tag:blogger.com,1999:blog-1519969502186924526.post5937543814971972311..comments2023-10-24T08:00:53.865-05:00Comments on Federal Tax Crimes: OVDI 2011 FAQ 52 5% In Lieu of Penalty Experience (5/20/11)Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.comBlogger58125tag:blogger.com,1999:blog-1519969502186924526.post-36987552425845296242012-12-26T09:07:55.577-06:002012-12-26T09:07:55.577-06:00Apparently many people are already informed about ...Apparently many people are already informed about these methods and obviously some of us account holders or owners had some questions and maybe there are more questions to be ask in the near future for further understanding.<br /><br /><a href="http://www.simpleonlinebusinessreviews.com/home-income-cash-system-kit-review-scam/" rel="nofollow">http://homeincomecashsystem.com</a>HomeIncomeSystemnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-66768832640262034852012-02-29T12:41:34.961-06:002012-02-29T12:41:34.961-06:00HSBC provided Indian client information to US?
h...HSBC provided Indian client information to US? <br /><br />http://indiancpa.us/2012/01/18/recent-updates-unreported-foreign-bank-accounts-assets-and-income-%E2%80%93-fbar-non-compliances-2011-ovdi/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-73737933586076280682011-11-26T15:12:31.914-06:002011-11-26T15:12:31.914-06:00I am curious what to do about an asset (no income)...I am curious what to do about an asset (no income) situation as follows:<br />A family LLC opened and owns a gold pool account in Canada. Each year the account is duly listed as an asset in the balance sheet of the LLC filed on the 1065. There has been no income as the pool account transaction was limited to purchase.<br /><br />What is the risk of non-filing penalty if voluntarily file late returns now (Nov 2011). Is it routinely waived if there was no income generated and the asset was being reported.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-17069018167243788072011-08-22T16:40:10.548-05:002011-08-22T16:40:10.548-05:00Does anyone know what led to introduction of FAQ 5...Does anyone know what led to introduction of FAQ 52? Was there a lot of follow up by the expat community? It is very reassurng to see this FAQ as it shows IRS is making important changes to the program where required. Now, if they would introduce similar relief for the immigrant community too. Something on lines of FAQ 52, #3 would be a huge help....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-679169291604929842011-08-22T16:24:58.881-05:002011-08-22T16:24:58.881-05:00Can anyone explain what is the difference between ...Can anyone explain what is the difference between example 1 & 2 of FAQ 52>#3. Why the stock value is included in penalty base in example 1 and excluded in example 2?? If there were stock options from the employer, would example 1 apply or example 2??Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-52813928546610317152011-08-21T14:09:19.924-05:002011-08-21T14:09:19.924-05:00Isn't canada's rate slightly lower than US...Isn't canada's rate slightly lower than US generally ? If so, there would be some tax due on most accounts.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-53254027042296194512011-08-20T17:21:22.382-05:002011-08-20T17:21:22.382-05:00Minnow caught in a Whale trap,
OVID is to get tho...Minnow caught in a Whale trap,<br /><br />OVID is to get those who hide assests offshore (according to IRS), now some people may not intend to hide (just happen to keep some money offshore and "forget" to report. The common sense is that people do hide money --they often use entity, and it is a lot money. Who would be so stupid to hide 10% or 5% of his/her all assests offshore ? Also who is so stupid to keep money offshore while paying high tax there ? All these are comon sense, but the law does not really treat these case differently (unless IRS uses common sense as well), but anyway, OVID is indeed for all those who have money offhosre.<br /><br />Your case is different in a sense, you are also offshore person, and you certanly do not hide money offshore (rather, if you keep money in US --that would be considered offshore)..<br /><br />If you are not super-rich in Canada, even if you file US return you may not owe any tax after using Canada tax credit, then you may just consider file for last 6 years along with FBAR. <br /><br />here a link <br /><br />http://forums.serbinski.com/viewtopic.php?t=4844&postdays=0&postorder=asc&start=0<br /><br />someone did file quietly 5 years catch up return/FBAR in 2009, and then did this time for 2010. He/she seems still oaky.. My guess is that IRS won't bother go after someone who has little fat they can rip off. It may even cause some bad PR for IRS if they do.<br /><br />i am not a pro, just common sense.ijhttp://ij.orgnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-78313654547561916412011-08-20T12:25:53.538-05:002011-08-20T12:25:53.538-05:00I wasn't born in the US (born and raised in Au...I wasn't born in the US (born and raised in Australia - migrated to Canada 13 years ago), have never lived there other than 4 months when I went to a high school as an exchange student when I was 14, and I don't even have a Social Security number. I have a US passport because my parents arranged one for me when I went to school there (when you didn't need a SS#) and I've just kept it current. Now I'm told I have to participate in the OVDI. My question is, am I hopefully one of the 5%'ers? I don't have any US accounts, I live in Canada and file my taxes every year. Is the OVDI for me? I have a week to figure this mess out! This is a nightmare my poor father never thought he'd be inflicting me with by making me a US citizen through "Birth Abroad". <br /><br />Sincerely,<br />Minnow caught in a Whale trapAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-8656730878282743232011-08-09T13:39:43.078-05:002011-08-09T13:39:43.078-05:00In response to July 28, 2011 1:01PM:
