Wednesday, October 22, 2014

Blog on the Disqualification of Some Canadian "Snowbirds" from Streamlined Treatment (10/22/14)

Moodys Gartner Tax Law has published a blog entry, here, on the Canadian Snowbird trap in the Streamlined procedures.  The following summary was provided:
The IRS recently released FAQs concerning its amnesty programs for noncompliant taxpayers who want to become compliant with their  U.S. tax filing obligations. The FAQ for the nonresident flavor of the new streamlined amnesty program, SFOP, is particularly troubling for snowbirds (i.e., folks, particularly Canadians) who migrate to the U.S. each year but who have not filed forms 1040 for the three-year period for which tax returns must be filed under streamlined. If these snowbirds spend more than just 35 days (36 in a leap year) in the U.S. during each of these three years, they are ineligible for streamlined and must either use OVDP or file without the protection of an IRS amnesty program to get compliant. Before the FAQ, there was an interpretation of the streamlined procedures' "non-residency requirement" that qualified these nonfiler snowbirds under streamlined using section 911 of the Code. The result is troubling for those affected. 
Follow the link above for the full blog entry.


  1. Could you please share an update with us with regards to your UBS client.
    You were mentioning that a SOL was about to expire ?
    Any news with regards to the appeal ?


    Fascinating article. I am not a conspiracy theorist, nor do I have a deep-rooted distrust of government (although I am going that way of late), but if the allegations in the above article are true, I think two things:

    - can the IRS and/or high level be prosecuted for a Klein conspiracy and

    - IRS crowing about a few billion of taxes and penalties from private individuals is nothing but p*ss in the wind compared to the systematic failure to create and enforce a proper tax regime

  3. I try to warn Canadians that buying a property in the US for retirement is not worth the IRS tax hassles--not when there are lovely places in the Caribbean and South America that don't have barbaric tax laws. My suggestion finds a lot of resistance. But I find that those who become quite upset with don't understand the issues as well as Moody's.

    But if the correct solution is Barbados, Grand Cayman, Aruba, etc. then the United States really is not interested in benefiting from the tourist dollars of Canadians--though I think that Florida has another view--the tourist dollars are helping and the IRS is not. The IRS is only interested in the tax revenue from Canadians et al. and doesn't care if it destroys the tourist industry in Florida in its efforts.

  4. Jack once you opt out would you still have to agree to sign extensions on SOL, in order to remain cooperative? I would think that once you opt out you are under no obligation to sign extensions?

  5. Blackseal1234,

    I have seen differences of opinion on this issue. I have given the extensions. My reasoning is that they ask for the extensions early enough to permit them to take action -- even draconian action -- early if the taxpayer does not give the consents. Keep in mind that, in the opt out, usually, the audit will consist principally of interviewing the taxpayer(s) and, if the taxpayer(s) used an return preparer, interviewing the return preparer. Usually, any problem with respect to the returns will have been fleshed out prior to the point where the taxpayer elects to opt out and the taxpayer will have provided consents up to that point. Moreover,I do think that, although a position might be taken that the taxpayer is not required to give consents on opt out, I am not so sure given the conceptual commitment to cooperate while in OVDP. The taxpayer on opt out is still in OVDP. He has only opted out of the penalty structure but otherwise he is in OVDP (gets the benefit of no criminal prosecution and, I think, must meet the commitments in OVDP to give the consents.

    Keep in mind that the sole purpose of the consents is for the opt out. If the taxpayer does not opt out, he agrees to the inside penalty structure regardless of statutes of limitations. The IRS does not need consents to impose those costs. The IRS needs consents only in the event of opt out. So, at the margins, that appears to suggests that giving consents is part of the deal.

    Jack Townsend

  6. Peter, thanks for your comments.

    You say that the IRS is only interested in tax dollars. I suppose that may be a way to look at it. Alternatively, you might look at it as the IRS only being interested in administering the laws Congress enacted and the President signed into law. I don't think the IRS perceives its mission as maximixing the revenue by collecting tax that it does not think Congress has required.

    Jack Townsend

  7. I would suggest that readers be careful in giving too much credence to Professor Caron's daily postings on the supposed "IRS Scandal." The general public -- including tax practitioners -- in the U.S. does not think there is much of a scandal there. Hence, probably 95% of what is said about it appears in right wing sources such as Fox News, blogs, etc. and politicians trying to re-ignite the flame that has died. I do think that most of this is politically driven (not really believed but politicians can play to the conspiracy driven base).

    So, just be careful about the daily blog on IRS scandal. It reports principally the right wing view which is, directly or indirectly, conspiracy driven by persons with more faith than facts.

