The OVDI Drudgery for Minnows

Just Me offers advice to newbies to the subject of FBAR compliance and OVDI considerations.  To join or not to join.  That is the question.  This is a must read post.

The purpose of this post is to address Minnows who may be new to Isaac Brock.  By Minnows, I mean those of you who were not the original target of the IRS offshore account jihad that started in 2009.  Those I call Whales.  They were the UBS type tax evading “US persons” living in the Homeland and squirreling away their money in “offshore” secret Swiss Bank accounts specifically to hide it from the IRS.  If this is not you, then you can read on. If you are a Whale, or if you have already been around the block on all these IRS VD issues and feel well-informed, you can probably skip reading this post.

If you are a Minnow visiting the Isaac Brock Society you are probably concerned about recent IRS programs and what it all means for you as an US Expat, accidental US Citizen abroad, or an immigrant to America.  Some of you are now faced with a hard decision as to what your response will be. You want to know whether or not to join the most recent iteration of the Offshore Voluntary Disclosure Initiative (OVDI) which may be driven by fear as result of a disingenuous marketing effort created by IRS press releases and totally mischaracterized by a compliant and non skeptical US media.  This is a very tough decision that many of you are struggling to make. Far be it from me to give you advice on what you should do.  You will not find that answer in this post.  However, I can point you in the direction that might help you with the decision that only you can make.

Since I am always reticent to provide specific advice on a blog as to what one should or should not do, I want to be sure you understand that information here does not imply that I am encouraging anyone to do anything other than self educate!

I recognize there are others who will advocate strongly for not joining, or will provide more detailed advice then I am willing to do.  I would always caution new readers to be wary of specific advice provided in a causal or generalized way in any online forum.  Blogs are a great source of information for continuing education, but when it comes to the OVDI issues, they don’t substitute for good legal advice based upon your very specific facts.   But…., before you throw good money at a tax practitioner, you need to go down the self-education route. You need to do some drudgery!

Let’s start now.  This may be in the category of conventional wisdom, but it is worth repeating.

I have to assume by now, you have read the About Isaac Brock Society, and know this is a great information sharing site with lots of knowledgeable and good bloggers, but I want to direct your attention to some of the excellent information that is also provided on another blog by a tax attorney professional named Jack Townsend.  His blog is called Federal Tax Crimes.

There are many other blogs around the internet, but I am going to suggest that you just focus on these two sites right now. Links here at Isaac Brock will expand your learning universe, but at the start of an educational journey you might try maintaining a site specific core focus to begin with, and Jack’s blog might be a good beginning. Then come back here for additional learning and updates.  If you start wandering all over the internet and googling everything, you are just going to get lost and confused.   There are many attorneys or bloggers telling you what a great thing it is to declare your sins at the OVDI altar and “come clean.”  Run away from anyone that tells you that without knowing anything about you or your specific facts.

Jack’s blog was designed for attorneys and students and not lay people. However, with the advent of the first OVDP of 2009, it has become an excellent source for learning for the rest of us non experts.  Jack has indulged many lay readers with his time, answers, and advice.  He has provided an excellent forum for information exchange amongst novices on specific OVDI procedures.  That is why I am placing a high value on it, and why Isaac Brock lists it as an external resource at the bottom of this page.

Between Isaac Brock and Jack’s blog, you should garner enough good information to make an intelligent decision that is right for you.  Once you get through all the reading that I will suggest you do, and you update yourself with the new information that is flowing into here daily, you should be well armed with the prerequisite knowledge necessary to approach an attorney for strategic advice and help, if required.  That is why I am proposing that do your own due diligence drudgery first, before you run to some unknown practitioner or blog for help in deciding what to do.

Now, I know this is probably the last thing you really want to do. “Why should you have to do it?” you might say.  It is absolutely ridiculous that the US government is treating you this way, and you are angry and a bit fearful. You are not alone. We have all felt that way and expressed it. You maybe overwhelmed and beleaguered by it all. “Now, you want me to do some additional drudgery too?” you might ask.  Just accept that as a fact, and do it anyway!  I know, I know! Who in their right mind wants to read legalese, endless blog posts, IRS  manuals (IRM) and pour over every nuance of the FAQS the IRS issues about the OVDI?  None of us do, I think. But you are reading this, so you must know in your heart that you have to.

The tax practitioners know that many of us are either too lazy or not so inclined to dig into these unfathomable subjects.  Some of them have spent a lot of time studying the issues and laws, (or not!) and that is why they charge so much to “take care of it” for you.

Information = power = $.

However, if these experts  are not up to speed on OVDI issues, and heaven knows a lot of them are not, the last thing you want to do is pay for their education!!  If you are overseas it is especially hard to consult with a good knowledgeable one, but it can be done via phone conferences back to the States on Skype.  Therefore, because of the communication ease these days, I would almost never rely on an attorney in your resident country (with some notable exceptions in Canada) for advice on how to navigate the OVDI Minnow processing plant!

At this stage of your education, just take a deep breath, and devote some meaningful time on your personal drudgery.  Remember, you are doing this, as much as anything, so you don’t make a wrong choice in the professional practitioner market place, should you decide to go down that route.

It is a “Buyer Beware World” out there.  Some attorneys are very good, and know the ins and outs of the IRS VD programs. Some are just looking for your money.  There is a lot of good commentary at the Isaac Brock Society to those points, but I want to caution you again.  You have to learn to identify them.  Self-education is required for you do that.

As fun as attorney bashing can be, don’t discount all of them either.  A good attorney who can provide you a sounding board with critical advice at key decision points is worth every penny of the price they may charge.  At least that has been my experience.

Should you decide to enter the OVDI program, and again I am not suggesting that you should, there are a lot more strategies now on how to minimize the cost in dollars then there were back in 2009.

The “Opt Out” for all its faults is beginning to look like a good option for Minnows if you are already in the OVDI process. There may be strategies on joining the OVDI and immediately asking to “Opt Out”, or just doing a straight up VD, or a Quiet Disclosure (QD), or just start filing the FBARs and 1040s from now on going forward. There are other approaches too.  Some are put forth here at IBS and in other blogs that say you shouldn’t join in the first place.  I am not going to advocate one way or the other about that here. Each has its own set of risks and rewards depending on facts and ones need to sleep at night.

Unfortunately, what ever your decision is across the wide spectrum of choices from doing nothing to renouncing your US Citizenship, there will still be a big cost in LCUs. (Life Credit Units).  It will consume a lot of your time figuring it all out. You shouldn’t have to this, and we can bemoan it all we want, but there it is.  It is what it is!  You are going to have to spend something, your money or your time, and it is up to you to work out what you can afford and in what portions.

At this point, I would just say, accept that fact that this drudgery for dummies is something you have to do for yourself.  At first, for some of you, it will just be incomprehensible and totally illogical.  Don’t get bogged down with whether or not any of this makes logical sense.   My wife had a hard time dealing with that, and kept getting distracted on the logic tangent!

For a cynic like me, tax statutes by definition are often illogical, as they are written by lobbyist, passed by politicians for heaven’s sake, defined by technical IRS writers and then interpreted by tax attorneys!   And then there is you at the end of the unintended consequence train wreck chain reaction to complexity . You have to deal with the impossible compliance mess that results.

Tax laws can be stupid, arbitrary and capricious, and all that complexity gets magnified every step of way until they are applied to you. We can rant endless about it, but what’s the point other than make you feel better?  It doesn’t change anything. So, just get back to the recognition that you have to bear up under the burden of  lots of reading and research now to work out what to do. However, if you do it slowly, but surely, the information will seep in and stick in your brain.  At least that is how it works for me!  You eat this elephant one bite at a time, and surprisingly, you find out that you can digest it!

It is not easy however, and not without heart burn.  It took me forever to get my little brain around the legal technicalities of willful, non willful and willful blindness issues and what penalties could apply. Understanding who had the burden of proof, what were the appeal processes inside and outside the 2009 OVDP, what litigation ‘might’ happen or not, took effort and constant re-reading and repetition.  These are not natural subjects for me. Then, coming to terms with an honest assessment of where I sat on that spectrum of failure and risk took time.

Trust me on this. If you do the drudgery now, and are disciplined in the incremental learning process, eventually the way forward will become clearer and appear. The right decision for you will emerge.

If you are not already in the OVDI, the “recycled” new one without deadlines for participation, means you have time for that knowledge evolution to occur. That is an advantage you have, that a lot of folks back in the days of  VDPs with deadlines didn’t have.  Fear, urgency and incorrect practitioner advice drove many to make mistakes in their decision-making process.  You now have time to get it right!  I don’t think you need to feel rushed into a decision. You also have the advantage of reading about the experience of those who have gone before you on the processing conveyor belt.  There is much to be gained from their stories.

As a good example, if you haven’t read Moby’s experience yet, this would be one that you can go to school on. (3/11/2012 Note update at end of this text)

So, if it were me, coming new to this subject, I would start reading the specific blogs which I have listed below.  I would systematically work through the ones I provide in a progressive manner, starting with the oldest post first.  There will be duplication of information between blog threads, but like any learning experience you need repetition for concepts to stick with you.  Some of us need it more than others.  And yes, again, it is a drudgery, except for a very few you sick ones out there that love this stuff!  I joke!  🙂  Who could love this?  Ah yes, they have the titles like attorney and CPA attached to their names!  Mate, they are not like us, but with a little effort, you can become more like them. In these matters you have to, or so it seems to me.

On Jack’s blog I would start reading in May of 2011.  I don’t think you need to go back farther than that, although you certainly can using the monthly archives.  The selected list below is not exhaustive, or even authoritative, but it represents progressive learning which has occurred as the OVDI was developing, and the controversies surrounding the OVDP were being discussed.  I would read every comment and every additional reference provided. If Jack or someone provides a link, I would follow it to see what it says.

The special and unique thing about Jack’s blog is that sometimes he provides excellent and detailed advice around a certain set of specific facts based upon his extensive legal background and knowledge. That is very helpful.  He is the professor and is qualified to do so, while I am not!  I have found him to be a very valuable resource.  Also, he reviews with the readers the decision tree he uses to help some of his own clients decide on their best course of action. I put great weight on what he has to say.

You will also hear many folks asking very similar questions that you may have. You will read about others sharing their experiences and giving novice responses which too can be very helpful.  Of course there are plenty of opinions, as we all have one, so take that on board with a grain of salt.   Since his site is moderated,  if  someone gets off on a wild tangent or something, it may not be put up. You don’t have to slug through a bunch of over-the-top rants although, I have had some that have been borderline! LOL

When you get done with all this reading, plus the information you are picking up here at Isaac Brock, you are now armed and ready to talk to an attorney, should you decide you want to (or not).  With a strong knowledge background, you can cut to the chase, and not waste a lot of money on an attorney telling you things you already know!  They then become a partner in your strategic and tactical decisions, rather than an expert dictator of what you should do!

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!

That is the best advice I can give you for now. Hope it helps.

Happy reading!

Looking for Mr Fbar  (added 3/11/2012)

Evolution of the FBAR, Where we were, where we are and why it matters, 2006 by Hale Sheppard  (added 3/11/2012)

To OVDI or Not to OVDI – That is the Question (Of Quiet Disclosures and Doing Nothing) (5/23/11)

Opting Out of the IRS 2009 OVDP and 2011 OVDI (6/14/11)

To OVDI or not to OVDI – Part 2 (7/31/11)

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

Opting Out Considerations by Jeff Neiman (9/10/11)

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

IRS Promotes the Success of OVDI and Related Items (9/16/11)

Article on OVDI and Beyond – Highly Recommended (10/24/11)

Excellent Article on Offshore Accounts – History and Future (11/9/11)

IRS will Give Canadians Some Breaks!!! (12/2/11)

IRS Guidance on U.S. Persons with Foreign Assets and, Coincidentally, Quiet Disclosures on FBAR Delinquencies (12/9/11)

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

Tax Notes Discusses Dispute Between the Taxpayer Advocate and the IRS About OVDP 2011 (1/6/12)

IRS Re-Opens Offshore Voluntary Disclosure Program (1/9/12)

National Taxpayer Advocate Report Critical of IRS Implementation of Offshore Voluntary Disclosure Programs (1/12/12)

“Opting Out” #2 (3/2/12)     (added 3/11/2012)

Moby “Opt Out” update    (added 3/11/2012)

“Experiences Inside OVDP / OVDI #2 (4/4/12)  (added 4/5/2012)

“Opting Out” #3 (4/4/12)  (added 4/5/2012)

IRS OVDI  June 1st, 2011 Opt Out Guidelines (added 4/12/2012)

Article by Scott Michel, a DC attorney on foreign reporting requirements and initiatives.  (added 5/8/2012)

Special note on this article, where Scott, good as he is, might have gotten something wrong.  This note has been confirmed by Jack Townsend.

Scott says..

Opting out enables the IRS to conduct a full audit, and if the taxpayer can satisfy to the IRS that their conduct was not willful, lesser penalties might be imposed (for example, the non-willful FBAR penalty).

Note:  It is not up to the taxpayer to satisfy the IRS, it is up to the IRS to establish willfulness. Anything the taxpayer can present in defense of non-wilfulness is useful, but ultimately, the IRS has to prove willfulness. That requires a high standard!

I think that Scott, like the IRS, slips into assuming “willfulness” if you are in the OVDI.  It was what the program was designed for, willful tax evading homeland Whales.  However, as we now  know, given how it has been administered, and given IRS hyperbolic threats, a lot of benignly non willful minnows were in the program and should be Opting Out  now rather than paying disproportional penalties.

IRS Warning Letters May be Sufficient for Some NonWillful Violations (5/18/12)      (added 5/18/2012)

Finally:   Below is a link to my personal story that is told through the letters of communication I had with the IRS through out the entire process.  It starts with my letters to Commissioner Sulman, and ends with the Tax Advocacy Appeal letter that allowed me to have FAQ35 (consider this an inside the OVDP opt out) relief.  That lowered my penalty from $172K to $25k.  Still alot of money, and in retrospect way too much for my failure, but did allow me to put an end to a 2 year process.  Without TAS intersession, I am uncertain what would have happened.  Maybe I would have had even a better outcome like Moby did, but will never know.

Letters to Shulman, or a Case Study of OVDP communication attempts with the IRS. An insider’s view of the process.    (added 3/11/2012)

One final comment, which I would be remiss not to mention.    Phil Hodgen’s has up until recently maintained a fine blog on OVDP and OVDI issues.  I used it extensively during by own personal drudgery. I checked it daily.  You will notice that Isaac Brock has it listed in the resources, and Petros comment in the thread about Phil is right on point.  I like Phil’s style of writing, his cynical wit, and his advocacy on behalf of Minnows.  I did do some posting there, but since the majority of my experience sharing was on Jack Townsend’s blog, I decided to keep your focus there in your discovery process.

If you read all the threads and comments that I suggest, you will note that there are often links back to Phil, and you should definitely read what he has to say.  There are other blogs by attorneys that I could mention also. I  have found many to be reputable and very helpful in understanding the history of how this FBAR mess all came to be.  Not wanting to clutter a long post any further, I left them out.  Again, if you just methodically work through the Townsend threads I have highlighted you will discover them too.  It all depends on your  personal tolerance level for drudgery.  Not many find this discovery process an exhilarating one! 🙂

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233 thoughts on “The OVDI Drudgery for Minnows

  1. Pingback: New website with offshore bank account, expatriation information | Hodgen Law Group, PC | Hodgen Law Group, PC

  2. Is there something you can do to make this not get buried under new posts? Maybe move it to somewhere else where it stays in a prominent place?

  3. Thanks for this – you have saved the “potential minnows” a great deal of work by directing them to “where to dig”. By so doing you have saved people literally hundreds of hours of time. Now, as you point out, the job is to:

    1. Understand the principles
    2. Try to apply the principles to their facts
    3. Confirm with an competent attorney

    Given that the decision is whether to enter OVDI, one might want to begin with the following comment from Jack Townsend (but make sure that you read the whole thread to get the context):

    http://federaltaxcrimes.blogspot.com/2012/01/irs-re-opens-offshore-voluntary.html#more

    “4. As I have discussed before, those whose situations would justify an opt out if they were to join the program might seriously consider not joining the program at all. The reason is simple. On an opt out, they will be subject to an audit in which income tax adjustments and penalties could be asserted for open years (usually just three if they indeed would benefit from an opt out). If they do nothing and are audited (by no means a certainty and probably not even a likelihood for most), they will be audited and, providing that they would have been good candidates for opting out, they will get the same result on audit anyway.”

    Thanks again!

    Note also the Isaac Brock Press Release on this issue:http://isaacbrocksociety.com/2012/01/10/press-release-isaac-brock-society/

  4. There is good information here…

    but here are some points from my perspective;

    I would have never considered the OVDI program due to the fact that I am totally tax compliant in my Country of residence and refuse to pay additional money for failure to file penalties…this, IMO is nothing less than gangster mentality.

    Second, there seems to be some confusion as to the definition of “Quiet Disclosure”.

    I took this past week (again) to seek out Tax Professionals and Accountants and asked for there ‘definition’ which to no surprise was the “filing of amended returns”. (key word here is amended).

    In example form: John Doe files his 1040 for 2009 then decides he should have reported his 5k in interest income causing him to owe the IRS 1200 dollars for that tax year.

    John Doe files amended return for 2009 in 2011 without advising the IRS and attaches a cheque for said amount……Hence Quiet DIsclosure

    Now this is where is gets sticky…..

    If you decide to file 6 years of back returns and owe the IRS money….you are technically filing a “quiet disclosure” due to the fact that you OWE tax and have not advised the IRS of such, except by the filing of (in there eyes) amended returns.

    If you DO NOT OWE any tax (as stated by the December 13th IRS FS, and re-enforced by the statements from the Finance Minister), then filing late returns without advising the IRS should not fall under the HARSH treatment one would expect from the IRS as outlined in there ‘distain’ for individuals that elect to file QC.

    Interpretations??….Pick one;

    If you want to call the filing of returns and FBARs under a “no tax owing” umbrella a quiet filing disclosure, then so be it……i prefer to call it the ‘Delinquite Filing’…

    The question you should really be asking yourself is….do I owe any tax to the IRS from unreported accounts or otherwise?

    The reality of the situation, and I believe it was eluded to in another post, is that not one person who has filed from Canada has had a problem with the IRS to date. (exception of OVDI)

    Before anyone jumps on me….i do realize that it is early in the game…but as far as the ‘word on the street’ goes, “all is quiet on the Russian front”.

    A friend of mine filed in November. He owed NO tax and actually found he had a refund amount of just under 400 dollars for year 2009.

    We debated whether or not the IRS would send him a cheque as he never generated income in the US….

    But low and behold, last week, he received his money from the IRS….!

    Now he is paranoid to cash it…:)

  5. @CanuckDoc I’ve added this post to “Our Resources”. This keeps it in prominent position forever. It can also be made into a sticky post, which I can do for a few days in any case. I’d want to write a short introduction.

  6. Excellent, informative, balanced approach.

    We can all benefit from your simple advice to Take A Deep Breath. As far as I know, IRS isn’t taxing breathing yet. Oops–Hope this doesn’t give them any ideas!

  7. @Just Me. What a valuable resource this is for someone at the “this can’t be happening to me / I can’t believe the country of my birth would do such a thing / how can they do this to me and my family? stage.” Thank you so very much. Your expertise and your experience that you are sharing is priceless.

    @CanuckDoc. I agree, the Just Me contribution has to be kept on top, easily accessible for anyone who fits the above description — and to encourage each of the rest of us, wherever we are on our individual journeys through the IRS maze.

    It is those like you and many others, Just Me, who are keeping me sane.

  8. @Mach7 I think you are touching on the interesting issue about a Quiet Disclosures. I’ve been contemplating why the IRS frowns upon it so much. This is the scenario I imagined (this is all imagination, ok, I don’t know what actually happens in the bowels of the United States government): A whale decides he’s gonna comply with FBAR and back tax issues. So perhaps he does or re-does his tax returns for three or six years, including gains in offshore accounts, then does quiet filings of FBARs without informing the IRS what he’s done. The problem for the IRS is that they don’t receive the FBARs directly and they can’t therefore assign easily fines to these accounts.

    In fact, it is the Department of Treasury who gets FBARs. So now either the IRS has to requisition the FBARs from Treasury, or Treasury has to recommend them to the IRS after reviewing them. This requires manpower, and likely many thousands of Quiets could slip through their fingers before they could assign fines to them during the six years statute of limitations. I often wonder if anyone at Treasury actually even reads these FBARs. They are full of useless information from innocent people, and they are looking for money launders, criminal tax evaders, and the like. I doubt that it is even worth their time to open up the stupid envelopes. Does Treasury have a machine that opens millions of envelopes? Are they set up to open them and review them? I wonder. This is likely why they gave the FBAR enforcement to the IRS: Treasury may not have been set up to deal with all these forms in the first place.

    I wonder what sort of terrible mess it must be to have to sift through millions of FBARs trying to find the one’s that deserve to be fined.

  9. @Petros,

    According to my ‘sources’.The IRS and the Department of the Treasury have far better communication than before.

    I am not sure of the process, but there seems to be an open avenue of communication between these two departments…so much so that the DoT has tasked the IRS to assign and collect the penalty structure if they see fit.

    Nonetheless, when you file your late FBARs, you attach a ‘reasonable cause’ letter outlining your late filing obligations and, most likely, mention you have not filed 1040s as well. As i did.

    My main thrust of my reply is to clarify the termm ‘quiet disclosure’ because everyone, including myself, that reads these posts are now under the assumption that they will be looked on ‘harshly’ by the IRS because they filed as per the Dec 13th IRS Fact sheet and ‘did the right thing’ in an effort to comply.

    Again…the distinction here is ‘do you owe tax to the IRS?’. If you do…then of course you might want to review your options.

    To quote: “no tax = no penaties”.

  10. @Mach7 IRS is part of Treasury. As I said, it was complete speculation. The inter-agency thing plays a role to some degree in any case. For example, with FBAR, the IRS cannot bring criminal charges, but must recommend criminal charges to the Department of Justice.