I am in the ...In response to July 28, 2011 1:01PM:<br /><br />I am in the Cayman Islands and have wondered the very same thing. I am going through the OVDI and, along with legal advice I have taken, interpret the section to include Cayman residents as the wording clearly states that the individual has complied with the tax reporting and payment requirements in the country - (Actual section: (b) taxpayer has made a good faith showing that he or she has timely complied with all tax reporting and payment requirements in the country of residency).<br />Since Cayman has no direct taxation, there would be a hard case to prove the person was NOT compliant!!!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-6710366280792769712011-08-09T13:35:26.560-05:002011-08-09T13:35:26.560-05:00Jack - you included the first 2 ways to qualify fo...Jack - you included the first 2 ways to qualify for the 5%, but not the third:<br /><br />Taxpayers who are foreign residents and who meet all three of the following conditions for all of the years of their voluntary disclosure: (a) taxpayer resides in a foreign country; (b) taxpayer has made a good faith showing that he or she has timely complied with all tax reporting and payment requirements in the country of residency; and (c) taxpayer has $10,000 or less of U.S. source income each year. For these taxpayers only, the offshore penalty will not apply to non-financial assets, such as real property, business interests, or artworks, purchased with funds for which the taxpayer can establish that all applicable taxes have been paid, either in the U.S. or in the country of residence. This exception only applies if the income tax returns filed with the foreign tax authority included the offshore-related taxable income that was not reported on the U.S. tax return.<br /><br />In my case, I fit all of the guidelines of the third - overseas resident (never lived or worked in US, in fact), fully compliant (in a tax free jurisdiction, but fully within the laws), but I am hit with the third requisite - less than $10,000 US source income.<br />How? I had the confidence as an overseas American to invest in strong US companies that paid dividends. This counts as US source income, and thus takes me back up from 5% to 25%!!!<br />I am completely flabergasted by this!!! All it has taught me is to invest in other countries!! Surely this could have been fine-tuned. I am sure they are going after wealthy Americans living abroad off US income, but I am a hard working individual who makes good money off dividends. I would suggest a fairer way to have done this would have been to put the level of US source income as a percentage of actual income. Yes I made over $10,000 in dividends, but it is less than 25% of my income for the year, so why not recognize hard working Americans abroad who believe in America and invest in America???<br />At the end of the day, I would have been happy to still pay a 5% penalty - I was not in full compliance with US FBAR laws. But 25% just because I invested in the US?<br />FYI, in the last few weeks I have divested a lot of my US investments. Not only do I feel the Empire is crumbling and the above example is just one way they are trying to drive away investment - all be it inadvertently - but I feel the opportunities are far greater abroad in the coming years.<br />Isn't it ironic that the US Government is forcing overseas citizens to invest in places like China - places that promise to crush the US financially in the next decade?<br />This is just another example of a very poorly thought out and implemented law and the constitutionality of the FBAR penalty notwithstanding, has clearly NOT been studied from every angle.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-44801697011621985272011-07-28T13:01:05.297-05:002011-07-28T13:01:05.297-05:00Under FAQ 52.3, it outlines that foreign residents...Under FAQ 52.3, it outlines that foreign residents who meet the three conditions qualify for the reduced 5% FBAR penalty. It states that income tax returns filed with the foreign tax authority have to be provided. Do residents of non-tax countries such as the Cayman Islands qualify for this exception? <br /><br />Thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-40429162561861121412011-07-06T13:36:07.276-05:002011-07-06T13:36:07.276-05:00Hi All, Can anyone advise on how a loan account sh...Hi All, Can anyone advise on how a loan account should be reported as a part of OVDI. The loan was taken from a bank in which we had some fixed deposit accounts. The loan amount was made to one of our uncle's company (as a gift) as he needed the money. We took the loan because we didn't want to break our fixed deposit accounts during the term. We paid interest on the loan account and it was paid-off with the FD accounts after 2 years.