Monday, December 12, 2011

"Opting Out" of OVDI and OVDP; What is Really Happening? (12/12/11)

There has been a lot of speculation all over the lot about what the IRS will do on so-called opt-outs from the OVDI and OVDP.  Much of the speculation is that the IRS will be draconian in determining the presence of willfulness for the FBAR willfulness penalty or in applying the FBAR nonwillful penalty.  I personally do not think the IRS will be draconian, but realize that that conclusion is in the eye of the beholder.

I offer this blog entry so that readers can offer real world experiences as to what has happened to them (or, if in process, what is happening to them) after they opt out.  I hope readers will also offer hints and strategies as to how others might mitigate the damage on the opt out.  There is a lot of angst, particularly in the taxpayer community, about the opt out process.  I hope that the comments will offer some comfort to those in the stage of considering whether to opt out or, having made the decision, are at the early stages of the process.

Readers might want to review other blogs relating to the opt out process, which I collect under the links below.

  1. "Opting Out" #2 (3/2/12), here
  2. "Opting Out" #3 (4/4/12), here.


  1. Jack

    Thanks a lot for creating this blog entry. I don't have any advice to offer (since I'm still considering opt out), but I think the issue is that the IRS can afford to be very generous in terms of opt out and still assert a larger penalty than under the OVDI. The potential penalties even for non-willful cases can be so high for the multiple small account case that the IRS can easily discount a penalty by 80-90% of max and still collect a large sum.

  2. For consolidation of information purposes....this is a comment I made on another thread related to the concerns about what FBAR penalties "might" apply outside the OVDI. Will they be multiple account penalties as the FBAR statutes allow, or will they be something less based upon the discretion allowed in the IRM??

    Here was my comment...

    original reference...Dec 9,

    I too had multiple accounts, at times up to a dozen open, but with the way the bank and other financial institutions opened and closed term deposits as they rolled over I must have > 25 over 6 years. I hadn't really thought about it, until I started adding them up to figure the transfers between them to eliminate duplicate funds from the aggregate high balance in the OVDP.

    As an Opt Out exercise, my examiner tried to get me to figure my penalties on a per account basis and to figure that my transfer of funds would be double counted outside the OVDP. When I followed her instructions the penalties went from over- the-top to absolutely totally ridiculous. In fairness, the examiner had no idea what to expect in an Opt Out penalty calculation, so maybe she was just covering her bases and doing her due diligence. I try not to cynically think that she was deliberately trying to instill fear to keep me inside the program.

    In the end, my TAS negotiated penalty was based upon “one” unified non willful FBAR penalty, and not by account. So maybe that is an indication of what the IRS might do. I have to believe that is the model they would use in the OVDI Opt Out, but until there is more anecdotal evidence, it is hard to say whether mine was an outlier or not. However, we can hope that this is an indication to support what Jack says, “I don't think it will be as bad as a lot of people imagine / fear.”

  3. One other comment for consolidation purposes. This relates again, to possible penalties in an OVDI Opt Out. This relates to my experiences.

    Original reference: December 12, 2011 2:47 PM

    Regarding your question... "the IRS was trying to get you to say that your violation was willful. Did they say that and was it based on the 'Schedule B' question ?"

    Close, but not quite correct.

    When the Opt Out instructions were finally posted in June, and I read and digested them, I saw that both I and the Examiner were supposed to present our respective statements of Fact to a Management Committee. I assumed (or feared), that if there was a strong disagreement between us at that time, the Examiner's position would trump mine, as I had no standing or ability to affect their finding. You don't get a opportunity for a verbal discussion with the committee. You don’t get to plead your case at that forum and their determination is final. At least that is how I understood the process worked, and with no Opt Outs known about since the beginning of the 2009 OVDP, my Examiner had no further insight as to what to expect.

    So, I had a frank discussion with my Examiner as to what she was going to find. She was a pretty determined little girl that I was “willful” (black and white) and that was what would be in her facts, but then conceded that maybe I wasn’t as “willful” as the whales and my degree of willfulness was less, maybe 1 or 2 on a scale of 10. Of course, I totally disagreed with her, and pointed that while I appreciated she did recognize I was not the IRS target whale, there was nothing in her IRM that spoke to degrees or scales of willfulness, and I could not accept her finding and the penalty implications outside the OVDP. Schedule B was what she was hanging her willful hat on in spite of the many arguments I had previously made to the contrary.

    So, that was the disagreement that triggered my decision to go to the TAS, and in the end get a lesser penalty using FAQ 35 relief and a nonwillful finding which she signed.

    In this respect, it was kind of a back door Opt Out where discretion was applied as I hope will happen in OVDI Opt Outs.

  4. Just Me, one more question regarding the multiple account issue. If your spouse was a US person and had her own FBAR filing requirements and separate accounts (including joint accounts), did the IRS initially (before TAS intervention) seek to penalize each of you independently, even on the same account ? [ Lot of 'ifs' there :)]

  5. To Anonymous December 13, 2011 5:36 AM

    My wife and I file our FBAR jointly, so everything, including our OVDP was a joint filing. So, her separate accounts were included in our joint filing. So specific to your question...

    "did the IRS initially (before TAS intervention) seek to penalize each of you independently, even on the same account ? "

    The answer is NO!

  6. We are finding more and more people willing to opt out. There is very little info post OVDI so we are all feeling our way through this process.

    Thus far, the Service seems willing to listen.

    There are many variables to consider. Did you rely on a professional preparer? Did you have unreported income (not just an unreported account)? How much income? How did you acquire the account? (Opening an account in Switzerland versus getting the account through an inheritance.) Are you a native of the country in which you had the foreign account?

    It's really a case by case determination with a fair amount of risk. Find someone who has a fair amount of experience in voluntary disclosures and opt outs before you decide.

  7. For purposes of computing the highest balance, the 2011 OVDI adopted a 'tracing' rule (FAQ 36) which appears to appply to assets purchased with non reported foreign monies (e.g. art or land outside the US) . Has anyone seen this applied in the OVDI program : (a) where the asset that was purchsed appreciated substantially (i.e. what cost or value did the IRS use; (b) the money that was used to purchase the asset though not reported or taxed, was not reported before 2003 and / or before the statute of limitations ran (is there an old and cold concept) (c) where the asset was purchased from a foreign account subject to FBAR but some of it was reported for IT and some not-in other words, how did IRS trace or allocate between "good" and "bad" money ? thank you

  8. I moved outside the US as a poor student, never having had enough money necessitating acquaintance with Schedule B.

    For many years I did not know I was supposed to file US tax returns or FBARs. I learned this in early 2009 and filed back paperwork for a bunch of years together with an explanatory letter. (I live in a country where the taxes are much higher than the US, so thanks to foreign tax credit, nothing was due to the IRS.) As it turned out I sent in all the forms just a few days after the 2009 OVDI was announced. In mid-August 2009, I read the confusing OVDI FAQ and learned that what I had done was maybe not "good enough". FAQ #10 seemed to threaten criminal prosecution for not entering the OVDI program. So with the deadline looming, I entered the OVDI.

    What a mistake! I spent hundreds of hours on the documentation and countless nights worrying instead of sleeping. The examiner seemed like a reasonable person, but the rules she was supposed to apply were anything but reasonable.

    When it became obvious that no reasonable solution would be possible, I appealed to the taxpayer advocate. I and my relatives wrote to a bunch of politicians, who all kicked my case over to the taxpayer advocate too. From the taxpayer advocate I learned that opting out was the best option for me.
    (In the meantime I also changed my citizenship, as I don't intend to move back to the US.)

    Neither the taxpayer advocate nor the examiner knew what the audit would be like.

    When opting out I provided a fairly detailed account of why ignorance of FBARs was reasonable cause in my case. (I don't know anyone who has to file FBARs, never saw Schedule B. My peers were amazed when I told them about the US's extraordinarily strange tax laws that require filing on money you already paid income tax on. Etc.) I also indicated that if the penalty were not reasonable, I would appeal and go to court if necessary.

    Final decision by the IRS: no penalty and no audit.
    (I think it was pretty clear from the paperwork I had already supplied that an would not be able to find anything that would lead to tax being due. I have plenty of "unused" foreign tax credit because the US tax rates are so low.)

    Two years in hell are now over. A great waste of time, both for me and the IRS.

    who is looking forward to voting in local election for the first time

  9. To Sally December 30, 2011 11:04 AM

    Thank you very much for your story. It is valuable for other expats in OVDI who are wondering if they should opt out. Given the recent guidance and your story, it gives strength and encouragement to the rest of us to consider opt out as a viable option given the facts of most long term overseas residents.

    Most of my holiday period was spent reading the IRM and writing up my facts in terms of the definitions to be found there. While your story is anecdotal, it gives me hope that it will not be for nought.

    I relate totally to the hours and time lost on gathering documentation and the
    feeling of being in hell. It is so unnecessary. I have also had the same experiences with politicians contacted in the US - they refer you to TAS.

    Question: Once you opted out, how long did it take you to get a final decision?

    Here's to a 2012 (and your future) that will be free of all this nonsense. Thanks again.

  10. Sally,

    What a great story to hear, although "great" is not how one would characterize the 2 years of hell that you had to go through for the result.

    I trust there will be more stories posted here like yours, and many of those in the OVDI will consider the Opt Out process. It is a shame that it comes at the end of the OVDI process, and not as a first filter, so as not to put a person through hell. I know your pain!

    Here is hoping we hear a lot more stories like this, albeit, it would be better if they don't also include 2 years of mental torture and waste of LCUs. Those never show up on an audit reconciliation balance sheet and are a real penalty of sort that you can never claw back!

    Happy New Year to you.

  11. To Anon5% December 30, 7 pm

    It took 5 months in my case, but I'm not sure that would be a big predictor for others.

    The reason is that I was caught up in a procedural change at the IRS which ended up costing at least two months. I actually had to opt out twice. I had just sent in my opt-out letter when the IRS changed procedures, so I had to opt out again, with a new opt-out letter detailing the points the new committee needed.

    I was also one of the very first cases that was referred to the committee, so there may have been some time spent with "start-up" procedures of the committee, in addition.

    The final communication from the IRS was a set of fairly nondescript form letters for each year in question that merely said that the IRS had completed the review and made no changes. (Presumably the same form letter they send to you after an audit when everything turns out to be OK.)

    I would point out that I could be a "poster girl" for the new IRS guidance, i.e. obviously not a willful non-filer, just clueless, live outside the US, have no income at all from the US, owe no taxes to the US and pay lots and lots of tax in my country of residence.

    The examiner also did not doubt that I was a non-willful non-filer.
    (I had never seen a Schedule B until Jan 2009. And when I did, learned about the FBARs from those little checkboxes at the bottom. And filed FBARs soon thereafter.)

    By the way, I sent Mr. Flaherty a fan letter, even though I'm not Canadian and don't live in Canada. (In the reply that came back--intended for Canadians--the Canadian government pointed out that while they do share information with the IRS that is relevant to taxes and governed by a treaty, the treaty does NOT relate to FBARs. Canada will not help the US with FBAR penalties.)

    Happy 2012 to all!


  12. Sally,
    Very heartening to read about your case and the outcome.

    When you gave up your citizenship, was it a smooth process, and any watch-outs - especially when you were in the opt out process. Was that an issue with the U.S embassy where you had applied for renunciation?

    Happy 2012!

  13. Hi Sally: thanks for telling your story.

    I would like to mention that while the Canadian government has made it clear that FBAR penalties will not be collected, they have yet set out no policy vis-a-vis FATCA. As far as we Canadians know, our banks could begin to hand over our account information to the IRS very soon. This has some of us, those of us in the know, with no place to hide.

  14. Sally

    Thanks for your post. One question -- you say the taxpayer advocate suggested opt out. Did the advocate seem reluctant to take any steps before you exited the program (since you say they didn't know what would happen once you exited) ? For 'Just Me', they took steps before he formally exited.

  15. My husband and I entered the OVDI and are Canadian citizens. I feel we have a pretty compelling case in proving reasonable cause, citing ignorance of the requirement to file US taxes. I moved to Canada as a child and my husband became a US citizen through his American father. We have never worked in the US. We did however have to a pay the IRS a capital gain on our house we sold in Canada in '08 and sent them a cheque with our submission. We were told, however, that we weren't required to submit a cheque for FBAR penalties. Is that the norm with OVDI, or OVDP submissions?

  16. My husband and I entered the OVDI and are Canadian citizens. I feel we have a pretty compelling case in proving reasonable cause, citing ignorance of the requirement to file US taxes. I moved to Canada as a child and my husband became a US citizen through his American father. We have never worked in the US. We did however have to a pay the IRS a capital gain on our house we sold in Canada in '08 and sent them a cheque with our submission. We were told, however, that we weren't required to submit a cheque for FBAR penalties. Is that the norm with OVDI, or OVDP submissions?

  17. To hkneebadger,

    No it was not required to submit the FBAR penalty with your application. I have legal counsel and was specifically told not to submit it.  As a matter of fact, my lawyer said, "Don't pay them anything you do not have to." When I questioned this, I was told that the IRS will do their own calculation of what is owed and that is when I can decide whether to accept payment of the penalty or not. It was also mentioned that refunds may not come as quickly as one would expect.  One of the commenters to this blog, 'Just Me'  may still not have recieved a refund for an overpayment he made as part of OVDP. So in sum, if you have not paid the FBAR penalty when you submitted all your documents, you are fine. However,  you were required to submit any interest and tax penalties with your submission.

  18. To AB,

    Giving up my US citizenship was not difficult in my case, but it may vary depending on your particulars and what consulate you do it at. If you are considering this, read and also check the website of your local US consulate. Procedures apparently differ. Keep in mind that it is an irrevocable decision. Although the FBAR mess certainly gave me additional motivation, my real rationale was that I want to stay put where I am and it would be nice to be able to vote.
    And I want to be able to continue to have a bank account, which may not be possible if FATCA really is implemented.

    To Petros,
    You are right. FBAR penalties have no relation to taxes, so they aren't covered by the treaty. FATCA is different because its part of the tax code. On the other hand, I got the distinct impression that Mr. Flaherty thought that the United States or the IRS was treating affected individuals in Canada unfairly. But it's difficult for Canada to have a cut and dried policy toward FATCA because so much of its implementation is still unclear.

    To Anonymous Dec 31, 11:01 am:
    The taxpayer advocate seemed to think that opting out would be the best choice FOR MY CASE. "Just Me"'s facts may have been different. As I said, I'm a "poster girl" for the new IRS guidelines, i.e. a good story of reasonable cause, no tax ever owed to the US, no US income at all, lots of tax paid in my country of residence. (And my financial records--which the examiner has--indicate probably fairly convincingly that I'm rather unsophisticated when it comes to finances.)
    At the time I opted out, neither the advocate nor the examiner knew how the audits were to be handled because nobody had decided how to do it at that time. Later someone told me that the same examiner handling the FBAR was to do the audits.


  19. I actually sent in an FBAR estimated penalty as part of OVDI with my application as I thought it was required. I'm thinking of opting out when they get to my case, and I'm wondering if the IRS might choose ( maybe out of bureaucratic ineptitude rather than malice) to just hang on to the check rather than bother with trying to ascertain reasonable cause under opt out. That way they get the 'in lieu of' penalty, and they don't have to bother with an audit. Or if they assess a penalty under opt out, the DoJ might not bother to go to court to collect, but might instead just keep the money I sent originally.

    In such a case, I suppose I could to the taxpayer advocate or to federal court, but the hassle of going to court for a (relatively) small sum would be a deterrent. And in this case, I would have to initiate a case in court (unlike usual FBAR penalties, where the DoJ would have to initiate a case).

    Anyone have any thoughts on whether the IRS might be malicious/bureaucratic enough to just sit on my 'in lieu of' penalty check ? Not refuse to return it -- they really can't do it, but just delay, delay delay.

