There has been a lot of speculation all over the lot about what the IRS will do on so-called opt-outs from the OVDI and OVDP. Much of the speculation is that the IRS will be draconian in determining the presence of willfulness for the FBAR willfulness penalty or in applying the FBAR nonwillful penalty. I personally do not think the IRS will be draconian, but realize that that conclusion is in the eye of the beholder.
I offer this blog entry so that readers can offer real world experiences as to what has happened to them (or, if in process, what is happening to them) after they opt out. I hope readers will also offer hints and strategies as to how others might mitigate the damage on the opt out. There is a lot of angst, particularly in the taxpayer community, about the opt out process. I hope that the comments will offer some comfort to those in the stage of considering whether to opt out or, having made the decision, are at the early stages of the process.
Readers might want to review other blogs relating to the opt out process, which I collect under the links below.
Jack
ReplyDeleteThanks a lot for creating this blog entry. I don't have any advice to offer (since I'm still considering opt out), but I think the issue is that the IRS can afford to be very generous in terms of opt out and still assert a larger penalty than under the OVDI. The potential penalties even for non-willful cases can be so high for the multiple small account case that the IRS can easily discount a penalty by 80-90% of max and still collect a large sum.
For consolidation of information purposes....this is a comment I made on another thread related to the concerns about what FBAR penalties "might" apply outside the OVDI. Will they be multiple account penalties as the FBAR statutes allow, or will they be something less based upon the discretion allowed in the IRM??
ReplyDeleteHere was my comment...
original reference...Dec 9, http://federaltaxcrimes.blogspot.com/2011/12/irs-guidance-on-us-persons-with-foreign.html?showComment=1323724973970#comment-c1354731604842773245
I too had multiple accounts, at times up to a dozen open, but with the way the bank and other financial institutions opened and closed term deposits as they rolled over I must have > 25 over 6 years. I hadn't really thought about it, until I started adding them up to figure the transfers between them to eliminate duplicate funds from the aggregate high balance in the OVDP.
As an Opt Out exercise, my examiner tried to get me to figure my penalties on a per account basis and to figure that my transfer of funds would be double counted outside the OVDP. When I followed her instructions the penalties went from over- the-top to absolutely totally ridiculous. In fairness, the examiner had no idea what to expect in an Opt Out penalty calculation, so maybe she was just covering her bases and doing her due diligence. I try not to cynically think that she was deliberately trying to instill fear to keep me inside the program.
In the end, my TAS negotiated penalty was based upon “one” unified non willful FBAR penalty, and not by account. So maybe that is an indication of what the IRS might do. I have to believe that is the model they would use in the OVDI Opt Out, but until there is more anecdotal evidence, it is hard to say whether mine was an outlier or not. However, we can hope that this is an indication to support what Jack says, “I don't think it will be as bad as a lot of people imagine / fear.”
One other comment for consolidation purposes. This relates again, to possible penalties in an OVDI Opt Out. This relates to my experiences.
ReplyDeleteOriginal reference: December 12, 2011 2:47 PM http://federaltaxcrimes.blogspot.com/2011/09/experiences-inside-ovdp-ovdi-91411.html?commentPage=2
Regarding your question... "the IRS was trying to get you to say that your violation was willful. Did they say that and was it based on the 'Schedule B' question ?"
Close, but not quite correct.
When the Opt Out instructions were finally posted in June, and I read and digested them, I saw that both I and the Examiner were supposed to present our respective statements of Fact to a Management Committee. I assumed (or feared), that if there was a strong disagreement between us at that time, the Examiner's position would trump mine, as I had no standing or ability to affect their finding. You don't get a opportunity for a verbal discussion with the committee. You don’t get to plead your case at that forum and their determination is final. At least that is how I understood the process worked, and with no Opt Outs known about since the beginning of the 2009 OVDP, my Examiner had no further insight as to what to expect.
So, I had a frank discussion with my Examiner as to what she was going to find. She was a pretty determined little girl that I was “willful” (black and white) and that was what would be in her facts, but then conceded that maybe I wasn’t as “willful” as the whales and my degree of willfulness was less, maybe 1 or 2 on a scale of 10. Of course, I totally disagreed with her, and pointed that while I appreciated she did recognize I was not the IRS target whale, there was nothing in her IRM that spoke to degrees or scales of willfulness, and I could not accept her finding and the penalty implications outside the OVDP. Schedule B was what she was hanging her willful hat on in spite of the many arguments I had previously made to the contrary.
So, that was the disagreement that triggered my decision to go to the TAS, and in the end get a lesser penalty using FAQ 35 relief and a nonwillful finding which she signed.
In this respect, it was kind of a back door Opt Out where discretion was applied as I hope will happen in OVDI Opt Outs.
Just Me, one more question regarding the multiple account issue. If your spouse was a US person and had her own FBAR filing requirements and separate accounts (including joint accounts), did the IRS initially (before TAS intervention) seek to penalize each of you independently, even on the same account ? [ Lot of 'ifs' there :)]
ReplyDeleteTo Anonymous December 13, 2011 5:36 AM
ReplyDeleteMy wife and I file our FBAR jointly, so everything, including our OVDP was a joint filing. So, her separate accounts were included in our joint filing. So specific to your question...
"did the IRS initially (before TAS intervention) seek to penalize each of you independently, even on the same account ? "
The answer is NO!
We are finding more and more people willing to opt out. There is very little info post OVDI so we are all feeling our way through this process.
ReplyDeleteThus far, the Service seems willing to listen.
There are many variables to consider. Did you rely on a professional preparer? Did you have unreported income (not just an unreported account)? How much income? How did you acquire the account? (Opening an account in Switzerland versus getting the account through an inheritance.) Are you a native of the country in which you had the foreign account?
It's really a case by case determination with a fair amount of risk. Find someone who has a fair amount of experience in voluntary disclosures and opt outs before you decide.
For purposes of computing the highest balance, the 2011 OVDI adopted a 'tracing' rule (FAQ 36) which appears to appply to assets purchased with non reported foreign monies (e.g. art or land outside the US) . Has anyone seen this applied in the OVDI program : (a) where the asset that was purchsed appreciated substantially (i.e. what cost or value did the IRS use; (b) the money that was used to purchase the asset though not reported or taxed, was not reported before 2003 and / or before the statute of limitations ran (is there an old and cold concept) (c) where the asset was purchased from a foreign account subject to FBAR but some of it was reported for IT and some not-in other words, how did IRS trace or allocate between "good" and "bad" money ? thank you
ReplyDeleteI moved outside the US as a poor student, never having had enough money necessitating acquaintance with Schedule B.
ReplyDeleteFor many years I did not know I was supposed to file US tax returns or FBARs. I learned this in early 2009 and filed back paperwork for a bunch of years together with an explanatory letter. (I live in a country where the taxes are much higher than the US, so thanks to foreign tax credit, nothing was due to the IRS.) As it turned out I sent in all the forms just a few days after the 2009 OVDI was announced. In mid-August 2009, I read the confusing OVDI FAQ and learned that what I had done was maybe not "good enough". FAQ #10 seemed to threaten criminal prosecution for not entering the OVDI program. So with the deadline looming, I entered the OVDI.
What a mistake! I spent hundreds of hours on the documentation and countless nights worrying instead of sleeping. The examiner seemed like a reasonable person, but the rules she was supposed to apply were anything but reasonable.
When it became obvious that no reasonable solution would be possible, I appealed to the taxpayer advocate. I and my relatives wrote to a bunch of politicians, who all kicked my case over to the taxpayer advocate too. From the taxpayer advocate I learned that opting out was the best option for me.
(In the meantime I also changed my citizenship, as I don't intend to move back to the US.)
Neither the taxpayer advocate nor the examiner knew what the audit would be like.
When opting out I provided a fairly detailed account of why ignorance of FBARs was reasonable cause in my case. (I don't know anyone who has to file FBARs, never saw Schedule B. My peers were amazed when I told them about the US's extraordinarily strange tax laws that require filing on money you already paid income tax on. Etc.) I also indicated that if the penalty were not reasonable, I would appeal and go to court if necessary.
Final decision by the IRS: no penalty and no audit.
(I think it was pretty clear from the paperwork I had already supplied that an would not be able to find anything that would lead to tax being due. I have plenty of "unused" foreign tax credit because the US tax rates are so low.)
Two years in hell are now over. A great waste of time, both for me and the IRS.
Sally,
who is looking forward to voting in local election for the first time
To Sally December 30, 2011 11:04 AM
ReplyDeleteThank you very much for your story. It is valuable for other expats in OVDI who are wondering if they should opt out. Given the recent guidance and your story, it gives strength and encouragement to the rest of us to consider opt out as a viable option given the facts of most long term overseas residents.
Most of my holiday period was spent reading the IRM and writing up my facts in terms of the definitions to be found there. While your story is anecdotal, it gives me hope that it will not be for nought.
I relate totally to the hours and time lost on gathering documentation and the
feeling of being in hell. It is so unnecessary. I have also had the same experiences with politicians contacted in the US - they refer you to TAS.
Question: Once you opted out, how long did it take you to get a final decision?
Here's to a 2012 (and your future) that will be free of all this nonsense. Thanks again.
Sally,
ReplyDeleteWhat a great story to hear, although "great" is not how one would characterize the 2 years of hell that you had to go through for the result.
I trust there will be more stories posted here like yours, and many of those in the OVDI will consider the Opt Out process. It is a shame that it comes at the end of the OVDI process, and not as a first filter, so as not to put a person through hell. I know your pain!
Here is hoping we hear a lot more stories like this, albeit, it would be better if they don't also include 2 years of mental torture and waste of LCUs. Those never show up on an audit reconciliation balance sheet and are a real penalty of sort that you can never claw back!
Happy New Year to you.
To Anon5% December 30, 7 pm
ReplyDeleteIt took 5 months in my case, but I'm not sure that would be a big predictor for others.