<br /><br />ThanksAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-4497880398514250842011-07-04T15:37:59.578-05:002011-07-04T15:37:59.578-05:00I noticed that IRS had announced three changes to ...I noticed that IRS had announced three changes to 2011 OVDI. One of them is a reduced 5% penalty regime to certain citizens (Taxpayers who are foreign residents) if they meet three requirements (FAQ 52.3) My question is about the third requirement, in which the citizens “had $10,000 or less in US source income each year.” Does the $10,000 include US Social Security and company pensions?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-49904224638438327152011-06-08T15:31:58.572-05:002011-06-08T15:31:58.572-05:00In FAQ 52 what period of time is examined for comp...In FAQ 52 what period of time is examined for compliance? Is it limited to 2003 – 2008/2010?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-33999433491769068262011-05-29T08:28:55.169-05:002011-05-29T08:28:55.169-05:00Let me add my sobering experience with the infamou...Let me add my sobering experience with the infamous 2009 FAQ 35 if it is of any benefit to anyone considering the 5% rule.<br /><br />In Oct, 2009, I wrote Commission Shulman to express concern that the OVDI penalty was disproportionate for expats and immigrant "Minnows”. We were not the Big Whale tax cheats trying to hide unreported funds in overseas secret accounts. If you remember, with all the UBS fervor, this is how the program was marketed in all press accounts. <br /><br />I feared that Minnows, were by-product catch of a finely woven net designed for the UBS type Whales. We were entering a giant fish processing plant from which the Whales would emerge without any life altering financial consequences. The Minnows on the other hand, would be ground up and spit out as fertilizer. I hoped I was being hyperbolic at the time. Actually, I may have understated the reality.<br /><br />I received a reply on April 1, 2010 from a Kevin McCarthy, Acting Director, Fraud/BSA Small Business/Self-Employed Division. He politely talked about the needs for fairness and compliance, and described the salient objectives of the program. He separately and specifically restated FAQ35 that “under no circumstances must a taxpayer pay a penalty greater than what he or she would otherwise be liable for under existing statutes.” It was that language that gave a lot of us hope that some discretion would actually apply for Minnows. <br /><br />Due to IRS delays, it took a year and 1/2 to get my OVDI penalty outcome. I received my form 906 in early March 2011. It was the shock of my life when they included the value of my home, where I am living overseas, in my highest aggregate total.<br /><br />The reason they gave, was that since it had some causal holiday rental income (even without substantive tax impacts), it still put me in the technical category that allowed them to asses the penalty. I guess any income even minor amounts give them the opportunity to reach deeper into your pockets. It doubled my OVDI penalty. Ouch!<br /><br />IRS Agent, to her credit, was sympathetic to my cries of pain. She openly admits this program was not designed for me, and tried twice with her technical advisor to get it removed, but to no avail. No discretion, you know!<br /><br />I subsequently asked for FAQ 35 consideration, but agent says she is unable to, as it was rescinded in Feb, but she can't produce anything in writing that says that. I see all the comments around the web that it is so, but I don't see it specifically spelled out, and on the IRS web site, FAQ 35 for 2009 OVDI is still there.<br /><br />Oh, and btw, now that the statute of limitations is running out for 2004 FBARs, she was instructed to provide friendly information that if I don’t sign an extension, the IRS could extract the 2004 FBAR penalties immediately. Is that a threat? Can they do that? I guess, they can do whatever they bloody well please! <br /><br />I think the IRS has lost the plot on its one size fits all OVDI fairness rules. What can one do? Pray for a miracle? Pay up and be happy as the last drop of fish oil is squeezed from your carcass?<br /><br />Or, … do I dive into the opaque Opt Out pool without knowing what crocodiles might lurk there? Agent now says they do not have instructions on how to process those exit requests. I cynically think they are probably busily changing the rules again, and removing the discretion that the IRM 4.26.16.4 expects agents to apply. <br /><br />All in all, I think the OVDI for the target Whales, is a great deal. For the small Minnows who realized their failures, the OVDI was a “catch 22” operation, a weapon of mass financial destruction with no viable exit. It is just plainly punitive in application, confiscatory in practice, and not positively corrective in its compliance objective. I wonder, was that the intent of Congress when it originally passed the FBAR statutes? <br /><br />Well, someone has to pay for GE’s offshore earnings exceptions, I guess. And you ask me to pay up be thankful that I am not being prosecuted? Boy that is hard ask. :) Fertilizer, anyone?