Wednesday, April 4, 2012

Experiences Inside OVDP / OVDI #2 (4/4/12)

I am creating a new blog for this subject because the first one is getting overloaded (over 300 comments) which means that, depending upon browser and speed of connection, some people are unable to view all comments.

The original Blog, titled Experiences Inside OVDP / OVDI (9/14/11), is here.

Just a reminder, this blog subject for users to share, by their comments, their experiences inside the OVDP / OVDI programs.  I know the IRS touts that there is little flexibility inside these iterations of the voluntary disclosure program, and that has concerned the practitioner and taxpayer communities.  However, I suspect that, in extreme cases, accommodations may be made inside the program without the necessity of opting out to obtain the just and fair result.

So, I encourage readers to post their experiences here to help persons in the program, particularly those who are not represented, to take affirmative steps, to avoid pitfalls or just to obtain some comfort from others' experiences.  Or even some amusing anecdotes "inside the program," if any, could be helpful.

Thanks,

Jack Townsend

Addendum 4/5/12:  In the first comment to this version # 2 blog immediately below, Just Me shares a link to an excellent and lengthy discussion of his journey in OVDP.  The link to that discussion at the Isaac Brock Society page is here. I strongly recommend that discussion.  As Just Me says in the comment, a lot of the story has been told in multiple threads on comments to various blog entries here.  Thanks to Just Me for pulling all this together and making it available.

Addendum 4/19/12; as amended on 4/21/12:  I previously had a link to a blog that offered information about the IRS's application of the non-willful penalty on audit.  I have subsequently determined that the information was not materially different from the IRM provision and felt that it would be better to link to the IRM provision rather than to the secondary source.  The IRM provision is Exhibit 4.26.16-2  (07-01-2008) Normal FBAR Penalty Mitigation Guidelines for Violations Occurring After October 22, 2004, here.  (See the table named Normal FBAR Penalty Mitigation Guidelines for Violations Occurring After October 22, 2004 - Per Person Per Year.  Readers should remember that, upon a showing of reasonable cause, the FBAR penalty may be avoided altogether.  See my prior blog titled IRS Guidance on U.S. Persons with Foreign Assets and, Coincidentally, Quiet Disclosures on FBAR Delinquencies (12/9/11), here.  I should also note that, based on anecdotal information I have received from some practitioners, this Guidance is not rigid.  Persons with compelling stories to tell can get substantially less than the Guidance suggests or even no penalty.

218 comments:

  1. For those that are interested. I now have my entire correspondence history as a case study of the 2009 OVDP posted at Isaac Brock,although a lot of the story has been told here on Jack's blog in multiple threads.

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

    ReplyDelete
  2. Also, for Minnows reading here, and trying to educate yourself as to your options and risks, I have created a post called the "The OVDI Drudgery for Minnows".

    http://isaacbrocksociety.com/2012/01/28/the-ovdi-drudgery-for-minnows/

    A lot of it is just common sense stuff about how to go about educating yourself on these complex OVDI matters. As you have already found out, here at Jack's blog is some of the best blog commentary and advice you can find anywhere. It should win an award for Minnow relief!!

    In the Drudgery piece I have created a list of the various threads where at Jack's blog I would be reading if you want to to gain sufficient knowledgeable and historical background to make a reasoned decisions as what to do. You are going to have to devote sometime to it, and if you want just easy quick answers then the Drudgery will frustrate you! So be forewarned.

    None of this replaces good practitioner advice,and there is a reason their fees are high. They have done the drudgery themselves and have the schooling and the degrees to prove it. You will not get to their level with this list, but it strengthens your information baseline so time spent with a practitioner is more productive, and your decisions are more reasoned and less fearful.

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  3. What's interesting about Just Me is that the IRS wanted around 172K initially (don't recall the precise figure) and he countered with 40K but they rejected that. So when TAS got involved, TAS proposed 25K and that's what IRS got.
    (Thanks to Just Me for sharing all that info on Isaac Brock!)

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    Replies
    1. What is TAS?

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    2. Taxpayer Advocate Service
      http://www.irs.gov/advocate/

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    3. Thanks Jack. But how to contact them? I live abroad and the only contact available are the agents by state, which does not apply for me. The toll free number is also not accessible from abroad.

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    4. As an international taxpayer, you are supposed to contact the Puerto Rican office. Take a look at the following link for their contact information. You need to either spend money for the phone call or fax. You can always send them a letter.
      http://www.irs.gov/advocate/article/0,,id=148099,00.html

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    5. Thanks Jack but how to contact them from outside of US. The number given 1-877-275-8271 is not reachable. Is there an email?

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    6. I don't have an email address. I would poke around the web site to see how to contact the TAS. If the only possibility is telephone, then just keep calling.

      Jack Townsend

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    7. For confidentiality and security reasons, there is no email address. Telephone and fax are the standard and fastest ways to get in contact. They do not use email for initial contacts as security is a great concern of theirs and they do not want you to send any documents or any communications that contain private information like your social security number. Note, the telephone number in Puerto Rico is a regular non-toll free number.

      Delete
    8. Just install Skype on your computer, and then use SkypeOut service to dial the 800 number. It is toll free that way. Or pay the 2.3 cents USD a minute to make a regular call on Skype to one of the non toll numbers. I communicated with the IRS the entire time this way.

      Delete
  4. Toll free numbers are usually not reachable from outside the US.

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  5. Hi Jack,
    I just sent my OVDI Letter, was delivered on 04/06, any idea how much time does it take from them to respond, pre-clearance was pretty quick, do they send it by certified mail or fax.
    Thanks

    ReplyDelete
    Replies
    1. Generally the reply is sent back by certified mail. Some get it in less than 2 weeks. Some have reported getting it after a month.

      But since you are precleared you dont have to wait for the CI letter. Just send your entire package without waiting for the letter.

      Delete
  6. If anyone know if these three level of penalty will apply to all opt out cases?

    http://indiancpa.us/2012/04/19/my-ovdi-case-is-ready-to-be-closed-should-i-opt-out/

    Not heard 10% cap before.
    Sincerely appreciate..

    ReplyDelete
    Replies
    1. I will post the link in the body of the blog so that others can easily find it.

      I was not aware of the 10% cap before, but it sounds like a step in the right direction.

      Thanks,

      Jack Townsend

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    2. Jack,

      I respectfully disagree. Unless additional mitigation is applied, this is still daylight robbery.

      Thank you.

      Delete
    3. 10% cap for all the years or for each year ? if it is for all the years -- we will see massive opt-out.

      Then 2009 OVDP folks will come back for 10% back, remember IRS did revise 75K less to reduce penalty from 20% to 12.5%

      Delete
    4. It looks like a move from IRS to check mate folks inside the program. They want to curb the opt-outs. If you calculate the scale carefully you will notice there is little difference between the penalty inside the program and outside. The incentive of opt-out will decrease.

      Delete
    5. I think this CPA is just repeating IRS talking points for the most part. He does not seem to have much independent knowledge.

      Lets start with the penalty structure. That is just repeating the IRS's IRM manual guidelines

      http://www.irs.gov/irm/part4/irm_04-026-016.html


      This is hardly new, its been around since 2008. The important thing to remember is that this largely represents a ceiling. The manual itself (read the link above) clearly calls for lower penalties several times if the facts demand it. This mechanical method can be said to cap your penalty level outside the program. However, I would be astonished if someone other than the really naive, really badly represented, or really willful-but-hard-to-prove-violator would settle for that. Anyone with reasonably good facts should be able to get a penalty well below that, all the way down to 0 (we have several examples of that on opt outs).

      I will also point out that this seems to allow a greater than 10K per year penalty for some cases. I think (and I believe Jack has made the same comment before) that it would be a pretty rare case where the IRS could do that. So the manual itself is a starting point, but not by any means a given.

      The CPA also repeats other IRS talking points: that the case can be referred back to CI. Even for willful violators, this would be exceedingly rare, unless there is a material representation of the facts.

      I think the CPA may have only one OVDI case who chose to opt out (and even that case is not complete yet) and the IRS told him these are the penalties that could (Note COULD, not WOULD) apply.

      Delete
    6. To add to my previous comment (I put this separately), so Jack can delete it if he think its inappropriate.

      One previous poster (not I) cautioned against an Indian CPA operating out of Illinois. This might be the same person -- for the reasons I mentioned in my previous post, I think he's just repeating IRS talking points. But outside the program, what the IRS threatens to do is not the same as what it will do and what it CAN do. In short, it should be something you use to make your decision, but it is not definitive especially if you have a good case (as I think ij and some others do). You don't have to sit back and take the penalty they propose and be thankful for their grace !!

      Delete
    7. Anonymous, I think your point is well taken. I do not know anything about the CPA and certainly did not mean to endorse either him or the information he gave. Still, it appears that he is in the process and, given the concreteness of the information, I presume that he has gotten it from the IRS.

      Now, really, the larger and more pertinent issue for most "minnows" is whether, assuming that is the IRS's position, the IRS will be rigid as to minnows with good stories to tell. I remain hopeful that the IRS will be flexible and, on very limited anecdotal data, I believe better results have been achieved. However, keep in mind that better results depend upon better facts and circumstances that are presented in a compelling way in the process.

      Jack Townsend

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    8. IMO he probably knows how to do the calculation but beyond that he does not have much idea about the legal aspects. You do not want to go to him for legal opinion and in most cases he would recommend you get in the ovdi.

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    9. So they unjustly paint a very ugly picture of what will happen to you unless you join their frightful two year horse and pony show and agree to pay the super high penalty (ransom) that they decide to impose. What is different in character from this behavior and that of the mafia rackets of the past? What is funnier is all the screw ups they seem to be making with those that are attempting in good faith to participate. They did it in 2009 and the same game goes on now. A higher power needs to intervene in this abuse. Read Asher's recent comments about how screwed up this process continues to be. It may make more sense to ask CI to take you out in their parking lot and bust a cap in your head! I understand they carry guns so maybe they would oblige. At least your done in a few weeks and you will not need money no more to support your family. You could put OVDP got Me on your tombstone.

      Delete
    10. Ich kann nicht mehr zustimmen

      Delete
  7. Anyone know how chit funds (india) are treated for penalty calculations ?

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  8. I joined the program and submitted my OVDI package without any professional help and without researching this informative site. All foreign accounts and stock accounts were established before moving to U S. No money sent from here. Stocks were never sold.
    Received my 906 back with 25% penalty which comes out to $24,000.00, because of inflated stock prices in couple of years. The bank balance is not very high.
    Already paid lot of money on Federal and state taxes, penalty and interest.
    It's due in 14 days. Any advise?

    ReplyDelete
    Replies
    1. I hope others provide you some perspective as well, but the only options you have are (i) opt out and be audited or (ii) by refusing to sign the 906 and not opting out, being kicked out and audited. Making either of those choices require experience and judgment, because there is a downside (i.e., the audit penalties could be worse, although your cryptic statement suggests that it is not likely to be worse). You might consider consulting with an experience practitioner before making the decision. I list OVDI attorneys on a page linked at the upper right hand of the blog.

      Best,

      Jack Townsend

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    2. Thanks Jack! When I realized that I don't belong in this program, I tried to contact a lawyer. Couldn't find any one with experience in the town I live.Tried to contact out of town attorneys. One said they don't accept cases involving less than half million dollars. Other said his fees might be more than penalty amount.
      We are both closer to retirement and this is already taking toll on our health and happiness.
      Should I contact TAS?
      Thanks for this web site, wish I had found it before.

      Delete
    3. IMO, you should contact TAS and they should be able to help you out.
      Did you talk to the agent? What does he/she feel about your case? Would he or she be on your side?

      Also when did your case get assigned to
      an examiner? How long did it take for the
      examiner to examine your case and send you the 906.

