Friday, April 6, 2012

Shulman Recounts His Tenure and Comments on Offshore Initiatives (4/6/12)

IRS Commissioner Shulman has announced that he will not accept a second term.  See  Richard Rubin, IRS Commissioner Says He Doesn’t Want Second Term (Bloomberg 4/5/12), here.  In a speech, he recounted the IRS's achievements during his term.  Prepared Remarks Commissioner of Internal Revenue Douglas H. Shulman before the National Press Club (IR-2012-42 4/5/12), here.  Among the comments were the following regarding the IRS's foreign accounts initiatives:
Both corporations and individuals operate in the global economy. For example, many individuals have global exposure through their investments and 401Ks. Yet, this fundamental shift to a more global economy has created a real set of challenges for the IRS. On the individual front, we have made putting a big dent in offshore tax evasion a major priority. 
We view offshore tax evasion as an issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack. 
Over the past four years, we have significantly increased our resources and focus on offshore tax evasion, and the results have been substantial. We upped the ante in a meaningful way with our work on Swiss financial institutions – where for the first time in history, a bank secrecy jurisdiction turned over thousands of names and account numbers. 
As we increased our enforcement efforts and gained significant momentum, we gave taxpayers a chance to come in voluntarily and avoid going to jail. In a typical year, we used to get 100 or so taxpayers who used our voluntary disclosure program. For this program, we thought that figure would rise to maybe 1,000.
So, we are very pleased that through the end of 2011, we’ve had approximately 33,000 voluntary disclosures from individuals who came in under several special programs we started in 2009. To date, these individuals have paid back taxes and stiff penalties amounting to more than $4.4 billion, and the number continues to grow. We are now mining the information we have received to date and have launched our next wave of investigations on banks, bankers, intermediaries and taxpayers. 
Collecting additional revenue for past misdeeds – as important as that may be – is not the only consideration here. It is perhaps more important that we’re bringing U.S. taxpayers back into the system…back into compliance… so they properly report and pay their taxes for years to come. We have fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas, and we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes.
I wonder if the Commissioner really understands how misfocused the program really is.  Does he really understand the difference between whales and minnows, both of which he sweeps into the same net?  Punishment should not be the same for both.  Yet, the IRS offers a program of one size fits all, where the penalties for the whales (most of whom are really bad guys in terms of tax noncompliance) and the minnows (most of who are not).  I am sure that the Commissioner and the IRS see the opt out as the safety valve as the way to deal with minnows and nuance, so that the inside penalties really apply to only on the bad guys.  But the opt out because of all its uncertainties and interminable delays poorly serve a community of taxpayers who should receive at worst a light tap on the wrist and who are willing to be compliant into the future now that they are fully educated about the expectations of the IRS.

I strongly urge the IRS to move swiftly to publish guidance for how taxpayers will be treated on the opt out audit.  That guidance should not cover the whales -- who are the ones likely to deserve the onerous penalties and should stay within the program penalty structure without opting out.  The guidance should make the punishment fit the conduct -- I don't say crime because in these cases there is no crime.  That would mean in many, perhaps most, cases a future compliance (some call it a warning) letter or a relatively light slap on the wrist and at least an implicit welcome into the community of taxpayers with full knowledge of what is expected in this area.  This would help alleviate a lot of the angst that these good people have about entering the program and getting right with the IRS.  That way, these taxpayers can feel more comfortably about opting out in the first place and, because they will know something about the administration of the opt out audit, will not feel that for long  periods they have the Sword of Damocles hanging over them.


  1. This is typical IRS-speak with a populist twist. What is notable is that minnows (working-people) are not targeted.

    "Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens..."

    The whales are targeted in order to give the money to the working minnows. (Robing Hood style).

    If minnows were caught in the program, it is through their own fault, not IRS's.

    Secondly, "We have fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas, and we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes."

    This clarifies the IRS objectives as scare tactics and "educational" tactics to have people pay taxes.

    Couching it as a a civic duty or moral or social obligation contradicts all taxation theory and legal precedents.

    Pay taxes or else you go to jail is not the same as don't drink and drive, say no to drugs and stay in school.

  2. Are the tax practitioners explaining to shulman and his team the pain minnows are enduring financially as well
    as emotionally.

  3. And here is the reality he leaves behind that Nina Olson and the TAS has to deal with...

    My vote is for Nina as his replacement.

  4. Here Here to Jack's comments.

    In my opinion, the IRS offshore bank account disclosure program is upside down. What I have suggested before, and reflected by many of the thoughtful comments, is that individuals who have under a certain amount in a foreign account (say high balance of $750K) simply report it and pay tax and the enhanced interest charge (no penalties). Kick out anyone who would other qualify for the amnesty that held the offshore accounts through an entity or demonstrated other high end planning. And stop this nonsense once and for all.

    Everybody else is fair game for extreme penalties in my opinion.

    Following your Excel chart, NO high roller was caught so what's the point: squeeze the minnows but say something different. That only builds resentment and, in my opinion, is entirely wrong-headed.

    We read daily about what I call industrial scale tax avoidance and yet I have not read about any serious tax prosecution. Yes, there is the occasional Wesley Snipes, Willie Nelson, and earlier Richard Prior and such, but those were small beer in dollar terms and didn't involve sophisticated tax planning. Leona Helmsley is about the only well-known, wealthy taxpayer who went to jail for tax transgressions and that was NY sales tax, if I remember correctly.

    We all know how this plays out. In fact, and I know this from professional experience, well-advised taxpayers are emboldened when they see no similarly situated taxpayers being publicly prosecuted by the IRS. Remember, they get their information from the media too: they hardly talk to each other about their clever techniques and compliant offshore bankers. In short non-compliance encourages non-compliance by like-kind taxpayers, and the game goes on.