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-91915091642449292432011-05-24T15:58:00.323-05:002011-05-24T15:58:00.323-05:00Correction - What is your view on estate taxes? FA...Correction - What is your view on estate taxes? FAQ 52 Item 1. Example 1 - taxpayer inherited two offshore accounts … never reported earnings on the accounts on his U.S. tax returns and he never filed an FBAR.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-23856526280067443772011-05-24T14:30:34.213-05:002011-05-24T14:30:34.213-05:00My understanding is that FAQ 35 was revoked if the...My understanding is that FAQ 35 was revoked if the person in OVDP 2009 had not mentioned this possibility to the agent before Feb 2011.<br /><br />I don't know if there was any existing case where FAQ 35 was withdrawn if it had been asserted earlier than Feb 2011.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-31259405494012930362011-05-24T13:52:36.037-05:002011-05-24T13:52:36.037-05:00Asher If you enter 2009 OVDP and have not closed ...Asher If you enter 2009 OVDP and have not closed yet then FAQ 35 is not available? When and how did IRS rescind FAQ 35? <br />Does last paragraph of FAQ 52 mean that the 2011 OVDI FAQ 52 criteria are to be used to qualify for 5%? 2009 OVDI also had 5% conditions that were not as narrowly defined; still valid? <br />http://www.irs.gov/pub/newsroom/memorandum_authorizing_penalty_framework.pdf <br /><br />Case background: Deceased taxpayer held non-compliant foreign account in his name from before 1991, upon death estate was held in US trust which was non-compliant for over 1 year while account ownership was transferred to US trust then estate entered 2009 OVDP and then repatriated to US. <br />During the time estate held account – not withdrawals, not meeting bankers, no changes to account management (hold mail, investments) <br /><br />In your case of elderly woman; how long did she hold the non-compliant account? FAQ 52 Item 1 - does not say how many years account can be non-compliant and still qualify. <br /><br />What is your view on estate taxes? FAQ 5 implies that no estate returns were filed and no US estate taxes were paid.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-36114942453428647552011-05-24T11:49:53.053-05:002011-05-24T11:49:53.053-05:00Mr. Rubinstein
Thank you for your very interestin...Mr. Rubinstein<br /><br />Thank you for your very interesting comments. <br /><br />Without knowing the details of the case, I admit that if I had been an IRS agent, I would have been skeptical of the 2nd case you cite -- that someone with an account size > 5 million would be unaware of not just FBAR reporting (which is believable) but also the requirement to report worlwide income and tick the box on schedule B indicating a foreign account <br /><br /><br />Again, without being fully acquainted with the facts of the case, I will say that someone who was willing to pay up $1M rather than undergo a full audit and litigation expenses (which I doubt would be anywhere near 1M) --- well, I would wonder if there were other sleeping dogs that the taxpayer did not want to awaken ...<br /><br />It would be totally different if the IRS had threatened possible criminal prosecution -- clearly that would be a potent threat.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-51576785635886615012011-05-24T11:45:03.659-05:002011-05-24T11:45:03.659-05:00Like I posted earlier. Its basically a bait and sw...Like I posted earlier. Its basically a bait and switch tactic to suck in more hopeful OVDI applicants. Once you are in the only way out is to close through OVDI or opt out. Either way IRS will extract its pounds of flesh. The question becomes which way will hurt the least. A quiet disclosure tries to circumvent these choices. Thats why IRS is totally down on them. If IRS posted more detailed information on disqualifying 5% applicants, it may serve to discourage people from joining. This is basic bait and switch strategy based on presenting an attractive outcome that likely will not be available in reality. Thats why I say budget for the worst, argue for the best based on fact but due something to become compliant because time is short. The IRS has figured it out and FATCA is looming.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-70887541553589397432011-05-24T10:42:51.439-05:002011-05-24T10:42:51.439-05:004. As to the "bait and switch" comments...4. As to the "bait and switch" comments, I was very surprised that the IRS rescinded FAQ 35 after the announcement of the 2011 OVDI, even to taxpayers who disclosed under the 2009 OVDP. Taxpayers who disclosed under the 2009 OVDP, did so on the basis of the applicability of FAQ 35 (as well as any and all other guidance issued by the IRS with respect to the 2009 OVDP). One must question whether subsequently, and retroactively, denying such taxpayers the opportunity to benefit from FAQ 35 is in fact a "bait and switch". One must also question whether such a policy violates legal precedent which prohibits the IRS from issuing rules and setting policies on a retroactive basis.Asher Rubinsteinhttp://www.assetlawyer.comnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-90200776631711106502011-05-24T10:22:15.795-05:002011-05-24T10:22:15.795-05:003. SelfHelp on May 20 at 