Friday, July 29, 2011

Indian American Groups Push for Foreign Account Relief (7/29/11)

There are reports that major Indian American community groups are lobbying the Secretary of the Treasury to bring relief to Indian Americans caught in the vise of the tax and FBAR rules and the OVDI 2011. I link to some articles below.  The Indian American U.S. taxpayer community seems to have been hit particularly hard because of a confluence of circumstances - including, but not limited to, their industrious as recent U.S. immigrants, their willingness to save, their love of their native country and relatives in the native country, their lack of knowledge of the scope of U.S. tax filing and related FBAR filing obligation, and their general desire to play by the rules.  Many in fact innocently underpaid their U.S. tax liabilities by not reporting relatively modest Indian accounts and failing to file the FBARs, yet feel that they inappropriately being punished disproportionately to their conduct by having to pay the 25% in lieu of penalty inside OVDI 2011. Having met with a number of these and having read still others' comments on the blogs, I do think that the IRS is being a bit harsh.  Perhaps the safety valve will be the opt out, provided that it is administered reasonably to make the punishment fit the crime.


Indian Americans seek relief from US tax rules for foreign accounts (The Times of India | U.S. Canada News 7/28/11).

Joseph Septimus, Indian-American Community Seeks Relief From Draconian FBAR Penalties (Yeshiva World 7/29/11).


  1. I don't see any way the IRS will waive the accuracy related penalty (20%), and indeed for smaller accounts, that is likely not a big deal. And totally waiving the 25% penalty is very unlikely too.

    However, I have commented here before that I think there should be some relief for newer immigrants (say, people who became US persons for the first time only in the last 6 years and maintained foreign accounts only in the countries they came from) akin to that for expats. A 5% FBAR penalty only on funds transferred from the US (not on any savings abroad in country or origin) strikes me as equitable.

  2. What proportion of immigrants on the receiving end of the IRS's "a bit harsh" treatment do we think are quietly preparing to pack up their belongings and leave the US for good?

    And what proportion of prospective new immigrants do we think might now be turning their backs on the US and instead going to other countries?

  3. Given that there is a 5-10 year or so backlog for many visa categories for immigration to the US (possibly even more for immigrants from India), I would guess the answer to the latter question is --- not too many.

  4. I am also in the same boat, came to USA in Dec 2003 from India and working here. I know most of us made this mistake unknowingly. Infact, I came know of this requirement before filing 2010 taxes back in April. Even now, most of the websites says conflicting info saying US citizens are required to file fbar, etc,. Asking IRS to remove penalty altogether is not a good thing. There has to be penalty so we learn from this exercise. Even now, many of my friends are not taking this seriously.

  5. I am also in the same boat, came to USA in Dec 2003 from India and working here. I know most of us made this mistake unknowingly. Infact, I came know of this requirement before filing 2010 taxes back in April. Even now, most of the websites says conflicting info saying US citizens are required to file fbar, etc,. Asking IRS to remove penalty altogether is not a good thing. There has to be penalty so we learn from this exercise. Even now, many of my friends are not taking this seriously.

  6. To Anonymous @ July 29, 2011 2:17 PM

    I agree with your suggestion.

    I have never transferred a penny to offshore accounts from the U.S. All my accounts were gifts from parents into accounts that cannot be converted to dollars currency. I am not even a permanent resident or U.S. citizen.

    Given the economic climate, there is so much uncertainty that I might have to pack my bags today and leave U.S.

    There are many immigrants (not really immigrants since we are temporary workers on non-immigrant visa..strange eh) who will suffer. But I guess that is the price we pay for not knowing law of the land.


    ------- PETITION on CHANGE.ORG ---------------

    Reduce unfair penalities in 2011 OVDI filings (FBAR)
    I just signed the following petition addressed to: IRS.

    Reduce unfair penalities in 2011 OVDI filings

    Unfair penalities are mainly affecting middle class immigrants who have accounts oversees and wants to come clean. The current penalities of 25% on accounts with aggregate balance over $75000 is unfair and is making a lot of immigrants not participate in the program. There is no cheating involved here, just the fact that they did not know about the obscure FBAR filing deadlines and tax implications.

    IRS 2011 Offshore Account Voluntary Disclosure is the last best chance for people who have offshore accounts, but did not know all the complicated rules on filing FBAR's yearly, to come forward and rectify the mistakes.