    Jack Townsend

  8. I can't right now but perhaps later after it is resolved.

    Jack Townsend

  9. Your point is belied by Congress producing laws drafted by career bureaucrats. And also by bureaucrats having large discretion in the manner that they implement laws. See e.g., "Most of Bill’s career at IRS focused on offshore compliance, including his participation in a massive overhaul of outdated foreign trust reporting requirements Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts and Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner). Bill was the principal drafter of the regulations under section 679, Foreign trusts having one or more United States beneficiaries, Notice 2003-75, RRSP and RRIF Information Reporting and Notice 2009-85, Guidance for Expatriates Under Section 877A."

    When legislators have don't even read the bills that they pass, one cannot refer to the "implied" Congressional intention of a law. My understanding was that FATCA was rammed through the HIRE Act and was not even debated.

  10. "you might look at it as the IRS only being interested in administering
    the laws Congress enacted and the President signed into law."

    Jack, I am a little unclear here. Which law was it that ordered Louis Lehner and all the IRS agents under her sway who so blatantly tax-persecuted their political opposition, and so to swing the entire 2012 election to Obama and Democrats? The same Democratic Executive and Congress that vote unanimously in the House and nearly unanimously in the Senate in favor of Fatca?

    You see Jack, you love to pretend that the US government is somehow influenced by the wishes of the electorate because that gives you and the agency whose byzantine laws benefit you enormously moral cover (what is it you charge, $600/hr?). Expats who have neither vote nor representation in congress and who end up being massively hurt by the bullying of the IRS and its sycophants know precisely what it is that you continually insist on ignoring.

    Those Canadian snowbirds certainly can't get laws changed in the US. And even if they could, it is perfectly clear that it is the IRS who has decided how to interpret what makes one a resident in terms of their own shifting streamlined policies. So now the snowbirds understand what us expats have long figured out.

  11. For my own part, I do recognize that the blog (and that the article it links to) should be read with a hefty dose of salt (and I tried to reflect that in my post, but if that was unclear, apologies - the Klein conspiracy reference was meant to be flippant). I am not sure there is any "there there" in the Lerner scandal, and short of someone showing a clear 6103 violation or an executive order directing the targetting of conservative groups (which is unlikely), then I agree, the alleged scandal should die away. I do think, however, the IRS issues touch on a larger issue that our government, whether governed by conservatives or dems, has to face, which is the growing distrust of its core competencies, its ability to do the job among normal people (not at just the fringes). As other, less conservative commentators have pointed out, a distrust of the IRS and a belief that it is biased, incompetent and/or not applying the rules equally undermines the administration of the tax system.

  12. I think that Jack is mostly right on that. The IRS is usually trying to follow (what they think) the law says. But Congressional lawmakers are certainly interested in maximizing tax income from those that can't vote them out of office. Hence FATCA.

  13. Jack,
    The Raoul Weil trail has been going on for a while now. I'm very interested in you thoughts. I assume you have been following the case. Are things favoring the prosecution or the defense in your opinion?
    Will Weil be providing testimony during the trial?

  14. ...."the IRS only being interested in administering the laws Congress enacted and the President signed into law."..... I think Jack you are making it for yourself a little bit too easy with this generalization which is not helpful in explaining the problems expats have !! May I remind you Penalties (if any) are supposed to be taken in context of the failure (if any). There is supposed to be proportionality where a penalty strictly applied “can greatly exceed an amount that would be appropriate in view of the violation.” There is supposed to be consideration of the desired result “of improving compliance in the future” which can be obtained without penalties.
    Further, there is nothing in the Statues that require full application of all technical penalties. The Federal courts have consistently held that when Congress uses the word “may”, it means “may”, not “must” or “shall”, so even absent the IRM FBAR policy guidelines, there is discretion that the IRS can exercise. Additionally, it is obvious that the IRS appreciates the discretionary nature of its authority. I quote from a IRS Division Council memo providing guidance on the application of civil FBAR penalties (“Guidance Memo”) “The penalty statute, however, provides for discretion in asserting the penalty. The purpose for the penalty, and the reason for the flexibility Congress provided in asserting the penalty is to encourage compliance. There is no requirement to assert a separate FBAR penalty for every possible technical violation encountered and doing so could lead, in some cases, to an absurd result.”

  15. He charges $700/h and his blog is the only one from a practitioner with a comment section and I would assume conservatively that he profited personally through this blog in the mid 6 figures over the last 5 years.

  16. One should approach US tax reporting, FATCA, and US citizenship as complex problems to be confronted and solved. However, that does not negate the fact that I find the manner of their impositions to be bad government, immoral, hugely disproportionate and expensive, confusing, frightening, and sapping of the good will that I once bore for the US.

  17. You said:

    Keep in mind you can take the man out of the DOJ but not the DOJ out of the man !!

