Saturday, September 15, 2012

A Great Opt Out Result! IRS Gets Good Press! (9/15/12)

I post today a reader's result from opting out.  Regular readers of this blog's comments will recognize the poster's pseudonym - "ij".  He has been a source of excellent comments as he worked his way through the initial filing to opting out and now completing the audit on opting out.  So, I offer here his comments.
   I just got a letter 3800 from IRS, that is a warning letter on my failure to report foreign bank accounts.   Even though I recommended $650/year FBAR penalty myself to make it up the tax loss for the closing years after opting-out.  IRS decided to issue a warning letter under my examiner's recommendation.   I have been lucky to have both examiners who have been treating me with dignity and professionalism. 
   Here are some facts of my case, 12 years US resident with offshore assets peak at 68K plus 50K registered retirement plan.  Total tax loss to IRS is around 2K during these years of ignorance.  I was such a fool that I even did not claim tax credit on Schedule M in 2009 but IRS corrected my return and gave over $800 back to me. 
  Here is my time line. 
  Package submitted in April 2011, revised in July 2011 on PFIC.
  First contact by an examiner in Dec. 2011,
  Full package of bank statement was sent in Jan. 2012 upon request.
  Form 906 arrived in July 2012, and request of opting-out letter was sent a few days later.
  Letter 3800 arrived today (Sept. 14, 2012).
  IRS is moving fast than we have expected, and they are fair to minnows with good facts (I think my facts are good). 
  By the way, I do all these on my own, and I certainly have learned a lot through this process.
  I would like to thank Just Me, Moby, Anon123 (my dear brother, I hope you are doing fine and keep healthy), Sleep Well (Sleeper) who was the very first few encourage me opting-out, and many other anons --- 
 Jack, I also want to thank you to let me to contribute your blogs -- I am one of the most out-spoken.   It is my hope that we make this process as open as possible to benefit taxpayers, the general public. 
  Now, it is time for me to move on, and good luck to all
In a subsequent posting authorizing me to post his information as a separate blog entry, ij said:
Jack, no problem, and please to post it as a new entry, any English correction is appreciated. Just want to make sure that minnows who have good facts should consider this is an example. 
Fear factor plays a big role to most minnows (including myself when I entered the program with a full payment of in lieu penalty even before 906), however, in my own experience, IRS agents are very reasonable and they do listen and look at facts.
My brief comments on ij's journey through the process:
  1. I agree with ij that the fear factor has played too prominent a role.  I do blame the IRS for some of that, but also I think some fear / risk factor is built into the process because of the nature of the penalties and the fact-specific nature of the inquiry upon opt out.
  2. I am encouraged for others in the process or considering joining the program that the IRS agents involved both during the consideration inside the program penalty structure and then upon opt out (maybe the same agent) acted professionally and reasonably.  I had expected that the IRS agents would be reasonable when presented with good (at least relatively good) facts.
  3. It is still critical for persons considering opting out to be realistic about their facts and how they will be assessed on opt outs.  Good facts will achieve a good opt out result, as ij found out.  Bad facts could achieve an unsatisfactory result.  It is important to project how the particular facts and circumstances will be assessed on opt out.  The IRS has not given adequate guidance in making that projection, but with good counseling you will be better equipped to make a good decision.  And, hopefully, the IRS will come out with some guidance in the future (I have no reason to believe the IRS will, but I can hope, for as Alexander Pope said, "Hope springs eternal in the human breast"); in the meantime, persons approaching or at the opt out decision point should look at all of the anecdotal data (including ij's) to assist in making the decision.  For that reason, I strongly urge readers with results of opting out to provide as much information about the result and process as they feel comfortable sharing, so that others can learn from their experiences and the fear factor can be mitigated..


  1. ij,

    I am breaking my silence to share with you my joy and happiness in hearing of the result you obtained. You are truly a brave and generous person to have shared so much of your experience in your disclosure saga. While I know you have paid a high cost in anxiety, time and frustration, at least on the financial side and in terms of what is just, you have been vindicated my dear friend. You are a shining example to everyone out there with these issues. Now you can move on with your life without the ominous black cloud of this program's frustrations and uncertainties draining your energy away. Good for you ij! You are an awesome individual. I am so happy for you.


  2. So pleased to hear of IJ's result!! I had followed his case closely and had prayed for him. :)

  3. Dear Anon123,

    Thanks.. and what an honor to have you come out to cheer my happy ending of FBAR (Fear Beyond Any Rational).

    Dear other anon, thanks for following up my story, and your pray as well.

    In case you guys show up in DC area, please do contact me (Jack has my email address), I have set up "For Beer And Recreation" -- my new interpretation of FBAR

  4. Congratulations! While flaws with the process and IRS's overall approach abound, I'm very glad that a sensible approach was reached in this case!

  5. Congratulations! Thank you for sharing your experiences and knowledge with us. I also appreciate the support you have shown for my particular situation. You have been like a virtual brother to me. We have pretty much gone through the same evolution together, i.e., fear, thinking we deserve the punishment, then learning about the law and the realities of the program, to recognizing the innocence of our facts and thereby losing some of the fear, and then finally, opt out, although I am not at opt out yet, but will be once they sort through the 5kgs (!) of documents I sent them.

    Any chance you can send Jack a sanitized version of your opt out letter that he could post as was done for the case of Moby?

    You will be missed, although moving on to the new FBAR club you describe is great! I am very happy for you.

  6. @ijdad:disqus

    That's great news, congrats!

    A few questions if I may:
    1) Did the agent attempt to either persuade you or dissuade you from opting out?
    2) Did you take any particular approach with your opt-out arguments?


    I still think that the whole programme is ridiculously and unnecessarily coercive, and this new outcome doesn't change much in that respect. No benign actor should have to go through what ij has, even if the end result was satisfactory. The concept of the 906 landing in front of an immigrant, who is then faced with the choice of "voluntarily" paying the huge proposed penalties or rolling the dice with larger penalties in the opt-out, has no place in a civilised society.

  7. Jack and others - What is the general view about the best time to opt out of OVDI?

    I thought that it is best to wait until the OVDI examiner has checked the returns as in Point 3 of the Opt Out and Removal Procedures it is the examining agent who makes a summary of the case and recommendation on the scope of the examination upon opt out. If the Agent knows and understands your case and has done a lot of the exam work, then it would make sense to wait until this is exam is done for opt out. This was certainly true for ij.

    However, if one knows they will opt out, it seems foolish that a lot of resources will be wasted in the OVDI exam, especially if one has asked for 5% consideration. It would be much more efficient to go direct to opt out, but then the question is if a full audit is a given if one goes straight to opt out?

    I discussed this with a RATA (Revenue Agent Tax Analyst) at the IRS and he did not agree with my logic. He could not recommend a time to opt out. All he could say was that the OVDI exam is not an audit. He pointed out that in all cases he knew, OVDI examiners are not the same ones who do the audit after opt out.

    So it seems the extent of your audit would depend on what the examining agent you are dealing with understands about your case at the time you state you want to opt out. '

    What do you think?

  8. Moby,

    Thanks.. and if you had not shared your opt out experience, I would have signed 906 and paid over $8000 in lieu penalty. You were the very first one brought us the light of hope.

    My agent did not attempt to influence my decision on opt-out. I was however told by my agent the following,
    1. Some folks have similar situation did signed 906 and paid the penalty and moved on.
    2. I have the right/option to opt-out, My case would move from title 26 to title 31 upon opting-out.
    3. In case of opting-out, IRS would not be able to collect the tax I had evaded - in my case, the big part of $2000 tax were in the early years.
    4. When I expressed my concern of becoming a tax cheat and getting away with it due to SOL after opting-out, my agent did try to explain to me that it was my right to be protected by SOL.

    My argument for reasonable cause is same as yours -- the discovery of the filing obligation. I added my inability of discovering Schedule M which would have caused me losing $800 tax credit. This seems to reinforce my argument on discovery. My simple method of filing return (downloading f1040 once a year from IRS, and filling and mailing) may also add some weight on my case.

  9. anon5%,

    Thanks for your kind words. My opt-out letter was based on that of Moby's as we used the very same argument. There some detail/facts difference though.
    It is better that I do not publish it so to avoid being accused of "plagiarize". However, I can send it to Jack or you directly if you want.

    I will be hanging here for awhile just in case anyone has questions. Just Me, Moby and Anon123 -- they all have been helpful here to us -- so I should follow this tradition.

  10. ij,

    Some of your words carry particular meanings that I don't think you intended.

    In item 3, the word evaded has a particular meaning. If you had "evaded" the tax, the unlimited statute of limitations would apply under Section 6501(c)(1) and the 75% civil fraud penalty would apply. You just underpaid your tax for those closed years, but you did not evade those taxes.

    Similarly in item 4, you are not a tax cheat. I hope that you take the advice the agent gave, because it is correct. The SOL does not apply to tax cheats. You are not a tax cheat, so the SOL could apply to you exactly as Congress intended it to apply. Statutes of limitation are based on the need for repose so that, at some point, the past really is the past. Our system could not work without statutes of limitations. The IRS (including your agent), Congress and the Courts recognize the importance of statutes of limitations and do not consider someone who invokes them as a cheat, whether tax or otherwise.

    ij, I join the chorus of others for thanking you for all of your contributions to making the process just a little better for many people.

    Jack Townsend

  11. Jack,

    Thanks for your corrections.

    It was the article of
    that labels 33,000 OVDI participants as tax cheats, I thought I was one of them.

    In my opt-out recommendation, I offered to pay FBAR penalty for a total sum twice as much as my tax due for the closed years. It was intent to compensate the tax loss to IRS. I thought it was a reasonable approach and good will gesture. IRS did not take that but issued a warning letter instead.

    It seems to me IRS is really easy on minnows once outside OVDI (at least in my case) As a result, I got away with under pay tax of $2000.

  12. IJ

    A JUST result, but an unnecessary journey, IMHO. What a sad waste of everyone's time and a BIG cost in LCUs for you. I can't help but return to my constant complaint about the OVDI. It should be obvious to an examiner and their manager, early on, that the person they are dealing with is not the Whale the program was designed for. Why the IRS still hasn't figured out a front end filter to get the small fry immediately into an Opt Out just amazes me. They waste tons of time, everyone's energy, and very valuable IRS resources just to come to the natural result which was yours. A simple warning is often all that is necessary for a compliance objective, and that is supposed to be the goal! .... or is it?

    I am very happy for you, as I know the decision to Opt Out did not come easily. I did worry a bit about you, since I was one that was encouraging to go that route. I know you almost paid the 'in lieu' of penalty at one time in the past, as many others unnecessarily did, just to move on with life. Your determination to fight this injustice in the court of appeal if necessary just shows what a tough cookie you are! America needs more immigrants just like you!

    You deserve our admiration and great appreciation for what you have done for many other Minnows. Thank you for sharing your comments, observations and reporting your steps along the way. I hope others take inspiration from you. Sadly, the IRS seems happy to take the BIG in lieu of penalty from others, if they don't assert their rights and are cowered by criminal threats into accepting the unacceptable.. I can't help but wonder how many of those ~30,000+ members of that exclusive OVDP/OVDI Penalty Club should have had a result exactly like yours. We will NEVER know, as the IRS will NEVER tell us. So it goes.

    I raise a beer in salute to you!
    Cheers, Mate.

  13. @ ij

    I'm glad my postings were useful to you and that you could use some of my arguments in your opt-out. I'm not concerned about "plagiarism" at all; my letters were a gift to the community and for the use of all including you. Copy, paste and steal with pride ;-).
    Whatever you can share here with the community regarding your opt-out will be invaluable to others.

    BTW: Interesting you got the 3800 letter. I never got one of those, just a letter indicating there were no further adjustments to my tax returns or some such thing.

  14. Moby,

    I did not only cute/copy and paste, I basically used 80% of your letter. I took your letter as a whole and just changed facts. There was a major difference between your case and mine. The length of US residency. I always thought my case for reasonable cause was very weak -- 12 years living in US is no excuse to fail report offshore income (no matter how small). Your Google Trend work was an excellent idea -- which led me to find myself in better position to compared graph of Schedule M vs TD 90-22. So my approach of argument is based on
    and plus your letter (with changes of detail facts).

