to this is a resounding YES. It formed an important part of the argument that I had used during the OVDP process, and it was repeated more forceably by the TAS (along with other IRM references like 20.1.1.3.2.2, etc). In fact, the TAS relied exclusively on the IRM's discretionary relief to make their arguments coupled with my facts.

    That is why it is my advice to all OVDI participants, know the IRM 4.26.16 intimately. Even if you are using a Tax Attorney for guidance, you need to be informed and conversant on the provisions therein. That way you are not wasting the IRS or your Attorney's time arguing for things that are outside of those manual provisions. It was helpful for me to get my head around how the IRS agents thought when they looked to IRM for guidance. I am not a technical reader or do I have any attorney skills. It took me awhile to make sense of it all, and get it through my dense skull, but the effort helped form my approach to the entire problem.

    Now finally, let me be clear, I didn't get everything I would have liked, like NO penalty!! However, given the current environment, the technical and non discretionary penalty application inside the OVDP, and harden attitudes at the top, I would say that it was a reasonable and fair result. Actually, it was more than I hoped for. It lifted me from despair to elation, so you can conclude order of magnitude from that!

    As I read somewhere else today, and I think it is true..."The Taxpayer Advocate really is the best kept secret of the IRS.....their job is to assist taxpayers when other avenues have failed."

    Well, I hope my small efforts remove some of the secrecy! They deserve attention for the good job they do advocating for Tax payers.

    Finally let me pass on this additional comment: I did my appeal through the Washington Office. That is where the Report to Congress with the concerns about the OVDP practices originated. I don't know this for sure, but it seemed to me that they would be more sensitive to the OVDP problems then just a field office outback in WhoopWhoop, Oklahoma. They responded to me in less than 24 hours of when I made contact about my problem. Pretty darn impressive. Can't guarantee that for anyone else, but coming when it did, with just 11 days left in the count down to "Opt Out" (OO) or "Forced Out" (FO), it was the first fresh wind of hope I had had in a long long time.

    BTW... I did inform my agent that I was making this appeal before I did it. I wanted to maintain a good relationship, and was not holding her personally responsible for my decision to go outside the process. Her hands were tied. I knew that if she were blindsided by a TAO, it would not serve me well. I am glad I kept her in the loop. Listen to me carefully. Maybe it doesn’t need to be said, but… Treat your audit agent with respect, maintain a professional relationship, and don’t lose your cool with them. They are bound by their rules. Lashing out at them personally about how unfair the penalties are will get you nowhere!!!! They didn't write the FBAR statutes, Congress did!!

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  6. To Anonymous August 29, 2011 8:53 PM who had a positive TAS experience:

    Did you have any foreign income that was unreported to the IRS, which flowed through any of your foreign accounts?

    Wondering how would the IRS or TAS's treatment change if a taxpayer genuinely had no idea of IRS's policy of tax on worldwide income (few countries do) and had such unreported foreign income under the OVDP years. For example, the taxpayer could be a first-timer living and earning income abroad. The taxpayer has since then filed the missing tax returns under the OVDP program and the IRS has calculated underpaid taxes and their accuracy-related penalties.

    So my question comes down to:

    When contacting TAS for assistance, do they look at the overall "healthiness" of the case before undertaking it, or can the taxpayer ask them to concentrate efforts on a single known affected area, such as excessive FBAR penalties without benefit of FAQ#35 under the 2009 OVDP program, even though there might be some "thorns" to the case such as the example noted above?

    Once TAS initiates support for the taxpayer but then eventually fails, does the taxpayer still remain under OVDP or is he automatically considered to have "opted out"?

    Finally, for taxpayers whose cases are already closed or who have submitted Form 906 but have yet to received IRS's signed copy back, can they still contact TAS if they believe the penalties paid were excessive?

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  7. Anon -- good thing you did get relief, but you did so on the basis of FAQ #35 arguments, apparently. There is no FAQ 35 OVDI 2011, so that avenue is closed.

    But people who have a good case might still be able to make that before opting out. The problem is that a lot of people might fall into the 'gray' area -- people who are not big time tax cheats, but arguably should have known about the FBAR rules.

    Also, if it doesn't compromise your privacy, could you indicate if the penalty was assessed on a per-account/per-year basis, or just a per-year basis ?

