Friday, March 2, 2012

"Opting Out" #2 (3/2/12)

I posted an earlier blog, "Opting Out" of OVDI and OVDP; What is Really Happening? (12/12/11), here.  Apparently the number of comments is causing  browser and easy access issues for some readers.  A reader suggested that I start a new blog on the same subject, so that readers can more easily follow the current discussions.  Accordingly, I created a new blog (this one) to offer a more accessible place for further comments.  This phenomenon has resulted in a series, identified here:


  1. "Opting Out" #1 (3/2/12), here
  2. "Opting Out" #3 (4/4/12), here.


NOTE: PLEASE POST COMMENTS ON THIS TOPIC TO THE NEWEST BLOG ENTRY IN THE "OPTING OUT" SERIES.  

IMPORTANT ADDENDUM ON 3/10/12

A reader has posted opt-out documents here;  I think the author -- with the pseudonym of Moby -- has done a particularly good job with his opt out request.  Accordingly, I have bookmarked it for easier navigation and post it here.  I encourage readers who are considering opting out or are in the process of making submissions in support of lesser penalties in audits (whether on opt out or otherwise) to look at this document.  (Note that the bookmarks are in the pdf file which can be viewed by downloading the pdf document.)

269 comments:

  1. Jack, many thanks..

    Opt-out or Quiet Disclosure (QD) will face uncertainty -- this is for sure. But if there are no other bad facts and taxpayers can withstand a full scale audit (OVDI examining process is not much less than an audit in my view), then there is a certainty on opt-out and QD

    This certainty is you won't lose more than 50% of your high balance of total offshore financial assets.

    Even by law, IRS can impose on each account/each year -- but that has not been in practice even in the criminal prosecution on offshore tax evasion case. So far, the worst penalty is 50% willful in criminal prosecution plea deal.

    Remember we are also protected by 8th Amendment (see http://en.wikipedia.org/wiki/Eighth_Amendment_to_the_United_States_Constitution) that we shall not be subject excessive punishment.

    Folks, if you have very little tax implication and if your offshore financial accounts were not for cheating tax (you may have missed to pay but that is not the same as those with huge tax incentive to avoid), I don't think any court will impose excessive penalty on FBAR violation.

    Don't forget, you have come forward to make it clean -- this is in good faith already.

    I would like to call all minnows in OVDI to consider opt-out if you can take this very unlikely up-limit penalty.

    ReplyDelete
    Replies
    1. 50% penalty itself is a big thing.How can minnows withstand another loss of hard earned money. plus the time it will take, tension & anxiety thruout the process will take a toll on the life.

      Delete
    2. Additional 25% will take away another $ 70,000.00. I don't think I can take the risk of another $ 70,000.00 loss. It is a blood earned money.

      Delete
  2. 'If there are no other bad facts.."
    Question is how to decide what are no other bad facts. What we think may not be the same thinking of IRS. Unless IRS comes up with transparent guidelines, IRS can come up with more penalty to cover the cost of the audit. & then the litigation & more uncertainity !! I don't think that will be any EZ.

    ReplyDelete
    Replies
    1. To "AnonymousMar 2, 2012 12:02 PM"

      One simple bad fact is that if you keep your money offshore is to cheat IRS on tax.

      1. entity used to cover up
      2. tax free country
      3. a lot earning
      4. your tax rate will be higher if include this income.


      To other two posts who are afraid losing another 25% blood earn money --

      I was just talking about certainty out of uncertainty. 50% is the limit. Don't be fooled/scared by multiple accounts/multiple years.

      For those whose total high balance is just above 75K, opt-out is a good choice. You may be able to push it back to 12.5% penalty. Remember, what Moby said "IRS wants to settle with you just as much as you want to settle".

      Delete
    2. Everyone's case is a little different, so I don't think you're going to see a list of absolute rules the IRS will follow. In fact, that was part of the criticism against OVDI/OVDP -- inflexible rules, so you lose 10K more if your maximum balance is just > 75K. You do have some general guidelines from their comments on what might constitute reasonable cause.

      And I agree with ij, 50% is very unlikely for a minnow without bad facts.

      Assuming someone has done a full, complete disclosure and has small accounts and a reasonably good case, I think a reduced penalty is very much on the cards. But yes, there is some risk. if someone is totally risk averse, or just wants to get it over with, then opting out is not for that person.

      Delete
  3. Just for a fun exercise...

    Here is a simple mathematical model on uncertainty of FBAR penalty outside OVDI.

    Let's assume this unknown FBAR penalty as a random number between 0% and 50%

    Mathematically, the expectation of FBAR penalty is also 25% based on following assumption

    1. Penalty ranges from 0% to 50%
    2. It is evenly distributed (or its distribution is symmetrical)

    I guess IRS uses this simple model to come up this 25% penalty for all (whales and big cheats who should be at 50% -- and for minnows who should be far much less than 25%)..

    Overall, there is no bigger risk of higher FBAR penalty for minnows.

    ReplyDelete
  4. IRS should not rob minnows like this. This is immoral , unfair. Taking innocent people,s money is not the USA I knew.

    ReplyDelete
    Replies
    1. "IRS should not rob minnows like this",

      It is called "volunteer program" that takes your 25% of total "offshore" wealth when you sign 906.

      IRS does give you an option to opt-out -- so this is not really a robbery in that sense.

      Are you willing to give up your 25% blood earn money to IRS if you believe in your heart you did nothing worse than Tim Geithner who called the tax issues "careless", "avoidable" and "unintentional" errors and paid zero penalty.

      Delete
  5. Tim Geithner, our IRS commissioner's boss, made an honest mistake that he did not pay federal tax of $43,000 for years from 2001 to 2004. IRS discovered his mistake through an audit. Mr. Geithner paid back all the tax plus interests but no penalty.

    Mr. Geithner blamed on the tax software that he used


    IJ found out that he missed $2800 tax for tax year from 2003 to 2010 (the real tax would be much less if foreign tax credit were used). He voluntary reported his mistake to IRS and is willing to pay all the tax due, plus interests and another 20% accuracy penalty.

    Now because of this hidden FBAR -- he is also facing another $30,000 in lieu of penalty.

    While Mr. Geithner did not have an FBAR issue and he got a free pass but his argument of "unintentional" and "software problem" should be applied to IJ as a reasonable cause which FBAR penalty can be abated.

    ReplyDelete
    Replies
    1. Could this be a good "reasonable cause"
      "If the treasury secretary can inadvertently and unintentionally miss paying 43000 in taxes"
      an immigrant like me not filing the FBAR should
      be be given strong reasonable cause consideration and not be deemed willful.

      Delete
    2. "http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMKmMAg1925I&pos=5"

      ij,
      you may want to read the above news. In this case Robert Moran a yatch company owner owed
      less than 26k in taxes from 01 to 07. He agreed to pay about 1.8m in FBAR penalties. Still he was sent to jail. From what i gathered he has paid millions in taxes to the US as part of
      his regular income/business.

      The will definitely be different set of rules for different set of peoples and in the above a yatch company owner who is already paying
      a huge amount of taxes would in my opinion not
      hide money offshore to save $4k in taxes each year. For all that it may be a round off error
      in his yearly taxes. However, unfortunately he was not gaithner but sold nice yatches to people outside and possibly employed people in the US.

      Delete
  6. Just to enter the fray here, I want to encourage those that are fearful of the Opt Out to do a little more self education drudgery about their situation and what their risks are.

    I do think that ij is talking some sense here related to Opt Out possibilities and penalties that the IRS may or may not assert outside the OVDI. This all depends on your facts, of course, and only you know the truth of where you fit on the Whale to Minnow spectrum.

    If you are guilty as charged, and feel that 27.5% penalty of your off shore assets is a fair one for your crime, then just pay up and be happy.

    If not, then you should definitely read Moby's case in the previous Opt Out thread to this one. Additionally remember, the IRS is bluffing a bit about those penalty assertions and examples in the FAQs, especially as it relates to Minnows. You might find reading the blog post below helpful for you as you work through your decision process.

    http://isaacbrocksociety.com/2012/02/22/irs-is-bluffing-bad-faith-negotiations-in-the-ovdi/

    Be sure to read all comments, especially the first comment by a 30 yr IRS veteran attorney, Stephen Mopsick.

    Again, none of this is advice on what you should do, and in all cases, you should seek good competent advice from a knowledgeable OVDI practitioner who can examine your facts after you have fully educated yourself about what you think your options are. This will help mitigate the cost, but it could be money well spent.

    Given the attention that the TAS has put on the OVDP program, and given my experience with the TAS appeal, I do think (and evidence is beginning to show)that the IRS will attempt to be more reasonable in its penalty assertions for Minnows outside the program. Moby thought they would mend over backwards, and for him, that was the case.

    Outside the OVDI, you could well do better than the 'in lieu of penalty' which is depending on your fear of the IRS to keep you inside the program and paying way more than you should pay for benign failures. They do like to trumpet in the press their success in revenue collection and make their numbers look big. You need to decide if you really want to help them in this propaganda effort.

    Remember, this program was most definitely designed for egregiously willful tax evading Whales, and if that is not you, then why should you be paying that high of a penalty and helping them push up their stats and press release victories?

    Also, remember after an Opt Out, if you don't like the FBAR penalty, you can still avail yourself of the audit appeal process. If that is still not satisfactory for you, the IRS has to take you to court to assess the FBAR civil penalty and collect it. Given the excessive Fines Clause of the Eighth Amendment to the U.S. Constitution it is not a foregone conclusion that they will do so. Ask yourself, what are the chances that a DOJ attorney is going to expend a lot money, time and energy in court to collect a large disproportionate FBAR penalty on a Minnow?

    There appears to be a game of "liar's poker" going on here with bluffing being used to get you to just meekly pay up inside the OVDI. Ideally, the IRS should do the right thing, and recommend that you Opt Out as soon as your facts begin to show that you are not the Whale they were fishing for. However, unfortunately, examiners may be under pressure to produce results, and have shown themselves willing to take you for the full penalty amount even when in their heart of hearts they know that you were not who they were looking for. So, you may have to call their bluff by Opting Out.

    ReplyDelete
    Replies
    1. Yes, IRS is doing a kind of Legalised robbery. But they should draw a distinction between whales & minnows. We are at their mercy. If I opt out & face 50,000 more in penalty, I will spend lot of time & money& sleepless nights. I hope GOD comes to our rescue.

      Delete
    2. IMHO, I wouldn't be relying on God, but I would rely on your own Council if you do your due diligence drudgery, and learn how to assess your risk in an Opt Out.

      The IRS penalty assertions has fear running through your veins like an addictive drug, and that works to their advantage. You have to learn to turn that fear to strength. ij has. I understand how you feel, as I was there once, but the fear should drive you to reading the IRM and not relying on Hope in God for salvation! Hang in there! This too will pass. Cheers

      Delete
  7. In my opinion, God will judge those that have taken advantage in this situation. When a safety valve from within their own organization raises red flags about the programs, something is clearly wrong. The IRS leadership has ignored the outcries from practioners, participants and most importantly the Taxpayers Advocate. It clearly shows that they have abused the situation. It is unbelievable that Obama or the tax cheat and hypocrite Geithner have not intervened. They are part of the problem of a desperate nation abusing expats and immigrants to collect ill gotten gains. They are high fiving each other as they destroy American families financially and emotionally. Until there is a legal challenge based on the TAD 2011-1, there will likely be no relief. As for most of the law firms out there, they are just happy with the amount of business this has generated. Otherwise, one of them would surely challenge these wrong doings by a rabid government. When you vote this year for a president, remember that Obama is a part of this disgrace.

    ReplyDelete
    Replies
    1. Yes. it has generated a big business to Lawyers. That is the reason they do not want to intervene & challenge the IRS. It is purely selfish society. " Legalized Robbery ' is the right word for all this mess. Whatever the due dilligence I do, I will always have the fear that I could be subject to massive civil & criminal penalties on optout. If Obama, Gethner & Schulman, don't hear the plight of ordinary people, what image does USA create of it's own. I pray to GOD to punish thos who are taking the advantage of this situation.

      Delete
  8. "AnonymousMar 4, 2012 01:09 PM"

    No God but yourself can save you. I would make it as simple as possible, there is no legal cost for most minnows in the process of opt-out. I would caution though, opt-out does expose you prior OVDI years -- if there was nothing worse then it is inside OVDI years -- then what else needs to worry ? SOL is 6 years for FBAR, and most tax liability SOL is for 3 years.

    So you can just negotiate with IRS yourself on penalty -- and remember whatever they impose on you will have to face a judge.

    In the court, your best defense is "unintentional", "avoidable" and "honest" mistake on FBAR. If Geithner could get away with that, why could not we ?

    ReplyDelete
    Replies
    1. Lord Geithner got away with it because he is the Lord. Charlie Rangel also got away with it. Don't assume that you could get away with it, IRS is looking to scapgoat some body. IRS wants to proove that they are good at enforcing the LAW. THis Law Enforcement may begin with unlucky you. Your bad luck could RUIN you. You might have valid & fair reasons. But IRS is not about Fairness . IRS is about sqeezing money from you. Everybody is afraid of IRS. That is the reason .NO Lawyer wants to challenge the IRS. IRS is very powerful. It can make your life miserable & make you homeless.

      Delete
    2. Just learned,

      http://www.taxlitigator.com/articles/FBar.htm

      Under Bush's watch, there was an OVCI 2003 (offshore voluntary compliance initiative) -- there was no penalty at all.

      Under Obama, the penalty increase from 20% to 25% and now 27.5% while there are still a lot immigrants are not aware of this filing requirements.

      This is an election year, if anyone of you can vote -- you know what you should do! Let's kick these lords out of office !

      Delete
    3. I am sorry, as cynical as I am, I still can not subscribe to your dark view. I understand the IRS is very powerful, but it is governed by Statutes and rules/regulations. The people running these IRS programs may be misguided, but they are not evil devils. They are human and can have empathy with a Minnow's plight. The IRM restrains how they act on Minnows in an Opt Out situation. There is no way that discretionary penalties are going to result in a disproportionate civil penalty that the DOJ is going to be willing to take to a Federal court to collect, in my opinion.

      If your fears were true, then Moby and Sally would have been creamed in their Opt Out, and yet they came out without FBAR penalties. If the IRS was solely about squeezing money from you, why did they let these 2 Minnows escape? I think you might consider that your fears or assertions about IRS intentions might be adding to the problem.

      The TAS interceded for me, and that resulted is a much reduced penalty. Admittedly, not as good as I would have liked, or thought I deserved, but it did not ruin me or leave me homeless. It did consume a lot of LCUs and make things miserable, I will give you that, but I still had the option of Opting Out if I hadn't made a business decision to end a 2 year ordeal. The outcome was more "reasonable" given the adverse climate we are currently in. I use the term advisedly, but going from $172k penalty inside the OVDP, to $25K outside it, that is more reasonable.

      So, you don't have to just accept the "in leiu of penalty". You do have alternatives. I think the evidence is showing, you can succeed in an Opt Out, if you have no other bad facts and if your failure to file a FBAR was truly benign.

      However, if you want to let FEAR rule your life, and just rollover and take it without a whimper, be my guest. However, it doesn't leave you much room to complain about the result when you are so willing to take it without a fight.

      Don't mean to upset you, or be a defender of the IRS as I have a lot of criticism of how they have conducted themselves. This is just my opinion, and I could be wrong.

      Delete
  9. Not to offend anyone's religious or political sensibilities, but

    1) God is not going to help you
    2) This is largely bipartisan (Schulman is a Republican appointee), so however you vote will make little to no difference.
    3) Curling into a fetal position in fear of the IRS will not help you.
    The only thing that will help you is
    a) Talk to a professional
    b) Opt out if your facts seem to warrant it.

    The IRS most definitely will not be able to handle thousands of opt-outs individually, and will have to settle. For reasonably good facts, I think they will settle for taxes, interest and tax penalty, and maybe some minor FBAR penalties.

    ReplyDelete
    Replies
    1. Excellent comment. I recommend it to readers.

      Jack Townsend

      Delete
  10. "The IRS most definitely will not be able to handle thousands of opt-outs individually, and will have to settle."

    If just few of them among thousands of minnows choose to opt-out, IRS will have time/resource to deal one by one. What that will happen ?

    I would suggest to prepare a battle in case of opt-out. Don't count on settlement -- IRS will certainly trying to stop folks (minnows) of massive opt-out. Remember, they have a target (4 billion ?) to reach

    ReplyDelete
    Replies
    1. IRS knows how to play the BIG game. It will criminalize some optouts at the fullest extent & then will publicize such cases to such an extent that no single person will dare to think about opt-outs. This will prevent many genuine cases to opt out & that is where IRS will succeed.