    To recap, then, a simple policy that will allow ordinary US citizens to get into compliance would be major step in the right direction, and which would allow the IRS to dedicate scarce resources to follow the real money. The present "one size" policy is just plain silly on so many levels, with all due deference to Mr. Shulman's as head cheerleader for this fundamentally flawed program. Well-advised taxpayers will not participate since there is clear objective evidence that they don't need to, and there's the rub!

    Have a great holiday weekend folks!


    1. Anonymous z - that is right. IRS should have said declare what u have offshore say on 1-1-2011, pay a a fixed slice of that amount, with a stern warning that if discovered by the IRS later on, then u will be subject to draconian civil/criminal penalties, that way, lot more would come out, giving IRS much more revenue. After all, is it not the sole goal of revenue enhancement? Why are they making people sleepless with uncertainty and this b.s. About joining and then opting out etc, it is really a cat and mouse horrible game. Also, the whales are getting away with highly paid lawyers etc.

  5. The IRS OVD programs, for those of us in the know, appear to be the equivalent of letting the Keystone Cops loose in the Treasury Department.

    What irks my ire most about Commissioner Shulman’s remarks is that the hallmark of a true leader is seriously missing. It would not take much to acknowledge the missteps with respect to minnows in the OVD programs by implementing a clear policy for rectifying the situation. Nothing needs to be said. The policy would speak for itself. This kind of action is seriously lacking. An action of this sort would allow the Commissioner to save face as well as help many victims of the poor policy planning.

    Let me illustrate by example.

    As a minnow, I have recently had to abandon my legal counsel because I wish to opt out and I can no longer afford them. They have told me their costs will be greater than my penalty. In our last conversation, my former lawyer told me that people like me, minnows, were suffering greatly since a “one size fits all” policy was implemented. He told me that when FAQ 35 discretion had been allowed, he had a client who had USD 300 million in assets overseas and who, in OVDP, faced a fine of USD 60 million. The client spent over USD 100,000 on legal fees and my former lawyers were able to obtain discretion from an IRS agent so that the client paid a penalty of USD 50,000.

    Now, compare that with me, an overseas US person who has lived outside of the US for half of my life and my entire assets amount to less than 1/1000th of what the client who obtained discretion had. These assets have also been taxed (heavily) in my country of residence. My taxes owed during the entire OVDI period are de minimis (less than in the de minimis example of FS 2011-13). I have spent USD 40,000 on legal fees only to be told by my former lawyers that I should not opt out because my legal fees for opting out would be greater than my potential penalty. If I want to have their help to opt out and fight a potential penalty that is less than my legal fees to date, I will need to spend almost as much as the client who had USD 300 million overseas.

    So, yes, the opt out option was designed by the Keystone Cops in the Treasury Department. While intended for a “discrete minority”, it appears that the discrete minority with a lot of money to pay lawyer fees will do well in an opt out. Most minnows are not in that situation.

    Examples like this prove that there was poor policy planning and confirm the heightened need for an expedited opt out for minnows. Commissioner Shulman has a chance to show that he possesses vision by doing something to address this situation before his tenure is over.

    I view Commissioner Shulman’s remarks as nothing more than the typical self-adulatory hyperbole that an outgoing manager makes at his good-bye party to show that he has been doing something.

    We can only hope for two things:
    1) that the Commission implements an expedited opt out policy as soon as possible before he leaves and
    2) that the bosses of the future Commissioner will do a better job of managing their new IRS manager than they have done with Mr. Shulman.

    1. Anon5%
      I am very sorry to hear that you have to shell out $40k. I know how many nights you would have remained awake?

      We need to highlight such incidences and only hope that the Commissioner has somewhere in his heart an iota of regret the ovdi has been having on immigrants and expats.

    2. Actually I had called FBAR hotline all worried to ask them a few questions and they told me in the end that "I don;t need to worry" I am also a minnow however I think that IRS will see your sleepless nights as "YOUR PROBLEM"

    3. I empathize with you. But I believe it is not just your problem. I believe that the IRS has mismanaged the minnows and ,as a result, probably not served the country as well as it could have.

      Jack Townsend

    4. re: AnonymousApr 6, 2012 03:01 PM
      some of us are so worried, that we are experiencing anxiety attacks with no respite, no sleep, cannot eat. some have written on blogs that they are so desperate and depressed that they have considered suicide to end the nightmare and save their family from financial ruin. How will the IRS deal with that? As a 'success' - will that bring in more tax revenue - from our estates? I can't say that this hasn't also crossed my mind in the darkest hours though I know it isn't a good thing to think about, and I don't want to hurt my family more. The TAS and the IRS knows about this as there have been SAMS submissions made about the depression, the level of desperation and the fear and the effects. This is from people who do not even owe US taxes. What hope is there, when they keep piling it on, the FBAR situation alone is enough to despair about, and now there is FATCA. What makes our ordinary lives outside the US so problematic for the IRS to understand? And to renounce is so difficult and expensive too. How can a country hold millions hostage? Sometimes the fear is also heightened for other innocent relatives linked on accounts, or for children that have inherited the lifelong obligations and burden. The fees to prove innocence are so high - but what choice is there? The forms and rules are incomprehensible.

    5. For the past one year, i have been going through the same emotions. unable to work, loss of weight and fear of unknown.
      Should never have become an immigrant. For expats, atleast they are outside US and they can keep their assets outside and choose not to visit. For immigrants that options is ruled out.

