Saturday, August 16, 2014

Tidbits on the New Streamlined Procedures (8/16/14)

Virginia Jeker, her blog is here, recently spoke with an IRS representative on the OVDP hotline.  Virginia reports [quoted from her email]:

1)      I asked if clients who were expatriating & needed 5 years of tax compliance could submit the 5 years of returns through Streamlined. I was told YES, they could. I then asked if the T needed to explain that they were expatriating in the cover letter. She said NO… but they could if they wanted to.  She said that IRS will process all years submitted in the Streamlined procedure and she was told this was acceptable. Another practitioner who wrote to the IRS on this Q was just given the same answer yesterday.  This conflicts with what I was told about 2 weeks ago and which was the subject of my tax blog. http://blogs.angloinfo.com/us-tax/2014/08/04/ovdp-hotline-nixes-practical-use-of-new-streamlined-program/. . Has anyone else asked IRS about submitting earlier years in the S/L procedure? If so, please share the info received.

2)      If a Domestic Streamlined case is being submitted there is imposition of the 5% offshore penalty. Technically, the penalty can apply to any account that should have been reported on an FBAR but that was not. This can include for example, children’s accounts over which the parent has signature authority as well as an employer’s account over which the T has signature authority.  IRS just very recently clarified for its personnel that NO penalty will apply to such accounts (or any account for which there was no tax noncompliance).

3)      FBARs in Streamlined– in the case where T has over 25 foreign accounts I asked if they can check the box on the FBAR to simplify reporting or if each account must be separately listed. This is daunting when T has Certificates of Deposit that roll over etc. each year.  She said they can check the box as far as she is aware but she suggests calling FBAR hotline  to confirm this TEL --1 313 234 6146.

50 comments:

  1. I have a client who is in the Domestic Streamlined. She had not filed form 8891 to treaty protect the income generated in her RRSP. (A Canadian style IRA). She also had not filed any FBARs.
    I was informed that Form 8891 is not covered under the "delinquent international returns" rules and her only options were Domestic Streamlined or OVDP. (Actually, I was originally informed that Form 8891 was covered under the "delinquent international return" rules, but the OVDP hotline quickly called me back and reversed this).

    Luckily for this client, I was informed that, although the RRSP account was not r
    eported on an FBAR, the taxpayer would not have to pay the 5% penalty on this account in the Domestic Streamline program. It is clear in the OVDP that the RRSP accounts are not included in the penalty calculation, but the Domestic Streamlined instructions are silent about this point.

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  2. That an RRSP is even considered some kind of delinquent account at all is offensive to Canadians. The IRS could take a much more lenient stand towards RRSPs since they are equivalent to IRAs except in a "foreign" country. Foreign only from the point of view of the IRS, but domestic as far as Canadians are concerned. What's "foreign" to us is the IRS, which is the External Internal Revenue Service.

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  3. Peter,

    I understand what you are saying, but many countries have deferred compensation plans that are like IRAs. Those plans are not treaty qualified and thus are subject to current income taxation and FBAR reporting.

    Thus, since I see a lot of these, I have to ask the question why Canadian RRSPs should get better treatment where the taxpayers have not done what is necessary to get the better treatment? Canadian taxpayers may not think it fair from their perspective, but Canadians subject to the U.S. tax regimes overall get better treatment that U.S. taxpayers in other countries. So what is fair?

    I think what the Canadian / U.S. persons are really complaining about is the U.S. tax regime. That is a complaint they are entitled to make and, if they feel strongly enough, withdraw from citizenship. What I think is inappropriate is for them just to ignore their known U.S. tax obligations simply because they think the tax system is unfair. If that were a reason not to pay tax, almost everyone could find something that is unfair in the system (tax protestors do it all the time).

    Jack Townsend

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  4. I am of the opinion that the IRS is a law unto itself. It does not have the welfare of the people in mind. The reason why RRSPs programs are set up in the first place is so that Canadian people can look after their own retirement, and that their retirements might be invested in solid vehicles which can lead to the prosperity of Canada. It is an unacceptable situation that angers me and gets my blood boiling, that the IRS thinks that it has the right to reach into and steal Canadian RRSPs.These accounts are supposed to be protected by treaty but instead the IRS has decided that their own rules are more important than a treaty with Canada. This is an example of bad faith--and it is an example of how the IRS has no concern for bigger issues, such as Canada-US relations.

    But you are right--my anger is with citizenship based taxation. The American system of "citizenship" (as defined by their own laws, not the laws we have made here in Canada) based taxation is a travesty of justice. It is unjust tax by its very nature, since the proceeds of the tax go to benefit not our community here in Canada, but your profligate and immoral society south of our border. You won't balance your own budget, you borrow over 40 cents on every dollar you spend, and your country is creating disorder and instability everywhere in the world.

