A story from OVDI hell or: How to exact tribute from a country without firing a shot

A reader sent me the following e-mail and eventually gave me the permission to publish it earlier this week.  The IRS is hammering Canadian residents who they deem to be US persons.  All Canadians should be aware of the hazard–that if we allow the IRS to shake down our people who happened to be “United States persons” it makes all the rest of us poorer because (1) it decreases our taxable base; (2) it reduces the total investment in the Canadian economy (destroying jobs); (3) it will increase the total tax burden on workers who have to pay the Old Age security for people impoverished by United States taxation of Canadians; (4) it is a very real threat to Canadian sovereignty because it is the exaction of tribute from Canadian taxpayers.  We should all be very alarmed about United States extraterritorial taxation!  We must put pressure on our politicians to nip this in the bud. Here is the story of one Canadian couple who the Godfather Douglas Shulman Barack Obama is shaking down:

Dear Mr Dunn,

Thank you for responding. This is our story. Any insight and advice you may offer us would be appreciated. I’ve been reading little bits of Isaac Brock for a while, and know a few people who contribute to it. It’s a wealth of information. Thank you for championing US citizens living everywhere.

To tell you a little about my husband and me, I came to Canada in 1968 at the age of 12 with my Canadian mother and 2 siblings. My husband was born in Canada and obtained a US citizenship card at 20 through his American father. I became a Canadian in 1996. Neither of us has ever worked in the US. I’ve voted in a US election once, regrettably to help bring in the individual whose party has brought this hell storm down upon us.

Our adventures in OVDI began last August when we read about it in the press. With only a week or so before the deadline to file for the 90-day extension, our priority was to first seek the advice of a US tax lawyer. We were told that ignorance of the law was no defense. After analogies involving boogey-men with chain saws from our well respected but exhausted lawyer, we decided to enter OVDI in order to become tax compliant at the first opportunity. Any misgivings we had were outweighed by the absolute terror of what our 51 bank accounts we had recklessly opened over the course of eight years would do to our nest egg; accounts we opened for our children, parents, businesses, mortgage providers, etc.  Then there was the sale of our ridiculously overpriced house in Vancouver in 2008, netting us a capital gain and the FBAR penalty arising from it (apparently, the IRS has a claim on that nice little tax exemption gift from the CRA on the sale of a principal residence in Canada).  For us, there was no consolation in knowing that the Canadian government would not collect penalties on behalf of the IRS against Canadians, we needed to be able to enter the US freely for personal reasons and do business with Americans bringing funds to Canada. Then there was FATCA. We felt it was better to be a low hanging fruit than to have them chase up the tree after us, and being angry with us for having to.

My first indication that something was rotten was when the deadline to apply for the 30-day extension was given another week because of hurricane Irene. I remember saying “there’s a storm blowing from offshore, but it’s not Irene. They’re overwhelmed and don’t want to admit it”. Other indications came just as we signed on to OVDI and were asked to turn over the names of those who helped us in our financial dealings. Also, by then I had done enough research to have an idea that something had changed, that other delinquent filers before us had maybe been given a pass. I asked our lawyer what was different. He said the OVDI’s Q & A. OVDI still looked better than $10,000 x 51. So be it.

Of course, the learning curve being the steepest since then, we began to have misgivings about our decision. We recognize the heavy handedness in how we’ve been dealt with as otherwise law-abiding citizens living in another country. The penny really dropped for us after reading Nina Olson’s report to congress. We’d been duped!

Over the course of this ordeal I’ve written appeals to politicians on both sides of the border, the US ambassador to Canada, the IRS themselves and have met with my MP John Weston. He said he was working hard on the issues facing duals in Canada and finally after many months of silence and my own theories of government media blackouts, I just today received a letter from him bringing me up to date on his efforts. In it he writes: “… The IRS at least acknowledged the unfairness of what it formally proposed to do in enforcing the FBAR…There is still uncertainty how the IRS will enforce the rules. While I am not completely happy with the aggressiveness and unfairness in the way the IRS has gone about its business towards Canadians, Canadians are at least in a better position than they were a few months ago…”

Not completely happy? His way of saying he’s disappointed. Better position? As far as I see, it’s more shifting sands coming from the IRS. There you have it, the MP who’s been designated to report directly to Minister Flaherty on issues effecting duals offering little in the way of encouragement and news of real progress for us.

We’ve been in contact with TAS. Our nice lady from the department that deals with international taxpayers said that she wasn’t able to formally open a file for us, as there hadn’t yet been a response to our submission. She did confirm, in no uncertain terms, that the IRS doesn’t consider ignorance of the law as an excuse for breaking it. Knowing a little about our situation she did give us hope, however, that we may be able to benefit from a first time penalty abatement. And there is the tax. John Weston had told us that Article XXV in Canada US tax treaty might exempt us from a capital gain in this circumstance. Our lawyer does not agree. I asked her if she would have TAS’s legal look into it. So that’s where we are right now. My question is: why is the IRS negotiating within OVDI when they said they wouldn’t?