      Delete
    2. IRS can't criminalize based on the facts that have been voluntary disclosed inside OVDI, but they may do so if the opt-out exposes some other bad facts not inside OVDI such as prior OVDI years of activities..

      Delete
    3. When IRS does such things as Criminalize & Publicize, NO lawyer come to your help. Even though you paid thosands of $ to that Lawyer. OK no GOD will help, But NO lawyer will also help when in fact you paid so much money to him. That is why I say, ALL lawyers are afraid of IRS.

      Delete
    4. ij

      "If just few of them among thousands of minnows choose to opt-out, IRS will have time/resource to deal one by one. What that will happen ? "

      Remember, the IRS still has to deal with
      a) Lots of OVDI 2011 participants
      b) Quiet Disclosures (not really quiet for most foreign account cases)
      c) First time disclosures (from people who comply going forward), especially with new data from Form 8938
      d) New entrants into VD from some of the new Swiss banks being targeted.
      e) Lots of people who haven't filed at all.

      In the case of b, c and e the SOL is ticking (since no extension has been signed). In b,c,d and e at least some cases there may be large sums involved.

      So, is the IRS time productively spent on minnows or on these cases ? I wouldn't say they will necessary offer an acceptable settlement, but I think they have a very strong incentive to settle. So does the taxpayer for that matter. I agree that it wouldn't be painless, and there will likely be some negotiation, but there are 2 facts to consider

      1) The fact that even in the criminal cases, the government has not gone beyond 50% total
      2) The fact that there are hardly *any* reported cases of the government taking someone to court to collect FBAR penalties (the one exception is the Williams case, and he was/is a really rotten bloke).

      Suppose someone has an account at 76K, it seems like they have a very strong incentive to opt out, for instance. Or if the in lieu of penalty ratio to tax owed is > 2, thats another strong incentive.

      Delete
    5. Anon @Mar 5, 2012 07:25 AM

      That is a ridiculous assertion at least for anyone who has made a full, complete disclosure. The IRS web site says that anyone who exits the plan remains within the VD program. Jack can probably expand on this, but as far as I know

      1) There has NOT been a prosecution of someone who joined a VD program for 20 years at least (this includes people who were undoubtedly guilty of tax crimes), and the one case before that was because one IRS CI office allowed someone to enter the program not knowing that that person was another investigation by another office

      2) Even for QDs, there has been only ONE case of prosecution, that of Schaivo (Jack blogged about him earlier) and he had an incomplete quiet disclosure, and a non timely QD (likely his partner had already given up his name) and had a lot of other bad facts.

      besides, the vast majority of minnows have no realistic criminal exposure even if they had not joined OVDI, but had complied going forward.

      Frankly, you seem to be just scaremongering.

      Delete
  11. "NO Lawyer wants to challenge the IRS. "

    And not to hog this blog, but to counter some of the scaremongering:

    Lawyers challenge the IRS ALL the time. Jack routinely posts cases where lawyers prevail against the IRS (even in some cases such as some of the bogus tax shelter cases where arguably they should not have).

    ReplyDelete
    Replies
    1. Everybody is scaremongering. Lawyers do that to get business. IRS does that to get people in to OVDI. I am just doing it to stay away from lawyers & their hunger to get their huge fees from their clients.

      Delete
  12. With respect to my case, since I owed no tax and the IRS was still insisting on a 20% penalty that would cost me more than $1 million, I decided to sit tight. I rejected the IRS offer. My lawyers further told the IRS that I would not voluntarily opt out as we entered the program thinking that under FAQ 35 the IRS would settle my matter.

    Albeit slowly, the IRS moved to have me removed from the program but during the process gave me an out to appeal. I did and almost immediately a new face from the IRS entered the picture. The new person reached out quickly to me, my lawyers and was quite positive in his tone. The IRS then held several group phone calls with my lawyers and finally agreed to impose $10K FBAR penalties for each of the six years plus $10K more for each year that I did not file a
    disregarded entity information form for.

    The penalties plus legal/accounting fees have pushed my tab to over $225K on this matter. Given that I never owed any taxes, I do feel like I was held-up by the IRS. But also, given the draconian penalties that I was threatening with, I am relieved that this matter is finally settled.

    I hope this information helps other folks in this decision process. And, thanks for all of these blogs. Without them I don’t think I would have had the courage to be so stubborn with the IRS.

    Aggrieved-taxpayer@hotmail.com

    ReplyDelete
    Replies
    1. Aggrieved-taxpayer,

      Thanks for sharing, but if you did not owe tax why you would agree to pay penalty ? I guess you paid high tax offshore already, and you could use foreign tax credit to offset your tax to IRS. Still, this whole FBAR penalty is about cheating IRS on tax. So no tax due, no penalty -- just amending the return/FBAR.

      Of course, you must have been treated by IRS as a typical whale -- 5 million assets with entity (?). I don't understand the incentive of using entity if you were not really to avoid paying IRS tax.

      If I were you, I would have agreed to pay zero penalty. Missing this form did not cost US one penny in your case.

      Delete
  13. To Anonymous March 5 7:25 am
    The IRS will likely pick its battles very carefully. Though it may want to punish certain optouts and publicize them, it will have to pick those with the most egregious facts. It cannot risk taking an optout with relatively benign circumstances and lose that battle in court and establish a bad precedent.

    What's at stake for someone opting out with bad facts is the risk of paying more than the 20/25/27.5% penalty. What's at risk for the IRS in trying to assess a much higher penalty is establishing a bad court precedent for ALL future opt outs, not just that one person.

    Also, with a complete and truthful disclosure, it is my understanding (I am not a lawyer) that the possibility of criminal prosecution is close to zero.

    ReplyDelete
  14. Jack

    Its been mentioned that if a FBAR penalty (willful or not) is assessed by the IRS, the DoJ has to go to court to collect. Is that correct ? Can the IRS simply collect by taking (say) any refund you are due on your regular tax return even before the DoJ sues to collect and wins ?

    ReplyDelete
    Replies
    1. Yes, generally the IRS has to go to court to collect the FBAR penalty.

      However, apparently the IRS can collect the penalty by offset against refunds. See Steven Toscher and Michel R. Stein, FBAR Examination, Appeals and Collection Procedures in the Post-Amnesty World, Journal of Tax Practice & Procedure 61, 68 (December 2011-January 2012), here: http://www.taxlitigator.com/main/images/stories/FBAR_Examination.pdf

      Here is the relevant part of the article (with footnotes)

      There are two separate collection limitation periods with respect to FBAR penalties: (1) two years from the later of the assessment date and (2) 10 years from the assessment date during which it can collect through certain offsets. n98 FBAR penalties constitute debts owed to an U.S. executive agency, and the IRS is authorized to collect debts using any of the methods enumerated in 31 USC §3711 (2008). n99

      n98 IRM 8.11.6.3.1.1(2) (11-01-2011).
      n99 See 31 CFR § 5.4(a)(6) (authorizing “treasury entities” to collect debts by offset of tax refunds or benefits, private collection agency, credit bureau reporting, administrative wage garnishment or litigation); see also 31 CFR § 5.1 (“treasury entity” includes the IRS).

      Delete
    2. Wow,

      So that means IRS does not need a court judgement to take my refund -- each year I would be refund around 3K. So 10 years that would 30K -- that matches my total FBAR penalty -:)

      Now, IRS must have learned a minnow on his/her typical refund amount -- and impose such a penalty that can wipe out all the refund for the future years.

      I guess it does not make any sense for me to opt-out now -:)

      Jack and Anon "Mar 5, 2012 11:35 AM" Thanks for bring this up --

      Delete
    3. Jack

      That was exactly the article I read, and I wondered if it was actually a correct interpretation of the law. I read the IRM section mentioned, and it seems to say that if the FBAR is received 30 days before the expiration of the 2 year period to file a suit to collect, then the limitation period is considered to be 2 years. Also, the statute in question says

      'The Secretary may commence a civil action to recover a civil penalty assessed under subsection (a) at any time before the end of the 2-year period beginning on the later of—
      (A) the date the penalty was assessed;' ..
      '

      Thats 'may', not 'must', so I'm not sure what that says about a suit. It seems otherwise that the IRS/Treasury could try and collect smaller sums without going to court at all by garnishing wages or SS benefits or tax refunds, with no appeal recourse in the courts.

      Delete
    4. Jack,

      I think US residents are at the mercy of IRS -- opt-out or not. IRS can simply ruin their credit by imposing whatever penalty they like and collect debts from private collection agency, and credit bureau. Nobody wants to have bad credit score, so this must be a huge blow to those whose hope is to see some justice in the court.

      Delete
    5. I think there is some nuance here. I don't have a certain answer, but offer my more or less off the cuff reasoning. The IRS can offset only when it has something like a debt. In the IRS universe, the assessment of tax is treated like a debt for purposes of liens and levies; liens and levies are permitted once the IRS assesses the tax.

      I am not sure that that is true for Government nontax claims such as the FBAR penalty. Certainly, as respects the FBAR, the structure seems to suggest that the debt doesn't exist until the Government sues for to reduce the assessment to judgment and obtains the judgment. At that point, then it is logical that the IRS would be able to offset.

      I do not know that that is the right answer. I will see if I can get the right answer, but that is the one that makes the most sense to me.

      Jack Townsend

      Delete
    6. Jack, Thanks...

      So it seems that government penalty collection has to be resolved in courts.

      Like traffic violation ticket, the driver can contest and force the police officers to take it into the court for a judgement.

      That seems to make a bit sense to me, otherwise our legislators would have created a monster that can ruin all the little guys.

      Delete
    7. Jack

      Here is what Michael Miller (another tax lawyer) said about this in another forum


      Take a look at 31 USC section 5321(b)(2), which says the Government may commence a civil action to collect within two years after assessing. Although not as clear as I would like, it appears that this is the ONLY way to collect (unless the taxpayer pays voluntarily).

      Indeed, in Joseph B. Williams, III v. Commissioner, 131 TC 54 (2008), the Tax Court (dismissing the case for lack of jurisdiction) went out of its way to give the taxpayer some comfort by pointing out that the collection mechanism authorized by the FBAR statute is not lien or levy, but bringing an action in court. See fn 6.

      See also U.S. v. Williams, 106 AFTR 2d 2010-6150 (DC VA, 9/1/10), in which the IRS brought an action to collect an FBAR penalty. Although not part of the decision, the fact that the Government brought this case strongly suggests (at least to me) that it had no other mechanism available for collecting the penalty.


      it may be that this is a somewhat unsettled area of law. I would surmise that for the willful penalty at least, the government definitely has to sue since the burden of proof is on the service.

      Delete
    8. ij

      Tax refunds shouldn't be a big deal. You just to change your withholding so you don't get any tax refunds. You should be doing that anyway :)

      Not that I think the situation will arise. The IRS will almost certainly offer a settlement and you have to decide whether you consider that acceptable.

      Delete
    9. "AnonymousMar 6, 2012 05:36 AM",

      Thanks for your tips. $3000 refund basically comes from my three little kids child credit. I just don't know how to change W-4 to reduce the withhold. I can only use exemption of 5 (for 5 people in the home ?). I am just too dumb to fill this kind form.

      Delete
    10. "AnonymousMar 6, 2012 05:36 AM"

      I just called my HR and learned that each child should add one more exemption. I have been so stupid not to use that exemption - and give IRS free loan for so many years -:) Again, this is non-willful stupidity on my side again -:)

      Delete
  15. Jack,

    Regarding proving willfull intent in a case,
    please read the comment of one of the poster
    http://hodgen.com/open-letter-to-irs-commissioner-about-voluntary-disclosure-program/

    The poster (Robert Moran) says that he is a dual
    citizen and owed about 26000 in taxes for 2001 to 2007, a little more than what JustMe owed.
    However this gentleman claims that for those 7 year he has paid over 10 million in taxes.
    Why would someone pay 10 million in taxes and try to avoid 26k? So there does not seem to be an intent
    to hide and would a judge not accept reasonable cause under such circumstances. There are some bad facts such as a Panamian corporation and about 3.5 million in UBS accounts. but simply from the fact that someone had paid 10million in taxes(assuming he is truthfull) and did not pay 26k, is that so egregious he had to be sent to jail for 2 months.

    ReplyDelete
    Replies
    1. I believe Mr Moran was one of the original UBS cases turned over by Birkenfeld . There was likely substantial proof of willful intent to evade taxes (including possible testimony by Birkenfeld).

      Even with that, he may have been able to avoid jail in normal circumstances. He was just unlucky enough to lose not just the audit lottery, but the criminal lottery.

      Delete
    2. To Anonymous Mar 5, 2012 08:00 PM

      I know very little about Mr. Moran's case. However, based on the spare facts you outline, I suspect that there are other facts that cut the other way. That is the problem with trying to infer some conclusion from a limited set of facts.

      This illustrates why I am reluctant to give people any comfort on the blogs on a very limited set of facts without considering all of the relevant facts in context. Conclusions on limited facts, as we know from simply living in the world, are often wrong.

      Best,

      Jack Townsend

      Delete
  16. "AnonymousMar 5, 2012 08:00 PM"

    Just Me paid 25K of in lieu penalty -- that was not the tax he owed.

    Just Me is a minnow who has no secret account in UBS but keeps the money where he lives in NZ.

    What is strange to me is not the fact Mr. Moran was sent to jail for 2 months but the fact he paid 10 million tax but failed to pay 26K.

    ReplyDelete
  17. I do not know why people are discussing optouts. In my opinion , it is a stupidity to optout once you are in OVDI. Because you already provided self-incriminating documents. Again after optout you have to cooperate & provide more self-incriminating documents to IRS. From this huge pile of self-incriminating documents, IRS can nit-pick you to pay more than 25% penalty. IRS is not stupid & it is in the business to sqeeze the people. It can do anything to take more from you. You as an individual can't march up the resources the IRS has. On your part you can go to Lawyer. But that lawyer will want to collect more & more fees from you. So you are in a sandwitch. Don't tjhink about opt-out, just pay up & enjoy the life.

    ReplyDelete
    Replies
    1. "AnonymousMar 6, 2012 06:33 AM"

      "Because you already provided self-incriminating documents."

      It is "avoidable", "careless" and "unintentional" errors not self-incriminating at all.

      "Again after optout you have to cooperate & provide more self-incriminating documents to IRS."

      I am not sure IRS will want to check underwear and bra etc for forensic evidence.

      Unless you have not yet made a full disclosure, where else these additional more self-incriminating documents come from ?

      Delete
    2. Ij and all.

      Just for clarity, the $25K penalty was essentially an "Opt Out" like penalty negotiated by the TAS on my behalf using FAQ 35 relief provisions which should be available to all Minnows in an Opt Out.

      Like I have said, it wasn't as good as I would have liked, but it came as such a relief that it was my 'cat surgery' decision moment, and I took it.

      The OVDP "in lieu of penalty" the IRS wanted inside the program was $172,000 dollars. Now that was absurd! Anonymous of Mar 6, 2012 06:33 AM says I should have just paid up $172K & enjoyed the life. Surely he jokes, or money has no value to him.

      Now, had I have been a willful tax cheat hiding funds in secret accounts like the program was designed for, than his might have been good advice. Otherwise, for Minnows here still assessing their options, I would strongly advise you to bring your fear under control and rationally examine the 'Opt Out' provisions.

      Of course, if you are having a Practitioner do all your POA work, the cost of fees can be as much or more than the penalties, so you have to weigh that out. Again, all of these things come down to risk vs reward analysis and basic business decisions.

      It is my opinion, that the Opt Out was created belatedly in response to the field examiners complaints. They recognized that they were netting the wrong type of fish and there was no further discretion allowed after FAQ35 was removed from the OVDP. It frustrated them too!

      I think the IRS recognized they needed a way for more discretionary and fair administration of benign failures, and belatedly came up with the Opt Out program. They hadn’t really thought of it when they started the OVDP, as they were so focused on the Whales. I do think it was the IRS's after-the-fact bungling attempt to not be so heavy handed.

      It still is NOT a satisfactory solution, in my opinion. I think they should have come up with a front end filtering process, not a back end Opt Out. However, because of the TAS criticisms (TAD and report to Congress), I believe they are not looking to take disproportionate penalties from Minnows in an Opt Out.

      So, don’t let the FAQ examples and assertions of Maximum penalties what “may” be applied cloud your decisions. That “may” has a lot of wiggle room downward when Examiner discretion is allowed.


      Now, if your facts are really bad, or you have NOT been totally forth coming in the OVDI, then I would not recommend that you Opt Out either.