    6. Another reason why people should think very seriously before immigrating to the USA. Stay in your home county, go to school in your home country, immigrate to other countries where you can make a real difference. American is closed for repairs.

    7. Please consider posting these comments here:

      Open Forum Comments to Congress and IRS Regarding Tax Administration for Offshore Accounts (4/9/12)


      Jack Townsend

  6. As one of those 33,000 alleged misdoers cited by Commissioner Shulman in his remarks, I would like to thank Jack for adding his voice to the ever increasing chorus of practitioners who are calling attention to the plight of minnows in the OVD programs and their need for an expedited opt out.

    This is a topic that has been addressed repeatedly by renowned practitioners and the Taxpayer Advocate herself. For those of you who have not yet read them take a look at:

    1) Stack and Andre – Expedited Opt Out Needed for OVDI Participants who Owe No Tax

    2) Michel and Matthews – OVDI is over – What’s next for Voluntary Disclosure's%20Next%20For%20Voluntary%20Disclosure.pdf

    3)Nina Olson The Taxpayer Advocate 2011 Report to Congress International Issues

    Thanks again Jack for the blog and your support. I would also like to thank Patrick Carmody for his comments of April 6, 2011 at 11.51AM.

    I will be spending my holiday weekend reading the IRM and refining my opt out arguments. Yes, this is how the OVD affects minnows who want to opt out. We hold normal jobs and try to manage this horror in our free time.

    1. If I might make a suggestion?

      How about getting an electronic petition going, one of those thingys that you can add your name, address, email, etc, to and edit a standard letter and it gets sent to Commr. Shulman outlining the reasons why this OVD program is silly, unfair and actually serves to undermine tax compliance by highlighting who gets prosecuted and who does not? Occasionally, I sign up for letters to my Senators and Congressmen and I always get a thank you back so I know they got the letter.

      I will sign it for sure as will many lawyers, accountants and people who are affected by it. I would not have known much about this program were it not for this blog, but now I know and it infuriates me. This is just a bad idea on many levels. I cant imagine how infuriated those involved in must feel.

      Someone who is a little more tech savvy than I, can explain what I mean about the electronic letter idea?!


    2. that is a very good suggestion. The language does not have to be harsh but should definitely highlight the pain/the havoc this program is having on the minnows

    3. Hi Patrick, Thanks for that and a very good idea. There are 6-7 million Americans living abroad and according to news I have read only about 1 million file 1040s. If you haven't filed a 1040 for 40 years like me, then you definitely never checked any box on a 1040 B and had never heard of FBAR. This program is so flawed one understands why America no longer functions very well at all. I joined OVDI 2011 because now I know and I am innocent like Moby so I think to Opt Out. I also think that Schulman's idiotic program will not stand a legal test, 8th ammendment or otherwise. So I have thought if each expat puts in $1 we have a legal war chest for a class action and if each of us put in $100, then we truly have a substantial fund. An electronic petition is a very good start so they know just how stupid this program is. My first two months of hearing about OVDI last May and June were spent in sleepless incredulity at how completely stupid and poorly designed the program was and the word Machellivalian? always came to mind to describe it. Schulman is the epitomy of that famous Italian.


    4. I think this is a very good idea Patrick.
      This would be a very good initiative. BTW are you a lawyer? If so, that would be even better.

      There is quite some support for the minnows that are being impacted by this
      both in the CPA as well as the lawyer community. Of course there are lawyers who
      want to utilize this oppurtunity to charge
      those exhorbitant fees from minnows but then there are those like Jack who are helpful and supportive not to mention the
      countless pro bono hours he spends.

    5. I would suggest a refinement to Mr. Carmody's suggestion of a petition. Adding your name to a petition is easy, so it doesn't have as much impact as an individually written letter. No, each letter doesn't have to be a masterpiece, but if it's individually written, not a copied form letter, and sent by mail, so it's not as easily deleted as an email, I think it will have a far greater impact. Phonecalls are even better.

    6. Just for the record, I am a lawyer but I do not operate in this space so I would be quite useless to you all. I am reasonably confident that someone could get this moving for you, perhaps even Jack would have an interest?

      While sending separate individual letters is better for sure, I suggest that if you make it easy for those who would support your cause, they will do so. For example, I would write in my name and details and copy my Congressman and Senators.

      But since it doesn't really affect me, I would not be inclined to go to that extra effort, without being disrespectful to Anon. above. I am reasonably sure others would feel the same.

      Just from reading about the program and picking up the applicable rules and regs, this program is like a Rube Goldberg machine, and serves to undermine and alienate the taxpayer base, in my opinion anyway. Who exactly thought up this abomination, not that the answer is important.

      What is important is for you all to get organized and concentrate your fire on particular targets working as a unit, those who have the ability to change the course of this ill-conceived program. Otherwise this OVD etc will push ahead and that would be unfortunate.


    7. "What is important is for you all to get organized and concentrate your fire on particular targets working as a unit, those who have the ability to change the course of this ill-conceived program. Otherwise this OVD etc will push ahead and that would be unfortunate. "

      i couldnt have stated this with a better choice of words. Exactly. I only wish
      after all this venting if we could come up with individual representations to our Senators & IRS and hope this has some impact.

    8. Thanks Patrick,

      I am not sure what I can do given my time constrictions. Perhaps I could create a separate blog entry that would have the format of being addressed to the IRS and to Congress where readers could present their comments (including grievances) about the OVDP and OVDI programs.

      Of course, rants would not be helpful and likely counterproductive. But readers' statements of real angst, feelings of unfairness, etc., presented without invective might be helpful. I understand that some IRS personnel do look at the blog and could pick up the comments. Moreover, for those willing to write the IRS or ocngressmen, a reference to the blog might encourage others to read it and feel the pain of the commenters.