  20. Anon, Jan 3; 6:08 am.

    If you have sent in-lieu penalty, that is fine. I did too. Once your case is settled, you can always apply the excess paid towards next year's taxes - assuming your in- lieu amount is not a big sum. I believe, once the case is settled, IRS will refund the balance anyways. I still have some faith left in our Govt.

  21. Anonymous January 3, 2012 6:08 AM

    This is my speculation:
    In order to keep the in lieu of penalty, the IRS must somehow assess it. They do this by getting you to agree by signing the 906 closing agreement for the misc penalty in lieu of all the other penalties. If you do not sign it they have no way to assess it. Now how they rule upon opt out is a different matter in itself. Your error was sending the in lieu of penalty to them if your ultimate goal was to opt out. Now you will have to go through song and dance to get the funds back. Again I think the language in the 906 is the mechanism that enables IRS to charge this outlandish penalty. I think I posted way back that in the 2009 program at one point IRS refunded my in lieu of penalty plus paid me interest on it. It was an IRS error and I returned it to my examiner. It was mid six figures. Maybe they make the same mistake with you.


  22. AB, thats a great idea, namely suggesting to the IRS that they apply it to next (now this) year's taxes. I'm not sure that it would work, since I've heard that you need to specify each payment you're making to the IRS clearly with its purpose (even down to tax year).

    Anon123 -- At the time of sending the 'in lieu of' penalty in, I thought that IRS would assess a full penalty for opt out. I have some small accounts, but 10K per account per year would be ridiculously large. From some of the comments, the IRS is not being totally unreasonable on opt out, so I'm definitely considering it now. Maybe the IRS will make the same mistake they did with you and send my payment back :). I don't think the IRS would be actively malicious, but its very easy to see them sitting on the money for years as they work out the formalities of getting it released.

  23. My experience is, that you get your refunds or over payments back, with interest. It takes time with the bureaucratic bungling that can occur. For instance, I am still waiting for my reconciliation refund from signing the 906, and my TAS case officer said to wait until February, and if I haven't gotten it by then, get back in touch. At this point, the interest they will have to pay is better than the banks, so might as well be patient. They are inept at times, but I do think they won't keep your money. They aren't that corrupt yet! I think AB's faith is still well placed.

  24. Anon, Jan 3 , 12:28 pm
    IRS keeps a summary of your balance with them, so any excess that is due to you can be applied to future taxes. You would need to complete your OVDI so that the final amount that you owe can be determined and any excess determined.

    If you opt out, in that case I am not sure how the balance you have with IRS will be made available to you. I would still think you should be able to apply for future taxes and once your opt out and examination complete, you can always write them a check.

  25. Is the opt-out route good only for those who never checked the NO box on schedule B? If someone did check the NO box, can the person still hope for a better result after opting out?

    Would someone be kind enough to provide their opinion?

  26. To Anonymous @ January 5 2012 6:47 PM

    The easy answer to your question is no. If you checked the box no, you will not necessarily be worse off with an opt out. But all opt outs should be preceded with consideration of all the facts and circumstances. So there is no easy answer to the question of whether one should opt out.

    Jack Townsend

  27. @Anonymous - January 5, 2012 6:47 PM

    I opted out even though 'no' was checked in Sched B (thanks Turbo Tax!). I view it as largely irrelevant in my situation and in relation to my "reasonable cause" argument. The Box has never been mentioned by my agent too.

    My case is still in progress so no idea on how this is working out for me :-).

  28. Did IRS reopened OVDI (New 2012 OVDI) with no deadlines...

  29. yes they did reopen with no deadlines and a small
    increase in penalties. I look like an ass for jumping in early. Should have waited, analyzed my situation better before jumping in.

  30. Don't be down on yourself. It may be favourable to you that you made every effort to be tax compliant as soon as you could. Latest OVDP is creepy in it's "bait and switch" disclaimer. Now this worth a read, scathing review from the IRS's watchdog.,,id=252284,00.html

  31. Please advise:

    If one is an immigrant and gifts money to her parents living in a foreign country, is it illegal? If parents are paying tax on the gifted money and there was no intention to evade US taxes, should the gifts be any cause of concern inside OVDI or even after an opt-out?

    Please help as i am really worried about this.

    Thank you and god bless you.

    1. I wanted to have the same strategy. I wired some money under my parents names. But then I thought if IRS challenges me in court if those were real gifts then I would be in trouble, so I went for OVDI and peace of mind.

      I think this is very complex situation that can go both ways...

    2. Anonymous Jan 18, 2012 07:14 AM

      Did you take an attorney's advice. Was this the only reason for you to join OVDI? Did the gifts have any financial connections to you (your name on account, signature authority etc) after they were made? Did you report these gifted accounts in FBAR?

    3. Actually I have received ambiguous advice on this matter. Some people told me no FBAR is needed since my name was not anywhere on the accounts, including FBAR hotline. While other attorneys said that if the money belongs to you and you parents can return you the funds plus additional interest then there is a financial interest in the accounts and FBAR is needed.

      I think if you wire your parents few thousand dollars is ok. But if the amounts gets larger and they are 50% of you cash worth then things may become suspicious.

  32. If an immigrant, who did not past OVDIs and does not join the current OVDI, declares foreign assets on the new form 8938, is he likely to get audited immediately?

    What are the repercussions for all those immigrants who now suddenly come forward with foreign assets on the mandatory form 8938? Are they all going to be audited or probably not because IRS does not have the resources to pursue these millions?

    1. Let the guessing games begin.

      No one really knows. I would imagine that there could be a quota for foreign related audits and thresholds could be adjusted such some big guys are questioned (and perhaps some random ones). I don't think I can begin to guess the values of said thresholds, quota etc. I understand IRS does a million audits each year - so it is not hard to audit a significant number of foreign account holders. But this was the wisdom back in June 2011 for first time FBAR filers and I haven't heard of any audits for them (atleast not enmasse).

  33. IRS gets its knuckles rapped. Shifting sands still.

    1. Yes, and Jack has blogged on this,


      and Here

      There is a small amount of press around, but not in the Mainstream Media

      Here is a good write up on another blog, called

      Taxpayer Advocate vs. The IRS – It’s a question of trust

      I have also commented about the "so called" success of the VDPs here...

  34. Opting out of OVDI seems to be a better deal only for expats who never had any US sourced income. They are the only ones who can show reasonable cause, a necessary condition to have your penalty reduced in an opt-out.

    But for immigrants who earned in the US, then transferred their "US earned money" to their native country and are now inside OVDI, opting out would either not prove beneficial or worse, might end up costing them more in penalties than inside OVDI, because what reasonable cause can such people show? Ignorance of the law is unlikely to be accepted as a reasonable cause so whats left; especially if such immigrant checked No on schedule B.

    Only those immigrants whose entire offshore activity predates their arrival in the US are the ones likely to benefit from opting out as in the case of ex-pats.

    So again, the bottom line is, if US wealth was transferred outside and was not declared on the tax returns and FBARS, forget about opting out. Just pay the penalty and move on with life if you can or kill yourself if you cant.

    Would you care to comment, Jack?

    1. Well, not so fast here... You could be right, but…… There may be other considerations that might make an Opt Out a better option. However, I understand your logic is exactly what the IRS wants you to think. Fear, in their world, creates more revenue. Pay us the Big penalty now and move on. That is one option, for sure.

      I will let Jack make comments, if he cares to, but if you look around his blogs in the archives, he has spoken to the "willfulness" issue many times, and there are many nuances that don't make it as black and white, open and shut, as you portray it.

      Then, there is the other option, and that is they can just vote with their feet and walk down a jetway silently heading back to their home country and fading away, leaving their greencard or visas in the seat back pocket. It worries me that America, with this jihad may be pushing away many skilled immigrants that we need, out of the country, by conducting it's so called amnesty the way they have.

      It is a short sighted policy in search of revenues without any regard to the many unintended consequences and impacts on immigrants. I have no facts to support this, but in my opinion, it is likely that the harm it creates, is greater than the revenue it generates.

    2. I disagree strongly. Yes, immigrants such as the Dahakes and the Ahujas would be best served by not opting out.

      But for immigrants who don't have badges of willfulness (entities, very large sums, accounts in tax havens), I think opt out should be considered. Especially if only small amounts of tax are due.

      Even if reasonable cause would be rejected (and I tend to doubt it would be rejected for ALL years), there is the question of how much a non-willful penalty would be.

      In theory, the penalty can be 10K per account per year, but for a number of small accounts, that is clearly ridiculous. I doubt very much the IRS would try and assess that much. Even their own manual says that multiple penalties per form should be assessed only for the most egregious cases. Besides, I'm not sure the language of the statute supports their claim that they can assess multiple penalties per form.

      So, 10K per year is what I think. Multiply 10K * number of years. That is likely to be max (assuming no other bad facts). Assume the IRS will apply mitigation guidelines in their manual. With that, the penalty would be smaller than 10K per year. Also, I think if someone were to take it to Appeals, the penalty might be reduced still further. I think 2-5K per year * number of years is more realistic as a bad case (assuming accounts aren't very large). Some people with smaller accounts (< 50K) could even get off with $500 per year. And note that ONLY fbar reportable items can be penalized. Real estate with rent income, physical securities etc. cannot be penalized.

      To this sum, add in something for lawyer/CPA fees. Then subtract tax penalty for 5 of the 8 years (since those years will be closed barring fraud or substantial understatement).

      Then compare with FBAR penalty in OVDI, then decide whether to go ahead with opt out or not.

      There are definitely people who would be better off under opt out:
      1) Small accounts < 50K or so
      2) Accounts in the 75K - 100K or so range (because the OVDI penalty jumps by 10K on crossing 75K).
      3) People with foreign real estate or other non FBAR reportable assets.

      Even people with a single large account (the $1M account) may be better off since non willful penalties are capped, but they need to consider the risk of being found willful.

    3. Researcher,

      Thanks for making the expanded argument that "Opting Out" is something that should be looked at, as it is not as black and white as Anonymous of Jan 22, 2012 09:53 AM thinks. I can understand his perspective, but there are options for Immigrants between killing themselves and paying OVDI penalty especially if you were just benignly negligent!

      His is definitely the perspective I think the IRS wants small fry in the OVDI to think, and act upon. It is simpler for the IRS, and is a guaranteed return for a program they are highly vested in. Going outside via the Opt Out makes more work for them, wastes their limited audit resource and the ROI decreases if they apply the IRM appropriately. In my case, in the OVDP, my examiner just couldn't understand why I wouldn't just send them my $172K check. Her client list consisted of 25 Minnows, and all the others she had processed so far had apparently done just that, or that was what she implied. She really wanted me to just sign that 906 and be done with me.

      So, I concur that Minnow immigrants should be looking seriously at the "Opt Out" in the categories that you suggest, but most are fearful, for reasons I can relate to. The risk may seem too high to them, and depending on their visa status they would be worried about jeopardizing something in progress.

      I would be watching for the results of Shulman’s decision on the TAS TAD on the 26th. Either way it goes, this issue of VDP fairness has gotten a lot more light, and I have to think the IRS is mindful of that. In a standard audit, unless you were egregiously lying and doing exactly the IRS was targeting in the first place, I can't imagine that IRM discretion would worse than the OVDI "in lieu of" penalty especially if you have assets in your home county, but then, each case is different.

      If I were at the stage of trying to decide, I would then pay a good professional a few hours of time to help you assess the risk. That would probably be good money spent.

      Actually, I wished there was a way to organize a mass Opt Out of all Expats and Immigrants, and throw the entire program into disarray when they didn't have enough resources to do all the audits required. But that is just my late night fantasies kicking in! :)

    4. One further comment about going to a Professional. Just like when you go to a Financial adviser, you have to weigh their financial advice against what is in their self interest (fees on products recommended) vs what is in your self interest (ROI). There can be conflicts, even if the attorney is not consciously trying to generate fees. A good attorney won't do that, but it is a "Buyer beware world!" Untimately you have to take your own council. If you can't do that them be prepared to pay more than you should have to..

    5. "Actually, I wished there was a way to organize a mass Opt Out of all Expats and Immigrants, and throw the entire program into disarray when they didn't have enough resources to do all the audits required. But that is just my late night fantasies kicking in! :)"
      I totally agree. An ovdi lawyer like Jack could specialize in opt out arguments and pick up these expats, immigrants and for those whom the fact pattern has a good cause for opt out should then litigate. The main reason that minnows do not opt out is because of the uncertainty in the costs involved. At what account size would an opt out and litigate make sense. If the average cost of opt out litigation is about 25K i would presume with an account size of 200k would be a delimiter for considering opt outs.

    6. 'At what account size would an opt out and litigate make sense. If the average cost of opt out litigation is about 25K i would presume with an account size of 200k would be a delimiter for considering opt outs.'

      Why would one assume litigation ? For larger accounts, yes. For smaller accounts with no other badges of fraud, I think little beyond a consultation (if that) would be required. The people on this forum who opted out (or nearly opted out) such as Marvin Moby, Sally seem to have done it on their own.

      I think for small accounts 10-40 K or so, and for accounts just > 75K (say 75-100K), opt out is very definitely feasible.

    7. To Researcher Jan 25, 2012 03:21 AM

      Keep in mind that opting out does not move into litigation but rather into an audit. I have no doubt that many of the minnows could go through an audit without having an attorney involved at all and achieve a better result than they could have obtained had they not opted out. And, to be more specific, I think many -- perhaps even most of them -- could achieve as good a result as they could have with attorney representation. They will have to pay attention to the procedures involved in the audit, but by being attentive and responsive to the agent's request, it should run fairly smoothly.

      Now, only if you don't get an acceptable result in the audit will litigation loom as a possibility. For most taxpayers, litigation will require an attorney. Actually does not require; individuals can represent themselves in litigation but there are many difficulties in doing so.


      Jack Townsend

    8. Jack

      Yes, I am in strong agreement that for minnows legal representation (beyond maybe a consultation) is not essential. Perhaps if the case goes to IRS appeals.

      I must commend you on your willingness to take such a position. Very forthright of you.

    9. To
      Jack Townsend
      According to IRM B
      Documents that may be helpful in establishing willfulness include :
      B) A copy of the signed income tax returns with Schedule B attached ( Showing whether or not the box pertaining to foreign account is checked or unchecked)
      If this is the case everybody who enters OVDP OR OVDI is essentially proved to be wilful. Because IRS has the copy of the 1040s & Sch. B.
      Some checked NO on sch B . Some of my friends checked yes on sch B. Some people did not check any thing on sch B.
      So how can a person opt-out & get non-wilful penalty at a reduced rate in this scenerios.

    10. To Anonymous Feb 2, 2012 07:04 AM

      There is not enough anecdotal evidence of what the IRS is doing on these. But I am certain that the sole fact that the Schedule B question was answered no is not going to be sufficient. There must be a host of bad facts in addition. You might take a look at the Williams case which has been blogged here.

      And you might pay attention to the ones reporting resolutions outside the OVDI penalty structure where the question was answered no.

      This is uniquely a facts and circumstances inquiry. If you are concerned you need to visit with an attorney who can review all of your facts and circumstances and then make an assessment that will be meaningful to you.


      Jack Townsend

  35. I need some advice. I am a US Citizen with signatory authority only over foreign accounts from 2009 onwards. I have been filing my personal FBAR's, but had no idea I had to file for accounts for which I did not have a financial interest.

    The amounts in the account are significant, and I wanted to get opinions on whether I should opt out, or join the OVDI which would be ridiculously expensive.

    I have been living abroad for several years now and have never had any tax issues.

    1. you will be ok ameding your FBARs.

    2. "AnonymousJan 22, 2012 11:16 AM"
      a) Read about the program. understand your risk exposure both criminal and civil. Then
      b)get a good lawyer. See what he can say about
      your exposure, IRS's ability to argue/prove willfulness and your ability to prove reasonable cause exception.
      c) wait for a week and taken an action based on your risk tolerance.

    3. I have read the program. My only issue with the OVDI is that, those accounts are now long closed, and I don't know if I will be able to get access to the statements from those accounts, as I am no longer an employee of that company, and I know these are required as part of the package.

