Moby “Opt Out” update

On January 25th, I posted a story of the “Opt Out” success of a Minnow with the alias of Moby.

It was under the title of  An OVDP Minnow “Opt Out” Success by Moby  

If you are not familiar with his story, I would suggest that you read that post first to bring you up to date with his story.

Moby, now complete in his dealings with the IRS and no longer residing in America, has generously made his “Opt Out” correspondence public for all OVDI participants to see and learn from.  What follows is his message for all of us.

Hi All,

Here are copies of my correspondence with the IRS during the opt-out process. It starts with them sending a 906 (which I did not sign) and ends with the acceptance letter for my opt-out recommendations and the assessment of only the accuracy related penalty (which I did pay). I believe the whole episode is now concluded for me.

I’ve published these letters with a view to providing more visibility on the mechanics/details of the opt-out process, and to hopefully inspire some creative arguments to use during the process. I hope this of use to people out there who are still knee deep in this stuff.

NOTE: The only communication not in the letters was a phone call that took place between letters 02 and 03 where the agent explained the opt-out process over the phone.

Link to the 5 letters is here:


This will also be posted at Jack Townsend’s blog, Federal Tax Crimes at the thread Opting Out” #2 (3/2/12)

If you are not following Jacks blog, I would encourage you to do so, especially those who are in the OVDI, and now considering whether or not they should Opt Out. There has been some new Opt Out stories and messages of reduced penalties reported that should give you hope that the worse case scenarios that the IRS shows in its OVDI FAQs may not be applied to Minnows. This is all anecdotal of course, but it does give some hope that application of reason is starting to set some free of this OVDI morass, and all may not be as dire as it seems. Time will tell as my cynicism remains finely tuned, but there are hopeful signs of a positive trend coming from the trickle of new reports.

A personal note to Moby. I just want to say publicly how much I have appreciated what you have done with your open communication at Jack Townsend’s blog. You and Sally were Opt Out trend setters that have benefited a large community of Minnows, many unseen or not heard from, but still gaining from your knowledge and the sharing of your experiences. A sincere thank you for helping us all in such an unselfish manner. Your departure from America’s shores is our collective loss, and I wished Commissioner Shulman would man up and issue an apology for your treatment. Or, as an alternative, how about just an formal acknowledgement of Nina Olson’s TAD?  Sadly, tonight, Commissioner Shulman is snug in his bed in DC apparently unconcerned about the continuing damage that is being done to the IRS reputation, and America’s image with expats and immigrants around the world from his misguided offshore VD processes. Sigh…..So it goes.

PS… I just issued two more warnings tonight to Australians I met at a dinner party not to ever consider immigrating to the US. It is not the welcoming country it once was. Steer clear! They were absolutely flabbergasted at the story I told them of how the US taxes and treats its “US persons”, and I tried real hard not to be hyperbolic or over the top.  I told them just the facts, …really!


36 thoughts on “Moby “Opt Out” update

  1. Just Me,

    You said to Moby

    “Your departure from America’s shores is our collective loss, ”

    In fact,

    Moby is welcoming you to become a real kiwi

  2. @ALL
    I just read Moby’s “Opt Out Request” and it nearly brought me to tears that he was able to make a statement that clear, and it’s my belief that any IRS employee that reads this letter should feel at least a miniscule amount of shame.

    The google trends charts should be a real slap in the face for Mr. Schulman and friends! 🙂

    Thank you for so much for posting this!

  3. Very beautifully written. Couldn’t have said any better.
    Elsewhere in the issacbrook blogs, i read the tax owed was $14k
    but in this letter he states there was no tax loss.
    would like to confirm from Moby if there was zero tax loss?

    For many minnows and immigrants due to the difference in tax treatment for long term capital gains in their native countries
    the tax loss may not be zero but the circumstances would be the same.

  4. @desi,

    Moby was able to calculate total tax due and paid it full — so there is no tax loss.

    In Moby’s case, he had no prior years of SOL years — so his payment in opt-out was full to IRS.

    For others, the SOL would not let a taxpayer go back years (in some cases it would be impossible to track back many years), so it would be not as clean as Moby — and I would have to say some might even have loss in prior SOL years.

    The fact that Moby can establish no tax loss is indeed a very strong argument.