    Then the question of owing tax: in my opinion, if a Canadian compliant person owes taxes to the United States, they are still innocent. Thus, FBAR fines would be unjust.

    My own approach to this situation is to comply with all tax rules up to the point that I became a Canadian citizen–because the CRA has said they will collect for the IRS on me as a US person in Canada who is not a citizen. But once I become a Canadian citizen, tax compliance is out of the question. Also, thanks to Flaherty’s guidance, I will not be filing any FBARs. The IRS can scream at me all they like, they can posture, and they can threaten. But they are not going to get any FBARs.

  11. I wonder if part of why they’re introducing the reporting of all foreign assets and accounts on the new fatca 8938 form is so the IRS can more easily fine people who continue to fail to comply. It will be directly under their jurisdiction under article 26 whereas fbar fines are article 31. The Dept of Treasury would have to pursue even civil fbar penalties in court, unlike article 26 which can be directly fined via the IRS. This new form will thus make it much easier for the IRS to punish people who fail to report all their foreign accounts and income.

  12. It’s also because the new 8938 has to be attached directly to the 1040, thus making monitoring expats’ assets and income far easier for the IRS.

    I’m going to guess that they will start really snaring people from the 2011 tax year, especially because to not directly report all one’s financial assets abroad could then be interpreted as fraud. It will become MUCH harder to argue reasonable cause as a result.

    I do agree with Petros though that seems like a breach of the 4th amendment against unreasonble search without a warrent, plus blatent discrimination against US citizens living permanently abroad, especially as we have no representation!! 😦

  13. You have my thanks, Petros (and to Just Me for having created this document) — what I wouldn’t have given for this when I was at the OMG stage.

  14. Mona – I have a standing unanswered question about Form 8938, which is new in 2011. Is that form going to qualify under tax treaty for Canadian enforcement against U.S. residents who have not become dual citizens? This category of resident is otherwise sheltered from collection of FBAR penalties. A nasty new wrinkle on the near horizon?

  15. I second what calgary411 says: thank you to Petros, JustMe and all the contributors for their time here, and what I wouldn’t have given for this site during my OMG phase a couple of years ago. I was happy to see that Phil Hodgens has recommended the site on his blog today. His blog and the commenters there helped me through the OMG time.

  16. @usx That’s a great question. The first answer to that question I think is simply this: get Canadian citizenship as soon as possible, because Canada will only collect tax fines and penalties against US citizens who are not also Canadian.

  17. @Petros, I’m going to guess that Phil removed his recommendation due to all the talk about renouncing in order to avoid tax and compliance burdens. He probably is wary of not risking any legal entanglements from the IRS, especially with all the open discussion about people renouncing.

    Another thing I should also add it that I think if anyone were going to renounce, that they could be risking a very thorough audit from the IRS unless they had a completely straightforward situation. I also fear that they could try and impose fines for delinquent FBARS if renouncing within the six years statute of limitations.

    I’m of course hoping that FATCA will have been repealed or that the IRS will have reformed their overly complicated tax system which especially discriminates against expats and accidentals.

    What I can’t figure out is whether they really are just going after the whales with minnows inevitably swept up in the net, or if they are actually going to really go after literally everyone they can (including accidentals who’ve spent all their lives abroad but had a US parent, etc.)

    I suppose they could get a lot of taxes out of these people because, after all, I’m sure that it wouldn’t be that unusual for them to wind up owing US taxes on foreign mutual fund capital gains (often unsold phantom gains due to mark-to-market taxation on any increase of value during calendar year); sale of principal residence worth above a certain amount; lump sums taken from foreign pension funds when retiring, etc.

    They could really have a field day going after EVERYONE they can attempt to snare. But I would like to think they will be more reasonable than that. I think it’s actually the accountants, advisers and attorneys who prefer to retain the status quo so they can continue making money from vulnerable people like ourselves. There is too much lobbying going on in Congress to represent special interests; and we infuriatingly don’t have even any representation at all, being technically considered residents of Washington DC!!

    So to sum up, while I believe that Phil is sympathetic to our cause, he nonetheless can’t be seen in his position to be supporting a group who are blatantly discussing and even encouraging the potential advantages of renouncing. Seems pretty obvious to me

  18. Hey, guys, I just went to Phil Hodgen’s blog and the Isaac Brock article is still there. Maybe there was a temporary computer glitch.

  19. @Mona Thanks for your intriguing comment. I don’t think the reason you state is correct, because I did read it, and Phil is indeed taking on a number of renunciation cases these days. I won’t speculate about why it is no longer there, but it could be something as simple as accidentally pushing the wrong button.

    As for your other concern, that the purpose of OVDI is actually to ensnare everyone, undoubtedly there is a great deal of truth to that, and this is the main cause, from what I can see, of the Tax Advocate Service’s rebuke of the IRS. The IRS offers “amnesty” but it is a just a veiled revenue program. Then, afterwards, the IRS brags about how much revenue they brought in. If they were playing fair, in the OVDI, there would in fact be no 5% penalty, which is actually aimed at minnows in the first place–there would be a 0% penalty in its place.

  20. FWIW, Phil Hodgen’s Isaac Brock article did come up when I checked his blog at 2:20, but now at 2:28 it’s not there …hopefully it’s just a computer glitch.

  21. ummm.. this isn’t all about renouncing to avoid taxes. Hello… what about the FATCA and not being able to open accounts and scared to death existing accounts are going to get closed??

  22. The point about the cost of all this nonsense in Life Credit Units can’t be overstated. I was deep into something or other published by the National Taxpayer Advocate just now when my six-year-old came in bored and lonely and wanting help putting together the wooden dinosaur he got for Christmas (so I did, or course, and we had a great time talking about all kinds of things, none of which had anything to do with American taxes.)

    But I mean, WTF? Why do I let so much time be sucked away by this? This is an good a reason to renounce (*entirely* and *absolutely* renounce) as any other – there are thousands of other things I could be doing with my life other than wasting it on torturous American tax paperwork set in motion by somebody’s administrative mistake. You know what I want to do? I want to put together wooden dinosaurs. And get this f*cking succubus citizenship, and this tax system based on imperial vanity, out of my life permanently.

    /rant

  23. @Geeez, I mentioned elsewhere to you how I agree with you about the potential problems of not being able to open or keep existing accounts abroad. I also feel that our ability to invest abroad is compromised due to the onerous types of taxes on offshore mutual funds, capital gains taxes, etc.

    It’s not so much the double taxation though as it is the burden of compliance costs such as accounting fees and all the stress of having to file each year and worrying about possible fines for not having the forms filled in perfectly correctly.

    @Petros, I agree that they probably are trying to ensnare minnows in the OVDI, especially as they introduced that new 5% rate. That’s still a very high percentage if all ones’ personal assets are located in one’s country of residence, especially if the lack of filing or filing incorrectly had been done unintentionally. I agree that if it were a true amnesty that they would only perhaps charge interest on any taxes due with a ‘go an sin no more’ letter.

  24. @USXCanada, I agree that the 8938 is probably being devised as a way to ensnare the unwary more easily than via the FBAR. The potential fines start at $10,000 going up to $50,000 per year, which is of course far lower than potential FBAR civil fines. Thus, the IRS could more easily argue that their FATCA fines were still constitutional.

    I would have thus guessed that the last year it would have been possible to easily still submit an quiet disclosure reporting increased foreign income would have been for the 2010 tax year.

    And @Broken Man, I completely agree that it stinks that you’ve got to be wasting precious time on all this rubbish when you could have been spending time with your son building dinosaurs.

    I literally feel trapped by my circumstances. I’ve more or less had to put my life on hold at least till I get through the SOLs. I suppose we all have our crosses. I don’t want to renounce and hope that they will have reformed things to make it less onerous for genuine expats and accidentals by the time I would be free to start considering it. But if things become impossible, I may have no other choice.

  25. @A broken man on a Halifax pier. You know what — I want to help you and your son build dinosaurs. ‘Life is too short and we need to live every moment’ as most of us find out in many ways — often from the mouths of babes.

    I simply cannot make the decisions for my life and how I’m wasting it based on some non-tangible blind patriotism, some ideal long lost in the land of my birth.

    It no longer makes any sense to me, but then that is just what I’ve decided.

  26. @monalisa1776: I looked at OVDI briefly back in August and did the math. 5% of the highest value of the accounts over a eight-year period covered the point where we sold a house (you know how a huge amount of money goes in and out of an account over a day or so when you’re selling a house and buying another), and so the penalty would have actually come to C$22,000. I had a certain lack of interest in paying $22,000 plus accounting fees to enter an amnesty program for criminal tax evaders when I didn’t owe any US taxes in the first place. Regrets? None.

    The dinosaur is gluing up.

  27. Pingback: We get a nod from Phil Hodgen | The Isaac Brock Society

  28. I am amazed at how much conversation this post has stirred up! Thanks for the comments that have been made, and the references to Phil Hodgen’s blog. I really debated whether or not to list him as a reference or not in what I wrote. In the end, I decided for Newbies, to try to keep them focused, knowing that if they followed by advice, they would end up coming to the many links to Phil’s comments I had put in Jacks blogs.

    BTW, here is what I just posted over at Hodgen’s blog…

    Phil,

    Many, many thanks for the shout out and recommendation on the Drudgery piece. That means a lot to me, coming from you. You have been an inspiration and big help to a lot of us. You are one of a kind!

    I toiled over the Drudgery post trying to decide whether I should also list your site as a reference for excellent information or not. In the end, for simplicity, I decided to focus on Jack’s blog. I knew you were moving on to other areas of practice, for real good reasons I could understand. I also figured, once folks start reading those threads at Jacks in the order I think they should, and if they follow my advice to then read references that are made there, they are going to come to the many many links I have made to specific posts that you did that were extremely helpful to me.

    Your advice, and your wit, and general encouragement have kept me sane throughout this process, and I wish you nothing but continued success. Given the current course of IRS actions, you will be very very busy! Sad for America, but good for you!

    All the best..

  29. @Just Me, @all Phil’s blog is indispensible along side Jack’s. I would say to a degree I found Phil’s blog more aimed at minnows–Townsend really is a criminal tax lawyer, as even his blog title suggests “Federal Tax Crimes”. As a result, many readers will find Hodgen’s blog more accessible.

    What Hodgen’s blog did for me is made me realize how wrong the government was in its approach to FBAR. I therefore relied on it heavily in my first article (with Monty Pelerin) for the American Thinker. See http://isaacbrocksociety.com/2011/12/10/when-government-turns-predator/

  30. @Petros — I don’t think the iRS could ever bring criminal charges for any crime, including tax crimes. Criminal charges are always brought by the DoJ (or by US attorney’s in conjunction with DoJ). I think its the same for all other US government departments as well (i.e. all criminal charges are brought by the DoJ). Even with some of the insider trading scandals recently, I read that the SEC could only bring civil or administrative charges, not criminal charges. Criminal charges were brought by the US Attorney for Manhattan, and so on.

  31. For those of you doing your personal drudgery, I want to give you a recent example of why I place high value on Townsend’s blog for advice helping you navigate the OVDI minefield.

    Here is a recent comment he has made to someone asking for help. Not all get these types of lengthy replies, but the ones that he does do, are usually gems. His observations are worthy of your attention… This was dated Jan 31st

    http://federaltaxcrimes.blogspot.co.nz/2012/01/irs-re-opens-offshore-voluntary.html?showComment=1328016625733#c6834067378406854097

    If you were doing the reading I suggested, you might have gotten up to this point by now, but I am hereby giving you permission to jump the queue and read this one now! LOL

  32. And Anon123…. We are still waiting for that answer to Nina’s TAD. Shulman is running late on this January 26th deadline. Wonder if there is a “failure to file” penalty associated with that! LOL

  33. Just Me,
    I would not hold my breath. His rules can change at will just like FAQ 35 and all the other modifications made to the programs over the last few years. Who in their right mind would trust these people to do what they say they are going to do given the history. The 2012 deal sounds even more open to bait and switch.

    The more I ponder on this process and what is has done to me and so many others…well I just am in disbelief! We need to converge on this matter and get it cleansed with sunshine and the light of day. I wonder if there are legal methods of civil disobedience to throw monkey wrenches in the fish fertilizer pulverizing mechanism. Maybe everyone should file multiple defensive FBARs along with the new forms they are coming out with. Even if it is for years already filed. Just to make sure they got them so they do not grind us up again. It would also be interesting if those already ground up filed for refunds as the Nixon Peabody article suggests. With the Nina Olson TAD, this may be a very credible action. At least it may clog some arteries up sort of speak.

  34. @Anon123…

    It surely is stunning what is happening, and continues unabated. More stunning how little US Homelanders seem to know or care. You wonder when this train will run off the tracks, or when they will just get just get so swamped in their data mining and not have enough agents to process what they have received or will receive come FATCA.

    You are right about Shulman making up the rules and can change them at a whim. Still, the TAD will require some Congressional oversight, I think, if he rules in the negative or does not respond, which surely he has to do.

    I have to call my TAS officer this week, as my reconciliation has still not been completed after receiving my 906. The IRS still owes me money. I have only gotten 2 of the 5 year notices where they try to collect accuracy penalties and interest. They want me to send them more money, even though they can clearly see I have a credit running for more than 2 years now since 2010. It is always something with these guys. Their processes are so fragmented and disjointed. They don’t work in chronological year order, so it is amazing they collect anything! No business could survive if they were this inept. She said to get back with her in early February if nothing is done to complete this reconciliation, so at the same time as I do that, I will see if she has any further insights as to what is happening with the TAD.

  35. Just Me,

    I got a little back. It came about 2 or 3 months after the 906. My attorney did not want to close because he figured that the 4549A were overbilling by this amount. I think it was some $1200.00. I did not want to argue with the agent over $1200 after almost two years of this crap so I closed and to my surprise they refunded the overpayment a few months later.

    They made big mistakes in my process. After we were initially contacted by a revenue agent (post CI clearance letter) one of the IRS campus sights started issuing collection letters for two of my applicable 5 years. No one knew how to stop it as the letters became more threatening as time elapsed. No one knew why this happened. Not my attorney nor my revenue agent were able to stop it. We ended up paying those two years directly to the campus after the agent agreed in writing to make adjustments in the final calculation. This cost a boatload of attorney fees. It was a sad joke. No wonder I suffered heart failure in October of 2011. I now have 18% kidney function and am very close to going on dialysis. The reason: high blood pressure from this outlandish process. For crying out loud, my work career has been as a paint salesman and I even spent a couple years as a Big Brother volunteer. Some criminal I am! My goal now is to live for another two years so I can see my son graduate from college. Mr. Shulman needs to get a clue.

  36. @anon123

    I feel so bad for you Mate. I have read all your comments at Jack’s blog, and followed your story carefully. I was concerned when you went silent, and then worried about your health when you let us know what had been happening. Thanks for adding personal details here.

    What can one say? This whole episode is a sorry tale. You tried to do the right thing, and after a big cost in dollars, LCUs and health, all you have to show is the certainty of your moral superiority over the likes of Commissioner Shulman. He is probably like a lot of government people, individually, he might be dismayed at what he has wrought, but the bubble they live in, means they really do not have a clue. Willful blindness maybe? I am trying to be generous!

    I do wish, that every OVDP participant, who knows in their heart they were a Minnow, would clog up the works by applying for a refund on their 20% and 25% penalties that they may have unwittingly paid out of fear or mistaken advice of Council. I wished all of them would have a mass Opt Out in the OVDI. However, reaching out to them is difficult, as so few even comment on blogs like this, and there is no way to pull that universe of victims together into common cause. The IRS wins by fear, secrecy, and dispersion of the victims. There is no way they can know of each other, and mobilize for advocacy. The TAS TAD is the only hope, and that is a very long shot too. Nina does not operate in a political vacuum, and even though she is trying to do the right thing, her voice may not be heard or listened to. Worse yet, it might be suppressed. I guess we will get to see what “Change we can believe in” will look like.

    Side Note: I hate to be a sexist here, but the males in any administration often run rough shod over the females, even when the females are so very right. Look at Elizabeth Warren (CFPB) or Shelia Bair (FDIC). Women I very much admire for being right and trying to do the right thing against strong lobbyist and Administration opposition. Both are now gone.

    I am also reminded of Brooksley Born at the CFTC, and her run in with Greenspan and Robert Rubin during the Bush Administration where she was warning of the dangers of derivatives, and they were determined to shut her up and did.

    If you never saw this Frontline documentary, I would highly recommend it. It puts in perspective what Nina might be running up against, if Shulman and Geithner, political animals that they are, decide to oppose her.

    Nina is challenging their much proclaimed “highly successful” program, and with their egos being what they probably are, it would be hard to climb down from that!

    The Warning.
    http://www.pbs.org/wgbh/pages/frontline/warning/view/

    Keep the faith Mate, and here is hoping for the best healthy outcome for you.

  37. Anon123. I just saw your comments over at Jacks blog, and thought I would reference them here. I think they have some valuable considerations for those wondering what to do about the OVDI.

    They start out as…

    “Wow! This is an example of the IRS programs giving incentive not to clean up the past. Would it not make more sense to make the programs less draconian and encourage noncriminals to clean up history and comply going forward…….”

    Read more at….
    http://federaltaxcrimes.blogspot.co.nz/2012/01/irs-re-opens-offshore-voluntary.html?showComment=1328094220545#c2202436124088285126

    Also read Jacks comments that follow! Important considerations.

  38. Pingback: Letters to Shulman………………………….., or a case study of OVDP communication attempts with the IRS | The Isaac Brock Society

  39. My Son born in the USA when I was on H1 visa and returned to India when he was 3 years old. He is now 19 years old and can barely remember days in the USA. He inherited some property from grandparents and a tax cheat as per IRS for not filing taxes and FBAR. Since income tax brackets are so low, he owes no taxes on his investment income. He is a student. He is treated no differently than milliners who are living in the USA and intentionally hide money in tax heavens to evade taxes. When I told my son about FBAR, he hasn’t yet believed me. He said, it impossible that free country like the USA can imprison him for not filing FBAR, when no taxes are due. He agreed with me when I said I will file his nill tax returns and FBARs. But he said, he is ready to fight FBAR in courts, if any penalties are applied. He can’t afford a lawyer, so hopeful Tax payers advocacy or some other’s would help him.

  40. Just me,

    I think I am in line of opt out now. I was told today by my agent who previously told me “they had internally discussed and decided not to impose penalty on RRSP”, but now they would.

    So I was ready to pay penalty for being responsible and fair (compared to expats and visa workers), but not for RRSP.

    I have passed all my bank records, and they have all they can audit — so why not I just opt out and ask for reasonable cause ? If I failed to file other tax credit form that I could claim money from IRS, why would not I fail to fill other form — only thing they can prove is that I am stupid and careless — but I am at least honest to make it right and ready to accept my responsibility.

    This may be another 2 years LCUs — and maybe worse outcome.

  41. ij said: I was told today by my agent who previously told me “they had internally discussed and decided not to impose penalty on RRSP”, but now they would.

    The timing of your agent’s statement is very interesting. Before they said RRSP’s were exempt but now that our Finance Minister has effectively told them to get stuffed they decide they will punish Canadians. Don’t worry they’ll be changing their minds back to being exempt again when they realize they need Canada more than Canada needs them.

    Hurting little guys like you is not worth it for them, they’re just doing it out of spite against Canada. Well Canada won’t be helping them catch the real tax evaders if they keep this up.

  42. @ij, hurting the little guys is very bad publicity. The rhetoric is that they out to get the big tax cheats. But you are small fry. The rhetoric and the reality are two different things. Chris Martenson also wrote about that; here is the money quote:

    And at the national level, if we say we are a nation of laws, but the Justice Department selectively prosecutes only the weak and relatively powerless while leaving the well-connected and moneyed entirely alone, then the narrative that says “we are a nation of blind justice and equal laws” falls apart.

    I wish this was just some idle rumination, but I see more and more examples validating the importance of alignment of narrative and behavior. Because when there is a disconnect between words and actions, anxiety and fear take root.

    Unfortunately, there is quite a lot to fear and be anxious about in the most recent State of the Union address and GOP response.

    State of the Union
    The recent State of the Union speech by Obama, and its Republican response, are both remarkable for what they say as well as what they don’t say. The summary is this: The status quo will be preserved at all costs.

    Here are a few examples of the sorts of disconnects between rhetoric and reality that are absolutely toxic to the morale of all who are paying the slightest bit of attention.

  43. ij.

    Actually, after what I heard of Moby’s case, the Opt Out might actually work better for you, and you might come to a quicker resolution. There are being terribly inflexible inside the OVDI, but outside, I do think you will do better.

    I would review the Opt Out procedures carefully, and start writing your letter. By now you should be good at it. Maybe Moby can give you some tips… That letter could be your ticket to relief from this stupidity…

    http://taxlawroundup.com/files/2011/06/Procedures-for-Opt-Out-and-Removal-of-Taxpayers-from-IRS-FBAR-Voluntary-Disclosure-Program-June-1-2011.pdf

  44. @ij,
    I am so sorry to hear this from you my friend. I think you should really consider the opt out and force them to prove willfulness or stand down. You are smart enough to do this yourself with maybe just a little advice from friends up front. I am still wondering how Mr. Shulman can ignore the law in regards to a response on TAD 2011-1. I have a feeling the system is going to get log jambed with opt outs.

  45. @Anon123,

    Many thanks, and I will try to request for 5% penalty on RRSP part — which OVDI FAQ rules should apply for my RRSP (1) the taxpayer did not open the account (I did open but was then not a US taxpayer) (2) I have never withdrawn anything from the account. (3) all using US address (no blocking mail), (4) recorded by Canadian Revenue Agency as Canadian income while 100% as a Canadian taxpayer

    IRS should take back their FAQ as it says. If that works, I may just go along, and get it over with.

    Opt-out is in my consideration.

    Again, many thanks my dear friend, and stay healthy

  46. @anon123 and @ij…

    Just called the TAS, and so want to report what I heard.

    They have not received anything yet on the TAD, and they too are wondering what the response will be. Maybe the Commissioner will ask for a extension, as he is already past due.