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  8. To Anonymous August 30, 2011 4:39 AM

    Good questions.

    To the Question “Did I have unreported foreign income?” Yes. I had passive interest income and non substantial home rental income in the country I have residency in. I was/am paying my taxes there. I had not lived there the entire period in question. I amended my taxes (myself) and paid all the back taxes offset with foreign tax credits allowed. I paid the applicable accuracy penalties plus interest. As a side note, it took quite a few efforts for me to figure out how to do the form 1116 correctly. Even the CPA I employed for the first effort got it wrong and couldn’t explain it. Is there any form more complicated or make less sense than that one? I hate to think it, but probably!

    To the question "do they look at the overall "healthiness" of the case?"

    I would have to say YES. If I didn't have good facts, or a sympathetic case with disproportionate penalties for the failure, I don't think they would have taken it. Fact 35 was just one consideration, and ultimately the one upon which the case settled. The arguments raised in the appeal transcended the FAQ 35. Generally speaking, the TAS was concerned about the equitably of penalties being assessed for non egregious small fry. They had the same concern as many of the Practitioners representing their immigrant and expat clients do. If you were one of those that was the Target of the OVDP in the first place, I doubt they would have had any interest at all.

    Question: “If TAS appeal eventually fails does the taxpayer still remain under OVDP?”

    In my case, I would have had the option to stay in, or proceed with the "irrevocable" Opt Out. I wasn't Opted Out just because I appealed. That question was put on hold with an extension in the time to decide while the Appeal proceeded. Practically speaking, if my Appeal had not be successful, given the continue opacity of the Opt Out, it would have been very hard to cross that "irrevocable" line.

    Question: “Those with closed 906, can they still contact TAS if they believe the penalties paid were excessive.”

    Certainly you "can". You have that right to appeal to them, but I don't know that the TAS can or will do anything with it. I have not asked them that question. I do know that they are concerned with this issue, and I have heard it said by someone who should know, (but since it is second hand, I don't know it for fact) that they have been looking at closed cases for excessive penalties. I would contact them and see what they think. All they can say, is “No”, and you are no worse off for the effort. Nothing ventured, nothing gained. I would just caution that you to be sure of your facts, so as not to waste their time and yours. If any of your activities were egregious and strongly willful, don’t bother.
    That is my opinion. Take it for what it is worth.

    Hope this answers your questions adequately.

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  9. Anonymous, August 29, 2011 8:53 PM
    If the specific case is non-willful and not “most egregious" then some relief may be possible. Which of the following option is applicable or some other interpretations of IRM is done?

    1.Only one violation penalty is assessed (only one account in a year with the maximum balance)
    2.One violation penalty per year is assessed (a account with the maximum balance in that year)
    3.One violation per account during the period (in a year with the maximum balance) and every accounts violations penalty are assessed at least once
    4.Same as 3 but limit only one violation penalty per year

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  10. To Anonymous August 30, 2011 6:18 AM

    Regarding Gray Area people. You make a good point, and it can not be overlooked. The IRS thinks in black and white, and just assumes that everyone else is immersed in all the “rules and regs” and reads all the fine print on every credit card application and never checks "Accept" when downloading software from the internet without reading every last word of the “terms and conditions!” IE, It is a different world than the world you and I live in, and that is why having an Attorney, who understands and lives in that very technical world to assist you, is so important.

    You certainly have look back and ask yourself honestly, “why didn’t you know about it?” Arguably, you might have been able to determine it, if you had dropped everything else in your busy life and did nothing but research tax regulation compliance. The IRS puts a lot of emphasis (misplaced, I would argue) on those questions on Schedule B. In their world, it seems pretty straight forward, but somehow that never came up into my level of consciousness. In b&w, that is hard case to prove. Gray deals with how the brain works, and what it focuses on, or screens out subconsciously. There is a lot of physiological theory in this area, that I won’t explore here, but google the “ invisible gorilla experiment,” and you will get what I am talking about.