The reason is that I was caught up in a procedural change at the IRS which ended up costing at least two months. I actually had to opt out twice. I had just sent in my opt-out letter when the IRS changed procedures, so I had to opt out again, with a new opt-out letter detailing the points the new committee needed.
I was also one of the very first cases that was referred to the committee, so there may have been some time spent with "start-up" procedures of the committee, in addition.
The final communication from the IRS was a set of fairly nondescript form letters for each year in question that merely said that the IRS had completed the review and made no changes. (Presumably the same form letter they send to you after an audit when everything turns out to be OK.)
I would point out that I could be a "poster girl" for the new IRS guidance, i.e. obviously not a willful non-filer, just clueless, live outside the US, have no income at all from the US, owe no taxes to the US and pay lots and lots of tax in my country of residence.
The examiner also did not doubt that I was a non-willful non-filer.
(I had never seen a Schedule B until Jan 2009. And when I did, learned about the FBARs from those little checkboxes at the bottom. And filed FBARs soon thereafter.)
By the way, I sent Mr. Flaherty a fan letter, even though I'm not Canadian and don't live in Canada. (In the reply that came back--intended for Canadians--the Canadian government pointed out that while they do share information with the IRS that is relevant to taxes and governed by a treaty, the treaty does NOT relate to FBARs. Canada will not help the US with FBAR penalties.)
Happy 2012 to all!
Sally
Sally,
ReplyDeleteVery heartening to read about your case and the outcome.
When you gave up your citizenship, was it a smooth process, and any watch-outs - especially when you were in the opt out process. Was that an issue with the U.S embassy where you had applied for renunciation?
Happy 2012!
Hi Sally: thanks for telling your story.
ReplyDeleteI would like to mention that while the Canadian government has made it clear that FBAR penalties will not be collected, they have yet set out no policy vis-a-vis FATCA. As far as we Canadians know, our banks could begin to hand over our account information to the IRS very soon. This has some of us, those of us in the know, with no place to hide.
Sally
ReplyDeleteThanks for your post. One question -- you say the taxpayer advocate suggested opt out. Did the advocate seem reluctant to take any steps before you exited the program (since you say they didn't know what would happen once you exited) ? For 'Just Me', they took steps before he formally exited.
My husband and I entered the OVDI and are Canadian citizens. I feel we have a pretty compelling case in proving reasonable cause, citing ignorance of the requirement to file US taxes. I moved to Canada as a child and my husband became a US citizen through his American father. We have never worked in the US. We did however have to a pay the IRS a capital gain on our house we sold in Canada in '08 and sent them a cheque with our submission. We were told, however, that we weren't required to submit a cheque for FBAR penalties. Is that the norm with OVDI, or OVDP submissions?
ReplyDeleteMy husband and I entered the OVDI and are Canadian citizens. I feel we have a pretty compelling case in proving reasonable cause, citing ignorance of the requirement to file US taxes. I moved to Canada as a child and my husband became a US citizen through his American father. We have never worked in the US. We did however have to a pay the IRS a capital gain on our house we sold in Canada in '08 and sent them a cheque with our submission. We were told, however, that we weren't required to submit a cheque for FBAR penalties. Is that the norm with OVDI, or OVDP submissions?
ReplyDeleteTo hkneebadger,
ReplyDeleteNo it was not required to submit the FBAR penalty with your application. I have legal counsel and was specifically told not to submit it. As a matter of fact, my lawyer said, "Don't pay them anything you do not have to." When I questioned this, I was told that the IRS will do their own calculation of what is owed and that is when I can decide whether to accept payment of the penalty or not. It was also mentioned that refunds may not come as quickly as one would expect. One of the commenters to this blog, 'Just Me' may still not have recieved a refund for an overpayment he made as part of OVDP. So in sum, if you have not paid the FBAR penalty when you submitted all your documents, you are fine. However, you were required to submit any interest and tax penalties with your submission.
To AB,
ReplyDeleteGiving up my US citizenship was not difficult in my case, but it may vary depending on your particulars and what consulate you do it at. If you are considering this, read http://renunciationguide.com/ and also check the website of your local US consulate. Procedures apparently differ. Keep in mind that it is an irrevocable decision. Although the FBAR mess certainly gave me additional motivation, my real rationale was that I want to stay put where I am and it would be nice to be able to vote.
And I want to be able to continue to have a bank account, which may not be possible if FATCA really is implemented.
To Petros,
You are right. FBAR penalties have no relation to taxes, so they aren't covered by the treaty. FATCA is different because its part of the tax code. On the other hand, I got the distinct impression that Mr. Flaherty thought that the United States or the IRS was treating affected individuals in Canada unfairly. But it's difficult for Canada to have a cut and dried policy toward FATCA because so much of its implementation is still unclear.
To Anonymous Dec 31, 11:01 am:
The taxpayer advocate seemed to think that opting out would be the best choice FOR MY CASE. "Just Me"'s facts may have been different. As I said, I'm a "poster girl" for the new IRS guidelines, i.e. a good story of reasonable cause, no tax ever owed to the US, no US income at all, lots of tax paid in my country of residence. (And my financial records--which the examiner has--indicate probably fairly convincingly that I'm rather unsophisticated when it comes to finances.)
At the time I opted out, neither the advocate nor the examiner knew how the audits were to be handled because nobody had decided how to do it at that time. Later someone told me that the same examiner handling the FBAR was to do the audits.
Sally
I actually sent in an FBAR estimated penalty as part of OVDI with my application as I thought it was required. I'm thinking of opting out when they get to my case, and I'm wondering if the IRS might choose ( maybe out of bureaucratic ineptitude rather than malice) to just hang on to the check rather than bother with trying to ascertain reasonable cause under opt out. That way they get the 'in lieu of' penalty, and they don't have to bother with an audit. Or if they assess a penalty under opt out, the DoJ might not bother to go to court to collect, but might instead just keep the money I sent originally.
ReplyDeleteIn such a case, I suppose I could to the taxpayer advocate or to federal court, but the hassle of going to court for a (relatively) small sum would be a deterrent. And in this case, I would have to initiate a case in court (unlike usual FBAR penalties, where the DoJ would have to initiate a case).
Anyone have any thoughts on whether the IRS might be malicious/bureaucratic enough to just sit on my 'in lieu of' penalty check ? Not refuse to return it -- they really can't do it, but just delay, delay delay.
Anon, Jan 3; 6:08 am.
ReplyDeleteIf you have sent in-lieu penalty, that is fine. I did too. Once your case is settled, you can always apply the excess paid towards next year's taxes - assuming your in- lieu amount is not a big sum. I believe, once the case is settled, IRS will refund the balance anyways. I still have some faith left in our Govt.
Anonymous January 3, 2012 6:08 AM
ReplyDeleteThis is my speculation:
In order to keep the in lieu of penalty, the IRS must somehow assess it. They do this by getting you to agree by signing the 906 closing agreement for the misc penalty in lieu of all the other penalties. If you do not sign it they have no way to assess it. Now how they rule upon opt out is a different matter in itself. Your error was sending the in lieu of penalty to them if your ultimate goal was to opt out. Now you will have to go through song and dance to get the funds back. Again I think the language in the 906 is the mechanism that enables IRS to charge this outlandish penalty. I think I posted way back that in the 2009 program at one point IRS refunded my in lieu of penalty plus paid me interest on it. It was an IRS error and I returned it to my examiner. It was mid six figures. Maybe they make the same mistake with you.
Anon123
AB, thats a great idea, namely suggesting to the IRS that they apply it to next (now this) year's taxes. I'm not sure that it would work, since I've heard that you need to specify each payment you're making to the IRS clearly with its purpose (even down to tax year).
ReplyDeleteAnon123 -- At the time of sending the 'in lieu of' penalty in, I thought that IRS would assess a full penalty for opt out. I have some small accounts, but 10K per account per year would be ridiculously large. From some of the comments, the IRS is not being totally unreasonable on opt out, so I'm definitely considering it now. Maybe the IRS will make the same mistake they did with you and send my payment back :). I don't think the IRS would be actively malicious, but its very easy to see them sitting on the money for years as they work out the formalities of getting it released.
My experience is, that you get your refunds or over payments back, with interest. It takes time with the bureaucratic bungling that can occur. For instance, I am still waiting for my reconciliation refund from signing the 906, and my TAS case officer said to wait until February, and if I haven't gotten it by then, get back in touch. At this point, the interest they will have to pay is better than the banks, so might as well be patient. They are inept at times, but I do think they won't keep your money. They aren't that corrupt yet! I think AB's faith is still well placed.
ReplyDeleteAnon, Jan 3 , 12:28 pm
ReplyDeleteIRS keeps a summary of your balance with them, so any excess that is due to you can be applied to future taxes. You would need to complete your OVDI so that the final amount that you owe can be determined and any excess determined.
If you opt out, in that case I am not sure how the balance you have with IRS will be made available to you. I would still think you should be able to apply for future taxes and once your opt out and examination complete, you can always write them a check.
Is the opt-out route good only for those who never checked the NO box on schedule B? If someone did check the NO box, can the person still hope for a better result after opting out?
ReplyDeleteWould someone be kind enough to provide their opinion?
To Anonymous @ January 5 2012 6:47 PM
ReplyDeleteThe easy answer to your question is no. If you checked the box no, you will not necessarily be worse off with an opt out. But all opt outs should be preceded with consideration of all the facts and circumstances. So there is no easy answer to the question of whether one should opt out.
Jack Townsend
@Anonymous - January 5, 2012 6:47 PM
ReplyDeleteI opted out even though 'no' was checked in Sched B (thanks Turbo Tax!). I view it as largely irrelevant in my situation and in relation to my "reasonable cause" argument. The Box has never been mentioned by my agent too.
My case is still in progress so no idea on how this is working out for me :-).
Did IRS reopened OVDI (New 2012 OVDI) with no deadlines... http://sktaxes.com/?p=579
ReplyDeleteyes they did reopen with no deadlines and a small
ReplyDeleteincrease in penalties. I look like an ass for jumping in early. Should have waited, analyzed my situation better before jumping in.