    There is a difference between no tax due and no tax loss. No tax due means amending return does not involve any tax due. No tax loss means amending return and tax due is paid FULL (no penny owned to IRS in prior SOL years)

  5. @JustMe @Moby

    Thanks so much for sharing this – an act of great kindness and generosity – in the true spirit of the Isaac Brock Society!

    Also, (not that I have any basis for comparison), but really well put together arguments on the “opt out”.


  6. I have just read Moby’s entire story and am absolutely shocked. I just can’t believ, as a new immigrant, he would have been expected to know about FBAR and all the rest of it. And what he put up with to see it through. That letter is nothing short of amazing and the more I read I was just in awe of his clarity, integrity with no sense of resentment, or anger overshadowing those qualities. Bravo!

  7. Ditto! Now Shulman should read these memos as they are posted for the world to see the insanity of these witch hunts being implemented by a desperate and broke nation. Please respond in some manner Mr. Shulman. You should acknowledge that your programs are misguided, unfair, discrminatory and abusive. You Sir are no better than a mobster that extorts resources from his victims. I hope the majority of victims will opt out of the process and tie up additional resources of this shakedown. I also hope more victims will post their records of the shakedowns on the internet so that this outrage will be further magnified.
    When you read Moby’s memos, you get the sense that this is a very intelligent and talented person. He likely will cut all ties to this nation as a result of this blackmail process. Unintended consequences Mr. Shulman. As for others out there with these problems, think twice before you join. This is a government that is not trustworthy.

  8. The BIGGER untold story of the IRS jihad relates to harm that is being done to US immigrants.

    I have read many of their painful stories of discovery at Jack Townsend’s blog, and feel for them in ways that I don’t feel for even me! There is no unified voice for their plight, and I don’t know if there is any Immigrant related blogs that they can comment on. They are even more subject to abuse of the practitioner community which does prey on their information inadequacies, and often their language barriers which make understanding the most complicated tax system in the world even harder to understand.

    Moby has done them all a big service by posting his story up for all to see. Now, how do you get more eye balls on it? That is the question.

  9. Just Me,

    Immigrants (a lot from India on Jack blog) are fearful — some choose to take the hit to become fully compliance because they worry about their visa status (and possible impact on their future green card applications).

    While Moby shows a good example of opting-out, but it does not ease their fear on their future residency in US.

    This is my speculation — I think I would feel the same way if I were in the same situation.

    I do agree, that most CPA and tax lawyers are ready to help them to become fully compliance — in part that is a business, and in part they follow exactly what IRS FAQ says..

  10. Of course though, I wouldn’t put it past the IRS to start treating opt-outs harshly if they become too prevalent. The world is going mad…

  11. @Mona Lisa…

    I understand that feeling, but I don’t share that fear. Of course that is easy for me to say now, eh? 🙂

    I think there has been too much attention on the allegation of their issue of their FAQ 35 bait and switch in the OVDP. It would not serve the IRS best interest to treat Opt Outs harshly at this stage. They are an organization that does operate by their rule book, and the IRM sets the guidelines that I do believe constrains them. Also, Moby thought, that given the TAD, they would be bending over backwards to be perceived as operating more fairly. I think that is true.

    So, I hope more Minnows that are fearful will more rationally analyse their risks and consider the “Opt Out” route. Also I would hope that they don’t feel the need to have expensive attorney fees for representation in that process. It is something that is fully DIY, in my opinion.

  12. Glad you think so, Just Me, but must admit that I’m relieved I was put through a quiet disclosure last summer. Touch wood, things seem to be going smoothly so far. I haven’t heard back from IRS except for minor adjustments and where they got muddled up with my payment for 2010 which they hadn’t realised had been sent.

  13. @ Mona The problem that the IRS is afraid of is the Eighth Amendment. Fines that include seizure of assets in addition to back taxes, late penalties and fines, would be a violation of the Eighth Amendment, and the IRS knows it. Therefore they are afraid to assess fines to people outside of OVDI, lest they face a serious constitutional challenge and the whole law be struck down by the US Supreme Court. They have a great big huge club to scare people, that they dare not use in the real world, because the club is unconstitutional. So instead, they try to corral victims into the OVDI, so that they can legally extort people’s money voluntarily.

