The IRS is bluffing–Bad faith in the OVDI

The IRS uses the threat of severe FBAR penalties to frighten taxpayers into the Offshore Voluntary Disclosure initiatives (OVDI).  Thanks to a document uncovered by Showdown, we now know that the IRS is bluffing.  This is an example of bad faith.

In the 2011 OVDI FAQ, the IRS gives the most substantial reasons that a taxpayer should enter the program:

Q3. Why should I make a voluntary disclosure?

A3. Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

Later, in the same FAQ, they explain what the possible penalties are:

Q12. How does the penalty framework work?  Can you give us an example?

A12. Assume the taxpayer has the following amounts in a foreign account over a period of six years. Although the amount on deposit may have been in the account for many years, it is assumed for purposes of the example that it is not unreported income in 2003.


 Amount on Deposit

 Interest Income

 Account Balance




















(NOTE: This example does not provide for compounded interest, and assumes the taxpayer is in the 35-percent tax bracket, files a return but does not include the foreign account or the interest income on the return, and the maximum applicable penalties are imposed.)

If the taxpayer comes forward and has their voluntary disclosure accepted by the IRS, they face this potential scenario:

They would pay $386,000 plus interest. This includes:

  • Tax of $105,000 (six years at $17,500) plus interest,
  • An accuracy-related penalty of $21,000 (i.e., $105,000 x 20%), and
  • An additional penalty, in lieu of the FBAR and other potential penalties that may apply, of $260,000 (i.e., $1,300,000 x 20%).

If the taxpayer didn’t come forward and the IRS discovered their offshore activities, they face up to $2,306,000 in tax, accuracy-related penalty, and FBAR penalty.  The taxpayer would also be liable for interest and possibly additional penalties, and an examination could lead to criminal prosecution.

The civil liabilities potentially include:

  • The tax and accuracy-related penalty, plus interest, as described above,
  • FBAR penalties totaling up to $2,175,000 for willful failures to file complete and correct FBARs (2003- $100,000, 2004 – $100,000, 2005 – $100,000, 2006 – $600,000, 2007 – $625,000 and 2008 – $650,000),
  • The potential of having the fraud penalty (75 percent) apply, and
  • The potential of substantial additional information return penalties if the foreign account or assets is held through a foreign entity such as a trust or corporation and required information returns were not filed.

Note that if the foreign activity started more than six years ago, the Service may also have the right to examine additional years.

In this very frightful example, the IRS makes absolutely no distinction between account holders:  The full-blown penalty could apply to anyone with an account adding up to $1,000,000.  Moreover, this penalty could greatly exceed the funds that are in the account.  The FBAR penalties alone are $2.175 million for an account with only 1.3 million in it.

Let’s say you are an ordinary Canadian resident or even an ordinary US resident.  You have your offshore account with a million dollars in it, like they say.  But let’s imagine that this money is yours, and that you earned it through legitimate business and it is not drug money or derived from any other criminal venture.  What are your chances of receiving this extortionate FBAR penalty?  Zero.  That’s right.  There is zero chance that the IRS will apply this level of penalty to your case.  Why?  Because the IRS knows about the Eighth Amendment.  Showdown referred in a comment to an IRS document (p. 80-81) which says (emphasis mine):

Even before Congress increased FBAR penalties in 2004, the IRS published tiered penalty mitigation guidelines in the internal revenue Manual (IRM), directing examiners to apply less than the statutory maximums.  In 2008 the IRS updated these guidelines, explaining that the maximum FBAR penalty amounts can “greatly exceed an amount that would be appropriate in view of the violation.”  It required examiners to apply even lesser penalties or a warning letter in lieu of penalties in many cases.  It explained that applying multiple FBAR penalties is to be “considered only in the most egregious cases.”  Because the statute only specifies “maximum” FBAR penalty amounts that the IRS “may” impose, it would be inconsistent with the statute for the IRS to assert the maximum penalty amounts in every case.  Some have gone so far as to suggest that in the absence of these taxpayer-favorable IRM provisions, the FBAR penalties can be so disproportionate as to violate the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution.  Thus, examiners have long been required (under “existing statutes,” as implemented by the IRM) to assert FBAR penalties of significantly less than the statutory maximums in all but the most egregious cases.