    I was just in Niagara on the Lake. It was settled by Loyalists who fled the United States. Unwittingly, I've been thrust into a new Loyalist movement. I think it was wrong for the United States to destroy Niagara on the Lake in the War of 1812. And I think it is an unmitigated evil that the United States has decided to go after the Canadian tax base in the enforcement of laws passed in Washington DC, where we have no representation.

    You were the richest nation in the world. Do you think that it is morally justified to steal from our Canadian tax base? How can you justify that?

    US tax laws applied outside the borders of the United States and imposed on other nations are in violation of international law. Take for example the Master Nationality Rule. Canada has no need to have any concern with your so-called citizens here in Canada, if they are Canadian citizens. It's none of your business. The lawsuit by the Alliance for the Defense of Canadian Sovereignty is exposing the United States as a violator of Canadian sovereignty and rights violater, because the US has no respect for the human rights codes of other countries in the implementation of its own extra-territorial laws.

    The US provides no services or protection to Canadians within the borders of Canada. It says so in a US passport. Since the constiutional justification of citizenship based taxation is "protection" then it is completely wrong to apply citizenship based taxation to citizens of Canada living in Canada. There is no justification for the tax.

    Jack, there is an age old rule that says that a law which is unjust is no law. Perhaps you heard it. Or said otherwise, "One has a moral responsibility to disobey unjust laws.'" Did you not learn that in law school?

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  5. Jack, I understand your ultimate paragraph, although I have to admit, I think the complexity required in for Expats to comply is daunting and the number of necessary forms is overwhelming. In situations where the income should be tax-deferred but for the failure to fill in a form, the IRS could/should be more accommodating. For years, the IRS ignored expats, barely providing any education or outreach and many preparers were unaware of the multiple forms (for another example, see UK ISA's, which are often considered trusts under US law. The number of people who failed to file 3520's is quite large). The service has gone from almost zero enforcement to making expats their number one priority.

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  6. I spoke with the OVDP hotline regarding the ability to file more than 3 years in the streamlined procedure. The agent read me the instructions they have been given. It seems that the ability to file 5 years is exclusively for the purpose of expatriating, if you wish to file more than 3 years you will need to file in OVDP. He also indicated that I should explicitly state that the taxpayer intends to expatriate in the cover letter. I asked if someone in streamlined does file 5 years instead of 3 years, are the two extra years not protected under streamlined? He thought that penalizing the taxpayer would not be in the spirit of the streamlined program, but could not confirm this. He also indicated the IRS has no plans to update any FAQ for streamlined.

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  7. I don't believe it's okay to bash Jack, by saying, "Did you not learn that in law school."


    Most professionals know of the inequities of the US tax code. But doing nothing is not the same as doing something, no matter how you attempt to comply. For e.g., you might just choose to give up your US citizenship, or try, at least to file the right forms, no matter how late they are, whether or not they are in any sort of disclosure programs. Hint, hint buddy.

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  8. If this is true, this is great news. I do know from the streamlined procedure page, that they are allowing retroactive relief for the tax deferral on RRSP, RRIF,RPP1, RPP2, & RPP3. "For returns filed under these procedures, retroactive relief will be provided for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by the applicable treaty. The proper deferral elections with respect to such plans must be made with the submission. See the instructions below for the information required to be submitted with such requests."

    http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

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  9. Bad for the IRS. Good for disgrumptled clients who may have fired or left their advisers who know everything about those former clients. Bad for the government and taxpayers in general. Overall, just plain bad.

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  10. Question: In the SDOP program, since one is paying part of his/her taxes "late" what all penalties are to be factored in?
    1. The 5% misc offshore penalty
    2. Applicable statutory interest with respect to each of the late payment amounts

    The above two are amply clear in SDOP instructions.

    How about "late payment penalty"?

    (As outlined here: http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/IRS-Procedures/Collection-Procedural-Questions/Collection-Procedural-Questions-3)

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  11. Milan,

    honestabe1947 is in ovdp 2011 (if I recall correctly), and it is likely that in OVDP 2011 FAQs wordings allow stock certificates to be excluded.

    In ovdp 2012 the FAQ 35 wording could imply that stock certificates are not exempt if it is part of tax non-compliance. Then it should also be included in the in-lieu penalty calculation.


    Clearly the link honestabe1947's post comparing 8938 and FBAR does not require "stocks not held in financial accounts" to be reported on FBAR.


    Which one rules? The FAQ or the FBAR instructions?


    In your opinion as a practitioner, can stock certificates be excluded even in 2012 OVDP?



    I would appreciate your thoughts on this.

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  12. Mr. Dunn,

    I understand the concept of civil disobedience, but that does not mean that we are entitled to only obey laws of our liking and disobey the rest. All of society would be in shambles if that were the case -'- we may not like tax laws, hence we don't report or pay, we may not like laws that say we cannot have nuclear weapons, hence we stock up on nuclear weapons, and so on. That is pure anarchy.

    Specifically, in a tax context, in your imagination, every tax protestor in the world would be honorable to disobey the law. Yet, tax protestors routinely suffer society's civil and criminal consequences of disobeying the law. All you are saying is that you and others with similar views are just tax protestors. I do not see any honor in that.