      What do you and other readers think about that?

      Jack Townsend

    9. Jack,
      I agree with your observation. The statements should be readers/OVDI participants angst, unfairness of the program and they should be objective devoid of self pity, invective, reference to crack pot tax theories and such.

      It should appeal to reason and a degree of fairness to the minnows, immigrants and expats. Also the fact that the 40 million or so US persons (immigrants + expats), a majority of whom would be minnows would be watching the treatment to be met on the existing OVDI participants. A fair administration of this program is going will make a good business sense since this would cause a good chunk of the current non compliant crowd to join the open ended 2012 OVDI.

      Jack, again thanks for stepping up for the minnows, guiding them through this minefield
      and suggesting the appropriate course of action.

    10. Let me add my voice to the question of letter writing.

      I have written several letters to Shulman, and for those that are looking for ideas you are more than welcome to look here. I do agree that one should stay away from form letters.

      They are posted under the Title: Letters to Douglas Shulman

      I wrote my first back in 2009, and the IRS was flush in their victory over UBS and not really thinking or caring about Minnows at the time. It took 6 months to get an answer, but it was read by an underling at least. My understanding is that all letters are read and responded to. Not by Douglas himself, naturally.

      I would definitely copy in your Congressman. I just did a one page cover letter to the copy I wrote Shulman.

      I would also copy in Nina Olson at the TAS, because she is one engaged lady, and "gets it". If you haven't read the article about her that I linked above, I would encourage you to do so.

      Also, I do think letter writing might get more of a receptive ear right now then just a petition, coming on the heels of the TAD, and the recent letter to Shulman by ACA.

      Immigrants should definitely be writing, as I fear, that they are one group of victims of these programs that are totally unrepresented in any forum. They are totally ignored by the media. The number that are potentially negatively impacted probably dwarfs the Expats. Expats have had some voice and attention, meager as it has been, while immigrants have been totally ignored except for specialized blogs like this.

      Please do write. I know sometimes it does seem hopeless when dealing with an bureaucratic organization like the IRS and a Leader who uses pejoratives like "myopic" as part of his self congratulatory characterizations, but nothing ventured, nothing gained. Your letters might improve his vision and help him draw back and focus on a broader view which could include some "farsightedness" as to better ways to improve compliance.

  7. Incredible how Mr. Shulam doesn´t see the difference between an American Living in the USA who has a hided bank account in order not to pay taxes and an American Living Abroad who must have "foreign" bank accounts where he lives and works, and who pays taxes to his country of residence and because of this has Tax Credits when filling his USA IRS Return. How come he lumps everyone together?

  8. In addition to hyperbole in his speech, there appears to be a bit of prevarication in Mr. Shulman’s remarks. As they are prepared, there can be no doubt of his intention to cast the OVD programs in a light that does not reveal the reality. Note these lines from his remarks:

    “The end game is a way of organizing our international compliance programs to: identify the highest compliance risks among our taxpayer base…work cases as effectively and efficiently as possible…not waste our and taxpayers’ time on issues that do not pose compliance risk…and find appropriate ways to resolve cases as soon as possible.”

    Actions speak louder than words. The testimonies on this blog and others counter these words as does my experience.

    If Mr. Shulman truly wants to achieve what he states he has, then he should heed the call for an expedited opt out from OVDI and OVDP before walking out that door. It would give him a chance to vindicate himself. Right now we are glad to hold the door open for him and cannot close it quickly enough – and I am only a taxpayer. I haven’t seen many tax professionals begging him to stay when it comes to how he has managed minnows in OVDI and OVDP.

  9. "No good deed goes unpunished."

    With the exception of the UBS customers who entered OVDP because their accounts were at risk of imminent disclosure, I believe the vast majority of the 30,000+ are people trying to do the right thing.

    Since there are other banks in Switzerland, and plenty of other countries that are far better for hiding money (primarily former Brit colonies) as well as countries where many US citizens live (Canada, UK, Israel, etc.) the 30,000 disclosures are a drop in the bucket. Saying that in previous years 1% of those with offshore accounts declared them voluntarily, and thanks to OVDP/OVDI compliance has now gone up to 3% would be telling the true picture.

    I think that the combination of possible draconian penalties as well as hefty legal and accounting fees will not result in further compliance but in those who are willfully hiding money arranging their affairs in ways that don't involve foreign accounts (such as hiding the money in the US, dealing in cash, and so on.)

    Meanwhile those of us, myself included, who are honest enough to rectify past mistakes are getting mistreated.

    Finally, in a global economy, and in a country of immigrants, there is nothing unusual or nefarious in having money abroad from work on which taxes have been paid, a first or second home, inheritances etc. Painting everyone with foreign accounts as a crook is untrue and unfair.

    1. I think these are good comments. I only reply to discourage anyone from flying below the radar screen in the future. I do encourage that every filing from the date of discovery of the FBAR requirement and inclusion of worldwide income on the 1040 be proper -- i.e., file future FBARs and report the income. The past can be dealt with, but a continuing, ongoing pattern of failure to meet these obligations is very, very problematic and risky. While these taxpayers may perceive their risks as low, there are risks.

      Finally, I would hope that all citizens and residents will generally do the right thing. When they become fully aware that all worldwide income needs to be reported and FBARs need to be filed, they will do so at least going forward.