    See again:

  14. @Mona…
    Listen to Petros here, as I think he is right. An individual examiner might go off the rails, but in an appeal or if it got as far as a DOJ attorney, reason would prevail for the reasons Petros outlines. They would NOT assess absurd penalties outside the OVDI.

    Glad all is quiet on the silent disclosure front. That is the way it should be, and the IRS should be happy. It has gotten compliance with a minimum of fuss. There are bigger Whales in the sea to deal with, than to bother with you. I would sleep easy, if I were you , knowing what I know now.

  15. @all…

    Just want to mention that there are some excellent comments being made at Jack Townsend’s blog by a John Doe and Moby. This relates to “reasonable cause” issue due to failure of the IRS to do the education it should have done, and I would be sure to add the research which has been done here to your knowledge base.

    Comments start with John Doe Mar 11, 2012 04:32 PM

  16. Yes, I agree that I should be alright though it’s been such a frightening process knowing how stakes were…but am so grateful that my specialized accountant was aware of the likely protection of the 8th Amendment. Am also thankful for this wonderful forum. 🙂

  17. Fear is with us always. We can’t escape it. Controlling and channeling fear is the challenge. Glad you had a specialized accountant who didn’t misdirect you!

  18. @Just Me, yes, she is expensive but I know she’s genuine because she is visible on accounting forums whereby she has consistently argued for 8th Amendment protection in cases like ours where there was obviously no willful intent. We’re both casualties from this though I’m sure you were hit more harshly in spite of TAS’s assistance.

    It’s still early days though, as my normal three years of SOL for 2010 will not have started running till mid October last year. I also have another complicated return to be completed for 2011 so should be in the clear by late 2015. Not forever but still a bit of nail-biting (and accounting fees) 😛 LOL.

    At least I’m feeling less scared now, thanks to you all here!!

    I think it’s the ongoing compliance costs such as having to rely on this accountant and the high admin fees in the FATCA-compliant investment portfolio that pisses me off when to the UK my situation could have been filed and managed without having to shell out for professionals…plus the onging fear factor of the IRS.

    I am grateful they haven’t thrown me in the meat grinder at least, lol.

  19. @Mona…

    Well, I am lucky, in a way, as I have by design attempted to keep my financial life simple. No foreign Mutual funds, no foreign trusts and nothing else that would require me to fill out another unnecessary IRS form. Of course, the IRS keeps adding forms, like 8938 but so far, I have been able to deal with them myself without expensive financial practitioner costs.

    I did go to an international CPA, but when I got the bill, for what little work he did, and saw that he did not really understand the foreign tax credit form 1116 that he was completing, I thought “to hell with this. I can figure it out and do it myself and save the needless cost.” Now, I know not everyone has the time and inclination to do that, but if you keep it KISS, it is possible to do your own taxes with a reasonably assured of getting it right. However, to cover myself, I now buy audit insurance each year, as I really don’t care to spend a ton of time with another IRS auditor!

  20. @Just Me, I agree that with hindsight I would have kept my financial life simple and would have probably even just stuck with a savings account. I would then have been able to do my own taxes with turbo tax. I would also have avoided double taxation. Hindsight and all that…

  21. ‘she has consistently argued for 8th Amendment protection in cases like ours where there was obviously no willful intent’

    I think she’s confused. The Eight Amendment (if applicable) would hold for everyone, even for the most willful evader.

  22. I wanted to add something here, that I read over at Jack’s blog regarding Opting Out.

    It is located here...

    Since it is hard on his blog to direct you to a specific comment, I am going to reproduce here. He was answering a question from a Minnow . The question was…

    Does going for OVDI make sense knowing that I will be opting out during the process? (I have spoken to a couple of attorneys on this and they suggested opt out). I am a Minnow, was unaware that we are taxed globally

    Here is what he said…

    Jack TownsendMar 26, 2012 09:24 AM
    I think you are asking the right questions. Let’s see if I can approach it a different way.

    I start with the assumption that you have a case where there is no material risk of criminal prosecution. Only if that were true would it make sense to opt out (because the factors giving material risk of criminal prosecution would also give material risk of a civil fraud penalty and willful FBAR penalty).

    The IRS says that, if you opt out of OVDI, you get a regular audit in which you would get the results you would get in a regular audit. If you do a quiet disclosure and get audited, you will get the results you would get in a regular audit. If you go forward and, through the bad luck of the audit lottery, are audited, you get the results of a regular audit.

