Thursday, August 7, 2014

U.S. Forfeits Over $480 Million Stolen by Former Nigerian Dictator (8/7/14)

DOJ has issued a press release, here, titled: U.S. Forfeits Over $480 Million Stolen by Former Nigerian Dictator in Largest Forfeiture Ever Obtained Through a Kleptocracy Action.  Wikipedia, here, defines kleptocracy (footnotes omitted):
Kleptocracy, alternatively cleptocracy or kleptarchy, (from Greek: κλέπτης - kleptēs, "thief" and κράτος - kratos, "power, rule", hence "rule by thieves") is a form of political and government corruption where the government exists to increase the personal wealth and political power of its officials and the ruling class at the expense of the wider population, often with pretense of honest service. This type of government corruption is often achieved by the embezzlement of state funds.
This blog does not focus, directly or indirectly on kelptocracy issues.  I guess they could be related in some way to U.S. tax noncompliance.  But it is not clear that this one was.

Rather, I post this entry because of the role the U.S. and foreign financial institutions played in assisting the former dictator and his associates in hiding the money.  Hiding the money is what the IRS offshore account initiative for U.S. taxpayers has been all about.  Solutions to the tax issues (for all countries, not just the U.S.) require transparency. Those solutions will make it harder for kleptocrats to hide their ill-gotten gains.  Joe Louis, the famous boxer, is reputed to have said:  "He can run, but he can't hide." We are moving into a brave new world for a whole host of people who have an incentive to hide and will be constrained in doing so.

Of course, the human race is communal.  If not, we would not have a human race today.  Throughout most of our history, wealth was transparent to the community -- maybe not in the sense of finite bottom-line net worth, but the trappings of wealth were physical.  We knew who the guys with wealth were and, in a sense, we knew how wealthy they were.  And we could assess the community's coherence and bonding by how people contributed to the community and were rewarded for doing so.  With secret financial institutions for hiding wealth, we lose that ability to assess and, as a community, demand what is best for the community.

So, as readers who have read this far, will know.  I think transparency is a good thing.  FATCA is a good thing.  And the global initiatives it and the U,S. spotlight on tax havens have spawned are good things.

We are all in this together.


  1. I faced a difficult decision at opt out time. We had a number of UK ISA's that we thought were protected by the tax treaty. We had bank accounts with small amounts of money one of which we didn't know existed (opened by a parent when a child). Unknown to us a bank demutualized and we had shares int he bank we didn't know about in a trading account. All the money in these accounts was earned before we ever entered the US in prior lives.
    We had a very good non-willful argument. Our biggest problem was PFIC taxation. I had to do sec 1291 calcs to get the lowest tax and reduce the balance penalty by showing an ISA had no unreported income.
    Our potential savings from opting out were unclear. IRM sounded good but the IRS is not bound by that. The IRS warned us of criminal prosecution, non-wilfull fines / account / year etc.
    In the end we paid the Obama tax and moved on. Of course a final slap in the face was the new process that's not retroactive.

  2. Neill,

    You would have faced the same type of angst in making the certification required under the new Streamlined or the Transition that you faced in deciding not to opt out.

    I don't know your facts, but you might have been a good opt out except for the fear and black box nature of the opt out. Basically, opting out and, in Streamlined, certifying is not for willful actors. For nonwillful actors, opting out or Streamlined should work. The rub in complex factual situations is making a good judgment call that the conduct is nonwillful If that judgment call is wrong, the consequences could be ugly, whichever program is involved.

    Jack Townsend

  3. Dear Mr. Townsend,
    Thank you very much for providing this platform where people can share their experiences related to Offshore Disclosure Programs and help each other. The information/articles posted by you and the readers have been of great help (I have read the Lay Reader Disclaimer). I should mention here that if it weren't for the websites like your's I would not have known about the OVDI/OVDP programs. So, Thank you very much!!!