    On this grey subject of willfulness and Sched B, here is a good article. Jack posted it previously. http://www.roginlaw.com/survey.asp

    Instead of just the gray consideration, I would focus on the penalty level as related to the "benign failure". If your failure was more of a negligent category, and you honestly didn't recognize a FBAR requirement and consciously decide not to file, I would then be asking if the penalty was proportionate for the "so called" crime? Everyone makes stupid non willful mistakes, but not all are criminal. There are degrees of failure, and it has been often said, our justice system doesn't execute J walkers along with murderers. Even homicide has degrees from Manslaughter to Premeditated. The IRS was going after the “Premeditated,” but applying the penalty equally to the J walker. There has to be proportionality, but it is not available under the OVDP, and the OVDI. Maybe, eventually, the Opt Out will provide for that, but then again the IRS can not be on a vendetta asserting maximum or punitive penalties outside the process as well as inside. Right now, given the opacity of results in the Opt Out, I don't know I would take their assurance that you would be treated with standard IRM discretion.

    Given the qualifiers above, I still wouldn’t dismiss the “Opt Out”, at the conclusion of the OVDI process. It has some possibility for mitigation depending on your facts and the relationship you have established with your auditor. I think as time goes on, it will be clearer what is happening with those that “Opt Out”. There “could be” more favorable discretion for small offenders. A TAS appeal may not be necessary. Do I know that for sure? No, but some of the attention that is being placed on the immigrant situation leads to me hope it might be. I recognize, hope is not a strategy, so you have to be prepared to pay the full 25%. I would consider an appeal to TAS at the end of the process before you “Opt Out”, only if you were truly non willful, can not live with the OVDI result, and there is no opacity improvement in discerning IRS audit practices in the Opt Out.

    Finally, to your question. "Was the penalty assessed on a per-account or per year?"

    It was a penalty on a per-year or per-Form basis, rather than on a per-account basis.

    Hope this helps. Sorry it is a mixture of fact and opinion, but there you go. It is what it is. I am not an attorney, and just a guy that lived through 23 months of physiological pain and anxiety before finally reaching a ‘reasonable” result. So my world view too is skewed. As I always say, I could be wrong. :)

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  11. To Anon, you mentioned that you contacted the Washington office, was that the DC one? Could you post their number?

    And how long did it take from the time you initiated contact with TAS to you receiving a revised judgment from the IRS?

    Thank you.

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  12. 'I would consider an appeal to TAS at the end of the process before you “Opt Out”, only if you were truly non willful, can not live with the OVDI result, and there is no opacity improvement in discerning IRS audit practices in the Opt Out'

    There surely would be no harm in trying, I assume. The worst the TAS can do is say no . Yes, you are wasting your time if a big time tax evader who used entities and the like, but other people should be able to use TAS.

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  13. To Anonymous,August 30, 2011 2:57 PM

    I agree. No harm in trying. Nothing ventured, nothing gained, and you might be able to discern something that you could share with others.

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  14. To Anonymous August 30, 2011 11:22 AM

    Question: Which Washington?

    I applied to the Washington DC office. I would look on the IRS web site for the telephone number. All I have retained are my direct numbers with my Appeal Officer, and I couldn't give that out. I am sure you understand.

    I just found this for you.. http://www.irs.gov/advocate/article/0,,id=147449,00.html

    Question: And how long did it take from the time you initiated contact with TAS to you receiving a revised judgment from the IRS?

    49 Days from first contact to call back with revised judgement. Progress and update calls during this time frame were exactly as promised and on time. I was never left wondering what was happening. Like I have said, I am impressed with the service.

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  15. To Anonymous August 30, 2011 10:42 AM

    I think I have answered that question. See my response dated August 30, 2011 10:51 AM

    Per the IRM discretionary guidelines,
    It was a penalty on a per-year or per-Form basis, rather than on a per-account basis.

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  16. Anon wrote:
    "They are bound by their rules... They didn't write the FBAR statutes, Congress did!!"

    Nazi soldiers executing Jews and Gypsies (after taking all of their money, property and liberty) were also "bound by their rules". They did not write the statues either.

    Yet many were found guilty of crimes against humanity anyway.

    IRS agents can quit, resign, or refuse to work in the FBAR department.

    Granted Congress (the Nazi Party) is the most guilty, but the IRS (the SS) cannot be excused because they are just enforcing the law.

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  17. M

    Well, yes, I understand your frustration, and take your point, but the analogy is a big severe, in my opinion.

