Friday, November 21, 2014

Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)? (11/21/14)

DOJ has this press release:  Credit Suisse Sentenced for Conspiracy to Help U.S. Taxpayers Hide Offshore Accounts from Internal Revenue Service (11/21/14), here.  Excerpts (Bold-face by JAT):
Credit Suisse AG was sentenced today for conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS).  Credit Suisse pleaded guilty to conspiracy on May 19. * * * * 
At sentencing in the U.S. District Court for the Eastern District of Virginia, U.S. District Chief Judge Rebecca Beach Smith entered judgment and conviction and a restitution order requiring Credit Suisse to pay approximately $1.8 billion dollars to the United States by Nov. 28, per the plea agreement.  Credit Suisse will pay the Justice Department’s Crime Victims Fund, through the District Court Clerk’s Office for the Eastern District of Virginia, a fine of approximately $1.136 billion and will pay the IRS $666.5 million in restitution.  The parties agreed that Credit Suisse cannot challenge the restitution amount, which can also provide a basis for an IRS civil tax assessment.
 * * * * 
The plea agreement, along with agreements made with state and federal agencies, provides that Credit Suisse will pay a total of approximately $2.6 billion—approximately $1.8 billion in a criminal fine and restitution, $100 million to the Federal Reserve and $715 million to the New York State Department of Financial Services.  Earlier this year, Credit Suisse negotiated cease and desist orders with the Federal Reserve and the state of New York requiring the bank to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations in addition to the civil penalties.  Credit Suisse also paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.  Together, these actions by U.S. law enforcement and state and federal partners appropriately punish Credit Suisse for its past behavior in these matters.
As part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.
According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including by: 
  • Assisting clients in using sham entities to hide undeclared accounts;
  • Soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;
  • Failing to maintain records in the United States related to the accounts;
  • Destroying account records sent to the United States for client review;
  • Using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts;
  • Facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;
  • Structuring transfers of funds to evade currency transaction reporting requirements; and
  • Providing offshore credit and debit cards to repatriate funds in the undeclared accounts.
As part of the plea agreement, Credit Suisse further agreed to make a complete disclosure of its cross-border activities, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed and to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.  Credit Suisse has also agreed to implement programs to ensure its compliance with U.S. laws, including its reporting obligations under the Foreign Account Tax Compliance Act and relevant tax treaties, in all its current and future dealings with U.S. customers. 
On December 5, two former employees of a Credit Suisse subsidiary will be sentenced for their involvement in assisting U.S. customers to evade their taxes.  On March 12, Andreas Bachmann, a former banker at Credit Suisse Fides pleaded guilty to a superseding indictment in connection with his work as a banker at Credit Suisse Fides.  On April 30, Josef Dörig, a former Credit Suisse Fides employee and owner/operator of a trust company, pleaded guilty to conspiring to defraud the IRS in connection with his role managing offshore entities used by U.S. taxpayers to conceal their accounts at Credit Suisse.  The pleas were accepted by U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia.  Bachmann and Dörig each face a statutory maximum sentence of five years in prison.
JAT Comments:

1. I did not include in the excerpts the claims that CS had been held "fully accountable  for helping U.S. taxpayers engage in tax evasion” and that CS has been held "responsible for its decades-long pervasive conduct of aiding U.S. taxpayers in the commission of tax crimes."  I suspect that it is only crimes in that category that may not yet be known or full understood by DOJ.  And, of course, if it is full recompense for CS decades-long behavior is not likely (considering the time value of money and appropriate interest factoring).  CS certainly got a very good deal (that's why CS agreed to it via plea.)  These events are just costs of doing business for Swiss banks.

2. The quote above includes:  "The parties agreed that Credit Suisse cannot challenge the restitution amount, which can also provide a basis for an IRS civil tax assessment."  What assessment?  Maybe readers can help me with this.  The taxes evaded are the U.S. taxpayer's taxes; that portion of the restitution must relate to U.S. taxpayer's taxes.  But I don't think that the relative new statute permitting immediate tax assessment can apply to assessing the tax liabilities of the U.S. taxpayer's taxes.  And, if so, do the U.S. taxpayers then have cancellation of indebtness income.  And, on and on and on (such as the effect of the statute of limitations on the U.S. taxpayers for assessment and cancellation of indebtedness income)?  I hope readers will comment on these issues and, if so, spur me to write separately on them.