      Again, after over 2 years of dealing with this program, this is just how I see it now. Of course, I could be wrong.

      Delete
    3. Jack... A VD question for you...

      It arises out of my basic curiosity related to those still struggling with the decision of what to do to become compliant.

      Is it possible for someone who has relatively benign facts, and just wants to become compliant, that they could enter a regular VD program and just go straight to a regular examination and penalty application without going through the entire agonizing OVDI process before you can Opt Out?

      Or is the IRS just putting everyone with any offshore issue into the OVDI whether you want to or not?

      Or alternately, could you enter the OVDI and immediately ask to Opt Out?

      Just curious.

      Delete
    4. To Anonymous Mar 6, 2012 06:33 AM

      I don't think you can make such a blanket assertion as to whether or not someone should opt out since circumstances and facts vary so widely.

      At one extreme someone who has used a maze of entities to hide untaxed income from shady or illegal deals probably should not opt out and would find 25% a sweet deal and a way to avoid further questions being asked.

      At the other extreme someone who has paid income tax on the capital deposited and has merely failed to pay income tax on a small percentage of interest from having the money in a savings account would be paying a huge percentage in relation to the actual tax loss.

      The IRS has limited resources too and they are likely to put their resources into the more egregious cases. This is certainly true with domestic tax issues, a teenager who fails to report income from babysitting or mowing lawns is going to be treated differently than someone caught trying to write off a wedding or vacation as a business expense.

      As to avoiding risk, keep in mind that every year 45,000 people are killed in car accidents in the US, and many more suffer major injuries. You take risks every day. And as far as financial risks, if you own stocks or real estate, there is a risk that you could lose part or all of your investment. A decision to opt out should be based on how good or bad the facts are in your case.

      Delete
    5. The immediately preceding reply is excellent. I recommend it to readers.

      Jack Townsend

      Delete
    6. To Just Me Mar 6, 2012 02:08 PM

      If a taxpayer joins OVDI, he or she must complete the process (send the entire package) and only opt out after receiving the IRS's calculation of the costs (including the in lieu of penalty). This is regardless of how benign or innocent the taxpayer is. And the document package the taxpayer submits is needed for the opt out audit -- it, in most cases, it will be 90+% of what the IRS needs for an audit. The taxpayer can submit additional exculpatory material and arguments, but the IRS agent needs the OVDI documents to proceed.

      Net, net, there is no way I am aware of that the taxpayer joining OVDI can short-circuit the pain of submitting the document package.

      Jack Townsend

      Delete
    7. Jack

      The OVDI process requires the participant to allow SOLs to be increased to 8 years for taxes and FBARs. That might be a good reason for someone to not complete the full process. The IRS has said that 'normal' SOLs would apply on opt out (although that begs the question of just what is normal, especially for the FBAR extension, where there is little case law on SOL waivers), but someone who is not at risk of an indefinite extension of tax penalties because of fraud, or faces the risk of criminal FBAR penalties would likely be in a better position not signing the extensions.

      Perhaps you should post a blog entry sometime on when a practitioner would advise a client to agree to waivers of SOLs on taxes or FBARs (not just in the context of OVDI, but in general). This is likely a delicate, individualized decision, but I am sure some of your general thoughts would be helpful to other practitioners and DIYers

      Delete
  18. Wasn't the IRS going to come out with additional guidance on the 2012 program? Does anyone know if this has happened? I haven't seen anything other than the Jan article on their website where they say additional stuff will be posted by Feb.
    On a different note, should I post a question about Form 8938 here or somewhere else?
    Thanks.

    ReplyDelete
    Replies
    1. See the blog I just posted to gather experiences and observations on Form 8938.

      Thanks,

      Jack Townsend

      Delete
    2. Unfortunately IRS moves at the speed of a sloth in slow motion. If you hold your breath waiting for them to get something done, likely you will suffocate.

      Delete
  19. Just thought of sharing updates related to my OVDI stuff:

    1) IRS applied discretion in my case without opting out of OVDI, with $500 imposed per account, per year. The agent initially said that OVDI penalty is $30,000 (including the value of my only home), willful penalty is around $20,000 and non-willful can be settled at $7,500. Totally shocked and surprised when I saw the "non-willful" penalty applied in the 906 that I received a month back

    2) A month has passed after IRS received the signed 906 from my side. Still no word on the executed package. Does it really take this much time for executing the package?

    3) I noticed an interesting phrase in the 906 letter that IRS can look into domestic issues and offshore issues not included with the package. Is this normal language? I mean, why would they certify the package as complete and accurate, yet, mention the phrase that they can still audit and make adjustments related to offshore issues not included in the package? I just thought it was funny.

    As I am nearing conclusion on this stuff, I cannot help but thank that gentleman from New Zealand ("Just Me") more than anybody else as I believe IRS is trying to settle this stuff with lesser penalties in minnow cases like me.

    All said and done, it took a big toll on my life (LCUs, etc). Nearly 10 months of hell experienced every minute and it does not stop. Perhaps it will, after I cease to exist in the near future.

    ReplyDelete
    Replies
    1. Thanks for your update. Did you ask the agent to reconsider the penalty formally in a letter, or on the phone, or did the agent just decide to give you this out of the blue?

      Delete
    2. @ Anonymous Mar 6, 2012 10:42 PM

      2. It took me a few months to get the 906 back. It has to be reviewed and signed by the Revenue Agent, a reviewer and then a supervisor.

      3. The language pertaining to giving IRS rights to review non offshore issues is boiler plate and standard in the 906 forms for these initiatives. We have blogged briefly on this a while back.

      Sounds like you did real well. Its tragic that the process puts you in such a life altering position of worry and anxiety. At least you are done once you get your IRS signed 906. Likely they had you sign 3 copies and return them to the IRS. You will get one back.

      Anon123

      Delete
    3. Can you please provide some extra facts. Are you a resident in USA or an Expat living outside USA. What was your total tax loss. How many years you were non-compliant. Was all your foreign accounts in different countries or in your native country.

      Delete
    4. Anon5%Mar 7, 2012 02:33 AM: The agent did ask for a formal letter from my CPA and he further coordinated to get IRS approvals

      AnonymousMar 7, 2012 05:04 AM: Thanks and I am aware of IRS rights to review domestic issues. I did not know that 906 includes language that says that they can again look at offshore items that are not included with the package.

      Delete
    5. Anon @Mar 6, 2012 10:42 PM

      Thanks for your update. Just to clear, this was from the OVDI 2011 program, not the old OVDP 2009 program ? You did mention OVDI, but the terms are sometimes used interchangeably.

      Also, about the formal letter sent by your CPA, did you just ask formally or did you also provide a list of reasons why you thought the penalty should be lower or abated ? Did you have to threaten to opt out to get them to reduce the penalty ?

      And I understand fully that you my not want to reveal any personal information about extra tax due etc, but anything you can provide without compromising your privacy would be greatly appreciated.

      Delete
    6. Anon

      Thanks for sharing your story, and its good that you were able to get your penalty reduced.

      The negative item I see here for opt-outs is that the IRS actually tried to assert a penalty on a per account, per year basis.

      But that is far outweighed by the positive items, namely:
      ---- A reduced penalty without opting out
      ---- Even on the per account, per year basis, a $500 penalty is not that large.

      While not a lawyer, I am still skeptical that the language of the statute supports the ability of the government to assess a per account penalty. (Per Year yes, but not per account, per year).

      Delete
    7. Hi Anon

      Thanks for sharing your story.

      Would you mind sharing some sparse details regarding your case. Was the total income tax due a smallish amount (<10000$), number of accounts (7500$ per year per account then I would guess just 2 accounts?), any other information that would help us assess our own case? I am talking to attorneys already but any additional information you provide will be invaluable.

      Thanks!

      Delete
    8. Anonymous Mar 6, 2012 10:42 PM

      Thnx very much for your comments, and I too hope that what you say is beginning to happen. "I believe IRS is trying to settle this stuff with lesser penalties in minnow cases like me."

      I will be very interested to hear any additional information that you can provide for others asking. Your story gives great hope... Maybe yours is the anecdotal trickle that turns into a trend. Let's hope so.

      Delete
  20. My lawyer submitted my package on September 1st for the OVDI 2011 with the checks and a request to lower the penalty and after about 6 months we still have not heard from the IRS. Is this normal to take this long?

    ReplyDelete
    Replies
    1. We submitted around the same time and have not heard anything either. We also submitted similar kinds of documents.

      Delete
    2. I submitted the complete package in March 2011 and still no answer. The only OVDI 2011 person who has been contacted is IJ who I think submitted in April. Not sure how they take up the cases.

      Delete
  21. Just Me,
    I wanted to echo the comments many have made here regarding your contributions on this matter. You have truly helped many on these blogs and your LCU's have not gone to waste. You have served a higher purpose - and that's where these LCU were utilized - to help others. Sometimes thing happen for a reason! And your listening to NPR and deciding to join the disclosure program and subsequent events are all steering the outcomes in the right directions for minnows. Also, your follow up with the media to get your story published gave the issues of minnows some exposure. I am returning to this site after awhile, but really pleased to read the confidence in the minnows who are considering to opt out - which is the right thing to do. And, IRS starting tom recognize the unintended consequences of this program. Thanks again for your contributions? I joined the program and filed in Dec for. $3,500 foot fault in taxes, and now know what to do.

    Also, both Moby and Sally were very helpful in giving us the direction on where things were headed within IRS.

    And Jack, thanks for hosting this blog - god sent for many. Glad you started a separate blog for this thread, I was not able to read the blogs on the second page of the thread so, hadn't returned here for awhile. Thanks again.

    ReplyDelete
    Replies
    1. AB

      Good to see you back, as it is a while since I saw your initials. I really appreciate your comments, and maybe you are right... LCUs for a higher purpose. Guess I should look at it that way. So thanks for that perspective.

      BTW, I have just posted some more information about Moby’s Opt Out over here.

      http://bit.ly/yqClD0

      I think it will also be showing up here on this thread too. Moby said he had posted it tonight, but given the time differences it was probably after Jack had called it quits for the day!

      Speaking of Jack, he certainly has contributed an invaluable service for minnows here on his blog. I am not sure that he intended it to end up that way, but it represents many many hours of pro bono work, and should be highly appreciated by all that read and do or do not post! Now this is truly is a work for a higher purpose!!

      He has taught me a lot. I have learned more here than many classes I took at the University! This is not a subject I would have voluntarily signed up to take. LOL When I comment to others about going to school on the OVDI process and doing their personal drudgery of self education, I always refer them here to a list of threads I think are critical to their understanding. What a great resource it has become. The best on the web! I can't think you enough, Jack.

      Delete
    2. Just Me,

      Jack's blog is intent for "tax professionals and tax students", obviously with your and Moby's participation, it is also for OVDI dodgers too -:)

      Delete
    3. Just Me,
      Thanks for your post, and good to be back. I tried getting to the link you have posted (http://bit.ly/yqClD0), by copying and pasting it to the browser, but couldn't get to it. Same outcome when I tried Moby's link. Can you please or anyone who has been successful tell me if I am doing the right thing. I am abviously not which is clear, as some folks have been able to get to Moby's and your links. The second one is obvious as well - joining the disclosure program!

      Delete
  22. Hi All,

    Here are copies of my correspondence with the IRS during the opt-out process. It starts with them sending a 906 (which I did not sign) and ends with the acceptance letter for my opt-out recommendations and the assessment of only the accuracy related penalty (which I did pay). I believe the whole episode is now concluded for me.

    I've published these letters with a view to providing more visibility on the mechanics/details of the opt-out process, and to hopefully inspire some creative arguments to use during the process. I hope this of use to people out there who are still knee deep in this stuff.

    NOTE: The only communication not in the letters was a phone call that took place between letters 02 and 03 where the agent explained the opt-out process over the phone.

    Link to the letters is here: http://bit.ly/ztgZeR

    ReplyDelete
    Replies
    1. Moby,

      Thank you very much for your generosity. You and Just Me (another kiwi) have brought us with hope and "game change".

      Your case is indeed very unique with very good facts (short time non-compliance), and the fact you can pay all the tax due is a strong argument.

      Delete
    2. Moby,
      This is pretty great info. Thanks a lot!

      Delete
    3. As ij said, both have short term non compliance. if some has non compliance issues for period 2003-2010
      would these arguments still hold good
      especially if one had said Y for a few years
      and then N. In either case, if one did not file FBAR's wouldnt it indicate that he/she is non willful.

      Delete
    4. "AnonymousMar 11, 2012 07:18 AM"

      Moby was able to recover all the tax loss to IRS by filing amending years. This would certainly make IRS very happy.

      For those who have many years non-compliance issue -- it would be hard to recover all the years prior SOL once opt-out. How to make IRS happy on tax issue without being punished on FBAR (so they can take some tax loss back).

      The argument would be very much the same -- few were aware of FBAR prior 2008/2009 if you looked Moby's google trend serach -- so it would be the same argument -- but IRS would not be happy to accept that. This comes to a negotiation process. Maybe $500 to $1000 a year for FBAR violation..

      Delete
  23. Thanks a lot Moby. Excellent and resourceful letters.
    Is the 63K they had originally demanded 20% of your peak asset value? How did they arrive at this number?

    ReplyDelete
  24. Thanks a lot Moby for sharing and there is a wealth of information here.
    What was the total tax due before the 20% penalties and such? Was the FBAR penalty (63K) based on 20% of your max balance?

    ReplyDelete
  25. @ Anonymous (Mar 10, 2012 05:00 AM & Mar 10, 2012 05:19 AM)

    $63K was the 20% of high bal penalty which was the standard in lieu penalty on offer to everyone in the VDP. Here's a copy of my vital stats I posted much earlier.

    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.

    ReplyDelete
    Replies
    1. Moby, your non-filed 5471 is curious. Did you file a 5417 in 2008? Were the accounts held by a foreign entity? If so, why?

      By the way, I think your documents will be very helpful for a lot of the readers. Very good work!

      Jack Townsend

      Delete
    2. Moby

      Extremely well written letter, and thanks very much for sharing. I doubt a professional could have done better.

      Not to make you regret anything, but I think you could likely even have got away with no tax penalty for at least one of the years in question. But I can't argue with success.

      Delete
    3. @ Anonymous Mar 10, 2012 04:28 PM
      "I think you could likely even have got away with no tax penalty for at least one of the years in question"

      Can you explain your basis for this statement?

      Delete
    4. Moby

      I have read in various practitioner message boards that the IRS typically gives a one time pass on accuracy related penalties for taxes. That is why I speculated that they might have given you that pass for one year.

      Pure speculation on my part, and of course, I have the benefit of hindsight. I am sure that when you were writing your letter, your primary concern was the FBAR penalties and tossing the IRS a bone or two might have been a smart move to keep them happy enough to impose form 5471 penalties.

      Delete
    5. @ Anonymous Mar 12, 2012 07:10 AM

      My thinking at the time was this:

      1) I had good arguments for them waiving the FBAR/5471 penalties. I didn't have any equivalent argument for the accuracy related penalty. It is possible they might refuse to take the deal on principle if I hadn't offered the accuracy related penalty.
      2) The accuracy penalty (including interest) was ~$3K. In my view I'd rather not put a $63K+ deal in jeopardy over chump change... penny wise pound foolish and all that.
      3) By "volunteering" to pay the accuracy related penalty I'm essentially "putting something on the table". The whole deal becomes quite compelling for them when, not only do I have good arguments for some penalties, but I'm giving them some money they couldn't otherwise collect. Imagine someone having to explain to their superiors that they've got an open case on their hands that they could have closed, but instead chose to have $63K+ in uncollectable debt (non-resident alien living in another country) on their books AND their turned down a voluntary payment of $3K at the same time.
      4) I'm a believer is listening to how people say things, not just what they are saying. Reading between the lines in my pre-opt-out conversation with the agent led me to believe that paying the accuracy related penalty would be a sensible idea. Just a hunch, but it was my call (being the custodian of my own interests and all that).
      5) The opt-out "negotiation" is similar to a closed tender (in my view) in that your "Best And Final Offer" gets an yay-or-nay decision by the Mgmt Committee. If I want the case closed favourably and they don't agree to my opt-out in the first instance then it is an entirely new process and bunch of work for me to get it closed favourably (i.e. the appeals route). I'd rather avoid that if possible. I always had the fallback option of telling them to go fly a kite, and never visit the US again. I was prepared for that eventuality but would prefer not have my travels restricted.

      TL;DR: Spend a miserly ~$3K to make the deal compelling to them and close off the damn thing.