    With regard to the new Streamlined procedures, I became aware of it just last month shortly after they came out with it from unlikely source, My guardian angel at IRS! I was very close to the conclusion of my OVDP case. So I visited IRS website and read about it and prepared my custom Certification and sent it across. I was then asked to send some additional information. After submitting additional information I was told that my request for Transitional Treatment has been approved in just about a week's time. My guess is that not all requests are decided by the committee. Most likely the Agent and his/her boss alone make that decision. This is also mentioned in Transition Rules FAQ #8. I also think that the Agent is the most important factor here. He is your champion especially if you are doing this exercise without professional help.

  4. Thanks, Title 26.

    We don't often hear success stories such as yours. You are to be congratulated for taking the initiative. And, it sounds like you had a very good agent.

    You are right that FAQ #8 implies that not all determinations are reviewed by the central review committee. There is no indication as to which cases are reviewed. That would be helpful to know.

    Jack Townsend

  5. Hi Jack,

    I've had one transitional treatment request approved within 5 days of submission and was told that it was reviewed by the RA, his manager, and his technical advisor. I have another pending the technical advisor's interview of the tax preparer. I've had another denied by the RA, but was allowed to make a supplemental submission and am awaiting his decision following that submission. When I asked about the central review committee, I was told that this was a resource the RAs and their managers could rely upon internally, but not a review that could be requested by the taxpayer. He followed that up with a lengthy discussion regarding the burden shift at opt-out and was surprised to hear that we had had any success for our clients at the opt-out level.

    Thanks for your very helpful discussion on this -


  6. This example of kleptocracy as you have applied it to FATCA is an example of the maxim, "Hard cases make bad law." The kletocracy of a Nigerian dictator hardly justifies the terror of millions of alleged citizens of the United States who are resident abroad in their countries of citizenship but having clinging US nationality. FATCA, as it is currently being implemented, strips millions of alleged Americans of their citizenship rights in their countries of choice: for example, the "accidental American" who is a Canadian citizen living in Canada. The no longer enjoy equal protection but their governments or their banks, forced by the US Treasury, will rat out to the IRS their innocent and necessary financial accounts in their home and country of citizenship.

    I know many people living in fear because they have no easy way to come into compliance with the IRS--many of them see IRS offers to come into compliance as merely different forms of tyranny. FATCA is not good. FATCA is evil, because these people are innocent, hard working taxpayers here in Canada who receive no benefits of US citizenship.

    And besides, the forfeiture of 480 million in this case is accomplished without FATCA: "Through the Kleptocracy Asset Recovery Initiative, the Department of
    Justice’s Criminal Division denies kleptocrats like Abacha the fruits of
    their crimes, and protects the U.S. financial system from money
    laundering." I.e., FATCA is not even in the picture. You can accomplish these kinds of goals without making bad laws that destroy the lives of millions of innocent people.

  7. If FATCA were truly a "good thing" it would not crafted in such a way that it makes getting normal banking services very difficult for expats. And it would be truly reciprocal: the banks in the US would be legally bound to be transparent as well with respect to the people who are using the US as a tax haven, hiding their money from their own governments.

    It's my belief that the disastrous effect of FATCA on expats was probably not considered when the bill was written. (The United States is a country that is so focussed on itself that people working for the IRS dealing with international tax affairs often can't make phone calls outside of country code 1--i.e. US and Canada, That expats might have been forgotten is not surprising in that context.)

    I doubt the lack of reciprocality was inadvertent though.

  8. Thanks! If someone needs to be approved for lower offshore penalty then it should be those who came forward and gone through the rigors of OVDI/OVDP. It would be really unfair if they are rejecting majority of Transitional requests but approving those who waited and sat back for the better deal (i.e. new Streamlined procedures). Aren't people who came forward first more nonwillful than the ones who stayed back ?

  9. Catherine, Supplemental submission - meaning what - additional information y9ou had not provided, bank statements , what ?
    Could you elaborate even in general terms?

  10. The agent told me the Transition request is reviewed by the Agent, Agent's Manager and the Technical Advisor. Committee is TBD
    Unfortunately, the Agent we got was no ' guardian angel' or ' champion nothing could be further from the truth.
    The feeling that I got was the agent is inexperienced and defaults to the Technical Advisor (a very belligerent person in my case)
    One of the only valuable things our attorney told me was that the outcomes ( in any IRS case) depend a lot on the Agent assigned, so I was not lucky

  11. Thanks for sharing this. Does that mean you were denied transition relief?

    Jack Townsend

  12. Peter,

    Thanks for your comments. You always make good comments.