49 comments:

  1. Do I understand this post correctly when Jack and you are suggesting that for example when a CS customer who is a USP gets audited (Title 26 and 31) in 2015 for the last 3 years that with regards to his "offshore" accounts there would be a cancellation of debt/penalties and the IRS would not expect the US taxpayer to make a double payment ? What would be the legal basis or precedence for such a position ?

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  2. Jack has been getting for the last 3 years an ear full of criticism about the US hypocrisy which he for the most part has ignored. I have to laugh that the first tizzy weeny sign that the US shows a reaction towards the international pressure Jack posts about it. He really is a loyal democrat but you are absolutely correct when you write wee will see whether the US walks the walk or just talks the talk.

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  3. The reason they allowed you to transition and accepted your transition is that they had nothing to gain, by dragging things out. If you had a couple million overseas the outcome would have been different. I bet you that if you presented the very same transition letter but doubled the numbers you would have been rejected. This is a numbers game and revenue grab. My facts are about the same, and I have lived in the USA for only 5 years, not 20 like you. I also never left my money in my offshore accounts, I moved all my money to the USA and closed my accounts 1 year after I got my green card. It was because I had a large amount of cash still in my accounts when I got my green card that created my problem, and of course my rented house in the Cayman Islands.. I am glad you made it through, and thanks for telling your story. I think there is movie script somewhere in Jack's blog. An R rated Horror!!!

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  4. Guest you raise some good questions and depending on the answer could have some real impact on some USP CS account holders .

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  5. I have never heard before a cancellation of debt/penalties or read about that a guilty plea had provided some kind of basis for later IRS civil tax assessments.

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  6. I think it is understandable that he ignored it since there is not much he can say to defend the US hypocrisy of fake or lack of reciprocity and US tax havens like DELAWARE, NEVADA.

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  7. Democrats Abroad continue to twist themselves in knots rationalizing
    support for FATCA with all its attendant costs and harms for the rest of
    the world – while disingenuously explaining away why lack of
    reciprocity isn’t actually robust evidence of rampant US hypocrisy and
    arrogance. Now they are laying ground to explain away the lack of US
    participation in the OECD Common Reporting. Which of course the US
    Treasury touted FATCA as precursor for (and pretends that everyone in
    the world wants to emulate). Laughably, they are now pretending that it
    is only the Republicans which are the obstacle to the US signing up to
    the CR, not that the domestic US banking lobby would mount resistance,
    or that Obama might not even have the authority to bind the US to it.
    See the chosen angle the DA is floating for expat and public
    consumption:

    Democrats Abroad:

    ……..”What’s up with US non-participation?

    For
    a long time many suspected that reciprocity would be FATCA’s undoing.
    That is, though the US government had no hesitation in imposing FATCA on
    the rest of the world, many believed the US would be loathe to impose
    reciprocal obligations on US banks and brokerage houses to likewise
    report to other governments on the US accounts of their taxpayers. Is
    non-participation in the OECD CRS the anticipated breakdown in
    reciprocity? Perhaps not.

    There
    are some seven or eight steps international treaties must take in order
    to be ratified under US law. It is a straightforward, but a lengthy
    process. It is possible that the US is missing from the group of
    nations acting as signatories to the CRS because the agreement to
    automatic tax information exchange is still going through the
    ratification process. Given the aversion the GOP has had to the US
    FATCA it is not hard to imagine their utter refusal to commit the US to a
    global FATCA. Now that the Republicans control the US Senate
    ratification of the OECD CRS looks like a very low probability.

    Be
    that as it may, a Republican-led effort to repeal US FATCA would look
    particularly retrograde in a world making an ever-greater commitment to
    financial account and tax transparency.” dated November 2014

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  8. Hi MeHere,
    going through your explanation above, it seems like my situation is very very similar to yours. I currently spend hours on end going through all the blogs, and I'm also terrified. Any chance I can get more infos on your final explanation how you made it into streamlined?

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  9. Mehere: did you apply for the streamlined program on your own or was this brought to your attention by the IRS agent, I.e. if you went through OVDP/OVDI?

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  10. Thanks for sharing your experience.
    I would guess that the reasoning behind 5% penalty for SDOP and 0% for SFOP is that someone residing abroad has an excellent reason for having accounts outside the US, and this would make it more difficult for the IRS to prove wilfulness.

    But I do understand your point; there can be plenty of people residing outside the US who know about the requirements but haven't filed FBARs because they believe the IRS can't reach them, or won't try to reach them.