    They could quit, and as I told my auditor, I could not do her job, but to be practical, if you are to emerge out of the process with as much of your skin in tack as possible, it is in your best interest to not make it personal between you and the Examiner.

    That doesn't mean I didn't express my frustrations, (you should see my file of written protests, my conversation record of everyone I talked to, and all the conference calls I had.) It just means I did not lash out at the agent in a personal way. I didn't blame her for the FBAR non discretionary guidelines she was bound too. I just did not see what was to be gained from that approach.

    Practically speaking, you want them on your side, and as they say honey is more effective than vinegar at catching flies.

    At the end of the process, if you are to decide to Opt Out, and you and your agent have hard feelings because of your personal attacks, human nature is going to kick and make that resolution more difficult.

    I would suggest that you read the letter from Stephen Millar on the Opt Out guidelines.

    http://www.irs.gov/pub/newsroom/2011_ovdi_opt_out_and_removal_guide_and_memo_june_1_2011.pdf

    Read items 2, 3 and 4.

    If you and your agent are not in agreement at this point, your chances of any beneficial finding by the Management committee are very dim. You have no standing in that committee review. Adding personal animosity to that disagreement, is not in your benefit is all I am saying.

    Your anger is better placed with Congress who wrote the stupid statute, and the Committee higher up the chain who designed the OVDP/OVDI process in the first place.

    Of course I didn't get that far, as before I Opted Out, I appealed to the TAS after receiving the Letter 4564.

    Anyway, right or wrong, that was my approach.

    When it came down to the negotiation between the TAS and the Auditors office, I feel that that amicable relationship between me and the Examiner benefited me in the final resolution. I could have foreseen the Auditors office refusing the TAO offer, and thus extending the time frame of the dispute and sending it up the appeal chain where attitudes are hardened. After 23 months, I was happy to end it there. At some point, you have to make a business decision, put all emotion aside, and since the result was a reasonable one that I could live with, I took it. I would have loved to have had NO PENALTY. That would have been the "correct and just" result, but given the environment and attitudes higher up in the IRS, it isn't going to happen, in my opinion.

    So, in the end, pragmatism trumped idealism.

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  18. My impression is that in the 2011 program, there will be much less interaction between the agent assigned to your case (unless you have a really big account) and you. There isn't even a requirement for account statements unless account balance > 500K. All statements should definitely be accurate, but the rest of the process appears very 'programmed'. So there may not be that much opportunity to interact with the agent. Less of a chance of seeing 'Stockholm Syndrome' :-).

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  19. Anonymous August 31, 2011 11:04 AM

    Regarding your 'Stockholm Syndrome' comment. :-)

    Thanks for the chuckle. Your impression could be right. I don't know. All I know is what I went through. If what you think is true, then maybe my advice applies better to a civil audit in an Opt Out situation.

    And…Maybe all of this is so much of a ‘truism” it doesn’t need to be said at all.

    Anyway, whatever opportunity there is for contact with an Examiner, even if it is less than I experienced, it should be used strategically to your best advantage.

    You have to be open, accurate and honest of course. That goes without saying. Politeness is harder, but I have noticed how Attorneys do it all the time, when negotiating with each other, and have taken that lesson to heart.

    It is easy to hate the IRS right now, and by extension your Examiner. So, strongly make your Non Willful assertions, while not crossing the line into personal attack. Restraint, in this area, will serve you well, I think. That is why I kept my immigrant wife off the phone conversations! Didn't want her natural instincts to share a "piece of her mind" with this IRS representative, if you know what I mean. :-)

    I am a big believer in empathizing with "the opposition" so to speak. Understanding the constraints of their job and not making it personal between you and them, can't hurt. You might be the only one being nice to them that day. I can imagine that they deal with a lot of crabby taxpayers, and they may be so cynical and jaundiced to think of all of us as equal evil tax evaders, and nothing you say or do will make any difference. But, if the opportunity presents itself for a little ‘Stockholm Syndrome’ development, even if the interaction is less than I had, by all means use it. I actually have some acquaintances that have gone to work for the IRS, and last time I checked, they were still human and with natural emotions, so that was encouraging!