      Delete
  26. @Jack

    Didn't file 5471 in 2008 because the company was dissolved in 2007 shortly after I left the UK (wasn't needed any more). However, it still triggered a 5471 filing requirement that I found out about soon after I discovered what an FBAR was. The company was completely innocent and legit; I owned and worked for the company during my years living in the UK. Only one account was held by the company; the rest were my personal accounts.

    If there is a lesson here it is that having an entity isn't a showstopper in getting a good opt-out result. My overall facts/circumstances were innocent and legitimate and that was the most important consideration.

    I'm glad you think the docs will be useful. I'm very happy to give back to the community that has helped me through this struggle.

    ReplyDelete
    Replies
    1. Thanks for your response. I think readers need to here that the 5471 is not a showstopper. It really is a facts and circumstances exercise and facts and circumstances differ. That is what makes it so hard to deal with what readers think are simple relevant facts when all of the facts are really more nuanced. Generally speaking, the 5471 would be a showstopper in terms of whether a better result could be achieved by opting out, but there are cases where the facts and circumstance will give a better result.

      Best,

      Jack Townsend

      Delete
  27. My facts are: I am a recent (arrived in 2009) immigrant to US (initially on a K3 visa, then on a 2 year conditional green card, both documents are based on my marriage to a US citizen).

    I left financial assets as defined by Treasury worth approximately $125,000 in my country of origin. I didn't bring the assets to the US for several reasons. They are lifetime savings reserved for the time I need them which does not happen to be now. I realized a green card is not as good as citizenship status and at my age I did not feel like selling my home and liquidating my assets to come to the US if any border official could remove my green card if he felt like it which, however unlikely it seems, is the case. There seemed to be no hurry to do anything about the assets. I understand more than 1/2 of marriages end in divorce - no matter how optimistic we feel about our marriage, I keep in mind this is a fact. I was therefore in no hurry to liquidate assets or sell my home in my home country immediately upon entering the US to live. I spent decades building my home and improving my property in my home country, and given there is a possibility my wife and I may go there in a few years when she retires, the thought of selling the home did not enter my mind.

    My wife and I had no idea about FBARs. Although she was born in the US and works for a law firm in their IT department she shared my mistaken belief that when we filed married filing jointly returns for 2009 and 2010 we did not have to report the income generated in my home country.

    That income was less than $2000 one year and less than $1500 in the other year. I thought my obligation was to the home country, and no tax was owed there as the amount is less than the standard deduction. The lost income tax to the IRS was less than $200 in one year and less than $100 the next.

    When we discovered our errors I started efforts aimed at coming into compliance. I have completed the necessary amended tax returns for the two years and have the delinquent FBARS filled out ready to be filed. I am working on the letter of explanation as to why the 1040X forms had to be filled out, as well as the letter explaining why the FBARs were delinquent.

    As this blog is the best source of information I have found I come here to study as I try to understand what to do next.

    ReplyDelete
    Replies
    1. John Doe,

      Your case is simple, you should not even consider join OVDI. Either file forward or amend the past (2009,2010) should be good enough.

      Your wife is US citizen but she may have never owned an offshore asset would certainly never pay attention to FBAR. You are a new immigrant and you have learned FBAR rather fast -:) -- It took me 12 years to learn !

      So, there is really nothing to worry about -- just make sure you do the filing as soon as you know your obligation.

      Delete
    2. Seems the reason for the 1040X is that you "forgot to include income"; a few hundred dollars is really a minnow amount.

      Reason for late filing of FBAR is "immigrated to US two years ago, did not know of requirement until now, taxes on interest earned have now been paid to US."

      You're as innocent as anyone can be.

      Delete
  28. I read Jack's pdf of Moby's files. I thought I'd contribute some ideas I had along the lines Moby came up with as he made his case.

    To support my claim that I did not know I had to file FBARs I am pointing to several factors Moby did not mention. I'll put one per comment and make several more comments after this one.

    One point I have is the "Welcome to the United States" booklet which was handed to me when I was cleared at the US border to enter and live in the US. This booklet exists in an online .pdf file here. I believe the online version is identical to the one I was handed and am working with as the revision number on the front cover is identical.

    I think it is possible that the IRS might believe that a court would agree with me that if the US government stands ready to attempt to seize part, all, or more than all of the foreign financial accounts a newly arrived immigrant has left behind in his country of origin, the US government could have and should have placed a notice here, in the booklet the US hands to all incoming immigrants, informing them that what they have to do is file timely and regular reports about those foreign financial accounts. Had this booklet so informed me, I would have complied and not be in the position I am today.

    There is nothing in this booklet about the need for newly arrived permanent residents to file these reports.

    I have written a two page critique of the booklet that discusses the language used in every instance where it could have informed me about what Treasury and the IRS wanted me to do but failed to do so.

    I will post my two page critique here or somewhere more convenient to users if Jack asks for it.

    ReplyDelete
  29. Another point I will be bringing to the attention of the IRS and Treasury is the report on FBARs the Secretary of the Treasury made to Congress in 2003. This report is available here. Proof the Congress took the Secretary's words into consideration when they changed the penalties for FBAR noncompliance in 2004, by increasing the existing penalty and adding a new penalty that may be imposed even on the non-willful, is shown in the legislative history page 108-109 available here.

    The Secretary gave this report in response to the Patriot Act which instructed him to increase the compliance of US persons in the area of reporting to Treasury the existence of their foreign accounts. He told Congress he would do two things as he made his 4 concluding points. He would increase detection and enforcement while making sure US persons knew they needed to comply.

    The Secretary said his department would: “outreach to… income tax software developers to deliver and reinforce the messages”, i.e. that FBARS exist and need to be filled in, and that he was going to “work with income tax software developers to add a pop-up message to taxpayers and practitioners who use the tax software programs” so that his intent to communicate to taxpayers that they needed to report foreign financial accounts could be accomplished.

    He said one of the things the IRS was likely to do, for example, was “insert an applicable short message in the tax packages that every taxpayer uses to complete their tax returns”.

    Because he was going to make these efforts to educate US persons about what they needed to do, I interpret the Secretary to be saying here, Congress should feel at ease if it were to decide to drastically increase the penalties that could be imposed for noncompliance. The Secretary's vigorous educational effort would ensure that as more and heavier penalties were imposed there would be less and less grounds for US persons affected to complain.

    I am going to say to the IRS and to the Secretary that my American citizen wife has never seen any such message in any year she did her taxes since his 2003 report.

    There have been other messages, at least one of which I have seen. The entire first page of the .pdf version of the 2009 1040 notifies taxpayers they can deduct contributions they made for relief of Haiti.

    There was no message in the 1040 warning us about foreign accounts or foreign income in 2009 or in 2010 or we would have complied.

    I am studying how TurboTax works. I am convinced that it did not ask us the question, either in 2009 or 2010, i.e. do you have a foreign financial account, and that it did not ask us the question did you earn any interest on your foreign financial account. I am reviewing the software to make a point about how it should have operated had the Secretary actually done what he told Congress he was going to do and "worked with" the developers to make sure the tax preparers who directed the creation of TurboTax exercised the due diligence required of any tax preparer who prepares tax returns for US persons.

    ReplyDelete
    Replies
    1. John Doe,

      You have done good research and have found what is obvious to any impartial observer. The IRS and Immigration Departments have totally failed in its education outreach in regards foreign account, income and asset reporting requirements for newly arrived immigrants. That is why it just kills me to see Immigrants getting caught in the OVDP/OVDI trap, and if they are there, are still so fearful as not to consider the Opt Out.

      Because of that fact, I advised my Chinese friend who just got her citizenship, to hand out the latest information at her swearing in ceremony that has not yet made it into any booklets.

      See Jack's previous post here.
      http://federaltaxcrimes.blogspot.co.nz/2011/12/irs-guidance-on-us-persons-with-foreign.html

      Those two documents would be Prima facie evidence for "reasonable cause" arguments for FBAR failures. As I have said in previous posts, that if the IRS really wanted to assure compliance with its requirements there are many mechanisms they could have taken for education before launching their voluntary disclosures, using Draconian penalties and threats of imprisonment as their educational tool of choice.

      Again, I don't think this was by intent, or some evil design to entrap minnow immigrants. I just think it is the bungling nature of a BIG bureaucracy that is incapable or anticipating the negative unintended consequences of it actions. And then once discovered has to overcome inertia to correct its errant ways. That then becomes a face saving game, with political consequences that gets in the way of doing what is right, ala just affirming Nina Olsons TAD. It is sad, but it is, what it is.

      Good Luck John Doe, and yes you have indeed found the best location for information on these matters.

      Delete
    2. The problem is the complexity and multitude of tax laws and regulations. There are already thousands of "items" vying for the taxpayer's attention, from oddball income definitions to indignant (and malicious) deductions restrictions to the promotion of the latest "social justice" credit.

      Foreign accounts were likely only seen as part of offshore evasion schemes, thus only promoted to those "circles" (as the OVD programs).

      Personally I don't think the IRS wants the average taxpayer to know too much, because he might get ideas.

      This is a subject avoided in the tax classes I have taken. Many tax preparers simply do not want to deal with it, in many cases. (What happens in Vegas stays in Vegas mentality.)

      Delete
    3. @ John Doe,

      Thanks for your input. Great research. I'm glad to see people pitching in with their arguments too.

      A few points of response:
      1) Your "Welcome to the United States" booklet is different from mine. Mine was one page and I mentioned in my letter that it never spoke of FBARs. Their new multi-page doc that they gave you is much more damning evidence against them as it was more comprehensive but still didn't mention FBARs.

      2) Your notes on the Treasury reports are excellent. I'm greatly disappointed that only years 2002,2003 and 2005 reports are available online given that it is an annually required report. I imagine if we could get access to the full series through till now it would paint a picture of absolute neglect regarding education of people that inevitably have FBAR requirements (immigrants). Maybe an FOIA request would do the trick if the reports were even produced (I know, regulatory deadlines only apply to the little guy).
      What makes my blood boil are points like this:
      --a) 2002 report: "IRS will take responsibility for assessing whether better education and guidance regarding the requirements to file an FBAR is needed and, if so, will implement recommended improvements." Restated; the IRS has the responsibility for providing guidance to immigrants, but has decided it isn't necessary. I'd love to see the decision analysis that led them to thinking education of immigrants just wasn't necessary.
      --b) 2005 report: They focused on tax practitioners and tax software developers for outreach. But my letter shows that Deloitte (biggest professional tax practitioner in US) still weren't passing the information about FBARs on to immigrants, and the Turbo Tax people clearly didn't make it obvious that immigrants are tripped up by this.
      3) In case it is useful to you, I discovered this resource after I submitted my letter: www.archive.org. It has snapshots of a lot of web pages (including IRS) going back over the years. So you can see at any point in time the lack of guidance on the IRS website. It's good for further establishing the pattern of neglect on the part of the IRS.

      Delete
    4. It caught my attention as well that I could only find 3 of these "annual" Treasury Secretary reports available online. My experience with government and international affairs in my First World home country is that if a report was made to a First World government it exists and I can get it. I didn't look.

      It is clear that the Treasury Secretary did not live up to the terms of the Patriot Act, i.e. he did not file these reports every year.

      In Sheppard 2006, Evolution of the FBAR: Where We Were, Where We Are, And Why It Matters page 12 it states:

      "the purpose of the Bank Secrecy Act was... broadened in 2001 with the passage of the Patriot Act.... ...the Patriot Act required the Secretary to study methods for improving compliance with Section 5314 and submit annual reports to Congress regarding his progress. Three reports have been released to the public thus far."

      So in 2006 there were only three reports. There should have been four by then and nine or ten by now. The first report is dated April 26, 2002. In the legislative history it states that the word in the Senate was that "a further report was required to be submitted by the Secretary of the Treasury to the Congress by October 26, 2002". This report, according to Sheppard 2006 wasn't delivered by then. The date on its cover is April 24, 2003. If the report was actually delivered on April 24 2003 the Secretary would have met the requirements of the Patriot Act by several days.

      A bit o background obvious to all: the entire situation I face now is due to my not meeting a term of the Bank Secrecy Act, i.e. I did not file a TD 90-22.1 by a date so rigid Treasury will not accept that a postmarked envelope indicates I filed it on time they have to have the thing in their hands. The data, i.e. the amount of my life savings, the account number, and the address of the bank where these funds are stashed, which incidentally were earned entirely in my home country before I ever thought about living in the US, is that vital to the ongoing effort against tax evasion and terrorism. I am supposed to turn myself in to the Criminal Investigation Division of the IRS now. That's what a voluntary disclosure outside OVDI is. I'm supposed to call up CI or get an attorney to write a note. They believe if I just file amended tax returns and my late TD 90-22.1s now, it would indicate I may be trying to slide in under the wire under cover of darkness. They want to study the details of my life going back many years. Depending on how things "look", they might just attempt to ruin my life.

      The question is, did the Secretary actually deliver his second report on the date it says on its cover? Or did he fail to file a report on time as required by law? And, after committing this extremely serious violation of the Patriot Act, did he attempt to cover up his crime by backdating it?

      I would like to call the attention of readers to the fact that this report the Secretary failed to deliver on time, had it been filed properly, could have proven to be even more important than the annual report I also failed to deliver on time, i.e. the one that my bank account number has not changed for the twentieth year in a row, to the ongoing national effort to combat terror. We'll never know now.

      Comment length restrictions limit my ability to finish this action packed story. See my next entry below:

      Delete
    5. As I work for a company that sends a lot of expats overseas and uses Deloitte for expat taxes, Deloitte gets away with not telling you about the FBAR because "The FBAR is not a tax form." It will depend on the contract that Deloitte has with your company, but they will say their contracts cover taxes only and they never had to say anything about the FBAR.

      It becomes a vicious circle because, of course, the HR people who sign the contracts with them as well as the expats who were sent overseas (or immigrants who come to America) have no clue about the FBAR and do not ask for it to be included in the information on taxes that is provided to them.

      So what happens? The expat gets huge fines and neither his or her company, nor Deloitte takes responsibility for not advising about this non tax form. You are not alone in your experience, Moby. Glad you fought back.

      Delete
    6. Now I suspect that the Secretary may not want it generally known that he and his predecessors have been acting for a decade as if they believe they are not bound by the rule of law when it comes to the timely filing of reports as important as the one I failed to file.

      Even if some of you think what's in my about to be filed TD F 90-22.1 could or must be more important than anything the Secretary of the Treasury could have reported to Congress had he filed his annual reports on time, consider this:

      There is some evidence that Congress felt that his annual reports could be more vital to the ongoing effort to combat terror than my reports. I point to the fact that they passed a law that specifically required him to file them. I am not mentioned by name or by title in that legislation. Until Congress does pass a law requiring me to file special reports as opposed to the ones everyone like me has to file, I say we should concentrate on the Secretary.

      I have solid evidence that the Secretary did not deliver his second report to Congress on the date it says on its cover.

      I turn now to a sentence in the Secretary's third report: "The Secretary submitted...the subsequent report in the fall of 2003".

      The "fall of 2003" is not April 24, 2003.

      This is proof that the Secretary violated a provision of the Patriot Act, or, he lied to Congress in his third report about when he delivered his second report. The Senate history sums up what all the fuss was during the period when the Patriot Act passed and the Bank Secrecy Act was beefed up. It was thought that increasing FBAR compliance:(page 108) was "vitally important...to combating terrorism".

      I believe there are dots that can be connected here: the United States Secretary of the Treasury appears to have admitted he violated a law created to combat terrorism.

      Think about what a backdate means on the cover of a report so vital that merely filing it late is a serious crime.

      Now the IRS tells us all that if there is a pattern to our wanton law breaking, i.e. a "pattern" of repeated and especially willful failure to file reports things will go very hard on us indeed.

      Note that the Treasury Secretary's third report has no date on its title page. Look at the filename of the .pdf file in your browser address bar. Note the number: "2004". Sheppard 2006 on page 16 footnote 92 says they too noticed the cover had no date. Since Sheppard 2006 needed to discuss the "third report" they needed proof as to what it was and when it was delivered. The Treasury Secretary again supplies it. For one thing the report identifies itself in its introduction: "the Secretary of the Treasury submits this third annual report". This Secretary's third report was due on April 26 2004. The report itself contains references to events in 2005. Sheppard 2006 refers to it as "Treasury Report 2005".

      We have no record of any further reports.

      Every year, it looks like, a deadline passes for delivery of a vital report the Patriot Act requires the Secretary to file and he fails to file it.

      If the authorities find him before he turns himself in things could go very badly for him. This is the activity and behaviour pattern the IRS says they are looking for.