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  11. OptedOut, I was in OVDI/OVDP and I had already received an 906. Like for many others in this blog there was mistakes in the 906 that I was fixing with the IRS agent. Once that done (well it was still not accurate but close enough that I gave up to avoid to annoy the IRS agent even if I think I was right) I was in the process of asking for opting out when the SDOP and associated transition program was announced. At that time I had already stopped reading this blog so I did not see it coming. The new program was brought to my attention by my CPA. I then went back to this blog and after reading lots of posts on the announcement I decided to try the transition path rather than risking the opt-out path. I also asked for a bit more time to decide since a new program was announced.

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  12. OVDPvictim, is my answer to OptedOut answers what you asked? I was told on the phone that I'll receive a 906 to complete the OVDP program but with the 5% penalty instead of the initial OVDP penalty.

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  13. Hi All, with regards my previous posting on DC and DB pensions being included in SDOP 5% penalty, i have tried to negotiate with TA and feel i have been left no where to go but include DCs in penalty calculation, as i have no factual evidence. He keeps saying that regardless of them being dormant, no income etc, they have a value and should have definitely been reported in 8938 and possibly FBAR. regardless these weren't reported and on that basis should be included in 5% penalty. I feel i have no where to turn on this and this will cost be a lot more in penalty than i bargained for…if you have any factual evidence or cases that were used to exclude deferred contribution pensions for SDOP 5% penalty i would appreciate it. I know one contact on this forum i read before somewhere was also having a similar issue and will try to find their details to understand what route they ended up taking and what logic they and their agent took to exclude the DC pensions for the penalty? Thanks again for all the great work in help people like myself who have been clueless to such things until now.

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  14. NeedUrgentHelp -- see this thread and posts by:
    Guest Esq --> Carter a month ago
    Stewart Patton --> Carter a month ago
    http://federaltaxcrimes.blogspot.com/2014/10/chuck-rettig-article-on-certification.html#disqus_thread

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  15. in the 5% SDOP penalty base should be accounts included that were non tax compliant .
    A dormant foreign pension plan - with no tax non-compliance - should not be part of a penalty base.

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  16. I’ve been in the US for 18 years, left I several accounts in
    my native country with money I had earned when I was living there. No withdrawals, just interest and dividend properly taxed in host country. Still had average taxes loses of 2k USD total across several accounts, which are amended now within OVDP. Hoping to get into streamlined and hoping to get some info on argumentation that worked to state 'non-wilfullness'. 27.5% would feel like a unjust devastating loss for my life-savings.

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  17. One consolidated check for all years of tax+interest+5% penalty(highest account value).

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  18. 1. Do I understand correctly that I don't need to include my EPF retirement funds, in SDOP 5% penalty base?
    2. Do I need to declare it in FBAR and 1040 filings?
    3. If #2 is yes, i didn't do so in my 2013 filings. Does it mean i need to amend 2013 filings?


    Regarding the retirement funds, it came about because I worked in Malaysia (my native country) before. In Malaysia, the employee and employer contribute to a compulsory national retirement fund called Employee Provident Fund (EPF). EPF is something like 401K except members do not have any access to their EPF account and have no part in deciding what to invest the fund in.

    EPF is managed by the Malaysian government agency under the Ministry of Finance.
    http://www.kwsp.gov.my/portal/...
    http://www.pensionfundsonline....

    After working for a few years in Malaysia, I went back to graduate school in Malaysia. After graduate school, I came to the US. And I've been working in the US ever since.

    I've not contributed to EPF since graduate school. I cannot withdraw from EPF until 50 years
    old (30%) and the rest at 55. I can also choose not to withdraw... which I'm planning to do because the EPF interest rate is better than banks. Also i don't have all that much, about $45K.

    Thanks.
    p.s. Thank you Blackseal1234 and Anonymous.

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  19. Thanks for the information. Do you know how do we have to file for State tax?. Does this require separate check for each year?. My bank also deducted some Tax for those interest. I am not sure how I can take advantage of those tax paid as Foreign tax credit given that complexity in understanding the policy surrounding that.

    ReplyDelete
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  26. I am looking for some feedback from opt outs, that requested refunds for the taxes they paid within the OVDP for closed years. Jack mentioned that he was pursuing few refunds for his clients, and Anon5% said she got about 40K back.Anyone else out there that managed to get the IRS to give them back money, without having to take them to tax court.?

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  27. In my state the state tax is based in the federal return AGI (adjusted gross income.) When filing an amended state return, a check for back taxes and interest is sent with each return, so separate checks. To avoid mixups of checks posted to the wrong year I mailed each state tax return separately, and waited a couple of days between mailing each return (not all at the same time.)
    Am curious about the question someone else asked: under OVDI is the IRS considering the returns back to 2003 (8 years back) amended or just taking the payment for those returns without actually making a final determination on the amended returns. This would affect how far back I have to amend state returns.