    If you don't like the system the U.S. has, then do what you did -- expatriate and surrender your U.S. citizenship and then go somewhere else that has laws that you are willing to honor. (Although, I guess your theory is that, you can pick and choose which laws of Canada you will obey, as well; maybe at some point the citizens of Canada through their government representatives may have something to say about that).

    And, to close the loop, I do know about civil disobedience. Depending on context, conduct which you call civil disobedience can be honorable or not honorable. I think you know where I stand on someone making the unilateral choice not to report and pay U.S. tax. The U.S. tax systems gives U.S. taxpayers plenty of opportunity to vet their complaints to Congress (the proper focus) or even in the Courts where in a civil or criminal case the jury could be asked to exercise its power of jury nullification to bless such civil disobedience. My experience with juries is that no jury -- let me repeat, no jury -- of U.S. citizens would find the sympathy required to exercise its inherent power of jury nullification.

    So, if you are looking for sympathy or support for such notions, you won't find it from me. There are any number of other blogs where you can get the echo feedback chamber you seek, but I hope the bulk of my readers do not sympathize with these notions.

    Jack Townsend

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  13. On a final note, since this is not an echo chamber and you will soon dismiss my contrarian views as kooky: may I please remind you that Canadian citizens tried in an American court for alleged form crimes committed in Canada would be travesty of the sovereignty of Canada, not to mention a violation of Constitutional rights. Please consider my post on this subject from 2012. A kangaroo court it would be, and it would be against the fundamental principles of justice which the Founders of the United States shed their blood to protect.


    Of course US citizen juries would find me guilty. But no jury of my peers would find me guilty for illegal accounts at my local Ontario branch.



    http://isaacbrocksociety.ca/2012/02/15/fbar-on-the-impossibility-of-a-fair-trial-for-expats/

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  14. Jack,


    Re filing 5 years of returns under Streamlined to avoid covered expat status: the answer we received from a senior IRS official in LB&I is very different from the answer given above. According to this individual (email reproduced below) the 3 tests for covered expat status (net worth, tax liability, and compliance certification) must be met ON THE DATE OF EXPATRIATION.


    Therefore, filing 5 years of tax returns via Streamlined would not avoid covered expat status if the individual had renounced US citizenship.



    I think this position is incorrect, though there is a sentence in Notice 2009-85 that supports the IRS's conclusion (though tenuously).


    The reason the position is incorrect is that the compliance certification test CANT be met on the date of expatriation... unless one were to sign the 8854 at the Consulate's office concurrently with taking the oath of renunciation. Further, the 8854 is due on the due date (including extensions) of the 1040, which would be in the year following renunciation.



    Dangerous stuff here.



    The following is the email we received from IRS in this regard:


    Notice 2009-85 addresses who is a covered expat and it indicates all three
    tests must be met at the time of expatriation. Thus, taxpayers
    can come in to streamline to get matters resolved (we will accept the 5 years)
    but if they do it after they expatriate they will be a covered expat and should
    file the 8854 reflecting such. However, if they have not yet expatriated
    they can file 5 years under streamlined and then expatriate and be able to
    certify they are compliant so timing is an issue.

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  15. I was lucky in that the bulk of my wealth was not in PFICs.
    If somebody left the US at an early age an lived in another country their entire life they could easily amassed a large amount of investments in accounts the US believes are not tax exempt. They would likely be invested in ordinary stuff the US conciders toxic (PFICs).
    To comply with US tax rules would mean this person could loose pretty much all their gains and even their principle since sec 1291 tax and interest front load the early years by assuming linear investment growth.
    Add to this penalties and interest on the penalties etc and they could be looking at loosing the vast amount of their life’s earnings despite having paid all the taxes due to their local government.
    They can’t comply. Learning the rules would be a huge job and very expensive and time consuming. Doing the taxes would be expensive and time consuming. They can’t afford to loose what they saved over a lifetime because they used their lifetime to accumulate the money.
    The IRS even recognizes and uses as a threat the fact that complying with sec 1291 is close to impossible (this they used on me but I called their bluff and produced 400+ form 8621′s). They even allow a mark to market regime to avoid it in OVDP.
    The only rational course for such an individual would be to ignore the IRS I would think. A choice I wouldn't wish on anybody but we know some people have to make this choice.

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  16. Jack you're wrong. The US is trying to 'skim' tax off ex-pats who get nothing in return. The US doesn't contribute to another country's infrastructure, health care or other public services. So the US deserves zero from ex-pats.

    Homelanders are blind to the fact that on 1 July 2014 their freedom to 'cash out' of the US was taken away from them. But since only about 35% of Americans hold passports most wouldn't notice.

    FATCA is less about tax and more about the rights as a dual citizenship. The US has turned into a unilateral country who doesn't other countries opinions.

    How long do you think it's going to be before countries get sick of paying fines on their banks, open to economic sanctions because the US abuses its position, ex-pats being tracked via the world's financial systems, it goes on and on.