    Also your argument that for immigrants, the balance base penalty is disproportional and extremely unfair -- because our life saving would be subjected for penalty -- no matter what percentage that is.

    As for the warning letter, I think that may be related to the fact that I am a long time US resident -- as a repeated offender - I got the warning for failure from years of OVDI.

    Again, I really want to thank you for sharing your docs and story. You are the founding father of opting-out. I am just a loyal follower.

  15. @ij - As Moby says, steal with pride. Why should any immigrant or US person resident overseas reinvent the wheel when the same arguments apply to most of us? Your arguments and Moby's arguments set a precedent. I hope you will post for all concerned.

    I will take you up on your offer to send the arguments to me directly. If you could please send them to Jack Townsend, I will make sure he knows my address so he can forward them to me. Also, let him know if he can reveal your email address to me, then we can correspond directly.

  16. Just Me,

    Thank you!!! Yes, you were the top one cheer leader backing up me to opt-out,

    It has been a long painful journey that finally came to end. A rather happy ending, I have to say.

    Folks who have been this blog long enough could easily see the evolution of IJ -- from a timid rabbit to a fearless pitbull.

    OVDI was certainly ill conceived (if not evil), when I first found myself non-compliance from a Chinese web news, I went through OVDI FAQ, I could not see anyway I would be excused except to jump into and pay huge penalty. The so-called amnesty wanted all of those with non-compliance to join -- no minimum tax under reported, balance over 10K to 75K was specifically mentioned for different penalty base.

    All these led me to believe that I would have to join OVDI to get a better deal -- otherwise, the worst FBAR penalty could be applied. I was in the middle of buying a home, and I had to cancel my contract to prepare the penalty. I was thinking my penalty would run as high as 30K to 50K depending on how IRS interpret aggregated balance.
    See my early article to understand this new concept

    At first, my hope for the best result inside OVDI was to take RRSP off the penalty base -- or enjoy different kind penalty. It would make me very happy then. I still believed I should be punished for non-RRSP related non-compliance. So, my initial goal was to pay OVDI penalty only on non-RRSP violation, and opting-out would be only choice to fight to save RRSP.

    Moby's opt-out news was a bright spot in our early days in OVDI darkness, but I was not so convinced that I should have the same benefit due to my long residency time.

    Finally, I got a good news on RRSP -- and my OVDI penalty dropped to as low as 8K. I should have been happy to take the deal and move on -- but two events in July led me to take a fight.

    1. Tax cheat labeling by major media like CNN on 33,000 OVDI participants -- I was one of them, and I could see from myself to feel their pain. They paid disproportional huge penalty, but yet still being called tax cheats. I once thought 906 was a badge of honor -- we answered the government call to come to compliance.

    2. My son who has learning disability turned 10 years old. I gave him $30 as birthday gift -- so he could buy whatever he would like. He spent only $10 to buy a 3pin binder for his new school year, and gave me back $20. I was deeply touched. I know I have a long journey to take care of him through his adult life.

    I decided to opt-out -- to get my money for my son, and to fight to clean my fellow OVDI participants name.

  17. Jack,
    If I opt out, and say my audit begins in May-2013,I will be audited for 2012,2011,& 2010 for tax purposes & will be audited for 2007 to 2012 for FBAR . I am also concerned about me being classified as a cheat.

  18. Congratulations IJ. Great news. All the best to the "Chinese Ambassador" in War of 1812: THe Movie. Even though you have worked out your IRS issues, you are welcome back in Canada anytime.

  19. Blaze, thanks, and now I have the money to cover my own expanse for your movie role as Chinese Ambassador.

    Also I should not be credited or glorified for this rather unexpected pleasant result although I was ready to put a fight in the court. My agent made a sensible and fair decision to end this process. I was given more than I wanted.

    OVDI has been unfair to many minnow participants -- The rigid penalty implantation inside program and wild range of uncertain penalty has scared a lot minnows to swallow the injustice. For those who are about to sign 906 should take a 2nd look their own facts --- don't give up the hope that overall our system is fair.

  20. So glad to hear it turned out OK for ij. It's good to hear that other "good facted minnows" are finally getting fair treatment from the IRS management.

    What surprised me was that it took so long for the IRS (management, not necessarily agents) to come to their senses. Instead of taking our cases...ones that OBVIOUSLY should result in a warning letter according to the I.R.M....and dealing with them rather quickly, they instead subjected us to years of threats and uncertainty. Even a bait-and-switch.

    I must have been naive. I really never expected the US government to treat us minnows so poorly for so long.

    But glad that reason still wins in the end, with a little bit of help from the nice people at the Taxpayer Advocate.

  21. My opt-out process was rather fast. IRS gives 30 to make a decision or change mind after 906. So in my case, the resolution after opt-out came less than a month after I submitted opting out request.

    I guess there was really no audit at all because all the work was done through examining process.
    As for the time on my OVDI, the waiting was about 7-8 months. There was also 3-4 months waiting for top level ruling on RRSP. So the total process time (the accuracy check on PFIC) was about 3-4 months.

  22. I am not sure I understand your question. You should have already provided consents that will keep open the statutes for years that were open when the IRS signed the consents.

    And, for years after you joined the program, you should be in compliance. The IRS can certainly audit those years, but I can't imagine it would do anything other than something perfunctory unless there is an indication that you misbehaved after joining the program.

    Jack Townsend

  23. Once your examiner received your opt-out request, he/she will write up a summary and make a recommendation if or not audit is needed. If they decide to audit, then it will be likely a different agent. Mine was not audited as the resolution came only 3-4 weeks after opting out

    So it seems better to have the examining process finished then to request an opt-out. Inside OVDI, you are the one doing all the paper work, and IRS agent only checks accuracy. For cases like only involved saving accounts, it should be easy/fast. IRS spent a lot time on my PFIC because I did not follow exact the standard as theirs even thought our results were very close.
    My suggestion would be opt-out when you are about sign 906. However, you may express your intention of opt-out to alert IRS, This may help how much time they would like to spend on you,

    For most minnows, they are unlikely be audited after opt-out. The disclosure inside OVDI should be enough for IRS to make a decision on FBAR penalty.

  24. I could not find my opt-out letter in digital form, but I still have the paper form which I used to fax to my agent. I will scan it for you to download because Moby was okay for my stealing

  25. ij

    Hearty congratulations on your good result. I do
    1) I remember you said earlier that you had sent in a 12.5% penalty check with your OVDI submission. Have you got that back ?
    2) Did you also get a form 4549-A for the income tax adjustments ? A
    3) Did you hear from your agent at all before receiving the letter, or did it just arrive out of the blue light a pleasant surprise ?

  26. I signed the consent. But that goes thru Dec. 2012. New consent has not come from IRS. If I dont get the new consent before Dec. 2012 & if I opt out & if my audit starts in May 2013, will I be protected by SOL.

  27. The IRS is almost certain to ask you for an extension that runs through 2013 before the end of the year . The extension is valid the date the IRS countersigns the signed extension form. IRS agents pay a great deal of attention to SOL, and it would be pretty unusual for them to let an SOL slip.

    So your question is more hypothetical than real, but the answer is yes, the IRS cannot assess taxes for closed years once the extension expires.

  28. I don't think the question can be answered on the information you give. You will have to calculate the statute of limitations for each year involved.

    Keep in mind that you may have a 6 year statute of limitations either by 25% omission or, under the relatively new statute, by an omission with respect to foreign financial assets. See the blog here.


    Jack Townsend

  29. What would be the SOL for FBAR UPON OPTOUT. Will the answer be different if the revised consent is not recd. From IRS before Dec. 2012.

  30. Thanks ij, for your additional comments. You are model for what America should want from it's immigrants, instead of scaring them to death with OVDI programs and "willfully" taking unjust penalties because fear works. I definitely watched your transformation from timid rabbit to pitbull, and was encouraged to see it. My faith in you was rewarded by the IRS decision. It was a prime example of what IRM discretion means, and should bring a lot of hope to other timid rabbits out there.

    What I will be interested in hearing from you, is your final reconciliation process, and when you receive back the 'in lieu' of penalty you paid up front. For me, the reconciliation of over tax payment took about 6 months, and then I could make absolutely no sense out of it when it finally arrived. It never matched my correspondence and detailed spreadsheet reconciliation I had worked out with my examiner. Bottom-line, it was in the ball part, actually a little bit more than I expected, but since I could not tie it to anything I or my examiner had prepared, I just cashed the check and figured I was done.

    Now time to spend some of that money on your son! :)

  31. Will IRS assess FBAR penalty for closed years in opt out.

  32. As articulated, the answer is no. The IRS -- actually Treasury -- cannot assess the FBAR penalty for closed years on opt out.

    This just begs the question of which years are closed on opt out.

    And, of course, since the FBAR civil penalty statute of limitations is 6 years, the IRS will in most cases have sufficient leeway in the open years to assess the FBAR penalty or penalties to impose the punishment it believes is appropriate.

    Jack Townsend

  33. IJ, Congrats ! I am glad you are out of the woods and feel even more for your son.

    Based on your previous post, If the examiner has plans to write up the recommendation to audit or not, would that be shared with the taxpayer before the opt out request or will that be known only after the opt-out request is mailed?

  34. ij,
    I too have been following your story and want to thank you for the words of encouragement you gave me on IBS.
    Congratulations on the results of your opt out. I am so happy for you that it ended well.
    You should also feel proud of having "done the right thing" and being somewhat "rewarded" for it by a good outcome.
    Being EXACTLY in the same situation as yours, in a way, I feel bad that I chose to just go forward instead of trying to fix the past, mainly because of fear. I just went with the path that made the most sense based on my facts and what I hope/think is good councel advice.
    I have one question, which might be of interest to the readers of this blog. You mentioned that by opting out, you were only subject to the standard statutes of limitation (3 years), but OVDI requires the filing and payment of 8 years of back taxes. As part of the opt out process, have you filled out paperwork to get "reimbursed" for the first 5 years of back taxes, interest and penalties that you paid as part of OVDI?
    How does that work? Can you detail that part of the procedure?
    Thanks, and best of luck for the future!

  35. you say that SOL does not apply to tax cheats.
    But if we are in OVDI, we are assumed " cheats "
    So if I opt out, & IRS audits me & finds that I am not a cheat ( because my non-willfulness & reasonable cause grounds are similar to that of " ij ")
    IRS will go back 2010 to 2012 for tax purposes & IRS will go back 2007 to 2012 for FBAR purposes. ( assuming the audit starts in May-2013)

    Is the above understanding true ?

  36. 1. the 12.5% has not been back yet. but it will.
    2. yes, i got 4549-A but it was only from 2008 to 2010 (after opting-out)
    3. no, it came out of blue, yes it was a wonderful surprise. in fact I was talking to Just Me about no active communication of opting-out, and i thought it would take for years. but it came within 3-4 weeks after final opt-out.

  37. No, that is not true. You appear to be quite confused about this, so I recommend that you visit with an attorney if having an answer not is important to your.

    Jack Townsend

  38. christophe_c,

    Fear of persecution is not a crime. Going forward will make you in good position. Had I not joined OVDI, I would have gone forward as well. It would have saved a lot IRS resource. Your going forward is act of patriotism, should be rewarded not to distract IRS's focus on big whales.

    Once I opt-out, I was told that IRS could not assess my tax in years prior 2007 due to SOL. Inside OVDI, I had a contract with IRS to open years from 2003 to 2010. The contract was invalid once I chose to opt-out.

    Since I had done all the amend way back to 2003, IRS will have to refund the money back to me. For this reason, I wanted IRS to punish me on FBAR at $600/year to cover the tax loss to IRS, I did not feel good about under pay tax as my tax rate has been very low already. However, IRS did not want to impose FBAR penalty for that reason. I would have to assume that they do believe my innocence/ignorance.

    I sent a big fat check in my OVDI package, I think most of the money will be refunded back to me.