    ReplyDelete
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  29. OVDPvictim, in my simplistic view and maybe wrong view it is
    for you to judge, I think the non-willfulness will be assumed by the IRS if the
    accounts you have are legit, e.g. you had them before coming to the US in a
    country you used to work in. Now it is likely not enough but if you have not
    done anything fancy to keep them, anything fancy to hide them, anything fancy
    to fund them, etc., that would show willfulness to evade taxes, I think you’ll
    get the benefit of the doubt. I do not know the details about all the cases in
    court that have been discussed in this blog (that’s a lot to read, analyze,
    understand, etc. and I am not a lawyer) But what I see, is that it seems quite difficult
    for the IRS to prove willfulness legally in a (criminal) court. And for the
    civil part you can still bring them to court to contest the penalty so I would
    think they would not risk it unless they are really sure they can win. Being
    under OVDP you would still have the option to optout if your request would be denied. I think they would rather
    get the 5% penalty rather than going for more work with also some uncertainty
    for them on how much they will collect. After all they do not have infinite resource
    either to pursue all the cases, and worse we all pay for that ... If I were
    them I would only stop a streamlined request only if there are some really bad
    facts since it looks like it is so much trouble to go to court. But of course I
    am not in the IRS mind (the way the OVDP has been managed is in itself worrisome)
    nor do I see lots of cases like Jack or other lawyers to better understand what
    the IRS thinks. But I see negligence to be equivalent to non-willful and fraud
    to be similar to willful. Fraud generally involves fake documents, complex schemes
    to avoid tax, etc. But again it is my simplistic view. If you look at http://ovdioptingout.blogspot.com/,
    or JustMe’s case they both ended-up with a non-willful FBAR penalty. As many
    said everything remains driven by facts. Coming forward in OVDP is likely a
    good fact. Paying taxes in your home country is likely one even if others could
    argue that you did that because it was less taxes there. Sure, but I still
    think it is a good fact. The post from Milan in http://federaltaxcrimes.blogspot.com/2014/07/rumors-on-workings-of-streamlined.html
    (look for “Stack a list of the nonwillful”) was quite useful to me. Milan had
    also described some interesting cases but never posted the results or more
    details so … we won’t know.

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  30. Blackseal1234, you’re likely right that the amount may/can influence the outcome. It should not be but I agree it makes things much worse. Even though I was not in the million+ ranges based on everything else that I had read I was not that confident that it would be OK. On your specific case I would have not thought that selling a house bought 30 some years before being a US tax payer would trigger a US tax upon the sale once you’re a US tax payer. Not that it helps since apparently that’s the tax code, but I found that strange.

    ReplyDelete
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    ReplyDelete
  32. To all past opt out persons or lawyers that have represented opt outs. I am looking for some feedback from opt out persons, that requested refunds for the taxes and 20% accuracy penalty they paid within the OVDP for closed years. Jack mentioned that he was pursuing a few refunds for his clients, and Anon5% said she got about 40K back. Is there anyone else out there that managed to get the IRS to give them back money, without having to take them to tax court and how long did it take? I have asked my lawyers to file protective claims prior to expiry and to pursue refunds once I made the decision to opt out. My lawyers say they have yet to get the IRS to respond to requests for refunds for any of their clients that opted out. I am hoping that other opt outs have been successful and can share their success. If they have not been, I just don't want to waste more legal fees chasing dollars that the IRS will never give back, even though I filed he protective claims prior to the expiry of the SOL of 2 years from the time I paid the tax and penalties with qualified amended returns.

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  33. The IRS will give refunds if a protective claim was filed. I just had one where the refund was scheduled in the closing documents. The client hasn't gotten the cash yet, but will in due course.

    BTW, one agent told me that the law required that they have a claim for refund, but that a simple letter clearly stating the entitlement to the refund would do. I would suggest though that a formal claim for refund be filed.

    Best,

    Jack Townsend

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  34. Regarding SDOP 5% penalty base and retirement funds:
    Do I understand correctly that I don't need to include retirement funds, in SDOP 5% penalty base?
    Thanks.