    I asked the advocacy officer if they are still handling requests for minnows in the OVDP/OVDI, or are they just recommending that they Opt Out? She said, they are still busy with handling them, and she currently had 4. They have gone so far as issuing TALs (which apparently is their highest level of direction to the IRS. Not sure what the L stands for. ).

    Also, I conveyed the appreciation of many of us Minnows for what the TAS is doing generally, and Nina Olson is doing in particular to be sure they knew that we were out here watching and waiting to see the results of their efforts. I said Nina was exactly right in what she has said and done, and is a hero to me.

    So, ij, I think I would be calling the TAS DC office before you just roll over and pay the 906. The RRSP might be an issue they would want to assist you with.

    Don’t give up the faith yet!

    BTW, just a personal note. As of Friday, I should be getting a reconciliation refund check issued for around $3000, which includes interest for over payment, and I am FINALLY FINALLY done! That has taken 3 follow up calls to Examination Department to finally see a conclusion.

    So start to finish, the OVDP took 851 days of LCUs. Isn’t that just the perfect model of efficiency? Is this a GREAT country or what? LOL

  47. Just me,

    Many thanks !!!! You are a bright light (the brightest) in my darkness days.

    Here is my approach.

    Wait to see what is in 906
    . If it is so bad (RRSP + non-RRSP) on 25%, then I will ask them to reconsider FAQ52.1 that RRSP should be on 5%. If they reject, then I will contact TAS. I lived in Maryland, so DC is not too far -:)

    Thanks again for your kind help..

  48. @monalisa1776,

    Thanks, I do need something to show TAS if I go there, right now I do not have anything as my case is still under examination. As soon as I have their ruling (such as penalty on RRSP), then I can take this letter to TAS for help.

    Thanks again for your encouragement

  49. @IJ, I am optimistic that if you appeal that you should actually be able to have all the penalties waivered. I wouldn’t roll over to made into fertiliser, LOL.

    I noted that you live in the Maryland DC suburbs; I spent my childhood in Bethesda and Rockville, plus I also have a sister-in-law who was born in Taiwan but grew up in Potomac and is doing very well in the Navy 🙂 She’s an ‘all American girl’ 😉

  50. @monalisa1776,

    Thanks… Yes, I live in Silver Spring area. It is very close to Bethesda and Rockville. I have been living in Shanghai, Halifax, Honolulu, and Maryland. I have to say — Halifax is the best.. I left the city not for “gold rush”, it was a heart-broken story when I lost my child custody and my ex took the kid away. The city became so sentimental after losing big part of my life. So I became a drifter — and ending up here in Maryland. Now, I do have three little Americans to take care. Yes, I will fight for these little Americans — this is my view for being patriotic

  51. I know, the intent of the FBAR legislation passed in 2004 is to catch terrorists. How many of them are US citizens? How a suicide bomber should report FBAR (e.g. before or after), if he commits the terrorist act before June 30th?

    Another idea for revenue collection for IRS and to help US automobile industry (who sells cars for driving on right side): the US citizens must drive right side of the road on any two way road and each violation of a US citizen will be fined by US$10,000 or 50% of the cost of the automobile.

  52. By intent, pure and simple, is a mechanism for creating penalties that they can apply as they see fit.

    It is totally useless as a law for terrorist or money laundering enforcement tool, other than it creates a law that people will fail to comply with, non willfully or willfully, and then they can penalize you. It is intended to create criminals out of normal people, and the terrorist or money launders what they hell do they care? They aren’t going to comply anyway.

    Under the current OVDI, this is about revenue creation and not an enforcement tool. They, with their Statute create the crime, and then apply the penalties as they wish. Pocket the money, and claim success. A shake down, nothing more.

  53. America has become a cannibal nation feeding their unsatiable appetite for funding from the flesh of those that they can in any way claim as their own. I can not believe that congress stands by as this shakedown process continues. They along with the IRS are blind to the damage they are inflicting. What goes around comes around and their will be future repercussions from this insanity.

  54. Here is a really good one. Sally, a poster over at Jack’s blog just posted that after a successful opt out she thought she was done with the shakedown. Then she recently got a satsfaction survey from IRS about the process. Can you fathom the disconnect that the IRS has with the normal folks caught up in this mess? They want to measure satisfaction with what may be a two year process of utter stress, anxiety and frustration and potential financial ruin? How out of touch can you be? Please get a clue IRS. Your programs are a disgrace to the face of America.

  55. Gosh, that is too funny in a sick sort of way. It must be part of their new PR marketing out reach. Customer Satisfaction surveys! I think I can save them the effort, and just send them the link to this!

  56. Well, I read this rather differently.

    They did not ask Anon123, and did not ask anyone who had paid huge “in lieu of penalty” but Sally who came out opt-out and paid no penalty — they thought she should be grateful — why not ? after all most in OVDP/I paid huge.

    Someone came out from Auschwitz alive should be grateful being alive.

    It was same kind analogy of “Just Me” cat surgery — wow what a good deal !

  57. Post 906, Instead of a survey I got a questionnaire that was comprised of 10 questions seeking incriminating information on the bank where my funds were held. What was so stupid is that all those questions and more were conveyed to the CID at the front end of the process. I was in the program before they had come up with the standard letter submission amongst one of the numerous changes, additions and bait and switch tactics. What is even funnier, they say they can change the 2012 shakedown anytime they want. Whats new about that? You have to wonder if the submissions have slowed down to a trickle. Did anyone see the Monty Python post by Phil Hodgen a while back where the folks that showed themselves by standing up got blown up? Those images are clear in my mind.

  58. @Anon123,

    In 2011 OVDI, the standard letter to CID was submitted for pre-approval. It was basically all about who had helped to have the fund offshore, and if there were entities — names of those etc..

    I found it was totally irreverent to my case — now I think that might be the base for opt-out for zero penalty.

  59. I had heard about that post 906 letter, and seen the questions. My first thought, was if I ever got one, it would be simple. No to everything. Maybe I have dropped off their radar, as no letter has been forth coming yet.

  60. My siblings did not get it either. Part of the same case. Go figure. Must be my luck of the draw. I think I had 1 yes answer pertaing to wiring the funds to the U.S. after the disclosure was done. One of the most comical events was when they refunded my in lieu of misc penalty by mistake and even paid interest to me on it. At first I thought they changed their minds and no longer accepted my disclosure. In reality, they had no clue why that happened but they sure took that mid six figure check back when I sent it back to them through my attorney. I have a photo copy of the check as part of my glorious file of this event. The file is a foot thick. At least I am done. I can not believe that there has been zero response to Nina Olson. How do you just brush such a serious memo under the rug and expect to have credibility and trust with taxpayers?

  61. I too had a check returned by the IRS with interest when I tried to send in an estimate for taxes due from 2003. I sent $7500, and in actually I only owed about $750, but at the time I had no idea, and I just wanted to stop the interest and penalty accruals They sent it back to me, and I had to return it. I have a copy of that also.

    In the end, according to my/examiner reconciliation documents, they owed me money, but frankly when my two refund checks finally arrived (I don’t know why two) 6 months later they did not match any of the individual yearly reconciliations they did. Made absolutely no auditing sense at all. Not one number matched anything. I gave up trying to sort it out, as frankly at this point I was sick of it. I think they may have slightly over refunded me, but who knows. Impossible to tell. You just shake your head in wonder.

    As for Nina, I hate to say this, but sometimes I am wondering if there is a male ego thing here, where they discount or marginalize good sharp women. That sounds sexist, I know, but I think about how Brooksley Born of CTFC was treated by the Clinton Adminstration, or how much opposition Elizabeth Warren of COP & CFBP or Shelia Blair of FDIC had, and in every case, they were exactly right, and the men opposing them were exactly wrong. I fear that is what she is running up against. There is a pattern here, I hate to say. I am becoming way too cynical these days.

  62. Hi il,
    In terms of RRSP, have your tried your argument for 5% penalty as you mentioned somewhere in your post? Have u opted out yet? I have a similar situation as yours. So your good news will mean a huge relief to me as well. Anyway, if money can buy a piece of mind, the it is worth it. (花钱消灾)

  63. @Civic,

    I have not heard from my agent yet since our last phone conversation. Here is what I plan to do…

    If no penalty on RRSP — then I will pay the penalty on non-RRSP part, that will conclude my OVDI.

    If they impose penalty on RRSP — they have to rejected my 9100 relief request first (see reference http://www.irs.gov/pub/irs-wd/1123024.pdf ). IRS has never rejected one single request outside OVDI, That is the fact. So if they decide to reject my 9100 relief request, they have to send me a letter in writing (with reasons !!!) . I will take this letter to TAS for help, this is not an offshore issue — it is a tax issue that IRS rejects taxpayers’ request who is in good faith to fix a very hidden form election problem ( 比脱裤子放屁还无意义的事!) — 80% Canadians living in US with RRSP are not aware of this form.

    If they accept my 9100 relief request but still impose penalty on RRSP — that will also be a problem for them because they have stated in FAQ –that only accounts with unpaid tax should be included in base penalty. So they can not simply do that.

    However, the worst, if they just say (according to one OVDI participant) ” RRSP should be included in penalty — this is the order from Washington” — then I will opt-out. And I will take a chance for huge penalty — but I think I can wear down IRS/DOJ all the way to the court — for me, it is free show time -:)

    Am I being unreasonable ?

  64. @ij,
    Thanks for your quick reply. Hope IRS will be reasonable…
    I use H&R block software to do my tax return, which doesn’t include form 8891, ie. if you are not an international tax CPA/lawyer, you won’t know it. In addition, the software does not include the new required Form 8938. I even called 1-800-HRBLOCK, the customer service person confirmed that… I guess IRS expect you to hire professionals to do your tax……

  65. @Civic,

    I would never hire anyone to do things as required by law. I will not hire a lawyer to go to a court. It is not required by law to hire a lawyer/CPA — I am sure Mr. Taxman has a lot money to hire anyone to do his — tax return, baby sitting, lawns, painting.. I don’t have that kind money — not even want to pay software to file a return. Being cheap/DYI is my best defense for “reasonable cause” -:)

  66. @IJ, I resent how the US system is so complicated that it forces me to spend high fees for a specialized accountant and financial advisor, especially when I live in England.

  67. ij,
    How long have you been in the process now. Is it not getting close to a year? I thought the 2011 OVDI was supposed to streamline things.

  68. @Mona, the whole tax system was designed by those finest/best educated — and it works for them only.

    @Anon123, I jumped into in late April 2011. I should have some news within a month.

    @monalisa1776, Thanks.. I am now fearless — I do not have a baggage of wealth — so nothing to lose — the worst of all they can do to me is taking of 50% of my total balance.. That would not be enough money to cover the cost for a civil trial in a federal court. It would be a win game for me for whatever the outcome. I just can’t let them to rob my retirement savings without taking some blood from them.

  69. @ij… This brings a smile to my face… “I am now fearless” You have come a long ways from those first days of comments on Jack’s blog! 🙂

  70. @Just Me,

    I am fearless because of you, and Moby — and I have also to credit to M whom I used to argue on Jack blog on “what is offshore”

    My wife and three little Americans are also behind me — so they will be my cheerleaders in the court room if that happens -:)

  71. Yes, I used to lurk on Jack’s blog and for some reason had taken note of IJ’s humble and sincere posts. I am so pleased that he has developed the courage and confidence not to roll over. 😀

  72. 3/11/2012 Update note:
    I have added 5 more items to my reading list. They are denoted with the current date. Several of those items are referenced in other threads here at Isaac Brock, and have added to my drudgery list for ease of use by newbies.

  73. @Petros

    “In fact, it is the Department of Treasury who gets FBARs. So now either the IRS has to requisition the FBARs from Treasury, or Treasury has to recommend them to the IRS after reviewing them. This requires manpower, and likely many thousands of Quiets could slip through their fingers before they could assign fines to them during the six years statute of limitations. I often wonder if anyone at Treasury actually even reads these FBARs. They are full of useless information from innocent people, and they are looking for money launders, criminal tax evaders, and the like. I doubt that it is even worth their time to open up the stupid envelopes. Does Treasury have a machine that opens millions of envelopes? Are they set up to open them and review them? I wonder. This is likely why they gave the FBAR enforcement to the IRS: Treasury may not have been set up to deal with all these forms in the first place.”

    You are wrong. FBARs go to the IRS’s Detroit Computing Center. There there are entered into some sort of computer which is accessible to the IRS and to the US Treasury and other US government departments as well. [ This is unlike US tax returns, which are normally kept confidential outside the IRS]. So, yes, the envelopes are opened (whether manually or not) and data entered into some computer system. Whether they will do anything with quiet disclosures is another matter (I would guess not unless large sums are involved), but your description of the process is inaccurate. And your comment that they might have to review documents by hand is inaccurate too. I assume the only things that are manually read are letters sent with the FBARs.

    I w

  74. My guess is that the IRS will instead use the new 8938 Fatca reporting form as its main bludgeon tool for non-criminal compliance.

  75. Yes, the 8938 has a higher filing threshold so will relieve most expat minnows by default. This means the IRS can concentrate on those with at least $200,000 in foreign (non-US) assets so they’re not wasting their time on people with only ten or fifteen thousand dollars, for instance.

    The 8938 also blatently asks the filer
    about special reporting forms such as the 8621 or 3520/3520a trust forms, thus making it far easier for the IRS to fine people for not including the required obscure forms such as needed if you own shares in a foregn mutual fund.

    It also makes it easier for the IRS to extend its statute of limitations to six years (from the normal three) if ANYTHING is missing on the 8938. Also makes it easier for IRS to determine if an audit is worth their bother.

    When I filed my delinquent fbars, I had to file a short version in which I only listed the number of accounts which was over forty. I’m sure this will have raised a few eyebrows but at least when they see every account on the 8938 listed in detail, they’ll probably still consider me a small fry because many of these accounts held less than $50 in them but had to be declared as they were technically financial accounts. In

  76. The 8938 is under title 26 statutes so can be enforced directly by the IRS whereas. Fbar fines have to be pursued through the courts by the doj, as they are title 31. They are so draconian that it would be easy to argue the 8th Amendment as protection against cruel punishment and excessive fines. The 8938’s standard penalty of 10,000 bucks is still very harsh but not so draconian and could be much more efficiently enforced as a revenue generator for a desperately indebted government.

    It’s also directly tied in with fatca and will have a 40% accuracy penalty taboot. It will also by default catch out quiet disclosures…I thus think that last year (for 2010 and earlier) would have been the final year that one could realistically make quiet disclosures without undue risk.

  77. I was reading a comment by Mr Townsend on his blog which suggested that the government might not need to pursue FBAR penalties in courts, but could collect them the way standard (non tax) fines are collected by the government. He has also commented on the Eight Amendment issues at various times and has been much more circumspect — although as a criminal tax lawyer, he presumably deals with more complex cases

  78. Info reported on FBARs can be shared widely compared to what’s on a tax return. Title 26 has strict requirements that don’t allow the IRS to share what it finds out on tax returns with very many outsiders. Its part of the price the IRS pays for its special powers to seize the assets get taxpayers to voluntarily pay the taxes governments can’t live without. Title 31 info, like FBARs can be revealed to just about anyone.

    I’m curious about the 8938. I haven’t figured out where it fits in. I’ve got one on my desk I am trying to fill out. There’s 9 pages of instructions and one index page. It was written by a comedian:

    “The time needed to complete and file the form will vary depending on individual circumstances. The estimated average time is: 1 hour and 5 minutes

    Here’s a paragraph from page 2 of the instructions:

    Asset with no positive value. If the maximum value of a specified foreign financial asset is less than zero, use a value of zero for the asset.”

  79. From the law requiring the 8938 “(d) Penalty for failure to disclose (2) If any failure [ to report ] continues for more than 90 days after the day on which the Secretary mails notice of such failure to the individual, such individual shall pay… $10,000″

    The Secretary is presumed to know what you haven’t told him. When he gets tired of you not telling him, because he knows that you need to tell him something he mails you a notice. If you fail to respond to that notice for 90 days its a $10,000 fine. Man, this Secretary has a lot to do.

    Kiro: I read that comment on Jack’s blog as well. I followed up on it but I don’t have the legal experience to understand how it would be possible for a loophole to be found now that would get the IRS out of its bind on title 31 after all these decades. One topic was the IRS could seize any refunds it owed you for the next “x” years as opposed to trying to get a court to enforce on their word some $xx,xxxx penalty because you are a willful FuBAR criminal who hid your life savings from them to avoid $23 in tax, only it was said people could counter by filing paperwork that ended up reducing the size of their refund by not allowing the IRS to withhold so much.

  80. John Doe… Welcome to Isaac Brock. Thanks for commenting over here.

    You have had very well researched and excellent comments on Jack’s Blog. Thanks much for your contribution.

    For readers here, who would want want to follow some of what you have said, especially for immigrants looking for “reasonable cause” Opt Out arguments, I would reference them to your comments at Jack’s second thread on “Opting Out”

    “Opting Out” #2 (3/2/12)

    I think you first comments started on Mar 11, 2012 04:32 PM. I would recommend to all, that they read everything you have written from that point forward.

    cheers

  81. Just Me: thank you.

    The lawmakers who created the law that requires taxpayers to send an 8938 to the Secretary connected the start of the meter for the big penalty on it to 90 days after the day the Secretary mails the taxpayer a notice he needs to file. So the Secretary doesn’t need the data. He’s already got that before he asks for it.

    The information on an 8938 is almost identical to what’s on an FBAR, but the FBAR is data in a better form. He can distribute and trade FBAR data for data from other jurisdictions, whereas the 8938 has restrictions.

    The threat of a large helping of more reliably collect-able 8938 penalties piled on top of only potentially colossal FBAR penalties may sound to Geithner like its the way to blast into tax havens, but there is the question of all this collateral damage.

    Why the failure to educate?. They’ve talked equal status on the educational side for a decade and done nothing. They could have made America look less brutal. They look stupid.

    What’s wrong with new legal weapons capable of accurately hitting what they’re aimed at? Why does this new one look like more of the same? Can it be that Switzerland is too tough for the IRS? Do they actually want the life savings and homes of innocent US citizens and newly arrived immigrants in North America?

  82. So glad to find someone else harping on the implications of Form 8938. There will be many middling fish that are much closer to a minnow than a whale. For now true minnows will dart through the 8938 net. Others will not – especially older persons who have a pension base that pops them over the $200K limit. Oopsie!

    Notice that 8938 must be backfiled for 2010 as well as 2011. (1) In a few months, all those US residents of Canada who are not Canadian citizens can take no comfort in that universal protection from FBAR penalty enforcement, because extended reporting (now pensions as well) will suddenly become a direct IRS enforcement issue. (2) That FATCA speck on the horizon will vanish for anyone who is buried in the looming shadow of spring 2011 need to comply with 8938.

    More news that no one is happy to hear.

  83. John Doe…

    Welcome to America. You are asking the imponderables! Why do bureaucrats do anything? They do it, because someone, namely Senator Carl Levin, gave them the power to do it. His name was on the FATCA Amendment that created this damn form, but in actuality, it was probably a group of IRS attorneys working with his staff came up with the stupid thing…

    It is just a penalty vehicle, and nothing more. Welcome to the Penalty division of Form Nation!

    In this penalty trap, and the information is only of value if they can, during an audit, show you didn’t reveal everything correctly. Otherwise, it has absolutely no value.

    They make up this nonsense just because they can. They asked for comments on the draft form, but I can guarantee you that they really don’t want them and pay no attention. ACA did a good comment write up, and I haven’t looked at the final 8938, but I can almost bet that they ignored the suggestions

    It was here..

    http://www.aca.ch/joomla/images/pdfs/8938comm.pdf

    Someday I would like to meet this little “Form Creator” who ever he/she is that comes up with these mind numbing forms and the instruction booklets that accompany them. Maybe it is a whole committee that have endless meetings and conference calls with active debates over the 3rd sentence on page 4 of instructions on “how can we make this less clear for the reader? Need to get that estimated time to complete up over 1hr and 30 minutes.” That will teach those offshore rich b#%$s! What a friggin’ miserable life they must have. Sitting in some featureless windowless cubicle in some Big Box Bureaucrat paper mill in DC, cranking these things out all day long. What poor little pitiful lives they must lead. I think they must have a sadistic streak in them.

  84. @Just Me
    “……It is just a penalty vehicle, and nothing more. Welcome to the Penalty division of Form Nation!”
    Maybe for now, but this information is priceless if and when the US institutes a wealth tax! 😦

  85. @Just ME
    “…..What poor little pitiful lives they must lead. I think they must have a sadistic streak in them.”
    A masocistic one to I might add! 😉

  86. @ Just Me: I talked with my CPA yesterday re the 1040Xs he had just completed for me. He was not aware of the 8938 yet. I showed him one. A guy like that can just fill it in. I showed him the many page instructions and he said he just ignores them and starts filling out the form. If a question come up he looks for an answer. It might actually take him a short time to fill out something like this if the assumption is made that he has the information he needs at his fingertips. His eyes instantly move to tiny print like “Attachment Sequence 175” which apparently means if a client was filing out 3,589 forms that year to attach to his 1040 this one would be in the pile at position # 175. Its a government form, similar to what he’s been filing out for decades. One interesting thing he mentioned was that if someone walked in on him with a few delinquent FBARs owing and two tax returns to amend, prior to the long discussions he’s now had with me about the potential minefields, he’d amend them, fill in the FBARS, put a two line explanation on the FBAR, duh the client didn’t know, and send them in. He had no idea Treasury was roasting people. Its got to be like this all over the place. Thousands of quiet filings are coming in – Treasury has made no effort to inform CPAs.

    I read the letter at your link from the American Citizens Abroad, the Association of Americans Overseas, and the Federation of American Women’s Clubs that has their critique of the new 8938 form. So I wrote them to see if they were interested that Geithner’s predecessor in 2003 backdated a report he was called on by the Patriot Act to file. I mentioned all the fishy details that came up in Geithner’s Senate confirmation hearing re various tax dodges he was into and said no one changed the Patriot Act, i.e. he is required to file some form he doesn’t know about an old Act requires him to file and he isn’t doing it. I said maybe the organizations should consider asking the Secretary to exercise his discretionary power to do something about all US persons caught up in FBAR BS who are as innocent, say, as he was when facing the Senate. I suggested they formally ask him if he has ever had a foreign financial account since 1970 and if he filed FBARs for it or them.