  39. my opt-out letter request should be sent to I can only share with google email accounts

  40. Only after opt-out request is confirmed. That is why if you have some doubts of your facts, it is better to have a legal console. I am just a cheap person, do everything myself. I went to courts a few times without representation -:)

  41. Just Me,

    Thanks.. and my very first plot was after email exchange with you. Early this year, when I learned from my agent that RRSP had to be included for penalty, I was so depressed and was thinking of being killed in road accident on Beltway. Petro contacted me and gave me your email address, and since then you have always been my source of strength.

    FBAR (Fear Beyond Any Rationale) is now (For Beer And Recreation), anytime come to DC area, I will take you to the finest restaurant (offer also to Jack, Moby and Anon123) in the town. When I sent the big fat check out, I never thought it would come back to me.

    Thanks again for your minnow protection crusade against whale catching jihad.

  42. ij, Congratulations! I am happy that your hard work was rewarded. But even if it had not been rewarded (you do not control the results only the effort that you put in) you still would have deserved congratulations for putting up a fight and not just accepting an unfair penalty.
    It is my understanding (am not a lawyer) that you will not get a refund for the closed years automatically, but must make a formal request (there is an IRS form) within 2 years of having paid the tax. Personally, I believe that a refund for the taxes for which the SOL has passed, are a small compensation for all the time and stress you went through.
    To the IRS: There are 30+ million foreign-born US citizens/residents, plus around 5 million US citizens living abroad. Many or most have foreign accounts. The 33,000 disclosures are a drop in the bucket. A couple of hundred thousand quiet/forward disclosures are still the tip of the iceberg of the millions of foreign account holders. Give those with good facts a chance to fix the past without having them risk a big chunk of their savings or spend thousands or tens of thousands in legal/accounting fees and the majority will fix the past. Or keep doing what you're doing and you'll keep getting what you're getting. Few will 'fess up, and many will now intentionally hide their money in ways you will never find it. Meanwhile, all kinds of people are evading taxes domestically and not being audfited because you're wasting time on people like ij who owed $2K in taxes, most beyond the statute of limitations.
    Specifically: For those not using entities, or with similar bad facts, cap the FBAR penalty as a percentage of unpaid taxes. Is that so hard to do?

  43. Is it up? IE can't find the page.

  44. Thanks.

    Once opt-out, IRS will not assess those closed years (2003-2007), so they are not going to take money to pay into these years. No payment and No fund
    I know tax related money is very small compared to offshore penalty. I would rather they can take it.. but my understanding is that IRS can not take the money to pay into closed years. If I had over payment into these closed years before, sure no refund either.

  45. In my case I have 20 CDs,two checking accounts. If I want to consult with lawyer, what summary information I should take to show him. I do not have layer of entities. All the CDs are in my name and in my home country. I have not withdrawn any money from cd accounts. Interest was credited to cd accounts every 6 months. Do you think I should opt out.

  46. Shah,

    Your comment is far too cryptic to provide any meaningful response. If you are in the program and asking whether to opt out, I recommend that you consult an attorney about that. If you are thinking of joining the program with the thought that you may opt out when you have to make that decision, my recommendation is that you (i) consult with an attorney now about whether to join the program and (ii) consult with an attorney when you reach the opt out decision point. Depending upon the complexity of your situation (and they are invariably more complex than taxpayers realize), you may want an attorney shepherding the whole OVDI and opt out process.

    Jack Townsend

  47. It does not matter how many CDs -- when you use reasonable cause under title 31, it is your story that matters. Can you convince IRS (or judge in case it goes to a trial) that you have a reasonable cause. Only an experience attorney can tell you based on your much detail facts.

    Jack is right, you should at least bring your case to an attorney even if you want to do all by yourself. If your total balance is high, that is a good insurance.

    When I decided to opt-out, I did not care much of the loss -- I was ready to lose 50% of my total balance (which is typical a plea deal for whales with very bad facts), but I wanted to make my day in court -:) That is why I did not hire an attorney -:)

  48. If I opt out , & if my closed years happen to be 2003 to 2006, will IRS open those years returns & audit those returns. Or it will not open those returns.

  49. Why you had closed years of 2003 to 2007. If you were audited in July-12, then your closed years should be 2003 to 2005.

  50. I am not able to E -mail at this address. I need to see your opt out letter. How can I get it.

  51. Your closed years do not depend upon when you are audited. You have to look to each year and determine whether the 3 or 6 year statute applies (I am assuming no fraud which would mean an unlimited statute of limitations). Then, when you decide what the statute is for each year, you have to look to the date that the IRS signed the consent. Only years which were open when the IRS signed the consent will remain open -- at least for income tax purposes. Perhaps you have the same drill for the FBAR statute, but that is not as clear. And, in any event, whatever the proper analysis is for the FBAR statute, the IRS has enough years in the open statutes in most cases to impose the penalty it wants to impose.

    Jack Townsend

  52. I am really confused. Is the following right.
    Year. Return filed. SOL expires
    2003. 4/15/04. 4/15/2010
    2004. 4/15/05. 4/15/2011
    2005. 4/15/06. 4/15/2012
    2006. 4/15/07. 4/15/2013

    Now if I opt out in May-2013, will IRS audit my 2006 return?

  53. This is not a black and white drill. I can just state general rules that may or may not apply to your situations because of the exceptions.

    The general rule for income tax is that the statute of limitations is 3 years. There are two exceptions that could make it 6 years and those exceptions are very fact specific.

    And then, if civil fraud is involved, there is no statute of limitations.

    So, if the general rule applied, your dates are off -- 3 years too long. If the 6 year statute exceptions apply, you are right. But then, of course, if you are in the program and have signed a consent and the consent was signed for a year that was open when signed, your statute will close no earlier than the date stated in the consent.

    Finally, the IRS can audit what appears to be a closed year under the foregoing rules to see if either an exception applies or there is some issue in the closed year that might affect an open year.

    If this is really that critical an issue for you, I strongly advise that you seek legal advice tailored to the facts upon which critical advice should be based.


    Jack Townsend

  54. But I did read in this blog that consent does not apply, if the ovdi participant opts out. So is that not right ?

  55. I don't know what you think you read in this blog, but the consents do apply in an opt out. Indeed, that is the only time they apply. A settlement inside the program without opt outs does not need consents. So you have to determine the effect of those consents in your particular situation if you opt out. If you don't opt out, it makes no difference.

    Jack Townsend

  56. I think the confusion comes from the fact that inside the program, the IRS asks taxpayers to sign a consent that they're going to examine 8 years, but it's being said that on opt out, the standard statute of limitation apply (whether it's 3 or 6 years, depending on the facts).
    This seems contradictory, as the consent extends them to 8 years from the year the person entered OVDI.
    If the standard statute of limitation apply, I guess the question is is it from the year the person entered OVDI, or from the year they opted out/are audited, since the process can take a couple years.
    I hope I restated Shah's question better.

  57. My understanding is that the IRS asks for the consents to protect statutes that are then open in the event the taxpayer opts out later. For the inside the program (non opt-out) settlement, the consents are irrelevant.

    Keep in mind that the income tax consents cover only years that are still open when the IRS signs the consents. Even if the consents nominally state that they cover closed years, they do not cover closed years. Then, as to years that are open when the IRS signs the consents, the consents are valid to extend the statute for assessment and will govern on the opt out audits.

    I think I am just repeating information I gave earlier. I don't understand your restatement of the question. The date you entered OVDI is irrelevant to the statute of limitations drill and the date you opt out is also irrelevant.

    Jack Townsend

  58. Jack,

    Yes. In my case, I was asked to sign consent for 2008 last December while still inside OVDI. It is because when I joined OVDI in 2011, 2008 was still open. And IRS wanted to extend 2008 to 2012, and I signed the consent.
    Recently, just 3-4 weeks after opting-out, I got another IRS request consent to extend 2008 to June 30,2013. Because it was still open due to my last consent -- of course, I could have turned it down but I signed it anyway.
    As long as the years under audit are still open, no matter how long the audit takes place, IRS is likely to ask you to consent extend for the process to be finished (taxpayer have right to reject).

  59. So what will happen if ovdi participant does not renew the consent for 2013 ?

  60. just read form 872 yourself, as a taxpayer, you have the right to refuse to extend the period of the limitation.

    Inside OVDI, that means you will not have to pay tax and accuracy penalty and interests on years that have been closed. After your first consent time period expires, you do have the right to refuse but the initial consent is required by OVDI submission.

  61. Most folks inside OVDI care much less of the tax (often tax are very small amount compared to offshore penalty), and I wish I could have paid back all the back tax after opt-out.

    If you are so concerned of SOL on your tax, I suggest you talk to an attorney to discuss your case.

  62. ij,

    Insider OVDI, in my view, the consents are irrelevant. You submit the amended returns and payments with the package. They will not be refunded to you even if there are years that are closed.

    And, in my view, the consents are only there to protect the open statutes of limitation in the event of opt out where the statutes of limitations are relevant to the ultimate resolution.

    I just posted something on this. I am not sure that it is a wise move to refuse to sign the consents upon request.

    Jack Townsend

  63. Jack,

    It may be relevant. Say a taxpayer wants to have the case resolved sooner instead of giving IRS more time.

  64. Jack

    I surmise the IRS will initiate removal proceedings for anyone within the OVDI who refuses to sign extensions. I too do not think it is wise to be 'removed' from the OVDi. it is better to opt out voluntarily..

  65. I don't think that assumption is necessarily correct. I just know that the IRS says it will remove those who don't cooperate and say, in the current requests for extension, that failure to execute the consents is not cooperation. The clear inference is that the IRS can remove those taxpayers. Whether it will is another issue.

    But the only clearly bad consequence of removal would be the risk of criminal prosecution which is not protected by being in the program. Taxpayers with a material criminal risk would not want to do anything that might be construed as noncooperation. Other taxpayers who are sure that they will not be criminally prosecuted have only an audit risk -- the same risk if they stay in but opt out of the civil penalty structure. So, I am not sure what they are really risking by refusing to sign the consents.

    I would think, however, that the IRS does have sufficient flexibility in the FBAR penalty that it would be unwise to opt out.

    Jack Townsend

  66. The signing of SoL consents seems to be very important to the IRS. In my very short first contact with the IRS, an agent "preparing" my case called. It seems all he was interested in was knowing if I would sign SoL extensions for specific years, all of which are closed. When I told him, "Yeah, sure", he seemed relieved. I assume that because he said, "That's great." What I did not understand was why he was asking me this. I had included signed SoLs in my submission. Unfortunately, I was in the middle of doing something else and although he agreed to call back in 15 minutes, he did not so I could not ask him why he was asking me this. He also has never returned any messages that I left for him. I have not received anything in the post so go figure what that was all about.

  67. If the taxpayer needs the case resolved sooner than later, I would try to make sure someone at the IRS knows of the need and that may result in a quicker audit.

    I think it is a mistake to force a quicker audit by refusing the consent.

    And, I also think that the IRS has sufficient flexibility in the application of the FBAR penalty that one would not want to risk the IRS making the marginal calls against the taxpayer because of lack of cooperation.

    Jack Townsend

  68. One would also have to consider whether there is any benefit to getting the case closed sooner rather than later. Although there's not much that can be done to delay the outcome, the longer it takes, the more experience practitioners will have with other opt outs, and (perhaps, but I doubt it) the more likely that TAS or someone else will have brought some reson into the process.

  69. Congrats ij for successfully opting out! I have been followed ij's case as my situation is more or less the same.

    But here is my dilemma. I have done the first step of OVDP 2012-- i.e. I have been accepted the OVDP, yet I have not sent out all the package to Austin TX yet. Since ij's news coming out, I have been thinking that since I will choose to opt out at the end, why should I make myself go through this OVDP? Why not just send IRS 3 years of 1040X and 5 years of FBAR? (kind of quite disclosure, but not quite anymore as I already applied OVDP 2012).

    Jack, is that feasible? I am not afraid of going through the auditing process as I have nothing to hide. Thank you very much!!