    The US is going to lose sole currency reserve status and it's only a question of time. That's the true reason FATCA was brought into law to handcuff people to the US tax system when that happens.

    Most ex-pats are everyday middle class people who don't want the IRS in their face while paying another country's taxes. Also if a country has a better tax deal like Dubai, why on earth should US ex-pats be able to take advantage of that while abroad than having ignorant Senators like Chuck Grassley making absurd statements like 'why should an American in Paris pay the same taxes as an American in Peoria?' Answer the US contributes nothing to France or ex-pats living abroad.

    Also please don't go on about the American Military in Europe. For example during the Cold War the Yanks had 250,000 personal in Germany. Fast forward to 2014 that's down to 60,000. Keeping troops in Europe as a justification of FATCA doesn't work either.

    And please don't say renounce.

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  17. I am an avid fan of JACK. BUT Corporations can avoid taxes by having a sham ' entity ' overseas. Examples- GE, many others. Corps. enjoy the protection of the US, so do their CEOs, but its a different set of rules for Corporations and for US citizens. The Corp does'nt have to give up anything material to move overseas, often only a PO Box and some set up fees. A law abiding citizen doesnt have that choice. I'm all for the US, but something stinks about WORLD income taxation unless it applies to both citizens and ' entities' Corps.
    US. citizens are mostly powerless. That is why the IRS can be so cavalier in how they treat foreign born or US citizens overseas- there is no strong lobby to back up these taxpayers.
    I suppose this is a never ending argument- so as you say, lets focus on the immediate tax laws and how to deal with, rather than how we wish the tax laws would be....

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  18. Rosa Parks, by Jack standard of honourable civil disobedience, who have been condemned by an all white jury. So I would be condemned by an all US resident/citizen jury.

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  19. Jack: For many of us it is a foreign law!

    When I became a Canadian citizen in 19973, U.S Consulate was clear, firm and directl. I was permanently and irrevocably relinquishing U.S. Citizenship. As I am in the early stages of retirement 41 years later because of medical reasons, IRS wants to reclaim me and my money which was entirely earned, saved and invested in Canada.

    They also demand my Canadian bank five minutes from my home where I have been a customer for 32 years report my private financial records because I was born in U.S.

    Perhaps the U.S. Should consider respecting their own laws. U.S. Supreme Court reinstated my citizenship without my knowledge or consent in 1986. I knew nothing about this until 2011. it may seem strange to you, but I do not follow the court decisions or tax laws of a a foreign country. instead, I pay taxes to the country, province and city where I live, worked, earned an income and where I have been a patriotic and loyal citizen.

    Traveling to a U.S. consulate to report a relinquishment of four decades is not practical for me for medical reasons.

    I will NOT follow the laws of a foreign country that wants to unilaterally reverse the clear deal we had four decades ago.

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  20. Ooops. That should have been 1973.

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  21. hi honestabe1947,


    When we claim the Foreign credit for 30% TDS, can we start with the entire 30%? I never filed for Tax in India.


    Thanks!

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  22. Canadian RRSP's should not get better treatment. The retirement tax plans of all expats should get the same treatment which is to be ignored by the U.S. The U.S. tax payer has absolutely no stake in these retirement plans because the plans don't operate through the U.S. Treasury which is ultimately backed by the U.S. taxpayer. The taxpayers of other countries are the ultimate backers of their treasury's government tax plans.

    Blacks and Whites who opposed segregation could only effectively protest segregation by ignoring it.

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  23. My apologies for any miscommunication. I did not mean that the OVDP hotline had indicated that filing the 5 years in streamlined was sufficient to expatriate. I meant that it would help speed up the expatriation. It is my understanding that the taxpayer would file 2009-2013 tax returns inclusively in 2014, go to the consulate to expatriate and file a final form 8854 and 1040/1040NR for the tax year 2014 in the spring of 2015. Additionally, I agree that if you expatriate before filing 5 years of taxes, then you are a covered expatriate.

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  24. Expats are not advocating for a disregard of the law on the basis of a whim or just out of a general dislike for law. I would say that the overwhelming majority of expats are current with the tax laws of their country of residence. What expats object to is the extraterritorial imposition of U. S. tax law which has the consequence of making their lives abroad illegal.

    Expats actually have many rational arguments against C.B.T. while the U.S.'s arguments for it are irrational. The arguments for C.B.T. fit into a few self serving categories that don't constitute proof. They are:

    a. The law is the law
    b. Fair share obligations
    c. Patriotism
    e. You are a tax evader

    If today's expats are to be accused of picking and choosing then the same can be said of its much beloved founding fathers. The same arguments that America, and you, are aiming at expats were also made by the King of England against the rebellious colonists. But a big difference is that expats are not on American territory whereas the American colonists were actually on British soil. By America's own standards this actually puts expats in a superior position compared to the rebellious colonists.