Don't be down on yourself. It may be favourable to you that you made every effort to be tax compliant as soon as you could. Latest OVDP is creepy in it's "bait and switch" disclaimer. Now this worth a read, scathing review from the IRS's watchdog. http://www.irs.gov/newsroom/article/0,,id=252284,00.html
ReplyDeletePlease advise:
ReplyDeleteIf one is an immigrant and gifts money to her parents living in a foreign country, is it illegal? If parents are paying tax on the gifted money and there was no intention to evade US taxes, should the gifts be any cause of concern inside OVDI or even after an opt-out?
Please help as i am really worried about this.
Thank you and god bless you.
I wanted to have the same strategy. I wired some money under my parents names. But then I thought if IRS challenges me in court if those were real gifts then I would be in trouble, so I went for OVDI and peace of mind.
DeleteI think this is very complex situation that can go both ways...
Anonymous Jan 18, 2012 07:14 AM
DeleteDid you take an attorney's advice. Was this the only reason for you to join OVDI? Did the gifts have any financial connections to you (your name on account, signature authority etc) after they were made? Did you report these gifted accounts in FBAR?
Actually I have received ambiguous advice on this matter. Some people told me no FBAR is needed since my name was not anywhere on the accounts, including FBAR hotline. While other attorneys said that if the money belongs to you and you parents can return you the funds plus additional interest then there is a financial interest in the accounts and FBAR is needed.
DeleteI think if you wire your parents few thousand dollars is ok. But if the amounts gets larger and they are 50% of you cash worth then things may become suspicious.
If an immigrant, who did not past OVDIs and does not join the current OVDI, declares foreign assets on the new form 8938, is he likely to get audited immediately?
ReplyDeleteWhat are the repercussions for all those immigrants who now suddenly come forward with foreign assets on the mandatory form 8938? Are they all going to be audited or probably not because IRS does not have the resources to pursue these millions?
Let the guessing games begin.
DeleteNo one really knows. I would imagine that there could be a quota for foreign related audits and thresholds could be adjusted such some big guys are questioned (and perhaps some random ones). I don't think I can begin to guess the values of said thresholds, quota etc. I understand IRS does a million audits each year - so it is not hard to audit a significant number of foreign account holders. But this was the wisdom back in June 2011 for first time FBAR filers and I haven't heard of any audits for them (atleast not enmasse).
IRS gets its knuckles rapped. Shifting sands still.
ReplyDeletehttp://www.taxpayeradvocate.irs.gov/userfiles/file/2011_ARC_MSP%2012.pdf
Yes, and Jack has blogged on this,
DeleteHere
http://federaltaxcrimes.blogspot.com/2012/01/tax-notes-discusses-dispute-between.html
and Here
http://federaltaxcrimes.blogspot.com/2012/01/national-taxpayer-advocate-report.html
There is a small amount of press around, but not in the Mainstream Media
Here is a good write up on another blog, called
Taxpayer Advocate vs. The IRS – It’s a question of trust
http://bit.ly/y11z7J
I have also commented about the "so called" success of the VDPs here...
http://www.accountingtoday.com/news/Groundhog-Day-IRS-Voluntary-Disclosure-Do-over-61387-1.html#read
Opting out of OVDI seems to be a better deal only for expats who never had any US sourced income. They are the only ones who can show reasonable cause, a necessary condition to have your penalty reduced in an opt-out.
ReplyDeleteBut for immigrants who earned in the US, then transferred their "US earned money" to their native country and are now inside OVDI, opting out would either not prove beneficial or worse, might end up costing them more in penalties than inside OVDI, because what reasonable cause can such people show? Ignorance of the law is unlikely to be accepted as a reasonable cause so whats left; especially if such immigrant checked No on schedule B.
Only those immigrants whose entire offshore activity predates their arrival in the US are the ones likely to benefit from opting out as in the case of ex-pats.
So again, the bottom line is, if US wealth was transferred outside and was not declared on the tax returns and FBARS, forget about opting out. Just pay the penalty and move on with life if you can or kill yourself if you cant.
Would you care to comment, Jack?
Well, not so fast here... You could be right, but…… There may be other considerations that might make an Opt Out a better option. However, I understand your logic is exactly what the IRS wants you to think. Fear, in their world, creates more revenue. Pay us the Big penalty now and move on. That is one option, for sure.
DeleteI will let Jack make comments, if he cares to, but if you look around his blogs in the archives, he has spoken to the "willfulness" issue many times, and there are many nuances that don't make it as black and white, open and shut, as you portray it.
Then, there is the other option, and that is they can just vote with their feet and walk down a jetway silently heading back to their home country and fading away, leaving their greencard or visas in the seat back pocket. It worries me that America, with this jihad may be pushing away many skilled immigrants that we need, out of the country, by conducting it's so called amnesty the way they have.
It is a short sighted policy in search of revenues without any regard to the many unintended consequences and impacts on immigrants. I have no facts to support this, but in my opinion, it is likely that the harm it creates, is greater than the revenue it generates.
I disagree strongly. Yes, immigrants such as the Dahakes and the Ahujas would be best served by not opting out.
DeleteBut for immigrants who don't have badges of willfulness (entities, very large sums, accounts in tax havens), I think opt out should be considered. Especially if only small amounts of tax are due.
Even if reasonable cause would be rejected (and I tend to doubt it would be rejected for ALL years), there is the question of how much a non-willful penalty would be.
In theory, the penalty can be 10K per account per year, but for a number of small accounts, that is clearly ridiculous. I doubt very much the IRS would try and assess that much. Even their own manual says that multiple penalties per form should be assessed only for the most egregious cases. Besides, I'm not sure the language of the statute supports their claim that they can assess multiple penalties per form.
So, 10K per year is what I think. Multiply 10K * number of years. That is likely to be max (assuming no other bad facts). Assume the IRS will apply mitigation guidelines in their manual. With that, the penalty would be smaller than 10K per year. Also, I think if someone were to take it to Appeals, the penalty might be reduced still further. I think 2-5K per year * number of years is more realistic as a bad case (assuming accounts aren't very large). Some people with smaller accounts (< 50K) could even get off with $500 per year. And note that ONLY fbar reportable items can be penalized. Real estate with rent income, physical securities etc. cannot be penalized.
To this sum, add in something for lawyer/CPA fees. Then subtract tax penalty for 5 of the 8 years (since those years will be closed barring fraud or substantial understatement).
Then compare with FBAR penalty in OVDI, then decide whether to go ahead with opt out or not.
There are definitely people who would be better off under opt out:
1) Small accounts < 50K or so
2) Accounts in the 75K - 100K or so range (because the OVDI penalty jumps by 10K on crossing 75K).
3) People with foreign real estate or other non FBAR reportable assets.
Even people with a single large account (the $1M account) may be better off since non willful penalties are capped, but they need to consider the risk of being found willful.
Researcher,
DeleteThanks for making the expanded argument that "Opting Out" is something that should be looked at, as it is not as black and white as Anonymous of Jan 22, 2012 09:53 AM thinks. I can understand his perspective, but there are options for Immigrants between killing themselves and paying OVDI penalty especially if you were just benignly negligent!
His is definitely the perspective I think the IRS wants small fry in the OVDI to think, and act upon. It is simpler for the IRS, and is a guaranteed return for a program they are highly vested in. Going outside via the Opt Out makes more work for them, wastes their limited audit resource and the ROI decreases if they apply the IRM appropriately. In my case, in the OVDP, my examiner just couldn't understand why I wouldn't just send them my $172K check. Her client list consisted of 25 Minnows, and all the others she had processed so far had apparently done just that, or that was what she implied. She really wanted me to just sign that 906 and be done with me.
So, I concur that Minnow immigrants should be looking seriously at the "Opt Out" in the categories that you suggest, but most are fearful, for reasons I can relate to. The risk may seem too high to them, and depending on their visa status they would be worried about jeopardizing something in progress.
I would be watching for the results of Shulman’s decision on the TAS TAD on the 26th. Either way it goes, this issue of VDP fairness has gotten a lot more light, and I have to think the IRS is mindful of that. In a standard audit, unless you were egregiously lying and doing exactly the IRS was targeting in the first place, I can't imagine that IRM discretion would worse than the OVDI "in lieu of" penalty especially if you have assets in your home county, but then, each case is different.
If I were at the stage of trying to decide, I would then pay a good professional a few hours of time to help you assess the risk. That would probably be good money spent.
Actually, I wished there was a way to organize a mass Opt Out of all Expats and Immigrants, and throw the entire program into disarray when they didn't have enough resources to do all the audits required. But that is just my late night fantasies kicking in! :)
One further comment about going to a Professional. Just like when you go to a Financial adviser, you have to weigh their financial advice against what is in their self interest (fees on products recommended) vs what is in your self interest (ROI). There can be conflicts, even if the attorney is not consciously trying to generate fees. A good attorney won't do that, but it is a "Buyer beware world!" Untimately you have to take your own council. If you can't do that them be prepared to pay more than you should have to..
Delete"Actually, I wished there was a way to organize a mass Opt Out of all Expats and Immigrants, and throw the entire program into disarray when they didn't have enough resources to do all the audits required. But that is just my late night fantasies kicking in! :)"
DeleteI totally agree. An ovdi lawyer like Jack could specialize in opt out arguments and pick up these expats, immigrants and for those whom the fact pattern has a good cause for opt out should then litigate. The main reason that minnows do not opt out is because of the uncertainty in the costs involved. At what account size would an opt out and litigate make sense. If the average cost of opt out litigation is about 25K i would presume with an account size of 200k would be a delimiter for considering opt outs.
'At what account size would an opt out and litigate make sense. If the average cost of opt out litigation is about 25K i would presume with an account size of 200k would be a delimiter for considering opt outs.'
DeleteWhy would one assume litigation ? For larger accounts, yes. For smaller accounts with no other badges of fraud, I think little beyond a consultation (if that) would be required. The people on this forum who opted out (or nearly opted out) such as Marvin Moby, Sally seem to have done it on their own.