      Delete
    4. I agree with contacting TAS. Would also ask the examiner for more time to make such a decision. They can give you more time, and the TAS can give you more time as well. Suggest you read postings of the successful optouts by Moby and 'Just Me' who both did it without an attorney. It's true that with attorneys who have experience in this area you're looking at fees around 750/hr (what I'm paying) but I would search around for one who would be willing to consult with you about the optout decision for maybe 2 hours, possibly at a higher hourly rate.

      I can't decide for you, all I can say is that I joined OVDI (package not yet submitted) but I am highly likely to opt out, my facts are similar to yours (just failed to report income, no transfers to/from US, money came from abroad in the first place.) My amounts are higher so in my case it makes sense to have an attorney.

      Delete
  9. You have just had an anecdotal lesson in the economics of the law practice. The same level of expertise and time is often required for small dollar cases as for large dollar cases, but small dollar cases are so price sensitive that many lawyers cannot economically justify becoming involved in the small dollar cases. Even if the client pays the fees which would be large relative to the dollars involved, the client often perceives that he or she has been overcharged and thus is unhappy with the relationship. In many cases, lawyers just don't want the headache, even if they earn some fee. They would rather get the big ticket case where they can properly develop it, spend the time necessary to do the best job, and get a client who has enough skin in the game to value the services rendered.

    Having said that, the role of the TAS is to become only when the normal processes fail. Under OVDI, if you are not warm and fuzzy with the inside the program penalties, you need to opt out. Then, if you fail to reach what you think is a fair settlement, you can invoke the good offices of TAS. My suspicion is that you will get a settlement on opt out that, if you are realistic in your expectations, will be much better and will be in a broad sense fair based on your unique facts.

    Best,

    Jack Townsend

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    Replies
    1. Jack,

      From the limited facts that this person relates, it seems that they're relatively well positioned for an opt out.
      People with relatively low balances have reported numerous times that they have problems finding a lawyer to represent them for the opt-out audit and that their fees would be higher than the penalty they would get. This is true also for minnows who decided to do Quiet Disclosure or go-forward and are audited.
      Are you saying that given this economics of law practice, we should represent ourselves?
      Or we should settle for a tax attorney who don't have experience in foreign accounts and FBAR issues and might be less expensive.

      Do you personally get involved in minnow cases? Can you give us an idea of the fee you would charge for representing a minnow with a foreign account related audit?
      Also, can we be represented with out of town attorneys for such audits?

      Delete
    2. 1. The economics of law practice generally does not make legal representation efficient in many contexts. The offshore account brouhaha is just one of them. Attorneys cannot remain in their chosen profession if they give away their services or substantially cut their services. That is a larger subject than I can deal with here, but we are seeing it play out in the OVDI context.

      2. Do true "minnows" really need attorney representation? I doubt it, because I don't think agents will give better results to represented taxpayers than unrepresented taxpayers, at least in the minnow situations. Attorneys bring extra value in complex -- more high dollar situations by making sure that the facts and law are properly marshaled to get the best results. But minnows with noncomplex situations -- directly owned accounts with smaller aggregate amounts and some reasons for having the accounts in the foreign country as is the case with many minnow emigrants. So, in terms of minnows, I am not sure how much value the attorney brings -- other than perhaps hand-holding in the process.

      3. The attorney can add value to the minnow in making the strategic decision whether to opt out, by reviewing the relevant facts to make a quick, best guess that the taxpayer is not jumping from the frying pan into the fire, as the metaphor goes. I do represent taxpayers at that point, subject to my minimum hours and fee. I imagine that other attorneys do that as well, but I suspect that most attorneys with the larger firms would not even want to do that (just because the due diligence in just setting up the client file and related efforts, substantially diminish the value of a minimum billing).

      4. I don't recommend that you engage an attorney who is new to this area. He or she will have a steep learning curve, and you may have to pay for some or all of that time, which in the end might mean higher fees than if you hired an expert to start with.

      5. I strongly recommend that, if you engage an attorney, where possible, you engage an attorney in the area in which you live. The value of live meetings to flesh out the details and get a level of comfort between you are facilitated by in-person meetings. Long distance communications by telephone, email or even Skype do not offer the optimum dynamics. Where that is the only practical alternative, then it can be done but I would explore first the local attorney.

      I hope this helps.

      Jack Townsend

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    3. Thank you so much for the long and detailed answer. Yes, it helps a lot, and I want to thank you for all the information you give on this website. It is invaluable.

      Regarding point #2, I think the main reason why I and other immigrants might be thinking of hiring an attorney for an audit outside of the program is the fear of being charged with filing a false tax return and being deported as a result.
      I think that monetary wise, you highlighted pretty well than in most cases, we should get lower FBAR penalties outside of the program, if at all. (I understand that it depends a lot on the facts, and I am even surprised that in the case of Just Me, he had to get help from the TAS).

      Some attorneys scared me with the deportation argument in their advise for choosing OVDI, or that I should not ever be able to get the American citizenship. But you answered a post saying that for most minnow cases, the risk of prosecution is remote.
      Do you know when the IRS usually presses that charge? Is this dependant on the back taxes we owe (in my case it is $215 over the 3 year SoL). Or can it just be based on the black and white fact that we checked No instead of Yes on schedule B?

      This is where immigrants might think an attorney might help.

      Delete
    4. The only real certainty offered is to get in OVDI and accept in inside penalty structure. If you opt out, there is less certainty. It is all dependent upon the facts and circumstances, but I think that in most "minnow" cases, the penalty will be less (while precisely how much less is not certain until the process is completed).

      Deportation for a tax crime is a potential problem. But most minnows do not fit the type of profile that DOJ Tax would want to prosecute. But even here there is no certainty. However, once you join OVDI, whether or not you opt out, you will not be criminally prosecute unless you have a major intentional footfault in meeting your commitments in the OVDI process.

      Your cryptic statement of $15 in back taxes suggests that you may not fit the profile for prosecution, but that can only be determined with any degree of reasonable certainty by review of your complete facts and circumstances.

      And, without a detailed review of your facts and circumstances, I can't tell you whether you need an attorney or not.

      Best,

      Jack Townsend

      Delete
    5. The one point I would add to Jack's excellent note of "May 10, 2012 1:56 PM" is that anyone who chooses to go it themselves on opt out would be in a stronger position if he/she has good debating, negotiation and English language skills (even as a 2nd language).

      Example: In corresponding with the IRS, I think you need to strike the right balance
      1) Let the IRS know you are interested in negotiating, but also inform them that you are aware of your legal rights (so they realize you are interested in settling, but also realize that they cannot intimidate you with threats of outsize civil or even criminal penalties).
      2) Point out how OVDI penalties are grossly disproportionate in your case without going overboard into inflammatory rhetoric. Conveying your indignation at such penalties may or may not impact the IRS committee, but they know that if your case goes to appeals or even to court, it would have an impact. On the other hand, inflammatory rhetoric serves no purpose other than to anger the IRS.

      And its important to keep a paper trail of everything sent and received. I think you can also ask for a copy of your file.

      Just my opinion.

      Delete
    6. Anonymous May 11, 2012 9:34 AM

      Excellent pointers.

      Remember that it is all about the art of persuasion. For at least some, life and their own perception gives them the skills necessary to take persuasive positions. That is not uniquely a lawyer skill, although lawyers should have some training in the art of persuasion.

      Try to think from the IRS's perspective as well as your own perspective and try to persuade in the context of your unique facts and desired but realistic outcome.

      Best, and thanks again to Anonymous for his / her pointers.

      Jack Townsend

      Delete
    7. I also think the IRS may have the mindset that most or almost all people who participate in the VD programs (even minnows) are willful offenders: even if the IRS does not want to meet the very high standard of proving willfulness, they could adjust the non-willful penalties to do more damage if they believe this. It therefore follows that anything you can provide to establish lack of willfulness (legitimate purpose for accounts, absence of entities. small amounts of income from accounts) is a plus.

      Delete
    8. IRS agents may have the mindset you describe, but the IRS does not assert penalties on the basis of that mindset.

      It is always good to provide evidence -- persuasion -- as to nonwillfulness.

      Jack Townsend

      Delete
    9. Regarding the cost of being represented by a lawyer, keep in mind that if the cost of getting a lawyer is high in proportion to the potential OVDI penalty, it is also not in the IRS' interest to spend a ton of time and resources fighting you. So there would be pressure on them to find a resolution that's acceptabel to both the IRS and you.

      Delete
  10. "Anonymous May 10, 2012 9:11 AM",

    If lawyers don't want to take your case because it is too small amount money involved, then what is the chance IRS/DOJ would take this case to court to collect your FBAR penalty ?

    Just DIY on opting out!

    However, opting-out is a point of no return, so I would get TAS help to settle inside OVDI -- if possible.

    ReplyDelete
  11. ij,
    What are you planning on doing?
    did you get your 906? Are you planning on opting out.

    ReplyDelete
    Replies
    1. I was about opting-out when I was told RRSP penalty -- that would cost me 3 times more than I was willing to pay inside OVDI. Of course, my agent is very thoughtful, and he did not send me 906 to sign, instead, he took my words back to his managers, and now they are reviewing RRSP.

      I will opt-out (and DIM do it myself) if they still want to take away my pension plan

      Delete
    2. ij

      I don't think the TAS would help much before opt out (unless you can get a Congressperson to call them :). In the old program, I think they helped because of the FAQ #35 withdrawal and because there was no Appeals procedure. Where TAS could help would be AFTER opt out, assesmsent and Appeals, if it gets that far.

      Delete
    3. That was a while ago. They haven't gotten back to you yet? Did they give you a time frame?
      I hope the meeting that Phil Hodgens had with them at the beginning of the week will make things move. Not taking into account the RRSP in the penalty is the right thing to do.

      Delete
  12. "Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart" --- Steve Jobs

    We are in OVDI and we have made "Full and Noisy" disclosure -- and we are naked! So folks, just follow your own heart if or not you deserve this penalty -- and take the opt-out process yourself if you can not even afford to pay an attorney to represent your fully naked body !!!

    ReplyDelete
    Replies
    1. ij,
      That which does not kill you, makes you stronger.
      Maybe this episode makes us all stronger.

      Delete
  13. "Anonymous May 10, 2012 6:32 PM"

    We are strong because we are all fully naked. We are "shameless" because we have nothing to hide.

    We don't need a lawyer to dispute the facts that we already presented to IRS/OVDI. And we can defend ourselves on what/why we made the mistakes/errors in the past, reasonable cause as we can call it.

    Who else can make better argument other than yourself when it is all about "your state of mind" (again, we don't deny the facts)

    ReplyDelete
  14. I got first letter from IRS with contact person's name and address on 3/14/12. It also had copy of form 872. My package with 906 is dated 5/2/12.
    I found one attorney in my town, he is not very experienced but had one case from 2009 program. He is going to talk with the agent.
    I am more leaning towards Opt out option. I have nothing to hide, they can audit me.

    ReplyDelete
    Replies
    1. Anon - thanks for your post. Did you receive the 906 already? When did you file your OVDI package with IRS? It took only 2 months for your from first contact by agent to receiving 906 - thats much quicker than IJ. Please provide us details as lots of us have not heard back despite having provided packages in early May / June.

      Delete
    2. If you do talk to an attorney, talk to one who is knowledgeable about this. Look at Jack's list!

      Heck, even the TAS people had to research the business before they could say anything!

      Delete
  15. "Anonymous may 11 1:37 AM"
    Thanks. what is your tax liability? FBAR penalty.
    Based on the facts, i think you should be come out
    fine on a opt out.

    ReplyDelete
  16. We applied for the OVDI 2011 in May - June 2011. Havent been assigned an agent yet. Is this normal?

    Thank you
    Anon 567

    ReplyDelete
    Replies
    1. most of those who had submitted last year are being contacted in the past few weeks.may be you will also hear something. also what is your tax and inlieu FBAR penalty?