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  25. 8888,


    I see what you're saying. But in as much as US income tax treaties, which usually overrule Code, and which draw their frame work from United Nations model conventions of such treaties, then it's not US law that you have a protest against, it's also international law. If there was head of steam to change the model conventions on which such Income tax treaties are based, then I presume the IGAs and various income tax treaties would not hold that much water. In other words, international law has to contravene US law and US constitutional rights in some specific way which doesn't hinder one's right by being overburdened by such international law.


    There is also the matter of the pesky but "gotchya" clause of all these treaties, which is the, "Savings Clause." -- This little number is what, contrary to its unassuming name, allows most countries who are signatory to such treaties, to tax its own citizens any way it sees fit if not already mentioned in the treaties.


    The IGAs and FATCA draw upon such income tax treaties and international law for their basis. I think Jack had a blog on his site somewhere.


    Sorry if I messed up on this explanation, but I did my best, as to my own nonlawyer understanding.

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  26. That's not a good argument. My IRA, ROTH, & 401K is NOT backed by the US Treasury, nor the SIPC (assuming it has investments), nor the FDIC over a such amount. But, I still get taxed on them (on the ROTH I do, if I do not obey the rules).


    RRSPs and RRIFs, and RPP1, RPP2, RPP3, all get deferred treatment by the IRS, but I'm not sure if those are backed by the Canadian Revenue Agency, since they could have investments in them.


    India's Provident Fund and Employer Provident Fund get tax FREE treatment (since it's a government sponsored plan) due to the Treaty provision between the USA-India. India backs those and reserves the only right to tax that, but does not.


    Different retirement accounts from different countries get "better" or "inferior" treatment, regardless of which government backs their own retirement plans.

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  27. Failure to file and failure to pay penalties on the income tax due (25% max), from what I understand. That, and the 5% misc offshore penalty on the dec. 31st total foreign accounts balance, for the highest year. Statutory interest is on the income taxes, starting from April 15th, for each year, so that is on top of the penalties.

    http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

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  28. I will just say that Rosa Parks did her civil disobedience in the open. Failing to file tax returns or omitting income required to be disclosed is not the type of civil disobedience that we so admire in this country.

    I guess the analogy is from the Vietnam war era when persons who disagreed with the war refused to be drafted into service. Some in the U.S., refused and bravely took the punishment the law meted out. Others fled to, say, Canada. The type of civil disobedience we admire is the former and not the latter. Applying that to the tax return situation, the person who disagrees with U.S. taxation of expats and is willing to go to jail to express his or her disagreement is in a different category from those who just disappear from the IRS radar screen, either wholly by not filing returns or partially by omitting income.

    Jack Townsend

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  29. As I understand your narrative, you are not a U.S. citizen. You have no obligation to the U.S. whatever. Whether your income gets reported to the U.S. or not is pretty much academic.

    However, I would think that, if you show your Canadian bank your renunciation papers, it should not even report to the U.S.

    Jack Townsend

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  30. Keep in mind that the cost of deferral from taxation (the benefit of U.S. qualified retirement plans) is taxation when the money is distributed from the plan. It is simply deferral.

    The problem is that foreign plans are not U.S. qualified for deferral. The IRS did not make that rule; Congress did. Some treaties do qualify for deferral some plans that function like U.S. qualified plans. The problem is that many such plans are not addressed at all in treaties and hence do not qualify for deferral. If the IRS were to nevertheless grant deferral to such plans, it would be violating the law.

    So, while your point is a good one -- there should be deferral for plans that truly are like U.S. qualified plans, that is a congressional issue.

    And one of the problems is that foreign plans only have some of the characteristics of U.S. qualified plans. As yet, I have not seen one that was exactly like U.S. qualified plans. So the fact intensive question in each case would be how close to U.S. qualified plans do they need to be? That will be a never-ending struggle that will chew up enormous taxpayer and IRS resources to resolve.

    And then the question will be for those U.S. expat taxpayers who achieved deferral, what will be the mechanism (such as, for example, a 1099 on distribution) to insure that they report the distributions? We have that mechanism in the U.S. for qualified plans, but there is no mechanism for that in foreign plans.

    This is all to say that there are large policy and administrative issues here that Congress should address. I encourage expats to go to one of the organizations representing expats' interests to lobby Congress for a better system.

    Jack Townsend

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  31. Again, this is policy argument that the law should be changed. I don't think it is an argument that persons with policy disagreements are free to ignore the law as it is written.

    In a democracy (or even in any civilized society), people have to conform to rules of society (in this case laws) simply in order for the society to function. I would be concerned about any rule that permitted persons to pick and choose which laws they should follows.

    I have no vested interest in citizen based taxation other than that, the country's duly elected representatives, enacted that system and therefore I am bound to follow it. I have no position on whether Congress should change that law. But, however one comes out on the policy, I don't think that particular citizen based taxation policy issue rises to the level of the types of things where we can feel morally compelled at any level not to obey the law.