      Delete
    7. Moby: I loved the .pdf Jack prepared of your response to the IRS. As I am a newly arrived immigrant I especially liked the it is impossible to come here and not violate the BSA unless you are informed about it by the IRS line. The Google data, the IRS documents that don't warn about it, the world's largest accounting firm says nothing, the State Department admission, the Taxpayers Advocate is choked, its enough to cause me, if I were the Treasury Secretary, to fold up my shop and go back to the drawing board.

      Obviously they've known how bad it is for some for years and they're going to press on. I can't see where it matters how good anyone's defense is - what they say is that's just what taxpayers come up with is these stories about how they didn't know. Yet that's what I do these days, work full time to study how to make my best stand. It's my life savings. It was an accomplishment to create it. The only way I can cope is by seeking greater understanding of their system than they have and it seems a daunting study.

      Maybe the problem is this is a war. The rich got away with whatever they were doing for years until 9/11. The Patriot Act was passed in response to terrorist attack. The increased enforcement of FBAR stems from there. They've got to find a way to do what was regarded as impossible before because there's a war on. So they're at the point where their own citizens can be just more collateral damage and so far the citizens are putting up with it. Recent immigrants are a step down from that.

      Delete
  30. After studying TurboTax 2009 again this evening I see that it does ask its users if they have foreign bank accounts.

    However I can still understand why my wife missed seeing this question when she originally filled out our taxes for 2009.

    I finally got it when I repeated my original test file using the software.

    It isn't a "Do you have a Foreign Bank Account?" question dominating a screen such as the "Did You Make Money in Other States?" question. It certainly isn't a question on a data input screen followed by a "Review and Verify Your Info" screen such as the name, birthdate and SSN data gathering screen that justified itself to users by telling them "it's very important" that that info is correct.

    I can't embed the screen in this comment as Jack doesn't allow the IMG tag.

    If you believed as my wife and I mistakenly did that foreign interest is not taxable in the US you click "done" in answer to "If you have no other interest income, select Done", and you're ready to move to something else. The deadly screen is presented. Its title: "Other Interest and Dividends" doesn't look that necessary to study to someone who thinks they are finished with interest because they've entered all their US earned interest in the appropriate screens. TurboTax reinforces your tendency to not be interested. You are informed that "these are other interest and dividend items that apply to very few people". If you read on, and my wife didn't in 2010 when filling out our 2009 taxes, you see the checkbox in front of "Received income... or had foreign bank accounts...".

    I then took another look at the Toscher and Stein 2008 wording in the discussion of what the IRS FBAR Q&A says about due diligence. It dawned, although I thought I clearly understood this already, that due diligence when it comes to tax preparers is about what the IRS requires the preparer to do to avoid being seen to be complicit in any eventually discovered taxpayer wrongdoing.

    The IRS has not been as serious and is not as serious in requiring tax preparers to protect the taxpayer from making a dangerous mistake such as not filing an FBAR or not declaring foreign interest income on US tax returns. The IRS has been attempting to put the fear of God into the type of tax preparers who have been living off whales navigating to tax havens. They have not put in the time to tell ordinary tax preparers that they should do more to protect ordinary taxpayers who are now being ground up as bycatch in whale processing plants. Anyone can verify this by visiting their local tax preparers and discussing FBARS. Ask when they realized how dangerous a foreign account can be to a taxpayer and when they first started making sure they were protecting their clients.

    TurboTax looks like they are asking the question more as a minimum to protect themselves than to protect taxpayers.

    I still tend to believe TurboTax is vulnerable to a class action suit. If I were Intuit (owners of TurboTax) I would be proactively stepping out now taking the position they understand how this looks. They and a lot of other tax preparers did not go as far as they could have or will in the near future actually go to make sure their customers were and are protected.

    The IRS and Treasury should not be allowed to spread rampant fear among innocent people. Bigger players with an interest in being seen to be solidly on the side of their users like TurboTax could, like Canada's Minister of Finance, stand up to Treasury and question the wisdom of some of what's been going on.

    ReplyDelete
  31. John Doe...

    Your contributions to understanding the new immigrants struggle to meet the income tax and reporting requirements are invaluable. Your detailed research and comments are very much appreciated. I have been reading here for a year now, and no one has covered the topic from the lack of IRS information and due diligence tax payer education as thoroughly has you have done.

    I have to think that a lot of fearful immigrants, should get some valuable pointers in how to approach an "Opt Out" "reasonable cause" arguments if they got trapped inside it. Between you and Moby and the TAS report to Congress, there is a lot of good material to work with.

    Thanks from a US citizen!

    ReplyDelete
  32. I have a suggestion that we compile a numbered list of arguments that applies universally to all immigrants that we will be using as a standard template for opting out. Everyone can contribute to that list. Everyone can add their own individual specifics later to the list.
    That will be a united voice and the show the power of reinforced 99%
    We can have a similar template each category of expats and citizens.

    ReplyDelete
    Replies
    1. Jack,

      Do you know if form 8886 would be required to be filed in some cases involving foreign accounts? I have not read about it anywhere on this forum, just saw it in the tax prep software?

      Delete
    2. Form 8886 is the Reportable Transaction Disclosure Statement. I have no reason to believe that this is required for simple foreign accounts.

      Jack Townsend

      Delete
    3. In the OVDI FAQ there is no mention about the 8886 form. I assume that even the most twisted offshore accounts cases involving trusts/entities would not require that form.

      However after reading the 8886 instruction I would say that certain transactions with foreign entities could be considered as transaction of interest that are on the IRS list of abusive transactions including Offshore Accounts operations.

      Furthermore adding to the confusion is that the penalty for not filing form 8886 is 75% of the unreported income that would be otherwise reportable. So if I am reading this correctly, if the taxpayer reports the foreign income, even from entities then the transaction ceases to be of interest for purposes of filing form 8886.

      I am starting to become overly paranoid about the US tax system and the hidden forms.

      Delete
  33. News item, Washington: "IRS Commissioner warns John Doe: it's over"

    US Secretary of the Treasury Timothy Geithner said today he is proud that the IRS is seizing the bank accounts of many recently arrived immigrants.

    "This FuBAR policy is the heart of our war on terror".

    A source on deep background said to be inside the White House itself stated the escalation of the war will continue: "When the use of money outside the US ends, terrorists won't be able to finance their activity."

    John Doe, the principal target named on the IRS warrant served against Swiss banking giant UBS who eluded prosecution only because the government of Switzerland intervened, attacked Geithner's focus on immigrants as FuBAR

    Mr. Doe, driven into hiding as he fills out forms, had to leave his comments on the internet.

    The Secretary struck back: "Its Mr. Doe who owes the back taxes. I've never been in a position like that. John Doe is the one who failed to file a report required by Congress, not me".

    IRS Commissioner Shulman then announced that the IRS has prepared a campaign aimed at Mr. Doe:

    See: IRM 25.5.7 Special Procedures for John Doe Summonses.

    Caution: it may not be wise to believe everything you read on the internet.

    ReplyDelete
  34. This is MNN, your mythical news network. This story comes from New York:

    "Geithner/Doe Continue Word War"

    Treasury Secretary Timothy Geithner responded today to internet allegations that he and some past Treasury Secretaries routinely violated the Patriot Act. Geithner , who was in New York filing suit against John Doe for slander , said Mr. Doe's charge that a Treasury Secretary of the United States covered up his failure to file a timely report vital to the war on terror by backdating it is a "pathetic attempt by a soon to be convicted felon who we will be bankrupting to divert public attention away from his ongoing criminal activities" .

    Mr. Doe, who claims threats of IRS brutality have forced him into hiding at an undisclosed location, described the huge bunker where he lives. He says he made it by stacking millions of unique pages torn out of the US tax code. "The IRS was creating new forms faster than I could fill them in", he said.

    "The civil penalties were into the billions. They were going to put me in jail for 600 years".

    Geithner said: "The rapidly expanding form processing sector has already revitalized Detroit. It is generating millions of good American jobs all over the country. John Doe and criminals like him want me bring this growth to a halt. They expect me to destroy the national economic recovery".

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    Replies
    1. What was John Doe backdating?

      Delete
    2. I assume it was Treasury Secretary John Snow who found out that the Patriot Act required him to submit a second annual report to Congress by April 26 2003 on how things were going in the FBAR war on terror, tax evaders and money launderers, etc., only he didn't do it. He actually submitted it sometime in the fall, as his report which was delivered sometime in probably early 2005 admits. I think he was somewhat concerned that people in Washington might actually expect a Secretary of the Treasury to live up to laws passed by Congress that actually call on him by name to do something in particular in connection with the war on terror, anyway the Patriot Act did call on him to take action, he didn't, so he backdated the report to pretend to casual observers at a later time that he did.

      You follow? By the standards the IRS is imposing on a lot of immigrants or the dual citizens up in Canada, John Snow appears to be a willful criminal.

      Delete
  35. Re: Treasury rigidity on any matter department.

    They were telling dual Canadian/Americans they couldn't alter whatever they were attempting to impose on them for quite a while.
    There is "31 USC 5314. Italics are the actual words in the law. The rest is my summary of the legal gibberish:

    (a)...the Secretary of the Treasury shall require... a person…. to keep records and file…, but (b) he may (1) exempt...persons... (2)he may exempt… a foreign country if the Secretary decides applying the requirement...to all foreign countries is unnecessary or undesirable, (3) he may decide to exempt transactions or accounts below a certain size or of any size (4) he may exempt transactions or accounts of any kind or (5) [or he can do whatever he wants]

    ReplyDelete
  36. Has Secretary Geithner got an FBAR skeleton in his closet? Inquiring minds want to know....

    Eg: The Wall Street Journal “Geithner’s Tax History Muddles Confirmation”

    Senators were told that Geithner's back tax problems were the result of "common mistakes" anyone could make when filing taxes after working for an international organization.

    President Obama through his Press Secretary said Mr Geithner's "service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed,"

    Senators trotted out the IMF documents available to Mr. Geithner when he was working for the IMF, which would have told him exactly how to avoid committing his crimes, I mean, making his honest mistakes.

    New immigrants to the US are handed documents that don't tell them how to avoid committing what they are told is the extremely serious crime of not filling out a form.

    So you should say to your IRS examiner, accept an assurance that you did not know and hence did not willfully commit a crime. The Senate accepted Obama's assurance that his choice for Treasury Secretary did not know.

    And the thing is, Geithner had what is known around here as "bad" facts.

    He employed an undocumented worker. Her papers expired while she was working for him and rather than remove herself from the US or turn herself into the USCIS who would have removed her she continued to work. Geithner is presumably not complicit with his worker's violation of the laws of the United States because, presumably, he did not know.

    An audit of Secretary Geithner's 2003 and 2004 tax returns showed a tax loss to the IRS of $17,230. The man paid. Only when Senators asked him the question, i.e. did he owe similar unpaid amounts because of filing the same way in 2001 and 2002 which the IRS was unable to require him to pay because of the statute of limitations, did he say yes. After the matter became public, he paid up on those years too. But the IRS applied no penalties on any of it.

    And the audit found that he slid some cash out of a retirement plan early, took an improper small business deduction, deducted non-charitable items as charity donations, and charged personal bills as business use.

    Would you want to see this man's career destroyed and have him threatened with financial ruin to see if he bolts into a program designed for ciminals where he gets stuck with losing 27.5% of whatever the IRS says, unless he can prove somehow to them they should let him "opt out"? I wouldn't. If we seek to destroy people like this, our society will degenerate until there is no tolerance or common sense left.

    Things will degenerate until the next thing we'll hear is that the IRS is raiding the bank accounts and seizing the homes of newly arrived immigrants to finance its assault on the tax haven bastions of Switzerland, while telling everyone its the war on terror.

    However, I would like to see whether the audit required the Treasury Secretary to say if he had foreign financial accounts adding up to more than $10,000 in any year since 1970 when the Bank Secrecy Act was passed and if so can he show us the FBARs? And if IRS auditors did not ask, why did they not ask?

    ReplyDelete
    Replies
    1. Because they are the untouchable Lords and we are the lowly Serfs. Did you not know that? Kind of like the insider trading issue. There is one standard for Washington insiders (Geithner, Rangel) and a different one for us the serfs. Maybe Mr. Shulman can expand on the issue but do not hold your breath. He will not even respond to key members of his own organization that see big problems with the shakedown, oops, I mean Voluntary Disclosure Programs. Its a sad joke that is not funny at all. Utterly disgraceful. We are a nation in decline and a big part of it in my opinion is the lack of good leadership.

      Delete
    2. There is this January 9 2012 press release, "The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities".

      They aren't leaving us much room to criticize them: the Treasury Secretary only promised in the fall of 2003 they'd have a notice on top of the 1040 for every taxpayer to see. They almost sound like they might get it done in less than a decade. I don't know what people are complaining about.

      Delete
  37. Hi,
    How IRS treats real estate asset for penalty. I was checking foreign account/asset statement that we need to submit to IRS as part of OVDI. In that, it says to list FMV at 12/31/2010 if it is still owned. Does this mean, we need to include real estate FMV only for year 2010? what about prior years regard to real estate?

    Thanks

    ReplyDelete
    Replies
    1. To make it clear, I own that real estate asset from 2003 when I was resident of India and is not sold till now. My max account value without real estate asset is in 2007. The question is whether the penalty will be on (Max account value of 2007 plus FMV of real estate asset on 12/31/2010) or (Max account value of 2010 plus FMV of real estate asset on 12/31/2010).

      Delete
    2. You really need professional assistance on this because there are too many nuances not addressed in your question or any attempt to deal with your question. I suggest you get a lawyer.

      I know you think it is a simple question. It is not.

      Best,

      Jack Townsend

      Delete
    3. Thanks Jack. I came to know that as I don't have any income from real estate, real estate is not part of penalty.

      Delete
  38. Here’s a thought I had after reading Moby’s Opt-Out packet. Why not sue the IRS, Dept. of Treasury, U.S. Gov’t on grounds that expats and/or recent immigrants cannot be held to know the complexities of US Tax law given their status outside the country or their status as newly arrived immigrants with ties to their home countries that immediately puts them in complicated tax reporting situations and thus subject to draconian tax penalties. Surely these are the unintended consequences of the FBAR requirements. These individuals were not the intended targets of the enacted legislation designed to monitor and halt tax evasion, criminal activity, etc. Surely, there has got to be one or more legal claims here that can be brought with the right facts? Lawyers…show us what you can do with the right facts.
    Thanks.

    ReplyDelete
    Replies
    1. The way to test whether the claim has any merit is to ask lawyers whether they will take the case on contingency. I would not. But I wish you the best. Maybe some lawyers will see this and be willing to handle it on contingency. I would be glad to put clients and lawyers together if they will email me. By the way, I also wish the best of luck to the lawyers who might take the case on contingency.

      If you can't get any one to take the case on contingency, then you will have to come up with a very large amount of money on the front end to get the lawyer involved. I suspect the amount will have to be $100,000 - $250,000 (perhaps higher), so a number of taxpayers will have to join together to litigate the matter (although I do understand that some of the taxpayers have large amounts involved, so the fact that they have not mounted this offense is telling as to the merits of the offense).

      Jack Townsend

      Jack Townsend

      Delete
    2. Moby shouldn't have entered OVDI. Then he wouldn't have had to make a plea to get permission to opt out. I don't blame him. The IRS bullied everyone who bought their line that they have special powers like they seize what you have on their call and you can only defend by suing them. It isn't that way over FBAR. They can't seize. You stay out of the program. You cooperate with them but when they ask what you think the penalty should be you say a warning letter sounds pretty serious. They then either fold or they take you to court. They aren't giving you a guarantee they won't take you to court if you enter OVDI because they can't. So you size yourself up and you realize, the head of the whole show looked worse than you do when the Senate examined him. Think about Geithner.

      Geithner was working for the IMF. The IMF doesn't withhold what's in some of the boxes on the average W-2 so it appears Geithner pockets it. It goes on for years. He's audited and only then partially pays up because half of his known transgressions are protected by the statute of limitations. He decides he wants to be Treasury Secretary so he coughs up after Obama tells him he's got the job. A Treasury Secretary doesn't hide behind the statute of limitations although the day before he wanted to be the Secretary he was hiding there. The Senate finds out when they are asked to confirm him and agree to view it as an honest mistake. The President of the United States is standing at his side.

      Geithner couldn't have been confirmed if he had entered OVDI. OVDI is designed for willful criminals as a mass standard pre approved plea bargain. OVDI "beneficiaries" report directly to CI. People entering it sign away their rights to due process to get accepted into this great program, its that wonderful. Once there it should be no surprise they treat you like a criminal who just made a plea bargain they don't even have to live up to if they really don't like you.