      Delete
  17. http://www.forbes.com/sites/irswatch/2012/01/10/deja-vu-yet-another-irs-fbar-voluntary-disclosure-initiative-2/

    It says

    "It is likely that the U.S. will require foreign financial institutions doing business in the United States to disclose account holders having relatively small accounts and earnings. There have been rumors of discussions regarding accounts having a high balance of the equivalent of $50,000 at any time between 2002 and 2010. U.S. persons having interests in foreign financial accounts should not find comfort in a belief that their foreign financial institution will somehow refrain from disclosing very small accounts in the current enforcement environment. Those who think too long may be sorely surprised at the high level of ultimate cooperation of their institution with the U.S. government."

    ReplyDelete
    Replies
    1. I will try to post something on this tomorrow. For now,let me say that you need to read these articles and consider the source (here the author) in assessing the message.

      The author here is Charles Rettig. He is a very credible source. His statements are worthy of consideration. When I discuss the article in a separate blog (perhaps tomorrow), I may offer some different insights. Or, I may not. Stay tuned.

      Jack Townsend

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  18. @ij...
    That was an old story by Forbes...

    Assume you have read the two recent stories at the NYTs and WSJ...

    Tax Rule Provokes Foreign Banks' Ire
    http://on.wsj.com/IKOxuc

    Many Americans Abroad Surprised by Tax Code's Nasty Bite
    http://nyti.ms/JFY6x9

    I am back in the U.S. and catching up on my reading.

    ReplyDelete
    Replies
    1. Just Me, any chance to visit my area ? You know my number and please call me. I would love to take you to a pub of your choice.

      Delete
  19. Many Americans Abroad Surprised by Tax Code's Nasty Bite
    http://nyti.ms/JFY6x9
    From the above article
    FBAR forms filed in 2009 276,386
    filed in 2011 618,134

    ReplyDelete
    Replies
    1. See the new blog entry titled Moneyball on Go-Forwards - Show Me the Data (5/12/12), here:
      http://federaltaxcrimes.blogspot.com/2012/05/moneyball-on-go-forwards-show-me-data.html

      Jack Townsend

      Delete
  20. Jack, Thanks for the blog. Since we are risk averse people, we decided to enter the Voluntary Disclosure Program.

    A quick question: with respect to "Offshore Voluntary Disclosure Letter", as married couple file jointly, do we need to submit 2 separate letters or we can squeeze all the info in one disclosure letter? Thanks!

    ReplyDelete
  21. I have actually done it both ways. There were some slight differences, but as they say, consistency is the hobgoblin of small minds. Whichever way you do it, though, if one of the parties were the orchestrater and the other just a go along person, that should be made clear in the submissions. Ultimately, if you join the program it won't make much difference unless you opt out in which case something akin to innocent spouse treatment could be available to the nonculpable spouse.

    Jack Townsend

    ReplyDelete
    Replies
    1. Jack,

      The innocent spouse treatment holds only for tax penalties right ? I presume it would not hold for FBAR penalties, which are likely to be much larger than tax penalties.

      Besides, wouldn't claiming innocent spouse treatment for one spouse be taken as some sort of evidence that the other spouse is not so innocent, thereby opening the door to larger penalties ?

      Of course, one could make some sort of argument that is based on equity rather than strict law, and phrase the argument carefully to avoid any implication that the other spouse is culpable.

      Delete
    2. Innocent spouse is an income tax concept and applies to tax and penalties (actually, it applies to tax, but if the tax goes away, the penalties go away and there is a separate specific innocent spouse provision in the civil fraud penalty).

      There is not statutory innocent spouse provision for the FBAR penalty, but since the FBAR penalty is not joint and several, no separate statutory innocent spouse provision is needed. However, the factors that would establish innocent spouse treatment under the income tax would likely establish that the innocent spouse is not a culpable party liable for the FBAR penalty. It is not a perfect fit, but I suspect that the overlap would be around 98+%.

      Jack Townsend

      Delete
    3. Jack - does innocent spouse privilege not depend on if the spouse was required to file an FBAR? In my case I am a citizen of a foreign country and my wife is a US citizen. The IRS made my wife sign all the submission documents though my wife is not required to file an FBAR as she is not a joint holder on any of the foreign accounts and all the funds in the foreign accounts were earned by me from my W-2 salary.

      Delete
    4. Again, there is no innocent spouse provision for the FBAR. The innocent spouse concept is a concept developed for the joint income tax return that both spouses sign, thereby undertaking joint and several liability unless the innocent spouse provision gives one spouse relief from joint and several liabliity.

      The factors that go into innocent spouse relief are, in many respects, the same factors that go into whether a spouse will be liable for the FBAR penalty. If the spouse -- let's call that spouse innocent spouse for this purpose -- is not an owner or signatory on the account, then that spouse has no obligation to file the FBAR period. And, if the innocent spouse did have ownership or signatory authority, but has compelling facts that she has reasonable cause or substantial mitigating factors, then that spouse may be able to get relief from the nonwillful penalties but would probably have to file an FBAR (particularly inside the program).

      So, in the context of the submission documents in the OVDI program, you will have to factor it through these rules. If your wife had no requirement to file an FBAR at all, she should not sign the FBARs submitted with the submission documents and any FBAR penalty should be the culpable spouse's penalty only (e.g., for example, the culpable spouse only signs the penalty worksheet).

      The innocent spouse will have to file the amended 1040s unless the innocent spouse is claiming income tax innocent spouse relief. Then she should not sign. I have had an innocent spouse in this situation and she did not sign the amended 1040s.

      At the end of the day, however, the IRS should not care (or resist, as it did not in my case) where the culpable spouse files the required amended returns and FBARs and pays the resulting income tax, penalties and interest and the FBAR penalties.

      If you need more information about this, I strongly recommend that you seed advice from an attorney.

      Jack Townsend

      Delete
    5. Jack - thats a very interesting and thougtful analysis. You indeed are the best in the area of foreign accounts and related issues. I wish you were in my area as I would have definitely engaged you as my counsel.

      Delete
    6. Thanks, and good luck.

      Jack Townsend

      Delete
  22. If one spouse high bal> 75K and other is less, then would the other spouse get 12.5% or total of both gets 27.5%?

    ReplyDelete
    Replies
    1. I have never had the situation. However, I would think you could do that provided that each spouse had no reportable relationship to the other spouse's account(s).

      And, even where they had some reportable relationships, you might be able to argue for exclusion. Take for example one spouse with $100,000 account and the other with $50,000, each of these are titled in the spouse's name and owned by the spouse, but the other spouse is signatory only on the account. I think in a case like that, I would argue for two separate penalties and, under the theory that the IRS only collects the penalty one, the other spouse's account should be excludable from the penalty worksheet.

      But, as noted, I don't have any experience and am just trying to extrapolate from the known to the unknown, and constructing taxpayer friendly arguments.

      Jack Townsend

      Delete
  23. Jack, JustMe, Moby,IJ and all learned Gurus,
    Here is an interesting question about FBAR. Hope some of you have across this situation.
    I am a minnow migrated to US about 8 years back. Before migrating I had about 5 old savings bank accounts that I could not close before coming here. (Needless to say I would have certainly closed had I known future implications). Also had few equity shares of small value. Highest aggregate balances of all accounts during 2004-2010 was less than 50K.
    Out of the above accounts, one savings account was with a bank (say "Bank A") that has online facilities.  "Bank A" allows online transfer of amounts from savings to time deposits earning bit higher interest than in savings. Unfortunately during some of the years, amounts were transferred in small units to time deposits. About 10 time deposits of $1000 each were created. These were for a duration of 1 year, auto-renewable. Per terms of deposits, on maturity, principal amounts were crediting back to main savings account. Thus principal was rolling back to savings and again new FDs were created out of Savings account. Since deposit periods crossed calendar years, 20 deposits existed in each year.
    Now I am very much confused on how to report my accounts on FBAR. Should I treat the savings and deposits as one account because same money was going in and out of Savings account. However if I treat deposits as seperate accounts, then total accounts exceed 25. And FBAR instructions provide that persons with more than 25 accounts should not complete Part II and III. Without completing these parts it is like submitting a blank FBAR just with name and address. Blank FBARs will not provide information about the balances and may give an impression of a whale. Also Attorney whom I consulted is concerned that without supporting FBAR information how will IRS verify penalty statement. He is of the opinion that we treat Savings plus deposits with "Bank A" as one account and report the total of all of them after removing duplication.
    I will very much appreciate feedback from other bloggers if they have experience with similar situation. Jack can you please share your thoughts.
    Thanks. 
    RK

    ReplyDelete
  24. RK,

      On FBAR form, it says "Account number or other designation" , my understanding is we can use bank ID number as designation -- so it can consolidate all CD's check/saving accounts into one single entity.   I did so in my OVDI package (this avoiding to add so many transaction within the bank).   As long as it is accurate to reflect the total balance of each bank, it should be fine.  I have not got any problem from my agent who has read my FBAR, and gone through all my bank docs.

    ReplyDelete
  25. Terrified MinnowMay 20, 2012 at 8:27 AM

    I am not sure I understand this. Me and my husband both have joint accounts in our native country. There are some accounts where I am the primary account holder and his name is on the account too and on some he is the primary account holder and I am the joint account holder. Depending on who is the primary holder of the account, the taxes have been paid and returns have been filed accordingly in the country where the accounts are held.


    In the USA we have always filed "married filing jointly" and he is the working spouse and I am the dependant spouse here.

    For FBAR purposes, does this mean that we both have to report both the accounts twice and pay penalties on all the joint accounts twice, ie. one for him and one for me, even though the first account holder is the primary and has been reported as such on the taxes filed abroad?? That would wipe us out with all the CD's that have been opened and closed over the years!!

    ReplyDelete
  26. Inside OVDI, the "in lieu of" penalty is only applied once per account among related parties.  The parties joining OVDI can decide among themselves the shares of the single penalty.  Keep in mind that that is for the calculation of the inside OVDI "in lieu of" penalty, and not the audit penalty.

    On audit (whether via opt out or regular audit after QD or go-forward), I am not sure what the answer is but I think there will be a single penalty which, if the facts justify, could be a relatively minimal penalty compared to the OVDI "in lieu of" penalty.

    Jack Townsend

    ReplyDelete
  27.  I too have banks accounts each with subaccounts with different currencies, stocks, CDs, etc.  My lawyer and accountant both said that each main account (i.e., each bank) should be treated as one account. 

    ReplyDelete
  28. I had the same issue.

    I wrote to the FBAR email help desk and also called FBAR helpline. They told me that each account including each CD and each mutual fund in a brokerage account needs to be counted and disclosed separately.

    Below is response I got from them which is not different from what I was told on the phone by FBAR hotline.

    "CD's that automatically renew are not considered separate accounts for FBAR purposes however if you take the money and open a new CD that new CD would also have to be reported on the FBAR.    Each mutual fund should be reported at its highest value during the year."

    ReplyDelete
  29. I am back with update. My attorney talked with the agent and agent says to either pay 25% penalty or opt out. Attorney is also advising me to opt out and go through audit. I don't mind that, but I don't know what to expect in opt out, less penalty, no penalty? How much in legal cost?  and LCU( like this word used on this web site) cost?
    I was hoping to find some solution inside the program.
     

    ReplyDelete
  30. Just wanted to share this article. It looks like participants of the 2009 OVDI program might be able to get a partial refund of their 20% penalty to match the penalty structure in the 2012 OVDP (12.5% and 5% penalties).
    http://timesofindia.indiatimes.com/nri/other-news/IRS-to-refund-certain-2009-OVDP-penalties/articleshow/13410879.cms

    That is a nice, but it seems the 5% penalty for "accidental" Americans should be waived alltogether.

    ReplyDelete
  31. I agree.  That person might consider opting out.  I don't have any anecdotal information for what those persons will receive upon opting out.  But it would seem hard to impose any penalties (income tax, FBAR, or Forms 5471 and 3520) for persons who did not know that they did not have to file and obviously had not reason to know they had to.

    Jack Townsend

    ReplyDelete
  32.  This information is around 1 year old and was announced one year back. Why is this paper mentioning it now ?