It seems unlikely, if the money is legitimate, that the IRS would charge a penalty at all.  If taxes are owed, perhaps a small FBAR penalty.  But in case the penalty is confiscatory, the IRS is well aware that the Eighth Amendment protects the taxpayer.  I will soon post some more about the Eighth Amendment, but it is sufficient at this point to say that fines must be proportionate to the crime and to the damage done to the government, and if the tax code already applies fines and interest against unpaid taxes, it seems unlikely to me that the IRS would risk applying any FBAR fine to foreign accounts because the Supreme Court could possibly strike down the entire FBAR law as unconstitutional under the Eighth Amendment.

In other words, the IRS is bluffing about the maximum penalties.  Unless you are crook, they will be afraid to apply it to you.  Thus, the IRS threatens the maximum penalty in bad faith, having the intention of scaring people into the Overseas Voluntary Disclosure programs wherein the taxpayer agrees to what seems to be a more reasonable fine of 20, 25, or 27.5%–when in fact, outside of the OVDI, the IRS would be afraid, in my opinion, to apply even such “reasonable” fines to law abiding citizens who have some minor tax irregularities.

36 thoughts on “The IRS is bluffing–Bad faith in the OVDI

  1. @Petros: good post. While I disagree with the characterization of bad faith on the part of the government, I can tell you that many of my colleagues are eagerly looking for the appropriate vehicle with which to challenge the IRS on Eight Amendment grounds in this area just as you correctly cite it. I would imagine that the Commissioner, as the IRS Chief Counsel’s client, has been properly notified by Counsel that the potential for a very damaging court case exists if some IRS agents somewhere set up a case, for example, in one of the Accidental American scenarios, where a grossly disproportionate penalty was applied to a seemingly innocent situation. The possible application of the excessive fines clause to an FBAR/FATCA situation is a hot topic on professional blogs, publications and chat groups.
    30 Year IRS Vet

  2. @ Steven If bad faith is not involved, then why do they not indicate that maximum penalties are unlikely in their FAQs and their press releases? The example that I give from the 2011 FAQ, insinuates that the maximum penalty is the norm for those who do not enter the program: but the IRS knows that the maximum penalty is extremely unlikely in most cases. I understand that you want to defend your buddies at the IRS, but that they committing against innocent people and it makes me very angry. The people responsible for the OVDI programs and the threats need to be canned. Better, they need to be thrown in prison.

  3. @Steven,

    The threat on Opt-out is real, and that is why they force taxpayers to turn in their retirement plan (like RRSP) inside OVDI, and sign 906 — case closed, hasta la vista, baby !

    I know many immigrants like myself are fearful to go opt-out. The hardliners policy inside OVDI — is because this FBAR penalty threats.

    Now, I am fearless, thanks to our fearless leader “Just Me”, I will take the chance of opt-out if they impose penalty on my RRSP.

    I am willing to pay in lieu penalty inside OVDI if RRSP is off the table. Once opt-out, I will pay zero, nada on FBAR penalty — yes, I will pay the fee for my show “face off a DOJ lawyer” only.

  4. @Petros: Touche’ my friend. Some people will read the language you quote as a threat; others will see it merely as a notice of what could possibly happen if you have screwed up big time like Jack and Jill. Others like the caregivers of a a 94 year old resident of a Calgary nursing home, will assume that the penalties listed in the FAQs apply to someone from another planet, or at least someone who may have some serious irregularities in their tax matters. As a law enforcement agency, the IRS is not going to come out and say, “most of you don’t have to worry about this BUT….just in case…..”
    I am not in favor of throwing anyone from the IRS in prison though.
    30 Year IRS Vet

  5. In a statement to the Senate Finance Committee, Geithner called the tax issues “careless”, “avoidable” and “unintentional” errors,,

    Would IRS apply “careless”, “avoidable” and “unintentional” to those inside OVDI ?