      Jack Townsend

    2. There are some common family situations that are just not that simple to rectify as a US citizen abroad - but very likely to affect large numbers of those outside the US. Ordinary family and life situations needlessly complicated by citizenship based taxation laws as they stand. For example, here is an ordinary and likely scenario as a case study - which poses challenges even with only a single country's tax system to report to; and which then becomes an insurmountable challenge when a family is subject to the demands of two countries:
      In a country outside the US: Citizen A (US expatriate from shortly after birth - or inherited from parent) finds that a US citizen parent (living alone outside US) seems not themselves in small ways - and tries to encourage them to go to their doctor to have them examined - potentially for dementia, or a mental illness. The parent adamantly resists. The symptoms are worrisome, but still not obvious enough to be able to challenge their capacity in order to force them to be examined against their will. This is a complex legal procedure, very time consuming, and destructive of the family relationship if pursued aggressively.

      Finally, after months of resistance, the parent agrees to be examined by a family doctor - who pronounces mild early stages of dementia - but not enough yet to support a successful effort to determine complete incapacity and legally take over financial affairs.

      The adult child finds out eventually that the parent had not filed several years of resident tax returns, and tries to rectify the situation, but the resident country tax agency won't discuss the situation without a power of attorney. The parent is fearful and won't agree to let the child take the requisite papers to a preparer on their behalf. The parent finally agrees to give a power of attorney, but (as the child found out only years later) the POA triggers FBAR reporting. The child starts paying the parent's overdue bills and has their name added to the parent's accounts in order to keep the heat on, and pay property tax to save the house. So, we now have the parent's back tax returns in the resident country (plus the unknown obligation for US returns), and back unknown FBARs - and now another added obligation is also on the child via the POA and co-signing on the parent accts. The adult child didn't know about their own US returns and FBARs or the parents US returns and FBARs, plus several years of returns are behind in the country of residence. Add in the sudden death of the parent, and then the estate obligations - for two countries, and.....Boom!

      Aging is common. Dementia is common. Taking on the care - and all the obligations of elderly parents or grandparents is common. Adding on the 'foreign' tax and financial reporting - with draconian penalties - is a recipe for fear, depression and disaster on top of the usual physical and mental strains of elder care - particularly with dementias. Those outside the US face so many needless family and legal hurdles imposed by US citizenship. All without a single penny of actual US tax owed - and all without any solid rationale and solid evidence that they pose a credible risk re terrorism, money laundering, or tax evasion . Can't renounce for someone incapacitated either, and would have had to be compliant for years anyway. How to even start to address a situation like that one? Even with all up to date personal US tax returns and FBARs, who wants to take on the liability that would come with the POA - suddenly, for any and all tax and reporting irregularities of the parent, plus the fear of FBAR penalties - either incurred by the elderly parent, or the child, or both. Now add FATCA on to that......

    3. Jack,
      I can't help but wonder: what if a US resident doesn't even know that he/she owns an account in their home country? In my home country, a parent could open any account for his/her child very easily. Everyone was doing it. They banned this 4-5 years ago but those accounts still exists everywhere. The tax on interest being withheld, parents are thinking it's totally fine while having no idea on the US tax law.

      In many cases the child won't know about the account until the parent inform on the deathbed. FBAR instruction says: a US person that has a financial interest in OR signature authotity over...

      Thousands of Green Card holders from my home country will find themselves in Catch 22 upon their parent's death.

      You might say the child has to file Form 3520, but what if the asst was as accumulation of deposits less than $100,000 a year? Obligation for filing Form 3520 does not seem to apply.

    4. Good question. I was wondering the samw thing. I joined ovdi for opt out recently. I came to know about an account that my mother had opened when i was a child. This when i specifically asked my mother about any accounts she is aware of in my name. That account has trivial amount of money , not more than 1500 dollars when converted to dollars. But i csn see others in similar situations with larger dollar amounts. Looking at the way irs is handling this whole thing, i guess they will be more than happy to assess penalties on such accounts.

      When the tax system is self assessed and when there are millions of tax payers in this situation, and a systemic issue then i cannot imagine that most immigrants and expats can be treated as tax evaders. Opt out is an option per irs but the legal costs can be more burdensome than the accuracy penalties. Representing oneself has become difficult because of the confusion created by irs in the minds of tax payers and lawyers. Tax payers are squeezed from every possible direction.

    5. To Anonymous Apr 11, 2012 05:35 AM

      You might consider posting some variation on this theme at

      Open Forum Comments to Congress and IRS Regarding Tax Administration for Offshore Accounts (4/9/12)


      Jack Townsend

  10. Just one final comment on Shulman, not wanting to beat a dead horse...

    I have just got around to reading his speech. This one self described focus of his, says everything you need to know about the OVDI programs…

    ” I’m a believer in relentless and myopic focus on priorities!”

    MYOPIC…?? Really? He is basically celebrating blindness. He is so myopic that he can’t distinguish Whales from Minnows, and yet trumpets this as a “core” belief? I understand focus, but surely he misspoke with his choice of words. MYOPIC is exactly the opposite of what a "Leader" of a Big organization should be engaged in. It sounds like he is proud of being blind, as myopic is just one small step away. Go figure. Nina Olson is my choice for the next Commissioner. Now, she is NOT myopic!

  11. If you live outside the United States and have perm residency in a foreign country and don't care about traveling you can renounce your U.S. citizenship before acquiring citizenship elsewhere as U.S. citizens you have a fundamental right to renounce your citizenship, of course you become stateless but that's better than being a U.S. citizen at this point for many of us.