    The 5% penalty for accidental Americans always struck me an atrocious and totally-bad-faith attempt to collect penalties by the IRS. Who has a stronger argument for reasonable cause for FBAR penalties than an accidental American ? Frankly, I wish the TAS had called out the IRS specifically on this -- how can you say you are going to accept reasonable cause when you say you are going to assert a 5% penalty on these clearly innocent people ?

    ReplyDelete
  33. how many years of non compliance are you looking at? also what is the 25% penalty.

    My guess is if you have 03-10 as years of non complaince an assuming  $10k/form penalty
    you total penalty would be $80k.
    If you opt out are you looking for something less?

    ReplyDelete
  34. On Opt out, just like with an audit resulting from a QD or go forward, shouldn't we be confident that the IRS would apply the FBAR penalties that are listed on the IRS manual instead of the maximum 10k for a non-willful penalty?
    http://www.irs.gov/irm/part4/irm_04-026-016.html#d0e1317

    Jack, please confirm if we can assume that the IRS agents would follow the manual. I based my decision to go forward partly on the computation of the penalty inside and outside OVDI.

    ReplyDelete
  35. All I can say is that the audit result -- however the audit started, whether on OVDI opt out, QD audit or go-forward audit of past years -- should be the same and as set forth in the manual.  At least that is the guidance that the IRS has posted and left posted for FBAR audits.

    Jack Townsend

    ReplyDelete
  36. My questions are regarding the record keeping requirements of FBAR and the associated audits for opt outs. The things that I am trying to avoid are:
    - to not get slapped with additional penalties for bad record keeping
    - audit failures and hence jeopardizing my opt-out
    - subjecting people involved with me (who are not even "US persons" -- according to IRS) to the prying eyes of IRS audits just by association.

    Below are my questions:
    - I have a rental property abroad which was vacant between 2008-2010 and was rented out in 2011 thru a relative acting as my agent. For the OVDI opt-out audit what sort of proof would they want for the rental proprty? what sort of proof that it was indeed vacant at other times? Since it is money collected by my relative(agent) before it comes to me, would his bank accounts be fair game for looking into? How about contacting my tenants?...  I don't want to subject all the other people to the audit scrutiny as well. I have no idea what sort of documentation agreement my agent has made with the tenant that I can produce -- all I have for sure is money coming into my account for (among other things), the rent.

    - I have been pretty sloppy in US record keeping particularly of cheques, reimbursements, FSA etc -- I practically have none. Does this increase my chances of an audit failure and/or reflecting on the OVDI opt out case's outcome?

    ReplyDelete
  37.  Liliput, it is up the IRS to show that you had rental income in 2008-2010. It is not up to you to show otherwise. I would advise you to be careful of what you say too: you say you had a "rental" property abroad in 2008-2010. NO !! It was not rented out till 2011, so you had no rental property abroad until 2011, you just had a property abroad.

    ReplyDelete
  38. Hi - 

    I sent in my final OVDI package in Aug 2011, heard back from the agent in late April asking for a couple of bank statements that i provided. Just received a 906 and am not sure whether i should opt out or not. My past tax due was only ~$500 (plus the interest and accuracy penalties), however, the OVDI (in-lieu-of) penalty is ~$40K as they have included 25% of a property that was on rent (although i show a net passive loss every year due to a high mortgage interest on the property). 

    I have reviewed a lot of comments on this great site, my concern with the opt-out is that i do have a number of accounts (about 5) that have been open for 4 years, so the 10K/acct/year penalty (even though it may not be assessed) could add up to 200K.

    Part of me wants to get it over with and sign the 906, but paying 40K in penalties for a $500 tax oversight just seems so unfair.

    Anyone have any significant insights to share with opt-out experiences under this program?

    ReplyDelete
  39. Hi G111 - I remember that I sent in my package same time as you did as we had issues with USPS delivering the package in Austin. If its allright with you I wanted to ask you if the agent contacted you right from the begining i.e. did he / she contact you when he / she started working on your case or was it only after he / she had worked on your case and wanted to seek additional info? I have had no communication from IRS despite sending in my package at the same time as you. Any light you shed on timline will be helpful as I am anxious to understand if there are any issues with my package.

    ReplyDelete
  40. The agent did not contact me when he started working on my case. The first communication i received via postal mail was requesting additional info in late april. I sent it within 10 days and got the package with the 906 about 2 weeks after that. No phone communication with the agent as of yet. 

    One other issue with my package is that they did not apply the tax payments (and interest) that i sent with my final OVDI package to my account. In this latest package, they are continuing to accrue interest on the back-tax due until today, even though i sent in the payments last august.

    ReplyDelete
  41. g111 - Thanks very much for clarifying. I am going to follow up with OVDI hotline to find out status of my package. May you find resolution and right answer on opt out shortly.

    ReplyDelete
  42.  To G111, With tax of $500, an OVDI penalty of 40K sounds grossly disproportionate.  A penalty of 200k would be even more disproportionate. I believe that Jack has said (don't want to put words in his mouth)  that it is not clear that the IRS can extract a per-account penalty except in maybe the most egregious cases.  In my opinion you should get only a warning letter, but the IRS doesn't necessarily share my opinion.

    How much you would be willing to settle for is a question only you can answer, based on how good or bad your facts are (a couple of hours with a lawyer with expertise in this area would help you answer this) and on how much your time and peace of mind are worth (you may be willing to pay a couple of thou to the IRS to close this.)

    If your facts are good I think your lawyer might tell you that it is unlikely that the worst case scenario would be over $50K penalties (i.e. per year but not per account) and that you have a good shot at a much lower penalty.  (I am purposely not guessing at your chances or what the number might be, and even a lawyer familiar in this area can only give you an educated guess, not certainty.)

    It's not pleasant to deal with such uncertainty, but keep in mind that you do so in other areas of your life.  You take a job even though the company might go bankrupt in a month.  You but a stock that can go up or down.  You marry someone who might divorce you.  You drive to work even though 40,000 people are killed in car accidents in the US every year.

    I am only in the early stages, but am strongly inclined to opt out. 

    ReplyDelete
  43. kd, 25% of what?  There is a big difference between 25% of 1 mill. and 25% of 100K.  Your lawyer can give you a rough estimate of what it would cost to pay him to handle the opt out; or you could do it yourself if you have the time, negotiating skills, and no bad skeletons in your closet.

    ReplyDelete
  44. g111

    I would suggest asking them to apply the tax payments and interest. In fact, they are required to do so by statute. They will actually likely do that and send you another closing statement, giving you more time.

    Assuming your facts are good, I think you should very strongly consider opt out. The IRS's manual says that per account penalties should be considered only in the most egregious cases, so  I would guess 10K/year as a MAX. Likely smaller depending on account size.

    ReplyDelete
  45. 25% of 96k, which is mainly due to inflated stock prices in one year.
    Bank balance is less than penalty amount.
    Still don't understand what is the benefit of opt out for me. I have 6 small accounts, so per account penalty will not work. Is there any other solution with less penalty that can apply?
    I don't have negotiating or communication skills, so will need lawyer.

    ReplyDelete
  46. Jack and OVDI community,
    Trying to post again and seek advice - was having trouble with Disqus, so not sure if my earlier comment made it though.
    I am in OVDI 2011 and had submitted the package in Dec 2011.  I live
     overseas had had a bank account in another country where I worked previously and some PFIC's (disclosure period 2006-2009 and approx tax payable $3800 over 4 yr period).  The bak account and PFIC's are part of OVDI disclosure. The overseas location where I now live, all bank accounts and foregin assets have been disclosed properly and are not part of OVDI.  As part of our OVDI package for 2006 through 2009, we did file 2010 tax return, which was a compliant return and included the above bank account and PFICs'.

    In doing my 2011 return (which is on an extention) we noticed that we have missed reporting one month of rental income of a condo in 2010 tax reutrn were we currently  reside.  This rental income pretains to Jan 2011, but was wire-transferred by the tenant on Dec 30, 2010.  So, for 2010 tax return, we did account for 12 months of rental income (for Jan - Dec 2010), but did not include this 13th receipt of rent (relating to Jan 2011), as we were not expecting this payment in Dec, but in mid Jan, which is the normal payment cycle - so, an overshight.

    If we amend the 2010 return now, there is no tax owing to IRS as we have a passive loss on this condo because the deductions exceed rental income (due to depreciation and mortgage interest etc).  The net result of this amendment would be a lower passive loss of income by the extent of the 13th month rental income. This condo is not part of OVDI and all the bank accounts & assets where we reside are properly disclosed and taxes paid on  abnk interest and rental income, which always results in a passive loss.  The bank account where the rental income is credited does not accrue any interest ( good thing I realized, just in case of an error of reporting like this one).
    So, the question is: Can we amend the 2010 return now and what is the process & implications of sending it to IRS for 2011 OVDI? Or, should we wait until an agent is assigned to our case and then forward the amended return?  Also, we will have to file this return with IRS, outside of OVDI? There is not tax owing, just changes in Schedule E and passive income related forms?
    Can you please share your thoughts?

    ReplyDelete
  47. G111,
    What was the rationale for including the value of your property in penalty calculation, was it because the rental income was part of the bank balance, the income (interest) of which was not reported previously, and therefore OVDI on your part?

    ReplyDelete
  48. My understanding is that gross income is the reference because gross income must be reported even if there are sufficient deductions so that there is no net taxable income. That is a general understanding I have and it seems to be confirmed by parsing FAQ 36 which refers to "income subject to U.S. tax during 2003-2010 which was not reported." Note that the reference is not to tax not paid but income not reported. Of course, this does not directly address the gross v. net question you raise, but in tax parlance the language used seems to mean gross rather than net.

    Jack Townsend

    ReplyDelete
  49. I just cut and paste the answer from the same question you posted earlier. Before doing that, please post your questions only once so that readers are not required to read duplicate questions. Here is the cut and paste.

    My understanding is that gross income is the reference because gross income must be reported even if there are sufficient deductions so that there is no net taxable income. That is a general understanding I have and it seems to be confirmed by parsing FAQ 36 which refers to "income subject to U.S. tax during 2003-2010 which was not reported." Note that the reference is not to tax not paid but income not reported. Of course, this does not directly address the gross v. net question you raise, but in tax parlance the language used seems to mean gross rather than net.

    Jack Townsend

    ReplyDelete
  50. Jack and other learned Gurus on this great site especially from India,


    I am helping an elderly relative prepare FBAR due by June 30.

    She is a green card holder since 2 years and has some NSCs that she had bought in India over the years and was surprised when I told her about this requirement. She is a widow in her 70's and  is getting family pension from her late husband's past employer.

    Total of her NSCs exceed 10K as she has been investing since last several years. Most of her NSCs were purchased by her children to help her add to her retirement income.

    While trying to enter on  FBAR form am not sure what to enter on:
    1. Financial institution name
    2. Mailing Address
    3. Account number.

    She has in all 30 certificates ranging in  denominations of Rs1,000 to 10,000.

    As regards financial institution name whether I should enter Govt of India (which is on title of Certificate) or the post office name.

    Also regarding address whether it should be Ministry of Finance or the post office address.

    A blogger in the past on different blog site had mentioned that since these certificates are
    held personally  by investor and are like cash certificates, there was no need to provide these details. He advised to just mention highest amount in box 15 and investment type in box16 and leave rest of boxes empty. I am not sure if this is the right way to do it.

    Friends, I am confused and will appreciate your guidance

    Thanks in advance for your help.

    Sincerely

    LP



     





     

    ReplyDelete
  51. Jack,

    Is there a way to do a word search or sentence  on the site. 
    Will be a great help if some topics have been already discussed in the past.

    Thanks

    LP

    ReplyDelete
  52. LP...
    A couple helpful hints...  Yes, there is a search function in any web browser.  Just go CTRL F for the find function, and you should get a box to put in your search term or word.  I use that alot.

     Also, I don't know if you have noticed, but in the lower right column, Jack has topics arranged by Key words, and there is also an archive for Posts by date.  I use both of those when looking for past subjects.  