  87. Hi, This is really an elaborate and informative website. I have been reading this for the last 6 hours. Wish I had read as much during my college days.
    Coming to the point, I am an immigrant to the US who heard about something called FBAR only last week and have been slowly discovering what a mess I am in with this FBAR. I came into US only in 2008 and have not filed any FBAR’s since then, but have been sending money to my native accounts every so few months. I realised after quite a few hours of research and sleepless nights that my biggest unreported asset aggregate during the unreported FBAR years from 2008 to 2010 was in 2010 at only ~$40k, which would bring on me a fine out abt $4.5k. I want to get into OVDI and get done with this since my net asset has increased to close ~$75k in 2011 and 2012 and if i have to do a OVDI in the later year then will have to pay a fine of 27.5% on 75k instead of 12.5% on $40k if I do now. Also with my asset raising to $75k I will be bound to report 8938 and am worried if i report 8938 and then do not get into OVDI it will be BIG red flag.
    I am spoken to few CPA’s and Tax attorney’s and all are of the opinion to just to “go-forward” disclosure on the FBAR’s and comply with 8938 which I fret and is causing me sleepless nights. Also considering the enormous attorney fees and CPA fees, I am even contemplating going ahead with all the fillings by myself, as I dont want to be paying 10k attorney fees to report $4.5k of penalties. I have nothing to hide and everything is hard earned money. I am just looking to get some our really value opinions.

  88. I filed FBARs and an 8938 myself although I ran them by a CPA afterward. I had to file some amended tax returns to account for a tiny income earned in my country of origin on the assets there. So I did the amended returns myself but I hired a CPA to do them as well to see if his work agreed with mine. He had done FBARs for people before and he said mine looked fine.

    If you open a bank account in the US you don’t have to fill out forms like this, because the Treasury Department has as much access to what it wants to know about your bank account in the US or even more than it gets from you filling out the FBAR or 8938.

    So in my mind anyway it just comes down to who fills out the form. If my bank is in the US the bank does it, or Treasury has access anytime to whatever info it needs. if the bank is outside the US I have to do it. Its worth learning how to fill in once because it has to be done every year and your knowledge pays off every year. Its just where is the bank, what is the account number, and how much do you have there. Its not that hard to do.

    I see the OVDI as a plea bargain for criminals. I see no point in signing away my rights to enter it. They can define me as a criminal all they want, but I don’t have to agree. I came into this country in good faith determined not to break any law or regulation and it is preposterous to me they are trying to put me into a position where they are defining me as a criminal. I won’t stand for it. I can look a judge in the eye and ask him how he would like it if he was treated this way.

    If you sign away your rights to enter OVDI you give the IRS the power to collect the penalty. They don’t have the power to collect until you sign away your rights. FBAR is Title 31, and because of that all they can do is threaten you. If you don’t fold, they have to take you to court where evidence means something, and the burden of proof is on them.

    I didn’t know about the FBAR, and as a new immigrant I believe no court could expect me to know. The authorities did not tell me when I entered the country. The Treasury Secretary said he would educate US taxpayers about the FBAR when he addressed Congress in 2003 when they were about to drastically increase the penalty for not filling one out. He didn’t educate.

    What court is going to convict someone who didn’t know about the FBAR given this? I believe there has never been a single case where an innocent was prosecuted by the DOJ on behalf of the IRS because they left assets behind in their country of origin when they entered the US to live as a permanent resident and didn’t fill out FBARs until they discovered they were in violation of a law they knew nothing about.

  89. I totaly understand your position and am of the same opinion myself. I am just wondering if its better to pay the dues and have peace of mind then loose sleep over it every night. God knows how tough it has been these few days for me. I have been made to feel like a culprit for no fault of mine. But then the counter argument would be that we as immigrants must learn the law of the land if we want to live here. The problem arises that, once we knew we had to file the FBAR’s we should have filed the previous years FBAR’s as well. And in the OVDI FAQ they strongly detest Silent disclosure, the one you are suggesting. I know this was never intended to catch small fish like us nor do I think they will ever come after someone like me for abt $4k. But I intend to do it just for my peace of mind. I don’t want to be fretting every time I read an article about FBAR. I believe going forward especially with the intrduction of 8938, FBAR will be dropped out. If i had lesser assets to declare in 2011/2012 than in 2010, I would probably have done a silent myself. By the way does anyone here know if getting into OVDI might in anyways create problem during GC process? My GC is in progress I hope entering OVDI wont be considered as an acceptance civil/criminal offense.

    Is it possible for you to share with me the CPA you used and the cost associated with it.

  90. @ovdikills,

    We can all empathize with what you describe – the urgent need for relief from the shock of it all, the sleeplessness, overwhelming stress, anxiety, and fear – and the urge to just get it over with somehow – to be able to return to some kind of bearable ‘normal’; but it is very important to consider your options very carefully – and avoid just jumping into a choice without trying to read up and be informed, and consider getting qualified advice. OVDI may or may not be the only or best choice for your specific situation – it wasn’t right for some of us. For some of us who follow and write on this and related blogs; the shock, the types of media coverage of the OVD programs, plus the pressure of looming deadlines and absence of specialized knowledge to make a truly informed decision – made for additional troubles down the road….Some may not have had the resources to pay for a consultation, some may have done that only after entering the OVDs. Not all ‘professionals’ had much experience with this situation either. And professionals differ in their roles and abilities, and in areas such as ‘attorney-client’ privilege. It is very important to understand the differences before making a choice.

    There are the old sayings – “A stitch in time saves nine” and “look before you leap”: it may be that the expense of an initial consultation with a qualified tax attorney – (who is familiar with the OVD program) may save you additional grief and money in the long run, and give you a more solid idea of your real position, risks and options. You can also read the OVDI pages on the Townsend blog – in order up to the most current posts, ex. http://federaltaxcrimes.blogspot.ca/2011/07/to-ovdi-or-not-to-ovdi-part-2.html and http://hodgen.com/risk-not-enter-ovdi/ and some of the other linked resources here. That would make it easier to be prepared, and make the most of a session with an ‘expert’ if you decide to do that.

    Good luck. Hang in there. I am sure that many of those reading here, and writing here understand what you are feeling, and wish you well, although we can’t say what is specifically best for you.

  91. @ovdikills:

    My $0.02, for what it’s worth:

    OVDI is an amnesty program for criminal tax evaders. It says so right on the box:

    “The objective remains the same as the 2009 OVDP – to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws.”

    http://www.irs.gov/businesses/international/article/0,,id=235699,00.html

    Did you use your undisclosed foreign accounts avoid or evade tax? If not, you don’t belong in an expensive, badly designed amnesty program for those who did.

    This may be comforting, as far as the IRS is ever comforting (see 6):

    http://www.irs.gov/newsroom/article/0,,id=250788,00.html

    I’d file your FBARs with a covering letter saying you only just heard of them, and get on with your life.

  92. @ovdikills

    Well, each has to make their own decisions. I understand the need to sleep well, but you might want to consider that it may take more than just 6 hours for you to get comfortable enough with the subject, and the “OVDI or not” risks. There is a lot of material, and it can become overwhelming for sure. It takes time to develop good insights to help you sleep better at night.

    Take a deep breath, relax just a bit and learn not to fret. LOL! I would have done well to have taken that advice myself back in 2009.

    Lucky for you, you are not under the gun on such tight schedule with this open ended OVDI, so take your time to decide. I understand that it is tax filing season now, but you can get an extension on filing this years taxes until October 15th, and you have until June 30th to file the FBARS, so use all that time for reasoned, dispassionate, non fearful assessment. It will help you sleep better.

    Before you decide, I would caution you. You are saying that you think your penalty will be only $4.5K. I am assuming that means you have no joint accounts with family members back home that could get swept up into the highest aggregate penalties, nor do you have any assets like a home that might also be included. Also remember that FX exchange rates and the evaporating US dollarette’ can make what you have overseas suddenly be worth more in USD than you would think. Inside the program, the IRS wants to assess the penalty on all these things, not just your personal bank account. So want to be sure that you have fully assessed the potential that you might be underestimating your OVDI penalty.

    Also, inside the program you are going to use up more than $4.5K of LCUs just doing all the work that they require of you, or you are going to pay that much to a CPA to do it for you. You might want to read through (some of) what I actually went through in the entire process. I would not wish this on you Mate, if you are just a benign Minnow immigrant. That effort will not help your sleep during the 2 years it could take to bring it to conclusion.

    My Case Study…

    Also, I would really encourage you to read some of the most recent comments and advice about Options that Jack Townsend has discussed on his latest blog on Opting Out. That might help you decide whether you should “Opt In” in the first place.

    “Opting Out” #2 (3/2/12)

    I would read the whole thing if you haven’t done so, but some of the most important comments start around March 21st.

    Especially some on March 26/27th time frame.

    You may not see all the comments at first, and will have to go all the way to the bottom to “load more”.. There are a lot of fearful immigrants asking questions there too.

    Jack makes some very good comments about why you may NOT want to do an OVDI, depending on your facts. Most Minnows, if they got into these VD programs, would want to “Opt Out” anyway, as the penalty is really way too draconian for the so called FBAR crime. Other options are viable, and Jack has the cred (that I do not have) to give this type of advice, so I would listen and weigh it carefully…

    Regarding your specific question on CPAs. I didn’t use one. I did not want to add to the expense of the process, and their hourly rates, while not as bad as a OVDI Tax Attorney, can still be significant. Frankly, you don’t need one, as the tasks at hand are really just clerical, and if you have the time and you can balance your check book, you can do what is required.

    Finally, think it over VERY VERY carefully. Are you a criminal Whale, or a just a benignly negligent Minnow immigrant? These programs were designed for willful Homeland Criminal Whales and only evolved over time to deal with the reality that they were netting a lot of benign non willful Minnows. It is a crappy program, in my opinion, and it may NOT be for you. I would suggest that you may have gotten some good advice from the Tax attorney and the CPA you have already talked to.

    Good luck and all the best to you in your decision making process.

    @windbagblowhard

    It is hard to argue with your logic as to the likelihood of prosecution for a Minnow. If you don’t join, you will be playing the Lottery audit, (just like GE does all the time with its 57,000 pages of income tax filings and deductions/credits it takes) and the odds are VERY much in your favor that they are not doing to expend “budget constrained resources” on a Minnow. The odds are millions of times better that you will win this lottery than buying a Megamillion lottery ticket!

    Many seem fearful of the audit, because I think, of the OPVDI FAQ examples of maximum penalties that “could” occur. In my opinion based upon my experience, these are hyperbolic fear mongering on the IRS side to shake down the Whales. Given how an audit actually works, and the discretion and admonition that the IRM gives agents not to assign absurd penalties, you should not be frightened into joining the OVDI on the basis of these penalty fears unless your facts compel you.

    This OVDI penalty program is a GREAT deal for a Criminal Whale, but for a Minnow, it is a fertilizer factory.

    Unless you have have engaged in criminal behavior and really have something major to hide, an audit outside the OVDI shouldn’t worry you one whit! It is a pain in the ass to go through, for sure, but IRS agents will use discretion in applying FBAR penalties in an audit. They have an IRM that dictates their actions, rather than just applying a “one size fits all” ‘in lieu of’ penalty inside the OVDI. Inside the OVDI, they have no discretion to do otherwise. Outside the program, in a normal audit, penalties for minnows will be nowhere as severe as the OVDI penalty. Unfortunately, the way the IRS conducts itself, they will happily take from you a disproportionate penalty inside the OVDI if fear causes you to enter or keeps you there too afraid to “Opt Out’. I speak with some insight now after experienced the game.

    Hindsight is 20/20, as they way, but knowing what I know now, I would not have difficulty sleeping if I didn’t join the OVDI given my facts. I don’t really know yours or ovdikills, but if as represented I would think long and hard before I entered that OVDI processing factory. For me, had I remained outside, and just did a QD or became compliance going forward, I really don’t think my wallet would have been so lightened by a pick pocket called the IRS. With everyday that passes the statute of limitations would have run out, and an audit would not have been as bad as what they tried to assess me inside the program. Unfortunately sometimes, “doing the right thing” which I believed I should do in the 2009 OVDP, turns out to be exactly the wrong thing to do. Ponder it carefully.

  93. “So want to be sure that you have fully assessed the potential that you might be underestimating your OVDI penalty.”

    This is a good point. I was considering OVDI at one point last August before I’d done a lot of research. It turned out that the highest value in accounts I had signature authority on during an eight-year period included the point where we’d bought a house, and the penalty would be assessed on that amount – 5%, which seemed crappy but manageable, would have come to a C$22,000 fine. At that point I stopped taking the exercise seriously.

  94. Thanks guys for all the reply. I know very well what you guys are trying to tell me. This program was never designed for the minnows. But for me its really troubling, its like a saw hanging over my head until i get out of it. I have been doing lots of reading and also started calculating my penalties more closely. The OVDI penalties is coming to around $7k now before the taxes dew. I do not have any property back home yet. I am a young guy 28years old trying to make a career. I dont have much yet. I have come to US with much hopes and have been doing pretty good since then, my Green Card is also in progress and I want these issues to cause problem later in life. Every time i read this or Jacks blog it makes sense not to join the program, but when I go and try to sleep I just cant sleep until promise myself I will join the program. I think even $10k though hard earned and big amount for me is something I will have to pay to sleep. Its like a sleep tax for me. One thing that i might think of doing is the opt out. At least then they cant do a criminal case on me. At least they cant win since I would have declared everything. My main worry is my assets has gone beyond 75K in 2011. So If i dont do it now and have to do it later I will have to pay up at 27.5% instead of 12.5%. The worst part is, with the VISA issues becoming so strict I do not even know if I would get a VISA to come back when I am going back home this year to get married.

    Assuming i do join the OVDI i have a few questions for you guys if you are kind enough to answer
    1. I came to US only on July 30th 2008, which does not make me a resident under the substantial residency test. Do I need to amend my tax for 2008. Yes i had filled my taxes for US earning.
    2. IF i do have to file amendment for 2008, should I have to declare the income earned in my native country from Jan 2008 to July 2008 and pay taxes on it? If so can anyone throw more insight on this
    3. My company transferred me to my native in Feb 2009 to May 2009 during which time i worked there and had an Income there. Again this income was fully taxed in my native. Should I be declaring this in my 2009 amendment.

    Thanks for the links. I have gone through each of them already. And will dig into the ones you suggested even more. I am sure I have more knowledge on this process now thanks to this and jacks blog than some of the attorneys/CPA’s i am talking to. And then the IRS tells us its our mistake to not know to file FBAR.
    I am really sorry to trouble you guys with my questions. But any help is greatly appreciated. Look forward to hearing from you guys.

  95. @ovdikills

    I am not a CPA or a tax expert, so am a bit reluctant to offer specific advice…

    I think that at the point you became Tax resident in the US, and such a “US person”, then yes, any income you earned overseas either “passive interest”, or “earned income/salary” would have to be declared on your tax returns. Also, with a combination of the “Foreign Earned Income Exclusion” and “Foreign Tax credits” you might not have much or any liability depending on your gross earnings in the US, and the rates at which you paid taxes overseas.

    For those answers you would either need to have an international CPA do some trial 1040xs for you, or do like I do… just work it out in Turbo Tax.

    I hope the price you are willing to pay for your “Sleep Tax” isn’t going to become too steep. But understand, it may not give you the rest you think it will. If you do enter, you are really going to want to strongly consider “opting out” at the first opportunity. If you haven’t read Moby’s tail here, be sure you do…

    http://isaacbrocksociety.com/2012/03/10/moby-opt-out-update/.

  96. @ovdi

    There have not been any cases of immigrants charged for $75k in assets, so you don’t have anything to worry about that.

    Second, how likely is the IRS to find it? If it is in India, just transfer the money to a relative’s name, and save the trouble and expense of filing anything.

    The OVD you are reading is a scam by the IRS to prey on scared and innocent immigrants like you. Don’t voluntarily pay any fines. Fight for keeping your money.

    The other alternatives like filing forward are a way to keep all of your money.

  97. @M & @JustMe….. thank you very much for your responses. From researching a bit on “Foreign Earned Income Exclusion’, i think I will not be required to show income up to July2008, using the 330 days which can be used from any time during the year to any time during the year. So Considering from July 2007 to July2008 I was not in US for more than 330days, i do not have to pay tax on that. But i will have to pay tax on the March-April 2009 salary.

    @M, yes the “sleep tax” I am going to pay is approximating $10000, thts pretty high for a starting minnow like me. I have done pretty much all the calculation myself already and have usually over estimated to get a kind of idea. And I am sure there is no other surprises left for me since that is all I have got. I do not even have any join accounts. I also read that whatever calculation I do the IRS will have its own calculation and we have to comply and since my case is not very complicated (nothing hidden) I feel i wont get hughe differences.

    Also yes I am thinking of opting out of OVDI, but atleast they cant win a criminal case against me then. I did read Moby’s case really wont wish that on even my worst enemy. Just assuming I wont have any such surprises since I dont have any other assets than all the accounts I am going to show which are combination of CD, savings account, PFIC and stocks. Only PFIC calculation has been a bit challenging but I was able to work it out using the MTM method. I got the statement for the PFIC from 2008 to 2011. Used this method

    (NAV reported for DEC * total Units in hand in DEV) – ((NAV reported for JAN * total units in hand in JAN)+(premium payed for entire year))

    Also just to make sure, if I get into 2012 OVDI, i have to show only from 2008 to 2010 (came in to US only in 2008) and not 2011, correct? As I can file 2011 normally within Jun 30th 2012?

  98. @ovdikills

    From what you have told me, there is NO WAY that the IRS is going to waste one $ of a prosecutors time on you, even if they discovered you by doing a full blown audit.

    They have recently lost 30% of their staff for going after the Whales, for god’s sake. So you really think they will spend any resources on you? They are stupid in how they create these rigid programs, but they are not that stupid when it comes to prosecutions.

    Read this…
    http://www.mainjustice.com/2012/03/27/tax-division-farms-out-lawyers-to-u-s-attorney-offices-raising-questions-about-focus/

    There is NEVER going to be a criminal case against you, in my opinion. As long as you don’t willfully engage in discover-able tax evasion. There is no criminal case for non willful failures to file a FBAR. End of story. If an examiner brought your case to a DOJ attorney, he would laugh them out of the office.

    So, if you do a QD, for years 2009, and 2010, and they decide to audit you, so what? You have nothing else to hide. At that point the Examiner is going to use full discretion in assessing whether or not a FBAR penalty is appropriate. If you have already filed the past FBARS for 2009 and 2010, with a “reasonable cause” letter that you didn’t know it was required for many of the same reasons that John Doe and Moby have made, I doubt you will have any problems. The audit is going to find nothing, because you amended your returns and paid your taxes, and the FBAR penalty isn’t going to be much, as your failure was non willful with reasonable cause. You would probably only get a “go and sin no more” letter, if that.

    I really don’t quite understand why you are so eager to enter the OVDI. I am going farther than I usually do in giving advice, but I can see NO compelling reason for you to enter. I think you will find, inside the OVDI, you are going to have more sleepless nights and less reassurance than you think, to say nothing of the extra money and LCUs you are going to spend. Are you ready for a 2 year process?

    If it were me, and if the facts are as you represent them, then I would probably just amend 2009 and 2010 taxes. File 2011 correctly after you apply for an extension. Send your 2009 and 2010 FBARs in with a reasonable cause letter, and then forget about it.

    You will eventually get a letter from the IRS wanting additional interest payments on under reported income for 2009 and 2010. They may or may not add an accuracy penalty, but I would be willing to wager, that is all you will ever hear. It should not keep you up at nights, because you already know that should they decide to audit you, you have already amended everything and filed everything and there is nothing else to discover. There is going to be no police knocking on your door because you filed late FBARS.

    Rest easy Mate, I think you are unduly concerned. 3 years from now, with the statute of limitations past, you are going to wonder what were you all worried about. 🙂

  99. @JustMe, thanks for your advice. You have really made me think about this all over again now. I have a question though, if they do audit me, they can then levy me with an FBAR penalty of at least 25% correct or is it 50% of my assets? I know chances are very less, but my luck has always been worse than shit.

    Also thanks to “A broken man on a Halifax pier” for many replies.

    Yes I am just a small fish in this big system trying to live as correct life as possible especially in a foreign country which has treated me well except for this draconian FBAR. All the Attorneys/CPA I talk to mention if I amend my taxes and also submit prior FBAR its a BIG red flag for audit. Some of the CPA’s have no idea what OVDI is and still want to take my case. Its so frustrating. I have given my piece of mind to a few who did not even have the knowledge I have on OVDI but still wanted to take my case at unbelievable rates.

    Check this link “http://www.greenbacktaxservices.com/blog/expat-taxes-explained-offshore-voluntary-disclosure-initiative/” , scroll to the bottom in the comments section, these guys claim experts in Foreign tax and openly declare the people on H1 Visa have no obligation to declare FBAR’s how wrong. its a shame a real shame that IRS expects people like me to know what these big guys dont.

  100. @ovd
    There is is truth in that recent immigrants are under fewer obligations. 100% of the IRS targets are US citizens who are actively hiding income and assets, not immigrants, and especially not recent immigrants or immigrants who are not permanent residents.

    Please do not allow the IRS writings to scare you into OVD. You must fight that fear.

    There is no such thing a “sleep tax”. It is your own imagination.

    The OVD program was made for multimillionaire Americans who are hiding millions in Switzerland, not for minnows. It does not work on the wealthy Americans because they are not afraid. It only works on the minnows because they are afraid.

  101. @ovdikills

    Re: “they can then levy me with an FBAR penalty of at least 25% correct or is it 50% of my assets? I know chances are very less, but my luck has always been worse than shit.”