    Jack Townsend

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  32. Viet Nam is an interesting analogy, precisely because some of those who fled, whom Jimmy Carter pardonned, became Canadian citizens, and as a result lost their US citizenship. Then in 1986, that a Supreme Court decision unilaterally reinstated that citizenship. Now neanderthal border guards tell these Canadians who try to cross the border that they must cross with a US passport, and further, without informing of them that they have a right to expatriate--this creates a US citizenship trap. It seems the Federal Government is now more interested in revenue from these people whom you do not admire.

    I have to say however that Viet Nam is a very good example of bad policy decisions that are not worth dying for. The US lost 58,200 military personnel and then left the country to the Viet Cong, and subsequently millions of Vietnamese were either killed or had to flee South Viet Nam. Since they let these South Vietnamese victims become homeless or dead anyway, the America casualties were wasted. So while you may not admire those who did not waste their lies on a policy mistake, at least many if not most of them are still alive and well in Canada, paying their taxes to our government, being productive and exemplary citizens of their new country.

    Somehow I doubt that you really have much admiration for Irwin Schiff. I do. Also I love Wesley Snipes. The enemy of my enemy is my friend. But I don't recommend that people become martyrs. However, your critique does not apply to me because I have been public about my civil disobedience, even as you have seen on this page, which I am sure that the IRS probably has an eye on--I've been told by a 30 year IRS veteran that the IRS monitors my activities at the Isaac Brock Society. So my open defiance is on behalf of all the Canadians for whom you have no admiration.

    My punishment is not being able to return to the US. To be sure, I did once last summer to search my father who, as a result of his Alzheimer's disease, disappeared in the Alaska wilderness. So apparently, the IRS is too busy to have issued a warrant for my arrest.

    I come from a family migrants: my maternal grandfather did once return to the East after emigrating from Korean. The Dunns never returned to Scotland. Yet Scotland and Korea never tried to tax them after they left. And finally, one of is no longer really welcome nor admired in the land of his birth.

    I actually recommend that people never present themselves to the IRS. As Christian historian, I will mention that the early church frowned upon those who gave themselves up to the Romans for martyrdom.

    Perhaps in my upcoming trip to Europe the USA will have me arrested by one of the countries I'll be visiting. That is a frightful idea. I have to say the lack of admiration is mutual.

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  33. In a major act of hypocrisy the U.S. led the U.N. in getting that body to condemn the poor little African country of Eritrea for enforcing its diaspora tax. Even though the U.S. at the same time was setting up a system of worldwide tax enforcement that would strong arm the other nations of the world into the abrogation of their constitutions and privacy legislation so that they would hand over their U.S. persons to the I.R.S.

    It is rather odd that the only U.S. law that seems to function on an extraterritorial basis is tax law but not spending law. The U.S. is shamelessly robbing the treasuries of other nations and using the threat of arbitrarily confiscating their private wealth, 30% withholding on all U.S. source income, as a means to do it.

    If you want to talk about whimsy and the law then you need look no further than the threatened 30% withholding on the U.S. source payments to foreign financial institutions if they and their governments refuse to knuckle under to another foreign government. These financial institutions and their customers and shareholders have absolutely nothing to do with enforcement of the U.S. tax code and yet they are being threatened with the theft of their private property. When a government has to resort to such an illegal and immoral act in order to get compliance then that is a clear indication that there is something wrong with the law.

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  34. But expats are not a part of U.S. society in any meaningful or legal way. They have no representation because they are not part of a Congressional district. They can't receive any benefits because the Constitution and international laws regarding sovereignty do not allow the Congress to spend money overseas on their behalf for the kinds of benefits that a homelander receives.

    If it comes down to a choice between self preservation and conformity to a law that results in your own destruction then which choice should a sane person make?

    Expats have no power to stop U.S. society from functioning.

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  35. Is the jury still out on SDOP?


    For minnows, is it as simple as pay the 5% and get out of here?

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  36. Thank you for taking the time to reply and for the thought that you gave to my post. I would suggest that the fatal errors in your response are:

    a. Deferral by the I.R.S. can be exercised on funds that never issued from the U.S. Treasury. I would expect any accountant to realize that things like exemptions, deferrals, credits, etc. can only be exercised on people who have accounts with the treasury of the taxing authority. This is because any attempt to alter the tax obligations of individuals or entities is a redistribution of the tax burden amongst those groups of taxpayers and beneficiaries. In other words they are a means of altering their treasury account holdings. Since expats build their retirement savings on accounts with another country's treasury their holdings are beyond manipulation by any U.S. tax actions.

    b. I am not advocating that the I.R.S. try to keep abreast of the different retirement plans around the world and determine if they harmonize with the U.S. plans. That would be a fool's mission. The U.S. plans cannot be the standard for expats because retirement plans are designed by every nation to suit its own goals and political reality.

    c. If anyone is going to have any influence with Congress it will have to be homelanders and professionals like you who can explain that taxation is not based on citizenship but on a person's account balance with the treasury. This means that all taxation is residency based.