  6. I actually don’t think that Jack and Jill are the big whales. They inherited the money, remember; they didn’t steal it or launder it or sell drugs to get it. If they come forward with voluntary compliance (before being caught of course), and paid the back taxes, penalties and interest, I can’t see the maximum penalties in their case either. They are not the “most egregious” cases. They should be able to get off with at most a small FBAR penalty–even less than the OVDI–after all, FBAR is just a reporting requirement. It is not actually a crime to have money in a tax haven. I don’t know why the IRS would want to risk an Eighth Amendment challenge in their case, provided they came forward voluntarily and paid all the tax. But remember, Jack and Jill have another choice and that is to never step foot in the United States again–and donate the money they save to the Isaac Brock Society to make the film, War of 2012.

    Now let’s take Mr. Soprano. He’s used extortion to get the money in the first place; truly criminal activity. No taxes were ever paid. He laundered the money to get it to a tax haven; while it is there, he never paid any taxes on his investments. The courts might overlook draconian FBAR penalties in his case.

  7. @Stephen, with all due respect, I think you are in denial that this is a bad faith expression by the IRS…. You are no longer there. You have no further responsibility to defend bad policy and actions. We don’t hold you personally accountable for it. We are just looking for a little honest acknowledgement, please! 🙂

    The threats in the FAQs are crystal clear. There is no fudging or mealy mouth qualifications either expressed or implied.

    The threats from the FAQ permeated throughout the entire process into the Examiner group. Mate, I felt it, lived it, for 2 years. Can you not acknowledge that? I should have called BS much sooner and with stronger conviction, but frankly your profession was much help either. They were also frustrated with it, and the lack of ability to effect some change.

    I repeat to you what I said to you over on the 2% thread as maybe it did not sink in…

    Quote “When I asked the Examiner about what the Opt Out might mean and how it would work, (if and when the IRS came up with a process) you want to guess what guidance I was given?

    I was to assume the maximum willful penalty in the Opt Out, on each and every CD type account number, and assume that they would double count funds transferred between accounts for figuring the highest aggregate!!! Now, I could quote the IRM to her all I wanted, and say, that’s absolutely absurd, however, both her and her technical adviser insisted that is what I had to do in weighing my decision on Opting Out. Of course, she could not give me advice on what to do and suggested I seek out legal council. I did! Spent more money, but in the end I took my own council and appealed to the TAS.

    So…. do you understand the implied threat there? IE, “maybe you better just stay in the program and take your VD penalty, as outside it could be much worse.” I bet a lot of Minnows have done just that. Well, I have learned, to call bullshit on that now, but at the time, it was a frightening prospect. It seemed that in spite of the novelettes I had written to her and God, no one at the IRS was going to listen to reason from me or a “30 year IRS vet”, for that matter.”

    It is very frustrating that you seem incapable of understanding that. Surely that is not the case. Have been on the handle side of the hammer for so many years, that you have forgotten what the metal head looks and feels like as it is raised over you!

    …but in a gesture of genuine good faith, no personal attack on you is implied or intended.

    I am just asking..

    What I have found out my dealings with the individuals within the system, humanity, compassion and empathy exists (with some exceptions of course), but once that humanity comes up against in incomprehensible complexity of the rules, regs, statutes and IRM, something happens, snaps, and all common sense sanity seems to fly out the window. Why is that?

    I have talked about some of the signs of individual IRS humanity here, so I am not engaging in just in a hyperbolic IRS rant, as easy as that would be to do.. 🙂

    The collective rigidity in the group think is the problem. I can not imagine what it must be like to be inside the belly of the beast, but it has to have an affect on one’s emotions and thought processes. I suppose if you see so much egregious tax cheating, evasion and some of the worst aspects of human nature, that it has to impact ones perspectives. I think I get that. I don’t know how else to explain it, but I don’t think I would survive within the organization. I would be too disruptive and challenging of the stupid policies I was supposed to apply without discretion. I told my examiner I don’t know how she could do her job, given how limited her options were. I couldn’t live like that. I did not do well as a Union member either when I was supposed to tote to the Shop Stewards commands to slow down, not work so hard, as we had to be sure we demonstrated that we needed another person for the job. I said BS to that too. I moved on to more productive employment where I could effect the outcomes, not just be directed to follow the stupid policies.