    Renunciation and statelessness: Potential renunciants who do not possess another nationality or a claim to one are nonetheless permitted to renounce U.S. nationality. In doing so the individual becomes stateless. You should explain the extreme difficulties that a stateless individual may encounter trying to establish residency in a foreign country or traveling between countries in order to ensure that the individual understands the consequences of statelessness. See 7 FAM 1215 for additional information about statelessness. If the individual still desires to proceed with the renunciation, you may proceed.

    1. Yes, as long as you have legal residency elsewhere you could become stateless and wait the requisite number of years until becoming citizen of that country.

      Stateless while uncommon isn't at all unusual, many WW2 refugees ended up that way. Also sometimes women ended up being stateless when they lost their original citizenship for marrying a foreigner, and the husband's country didn't automatically confer citizenship on the woman.

      Statelessness makes travel difficult but not impossible. Certain countries offer passports to non-citizen residents such a passport is labeled "for foreigners" and the holder must obtain a visa from the country to which he is traveling. This happened a lot after WW@ with refugees.

    2. Statelessness is not a good idea. While travel is theoretically possible, it isn't always possible in fact and when it is possible the necessary paperwork is a huge hassle. Bank accounts, employment and other normal things are difficult. (I had a friend who was stateless for a while.) Give up your US citizenship when you can get another. Not until then.

    3. I thought you might be interested in an IRS letter I saw recently from Elizabeth U. Karzon, Branch Chief, Branch 1, Office of associate Chief Council (International), Office of Treasury, IRS, dated April 13th, 2012.

      This was written to a Congressman in response to difficulties a Dual Citizen was having with US tax compliance issues she stated.

      I Quote from the copy I have:

      "If his U.S. tax liability and filing requirements are causing a hardship, he can consider relinquishing his U.S. Citizenship. If he were to do so, he should be aware of some important tax consequences which are explained in Form 8854, Initial and Annual Expatriation Statement, and its instructions."

      End Quote...

      So, here is an upper level IRS suggestion that U.S. Citizens should give up their citizenship if there is a hardship. How does that grab you? Basically this says, just quit complaining and go away! (My characterization.)

      Does this sound like the 2008 campaign promises of Barrack Obama to:

      "work with Americans abroad to identify and understand problems they may face as a result of U.S. government policies."

      "Obama will work with members of the Americans abroad community and the U.S. embassies to determine how the U.S. government can be responsive to the concerns of overseas Americans."

      "As president, Obama will work to establish a direct dialogue with Americans abroad."

      Read them all here:

      Well, that direct dialogue has come in the form of severe FBAR enforcement and OVDP/OVDI as part of Commissioner Shulman's offshore jihad. It comes in the form of Senator Carl Levin's FATCA amendment which Obama signed into law. It comes in the form of a Branch Chief letter, saying just relinquish your citizenship if it is too hard to comply.

      It doesn't bring me pleasure to point this out, as I voted for Obama. This is not a partisan complaint or political argument to vote for the other guy. It is just the realities of the attitudes of the bureaucracy and the political class that you have to consider if you think anything will change in the near term to make it easier for Americans abroad to be compliant. Won't happen!

      I would not advise statelessness, but I would take on board the IRS advice on relinquishing Citizenship, if possible, as nothing is going to change in the foreseeable future, in my opinion.

  12. Thank goodness he is on his way out! If he had any integrity he could take steps to right these programs as they clearly are affecting the wrong people. The face of America is bloodied and tarnished by this confiscation of wealth from those who unintentionally erred in regards to the most complex tax code in the world.
    What are the choices for the millions out there with these issues? Join these ignorant programs and spend two to three years in limbo, with high attorney fees churning like a buzz saw and then either a huge fine or maybe a reasonable fine at the end? Its so unproductive and borders on mental torture for the participants. Its also a drain on IRS resources. They can not even handle the cases they have now in a timely fashion. Some sort of sane power needs to intervene in this blackmail. Additionally they have tweaked these programs so many ties with additional guidance that those who joined earlier made decisions with less complete guidance. What is really incredible is that this man thinks its a great success. Go figure!


  13. I wonder if some international courts could be involved in this. I looked up Hague tribunal but it is only for crimes of war and genocides. If anyone is more familiar in this area please share some thoughts.

    1. Jack has already mentioned that suing the IRS is a quixotic adventure. Why do you wish to waste time and money? The USA has become a sham democracy. Read this article if you will:

      I know it has nothing to do with OVDI but that will give you an idea of the things to come.

    2. I said that a mass suit against the IRS's implementation of a voluntary program in which the taxpayer voluntarily chooses to enter is a waste of time because I am aware of no way under our laws that it could achieve any meaningful goal.

      That is not a statement that there are no remedies for aggrieved taxpayers or that the United States is a sham democracy. To the contrary. The individual taxpayer has remedies to correct abusive actions by the IRS and the U.S. has an effective representative democracy.

      The problem with getting widespread support for the "minnows" positions is that they have a problem only because they have not been reporting the income. Had they been reporting the income, they could have gotten a complete pass on penalties. But they did not report the income, and that is a systemic problem for the U.S. When U.S. taxpayers do not report onshore income, there is an admittedly imperfect system whereby that income can come into the sight of the IRS. That ability is marginalized when the income is offshore.

      So, one should expect that there will be special ways to deal with offshore, off the radar screen income.

      I am not saying that minnows are bad guys. I am just saying that, if they want to make credible arguments for relief, they do need to understand the systemic problems involved with their conduct, perhaps their unwitting conduct but still their conduct -- they did not report their offshore income.

      I am not trying to defend the IRS. I think the program has been poorly conceived (that is a hindsight judgment) and administered (that too is hindsight). All I am trying to say is that minnows should stress not that the program is abusive, but that they should be treated lightly.