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  37. Appreciate if you could take another stab a the question?

    So SDOP page under specific instructions > line#4 says: "Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment
    amounts."

    So I interpret that line to mean, SDOP applicant should cut a check for:
    1. Back taxes owed actually owed + interest calculated on those
    2. And of course the "Title 26 miscellaneous offshore penalty" (specific to sdop)

    It doesn't say anything about including the typical "late payment" penalty. "Failure to file" penalty I guess shouldn't apply since one did do their file their 10,11,12 returns on time just that mistakenly didn't include foreign income. And in SDOP since one is paying the Title26 5% offshore penalty specific to SDOP, I am guessing the other typical penalties don't apply.


    (In contrast: If it were non-SDOP and one was just amending past years then, one would do: actual back taxes + interest + late payment penalty (+ failure to file penalty if they missed filing a return for a specific yearl). Ofcouse just a lay person interpretation...

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  38. Jack: I do not consider a foreign country demanding to seize my legal private bank records to be "academic." Rather, I consider it an assault on my integrity, privacy and fundamental rights as a patriotic Canadian citizen.

    United States of Arrogance used to punish people for having the audacity of becoming citizens of other countries by stripping them of their American citizenship. Now they punish them by trying to force U.S. personhood on them so they can financially stalk them for life..

    Foreign Attack To Control All is not about taxes. It is about information, control and power over people, financial institutions and countries around the world.

    Can you imagine the outrage if China, Russia, Iran, Mexico or Eritrea was demanding such information about Americans born in those countries?

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  39. I'm sorry for not being more clear. When I say that the retirement account is backed by the Treasury what I mean is that it is the Treasury which absorbs the hit by taking in fewer current tax revenues on the contributions. In this regard the Canadian population, all current taxpayers, is collectively absorbing the cost of deferring income tax revenues now in exchange for funding future retirement savings which reduces the future burdens on the public retirement program.

    In other words all tax burden shifting programs are completely country specific which means that only the account holders with the country's treasury are involved with taking on the risks that are an inherent part of every such program. Any attempt by one country , like the U.S. to tax such programs, is like forcing everyone in the two countries to wear the same suit and penalizing those who can't.

    Tax codes are not interchangeable. They aren't convertible like currencies are.

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  40. If the foreign country is demanding to seize your account, why is that the U.S.'s problem. Nothing in U.S. tax law requires foreign country seizure of foreign accounts.

    The U.S. does not punish people for U.S. citizenship. It does require that they pay, as Justice Oiiver Wendell Holmes famously said, that they pay the costs involved. If those people don't want to pay the costs, then they can renounce. Pretty simple. But the U.S. does not force renouncement on any one. They may their own decisions. If U.S. citizens living abroad want to renounce for whatever reason they choose, then that is OK with me and with the U.S. Government, so far as I know. Just renounce and be done with the U.S. Pretty simple. And fair.

    But don't keep your U.S. citizenship and not pay the dues required.

    Jack Townsend

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  41. Thank you.

    Your points are excellent policy points. I again urge all readers to make their policy points in forums where someone might be able to move the issue forward.

    I have a limited focus in this blog. It is not to change or refine the U.S. tax system. It is to help people to the best I can within the system we have. That is the value that I can bring to my readers and it is on those issues that I hope my reader will engage so as to help all readers navigate the tricky shoals of the U.S. tax system.

    I am sorry that I don't have a broader focus, but given the demands on my time from family, clients, church and other, I am lucky to be able to contribute what I do.

    Thanks again,

    Jack Townsend

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  42. @frontrowseat
    Respectfully, your last sentence is incorrect.
    If you wish to avoid covered expat status and renounce citizenship on, say Sept 2, 2014, then on Sept 1, 2014:
    a) ave net income tax <$124K; (877(a)(2)(A)) and
    b) net worth <$2m (877(a)(2)(B).


    the final trigger of covered expat status is the "certification" of compliance found in 877(a)(2)(C). the certification requirement is satisfied by filing the 8854, which is due in 2015.

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  43. Jack, The foreign country threatening to seize my legal bank records is the United States. The U.S. has been a foreign country to me since they told me 41 years ago I was permanently and irrevocably relinquishing U;.S. citizenship. I have no idea why they did not issue a CLN then. They are now trying to force U.S. personhood back on me and making me prove to my Canadian bank that I am not a U.S. person.

    Renouncing now is nearly impossible for me, For medical reasons, travel to a U.S. Consulate is impractical. In the early stages of retirement, I cannot afford to become compliant with a foreign government's tax laws without risking my Canadian earned, saved and taxed retirement funds.

    For the U.S. to unilaterally try to change our 40 year old deal is what is criminal--not me.

