IRS reopens the Offshore Voluntary Disclosure Program and promises new procedures for U.S. citizens living outside the United States

This has been cross posted at the RenounceUScitizenship blog.

I can’t believe it. On January 5, 2012 I wrote a post about OVDI called: The Taxpayer, the IRS and the Cross Border professionals – where to go from here. Six hours ago I finished a lengthy post about OVDI called: Taxpayer Advocate vs. The IRS – It’s a question of trust.  I thought I would enter: “OVDI Blog Post Retirement”. My point was that the IRS has a real trust issue. |The “cross-border professionals are not much help either. And then, almost on cue (while I was writing the post) the IRS is at again! To emulate a famous Ronald Reagan quote:

“There he goes again!”

Can you believe it? The IRS has extended OVDI. I think it was Einstein who said that the height of insanity is to continue to repeat the same thing that doesn’t work. Many people don’t understand how they are perceived by others. I would say that Commissioner Shulman qualifies. He doesn’t  get it.  OVDI has irreparably damaged the trust that the practitioners and the taxpayers have in the IRS. No matter what Mr. Shulman chooses to believe, the IRS cannot function without trust. He is seriously out of touch with reality. OVDI has made people more reluctant to come forward to clean up their problems. Why? Because there is no clear direction from the IRS. All Mr. Shulman seems to be able to say is: come on in to the see the IRS and we will take your life savings. He must be kidding. The rules for OVDI 2011 were long and comprehensive. Very few people understood them completely. But in a nutshell here was the OVDI 2011 offer:

“If you file 8 years of returns, spending a large part of your life doing this and thousands (in many cases tens of thousands of dollars to do this) you will agree to give us 25% of your net worth. Why you ask? Because if you have a foreign bank and/or you live outside the United States you are a criminal – nothing but a common criminal.”

That was the offer of OVDI 2011.  And what do get for your U.S. citizenship? Nothing (unless you count the problems).

I suggest that you do three things:

1. Read the IRS announcement;

2. Read the post that I wrote earlier today

3. Read the post written by Roy Berg of Moodys Tax

Although the announcement is short on detail: OVDI continues to be a program that is designed for tax cheats.  How do we know that? The complete IRS announcement (with the exception of the second to last paragraph) is premised on finding  tax cheats. Once again, you can enter if you want. But, if you enter OVDI the IRS is making it clear that you are considered to be a tax cheat. In my other post, I quoted one lawyer who reinforced the theme that the IRS is wedded to the idea that everybody in OVDI was a tax cheat. This time I am going to quote some more lawyers. How is this for a sample:

“rooted in the DNA of the program, notwithstanding the good faith of the agents and those involved in this process, is the belief that the vast majority of these people were willful
tax cheats,”

“the biggest problem with the administration of the OVDP was the deeply entrenched view of the IRS that the people who entered the program were tax evaders”

“many participants in the OVDP came in expecting fair treatment but were then treated essentially as “wrongdoers who should feel lucky to pay 20 percent of their foreign account as a price to make peace with the Service.”

“We as practitioners also were aware of the drumbeat from the IRS against quiet disclosures or any kind of compliance short of participation in the [OVDP],” he said. “There was some genuine concern among practitioners that advising a client not to participate might be seen by the IRS as a Circular 230 violation — or worse, an obstruction of justice.”

(IRS Circular 230 is a set of rules that that tax professionals are required to follow. This last comment is SHOCKING! I may explore this in another post.)

The glimmer of hope (to the extent  that there is one) is the second to last paragraph which reads as follows:

“The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations.  This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax.  The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.”

This paragraph does acknowledge that the IRS is aware that there are people who were NOT WILLFUL in not complying with PAST tax and reporting obligations. Roy Berg of Moodys Tax views this as a very positive development. Mr. Berg does see (and I agree) that the second to the last paragraph of the IRS announcement is separate and distinct from the general discussion of OVDI. For those people (and I suggest that if you are  U.S. citizen living outside the U.S., you may be one) then OVDI is NOT for you. You have the benefit of the December 7, 2011 IRS FS for U.S. citizens living outside the U.S. and dual citizens. There is no inconsistency or incompatibility between OVDI and the IRS FS. I would point out that:

– OVDI is optional

– the IRS FS of December 7 seems to provide clearer (but still ambiguous)  guidance

– in the IRS announcement of January 9, 2012 the IRS does say that further guidance will be coming

In closing,  (at least for now), I see that this issue was posted on the Isaac Brock Society site and that the comments indicate there is a great deal of panic. Calm down. This is my attempt at a bit of humor (even though I don’t have a sense of humor). How about this:

My message on this one is to sit tight. They are not unreasonable. They  are not unsympathetic. They are not irresponsible.

Let’s  say a prayer for Doug Shulman tonight. Given his delusional state (OVDI has been a great success, etc.) he is in need of our prayers!

Sleep tight and don’t let the bed bugs bite. I don’t see the continuation of OVDI having much to do with a law abiding U.S. citizen who lives outside the United States! But, the upcoming “procedures” announced by the IRS might.

P.S. A special message for Doug Shulman:

U.S. citizens and dual citizens living outside the United States really do want to come into compliance. We just need clear instructions on how to do this and an assurance that you will not steal all our hard earned retirement funds!

P.P.S. Renounce U.S. citizenship and rejoice!


3 thoughts on “IRS reopens the Offshore Voluntary Disclosure Program and promises new procedures for U.S. citizens living outside the United States

  1. No no no! We do not need more IRS “guidance”! Remember that insanity thang you just said up there? To the IRS “guidance” is another word for “calculation of fines and the unreasonable number of back years I’ll make you file you offshore scum!” Why would they want to write nice helpful “guidance” rules for people they can’t wring cash out of?

    Here’s all we need to do: just file the old returns that show we don’t owe anything. What more “guidance” do we need?

  2. This webpage by a US law firm is very critical of the IRS and the so-called ‘voluntary’ disclosure programs”

    “IRS Commissioner Ignores Taxpayer Advocate’s Recommendations Seeking to Address Unduly Harsh Penalties Faced by Participants of the Offshore Voluntary Disclosure Program”

    ………….”As discussed by the Taxpayer Advocate in the TAD, the IRS lured participants in this program with promises of leniency, consistency, and predictability.

    With significant FBAR penalties as leverage, the IRS “strongly encouraged” people who failed to file these and similar returns and report income from foreign accounts to participate in the 2009 Offshore Voluntary Disclosure Program (OVDP), rather than quietly filing amended returns and paying any taxes due. It warned that taxpayers making “quiet” corrections could be “criminally prosecuted,” while OVDP participants would generally be subject to a 20 percent “offshore” penalty in lieu of various other penalties, including the FBAR penalty. While the OVDP appeared to be a great deal for those involved in criminal tax evasion, it was a terrible deal for many whose violations were not willful or who would be eligible for reasonable cause exceptions.”…..

    ……”The Commissioner’s failure to adhere to his statutory duty to respond to the recommendations by the Taxpayer Advocate coupled with his remarks during his speech before the National Press Club reflect that his objectives are focused solely on generating revenue, without any regard to taxpayers’ rights or whether such revenue is properly collected.”………..

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