    My point in the blog is that transparency among countries and their institutions is increasingly required to deal with a host of societal ills -- from dictators to tax cheats. There always is some collateral damage when such initiatives begin and progress. Hopefully, with input from people like you and the ACA and others, Congress will listen and try to smooth out the rough spots.

    I think your point is not that FATCA is evil, but the U.S. tax system's feature of taxing expats who get no (or little) benefit from the U.S. is evil. FATCA is just a means of implementing that policy firmly imbedded in our tax system. Whether FATCA is the best implementation is perhaps debatable, but that and similar implementing regimes will have to be worked on to smooth out the rough edges.

    But again, your complaint is not FATCA unless you are saying that expats would not pay their tax except for some regime like FATCA. Then they are not quite so innocent taxpayers. They simply disagree with the tax system and choose not to engage in it.

    Jack Townsend

  13. Jack, you are right: the real beef is with CBT. It is immoral. Why? Because it offends the basic principle of what taxation should really be about; that is, the government of a country taking a share of that country's output to finance itself. Forget the effect of CBT on individuals; it is nothing more nor less than a means for the US to raid the output of other countries to finance the US government. It is larceny. It impoverishes those other countries. It is like the rich squire coming down into the village and stealing from the villagers. The US whinges about Saverin taking his fortune elsewhere on the basis that he generated it in the US economy and the US should therefore get its share. Yet on the other hand the US wants to take from the output of other countries, money the US has not generated and done nothing to earn. Some inconsistency here, perhaps?

  14. I have not submitted the transition documents as yet. I am tempted to go directly to opt out, ( partly because of the experience with the revenue agent and technical advisor- ie we'd get someone different in the Opt out ), but I dont want to wait another 6 mths to 1 year + . It seems transition requests are being resolved quickly

  15. Jack, since the deadline for banks to obtain releases and proof of compliance from customers has passed, I wonder if you could briefly write about your success/failure in obtaining payment from any banks for sending such proof/releases, particularly as a percentage of high balance.

    In my case I did not bother answering the banks since they wanted the info for free.

  16. Jack, the TNT article that you quote says : "Last year an IRS official said the average foreign bank account report
    penalty in opt-out cases was only between $10,000 and $15,000. "
    I suspect this is only because only the most clearly nonwillful cases dare to opt out, so I don't think it means much.

  17. "Hiding the money is what the IRS offshore account initiative for U.S. taxpayers has been all about."
    There is an important difference between 1) hiding and 2) not reporting.
    An example of the first case is taking untaxed money and sending it abroad.
    An example of the second case is money that originated abroad (prior to immigration to the US, inheritance from a foreign parent etc.) and not filing the FBAR.
    Unfortunately for those in the second category they are being treated as if they were in the first.

    As to making wealth visible to "the community" and the "coherence and bonding" you refer to, the flashing of wealth that goes on in places like Los Angeles would be downright dangerous if you travel or live in many parts of the world where people are routinely robbed, kidnapped and killed over as little as the smartphone that many of those reading this own.

  18. If you get monthly or quarterly statements you would use the highest end-of-month or end-of-quarter balance for the year. Since I did not get such frequent statements, I calculated the highest balance per quarter (the 12/31 figure was available from the annual statement.) I wasn't about to calculate the end-of month balance for eight years, and I suppose the IRS wasn't interested in having to check the calculations for 96 months) so that's what I used and it was accepted.

    Remember that money cannot be in two places at the same time so be sure to net out any transfers between accounts (or sales/purchases within an account.)

    Also, gold coins outside an account are not reportable (in a safe deposit box for example.) On the other hand, if held in an account (i.e. the bank holds coins in its vaults and says ten of those coins are yours) then they are reportable.