I think for small accounts 10-40 K or so, and for accounts just > 75K (say 75-100K), opt out is very definitely feasible.
To Researcher Jan 25, 2012 03:21 AM
DeleteKeep in mind that opting out does not move into litigation but rather into an audit. I have no doubt that many of the minnows could go through an audit without having an attorney involved at all and achieve a better result than they could have obtained had they not opted out. And, to be more specific, I think many -- perhaps even most of them -- could achieve as good a result as they could have with attorney representation. They will have to pay attention to the procedures involved in the audit, but by being attentive and responsive to the agent's request, it should run fairly smoothly.
Now, only if you don't get an acceptable result in the audit will litigation loom as a possibility. For most taxpayers, litigation will require an attorney. Actually does not require; individuals can represent themselves in litigation but there are many difficulties in doing so.
Best,
Jack Townsend
Jack
DeleteYes, I am in strong agreement that for minnows legal representation (beyond maybe a consultation) is not essential. Perhaps if the case goes to IRS appeals.
I must commend you on your willingness to take such a position. Very forthright of you.
To
DeleteJack Townsend
According to IRM 4.26.16.4.5.4.1 B
Documents that may be helpful in establishing willfulness include :
B) A copy of the signed income tax returns with Schedule B attached ( Showing whether or not the box pertaining to foreign account is checked or unchecked)
If this is the case everybody who enters OVDP OR OVDI is essentially proved to be wilful. Because IRS has the copy of the 1040s & Sch. B.
Some checked NO on sch B . Some of my friends checked yes on sch B. Some people did not check any thing on sch B.
So how can a person opt-out & get non-wilful penalty at a reduced rate in this scenerios.
To Anonymous Feb 2, 2012 07:04 AM
DeleteThere is not enough anecdotal evidence of what the IRS is doing on these. But I am certain that the sole fact that the Schedule B question was answered no is not going to be sufficient. There must be a host of bad facts in addition. You might take a look at the Williams case which has been blogged here.
And you might pay attention to the ones reporting resolutions outside the OVDI penalty structure where the question was answered no.
This is uniquely a facts and circumstances inquiry. If you are concerned you need to visit with an attorney who can review all of your facts and circumstances and then make an assessment that will be meaningful to you.
Best,
Jack Townsend
I need some advice. I am a US Citizen with signatory authority only over foreign accounts from 2009 onwards. I have been filing my personal FBAR's, but had no idea I had to file for accounts for which I did not have a financial interest.
ReplyDeleteThe amounts in the account are significant, and I wanted to get opinions on whether I should opt out, or join the OVDI which would be ridiculously expensive.
I have been living abroad for several years now and have never had any tax issues.
you will be ok ameding your FBARs.
Delete"AnonymousJan 22, 2012 11:16 AM"
Deletea) Read about the program. understand your risk exposure both criminal and civil. Then
b)get a good lawyer. See what he can say about
your exposure, IRS's ability to argue/prove willfulness and your ability to prove reasonable cause exception.
c) wait for a week and taken an action based on your risk tolerance.
I have read the program. My only issue with the OVDI is that, those accounts are now long closed, and I don't know if I will be able to get access to the statements from those accounts, as I am no longer an employee of that company, and I know these are required as part of the package.
DeleteAnonymous Jan 22, 2012 08:26 PM
Delete"those accounts are now long closed,"
and so, maybe that means your risk is limited. I would take the advice provided to you above.
b)get a good lawyer. See what he can say about
your exposure, IRS's ability to argue/prove willfulness and your ability to prove reasonable cause exception.
I do think you need that front end analysis help from a knowledgeable professional as it will be hard to rely on blogs to assess the decision whether or not to join the OVDI.
Jack maintains a list of attorneys who know the subject well.
--- Opt out results: Data point ---
ReplyDeleteGot what I think is my opt out result.
Key points:
- Situation: Usual story; recent immigrant to US (GC holder), home accounts/affairs overlapped with move to the US. Entered 2009 OVDP; then opted out.
- Problem years: Non-filed FBARs for 2007, 2008. Non-filed 5471 for 2007.
- Schedule B: "No" checked (courtesy of TurboTax... blech!)
- Proposed FBAR penalty: $63K
- Total unreported tax: $14K
- Prof. help: Lawyer for amended returns and initial submission. Subsequent dealings were all solo.
- Reasonable cause: Didn't know; couldn't have known.
Results:
Only accuracy related inc tax penalty was assessed (no FBAR/other penalties). What appears to be the final letter didn't say much other than my opt out was approved by the committee, a normal examination had taken place, and the results were in accompanying Form 4549 (no changes other than accuracy penalty). So it looks like I've just got to return the 4549 with payment. There was no mention other other penalties or or any willfullness determinations.
Of course, my inner Admiral Ackbar ("It's a trap!") suspects that I might get a subsequent letter demanding money for info returns. I'll cross that bridge if/when I get to it.
I hope this information convinces more people to opt out. It's hard to offer specific advice. I believe that the default position for immigrants/expats should be to opt out. I've seen some comments to the effect of "ignorance is no excuse", but I disagree. Ultimately ignorance is the only excuse any of us have, it's valid as reasonable cause, and it's not our fault that we didn't know about an unpublicised and (until recently) unenforced rule.
Things that convinced me to opt out:
- Just Me: Showed that by fighting like a rabid Jackalope it was possible to get a better deal. Inspirational actions on his part, and doubly so for publishing his struggle for the benefit of the rest of us. I think he also gets lots of credit for getting TAS engaged and ultimately the TAD issued.
- The Canadians: I'm convinced this was a game changer. They got the issue the visibility it needed. With that many angry Canadians screaming for blood and the US ambassador to Canada making lots of soothing statements I figured that the IRS will be making every effort to be very lenient.
- My case: I figured that my case was as sympathetic as it gets. If I couldn't opt out then no one would; so I felt compelled to do it for the greater good (not entirely my own preservation, anyway). It wasn't until I sat down to review my 14 page opt-out/reasonable-cause letter (20+ hours to write!) that I realised how good my case was when all the facts were summed up.
- My new situation: By the time my case was assigned for processing I had already moved back to my native country. Easier to put up a fight when you're no longer in the US, and have no need/desire to return to it.
I'll continue to lurk in the forums as I would still like to pitch in if it helps. I'm much more flippant about the process now, but at the time it was the most terrifying and stressful episode of my life and no one should have to deal with it.
BTW: I bear no grudge against the agent I dealt with. He and his supervisor were very professional and helpful. Now the people at the other end of the pyramid are an entirely different story.
Moby
Moby, thanks that was very helpful.
DeleteQuestion -- did you rely on professional help for the opt out/reasonable cause letter ? [ I gather not, from your comment about doing later items 'solo']. I've read comments from certain professionals that they have expertise in opt out situations (obviously, they're trying to drum up business).
If you feel it doesn't compromise your privacy, I had some questions:
1) I was wondering if legal information was required in the letter, or if it was just an articulation of why you thought you had reasonable cause. Also, did you have to/need to explain the Schedule B question at all ?
2) Did they do a full audit on opt out (or maybe it was done before) ? Even if one has no particular audit concerns, LCUs would be expended doing a full audit, and it could take many, many months for closure.
3) Had you transferred any money at all from the US to your older accounts ?
Thanks for any answer
Congratulations Moby. This is a HUGE victory for fairness and justice for Minnows, if you discount all the time and LCUs it took to get the results!
DeleteStill, I am very happy for you, and hope other Minnows in the OVDI will take heart. Opting Out is something that they should seriously consider, and in my opinion, not just rollover and pay exorbitant penalties for minor or benign failures.
Hopefully the TAD and the Report to Congress has brought some awareness into that dense bureaucratic brain that guides the IRS these days. There are better and fairer options to increase compliance that doesn’t just rest on asserting ridiculous penalties, setting aside the argument of whether of not there should be an World Wide Citizenship/US person taxation regime in the first place. It was there before this Commissioner launched his jihad, and it will probably still be there after he leaves, but if we all just meekly accept it, nothing changes...
And that is my activist rant for the day! :)
We have broken out the Champagne for you! Salute and Cheers
@Researcher
DeleteReasonable cause argument: Was done entirely by me, although I used snippets of information I garnered from forums like this. My arguments never touched on technical legal points. I focused on the lack of knowledge of people like me and the factors for that, the progressively eroding legitimacy of the VDP, and the disproportionality of the penalty structure in my case. I did make sure that I referred to sections of the IRM that state the criteria where penalties can or must be waived, and indicated how each of those criteria had been fulfilled.
Sched B: They never asked about it, and I never spoke to it in my letters (including reasonable cause argument). My view is that the Sched B question is both a red herring and boogeyman. Red herring because I believe it to be irrelevent in the overall context of your situation, outweighed by other factors like being a immigrant or expat. Boogeyman because it is seemingly scarier (if "No" was checked) than it is in reality.
I have a theory that if someone in my position were ever dragged into court and the Sched B question was raised as the sole factor for imposition of penalties then the case would be lost by the IRS on the overall weight of evidence, reinforcing that "No" on Sched B is not sufficient to find willfullness (or even non-willfull penalties) and therefore undermining future IRS cases for true Bad Actors that do rely on the Sched B argument. This is pure speculation on my part.
Audit: I did have a "full audit"... kind of. That is, they had everything they needed for the standard examination from the records I provided during pre-opt-out out process. They didn't need any more records and had no further questions, the examination happened completely out of sight from me with no actions required by me. So I just got a letter saying that my examination was done and complete, attached to the 4549.
Moving money to foreign a/cs: Nope.
Moby,
DeleteGood luck and please let us know when you get your 906 and what is on it as that seems to be the point when they tack on the FBAR penalties.
Can you also please clarify at what point you opted out? Did you opt out before the examination was started, or while it was going on?