    Many immigrant taxpayers, for instance, inherited accounts established decades ago and were simply unaware of the FBAR requirement applicable to an account that they never even set up. To presume that such a taxpayer willfully disregarded his FBAR obligation is wrong and unfair.

    I encourage IRS to consider the following Immediately:


    2. Reduce the penalities so that more immigrants can come forward

    3. Increase the aggreate balance requirement from $75,000 to $150,000 for 12.5% penality from the current 25% penality

    4. EXTEND the FILING DEADLINE from Aug 31, 2011 to Dec 31 2011

    [Your name]

  8. I don't see why immigrants should declare what money they have left in their old country. I doubt that India requires expats from the US to declare what they have left in the US. (Or asks for a percent.)

    But I am from an European background. Perhaps Asians feel a greater need to comply with a government power.

    It is a shame what the US is doing. And blatantly unconstitutional too. It must contradict some takings amendment. I don't see how it can just take immigrants' money, which they have earned prior to coming.

  9. The IRS has made the dream of moving to America, once the freest country in the world, into a living tax nightmare. Can't they see that their application of the law is draconian, unjust and destructive? The two groups that have been inadvertently persecuted are the new immigrants to the US and US citizens living abroad. In each case the Voluntary Disclosure Programs have become a cash grab. But the small amount (except from the stand point of the victims) of cash that the IRS will be able to steal (and yes, that is the only appropriate word for what they are doing) will never fix the budget problems as they face multi-trillion dollar budget deficits. The United States federal government has become the most corrupt and profligate government in the world.

    Indian immigrants have become some of the best new contributors to America society and economy and India is a significant ally to the United States in Asia. It would be pity if the USA treats India immigrants so shamefully that they will be forced to return to India in order to preserve their wealth they have built up over the course of the generations. The IRS and the USA have no right to this money nor to the gains made from it. The USA has set itself up not as the benevolent leader of the free world but as the biggest bully.

  10. Folks, I urge you to act, by signing the online petition posted above. Its important to raise your voice and the only way is to collect signatures of protest and present it to concerned authorities.

  11. Sun: Yeah right. And become a target for the next IRS civil audit or FBAR fine? Well, I guess you won't want me to sign the petion since I recently relinquished my citizenship.

  12. Chinese, Japenese, EU associations should also join in these efforts. Penalties should be fair and equitable.

    Also, if FBAR laws were enacted in 1970, why did they not adjust reporting limit of $10k with inflation ? If this limit was adjusted for inflation, lot of people will just have to pay back taxes with interest and not FBAR penalty.

    I sound like a cry baby but as somebody said, this is really comparing J walkers with murders

  13. To be very honest, this entire FBAR, OVDI thing is a sham and probably unconstitutional as well. Here is a govt / IRS asking people who have 1040 reported income (W2 and business income - fully tax paid) to report once more on same money when that money goes abroad. When people here are arguing that govt cannot tell people to buy healthcare, how can can it possibly be ok to ask people to report tax paid money two times (first in Income Tax returns and then when it remains overseas) ?

    There is this feature in US constitution which restricts unreasonable or excessive punishment for a “crime”. Here we have double punishment, first in the form of 20% accuracy penalty on tax due, then 25% max on late payment followed by interest on the tax due. Finally there is this 10k per year per FBAR or 25% FBAR penalty over the above what has been asked to be paid for 1040. So this is double penalization for same thing and is very much in violation of US constitution. Tax due to US govt is understandably an amount for which we can be penalized. But not telling US govt where our own tax paid money was by itself cannot be something due to govt so why pay a penalty for it (see it in the light of the healthcare debate and the irony will be obvious) ? I am hoping some tax lawyers takes this up in future and argues that W2 money should be subtracted from the FBAR total and then 25% must be applied over it. This will then make it a genuine FBAR case to penalize.

    After all the aim of FBAR was to find money earned abroad and then penalize only that part of money which was illegally earned and not reported in US. W2 employees are getting caught unfortunately in this cross fire of incomplete definitions and poorly thought deterant value of FBAR. Even citizens outside US are not being spared the 5% penalty rate even if they have foreign income exclusion benefits.