    Well mate, your luck is about to change… 🙂

    The penalties that you are all hung up about are penalties for “willful” tax evaders who knowingly decided to hide money in secret accounts and then deliberately did not file an FBAR even though they knew they had the obligation under current law.

    Is that you?

    If not, then FBAR penalties can be much much less, and even nothing. If you have read the IRS’s own manual, the IRM, as much as I have, that would be plainly obvious to you…

    Maybe you should do some more drudgery and read the IRM for yourself….

    http://www.irs.gov/irm/part4/irm_04-026-016.html#d0e529

    Here are numbers 4, 5 and 6…

    4. Penalties should be asserted only to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether the issuance of a warning letter and the securing of delinquent FBARs, rather than the assertion of a penalty, will achieve the desired result of improving compliance in the future.

    5. FBAR civil penalties have varying upper limits, but no floor. The examiner has discretion in determining the amount of the penalty, if any. Examiner discretion is necessary because the total amount of penalties that can be applied under the statute can greatly exceed an amount that would be appropriate in view of the violation.

    6. Examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted and the total amount of penalties to be asserted. Because FBAR penalties do not have a set amount, IRS has developed penalty mitigation guidelines to assist examiners in the exercise of their discretion in applying these penalties. The mitigation guidelines are only intended as an aid for the examiner in determining an appropriate penalty amount. The examiner must still consider whether a warning letter or a penalty amount that is less than what would be called for under the mitigation guidelines would be more appropriate given the facts and circumstances of a particular case. For example, if an individual failed to report the existence of five small foreign accounts with a combined balance of $20,000 for all five accounts but the income from each account was properly reported and the taxpayer made no effort to conceal the existence of the account, it may be more appropriate to issue a warning letter rather than assert penalties under the mitigation guidelines.

    So that should give you some more comfort that you are not going to be hammered like you think they might. As the 30 year IRS Vet, Steven Mopsick has said somewhere here, (and I couldn’t quickly find the link, so I will paraphrase), “the IRM practically screams at the Examiner not to to assess a harsh penalty.”

    So relax a bit. You have to bring FEAR under control, and it takes a long time to get familiar enough with this subject and have a strong enough knowledge base of what worse case “could” happen versus what is “likely” to happen. You are right, there are a lot of practitioners out there giving bad advice, probably don’t know as much as you do now, and want to charge a lot of money for it. Buyer beware!

    The thing you have to remember about the Statutes that created the stupid FBAR requirements and penalties, they are written in the language of “May’s” not “Shalls”, and wide discretion is given to an examiner in an audit. That same examiner has NO DISCRETION in the OVDI. Let me put it this way….which would you rather deal with, an examiner who has discretion in an audit, or a black and white, no exception examiner in the OVDI?

    Regarding your attorney and CPA warning you about the audit “Reg Flags”: This is just another Fear tactic. So what if it is a “red flag”? What do you have to worry about? I mean, really truely, what do you care? An audit is less stressful and takes less time (LCUs) than the OVDI. Yours was a normal non-willful foot fault of a new immigrant who didn’t figure out all the requirements of the most complex tax and reporting system in the world!!! You are a very sympathetic tax payer now complying as soon as you found out. An audit, if it ever happened, would be a piece of cake compared to the OVDI process. You will have already disclosed everything by filing your amended returns and sending in your FBARS late with a “Reasonable Cause” Letter. You really have nothing more to worry about this “Red Flag” boggeyman.

    Frankly I would be more worried about what might happen and how frustrating the OVDI process will be for you, and that 2 years from now, you may still be fighting your way through it trying to Opt Out for a lessor penalty. The Opt Out would just be that “Red Flag” regular audit without all the front end OVDI crap and frustration to suffer through.

    M is right. You must fight that fear factor. I appreciate that you have been reading and trying to understand the program, and you want to do the right thing, but you haven’t examined your options enough if you think the OVDI is a “sleep tax” which will some how put your restive mind at peace.

    Do a little more drudgery and you will come to the right answer for you.

  102. @ALL
    I’ve got a quick question about “non-willfull” and “willfull” FABR penalties. Does the IRS have to take you to court for just “willfull” penalties or do they have to take you to court for “non-willfull” penalties too?
    thanks in advance 🙂

    The word “Minnow” shows up alot around here and it keeps reminding me of this:

  103. @JustMe, great piece of information. Thanks for that. I read in another blog that people who are doing this “noisy declaration” of FBAR which you are suggesting are getting a reply from the authorities to join the OVDI program. Have you guys heard anything about it? Also though painful, which do you think is better, 1. OVDI and opt out or 2. Noisy Declaration with amended taxes ? Also none my accounts back home have a US address assigned to it. They are all local accounts. But problem is i have lots of small accounts with max in each account not crossing $15k at any time. But i get screwed when aggregating them.

  104. @UncleTell…

    All FBAR penalties, “willful” or “non-willful” are civil penalties under title 31, and only collectible if the IRS/DOJ gets a judgement against you. I understand they have 2 years from the time they assess the penalty to take it to a federal court to get that judgement. In the meantime you keep the money.

    From a practical matter, I have never heard of the IRS taking anyone to court for a “non-willful” penalty, and the “willful” penalties we hear about are often collected in the context of Tax evasion court case, or at least that is how I read all the examples I have seen. Even in those cases it is only one FBAR penalty is usually assessed.

    It is really hard to imagine that an Examiner would send over a “non-willful” to the DOJ for court action. The IRS and the Taxpayer would probably have come to a negotiated agreement long before it got that far, and from a practical matter, I don’t think the IRS wants that kind of case in court in the first place. The cost of collection would be way more than the non-willful penalty, unless they tried to assess multiple account non-willful penalties, and I don’t think any lawyer wants to be arguing that one. Multiple penalties get into the absurd area that the IRM warns about.

  105. @ovdikills

    First of all, Definitions: I think you are getting confused. When you say “noisy declaration”, that is what the OVDI is. Quiet Disclosure (QD) is just filing amended returns.

    I don’t know what other blog you are talking about, but as a bit of advice, and to keep yourself from getting confused, I would just stick to this blog, and Jack Townsend’s blog for information.

    Jack, from a technical/advice stand point is the best there is. He has done a great service with pro bono advice for minnows that he provides with careful qualifications. He has really tried to help minnows see that their fears are unfounded, and while you have to wade through a lot of comments to pull out the gems, I recommend you pay attention to what he says. He is the expert, and I am just the novice who suffered the hammer, so have an ax to grind. My advice is suspect, but his is based upon years of DOJ practice. It is much more dispassionate and less hyperbolic.

    I know the IRS discourages QDs. They make you feel like you have to do a noisy disclosure and enter OVDI. That is plainly WRONG! From a practical matter when it comes to compliance and bringing more people into the fold, so to speak, QDs are exactly what the IRS should want, if only they had a brain. They are acting like the scarecrow in the Wizard of Oz.. If only they could sing a reasonable tune, it would be tolerable…

    In their warnings about QDs, they are just engaging again in some fear mongering which is directed at the Homeland Evading Whales to get them to come in the VD front door, so the IRS can be sure to assess the big penalties that they can later trumpet in the Media as big revenue collection successes.

    They are also removing the threat of criminal prosecution in the OVDI. That is a GREAT deal if you are a Whale, and have bad facts and were engaged in egregious willful activity. Then you probably do not want to do a QD unless you are a Big risk taker. However, understand by nature, most Whales are risk takers.

    From a practical matter, the IRS doesn’t have the resources or even the Examiner expertise to audit all QDs, so they are just trying to scare the Whales, and by default a few Minnows like you. It is what they do. They call it their educational outreach. Scare the s#$% out of them, and take their money “voluntarily” without having to search them out in audit and find out there is nothing else to take.

    Our so called “Voluntary” income tax program, as complicated and unfair as it has become, only works if they instill fear in the taxpayer that you will likely get caught and prosecuted. They are trying to make you think a QD is some admission of guilt or some wrongful act. It isn’t. People amend returns all the time when they figure out they forgot something, or made a mistake and want to correct it. This fear mongering is very effective on Minnows, especially of the immigrant variety, but sophisticated tax payers have long ago learned to engage in “selective listening” when the IRS cries “wolf” with its warnings of dire penalties should you be caught because we flagged your QD.

    As far as what you should do, I would just read my advice over again. I have provided you as much as I feel I am qualified to say. I don’t think you want to do the “noisy disclosure” which you are confusing it with a Quiet disclosures (QD). IE, I don’t think the OVDI is for you. You have had both a CPA and a Tax Attorney tell you that. Like I have said, I would pay attention. That is as plain as I can say it.

    Now, if that is not sufficient, or if you think your Tax Attorney or CPA was not qualified to give you the correct advice, I would find another OVDI Tax attorney for you to run your facts by. Pay the fee for an hour or so of their time. That might help remove your fears. There are several that I would recommend, and some of them have posted here. Jack Townsend is expensive, but might be worth a phone consultation. Phil Hodgen is another. Also Steven Mopsick posts here is a 3rd you could consider. Also, Jack maintains a list of attorneys that he thinks are well qualified to advise on these matters. There might be one in your area that you could talk to.

    http://federaltaxcrimes.blogspot.co.nz/p/ovdi-attorneys.html

    Just remember, if you insist that you want to enter the OVDI, then you do NOT need to pay high priced attorneys or the CPAs the big fees to do it. This is definitely something that can be handled as a DIY project. I would not be afraid to go it alone. In fact, I think the Minnow is better placed to do so. If you show up with an expensive POA, (power of attorney) then the IRS examiner naturally thinks you must have something to hide that you need the high priced representation.

    Force them to deal with you as a minnow, as you are more sympathetic that way. Frankly, again, if your facts are what you represent them to be, the Examiner will probably encourage you to consider the Opt Out, which could be the regular audit that is the “Red Flag” boogeyman I have previously mentioned. It should be no big deal for you!

  106. @ovdikills It is a very bad idea to enter the OVDI because you will no longer have any of your constitutional rights in the program. I suggest that you read all the posts on your rights on the right hand column of this blog, under the rubric: OUR RESOURCES. Especially read the last post on the Eighth Amendment, which shows that the IRS stands in dread of assessing the huge fines that the FBAR law allows. So they are using the scary penalties only as a club to scare people into OVDI.

    If you want peace of mind, then I would suggest that you expatriate definitively from the United States. I have peace of mind because the Canadian government says it won’t collect taxes from me because I am a Canadian citizen; it will not collect any FBARs from any one either. As long as you are living in the United States, you are subject to the jurisdiction of the United States. So peace of mind is essentially impossible. So choose the least of all evils, and in my view that would be either (1) No FBAR on 4th and 5th Amendment grounds–but the risk is that the US will find out somehow about your foreign accounts (through FATCA perhaps); or (2) Go forward compliance. Given your risk tolerance, I would suggest that (2) is probably your best choice (but I am no lawyer). QD–quiet disclosure of six year’s worth of FBARs, with a letter of explanation to the treasury department, is still a much better choice than OVDI. Remember too, that ignorance of the FBAR law is a very good excuse for non-compliance:

  107. @Just Me and @Petros, thanks for your replies. JustMe thanks for clarification on the definitions. @Petros I have 3 default FBAR’s 2008/09/10. I am seriously considering the QD now though cant decide yet. I am going to ask for extension on my 2011 taxes and take some time and decide. As i go through the calculations I might learn of even more cases here and on Jacks blog. But I have to tell you Just Me, you have been like god send for me. I am much more calm over the last two days since I started corresponding with you. I am sure all the help you are doing will be rewarded to you in some way or form.

    I am sure to bug you guys further if I have any more doubts. I am in the process of getting all my bank statements now. Do you guys know if i go in for OVDI do I need to submit all the bank statements along with the package. One of the CPA suggested me if assets <$500K I dont have to. Nothing to hide but some are difficult to get so thinking of over approximating for taxes. Also if we do have to provide the statements, do the agents keep questioning you on each and every transaction say for about $2000-$3000 checks coming in and going out? Its impossible for me to justify these transactions. My parents would have debited and or credit money as required, there are many though about 4-5 transactions in $2000-$3000 range in the 2008-2010 range.

    If i go through OVDI and then do an opt out, will I know the fines before hand or will that only be calculated after opt out. Also I was reading in Jacks blog that the fines they are calculating on opt out is only per year around $500 is that correct? I hope they dont take it per account per year as i have tooooo many small accounts. My taxes for all three years are coming to approx $2000. I am pretty much there on 2009 and 2010. 2008 need some more calculation. Can you guys suggest any good CPA whom I can hire and decent rates with knowledge of foreign taxes and PFIC?

  108. @ovdikills

    I am pleased that you are calmer now. Yes, do file for your 2011 extension so you have more time to consider your options. I know when one first learns of these programs, and with all the fear that the IRS and practitioners put into you, it is really a confusing muddle trying to figure out the best course of action. It is easy for us to say, do this, or don’t do that, but frankly, you shouldn’t just take advice from a blog. None of us are experts here, or attorneys. Ultimately you have to take your own council which only gets all the better as time passes and your knowledge base increases. If you are not hasty, and take your time, your knowledge will grow. At some point you may want a final check off with an OVDI attorney just to assure yourself that you are taking the best course of action for you.

    I will say it again, if I were you, and if your facts are as you represent them, considering your compliance issues really only go back to 2009, considering your new immigrant status, considering your desire to stay in America and be compliant with its tax laws, considering what I know from my experience, I would be choosing to amend my 2009/10 returns, pay any tax I owe, file my past FBARs with a “reasonable cause” letter of explanation for why they are late, and then sleep well knowing if audited, I have nothing to hide, and so nothing to fear.

    That is me speaking, and not you, so you have to decide for yourself if such a route is one you want to take.

    Now to your questions:

    Question 1. “Do you guys know if I go in for OVDI do I need to submit all the bank statements along with the package?”

    I say this gently, but if you are asking this type of question, you are relying to much on others to do your reading for you. I think you need to spend some time on the IRS.gov web site and read all the rules and regulations for yourself, rather than relying on a CPA or some stranger on a blog.

    I am not up to speed on the FAQs for the 2011/12 OVDI. If that is what it says there, then you will have to, and if it is not, then you don’t. In the 2009, I had to wait until they contacted me, and sent me a letter requesting my statements, but not sure if that is the case now….. Oh, I will just go an look…

    Here you go. You need to read these all in detail if you think you are still considering the OVDI. That should be enough to put you off the entire process.

    2011 Offshore Voluntary Disclosure Initiative Documents and Forms

    OVDI Frequently asked Questions

    Submission requirements

    Item 10 deals with the Financial account records you asked about.

    It does appear that if your account is < $500,000 you don't need to send statements. That is different than when I was in the program. However, they are going to have to be available on request.

    If you decide to join, you will just need to read and follow all these instructions. That is what a CPA or an Attorney would do, and charge you big dollars for reading what you can read and doing what you can do! There is nothing rocket science here requiring any special expertise. It is just clerical work.

    Question 2. “do the agents keep questioning you on each and every transaction say for about $2000-$3000 checks coming in and going out?”

    Simple answer NO!

    If you read over my case study, you will see, that the Examiner never asked me one question about any transactions on all the Bank Statements I sent them. Nothing!

    However, the statements that I sent in, had a detailed colored legend for every in and out transaction. It was a pain doing, but it helped give me confidence that I could answer any question without hesitation. Maybe since I was so prepared, they could see it wasn’t worth bothering to ask anything. The main point is, the OVDI is not a detailed examination, like an audit. They were looking for reasonability, not fine details. However, since I approached it as an audit, I was not fearful of what they might find if they decided they wanted to do one.

    Question 3. If i go through OVDI and then do an opt out, will I know the fines before hand or will that only be calculated after opt out.

    When you decide to Opt Out, you will read the Opt Out procedures. In those procedures, they will instruct you just what to do. You will lay out the facts of your case and tell them what you think is the appropriate penalty. If you are smart, you will say you should have no FBAR penalty due to reasonable cause, and the only penalty you would be willing to pay is the accuracy penalty. That is what Moby and Sally did, and it was accepted.

    There have been some reports of others that were fined $500 per year following the mitigation guidelines of the IRM. I don’t know the facts of those cases. I really don’t think you have to worry about multiple small accounts. I have yet to hear of them even trying to assess a per account penalty. Remember the FBAR Statute language is “may” not “shall”. Big difference, and so they are not likely to do multiple account FBAR penalties.

    Here are the Opt Out procedures. You will want to read them and understand the process before you enter the OVDI.

    Question 4. “Do I know of any good international CPAs?”

    No I do not. I used one to do my first amended return and my first Foreign Tax Credit form 1116. He got it wrong and couldn’t explain it to me, and for that I paid $1,000 dollars. I did not go back. After that, I just got Turbo Tax and using the 1116 form he did as a guide,I went to school on it. I just worked it in Turbo Tax until I understood it enough to amend all the other years.

    Regarding PFICs… Fortunately I did not have any foreign mutual funds and did not have to deal with this.

    Here is something from Phil Hodgens that might be helpful for you….

    HOW GAIN ON DISPOSITION OF A PFIC IS TAXED

    and

    PFIC DISTRIBUTIONS BY NONQUALIFYING FUNDS MEAN ORDINARY INCOME

    Finally, regarding 2008 taxes, I thought I heard you say at the beginning of all this, that you were not a tax resident in 2008, so why are you amending that year at all? You didn’t arrive until July 2008. You do need some tax advice here, as if you weren’t tax resident yet, then it doesn’t seem to me that you should have filed in the first place. However, I don’t know the tax law here, so can’t really say..

    cheers

  109. M

    ‘100% of the IRS targets are US citizens who are actively hiding income and assets, not immigrants, ‘

    The IRS has targeted a few immigrants (not recent immigrants and most were probably US citizens), but your flat out statement is not correct. Not that ovdikills is likely to be targeted at all ..

    JUst Me

    I am not entirely sure that the government needs to go to court to collect the penalties. There seems to be some dispute over this. if someone lives outside the US, it would be impossible to collect, but I gather ovdikills is a recent arrival. That incidentally changes the situation a little bit since for a green card there may be statements that one is up to date on tax obligations and the like (which means that simply complying going forward is not possible). I think QD would be the best approach. [ FWIW, I think some of Petros’s advice suggesting expatriation is likely the exact opposite of what an immigrant intends to do, so most immigrants from poorer countries who have better prospects in the US (FBAR or no) would be reluctant to do that. And invoking various constitutional arguments — well, thats the kind of stuff that gets you to lose money very fast]

    Note: Comments in [FWIW] edited per Gyro request

  110. @ gyro A person can waive constitutional rights. The government knows that and hopes that you do it, through OVDI, or even FBAR. But it has an expensive, uphill battle if it wants to charge minnows in court over FBAR: the perfect excuse for an unfiled FBAR is ignorance (it is written in the law)–will Justice take a minnow to court for $10,000 per account? Hasn’t happened yet. I consider it better to cede none of my rights to the US government. Thus, before I fill out a FBAR, I’m going to want to see the specific warrant with my name on it. Otherwise, I consider it importunistic for the US government to even ask that information. Then, I will not cede my Fifth Amendment right, because I could be criminalized by my failure to report (thus, the seed of the protection against FBAR is the potential criminal charges); finally, the IRS is afraid to assess heavy fines outside the OVDI–and will likely never do so (until the United States is so obviously desperate for cash–after the coming great hyperinflation in other words), because they know about the victim’s Eighth Amendment rights.

    So how much has it cost me not to cede or waive my constitutional rights regarding FBAR: not thousands. Actually nothing at all. Now it is up to the Justice Department to decide that this little now Canadian is worth the effort of bringing civil or criminal charges against for penalties it can’t collect in country from which I cannot be extradited.

  111. Petros — I have no opinion on what you chose to do. That’s your own business and since you are outside the US, you are unlikely to be harassed in any way.

    I was pointing out since ovdikills is in the US and apparently does intend to stay in the US, asserting various 4th and 5th constitutional arguments is a sure way to get into serious trouble. Lots of tax protesters try these in the US every year and go to jail. [The one exception might be the Eight Amendment if heavy fines are indeed assessed against ovdikills, which I deem highly unlikely]. it is misleading to suggest that your positions (again, except the 8th Amendment) would make a reasonable defense in a court. That’s OK for you, you’re not likely to see a US court, but its not valid for someone within US jurisdiction who doesn’t necessarily want to leave until good and ready to do so.

  112. @ gyro FBAR is not directly related to tax evasion. It is a mere reporting requirement under the Bank Secrecy Act and not part of the Internal Revenue Code. Thus, the IRS cannot lay charges, but can only recommend action to the Department of Justice. This means that the body of case law that applies to the tax code is dubiously relevant for FBAR. Some of the law articles which have dealt with FBAR, and indeed the courts themselves in some cases, have indicated that for whales (whales have constitutional rights too), the law may not be enforceable on Fifth Amendment grounds — a quite simple concept that one cannot be forced to incriminate oneself, and in the case of FBAR, to report incriminating bank information. There is also a Fourth Amendment challenge, since the FBAR requirements are a general warrant whereas the US constitution allows only specific warrants; the Eighth Amendment has the IRS petrified to apply FBAR to all but the most serious offenders (think, Tony Soprano, where the money itself is laundered from criminal sources). Minnows have little to worry about in terms of draconian fines.

    This is a case where even a US whale is probably better off with go-forward compliance than OVDI–for fear that their account information may be given to the United States via FATCA. The minnow in the US, worried that his account would be found out, should do likewise. I only recommended doing no FBAR, for ovdikills, as something for the risk tolerant–but he obviously, by every indication, is not risk tolerant.

    The risk tolerant person may decide that on 4th and 5th amendment grounds they will not waive their rights by giving incriminating evidence to Justice. The government can’t force you to waive your constitutional rights, but they are extremely elated when you do so: i.e., OVDI.

  113. @gyro

    Thanks for your comments…

    Regarding your.. “I am not entirely sure that the government needs to go to court to collect the penalties. There seems to be some dispute over this.”

    I think I know of what you are speaking. I am not an expert on this, but will reproduce what Jack said…

    It would appear there would be some minor risk if you were due a refund that they could offset against, but that is very controllable by the taxpayer. Just don’t over pay!
    Cheers

    Jack TownsendMar 5, 2012 03:10 PM
    Yes, generally the IRS has to go to court to collect the FBAR penalty.