  19. I have had no success.

    Jack Townsend

  20. Not yet, but I expect to hear soon.

    Jack Townsend

  21. Elaboration on certain facts with which the RA had taken issue. Didn't make a difference in the end, transition has been denied.

  22. I have not filed 2013 returns awaiting clarity on SDOP. Since 2013 has foreign income for first time, would you say there is high probability IRS may catch it and initiate an audit if I have not gotten to SDOP soon after my 2013 filing.
    I am sure longer I wait to file SDOP after my 2013 filing, greater the probability. Would you say waiting 2 months is not bad?

  23. It will be several months before the IRS would catch it. And, I doubt that simply first-time reporting on 2013 would do it, unless the income is very large.

    Remember to file the Form 8938 if it is required.

    Finally, if you are going to file SDOP, why not get that done promptly and you will have no concerns about what happens with the 2013 return.

    Jack Townsend

  24. I am not sure that we know whether there will be any guidance as to how to tread the territory between willful and nonwillful. The IRS seems to prefer it that way, for then it deters the timid and, in most cases, rewards the bold.

    Jack Townsend

  25. "Finally, if you are going to file SDOP, why not get that done promptly and you will have no concerns about what happens with the 2013 return."

    I see there are a few of us on this forum who are on the sideline waiting for the muddy waters of SDOP to settle before taking the plunge. The program being so new examiners may err on side of being stricter with RC. Frankly waiting may not change anything and may not bring any additional clarity.

    It is the worry of certification being rejected and subsequent audit that gives me (and lot of others like me) pause.

  26. NeedDirection,

    You make a good point. But the IRS can deny certification for any reason it chooses -- real or imagined. But, if a taxpayer is comfortable with his nonwillfulnes, why not just short-circuit the IRS programs altogether and proceed by QD or GF. (Again, assuming nonwillfulness, the difference in out come in QD and GF if an audit occurs is that with QD there will be no accuracy related penalties because a QAR has been filed, whereas on a GF audit, the accuracy related penalties may not be avoided. But , in either case, the big penalty (FBAR or offshore if in one of the programs) should be minimal in most cases assuming good evidence of nonwillfulness.

    That if, of course, unless the IRS decides to be punitive for a taxpayer taking a logical position (QD or GF) because of the screwed up way the IRS designed the program.

    Just food for thought. Not advice, but perhaps it should be considered.

    Jack Townsend

  27. I think must people file OVDP or SDOP whether wilful or not, whether material criminal risk or not, (unless they can prove easily prove reasonable cause sufficient to avoid penalties) based on the fear alone that the civil penalties can be ruinous and that the IRS will aggressively pursue QD/GF and be punitive.

  28. Two dual US/Canadian citizens have filed suit in Canada against FATCA.
    (Jack, I didn't know where to post this.)

  29. Sorry to hear that.
    1.Does it seem to you that what Jack heard is validated by this case? ie nothing short of a slam dunk 'RC equivalent' set of facts would be acceptable for a 5% Transition penalty
    2. Does the above influence your decision ? ie do you take this as a signal NOT to Opt Out ?

    Are you still of the opinion that the transition certification doc should be BRIEF ? ( vs. elaborate and detailed) It seems based on the above, that it better to provide ALL detail possible, what does not resonate with the Revenue Agent, may resonate with their manager

  30. I am thinking that the certification should be as brief as possible to do the job. In working on these, I try to anticipate every question the IRS may have based on the documents the IRS has. If there is a negative fact, get that fact out front without the agent having to wonder why it was not dealt with (perhaps enough to deny certification). If you have stated your best case, well that is the best you can do.

    Also, if there are other documents that you can produce in your favor, you should do, provided that it not be apparent that you are not showing the representative documents -- i.e., do not give the impression that you are withholding bad facts or documents.

    Jack Townsend

  31. "But, if a taxpayer is comfortable with his nonwillfulnes, why not just short-circuit the IRS programs altogether and proceed by QD or GF"

    I totally agree.

    Two points:
    1. I am comfortable with my NW arguments but then I am biased about my own case. I wonder if my NW arguments would be acceptable to an IRS examiner. To answer that one needs someone who has been an IRS examiner in past or at least can think like one. Thoughts?