    ReplyDelete
  53. AB...
    You will drive yourself crazy asking questions like that.  Rationale has little significance for you as to the rule they are making. Don't waste your time trying to figure out the logic. It will drive you mad. I gave up on that up long ago.  You just have to understand the rule, and not the rationale behind it. Even if you knew for sure their rational and why they required this or that, it may still may not make sense. You will probably disagree with it anyway, so what's the point?  It is their game, constructed by a committee (remember the camel) and they make the rules any ole way they want. :)

    ReplyDelete
  54.  In addition, google has an "Advanced Search" function so you can limit your search to a specific website.
    For example, if you type into the search box
    "Just Me" site:federaltaxcrimes.blogspot.com
    you will get all posts with the term "Just Me" in Jack's site

    ReplyDelete
  55. Friends (especially from India),

    I am posting this request again as June 30 is approaching,

    I am helping an elderly relative prepare FBAR due by June 30.
    She is a green card holder since 2 years and has some NSCs that she had bought in India over the years and was surprised when I told her about this requirement. She is a widow in her 70's and  is getting family pension from her late husband's past employer.
    Total of her NSCs exceed 10K as she has been investing since last several years. Most of her NSCs were purchased by her children to help her add to her retirement income.
    While trying to enter on  FBAR form am not sure what to enter on:1. Financial institution name2. Mailing Address 3. Account number.
    She has in all 30 certificates ranging in  denominations of Rs1,000 to 10,000.
    As regards financial institution name whether I should enter Govt of India (which is on title of Certificate) or the post office name.
    Also regarding address whether it should be Ministry of Finance or the post office address.
    A blogger in the past on different blog site had mentioned that since these certificates are held personally  by investor and are like cash certificates, there was no need to provide these details. He advised to just mention highest amount in box 15 and investment type in box16 and leave rest of boxes empty. I am not sure if this is the right way to do it.
    Friends, I am confused and will appreciate your guidance
    Thanks in advance for your help.
    Sincerely
    LP

    ReplyDelete
  56. LP -

    I participated in OVDI and had to report NSCs on the FBAR form. I reported each series of NSC separately. The issuing financial institution is Department of Post Office and address is the Post Office that issued the NSCs. The maximum amount is the face value of NSC + interest accrued during the year. I am unsure whether she needs to report each NSC series separately or if she can consoldiate all certificates. The challenge with consolidaiton is that you dont have an account number. I had purchased two sets of NSCs and I reported each purchase set separately i.e. if I bought 100k worth of NSCs I got one folio number from the post office and I reported that as one series. Hope this is helpful.

    ReplyDelete
  57.  did you get  your case to a closure?

    ReplyDelete
  58. Thanks a lot Fountainhead. Appreciate the prompt response.
    I guess folio number that you mention is  also referred as Registration no.
    I believe that should be it.

    BTW are you done with this process?

    Once again thanks!

    LP

    ReplyDelete
  59. Guys, I'm trying to do high balance for brokerage account. How do you recommend this to be done? Couple of options i can think of is, take the purchase value of each stock or may be for each stock, take the max value for that year and multiply by the number of units held for that stock? Any suggestions.

    ReplyDelete
  60. It is pretty simple.  Forget the purchase value.  This is a variation of a mark to market exercise. You just take the highest market value through out the entire year, multiplied by the number of units held times the year end FX rate. 

    ReplyDelete
  61.  I think the requirement is for the "highest aggregate value" of all your relevant holdings. This is not equal to the max value of each individual stock added up over all stocks held. Note that stock A could be high on day X (over any given period) while stock B could be high on day Y. Using the max value of each stock and then aggregating could get you a much higher result. This may be ok for an Fbar filing but if you're using it to calculate the OVDI penalty it could result in a much higher penalty. Purchase value, of course, is not relevant.

    ReplyDelete
  62. The difference can be easily expressed in math 

    Max[A(t)+B(t)+C(t)]  <= Max[A(t)] + Max[B(t)] +Max[C(t)] 

    Max means the highest value of asset A in time t in the year
    <= means much less or equal

    ReplyDelete
  63. Further this expression can also be used for transfer assets between two accounts.   Say if you made transfer from account A to account B, the left side calculation would avoid double counting the transfer amount because the same money can't be appeared in two accounts at exact same time.

    ReplyDelete
  64.  I doubt if the closure would have happened so quickly.
    It should take another 2 to 3 years in my opinion. the 2009 are getting closed now and i would think 2011 should start closing around 2014-2015.
    Jack
    are you seeing any closures of your case.

    ReplyDelete
  65.  Closures have begun to occur for filings made before August 2011. 906's have been sent out in the more straightforward cases.

    ReplyDelete
  66. Thanks Just Me. My CPA also went with what you suggested. The statement did not list value but only no of units held. This calculation may have increased the valuation a bit as each stocks highest got added but atleast we could report the value. Thanks much.

    ReplyDelete
  67. G111 - I hope you are doing well. Did you make a move in your case. Please let us know when ok.

    ReplyDelete
  68. I have a question. Dividends from Indian stocks, do I report as ordinary or qualified?
    They fall into the definition of qualified, but I was told to follow the tax treaty between two countries. Thanks for any suggestions.

    ReplyDelete
  69.  i am reporting it as ordinary

    ReplyDelete
  70. Hello Jack, We are in the OVDI 2011. Mailed the package on Sept 02 2011 to Austin. No contact from  IRS yet. The offshore banks do not provide 1099s, and with all this FATCA mess and so on, how about closing the Offshore bank a/cs (mostly CDs, dormant) and wiretransferring the amounts back to the US banks officially? This money is post W-2. Is this wire transfer LEGAL? (amount total about 620k US $). We are tired of the stress of trying to figure out the taxable interest on these multiple CDs. Thanks.

    ReplyDelete
  71. If you are in OVDI and represented by an attorney, I strongly recommend that you seek his or her advice just in case there is something about your unique facts that may bear upon advice on this issue.

    Having said that, I think most advisers would advise clients that moving the money back into the U.S. through visible channels (particularly wire transfer) is a good thing and certainly not illegal. I think the IRS generally prefers that as well unless there is some good nontax reason to keep the account(s) and the required reporting is made on FBARs and 1040s (and any other forms required, such as 3520s and 5471s).

    Best,

    Jack Townsend

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  72.  If you are getting periodic statements (monthly or quarterly) then you would only need to convert the total value on those dates into USD if expressed in a foreign currency.
    I only get 12/31 statements so what I've done is calculate values at the end of each of the other three quarters 3/31, 6/30 and 9/30.  Haven't heard back from my CPA yet if that's ok.

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  73.  Jack, I understand that the account holder may wish to avoid the time and expense of complicated reporting and want to close foreign accounts and transfer the money to the US.  But why would the IRS prefer this (if I understand your comments correctly)?

    (In my case, there are good reasons for keeping the money there, including currency diversification, and investing in foreign stocks.)

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  74. Bank accounts in the U.S. are relatively transparent. The IRS which may harbor suspicions about the use of foreign accounts, just prefers U.S. accounts.

    Finally, ask yourself if there is really any nontax reason to keep a foreign bank account. If there is (and you can articulate the reason with a straight face and with credibiilty), then keep the foreign account. Otherwise bring it here. You will find out that the cost of maintaining the account will likely be cheaper.

    Jack Townsend

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  75. In my case, the main reason I want to keep my account there but decrease the amount to only a couple thousand Euros is easy access to the money when I am visiting family. I travel regularly to Europe, and believe it or not, VISA credit cards or not always taken there. Most systems are set up to read the chip on the card and when you present your card that doesn't have a chip, I've run multiple times into situations where I just couldn't use it. It is embarrassing. Also, it is easier for family members who want to give monetary gifts to be able to deposit it on an account there.

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  76. Does anyone know how much time it would take for the IRS to return executed copy of the 906? I signed our 906 nearly 2 months back so I was just curious. Thanks.

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  77. how long did to take for you to get the 906 from beginning to finish?

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  78. About 10 months. Just wondering if anyone can answer the original question please?

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  79. ij or anyone who played with this "maximum aggregate value" game,

    Do you think your formula ("Max[A(t)+B(t)+C(t)]  <= Max[A(t)] + Max[B(t)] +Max[C(t)] " cited by ij in his comment) above works across DIFFERENT accounts as well?

    If during a year Account-A has highest balance of $2000 in January and zero dollars in all other months, Account-B has highest balance of
    $4000 in December and zero in all other months, your formula will give $4000 for penalty base.

    If I adopt Max[A(t)] + Max[B(t)] method, I get $6000.

    Unfortunately, I think IRS wants to do the harsher formula. See the Excel spreadsheet "http://www.irs.gov/pub/irs-utl/2011ovdioffshorepenaltycomputationworksheet.xls", on the web page "http://www.irs.gov/newsroom/article/0,,id=235584,00.html"

    In the spreadsheet they are getting max of each account and then summing them up.

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  80. PT45,
     
      I have been searching on aggregated value of multiple accounts (or assets) but I could not find any clear definition.  In my view, the highest aggregated value of an individual should be defined as Max[A+B+C] which is common sense, otherwise, you will have artificially inflated wealth.  For example, if you move $1000 1000 times to 1000 different accounts, you will have artificial wealth of 1 million.  

      In case of OVDI, I think IRS wants count every penny on you except moving between accounts.  For  your example, if you spent Account A's $2000 in the end of January, but the money would still be counted for that year's aggregated value.

    ReplyDelete
  81. Anonymous,
    What was your experience in OVDI?  Was the IRS reasonable, and the outcome acceptable to you (based on consistency and reasonableness from IRS to your position).  Just curious how IRS is handling OVDI participants.

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  82. In OVDI - 2011, by signing the 906 form by the taxpayer and IRS, would it automatically mean no criminal prosecution (case of a minnow with all legal source of income) or is there a separate process, forms and procedures to get the final clearance?
    Thanks

    ReplyDelete
  83. In OVDI - 2011, by signing the 906 form by the taxpayer and IRS, would it automatically mean no criminal prosecution (case of a minnow with all legal source of income) or is there a separate process, forms and procedures to get the final clearance?
    Thanks

    ReplyDelete
  84. 10 months starting from the date you mailed the papers or from the time an agent was assigned?

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  85. I am in 2011 OVDI. If I decide to opt=out I have following questions:
    1) Say my opt-out audit starts in April-2013, Will IRS will audit for 2007 to 2012 ( 6 years ) ?


    2) Will IRS give me the refund of closed years of 2003 to 2006 ?


    3) If IRS audits, & if I am non-wilful, IRS can get maximum $ 60,000 for 6 years minus the 3 compliant years of 2010, 2011 & 2012. So my maximum non-wilful penalty could be $ 30,000.

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  86. I am not a lawyer but my understanding of the law is that it is illegal to have a contract in which you pay money and therefore guarantee that you will not be prosecuted (it would be blackmail and/or bribery.) So strictly speaking there is NO guarantee of no criminal prosecution. However, the IRS has said that it would not recommend prosecution to the DOJ in such cases, and the DOJ follows the IRS recommendations (although again strictly speaking not legally required to do so) so from a practical point of view yes, it would mean no criminal prosecution; and this would be applicable not just to minnows but sharks as well.

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  87. 1. The IRS can audit any open year. I won't go through the possibilities of statutes of limitations because I don't know your facts and, in addition, I am too pressed for time to speculate.

    2. It depends upon how the IRS posted the payments. The IRS seems to be posting to 2007 which it thinks is an open year, so, on that theory, it would be open for refund as well on the opt out. If, however, the IRS posts to a closed year (pre-2007 in many situations), then the taxpayer has two years in which to claim a refund and, if he or she does not claim the refund, it can be lost. Now whether the IRS would do that, I can't speak. I think that is why they post all pre-2007 payments to 2007.

    Jack Townsend

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  88. Can't answer the original question but have heard from my lawyer that the process of assigning an agent seems to be quite haphazard and not done in the order the package is received (or any particular order) so I'm guessing that returning the 906 might be the same way.