    4. Anonymous Jan 22, 2012 08:26 PM

      "those accounts are now long closed,"

      and so, maybe that means your risk is limited. I would take the advice provided to you above.

      b)get a good lawyer. See what he can say about
      your exposure, IRS's ability to argue/prove willfulness and your ability to prove reasonable cause exception.

      I do think you need that front end analysis help from a knowledgeable professional as it will be hard to rely on blogs to assess the decision whether or not to join the OVDI.

      Jack maintains a list of attorneys who know the subject well.

  36. --- Opt out results: Data point ---

    Got what I think is my opt out result.

    Key points:
    - Situation: Usual story; recent immigrant to US (GC holder), home accounts/affairs overlapped with move to the US. Entered 2009 OVDP; then opted out.
    - Problem years: Non-filed FBARs for 2007, 2008. Non-filed 5471 for 2007.
    - Schedule B: "No" checked (courtesy of TurboTax... blech!)
    - Proposed FBAR penalty: $63K
    - Total unreported tax: $14K
    - Prof. help: Lawyer for amended returns and initial submission. Subsequent dealings were all solo.
    - Reasonable cause: Didn't know; couldn't have known.

    Only accuracy related inc tax penalty was assessed (no FBAR/other penalties). What appears to be the final letter didn't say much other than my opt out was approved by the committee, a normal examination had taken place, and the results were in accompanying Form 4549 (no changes other than accuracy penalty). So it looks like I've just got to return the 4549 with payment. There was no mention other other penalties or or any willfullness determinations.
    Of course, my inner Admiral Ackbar ("It's a trap!") suspects that I might get a subsequent letter demanding money for info returns. I'll cross that bridge if/when I get to it.

    I hope this information convinces more people to opt out. It's hard to offer specific advice. I believe that the default position for immigrants/expats should be to opt out. I've seen some comments to the effect of "ignorance is no excuse", but I disagree. Ultimately ignorance is the only excuse any of us have, it's valid as reasonable cause, and it's not our fault that we didn't know about an unpublicised and (until recently) unenforced rule.

    Things that convinced me to opt out:
    - Just Me: Showed that by fighting like a rabid Jackalope it was possible to get a better deal. Inspirational actions on his part, and doubly so for publishing his struggle for the benefit of the rest of us. I think he also gets lots of credit for getting TAS engaged and ultimately the TAD issued.
    - The Canadians: I'm convinced this was a game changer. They got the issue the visibility it needed. With that many angry Canadians screaming for blood and the US ambassador to Canada making lots of soothing statements I figured that the IRS will be making every effort to be very lenient.
    - My case: I figured that my case was as sympathetic as it gets. If I couldn't opt out then no one would; so I felt compelled to do it for the greater good (not entirely my own preservation, anyway). It wasn't until I sat down to review my 14 page opt-out/reasonable-cause letter (20+ hours to write!) that I realised how good my case was when all the facts were summed up.
    - My new situation: By the time my case was assigned for processing I had already moved back to my native country. Easier to put up a fight when you're no longer in the US, and have no need/desire to return to it.

    I'll continue to lurk in the forums as I would still like to pitch in if it helps. I'm much more flippant about the process now, but at the time it was the most terrifying and stressful episode of my life and no one should have to deal with it.
    BTW: I bear no grudge against the agent I dealt with. He and his supervisor were very professional and helpful. Now the people at the other end of the pyramid are an entirely different story.


    1. Moby, thanks that was very helpful.

      Question -- did you rely on professional help for the opt out/reasonable cause letter ? [ I gather not, from your comment about doing later items 'solo']. I've read comments from certain professionals that they have expertise in opt out situations (obviously, they're trying to drum up business).

      If you feel it doesn't compromise your privacy, I had some questions:

      1) I was wondering if legal information was required in the letter, or if it was just an articulation of why you thought you had reasonable cause. Also, did you have to/need to explain the Schedule B question at all ?
      2) Did they do a full audit on opt out (or maybe it was done before) ? Even if one has no particular audit concerns, LCUs would be expended doing a full audit, and it could take many, many months for closure.

      3) Had you transferred any money at all from the US to your older accounts ?

      Thanks for any answer

    2. Congratulations Moby. This is a HUGE victory for fairness and justice for Minnows, if you discount all the time and LCUs it took to get the results!

      Still, I am very happy for you, and hope other Minnows in the OVDI will take heart. Opting Out is something that they should seriously consider, and in my opinion, not just rollover and pay exorbitant penalties for minor or benign failures.

      Hopefully the TAD and the Report to Congress has brought some awareness into that dense bureaucratic brain that guides the IRS these days. There are better and fairer options to increase compliance that doesn’t just rest on asserting ridiculous penalties, setting aside the argument of whether of not there should be an World Wide Citizenship/US person taxation regime in the first place. It was there before this Commissioner launched his jihad, and it will probably still be there after he leaves, but if we all just meekly accept it, nothing changes...

      And that is my activist rant for the day! :)

      We have broken out the Champagne for you! Salute and Cheers

    3. @Researcher

      Reasonable cause argument: Was done entirely by me, although I used snippets of information I garnered from forums like this. My arguments never touched on technical legal points. I focused on the lack of knowledge of people like me and the factors for that, the progressively eroding legitimacy of the VDP, and the disproportionality of the penalty structure in my case. I did make sure that I referred to sections of the IRM that state the criteria where penalties can or must be waived, and indicated how each of those criteria had been fulfilled.

      Sched B: They never asked about it, and I never spoke to it in my letters (including reasonable cause argument). My view is that the Sched B question is both a red herring and boogeyman. Red herring because I believe it to be irrelevent in the overall context of your situation, outweighed by other factors like being a immigrant or expat. Boogeyman because it is seemingly scarier (if "No" was checked) than it is in reality.
      I have a theory that if someone in my position were ever dragged into court and the Sched B question was raised as the sole factor for imposition of penalties then the case would be lost by the IRS on the overall weight of evidence, reinforcing that "No" on Sched B is not sufficient to find willfullness (or even non-willfull penalties) and therefore undermining future IRS cases for true Bad Actors that do rely on the Sched B argument. This is pure speculation on my part.

      Audit: I did have a "full audit"... kind of. That is, they had everything they needed for the standard examination from the records I provided during pre-opt-out out process. They didn't need any more records and had no further questions, the examination happened completely out of sight from me with no actions required by me. So I just got a letter saying that my examination was done and complete, attached to the 4549.

      Moving money to foreign a/cs: Nope.

    4. Moby,

      Good luck and please let us know when you get your 906 and what is on it as that seems to be the point when they tack on the FBAR penalties.

      Can you also please clarify at what point you opted out? Did you opt out before the examination was started, or while it was going on?

    5. --Repost as my first attempt didn't get published--

      The 906 question

      It remains to be seen whether I am right on this, but I believe that there is no 906 if you opt out. Here is my basis for saying this:
      1) 906 is not a feature of a normal examination (what you get when you opt out). This was reinforced by IRS pub. 3498 which was provided to me as part of the opt out process, and never mentions it.
      2) When talking through the opt out process with the agent, there was no mention of 906s. Just the examination resulting from the opt out.
      3) All pre-opt-out 4549's ('-A' variants to be precise) were accompanied by 906s where I had the option to sign (I didn't, obviously). This is the only 4549 that didn't have a 906 attached, so I further assumed I won't get one.
      4) Look at this section of the IRM about when 906s are used. It backs up my thinking. I believe that the OVDP boils down to the IRS making an open offer to people who want a 906; people who "want" (read: feel coerced into) formal closure and are willing (read: feel coerced into) to pay for it at a fixed rate of 20%-of-high-bal. If you opt out then the IRS is no longer offering a 906, and you are saying that you don't want one. In return you aren't required to pay the fixed rate (and don't have the option either) and the IRS is allowed to unilaterally apply whatever penalties it sees fit. I doubt such unilateral penalty assessment is done via a 906.
      5) The the end of the standard examination process is, I presume, the time when they assess penalties. I don't think they would bother asking for tax penalties separate from the info return penalties when they should be determined at the same time.
      6) The opt out letter I submitted was required to have recommendations specific to the penalties that I thought should apply, and why. I recommended that the accuracy-related penalty be applied, and not any info return penalties. The most recent letter I received indicated my opt out request had been approved by the committee, so I assume that their approval is applied to my recommendations, not just the bare request to opt out.

      Another way of putting this, in my view, is that the possible outcomes for me in retrospect were:
      1) Staying in the VDP: The presence of an affirmation, the 906, that penalties will not be applied (beyond the cost of buying that affirmation).
      2) Opting out of the VDP: The absence of an affirmation that penalties will be applied. But nothing affirmatively saying they won't be.
      Confused? Me too!

      I suppose this doesn't close off my case and they still have the option of applying penalties (until the statute of limitations is up) but I really don't think they'll bother (I suspect they're sick of dealing with me). Personally, I don't need the certainty that a 906 might provide, and the 906 has so much fine print that the IRS could probably do what they want anyway even after it was executed. I spose I could call my agent to find out the story for sure but, again, I don't need the certainty and I can't be bothered with the hassle and the timezone scheduling issues of a phone call. Of course if I'm wrong on this issue you lot will be the first to know by way of a very grumpy post from yours truly :-).

    6. Moby,

      I think the key is that you got opt-out approval -- and you are right, that only means they have agreed on your recommendation. Otherwise, opt-out really does not need approval at all. This is very well said by IRS and on FAQ

      My congratulations!!!

      By the way, your case is a good example of opt out as 1. recent immigrants and 2. only three years of non-compliance.

    7. I also should add that you may still receive form 906 as the matter to have a final closure. But you may not get any other penalty (FBAR) because IRS has approved your opt-out recommendation. on penalty.

      Form 906 is needed to finalized this specific issue of offshore accounts, I think.

    8. Moby

      Thanks very much for your reply. A couple of (hopefully brief) questions:

      -- You mention that your opt out letter was required to have recommendations on the penalty that should be applied. Was this also the letter where you argued for reasonable cause for FBAR penalties, or did you get another chance to make your case ?
      [ Also, it was not an issue in your case, since both tax years were open, but in the 2011 OVDI case, I think it would be reasonable for minnows who opt out to say that the accuracy related penalty and extra tax should be applied only to open years (6 at most barring fraud, likely as little as 2 years). The IRS may not accept that, but at least it gives some leeway for negotiation).

      2) You mention that an exam was essentially done before opt out. Did that include full US returns as well (not just offshore statements)?

      Thanks, again.

    9. @Researcher

      In answer to your questions.

      1) Yes. Recommendations were packaged up with reasonable cause argument in the same letter. The IRS advised me via a form letter what points must be addressed in the letter; e.g. penalty recommendations, reasonable cause, mitigating factors, confirmation of opt-out etc. This was the letter that goes to the committee along with the Agent's recommendation. My reasonable cause argument was a summarised version of my lengthy initial letter requesting opt-out that I had sent in response to the 906 they sent me.

      2) It's impossible to know. The inputs to both pre-opt-out and post-opt-out exam were exactly the same; amended tax returns and all supporting financial statements for FBAR a/cs (no additional information was ever requested for either). The outputs from the pre-opt-out exam were 4549-A (no changes from amended returns) and 906 (which I did not sign). The output from the post-opt-out exam was a 4549 (with same numbers as previous 4549-A) which I did sign.

    10. @Anon5%

      In answer to your clarification question. Sequence went like this (following lengthy delay after initial OVDP submission):

      1) IRS requested financial statements for FBAR a/c's
      2) I sent in financial statements
      3) IRS sent 4549-A plus 906 with 20%-of-high-bal penalty. They requested signing of 906 and payment of all penalties.
      4) I sent letter requesting opt-out and making case for reasonable cause. I didn't sign 4549-A or 906 (although I did indicate the 4549-A was acceptable)
      5) IRS requested phone call. I had discussion with agent; agent explained opt-out process
      6) IRS sent letter outlining requirements for the letter I need to send (recommendations etc) and indicating implications of opt-out
      7) I sent letter confirming opt-out, summarising reasonable cause, penalty recommendations etc. Also had to extend statute on tax returns (Form 872?)
      8) IRS sent letter confirming opt-out application approved by committee and requesting payment; 4549 attached with accuracy penalty
      9) I sent signed 4549 and payment for accuracy related penalty

    11. To Moby:

      I have everything OK except I checked NO on my 2 year returns. Will that create a problem in opt-out. In other 3 years returns I did not check any box. Total years in violation is 5 years.

  37. Moby,

    Thanks for the updating, Is form 4549 only for audit process/change ? Opt out is still a VD process, and I wonder if you still need form 906 to have it closed ?

    Anyway, good luck! Certainly you are in much better position for opt out being outside US. Also your non-compliance years are relatively short (only two years 2007, 2008 because you entered 2009 OVDP).

    1. ij,
      In my case(no opt out) I got the 4549 showing calculations on taxes, interest, 20% accuracy penalties due. I signed and returned to agent. Months later got the 906 including the in lieu of penalty. Signed the 906 and returned with a check and then a few months later got the 906 back signed by the IRS.


    2. Anon123,

      Thanks for your information. I guess I am just waiting for my 4549 to arrive. And then if 906 really pisses me off (such as penalty on RRSP), then I will go TAS and may even consider opt out. This may give IRS a headache all over again work.

      Stay healthy, my friend!

    3. @ij - Re: The 906 question

      It remains to be seen whether I am right on this, but I believe that there is no 906 if you opt out. Here is my basis for saying this:
      1) 906 is not a feature of a normal examination (what you get when you opt out). This was reinforced by IRS pub. 3498 which was provided to me as part of the opt out process, and never mentions it.
      2) When talking through the opt out process with the agent, there was no mention of 906s. Just the examination resulting from the opt out.
      3) All pre-opt-out 4549's ('-A' variants to be precise) were accompanied by 906s where I had the option to sign (I didn't, obviously). This is the only 4549 that didn't have a 906 attached, so I further assumed I won't get one.
      4) Look at this section of the IRM about when 906s are used. It backs up my thinking. I believe that the OVDP boils down to the IRS making an open offer to people who want a 906; people who "want" (read: feel coerced into) formal closure and are willing (read: feel coerced into) to pay for it at a fixed rate of 20%-of-high-bal. If you opt out then the IRS is no longer offering a 906, and you are saying that you don't want one. In return you aren't required to pay the fixed rate (and don't have the option either) and the IRS is allowed to unilaterally apply whatever penalties it sees fit. I doubt such unilateral penalty assessment is done via a 906.
      5) The the end of the standard examination process is, I presume, the time when they assess penalties. I don't think they would bother asking for tax penalties separate from the info return penalties when they should be determined at the same time.
      6) The opt out letter I submitted was required to have recommendations specific to the penalties that I thought should apply, and why. I recommended that the accuracy-related penalty be applied, and not any info return penalties. The most recent letter I received indicated my opt out request had been approved by the committee, so I assume that their approval is applied to my recommendations, not just the bare request to opt out.

      Another way of putting this, in my view, is that the possible outcomes for me in retrospect were:
      1) Staying in the VDP: The presence of an affirmation, the 906, that penalties will not be applied (beyond the cost of buying that affirmation).
      2) Opting out of the VDP: The absence of an affirmation that penalties will be applied. But nothing affirmatively saying they won't be.
      Confused? Me too!

      I suppose this doesn't close off my case and they still have the option of applying penalties (until the statute of limitations is up) but I really don't think they'll bother (I suspect they're sick of dealing with me). They can pick a fight with me if they so desire. Personally, I don't need the certainty that a 906 might provide, and the 906 has so much fine print that the IRS could probably do what they want anyway even after it was executed. I spose I could call my agent to find out the story for sure but, again, I don't need the certainty and I can't be bothered with the hassle and the timezone scheduling issues of a phone call. Of course if I'm wrong on this issue you lot will be the first to know by way of a very grumpy post from yours truly :-).