    Enough of this. I need to get a life! 🙂

    Again… thanks for your continued engagement. I hope you don’t feel too bruised by this. You do give some of us release, so that is good, eh?

  8. @Steven

    Your previous comment:

    “@Petros: Touche’ my friend. Some people will read the language you quote as a threat; others will see it merely as a notice of what could possibly happen if you have screwed up big time like Jack and Jill. Others like the caregivers of a a 94 year old resident of a Calgary nursing home, will assume that the penalties listed in the FAQs apply to someone from another planet, or at least someone who may have some serious irregularities in their tax matters. As a law enforcement agency, the IRS is not going to come out and say, “most of you don’t have to worry about this BUT….just in case…..”
    I am not in favor of throwing anyone from the IRS in prison though.
    30 Year IRS Vet”

    With respect to your description of how people have interpreted or might interpret these penalties:

    You are seeing from a very detached perspective (and I might add with a dose of “IRS Insider” thrown in). You are not the one who is or has been “under siege”. You are not the one whose health has been damaged by this. You are not whose has has had his life stolen from him.

    Read this:

    Read this:

    Your circumstances allow you a degree of objectivity which is completely unrealistic for anybody who has had to live through this. It is therefore impossible for you to understand how this has affected peoples lives.

    1. Remember Ambassador’s Jacobson’s 70 Year Old Grandma. Well here, quite literally is one who was frightened into OVDI. Read this.

    2. The cross border professionals were clearly complicit in feeding the perspective that the “best deal” was OVDI. A large number of them suggested that if one did not enter OVDI, the penalties would be worse. Why would they say this? Well, because some of them apparently believed it. There was a serious question as to whether the guidelines in the IRS manual (referred to in this post) would even be applied. One lawyer suggested that “they were no longer using the guidelines”. One lawyer even raised the question of whether it would be a violation of Circular to 230 to advise somebody to NOT go into OVDI.

    Lawyers were advising people to go into OVDI. You have seen this memorable quote:

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

    Almost no lawyers even discussed the fact that the IRS is barred by statute from imposing penalties if there is “reasonable cause”. (Granted that the IRS will make their own determination of reasonable cause.) Many people (including some on this board) have registered their fear of an “opt out”.

    3. Why go the lawyers at all? Well, it’s impossible for somebody under this kind of stress to read the FAQs. Furthermore, like everything else that comes from the IRS, it is either impossible to understand, or can be understood only in reference to other things: like the FBAR penalty guidelines, or that OVDI is a subset of general voluntary disclosure, or for that matter that OVDI is even voluntary. All people see are penalties, penalties, penalties and more penalties.

    4. As as very were articulated in the Taxpayer’s Advocate Report to Congress, the IRS did nothing at all to clarify this situation. Remember what was written:

    ‘The Silence Was Deafening”

    5. The “bait and switch” in OVDP (2009).

    6. The failure of the Commissioner to respond in any meaningful way (if it all) to the TAD directive (which you characterize as a “non-issue”). Why don’t you explain why this is a non-issue.

    In summary, your suggestion that people would interpret the FAQs in the way you describe – is ridiculous.

    U.S. citizens living outside the U.S. have been living in a hell that was previously unimaginable. I wouldn’t wish it on my worst enemy.

    On a lighter note, I am very much looking forward to your playing Doug Shulman in the upcoming movie. Will you risk coming to Canada or we will have to come to California to shoot footage of you?

  9. @JustMe: I love your use of VD.

    VD is just like the other VD. It’s Risky, Bad For Your Health and Highly Contagious. For some VDs, there Is no cure. TAS may provide some symptom relief, but VD is insidious and will recur. The standard IRS prescription, (written in illegible handwriting–but finally interpreted) is “Give Us Your Money!”

    Anyone with VD is treated like they are dirty. They are told to “Come Clean.” They are told by the stalking spouse they divorced long ago “It’s Your Fault.” They are accused of “Cheating” when it’s Congress and it’s IRS illicit lover who are the Real Cheats–in bed together behind your back, refusing to communicate with you and spreading VD without no discretion or scruples.