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  89. We sent ours in 2 months back and havent heard back either. I called the hotline today (where they processed our case) and the agent said they are backlogged and should be responding shortly, but he didn't have any further updates.

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  90. Can anyone in OVDI 2011 with joint accounts (other than spouse) please post their experiences as to how IRS is dealing with such cases for FBAR (5 / 12.5 / 25 %) penalties. More specifically, joint accounts with family like parents or siblings who are non-US persons. Is the penalty on the entire account or just a portion of the account based on the number of account holders?

    Thanks

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  91. I hope others will post as well, but my experience (necessarily limited to my small data set on this issue) is that, for the OVDI penalty inside the penalty structure, the IRS will exclude from the base subject to the percentage amounts that beneficially are owned by others (including non-U.S. persons) even if the U.S. person joining the program are a title holder of the account. If the beneficial owner is a U.S. person who failed to report, they will have to pay a penalty. If the beneficial owner is a non-U.S. person who has no obligation to report, then no penalty will be asserted.

    Another follow-through question is whether the IRS will give that "break" if the taxpayer opts out.

    Best,

    Jack Townsend

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  92. Jack, how does one go about selecting an OVDI attorney? There are many who are familiar with he issues (you list many of them) but how does one choose? I am looking for experience in optouts in particular, and this being a new area nobody seems to know much more than I've learned by reading your blog. (Anyone else who has retained an attorney, I would like your input as well.)

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  93. Hello fellow OVDI sufferers - I have a question. I participated in OVDI 2011 and from what it seems like it could be 2015 before I see my case resolved. Now here's my problem - I want to apply for US citizenship. No, I am not insane (given all the bad rep US citizenship gets here) - just that I want to go back to my native country and be able to come back to US on a future date (plus I have already paid with my life savings to Uncle Sam so I might as well get the citizenship now). My green card does not allow me to remain out of the US for very long.

    Now here's the problem:
    On the citizenship form - they ask you a question - something to the effect of - "Are there any federal/state tax outstanding?". Now as far as I am concerned I have paid my tax liability +interest+accuracy penalty with my OVDI submission , so there is no tax outstanding (though I have not paid the FBAR penalty - I plan to opt-out).
    Can I answer "Yes" to the tax question? Is anybody else here in OVDI planning to apply for US citizenship? Ordinarily, I would have waited until I got the 906 form but 3 more years seems like a long time to wait and I need to relocate to my native country soon.

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  94. Given the risk of having your citizenship revoked on the basis that you lied on the application, I would ask this question of a lawyer and get it in writing.
    My thoughts (I am not a lawyer) is that you look at what the question asks, and the answer would be clearly no, for two reasons.
    1) the FBAR penalty is not a tax but a penalty based on Title 31, not Title 26 which is the tax code.
    2) Something cannot be outstanding or unpaid until a) they say you owe it, which would occur only at the time the form 906 is signed by both parties or you don't sign and they assess a penalty AND b) there is a precise amount. At this point neither a nor b has been met.

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  95. That is a great question. Please update the forum when you get some more information. Many immigrants are in this situation. Many are also in limbo:
    Is OVDP the only solution for green card holders wanting to become citizens (or even for green card holders in general)? Some websites scare us to death by saying that our green card can be revoked and OVDI is the only solution.
    Should minnows in this situation consider quiet disclosure?
    Or could filing forward and waiting out the statutes of limitation before applying be a valid option as well.
    It would be great if someone could answer those questions. It is hard to find a tax lawyer, who also has immigration knowledge.
    My immigration lawyer was not very helpful. She basically referred me to a tax lawyer and told me that I needed to take care of the problem before applying for citizenship, which implies doing either OVDP or quiet disclosure. In my case, where there is a very small amount of taxes due, OVDI would be a really expensive solution that I am not willing to do. If I did it, I would opt out, so what's the point? So that leaves QD or GF. So far, I have chosen the GF as I am paralyzed by fear. I am afraid of what might happen if I do a QD since the returns are going to be scrutinized. Will there be a criminal investigation, like in OVDI, which might affect my immigration status?
    If we do GF, can we still apply for citizenship after the statute of limitation have passed?
    When is the IRS going to realize that immigrants are in an impossible situation and provide a straightforward way to compliance without the fear of financial ruin or deportation? They're providing a better way to compliance for Americans living abroad. The pool of immigrants who are in the same situation might even be bigger than the American diaspora abroad.

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  96. Thanks. What kind of lawyer would be best suited to answer this question you think? I figure an immigration lawyer will have no clue about OVDI, while a tax lawyer will not know about citizenship forms.

    It is sad really that I have to go through all this crap - I used to think I was a model immigrant. My whistle clean domestic taxes seems to be of no significance while I pay with my life savings for being unaware of a poorly advertised/enforced law. Its like being handed the death penalty for jaywalking.

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  97. That is a great question. This issue impacts lots of green card holders who want to become citizen, and now wonder if it's even going to be possible without entering OVDI. Some web sites are scaring them to death by saying that OVDI is the only solution for immigrants who risk their green card revoked if they don't enter the program.
    I've talked to a couple immigration attorneys, and they all said that taxes need to be squeeky clean before applying for citizenship. They were not necessary familiar with how to fix the issue, but said that this needed to be addressed prior to applying for citizenship. It seems that this means either entering OVDI or doing a quiet disclosure. Is being compliant forward really not an option for green card holders who wish to become citizen?
    For minnow immigrants who owe very little in taxes, OVDI can be very expensive and some may not want to do it. They could opt out, but is it playing an even bigger lottery that could cost them their green card?
    Would the IRS initiate a criminal investigation if they do a quiet disclosure, which is going to be examined manually?
    Is being compliant going forward a valid option for them, and wait fo the statute of limitation to expire before applying for citizenship?
    This is amn impossible sitiation for them, that generate a lot of stress.
    The IRS is working on a compliance path for Americans living abroad who owe little in taxes. They must also provide one for immigrants whose number might actually be even bigger than Americans abroad.
    Thanks for addressing the issue.

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  98. Don't ask a lawyer, just ask IRS (better recording the conversation) on the phone what you should give the answer on this question. I agree the other anon said that you could say "no" -- even if you are under an audit -- before it is final -- you owe nothing to IRS.

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  99. Thanks for raising this issue, which concerns many immigrants.
    Another question is whether OVDI is the only solution for immigrants. Some websites say that it is, and scare them into it, claiming that if we don't enter OVDI, our green card might be revoked, or we won't be able to become citizen.
    OVDI can be really expensive in lawyer and accountant fees, in many cases, for a really small amount of taxes due. The question if we enter is should we opt out, knowing the potential even bigger fines, and impact on our immigration.
    Is Quiet Disclosure a better option to be able to claim that we paid all taxes, or filing going forward and waiting for the statute of limitations to expire also a way to go.
    I consulted a couple immigration lawyers who told me to address the issue before applying for citizenship, but they were not familiar with tax law and refered me to a tax lawyer. Does that mean choosing between OVDI and QD, but going forward is not a solution?
    Immigrants are in an impossible situation. Many don't want to choose OVDI and pay the punitive in-lieu of penalty for sometimes a small amount of taxes due. Many are afraid of opting out, or doing a QD, where the return is going to be scrutinized.
    The IRS must provide some solution for this class of taxpayers, like they're doing for Americans living abroad who owe little taxes.
    Thank you.

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  100. I suggested getting a lawyer's opinion just to be on the safe side. The problem with an opinion is that no lawyer wants to get sued for giving incorrect advice so you may get "let me research this" which might means he'll spend a lot of hours (billed to you) or be told "just to be an the safe side make sure you mention it" which might mean that the folks at the INS won't be sure whether a Title 31 fine is a tax and it might bog down your application.
    I am pretty confident that any lawyer worth his salt will agree that the question is asking what it seems to ask: federal and state taxes, but then again I am not a lawyer.

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  101. Hi Jack and fellow OVDI participants

    Are you getting individual tax notices for OVDI years? I signed 906 and paid up, but still got a 2008 collection notice, failure to pay and all. It is a minnow amount, but what is the best way to handle this. Is there a consequence to accepting failure to pay penalty.

    Thank you.

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  102. Can you please post some approximate timelines when you sent the package and how long it took to get the 906? Did IRS mail you back a copy of the 906 with their signature?

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  103. Jack, those in OVDI are required to file past due FBARs as part of the package. This is sent to the IRS. Since the original FBAR was supposed to be filed with the Treasury in Detroit, should a copy of the past due FBARs be sent there as well? Is there any harm in doing so? I am just worried of the IRS saying that those filings wouldn't count since they were sent to IRS not Detroit.

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  104. Sending to the IRS with the submission package will constitute filing. I have not sent the original or copies of the delinquent FBARs to the Service Center.

    Jack Townsend

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  105. My attorneys were of the opinion that FBAR originals should be sent to Detroit. I sent originals off to Detroit and copies to OVDI. My attorneys felt so strongly about Detroit having originals that when I told them I had not received my return receipt back after 120 days and there was no record of my FBARs in Detroit (Detroit tells you it takes 90 days for the FBARs to show up in the system), my attorneys made me file amended FBARs to Detroit and sent copies of the amendments to OVDI. They wrote a letter explaining that the return receipt had not been received and that was why they were filing these amended originals. We sent the package via courier so we had a receipt.

    So all this was overkill and sending either the original or copy to OVDI would have been sufficient? This is consistent with my opinion that my attorneys loved to generate extra work in order to bill extra hours.

    By the way, the original FBARs showed up in the system after 150 days and I got my original return receipt returned around day 170. Normally, a return receipt to me takes 21 days. This was an indication to me that the IRS is really backed up with FBARs.

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  106. I do not think one can compare timelines. It is useless as it appears it is totally random how and where each case is assigned and handled. I submitted during the last week of August 2011 and just had a first contact this week. My accountant has had some OVDI cases that were handled and closed within the space of a month or two.

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  107. Message to IRS Lurkers
    I have had my first contact this week with an agent who is "preparing" my case. Here are some suggestions for the IRS that could make the case go more efficiently.
    1) Please do not assign OVDI cases involving participants who reside on other continents to IRS agents who are "in the field" in the USA. Apparently, being "in the field" means that an agent has no access to email or a phone. The agent can only call overseas using a phone card. Ridiculous in this day and age. I can only leave messages on the agent's permanent telephone number which the agent is far away from. Aside from a 7-10 hour time difference between us, this inability to communicate had led to 3 days of phone tag. It is not efficient.
    2) Please start a program to educate your agents to keep their voicemail messages up to date. It is useless and expensive to call a number and be told on the voicemail that the agent is out of the office and will be back in the office in July. It is September now. I called the reference number that was left on the voicemail and was told that person at this number was only responsible through July for backup. I was left high and dry. This is the second time an IRS agent I have had to contact has had an out of date voicemail.
    3) Please ask your agents to meet their commitments. If they say they will call back in 15 minutes, they should call back. There is no excuse for just disappearing and not calling at all. While the agent seems very nice and professional, this kind of behavior is not professional.

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  108. Jack - If a person knows that they will opt out of OVDI, does it make any sense to sign extensions of Statutes of Limitations for already closed years?

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  109. First, you have to cooperate. I think that signing consents is required for cooperation. Second, consents only cover years that are still open at the time the consents are executed by the IRS (after executed by the taxpayer). Third, consents are not needed if yoiu don't opt out. State otherwise, consents are requested solely to protect open statutes if you opt out.

    I recommend taxpayers in the program sign consents and move on.

    Jack Townsend

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  110. If I understand correctly, highest value of accounts go on FBAR. For Form 8938, the balance on December 31st matters if maximum during the year did not reach certain amount depending on your filing status. Is this correct?

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  111. Jack,


    "I recommend taxpayers in the program sign consents and move on."


    Are you suggesting stay in the program or suggesting those who choose to stay in the program to sign consents.