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  20. http://en.wikipedia.org/wiki/Stockholm_syndrome

    I am not sure who is more affected by the "Stockholm Syndrome", the IRS agents who come into contact with the filers, or the filers who report their hidden assets (only to be taken from them).

    From my reading of the evidence in indictments and pleas, I don't understand how or why people who spent a lot of effort, money and time willfully hiding their money would then suddenly divulge it.

    I think that some were hypnotized by the IRS verbiage, agents (or their own attorneys) into complying with their demands.

    Let's hope their attorneys are effective with the IRS, but from my reading here, they cannot change the numbers handed down from Congress.

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  21. "From my reading of the evidence in indictments and pleas, I don't understand how or why people who spent a lot of effort, money and time willfully hiding their money would then suddenly divulge it."

    Its obvious. These people have been caught red handed, and the DoJ threatens to apply a whole host of civil and criminal penalties. These are so overwhelming, that none of these people want to take a chance on a long prison sentence, or massive FBAR penalties, and agree to plea and co-operate to a reduced set of penalties (typically 50% of max balance instead of 300% possible) and a small amount of time in jail.

    Its clear that they are guilty, and a jury will convict them. This is not some complicated tax shelter that a jury might miss, its a very simple case.

    So far only one case has gone to trial in Jack's list, involving 2 rather obnoxious hoteliers, and they got 10 years.

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  22. Finally have an anecdotal report of what appears to be a successful Opt Out.

    Read this blog comment.

    This might provide some good news for anxious minor (non risk taking) offenders..

    It took 2 years,IRM knowledge, persistence and a good relationship with the Examiner who had empathy for the petitioners situation....

    http://hodgen.com/damsel-in-distress-a-vdp-success-story/

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  23. Aggrieved-taxpayer@hotmail.comSeptember 1, 2011 at 11:29 AM

    I can only speak for any myself and not the other “obnoxious” tax cheats in the OVDI Program. In my situation, I lived in Europe for years and attempted to do my own tax returns. I had a portfolio of stocks. The annual investment fees of holding them mainly offset any dividends/income, so I did not report the income. This was all corrected with amended returns for 2003-2008 which shows the US Government now owes me a refund. So, I was not robbing the US Treasury of any tax income. Nonetheless, the US Government wants 20% of the high value point of my portfolio for failing to file FBARs – in my case the penalty is over $1 million.

    Why did I enter the OVDI Program? I could have gone to jail and loose up to 300% of the value of my stocks, so I entered the OVDI Program to limit my damage. Am I tax cheat? That’s arguable as I did not rob the US Government of any taxes. Did I fail to file information forms and did I fill out my tax return out incorrectly. Yep, I’m guilty as I did not check Schedule B for some of years and did not file FBARs. By entering the program to eliminate the threat of criminal charges was a no-brainer.

    Further, when I entered the Program my advisors pointed out that under FAQ 9 and/or FAQ 35 I would get a “fair” hearing. How fair? My IRS agent has told us that FAQ 35 is no longer on the table and that since I filed amended returns FAQ 9 does not apply. I’m now being told by the IRS that I need to accept the settlement offer and pay $1 million or be forced out of the Program.

    Personally, I feel like I’ve been bamboozled by the US Government and that the US Government thinks it is okay as I’m just an “obnoxious” tax cheat. But it doesn’t sit well with me as I see other tax cheats daily. The contractor who insists that my wife pays him in cash, and when we don’t he refuses to do any work. The neighbor who expenses every dime he spends, etc. But if they get caught (as I’m sure they will never voluntarily turn themselves in as the folks in the OVDI program) I suspect they will have to pay back taxes plus penalties and interest on ONLY the tax owed. Not a penalty on their home, life savings, etc. like many of us in the OVDI must do.

    So, perhaps all folks in the OVDI are “obnoxious” tax cheats but how the rules are being twisted and distorted to extract the maximum possible penalties is equally obnoxious.

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  24. To Aggrieved Tax Payer...

    I would definitely contact the TAS and see if they can assist. Opting Out does not sound like a good option for you.

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  25. MM

    There is a case to be made, that many of the Big UBS type cheats, who were using undisclosed accounts to hide income and funds offshore and deliberately evading taxes had, by definition, a Big tolerance to Risk. As such, they are probably not like you and me.