--Repost as my first attempt didn't get published--
DeleteThe 906 question
It remains to be seen whether I am right on this, but I believe that there is no 906 if you opt out. Here is my basis for saying this:
1) 906 is not a feature of a normal examination (what you get when you opt out). This was reinforced by IRS pub. 3498 which was provided to me as part of the opt out process, and never mentions it.
2) When talking through the opt out process with the agent, there was no mention of 906s. Just the examination resulting from the opt out.
3) All pre-opt-out 4549's ('-A' variants to be precise) were accompanied by 906s where I had the option to sign (I didn't, obviously). This is the only 4549 that didn't have a 906 attached, so I further assumed I won't get one.
4) Look at this section 8.13.1.1.2 of the IRM about when 906s are used. It backs up my thinking. I believe that the OVDP boils down to the IRS making an open offer to people who want a 906; people who "want" (read: feel coerced into) formal closure and are willing (read: feel coerced into) to pay for it at a fixed rate of 20%-of-high-bal. If you opt out then the IRS is no longer offering a 906, and you are saying that you don't want one. In return you aren't required to pay the fixed rate (and don't have the option either) and the IRS is allowed to unilaterally apply whatever penalties it sees fit. I doubt such unilateral penalty assessment is done via a 906.
5) The the end of the standard examination process is, I presume, the time when they assess penalties. I don't think they would bother asking for tax penalties separate from the info return penalties when they should be determined at the same time.
6) The opt out letter I submitted was required to have recommendations specific to the penalties that I thought should apply, and why. I recommended that the accuracy-related penalty be applied, and not any info return penalties. The most recent letter I received indicated my opt out request had been approved by the committee, so I assume that their approval is applied to my recommendations, not just the bare request to opt out.
Another way of putting this, in my view, is that the possible outcomes for me in retrospect were:
1) Staying in the VDP: The presence of an affirmation, the 906, that penalties will not be applied (beyond the cost of buying that affirmation).
2) Opting out of the VDP: The absence of an affirmation that penalties will be applied. But nothing affirmatively saying they won't be.
Confused? Me too!
I suppose this doesn't close off my case and they still have the option of applying penalties (until the statute of limitations is up) but I really don't think they'll bother (I suspect they're sick of dealing with me). Personally, I don't need the certainty that a 906 might provide, and the 906 has so much fine print that the IRS could probably do what they want anyway even after it was executed. I spose I could call my agent to find out the story for sure but, again, I don't need the certainty and I can't be bothered with the hassle and the timezone scheduling issues of a phone call. Of course if I'm wrong on this issue you lot will be the first to know by way of a very grumpy post from yours truly :-).
Moby,
DeleteI think the key is that you got opt-out approval -- and you are right, that only means they have agreed on your recommendation. Otherwise, opt-out really does not need approval at all. This is very well said by IRS and on FAQ
My congratulations!!!
By the way, your case is a good example of opt out as 1. recent immigrants and 2. only three years of non-compliance.
I also should add that you may still receive form 906 as the matter to have a final closure. But you may not get any other penalty (FBAR) because IRS has approved your opt-out recommendation. on penalty.
DeleteForm 906 is needed to finalized this specific issue of offshore accounts, I think.
Moby
DeleteThanks very much for your reply. A couple of (hopefully brief) questions:
-- You mention that your opt out letter was required to have recommendations on the penalty that should be applied. Was this also the letter where you argued for reasonable cause for FBAR penalties, or did you get another chance to make your case ?
[ Also, it was not an issue in your case, since both tax years were open, but in the 2011 OVDI case, I think it would be reasonable for minnows who opt out to say that the accuracy related penalty and extra tax should be applied only to open years (6 at most barring fraud, likely as little as 2 years). The IRS may not accept that, but at least it gives some leeway for negotiation).
2) You mention that an exam was essentially done before opt out. Did that include full US returns as well (not just offshore statements)?
Thanks, again.
@Researcher
DeleteIn answer to your questions.
1) Yes. Recommendations were packaged up with reasonable cause argument in the same letter. The IRS advised me via a form letter what points must be addressed in the letter; e.g. penalty recommendations, reasonable cause, mitigating factors, confirmation of opt-out etc. This was the letter that goes to the committee along with the Agent's recommendation. My reasonable cause argument was a summarised version of my lengthy initial letter requesting opt-out that I had sent in response to the 906 they sent me.
2) It's impossible to know. The inputs to both pre-opt-out and post-opt-out exam were exactly the same; amended tax returns and all supporting financial statements for FBAR a/cs (no additional information was ever requested for either). The outputs from the pre-opt-out exam were 4549-A (no changes from amended returns) and 906 (which I did not sign). The output from the post-opt-out exam was a 4549 (with same numbers as previous 4549-A) which I did sign.
@Anon5%
DeleteIn answer to your clarification question. Sequence went like this (following lengthy delay after initial OVDP submission):
1) IRS requested financial statements for FBAR a/c's
2) I sent in financial statements
3) IRS sent 4549-A plus 906 with 20%-of-high-bal penalty. They requested signing of 906 and payment of all penalties.
4) I sent letter requesting opt-out and making case for reasonable cause. I didn't sign 4549-A or 906 (although I did indicate the 4549-A was acceptable)
5) IRS requested phone call. I had discussion with agent; agent explained opt-out process
6) IRS sent letter outlining requirements for the letter I need to send (recommendations etc) and indicating implications of opt-out
7) I sent letter confirming opt-out, summarising reasonable cause, penalty recommendations etc. Also had to extend statute on tax returns (Form 872?)
8) IRS sent letter confirming opt-out application approved by committee and requesting payment; 4549 attached with accuracy penalty
9) I sent signed 4549 and payment for accuracy related penalty
To Moby:
DeleteI have everything OK except I checked NO on my 2 year returns. Will that create a problem in opt-out. In other 3 years returns I did not check any box. Total years in violation is 5 years.
Moby,
ReplyDeleteThanks for the updating, Is form 4549 only for audit process/change ? Opt out is still a VD process, and I wonder if you still need form 906 to have it closed ?
Anyway, good luck! Certainly you are in much better position for opt out being outside US. Also your non-compliance years are relatively short (only two years 2007, 2008 because you entered 2009 OVDP).
ij,
DeleteIn my case(no opt out) I got the 4549 showing calculations on taxes, interest, 20% accuracy penalties due. I signed and returned to agent. Months later got the 906 including the in lieu of penalty. Signed the 906 and returned with a check and then a few months later got the 906 back signed by the IRS.
Anon123
Anon123,
DeleteThanks for your information. I guess I am just waiting for my 4549 to arrive. And then if 906 really pisses me off (such as penalty on RRSP), then I will go TAS and may even consider opt out. This may give IRS a headache all over again work.
Stay healthy, my friend!
@ij - Re: The 906 question
DeleteIt remains to be seen whether I am right on this, but I believe that there is no 906 if you opt out. Here is my basis for saying this:
1) 906 is not a feature of a normal examination (what you get when you opt out). This was reinforced by IRS pub. 3498 which was provided to me as part of the opt out process, and never mentions it.
2) When talking through the opt out process with the agent, there was no mention of 906s. Just the examination resulting from the opt out.
3) All pre-opt-out 4549's ('-A' variants to be precise) were accompanied by 906s where I had the option to sign (I didn't, obviously). This is the only 4549 that didn't have a 906 attached, so I further assumed I won't get one.
4) Look at this section 8.13.1.1.2 of the IRM about when 906s are used. It backs up my thinking. I believe that the OVDP boils down to the IRS making an open offer to people who want a 906; people who "want" (read: feel coerced into) formal closure and are willing (read: feel coerced into) to pay for it at a fixed rate of 20%-of-high-bal. If you opt out then the IRS is no longer offering a 906, and you are saying that you don't want one. In return you aren't required to pay the fixed rate (and don't have the option either) and the IRS is allowed to unilaterally apply whatever penalties it sees fit. I doubt such unilateral penalty assessment is done via a 906.
5) The the end of the standard examination process is, I presume, the time when they assess penalties. I don't think they would bother asking for tax penalties separate from the info return penalties when they should be determined at the same time.
6) The opt out letter I submitted was required to have recommendations specific to the penalties that I thought should apply, and why. I recommended that the accuracy-related penalty be applied, and not any info return penalties. The most recent letter I received indicated my opt out request had been approved by the committee, so I assume that their approval is applied to my recommendations, not just the bare request to opt out.
Another way of putting this, in my view, is that the possible outcomes for me in retrospect were:
1) Staying in the VDP: The presence of an affirmation, the 906, that penalties will not be applied (beyond the cost of buying that affirmation).
2) Opting out of the VDP: The absence of an affirmation that penalties will be applied. But nothing affirmatively saying they won't be.
Confused? Me too!
I suppose this doesn't close off my case and they still have the option of applying penalties (until the statute of limitations is up) but I really don't think they'll bother (I suspect they're sick of dealing with me). They can pick a fight with me if they so desire. Personally, I don't need the certainty that a 906 might provide, and the 906 has so much fine print that the IRS could probably do what they want anyway even after it was executed. I spose I could call my agent to find out the story for sure but, again, I don't need the certainty and I can't be bothered with the hassle and the timezone scheduling issues of a phone call. Of course if I'm wrong on this issue you lot will be the first to know by way of a very grumpy post from yours truly :-).
Jack may be able to comment on which parts of my 906 speculations are plausible and which parts are pure BS ;-).
Moby,
ReplyDeleteIs there an email/contact you can be reached at or
what would be the best way to contact you?
Can you provide some context?
Deleteto get a first hand info on the nittigritties and nuances of this program and how you navigated the same.
DeleteProb best if you ask questions on the forum. Then everyone gets the benefit of the answers.
ReplyDelete"I would be watching for the results of Shulman’s decision on the TAS TAD on the 26th."
ReplyDeleteAnyone know the results? Where can they be found? Let's hope this man comes to his senses.
So far nothing. I am pretty sure, that when it becomes public Jack will post something about it. Right now I have been watching...