  70. No. If you do not send in the package, my understanding is that you will be kicked out of OVDP 2012. That means that you lose the benefit of effective criminal amnesty. Of course, if you need the benefit of criminal amnesty, you should not opt out in the first place and you should happily take the penalty structure in OVDP 2012.

    Now, if you do not need criminal amnesty -- i.e., you have no material risk of criminal investigation and prosecution -- then you are a candidate for the opt out, but that requires that you submit the complete package and opt out.

    Your question is whether you can just skip the submission and go directly to filing amended returns for the open years and presumably also delinquent FBARs for FBAR open years. You could do that. Your cost then (assuming no criminal risk) is the certainty of audit. Now, the IRS has not said that you get a better result in an OVDP 2012 opt out audit than if you get an audit any other way. So, assuming there is no difference, then you might be no worse off to skip submitting the OVDP 2012 package and do what you suggest.

    But, I don't think anyone can tell you -- I certainly can't tell you -- that that is a wise maneuver. I doubt that the IRS will smile upon it. Whether the IRS will do anything -- perhaps more rigorous and painful audit -- I just don't know.

    If it were me, I would complete the inside OVDP 2012 process and then assess whether or not to opt out.

    Jack Townsend

  71. If you say, " IRS has enough years in the open statutes in most cases to impose the penalty it wants to impose " If this is true then what is the benefit of opting out. IRS will collect at least 25% penalty & get even with the taxpayer . So opt out is not meant for any person who has even a smallest point which is not in his favor.

  72. I totally agree with Jack.

    Your complete OVDI package gives IRS a lot information and you have done most part of audit already. In case your offshore accounts are only CD or saving deposit, then it will be very easy for IRS to finish the examination. I think IRS would appreciate that.

    If you just skip OVDI, you basically tell IRS "hey, catch me if you can". You give IRS some lead to investigate/audit. So it is likely they may ask your more docs --etc.. that certainly gives them much work.

    Jack may not agree my point, it is common understand that if there is some issue with tax, IRSs attitude is always "you come to see me rather than I catch you". I was also told by one of my agent when I expressed my regret of jumping into OVID (by no means I encourage folks to join)

    There is other factor you may consider, the reason you join OVDI is for a peace of mind (not so much to avoid criminal prosecution, but possible uncertain FBAR penalty), the 6 years of SOL on FBAR will stay in your mind if you don't clean it yourself -- inside OVDI, you can certainly have it resolved much faster (say within 2 years, and you can move on -- leave all these years non-compliance behind.

    Last, if your facts are similar to mine, then you know what is the result of OVDI opt-out. Nobody can ever tell you other results if going other routes (such as QD, or go forward).

    Again, I am not here to sell OVDI -- I believe it is poorly designed... but with my happy ending, I do see some benefit if you can stand to believe your innocence.

    Good luck !

  73. Jack, when you say "
    I also think that the IRS has sufficient flexibility in the application of the FBAR penalty " do you mean IRS has the flexibility in applying 5% vs 25% or is it in some other aspect? The FAQs for OVDI 2011 stated that the agent has no power to alter the penalty percent so please clarify. Thanks.

  74. I was speaking of an opt out where the IRS will have a lot of flexibility to impose the FBAR penalty result it wants. Inside the program, there is very little flexibility -- for the IRS or for the taxpayer.

    Jack Townsend

  75. I did not say that. All I am saying is that you do not want to aggravate the IRS so that it is not already on your side when it comes to applying discretion, which they have plenty of in an audit (whether an audit on opt out or any other kind of audit). Indeed, a little groveling might help better than an aggressive, screw you IRS attitude.

    Just my view.

    Jack Townsend

  76. The issue for many minnows is that the lawyer fees are sometimes several times the tax due. IJ, I know you did the whole process yourself. But my work schedule is so tight and with kids to manage I am not sure whether I will be able to diligently do the whole process myself. I am in a real dilemma, whether to pay $10-12K in lawyer fees to go through OVDI for 3000$ of tax due and only to opt out in the end. This is I believe a fairly common issue that is preventing many from going into OVDI in the first place. I believe many people have expressed that IRS would have had better results if they streamlined the process for U.S. resident minnows such as myself.

  77. @a26791481351f6ea97fee0669083f9a5:disqus ,

    If you file return yourself, you should be able to do the amend yourself. If you have some complicated issue, and may face some risk of criminal prosecution when you expose yourself to IRS, then you need a lawyer to help you go through otherwise you really don't need CPA and lawyers at all.

    Let CPA and lawyers to do data entry job, you must be making high 6 figure income. If so that is not so bad at all, it is better wealth redistribution than Obama's -:)

    I have a full time job (5 figure income) and I have three little kids. I wish I could afford to a CPA to do the job, but I am just so cheap to pay for this.

    You don't have to be 100% accurate -- but you do have to do 100% full disclosure if you want to expose to IRS either joining OVDI or some other ways.

    I am not suggesting you join OVDI and go through what I have been though.

    I have been thinking why IRS wants everyone who has FBAR and income tax non-compliance to join the program. If most minnows like myself will eventually choose to opt out, what is the gain for IRS ?

    It seems the non-compliance IRS is looking at not only the offshore bank interests/dividends gain, particularly for those with low aggregated balance. They may also look at the money flow. Someone with low balance could have high non-compliance (such as offshore income and regular payment out of the offshore account). This may explain the reason they wanted my all bank statements.

  78. Whether you do it yourself or have professionals do part or all the work for you, the time/money cost is HUGE. Just going through years of bank statements to organize them, convert income/fees to US dollars, add up the figures etc. just to get the raw data takes a lot of time. Then there is the PFIC accounting; even my money market funds are PFICs.

    Professionals (or even their assistants who type documents or do data entry) are costly.

    And even if you have professionals do most of the work, you are still responsible for checking its accuracy. And not all professionals are up to speed on what to do. One of them told me to submit the FBAR for 2011 with the package. Yikes! That would have meant I would have filed it after 6/30/2012 and it would have been delinquent.

    I am trying to do as much as possible myself yet I still will be paying a lot to lawyers and accountants. I agree 100% that the IRS should greatly simplify the process.

  79. Jack,
    First of all, thanks for running such an informative and helpful blog. I have learned more here than I have from lawyers and CFAs.
    If you can give some advice, I'd be quite grateful as lawyers and CFAs are making me go around in circles. Here are the pertinent facts of my situation:
    - foreign citizen, non-resident alien in US but resident for tax purposes.
    - Bank account opened in 2008.
    - Wasn't aware of FBAR requirements until last year. Filed deliquent FBARs for 2008 and 2009 in 2011 and sent a letter with explanation.
    - Filed FBARs and showed interest income for 2010 and 2011 returns in a timely manner.
    - About $20 in interest for 2008 and about $400 for 2009 were not shown on original 1040X returns.
    - Just noticed that accountant took a few deductions too generously for 2009.

    I'm trying to decide between OVDI, OVDI with opt-out or silent amendment and cases such as IJ's are giving me hope.
    - Is risk of audit higher if I just silently amend 2009 taxes for interest income as compared to OVDI?
    - If auditer wants to question extra deductions for original 2009 return, will those deductions make my return "fraudulent"? I want to avoid this situation and I understand that in OVDI, there are no audits of prior returns. If a return gets labled "fradulent", does this open me to criminal prosecution? Don't want that.
    - A lawyer said that since SOL for 2008 is over, those can't be audited. If that's true, does it make sense to amend '09 next year?

    Thanks in advance!

  80. Hello ij,
    I had a question regarding the opt out. You mentioned 2K of tax due over the years. Did that any include income from foreign mutual funds? I ask because I would like to understand if for a minnow such as myself (with around 5K tax due over 8 years) whether foreign mutual fund can become an issue or not for opt-out (as it involves filing of some form 8651?)
    Also the previous post from Anonymous rings true. Professionals are very expensive and wish IRS had a simpler process for U.S. resident minnows.
    Thanks ij for your continued support!

  81. @AnotherAnon

    yes, 2k includes all income, with PFIC.

  82. IJ,
    do you have a blog entry somewhere where you have details of analyzing your tax and penalty consequences under OVDI and opt-out?

    I would like to go through how you did your analysis and figure out what makes sense for my case. Almost all lawyers encourage you to go for OVDI simply because they will make a lot of money for their time.


  83. Jack - Please let us know if we did not get this right. Potential opter-outers are discussing the FTA. Outside of OVDI, this should be applicable.

    OVDI Opt Outs may benefit from the following regulation,, for a First Time Abate (FTA) for tax penalties under Section 6651 (a)(1) and (a)(2). These are the FTF/FTP (Failure to File/Failure to Pay) penalties. After all other penalties are addressed, if one's prior 3 year history is free of penalty assessments, an FTA can be requested if there is an FTF/FTP penalty. So an immigrant who was filing before 2003 and never had any penalties assessed could potentially qualify for an FTP abatement for 2003 if taxes were owed and an FTP is being assessed.

    The penalty can only be used once and is normally limited to one tax period. The value depends on how much tax one owed and when it was owed. As Jack has already said, the major concern is the FBAR penalty, but it seems like a good idea to consider a potential FTA when doing a Risk-Cost-Benefit analysis of an opt out.

  84. @d5fd6b011a29e9c4afa499571d7f950f:disqus ,

    All my facts and analysis are here on Jack's blog. I used almost exact the same arguments as Moby for my opt-out.
    If almost all lawyers encourage you to go to OVDI, you may think of your own facts.

    I don't think that all lawyers want to make money at their clients' misery (even though their clients are in trouble when they are approached).

    Jack and Michael J. Miller two lawyers don't encourage minnows to join OVDI. You may consider to consult them on what you should do.

  85. Yes, first time abate should definitely be applicable. But a 20% penalty on the taxes due for one year is not likely to make a difference except for really rare cases (a huge gain in one year). Note that if someone has a huge gain in one year, the IRS may be more inclined to ascribe willfulness to the FBAR violation or may even (depending on the situation) go for the civil fraud penalty, in which case I doubt the FTA applies.

  86. I am not a lawyer, just someone who joined OVDI and in the early stages. You've already filed delinquent FBARS, which could flag you for audit. I have no idea what your high balance for the delinquent years was; today's near-zero interest rates could mean that only $400 in interest income came from an account hundreds of thousands of dollars in size.

    $400 is quite small, so amending 2009 taxes by that amount would be unlikely to trigger an audit and questions about the delinquent FBAR for 2009. By unlikely I'm guessing somewhere between a 1% to 5% chance of that happening. But there is always a risk. If you were to do nothing and the $400 ends up being discovered, I doubt that it would put you at major risk of FBAR penalties. Again, guessing a small risk of it happening.

    As to the doubtful deductions, the question is how big, and how doubtful. Sometimes there are gray areas in which you have a reasonable basis for claiming the deduction and it might or might not be disallowed. Others are clearly unwarranted. But by fixing them you might call attention to your return, and it might cause sleeping dogs to be awakened.

    Yours is a situation faced by many who want to do the right thing and correct minor footfaults, but risk a humongous 27.5% of high balance penalty for doing the right thing. I think your decision should be based on your comfort in taking the small risk of doing nothing, versus the possibly higher risk of doing the right thing and getting punished for doing so.

    Should you choose to do nothing and your conscience still bothers you, you can always make a donation to the US Treasury to reduce the public debt. There's an option for doing so, mentioned somewhere in the instructions.

    Again, I'm not a lawyer, just someone trying to do the right thing and paying tens of thousands of dollars to lawyers and accountants, plus whatever penalty I end up[ paying, which may not be based on the unreported interest, but on the high balance.

  87. Jack/ij/Justme,

    First all my sincere thanks to all of you for sharing valuable information which helps
    people like me make this difficult decision. I am in the same boat and would like to share information about my case and hopefully get some suggestions on the next step.

    I am an immigrant from India. Inherited accounts from father in my case and wife had accounts managed by her father on her behalf. These were funds that originated in India and were not sent from here. Tax returns were being filed in India and tax rates were roughly similar. The funds were in non repatriable accounts (which until recently could not be transferred out from India). We did the mistake like many others of assuming that these were under the Indian tax law and never filed FBARs until 2008. Even then, I filed FBAR for bank
    accounts as I thought PFIC & stock investments did not qualify as FBAR reportable.