    Although that is hyperbole, it is true at some level. So, I plead guilty.

    Jack Townsend

  18. Response:

    1. My revenue attributable to persons coming to be me as a result of my blog is not as great as you think. There are several reasons for that, but bottom-line my principal client base for most of my career, including recently, have been from referrals from other lawyers. And, as you will observe from my listing of other lawyers, I refer readers to other lawyers and am pleased when readers of this blog consult those other lawyers. The principal business I get is from the limited engagement consultations -- 2 hrs for $1,400, but I really don't get many of those. One reason, I hope, is that readers consult other attorneys who are, I also hope, just as good, closer or cheaper (or some combination). I stay plenty busy on referrals I get from other attorneys wholly independent of my blog.

    2. This blog was created with two targets in mind -- practitioners and law students. I opened the content up to a larger audience of taxpayers after the OVDP program started because I was getting so many comments from taxpayers. I inched into it because I was concerned that taxpayers without understanding of the nuances might misinterpret my comments and do themselves a disservice based on that misunderstanding. Pleasantly, over time, I find that many readers have become quite knowledgeable of the OVDP area and, as a result, make good comments (helpful to me and others) and ask good questions.

    Thanks for your comments,


  19. Banking secrecy has been a cornerstone of Swiss banking regulations since 1934. Anybody who has seen a James Bond movie knows about Swiss banking secrecy including the IRS/DOJ.
    The IRS/DOJ let at least 45,000(according to the OVPD numbers) account holders get away with it for, probably, decades. Basically, they just screwed up and didn't do their job. Or it was one of those selective enforcement situations where they chose not to enforce foreign accounts?
    Now they have spun the story to put the blame on the evil Swiss Bankers and account holders. The story seems to be that the IRS/DOJ was duped. Is it possible that they didn't know about the undeclared Swiss bank accounts? That's even less likely than saying Raoul Weil didn't know about them.
    The IRS/DOJ didn't enforce the law and foreign banks benefited from their lack of enforcement. Did they really expect a Swiss banker to call up the IRS/DOJ and say "Hey guys, you have a lot of undisclosed accounts all over the world"?
    Who is more to blame in this situation? The IRS/DOJ for not doing their job or the foreign bankers for not doing their job for them.

  20. Blackseal
    We have countered with a reduced timeframe on the tax Statute of Limitations extensions - eg 6 months instead of the usual 12 requested by the IRS
    ... and the IRS has accepted. Note this was within OVDP, , but I dont see why it would not apply on Opt out

  21. Badger

    I completely agree with you on 2 points

    1. Tax on World income or Citizen based taxation is an anomaly. I don't think anything is going to change soon but atleast the IRS now has the SFOP and SDOP

    2. The IRS dusted off the FBAR club (crafted in the late 70s, I believe, for blatant criminal violations), and enthusiastically uses it to herd taxpayers into OVDP. And we all know what happens to the baby seals (taxpayers) in OVDP... either pay the exorbitant 27% penalty or ending up paying that in legal costs to defend themselves.

    You are right, for the IRS, OVDP taxpayers is like shooting fish in a barrel ( the baby seal analogy is more correct because its not over quick.)

    What I don't understand - Congress did not authorize OVDP- if the the IRS float the program, and then make it up as it goes along why cant it do the same for corporate 'inversions' ?

    On balance, Jack's blog has greatly helped the common taxpayer. Jack has another day job other than the blog and makes available plenty of useful information, without it, taxpayers would be flying blind

    $700 an hour well, atleast you get what you pay for - I've worked with other attorneys who are ' out of the loop' don't know what's going on in the greater OVDP programs

  22. The destruction of evidence and the obstruction of justice performed by the DOJ and the IRS is where the people should be looking for prosecutions for "wilfulness", not among accidental Americans who have never lived in the US and have always paid their taxes.

    You and Jack, just like Lois Lerner, continue to slough this off as if there isn't "a smidgeon of corruption" at the IRS while casting aspersions on opposition party whose election was stolen. The taking of the fifth, destroying emails on hard drives and blackberries and impeding the congressional investigation are facts, not "conspiracy theory".

    Something like 90% of Federal government employees are Democrats and I am certain that the proportion of lawyers is similar. Fatca was unamimously voted for by the democrats in the house. Lawyers are one of the biggest fundraisers for the Democratic party. So lets be clear that the tax lawyers posting here are benefiting from a problem that they played a major role in helping to create, even if we ignore the revolving door.

    In general psycopaths blame their victims for their predicament, so does the IRS, and so do "tax professionals" as well.

  23. There's so many repercussions on this new changes, that it's best to really consult with a lawyer that specializes in IRS matters, rather than figuring things out for yourself. (


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