I don’t know what direction the US is going to take on these issues. The IRS seems like it’s going to collapse under its own weight, and with all the bad policy coming out of congress things don’t look like they’ll get better any time soon. I certainly don’t think an apology is coming soon, either.

For us the whole process has been like going through the five stages of grief: denial, anger, bargaining, depression, and eventual acceptance. As difficult as that’s been, it’s not as bad as it would be if I was hiding without a voice and trying to keep one step ahead of the IRS.



54 thoughts on “A story from OVDI hell or: How to exact tribute from a country without firing a shot

  1. @Bubblebustin and Petros; thank you for sharing this with us so generously and shining more light on the situation.

  2. @Bubblebustin (and Petros), yes, thank you for sharing. My heart goes out to you, I cannot imagine the stress you must be living under right now, and no one is stepping up to help you.
    I found a particular item of interest in this, for me, that I personally was unaware of. I did not know that John Weston was designated the person to report to Flaherty. This gives me another person to write and to complain both about Canada’s lackluster defense of Canadians, and lack of response to my letter to Flaherty. I also find it frightening that you were asked to turn over the names of all that helped you in your financial dealings. Is this going to further the difficulty of duals (or IRS-perceived duals) in obtaining financial advice? First banks will refuse to do business with duals, and then financial investment firms/advisors will refuse to do business with duals in order to avoid the laser-like glare of the IRS?

  3. All this makes me so angry. It seems obvious that this in an innocent Canadian couple who hadn’t been aware of their filing obligations, plus had earned all their money in Canada. The argument that ignorance is no excuse is harsh, especially as Fbar wasn’t even being enforced till about ’09.

    The fact that they are being asked to provide names further suggests that OVDI was set up originally for true tax evaders rather than expats or accidental Americans.

    I especially blame their US tax attorney who probably took advantage and regarded them as easy money for them instead of looking out for their best interests. They should certainly have been able to argue reasonable cause, even with 51 accounts.

  4. @Bubblebustin: could we please have a clarification of the facts? Specifically, you say you never worked in the US but you had to be able to enter the US freely to do business with Americans who were bringing funds to Canada. Funds to Canada for what? So what happened here? Did you try to opt out? Was there a bait and switch? Exactly how were you duped? How did the IRS propose to deal with your 51 Canadian bank accounts? Did your tax lawyer fail to tell you up front you would have to cooperate with the IRS by giving up the names of the people who were helping you with your “financial dealings?” What financial dealings? Were any of the 51 Canadian bank accounts set on behalf of the Americans who were bringing funds to Canada?
    30 Year IRS Vet

  5. It appears that in a very small time period during the summer of 2011 lots of people:

    1. Learned that they might not be in compliance with U.S. tax laws,
    2. Learned that they might not be in compliance with reporting requirements
    3. Consulted lawyers/accountants who encouraged them to enter OVDI.

    Very few people made a DECISION to enter OVDI. Entering OVDI was a REACTION based on fear. Some of the lawyers were very very unhelpful and fueled that fear.

    For many they did not have a tax problem. They had a compliance problem. Therefore they needed advice from a lawyer with experience in compliance issues. I suspect that a lot of lawyers were in “way over their heads”.

    In many cases the lawyers gave very bad advice (as can be seen now). Many of the lawyers failed to remind people that “reasonable cause” continued to to be an option. In some cases lawyers were giving the impression that OVDI was the only real way to come into compliance. The IRS was saying that they would be looking for people who were making “quiet disclosures” of FBAR and taxes.

    That was the message people were getting. It took a brave person and lawyer indeed to shut that out the noise, read the existing law (“reasonable cause” on FBARs is in the statute), and behave accordingly.

    I suspect that the IRS would argue that the “in lieu” of penalties in OVDI were not an information return penalty. This is another reason why many people in OVDI should “opt out” – “opt out” means no “in lieu” of stuff. It means you are clearly dealing with FBAR penalties – giving you the benefit of the treaty. (Plus it reduces the penalty base …)

    People should only go into OVDI after a complete consultation, based on a detailed review of the facts. Actually, how about two consultations with different lawyers? I.e. entering OVDI must be the result of a considered, informed decision.

    In any case, let’s focus on what we do know. The CRA will not collect FBAR penalties. That’s good news.

    The bad news is that the IRS can still levy FBAR penalties. So, that “reasonable cause” letter is very important.

  6. Bubblebustin said: “He said he was working hard on the issues facing duals in Canada and finally after many months of silence and my own theories of government media blackouts, I just today received a letter from him bringing me up to date on his efforts.”