    2. The worry me (and many of us have) is that QD would be seen as a way to end run around the process and in case of subsequent audit the IRS examiner getting stricter with the subjective NW/W calls (s)he has to make. With SDOP the taxpayer could argue (s)he did everything as per what IRS wanted and hence deserving of a lighter penalty, if any. Do you see it this way?

  32. honestabe1947 - can you please contact me at


  33. Anybody would be able to give guidance on the following. Just found out that my European mother put my name on one of her accounts in Europe where she lives (in addition to her own name). The money is all hers and she receives her pension there, pay taxes etc, my only involvement is that she put my name there (without me knowing). The amount in the account is not unsubstantial. Not clear whether this should be classified as joint account or signature account.

    Should I report this account on both fbar and 8938, and under what category? I'm a resident us citizen.

    Will it be part of the 5% penalty under streamlined? The only fair treatment, of course, is that it is not included in penalty.

    I'm filing under streamlined due to some other accounts. If found non-willlfull could I suddenly be forced to pay a large penalty on the European account on money which is not mine? Or should I do something else than streamlined?

  34. How did your mother put your name on the account without your signing some account documents (as owner, co-owner or signatory)? And, if you signed documents, why were you not aware of the account and your relationship to it?

    Jack Townsend

  35. Found out the account was opened decades ago. Don't know if I signed anything, and can't find out. I have never done any transaction in this account and no money ever going in have been mine. I'm probably listed a co-owner. All local taxes have been paid by my mother (and the account has been quite active with her normal day-to-day transactions) so I also assume I would not need to declare any income as the money is not mine?

    Seems if all details are laid out, my lack of relationship to the money in the account should be fairly clear. However, from a practical standpoint, how can I deal with this through the procedures which may be more rigid?

  36. If the mother has Power of Attorney, she can add Guidance's name. Even if she does not have PoA- his name can be added as a nominee
    Can you sell the funds in the account and are you earning income from the account? Iit sounds like you are not- they are your mother's accounts and should be listed under 'signature authority' in an FBAR
    If you do not have signature authority and are only a nominee you do not need to report it at all- though to be on the safe side I would report it

  37. Hello Jack,
    On your comment where you say: "The IRS can do whatever it wants -- it can assert a willful penalty because it does not like the color of the taxpayer's eyes"...

    In the context of a straight/new SDOP filing: Does this mean the IRS can at the whim of the agent summarily reject his/her RC explanation provided in last page of the self-certification and assert that they find the tax payer willful *without* giving objective evidence on how they come that conclusion? Is it that easy/simple for them?

    Page 5 on the SDOP certification PDF has this line: "I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to..." Does this line mean that the SDOP applicant is entitled to see that evidence explained out?

  38. RajNIL,

    You raise good questions. I was speaking to the IRS's raw power to deny the Streamlined Transition in OVDP. The IRS can deny that for any reason it sees fit, although I do think that institutionally they try to get it right. But, they are dealing with the taxpayer's certification and self-serving statement plus some other information they have gathered in OVDP. Hence, they may have some good reasons to deny the transition relief. At that point, it is not likely that they are going to lay out their hand. The taxpayer always has the right to opt out and go through the audit process, in which case the IRS will have to lay out its hand for whatever action it takes.

    Now, if the taxpayer goes straight into Streamlined without ever going into OVDP, the IRS in most cases will know nothing except what the taxpayer tells them in the certification, the amended or delinquent returns, and the amended or delinquent FBARs. The chances of the IRS attempting to deny the certification is less likely, unless there are indications in those filings that something is amiss and should be audited. During the audit, the taxpayer can still prevail if that happens.

    One risk in both cases is that the IRS has gotten information that is not known to the taxpayer. That information could be very damaging to the taxpayer certifying nonwillfulness. That is why it is critical to test the certification every conceivable way to try to anticipate what might be out there and deal with it.

    Jack Townsend

  39. I don't understand how the bank would accept any instructions from anyone, whether nominated nominee or otherwise, without proof who the person is, including signature on the account documents. Just from my anecdotal experience, I have never seen a Swiss bank account nominating someone with power to act when the Swiss bank does not have signed documents and identity documents (usually a passport at least) from the person so nominated.