    Decided to file under OVDI 2011.
    - IRS came back with 906 with the 25% penalty calculation.
    - They also are claiming that the taxes paid on interest in India cannot be claimed as credit beyond 15% due to dual tax treaty limitations. This effectively means that I am paying 50% taxes on interest for all those years.

    I am considering opt out. Currently I am looking at penalties which are
    roughly 350k and taxes due to the foreign tax credit issue of another 300k.

    Looking for any input on how this case may be treated by IRS. I have asked the
    examiner and he has said that they cannot comment on a case in OVDI and it is not in their hands as once you opt out a committee will review the facts and my opt out letter. He did say that it is possible depending on the facts of the case that no penalty is levied (as is the case for ij).

  88. Another $300,000 tax due seems a lot to me. Mine total is a bit less than $2,000 also from PFIC, Whatever course of action you take, you should have a good tax lawyer to help you go through.

    If you read recent definition on "low risk non-compliance" from IRS new policy to US expats, it is all about the threshold of tax amount. The whole OVDI is targeting so called tax cheats. Disclosure with less tax due is in better position when opting-out. This seems to be in my case.

    Even if you don't get foreign tax credit, the tax you have paid in India is useful for argument when you opt-out. If your offshore tax rate is close to your US tax rate, that will be a very strong argument that you don't take advantage of US tax on your offshore financial accounts.

  89. I agree strongly with IJ that:

    1) You need a lawyer with experience in this area, maybe even a second lawyer for a second opinion, to help you a) decide whether to opt out and b) if so, what facts to present to make your case. This is very important, especially given the amount of money at stake.

    2) I agree that the fact that you paid similar or higher taxes in India than you would in the US is a very strong argument regarding lack of wilfulness. As to not knowing about the FBAR, both Moby and JustMe have really strong arguments that you can find on this blog.

    Now for my thoughts ...

    On the PFIC issue, you have a choice between two accounting methods: MTM (Mark to Market) and the default method. I think (but am not sure) that you can choose a different method for each fund, but must use that method across all years for that fund.

    The Tax Advocate at the IRS has strongly advocated for reasonable penalties, both for individual taxpayers who have contacted its office and in its general comments (annual report to Congress.) They have also been able to get you extra time to decide whether to opt out. Look up "Tax Advocate" and "Form 911" on the IRS website.

    If I were in your shoes I would both get my own lawyer AND contact the Tax Advocate.

    I am not a lawyer or accountant, just someone in the early stages of OVDI.

  90. This is the same Anonymous from a few minutes ago, expanding on the PFIC accounting issue.

    As I think my CPA explained it to me, under both methods any dividends paid out get taxed as ordinary income.

    Under MTM, the change in value each year (from Dec 31 of the previous year to Dec 31 of the current year) gets treated as a capital gain (or loss.) If the value fluctuates a lot from year to year, this may really distort your tax picture.

    Under the default method, any capital gains/losses happen only when you sell. A loss gets treated like any other capital loss. A gain however gets taxed at a much higher rate, plus there's interest. Example: You buy a PFIC on July 1, 2010 and sell it on July 1, 2012 and have a gain of $10,000. The accounting assumes the gain was spread evenly over time (2,500 during 2010, 5,000 during 2011, 2,500 during 2012.) The gains allocated to previous years get taxed at the highest marginal rate (I don't recall what it is, somewhere around 35%. Plus you pay interest on the taxes allocated to previous years. The gain allocated to the current year, $2,500 in this example, gets taxed as ordinary income. Now here's the rub: You don't get to use capital losses to reduce the PFIC gain allocated to previous years, so even if you would otherwise owe zero taxes, you still owe tax on the allocated PFIC gain.

    This is a brief and probably not entirely accurate explanation but bottom line is, you should see which is better over the 8 year period.

  91. My tax rate is similar in India as compared to the US but the large tax owed is primarily because of disallowed foreign tax credit even though the taxes are actually paid in India. IRS claims I have overpaid taxes in India. Anyone has any ideas whether in practice they impose the penalty on each account or in aggregate ? I had PFIC accounts so the actual number of accounts for mutual funds etc adds up to 10 or 15 accounts. Also in of the year, balances from one moved to other because of mutual fund sales and credits to the savings account.

  92. It is up to you to show that your facts represent reasonable cause. You will need to do this in your opt out letter. As has been suggested by Just Me, read the IRM and show how your facts relate to each of the relevant reasonable causes found in Section of the IRM. You might also want to review Section and point out your facts that show how you have acted in good faith. Take a look at Moby's letter he posted and see if any of it applies to you.

    For your specific question about multi-year penalties, if you can show via your facts that you have not been egregious, you can remind the IRS of IRM, which states, "Given the magnitude of the maximum penalties permitted for each violation,
    the assertion of multiple penalties and the assertion of separate penalties
    for multiple violations with respect to a single FBAR form, should be considered
    only in the most egregious cases".

    I have no idea what the IRS does in practice. In Just Me's case, they imposed a $5000 penalty per year if I remember correctly and he had 20+ accounts in many years. There is no guarantee of any kind of treatment as your facts will be different to those of Just Me's. Considering you have such big amounts at stake, you might want to pay a lawyer such as Jack for a review of your facts and arguments. It could be a worthwhile investment.

  93. @anon5percent:disqus , @ovdiminnowcalifornia:disqus

    Totally agree, this is no time to save money from your legal bill. Mine is really a different case. I did not have much to lose (in fact that also made me brave too), Fearless when you have nothing to lose --- I think Jack is your best choice.

  94. Based on your numbers,

    I read $350K as 25% offshore penalty, that would means you have $1.4 M offshore, and then $300K tax. That would be a very successful investment return out of $1.4M.

    You are not Mitt Romney who have a troop tax lawyers/accounts to explore tax tax loopholes.

    The way IRS using PFIC to treat all foreign mutual funds -- is to discourage US residents to invest offshore. My PFIC got very bad return and would have been negative return if they included years before OVDI (2003).

    You certainly have a lot juice IRS would like to take on (non-willful and civil penalty), To make a strong argument for reasonable cause (like Moby and myself), you do need to talk a good tax lawyer, who may have see cases like yours -- know what to argue on opt-out letter. Good luck

  95. The question as to whether the IRS can assert multiple nonwillful penalties per year would only come up if on optout you are seen as nonwillful. In my opinion the real risk is a finding of wilfulness, and you need an experienced lawyer to help you gauge the risk. Same with the risk of your conduct being found so egregious as to justify, from the IRS point of view, asserting multiple penalties per year. Contact an experienced lawyer.

  96. Anon - thanks for pointing out the limitation of 15%. Most of us have no idea about these tax treaties. I just read through Article 11 of the treaty and it confirms that your Indian tax accountant should have chosen the DTAA tax rate of 15% in India for paying taxes. Good luck with your decision on opt out. It seems really painful to have to lose the tax credit of $350k as you have probably run out of limitation for claiming a tax refund in India. If possible could you post when you filed under OVDI and how much time (in months) it took to get a 906 from the time the agent started? I ask because i have not heard from my agent for the past few months.

  97. Is there a limitation on the taxes that Canadian citizens residing in the US (US residents for tax purposes) can claim against the taxes paid in Canada on Canadian income.

  98. Is there a limit of taxes paid in Canada on salary income that can be claimed in the US? I saw in the Canada US treaty that the limitation of 15% applies only to interest, dividends and royalty. Does it apply to salary income as well?

  99. 1) If you joined the OVDI, they have a special provision for MTM that taxes MTM gains at 20% each year. I assume your CPA used this method when doing your OVDI returns. The thing to note is that if you opt out, the IRS might want you to go back to the statutory method of taxation for PFICs (which would be 35% or so for each year). If a substantial portion of your income comes from PFICs, you should consider that your tax bill may increase on opt out, even if you get a significant break on any FBAR penalties.

    2) Also if you had inherited accounts, there may also be Form 3520 filing requirements from when you inherited the accounts. The IRS may impose a penalty for the delinquent form 3520 if you opt out.

    I am not saying any of this will happen, I am saying its not impossible. You should definitely talk to a professional (talk to Jack if he's in your area). The sums involved are large enough that you don't want to be penny wise.

    It must be really frustrating for you to pay full taxes in the US and a high rate in India as well. If the time for claiming a refund in India has not expired, I would suggest you file there. I would even suggest hiring a tax professional/lawyer in India to see if you can get some of the taxes you paid to India back even if the refund time has expired -- who knows, there may be some case law in India that allows you to claim refunds even for expired periods under exceptional circumstances.

  100. Hello all. It's been quite a while since I submitted by 2011 OVDI package (09-01-2012) and still have not heard anything! While I have many accounts, alleged unpaid interest is small (less than $900 USD) in highest year. What is going on? Why nothing form the IRS? Are others in the same boat? Should I be getting nervous?

  101. Don't be nervous. It is not worth it. I submitted end of August 2011 and was first contacted in the beginning of September. What will probably happen is that they will want extensions of tax SoLs until the end of 2013. They really care about this. The SoLs are important to them. A TCO (Tax Compliance Officer) will likely contact you. In my case, he appeared to be a lower level, stressed out guy who had the thankless task of checking that all my documents were in order and asking if I was willing to sign the extension and then putting it in the mail.

    Once you get the signed SoL to them then they can start to move on your case. I talked to a really nice supervisor of an OVDI Team (his or her telephone number will likely be on the cover letter that comes with the SoL request) and that is what he told me should happen next. I am not sure what it means to "move on the case". We will see.

    Oh, they will send two copies of the SoL. They don't tell you this in the cover letter, but you only need to sign one and return it to them. You are supposed to keep the other for your records.

  102. Is the FTA 'first time penalty abatement' applicable to FBARs, or the penalties for not filing 3520s/3520A, (didn't know about them) or is it just if US tax is actually owed? I don't owe any US taxes - and want to consider the new streamlined process, but don't know how to decide what to do. Part of the decision hinges on knowing if the 6 years required for FBARS is 2005-12010 +2011 years, or just 2006-2011. And, if it includes the 2005 FBAR, what is the reasoning, because 2005 FBAR expired in June this year didn't it?

    Another problem is that I would be eligible for 700-750 refund, because of the stimulus package initiatives for two years, so I guess I would just not fill in the line asking for the refund - effectively a 'donation' to the IRS?

  103. If you have $1.4 million as indicated by ij, which roughly translates into Rs. 7 crores, i am assuming your net worth including the inheritances that you will receive will be even higher. This is a good amount of money by Indian standards and I am not sure what you are doing in US- If i had this money i would look at switzerland (where the rich are respected) or India (where money buys everything). Leave the US - it is only for the poor (remember 47% who dont pay anything in taxes and those are the people that your $700K will finance) and middle class, not for the rich, the rich are leaving. Rs. 3.5 crores is a lot to just give away to a taxing authority. If you have greencard - walk away, if you are citizen - renounce, unless you have personal reasons to stay back. keep in mind, after you pay, you will also be hit by estate taxes when you pass on wealth to your kids.

  104. Thanks for your insight. Anyone else have any input on the slow pace of things? Thanks.

  105. There is a lot of information on the blogs about the SOL, OVDI and immigrant matters which i have attempted to summarize. If the articulation is not correct, please feel free to comment and edit
    1. IRS will only pursue the most egregious cases, measured by cash in tax havens and net worth of an individual - they want your money and NOT fill jails
    2. The minnow is well advised NOT to join the OVDI, do GF or if uncomfortable QD
    3. There is very limited information that IRS can transmit to INS, nothing other than criminal conviction
    4. Civil fraud is not a crime and has no impact on citizenship as some people have asked.
    5. Clean up for 6 years or remain clean for 6 years and this should not have any impact on citizenship, questions on naturalization documents, even though there was fraud 6 years ago, since after 6 years, IRS cannot litigate and hence no impact on naturalization (Remember, IRS cannot share with INS). Worst impact is civil fraud.
    6. Beat your fear and dont give in to extortion.