    Why would there be government media blackouts if almost all Canadians are basically innocent? I agree there probably is some kind of media blackout considering how little information is coming out of the Canadian government regarding this very important issue.

    Is Canada really being used as a tax haven by American residents? If they were opening up accounts in their own names they’d be easy to catch since we already have an agreement in place to report them to the IRS. Perhaps they are getting Canadians to open accounts for them?

    What kind of people repeatedly bring cash from US to Canada? Why would they not just do wire transfers?

  7. Thank you for your warm reception! I hope to be able to answer your questions before the weekend is out.

  8. bubblebustin…

    I feel your pain. I would pay close attention to renounceuscitizenship comments above.

    Also, Stephen Mopsick, as an attorney is asking good and natural questions which help create a complete facts base that would be necessary for a good Opt Out decision.

    Be sure you have read Moby’s Opt Out arguments. I am sure you have, but just want to reiterate it here.

    Finally, I would not rely on a blog for case specific advice. I am sure you know that, but in reading your story I don’t see where you have consulted with a good knowledgeable OVDI attorney. I don’t think a normal personal attorney, as exhausted as they may be, is up to the task of fully assessing your facts or correctly advising you on these matters.

    I am not shilling for attorneys for the entire OVDI process, but you will probably need one now to help you assess the ‘Opt Out’ situation. Again, not to write your “opt out’ letter or “handle your appeal’, or scare you into ‘not’ doing it and certainly not to run up attorney fees being your POV, but to help you assess all the risks.

    And yes, you may have been duped into entering the program. Many of us past graduates, feel exactly that way. But now it is all about extracting yourself with the least amount of damage including additional attorney fees.

    You say, “OVDI still looked better than $10,000 x 51” If anyone is or has represented to you that this would actually happen, they are employing scare tactics! I would not be talking to them again. That is not the type of advice you need.

    There are a couple knowledgeable attorneys that comment here from time to time, and Jack Townsend maintains a list of attorneys he thinks fit the criteria below.


    Ultimately, you have to have gain enough knowledge to trust your own council. It seems to me that you are well down that path, and if you are reading everything here the right decision for you will emerge from this OVDI madness.

    Good luck and best wishes.

  9. Can anyone recommend from personal experience or word of mouth an attorney who was able to help them analyze their situation and make a proper determination of the risks involved.

    Im finding that contacting random ones from the list isnt a good strategy as ive already paid for consults where i was more knowledgeable from my 2 weeks of manic reading & research than the attorney i was paying 500+ an hour to consult with.

  10. Anonymouse,

    Well they are all pricey for sure. I can tell you the three I consulted with. Phil Hodgen, Jack Townsend and Hale Sheppard. I did NOT follow all of their specific advice, but they all payed a role in helping me shape my own Council. However, I would point out, none of them suggested the TAS, and that council would have been appreciated.

    That said, and opinions or advice they may have had back in 2009 has certainly changed as they have watched the IRS morph to something unrecognizable as compared to historical practices. No one would have thought that “reasonable cause” and discretion would have been treated so poorly in the new jihad mentality of these guys at the IRS. The idea that you would have to appeal to the TAS is not something that would have occurred to them.

    When looking for an attorney, I like one that blogs or writes a lot, so I have an opportunity to read and see how they are thinking before I start spending money telling them my facts.

    For instance, and this is not a recommendation, consider these who are active in the the publication area.

    If you wanted to know how Jack Townsend thinks about these situations, I would read everything he has to say on these blog threads…



    or for Phil Hodgen, I would read his entire history on OVDs


    You have Stephen Mopsick who we have had spirited debate with here, and so you can get a sense of his perspectives from that or from his blog.


    Michael Miller is one that has commented here, that you could examine…


    Moody’s Tax is another..


    Hale Sheppard has written the definitive article of FBAR matters…


    and there are others…

    So, that is how I would assess an Attorney if I thought I needed additional advice. Due diligence and study them, before you give them your facts to study you!

    Unfortunately, you have to remember, their self interest and yours are in conflict. They make their money from billable hours, and your interest is in minimizing that cost. By nature, attorneys are paid to think about the worst possible outcomes, scare you, and so run up the fees as they spend more time in that consideration. They might not consciously be doing that, but that is what results.

    Before you call them, know exactly what you are looking for and what questions you want answered and how much it is going to cost. You don’t want to add to a mounting OVDI penalty base with their fees. Remember, a lot of what they will bill you for, is things you can DIY. You can prepare spreadsheets, audit reconciliations and write letters to examiners yourself. If you a Minnow or a Mouse in the OVDI, and I don’t wish that on my enemies, you can do the entire thing yourself if you are willing to do your own drudgery, including Opting Out and/or appeal. And don’t let them tell you otherwise.