      Jack may be able to comment on which parts of my 906 speculations are plausible and which parts are pure BS ;-).

  38. Moby,
    Is there an email/contact you can be reached at or
    what would be the best way to contact you?

    1. Can you provide some context?

    2. to get a first hand info on the nittigritties and nuances of this program and how you navigated the same.

  39. Prob best if you ask questions on the forum. Then everyone gets the benefit of the answers.

  40. "I would be watching for the results of Shulman’s decision on the TAS TAD on the 26th."

    Anyone know the results? Where can they be found? Let's hope this man comes to his senses.

    1. So far nothing. I am pretty sure, that when it becomes public Jack will post something about it. Right now I have been watching...

      The IRS News Room...

      and the Tax Advocacy Blog's-Blog

    2. Interesting read on the TAD issue:

      This publication seems to say that if you already closed in the previous initiatives and have the right circumstances, well maybe you should file for a FBAR penalty refund. If you are still in the "fertilizer processing plant" then maybe you should not be too quick to sign a 906. Interesting.

      I wonder if tax law firms would be willing to take cases for 2009 FBAR recovery claims on a contingency. In other words keep a percent of what is recovered. Wow! That might keep the IRS busy for a while.

      Why could they not have had a program where the punishment fit the offense based on the facts and was reasonable to the facts? Oh, thats what they say they had. What a bunch of baloney.


    3. Yes I also like the idea of giving a business to Nixon Peabody LLP to recover FBAR penalty on a % basis. By the way, whatever mentioned by Nixin Peabody LLP, is very encouraging & making me very hopeful.

  41. I strongly urge people to contact their congressional reps. and speak with the person dealing with IRS oversight / taxes. Get the word out that the FBAR was a little known form we did not know about and that the penalties imposed under OVDI are draconian. A little ground work from all of us now will go a long way in addressing the issues / problems we will face 6, 12, 18 months from now when OVDI closing agreements are mailed.

    1. Off topic, but more from the Canadians

      “Americans got used to the idea that things were always going to get bigger and better and that standards of living would always rise,” says Wright. But so it was, too, with the imperial powers of Britain and France and Spain before them: they all had to learn accept limits eventually.

  42. Moby:

    Can you give us a "table of contents" list of your headnotes? Also, are there specific IRM section you could list for us? Thanks and congrats!

    1. In my view the key IRM sections you need to specifically (and pointedly) address are:
      - (point 2)
      - (point 4)

      As part of (and in addition to) addressing these points, my approach was to focus on:
      - Why FBAR requirements were not discoverable by a reasonable and prudent person
      - Why penalties are disproportionate given specific facts and circumstance
      - Illegitimacy of penalty application given FAQ #35 revocation, and retrospective relief offered to some classes of VDP participant but not others (who are equally unworthy of such penalties). I.e. terms and conditions and penalties were set at start of VDP then unilaterally and retrospectively changed; the rulebook has been thrown out of the window.

    2. Moby

      Thanks a lot for all your replies, and best wishes putting all this behind you.

      I understand that one can obtain the information in an agent's file during normal audit. Did you ask for that prior to opting out or try for penalty abatement without exiting ? I gather no from your time line description ..

    3. @Anonymous Jan 30, 2012 05:20 AM

      I wasn't aware that this was a possibility, so I didn't. I doubt that I would have done so even if it was a possibility as I doubt there would be anything in the file beyond what I gave them.

      And I didn't ask for penalty abatement prior to opting out. I just opted out.

    4. Jack Townsend:

      What is penalty abatement prior to opting out? How can it be achieved .

    5. I don't know what that is. I believe there may be some practical penalty abatement by negotiating what gets included in the penalty base, at least in close cases (for example, where the U.S. tax noncompliance was de minimis). But I think the standard IRS line is that the penalty applies, period. If you want a lesser penalty (might be called abatement), you must opt out.

      Having said that, I am not sure that Just Me opted out. He tried many lines of attack, including the Taxpayer Advocate, and got relief. But I am not sure that occurred in an opt out. Perhaps Just Me can speak to that.

      Jack Townsend

    6. Jack is right. Technically, mine was not an Opt Out. The penalty abatement was related to FAQ35 consideration in the 2009 OVDP. If I had not decided to cut bait and settled at that point, I could have still Opted Out.

      At that time, visibility related to the Opt Out was very opaque, and I wasn't sure I wanted to be the guinea pig for that unknown process as the threats by the IRS for maximum penalties were still being thrown around.

      That said, I did feel my TAS relief did represent some indication of the penalty abatement that might happen in an Opt Out. It should provide hope for those inside the OVDI that feel the penalty structure is too severe for their so called crimes.

      Since then, we have the reports of Sally and Moby here that show excellent results, leaving aside the entire question of why they had to go through all that agony in the first place.

      Theirs were probably a more sympathetic case than mine, but I have to believe given the TAD and the TAS report to Congress, that the IRS will be bending over now to be more reasonable and fair with the discretion allowed in the Opt Out. I would be much less fearful of doing that now. If you are not a Whale, you should be seriously considering Opting Out, in my opinion.

  43. To Anonymous Jan 27, 2012 10:04 PM

    If I could insert a comment here too please, before Moby answers your specific questions about his head notes.

    As a resource for Minnows, I am starting to blog my experiences and my very meager, non specific advice. It is going to take me a while, but I might begin posting some of the letters I wrote to Commissioner Shulman along with those I wrote my examiner through out the total OVDP process. A lot of what I will blog be repeats of things I have said in posts here at Jack Townsends blog over the past 9 months. Just more consolidated in one spot.

    As you have discovered, you are on the BEST blog, bar none, for learning about the OVDIs and figuring out what course of action is best of you. I have posted my first, called “OVDI Drudgery for Minnows” which will bring you right back here for your personal reading list!

    If you read it, there is nothing earth shattering there. I basically encourage you to do your personal drudgery, and you will notice that I give chronological reference as to which of Jacks blogs I would be reading as you work your way through the information gathering phase....

    Everyone wants quick answers and direction, and I understand that entirely. Me too! But….sometimes you have to just work your way through the information already available, and you will find your question has already been answered previously. Just like your question of specific IRM section you want. It has been referenced in other threads multiple times, and here it is again:

    So I would encourage you to back up a bit, and read the many good things Jack has said and information that has been shared. Take your time, as I don't think you need to be in a rush, now that the OVDI decision is not deadline driven, and if you are in the OVDI already, the process will grind away slowly and you can delay it even more with written correspondence while you are figuring out what you want to do. As Moby has shown, and kudos to him for sharing it with us all, the Opt Out is a viable solution to consider, to mitigate the penalties that were designed for Whales.

    Good luck to you Mate. You are fortunate to be reading Jack's blogs. I shutter to think, how many went through the OVDP, without knowing this resource was here.

    1. According to IRM B
      Documents that may be helpful in establishing willfulness include:
      B: A copy of the signed income tax return with Schedule B attached ( Showing whether or not the box pertaining to foreign account is checked or unchecked )
      If this is the case, everybody who enters OVDP OR OVDI, is essentially proved to be willful. Because IRS has the copy of the 1040 & Schedule B.
      So how can a person opt-out & get non-wilful penalty at a reduced amount ?

    2. I don't believe this is the case. "...may be helpful..." does not equate to "any one thing is sufficient"

      In addition IRM (point 6): "The mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, by itself, to establish that the FBAR violation was attributable to willful blindness."

      This corresponds with my case where the facts and circumstances outweighed the Sched B issue, as it would in (I believe) for most immigrants/expats.

    3. @ Anonymous Feb 1, 2012 05:24 PM...

      I surmise from your questions that you have not been reading this blog extensively. A check mark on Schd B does not by its self establish willfulness, in spite of what that IRM guideline says. It can be a factor, but not a sole element. There are a lot of other factors that come into play.

      Maybe this discussion will help you,...

      Title of article is.... Proving Willfulness in FBAR Reporting – Checking “No” Ain’t Apropos

      Also Jack has also discussed willfulness extensively here, (ll blogs related to the subject) and you can do a search through his archives for more information or follow this link....

      Additionally, did you read Moby's story carefully about his Opt Out dated Jan 24, 2012 10:10 PM?

      Just scroll up and read the entire thing, and do NOT skim.. :) His schd B was checked NO, and he rightfully opted out rather than be saddled with the extreme OVDP penalty. Take note and take hope! :)

    4. Hello Just Me:

      Usually, there is only a window of 20 days after receipt of 906. Did you contact TAS in this 20 days period OR you were pre-prepared .

    5. @AnonymousFeb 3, 2012 11:57 AM

      Through out my OVDP, I actually received four separate 906s. Each I refused to sign, and followed up with letters with objections or problems that required the examiner to respond and issue new 906s.

      I finally contacted the TAS when I was down to about 10 days left to decide to Pay up, Opt Out or get kicked out. That decision was due to a separate letter that I got from the IRS demanding that I decide, and not as a result of any 20 day window on the 906.

      I have posted most of my interaction with the TAS here...

      Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)

      and I commented extensively here to other questions related to my experience.

      Experiences Inside OVDP / OVDI (9/14/11)

      Hope this helps

  44. Hi Moby,

    Congratulations for seeing light at the end of the OVDI tunnel.

    Would you be kind enough to answer my qs: did IRS ever ask you to prove the source of all your funds after you opted out? Or you did not give them a chance to ask by providing them the source of all your finds and they were satisfied with it?

    Basically I would like to know if it is a prerequisite to be able to prove the source of all funds when you opt out and if there is some money whose source you can't prove, then is IRS going to force the person to pay income tax and penalties on that money?

    Thank you and wish you all the best.

    1. I'm not sure what you mean by "prove source of funds". I just gave them my financial statements (pre-opt-out) and that seemed sufficient for all pre-opt-out and post-opt-out examination. I think the source of all funds would have seemed self-evident for the years the records covered.
      I think it would have been an exercise in futility for them to ask me to prove source of funds for all the prior decades over which the funds were accumulated prior to moving to the US.

  45. Moby (and others) thank you for sharing your successful opt out. It gives me and others the confidence that with hard work and persistence successful opt-out is possible.

    It's a bit like beating the 5-minute mile record, it used to be common belief that it was humanly impossible to do, but once one person beat the record others quickly followed because they had the confidence knowing it could be done.

    One question, although you had left the US at the time of opt out, were you still a US person (green card or citizenship) or had you renounced?

    I think your result (20% of unpaid taxes as penalty) shows what would be a fair penalty for everyone which would deal with gradations of conduct. Someone who neglected to report minimal interest on an offshore account would pay a much smaller penalty than someone who had wired untaxed income to that account, even though the high balance of the accounts might be the same.

    The IRS COULD change OVDI to base the FBAR penalty as a percentage of unreported income, (and have few opt outs since this would be a fair system) OR it could keep trying to assess a penalty based on high balance, and have a lot of opt-outs with results similar to Moby's, at the cost of many man-hours.

    1. Dear Jack and all the others posting their experiences and insights, Thank you very much! I have learnt a lot from this and continue to obtain more perspective as my wife and I continue to consider our options:
      (1) 2012 OVDI
      (2) Quiet Disclosure (QD)
      (3) Keep it clean from now and forget about the past and raise 'reasonable cause' if and when audited

      Our case is as follows:
      Situation: We became 'US persons' in 2009 after my wife moved to an H1-B visa type thereby passing the substantial presence test (We came in as F-1 students, I'm still on an F-1 and would be a non-resident alien if I filed separately).

      Problem years: 2009,2010

      Tax Obligation missed: ~3K for both years combined

      Tax paid on US income: ~40K for both years combined

      Schedule B: Never filed before (as US interest income was insignificant)

      Reason for failure: Did not know FBAR requirements or tax obligations until recently..

      So my request is, just like this blog about OVDI, could you start a post about what really is happening with QDs?


    2. I had already renounced by the time of opt-out. My GC (like my stay in the US) was only temporarily necessary and I ditched it shortly after I left the US.

    3. HB....
      The option 3 looks very inviting to me, based upon my past experiences. See Jack's comments above.

      As far as a thread just for QDs go, the likely hood of there being much feedback from such a scattered Diaspora of GC holders or Expats abroad that would provide anecdotal information would be rare, I think. What could they report? Not audited yet?

      The IRS is so busy with the extra burdens they have created for themselves with how ineptly they have conducted the OVDP/OVDI, I am beginning to think, that being clean from this point forward, like you described, seems a very good option. I can not advise you to do so, but I would consider it carefully.

      The IRS has created such bureaucratic and administrative nightmare for themselves, and doesn't have time or resources to look for minor failures such as yours, it seems to me. Remember, they started all of this looking for UBS Whales. They don't want your QD, as they have plainly told us with all their threats. They don't have an easy method to process you if you go the OVDI route, and will put you through processing hell before you can Opt Out.

      The "go and sin no more" option 3 is certainly an attractive one to consider. This is yet another unintended consequence of bureaucratic bungling. I have to agree with Anon123’s "Wow!" above. You just shake your head in wonder.

    4. I will create a blog so that trails can be created for experiences of quiet disclosures. I would suggest that, given the lag time for audits to be generated, I would suspect that it will be some time before the anecdotal experiences will be sufficient in number to permit broader conclusions. And, keep in mind, that even if the QDs are picked up for audit, the audit timeline will be signficant. So for a good database of information as to what happens on QDs after the special voluntary disclosure initiatives will take years.

      Jack Townsend

    5. Just Me and Jack,
      Thanks a lot for your responses.. There are only a couple of considerations, it seems, that favour a QD over option (3)

      (i) IRM here:

      Which states:-
      "The penalty should not be imposed if:

      A. The violation was due to reasonable cause, and
      B. The balance in the account was properly reported on an FBAR. This means that the examiner must receive the delinquent FBARs from the nonfiler in order to avoid application of the non-willfulness penalty."

      This seems to say that not filing delinquent FBARs would eliminate waiver of non-willfulness penalty (which in itself would be hugely disproportionate to our tax owed since we have multiple accounts though only one has a high balance)

      Am I reading it wrong?

      (ii) The guidelines recently published by the IRS on their website for expat:,,id=250788,00.html

      This seems to suggest that filing delinquent FBARs when the tax obligiation is 'de minimus' (whatever that might mean) is encouraged...

      Any thoughts would be greatly appreciated..


  46. I had a FBAR violation for 2005. I transferred a little over $100K to purchase a house, and it was in my account overseas for 1 day before being passed on to the seller. I did not even file taxes that year because I made under $400 in income. I am not going for OVDI, but I want to know if the statute of limitations is up for that year (2005). Does that put me in the "clear", so to speak?

    1. No, you have to wait till July 1st of this year, then you're home clear of FBAR civil penalties. In any case, based on what you've mentioned, I think the probability is miniscule that you would get anything other than a warning letter.

  47. Moby,
    Could you discuss your thought process/motivation for opting out without a lawyer (if I recall correctly you used a lawyer for the initial steps of the disclosure.)
    Just wondering because I have a lawyer but if all he can help me with is pay the max 27.5% then what do I need him for? Maybe your experience can help me decide. Thanks!

    1. I've alluded to these points in earlier comments, but I'll cover them again and elaborate.

      I developed deep cynicism towards tax lawyers during the process, influenced by my own direct experience and to a lesser extent the stories of others. I don't think I or many other participants were served well by the people we paid to advise us.
      In particular:
      - I think people like me were corralled into the VDP by lawyers deliberately overstating risks and ignoring our specific facts/circumstances. I think the motivation to earn fees was a significant part of this.
      - I think that lawyers pretended to know more about the VDP, what options there were, and how it would work, than they actually did. But they weren't upfront about it.
      - I think that advice given by lawyers (usually to enter the VDP) was heavily influenced by covering their own butts; with respect to circular 230 and potential implications of not advising clients to enter the VDP.

      I have some sympathy for the legal community given how poorly and opaquely the VDP was run by the IRS, but there was still a lot of deceit involved by not being more upfront about what they knew and their own conflicts of interest.