DeleteThe IRS News Room...
http://www.irs.gov/newsroom/index.html
and the Tax Advocacy Blog
http://www.taxpayeradvocate.irs.gov/Blog/#Welcome-to-the-National-Taxpayer-Advocate's-Blog
Interesting read on the TAD issue:
Deletehttp://www.nixonpeabody.com/publications_detail3.asp?ID=4189
This publication seems to say that if you already closed in the previous initiatives and have the right circumstances, well maybe you should file for a FBAR penalty refund. If you are still in the "fertilizer processing plant" then maybe you should not be too quick to sign a 906. Interesting.
I wonder if tax law firms would be willing to take cases for 2009 FBAR recovery claims on a contingency. In other words keep a percent of what is recovered. Wow! That might keep the IRS busy for a while.
Why could they not have had a program where the punishment fit the offense based on the facts and was reasonable to the facts? Oh, thats what they say they had. What a bunch of baloney.
Anon123
Yes I also like the idea of giving a business to Nixon Peabody LLP to recover FBAR penalty on a % basis. By the way, whatever mentioned by Nixin Peabody LLP, is very encouraging & making me very hopeful.
DeleteI strongly urge people to contact their congressional reps. and speak with the person dealing with IRS oversight / taxes. Get the word out that the FBAR was a little known form we did not know about and that the penalties imposed under OVDI are draconian. A little ground work from all of us now will go a long way in addressing the issues / problems we will face 6, 12, 18 months from now when OVDI closing agreements are mailed.
ReplyDeleteOff topic, but more from the Canadians
Delete“Americans got used to the idea that things were always going to get bigger and better and that standards of living would always rise,” says Wright. But so it was, too, with the imperial powers of Britain and France and Spain before them: they all had to learn accept limits eventually.
http://www.thestar.com/news/article/1121755--foreclosures-and-job-loss-why-the-american-dream-is-dying?bn=1
Moby:
ReplyDeleteCan you give us a "table of contents" list of your headnotes? Also, are there specific IRM section you could list for us? Thanks and congrats!
In my view the key IRM sections you need to specifically (and pointedly) address are:
Delete- 4.26.16.4.4 (point 2)
- 4.26.16.4.5.3 (point 4)
As part of (and in addition to) addressing these points, my approach was to focus on:
- Why FBAR requirements were not discoverable by a reasonable and prudent person
- Why penalties are disproportionate given specific facts and circumstance
- Illegitimacy of penalty application given FAQ #35 revocation, and retrospective relief offered to some classes of VDP participant but not others (who are equally unworthy of such penalties). I.e. terms and conditions and penalties were set at start of VDP then unilaterally and retrospectively changed; the rulebook has been thrown out of the window.
Moby
DeleteThanks a lot for all your replies, and best wishes putting all this behind you.
I understand that one can obtain the information in an agent's file during normal audit. Did you ask for that prior to opting out or try for penalty abatement without exiting ? I gather no from your time line description ..
@Anonymous Jan 30, 2012 05:20 AM
DeleteI wasn't aware that this was a possibility, so I didn't. I doubt that I would have done so even if it was a possibility as I doubt there would be anything in the file beyond what I gave them.
And I didn't ask for penalty abatement prior to opting out. I just opted out.
Jack Townsend:
DeleteWhat is penalty abatement prior to opting out? How can it be achieved .
I don't know what that is. I believe there may be some practical penalty abatement by negotiating what gets included in the penalty base, at least in close cases (for example, where the U.S. tax noncompliance was de minimis). But I think the standard IRS line is that the penalty applies, period. If you want a lesser penalty (might be called abatement), you must opt out.
DeleteHaving said that, I am not sure that Just Me opted out. He tried many lines of attack, including the Taxpayer Advocate, and got relief. But I am not sure that occurred in an opt out. Perhaps Just Me can speak to that.
Jack Townsend
Jack is right. Technically, mine was not an Opt Out. The penalty abatement was related to FAQ35 consideration in the 2009 OVDP. If I had not decided to cut bait and settled at that point, I could have still Opted Out.
DeleteAt that time, visibility related to the Opt Out was very opaque, and I wasn't sure I wanted to be the guinea pig for that unknown process as the threats by the IRS for maximum penalties were still being thrown around.
That said, I did feel my TAS relief did represent some indication of the penalty abatement that might happen in an Opt Out. It should provide hope for those inside the OVDI that feel the penalty structure is too severe for their so called crimes.
Since then, we have the reports of Sally and Moby here that show excellent results, leaving aside the entire question of why they had to go through all that agony in the first place.
Theirs were probably a more sympathetic case than mine, but I have to believe given the TAD and the TAS report to Congress, that the IRS will be bending over now to be more reasonable and fair with the discretion allowed in the Opt Out. I would be much less fearful of doing that now. If you are not a Whale, you should be seriously considering Opting Out, in my opinion.
To Anonymous Jan 27, 2012 10:04 PM
ReplyDeleteIf I could insert a comment here too please, before Moby answers your specific questions about his head notes.
As a resource for Minnows, I am starting to blog my experiences and my very meager, non specific advice. It is going to take me a while, but I might begin posting some of the letters I wrote to Commissioner Shulman along with those I wrote my examiner through out the total OVDP process. A lot of what I will blog be repeats of things I have said in posts here at Jack Townsends blog over the past 9 months. Just more consolidated in one spot.
As you have discovered, you are on the BEST blog, bar none, for learning about the OVDIs and figuring out what course of action is best of you. I have posted my first, called “OVDI Drudgery for Minnows” which will bring you right back here for your personal reading list!
http://isaacbrocksociety.com/2012/01/28/the-ovdi-drudgery-for-minnows/
If you read it, there is nothing earth shattering there. I basically encourage you to do your personal drudgery, and you will notice that I give chronological reference as to which of Jacks blogs I would be reading as you work your way through the information gathering phase....
Everyone wants quick answers and direction, and I understand that entirely. Me too! But….sometimes you have to just work your way through the information already available, and you will find your question has already been answered previously. Just like your question of specific IRM section you want. It has been referenced in other threads multiple times, and here it is again:
http://www.irs.gov/irm/part4/irm_04-026-016.html
So I would encourage you to back up a bit, and read the many good things Jack has said and information that has been shared. Take your time, as I don't think you need to be in a rush, now that the OVDI decision is not deadline driven, and if you are in the OVDI already, the process will grind away slowly and you can delay it even more with written correspondence while you are figuring out what you want to do. As Moby has shown, and kudos to him for sharing it with us all, the Opt Out is a viable solution to consider, to mitigate the penalties that were designed for Whales.
Good luck to you Mate. You are fortunate to be reading Jack's blogs. I shutter to think, how many went through the OVDP, without knowing this resource was here.
According to IRM 4.26.16.4.5.4.1 B
DeleteDocuments that may be helpful in establishing willfulness include:
B: A copy of the signed income tax return with Schedule B attached ( Showing whether or not the box pertaining to foreign account is checked or unchecked )
If this is the case, everybody who enters OVDP OR OVDI, is essentially proved to be willful. Because IRS has the copy of the 1040 & Schedule B.
So how can a person opt-out & get non-wilful penalty at a reduced amount ?
I don't believe this is the case. "...may be helpful..." does not equate to "any one thing is sufficient"
DeleteIn addition IRM 4.26.16.4.5.3 (point 6): "The mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, by itself, to establish that the FBAR violation was attributable to willful blindness."
This corresponds with my case where the facts and circumstances outweighed the Sched B issue, as it would in (I believe) for most immigrants/expats.
@ Anonymous Feb 1, 2012 05:24 PM...
DeleteI surmise from your questions that you have not been reading this blog extensively. A check mark on Schd B does not by its self establish willfulness, in spite of what that IRM guideline says. It can be a factor, but not a sole element. There are a lot of other factors that come into play.
Maybe this discussion will help you,...
Title of article is.... Proving Willfulness in FBAR Reporting – Checking “No” Ain’t Apropos
http://www.roginlaw.com/survey.asp
Also Jack has also discussed willfulness extensively here, (ll blogs related to the subject) and you can do a search through his archives for more information or follow this link....
http://federaltaxcrimes.blogspot.co.nz/search/label/Willfulness
Additionally, did you read Moby's story carefully about his Opt Out dated Jan 24, 2012 10:10 PM?
Just scroll up and read the entire thing, and do NOT skim.. :) His schd B was checked NO, and he rightfully opted out rather than be saddled with the extreme OVDP penalty. Take note and take hope! :)
Hello Just Me:
DeleteUsually, there is only a window of 20 days after receipt of 906. Did you contact TAS in this 20 days period OR you were pre-prepared .
@AnonymousFeb 3, 2012 11:57 AM
DeleteThrough out my OVDP, I actually received four separate 906s. Each I refused to sign, and followed up with letters with objections or problems that required the examiner to respond and issue new 906s.
I finally contacted the TAS when I was down to about 10 days left to decide to Pay up, Opt Out or get kicked out. That decision was due to a separate letter that I got from the IRS demanding that I decide, and not as a result of any 20 day window on the 906.
I have posted most of my interaction with the TAS here...
Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)
http://federaltaxcrimes.blogspot.co.nz/2011/08/taxpayer-advocate-service-to-smooth.html
and I commented extensively here to other questions related to my experience.
Experiences Inside OVDP / OVDI (9/14/11)
http://federaltaxcrimes.blogspot.co.nz/2011/09/experiences-inside-ovdp-ovdi-91411.html
Hope this helps
Hi Moby,
ReplyDeleteCongratulations for seeing light at the end of the OVDI tunnel.
Would you be kind enough to answer my qs: did IRS ever ask you to prove the source of all your funds after you opted out? Or you did not give them a chance to ask by providing them the source of all your finds and they were satisfied with it?
Basically I would like to know if it is a prerequisite to be able to prove the source of all funds when you opt out and if there is some money whose source you can't prove, then is IRS going to force the person to pay income tax and penalties on that money?
Thank you and wish you all the best.