    I wish I could stay in the program and move on -- but I can not. I don't see the rational of paying 5 times more than the tax amount evaded. I have to admit that I was fearful when I jumped into OVDI. But after learning that a lot taxpayers have made similar or same mistakes -- Even Tim Geithner had made mistakes. Hash penalty should not apply to Tim Geithner and other minnows who made "honest, avoidable, regrettable and forgivable" mistakes.

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  112. Jack, sorry i misread your comment. Now I understand that you suggest those who are in the OVDI to sign the consent and move on the process of examining and later to decide opt-out or not..


    Please remove my previous comment.

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  113. My point is that, inside the program (i.e., accepting the program penalty), the consents are irrelevant. By staying in the program you agree to the costs of the program (income tax, income tax penalty, interest and "in lieu of" penalty), regardless of the statute of limitations. The consents make a difference only outside the penalty -- i.e., when you opt out. Then, they make a difference, at least as respects income tax, only as to years that were open at the time the IRS signs the consents. If some of the early years were otherwise closed, they are closed on the opt out regardless of what the consent says because the consent is only valid if both parties sign within the otherwise applicable statute of limitations.

    To repeat, the consents make no difference as to the inside the program penalties because it is a settlement. They make a difference only -- only -- in the opt out audit and then are only effective for the more recent years. (Keep in mind that, if fraud is involved (which should cause you never to opt out), the IRS does not need consents anyway.

    So, you say that you cannot stay in the program. I presume that means that you will make the decision to opt out. That is an important decision and not to be made lightly, but if you do keep in mind that the only income tax years open for audit are those that were open when the IRS signed the consents (regardless of what the document says).

    Jack Townsend

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  114. Jack

    The law regarding income tax extension consents is clear, but that for Title 31 (FBAR penalties) is not established. I assume on opt out the IRS will only use the consents to assess FBAR penalties (if any) on years that were open at the time of entry into the program. However, it is theoretically possible that they could assess FBAR penalties even for closed years on opt out, since there is no case law or statute preventing them from doing so. T

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  115. Your point is excellent. The law is clear for income tax consents but not so for FBAR consents. Normally, of course, statutes of limitations can be waived by unilateral action. Indeed, consents are often referred to as waivers of the statute of limitations as if the taxpayer is giving up something for nothing. I think it is not a waiver at all, but a contract requiring both sides to sign (which is what the statute requires). But I digress.

    We don't know what the parameters of the FBAR consent because the law does not address it. So, under general legal principles, I suppose that the person signing the consent can waive by unilateral action alone. But, perhaps, since the waiver is in contract form that requires the IRS signature, it would not be effective until the IRS signs. Then the issue would be whether it opens up otherwise closed years when the IRS signs. You are right that we don't know the answer to that question.

    However, keep in mind that, since in imposing FBAR penalties, the IRS usually picks off one year and it will have several years that are open when the FBAR consents are signed, it may not need to open up an earlier year, so the issue could be moot. Even if, for example, the biggest year were in an otherwise closed year, the IRS could still cobble together FBAR penalties in clearly open years to get to the same quantum of penalty.

    Thanks, for raising the issue.

    Jack Townsend

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  116. Jack, I understand your point about eh IRS being able to pick a more recent year if assessing either the in-lieu or willful penalty (% of highest balance.) But in the case of non-willful, either per-form or per-account/form penalty, wouldn't it make a difference whether the SOL has been extended by the consent?

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  117. Just a suggestion. Your points are good ones, but rather than rely on IRS lurkers, I would send them directly to the TAS. Specifically, Nina Olson, as it is this is the kind of problem that she is very sensitve too. You could submit a SAMs message on Systemic issues, or just email her directly with your observations. Her email is not private, and follows the standard .gov format.
    nina.e.olson@irs.gov


    I am sure this is the type of information that would get her attention, and might be part of future reports to Congress, where she has already used a lot of ink on Americans abroad issues.


    Bottomline, for you, nothing is going to improve. I am not sure what "in the field" means, but their process for handling those of us that were foolish enough to join the OVDI/OVDP from overseas, is not the model of efficiency. Communication is not easy as they don't use email in this day and age. There will be lots of delays. It doesn't sound like my examiner was as bad as yours, but we did pay a lot of phone tag, and delays for mail. I used Skype for all my calling, and had a SkypeIn number to make it easier for her to call me, as it was just a U.S area code number. You might consider that. It is handy to have anyway. Also SkypeOut to call the IRS is way cheaper than calling cards or direct dial from your location.

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  118. Perhaps I have not been clear. In my view, consents are irrelevant to the inside the program penalties. The IRS can do what it wants. Perhaps if it wants to play the niceties, it will find otherwise open years to stuff the money into (I suppose it could do that on the income tax side or the "in lieu of side"). In my view, the consents are only required if the taxpayer opts out. Then, at least as to the income tax, the IRS wants to make sure that statutes don't drop from the date the consents are signed until the case is finally audited. Perhaps that is the same concern as to the FBAR, although I would think that, in the absence of a statute that forecloses opening up closed years, an FBAR consent may actually open up an otherwise closed year. Still, as I mentioned, the IRS could find enough open years to stuff the FBAR penalties into, at least in those cases that should be opting out where the IRS will not assert maximum FBAR penalties. Example, say the IRS does a nonwillful penalty with 3 accounts for years since 2003 with $100,000 each in the accounts. Say the IRS asserts aggregate nonwillful penalties of $30,000. It will have enough open years to do that. Indeed, in this example, it could assert aggregated FBAR penalties of $150,000 without having to dig into years that were otherwise closed when the FBAR consent was signed. (Obviously, the different configurations are myriad; other configurations may cause the IRS to have to dig into those earlier years, in which case the IRS would have to address the issue of whether the FBAR consent could open up an otherwise closed year.)

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  119. I am in OVDI and an agent has been assigned a few months ago. I am planning to relocate to China by year end. I see some people on this forum who are overseas and are in OVDI. I was wondering how difficult would the process be communicating from distance including seeking the help of TAS. Any thoughts/feedback is appreciated. Thanks

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  120. Thanks. Will do. The IRS has failed to provide this agent with tools to deal with an international case. He is obviously offsite and has only been equipped with a phone card by the IRS to help him do his job. I pity him. The IRS policy is making him look incompetent and irresponsible and I don't think he means to appear this way. If the IRS intends to be serious about international compliance, they need to supply their agents with proper tools to make their job easy. That would make also make it easier for taxpayers acting in good faith.

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  121. Does the Statute of Limitations expire on the date the tax return was filed, or the date the tax return was due? Let's say a taxpayer resident abroad files the 2005 return on March 1, 2006. The 6 year statute of limitations is found to apply. The IRS asks for an extension which is signed by the Taxpayer in 2011 and the IRS on Sept. 10, 2012. Is 2005 closed? If so, was it closed on March 1, 2012 or on April 15, 2012, or on June 15, 2012?

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  122. The rule is that a return filed on or before the original due date for the return is deemed filed on the original due date. A Return filed after the original due date is filed on the date the IRS received. The filing date thus determined starts the beginning of the statute of limitations.

    The original due date for Forms 1040 is April 15. The original due date for Forms 1040-NR are either April 15 or June 15, depending on whether the taxpayer received wages subject to income tax withholding. U.S. taxpayers residing overseas are given an automatic 2-month extension from the normal due date (April 15) to June 15; that is an extension, the original due date is still April 15.

    So, applying these rules to your facts:

    Return filed 3/1/06
    Return deemed file 4/15/06 See § 6501(b)(1) and § 6513(a).
    3 year assessment period ends 4/15/09
    Taxpayer signs extension ??/??/11
    IRS signs consent to extend on 9/10/12.

    The consent to extend is ineffective.

    I hope this answers your question.

    Jack Townsend

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  123. As Just Me and I have recently posted, the international communication possibilities of IRS agents are not optimal. However, I do believe it is possible, just cumbersome.

    As for the TAS, it is the exact opposite. It is easy to communicate with them. They are diligent about FUDs (Follow Up Dates) and NCDs (Next Contact Dates) and will find a way to get in touch with you if your case is accepted. They run a tight ship and do not seem as sluggish when it comes to international communication as the rest of the IRS. They also understand that it might take 30-40 days to respond to a letter when it is sent internationally (10 days to arrive, 10 days for the response to arrive and the rest to gather documents). The regular IRS does not seem to have understood this.

    As for seeking the help of the TAS, you can do that by faxing or mailing a form, but I strongly suggest that you call in. If it appears that you meet their criteria they will ask you some questions to further qualify your case. They may also need to call a supervisor in to make that judgment. It goes faster if you are on the phone.

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  124. Thanks. As a follow on, if the 3 year Statute of Limitations has run out and the Taxpayer files a return after that date showing a 25% omission (not attributable to fraud) AND the IRS signs an extension after the 3 year SoL has run out, does the SoL still extend to 6 years?

    Specific facts: 2007 return filed 3/1/08
    3 year assessment period ends 4/15/11
    Taxpayer files amended return in OVDI showing 25% gross income omission not attributable to fraud on 8/15/11
    Taxpayer signs extension 8/15/11
    IRS signs extension 9/10/12
    When does the SoL on this return run out?

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  125. If there is a 25% omission as you state, there is a six year SOL which makes the end of the SOL 4/15/14. This is true whether or not the taxpayer files an amended return showing the omission, but the amended return will be a quick topoff to anyone that looks that a six-year statute applies.

    So, when the extension is signed by the IRS on 9/10/12, there is still over 1 year left on the statute. Now, what may be the case is that the date on the consent (Form 872) may be sooner than the 6-year statute date.

    Keep in mind that all the IRS has to do is to sign the consent while the statute is still open, as it is in your facts. If it signs after the statute has closed, then the consent is moot.

    Jack Townsend

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  126. I have a question for people from India. If you have a demat account with a corporation, do you need to file Form 5471 with IRS? I read the instructions for it, but am not sure.
    Thank you

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  127. @Just Me..Thanks. Nina Olson wrote me back! She sent a very personalized response within three days of when I wrote her. She said that she is trying to get the IRS to adopt email communication, especially with international taxpayers in particular, and is also working on them to communicate via Skype or other video systems. She will keep trying to draw the attention of Congress to the needs of international taxpayers.

    If one could vote for the Commissioner of the IRS, she would have my vote!

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  128. IRS does not send back the consent signed by it. So how do we know when the consent was signed by IRS

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  129. The IRS will send back the consent, usually when they sign it. I have had varying turn around times on the consents.

    Jack Townsend

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  130. Here are my latest experiences. I will divide them into "bad" and "good". My case is with agents in Austin who will farm it out to a Revenue Agent (somewhere) who will work on it. As my experiences are fairly typical, perhaps they will be reassuring to others.

    The BAD:
    1. As required by OVDI, I submitted 2003-2010 to Austin. Even though 2010 was filed timely, as OVDI posted my payment for that year to 2007, I have started getting penalty and collection notices from the IRS for balance due. In spite of sending letters to both the regular Austin office and the OVDI office explaining where the payment is, plus copies of the tax returns plus copies of the instructions of how the payments were to be applied, the collections letters have been coming.
    2. Each letter the IRS sent me (I reside outside of the US) said that unless I answered by a certain date, which was usually one week before I received the letter, more penalties and interest would be added. So penalties and interest have been accruing. Thanks to information on this blog, I was prepared for this and was not upset about it. I also had no great expectations on the IRS ability to recognize that letters sent abroad can take more time than letters sent within the US.