      I wasn't prepared to trust someone like this in managing an opt-out on my behalf. If those arguments were in favour of not having a lawyer do it, the reasons for myself doing it were:
      1) English is my first language
      2) I'm comfortable writing technical documents and arguing out issues
      3) I had quite a lot of knowledge I had picked up during the process (IRM, reasonable cause arguments etc) that I felt comfortable with proceeding myself
      4) It had become apparent to me that the opt-out was a negotiation more than anything else. I'm a believer that negotiations are best done by the people with the most skin in the game (not by a third party); which means me.

      BTW: I'm sure there are people who had far more positive experiences than me with tax lawyers, and that they are not all bad. But I've since realized that if I'm not knowledgeable enough to tackle a complex situation myself, I'm not knowledgeable enough to pick the right advisor to assist me with that same complex situation.

    2. Moby,

      I could not agree with you more. As a long term overseas resident with no family or personal ties to the US, I had no knowledge of how the “professionals” operate. I feel this has led me to be taken advantage of and has put me in the unpleasant situation that my attorney’s costs alone are now greater than my potential 5% penalty. The accountant’s costs are roughly half of the attorney’s costs.

      While, thanks to the lawyer involvement, I have not experienced the angst that many people in OVDI have had with respect to the correctness of the submissions, or the accuracy of my returns, the overall cost thus far is 80% more than originally quoted and I do not have an examiner assigned yet. I am trying to stem the bleeding of money, but more expenses are inevitable. It is very hard to extricate yourself from the claws of a vulture.

      I would like to pass on some of what I have learned so that those contemplating OVDP can learn from my experiences if they decide to use an attorney. I will post my experiences in a follow-up comment to this one as character limits prevent me from posting them as part of this comment.

    3. To Moby and others – continuing with my experience with OVD lawyers and view on what to be aware of:

      1) I was buffaloed in the direction of OVDI when an accountant I contacted in the States refused to speak with me unless I got legal counsel. He asked me one question, which was “Do you have any mutual funds?” When I said yes, the conversation went cold. I now think he feared more for himself than for my interests. He then recommended a lawyer who told me that there was no negotiation and my only recourse was Voluntary Disclosure. We had about a 10 minute discussion and being naïve and out of touch with what was going on with respect to FBAR enforcement, I thought it was best to follow the attorney’s instructions if I wanted to correct the error that had been made. I was quoted a price that was outrageous, but I knew that Americans were very litigious and I wanted to do the right thing to correct any error I had made so without knowing if I owed tax or not and without much thought, agreed to enter VD. I was also told that any money not used by the lawyer would be refunded. Ha!

      So what have I learned from this:
      a) If you contact an attorney or an accountant for an analysis of your situation, even if it means paying, their consultation with you should go into your individual details and present more than one option. There are more options which one can decide upon based on their own unique facts and risk tolerance. This probably takes a few hours. 10 minutes is not sufficient.
      b) If you feel at all scared by the way the attorney advises you of your options, run for the hills. The decision is about the best option for your facts and emotion should not enter into it.
      c) Ask if accountant fees are included in any retainer you pay. I had the impression they were included in mine, as my lawyer told me he would retain an accountant for me and the amount of retainer I paid would normally cover all costs. Surprise! The accountant’s fees were not included.
      d) Take any amount an attorney tells you and double it and perhaps you might have a good estimate of what your legal fees will be.

      2) One of the reasons my legal expenses have gone up so high is because the attorney I use gives work to his associate lawyers that could just as well be done by an accountant. While the associate fees are lower than the Partner’s fee, my overall costs could have been lower if some of this work had been performed by accountants. Lawyers tend to give work to associates in order to increase billable hours. As a matter of fact, it took several months before my attorney brought in an accountant so any accounting questions had to be asked to the associate. Whoosh! My costs went up. So my advice here is to check the lawyer’s approach and see how much accounting work is done in house by associates. This could involve things like filling out your FBARs for you, or even just checking them. If you hear that an associate lawyer will be involved, ask questions. Maybe try another lawyer who states they will give most of their work directly to the accountants at far less billable rates.

      3) If you have time, a straightforward case and a cool head, consider managing the process yourself and bringing in legal counsel (it will cost) at key decision points if you feel uncertain, or are getting resistance from your examiner. Just Me has posted a long blog on the Isaac Brock Society about his experience and you can get a feel for when he felt it was necessary to call in expert counsel.

      I hope that this little bit of experience will help others to not be so naïve as I was.

    4. Moby

      'It had become apparent to me that the opt-out was a negotiation more than anything else. I'm a believer that negotiations are best done by the people with the most skin in the game (not by a third party); which means me'

      I agree completely -- I'm considering opt out too (facts similar to yours, but more years involved), and I think the entire opt out process is likely to be just a negotiation. The process document mentions (and you confirmed) that you are required to submit a letter indicating the penalties that one believes would apply.

      Presumably, this letter should be seen as the first step in a negotiation, i.e. the penalties one submits might be less than one is willing to accept, so that in the process of negotiation they could be driven up.

      1) Now, about FBAR penalties, I think for most minnows, a warning letter would be appropriate minus other bad facts.

      2) About taxes, it seems to me to be totally fair that the IRS should be paid the tax due on all years that were open at the time the person joined OVDI. For OVDI, that is 5-6 years. The government has asked for an extension for previous closed years as well (but as Jack has indicated before, barring fraud, that is not valid legally for any year that was not otherwise open at the time the IRS counter-signed the extension form). In fact, barring substantial understatement (unlikely for many people with small accounts), it may be the case that only 2-3 years are open, and the others are closed too because there is no 25% understatement or > 5K understatement (some rules were revised retroactively. Then there is the accuracy related penalty.

      So, the most aggressive negotiation step (assuming good facts) would be to propose paying

      1) NO FBAR penalties.
      2) All taxes for open years
      3) Accuracy related or failure to file penalty for some subset of the open years.
      4) Interest on 2 and 3.

      My opinion is that (assuming reasonably good facts), the IRS will generally settle for no or nominal penalties for FBARs, but will ask for taxes on all years covered by the OVDI, even those otherwise closed, and may waive the accuracy related or failure to file penalties for a few of those years, and will ask for interest on taxes due and penalties.

      I'd be interested in hearing comments from people on these thoughts

    5. yes. most of the lawyers are vultures trying to bleed you.My lawyer has already charged me four times the initial quote he gave me and i have not even been assigned an examiner. All this for funds that were not even earned in the US.

    6. To add to my previous comments, I'm assuming that a person who opts out has made a full, complete disclosure and has no fears (other than the hassle) of a full audit, and has no badges of wilfulness (entities, untaxed US source income etc.)I'm also assuming no other information return penalties. Even such people might get a better result under opt out, but in that case the negotiation would have to start differently.

      I'm also assuming the IRS will be reasonable on opt out, i.e. not try and assert willful penalties merely to intimidate people into accepting a settlement even in cases where they (the IRS) think that prevailing in court is not likely. I find the whole fracas over Wegelin somewhat hopeful for minnows, believe it or not. Hopefully, the fact that they might get more whales to process will make the IRS focus more on these people rather than wasting time on minnows.

    7. Amidst some of the negative comments about lawyers, one must commend very highly the lawyers such as Jack, Hodgen and others, who have offered reasonable, realistic advice to people about entering the OVD programs and even provided a lot of freebie information on their forums.

    8. To all of you struggling with your attorney fees. It is very good that you are sharing your experiences here. I hope new folks still trying to work out what to do, take head. Professional advice can be important, but most Minnows can go through the process with some personal due diligence drudgery without paying an attorney to do the entire process for you.

      I have mentioned above that I have written about OVDI drudgery for Minnows at Isaac Brock. The key point is this...

      If you are not willing to do this drudgery than be prepared to pay out BIG $. If you have more money than time, you may be tempted to do that, however you can still incur significant and unnecessary risks in spite of the money spent. By definition those reading here are probably Minnows, and likely not anxious to spend the bucks. You may be a DIY person. I was. You can go through the entire process without giving power of attorney (POA) to anyone. You can learn to trust your own council, if you do what I suggest. Just remember, if you put your OVDI life in a tax practitioner’s hands, how do you judge the quality of the advice you are given? Think about that! If you don’t have a strong knowledge foundation to measure advice against, you are setting yourself up to be fish fertilizer. So, do the drudgery now and become Fool Proof later!

    9. To Opter-Out,

      My analysis is similar. One comment, though – Inside OVDI, it is like the Wild West. Lawlessness prevails. Once you opt out you are outside of OVDI and you can benefit from the protection offered in the Internal Revenue Code. So why bring years that are not otherwise open into the negotiation unless you gain clear financial advantage from doing so?

    10. Anon 5%.

      You make an excellent point. Should one bring otherwise closed years into the negotiation ? If it was only a tax matter, I would not do so, and I would see no reason for others to do so either.

      But there is the FBAR penalty, even the non willful penalty can be harsh. The hope/belief is that by agreeing to pay taxes even for years that are not otherwise open, one can demonstrate good faith to the IRS and can feed them old taxes, that could keep them happy and avoid the uncertainty (for both parties) of a protracted fight over FBAR penalties, which I think neither would particularly welcome.

      I admit the benefit from suggesting paying taxes for non open years is somewhat intangible. Perhaps if someone has a better story than mine, they could suggest just paying taxes for open years, and no penalties, either tax or FBAR.

    11. i totally agree about lawyers like Jack. They are the rare exception. Jack especially has been very generous with his time and excellent analysis on the cases posted in his web site.
      I salute him and wish there were atleast a few other lawyers like him. Maybe i have not searched enough.

  48. To Jack (or other lawyers),
    At what point do you think it makes sense to speak with a lawyer to get advice on whether or not to opt out? I have a lawyer but would like to pay for one two or more hours to get a second (or third) opinion from someone else.

    1. To Anonymous Feb 2, 2012 12:17 PM

      I think the point to do that is the last possible time. Before signing the 906 or any other closing document, you should then consult first with your current lawyer and, only then if you feel it necessary to talk with one or more other lawyers, should you do that.

      Be sure and keep your eye on to see what anecdotal experiences are being reported by the persons who opt out or practitioners whose clients opt out.



    2. and then, take your own council. If you have been reading here enough, and review the many experiences that have been shared, you should have enough knowledge to trust your judgement at some stage.

      Jack is right, in saying that the point is the last possible time. Then ultimately it is your decision, and remember...attorneys can be wrong. Although, I would trust the opinion and highly value any guidance you get from someone like Jack.

    3. Jack,

      I have heard that one has only 20 days to decide whether to sign the 906 or opt-out or be kicked out. Is it possible to consult a lawyer in such short time and take a decision?

      What advance preparations should one do in order to successfully execute this plan?

      Thank you.

    4. What happens if someone involves TAS in these 20 days ? Will IRS be prevented from taking the action of throwing a taxpayer out of OVDI ?

    5. @AnonymousFeb 3, 2012 10:19 AM

      They won't automatically throw you out if you don't sign the 906.

      They have to send you a separate letter outlining your options. If you are considering Opting out, instead of paying up, you can just write them a letter stating your consideration. That should cause them to generate a letter, that then gives you 20 days to decide to pay up, Opt out of get kicked out.

      Or you can just wait, as that might slow the process a bit. If you are unresponsive, then they again have to send you a letter. However, I don't recommend this approach, but it is a way to slow things up a bit.

      I think it is better to be forth right with your examiner if you are considering Opting Out, as they need to be onside with you for a successful Opt Out. If you are nice, they might also give you a little more time while you mull it over. I found my examiner was pretty flexible with timelines as long as I was engaged with her, and not just stonewalling.

      The entire process is documented here with the types of letters and time frames you should expect.

      I am not sure that TAS would take your case now with the Opt Out guidelines available. I can't speak for them, but they may think you have an avenue for relief now. It all depends on what your situation is and the facts that make TAS intervention necessary prior to an Opt Out.

      You will just have to contact them and see. I would recommend contacting the DC office as they are more familiar with the OVDI, then some of the regional offices will be.

      However, for the sake of argument, let's say they do take your case for whatever reason, and if you are under a 20 day IRS timeline, they can usually get a 30 day extension. That is what they did in my case, and that was enough time to come to a resolution.

      To your first question about advance preparations, well, hopefully you have been saving and documenting all your facts and correspondence with the IRS. Also an attorney would want to see your original letter to IRS CI when you joined the program.

      And, yes, I think you will have enough time to work through a decision with an attorney, if needed, as to whether or not an Opt Out will work for you.

  49. Hi All,
    Just re-posting a version of my previous comment/question about Quiet Disclosure versus 'forgetting past and sinning no more (and raising reasonable cause if and when examined/audited)'.. There are only a couple of considerations, it seems, that favour a QD over the latter option for people like me whose tax obligation is small (ours is about USD 3K for 2 problem years combined and we *have paid* about USD 40K on US income.. wonder if that's small, we are temp visa holders)

    (i) IRM here:

    Which states:-
    "The penalty should not be imposed if:

    A. The violation was due to reasonable cause, and
    B. The balance in the account was properly reported on an FBAR. This means that the examiner must receive the delinquent FBARs from the nonfiler in order to avoid application of the non-willfulness penalty."

    This seems to say that not filing delinquent FBARs would eliminate waiver of non-willfulness penalty (which in itself would be hugely disproportionate to our tax owed since we have multiple accounts because of foreign mutual funds :( though only the 2 bank accounts have a high balance)

    Am I reading it wrong?

    (ii) The guidelines recently published by the IRS on their website for expats:,,id=250788,00.html

    Extending this to temp visa holder, this seems to suggest that filing delinquent FBARs when the tax obligiation is 'de minimus' (whatever that might mean) is encouraged...

    Any thoughts would be greatly appreciated..


    PS: Is there no source of official information about PFICs other than reading statutes/regulations/tax-treaties which are pretty much in greek for me??

    1. To HB,

      I think you are reading the IRM wrong. I haven't gone back to look at it, but my recollection is that it has to mean that you can provide the FBAR(s) during the audit. In other words, you do not have to do a QD to get the benefit described in the IRM. Keep in mind that the IRM is talking about audits for people who have not filed. If it were required that they have previously required, the relief from the penalty would never apply. I don't think the IRM has in mind that the FBAR(s) must have been filed (either timely or by QD) before the audit starts.

      Note the way it is worded -- the examiner must received the FBAR from the taxpayer -- not that the taxpayer had previously filed the FBAR.

      Jack Townsend

    2. Jack

      Not HB here, but I believe that wording on reasonable cause is taken largely from the statute ('the balance in the account was properly reported'). It could indeed have the interpretation you mentioned (i.e. the examiner must receive the FBARs on request during audit).

      However, the IRS could also interpret the statute as saying that it means the FBARs must be received BEFORE audit notification. That would mean that reasonable cause would likely be excluded if FBARs are not filed before the IRS initiates the audit. It seems to me the IRS could well take this position (not inconsistent with the statute language) to deny reasonable cause in most instances to people who do not join some form of disclosure program (QD, VD etc.) before audit, and use this as a tool to discourage the 'comply going forward' idea.

      I'm not a lawyer, and of course, this could be challenged in court ...

    3. Here is what the statute says for the reasonable cause exception:

      (ii) Reasonable cause exception.— No penalty shall be imposed under subparagraph (A) with respect to any violation if—
      (I) such violation was due to reasonable cause, and
      (II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.

      Item (II) is the key condition (note that they are conjunctive, which I shall address below). Most potential FBAR violations are failure to file. I suppose that the bare text of the statute could be construed that the reasonable cause exception could not apply for one who failed to timely file because the transaction was not properly reported (one could say that properly reported means complete and timely). And, if an FBAR was filed but accounts omitted, the same problem would exist. In other words, in each case, since no FBAR was properly filed (so read to mean complete and timely), there could be no reasonable cause and the statutory relief means nothing.

      Of course, a delinquent FBAR or amended FBAR (by QD or otherwise) does not solve the problem because the information was not properly reported (complete and timely). Again, the provision that Congress enacted to provide some relief would never provide relief.