I'm not sure what you mean by "prove source of funds". I just gave them my financial statements (pre-opt-out) and that seemed sufficient for all pre-opt-out and post-opt-out examination. I think the source of all funds would have seemed self-evident for the years the records covered.
DeleteI think it would have been an exercise in futility for them to ask me to prove source of funds for all the prior decades over which the funds were accumulated prior to moving to the US.
Moby (and others) thank you for sharing your successful opt out. It gives me and others the confidence that with hard work and persistence successful opt-out is possible.
ReplyDeleteIt's a bit like beating the 5-minute mile record, it used to be common belief that it was humanly impossible to do, but once one person beat the record others quickly followed because they had the confidence knowing it could be done.
One question, although you had left the US at the time of opt out, were you still a US person (green card or citizenship) or had you renounced?
I think your result (20% of unpaid taxes as penalty) shows what would be a fair penalty for everyone which would deal with gradations of conduct. Someone who neglected to report minimal interest on an offshore account would pay a much smaller penalty than someone who had wired untaxed income to that account, even though the high balance of the accounts might be the same.
The IRS COULD change OVDI to base the FBAR penalty as a percentage of unreported income, (and have few opt outs since this would be a fair system) OR it could keep trying to assess a penalty based on high balance, and have a lot of opt-outs with results similar to Moby's, at the cost of many man-hours.
Dear Jack and all the others posting their experiences and insights, Thank you very much! I have learnt a lot from this and continue to obtain more perspective as my wife and I continue to consider our options:
Delete(1) 2012 OVDI
(2) Quiet Disclosure (QD)
(3) Keep it clean from now and forget about the past and raise 'reasonable cause' if and when audited
Our case is as follows:
Situation: We became 'US persons' in 2009 after my wife moved to an H1-B visa type thereby passing the substantial presence test (We came in as F-1 students, I'm still on an F-1 and would be a non-resident alien if I filed separately).
Problem years: 2009,2010
Tax Obligation missed: ~3K for both years combined
Tax paid on US income: ~40K for both years combined
Schedule B: Never filed before (as US interest income was insignificant)
Reason for failure: Did not know FBAR requirements or tax obligations until recently..
So my request is, just like this blog about OVDI, could you start a post about what really is happening with QDs?
Thanks,
HB
I had already renounced by the time of opt-out. My GC (like my stay in the US) was only temporarily necessary and I ditched it shortly after I left the US.
DeleteHB....
DeleteThe option 3 looks very inviting to me, based upon my past experiences. See Jack's comments above.
As far as a thread just for QDs go, the likely hood of there being much feedback from such a scattered Diaspora of GC holders or Expats abroad that would provide anecdotal information would be rare, I think. What could they report? Not audited yet?
The IRS is so busy with the extra burdens they have created for themselves with how ineptly they have conducted the OVDP/OVDI, I am beginning to think, that being clean from this point forward, like you described, seems a very good option. I can not advise you to do so, but I would consider it carefully.
The IRS has created such bureaucratic and administrative nightmare for themselves, and doesn't have time or resources to look for minor failures such as yours, it seems to me. Remember, they started all of this looking for UBS Whales. They don't want your QD, as they have plainly told us with all their threats. They don't have an easy method to process you if you go the OVDI route, and will put you through processing hell before you can Opt Out.
The "go and sin no more" option 3 is certainly an attractive one to consider. This is yet another unintended consequence of bureaucratic bungling. I have to agree with Anon123’s "Wow!" above. You just shake your head in wonder.
I will create a blog so that trails can be created for experiences of quiet disclosures. I would suggest that, given the lag time for audits to be generated, I would suspect that it will be some time before the anecdotal experiences will be sufficient in number to permit broader conclusions. And, keep in mind, that even if the QDs are picked up for audit, the audit timeline will be signficant. So for a good database of information as to what happens on QDs after the special voluntary disclosure initiatives will take years.
DeleteJack Townsend
Just Me and Jack,
DeleteThanks a lot for your responses.. There are only a couple of considerations, it seems, that favour a QD over option (3)
(i) IRM 4.26.16.4.4-2 here: http://www.irs.gov/irm/part4/irm_04-026-016.html
Which states:-
"The penalty should not be imposed if:
A. The violation was due to reasonable cause, and
B. The balance in the account was properly reported on an FBAR. This means that the examiner must receive the delinquent FBARs from the nonfiler in order to avoid application of the non-willfulness penalty."
This seems to say that not filing delinquent FBARs would eliminate waiver of non-willfulness penalty (which in itself would be hugely disproportionate to our tax owed since we have multiple accounts though only one has a high balance)
Am I reading it wrong?
(ii) The guidelines recently published by the IRS on their website for expat: http://www.irs.gov/newsroom/article/0,,id=250788,00.html
This seems to suggest that filing delinquent FBARs when the tax obligiation is 'de minimus' (whatever that might mean) is encouraged...
Any thoughts would be greatly appreciated..
Thanks,
HB
I had a FBAR violation for 2005. I transferred a little over $100K to purchase a house, and it was in my account overseas for 1 day before being passed on to the seller. I did not even file taxes that year because I made under $400 in income. I am not going for OVDI, but I want to know if the statute of limitations is up for that year (2005). Does that put me in the "clear", so to speak?
ReplyDeleteNo, you have to wait till July 1st of this year, then you're home clear of FBAR civil penalties. In any case, based on what you've mentioned, I think the probability is miniscule that you would get anything other than a warning letter.
DeleteMoby,
ReplyDeleteCould you discuss your thought process/motivation for opting out without a lawyer (if I recall correctly you used a lawyer for the initial steps of the disclosure.)
Just wondering because I have a lawyer but if all he can help me with is pay the max 27.5% then what do I need him for? Maybe your experience can help me decide. Thanks!
I've alluded to these points in earlier comments, but I'll cover them again and elaborate.
DeleteI developed deep cynicism towards tax lawyers during the process, influenced by my own direct experience and to a lesser extent the stories of others. I don't think I or many other participants were served well by the people we paid to advise us.
In particular:
- I think people like me were corralled into the VDP by lawyers deliberately overstating risks and ignoring our specific facts/circumstances. I think the motivation to earn fees was a significant part of this.
- I think that lawyers pretended to know more about the VDP, what options there were, and how it would work, than they actually did. But they weren't upfront about it.
- I think that advice given by lawyers (usually to enter the VDP) was heavily influenced by covering their own butts; with respect to circular 230 and potential implications of not advising clients to enter the VDP.
I have some sympathy for the legal community given how poorly and opaquely the VDP was run by the IRS, but there was still a lot of deceit involved by not being more upfront about what they knew and their own conflicts of interest.
I wasn't prepared to trust someone like this in managing an opt-out on my behalf. If those arguments were in favour of not having a lawyer do it, the reasons for myself doing it were:
1) English is my first language
2) I'm comfortable writing technical documents and arguing out issues
3) I had quite a lot of knowledge I had picked up during the process (IRM, reasonable cause arguments etc) that I felt comfortable with proceeding myself
4) It had become apparent to me that the opt-out was a negotiation more than anything else. I'm a believer that negotiations are best done by the people with the most skin in the game (not by a third party); which means me.
BTW: I'm sure there are people who had far more positive experiences than me with tax lawyers, and that they are not all bad. But I've since realized that if I'm not knowledgeable enough to tackle a complex situation myself, I'm not knowledgeable enough to pick the right advisor to assist me with that same complex situation.
Moby,
DeleteI could not agree with you more. As a long term overseas resident with no family or personal ties to the US, I had no knowledge of how the “professionals” operate. I feel this has led me to be taken advantage of and has put me in the unpleasant situation that my attorney’s costs alone are now greater than my potential 5% penalty. The accountant’s costs are roughly half of the attorney’s costs.
While, thanks to the lawyer involvement, I have not experienced the angst that many people in OVDI have had with respect to the correctness of the submissions, or the accuracy of my returns, the overall cost thus far is 80% more than originally quoted and I do not have an examiner assigned yet. I am trying to stem the bleeding of money, but more expenses are inevitable. It is very hard to extricate yourself from the claws of a vulture.
I would like to pass on some of what I have learned so that those contemplating OVDP can learn from my experiences if they decide to use an attorney. I will post my experiences in a follow-up comment to this one as character limits prevent me from posting them as part of this comment.
To Moby and others – continuing with my experience with OVD lawyers and view on what to be aware of:
Delete1) I was buffaloed in the direction of OVDI when an accountant I contacted in the States refused to speak with me unless I got legal counsel. He asked me one question, which was “Do you have any mutual funds?” When I said yes, the conversation went cold. I now think he feared more for himself than for my interests. He then recommended a lawyer who told me that there was no negotiation and my only recourse was Voluntary Disclosure. We had about a 10 minute discussion and being naïve and out of touch with what was going on with respect to FBAR enforcement, I thought it was best to follow the attorney’s instructions if I wanted to correct the error that had been made. I was quoted a price that was outrageous, but I knew that Americans were very litigious and I wanted to do the right thing to correct any error I had made so without knowing if I owed tax or not and without much thought, agreed to enter VD. I was also told that any money not used by the lawyer would be refunded. Ha!
So what have I learned from this:
a) If you contact an attorney or an accountant for an analysis of your situation, even if it means paying, their consultation with you should go into your individual details and present more than one option. There are more options which one can decide upon based on their own unique facts and risk tolerance. This probably takes a few hours. 10 minutes is not sufficient.
b) If you feel at all scared by the way the attorney advises you of your options, run for the hills. The decision is about the best option for your facts and emotion should not enter into it.
c) Ask if accountant fees are included in any retainer you pay. I had the impression they were included in mine, as my lawyer told me he would retain an accountant for me and the amount of retainer I paid would normally cover all costs. Surprise! The accountant’s fees were not included.
d) Take any amount an attorney tells you and double it and perhaps you might have a good estimate of what your legal fees will be.