    Claiming “I Didn’t Cheat” or “It Didn’t Mean Anything” won’t help you. After you get VD, you will not be able to plead “Not Guilty. Anyone who enters VD will be tortured until they pay up. Anyone considering VD should be notified they will be reported to the proper authorities for further persecution.

    Explaining “But the US Consulate told me I was renouncing my US citizenship” won’t work in VD. The Consulate has the constitutional right to lie. You were dumb to believe them. You are the sinner because you trusted and believed the Consulate’s deceit all these years. Don’t get trapped again. Don’t get infected with US VD! .

    Protect Yourself. Know The Risks. Take Precautions. Stay As Far Away From VD and the US as You Possibly Can. Keep Your Money In The Country Where You Live. Always Use A Safe (for your money, of course!).

    Be Responsible. Warn Potential Partners. Avoid Passing VD Onto Your Children Born Outside US.

    Today, the question isn’t “Do You Have an STD?” It’s “Where Were You Born? If the answer is anywhere in US, knowledgeable potential partners will turn and run for fear of catching your VD There is no possibility of marriage. Possible mates fear having their lives and finances ruined by your VD. No one wants to come near you. You are destined for a life alone.

    The only one who wants to screw anyone with VD is IRS. When IRS finishes with you, they toss you aside. IRS rapidly moves on to their next conquest. They gleefully spread VD that originated with them onto others. Instead of preventing greater spread of VD, elected officials in Congress get their kicks as a voyeur cheering IRS on.

    Can I say all of that here?!? What would Isaac Brock think?!?

  10. @Steven

    I must say, you are defending the indefensible.

    To say that “others will see it merely as a notice of what could possibly happen” is absolutely disingenuous. It was an overt, clear-as-day threat to everyone, even the most benign of actors.
    I can only offer some advice to you for the future if that involves owning a deli in NYC. If two well dressed Italian-American gentlemen come to your deli and kindly inform you of the spate of deli fires in the neighbourhood, and offer services to reduce the fire risk; they’re actually threatening you. In the same way that the deli scenario is a shakedown, so was the OVDP. A threat, that can then be denied by the instigators (and their apologists) as a simple misunderstanding.

    As far as I’m concerned, the nail in the coffin proving IRS malevolence in the OVDP matter is what they did to accidental americans. FAQ 52 for OVDI indicated that someone who legitimately had no clue they were a US citizen had the “good deal” of losing only 5% of their assets; and the conditions attached to getting the 5% deal would disqualify most of the people who might be close to eligible. If this kind of benign actor is being clearly threatened with tangible sanctions (as they were), it makes the suspected threat to others (immigrants etc) a confirmed and overt threat.

    As someone who has lived in the US and other places I can say that the US can no longer be considered as upholding the rule of law. You can keep your selective enforcement, arbitrary confiscation of assets, and double-standards for those in power (e.g Shulman). I live elsewhere now where the law is fairer and simpler, enforcement is consistent and laws apply to everyone equally.

    As I have said previously regarding armchair quarterbacking, if you’d stated these comments when the OVDP/OVDI were first announced you might have some credibility. Now that people like me have run the gauntlet you’re contradicting what your firm was saying along with all the other lawyers at the time the OVDx’s were running.

  11. @all so the lesson is don’t do VDP unless you did something criminal to earn the money? But what about that British guy that came to the US and appearantly got a stiff penalty because the proceeds of his UK house sale were in an UK account?

  12. @ 30 year Vet…
    Give up on me? What does that mean? I haven’t given up on you? I am just trying to extract even the most modest of concession that there might be something wrong with how the OVDP and OVDI is administered. Is that so hard for you too? Otherwise, I appreciate your contributions, and not giving up on you!

  13. You know, upon reflection, I think 30 year Vet is trying to tell us, that dealing with the IRS OVDI is just a Big game of Liar’s Poker. It is all about bluff. If you are just benignly non compliant, don’t play the game. If you do, they will take you for your money if they can by the use of a long drawn out tedious bluff, but if you don’t want to play, they aren’t coming after you. That is what he is saying, or my interpretation of it. Correct me if I am wrong!

  14. @Just Me,

    I guess OVDI is a game for Jack and Jill to play based what I read from 30 years Vet.