      Continuing on that point, there is nothing in the statute that would suggest that, if indeed a proper FBAR (meaning complete and timely) is required, a delinquent or amended FBAR will work (whether by QD or otherwise). So, how does the IRS get to the point in the IRM that the taxpayer just has to submit a proper FBAR (necessarily delinquent or amended) during the audit.

      The IRS gets there by statutory interpretation and some common sense. On the assumption that Congress meant something, I think the IRS correctly interprets the relief in the IRM to require only that, during the audit, the taxpayer must submit the FBAR(s) to the examiner.

      Keep in mind that the taxpayer still must establish reasonable cause (which by the way is the relief valve for the accuracy related penalties for income taxes). If, for example, the taxpayer establishes reasonable cause for not filing, how can it logically make sense that he is punished for not filing?

      So, I disagree that, if the taxpayer waits for the audit (not certain to come), he will not be able to present the same reasonable cause defense he could make in an audit after QD (more likely than an audit on go forward) or on audit opt out of the OVDI program (a certain audit).

      Now, I do think it is true that doing the QD under normal circumstances may add some further good faith in the taxpayer's reasonable cause. That is very intangible and not really suggested by the statute that focuses on the conduct as of midnight on June 30. If the taxpayer had reasonable cause at that metaphysical moment, he or she should qualify even if he or she made the strategic decision not to file delinquent or amended FBAR(s) by QD or OVDI or otherwise.

      When that mix is crunched together, for the client who has no criminal exposure and, based on similar reasoning, is to at significant risk of civil fraud or willfulness, go forward without any correction of the past is something that should be considered. It is, of course, uncertain as is the nature of much of life, but guided by a competent tax professional aware of all the facts and circumstances, a taxpayer may be able to make that decision.


      Jack Townsend

    4. One other point, the IRS really does get some benefit in an audit by rewarding the taxpayer to file a proper FBAR. The nature of foreign accounts is that they are hidden. Even if the IRS discovers one or two, it may not discover all of the accounts. By incentivizing the taxpayer to file a proper FBAR, the IRS gets information it needs with significantly lesser audit and systemic resources. Without that incentive, a taxpayer might well not cooperate in the audit.

      Of course, the IRS could issue a required records summons or, go to the trouble of getting a grand jury investigation to issue a required records grand jury subpoena. But even that might be uncertain to identify all of the taxpayer's accounts and significant additional resources would be required.

      So, facing a taxpayer with reasonable cause, the IRS is probably smart to confer relief with perhaps just a slap on the hand or a formal letter reminding the taxpayer to do right.

      Jack Townsend

    5. To
      Jack Townsend:

      I read in the other thread that Lord Tim Geithner was having the unreported tax liability of $ 42000+, yet he did not pay accuracy related penalty nor he paid FBAR penalty. How can this happen in USA. This much open discrimination !! IRS owes an explanation to the American people.

    6. Jack, Thank you very much for a detailed analysis regarding the IRM guideline about penalty waiver..

      Now, I go back to what may be a stupid question:

      What are some common examples of facts and circumstances where an FBAR failure to file violation would be considered non-willful despite there being NO reasonable cause..

      Once again, I wish to thank everyone in here sharing their valuable insights..


  50. Got a form letter from the IRS the other day which said in part "A voluntary disclosure will not automatically guarantee immunity from prosecution, however, a voluntary disclosure may result in prosecution no being recommended.” Letter goes on to say I should submit all documents noted in FAQ 25 if I have not already done so.

    Anyone else go this yet? I submitted my package in late August.

    1. Got this letter (preliminarily acceptance letter from IRS) after I submitted Offshore Voluntary Disclosures Letter to IRS CI. After that, I sent
      full disclosure with all amended tax returns to Austin.

      Did you skip that part and sent your full disclosure to Austin?

    2. This is what everybody gets in response to the CI letter. This is the first step in applying to enter OVDI. Did you receive the same letter twice?

      You say you submitted your package in August, but did you do so without receiving a response to the CI application? If so, then you are fine. Everybody gets a letter like you got but only once.

      If you got it twice then that is something weird.

  51. I'm not totally clear on what the effect is of signing form 906 (closing agreement) either with or without opting out. Does this mean that I owe the FBAR penalty of 25%, 27.5% or negotiated lesser amount? Or does the DOJ still have to sue me in court and prove wilfulness or negligence (depending on which of these two they are alleging in determining the penalty)?

    And is the opt-out decision primarily based on the likelihood of the IRS being able to meet the wilfulness threshhold?

  52. To Anonymous Feb 9, 2012 09:19 AM

    The penalty in question is not the FBAR penalty. The Form 906 is for the income tax, income tax penalty and interest on both and for the "in lieu of" penalty which is an IRS penalty. Hence, immediately upon signing by the parties, those items are assessed and may be collected using the usual IRS collection tools.

    Only an FBAR penalty requires a suit if the taxpayer does not agree and/or pay. But, inside the OVDI penalty structure (i.e., if you do not opt out), everything is assessed by the IRS under the Internal Revenue Code, and not as as FBAR penalty.

    Jack Townsend

  53. Jack,

    Thanks, so this is what I understand the process

    After opt-out, a taxpayer may negotiate with IRS a penalty rate (between reasonable cause of zero to same kind reckless (non-willful) of $10K for each year.

    If it fails, then IRS will have to go to the court (it will be sent to DOJ right ?) to get a ruling on the penalty they insist.

    So, there may be a cost efficiency factor here, that may be an incentive for IRS and taxpayer to settle down (for a taxpayer, any deal that is less than OVDI penalty is good deal)

    1. I see your situation as not that different from mine. The main difference was that I had 2 problem years; you have more like 8(?) I believe.

      I'll break my usual rule of not offering advice. If I had your situation I still would have opted out assuming that my per-year underpaid tax wasn't too high. I would have made a recommendation of the penalty amount to the committee that was based on ensuring that the equivalent tax loss, interest and accuracy related penalties were recovered by the IRS. Let's just say your average tax due for the six tax years covered in the VDP (or however many in your OVDx) was $2K per year, and you have 2 years before the look-back window. Based on that I would recommend to the committee the $2K(x2 years) plus accuracy penalty plus interest. That means that the IRS (effectively) has no tax loss, and you have a reasonable basis for claiming that there has been no tax loss.

      In my case proving no tax loss was easy cos I had voluntarily amended all affected returns and paid accuracy penalty and interest. I argued that the in-lieu penalty was clearly intended at recovering and penalizing tax loss from many years of years prior to the 6 year lookback period. If there was no tax loss (proven in my case), and no intent to cause tax loss (immigrant; legitimate reason for accounts; didn't know and couldn't have known about FBAR). I would suggest that recommending a penalty amount of the estimated pre-look-back period tax-loss gives them a good reason to be kind to you. They could push back, but they're being offered money-for-nothing with a sound basis for the amount offered, from someone who they've just backed into a corner (opt-out is irrevocable) and has no choice but to fight like a trapped rat. Think of your opt-out argument as allowing them an escape route that they are probably desperate to have.

      BTW: One of the key things that does not seem to get much airplay is that reasonable cause is just a part of your opt out. I'm going to quote the letter I received formally requesting my opt-out application;
      "... include in your letter..."
      1) "... the facts of the case and recommendation of the penalties that you believe should apply..."; and
      2) "... a discussion of any mitigating factors such as reasonable cause or lack of willfulness..."
      In my view this guidance gives them scope to consider whatever arguments you think are relevant, including (as I argued) disproportionality, discrimination, arbitrariness and unfairness.

      There endith my thoughts on the subject. No warranties implied or expressed... .;-)

    2. Moby

      Excellent post, and I generally agree with you on almost all points. However, given that this is a negotiation, I would likely start with a position somewhat better than the position I can live with.

      There is already an 8 year lookback period for OVDI, and I really would not offer to go back beyond that barring unusual circumstances and would argue for abatement of the accuracy based penalty for 1-2 of those years. My understanding is that the IRS does waive the accuracy related penalty at least once in most cases.

      Finally, I agree very strongly about fighting like a cornered rat. If the IRS wants to assess any penalty beyond a nominal sum for FBAR purposes, I would definitely ask for normal SOLs on taxes (in my case, that would leave only 2 open years).

    3. One thing to note is that the IRS has made a big deal about similarly situated taxpayers being treated equally. So far though, I'm not really aware of any FBAR penalties being levied against quiet disclosures except a few unusual cases. In order to treat similarly situated taxpayers similarly, the IRS should waive FBAR penalties for taxpayers in OVDI who have reasonably good facts.

      The other point to note is that even in criminal cases, the IRS has not gone beyond 50% FBAR penalty. 50% may represent the absolute maximum they can reasonably extract.

    4. Moby,

      Many thanks for your kind help... yes I am thinking of the same approach on possible opt-out.

      Tax loss in OVDI years (8 years) are around 3K -- that is certainly overly calculated because I did not take any foreign tax credit and in case PFIC -- I did not use loss for offset (gain is IRS, loss is my own). My years in US since 1999. So I can add another 3K to make it up for tax loss. Then I can even impose FBAR penalty for being reckless -- say 1K for each year for the last 6 years. That would be still a better deal than being inside OVDI.

    5. Opter-Out wrote:

      "I'm not really aware of any FBAR penalties being levied against quiet disclosures except a few unusual cases."

      This is not something I'd read before, but seems majorly significant - can anyone confirm or deny?

      Would a "noisy" disclosure (if that's a term - ammended past returns, FBARs and letter of explanation) make that risk better or worse? (all else being equal).

    6. To Anonymous Feb 10, 2012 06:15 AM

      I think we are too early in the cycle to know what is being done with quiet disclosures. As previously noted, the IRS claims it is looking for quiet disclosures and they should be relatively easy to spot (after all the Schedule B answer needs to change and the FBARs will come in delinquent). Now what standards of materiality it will apply before it devotes audit resources, I have no idea.

      I suspect, however, that a number of quiet disclosures have been identified and are in the process. Perhaps many of the taxpayers have not yet been contacted, but that does not mean that they won't be contacted.

      Finally, let me just say that for taxpayers considering a quiet disclosure in an uncertain environment as to what, if anything, the IRS will do with the quiet disclosure, they might consider just going forward with no voluntary clean up of the past. In a broad sense, the worst thing that can happen if they have no criminal or willful exposure, is that they are audited, in which case they are in the same place as getting into OVDI and opting out or going quiet and being audited. This is a decision that should only be made with experienced counsel. I remind readers that I have a list of such counsel on a page at the upper right hand portion of this blog.


      Jack Townsend

    7. Thanks, Jack for the informative reply.

      I'd also asked about a "noisy" disclosure, i.e. all past ammended returns and FBARs accompanied by a letter of explanation/reasonable cause. This would seem to me to be consistent with the December fact sheet for expats/duals.

      All else being equal, would you say there's increased risk or diminished risk in taking that route as opposed to QD or going forward? Or is just impossible to say?

      Thanks again.

    8. When you say increased risk, I assume you mean increased risk of audit and penalties. Keep in mind that even a QD without an audit will require the payment of some number of past years income tax and interest. Where, should you do a go forward without an audit (which, depending upon your facts) may be the most likely outcome, then there is no risk with respect to the past -- no income tax cost, no interest cost and no penalty cost. And, the downside is an audit where the IRS asserts penalties. You should go into the voluntary disclosure program if you have risk of the major penalties -- income tax civil fraud penalty and FBAR willful penalty -- but if you are not in that profile, you may -- depending on facts -- have low penalty exposure. If you do a QD, you have to assume that the IRS is going to spot the QD and make a determination whether to audit. If you go forward with no QD, then the IRS may or may not audit.

      There is no easy answer here. It depends upon your particular fact situation and your tolerance for risk.


      Jack Townsend

    9. Jack,

      People inside OVDI are basically being audited anyway. IRS agents ask full disclosure of financial records, and we sign the consent to cover all the 8 years.

      In my case, I do not have any information that IRS does not know (except cash inside my underwear -:).

      Once opt-out, it is just a different penalty rule on FBAR -- that is all.

    10. tj, I think you are right. Inside OVDI, the taxpayer submits the work that would be required in a start up audit. And, then when and if it goes to an opt out audit, the bulk of the "audit" work has already been done by the taxpayer.

      And, if the taxpayer goes QD, the taxpayer will do all of the audit work to prepare good amended returns and delinquent FBARs. The initial QD will not require all the additional documents required by OVDI, but the taxpayer should have them so that when and if the IRS decides to audit the QD, the taxpayer can submit them for the inevitable IDR requesting the same documents as in OVDI.

      Finally, of course, on the go-forward, if the taxpayer is audit, he or she will be subject to the same drill. But, if he or she is not audited, well then there is nothing to submit and no financial cost for past sins, real or perceived.


      Jack Townsend

    11. One point to note is that so far the IRS does not seem to be auditing (either on opt out or in the program) domestic matters as well -- at least for people who have not been transferring untaxed income abroad.

      So, its not a full audit in that sense.

    12. To Anonymous Feb 14 2012 03:10 PM

      That is a wise use of the IRS's resources, but taxpayers should not be lulled into not correcting the errors on the returns that do not relate to offshore accounts and assets. Filing incorrect amended returns would be a real problem, and taxpayers should not count on the IRS not discovering the problems.

      Now, from the IRS's perspective, with taxpayers having every incentive to file good amended returns, why devote a lot of audit resources to the amended returns. Of course, the IRS will pay attention to any obvious errors on the amended returns and will certainly do some checking to make sure that the reporting of the foreign financial accounts and foreign assets are consistent with the bank statements and other information in the package submitted with OVDI. But the IRS should have basically what it needs to do an audit with just a limited amount of additional information gathering from the taxpayer.

      In short, again barring some reason to think the taxpayer is playing fast and loose, the audits are unlikely to be the full bore audits that everyone fears.


      Jack Townsend

  54. To tj Feb 9, 2012 02:28 PM

    First, I strongly recommend attorney advice in making the decision whether or not to opt out. Except for the most mundane of facts and amounts, opting out should be done only with attorney advice as to the risks.

    Second, if you do opt out, the issues that the IRS can pursue in the audit are: (i) the open income tax years (normally 3 years but longer in some cases), the FBAR penalty (6 years), and any other applicable penalty (for failure to make certain entity reports if entities were used).

    Third, if the IRS asserts an FBAR penalty, it will have to go to court to get a judgment unless the taxpayer accepts the penalty assertion and pays without the IRS suing.

    Fourth, for all income tax, penalties and interest (including the entity penalties), the IRS can assess in the normal way (usually requiring a notice of deficiency) and use the IRS collection tools (liens, levies) without having to sue.

    Fifth, you are right that the IRS and DOJ (which would have to be involved in the FBAR collection litigation) problem does not want to pursue hundreds and thousands of these cases and thus there may be some incentive on the auditing agents to try to reach an agreement as to those penalties that is acceptable to the taxpayer without litigation.


    Jack Townsend

    1. Dear Jack,

      In addition to the points that you mention above, would an attorney be able to answer the following qs based on the taxpayers circumstances?

      1. Reasonable Cause exists or not?
      2. Willfulness vs. Non-Willfulness
      3. Estimate of penalty based on his inside information about how IRS has treated other opt-outs?
      4. What to write in the opt-out letter

      Thank you,

    2. To anonymous Feb 9, 2012 05:21 PM

      Like much of life, the issues you address in ## 1 - 4 do not lend themselves to certainty. So, in my view, the lawyer will not be able to answer these questions with certainty. However, with enough time getting to know you and your individual unique facts, a lawyer will usually be able to give some probabilistic conclusions that should help most clients who can operate in an uncertain environment.

      That is the best I can do.

      Jack Townsend

    3. To ij at Feb 9, 2012 02:28 PM

      If your OVDI in-lieu of penalty is in the 60K range, then I would recommend not opting out.

    4. To Anonymous Feb 9, 2012 05:42 PM

      You don't state your reason for not opting out. I presume it may be that your in lieu of penalty inside the program is not sufficient to justify the additional time, hassle and perhaps expense of a further audit. That is perhaps a good decision.