    They may not be inclined to divulge even if offered these so called OVDP and OVDI deals. By nature of their Risk Taking behavior, they probably are not overly worried about Criminal Prosecution "unless" their exposure was “so certain” as to overcome their natural high tolerance for Risk.

    Terrorist, money launders, or just plain Crooks who are hiding funds already know they are at risk. A FBAR Statute passed by Congress 40 years ago, or some OVDI program probably has had little impact on their behavior. They are probably covering their tracks rather than coming forward. The current OVDI/OVDP tactics the IRS has employed, unless there was certainty as to their impending exposure, probably has had little impact on their compliance behavior.

    As Big Time Risk Takers, like High Stakes Gamblers, they know how to sleep well at night with the Risk they have taken.

    However, the small fry, with mostly benignly negligent failures at most, are not these Risk Takers, and therefore may be more disproportionally affected by this program, or at least that is my supposition.

    I would love to see stats on this, because my conclusions could be totally wrong. It would take a FOIA request to the IRS to get any insight as to the general make of those coming forward under the OVDP/OVDI , but I am betting the numbers are not as the program was characterized in the first place. A Minnow to Whale ratio would be very revealing, rather than a total revenue generated number, or total participants which Shulman, naturally, would rather trumpet. That is his measure of success, and not the tonnage of fish fertilizer he left in the wake of his giant processing plant.

    I was a minnow. I had no tolerance for risk. Hiding funds in undisclosed FBAR accounts to evade taxes never entered my mind. Guess that effects my perspective, but anecdotal evidence just goggling around or reading comments on this blog, I would say, that the majority living with this anxiety are not those the IRS trumpeted it was going after, and the media parroted, when this all rolled out in 2008/09.

    In the end, the IRS is probably going through a lot of Minnows to get those Whales.

    BTW, there is a recent success in an OVDP Opt out. Go to http://hodgen.com/damsel-in-distress-a-vdp-success-story/

    So there is a little ray of hope that might lower the anxiety level of some of those now entering the OVDI. However, one report does not a trend make.

    Finally... Saw this good comment elsewhere, and reproduce for you...

    Anyone seeking evidence of the lack of law enforcement usefulness of the FBAR can obtain this by implication from the FINCEN website itself. Type in FBAR in the search and see how many cases of prosecution you come up with. Wouldn’t you expect hundreds, at a minimum?

    http://www.fincen.gov/news_room/rp/sar_case_example.html

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  26. Twenty years ago it was small businessmen that were harassed by the IRS. Remember the home office deduction? Car expense deduction? They were automatic audit bait.

    It took the IRS twenty years to get over it. Ultimately they realized that despite all this, small businesses contribute a tremendous amount of taxes. Perhaps 50% of all start ups start as small business, and 50% of all Americans are employed by a small business. If you shut down small business guess what happens to unemployment, and therefore to the overall tax revenues, because not only the employers pay taxes, but so do their employees.

    But to try to make IRS understand this takes a long time, because as government employees they have no idea what being self-employed means. Or to start up a business? (Another IRS?)

    Likewise with this offshore funds situation. The IRS, US Congress, Obama, have no clue what is going on. They are attacking a caricature: a millionaire who pays no taxes because his money is offshore. What millionaire pays no taxes? Does he not consume? That means sales taxes. Does he not own property? That means property taxes. Does he not drive? That means car taxes and fuel taxes. Does he not travel? That means FAA taxes. The more economically active a person is, the more taxes he pays.

    Second, what about his money on-shore? Or do they think a millionaire holds 100% of his money offshore? He has to pay taxes on the on-shore portion, which is probably more than most poor Americans have and pay taxes.

    What about his business dealings in the US? Does he not pay business taxes? How can you escape? Does he not pay payroll taxes?

    Even in the wildest possible example of offshore holdings, a millionaire will pay more US taxes than the average citizen. Therefore, that person is more "worthy" keeping as an American than the average taxpayer.

    This is what the IRS (and US Congress) will take years to realize.

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  27. Thirdly, this is an economics problem. (The legal and regulatory environments are just more variables). To the number of tax rates and penalties the IRS has (300%, 50%, 25%, 10%...), one has to add 0% for some of Her Majesty's Overseas Territories.