    This combined with USCIS policies and turn around time just goes to show how immature things have become and why economists and venture capitalists tend to see the trend ahead of others and take their capital out of this economy at a faster pace ! They know all this is not going to make creative people happy in the end. Thats a loss of goodwill in the long run !
    People from Asia, Latin America, have already figured out this and are leaving by the thousands. The fact that the US wants to make the whole world part of its tax system by filing out FBAR will not work, this world wide income has to go and has to be based on American residency and income not world wide income.
    What was once a harmless and little known embarrassment to the United States now became an embarassment of a totally different sort: a constitutional threat of expropriation targeting millions of US ciitzens otherwise engaged in perfectly lawful conduct in the hopes of putting a financial squeeze on an abusive few.

  14. anon@August 1, 2011 4:58 PM

    "People from Asia, Latin America, have already figured out this and are leaving by the thousands.". Thats not what statistics on immigration and emigration indicate and there is also a massive 5-10 year backlog for most US immigrant visas.

    Also, the 20% accuracy penalty and the 25% late payment penalty are mutually exclusive, and as for interest on penalty tax due -- well that's been a part of penalty assessment for quite a while, so is unlikely to be constitutional. FBAR violations are non tax violations, so while full FBAR penalties (300%) may not stand constitutional muster, anyone claiming constitutional grounds for fighting say 50% penalties is likely to get as far as tax protesters objecting to income tax constitutionality.

  15. Jack,
    What are your thoughts on this joint effort by the groups? Is there a precedence where IRS might have reconsidered impact to a large community, which may not have been the original intent or target?

  16. I am not aware of any precedence for groups of similarly situated people (other than the very, very rich) being able to achieve such goals.

    Of course, we know the very, very rich recently tanked an IRS examination of rich contributors to political organizations and we know that the very, very rich hedge fund manages have achieved a capital gains rate for income that is no different than any other service provide.

    The rich -- and particularly the very, very rich -- are just different. At a minimum, they are rich and getting richer while the rest of us fall behind in the share of the economy that comes our way.

    So, since the groups that are most negatively affected by OVID are not very rich, their voice will not be heard (in my judgment).

    I guess that is just another way of saying that, if OVDI had hit hedge fund managers hard, there would have been a fix.

    Sorry, I don't like it either.

    Jack Townsend

  17. For OVDI, major problem for most "not very very rich" people is the 25% FBAR penalty.

    Given that IRS does not want people to send FBAR penalty right away, I am still hoping for some relief if pressure from more organizations and groups continue. We need other ethnic groups who are affected along with US citizens abroad.

    This needs to be brought to media attention as well. Many of participants do not deserve the punishment for the type of crime/mistake they did. I am not against penalties, but there has to be some fairness.

  18. Jack

    Ironically, foreign hedge fund accounts are not reportable for FBAR purposes. The rationale for this is that they are not liquid, so should not be reportable. Its funny that foreign retirement accounts, which have lockup periods stretching into decades are reportable, while hedge fund accounts are not.

  19. This article is dated August 5, 2011. I guess there is a big time difference between here and India but I did not think it was that many hours/days. In any regard, it has some interesting comments on the pushback by the Indian community. It also has comments about HSBC and Credit Suisse.


  20. not enough votes for Obama, if it were Mexicans, that would make a big difference.

  21. Jack,

    Lets assume that a few months from now, under all the pressure from these and other groups, the IRS grants foreign account relief for people coming forward. Do you think that this relief would be retroactive? i.e. Would people under OVDP that have signed 906s and paid the in-lieu-of-penalty be able to seek a refund?

    My guess would be yes, since the IRS has already done so with the revised 5% rules that came out in June.

    The reason that I ask, however, is that I noticed the following language in the 906: "By signing this closing agreement, taxpayer consents to the assessments and collection of the liabilities of tax, interest, additions to tax, and penalties determined by or resulting from the determinations of this agreement, waiving all defenses against and restrictions on the assessment and collection of those liabilities, including any defense based on the expiration of the period of limitations on assessment or collection."

    Also, is the legal language in all the 906s standard? Or can it be negotiated?

  22. To Anonymous August 4, 2011 5:14 AM

    I think that the IRS could make relief available, but it would create administrative difficulties.

    I also believe the Form 906 is a contract although it has a statutory basis. So, the IRS can vary the terms of the contract and, I believe, has done so in other contexts to reflect the scope of the parties' agreement. I doubt, however, that in administering the OVDP or OVDI it would vary the terms or scope of the contract. Still for highly unusual facts, it might.