      If you have other reasons, I am sure that tj and other readers would appreciate hearing them.

      Thanks for your contribution to the blog.

      Jack Townsend

    5. To "AnonymousFeb 9, 2012 05:42 PM"

      1. For most minnows, 60K is more than half of their total offshore assets.

      2 For most minnows, they are non-willful if they do not put money in tax haven countries and they do not use entity --no hiding fact. The worst FBAR penalty they can get is $10K for each year violation, and the statute of limitation for FBAR is 6 years. So 60K is the worst outcome for minnow who chooses opt-out. Then why not take a gamble in a hope of getting much less penalty ?

      If a taxpayer keeps only small part (say less than 30%) of his cash in offshore bank, he/she can also argue there is no incentive hiding cash to cheat IRS on tax -- logically, why does he/she not keep large part of his/her cash for much better result with same kind effort.

    6. In response to tj's point #2, readers should be aware that the IRS takes the position that the $10K nonwillful penalty is per year per account. (Whether the IRS will actually assert that in any given case is unknown; I doubt that it will except in a really bad fact case.) But persons with several or many accounts need to factor this risk into the equation.

      The problem, of course, is trying to make decisions in an environment of uncertainty. These are not easy decisions, except in cases at either end of the spectrum -- clear opt out case and clear stay-in cases. Between those extremes decisions require nuance and involve some risk that is very difficult to quantify.


      Jack Townsend

    7. One point worth adding is that the IRS claims it is going to follow the guidelines of their IRM (Internal Revenue Manual). That includes mitigation guidelines, and also says that multiple penalties per FBAR form should be applied only in the most egregious circumstances. I personally find it hard to believe that the IRS will be able/willing to apply the per year per account penalty (actually I'm not even sure their position is valid) for non-wilful cases.

    8. I think one risk is that the IRS might face an egregious case (at least the IRS thinks it is egregious) but doesn't want to go to the hassle of asserting and then proving willfulness in a case. It might be able to do as much damage with the nonwillful case on per account per year if the taxpayer has multiple accounts.

      Now I don't think the IRS will do that in "minnow" cases. But for those who are at real risk of the willful penalty (or the per account per year nonwillful penalty on bad facts), opting out is probably not the thing to do.

      Jack Townsend

    9. Jack and all others,

      Minnows did not hide money from IRS for tax gain in the first place (if no entity, not in tax haven and relatively small amount compared to his/her total cash). And then once they knew their problem, they came forward to join OVDI to correct and to take responsibility.

      These good facts will make taxpayers look good in the court -- and IRS will have to consider these facts if they want to push too far.

      Moby made an excellent point on opt-out approach -- that is penalty related to tax loss to IRS -- while this is not allowed inside OVDI.

      Yes, FBAR nuke option is in IRS's hands (more specifically in DOJ's hands), once they really want to use that option -- it may backfire in the court.

      We as minnows, should believe in fair justice system.

      My fellow minnows, please do consider this option.

    10. ij

      My personal opinion is that the IRS/DoJ really wants to preserve the option of using the non wilful penalty for people they believe violated FBAR laws wilfully (but for whom they believe wilfulness would be hard to prove, and so they settle for the non wilful penalty) and the nuclear option of the wilful penalty for really bad actors (people with illegal source income or even the proceeds of violent crime stashed abroad) and so would be reluctant to go to court in most cases for FBAR penalties unless the person in question matches the profiles I mentioned earlier

    11. ij

      Even if not allowed under OVDI, I see no problem with comparing the tax loss merely in the OVDI years with the actual in lieu penalty. [ Pure tax loss, no penalty or interest]. Any number > 2 for a minnow would make a good case to mention in opt out letter.

      Congress allows extraction of only 75% penalty for civil fraud cases and that is hard to prove, so even that is asserted only occasionally.

      And even in criminal FBAR cases, the DoJ/IRS has not taken more than 50% of the balance and has not tried to collect the entire tax due. Jack has blogged often about how the tax loss seems to be a negotiated sum in some criminal cases where the government has agreed to a sum much lower than the likely actual tax loss. Even in FBAR penalty cases, quite often it seems like all accounts are not taken into account for computing the 50% balance. I remember reading at least 1-2 indictments where there were reported transfers to other undeclared accounts, but those did not seem to be included in the 50% balance.

      I'm not claiming that 50% of account balance is an absolute cap, but it seems hard to believe that the government would go well beyond the amount that the worst offenders have been able to negotiate.

    12. Opter-Out and "AnonymousFeb 10, 2012 03:32 PM"

      Thanks, I was happy to pay "in lieu penalty" which is about 4 times more than tax loss. With RRSP included, it would be 10 times, I have to choose opt out.

      Now we can call "opt-out" our nuke option -:)

    13. ij

      The penalty for civil fraud is 75% of tax due, and even then the standard or proof is high enough that it is enforced for people with obvious badges of fraud. I'm not sure anyone should be happy with a 4 fold penalty.

      Personally, I'm not going to voluntarily accept ANY FBAR penalty beyond a token account (say $500 for each year), and even in that case, I would then ask for going back to tax penalties only for open years (2 in my case).

    14. Opter-Out,

      After Just Me and Moby gone, you are our new fearless leader. I look up to you. I have man years of FBAR non-compliance (since 1999), plus inconsistent click on Schedule B (yes and no, and even default). So I will take $500 for each year on FBAR. Pay all the tax penalty covered in OVDI. If not, then they will have to take me to court -:) I am cheap -- consider a life opportunity to face off with DOJ lawyer -- LOL

  55. Jack,

    Many thanks..

    I guess mundane facts are like
    no entity, taxpayer's own US address, fund were earned income totally US tax compliance (such as before becoming a US person), mundane amount would be 75K (which OVDI set the jump penalty).

    Current OVDI examining process is almost like an audit process --- they have all the bank records with detail all the transaction.

    The fact that the taxpayer is in OVDI -- that is already in good faith, plus there is no evidence of concealing these offshore accounts (in particular such as in Canada, UK etc), so if the FBAR penalty is based on "evil intent", that really should not be applied, the only rational is the technical error -- that would be range from "reasonable cause" to "reckless negligence".

    I think that will be a good position for opt out -- of course, it is better to get an attorney's advice.

    Thanks again for your helpful comments.

  56. Just a note to mark the final FINAL end of the OVDP process for me. I guess this particular thread is as good a place to record it as any, as my story transverses multiple threads.

    After 851 days, from entering the OVDP in 2009, I was informed by the TAS officer today, that the IRS has finally issued a refund check to clear all reconciliation items from the OVDP examination. Tomorrow they are mailing me a check for ~$3000 dollars which includes roughly $250 of interest for overpaid taxes.

    So, that is it! I am done. I guess I can stop blogging now. What a wonderful educational process it was, and what a model of efficiency it has been! Can I have my LCUs back please?

    You know, if it only takes 851 days to process a Minnow, wonder what it takes for a Whale? The question now to be asked is what did it cost the IRS in time, energy and dollars to extract the fish oil they squeezed out of me? I can guarantee you that no business would be able to survive on the ROI for this misguided adventure.

    If you wonder why nothing productive gets done in government and why America is in such a fiscal mess, well wonder no more. If this isn't a prime example of how to not to run a country, then there isn't one.

    It doesn't give you much faith for the future when the IRS still won't acknowledge TAS Director, Nina Olson's TAD. The response was due January 26th, but so far nothing. Probably nothing will come from her report to Congress either, where she so clearly pointed out how egregious their process was for the Minnows.

    Then to think, 2 and ½ years later, the press has yet to write one meaningful story of what it is like for a Minnow to be involved in a program marketed as an amnesty for catching tax cheating whales, that was then proclaimed a marvelous success with nary a skeptical question from the MSM reporter/scribes. (Amy Feldman from Reuters, the sole exception.) Sorry if this drips with cynicism.

    All the best to the rest of you in the process. Hang tough and “Illegitimi non carborundum”, as they say! Please excuse my mock Latin! If you don’t know what that means, google it.

    Thanks Jack for the outlet and the forum. Your blog has helped me immeasurably with your sage advice, and providing a sharing outlet for other Minnow’s out there. There was some small comfort in knowing that I was not the only fool netted! :) I hope they all have better outcomes just like Moby and Sally did.

    PS… I heard from my TAS officer that they are still helping Minnows trapped in the OVDP/OVDI. She had 4 cases herself that she was working on. So, if you are running up against the wall, I would try calling the TAS DC office and exploring your options. They are good people, and do restore your faith in what good government should look like.

    1. Goodbye, fearless leader and I say that with sincerity and with great happiness for you. I would like to ask you to check in every now and again, but my biggest dream is to never think or talk about taxes in my personal time once I get through OVDI, which I imagine is a dream shared by many. So I think we will all understand if we don’t hear much more from you.

      If it had not been for your posts and those of Anon123 and ij, I would probably still be thinking I was the only person in the world who had not known about the form and therefore deserved the penalties. Largely thanks to you, I began to realize what a sham the whole program is and to start to question and challenge everything that has happened to me thus far. You inspired me to tell my story which I have been doing. Your actions as well as those of Canadians have made a difference in the awareness of the travesty being perpetrated upon innocent taxpayers who quite simply, never knew they had to file an obscure form and followed the only instructions available to correct the error.

      I am not sure how it will end up for me, but at least I am exploring options, which was unthinkable to me until I heard your story. I have about more than 400 days logged in the programs so from your experience, sadly, that means that I have likely only done half of my penance. Turnover in OVDI has not improved. You would have think they would have learned something from your case. So there is great fun to come and many more resources to be wasted...

      Good luck to you in your FBAR compliant OVD-free life

    2. Anon5%...

      Thanks for your comments. They mean a lot to me. I am spending more time over at Isaac Brock these days, so if I can be of any assistance to you, I can probably be contacted there. Good wishes for a reasonable outcome. You definitely have to fight for it, as your examiner is quite happy to relieve you of your money without any qualms about what they are doing. No discretion, you know! The beast has no soul, once you are inside the program. Sad to say, the IRS has learned nothing. They are ignoring the TAS, and I have no hope that anything will change....

      Below is a link from Isaac Brock that says it all. The Commissioner admits, that the tax system is too complicated for even him, and he can not do it without assistance! Yet he pursues his jihad unabated.. Go figure. I am not for sure how he sleeps at night.

  57. Just Me

    'I heard from my TAS officer that they are still helping Minnows trapped in the OVDP/OVDI'

    Did she say OVDP or OVDI (or was she unclear) ? There is some difference between OVDP and OVDI (no FAQ 35). I'd also be interested in knowing whether the TAS is handling OVDI opt-outs already.

  58. Anonymous Feb 10, 2012 05:14 AM

    I should have asked that question, and I apologize that I did not. It was a fairly brief conversation, and I wasn't in a position to pry too far. They are somewhat circumspect with what they are doing, so I don't know that I could have gotten the particular circumstances on the cases they were handling.

    I doubt they would be handling OVDI Opt Outs, as that is basically an appeal process that is now available, however, there could be circumstances that they could provide some guidance where certain other FAQs are not being properly administered. I don't know.

    I would certainly call the DC office to give them a brief summary of your particular facts, and they could determine what help they could provide. At least they understand your circumstances better than any other government agency. What is the harm in a call? If nothing else it lets them know there are still Minnows out there flopping around on the fertilizer conveyor belt! :)

  59. To Jack Townsend at Feb 9, 2012 06:20 PM
    To ij

    I posted the comment about not opting out if the in-lieu penalty is in the 60K range because of the risks involved in it due to the possibility of IRS imposing $10K penalty per account per year. In addition, I am afraid, IRS might ask questions on every single transaction on the bank statements in the audit and demand proof as to where the money came from or where it went.

    I am not sure how I or someone else can collect all these documents. Again this is just my fear. I have no idea what happens in an audit. I am not even aware of to what level they are digging in the bank statements inside OVDI even though they say in the FAQ that they dont do audit inside OVDI.

    I am also in OVDI. I am not an attorney and my suggestion was just based on my own fear of the outcome of opting out. Apart from the 3 opt-out cases that we have read on this blog, we as taxpayers have absolutely no information about how immigrants are being treated if they opt-out.

    The 3 successful opt-outs were all expats with no U.S. sourced income and so I feel that they are in a different category than immigrants who earn in the U.S. and then transfer money abroad.

    I sincerely apologize to ij, Jack as well as to all readers for not making this clear in my earlier post and sounding alarmist.

    By all means, ij, if you think you have a good case, please ignore my comment and go ahead with your decision after carefully weighing all the pros and cons.

    Thank you Jack for this unparalleled blog and your kindness in answering our questions.

    1. To Anonymous Feb 10, 2012 05:14 AM

      Thanks for your comment. You have identified a real issue about opting out that gives a number of people -- lawyers included -- angst. That is that is not clear what is really happening in the opt out audits. The opt out audits are not publicized and would come into the public domain when and if the DOJ were to bring cases to collect the FBAR penalty. So far as I know, none have been brought for opt outs yet. We may be too early in the cycle for that. Or, alternatively, it may be that the IRS and the taxpayer reach a mutually agreeable conclusion in the opt out audit.

      You do mention 3 opt out cases where people discussed their results. But 3 cases do not permit conclusions as to how other cases will be resolved. As more of this anecdotal information is disclosed by people who go through the process, we can be in a better position to draw conclusions about the opportunities and risks of opt outs. But we have limited information to date. Hence, taxpayers and attorneys have concerns -- perhaps overstated -- as to whether the IRS will be draconian in the audits.

      Let me just say that, and this may be speculation or wishful thinking, that the IRS will generally be fair in these audits. Moreover, keep in mind that the taxpayer has already done the work by preparing amended returns and delinquent FBARs. I doubt that the IRS will want to spend audit resources nit picking these amended returns and delinquent FBARs, unless there is some indication on review that there seem to be major errors in them. Hence, they may move fairly quickly in the audit to dealing with the penalty issues. The taxpayer has to submit a statement -- a brief if you will -- that states the penalty, if any, that he thinks should apply and make a detailed presentation of the support for the penalty. I suspect that the penalty factors will be where the IRS focuses its fire and not on nitpicking the amended returns and delinquent FBARs.

      All of this is to say that the taxpayers need to make sure that there is nothing in the amended returns and delinquent FBARs and the other documents in the package that suggests on review that the taxpayer has not prepared good amended returns and delinquent FBARs and has not been truthful with the IRS about the surrounding facts and circumstances.


      Jack Townsend

    2. "AnonymousFeb 10, 2012 05:14 AM", thanks for feeding back. I agree and totally understand your concern. I had the very same concern just short while ago. I think if we can put up with the audit process. As for FBAR penalty I think if you read Jack's blog cited from a former DOJ Tax Div prosecutor has to say

      "I also think there is an important distinction to be made between proving that a taxpayer willfully failed to report income and that a taxpayer willfully failed to file an FBAR. The FBAR was a form few practitioners heard of pre-UBS. To prove a taxpayer’s knowledge of the FBAR and his obligation to file the form will not be an easy task for the government as few accountants told their clients of their FBAR obligation."

      Just ask yourself, as when you became aware of FBAR ? For me it was Feb/March 2010 after I read a Chinese news -- that was not even from TV. Yes, if we had read Schedule B carefully we could have avoided it. Then why not all other professionals ?
      The fact is FBAR is implicitly indicated on Schedule B -- "misleading" so many people and for so many years -- that is not a simple fact.

      So for IRS to impose FBAR penalty on taxpayers who do not have bad facts "tax haven, entity etc" is a hard impress in the court.

      We, however, in case of opt-out, may impose ourselves some penalty for careless, or stupid -- that should be just a bit over "reasonable cause" -- say $500/year. Also keep in mind, this missing FBAR does not cause Gov one penny loss -- so $500 seems a good deal to IRS

    3. Anon @Feb 11, 2012 06:42 PM

      You are incorrect when you say the three opter-outs are all expats with no US source income. I believe Moby was an immigrant (and did not renounce till later) and did have US source income. I also believe 'Just Me' had US source income.