    However, apparently the IRS can collect the penalty by offset against refunds. See Steven Toscher and Michel R. Stein, FBAR Examination, Appeals and Collection Procedures in the Post-Amnesty World, Journal of Tax Practice & Procedure 61, 68 (December 2011-January 2012), here:

    Here is the relevant part of the article (with footnotes)

    There are two separate collection limitation periods with respect to FBAR penalties: (1) two years from the later of the assessment date and (2) 10 years from the assessment date during which it can collect through certain offsets. n98 FBAR penalties constitute debts owed to an U.S. executive agency, and the IRS is authorized to collect debts using any of the methods enumerated in 31 USC §3711 (2008). n99

    n98 IRM 8.11.6.3.1.1(2) (11-01-2011).
    n99 See 31 CFR § 5.4(a)(6) (authorizing “treasury entities” to collect debts by offset of tax refunds or benefits, private collection agency, credit bureau reporting, administrative wage garnishment or litigation); see also 31 CFR § 5.1 (“treasury entity” includes the IRS).

    Source: “Opting Out” #2 (3/2/12)

  114. Hi,

    I am a green card holder who moved to the US back in 2000.
    I was never aware of the FBAR requirement until this year and never declared my bank account and interests until this year when I did and filed FBAR for 3 account which had about $50k till 2005, then $17K after I transfered some money to buy a house in the US in 2005. I wanted to do the right thing.
    I am married to an American and have kids here, and will likely apply to citizenship at some point.
    Is this year’ filing likely to trigger past FBAR issues.
    My EA is advising to amend 8 years of back taxes, which if not done in the context of ODVP will certainly trigger an audit where they’re going to find out that I haven’t filed FBAR for the past 10 years.
    The undeclared income is around $400 per year, except for 2005 where it is close to $11,000.
    I am so afraid of the penalties that I am considering the ODVP program, for 2 reasons:
    1) the penalties outside of the program might be extremely high, because of my long history of non compliance.
    2) My life and family are here and I don’t want to face issues renewing my green card or becoming a US citizen.
    I’ve had sleepless nights since my decision of filing this year.

    Any thought are appreciated.

    Thanks so much,

    -Christophe

  115. @Christophe…

    Well, Mission accomplished. They have got you with the Fear and Sleeplessness! They love it that you are feeling that way, as it makes for rash decisions that might not be in your best interest. Relax a bit, as you are not under a gun right now. Look yourself in the mirror, and do you see see a willful criminal staring back at you? If not, then your penalty risk is not what the IRS likes to imply it “could” be. They always point out the “Maximums”, and that is “never” the case.

    Now…

    As I have often said, it is hard for me to give specific advise on a blog, (although sometimes I slip up and do) and you would be silly to take it anyway, seeing I am just a guy who has experienced the pleasures of the OVDP, but really have no legal training and do not have a legal mind.

    The strategy of just becoming compliant now going forward is certainly one that has been discussed a lot at Jack Townsend’s blog. That is a tough call considering your history, but basically you are playing the lottery audit and are assuming the risk (minor though it might be) that you will be called out. I am assuming you will or have filed your 2011 taxes and the form 8938 too and declared any of the minor passive interest or income you have had this past year.

    Given how bogged down the IRS is with the OVDI program, and how they are still processing OVDP participants from 2009, taking almost 3 years, by the time they got around to flagging you for audit, if they even bothered given the minor amounts involved, the statute of limitations would have been passed for most of the years in question.

    But say they called you for an audit today (won’t happen), your open years would only be back to 2008 on income (3 years) and 2005 for FBARs (6 years) I think that is right, but you might want to check to be sure when the actual day of SOL occurs. Even for those open years, the penalty guidelines and agent discretion in the IRM would probably allow an examiner to issue a much lessor penalty than what they would hit you with in the OVDI.

    In the meantime you could do the work to assemble your account information and get yourself prepared for an audit so if it came, it would not be a big rush or headache. I wouldn’t be afraid of it, unless you are really hiding something you don’t want them to see. If it is only that $11k income from back in 2005, depending on your Stateside income, it probably is not considered substantial enough for them to even open up the year and accept the amended tax return outside the OVDI. I think the tax liability arising from that $11K has to exceed 20% of the total liability for the year. They will just tell you that you can apply for the refund of it. They did that for me for one year too. If I had not been in the OVDP, I would have gotten the money back.

    However, don’t take any of this as advice to sit pat, but since you have already exposed yourself with the FBAR filing, I would not be in a rush to enter the OVDI either until you fully educated yourself on the risks of not doing so. I would definitely read Jacks entire recent thread about Opting Out, as he does lay out the options and why the risk of audit and penalty is not as great as some minnows think…

    “Opting Out” #2 (3/2/12)

    Take your time, and don’t do anything rash. You still have time to also consider the QD (quiet disclosure) option if that makes you feel better. You would only have to do that for the open years, and not all the way back to 2003. So you can think that over too. Remember, in spite of IRS warnings on QDs, they are directed mostly at the Whales, and people amend returns all the time for things they forget or make mistakes on. Your failures fall into that category of innocent mistakes. You would just use “reasonable cause” language in the letter you sent with past FBARS along the lines of what Moby used in his Opt Out.

    Continue to educate yourself, and once you feel like you have a strong foundation of knowledge, then consult for an hour or so with a good OVDI practitioner not just some CPA or enrolled agent down the street. If they start out wanting a retainer and their advice is that you should get into the OVDI program to let them represent you, then run out the door and find another one. They are just trying to use fear to generate fees.

    I don’t wish the OVDI on my worst enemy. For sure you would be still working on it 2+ years from now if past practice is any guide. You would still be dealing with fear and frustration of how they calculate the OVDI penalty. Out side the program as you are now, you probably do better. So, being inside will not give you any more peace of mind. They are not going to send you to jail for your minor failures, so get that notion out of your head and you might sleep easier. Ultimately, it comes back to the drudgery of getting knowledgeable enough yourself to understand all the risks, and then trust your own council a bit for real peace of mind!

    If losing the greencard / citizenship is the fear, then you might want to re-evaluate the cost and the value of having it. If you are planning to remain in the US forever, then the offshore complexity and penalty risk is just the cost of having it.

    Cheers

  116. @Just me
    Thank you so much for your reply. Yes, the main fear is the loss of the green card or not being able to renew it. My wife is American, and not really willing to leave the US, so that would mean I can say goodbye to my family too.
    If the ODVP process takes that long, then I entering it might not be the best, as I will be investigated when it’s time to renew my card that expires in 12/2014.

    You said:
    “You would still be dealing with fear and frustration of how they calculate the OVDI penalty”.

    I thought the penalty schedule was pretty clear:
    120% of taxes owed + 12.5% of $60,000 or so in my case.
    Am I mistaken?
    Also, is it wise to enter ODVI by yourself or advised to hire a lawyer? Their fees for representing you are over $10k for the ones I contacted.

    Thanks.

  117. Christophe, the ODVP is for people who were intentionally hiding assets abroad. You were not doing anything intentionally. If you enter the OVDI the IRS agents have no discretion. They MUST penalize you. If you file normally and send a cover letter explaining your ignorance then they are allowed to waive penalties. Have you seen the penalty mitigation guidelines?: http://www.irs.gov/irm/part4/irm_04-026-016.html#d0e1317

  118. @Christophe…

    Well, there are always surprises inside the OVDI. I would be sure that you have read all the FAQs very very carefully.

    Ignore all the hyperbolic warning therein which, as it is just fear mongering to get you to join, in my opinion. Once you get in, you may decide you want to Opt Out, and if that is so, why join in the first place? Just do the QD instead and wait to see if you are audited. If you don’t have anything additional to hide, then audits are not fearful. They are just a pain in the rear end. I don’t think you have any criminal risk, if you are truely a minnow with benign facts.

    Your biggest risk inside the OVDI is that you have not figured your highest aggregate to accurately include FX rate changes, and if you have any other assets overseas, that will get caught up in the penalty calculation. Do you? They are not just applying this against your undeclared accounts. So be very very careful.

    Also amending all returns back to 2003 is no mean feat. That will consume a lot of LCUs and dollars, especially if you use a practitioner to do it for you. You can do it yourself, in Turbo tax, so take that on board for what it is worth. I did my own.

    If you are a Minnow, and don’t have bad facts, you do not need an attorney and their fees to add on top of all the OVDI expense. You can DIY the OVDI. $10K sounds like a quote from a pratitioner who doesn’t know all the detail work involved. I wouldn’t believe it! Most of the work in applying and providing the documentation is just clerical, so why do you want to pay an attorney or CPA to do that? In fact, as a minnow, I do think you might be better just dealing with the Examiner yourself. Coming in with a POA attorney, just raises flags, in my opinion. The OVDI process is tedious, but not technically difficult if you accept the fact that the Examiner will not have any discretion to penalize you less than the OVDI penalty. Outside the process, it can and mostly likely will be less.

    Good luck… Think long and hard about it, and read, read, read!!!! 🙂 Remember this program was designed for whales, and then only technically modified to handle all the Minnows that are being netted. Don’t be in a rush! Don’t let them make you feel like a criminal. You are not, any more than Treasury Secretary Timothy Geithner was with his tax mistakes!!

  119. @Christophe

    One final thing. You might want to read some of my experience inside the OVDP. From “get to go”, it is posted here. That might inform your decision. 🙂

  120. @Christopher and others…

    Good response here from Jack, that I am reproducing…

    http://federaltaxcrimes.blogspot.co.nz/2012/04/opting-out-3-4412.html

    Jack TownsendApr 5, 2012 12:32 PM
    To Anonymous Apr 5, 2012 12:18 PM

    I strongly encourage you to meet your obligations from this day forward (this means filing a correct 1040 with all income and with Form 8938 and an FBAR). (If you have already filed an incorrect 1040, file an amended 1040 by 4/15/12 and it will be treated as an original superseder.)

    Then deal with the past as you feel moved — properly advised — to do. This can be joining the OVDI, quiet disclosure or just go-forward (the minimal response).

    But putting the problem off and failing to do your duty from this day forward is, in my mind, not a smart way to deal with the issue.

    In my view, your worst case for the past is just an audit (whether by joining OVDI and opting out, by quiet disclosure or by going forward) and the audit result should be less than joining OVDI (at least based on my projection from the minimal facts you offer). No use to subject yourself to greater risk by future noncompliance.

    Best,

    Jack Townsend

  121. @all, I went to my US/Accountant Lawyer today, we asked him if he had anyone that went into the OVDI program and he said he would never suggest that program, but he has 12 people that came to him for help, they were charged HUGE fines /penalties. One client had a penalty or fine of $1.5 million. He said it took him 2 years but he got him completely off. He said it took alot of work.
    He did say he had one lady who paid $120,000.00, but not on his advise. He told her not to pay it, that he would try to help her with it, but she would not listen. She just wanted to get it over with, she had had enough. He said she came for advise but would not listen too him..

    He said people that are not in the program, just ordinary people have not got any penalties that he has seen. He said he has completed over 300 US returns and not one has been a problem.. He said they are not looking for ordinary honest people like you , they want the people that are hiding something.. but it is unfortunate the little guys are getting put through all this misery with so much scare tactics that it is a real shame.

    We asked him about renouncing and he made a face and said why would you do that?? he said I ask all my clients that mention renouncing this question?? if you didn’t have to file taxes would you want to renounce?? and he said the answer is alway a strong NO..

    He said he just hates to hear so many people talking about renouncing..

    He said there are so many people scared and it is all media driven. So he said tell all your friends on line, Please don’t worry that it is so hyped up were the fines are concerned.

    He also said just like Jack said, just meet your obligations..because he said you just don’t know what is going to happen down the road. He was not pushy about it, but said for the last several years I have not seen any fines or penalites..for the ordinary person who was not trying to hide something..

    He did make me feel better about it.

    So that is my story for today!!

  122. @Saddened123

    It is good to get anecdotal reports for attorneys that are dealing with offshore account issues. Thanks for sharing what you are hearing. It might help lower the fear quotient for other minnows.

    One thing for certain, once in the program, the IRS makes no distinction between offenders in their one size fits all penalty regime. Even if they know that the penalty structure is too severe for the minnow failure, they will still happily take your money. Fear is a wonder revenue collector, and I would love to know of the 4.4 billion in revenue the IRS trumpets that he has made, what portion was new taxes and what portion was penalties. Of course, they aren’t talking!

  123. @saddened: I’m delighted to hear that. I know how worried you have been. I hope this will give you some peace dof mind–and some sleep filled nights finally.

    I hope Christophe will read your comments and take them to heart before he considers ODVP. I also hope Retired and Scared and Swanee66 who have posted on another thread read about this advice and that it helps them.

    Are you a member of CARP (Canadian Association of Retired Persons)? You might want to check out comments I made about CARP and Susan Eng, their Vice President of Advocacy–who is also a former tax lawyer. Badger says she’s a real “firebrand.”

    Although this is not specifically a retirement issue, it may be possible we can convince Susan Eng to become involved. Something in the back of my mind tells me I’ve already seen a statement from her about this, but I wasn’t able to find anything through either Google or through CARP’s website http://www.carp.ca). In any case, CARP is a great organization for Canadians over 50–and you don’t have to be retired to belong.

  124. @Blaze, Thank you for the Carp website, I will be sure to have a look.. Yes it made me feel alot better, he is a very busy lawyer/accountant and I do not think he needs to push for business. I do hope the post helps others relax alittle.. I was happy my husband went with me and also talked to him.. It is nice that he felt good about the visit as well.

    Even though I still hate for my son to file, I guess it will be best to just get it over with and put it too rest..

    Blaze, hope you are doing well! Nice too hear from you! I will keep you updated..Have a Wonderful Easter Weekend!

  125. @just me, I do hope my post helps others with their worries. It will sure help me relax alittle more. I think the OVDI program is a horrible thing, it is such a trap. I really hope some of our IBS friends will stay away from it.. I think any accountant that allows their clients to be apart of the program needs their head examined..My accountant said he would NEVER EVER suggest it. Have a great weekend!!

  126. ‘@saddened123…

    It is interesting to hear your accountants comments. I am glad it is helping to take a load off your mind so you can get back to easier sleep. I wonder what his feeling was back in 2009 when this all started? In fairness, a lot of practitioners have modified their view when they begin to realize how the IRS was behaving. It has been a sea change in IRS practice, and has destroyed a lot of trust the practitioner community had. They got caught caught off guard too. I think now that is why now there is such a wide range of practitioner opinions as what the minnow should do. They are all making their judgements based upon the observed actions of the IRS over the past 3 years in an area where they are really never been any enforcement before.

    Jack sums it up pretty well in response to someone asking why the varied opinions.

    Jack TownsendApr 5, 2012 08:47 AM
    http://federaltaxcrimes.blogspot.co.nz/2012/04/opting-out-3-4412.html

    You raise good questions. I think the phenomenon that occurred was that when OVDP 2009 first came out, there was a lot of uncertainty. As you know, the potential civil and criminal penalties the IRS claims it can assert are truly onerous — and probably even unconstitutional if the IRS tried to assert them all. No one expected that the IRS would assert all the penalties, but no one knew how onerous the IRS would be.

    And very few, if any attorneys, had any real experience with the IRS’s enforcement of the FBAR penalties — civil or criminal — simply because there was little actual observable enforcement. The enforcement only becomes observable when a court case is filed, and prior to this initiative there were very few. So little was known about what the IRS would actually do in the myriad of fact patterns that emerged — from the whale to the minnow.

    The only certainty was to join the program and accept the program penalty structure (including in OVDP 2009 FAQ 35 relief, which itself was uncertain). And, of course, different attorneys have varying degrees of expertise and tolerance for risk in advising clients and the client’s have different tolerance for risk.

    This created an environment where the advice rendered by attorneys was necessarily different advice even as to the same set of facts — because the attorneys’ background and experiences upon which the advice was given was different. Two or even three different answers did not mean that any of them was wrong. And the facts varied from taxpayer to taxpayer, so one taxpayer cannot really judge his result by other taxpayers’ results.

    Over time, attorneys have become more comfortable that, on opt out audit, materially better results could be achieved because the emerging anecdotal evidence as to what was being done appeared good — at least for taxpayers who were not really bad guys (often referred to as minnows which can include substantial good guys).

    But advice differs. Within a range all answers are good.

    Jack Townsend

    also, this important one about what to do now.

    Jack TownsendApr 5, 2012 12:32 PM
    To Anonymous Apr 5, 2012 12:18 PM

    I strongly encourage you to meet your obligations from this day forward (this means filing a correct 1040 with all income and with Form 8938 and an FBAR). (If you have already filed an incorrect 1040, file an amended 1040 by 4/15/12 and it will be treated as an original superseder.)

    Then deal with the past as you feel moved — properly advised — to do. This can be joining the OVDI, quiet disclosure or just go-forward (the minimal response).

    But putting the problem off and failing to do your duty from this day forward is, in my mind, not a smart way to deal with the issue.

    In my view, your worst case for the past is just an audit (whether by joining OVDI and opting out, by quiet disclosure or by going forward) and the audit result should be less than joining OVDI (at least based on my projection from the minimal facts you offer). No use to subject yourself to greater risk by future noncompliance.

  127. Saddened123 –

    Severance of US citizenship is less about taxes per se than it is about (1) ever-increasing compliance burden (2) ugly ongoing costs to comply with multiplying incomprehensible forms even if no tax is owed (3) an unpleasant direction clearly set in a long trend that seems unlikely to abate or reverse (4) likelihood that a failing state will turn even more to exaction of out-of-scale penalties (5) perpetual uncertainty (6) serious mismatches in US/Canadian tax systems (7) feeling free (8) an imperialist state that seems to be all take and no give [you can turn 65, move back to the US, and get no Medicaid] (9) dissociation from a regime that is convinced it is exceptional rather than dysfunctional.

    Sorry, I think your professional needs a head check.

  128. @usxcanada, I agree with you 100%, believe me I want out as soon as I receive my Canadian Citizenship. This is just his opinion, of course he has not been scared to death for months and he has not had to live with the uncertainty of it all..It is always easy for others to Praise the US when they are not going through the hell of it all..usxcanda it will be a great feeling to be FREE!! I can’t wait till that day!

  129. What is the best option for a minnows green card holder that immigrated from another country and kept a account with a balance under 65K (while never reporting it on his 1040) and who started filing FBAR? Is ODVP the only option to ensure that the immigration status might not be lost?

  130. @Green Card Holder
    You provide way too little information and I am not qualified to answer your question. Only you know if your not reporting of the 65K was an benign oversight, or a deliberate attempt to hide funds from the IRS. If you are now compliant and filing your FBARs, Income taxes and new FATCA from 8938, you will have some audit risk, but probably minor. If it was determined in an audit, that your failure was willful evasion, it might result in a significant FBAR penalty, but not necessarily criminal prosecution. I am not sure how that would weigh on your immigration status. You should consult with a good OVDI attorney who can examine all your facts if you are worried about the impacts on your residency. I just don’t know enough to venture an opinion.

  131. Thanks a lot to everyone who contribute to this blog.
    Two questions that can help people make a decision regarding a quiet disclosure:
    1) Regarding filing FBARs for the years we missed and the reasonable cause letter.
    Is our reasonable cause necessary going to be rejected if we checked no for Foreigh Accounts on the 1040?
    (It seems most people who did not file FBARs would have had to check no for that checkbox, otherwise most tax software do a good job at guiding you through the process). I am trying to assess possible penalties outside of OVDP.

    2) FBAR status limitations is 6 years. IRS tax returns 3 years.
    If we owe 6 years of FBARs, should we amend 6 years of returns so that we fix any unreported income and the foreign account checkbox, or only 3 years?

    3) In case of audit, I am assuming that the IRS will look at both the original return and the amended. If the foreign account checkbox is checked on one and not the other, can one be charged with a false return?

    Basically, would everyone agree that if we did not report the account in the first place, the safest choice is OVDP, especially, if we started being compliant?

  132. @ Christophe..

    I apologize for the quick brush off, as I am just heading out the door and will be gone all day. I just saw your comment, and don’t want to leave you without any answers, but don’t have time right now. In the meantime, I would suggest you read here…

    I think you might find the some of the answers you are looking for…

    The link is to the latest thread that might deals with issues similar to yours, but frankly, you might need to read a lot more of the links I have suggested. If you did, you would become a minor expert as what to do… 🙂

  133. Under the OVDI, taxpayers are subject to a penalty of 25 percent of the highest aggregate account balance on their undisclosed account(s) between 2003 and 2010. If the value was less than $75,000 at all times during those years, the penalty is only 12.5 percent.
    These account balance penalties are in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties. Plus, participants are required to pay taxes and interest on any monies (such as interest income on foreign accounts) they previously failed to report. Finally, they must pay an accuracy-related penalty equal to 20 percent of the underpayment of tax, plus interest.

  134. The FAQs also mention
    – Pay failure to file penalties under IRC § 6651(a)(1), if applicable;
    – Pay failure to pay penalties under IRC § 6651(a)(2), if applicable;
    They potentially double the tax liability.
    Can someone translate those in English? I read them, but it is difficult to understand.

  135. Christophe…
    I am not much help on those 2 items. I have not heard of anyone reporting that these additional penalties have been levied inside or outside the program.

  136. It seems many lawyers are advising to get into OVDP, with the intent of opting out. I don’t understand that strategy. Can someone explain the benefits of it?
    In many cases, we roughly know the approximate cost of being in the program. Getting into it is more expensive because of the 8 years amended taxes that we have to do.
    Most people tend to believe that in most cases, the FBAR fees will be less outside of the program. So why enter in the first place?

    Can someone also comment on the risks of quiet disclosure vs doing nothing and be compliant from now on. Both are at risk of audit (and maybe more in the case of quiet disclosure), and the IRS mentions it will treat quiet discosure as no disclosure and may prosecute.
    Doing a quiet disclosure seems like it’s the right thing to do if we owe taxes and it seems it would be taken into consideration in case of audit, but it’s not what the IRS claims. Any thoughts?