    Now, I regret (I am sure you do as well) to jump into this bluffing game.

  15. @ Just Me: I think that faced with your story and the story of Canadian grandmas, Steven has “given up” “defending the indefensible”, as Moby has forcefully shown.

    @ Moby: Your comparison with the Italian-American fire insurance and the OVDI is exactly right. It is not different except that one is private sector insurance and the other is government sector insurance.

    @ Just Me: Your point about the self-congratulations of the IRS without any kind of cost benefit analysis is exactly right. If the IRS uses its limited human resources going after minnows in the OVDI, then one wonders who the whales are that they are intentionally letting get away. Remember, the United States government is the most corrupt government in the world–and it has created a system of crony capitalism which favours the too-big to fail banks and the big unions to the detriment of everyone else. Guess who goes to jail for the sub-prime mortgage debacle? A CEO from Freddy Mac/Fannie Mae, Country Wide? A politician who accepted sweetheart mortgages? A banker from one of the too-big to fail banks? No, a marathon runner, Charlie Engle, because he accepted two loans that he defaulted later defaulted on.

    The US government goes after minnows to deflect attention from the corruption at the highest levels. If they didn’t then the rest of us would be wondering what they do during their office hours. So they have to deflect attention.

    They don’t go after big corruption in the Stock Market either. No they go after Jonathan Lebed, 14 year old stock pump and dumper. Has Jon Corzine been indicted yet for stealing billions from his clients’ accounts at MF Global?

    This is a whack a minnow government. That’s what they do. The big boys get a pass.

  16. @ Jeff: The ACA fbarscam.pdf does a great job of summarizing the full problem. The importance, I think, of this post is that it proves beyond any reasonable doubt, that the IRS knows the Eighth Amendment risk–and that under normal circumstances the IRS will not do anything that would risk a constitutional challenge of the FBAR law, which would remove a major weapon in their enforcement arsenal.

    Therefore, they created an imaginary space called OVDI in which Constitutional rights don’t exist. See also:

  17. @Petros, this is why I believe the IRS are instead going to use the 8938 as their main bludgeon tool (rather than FBAR) since it’s within their Title 26 laws and also because it’s maximum penalties are not quite as draconian and thus, still arguably constitutional.

    @Just Me, I agree that it’s almost certainly a game of bluff for minnows who were unintentionally not in compliance. Fortunately for me, my accountant also believed this, so I considered her shrewder or at least more honest than most. She was expensive but at least has probably saved me money overall as a result.

    Unfortunately those of you who entered, like yourself and IJ, wound up in an onerous trap of sorts.

    @IJ, I earnestly hope that you will find an acceptable result.

  18. @ Mona The long and short of the 8th amendment challenge will be whether any fine of the principle of the account is justified when it is merely a reporting negligence or error. Even wilful error is not sufficient. I will try to finish my next post on the Eighth Amendment soon.

  19. @All: First of all, I don’t think my Italian-American friends or the many Italian-Canadian friends you must have, will appreciate the negative stereotyping appearing in the thread above. It’s kind of like the not-so-subtle hints I was trying to make when someone was using crack pot “Bobby” Fischer spewing his foul, hateful message about the Jews controlling the world in another post as a substitute for honest discourse on the difficult questions surrounding dual nationalities and taxation based on citizenship.
    Again, I can only hope that the thousands of people reading this blog who choose not to comment can distinguish hyperbole and emotional screeds from good honest discussion about the issues the Isaac Brock Society says it is interested in promoting.
    Respectfully submitted,
    30 Year IRS Veteran

  20. @ Steven The comparison between government and organized crime is appropriate. One major distinction of government organized crime is that it does not seem to divide itself into distinct racial groups like the Irish, Italian, Russian or Chinese crime syndicates. I wonder what makes it cohere? Could it be that it coheres around the finest schools that the people running Washington attend? I’ll have to give that a think. Cheers.

  21. @Steven,

    First, I want to thank you for your educational inputs on US tax law and how the tax issue litigation works in the court. It may help me to prepare to “DIY ”

    I am not Jack and Jill type, but I joined OVDI after learning the fact of my own non-compliance, with a hope doing it right. I was willing to pay penalty on my own errors/mistakes even include the in lieu penalty.