2) One of the reasons my legal expenses have gone up so high is because the attorney I use gives work to his associate lawyers that could just as well be done by an accountant. While the associate fees are lower than the Partner’s fee, my overall costs could have been lower if some of this work had been performed by accountants. Lawyers tend to give work to associates in order to increase billable hours. As a matter of fact, it took several months before my attorney brought in an accountant so any accounting questions had to be asked to the associate. Whoosh! My costs went up. So my advice here is to check the lawyer’s approach and see how much accounting work is done in house by associates. This could involve things like filling out your FBARs for you, or even just checking them. If you hear that an associate lawyer will be involved, ask questions. Maybe try another lawyer who states they will give most of their work directly to the accountants at far less billable rates.
3) If you have time, a straightforward case and a cool head, consider managing the process yourself and bringing in legal counsel (it will cost) at key decision points if you feel uncertain, or are getting resistance from your examiner. Just Me has posted a long blog on the Isaac Brock Society about his experience and you can get a feel for when he felt it was necessary to call in expert counsel.
I hope that this little bit of experience will help others to not be so naïve as I was.
Moby
Delete'It had become apparent to me that the opt-out was a negotiation more than anything else. I'm a believer that negotiations are best done by the people with the most skin in the game (not by a third party); which means me'
I agree completely -- I'm considering opt out too (facts similar to yours, but more years involved), and I think the entire opt out process is likely to be just a negotiation. The process document mentions (and you confirmed) that you are required to submit a letter indicating the penalties that one believes would apply.
Presumably, this letter should be seen as the first step in a negotiation, i.e. the penalties one submits might be less than one is willing to accept, so that in the process of negotiation they could be driven up.
1) Now, about FBAR penalties, I think for most minnows, a warning letter would be appropriate minus other bad facts.
2) About taxes, it seems to me to be totally fair that the IRS should be paid the tax due on all years that were open at the time the person joined OVDI. For OVDI, that is 5-6 years. The government has asked for an extension for previous closed years as well (but as Jack has indicated before, barring fraud, that is not valid legally for any year that was not otherwise open at the time the IRS counter-signed the extension form). In fact, barring substantial understatement (unlikely for many people with small accounts), it may be the case that only 2-3 years are open, and the others are closed too because there is no 25% understatement or > 5K understatement (some rules were revised retroactively. Then there is the accuracy related penalty.
So, the most aggressive negotiation step (assuming good facts) would be to propose paying
1) NO FBAR penalties.
2) All taxes for open years
3) Accuracy related or failure to file penalty for some subset of the open years.
4) Interest on 2 and 3.
My opinion is that (assuming reasonably good facts), the IRS will generally settle for no or nominal penalties for FBARs, but will ask for taxes on all years covered by the OVDI, even those otherwise closed, and may waive the accuracy related or failure to file penalties for a few of those years, and will ask for interest on taxes due and penalties.
I'd be interested in hearing comments from people on these thoughts
yes. most of the lawyers are vultures trying to bleed you.My lawyer has already charged me four times the initial quote he gave me and i have not even been assigned an examiner. All this for funds that were not even earned in the US.
DeleteTo add to my previous comments, I'm assuming that a person who opts out has made a full, complete disclosure and has no fears (other than the hassle) of a full audit, and has no badges of wilfulness (entities, untaxed US source income etc.)I'm also assuming no other information return penalties. Even such people might get a better result under opt out, but in that case the negotiation would have to start differently.
DeleteI'm also assuming the IRS will be reasonable on opt out, i.e. not try and assert willful penalties merely to intimidate people into accepting a settlement even in cases where they (the IRS) think that prevailing in court is not likely. I find the whole fracas over Wegelin somewhat hopeful for minnows, believe it or not. Hopefully, the fact that they might get more whales to process will make the IRS focus more on these people rather than wasting time on minnows.
Amidst some of the negative comments about lawyers, one must commend very highly the lawyers such as Jack, Hodgen and others, who have offered reasonable, realistic advice to people about entering the OVD programs and even provided a lot of freebie information on their forums.
DeleteTo all of you struggling with your attorney fees. It is very good that you are sharing your experiences here. I hope new folks still trying to work out what to do, take head. Professional advice can be important, but most Minnows can go through the process with some personal due diligence drudgery without paying an attorney to do the entire process for you.
DeleteI have mentioned above that I have written about OVDI drudgery for Minnows at Isaac Brock. The key point is this...
If you are not willing to do this drudgery than be prepared to pay out BIG $. If you have more money than time, you may be tempted to do that, however you can still incur significant and unnecessary risks in spite of the money spent. By definition those reading here are probably Minnows, and likely not anxious to spend the bucks. You may be a DIY person. I was. You can go through the entire process without giving power of attorney (POA) to anyone. You can learn to trust your own council, if you do what I suggest. Just remember, if you put your OVDI life in a tax practitioner’s hands, how do you judge the quality of the advice you are given? Think about that! If you don’t have a strong knowledge foundation to measure advice against, you are setting yourself up to be fish fertilizer. So, do the drudgery now and become Fool Proof later!
To Opter-Out,
DeleteMy analysis is similar. One comment, though – Inside OVDI, it is like the Wild West. Lawlessness prevails. Once you opt out you are outside of OVDI and you can benefit from the protection offered in the Internal Revenue Code. So why bring years that are not otherwise open into the negotiation unless you gain clear financial advantage from doing so?
Anon 5%.
DeleteYou make an excellent point. Should one bring otherwise closed years into the negotiation ? If it was only a tax matter, I would not do so, and I would see no reason for others to do so either.
But there is the FBAR penalty, even the non willful penalty can be harsh. The hope/belief is that by agreeing to pay taxes even for years that are not otherwise open, one can demonstrate good faith to the IRS and can feed them old taxes, that could keep them happy and avoid the uncertainty (for both parties) of a protracted fight over FBAR penalties, which I think neither would particularly welcome.
I admit the benefit from suggesting paying taxes for non open years is somewhat intangible. Perhaps if someone has a better story than mine, they could suggest just paying taxes for open years, and no penalties, either tax or FBAR.
i totally agree about lawyers like Jack. They are the rare exception. Jack especially has been very generous with his time and excellent analysis on the cases posted in his web site.
DeleteI salute him and wish there were atleast a few other lawyers like him. Maybe i have not searched enough.
To Jack (or other lawyers),
ReplyDeleteAt what point do you think it makes sense to speak with a lawyer to get advice on whether or not to opt out? I have a lawyer but would like to pay for one two or more hours to get a second (or third) opinion from someone else.
To Anonymous Feb 2, 2012 12:17 PM
DeleteI think the point to do that is the last possible time. Before signing the 906 or any other closing document, you should then consult first with your current lawyer and, only then if you feel it necessary to talk with one or more other lawyers, should you do that.
Be sure and keep your eye on http://federaltaxcrimes.blogspot.com/2011/12/opting-out-of-ovdi-and-ovdp-what-is.html to see what anecdotal experiences are being reported by the persons who opt out or practitioners whose clients opt out.
Best,
Jack
and then, take your own council. If you have been reading here enough, and review the many experiences that have been shared, you should have enough knowledge to trust your judgement at some stage.
DeleteJack is right, in saying that the point is the last possible time. Then ultimately it is your decision, and remember...attorneys can be wrong. Although, I would trust the opinion and highly value any guidance you get from someone like Jack.
Jack,
DeleteI have heard that one has only 20 days to decide whether to sign the 906 or opt-out or be kicked out. Is it possible to consult a lawyer in such short time and take a decision?
What advance preparations should one do in order to successfully execute this plan?
Thank you.
What happens if someone involves TAS in these 20 days ? Will IRS be prevented from taking the action of throwing a taxpayer out of OVDI ?
Delete@AnonymousFeb 3, 2012 10:19 AM
DeleteThey won't automatically throw you out if you don't sign the 906.
They have to send you a separate letter outlining your options. If you are considering Opting out, instead of paying up, you can just write them a letter stating your consideration. That should cause them to generate a letter, that then gives you 20 days to decide to pay up, Opt out of get kicked out.
Or you can just wait, as that might slow the process a bit. If you are unresponsive, then they again have to send you a letter. However, I don't recommend this approach, but it is a way to slow things up a bit.
I think it is better to be forth right with your examiner if you are considering Opting Out, as they need to be onside with you for a successful Opt Out. If you are nice, they might also give you a little more time while you mull it over. I found my examiner was pretty flexible with timelines as long as I was engaged with her, and not just stonewalling.
The entire process is documented here with the types of letters and time frames you should expect.
http://www.irs.gov/pub/newsroom/2011_ovdi_opt_out_and_removal_guide_and_memo_june_1_2011.pdf
I am not sure that TAS would take your case now with the Opt Out guidelines available. I can't speak for them, but they may think you have an avenue for relief now. It all depends on what your situation is and the facts that make TAS intervention necessary prior to an Opt Out.
You will just have to contact them and see. I would recommend contacting the DC office as they are more familiar with the OVDI, then some of the regional offices will be.
However, for the sake of argument, let's say they do take your case for whatever reason, and if you are under a 20 day IRS timeline, they can usually get a 30 day extension. That is what they did in my case, and that was enough time to come to a resolution.
To your first question about advance preparations, well, hopefully you have been saving and documenting all your facts and correspondence with the IRS. Also an attorney would want to see your original letter to IRS CI when you joined the program.
And, yes, I think you will have enough time to work through a decision with an attorney, if needed, as to whether or not an Opt Out will work for you.
Hi All,
Just re-posting a version of my previous comment/question about Quiet Disclosure versus 'forgetting past and sinning no more (and raising reasonable cause if and when examined/audited)'.. There are only a couple of considerations, it seems, that favour a QD over the latter option for people like me whose tax obligation is small (ours is about USD 3K for 2 problem years combined and we *have paid* about USD 40K on US income.. wonder if that's small, we are temp visa holders)
(i) IRM 4.26.16.4.4-2 here: http://www.irs.gov/irm/part4/irm_04-026-016.html
Which states:-
&quo