    Because the IRS (and US Congress) do not realize that they are economic competitors in the world arena, the have no idea how to respond to competition. They try to outlaw it and criminalize it.

    Try explaining to US Congress (or the IRS) that the taxes are too high, and one can go to Her Majesty and pay 0% taxes. Therefore US Congress should reduce the tax rates. And try explaining to the IRS that Her Majesty does not charge penalties, therefore the IRS should not charge penalties. Because if this situation remains like this, taxpayers will give their money to Her Majesty, and that means less tax revenue for the US.

    Try making this argument in the halls of Congress or at the IRS office.

    But this argument is a real-world economics argument based on real-life business situations. One would be stupid to ignore a 0% tax rate, and millionaires are not stupid, else they would not have become millionaires.

    (But how many IRS employees are millionaires? And how many jury members?)

    Fourthly how many in the US Congress were born overseas, spent a lot of time overseas, have overseas family, and bank accounts/property there: their own, or their family's?

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  28. I am a dual citizen, that has never worked in the usa, and until now never knew that I had to file a tax return, and only learning about what an FBAR and OVDI is, and my family and I are starting to freak out. We're simple families that have lived and worked in Canada almost all our life. All of our income has and will be made in Canada, our accounts are in Canadian Institutions and we dutifully pay our taxes. We are not evading anything, our accounts are here in Canada, the place where we earned it. I know realize that the USA demands all citizens report their income, and I want to make it right, but by doing so I will invite financial ruin on our family. We can prove we owe nothing in taxes, we can prove our accounts are made and based in our country of residence and citizenship. How are these accounts considered offshore!?? I am at a loss at what to do.

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  29. 'k' -- unless there is some indication that the IRS is actually enforcing these penalties against Canadians/duals who are clearly not engaging in tax evasion, I wouldn't worry about it. If you are outside the US for many years, you are effectively outside their jurisidiction. It seems to me that some tax professionals may have been overhyping the IRS threat to pick up some business for the OVDI (which is closed as of today) 5% penalty. I doubt you'll get a blankett acknowledgement of this from the IRS since they do want to pursue genuine tax evaders even in non tax haven countries, but for a regular, honest Canadian based person like you, there is nothing to worry about.

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  30. Bloggers,
    I regularly read blogs here and must say this is the best site for Tax matters, especially OVDI items. Also, it is very painful and sad to read the distress it is causing to ordinary people who have small or immaterial tax non compliance issues.

    We as a community and citizens - what can we do to highlight the plight of people to the right quarters of the Government? There is a lot of good information on these blogs that can be shared with the appropriate Government agencies and highlight tax atrocities on so many people.

    Can we the people do something collectively?

    ReplyDelete
  31. To Anonymous...September 9, 2011 6:49 PM

    I have looked around too, and it is the best, I agree. Just wished a concerned reporter would look at it too.

    Do you know a reporter or a columnist at either the New York Times or Washington Post, who would expend the time and effort to write a good story that would at least place it in the media attention of DC? They aren't all that interested in small fry stories, is my opinion.

    Alternately, would be NPR.

    Unfortunately, the issue just remains on the blogs, but doesn't break the surface of media consciousness. They have all bought the IRS talking points, that this is about the BIG TAX cheats hiding funds in secret Swiss accounts. The story of the unintended consequences that comes from the revenue hunt is not a story they will put much effort into. Sad to say.

    BTW, American Citizens Abroad has tried some media on this issue, and right now is on a campaign to repeal the "Son of FBAR", the coming horror show called FATCA. You can check them out here...

    http://www.aca.ch/joomla/index.php

    ReplyDelete
  32. To K....

    You might want to check out the comments on this blog, as it speaks well to your issues...

    http://hodgen.com/village-idiots-stones-and-wells/#respond

    ReplyDelete
  33. To Anonymous Sep 9 8:13 PM

    You could send a news tip to news-tips@nytimes.com

    Where do I start on this?

    It is depressing that in the righteous country that America claims to be - something so grossly unfair is allowed to go unquestioned and worse is mandated & blessed by the government.

    The FBAR penalties under the OVDI (or even otherwise) fits right there with "cruel and unusual punishment".