    However, after so many flip/flop on RRSP ruling inside OVDI, I have to agree with Just Me/Moby and I have to be suspicious on your claim of those “smartest/finest/ folks” in IRS.

    Is that so hard for those smartest/finest folks to tell the difference between government registered retirement plan from other tax non-compliance assets ? Why can’t they simply set up a ruling on this very simple and very common assets among Canadians living inside US ?

    I have no doubts — they are super intelligent — and then based on the facts — I have to conclude that they are money driven minded and they have very simple agenda — that is to get as much as they can from taxpayers who make innocent mistakes on certain filing requirement that is so subtle that most professional taxpayers were not aware of. They use fear mongering tactics, they mislead taxpayers with maximum penalty.

    Moby, who never claimed being into finest school, did reveal the truth of this subtlety by using google trends to search all these IRS required filing documents.

    Do you know how public have been aware of these 4 forms ?

    IRS form 1040, TD F 90-22.1, Schedule M, and IRS form 8891

    f1040 has been known since early years (make sense as people file every year)

    TD F 90-22.1 is unknown before middle of 2009 (that is the fact — until the OVDI/OVDP started)

    Schedule M is known in 2009 and 2010 (this form is only for these two years, it was directly related to form 1040, so it was easy to be found)

    f8891 is unknown (even today)

    See reference,

    So those smartest/finest folks know those facts — and they take advantage of taxpayers’ fear — most immigrants are fearful and in shock !

  22. @Steven: I agree negative stereotyping is bad. Very few US citizens and former US citizens living outside the US are “tax cheats” “tax evaders” or “traitors.”

    To be labeled and pursued as such by well-educated, moral officials is immoral, offensive and distressing to responsible, law-abiding people everywhere. It achieves nothing except alienating individuals who could be their allies and ambassadors abroad.

  23. @Steven..

    You know, at this stage it doesn’t matter why, the IRS has a serious branding problem now. You can call it negative stereotyping if you like, but there are many good explanations on how they got here. Like any maligned brand, now the IRS has to start thinking in commercial terms and come up with proactive ways to repair it. It won’t be easy. The Edsel never made a comeback, and it took a ton of work for Coke to undo its classic coke fiasco. Netflix is struggling with these issues right now. Customers leave, and you may never get them back!

    This will take a lot is more than just a marketing or PR campaign. It will take more than just some new guidelines buried at somewhere as a footnote. The TAS has been pointing that out how the IRS has been shooting itself in the foot and destroying its credibility. It is time they start listening. Maybe they are, and we have yet to see signs of it. We will keep watching with intense interest.

  24. @JustMe: IRS is planning to spend $15 million on Public Relations, according to an article OMG posted last week. They think that will fix the problem.

    Now we know why they are so desperate to get their hands on our money. That and their trillions of dollars of debt, of course!

  25. Pingback: U.S. citizenship as a disabilty – How much longer will other countries allow U.S. citizens to immigrate? « Renounce U.S. Citizenship – Be Free

  26. I have a very large OVDI induced headache. We have recently contacted TAS and are waiting for the IRS’s response to our OVDI submission. The nice lady at TAS said we may be able to eliminate our penalty on our cap gain on the sale of our home through the first time penalty abatement. Our highest FBAR year was the same year as the house sale. Anyone have any info on this penalty abatement? Also my MP John Weston who is the Feds point man on the dual situation gave us some hope that we may not have to pay the cap gain under article XXV of the treaty. Our lawyer says not true. I asked TAS if their legal would investigate this. Another qualified opinion on this would be greatly appreciated!

  27. @Bubblebustin

    Headache indeed. I don’t have an answer for you. However, if you don’t get a response here, another place you could ask your question might be over at the Jacks Blog…

    This thread regarding Opt Outs is getting a lot of comments now, so I would probably ask there…

    Would also encourage you to read it and the thread prior to it on Opting Out. You might want to give that some consideration.

  28. Pingback: FBAR and the constitution: The Fifth Amendment « Renounce U.S. Citizenship – Be Free

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