    Jack Townsend

  40. Why don't you ask the bank? If you have some relationship to the account, the bank will probably respond to your inquiry.

    Jack Townsend

  41. Hi Jack,

    In the Certification, do we have to explain beyond the past 3 years or just have supporting statements for only the 3 years for the amended returns?


  42. you can contact me at anon2014r at gmail

  43. Good point. That's part of the clamor by professionals like myself who helped taxpayer's in the earlier OVDP programs.

  44. You can contact me at DisQs

  45. Sorry, I have difficulty agreeing that the IRS institutionally tries to get it right ( or if it tries, its a feeble 'try' ) judging by the huge mess that is OVDP. I get the feeling the right hand in the IRS does'st know what the left hand is doing and everyone is interested in a CYA- ie be safe and deny the certifications. Let someone else deal with the decision

    I realize this is an open ended Q- but unless the tax payer is a big time tax evader and good candidate or OVDP- what info could the IRS possibly have other than what was submitted in the OVDP package. Does the IRS really have nothing better to do than contact foreign banks to try and get information on a run of the mill taxpayer? If so, this is a HUGE problem in misapplying our tax dollars
    I would think the risk in straight streamlined is close to zero

  46. Has there been any update on this besides Jack's last post? Were the IRS willing to let people back into the program?

  47. True. South-west side of Chicago is not a safe place for anyone to carelessly flaunt their wealth, as would be South Central Los Angeles, or any barrio, ghetto. But I think Jack was making a general statement with regards to our wealth not being easily discernable and also much more secret. Thus, Society would not be able to gauge its progress for social & material progress. An easily identifiable "rich" person would be known to Society, and his track record of what he did to get there, would serve as inspiration to others in Society to do the same, i.e., contribute, either socially, economically, morally, politically, etc. At least, that's what I think he was saying. But I'm not sure why someone could not do that already, with domestic trusts, domestic legal instruments, insurance contracts, ec., and be completely tax compliant, and thus still remain off the Government's and Society's radar as an easily identifiable rich person.

  48. I agree with the IRS's FATCA implementation, but only that the disclosure programs are TOO heavy handed. If SDOP or SFOP would have been around earlier, MUCH earlier to OVDP, FATCA would not have looked so askance. If also, the IRS would have had PROPER public relations to citizens on their international responsibility, it would also have been better. Not many Americans know that they have to report their foreign inheritances, assets, aside from foreign income, prior to 2003 or 2004, the starting point of most people's OVDI/P disclsoure period -- (I'm guessing here).

    Making a law as confusing as the substantial presence test, the exceptions to it, and casting that wide net, is not kosher itself. But then enveloping it in a citizen based tax system, by NOT explaining the law, leaving it to advisers who may or may not be informed, having unfair disclosure programs, enforcement of high & rare penalties, forcing people to prove nonwillfulness, bad PR on the worldwide income section 7701(b), different definitions for financial assets for 8938, FBAR, and now FATCA backed by IGAs, feels very, very wrong. I could go on.

    Most people are ordinary folk, who usually, in my experience, want to do the right thing. They're not equivalent to this psychopathic dictator (God rest his soul).

    FATCA is right on many points -- it's a start, but the IRS's heavy handed-ness its terrible, terrible start, is just downright ugly, and very, very immoral. The US Corporations, ever the sly bunch, have known this from day one. I think US citizens would do the same.

    The tide would only turn once, new immigrants who come to replace the ones who have given up their citizenship, would also find their assets in a FATCA trap. But then they just might comply.

    Only when the US's GDP, and economy as a whole starts to stagnate would this be an issue.

    For now, most Americans without foreign assets or income, are not going to be bothered about their brethren with foreign income and assets attempting to avoid US income tax because it just looks like a bunch of Mitt Romneys trying to not pay their "fair share". Imagine this on the 6 o'clock news?

    Just my take.