    Thanks.

  137. Christophe…

    I think you worry too much about the hyperbolic warning on prosecution. Remember that was language that was written for the UBS clients that were about to have their names revealed in 2009 after successful DOJ actions. These guys had serious risk of prosecution if their names were exposed. The IRS wanted them to front up, so they could collect the penalties without further searching or going through a lengthy prosecution effort. If they just went the QD route, it would make the IRS job of finding them harder, so they threaten them not to do it. However, you have to keep that threat in context, as the IRS doesn’t have 5000 attorneys to prosecute either. The point is, these guys had been engaged in a real Tax evasion scheme, and were subject to serious criminal prosecution risk. The IRS wanted them to just turn themselves in for OVDP processing. Did it work? I don’t really know, as the IRS only tells us that about 12,000 came forward in the OVDP. How many were UBS type whales, and how many were minnows like me? The IRS doesn’t say.

    As you know, the IRS doesn’t make any distinctions in their “one size fits all’ approach to penalties, but the Minnow who was just negligent or unaware has no prosecution risk, or that is my reading of Jack Town’s opinions. The audit out opt, should be no different than a QD audit, if done. I suppose the benefit of the Opt Out audit, is that they might NOT do one, as the Opt Out Guideline language indicates that the Management Committee decides the appropriate level of additional examination, and might just let a person go without additional penalties if the argument is good enough. That is essentially what happened to Moby and Sally and the Opt Out that Jack reported.

    Have you read the Opt Out guidelines? If not, I would suggest you do.

    They are here… Read paragraph 5.

    Of course in a QD, there is a small risk that you will be audited too, but an audit is an audit and either as in the Opt Out or a QD they should be the same, and guided by the same IRM.

    Here is what Jack Townsend said in this regard…

    Jack TownsendApr 6, 2012 05:32 PM

    I respond only the your question as to whether the audit penalty will be higher if you are picked up for audit rather than have an audit after either OVDI with opt out or quiet disclosure. I don’t know the perfect answer to that question. The IRS could have told us but it did not. Since it did not, it should apply the same audit results however the audit arises — whether OVDI with opt out, quiet disclosure with audit, or go-forward with audit. In other words, the IRS should not punish you whichever mode of audit applies unless it has told you that it will apply better audit results for any particular avenue for the audit.

    What the IRS did say was that, upon opt out audit, you would get the same results as you would get in an audit — no better and no worse. So, if you choose quiet disclosure or go-forward, and then happen to be audited, you should get the audit result — no better and no worse.

    Now, and I speak to the IRS on this (I hope someone at the IRS with an ability to influence things is reading), if the IRS really intends to change the audit results to make OVDI with audit more favorable, then it should announce that policy clearly along with some guidelines about how much worse off the taxpayer will be if he or she does not join OVDI and opt out.

    Until the IRS does that, you are entitled to the audit result however you get audited — whether on the OVDI opt out, the quiet disclosure or the go forward. And the IRS will be egregiously in bad faith if it does anything other than that.

    Jack Townsend

  138. Hello to all, I am new to this world of FBARs and foreign income. After reading many blogs my worries were not in vain as I see now I have a lot of company.

    I would like to share my situation with you in the hope that one of you would be willing to provide some advice and experience on my situation.

    I just filed late FBARs with “I had no idea we had to file these” (truthfully) for tax years 2006 – 2010 (5 years of late FBARs). For 2011 I started claiming the FBAR along with clicking yes on the schedule e that we have an overseas account, which I did not know I had to report until about 6 months ago.

    My wife and I wired 200,000.00 to her home country to purchase an apartment in 2006. We opened an account to do this. We purchased the apartment in 2007 and in 2008 began renting the apartment. We have been claiming the rental income on our schedule 1040 but I was not aware of reporting the bank account along with interest. There is no excuse for breaking the law but I have had someone do my taxes for over 20 years and all I ever read on the 1040 was how much I owed or was to be refunded. I never read the entire form much less the dividend schedule where it obviously asks if you have a foreign account.

    For 2011 tax year the interest and account has been noted on the 1040 schedule. The dividend was about 50.00 for 2011. The previous 5 years that the interest income was not reported amounted to an aggreage of about 260.00 (or 50.00 each year). So, far I have taken the advice of file the late FBARs with an explanation of total ignorance, albiet true, started claiming the account on the 1040 with interest.

    In 2008 my wife opened a second account at the same bank to only transfer money from the original account because the bank said we would not get charged a special fee for withdrawals from the second account. So, over the last 3 years we have had two accounts reflecting amounts over 10,000.00 The primary account never got over about 55,000.00 with the exception of when we transferred the money in 2006 to buy the apartment which was about 200,000.00.

    We are now very worried about the penalty regime which like everyone else fears, based on the penalty scheme we could be ruined financially if they applied these heavy fines. Again, we took the advice of one tax expert to start reporting now and move forward without doing any quiet disclosures.

    I read the story of one man from New Zealand who was in the same boat as me and he was fined up to 172,000 but later got it down to 5000 per year for five years of late fbars. After reading this I would really appreciate what you all think of my situation. I never considered the VD way because as a lay person I was able to understand I did not fit into that category.

    Right now, I am at the cross-roads of amending past returns for some minor rental income errors for 2 years and claiming the dividend income of about 50 per year for those years too as well as claiming hte foreign account(s). I thank you all for your time reviewing this.

  139. One alibi, I recently read in one blog that when someone like submits late FBARs a machine at the IRS automatically spits out a 10,000.00 per year fine letter for each account. In my case, since I have two accounts which is basically money from the same account I could get hit twice with 10,000.00 fines for the years I have had 2 unreported account. Is this possible and if so, what appeal or defense could I have to ward off the IRS beast??

  140. @Pina1…

    Quick reply so you know someone is reading your questions, but don’t have time for a lengthy response, but will try to get back to you….

    First of all, the person you read about was ME, and if you want to read what a wonderful experience it is in the OVDI, this might sober you up on considering it. Doing the “right” thing is often exactly the “wrong” thing to do.

    Secondly…. I would suggest that you limit your blog reading to just a couple blogs, which I have found to be the best. All the links are above. If you try reading every blog on the internet, you will just drive yourself crazy, and the ones I have provided are the very best!

    Third… Relax a bit, as you are compliant right now, and have time to decide what to do. From the sounds of things, you have been declaring your off shore income, so just getting current on your FBARS probably is all that is necessary with the “reasonable cause” letter. (but to be truthful, I just skimmed your single paragraph comment, and may need to digest it more.)

    Fourth.,… In spite of what you read on some blog, there is no automatic $10K penalties for FBAR failure. Everything on penalties is in the area of “mays” not “shalls”. That is the way statutes are written, so I won’t worry about that right now. Penalties are assigned, based upon agent discretion in a normal audit. In your case, on the surface of it, your risk is minimal, but again, I don’t have a great grasp of your facts, and frankly I am not an attorney or really qualified to give personal advice.

    Fifth… Spend some time reading slowly links I have provided, and the comments you see here. Blogs are wonderful for information sharing, but remember, it is not wise to take advise from a blog especially right now. Your knowledge level is low regarding all the aspects of this IRS offshore jihad and the various strategies that are often case specific in dealing with compliance issues. You are not in the position to even adequately assess the advice you might receive. In the end, you have to take your own Council, and that means you really have to do your own drudgery here, or rely on a practitioner whose advice could be exactly wrong too!

    If you spend the time reading and digesting as I have suggested, the right course will become clear to you in the fullness of time.

    Will try to get back later today or tonight.

    Cheers…

  141. @JUST ME: Thanks for yuor time and shared knowledge. I am confused about one thing. We decided on our own to file the 5 late fbars by attaching a statment of ignorance to file and mailed them in to the Treasure. Does that constitute a “VOLUNTARY DISCLOSURE?” I am confused about the program you said you entered under and mine. Is there a difference when someone like me just sends in their latede FBRARs and waits and than someone who “officially enters some special IRS program like OVDI?” Basically, I am confused about what status I fit under. I was reading that what I did constitutes a “VOLUNTARY DISCLOSURE” What can I expect next to happen and how long could it take before I receive something from the IRS? Thanks, again.

  142. @Pina1

    No, filing late FBARs does not constitute a Voluntary Disclosure as defined by the IRS OVDI programs.

    To do a Voluntary Disclosure you have to front up to the Criminal Investigative Division of the IRS with a full package of past disclosure information as provide in their FAQs…

    If you have also filed amended income tax returns for the same years as the FBARs you have done a QD.

    Now this is discouraged by the IRS, but remember that their guidance was directed at Tax evading homeland Whales who were truly at risk of criminal prosecution. They hadn’t considered minnows. So, not sure which you are, but you have to take some of the warnings and maximum penalty threats with a ‘grain of salt’. It is somewhat hyperbolic blustering. The IRS only knows threats as a means to encourage compliance. It is part of their genetic make up!

    Now, if what you have done is a QD, then you either wait to see if the IRS flags you for an examination or not. Basically, you are now playing the audit lottery. It may or may not work out for you depending on your situation and facts. If your facts are fairly benign, and not engaged overt egregious tax evasion schemes, then the opinion of experts like Jack Townsend is that the QD audit would produce penalties no worse than the Opt Out audit of the official OVDI program. In all anecdotal minnow cases being reported, these Opt Out penalties are less (significantly so) than the OVDI “one size fits all” penalties inside the program.

    This is where you may need a GOOD OVDI practitioner to examine your facts with you and decide on a good course of action once you have done all the due diligence drudgery and are well informed to assess the opinions and options the practitioner presents you. You need to walk into that office well educated, so the decision making is a collaborative one, and not just you accepting the “so called” experts advice. There has been much misguided advice given the past 3 years, and I don’t wish that for you!

    Hope this helps

  143. @JUST ME Thanks for your insight. I have not done any amended returns for the tardy fbar years. I took the advice of one “self-declared international expat tax expert” by just filing the late FBARS and moving forward in compliance. So, I think I understand your explanation that because I have not amended past returns (QD) then I will not be flagged or worse off if I am audited? Also, I have not done anything egregious. The only egregious thing I have comitted is not knowing I had to declare the bank accounts on my 1040 and claiming the 50.00 in interest earned each year on the accounts for 5 years. And not filing the fbars. What this would boil down to according to the penalty scheme would amount to maybe 25000 (5000 for each year) or 10000 for each year which would be getting fined an outrageous amount of money for not reporting 250.00 in dividends over the delinquent years. Would I have a defense and why would I need a lawyer. What can a lawyer do for me that I cannot do for myself? The facts are simple maybe….

  144. @Pina1…
    Sounds like you are small potatoes if you are really talking about that little of past unreported interest.

    You are taking a blended response… filing past Fbars but not amending taxes. I don’t know if that causes any risk for you anymore than amending would. I don’t know how the IRS matches up FBAR filings from FinCen with amended returns or not, and then what criteria they use to decide to examine more. My guess, with your profile, you would be way way way down the list. Their resources are limited. I wouldn’t lose any sleep over it or worry about FBAR penalties.

    Sounds like you have decided your course of action, so I am not suggesting that you have “to go” to a practitioner. I am saying, that if you do, for whatever reason, then be sure you have done your due diligence. It looks like you are.

    Best wishes. You are the model that the IRS should want. You discover your errors and you take corrective action. That should make them happy, and they should leave you alone, but they don’t take direction from me! 🙂 LOL

  145. @Christophe: U.S. I guess I just have to sit and wait it out over the next 3 years to see if they come knocking. What a way to live.

  146. At least, you don’t face the risk of being deported.
    Have you received a letter back from the Department of Treasury acknoledging the receipt of your FBARs and telling you to not forget to send them from now on (the warning letter as they call it)?

  147. I know in my heart that I am not a tax evader, and that I didn’t try to cheat. I know OVDI is not for me.
    Yet, all lawyers I have talked to (even specialized in OVDI) recommend it, maybe because they have sworn to uphold the law, and that is the only way to fix things within the law.

    Most claim a quiet disclosure will likely trigger an audit (especially sending 6 years of FBARs and 3 years of amended tax returns), and that there are serious risks of doing it.

    None of them recommend going forward, because it’s apparently against the law. And it seems the IRS won’t accept a noisy disclosure outside of the program (i.e. going to a IRS CI), and will force you into it.

    It seems that going forward might be the less risky thing to do, if we don’t want to loose our life savings within OVDI, especially, as Jack Townsend mentioned, if the audit result should be the same if in the case of go forward or QD.

    I want to pay the taxes I owe, but I am not sure I am willing to pay the FBAR penalty. For me, the cost of going into the program would be double what it on the account. It just does not make sense.

  148. @Christophe

    I know two U.S. citizens living in Canada (neither hold Canadian citizenship) who have both decided (with the advice of two different cross border accountants) to file going forward. They both filed 1040s and FBAR forms for 2010 tax year and plan on doing the same for 2011 tax year. Neither of them owed any tax to the U.S. for 2010.

    They have chosen to take the advice of the accountants. I can not help but wonder if the advice of tax lawyers would be different.

    In both of these cases, the individuals would most definitely be considered ‘minnows’.

    I believe their hope is to ‘pass under the radar’ so to speak and certainly when I spoke to them, neither one seems worried about it. They are both planning on applying for Canadian citizenship but I believe, at least in the case of one of them, that they wish to maintain their U.S. citizenship. I told them that if that were the case, as long as the U.S. has citizenship based taxation, they would be required to file taxes in both countries. I also told both of them that I believe they would have been completely foolish to enter a voluntary disclosure program.

    Neither was aware of this website and had only read about the requirement to file in the summer of 2011 when it was on the front page of the Vancouver Sun.

  149. @Tiger. I wish I was a US citizen. It would make my decision a lot easier. I really would like to pay what I owe, but I am afraid that filing 6 years of FBARs and amending taxes will trigger an audit which could result in loosing my green card, because I checked the wrong box on the 1040.
    I pretty much decided that I won’t go into the program and loose 10 years of savings. So I am now leaning towards not doing anything and just be compliant forward, since it seems like this will have the less audit risk.
    And Jack mentioned that the audit result should be the same in all cases anyway.

  150. @Chrstophe: no I have not received anything from treasury yet. Based on your experience down this scary road, what else can you tell me in terms of what to expect?

  151. @just me: Thanks again for the response. Based on everything I am reading with regard to FBAR penalties and ovdi etc..it seems like the IRS is not interested in your excuse for not filing or reporting your foreign bank accounts and instead whatever your reason they will penalize you JUST BECAUSE YOU DID NOT FILE THE STUPID FORM. Do you think this is true?

  152. @Pina1: I am really not experienced. I’ve read a lot about it on this site, Jack Townsend’s blog and the IRS web site.

    If the IRS accepts your reasonable cause letter, it is likely to send you just a warning letter, waiving penalties.

    If they decide to audit your last 3 years of taxes, it does not seem you risk much: they were done by an accountant and from what you said, you don’t seem to owe much. Since you haven’t amended them, the amount due plus interest is also subject to a 20% accuracy penalty (which should be waived if you decide to amend them). But if you don’t owe much, it is likely to cost you more to pay an accountant to amend them than the 20% penalty in case of audit.

    There is a good post here, which can hep people decide between go forward and quiet disclosure:

    See Anonymous Apr 20, 2012 06:32 PM

    Hope this helps.

  153. @Pina1: if you get into OVDI, the IRS examiners can’t negotiate and have to apply the rules (you pay taxes due + interests + penalties on 8 years) + in lieu of FBAR penalties of 12.5% or 27.5%.

    Outside of the program, many people say that if the IRS thinks you don’t have a reasonable cause, and wants to assess those FBAR penalties, the IRS has to defer the case to DoJ for trial to collect these charges. Most say this is unlikely to happen for minnow cases, where the process would cost more than what would be collected. It seems that what you risk is just to pay what you owe if you’re audited, but the insane FBAR penalties are highly unlikely.

    You should not worry too much. (Funny that I am the one to say that, when I am having anxiety attacks at night. I feel a little better now that I think I made a decision. But in my case, what I worry about is the potential False return charge in case of audit and the impact on my green card, but you are a US citizen).

  154. @ Christophe Perhaps if you can convince others, you will eventually convince yourself.

    Steep fines are extremely unlikely in FBAR for now. That’s because of eighth amendment. But what is more, ignorance is an excuse in the case of FBAR. Click on the embedded link above.

  155. @Pina1

    Read every last comment on the link that Christophe sent you above. Therein is there is your answer. 🙂

  156. Thought I would highlight one excellent comment that Jack has recently posted here:

    In this comment, he explains as clearly as I have seen written the negotiation process for obtaining lower FBAR penalties in an Opt Out or in an Audit…

    Read this several times, those of you struggling to understand what “might be” possible and how the process works…

    Jack TownsendApr 20, 2012 05:05 PM

    You are correct that the results on opt out are not known in advance. Everything is fact dependent, but in some cases I am able to give the client reasonable assurance — no guarantee — that the result on opt out is better than the result if there is no opt out.

    The process will involve the opt out auditor reviewing the materials submitted in the OVDI process and asking such for such further information or documents as he or she thinks appropriate. In addition, the taxpayer will have submitted a penalty statement upon the opt out stating what he or she thinks the penalty should be with appropriate mitigating information and documents. The agent will then apply the standards he or she understands should be applied and inform the taxpayer accordingly. There can be negotiations at that stage. The agent (in conjunction with his manager) will then make the determination and propose the assessment. In actuality, although the agent is not going to give away the store, will try to come to a number that is acceptable to the IRS and the taxpayer to avoid the further use of limited IRS and court resources.

    If the taxpayer is still unhappy with the agent’s final demands, the taxpayer will have the right to appeal to an Appeals Officer. The Appeals Officer is supposed to settle on the basis of the litigating hazards. That is the articulated standards, but again the IRS is better off to achieve a settlement without further devotion of resources if it can do that in any reasonable way.

    Finally, and there may be some uncertainty about exactly how this proceeds, but I think that if the Appeals Officer comes up with a number the taxpayer can’t or won’t accept, the IRS will assess and the Government must then sue which requires the devotion of considerable resources.

    For all of these reasons, there are pressures on the Government to come to an amount the taxpayer can accept and on the taxpayer to come to an amount the Government can accept (further proceedings are costly for the taxpayer as well).

    Finally, contrary to some of the fears expressed because of all the uncertainties, the IRS is not out to hammer minnows. I just urge the minnows to hang with the process, get reasonable advice as to when to hold ’em and when to fold ’em, be realistic, strike the settlement and get on with your lives.

    Best,

    Jack Townsend

  157. 30 year IRS vet just made some good comments about the OVDI processes related to penalties and interest.

    It is located here for your reference…

  158. I found what I think is a very good article from a firm that seems to look after the interests of their customers.

    Their thinking seem to be inline with Jack Townsend’s and other reasonable attorneys.

    Although the article is a couple years old, the strategy looks like it’s still valid, given the fact that the IRS has not provided better guidance.

  159. @Christophe…

    That is a good article, and is in line with the “non fear mongering practitioners” have been saying who were not just tolling for dollars.

    There are three other retrospectives on the OVDP and the OVDI which again were good reads and show the inappropriate nature of penalties for non criminal minnows, after the usual patronizing comments about the IRS and how cracking down on tax evasion is important, etc, etc…..

    The OVDP here…

    The OVDI here…

    and tax notes discussion here..

    Bottomline, all seem to have the same message, that the OVDP/OVDI is NOT for those who were not engaged in criminal activity, and the IRS could take a big load of so many benign failure minds if they would just come out and say so…

    Thanks for providing another link for those that are being intimidated into joining.. Hopefully this will help them better assess their decision.

  160. Thanks, Just Me.

    With all this reading, I came to the conclusion that OVDP was not for minnows and people like me.

    I want to come into compliance, but right now, the IRS is really not giving many choices for us to do so. I would have liked to do a disclosure and pay what I owed, but then I ran into this article:

    Rosemary Sereti, the Director of International Individual Compliance for the IRS, says that

    “The IRS is on the lookout for taxpayers who attempt to bring their unfiled returns current by using “quiet disclosure” and those who attempt to resolve their filing obligations in this way will face harsh penalties.”

    It is pretty sad that she’s saying that to Canadians living in the US or US persons linving in Canada who are not tax evaders. This does not make any sense.

    I decided that I should minimize my exposure and just go forward.

    I made my choice, but it does not really make me feel better, knowing that I could still be audited and I am scared of tax perjury charges and the consequences that this could have. I think about it every day.

    Another way of forward compliance would have been to just close that account that I don’t really need, and not declare anything this year either. Analysing the situation afterwards, I didn’t do it for several reasons:

    – I think the main one was fear about the FBAR civil and criminal penalties, if for some reason the IRS found out. Sometimes fear makes you act in an irational way. I don’t think there would have been any way for the IRS to find out in my case.

    – I did not really want to close the account.

    – When I found out I was not compliant, I wanted to correct the problem, and I did not think about the past until I actually submitted my taxes. I wanted to do it right for 2011.

    I apologize for this somewhat selflish post about me.

    This site has been somewhat of a therapy since this ordeal started. Thanks for all the support of the people who kindly answered my posts.

  161. @christrophe

    With IRS threats and statements like Rosemary’s, they are like the Boy crying wolf and at some point folks will stop listening. They can not possibly enforce or back up their statements without hundreds of thousands of auditors, and with such threats they are totally failing in voluntary compliance objectives, in my opinion. They are pushing more folks into non compliance. Stupid and short sighted.

    I think you are working through the problem in a reasoned way, and can understand the route you have chosen. Jack doesn’t believe the audit will be any worse than the Opt Out audit, and the same discretion should apply. Yes, you will have to live with uncertainty for a couple of years, but you would have another set of uncertainties and frustrations for a similar period of time inside their program.

    They truly have made their OVDI too onerous for benign failures, and should have dumped it long ago for all non willful non egregious failures.

    One bit of additional information that may be out in the future is an alternate strategy that Steve Mopsick is working on. It is not public yet, and not sure when it will be, but he is proposing another way for folks like you to deal with these situations. If I get information about when it will be public, and what it entails, I will be sure to reference it here.