    The GOOD:
    1. I am in the phase where I at least have a phone number of an OVDI team to call. I got this from the request for SoL extensions that they sent me.
    2. I had to leave a message when I called the number, but I can only commend the IRS on how quickly they called me back - within an hour. I informed the agent who called me back about the collections letters. The agent was very nice, helpful and professional and told me that to stop the balance due collections, I would have to call the OVDI Hotline and they would take care of it there. The agent gave me my e-track number, a.k.a. as a Submission Index Number and told me that this should help. They can look this number up once they have your SSN. The agent also promised to make a review to see if all my documents were in order and get back to me with the status on when they would be moved out. It remains to be seen if they will live up to that promise.
    3. I called the OVDI Hotline and as anyone who has called it knows, they never answer and you must leave a message. However, they did call me back within 30 minutes. They told me they are able to put a hold on the collections for 9 weeks. They said this 9 week hold should give the Revenue Agent who will be assigned a chance to allocate the money I sent properly. So I am asking myself if my OVDI nightmare will be over in 9 weeks. I won't count on it.
    4. My concern was that they remove all penalties and interest. The Hotline agent had to call a Technical Specialist and called me back within 20 minutes and said that only the assigned Revenue Agent can remove the penalties and gave me the latest amount my penalties and interest had reached. So now I know to be very clear about this with the agent and how much the agent will have to remove.

    The ESSENTIAL:
    Nothing on a case will move until you sign the extensions of Statue of Limitations. You have to cooperate so don't even waste any time pondering if you should sign them. The agents get really get happy when you say "yes, no problem" to signing the SoL extensions. I have seen it twice now from two different agents.

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  131. Does anyone have an idea of what the IRS looks for in the bank statements? Will they require details of transactions in the statements? I wondering if I need to ask my banks for details from the past. Most of the transactions were payments made to various parties. I know they want to make sure I picked the high balances and interest amount is as reported in the amendments. Any other details beyond that?

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  132. I would think that they would look to see that income was properly reported (interest, dividends, capital gains, PFIC gains) verify the high balance, and look for anything suspicious.


    When I went over my statements, I noticed that my bank listed things very cryptically, for example "account transfer" might mean funds changed from one currency to another, or used to buy stock; "trust creation" was purchase of a CD, "redemption" was sometimes just the face value of the maturing CD, with the interest shown separately; in other cases the "redemption" was principal plus interest. It was hard enough for me to figure out what was going on (especially older statements back to 2003!) so I wrote a couple of words to explain anything that wasn't clear.


    I didn't do this to save the IRS work or clarify anything they might question; I did it to save on accounting fees. Not only is my accountant expensive but it would have taken him much longer to figure things out than it took me.


    But going through the statements also means that if/when there are questions from the IRS agent, I am able to answer them, and am also confident that there are no errors in reporting. Since I'm strongly inclined to opt out, I want to make sure there are no probelms with the returns that would start things off on the wrong foot.

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  133. Here's this week's latest info in my never-ending OVDI saga. My file is complete and ready to be "moved out". This means that all required documents and extended SoLs have been verified by an OVDI Team in Austin as being present in the submission. However, I and most likely all other OVDI participants who submitted after July 2011 are caught in a logistics issue. I was told by an agent that the IRS is batching cases and waiting until there is spare capacity before sending batches out. OVDI cases are handled in the spare capacity of agents all over the country. There is no spare capacity right now anywhere in the system. My representatives called to ask if my case could be assigned soon and they were given a negative response and told to expect a waiting time of approximately one year. My representatives also understood that OVDI cases (especially minnows in my thinking) were low priority in the types of cases to be worked and other priorities came first. This aroused the ire of my representatives who will investigate further. It leads me to ask if minnows really were the targets of this initiative, wouldn't they be given more priority?

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  134. As I see it, time is on your side. I understand that you'd like to get this over with, but the longer it drags on, the more info there will be about optouts and you will be better prepared to make an optout decision. I wouldn't hold my breath, but some sense or better guidelines may come into this; I doubt it can get any worse.



    And I see it as a good thing for minnows to be given low priority. The 30,000 caught in this mess are those who are trying to fix the past; I would guess that between immigrants and emigrants (Americans overseas) there are a couple of million with unreported accounts.

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  135. Thanks for sharing your experience. I am not sure if there is any priority in the manner cases are assigned and handled. I am a minnow with small bank accounts. I submitted my case in November 2011 and was assigned to an agent about 2 months ago. However, its been painfully slow after that. All I know is that the agent reviewed the case briefly. I was planning to call him again and find the status but someone suggested not to call since it might cause negative effect on the case. Not sure if this can be really true. Any feedback is appreciated.

    Thanks

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  136. I seem to remember reading that the agent may be able to give someone in OVDI some indication as to what be recommended if the person were to opt out. Is this still the case now that agents are told to take only 25% (or other percentage) of high balance? My package doesn't address nonwilfulness or reasonable cause; it's just numbers.

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  137. Having OVDI processing centralized in Austin made sense; with decentraklized processing all over the US there are now agents with little/no experience with foreign bank statements, and the decentralization may result in inconsistent optout decisions. For consistency there really ought to be another ceiling based on unreported income, not on highest balance.


    Also, while dealing with the OVDI mess, auditors aren't catching fraud such as hundreds of EIC refunds sent to one address, recently in the news. And while they're scrutinizing OVDI submissions, who's doing anything about quiet disclosures?

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  138. In principle, I agree that time is on our side, but on the other hand, worrying about being available if questions come up and unexpected results causes gray hairs. On top of that when you reach two years in the system waiting just to be assigned, that seems a little extreme. Also, when collections actions have been started and you have to remember every few months to get them put on hold again and you worry that maybe it will not be possible the next time, then prompt attention becomes attractive.

    Who knows? It appears that it can take 6-7 months to close after assignment if we can judge from ij's case and Just Me's case. If we think of time in terms of the movement of glaciers, then OVDI timing makes sense.

    What you say about more info on optouts and better guidelines makes sense. OVDI has changed many times since it opened. I have read that someone talked with the OVDP hotline and said that there could be some program to convert OVDI participants to the streamlined program in development, but every time I talked to IRS agents or an attorney, they state that they have no knowledge of this. I will call the OVDP hotline myself and check.

    I have not heard of any 5% cases being closed, so I wonder if they are waiting on those cases, but from my discussions with the agents in Austin, that seemed to have nothing to do with the assignment of cases.

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  139. There appears to be no priority in the manner in which cases are assigned and handled. I submitted 4 months before you did and am still waiting to be assigned. Don't be afraid to contact the agent. You have every right to ask the agents if they have everything they need and ask about expected timing on your case. I doubt that will be held against you.

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  140. Some agents inside the OVDI/OVDP penalty regimes will give some feedback; most will not (at least that is my experience). Keep in mind that the agents won't have a penalty mitigation position paper such as submitted on the opt out, but they will have a lot of information about the taxpayer and his behavior with respect to the accounts. Further, most taxpayers in the OVDL Letter will have summarized the mitigating facts. So the agents willing to give feedback can give pretty good feedback.


    Jack Townsend

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  141. Jack -

    1) Is it possible for something to not be considered as a financial account for FATCA, but yet still be declarable for income tax purposes?

    2) Can this type of account be excluded for OVDI or OVDP?

    Specifically, a FATCA IGA (Inter Governmental Agreement) with a certain country has been finalized and it clearly states that a type of account, which is private, but mandated by the Social Security Agency of the country, is exempt from FATCA reporting. My attorney did no analysis of my accounts and told me to declare everything vaguely mutual fund-like as a PFIC. This account is not mentioned in the tax treaty with this country, but it is currently in negotiation for a future agreement. If it is not a financial account, can a position be taken on this within OVDI?

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  142. 1) I can't give a definitive answer to this because I have not studied it. I will say definitively that all worldwide income needs to be reported by U.S. persons (citizens and resident aliens) whether or not FATCA applies to the source of the income. To state the obverse certain proposition, merely avoiding FATCA with respect to the foreign source of income does not exempt the income from U.S. tax reporting.

    2) I don't know. I do know that excluded from the penalty base inside the penalty structure offered by OVDI or OVDP is foreign assets (not just financial asset) with income that has been properly reported and taxed in the U.S. I think they will be excluded from penalty in the opt out audit as well.

    3) Retirement accounts. I believe that retirement accounts recognized by the other country as retirement accounts similar to our tax deferred accounts will likely be omitted from the inside OVDI / OVDP penalty base and the income buildup will likewise be excluded, based on the assumption that the taxpayer will then include the income when the distributions are made. Technically, I think, unless there is a treaty, the tax deferred nature of the plan under foreign country law does not matter and the income should be reported as if it were a foreign bank account or investment account. However, I don't know that the IRS is being a stickler about that, so long as it truly is a deferred access account like a pension and the taxpayer will otherwise treat the distributions as income. Alternatively, if the IRS were to require inclusion of the income, I doubt that it would impose an "in lieu of" or FBAR penalty on that account.

    Jack Townsend

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  143. Since neither my tax preparer or CPA filed correct returns for those 7 years under the program, I reviewed & discovered that I was also misinformed about taking the standard deduction versus the itemized one. Since IRS wanted revised accurate forms I redid all & filed. IRS agent is now saying that they have the authority to add overseas income for those years, but that I have no authority to correct the return showing itemized. He quotes the statute of limitation being 3 years. How can it be that they can go back 7 years for income & yet not accept my revised return showing all corrections?

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  144. My CPA included both unreported income and unreported foreign bank fees for the revised years though in most years the extra fees didn't make a difference and I was still better off taking the standard deduction. I don't believe your agent is right, though my returns haven't been processed yet.

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  145. Jack, not sure what you mean when you say "since the FBAR penalty is not joint and several, no separate statutory innocent spouse provision is needed."

    By way of example, are you saying that, in the case of marital couple who are in the vdp and who filed joint returns for the years in question, if they should elect to opt out, the IRS would have to prove the willfulness of the wife in order to be able to obtain a (50% FBAR penalty) judgment against her, and could not, by way of contrast, just prove the willfulness of the husband, impute that willfulness on her, and then obtain a (50% FBAR penalty) judgment against her based on her husband's willfulness?

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  146. I believe what Jack is saying is that since (with one exception, see
    below) an FBAR form has to be sent in individually by husband and wife, a
    wife is NOT responsible for a husband's FBAR penalty (and vice versa)
    even if they file joint tax returns. The innocent spouse clause is
    therefore not needed for FBARs since there is no joint FBAR return.

    But
    if the wife has a separate FBAR filing requirement, she can be
    penalized independently for that. So consider the simple case where each
    has one separate account, then the maximum total non-willful penalty
    for that year would be 20K.

    Now, if husband and wife only have
    joint accounts, it becomes a little complicated. Technically, in that
    case, only one form is required with one spouse filling in the accounts
    and indicating the other spouse as a joint account holder. So maybe in
    that case, only one spouse would be liable for the FBAR penalty.

    This of course presumes the IRS is not applying the penalty on a per account per year basis, in which case all bets are off.

    But
    really, anyone who is really concerned about the willful penalty (and I
    think the Government's position has gotten stronger with some court
    victories) should not opt out.

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  147. I concur. Thanks for the answer.

    Jack Townsend

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  148. Hi,

    I have a question. Late last June I've learned about FBAR requirements, I rushed to get my filling in for 2011 and in July entered OVDP for previous years. After sweating for few months, it seems like my FBAR was received and processed. BUT, I need to amend it because, few amounts were off, I missed and accounts and finally, I misread the form and send only one for both me and my wife (we both signed), but on the form I send all the account are shown to be mine.
    I'd prefer not to have 2011 part of the program, because I would fall in the 27.5% category. I want to amend my 2011 FBAR and join my wife's at this point and see if the Treasury department will let me do it. If not then I guess, 2011 will be part of the program...
    Is this a reasonable scenario? Anybody with similar experiences? Any advises?
    Thanks...

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  149. Jack, do you think internet gambling activity would disqualify a person from participating in OVDI?? by internet gambling i mean poker players or sports bettors

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  150. http://desiways.wordpress.com/2012/02/26/finding-a-tax-attorney-for-ovdi-fbar/

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  151. As I understand the penalties in 2012 OVDI are:
    27.5% highest aggreg. amount
    back taxes + 20% accuracy + interest
    failure to file and failure to pay

    WHAT ARE THE FAILURE TO FILE AND PAY PENALTIES FOR?
    are they for failing to file a tax return OR FBAR??

    ReplyDelete

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