    You might take a look at Vail Resorts, Inc. v. United States , 2011 US. Dist. LEXIS 718644 (D. CO 2011).


    Jack Townsend

  23. I would expect the IRS to make any relief retroactive for the simple reason that the Commissioner (and other high-ups in the agency) have said that they don't want to 'reward' people for holding out. Otherwise there is an incentive for people to not join any disclosure on the hope that the future might bring better terms.

    The flip side of this is that since any such relief would mean administrative hassles, and disgorging money already collected, I don't see the agency doing this except for limited situations OR unless forced by the courts, the Executive Branch, or Congress.

  24. IRS FAQ already makes relief available for participants of OVDP 2009. If somebody paid 20% penalty under OVDP and now qualify for 12.5 under OVDI, they can write to the examiner and potentially get the refund.

    This shows IRS is willing to provide relief retroactively.

  25. JonF, I believe you are a lawyer? How can I contact you directly?

  26. JonF, please do not respond to Anonymous on this blog by providing your contact information in the body of the responding comment. I will not approve the comment.

    JonF, there are two ways that you can get your contact information to any reader, including this Anonymous reader.

    First, the most direct way is to identify yourself as the poster of the comment and include a link to your web site (Asher Rubinstein, an excellent commenter does this, so you might take a look at how he does it). I assume that, for reasons of your own, you have used some type of name that does not directly identify you, but if you want to be identified as Asher does, I highly recommend it. That way readers can begin to contact you directly. That is the option that I hope commenters desiring to disclose their contact information will choose, because I do not have to get involved.

    Second, if a commenter such as JonF would like me to pass on his or her contact information to any reader who contacts me by email, please send me an email with the contact information and an express statement that I am authorized to pass on the contact information. Then, if and when readers contact me, I can identify the commenter by return email.

    But, commenters, please do not have your contct information in the body of the comment. I will not approve the comment if you do.


    Jack Townsend

  27. there anything we can do to support the efforts of these indian groups?

  28. CHI TOWN TAX ATTORNEYAugust 17, 2011 at 1:33 PM

    Is someone affraid to say the emperor has no clothes? Indians get no special treatment. Its a little thing called equal protection. Nice try to skip around the Constitution through administrative grace. Good for the IRS (can't believe I just said that). All of the hypotheticals have NOTHING to do with being Indian, German, U.S., black, white, male, female, etc. Before OVDI 2009 or 2011 my "innocent" clients simply filed the forms, made a voluntary disclosure, and said "I didn't know so it wasn't 'willful'". Guess what, no penalties! If that's the case and the clients don't want to pay reltatively small penalties in OVDI 2011, then opt out and make your "it wasn't willful" pitch. But look at the questions on Schedule B. Not perfectly clear, but pretty darn clear that you have to check the box and file an FBAR.

  29. has anyone heard of HUF, Hindu United Family where if you inherited the money and indian government will not allow the money to leave the contry, then you are exempt from filing the FBAR?

  30. This is certainly a mind maze and scary for 'small fry' folk new to the country (say 2-4years). I have always been treated fairly by the IRS but the penalties here seem to be potentially high and life altering thus scary. Considering many have taken hits with employment and investments they are already on shaky ground and the prospect of getting cleaned out by correcting their past oversight can be unsettling. The prospect of fines against existing savings, attorney fees, potential audits and associated costs will cause many to loose sleep and possibly their minds. The fear mongering out there certainly doesn't help.
    I am reassured by my past (positive) experiences with the IRS that this isn't a witch hunt for those new to the country that want to do the right thing and get everything up to speed.
    If you have ever moved to another country you know there are many things to cope with (especially during a recession).
    The timing does seem a little odd thus there is much speculation that the US is hungry for what ever money it can get its hands on. This is border line conspiracy thinking however the timing does raise eyebrows. I prefer not to go down that road.
    I think there should be a MUCH better effort to inform newcomers about these obscure filing requirements.
    CPAs from other countries don't seem to have a clue and some in the US don't either. Being new to a Country you rely on referrals from other people and if these referrals don't pan out then you suffer. It is trial and error until you build a trusted network and get the right advice.
    I wish everyone all the best and I believe each person needs to make informed choices that will serve them best according to their circumstances.

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