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  35. Update on streamlined acceptance: For those of you still wondering: I finally applied for transition from OVDP to SDOP. My acceptance and new 906 arrived within a couple weeks. My 5% calculation accepted. My case was pretty mild I believe: small accounts in Spain where I am from, had been opened like 30 years ago with small balances, and signature authority in mother's accounts. Had a retirement account as well from a past employer 35 years ago. Very small rental income from a pretty humble condo. Accounts did not produce income (just checking accounts) and condo rental small. Paid taxes religiously in Spain on condo income. Did not know I was supposed to pay tax on it here. Total tax liability over the 8 OVDP years was $8K only.

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  36. 906 question: How long does it take for a 906 to be signed by the commissioner and delivered back to the taxpayer? I sent my 906 signed and accompanied by a check as per the 906 one month ago. Have not heard back. Check has been cashed.

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  37. Interesting question. My attorney said I should include retirement funds in the SDOP 5% calculation which I did. Those funds were 80% of my total in the highest year. IRS accepted it.

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  38. By the way, NeedGuidance, the retirements funds that I included in the 5% calculation were in my OVDP 27.5% calculation too of course. So I was a TRANSITION not a straight SDOP. I do not know if that makes any difference.

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  39. As far as I know that Canadian Retirement plan AKA RRSP (similar to 401K here) does not have to be included. There is a treaty between US/Canada on that matter (that we can elect deferral tax upon retirement cashing out). You should look into any treaty between US/Spain on that matter.

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  40. The question is if or not your gain/income from your retirement account is considered taxable income. If so, then it is no different than non retirement account from IRS's point of view. Some state like California even does not follow IRS -- it considers RRSP (Canadian Retirement plan) gain as taxable income.

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  41. Not sure what "deliberate evasion of foreign residence country income tax is a negative factor" is referring to. Can anybody give an example of what this would be referring to?

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  42. It means someone residing outside the US who is not only not paying US taxes but also deliberately evading taxes in his country of residence. One way to do this would be to claim not to be a resident of that country.

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  43. My check was cashed within 2-3 days of receipt. Took 3-4 months to get the signed 906. It is actually not signed by the commissioner, but signed on his behalf by two agents and one supervisor (I hadnot dealt with any of these people.) Each apparently needs to review the case file and approve the penalty before signing, which is why it takes so song.

    Even after you get the signed 906, it's not over. A few months after that I got bills for every year except one (back taxes etc. had been applied to only one year. ) After that was resolved, I got a very small check saying the interest had been recalculated. The calculations however claim that they paid me about two times interest as the check I got, so I expect that when I get a 1099-G, I will have to pay income tax on twice the interest I got back. Not big enough to bother straightening it out, but that's how the IRS works.

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  44. so i guess the opposite could be considered a negative factor as well. someone who is claiming to be a resident of a country and paying taxes in that foreign country as a resident, when they are really residing in the US.

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  45. Does anyone have an opinion on the following. As part of the FBAR audit on opt out our IRS agent has asked for a meeting in Florida. We live in New Hampshire. Can they really make you fly to Florida and undertake the expense?

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  46. Blackseal1234,

    I have never heard of the IRS forcing long distance travel for an interview in the OVDP process.All of my opt out audits have been by telephone. So, I think you should resist the in person audit or gently nudge them to come to New Hampshire for the audit.

    I am not aware of any legal authority that would give the IRS power to insist upon such travel. Still, of course, perhaps implicit is a threat that failure to cooperate by undertaking the travel could be considered negatively in the results of the audit. I think that would be inappropriate, and doubt that the IRS would ever make that type of threat explicit.

    I hope others will respond as well.

    Jack Townsend

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  47. I transitioned into Streamline. Did not have a formal interview, probably because I had talked a lot with the agent and manager on the phone when considering opt-out (prior to Streamline being announced.) The office handling my case was about 1,000 miles away. But if I had to do it again, I would have seriously considered flying at my own expense to meet with the agent, manager, tech advisor. My thinking is that in the course of an in person meeting facial expressions might have given me a hint as to whether I should opt out -- you miss out on body language on the phone. I was also handling things myself so the expense would have been only out of pocket costs plus value of my time. But value of lost time might be huge if you're a doctor, for example. If you take your lawyer along, you're paying for maybe two eight-hour days, so it's a huge expense.

    There are pluses and minuses to phone vs. in person as well as pro se vs. having a lawyer.

    To answer another question, Blackseal1234, the refund for closed year taxes on optout should be automatic, though it might take a few months. Other than a 5-minute call to nudge the IRS there should be no legal costs involved in getting that.

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  48. Thanks Jack. I invite anyone who has been through a FBAR audit interview either in person or over the phone to share the questions they were asked.

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