    Good luck…you shouldn’t have to go through this Catch 22 situation. Compliance should be easy. It should be the logical thing to do, but if you do the logical, you get hit hard with the non logical penalty expense and big expenditures in LCUs. It should not be sooo hard to do the right thing, but the hard headed folks at the IRS are “willfully blind” to the conundrum of their own making. Rube Goldberg could not have constructed anything better.

  162. @Christophe,

    re:

    “I apologize for this somewhat selflish post about me.”

    Not at all. We all need to share what we are going through, and we learn from hearing the thoughts and experiences of others. I wish you well. Thank you for your thoughts and for participating here.

  163. @Christophe…
    Absolutely a big DITTO to @badger comments. We have all needed help and advice, and nothing selfish at all in your questions and comments. It helps others that come behind you, so you are contributing to the knowledge base of all who care to read here. Thanks for your participation.

  164. Thank you so much for your replies. I think the most frustrating thing about it all are the different answers given by different lawyers, when I presented them with my simple case. I asked 4, all experienced with the process. Putting aside the one that just tried to scare me into OVDP, the other 3 were very nice but gave me all 3 possible answers: one advised OVDP, one quiet, one just go forward. As Jack mentioned on his blog, all are valid answers, but that doesn’t help much…

    I basically decided based on all the reading I did, and the fact that I didn’t want the extra stress of financial problems that OVDP would cause for a benign mistake. I traded that with the possible consequences of an audit. I don’t think I should have any risk of criminal prosecution, but this is really at the discretion of the agent. What scares me most is that darn foreign account checkbox on the schedule B and what they would do with it!

  165. @JustMe, Is QD still the preferred way you guys and Jack are suggesting. I read both the blogs again looks like go forward or QD is the suggested way. Have you guys come across any issues with QD yet for minnows? I am all set to do a QD now, just getting amends done by my CPA, have my previous and 2011 FBAR ready to send it. I am really a small minow over all the previous years, I am owing tax < $1000 and max total assets in the delinquent years <$50k

  166. @ovdikills…

    If you have read the lastest comments on Jack’s threads on Opting Out, then you have the latest information as to his thought process on the QD vs the “go forward”, and I have heard nothing to suggest differently. Everything I read from Jack indicates that for Minnows like you, either of those options appears to be the better course than joining the OVDI. You aren’t who they were looking for, so why should you join, is what many are coming to conclude. Of course there is some audit lottery risk, but the IRS doesn’t make it easy to be compliant, just the opposite of what they should be doing…

    At this stage, we really don’t know what is happening with QDs that have been done in the past, and I doubt we ever will as there is no visible data base, but if IRM procedures mean anything.

    I would also suggest you read this latest post by Jack where he ponders Moneyball statistics.
    http://bit.ly/LLOD6N

  167. @JustMe, thanks for your reply. I did read that post from Jack and all the comments up here as well. You guys seem to lean more towards “go forward” than QD. My only concern with “go forward” is that “IF” an audit does happen, they can prove willful violation since, when filing current year we were aware of FBAR regulation and must have filled previous years. From that perspective I feel QD is slightly safer. But issue with QD is raising the red flag, its like standing up in a war and asking to be shot and just hope you are not tall enough to be spotted. And that’s what I am basing me hopes and prayers on. I have collected all the documents from all the banks i have accounts in, in case of an audit. If it happens will have to submit them that’s it. You guys have been a great boon for me. Really appreciate it. Its not perfect, but they don’t want us to be perfect. What a shame!

  168. The decision to either do a Quiet Disclosure or Go Forward is yours to make. Pay Jack for a couple hours of his time if you want him to review your case and advise with all your facts. He said on his blog that it’s all about nuances, but if you think you’re considering Quiet Disclosure, you should also consider Go Forward.

    In the end, the decision is personal based on your risk tolerance.

    A quiet disclosure might increase your risk of audit vs a go forward , but MAY also position you slightly better in case of audit, even though Jack says the audit result should be the same for QD vs Go Forward. But again, this can be only judged by an expert after he examines your facts. We’re not experts… just people who either went through the process like Just Me and/or did a lot of reading.

    It seems you made your desision anyway if you already paid your CPA to amend your returns. That would be a waste of money not to send them 🙂

    I personnally got scared by the IRS statements regarding quiet disclosures and how they would really review them and how we could potentially face harsh penalties, so for the moment, I chose to just go forward. I am still not sure that is the right thing to do. It seems that someone who does a QD would be better positioned in case of an audit, so I guess I am still not completely ruling it out.

    I think I will wait till the end of June to make a final decision. The rationale is that after that date, one year of statute of limitation will have passed on the FBAR, and that if I send a QD after that date, am audited and they decide to apply FBAR penalties, that will be on 5 years instead of 6.

    If you do QD, would you mind sharing the reasonable cause letter you attached to your FBARs, and let us know the result if you ever get audited?

    Thanks!

  169. I did a QD in June 2010 – no need to amend returns as they had not been filed in the first place. I haven’t heard anything back. I wish I could say that this makes me feel better. It does a tiny bit, but not nearly as much as I hoped. For one of the years in question, I bought a house and so for that year, after double-counting the money as it passed through multiple accounts for the purchase process, I am theoretically up for FBAR penalties of over a million dollars, several times my total worth.

    I try to put the fear behind me, but every day I compulsively search this site, Phil’s blog and Jack’s blog to find any news that might reduce the uncertainty.

    I live in a higher tax country and have done so since I was a small child. I owe no tax to the US, but due to currency fluctuations, if I sold my house today I would have to pay hefty extra US capital gains tax even though I would actually be selling at a loss.

    The only plus – these nearly two years of anxiety have seen me lose a lot of weight!

  170. t@Gabriel, The IRS clearly says that if there is no tax due, you don’t have to go through OVDI. Filing past FBARs with reasonable cause is OK.
    You didn’t even received a warning letter?

  171. @Christophe…

    Good comment, and thanks for helping OVDIKills out.
    The nuance thing is the hardest part of the decision process. Either way, my bottomline belief is, the IRS is not going to waste the DOJ energy in prosecution for a “willful” penalty should an audit eventuate, and frankly, I would almost dare them to do it should an audit occur. They will try to intimidate you, and if you don’t allow yourself to be intimidated, then they will settle for reasonable discretion instead. Do not expect them to be moral in their actions. They have been quite happy to take serious money from minnows in the OVDI who they know were not the category of offenders they were looking for. They are below contempt for this, in my opinion, but as the tough guy poker players they are, they know how to fold them too, when they have played their bluff too far.

  172. Thanks Just Me.

    One question: are charges always pressed by DOJ? Sorry for always coming back to that, but that’s what I am scared to death.

    Say they want to press “Filing a False tax return Charge” because of the darn checkbox. How does the process work? IRS makes recommendation to DOJ to do that, who might or might not agree?

    I heard in some cases, they offer “deals” to people where they ask them to agree to plead guilty for such a crime in exchange for no jail/low fines. But for that deal to happen, the charge must have been filed, right? I can’t find much information on how that works. This is potentially a big deal for immigrants, because if they take the deal, it’s basically their ticket out of the US. ICE will learn about it and deport them for “crime of moral turpitude”. And not taking the deal and go to trial would be risky as well, especially when you see all the comments on the Miami Herald

    I wouldn’t trust a Jury to be fair to people in this situation, mainly because the “crime” is related to a yes/no question, and you’re basically guilty or not.

    Jack says that going to trial is also expensive.

  173. In my case, I am really not afraid of the potential penalties outside of OVDI, with my low balance, even with 6 years of non compliance, if they follow the IRM manual, the cost for non willful would be equivalent to the in lieu of penalty inside OVDI (and that is on a per account, per year basis! That would be much lower if they just apply the non willful penalty once per year). If they consider me willfull, it will double, but with the extra cost associated with amending returns with a CPA, and potentially hire an attorney for some part of the process, and may be opt out in the end, OVDI would still be more expensive. It’s really the impact of my residency outside of the program that I am worried about.

  174. @Christophe…

    I know you are fearful, but I think it is misplaced fear.

    It takes a very high standard for the IRS to recommend that the DOJ go after someone for willful tax evasion. They aren’t that silly to waste resources on minnows over some small benign failure to file a FBAR or report some offshore account in their homeland. Even if they had that as such a mission, it is a numbers game, and they don’t have the resources anyway. What they are good at doing is instilling fear, and making you feel like a criminal so you voluntarily get onto their fertilizer processor belt. You have to stop letting them make you the victim! Put the responsibility for “failure to inform” and guilt for terrible administration right back where it squarely belongs, on their shoulders. 🙂

  175. @Cristophe

    I am not sure what specific language you are thinking of, but those “OVDI doesn’t apply to you” disclaimers (like FAQ 17 for 2011) are written in a way that would not apply in the case where the tax returns had not been filed on time. And because there are so many complex rules that apply only to expats, it is not possible to be sure that everything has been reported correctly anyway.

    I have received nothing. A warning letter would be great!

  176. I have some concerns about QD vs. Going Forward which I will refer to as GF.

    Hhmmm, I wonder If I just created a new acronym :-).

    My concern is: What happens when a person decides to start GF this year and files 8938’s and FBAR’s for 2011 and since their accounts weren’t opened in 2011 they didn’t check the corresponding box on the 8938, which therefore means they most likely should have filed FBAR’s for 2010????

    This seems to be a MAJOR red flag if you ask me.

  177. @Christophe…

    Well, then it really just comes down to a cost / benefit analysis then. Is ‘the certainty’ that you want about your residency worth the price of the OVDI? Would you feel better about America for paying that price, or would it leave a bitter taste in your mouth? How much is that Green Card worth to you? I can’t answer those questions, but I understand how you would be struggling with them now. It is a terrible dilemma for the IRS to put immigrants in, but they don’t care. While there are just normal folks with empathy operating as examiners, collectively the organization has no morals, or soul. They are just a penalty collecting machine running on technical rules and regs and are blind to the consequences of their administration. Truly, they are operating the worlds biggest and best “Catch 22” machine.

  178. @Just Me

    I was worried at first that I was having a Senior Moment at the young age of 40 something 🙂 ’cause I knew I posted a correction 🙂
    Thanx

  179. @UncleTell..

    I like to correct them for folks, when I see them, so not a problem..

    @Christophe..
    Coming back to your fear. To your specific question… “are charges always pressed by DOJ?”

    The answer is a BIG NO! They only file in the most egregious of cases that they think they can win. 3000 total last year, I think Jack said. You compare that to a couple hundred thousand new FBARs that have been filed since 2008, and probably many of those were QDs, there is no way they will or can file charges in court on all those unless, they are going to shut the courts down and do nothing but FBAR “crime” prosecution.

    Proving that “Willful” egregious failure stuff is hard enough when we are talking about millions! Harder still when you are talking about a few thousand dollars. It is much easier for them to just take their ‘nonwillful’ failure penalties. However, even if they tried to assert a willful penalty, and you were stupid enough to pay it, and not appeal, they are not likely to take the next step of criminal prosecution and spend more money for what? Just to make an example out of a MINNOW? Like I have said, it isn’t going to happen, in my opinion, but then my opinion may not be worth much, so beware. .

  180. Guys i am also looking at help regarding reasonable cause letter. Can any of help me out by providing a kind of template. I know there is Moby’s letter but that was for opt out. If anyone can provide one or make up one template would be grateful. I believe it would be also very helpful to folks visitig here.

  181. @ovdikills,

    If you are expat US citizen, the best reasonable cause is “Foreign means foreign to your residency”. If you have money in US while living in Canada — you should report all your US accounts as “foreign”.

    If you are immigrant, then you can have same reasonable cause as Moby.

    If you are US citizen/resident — you keep money offshore (unless it was inheritance) — I don’t see much reasonable cause at all.

  182. @JustMe/@ij,@christophe and others, I am now considering if I even need to send a reasonable cause letter along with the FBAR’s. I was just wondering if a letter would compel them to reply and ask me to join the OVDI. Do you think, its better to just send the FBAR’s to them with out writing anything? Just completed FBAR’s in an envelope.

  183. @ovdikills,

    If you amend FBAR, you need a letter to explain why they were late. This has nothing to do with reasonable cause which is used to avoid FBAR penalty.

  184. It seems like if you’re going to send them, you should send the reasonable cause letter. When I called the hotbar line to try to get advice on what to do, they told me to send the past 6 years, with the same reasonable cause letter attached to each form.
    I don’t think they can force you into the program if you don’t want to. The program is voluntary.

  185. Thanks guys. Will work on a letter today. Will keep it very simple just mentioning the real reason, the point that I am recent immigrant who was not aware of something called FBAR and the moment I came to know of it, have amended previous years tax returns and also sending in the delinquent FBAR’s. Also the that I have only [a few] years of non compliance. I am wondering if i should even mention that value of the taxes I owed to US over the delinquent years amounted to only around $[a few hundred]. Writing too much may cause problems as well. Any thoughts?
    [number of years and dollars edited out at Ovdikill’s request]

  186. @OVDIKills. The KISS principle applies here, I think. I wrote a long one, but I doubt it was read. Remember, this is just a clerk processing it anyway. Maybe say de minimis rather than actual amount, but it probably doesn’t matter anyway. Your amended return statement is the one what the IRS actually will read to understand why you are amending, and will see the amount is not worth the effort at auditing.

  187. One quick question, do you suggest to send [all years] all together, all separately or the delinquent ones of [several years] together and 2011 separate? Any thoughts on this. By the way the total taxes I owed including federal and two state taxes came to a whooping ~$[few hundred] for [several years combined]. Shame I had to go through so much of stress over this.
    [years and amounts edited out at Ovdikill’s request]

  188. @ovdikills…

    If you are talking about your 1040x, I sent mine in one at a time, as I did them. But don’t know if it makes a difference. I probably would be inclined to send them separately, as it might not attract so much attention as a package of returns arriving to one agent, but don’t know if that makes any difference. They will process them separately anyway.

  189. @JustMe thanks. I am wondering about it because for 2011 its not a delinquent. I just googled and found for 1040x its best to send in different envelopes for each year. Multiple people reported where only first 1040x was processed and remaining went unnoticed. So gonna send each year 1040x in a different envelope. FBAR is still confusing. Also can you edit/delete some of my posts above mentioning the years and amount.

  190. Thanks JustMe for posting your experiences in such great detail. I am a minnow considering whether to go the OVDI route or not for years 2007-2010. One of the things in consideration is the chance of flunking the audit (due to insufficient information) and collateral damage of the audit. Specifically:

    – I started renting out my property in 2011 thru my relative as an agent with the appropriate power-of-attorney. It is in it’s second lease term. The property was vacant from mid 2008-2010. For the OVDI opt-out audit what sort of proof would they want for the rental proprty? what sort of proof that it was indeed vacant at other times? Since it is money collected by my relative(agent) before it comes to me, would his bank accounts be fair game for the audit? How about contacting my tenants?… I don’t want to subject all the other people to the audit scrutiny as well. I have no idea what sort of documentation agreement my agent has made with the tenant that I can produce — all I have for sure is money coming into my account for (among other things), the rent. This question is triggered by your experience regarding a rental property which was vacant for some time.

    – What sort of information would be needed for audits? I must admit I have been pretty sloppy in US record keeping particularly of cheques, reimbursements, FSA etc — I practically have none. Does this increase my chances of an audit failure and hence reflecting on the OVDI opt out case’s outcome? This question is triggered by your narration of the pains you went thru to double check your past returns.

  191. @liliput1965

    I guess the advantage of the OVDI, if a 27.5% penalty on the highest aggregate of all your assets including your home, is considered a “advantage”, is that the OVDI examination, at least for me, was not very detailed, and frankly no questions were asked for additional proof of what I was providing. Outside the OVDI, an examination could be more exhaustive, and there you might have more difficultly.

    For me to show rental income was not very hard, as my wife had kept some fairly good records so she could pay the lady who was managing the property in our absence a commission. I was able to identify every rental amount coming into my bank account with some degree of detail. My examiner never questioned or asked asked for anything more, as frankly, they were too overwhelmed with all the paper work she had to deal with.

    As for our occupancy times, and use by renters, that was pretty easy to establish based upon our entry/exit immigration records on our passports, and the records we had of rental periods.

    Yours is a tough dilemma. If your relative, agent, is not a US person, then I don’t think their accounts would be at risk.

  192. @JustMe: Had a question on “records we had of rental periods” — what sort of records did you have? What is considered sufficient?

  193. Fellow Minnows:

    Need some clarifications on cold calculations on OVDI Vs the worst case penalty of non-willful go-forward.

    Case 1: There are 2 accounts with the following data by month in a particular year. January: account 1 has $50K and account 2 $5K; February both accounts have $5K; March account 1 has $2K and account 2 $45K.

    For OVDI is the maximum aggregate the Jan total ($55K) OR is it $95K? The latter looks ridiculous — can someone confirm?

    Case 2: Again 2 accounts just that the money moved from account1 to account 2. January: account 1 $50K and account 2 0K; February: account 1 0K and account 2 $50K (due to transfer from account1 to account2)

    What is going to be here? If it is 100K it is absolutely meaningless — One would be paying penalty twice on the same money!!

    In the OVDI route (regardless of opting out) is there some way to avoid these ridiculous calculations if details of the above are furnished right at the outset?

    Now for the non-willful go-forward. Suppose there are 5 accounts with the following amounts. account1: 20K, account2: 1K, account3: $500, account4: $200, account5: 2.5K. total is $24,200. So would this be seen as 5 violations totalling to 10,000*5 = $50K whereas one would be better off doing OVDI an pay the 27.5% of 24,200?

    Is IRS really that unreasonable? If it is then does one have to go thru complicated appeals processes to make them see reason? What are the odds in calculations such as the above to get them to see reason assuming non-willful?

  194. Well, first off your statements seemd all onver the place but since I am in a similar boat I have decided that going OVDI is like suicide especially if you are legit. Let those bastards come after me and I will defend myself in court. Do not bend to IRS. They are heinious bluffers and their regime is corrupt. Challenge them with the 8th and watch them fold.

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  196. @liliput1965

    Regarding rental records…
    My wife had kept a diary of when we had a causal holiday rental. So, she had notes that said, for example, Brandons booked from June 16th – June 23rd.

    It was these notes that I used to construct the number of days that we rented.

    Also, we had deposits of rental money that we were able to tie to the booked periods, and the records she kept of payments to the neighbor who watched the house and deposited the money. For the times that my wifes notes were lacking, and all I saw was a deposit for XXX dollars, I extropolated from the dollar amount what rental period it must have been… IE, $1000 deposit = 1 week of rental, etc.

    I then constructed all of this into a spread sheet, with rental periods, names, money and days in various columns and added it all up. I printed that out as my record to send in with my examination, even though it was not asked for. I took the approach of overwhelming my examiner with detail and paper as if this was a full blown audit. It was not that, by the way. She did complain, that mine was the biggest file, with all my notes, letters, records, and self audits I did. I figured if they wanted to audit a minnow, I was going to make it messy and time consuming for them as I know how to produce detail.

    Now, if in an Opt Out audit, they wanted to see the supporting data behind the numbers I was producing on a spread sheet, I did have my wife’s diary and notes (with some lapses of detail) as a back up. It was never asked for, and I never provided it.

    Hope this helps.

  197. “I was going to make it messy and time consuming for them as I know how to produce detail.
    We’ve noticed that. 😉 And for us, it’s a good thing. I can imagine the groans however when they received your packages.

  198. @ Just Me
    That reply was hard for you I’m sure. You really had to resist putting some detail into it, didn’t you. 🙂

  199. @bulliedbyirs

    I understand it gets confusing, and frustrating understanding the various considerations and how penalties might apply both inside the OVDI and outside it. However, there is no short cut to careful reading of the OVDI FAQs which provide your answers. Let me see if I can clarify it for you.

    A highest aggregate is a highest aggregate. Think of it as the the high water mark of the tide regardless of where the water came from, or how it might have ebbed and flowed through a year. It is pretty easy to figure by just looking through your daily account balances until you find your highest amount in that year.

    General Statement about Penalties: Highest aggregate for both reporting on an FBAR and for reporting in the OVDI do not necessarily relate to the highest aggregate for purposes of applying a penalty either inside the OVDI or outside it.

    There are allowances for reducing the highest aggregate for tax compliance assets (see FAQ 35, and 36) and for transfers of funds between accounts. See FAQ 37) The IRS is not going to double count funds, but it will be on you to provide the documentation that funds are double counted. That will take additional work from you to make it clear to an agent that funds are double counted and should not be.

    If you have not read these OVDI FAQs in detail, I would suggest it would be a good idea to print them out, get a cup of coffee (or two) and carefully go through them. You can not afford to skim them, and your really do not need an attorney to read them for you. You just have to do it yourself, even if you would rather be reading the sports or entertainment pages of your newspaper. It is a drudgery, but I can not stress how important it is. In the 2009, I skimmed and missed important considerations, that if I had read more carefully, rather than relying on advice, might have changed my approach.

    So, I really strongly suggest, you need to read them slowly again and again, if things don’t make sense for you. Just do it! 🙂 Then your example questions will be clearly answered.

    Regarding application of penalties on multiple accounts:

    The Statutes allow for such penalty application, but the language is “may” not “shall”, and from a practical matter, even in the most egegrious Tax criminal cases I have seen, there usually is just one FBAR penalty applied, as if the accounts were unified, even though technically they could apply individual account penalties. So, your answer is NO. My experience is that the IRS is not that unreasonable in this area, and if you read the IRM 4.26.16.4 (07-01-2008) on FBAR penalties you will see that it practically screams at the examiner not to be absurd!! I would not worry about that issue. They only charged me one FBAR penalty per year on a unified FBAR basis, even though over the period of time that I had to report, I had up to 25 accounts with the continual roll over of term deposits. Any examples or language to the contrary of this practice is just hyperbole, in my opinion, to scare you with what they can do, not what they actually do in practice. Discretion is applied, and often reasonably so, in spite of IRS warnings (and FAQ examples) to the contrary! They cry “wolf” too much! 🙂

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