    For decades, I visited the U.S. twice a year to visit family and friends. I spent money there. I will never again cross the border because of the U.S. attempted assault on my responsible financial life. Instead, I will spend my Canadian earned money in Canada--including donating to the Canadian legal and constitutional challenge of FATCA through adcs-adsc.ca

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  44. I find it disturbing that after 5+ years, gthe IRS is still doing whatever it feels like, changes OVDP procedures as often as I change my socks, does not follow 4.16 of the IRM and the optout result is highly subjective (some would say arbitrary) People call the OVDP hotline and get different answrs, How can there be any trust/predictability or comfort in optong out?

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  45. Jack, there is a difference between paying (or not) income taxes, and a confiscatory fine for not complying with Ttitle 31 banking law. What if (your last name sounds English) you held UK citizenship and did not know you had to report your Texas bank accounts to the UK Inland Revenue and they wanted 27.5% (or threatened 300%) because plainly you have Texas bank accounts to hide them from the UK government? This situation is analogous to that of Lynne,

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  46. Jack though I see your point about intentionally not reporting foreign income/accounts, many people did not know. I believe that is the case with one of your clients who you mentioned has been assessed 200%.
    And sometimes fleeing to a foreign country is the only practical avenue. I don't believe anyone would admire German Jews who refused to identify themselves as such and when caught were sent to a camp and rook the punishment meted out. And besides Jews there were people of other religions; half of those sent to camps were Christians.

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  47. Thanks, guest.

    I think the issue you raise is both practical and philosophical. When are the requirements of the state sufficiently onerous and intrusive that disobeying known requirements of the law is appropriate. I am not convinced that citizen based taxation rises to that level.

    This is particularly true when we have a Congress that can change the rules if and when it is convinced that it is in the best interest of all citizens of this country to do so.

    So, I am not sure that the analogy is apt. Still, it does set the parameters of the discussion.

    Thanks for your comment.

    Jack Townsend

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  48. The 27.5% penalty is not designed to apply to persons who really did not know of the legal duty to report all of the income and file the FBAR. It is designed for the willful. The nonwillful -- those who really did not know and have some reasonable narrative surrounding that lack of knowledge -- should not get the penalty. Rather, they should be in streamlined, streamlined transition or opt out.

    The penalty applies to people who made choices not to do what they knew they were supposed to do.

    So, in your example, if the U.K. did have taxing jurisdiction over me (say I was a dual U.K. and U.S. citizen) and I knew that the U.K. required me to report and pay, then I have no problem with my being subject to the penalty that my choice would justify.

    Again, I am not saying from a policy perspective that our system is the best calibrated to do the least harm. I am saying it is our system. And a system beats anarchy.

    Jack Townsend

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  49. Lynne, I hear and feel your pain. You are obviously distressed.

    But, your narrative leaves a lot of questions unanswered. Are you saying that the U.S. revoked your citizenship or that you relinquished your citizenship? I am not aware that the U.S. can revoke citizenship (except where citizenship was unlawfully obtained in the first place). So, I am assuming that you think you relinquished your citizenship and, for some reason, cannot now prove that you did. (I guess I am a bit surprised that the State Department does not have some record of the relinquishment or that there would not be some other proof; for example, have you had a U.S. passport anytime in the last 41 years?; another example, have you ever represented during that 41 year period that you were a U.S. citizen (e.g.,when you original established your Canadian bank account or acquired Canadian residence or citizenship)?)

    Now, having said that, as I understand the process, the U.S. is not requiring the Canadian bank to do anything other than to determine whether you are a U.S. citizen and, if so or even if there is a possibility that you are, make reports to the IRS. So, what would happen if the Canadian bank reports to the IRS? The bank is not withholding (since presumably you will give them the information to make the required reports). And then, when and if the IRS wants to pursue imposing any liability upon you, the IRS will have to formally start an audit and give you all of your due process rights to prove, directly or indirectly, that you are not a U.S. citizen and not a resident and therefore have no U.S. return reporting or tax paying or FBAR reporting obligation.

    So, I am still confused about precisely what your complaint is. Is it that the Canadian bank will send information to the IRS? As noted, that is just information. It is not tax and it, alone, is not confiscatory or otherwise damaging to you. It might damage you if you ultimately can't prove that you relinquished your citizenship.

    Jack Townsend

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  50. Let me try to help. Lynne, I think what you are saying is that you became a naturalised Canadian in the 70s. US law at the time was that if you took out another citizenship you lost your US citizenship, so you ceased to be a US citizen on becoming a Canadian. You seem to think that the 1986 law revived your US citizenship. That is not so. The law does make provision for reviving US citizenship, but you have to apply for it. So as you haven't, you are not a US citizen. It seems to me that in your case all you need to do to prove your loss of US citizenship is produce your Canadian naturalisation papers, which will show you naturalised at a time that loss of US citizenship followed automatically. You say the US is now trying to force U.S. personhood back on you, but has any US officialdom actually told you this, or is that just what you believe?

    Jack, you say that having her personal data passed to the IRS is no big deal. Wrong. Having your personal information passed to an entity outside your home jurisdiction, and therefore not under the jurisdiction of your home courts, is a massive deal. As a lawyer you should realise that.

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