11:22 wrote "I doub...3. SelfHelp on May 20 at 11:22 wrote "I doubt IRS would go back and penalize dead parent." <br /><br />I do not know the facts of that case, but I have represented various estates as applicants in the OVDP and OVDI. In other words, if a deceased taxpayer had a non-compliant foreign account during his/her life, the non-compliance does not disappear at the death of the taxpayer. The IRS will, in fact, impose penalties not against the "dead parent", but against the estate of the deceased. Thus, estates of deceased taxpayers enter the OVDP/OVDI.Asher Rubinsteinhttp://www.assetlawyer.comnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-33645112990718276822011-05-24T10:15:10.707-05:002011-05-24T10:15:10.707-05:002. Anonymous on May 20 at 10:32 asked about appea...2. Anonymous on May 20 at 10:32 asked about appeals. Anonymous correctly notes that an appeal would cost the taxpayer money, time and a lot more hassle.<br /><br />I had an OVDP case where the IRS was clearly over-reaching because of the amount involved. In that case, the 20% penalty alone was over $1 million, and the IRS did not want to let that amount go. But the facts were excellent for a reduced non-willful penalty of up to $10,000 per year; FAQ 35 was still in effect at the time. <br /><br />One strategy would have been to reject the $1M+ penalty, submit to a full audit, and then recourse via appeals and even litigation. On that last point, we felt that there was little chance that a court would find willful tax avoidance. We felt that there was a good chance that a court would find against the IRS based on the facts. But an appeal and litigation would have cost taxpayer more time, money and aggravation, and although the chances were good, there is no guarantee in litigation. Moreover, a full audit might have turned up other headaches. Taxpayer paid the $1M+ penalty rather than challenge the IRS, even though the facts were on taxpayer's side.Asher Rubinsteinhttp://www.assetlawyer.comnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-46604242894856431492011-05-24T10:03:09.506-05:002011-05-24T10:03:09.506-05:00Vibrant thread! Sorry I am late to the discussion...Vibrant thread! Sorry I am late to the discussion. A few thoughts:<br /><br />1. Jack asked about experience regarding the reduced penalty. My experience is that the IRS will find any reason not to apply it. As just one example (out of many), an elderly US taxpayer inherited funds from a Non Resident Alien (NRA). US taxpayer took no distributions from the account. US taxpayer had minimal contacts, if any, with the foreign account. <br />Inherited account, minimal contacts, no withdrawals . . . sounds like a good 5% case, right? And inheritance from an NRA isn't even taxable! <br /><br />Not so fast! First, the IRS noted that there was nothing in writing from the bank that the account had to be kept at the bank in order to facilitate the inheritance. In other words, according to the IRS, taxpayer therefore must have decided to keep the inherited account offshore. Put aside that OVDI FAQ 52(1)(a) does not mention a writing. The IRS is basically concluding that this elderly woman, rather than following the (verbal) instructions of the foreign bankers on how to get the inherited funds, determined to keep the funds offshore in order to commit tax fraud.<br /><br />The IRS also viewed the lack of written authorization for the bank to trade securities, as evidence that the taxpayer must have traded in the account herself, which would be violative of the "minimal contacts" requirements of the 5% penalty. I can only speculate that a written securities authorization signed by taxpayer would have led to an IRS conclusion that, like a "hold mail" authorization, would be violative of the 5% also. Taxpayer can't win, either way.<br /><br />My experience is that the IRS has been more receptive to an FAQ 35 argument than a 5% penalty request. I've had more success in getting the IRS to impose non-willful penalties of up to $10,000 per year, pursuant to 2009 OVDP FAQ 35, than going from 20% to 5% of the aggregate account balance under 2011 OVDI FAQ 52. Of course, that FAQ 35 non-willful penalty is now, under the 2011 OVDI, off the table. See my comment on this further below.Asher Rubinsteinhttp://www.assetlawyer.comnoreply@blogger.comtag:blogger.com,1999:blog-1519969502186924526.post-86543457503475095672011-05-24T05:54:10.091-05:002011-05-24T05:54:10.091-05:00If there was no taxes due (because it was below th...If there was no taxes due (because it was below the limit for estate tax in that year), or because it was a foreign estate, and the only violation was a reporting account, then it might not matter. Otherwise -- well, then it gets into a gray area. That holds for many offshore cases, not just the 5% case. <br /><br /><br />Owners of inherited accounts very likely willfully evaded taxes. Many people may not know about the obscure FBAR form, but just about everyone (especially with an estate large enough to trigger estate taxes) should know about estate taxes and returns. One could make a good argument that other cases (recent immigrants, Americans working abroad with no tax due because of foreign tax credits) deserve a break on the penalty as much, or even more.jonfhttp://www.mws.comnoreply@blogger.com