      You can't be Secretary of the Treasury if you made a sordid plea bargain and allowed the IRS to seize 25% of the assets you had not reported on an FBAR, because people will wonder why you caved in. They will wonder why you thought the IRS could convince a court given that the IRS has the burden of proof to show the court you are a criminal. People will then tend to believe you are a criminal. They don't want criminals to be the Secretary of the Treasury. People who make honest mistakes on the other hand are welcome.

      You can be Secretary of the Treasury if you say you had no intent and pay up. That's what he did. There were "bad facts". Some could say he must have been complicit in breaking US law, about the fact an alien with expired papers was in his employ. If you are an immigrant here with documents, you know what is involved in getting those documents.

      What the IRS is doing to people who have survived the inquisition that goes on to get those status documents is telling them so sorry, suddenly they are criminals who need to sign up for OVDI. Its preposterous. It can be demonstrated that the IRS didn't even attempt to educate incoming immigrants about what the IRS wanted them to do. They know it. It has been demonstrated to them repeatedly.

      Geithner established a political precedent when he waived his right to the statute of limitations and paid back taxes for two extra years the IRS could not get him for otherwise as a gesture he thought would ease his way into being Treasury Secretary. People should start asking him about his foreign bank accounts going back to 1970. And what about those previous Secretaries of the Treasury who acted as if they could care less about filing reports even as they told us if we don't file them we are dead meat.

      Delete
    3. Jack.

      A class action would be good. But I like the Toyota idea of litigating separately, grinding the opponent down. Obviously, we can't sue in small claims, however.

      As for filing a complaint, I am sure we can figure it out and represent ourselves sans attorney. File a complaint after the group brainstorms the causes of action. Or, someone can take it on pro bono with the assistance of a good client willing to do the work and who has good facts.

      All immigrants here feel cheated and sense there is a profound injustice being worked upon us. I think there is a valid claim to be brought. We could seek some type of injunctive relief or declaratory relief. We need not sure for damages.
      Thoughts?

      Delete
    4. I am not a lawyer, but from what I understand -- under the doctrine of sovereign immunity, the US government cannot normally be sued except under limited circumstances where it has granted permission. This is especially so in areas such as revenue collection. So I doubt any such lawsuit would get anywhere at all.

      Delete
    5. Jack,

      A lot of immigrants did not enter the OVDI because of criminal prosecution relief, but because of the unknown penalty that would be imposed in Detroit on the delinquent FBARs. It was written plain and simple in the OVDI FAQ that there could be a penalty of 10K per account per year. The choice of words is very important here. Nowhere did IRS mention in OVDI FAQ that penalty will not be 10K per account per year or not even per account because that is not what IRS does in practice. Nowhere did IRS mention that it is the burden of the service to prove willfulness, which in the absence of entities is close to impossible. Even those that sought legal advice did not get a 100% competitive advices and were pushed into OVDI because that was the safest thing to do. Nowhere it was said that Detroit FBAR does not impose any penalties at all!!! except some posts on this forum.

      In corporate world this is would be called plain and simple "false advertising." Now IRS is not a corporation that you can call the Better Business Bureau on. I suppose the tricky part is how you structure the lawsuit on. At this point the lawsuit is great for some folks, however it could end up being a long term and expensive project. I am just curious to know, from your point of view, if IRS did break any laws in running the OVDI or we are just dealing with some non-willful side effects.

      Delete
    6. I don't think the IRS violated any laws in the OVDP or OVDI. The IRS made an offer to taxpayers which taxpayers could unilaterally determine to accept or reject. If they rejected the IRS offer, they were then subject to the same risks they were before -- clearly imposed by Congress. So, no, the IRS did not violate the law.

      A more subtle enforcement issue is whether the IRS struck the right balance in the offer(s) it made? Arguments are all over the lot on that question. But that is a judgment call that the IRS made that confers no rights on the taxpayer who did not accept the offer and confers only the right to be processed as promised to the taxpayer who did accept the offer.

      Best,

      Jack Townsend

      Delete
  39. I am contemplating a "quiet disclosure" because I believe it highly unlikely they would consider criminal prosecution in my case no matter what. If an assumption is made I am right about that, I then have a few questions. There's no way I enter OVDI. The only alternative I would use is "noisy" disclosure. My 2009 and 2010 until now delinquent FBARs and amended 2009 and 2010 tax returns will be ready to file in a few days.

    I own a home in my country of origin I am not using. I have never rented it out including since I became a US person. Is there any possibility the value of it can be involved in penalty assessment if it ever came to the IRS deciding it needed to try to get some of my "foreign financial accounts"? Would it make a difference to how the IRS attempts to classify it at that time if the home country property tax I paid on it had been claimed as a deduction here in the US for 2009 and 2010 tax years?

    If a CPA who knows I want unquestionable results agrees we have a solid case to claim certain not ever before claimed legitimate deductions agrees, we have a choice about what the bottom line on the 1040Xs for the two years in which FBARs were not filed will be. We can file amended returns that end up saying any of: we owe the IRS a small amount, the IRS owes us a small amount, or that say no one owes anything to anyone. Its all less than $200 either way one year less than $100 the other. What is the best course of action? I lean to having the IRS owe us or no one owes anyone anything. I wonder. The IRS says amended returns that show an increase in income are what they are looking for and there's nothing we can do about that, but some statements they make lead me to believe they are most concerned about amended returns that show an increase in taxes owed.

    Mastercard records exist showing that there was a maximum credit balance in a year on my credit card maintained in my home country of less than $500 in one year and less than $100 in the other. No interest was paid. Is the Mastercard credit balance reportable on the FBAR?

    Savings bonds totaling slightly less than $10,000 that are issued as certificates cashable in almost every financial institution in my home country existed in the two years I failed to file FBARs. Records of these are maintained under one account number by some agency of my country of origin government. We are reporting interest earned on these on the amended tax returns. Do these need to be included as part of the total of the foreign financial accounts on the FBARs? I’m thinking of 4.26.16.3.2 (07-01-2008) Financial Account “D. Individual bonds, notes, or stock certificates held by the filer are not a financial account”

    Thanks for hosting the blog.

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    Replies
    1. I also am keen to know about owning property in a foreign country which does not generate any income. I declared the ownership in OVDI, but stated the proeprty was never rented or sold thus no tax non-compliance. ANy thoughts how IRS will addess? ignore?

      Delete
    2. @ John Doe

      My view is that you'd be doing yourself and the IRS a favour by going "quiet" on your filings (prospective or retrospective). I believe they'd love the opportunity to quietly ignore whatever amended docs you file, even if they noticed you were doing a late filing. They've got trainwreck on their hands and would appreciate not having other "unintended targets" throwing themselves into the fire. Going into the OVDI forces them to put the 27.5% deal on the table and make you sweat the decision whether to pay or opt-out.

      BTW: Your situation is almost exactly what mine was.

      Delete
    3. @Moby I appreciate your view.

      I'm wondering now if I've misunderstood what "noisy" means.

      I'll explain what I understand "quiet" to be. I looked at the IRM i.e. the Voluntary Disclosure Practice section under TAX CRIMES - GENERAL. A "voluntary disclosure" is described in (3) to be cooperation i.e. I take this to mean filing or if they decide to audit to cooperate, and, pay up. It doesn't say also call CI. The IRS gives as an example of voluntary disclosure (6)a a taxpayer who cooperates, pays up, AND supplies a letter from an attorney, which seems to refer to (5) which says any taxpayer or his "representative" who contacts the IRS "regarding voluntary disclosure will be directed to the CI". I don't see in (3) where it says I need to contact the IRS as it says in (5) or that I need to follow exactly the example given in (6)a. As they say in the headline over (6), "examples include" which obviously means but are not limited to. (5) says if I contact them regarding voluntary disclosure, which if I just file 1040Xs and FuBARs, I'm not so forget about (5), and since (6) is just an example, I'm fine if I meet the terms of (3).

      I feel like the guy in "who's on first" who exclaimed after the other guy told him he's got it, I don't even know what I just said.

      So "noisy" to me means (5) contacting them regarding my voluntary disclosure outside OVDI as I file the 1040Xs and FuBARS and being directed by them to CI.

      And then there's OVDI. It seems to me they are making it well known that they will take a harsh view to those who try "quiet" disclosure because they fear some of their actual targets will sneak in. They can't be actually after people like me. As I read the IRM that governs how they are supposed to behave in any case they have before them that is outside OVDI or any plea bargained agreement is they are governed by a code of conduct that sounds reasonable. If they violate their own code I can use it in my defense if they want to press on and take me to court. It all seems so outlandish. I have read if I lose in court they can recover costs. But I say come and get me. They'll be outside we've got you surrounded, throw your bank account out.

      I actually think there is a political solution that is possible. I'll certainly be taking this up with my Senator (once I'm compliant)who is on the FBAR oversight committee to make sure she hears an immigrants story first hand. I noticed a NYTimes story on FBAR and wrote a long email to the reporter bringing to his attention some of my research.

      Delete
    4. John Doe...

      Which NYTimes story are you talking about here, and who is the reporter, as I too write a lot of them, so wondering. If you have sent something, and I have not, I would love to follow up. Thanks...

      Please share the link.

      and I enjoyed your "who's on first" analogy to what you just said!

      Delete
  40. To Jack and other here,

    Has anybody received any information from the IRS in the OVDI 2011 that they have been assigned an agent? I am in this 8 months and counting.

    Thank you

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    Replies
    1. I am in 2011 ovdi. I submitted on Aug 31st. Strange thing happened recently. I had received a notice to pay interest for the amended returns submitted in OVDI to Austin TX. This means my amended returns were processed. I was not assigned an agent yet, neither did I receive 906 form. My oVDI penatly was not processed yet. I think this is a mistake that happened, the Austin TX office scanned the returns and they were picked up by some other service center outside of OVDI. I am a minnow and had very little interest unreported.

      This just shows one more time that I should have done QD.

      Delete
    2. Anon, Mar 16: can you please share the tax amount that was non compliant for which you had joined OVDI? My foot fault is approx $3,500 for four years. Your case is very interesting, and maybe this is another infection point in OVDI for processing minnows. I only wish IRS had this screening criteria at the front end of joining the program vs rear.

      Delete
    3. To: AnonymousMar 16, 2012 09:55 AM

      You should have already paid the tax due and the 20% penalty as well as the interest on it when you made the submission. That was the requirement to begin with. Only the FBAR penalty can be paid later when the 906 is sent.

      So you final conclusion is baseless if drawn based on just receiving the notice.

      Delete
    4. yes, you are right, the FBAR penalty is the most important thing. i just meant that the returns would not been picked up in QD for further exam, but no one knows what FBAR penalty could have been.

      my unreported income was 600$ for two years.

      Delete
  41. A TurboTax story:

    I called the head office of Intuit, the parent company of TurboTax. I explained to the initial screener what happened to me and my wife, i.e. we both have acute symptoms of FuBAR , which I claimed to the Intuit screener was due in part to the fact my wife did tax our returns with TurboTax 2009 and 2010.

    I found that the call was quickly transferred into the Office of the President.

    I had several things on my mind which I explained to the screener there. At minimum I wanted to be sure someone could say they tried to get through to TurboTax to tell them that harm came to people TurboTax could have protected.

    I said to the first two Intuit screeners if there was a class action suit filed against Intuit I would sign on. But I wasn't threatening and I didn't see any need to talk about that.

    I said a prime concern for this call was I wanted a programmer to hear my story. I said it would take one program change to fix the problem I saw. I wanted to see things changed so what had happened to me would not happen to anyone else.

    I also said I needed help. I said I didn't know what Intuit could do to help exactly, (I didn’t expect them to admit liability right then and there and offer to pay for lawyers to handle my affairs) but I said I had suffered as a direct result of using their product. Sometimes when I’m lost I just call people out of the blue. The Intuit call was one of those.

    The Intuit screener immediately said she would “escalate” the call. Someone would call me back, she said.

    The first guy to call back was a programmer. This TurboTax programmer guy and I saw eye to eye about how the TurboTax 2009 program works. The programmer explained that the legal guys there don't see that TurboTax is a "tax preparer". I pointed out the wording in 26 CFR 301.7701-15-TAX PREPARER 10.3(c) Mechanical or clerical assistance. I said that as the war the IRS is escalating in places like Switzerland continues, collateral damage among US citizens may increase to levels that will cause the IRS to change what it says was happening re who was a tax preparer in the past, or it may cause higher courts to change whatever existing precedents are established as to what TurboTax was doing. The programmer pointed out that at the bottom of the forms produced by the program are words indicating to the IRS the tax returns produced by it are "self-prepared". I pointed out the IRS and the courts define who Congress said a tax preparer is or was, not the preparers.

    The topic moved on to programming. I brought up a Microsoft story - a team had perfected handwriting recognition, so they thought. They made it through every hoop. They’re in Gate's office ready to demonstrate, the story goes. The future for these guys looked bright. Gates saw that the product was a dud immediately. He's left handed. My point was TurboTax 2009 obviously hadn't been tested against naive immigrants who can be damaged if the program fails. I said, it’s like that handwriting recognition program. It worked great until a class of user they hadn't thought they needed to test it against ran into its weak point.

    The programmer spent as much time as I needed to tell my story and exchange views. Intuit diplomatic relations with injured users at this level is outstanding. The programmer said he'd think things over and get another guy more deeply experienced in other aspects to call.

    ReplyDelete
  42. That Intuit call, part II:

    The next guy to call was a top flight TurboTax support guy who comes in at tax season to oversee and back up the front line TurboTax support. This tax guy and I agree Intuit is a class act. We speak at length: an hour, maybe 2 hours. He affirmed that TurboTax was evolving in response to the IRS FuBAR war. The handbook for TurboTax 2008 is a blank on FBAR.

    TurboTax 2009 at least contains links and branches to screens and pop-ups that can tell a user what he needs to know. I told him, but, if that user's mindset is that interest earned on his former home country bank account isn't subject to US tax, and if that user has no idea what an FBAR is, the 2009 and 2010 TurboTax programs are too dangerous to use.

    This TurboTax guy and I agree that many new links branches and screens were added for TurboTax 2011. The program presents the 8938 if you tell it to. I haven’t subjected TurboTax 2011 to a full test yet. I don’t know what to make of this TurboTax tax guy's assertion that the program has been fixed. The call was another example of outstanding Intuit response to a complaint. Both Intuit responders mentioned they were filing written reports on the results of their calls.

    I enjoy interacting with top flight people on difficult issues. The interaction with Intuit guys was going so well I let my guard down. I told this tax guy about gold plated evidence I have that I was ignorant about FuBAR. This is the bit I am not telling people until I am compliant or maybe not even then because it could identify me as unique which could cause my case to be identified clearly by my public statements. I’m not comfortable with being seen to be unique in the eyes of a government that wants to establish in the minds of everyone in the world how brutal it can be. Suddenly the last trace of skepticism fell out of his voice. He believed me. I was a naïve immigrant damaged as a result of using TurboTax.

    The first Intuit guy to call, the programmer, had said if there’s anything at all still on your mind after the next guy calls, tell him and we’ll consider what to do then. I told the tax guy there’s this question I need help with only it can only be answered by a guy who makes his living sorting out FuBARs. I said I mention it because the first guy said if there’s anything….

    It’s out of this tax guy's field of expertise. He wants to go an extra ten miles or so. He calls back in a while. He found a lawyer who knows the types like Jack. He’s not quite a type like Jack. He hangs out with types like Jack. He’s studied the issue. The lawyer calls.

    The lawyer agreed – I do have evidence, likely to be uncommon, of my ignorance that is very convincing. He talks to me for as long as I need to talk. I thank him and Intuit.

    But in the end I found I still have to decide.

    ReplyDelete
    Replies
    1. Dear John Doe; Thank you for all your entries. I have learned a lot from them, and also from seeing how you approach a problem. An example was your thought to just go ahead and "Sometimes when I’m lost I just call people out of the blue. The Intuit call was one of those. " I liked that. It is a comfort to see that others are trying different things - not just sunk in despair (as I have been many days). I cannot afford representation, or consultation, but seems as if I cannot afford not to. I hope you are successful and wish you well. I too am in the OVDI, but owe no tax (99.9999% sure - although there may be more imaginary forms and rules that I've never heard of..). it is only the FBARs. I am worried too that disclosing all that personal information - (ex. most 'accts' jointly belong to non-US non-resident spouse who has no IRS obligation - and will compromise his right to privacy), might open us up to identity theft - since FBAR info can be shared widely (not like returns).
      Just wanted to say best wishes..badger

      Delete
  43. To Jack and all lawyers,

    Can the IRS be sued?