  106. I asked this question on the forum before but since i did not get any comments, I will try one more time.
    lady posed this situation to me. She gave a gift in excess of $13000
    and wants to file 709 for the year (no taxes would be due). The form
    asks on line 11a whether you have filed 709 form previously. About 9
    years ago, she made gifts in excess of annual exemption amounts but did
    NOT file the 709 at that time (again no taxes due).

    Some practitioners have noted that if a gift tax forms were not filed
    on previous gifts it makes the current gift tax form false. However, I
    do not see that interpretation because the form simply asks whether you
    filed a 709 before - It does not ask whether you made gifts in excess of
    exemption amount and did not file the 709 form.

    Any opinions would be appreciated

  107. I am in OVDI. My main fear is that I inadvertently checked wrong box on Sch. B in 2006. My process has not started yet. But is it possible if I don,t sign the consent ( they have not even sent the new consent ) & somehow it gets delayed beyond 04/15/20139without signing the new consent ), If I opt out say in June-2013, will the IRS open 2006 ? Will 2006 be off the hook ? I have other good facts for 2007-2009. Fully compliant from 2010 onwards. Then even if IRS assesses non-wilful penalty for 2007-2009, would be maximum $ 30K. Right now facing $ 40K penalty. This way I could save $ 10K. Is it possible to do this way ? Is signing the consent mandatory ?

  108. My understanding is the same as yours based on the question on form 709. However, English is not my native language, and plus I have recently found myself on the wrong side of a few legal arguments. If it is matter of common sense, you can tell the lady what you think the right answer. If it is a matter of law (sometimes does not make common sense), you can only get the right answer from lawyers and legal scholars on this blog.

  109. If the taxpayer is removed from OVDI, the opt out guide says " Examiner must take steps protect the statute of limitations for any year with an ASED within 210 days '.
    What does this mean 'an ASED within 210 days "

  110. 1. What is the 27.5% penalty in OVDI for? Is it for back taxes (for closed SOL years) or an in lieu penalty for the 50% FBAR penalty for every year.
    2. If a person can show there was no tax loss and pays tax for all years that foreign accounts were held over and above the 8 years required, can the 27.5% penalty be waived.
    3. What is the rationale for including real estate? If a person deposited money in foreign bank to buy foreign real estate and the money stayed there for few days, accrued interest, IRS wants 27.5% of the house value, that too not purchase value but today's value. Or if there was small rental income, the sames rules would apply

  111. I think there is a lot of subtlety that is missing in your summary, or in what the IRS would do in individual cases, since most cases are really different shades of gray, different sets of facts. But I'll add some comments:
    Re: #1: Although larger amounts of money have a bearing, I think that what is much more important, is whether there was an effort to hide funds or income, and how much effort was made (beyond merely failing to report interest or fill out an FBAR.) Foreign entities, structuring, money laundering, etc. are all bad facts. An example of this would be the doctor who mailed over two dozen envelopes each with just under $10K cash; the total amount of $250K abroad isn't as significant as the attempt to sneak the money into the US.
    Re#2: Generally agree, but depends how you define a minnow; not just account size but other facts.
    Re:#5: If there actually WAS fraud, and it can be proven, the statute of limitations starts to run when the fraud is discovered., so waiting 6 years wouldn't bar prosecution (although from a practical matter, something so long ago might become more difficult to prove.
    The usual disclaimer: I'm not a lawyer.

  112. Anon if you sent your package on 9/1/12 it's been only a month. Might take 6 months to a year for an examiner to even be assigned, then months after that for audit until you get a form 906. And if you submit the package in 2011 they want the consent through 12/31/2014; in other words they want the rest of the current year plus two full years beyond that.
    Assuming you have proof the package was received, don't worry.

  113. So w hat will examiner do in 210 days to protect what years

  114. 1. The 27.5 % penalty is an "in lieu of penalty" -- it is in lieu of all penalties other than income tax that might apply (most commonly the FBAR penalties but, if applicable, also the 5471, 3520, etc. penalties.

    2. If there is no tax noncompliance for all years the penalties can be waived. Tax compliance means everything was reported properly whether or not a tax was generated. So, if the proper income was not reported (even if offset by deductions and credits), there is no authority to waive the 27.5% penalty. The escape hatch in most cases of this nature is the opt out audit.
    3. It is just the IRS's demand for the inside OVDI penalty that real estate and other foreign noncompliant assets get included., Take it or leave it is the IRS approach and, if you want to leave, go out and take an audit which for taxpayer's with only foreign financial accounts and real estate will mean only an FBAR penalty to the foreign financial accounts and truing up the income tax reporting for the open income tax years.

    Jack Townsend

    Jack Townsend

  115. Jack,

    I understand, but it seems that the IRS could easily pile up the penalties to get to 27.5% under regular audit. So they will get 27.5 either way if they are bent on it.

    If foreign income was not reported, but the taxpayer wants to report it now for ALL the years (NOT just the 8 years), there is no escaping the 27.5% is what i understand from your comment. So if a person came to US 7 years ago, and agrees to pay the back taxes for 7 years still there will not be an escape from 27.5%

  116. Anonymous - I think you may be incorrect. You cannot prosecute after 6 years as the SOL for prosecution expires.

  117. DO lawyers or legal scholars on this blog have an opinion on the above.

  118. What are the IRS rules for valuing real estate for the FBAR penalty. The prices can vary so much, how do you arrive at an amount?

  119. There is no FBAR penalty for real estate. You are probably referring to the inside OVDI/OVDP "in lieu of" penalty that does include noncompliant foreign assets (including real estate). Valuation is alawys difficult -- even in more stable economies and environments. I don't think the IRS will be unreasonable in determining an appropriate value. But, if the IRS is unreasonable, most taxpayers except the most egregious willful players can opt out and forego any penalty on the real estate at all. And, for the nonwillful players, the FBAR penalties on foreign financial accounts is probably not that bad.

    And, for those players, maybe they should not have ever joined OVDI / OVDP in the first place. Or, if they have not yet joined, maybe they should not join and simply take the risk of audit (complying of course in the future).

    Jack Townsend

  120. What the IRS could do and what it will do are not the same. I don' think that, on opting out of the 27.5% penalty, the IRS will apply the nonwillful penalty punitively -- in the cumulative way you mention. The anecdotal data seem to confirm that.

    Again, simply because there is a lot of discretion in the penalty does not mean the IRS will be punitive in the exercise of the discretion.

    Jack Townsend

  121. The lady is rich enough to pay a lawyer for a service if she can afford gift out so much.

  122. He would either get a consent to extend the SOL, or, of unable to do so, move quickly to assess before the 210 days are up. He would protect the SOL for the years that are still open, either open under normal rules, or open because an SOL extension has been signed.

  123. @ij What method did you use for calculating the tax on your non-RRSP PFICs? Did you use MTM method as was recommended for OVDI? Or did you use the PFIC regime of calculating interest and taxes? What method did the IRS apply upon your opt out?

  124. @anon5percent:disqus ,

    In my own calculation, I used MTM method. I did not do each fund (I have over 30), instead I just calculated the total difference for each year. Later, I was told by my agent that I did it wrong and he/she corrected my PFIC. The difference between mine and theirs in tax was very small though. Once opt-out, PFIC were outside SOL There was very little tax owed for years still inside SOL.

  125. Pardon my ignorance but what is "GF"

  126. "GF" means a go forward strategy with regard to FBAR and income tax compliance. The strategy involves ensuring that the taxpayer is in compliance for the future -- all income tax returns properly report all income and all FBARs are filed. But, not past "sins" are corrected.

    In my opinion, the GF strategy is not a good strategy for persons at risk of criminal prosecution for those past "sins." Those persons should join OVDP 2012 and, most likely, not opt out.

    The GF strategy puts the taxpayer adopting it at risk of audit and appropriate income tax and FBAR penalties. These persons would be at the same risk if they did a "QD" -- quiet disclosure -- by simply filing some number of years of amended income tax returns and some number of years of delinquent FBARs. The only advantage I would see to the QD is that they would qualify to avoid the accuracy related penalty because the amended returns would be qualified amended returns.

    And, to close the loop, the other option available is to join the OVDP 2012 and consider opting out (assuming they are good candidates for opt out). If they are good candidates for a GF or QD alternative, they probably would be good candidates for OVDP opt out. If they do the OVDP opt out, they will be audited to some extent.

    So, in sum, the costs of all three alternatives are really the cost of the audit (certain in OVDP opt out and certainly possible in QD and GF). As best I can see from what the iRS has said, however the taxpayer gets into an audit, that taxpayer should get the audit result. In other words, I have seen nothing that suggests the IRS imposes a lighter penalty to those who get to audit through OVDP 2012 (or its prior iterations) than those who get to audit through QD or GF.

    I finally would note that I have some noise about the amended returns submitted to OVDP 2012 being treated as qualified amended returns on opt out (so that the accuracy related penalty will not apply). I can't personally confirm that, but it has a compelling logic to it. I don't know that that is a big deal, however, because the accuracy related penalty has not been the big cost or fear anyway -- it is the FBAR penalty that is the big fear and potentially the big cost in a bad fact situations.

    Jack Townsend

  127. 1) There is no SOL for civil fraud, although realistically the IRS will rarely go back more than 6 years unless a lot of money or really egregious facts are involved.
    2) The SOL for criminal prosecution can be refreshed by certain actions that continue the original action. This is a complicated matter, but should again really only be an issue for egregious cases (who would be better advised to join the OVDI).

    But I agree that there are shades of gray in most cases (excluding the really extreme willful evader and the truly innocent), so most people making this decision are well advised to consult a professional.

  128. Did you check wrong box on Sch B. Moby had said that he put the check on wrong box by tax software default.

  129. Moby:

    Is checking the wrong box on SCh B a limiting factor if other facts are as good as yours.
    I know you had wrong box checked by default on Sch B. & still you came out shining on opt out.

  130. I thought Schedule B was used to calculate total interests income only, I don't remember I sent them in with my f1140 originally. When my agent asked me where were my original Schedule B (so he could compared), I just did not have them at all

  131. It wasn't a limiting factor in my case. Notably, the Sched B topic was never raised by the examiner in communications and I didn't address it in my arguments. I think the same principle is at work in that I had an "entity" (usually considered a "bad fact") for which I owed them a 5471. The underlying nature of my whole situation was so innocent and legitimate that neither the Sched B or 5471 issues had no bearing in the situation, in my view.

  132. Jack - most people who have come recently or are immigrants usually have various small accounts. when you add $10K for each account for each year, it usually equals to a penalty of 27.5% on real estate. I think you give a wise advice, do a go forward compliance.

  133. I agree with Researcher. There is no SOL for civil fraud, but there is a limit of 6 years for criminal prosecution (assuming that there are no actions that continue the original action). If case a civil fraud penalty is assessed, you still cannot be put in jail or considered a felon. Civil fraud penalty is not a crime.

  134. Researcher - what is the definition of "really egregious" or a "lot of money". I see these words used in terms of determining exposure to criminal action in foreign accounts as well, but I have not seen a range or definition. I know there are many facts that are considered for these purposes, but having a broad range or loose definition may help to most readers.

    1) Would people who owe less than $5K in taxes per year (as advocated by Nina Olsen) NOT fall in the above category of egregious or lot of money
    2) Would people with balances of less than $50K NOT fall into that category since FACTA does not require reporting of these accounts (if and when the law becomes effective)
    3) Would immigrants or those on work visa be considered as low risk.

    How would you define low risk, egregious or lot of money?

  135. She is of moderate means but wants to give it to her family.

  136. ij - you thought that your case was weak due to length of your stay. Would you have thought differently if you were on a work visa for the same amount of time rather than on a green card.

  137. Moby mentioned on one of his responses that he did not file a form 5471 previously with his 1040. Is the failure considered a "failure to file" (due to failing to file 5471 or other supplemental forms) or "filing a fraudulent return" (as the income tax filing was incomplete due to missing supplemental forms) in IRS parlance.