      Bottom line, I think you can have some effect, but not by calling U.S. democracy a sham or by denying that the conduct -- leaving income out of the U.S. return -- was not wrong. Individually, you should argue, you have no knowledge or reasonable cause, but the Congress has given the IRS tools to deal with the problem.

      Please reformulate your complaints and try to articulate them in a way that the powers that be will be inclined to listen to them and respond.


      Jack Townsend

    3. Undoubtedly, under reporting income is a wrong against the United States whether it was intentional or unintentional. Those participating had to pay the back taxes plus interest, plus at least a 20% accuracy penalty for as far back as 8 years in the later programs. The United States was made more than whole at this point in many cases. To add the huge in lieu of penalty on top is plain and simple abuse. In the past the word is that IRS often asserted 0 penalties in voluntary disclosures. They became gung ho after UBS and assumed anyone with offshore funds was like the UBS bad actors. The real proof in the pudding about these programs was the Tax Payers Advocate report. How can you expect rational persons to risk life altering financial penalties to get right with the government. On top of that consider the legal fees and the two or three years it seems to take to get cases closed. Why? Fortunately, this blog and others have shined the light in a limited way on some very unjust results. 30,000 to 40,000 disclosures is a drop in the bucket when you consider the expat community as well as the immigrant community. I am certain a lot of people are still out there unable to make a move towards compliance because of the bad rap on these programs. I have to believe that with a reasonable and truly streamlined program, compliance would improve and likely even revenue collections would increase. This could be done while reducing IRS resources needed to close these cases. Compare it to being in sales. If you set your margins too high you sell little or nothing and this can hurt the bottom line. The right margin can explode sales and drive the bottom line. The IRS knows this or should. The 2012 27.5% penalty will likely dwindle the number of takers. Maybe that is why the 2012 shakedown is indefinite. They have a big problem in that they have already screwed a bunch of people. How do they make it reasonable now? How do they right the cases that they already closed? Heck, if a bunch more came in what is the time frame for closure? 5 years? There are likely millions that would like to solve these issues but the cost and nightmares required to clean it up is too much and the word is getting out. People are keeping their heads down, dumping U.S. citizenship and trying to find ways to solve the problems that are contrary to IRS guidance. The two main groups of people that have been unjustly harmed are immigrants and expats. IRS should make it right retroactively and then set some sane guidelines to clean up the matter.


    4. Jack,

      Minnow that came forward should get a preferential treatment. They were not on the UBS list or other Swiss bank that was just about to have their client list in the hands of IRS. I feel that most/majority minnows came forward out of pure desire to pay tax or the feeling that they had unintentionally committed a crime. Instead the got and will get butchered on the same scale as whales, using the same hack-saw. And above all most minnows were far too small and too hidden offshore to even ever pop up on any IRS radar screens. How would a minnow get credit for that?

    5. "...poorly conceived (that is a hindsight judgment) and administered (that too is hindsight)."

      Jack, with respect I have to disagree with your implication that the problems with the OVDI program are visible only in hindsight.

      I am not a tax professional, nor even a financial professional, and yet even I could see right at the start of the programs that it was a fiasco in the making. All that's needed is the ability to put yourself in the shoes of an immigrant into the US or an expat from the US, but both were well beyond the capabilities of the IRS top brass. As pointed out by someone else in an earlier thread, the 5% penalty for folk unaware of their US citizenship status is the ultimate proof. There have been no winners in this. Not the IRS, not the taxpayer, not expats, not immigrants, not US businesses. Predatory tax lawyers have probably done okay out of it, but for the rest, only relative degrees of loser. Shameful.

    6. Please consider posting these comments here:

      Open Forum Comments to Congress and IRS Regarding Tax Administration for Offshore Accounts (4/9/12)


      Jack Townsend

    7. Why do we think all the UBS and Swiss Bank account holders are bad actors?

      Some of the UBS account holders had inherited accounts. Some are Swiss citizens living in the US. Some are US citizens working in Swiss. Some may be US citizens holding joint bank accounts in Swiss with their Swiss parents. These are not bad actors.

      However when someone says Swiss bank accounts, we always think about rich tax evaders.

      Reality is often different from the perception.

    8. There are some legitimate and historical reasons, perhaps, to have Swiss accounts. You mention a few.

      But, the reality is that the rational actor will not have a Swiss account unless he or she is trying to hide something from somebody. The only advantage the Swiss offer their banking clients is secrecy that is imagined to be stronger than offered anywhere else. The Swiss charge a premium for that secrecy. Rational actors will not pay the premium unless it is the secrecy they are will to pay extra for. So, since most banks worldwide offer the same level of secrecy except for inquiries by Governments, the logical conclusion is that the rational actors are paying the Swiss premium in order to hide the accounts from their Governments. Now that is a generalism, but I think a fair one in most cases.

      I have not often found a person with a Swiss account who could articulate a good reason, other than secrecy, to have a Swiss account. And, by the same token, I have rarely found any person with a Swiss account that wants to keep it when the Government has access to the information. Draw your own conclusions.

      Now, that pattern is encountered far less often in, for example, Indian bank accounts where the U.S. depositor has a traditional tie to India. Then the depositor will usually have some very compelling reasons to keep the Indian account(s), some of which are not purely economical but having nothing to do with keeping the account(s) secret from the U.S. Government. (Some U.S. persons with historical Swiss ties may fit in this category as well, but most of the situations we encounter in these initiatives have no such ties to Switzerland.)

      Jack Townsend

    9. Jack, your comments about Swiss accounts and their holders may be correct for many of your clients, especially those who are US born, but there are older Europeans who survived WWII and who established such accounts for safety reasons unrelated to tax evasion.