  49. With the Sept 12th deadline looming some banks are becoming more aggressive. Some banks have lashed out against lawyers who receive referrals from the banks but do not ensure that the clients fork over the penalty reducing document (duties of loyalty to the client notwithstanding). More accusations of blackmail coercion if the client wants to be compensated for personal data, clients being threatened with criminal investigations if they do not turn over the data, the list goes on. Its very unfair on the clients many of whom are already frightened by the disclosure process

  50. Jack I am wondering if you can put to rest the account balance amount to use when calculating a willful FBAR penalty. As you know the 31 title statue makes it clear that the penalty is based on the balance in account on June 30th of the following tax year. The IRS continue to use the highest balance in the account during the tax year. The recent Zwerner case put that to rest when the jury was asked to approve the penalty based on the June 30th account balance. The DOJ did not object, because it could not, because of the statute which clearly states the violation and penalty is based on the June 30th balance. I have argued this point with countless lawyers, who just assume it is the highest balance during the tax year, because that is what all other criminal FBAR penalties have been assessed on. No one has challenged it because 99% of the time the balance on June 30th is going to be about the same as it was in the previous tax year, if not higher. There is the rear case when the balance on June 30th is substantially lower. e.g.. when an immigrant moving to the US has $1,000,000 in his account in 2008, but finally gets all their money moved to the US before June 30th 2009, so that on June 30, 2009, (the time of violation )the immigrant only has $25,000 in their offshore account. The IRS would try to get 50% of a million or $500,000, but under law they are only able to assess a penalty of 50% or $100,000 whichever is greater. So in this example the penalty would be 100,000, much less than $500,000

    My existing lawyers don't believe this, even though I have shown them the Zwerner verdict. Can you shed some more light on this, by pointing to other cases, or your direct experience?

    Thank you.

    Thank you

  51. The FBAR willful penalty is calculated on the amount in the account on the due date of the report. The Zwerner instruction to the jury was correct.

    I have a willful case and that was the date the IRS used. I am pretty sure that is in the IRM somewhere.

    Now, the offshore penalty inside the OVDI/P is the high amount for the year. But that penalty is an IRS miscellaneous penalty imposed / agreed to by the taxpayer in lieu of all other penalties. In many cases, the other other penalty that could apply would be the FBAR penalty, but the offshore penalty is still not an FBAR penalty. It is simply an agreed miscellaneous IRS penalty that can be imposed on any methodology the parties agree to. The methodology the IRS requires is the high balance during the year.

    For still an additional complication, the streamlined programs require the base for the offshore penalty to be the year end balance. Why? Probably to make the calculations easier for persons joining streamlined afresh (i.e., transitioning in OVDI/P).

    Jack Townsend

  52. I really have to wonder about your lawyers ! It seems to me that they are part of the problem as well.

  53. Thanks for the supporting info.

  54. Jack in your willful case when the IRS used the June 30th account balance was it in court, or being settled by the IRS without litigation.? My lawyers seem to think that the Florida Zwerner verdict was a jury verdict of facts not law and that the June 30th account balance covered by the 31 statue is open for interpretation by the courts, and might not hold up in other jurisdictional courts outside Florida, especially if the IRS contends that the difference between the prior years high balance and the June 30th balance is extreme. I guess what I trying to get at is does the IRS routinely settle out of court using the June 30th balance.?

  55. The 6/30 date was in the proposed assessment that we are appealing. Actually, the use of the 6/30 date was good because by 6/30 for the final year (the year preceding 6/30), the client had closed the account and wire transferred the money to the U.S. So, that meant that they had to use another metric for that year (see the IRM provisions) that produce a number far, far less than if the account were still in existence on the key 6/30 date. That alternative metric was 10% of the high balance in the year. This was under the Level III of the FBAR willful penalty mitigation rules which are:

    The greater of (a) or (b):
    (a) 10% of the maximum balance during the calendar year for each Level III account, or
    (b) 50% of the closing balance in the account as of the last day for filing the FBAR .

    The URL for the IRM proviion is

    But, it might well be that, if the case goes to court, the Government will have to give up on the alternative penalty metric for this year where the amount in the account on 6/30 of the following year was $-0-. (At least that would be my position.)