    We can't let this go on without putting up a fight. Opting out is an individual battle. What can be done collectively?

    I understand that odds are against all OVDP/I participants as we are either immigrants or expats and no one in the govt cares about us due to different reasons. Lawyers too have an axe to grind as these programs generate big business.

    Our chances of getting the program and the huge penalties repealed may be close to zero but at least we will get some bargaining power to force IRS to be reasonable.

    Is this a fantasy?

    Thanks.

    ReplyDelete
    Replies
    1. Variations on this question have been asked and answered before. Basically, trying to take on the IRS in some type of individual or collective litigation to get the IRS to stop its offshore initiatives as they impact individual taxpayers is a quixotic adventure.

      However, I think that articulate and well-advised taxpayers going through the OVDP or OVDI processes will not have the draconian results they fear if they truly has low culpability. There may be significant processing costs (hiring an attorney or other tax professional) and time and angst from uncertainty involved, but at the end of the day the fears of draconian penalties will not materialize. That has been my experience, anyway.

      Best,

      Jack Townsend

      Delete
    2. I agree.

      But even though I came out financially unscathed, I think I deserve an APOLOGY for the poorly thought out, 2009 "bait and switch" FAQ and the ensuing consequences. It caused me a great deal of distress. I had to waste a great deal of time on this. So did the IRS.

      They were ill-prepared. When the whole thing started, they weren't even able to return telephone calls from abroad. That's why I think that they snookered me unintentionally with that stupid FAQ.

      The individuals at the IRS I dealt with seemed to be reasonable. The policymakers weren't.

      Why did the IRS policymakers choose to waste so much effort on cases like mine? That does not serve to inspire confidence in their competence...or loyalty to the nation.

      I used to think the country of my birth aspired to be fair. The voluntary disclosure process taught me that dealing with IRS is basically a bazaar (bizarre?) negotiation.

      Delete
    3. Jack

      You say that it has been your experience that 'draconian penalties will not materialize". Are you referring to general experience based on your years of dealing with the IRS and your assessment of the IRS's motives, goals and priorities ? Or is it based on specific experience with treatment of opt-outs ?

      Obviously, both are valuable data points, but specific experience is clearly the most relevant as a guide to the IRS mentality on this issue.

      I do happen to agree with you that the IRS will not be draconian (although for a minnow, even a small penalty would be draconian). I take some comfort from the fact that the IRS has allowed Appeals to FBAR penalties, even though (as these are not tax penalties) they really did not have to allow internal Appeals.

      Delete
  44. In OVDP 2009, my clients all obtained acceptable results inside the program and thus did not opt out. In OVDI 2011, none of my clients who are have an opt out profile have reached the stage of deciding to opt out, but I know that some will. (The ones I have closed to date did not have opt out profiles.)

    So, bottom line, I have no personal results. However, I have heard from practitioners and taxpayers (some of the latter via this blog) whose results have been significantly better than feared. I think the fear factor because of the potential FBAR penalties in particular has been greater than warranted, but understand that we are dealing with uncertainty and, in an uncertain environment, people tend to fear the worst. Some of that uncertainty will dissipate as more anecdotal evidence of opt out results are reported. If you will poke around this blog, you will find reports of favorable (or at least less punitive) results on opt outs (or its equivalent FAQ 35 in OVDP 2009).

    I don't think that any of the cases reported where significantly more favorable results have been achieved on opt out (or equivalent) have generated happy taxpayers. They are certainly happy relative to the inside OVDP / OVDI penalties, but they have spent a significant amount of time and angst and, often, professional fees to get to the end of the process. But the only point addressed here is whether the fears of draconian penalties outside the program were justified. I don't think they were, but understand the concerns.

    I just want to remind readers of the blog that, even if good results are obtained by some taxpayers on opting out, does not mean that good results will be obtained by all. Some taxpayers have facts which do not justify low or no penalties. I strongly recommend consulting with a practitioner who can develop and sort out all of the relevant facts that should be considered in opting out.

    Best,

    Jack Townsend

    ReplyDelete
  45. I am the same person who posted my case details under "Anonymous Mar 6, 2012 10:42 PM". We earlier received a closing agreement with non-willful penalty total of $7500 applied.

    The examiner (a very nice person with good heart) showed empathy and prepared a closing agreement with $7500 non-willful penalty. We did not hide money in secret bank accounts, we entered the program realizing clearly that we do not owe any tax for last 3 years (in fact, we paid much more tax for last 3 years), the only fear being learning the FBAR requirement and of course extreme fear of consequences.

    With tears in my eyes and getting our family subjected to emotional rollercoaster, I would like to share that "technical services" rejected examiner's 906. We are now being told that my only home in my country of citizenship will be included in the penalty calculation. The total penalty will now be around $30,000.

    The agony, pain, fear and extreme stress continues.

    ReplyDelete
    Replies
    1. I feel your pain. You offer very few facts, but you should consider an opt out but only with guidance both as to the risks in doing so (probably not great in your case) and then in making your case for the lowest nonwillful penalty.

      Your problem inside the program is that the program does require that real estate be included if there is noncompliance with respect to the real estate. Inside the program, the IRS says it has little or no discretion to apply the penalty structure that does include noncompliant real estate. By opting out, only the FBAR penalty will apply and that does not include real estate.

      Best,

      Jack Townsend

      Delete
    2. Jack

      Different anon here, but can the IRS really revoke a 906 after sending it out ? I suppose they can till its countersigned by them ?

      Anon @Mar 19, 2012 09:54 PM

      Its a shame to hear this after your hopeful message earlier. The only alternative might be to consider opt out. [ I'm actually not sure how the examiner applied the non willful penalty earlier without your having exited the program, although maybe that was under FAQ 35 -- if you were under the old OVDP plan ?]

      Delete
    3. You go Mr. Shulmam. Word is getting out on your disgraceful shakedown of immigrants and expats.
      Anonymous: Opt out if your facts are good. Make these IRS extortionist cronies expend time and effort for every penny they take from you.
      Its disgusting.

      Delete
    4. "AnonymousMar 19, 2012 09:54 PM"

      What do you mean "my only home in my country of citizenship" ? Is this your home of residency ? Are you a US resident ? You offer very few facts of your relationship with US, and it is hard for us to have a clear picture of your situation.

      However, if your tax due is small or none, you should not pay any FBAR penalty in case of opting out.

      Delete
    5. why did they include your home? were any funds used to purchase that home? how did they found out you own a home?

      Delete
    6. To Anonymous Mar 20, 2012 03:16 AM

      You ask if the IRS could revoke the 906 after it is signed by all. The answer is the IRS cannot unilaterally revoke it except under the conditions stated in the 906. And, I would have concern as to whether the IRS could revoke it for any reason not stated as a condition. But, if all parties agree to the revocation, then who can complain? After all the 906 is very much contractual in nature and, under standard contract law, parties can revoke, change, etc. a contract. The only potential problem is the wording of the statute, but again if the IRS agrees to revoke the 906 in a taxpayer-friendly way and the taxpayer agrees, who is to complain?

      Best,

      Jack Townsend

      Delete
    7. This is disgusting. Many of these immigrants have not much in their home country. They save every penny, even postpone sometime the bare necessities and send it to your home country. In other cases it is money left in home country before moving to US.
      Taking money from these people in the name of some obsure law is not correct.

      Delete
    8. I am the original Anonymous, who posted that IRS sent a 906, only to be denied by technical services.

      First-of-all, thanks Jack, ij and others. Much appreciated.

      My facts:

      1) I am a US resident.

      2) I mentioned in my package that I opened accounts in my home country, to pay mortgage and to capture rental income

      3) Ever since my home went on rent in 2009, I always had a loss (rental income was very less when compared with interest paid on the mortgage). Schedule E clearly shows a loss

      4) Prior to joining OVDI, even if our foreign accounts were reported earlier, there wasn't any tax due for 2008, 2009 and 2010. This is because we did not send any money to our home country without paying tax on salary earned. Our only fault, we noticed that interest on accounts were not reported. However, interest and rental income are far less when compared with the mortgage interest paid on the home loan

      Our representative is strongly suggesting opt-out but, who has the guts to deal with IRS on opt-out? I agree 100% with Jack, extremely few people have the courage to withstand the anxiety, fear and long delays. I just want this monkey off my back as I have the confidence that I can earn money again.

      A gentleman mentioned that this program is specifically being used to target immigrants and expats. I wouldn't complain, yes, agreed.

      Delete
    9. I hope you have confidence in your representative who should know all of the relevant facts (far more than recounted above) and who is recommending an opt out. I understand, however, that you may still not follow that recommendation just to get the matter settled.

      You are correct that there will be uncertainty and long delays from an opt out audit. Nothing will really be going on during the long delays, but you will still be worried about the final result and whether the final result will be justified.

      Having said all of that, your cryptic facts offered certainly suggests that you should consider an opt out, subject to the recommendations of your representative.

      Best,

      Jack Townsend

      Delete
    10. Anon

      You should see if you can find out why the technical services person rejected this argument. If it was on the very narrow grounds that your house earned income and hence the OVDI penalty applied (no discretion !), then I think you can take great heart on opt out. I think your agent would have more discretion on opt out, and in that case, would apply the same penalty (at most).

      Delete
    11. I totally agree with "AnonymousMar 20, 2012 09:25 AM",

      You should opt out -- don't let technical services get their way. Otherwise, you reinforce their brutal crackdown on minor technical errors (like your case, all you did wrong was non-filing, not tax evading), if you knew how to use cost tax credit you would not have owed any tax to IRS.

      Don't let them get your money with ease, consider your action is for all -- other immigrants.

      More opt-outs will bring sanity back to the technical services.

      Delete
    12. Opt-outs have lots of uncertainities. IRS is taking advantage of the situation. I wonder no lawyer has the guts to fight for underprivileged, innocent & genuine cases. You have been set-up to pay these fines. IRS,Congress,Lawyers are the spectators & believe me they are enjoying the sufferings gone thru by you.

      Delete
    13. It is your decision of course but their offer of 30K after offering 7.5 on the 906 seems grossly unfair. One positive of opting out is that it takes time and during that time there will likely be more data on how to handle opt outs.

      This isn't a legal argument, but a practical one, I think that if THEY offered to settle for 7.5K, even preparing a 906, they would have to justify why they would now try to get four times that amount. (I'm assuming no new information came out, for example that you had lied originally.)

      The outcome on the optout could also end up being less than the 7.5K.

      Have you used IRS Form 911 to contact the Taxpayer Advocate Service?

      Delete
    14. To Anonymous Mar 20, 2012 11:46 AM

      I appreciate all comments on this blog. I do suggest that you are misinformed in believing that lawyers do not have the guts to fight for the underprivileged and enjoy their sufferings. I know many of the lawyers working OVDP and OVDI cases and know that most, if not all of them, relish a dispute with the IRS. Sometimes, however, it is more cost effective and angst effective, to make love rather than make war.

      The big issue in most of these case as it relates to "minnows" is that making war is very time consuming and delay inducing, all of which leads to extra fees and anxiety and uncertainty. Thus, the truth is that most minnows should seriously assess whether to fight or fold at some point. In some cases, that will be inside the program without opting out, even if there is some possibility of getting a marginal benefit by opting out. As to many (perhaps most) minnows, however, opting out may be the way to go and then, on the opt out, cooperating with becoming disputatious may be the best for the client.

      Jack Townsend

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    15. Hi Anon - I feel terrible for the way IRS is treating you and all of us immigrants. did you participate in 2011 or 2009? I am wondering whether you used FAQ 35 which was rejected by the technical supervisor?!

      Delete
    16. @Anonymous Mar 19, 2012 09:54 PM

      That sucks. You are being dumped on. However, the silver lining is that the agent is clearly on your side and you now have a documented opinion (by the agent) that you are deserving of lesser penalties. The agent writes the recommendation supporting (or otherwise) your opt-out application to the Mgmt Committee. I think it is obvious that the agent will support you in your opt-out; how could they not given they've already gone out on a limb for you.

      My thoughts are: Read up the docs I posted, and then opt out.

      Delete
    17. As far as lawyers "not being willing to fight for the little guy" I don't think that is correct (based on experience contacting lawyers on a couple of non-IRS matters.)

      I found that as long as I was willing to pay, lawyers were willing to represent me, HOWEVER they have been also candid and honest enough to tell me of instances where I would have been wasting my time and money because of the unlikelihood of winning the case (or spending more in legal fees than I would likely recover)and that may be the case for minnows.

      However, I have sometimes pursued things as a matter of principle, either in small claims court or contacting regulators, even though the possible financial outcome was relatively small in relation to the time spent by me.

      Opting out is a decision only you can make and depends on how benign your conduct was, how you value your time, your abilities in presenting your case (I am highly impressed by Moby's opt out) and other factors. Only you can decide.

      Delete
  46. Jack

    I had asked about whether the IRS can revoke the form 906 because it seemed to me that this had happened in the case of Anon @Mar 19, 2012 09:54 PM, i.e. the IRS withdrew a closing agreement after sending it to him.

    However, I don't know how 906s are sent out I presume the taxpayer has to sign and the IRS then signs, so the IRS can revoke after the taxpayer signs but before the IRS signs ?

    ReplyDelete
    Replies
    1. Your last paragraph is correct.

      The Form 906 is like a contract that is not binding until signed by both parties. The sequence is this: (i) IRS prepares and sends to the taxpayer without the IRS signature; (ii) the taxpayer signs and sends to the IRS; and (iii) the IRS signs and returns a signed copy to the taxpayer. There is no "contract" until the IRS signs. This means that the IRS is not required to sign the 906 if it changes its mind before it signs (even after the taxpayer had signed). Similarly, until the IRS signs, the taxpayer is not bound even though he or she has signed; practically this means that if the taxpayer notifies the IRS that he no longer wishes to settle before the IRS signs, the taxpayer is not bound.

      Using contract law parlance, the taxpayer's return of the 906 signed only by the taxpayer is an offer to the IRS to settle on that basis that the IRS then accepts by signing the contract thus making it effective.

      Jack Townsend

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    2. Jack, I understand the contract law principle. As a practical matter, could a taxpayer say to the IRS "you make the offer" i.e. have the IRS sign first and then if it's acceptable to the taxpayer, he signs? I know a taxpayer could say this, what I mean is, could it owrk?

      Delete
    3. My belief -- not certain knowledge -- is that the IRS would refuse to do that. However, on the notion that it does not hurt to ask, go for it. If the answer is no, they will let you know.

      Jack Townsend

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    4. Here was my experience in 2009 OVDP. I have posted before.
      1. IRS sent closing agreement to me for review and signature.(3 copies had to be signed and returned to revenue agent)
      2. Around 2 months later I received 1 copy back signed by my revenue agent, an agent reviewer and a supervisor.
      I think you will be wasting your time if you try to change the way they do things. Its pretty much their way or the highway unless you opt out and then who knows. So far it sounds like well planned and researched opt out have done well.

      Anon123

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    5. Thanks Anon123:

      I particularly call attention to his last paragraph, including "well planned and resarched opt out[s] have done well." Do not despair. With diligence, the just will persevere!

      I can't ask you to throw out gloom and doom entirely, but just imagine the possibility that you will persevere and will prevail!

      Jack Townsend

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    6. What really fuels the anger and the aggressiveness of IRS towards immigrant offshore accounts? Of course the answer is bring more revenue.

      However there are so many other ways to achieve that. Why is IRS not crushing down other home based tax evaders, corporations, small businesses, where the tax loss is much greater to IRS. Seems like IRS would rather take the candy from the little kid (immigrant) than bother with other ways to collect revenue. I am deeply saddened to hear such stories and be part of such injustice. So many innocent immigrants are loosing their life time savings, when they denied themselves a trip to Joe's crab shack just to boost their life time savings or offer a better future for their children. I really don;t understand the anger behind the jihad the IRS started with offshore accounts.

      Moreover those people came forward themselves, made a voluntary disclosure. They were thinking about doing the right thing. Thanking the USA for the great country it was and gave them so many opportunities. Now most of them feel like they thrown themselves to the wolves for nothing...

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    7. "However there are so many other ways to achieve that. Why is IRS not crushing down other home based..."

      Votes, in a word. Immigrants have no voice in the US. They cannot vote and there are no organizations working on their behalf, so they can be pushed around with impunity. The other folk you mention can push back. Like any parasite, the IRS prefers easy victims over difficult ones.

      Delete
    8. To Anonymous Mar 21, 2012 11:38 AM

      You are mistaken if you think this is an initiative to get the weak and the powerless who have no political power. Its principal aim is to get major tax cheats and the penalty structure is designed to incentivize them to come in.