      As for your other concern, the IRS is hardly likely to be realistically concerned about small transactions or expect someone to remember the details of transactions taking place 8 years back. If you were an immigrant and had funds earned abroad prior to becoming a US person, some reasonable evidence of such funds should be sufficient. If you transferred money abroad, there should be proof in US bank records even if you don't have full foreign records. And small withdrawals to handle personal expenses or small deposits on trips abroad (or even larger deposits that can be matched up with US bank withdrawals) shouldn't be a problem.

      I for one have no fear of a full audit. I share an account with a non resident relative, and that relative occasionally made small deposits and withdrawals, but that does not concern me.

      If (on the other hand), one really has some sleeping dogs that one would prefer not to awaken, then opt out is clearly not for one.

    4. typo, it was Feb/March 2011 when I became aware of FBAR after reading a Chinese news.

      As matter of fact, I transferred $11K from Canadian ScotiaBank to US Citibank using bank draft in April 2010. I would have been so stupid if I had known FBAR and had not filed while the bank would have tip IRS with large transaction from oversea.

  60. To Jack Townsend Feb 10, 2012 06:44 AM

    Dear Jack,

    What in your opinion is an egregious case? Is it really as simple as having entities or nominee accounts to hide the funds?

    If there are no entities or nominee accounts, would a large balance in offshore account itself be sufficient to consider it an egregious case? If yes, how much balance in your opinion would make it an egregious case?

    Thank you.

    1. Egregious facts

      Some people worry about too many offshore accounts may be very bad, but if you have multiple accounts in the same bank -- that may not be a good argument for IRS to impose on each of them.

      Amount may be a fact, but tax implication related to the account may be more into it. Say if you make a huge income on your stock account by actively trading stocks -- even though the balance is not high -- the earning fact.

      Source of the fund is a major concern of IRS. If you have huge deposit into your account. It would be a clean money if it was transferred from US, or for immigrants, they were there before they moved to US. Some big deposit from nowhere -- maybe a fact causes IRS to look into.

      As long as the source of the fund has no US tax implication -- that is not a fact of egregious..

  61. To Anonoymoust Feb 11 2012 07:02 PM

    An egregious case can only be identified in the context of all the facts and circumstances. Pulling out one or two characteristics does not give me the comfort that I can provide anything meaningful.

    Certainly, a large balance is a less positive fact than a small balance. And even how much is large and how negative it is is something that only can be addressed in the context of all the facts and circumstance -- and I mean all of them.

    If you need an answer to that question in your specific facts and circumstances, I suggest you consult with an attorney.


    Jack Townsend

  62. Just a quick comment on the multiple accounts and the detail of an examination of the bank records.

    I had multiple accounts. Basically CD type instruments at Banks and financial institutions which matured and rolled over sometimes creating new account numbers every-time. The issue of multiple FBAR penalties scared me too. The Examiner, consciously or not, did scare me about the Opting Out penalties and how they would be applied. Again, in fairness she too was totally in the dark about the Opt Out process. She too gets no information about what happens unless she has been involved in one personally. Again, opaque processing works to the IRS Fear Factor advantage. And, boy do they know who to use it!

    It wasn't until I began to read the IRM over and over, plus some pretty good analysis on the FBAR history, that I recognized that the even IRS saw that multiple technical violations leads to absurd penalties. I also noticed that in even egregious willful cases that the DOJ was pursuing, the FBAR penalty was only one. I thought I could win the argument on willfulness, but chose the TAS as my method to do that using the FAQ35 relief. (called it Opt Out Lite)

    In the end, I was hit with one $5K non willful FBAR penalty per year, not multiple ones. Didn’t like it, but made a business decision and settled. I had wasted enough time by that point, and the return on investment to win the “reasonable cause” no penalty argument was going to require a lot more LCU expenditure, or so it seemed. After 2 years, I guess you could say, I threw in the towel. They did grind me down! :)

    As to details of the Examination: I was totally forth coming in what I sent the IRS. I approached the sending of bank records as if it was going to be poured over line by line. It was NOT. I made a good faith attempt to identify every "in and out" transaction with a legend so if an auditor wanted to follow it they could. Some items back in the earlier years, I just could not remember, but made supposition comments about what it probably was.

    Long and short of it, if you are not hiding something else, you should have no worries from examination or audit, and frankly in an Opt Out, they probably just want to come to an agreement and end the process as much as you do. They too have wasted a lot of resources for little reward. You weren't that darn Whale they were looking for.

    1. To Just Me!

      Your comment is excellent and will be most helpful to many readers of this blog. I think your experience and persistence qualified you to offer meaningful comments, as you have consistently over a long period.

      I hope you will keep your interest and continue to offer your comments. I learn from them, so I appreciate it. But many readers of the blog can learn from your experience and comment and, hopefully, have less anxiety going through the process.


      Jack Townsend

    2. Thanks Jack. Coming from you, that is a great compliment. I have sure gotten a BIG education for the expense, and without your blog, I would have been toast! Some of your advice stiffened up my resolve not to accept the OVDP penalty. It would have been life altering for me.

      Minnows by nature are fearful and risk adverse, I think. So, if I can help reduce some of the anxiety, then that is good.

      I keep hoping to hear some anecdotal information from the Practitioner community about Opt Outs. So far nothing. If you hear of any, I hope you can convince them to provide some general details here. It seems strange to me that none have offered anything concrete. The process has been in place now for 8 months. Surely there is one somewhere. Does that mean they are not advising Opt Outs? I just wondering, as I thought with as many practitioners that read here, one would have offered up some insight by now. Maybe they too are risk adverse, cautious with their advice, and so clients go with certainty of the VDP penalty? I just can’t help but wonder.

      In answer to an assertion by a 30 year IRS Vet, that someone who represents themselves “has a fool for a client,” Moby asked (over at Isaac Brock) about how many of the 50 families he said he shepherded through the process did he get a lesser or no penalty like Moby did for himself. No answer. That silence spoke volumes to me, but maybe I am reading something in to it that is not there.

    3. Just Me,

      Again, thanks for your contributions.

      I too hope we will start getting some anecdotal information. I certainly will post any such information that I get and hope that readers will do so also. I am a member of a listserv of a number of practitioners who do this type of work and will, when I get permission, pass on the information from that source. I will say that that community has been surprisingly quiet on the topic. I am sure that some are just not reporting, but I would suspect that many would. Still no reporting. I wonder if we are just too early in the cycle for even the early cases to be finalized yet.

      Finally, I would hope that, at some point, the IRS itself will come up with some parameters of what might happen on opt out so that taxpayers and practitioners can better assess the decision to opt out. Perhaps that is wishful thinking, but I think it would serve both the IRS and taxpayers and practitioners to do that.


      Jack Townsend

    4. Jack, I will post my result every step in OVDI and opt-out in case that happens. I won't even mind post all my bank statement, IRS letter of ruling and my letter to IRS. I just want show the world -- how, as a minnow I have been treated by IRS. I may lose my money, but I want IRS to lose its face -- maybe they don't care !

    5. Thanks Jack. I will be following with great interest if and when we hear anything from a practitioner.

      ij... Unfortunately, the only one that seems worried about the IRS "face", is Nina Olson at the TAS, and still Shulman stonewalls her TAD. A response was due January 26th, and still nothing.

      I guess "fear projection" is more important than "face retention" to them. I don't get it, but then after seeing Shulman on C-span, smirking over the fact that he doesn't do his own tax returns, I begin to see what we are dealing with. He definitely appears to me to be a bureaucratic creature through and through.

    6. Phil Hodgen said recently on his blog

      "I must say that many OVDI cases that have opted out are being dealt with sanely. Some not."

      Mr Mahany made a similar comment earlier in this thread.

      I presume most practitioners are reluctant to be more specific in public since they still have clients in the process of opting out.

    7. I am not sure what Phil's data set, but apparently he is saying IRS does right in some cases and not right in others. Is that a data set of 4 cases or 50? I am just not sure that there are enough data sets out there to draw conclusions. And, I think the IRS is going to control the process enough to make sure there are not major inconsistencies in approach. True, the IRM does say the agent has discretion, but I think the agents will be given parameters in which to exercise their discretion.


      Jack Townsend

  63. Hi to Jack and other lawyers,
    I am eligible to apply US citizenship by the end of this year. On the N-400 form, there is a question: Since becoming a lawful permanent resident, have you ever failed to file a required Federal, state, or local tax return? Yes or No
    If I am in the OVDI program and the case is not closed yet, can I answer NO for this question? Thanks

    1. On any form or other document you submit to a federal agency, you are not permitted to give a false answer. There are criminal penalties -- perjury if under oath and false statements if not -- that apply. And false statements can be used for collateral damage even if not criminally prosecuted.

      Now, as I understand it, in your package that you should have already submitted, you did include amended returns and delinquent FBARs. I guess a technical argument could be made that they may not be filed, but I think most persons reading that question would believe that submitting the package is the equivalent of filing and could answer that question yes.

      A word of caution is that the question includes state and local tax returns. There is no state or local equivalent of an FBAR, but at least in most states you should have filed original income tax returns that likely need amending. Again, parsing the question, assuming you did file the state or local (even if they are incorrect), you can answer the question yes. But this should be a reminder to clean up state and local tax obligations when the IRS process moves to finality.


      Jack Townsend

    2. To "AnonymousFeb 12, 2012 01:35 PM"

      You should say yes --- it only asks you if you always file federal/tax return.

      And you do -- only nobody knows it was not filed correctly until you found it. The question itself --- does not address the "Correct" part.

      Fail to file --- means you do not file

    3. Thanks Jack. for the quick answer and pointing out about State tax return. Will do.

      After the FBAR disaster, I will be very careful when filling any government forms. Don't want to mess up again.

      The question is "Since becoming a lawful permanent resident, have you ever failed to file a required Federal, state, or local tax return?

      I always file the federal/state returns. Only recently do I know that the returns are not 100% correct, plus delinquent FBARs. In other words, incorrect 1040s and delinquent FBARs in the past mean I have failed to file a required federal, state return? If that is the case, I will have to answer YES..

      Thanks ij, but I cannot follow your logic here.

    4. To Anonymous Feb 12 2012 06:48 PM

      No, the question is whether you filed the required returns, not whether you failed to file correct returns. The answer to the question that is being asked is No. And, certainly, if you count the amended returns you filed in OVDI, which I presume are substantially correct, you have filed all required returns.

      Now, please understand that I really can't give you advice on the subject because I do not practice in the immigration area and do not know if there is anything special in that area that would change the proper answer to the question. But, from reading a number of false statement cases under 18 USC 1001, I can say that, at least facially, no is the answer to the question that is asked. Keep in mind that the question could have been whether you filed correct required returns, but that is not the question asked. I don't think that, under 18 USC 1001, a court would hold that the adjective correct is necessarily implied in the adjective required, so that no answer would be incorrect and thus punished under 18 USC 1001. Again, however, something in the immigration rules could change that. I would, if I were you, either seek immigration counsel or, alternative, pore over the instructions to see if the word "required" is further defined.


      Jack Townsend

    5. To "AnonymousFeb 12, 2012 06:48 PM"

      As long as you believe you have filed your return correctly as (I did when I was filing N400). You should just say "No" on if you have failed to file.

      The same question of N400 like "have you ever committed a crime that has never been arrested ?"

      The answer is the same -- because you are not aware of you have ever committed a crime, and nobody would have been aware -- then later, say if it is an willful fail to file FBAR (it can be a crime) -- then you certainly did not know it was even required --- how would you know it could be a crime.

    6. To Anonymous Feb 12 2012 06:48 PM

      Sorry it was a typo -- I meant your answer should "No" -- I was reversing the question "Have you ever filed federal/state return" -- then the answer would be yes.

      Anyway, you should have no problem of click No on N400.

      Otherwise, I would be lying on N400 in late 2010 when I was filing N400 -- that was of course before I was aware of FBAR things.

    7. Thank you both Jack and ij. I appreciate it.

  64. To Just Me who mentioned the following:

    "PS… I heard from my TAS officer that they are still helping Minnows trapped in the OVDP/OVDI. She had 4 cases herself that she was working on."

    Would it be fair to conclude from this that since these tax payers ended up going to TAS, they were not treated fairly after opting-out?

    I guess it really depends upon whether they were in OVDP or OVDI as one other reader has asked already. If they were in OVDP then it would not be considered bad news but if they were in OVDI then it is really bad news for those hoping to opt-out.

    1. While FBAR penalty is an appeal process -- so TAS may not have a role in the process. However, if there is some dispute involve how tax should be calculated, and how to rule on a request for certain relief that a taxpayer may be entitled to.

      For example, inside OVDI, IRS imposes penalty on RRSP --because they won't allow taxpayer to request 9100 relief.

      Outside, OVDI (opt-out) The Commissioner has to rule such a request for tax deferral election. And if he rejects -- he has to give reasons -- otherwise, it looks really bad on IRS as it forces taxpayer to "evade tax" on retirement while a simple grant in good faith can avoid that. For that part, I think TAS will play an important role.

    2. Anonymous Feb 12, 2012 03:05 PM.

      I just do not know the answer to your question. Sorry that I did not query the TAS officer more, but she was busy and I did not want to tie up her time, as she had closed my file.

  65. Why is it taking so long for IRS to process 15K OVDP/I participants when they can process 140 million regular returns every year?

    Does that mean that they are viewing each OVDP/I submission through a microscope or are they just not devoting enough resources to this task?

    1. "AnonymousFeb 12, 2012 03:12 PM"

      Normal return it is only one year, and it does not need any other financial statement. For OVDI, the examining process could be slow. I was contacted by my agent in late Dec 2012 for all bank records. So he is working on over 10lb papers -- that takes time. By the way my 10lb docs are not about millions --- it is even less than a middle class worker annual income.

      So it does take time -- and now why they want 25% of it -:)

    2. One of the benefits of taking time is that the in lieu of penalty (or, on opt out, the FBAR penalty) does not draw interest until assessed. So, although interest rates are low now, at least the longer it takes, the longer the taxpayer will have interest free use of the money.

      Jack Townsend

  66. ij,
    Unless they have reason to believe that your submission are not very accurate, why would they request the bank records if the peak value is less than 500000

    1. "AnonymousFeb 14, 2012 05:49 PM"

      Maybe, and indeed my agent told me that I overpaid a few hundred dollars in tax compared to his calculation. But I do not believe it is the reason they asked my records. I think it could be some transaction that they want to know, they can tell on year to year balance change.

      OVDI FAQ states that no need to send in bank statements if balance is less than 500K, but be prepared to send in when asked.

      IRS does NOT say they do not need bank records for low balance.

      I paid over $200 to collect these records, and I was glad they asked -- so the same records have been used twice.

  67. Jack,

    In case of opt-out, most people would use ignorance of FBAR requirement as a reasonable cause, however ignorance of a law can not be an excuse of violation of the law.

    We know speed limit when we see the sign on highway, we know stealing/shoplifting is a crime -- it was a common sense of being good or bad since we were kids.

    Ignorance of an hidden law can certainly be a reasonable cause.

    As a long time immigrant, I have never failed to file AR-11 for address change. I am sure most American citizens do not know such a form -- as they are not required, would have never got into their attention.

    Even when I moved to a next apartment unit, I sent the address change form to INS.

    Immigrants, naturally, pay a lot more attention to something matters to them most. AR-11 was hardly enforced before 9-11, but is still not well publicized today. It got into my attention because I was on my visa at that time, and I paid attention to my status.

    I am sure most those in OVDI might not have heard of FBAR or even OVDP 2009.

    I am certain that there are still a lot people are not aware of FBAR -- but it would be a good idea to put a huge sign of FBAR at all international airports (like JFK, O'Hare, DTW). Also it is a good idea to list question of offshore in form 1040 instead of a subtle reference on Schedule B.


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