    Jack Townsend

  56. I strongly disagree with that notion that that the June 30th account balance covered by Title 31 is open for
    interpretation by the courts, and might not hold up in other
    jurisdictional courts outside Florida, especially if the IRS contends
    that the difference between the prior years high balance and the June
    30th balance is extreme.
    Regardless of the difference for these 2 dates the date of the filing violation is 6/30 of the year following the calendar year for which the account is being reported.

  57. Here is the statute - 31 USC 5321(c)(5)(C) & (D).

    (C) Willful violations.— In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—
    (i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
    (I) $100,000, or
    (II) 50 percent of the amount determined under subparagraph (D), and
    (ii) subparagraph (B)(ii) shall not apply.
    (D) Amount.— The amount determined under this subparagraph is—
    * * * * or
    (ii) in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation.

    Notice that the statute is clear the penalty is based on "the balance in the account at the time of the violation." The violation occurs on at the moment 6/30 turns into 7/1, which is the moment of failing to file the FBAR timely.

    Jack Townsend

  58. This is a really good read for me, Must admit that you are one of the best bloggers I ever saw.

    Workplace Pension Scheme & Automatic Enrolment Pension

  59. Any success so far? I guess no...
    I am in a much easier boat (hopefully) than many of you, but I feel sick of seeing an example of a democratic system that is supposed to have checks and balances allow for such an unfair revenue making corportation within. In the real world, eventually those corporations crash but here, on top of that, we are supporting it with our dollars...
    May be silly but an alternative option to fund a lawsuit is a kick-starter. Get law firm estimate --> Set the goal --> Folks put money but only gets cashed if enough money is placed (above the goal). Just a thought.

  60. That maybe an idea. However I think the more likely case will be that once the well dries up for the big law firms handling individual cases, they will use that experience and undertake a class action suit on behalf of all their previous clients and any one else willing to seek a claim. They have nothing to lose but their time, and everything to gain by a small percentage of the winnings. Hoping GlobalCapitalism is making some headway in this area.

  61. Thinking about it.. $100 x 40000 = $4M. That goes long ways... and you get a t-shirt with it :)

    Also, anybody knows anything about this
    I believe they started about 1 year+ but nothing has come up.

    The Canadians are close with this (at least they are trying):

    Honestly, I don't like tax cheats, and support reasonable measures to fight that, but government/IRS is way overboard on this...

  62. things are moving.... has asked each declared candidate for the 2016 Republican presidential nomination to endorse the 2014 and 2015
    Resolutions by the Republican National Committee (RNC) calling for
    repeal of the “Foreign Account Tax Compliance Act” (FATCA), and opposing “global FATCA” (a/k/a “GATCA”)!

    The full text of the “Statement in Support of FATCA Repeal and Against Unauthorized International Agreements” can be found here, with the requested endorsement, as follows:

    As a candidate for the 2016 Republican nomination for President of the United States, I HEREBY STATE THE FOLLOWING:

    endorse the 2014 and 2015 Resolutions of the Republican National
    Committee calling for FATCA’s repeal and for the other measures
    described in such Resolutions to mitigate the damage caused by FATCA
    pending its repeal; as president I will use my constitutional authority
    in accordance with such Resolutions.

    The request letter to candidates can be found here. As of June 11, 2015, the request has been sent via their public campaign sites to the following candidates, listed here by date of declaration:

    Mark Everson (announced March 5, 2015)

    Ted Cruz (announced March 23, 2015)

    Rand Paul (announced April 7, 2015)

    Marco Rubio (announced April 13, 2015)

    Ben Carson (announced May 4, 2015)

    Carly Fiorina (announced May 4, 2015)

    Mike Huckabee (announced May 5, 2015)

    Rick Santorum (announced May 27, 2015)

    George Pataki (announced May 28, 2015)

    Lindsey Graham (announced June 1, 2015)

    Rick Perry (announced June 4, 2015)

    This list will be kept updated as further candidates declare and as receives word that candidates have endorsed – or rejected – the statement in support of the RNC Resolutions.


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