    So, the worst thing that can happen under any scenario is the result of a regular audit. Then, if you go into the OVDI you will get a regular audit and those results. If you do a quiet disclosure, you may get a regular audit and the same results, and the chances of an audit are significant albeit not certain (I doubt that all quiet disclosures will be audited). If you do a go forward and if you get audited (probably a low percentage of that population), then you will get the result of a regular audit.

    What is the advantage to joining OVDI with the expectation that the OVDI penalties are too high and you will opt out? Why would one be better off than quiet disclosure or go forward only?

    It is perhaps not quite that easy because detailed knowledge of all of the facts and circumstances will help for a better decision, but those are the questions to ask and I think you do ask them.


  23. I have a follow up question for the lawyers who read this blog and are willing to answer:
    Whether we choose OVDP and opt out, or do a quiet disclosure to address the past (amend tax returns and file FBARs, do we face the risk of being prosecuted for perjury if our original 1040 did not disclose the foreign account and the new one does.

  24. @ Christophe
    Just Me needs to see that. Please make sure he does. I actually think he should get a full refund but this may just help a bit (forget what % he ended up paying). No, not just a full refund, they should also have to pay him for all the LCUs he gave up by spending gazillions of hours trying to comply.

  25. Christophre…

    I have been traveling and not keeping up with posts or comments, but I did see this one.

    I am doing some fact checking on this to see if it is true, or if there is anything new here, as this could be an old policy just now being reported in the Times of India,,,,,

    I would only comment this…

    It appears that they are retroactively applying the lower penalties that evolved over time as they figured out they were capturing too many minnows. They are now letting the lesser penalties from 2011 now apply to those poor souls they hammered early in the 2009 program. I guess that is some measure of mercy or not….

    I am still stunned by Condition 2, where the IRS still wants 5% from the most innocent of innocent, those who are not living in American and didn’t even know they were American Citizens! I guess, not knowing anything about your accidental American status and living overseas still isn’t sufficient for the IRS who is determined to extract some measure of minnow oil out of you anyway!!! Real mercy would be an apology for even thinking that this person should pay any penalty at all. How sick is this?

    Condition 2: Taxpayers who are foreign residents and who were unaware they were US citizens

  26. @Em

    Thanks for the thought, but I would not qualify for this penalty abatement. It is very very narrowly constructed to apply to a sliver of those they plundered.

  27. @ Just Me
    Ah nuts! Well you still deserve a medal for the patience to put up with that plundering system. Safe journey.

  28. @Christophe…

    After a little more research, I see that there might have been an update to the FAQs to represent this refund provision talked about at the Times of India.

    They are just repeating what is in the OVDI FAQ 52, which states…

    Taxpayers who participated in the 2009 OVDP whose cases have been resolved and closed with a Form 906 closing agreement who believe the facts of their case qualify them for the 5% reduced penalty criteria of the 2011 OVDI, but paid a higher penalty amount under the 2009 OVDP should provide a statement to this effect including all pertinent contact information (name, address, SSN, home/cell phone numbers), the name of the Revenue Agent assigned to their case, and a copy of their closing agreement. This information should be sent to:

    Internal Revenue Service
    3651 S. I H 35 Stop 4301 AUSC
    Austin, TX 78741
    Attn: 2009 OVDP Determination

    Upon receipt of this information, the case will be assigned to an examiner to review and make a determination.

    and there is the same comment on the FAQ53 regarding the 12.5% penalty.

    It appears that those FAQs 52 and 53 were updated 6/2/11, but not sure that is when those provisions were added, as the update notes don’t indicate what the update was. When I actually look at the page where these FAQs are recorded it says…

    Page Last Reviewed or Updated: March 05, 2012

    So not sure when these provisions came to be.

    Also checking the IRS news site, there is no mention of any penalty relief for 2009 OVDP participants, so I guess the IRS is putting no effort in news releases in this regard. Again, makes you wonder about how hard they really want to make this right, eh?

    However, on a positive note, the IRS is cutting back on office space to save taxpayers money, so maybe Examiners will be sharing desks now and consolidating work spaces to handle those unadvertised 2009 OVDP refunds. 🙂

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