    Often times I read news stories on different news websites about IRS going after foreign accounts where regular Americans comment, basically cheerleading the IRS/DoJ's efforts against the "tax-cheats".......nobody seems to have an idea that not all foreign account holders are millionaire tax-cheats. Many folks with foreign accounts are from poor 3rd world countries who send money abroad to maintain families or buy assets for themselves or their family.

    My case for example. I am an immigrant to this country (not a citizen yet). My domestic tax returns have been clean as a whistle. I have always used Turbo Tax and never claimed anything beyond standard deduction. Never went to any unscrupulous CPA to help me get a bigger refund.

    I could be the last person on this earth anybody would associate the words "tax cheat" with.

    Like so many of you, I had no clue about FBAR. Under the OVDI, the Govt wants > $100K from me for my ignorance of this law. Now I know that it is not the responsibility of the Govt to educate me on all the laws of the land. But the FBAR law is no ordinary law. It has the potential to turn your life upside down (as I am finding out now). You would expect that Govt to at least make sure to educate the people who are most likely to inadvertently break this law...the immigrants. I wish I was supplied information about FBARs when they gave me my Visa. I immigrated as an adult...I was supposed to have "foreign accounts".

    Now here I am staring at a penalty of upwards of $100K , my child's college savings has suddenly evaporated. I had also saved to make a down-payment to buy a house. Now I have to start all over.

    The IRS usually uses the excuse of "you can always claim reasonable cause outside the OVDI" if you are innocent. But is it that simple? If I opt out from OVDI, the burden of proof will be on me to claim my innocense. If I can't (who knows what will satisfy them), I am looking at an even greater penalty. Even the non-wilful penalty is $10K/Account/Year. So like most people I would have to stick to the certainty of the OVDI even if I am being ruined financially.

    I am not a criminal. I don't think or feel like a criminal. Yet I filled out the Voluntary Disclosure Letter feeling as though I was coming clean about something rotten I had done.

    I am not sure if I want to live in this country anymore. I feel cheated of my life savings. I see many people around me who I know do all sorts of tax-dodging every year in their domestic taxes...yet they will sleep peacefully tonight and have nothing to fear...while here I am....wondering what my future holds..as the Govt gets ready to empty my bank account in this dreadful economy.

    ReplyDelete
  34. s website) is looking for folks who are willing to go on Youtube with their stories (even with identities withheld).

    Involving social media could be a good way to share these stories. IRS talks about publicizing OVDI on Twitter - maybe it is time to tweet the plight?

    ReplyDelete
  35. Social media got the Arab Spring going and changed the political landscape. The hardships being endured by ignorant citizen with minor tax non-compliance needs to get out and shared. If it is robbing our kids of an education and families of an American dream (house), it is really tragic indeed!

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  36. To Annoymous September 10, 2011 1:27 AM

    When you come to the decision point of Opting Out, and if that decision is still as murky as it is now, I would really encourage you to contact the TAS about your situation. They might be able to help.

    Good luck and keep the faith. There are those in the IRS that do recognize these penalties are too severe for a person in your situation. The TAS is sympathetic and can be a good advocate, if your facts are correct.

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  37. I hear you. I am not even an immigrant - just a resident alien. Ever since I found out about this - from someone in my native country who mentioned something in passing and then I read it on an online newspaper from my native country , not from the IRS or US govt - my life has been living hell trying to gather the papers to submit from a parent who is aged, hard of hearing and now worried about what is happening to me and my family here. I have no gripes about paying back taxes, interest or even accuracy penalties, but to make us pay the added "in lieu of penalty" is just ridiculous. Like you, I am no whale- am just a thrifty person who has spent and saved wisely and now am being penalised for that!! I do not even like reading the words "money held in offshore accounts" as it makes my accounts in my home country sound like something sinister, done to evade taxes and hide my own tax paid money!! From being a proud parent of  kids who came to the USA to earn money and make a better life for themselves, I now have a worried parent who wonders how USA is going to treat their hard working and honest child. The worst part is - we are the honest hardworking (to be)immigrants that are being touted as helping to build a better America and those same honest ones are the ones being fleeced!!.

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  38. Totally commiserate with you. The "in lieu of penalty" is too much, can ruin one family's life. This is such a hard problem for normal honest people to deal with. So sad.

    ReplyDelete

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