  138. For criminal purposes, failure to attach the Form 5471 to the 1040 will not be failure to file. It could be considered an act of evasion if it is related to an intentional underreporting and underpayment of tax. I am not sure that it would be considered tax perjury. I think more affirmative conduct is required than failure to attach the Form 5471 is required. But, keep in mind that if the failure to file the Form 5471 is related to a tax underreporting, then the return could be a false return for failure to report income and tax perjury could apply.

    Jack Townsend

  139. I assume your question is as to criminal exposure. The IRS and DOJ Tax do not have rigid guides -- certainly do not publish rigid guides -- as to minimum tax liabilities for prosecution. I think that it is a multi-factor non-rigid test. Thus, it would be rare to see a prosecution where less than $5,000 per year was involved, I don't think it is unheard if there is ugly conduct on the taxpayers behalf that the IRS thinks needs to be projected publicly as misbehavior that can be prosecuted. Similarly, I don't think there is a rule saying no criminal prosecution where the high balance over the open criminal statute years does not exceed $50K. I think it would be rare that the IRS would recommend prosecution or DOJ Tax would prosecute, but there again may be ugly facts.

    Now as to the 3rd question, I don't think that being an immigrant or working on visa will alone mean that the risk is low. It all depends upon a host of facts. When all the facts are considered, it may well be that being an immigrant or on work visa will offer arguments against criminal prosecution that should go into the mix, but those statuses alone will not mean low risk.

    Jack Townsend

  140. I disagree with your analysis. It assumes that the IRS will assert the maximum nonwillful penalty of $10K per account per year. I think it would be the very rare case in which the IRS would do that.

    Jack Townsend

  141. @13315259d560f212288ea5072e7455fd:disqus ,

    In my 12 years of US residency, I was a visa worker more than half of the time. My major non-compliance (as far as income tax is concerned such as PFIC) were during the years when I was on visa. By the time when I discovered my non-compliance, I had only RRSP left and I could have chosen going forward and I would have a good chance to let FBAR SOL running out. However, I just did not know what to do with my RRSP, cashing it out would alert both CRA and IRS -- that would bring some old wound (non-RRSP) back. Logically, if I try to fix RRSP (such as back file f8891 and FBAR), that would make me "willfully" not to fix real tax issue from non-RRSP.

    My reasoning to join OVDI was simply to have my RRSP fixed and I was ready to pay non-RRSP offshore penalty which was at 12.5% rate.

    Looking back now, I think I made a good decision joining OVDI -- 1. to have a peace of mind, 2. the result was far much better than I had expected. Of course, I lost 1.5 years of LCU -- but having this issue unresolved -- the cost of LCU could have been much higher -:)

  142. I understand where you are coming from and appreciate it. Examples of ugly behavior and facts would help -other than drug money, money laundering activity or earnings from criminal activity that DO NOT apply to most

  143. Does the aforementioned conclusion also apply to other informational forms such as 3520, 3520A, 709. If no tax becomes due due to the failure to file these forms is it still considered an act of tax evasion.

  144. No, only for Forms that should be attached to the Form 1040 and not those forms filed independently of the Form 1040. Failure to file the forms (even though filed independently) could be an affirmative act of evasion if taxes are evaded on the 1040 (just as failure to attach a required form to the 1040 could be an affirmative act of evasion).

    But, for the forms required to filed independently, failure to file is a failure to file that can draw civil and criminal penalties.

    Jack Townsend

  145. Jack

    There is no set pattern with IRS. To" ij " they asked for Sch B. For " Moby" IRS did not ask about Sch B even though the wrong box was checked, & also did not raise the issue of 5471. Both this person had a successful opt out. Can you shed some of your thoughts on this. This does not give any standard signals for opting out. Does it mean that if a taxpayer had original Sch B with more than $1500 interest income & checked wrong box , would be at a higher risk ? or put it differently, if a person's original return has less than $ 1500 interest income it does not matter whether he has filed the Sch B & it does not matter whether he checked the wrong box.

  146. ij
    did you have more than $ 1500 interest income on any of your original return.

  147. 1.5 LCU is a lot of time to be wasted for $2K. Do you regret coming to the US?

  148. I can't offer anything definite. It is a facts and circumstances analysis. And these facts and circumstances are too limited to draw general conclusions.

    Jack Townsend

  149. I am not ij, but I think he likely got more than 2K back, I think it was around 12K or so. Also, not to play psychologist here, but I think a great deal of his motivation was simply being vindication from the iRS that he was not a willful evader.

  150. @f41b23cae9b05094a5585b879a711710:disqus
    No, the total tax due in 8 years is less than $2000, the highest one single year is not more than $500.

    What matters more is your story -- "reasonable cause".

    Everyone has his/her own story to tell -- of course, each agent may see the story differently as well.

  151. I believe that money from criminal activity (other than tax evasion of legally earned income) would exclude someone from OVDI/OVDP. Joining the program would also probably create an very strong likelihood of prosecution for the underlying criminal activity.
    In general, very bad behavior would be attempts to conceal ownership (through entities or nominees) conceal transfer of funds (to an entity, or via structuring) or to use the transfer to engage in tax evasion (instead of transfering funds to a foreign account in one's name, transfering them to an entity called "XYZ Hospital) and claiming it as a fake medical deduction) intentional misrepresenting facts in the OVDI package (such as revealing only accounts likely to be discovered) etc.
    Even in these examples, there are probably gradations of how bad the behavior is.
    I think that you need to look at the big picture, rather than the existence (or lack thereof) of certain factors.

  152. I am IJ and I approve this message -:)

  153. our blog At 800 Tax we understand that owing money to any government agency can be nerve wracking and stressful but you shouldn't need to worry, by taking a proactive approach to your tax problem, you can rest assure that we will work hard and diligently to find the appropriate resolution plan that could help resolve your tax issues. So before you decide to hire us let's have a conversation where you can explain to us exactly how this tax problem was created. Call us today at 1.888.TAX.9200

  154. I am IJ, I approve this message

  155. I finished my OVDI opt out process, received my result and signed my closing form 1-2 weeks back. My background is likely not very different from ij, immigrant to the US, small accounts (about the same size as his), small offshore income, no entities, perfect tax record otherwise etc. In fairness, I have lived for a greater period in the US and possibly have a few more negatives than him. My examiner did recommend no penalties for me, but it was rejected by the opt out committee (or at some level of the hierarchy). My original penalty was not that large (small account sizes, but just > 75K). There was one particular item that I disputed in the in program penalty, but they could not adjust it within the program. On my opt out, that particular item was removed (it was not a lot of money). Taxes, interest for closed years are also refunded (again, not a lot of money). The rest of the in lieu penalty stays. My resolution was clearly not as satisfactory as ij's, but here are my general comments

    The IRS was not draconian. We all know that the non willful penalty is ridiculous if applied per account/per year. Even the 10K/year penalty would have been higher than my final penalty. On the other hand, they were not too generous either, since they did apply the rest of the penalty minus the disputed items. Outside the program, there is some flexibility, but there is not much extra transparency. My examiner was very inexperienced with FBAR matters. Its possible that his inexperience contributed to his recommendation being rejected. I cannot say that their rejection of reasonable cause was totally unjustified, but it does seem like they simply thought I would be content if the disputed item were removed and left it at that. I could possibly have continued in Appeals, but the legal costs and time and energy were not justified for the amounts involved. Indeed, some might have said that my initial decision to opt out (largely occasioned by annoyance over the disputed matter) was somewhat quixotic.

    My advise to people considering opt out is to be hopeful, but also realistic. A lot depends on how good your case is, but there is likely to be some aspect of luck of the draw either. And you have to know when to fold them. But for people facing the kind of ridiculous situation that Just Me did (whole house included in penalty), this is an option.

  156. If the failure to file a 3520/3520A is as a result of not knowing about reporting as an executor or beneficiary of the estate left by a US person living abroad, to another US person also living abroad - but there was no tax due, because the estate was too small (ex. far far below the 1 million threshold), then what is the result? The estate was properly reported in the country where the decedent lived, and where the assets were held (deemed 'foreign' by the US), and any tax levied was paid to the country where the assets were held - there was no tax loss to the US - as no US tax was owed. It was a failure to report only, because the non-US lawyer and non-US accountant as well as the beneficiary did not understand that there could be US reporting obligations, despite the non-US 'professionals' knowing that the executor, beneficiary, and decedent were all US citizens. How is the IRS likely to look at this situation? None of the advice the 'foreign' professionals gave was in writing - and so there is no record of what they advised. Now, how can the beneficiary and executor go about sorting this out?

    Are the 'foreign' assets (estate assets) that a US citizen abroad inherits from another US citizen abroad constitute 'income'? It has already been taxed once - when earned and also on interest accrued, and then reported and the estate taxed again in the country of residence. Now, is it then subject to another layer of taxation - by the US - as income to the US citizen beneficiary?

  157. Thanks for sharing your experience.

    Jack Townsend

  158. I am glad to know that your examiner recommended no penalty & then you opted out. Did he tell you before you opted out ?

  159. Hello FinishedAtLast, Thanks for sharing your opt out result. So from your message is it right to conclude that after opt out the penalty for you turned out to be close to 27.5% of 75K? If so I am really surprized assuming that tax due in your case was not a whole lot different from that for IJ. Was it less than 1500$ per year? I feel it is not fair that non-residents get a pass while residents have to pay such a large penalty even though the tax due may be similar.

  160. I am in 2011 OVDI. Agent contacted me recently for the first time. He wants consent to extend for FBAR. This form says that ' you have the right to refuse to sign this consent ". So what happens if I refuse to sign this consent. What IRS will do ?

  161. The 4th District Federal Court has just held that there is willful failure to file an FBAR (TDF 90-22.1) form when you check the box "NO" on schedule B with reference to foreign bank and finanical accounts when you know you have combined highest balances in foreign accounts of $10,000 or more during the year. They stated this is sufficient showing of willfulness whether or not you know the FBAR (TDF 90-22.1) existed or was required to be filed.

    If you willfully fail to file an FBAR form the penalties can be the greater of $100,000 or 50% of the highest balance in your accounts for each year. There are also criminal penalties for willful failure to file of up to five years in Jail and a $250,000 fine.

    Any comments on the above which I got from another lawyers website

  162. I previously posted on the case I think you refer to, so I recommend that you check the post and comments there. Fourth Circuit Reverses Williams on Willfulness (Federal Tax Crimes Blog 7/20/12; revised 7/24/12), here:

  163. Hi,
    Thanks for sharing your experience.
    Did you do it on your own, or did you hire a lawyer?

  164. Hi FinishedAtLast,
    Thanks for sharing. I have a couple questions:
    1) Did you hire a lawyer to go through the process or did you do it yourself like Moby and ij?
    2) Did you use a modified version of Moby's opt out letter tailored to your facts?

  165. I have some questions relating to the OVDI program

    1. Given that 27.5% is an in lieu penalty, does signing 906 means that all ‘past sins’ are cleared, including those relating to 3520, 709 etc for years PRIOR to the 8 year period

    2. Does failure to file 709 once, makes the subsequent 709’s false, even after the 6 year period has passed since the failure to file the FIRST 709

    3. Since failure to file which does not result in tax liability, such as filing 709 gift tax where no gift tax is due is a misdemeanor? What impact if any, does misdemeanor have on the naturalization process.

    4. There was a recent report that IRS is looking at property transfers over the last 6 year period to determine if there is a gift tax due, does it mean it is not interested in periods prior to 6 years. This suggests that future 709’s do not become false after the 6 year period of the failure to file the previous 709? Is this correct?

  166. It is applicable to the case of very bad facts. Again this is an unpublished opinon. I don't think this will apply to minnows opting out. Otherwise 'Moby" would not have been successful at optout.

  167. Jack

    You have mentioned this before, but I was wondering whether returns submitted under the OVD programs would be considered qualified Qualified Amended returns on opt out (assuming the taxpayer does not have an account with a bank under a John Doe summons).
    The Qualified Amended Return definition includes this phrase

    The regulations also provide that the date on which published guidance is issued announcing a settlement initiative for a listed transaction in which penalties, in whole or in part, are compromised or waived is an additional date by which a taxpayer must file a qualified amended return.