      The minnows -- smaller, less culpable taxpayers, including most of the immigrants involved -- should opt out and, if indeed, they have relative little culpability, they will get a fair result.

      Jack Townsend

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    9. Jack,
      Then why have a program that seems to ensnare so many minnows (expats and immigrants) when it takes such a toll(up to two years to resolve, distress, wasted resources for both IRS and minnows). Surely there is a better way. Could it be that IRS knows many will buckle and pay the ransom penalties? Why doesn't CI or a civil committee make a determination at the clearance point with a little more probing into the circumstances. Are they afraid of a more efficient process or do they want to shake down more people? There are some simple criteria that can sort minnows from intentional tax evaders: source of funds, location funds were held, structure funds were held by, inheritance situation, expat and etc. Why the two year drudgery as Just Me would say.

      Anon123

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    10. @ Jack

      "You are mistaken if you think this is an initiative to get the weak and the powerless who have no political power. Its principal aim is to get major tax cheats and the penalty structure is designed to incentivize them to come in."

      I must strongly disagree with this point. FAQ 52 of the 2011 OVDI specifies the 5% penalty for people that were unaware of their US citizenship. This is ***THE*** smoking gun that the IRS is intentionally shaking down the little guy. There can be no one on this planet who is less culpable in this matter than someone who is not even aware of their US citizenship. Rather than let these people of the hook, the IRS specifically called them out for application of penalties. This sets the baseline culpability:penalty ratio for the IRS effort. The most-innocent-of-innocent get the 5% penalty; people who are "less innocent" (recent immigrants, unsuspecting expats) obviously must pay more.

      There was a time that the IRS could have claimed the moral high ground on who the targets were for OVDP/OVDI. They could still have claimed that they were targeting the bad actors. That time ended around the close of 2009 when they would have become fully aware of the true nature of the participants after they sifted through the stack of 2009 OVDP applicants. They could have (and should have) given all the benign actors an immediate and proactive pass on the penalties. Instead they chose to double down by further specifying which subgroups within the benign actor classification would be targeted for penalties.

      As far as I am concerned the IRS have fully clarified their position on the benign actors and it is a disgraceful position. I have been fortunate in my opt-out result and I hope that others follow suit and get the equivalent treatment. However, I will always be wondering what my opt-out result would have been if I wasn't living outside US jurisdiction, making the assessment of any penalties irrelevant.

      Delete
    11. My opinion is that IRS used techniques of mind control and psychological manipulation.

      They created the image they they are outside your door ready to knock on, but they want you come out first.

      Too bad for those folks that got hooked on the bait.

      Delete
  47. Jack

    What sort of information could one reasonably hope to obtain from the IRS before opt out ? Can one ask for (and more importantly) the case file, or any findings made by the revenue agent ? I know you've blogged about FOIA before, but that was largely in the context of criminal investigations. Also, there may not be enough time to get an FOIA request answered before the opt out clock expires (even assuming the IRS will provide that information).

    It seems that having access to any written findings of the examiner would be extremely useful to anyone deciding whether to opt out or not. Otherwise, one would have to informally sound the examiner out.

    In the case of the person who mentioned the IRS revoked a $7500 offer, it seems that (s)he has a good window into potential penalty on opt out, namely 7500 at most. It would certainly help others make that decision if they could get the examiner's findings before opt out.

    ReplyDelete
    Replies
    1. I have not requested information from the IRS in OVDP or OVDI. Basically, in almost all cases, what the IRS knows is what the taxpayer tells the IRS. Hence, asking the IRS for the core information would be a waste of time.

      Now, as to IRS generated analyses, I suppose that that information might be available via FOIA. A FOIA request will, however, slow down the process and will likely produce little effective information that you could not have discovered in informal dialog with the agent. And, if indeed, the IRS would have to deliver on a FOIA request, I find that, in other areas at least, the IRS agent (or appeals officer) will disclose the information on simple request. (In this regard, if you do opt out,a FOIA request might be made at the end of the audit if agreement is not reached, or a request to the appeals officer to review the file would like be granted.) Still, on the theory that there is no harm in asking, you could ask the agent for that information and the relevant documents, perhaps with the veiled or explicit threat of a FOIA request.

      You should be aware that a FOIA request would slow the process down considerably and, I suspect, not be viewed favorably by the agent and others involved in working the case.

      FOIA does have certain exemptions from disclosure and, I suspect, the IRS would invoke some of them to thwart access to some documents (such as internal analyses). You could then go litigate whether the IRS properly asserted the exemptions, but that will be a time consuming and expensive process.

      Finally, just ask yourself what you hope to gain by reviewing any IRS documents? Is it really likely to be worth the hassle involved in chasing this down?

      Jack Townsend

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    2. Keep in mind that the Government did not really oppose the taxpayer's request for the relief Judge Rambo granted. The Government too has a heart.

      I know that, in the mind of many anguished taxpayers (the minnows) caught up in this initiative, the Government is a bully with no heart. At the end of the process, however, I suspect that most taxpayers with a good story to tell will get a result that they will think is fair (within a range, and certainly in comparison to the inside the program penalties). What they won't think is fair is the implementation of a system where there is a long period of uncertainty with a Damocles sword hanging over their heads.

      Jack Townsend

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    3. "...(within a range, and certainly in comparison to the inside the program penalties)..."

      Cold comfort, I'm afraid. The penalties inside the program are obscene. Outside they are merely obnoxious. And it takes legal action, a TAD, and similar before the IRS will even think of moderating the problems for minnows. That's hardly a glowing testament on the integrity of the system. In years to come I believe FBAR, HEART and so on will appear in economics textbooks alongside Smoot Hawley as classic studies in utterly self-damaging legislation.

      Delete
    4. Jack

      Thanks for your response. I was hoping to be able to peruse the examiner's notes BEFORE opting out and get a better idea of what penalties the IRS might apply on opt out so as to drive my decision. But you are right that sounding out the agent might be better (especially since Technical advisors might be making the call anyway).

      Delete
    5. BZ..


      I found that by querying my Examiner, I got a pretty good idea of her thinking and what obstacles I might run into in an Opt Out. I don't think a FOIA would have accomplished anything more than just frank conversation. If you have maintained good communication along the way, you should know before you go the Opt Out route if you and the Examiner are aligned on how they view your case.

      If you have a sympathetic Examiner, then your outcome will probably be like Moby's. If you are in strong disagreement with your examiner as to willfulness, than you have to understand that their opinion may have more sway over the Management committee than yours. However, if you feel strongly about your position, I would still consider the Opt Out. Easy for me to say that now that I went the TAS route, but I learned about how they negotiate outside the program, and their willingness to settle for way less than the OVDI penalties. In fact, if they try to force you out, and you are too scared or feel you don’t know what your examiner is thinking, you can try an appeal to TAS at that point, and they will probably be more sympathetic to your issues.

      If that result is not satisfactory, you still have an appeal, and as Jack has said previously you can do an appeal yourself without an attorney and all the expense that implies if you are well prepared and have done due diligence. Moby’s files might help you, and I have posted my entire file at the location below including the TAS letter of appeal.

      http://isaacbrocksociety.com/2012/02/04/letters-to-shulman-or-a-case-study-of-ovdp-communication-attempts-with-the-irs/

      There might be something there that could be of assistance…

      Even if the appeal goes against you, ultimately to get that FBAR penalty from you in an Opt out, they have to take you to court. If you are truly a minnow, I think the odds are in your favor that you will come to a settlement long before they waste valuable examiner and DOJ attorney time going that far.

      Frankly, budget wise, they are really being squeezed right now, and so for efficiency, they will probably come up with something they/you will think is fair and as Jack says.. (within a range, and certainly in comparison to the inside the program penalties). Yes, cold comfort, as it will still cost you in LCUs, but probably not so much in $$$.

      BTW, I recommend this recent House Ways and Means Oversight hearing with Commissioner Shulman and you hear all the budget problems and resource talk. While there is nothing but some limited talk of "success" of the OVDIs at minute 12, this gives you a feel of how little interest Congress has in any of the issues that cause so many distress here... Not one question about the IRS offshore jihad!

      http://www.c-spanvideo.org/program/TaxFilin

      Delete
  48. Anonymous - z: I am not able to get accurate bank interest statements from my banks (India). I am going to report estimated values - on the 8938. Will that be grounds for perjury? I simply cannot get these data from the banks? Time is ticking. I visited them personally recently. They said "we will provide that", but did not yet. What are others facing? How many have nice accurate 1099's or equivalents?? Thanks.

    ReplyDelete
    Replies
    1. You can make reasonable estimates if the more precise information is not available. Keep in mind that you can get an automatic extension until October 15 to allow more time to get the information.

      The key purpose of the Form 8938 is, of course, to assist in properly reporting income and paying tax. So make sure that the income from all foreign properties is properly reported and the proper tax paid. And estimated information in the Form 8938 should easily pass muster if you have reported all income and paid all tax.

      Best,

      Jack Townsend

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  49. Anonymous -Z: Thanks Jack. I have no properties, only 4 different bank a/cs, each has several CDs, have been renewing for many years. The banks do not provide 1099 or equivalents, I visited them in person this Jan 2012, they said will provide the data, but to no avail. The many CDs are complex: different - principals, interest rates, tenure, and maturing dates. It is impossible to do 'calculations'. What are other Indian origin US citizens doing or facing? What about other nationalities facing the same - China, Mexico, Germany, UK and on and on... I feel foolish to ever send the post tax W-2 hard earned savings to home country hoping for returning some day, and living on this saving which is being eroded by FBAR penalty etc, LCUs etc.

    ReplyDelete
    Replies
    1. Anon - I am also an Indian Citizen and in same shoes as you. You have to estimate the income on your own based on September and March statements received from Indian banks. Indian banks will not give you calendar year statements. You have to report calendar year interest especially on longer term CDs to IRS. I doubt IRS is going to question your estimates.

      Delete
    2. Anonymous -z: Thanks. I do not get March and Sept statements, only renewed FDRs... hence very difficult to arrive at reliable numbers.. how do CPAs do the calcs? I have not gone through a lawyer or a CPA. how do they contact and force the bank to give that info?

      Delete
    3. The banks CANNOT give you max balances and calendar year interest accruals because Indian fiscal year is April 1 to March 31. There is no CPA that can force a bank to do that. You have to accrue interest under OID method i.e. if you know the maturity value of a FDR and you know the principal amount you need to accrue based on time interest which is equal to maturity value - principal amount. There is compounding to be taken care of but I dont think Indian banks have daily compounding so you should be fine. I dont think you will have another solution. Believe me I have tried with all the 3 Indian banks I have CDs with and they will not give you a straightforward output.

      Delete
    4. BTW, it is not just the Indian banks that have this difficulty. I also had problems with my NZ bank. I eventually got a print out of transaction details on my Term Deposits for the calendar year (They to are on a Apr to Mar 31 fiscal year too)which included interest principle and taxes withheld. However, it takes a couple special requests to a personal banker, and ever year, there is someone new who tells me they can't do that. I then have to argue with them, and provide them a copy of what they gave me the previous year. They have to print it off, scan it, make a PDF file, and then send it to me. It is a hassle. always swear at Carl Levin while I am going through this process, as he epitomizes everything that is wrong with Congressional FBAR and FATCA Statutes in my mind! It feels nothing, but I feel better. :)

      Delete
  50. I submitted my OVDI packet in August 2011. I have realized that I mistakenly called one type of account a savings account when it is apparently a trust (Canadian Tax-free Savings Account). What do I do?
    The balance is low and was reported on my FBARs / Amended Returns as part of my 2011 OVDI, but I never filed IRS form 3520. Should I just file one with my taxes this year and ignore the mistake with my 2011 OVDI packet? Should I tell my IRS examiner of my mistake? So confusing and I don't want to trigger greater scrutiny. Help. Thanks

    ReplyDelete
    Replies
    1. I recommend you tell the examiner about it and ask what to do. Of course, going forward you should file the right form.

      Jack Townsend

      Delete
    2. Should a note be included with 3520 in 2011 saying anything?

      Delete
  51. Jack

    I have read comments by other practitioners suggesting that a 40-50% reduction in penalties is quite often possible/likely when cases go to IRS Appeals.


    But given the experience of the person above (the IRS offered a closing form with $ 7500 penalty, then withdrew), I wonder if the supposed reduction by appeals means anything when the examiner has wide discretion in levying penalties such as the FBAR penalties. The IRS could well assess, say 10K, and then if the taxpayer wants to go appeals, say that that particular penalty offer of 10K is now off the table, and the actual penalty is 20K, so the IRS ends up with the same money even if appeals reduces the penalty. They have to justify an increase in penalty, but given the wide ranges even the non willful penalty could fall into, it wouldn't be difficult for them to increase it midway in the process ..

    ReplyDelete
    Replies
    1. I guess anything is possible, but it would seem to me that if the IRS had offered that person a $7,500 penalty, the number was based on some analysis, so the IRS would have to show that there were either new facts or facts not considered previously, in order to have some basis for asserting a larger penalty. Unless this is the case, and the offer was withdrawn simply because perhaps management felt they lacked the authority to approve it, then I don't feel they could just ask for a higher penalty than the 7.5 K. (And, if the penalty was based on $500 x 5 years x 3 accounts, further review could determine that it should not be calculated on a per-account basis, so they could decide that $2.5 K is appropriate.)

      The way the process is supposed to work is different than someone making an offer on a used car who can change his bid for no particular reason.

      This is just my opinion of how things ought to work; I'm aware that reality may be quite different.

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  52. Hello all-

    Submitted my OVDI package last July. The check was cashed and in a month or so, i received a signed/stamped copy of the "agreement to extend period to assess taxes, etc." Nothing since then.

    Last night, i received a letter from the IRS indicating that they are going to return $XXX as overpayment from my 2007 tax returns. That amount was roughly equivalent to what i owed from my 2007 taxes as part of my OVDI package. Not sure if this is simply a case of the left hand not talking to the right hand. Maybe they are returning this payment because it is beyond the regular statute of limitations, not aware that this is an OVDI case?

    Anybody else in a similar boat?

    ReplyDelete
    Replies
    1. It seems that any taxes and penalties paid as part of the OVDI submission are posted to 2007. Jack has mentioned something about this before in his post on refunds.

      I checked on my case and the payment I made is posted as an overpayment to 2007 right now. My submission payment only included tax, interest and other applicable penalties, not FBAR penalties. To anyone from another IRS Service Center or anywhere else in the IRS, it looks like the IRS owes me money.

      To give a little more context, there has been absolutely no movement on my case (no examiner, no letters, nothing) and the documents have been sitting there for more than 7 months.

      Jack - Why is the IRS posting to 2007? I assume this has to do with the Statute of Limitations.

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    2. I don't know why the IRS is posting to 2007. I can only speculate. So the following is my speculation. I think that the IRS thinks that 2007 is the earliest open year under the normal 3 year statute of limitations. So, that was a year that, without more information and without the agreement required at the end of the OVDP/OVDI process, it could legally post the amounts to if you did not agree to the inside OVDP/OVDI penalty regime. If you opt out and amounts had been posted to earlier years outside the 3 year statutory period and the IRS could not prove either fraud or the 25% omission 6 year rule, the IRS would be compelled to refund the amount regardless of whether you owed the tax. I am pretty sure that is why they are doing that, but obviously don't know because the IRS has not consulted me as to the IRS's method and means.

      Best,

      Jack Townsend

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    3. Should the check from the IRS be cashed?

      Delete
    4. i sent my ovdi penalty and tax all in one check, so they got attached to 2010 year. when i called to check my account, the agent asked me why are you sending so much money in. i said it is for ovdi, and she asked me what is ovdi. i cannot explain you how i felt then, the i was thinking to myself, no wonder so many people don;t know fbar...

      Delete
    5. This kind of crap happened to me for two of the years involved. It created utter chaos and was in fact a case of the left hand not knowing what the right hand is doing. We ended up having to make multiple adjustments at the final closing. This is a bumbling and sloth like organization. Just keep good records for the end game when you finally get there. Welcome to Mr. Shulmans idiotic 2 year program. Keep handy a good respirator and some extra valumm cause the process stinks and takes a toll on the nerves. At least in your case they are trying to give you money. In mine they started collection actions for two of the years while I was in the process. The agent did not have a clue as to why. Oh, at one point they did give me money back too. They refunded my entire in lieu of penalty which was 6 figures and even paid me interst on it. That was a mistake too. What a bunch of clowns!
      Should you cash the check? Who knows? Let your assigned contact make that decision.

      Anon123

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