      You can see the lack of a tax motive by the fact that the money was held in passbooks or savings accounts earning minimal interest (instead of stocks or more aggressive higher risk/higher reward choices.)

      You can also see that these people often live very modest lives and barely touch the money because it's there for an unforeseen emergency such as they lived through. They've escaped bombs and concentration camps, and want to have escape money available for when, not if, there is another war. This may seem bizarre to you but this is their mentality. It is really hard to understand for someone who has never been in their situation.

      Those who eventually inherit this money are also often reluctant to spend it or invest it in something riskier than a passbook.

      I know because I inherited an account from such a person, and have refugee documents, permits issued by the Nazi occupiers and stamped with the swastika, and so on.

      I am strongly considering opt out and have previously communicated with you on your blog about paying for a second opinion from you regarding opt out. When I do so, I believe you will see that not every Swiss account holder had bad motives.

    10. Thanks for your clarification. I did not have clients of the type you describe.

      You are describing reasons that appear to go beyond the rational actor I imagine. The rational actor will know that the Swiss banking system is not more immune to risk than the U.S. system and that equally safe investments with commensurate risk and reward are obtainable in the U.S. Thus, making those investments with lower reward for commensurate risks (because of the fee structure) in Swiss banks is not a rational decision. And if one looks for rationality in the conduct, one is likely to find a motive to hide the money from the IRS. By not paying tax on the money (either income or potentially estate), the risk reward ratio comes back and may even exceed what is available in the U.S.

      You are saying that there are reasons other than tax evasion that perhaps are understandable even if the rational economic actor would not adopt those reasons unless the rational economic actor was looking to exploit tax evasion. I can understand that and, in such a case, the person acting for such real other reasons would not be committing tax evasion.

      I can sympathize with your plot and do indeed understand it. I just don't think this genre of explanation applies to a large percentage of U.S. depositors into Swiss banks.

      Thanks very much for your comment and explanation.

      Jack Townsend

    11. Sorry Jack, I also cannot agree with you about Swiss bank account holders. If you make the distinction that rationale actors can include US persons who are residents or former residents of Switzerland, then I have no issues.

      Assuming that one has lived in Switzerland and no longer does, here are some good reasons to keep a Swiss bank account:
      • The person intends to return to Switzerland some day and does not want to take all of the money out of the country.
      • The person worked in Switzerland. The way it works in Switzerland is that when you leave your job in Switzerland, the money you were required to pay into your pension plan moves with you. This is very strictly controlled by the Swiss government. When you leave a job, the pension money must be either transferred to your new Swiss employer or if you do not have a new Swiss employer it must be put into a private pension account. If you should leave Switzerland and go to another EU country, in accordance with Swiss law Art.16 para. 1 OLP/FZV, the compulsory part that the former employee had to pay into his pension plan cannot be drawn for a move away to an EU/EFTA country, if the pension account holder is subject to an insurance obligation in this country as well. Thus you are stuck with a Swiss bank account.
      • The Swiss are very good in dealing in all currencies. In some banks in EU countries, you may not have accounts in foreign currencies that you may need such as dollars. You incur high fees for transactions in dollars and have to fill out a form or visit a banker every time you want to transfer dollars or do anything in dollars. In Switzerland, you can keep accounts in almost any currency, make payments in that currency and do it all electronically and avoid currency transaction fees.
      • If you have worked in Switzerland, you likely had a salärkonto (salary account) which is a Swiss tax compliant account and the accounts in other currencies are associated with this account, therefore fees are not high for all these accounts, nor for investment accounts associated with your sälarkonto.
      • Swiss banking customer service is unparalleled even at a purely teller level.

      Please note that these types of Swiss accounts may not have private bankers associated with them. Sadly for the IRS, but true, some who had Swiss bank accounts and who entered OVDI could only name “next available service representative” as their banker.

      What difference does it make if you have a Swiss bank account if you declare your income from the account and pay taxes on it in your new country of residence after leaving Switzerland?

      Understandably, when you refer to Swiss bank accounts, they are those that were likely created in the Bradley Birkenfeld Private Wealth sections of the bank that “minnows” never even knew existed. However, as illustrated, there are reasons why a US person could have a Swiss bank account and it is best to check on some of the above possibilities before assuming that the account was created and/or kept for secrecy.

    12. Hi Jack,

      I just saw your response in which you mentioned historical ties of US persons as a reason to keep Swiss bank accounts. Please then consider my response as an explanation of reasons other than secrecy as to why a US person may want/have to keep those accounts even if he or she has left the country long ago.

    13. I understand that and agree. For example, a lot of immigrants have historical and emotional reasons to do that. But for your prototypical U.S. person to have a Swiss bank account with higher fees for similar economic services and secrecy, well ......

      Jack Townsend

    14. Let me say also that everybody's facts are different, with a lot of shades of gray, as to their reasons for having foreign accounts. We are painting in very broad strokes here because we cannot deal with all of the factual nuance in any one's particular case.

      All are not either black or white, and most have some shades of gray -- that is nuance and who may be able to mount persuasive arguments as to why they had foreign accounts.

      Jack Townsend

      Jack Townsend

  14. IRS truly has become the Gestapo (as the Maine governor accurately described it) under Shulman. When due process rights are denied to career tenured non-probationary employees - employees with 18 1/2 years of nothing but excellent evaluations - it's a frightening time, and time for change. When these employees are denied due process and terminated without warning or cause, or chance to reply, and replaced by the hiring manager's daughter (a library worker with no tax experience replacing 2 CPA/MBA's with close to 20 years experience), it's time for a major change in government.


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