    This refers only to 'listed transactions', but could the IRS take the position that an OVD program is a settlement initiative, hence any returns submitted after the announcement are not qualified amended returns ? Or even that anyone who joined an OVD program becomes ineligible for accuracy penalty waiver automatically, even if they opt out. The bigger penalty for most folks is likely to be the FBAR penalty, but every little bit makes a difference.

  168. finra,

    I don't have a definitive answer on this. For the inside OVDI penalty regime, the QAR is irrelevant. The settlement offered requires the 20% accuracy related penalty. Period. Just as it requires the "in lieu of penalty" (20%, 25% or 27.5% penalty depending upon which iteration the taxpayer joined).

    The question is whether, upon opt out, the taxpayer gets the benefit of the QAR. I think he does, but none of my opt out cases are far enough along to test the issue.

    Keep in mind that, on opt out, for a taxpayer who fits the characteristics of someone who should opt out, probably only 3 years max are open on the statute of limitations and the accuracy related penalty is relatively small -- at least compared to the potential FBAR penalties. So, if you get a good result on the FBAR penalties, the accuracy related penalty is a small price to pay so as to not rock the boat. But if the boat is rocking anyway, you might want to insist on the QAR promise of no accuracy related penalty.

    Jack Townsend

  169. Did your penalty base include real estate? If not, were you able to negotiate with IRS to remove it from the penalty base or did you not have the real estate issue at all.

  170. Any comments or responses to the above would be appreciated.
    Many thanks

  171. Jack - I had posted the question below


    I need some help. I am currently on a
    work visa. I had foreign accounts, highest value $87,000 used to purchase real
    estate of $150,000 (now valued at $200,000 due to appreciation in the foreign
    country). The foreign accounts have been closed after the purchase and
    repayment of loan and the property was transferred to my parents name for ease of management. The income tax related to interest is a meagre $5K, which
    primarily relates to the year in which money was accumulated overseas for the
    purchase. The penalty in this case will result in $60K for a tax of $5K. This
    is not including the LCUs, attorney fees, dealings with foreign banks etc.

    In this case, you and researcher had suggested that based on limited facts, I may not be a candidate for prosecution and i agree that i should not join OVDI.
    1. Should i file 709 for the property that was given to my parents
    2. Since i did not know of the filing requirements of 709 (similar to lack of knowledge of FBAR), am i legally liable to file it (which other developed country in the world has estate and gift taxes?) after the time for the original return has lapsed.

    3. Do nothing, since go forward may be a good strategy but there is nothing to report.

  172. On a related note, could you discuss the implications of IRM

    I believe that the rationale behind the QAR treatment is that someone who voluntarily amends a return of his own initiative before the IRS becomes aware of previous underreported income should not pay penalties, and that penalties should apply only in cases where the IRS discovers underreporting.
    There seems to be a similar thought process regarding the FBAR penalty, in section of the IRM which states:"Penalties should be asserted only to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether the issuance of a warning letter and the securing of delinquent FBARs, rather than the assertion of a penalty, will achieve the desired result of improving compliance in the future."
    Now it seems to me that anyone who goes through the process of OVDI before being notified that his bank is about to respond to an administrative request, has an extremely high likelihood of filing FBARs in the future. Indeed, by the time someone gets to the point of deciding whether to opt out, he has likely filed timely FBARs for the past one, two, or even three years (depending on how slow the OVDI process is) as well as having filed delinquent FBARs. I cannot imagine anyone in his right mind not filing timely FBARs in the future after that experience, and it would seem to me that there is no need to "promote compliance" or "improving compliance in the future."

    Can a strong legal argument be made about this provision in the Manual? The IRS seems to be ignoring it with rare exceptions (such as ij.)

  173. Regarding OVDIMinnowCalifornia, I think the income tax portion and FBAR portion need to be viewed separately. My own point of view is that I accept having to pay taxes, interest, and accuracy penalty on previously undeclared income, because it's something I owe. It's the FBAR penalty that concerns me, not just because in my case it's much larger, but because it's based on high balance and not on the much smaller unpaid taxes.

    The practical question is not how I view the two, but how the law views them. The tax and related penalty is something properly due and which a foreign government may cooperate in collecting.

    I really don't know what the implications are of not paying the FBAR penalty, particularly for someone who leave the US (or who was already resident abroad during the years at issue.) I'm guessing that the US would have to obtain a judgement from a foreign court to go after foreign assets, at which point the person could raise any defenses in that foreign court. We've already heard what the Canadian gov't thinks of FBAR penalties.

    I am under the impression that the penalty would become a debt, and that failure to pay debts is a civil, not criminal matter (i.e. there are no debtor's prisons.) However I know that the law has changed in recent years, that men have been jailed for failing to pay child support, apparently even when they didn't have the funds to do so, and I think I've read of people jailed for failing to pay outstanding traffic tickets.

    Would like to know from a knowledgeable source how failure to pay an FBAR penalty would be treated.

  174. I don't think the IRS is ignoring it. But, I do think it has to impose some FBAR penalties for cases that are not most innocent. Keep in mind that everyone who joins OVDI/OVDP is likely to comply in the future. Hence, if that alone gave them a pass, there would be no FBAR penalties for those joining or, inside the program, in lieu of penalties when the big items on the penalty worksheet are foreign accounts. So, the IRS will consider that during audit, however the audit occurs, but may want some pound of flesh appropriate to the fact circumstances.

    Jack Townsend

  175. If you don't consent, you will be considered to be non-cooperating. Cooperation is a requirement for the OVDI. Not good.

  176. I have summarized my understanding of the SOL. Please correct me if i am wrong

    1. standard SOL 3 years
    2. 6 years SOL if there is omission of 25% or more of income OR if there is fraud
    3. Unlimited SOL if there is fraud under civil fraud clause
    4. IRS cannot assess tax after 3 years unless there is 'substantial' omission or if there is fraud.

  177. Income tax statutes of limitations
    1. Correct.
    2. 6 years if (i) 25% omission or Iii) 5,000 omission from specified financial assets.
    3. Unlimited for fraud.
    4. IRS can assets after 3 years under paragraphs 2 or 3.

    Jack Townsend

  178. Is there a link to see where there is informaiton on $5K of specified financial assets. Is the $5K related to tax or income balance.

  179. Special Statute of Limitations Rules Regarding $5,000 Omissions from Foreign Accounts (4/9/12)

  180. Hello all, returning here after awhile to provide an update on my OVDI case. I submitted the package in Dec 2011 and got done this week. My case is of a small foot fault - $3,000 in back taxes, less than $1,000 in interest and penalties and $6,000 in lieu penalty (Fbar). To resolve this matter, paid $5,000 for tax preparation and $13,000 as legal fee for a plain vanilla case as I am an expat right now and didn't know how to deal with the IRS from where I live. My review was painless, no contact, just a phone call from the agent that my case was done to my lawyer - thats it. And, the IRS accepted the package as it was sent, just small adjustments in tax, interest and penalty calculation of $5. They sent form 906 last month which we signed and returned. This week I got an executed copy from them for record. They owe some refund which I hope will arrive soon.
    It will be really beneficial for the Service and tax payers if an alternate process is in place to deal with small cases with no bad facts, just errors or omissions due to ignorance. The OVDI stress is immense and if there is no criminal intent, a separate track should be opened where folks like me can send the package without incurring such high legal and accounting fee. I had a few PFIC's and had to use an accountant for that and the complexity and fear surrounding OVDI led to seek legal help. If I was living in the US and forgot to report $3,000 of US sourced income over 4 years, I would just amend my returns and send a check without going through all this paperwork and expense and stress. It serves no one - our government or the tax payer.

  181. Thank you for returning to this website to let us know your result. Really helps; strongly agree that there should be alternate process. Paying $15000 to a lawyer and $5000 for tax preparation seems unjustified for a small foot fault such as yours. I am in a similar situation where I expect penalty to be much less than legal/tax prep fees.

  182. Thanks for sharing. As an expat, were you a 5%case as in FAQ 52.3? Why did you choose not to opt out?

  183. AB, thanks for sharing your experience. When others see the high cost of compliance, it scares many off, and they take actions that now make their conduct willful. This is hardly the result the IRS should be going for. Suggest you copy your post to the "Open Forum" for the IRS.
    Unfortunately it takes about the same amount of work for a lawyer/accountant whether the account in question is large or small. Yet you are paying 18K to professionals and 10K to the IRS.

  184. Jack

    Is there data on how many FBARS were filed in 2011 or 2012 as compared to 2008/2009. This will give us an estimate of the number of people who opted for QD or GF as the delta between 2011/2012 filings less 33K as noted by IRS less 2008/2009 filings.

  185. I doubt that there is any public data yet on the 2011 filings which were due by 6/30/12. When I find that data, I will post and then perhaps we can infer something from the data.

    Jack Townsend

  186. Doing some research, i found the article on this website

    FBAR forms filed in 2009 276,386

    filed in 2011 618,134

    Only 33K filed for OVDI - compare that to the 7 million US citizens abroad and 34 million foreign citizens in US. So of the potential 10 million (25% of 7+ 34 million) only 600K filed, represents a 6% compliance. this excludes USC in US who have foreign accounts.

    Plus, 276K in 2009 + 33K in OVDI does not equal 618K in 2011, so there are approximately 300K first time filers or QDs - it is hard to imagine 300K new immigrants and even if there are, they have a 100% compliance rate.

  187. Good catch on the 2011 data. I had forgotten about that.


    Jack Townsend

  188. I was not a 5% case. I had not reported a bank account and some PFIC's in a country where I resided before my current location, which is overseas. So, for me, it was 12.5% case. In my case, the reason for non-compliance was just over sight - didn't have 1099 from this bank, and since I had a small balances, didn't care much. I had reported all my accounts and investments held in the current location, including Fabr forms. So, opt out was not a sound logic, as I did know about fears.

  189. This looks precious, I think. :)

  190. Hello ij,

    I live in the DC area and desperately need your insights.
    How can I contact you?
    I'm in a crossroad and my brain can't stop thinking about this matter,


  191. Ok this tax stuff flies way over my head. I have always worked a basic minuim wage job claimed 0/0 never made more than 20000 a year. I always done my taxes got my refud and went on living .well I blinked too quick and marrieda man who I just recently found out has claimed 99 at least 60% of the time for the past 4 years. Well to top it off he hasn't done his taxes during that time either.he travels for work andhas between 10 to 30 w2 from different states and employers. Its the biggest battel I have ever tried to fight because he retuses to pay or even let me try to file( lost 2 computers and several w2 had to be replaced already) with his job and my saving benefits he technically shouldn't need ssi if its still around come them.. any one have any suggestions onhow I can opt him out of paying taxes??? Please

  192. Our office has recently had a few good opt out results where pre-opt out penalties were about $200,000. We recommended: first a FBAR warning letter, or alternatively a reduced mitigated penalty under the IRM mitigation guidelines, instead of the 25% penalty. We provided a comprehensive legal analysis applying the law and IRM mitigation guidelines to the fact patterns to demonstrate non-willfulness and reasonable cause.

    Both of our recent cases had good fact patterns: financially unsophisticated taxpayers who were totally ignorant of their FBAR reporting obligations. There was no evidence of intent or willfulness, no sophisticated foreign entities or complex investments. We highlighted the facts of non-willfulness.

    In the end, a FBAR warning letter was issued (and no penalty) for the cases and the matters are now closed. These results go to show that good facts often lead to good results.

  193. Thanks. I appreciate your calling your experience to readers' attention. Readers with relatively good facts should not fear an opt out. Unfortunately, the IRS is not very helpful to readers and even their practitioners in assessing whether to opt out.

    Collectively, the anecdotal evidence such as yours overtime will help people make that assessment.

    Jack Townsend

  194. Mr. Patel, could you go into a bit more detail, specifically

    1) did they check yes or no on Sched. B, or did they leave the response unchecked, or was interest income so low that they did not need to fill it out?

    2) did they report the income but failed to file FBARs?

    3) were they foreign residents, recent immigrants or long-term US residents?


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