  11. Bill Sharp
    Sharp Kemm International Law Firm
    Offices in Tampa,FL – Atlanta,GA – Zurich, Switzerland


    Expensive but extremely knowledgeable. Handled many cases in 2009 and 2011 programs.
    Expect to pay 700(may have gone up) or so an hour for the primary attorneys fees. Work product from associates is less and Mr. Sharp stays involved at least in my case he did through out the shakedown. They develop a spreadsheet showing all possible outcomes. Is costly but again they are extremely knowledgeable.

  12. @ Just Me: I just want to say that words cannot convey my respect and appreciation for the insight and help you provide to people here.

  13. If you are too small fish to feed lawyers or IRS — DYI can be fun.

    I did my own PFIC — it was incorrect. And IRS decided to treat it as normal capital gain/loss instead of real PFIC that would need a professional and some special software to get an accurate result.

    Now, I feel guilty by entering OVDI, it does not only cost me LCUs and disproportional penalty, but also a lot IRS time to look at details of my files

    I am sure, IRS would love to have me to file forward instead of taking such a pain/neck job to correct past mistakes.

  14. @anonymouse

    Want to add what I consider to be a very important point here.

    You need to prepare yourself if you expect any good advice from a lawyer. What I mean is:

    Although this is a “compliance” problem it is heavily influenced by your tax situation. It is impossible for any lawyer to advise you without a very good picture of your tax situation (both U.S. and in your country of residence). So, you should take steps to determine this. You can do this with or without a lawyer, but you must determine this. The source of the income will be very relevant, and of course whether tax has been paid on all of it. In this context you need to understand that U.S. tax laws will tax you on money that you have never received – this is important and why you may ultimately conclude that you must renounce your citizenship.

    Finally, were it me, I would separate the “compliance consultation” from the lawyer you must use to do your work. I suspect you are more likely to get an honest assessment from the lawyer.

    The lawyers mentioned in this thread are well known. But, they need to be willing to take the time to really understand which compliance option is best for you.

    The lawyers who do this kind of work are few and far between. You will be paying big bucks.


    See the following excerpt from something I wrote earlier.


    First – You have a compliance problem. This is different from a tax problem. The tax problem may have caused the compliance problem, but now your problem is to bring yourself into compliance. Hence, you need a professional who is experienced with U.S. tax compliance issues. You do NOT go to your local tax preparation firm. You do go to a lawyer experienced in compliance issues. Remember that only a lawyer will give you the benefit of “lawyer client” privilege.

    Second – Your specific facts must be understood. The most important principle is to find somebody who will really take the time to understand your situation. There are infinite permutations of facts – some helpful and some not so helpful. Your route to compliance must be based on an analysis and understanding of your specific situation. Any adviser who recommends a specific course of action (for example OVDI or compliance going forward) without a lengthy discussion of your history should NOT be retained. Your decision must be the result of an analysis of you. Your lawyer will need to write “reasonable cause” letters. The effectiveness of the letter is a function of an understanding of your facts.

    Third – You need to be able to speak freely, honestly and openly. Because the decision is the result of an analysis of your specific factual situation, you should consult with a lawyer. You need to be able to share all relevant facts with the professional. Consultations with lawyers are subject to “lawyer client privilege”. Consultations with accountants are not. Lawyers cost more, but that’s life.

    Fourth – the lawyer who advises you on what to do, doesn’t have to be the same as one who helps you actually come into compliance. Seeking professional advice in the compliance area is similar to obtaining the services of a financial planner. There are “fee based planners” and planners who survive off commissions from the sale of products. There are planners who charge for their advice on an hourly basis. There is an analogy here. The reality is that it is in the financial interest of the lawyer for you to be in OVDI (or something elaborate). For this reason, you might consider:

    Using one lawyer to help you decide how to come into compliance;

    And use a different lawyer to bring yourself into compliance.

    To put it another way, you might consider simply paying for a “compliance consultation” where it is clear that you will NOT be retaining that lawyer to bring you into compliance. This could be the best money you will spend. Then, move onto the decision of what lawyer to use to bring you into compliance. In other words, the decision to undergo surgery is different from the decision of who will be the surgeon.

  15. Time will tell. Hopefully the IRS has created a multi headed monster in the number of people opting out, going quiet disclosure, renouncing, staying underground or just filing on a forward going basis. I am pretty dumb but it seems to me they are just creating more work for themselves and actually pushing people to be noncompliant with their ignorant two year to resolve a case programs and their excessive and absurd penalties. In a way they have boxed themselves in because they have already shook down some 33,000 or more people so can there be any turning back? A straight forward civil compliance program could have educated the public more, increased compliance more, cleaned up the bulk of these cases quickly and probably generated more revenue for them with less IRS resources expended. Instead they have been called out by their own TAS and the world is learning first hand how ignorant, ruthless and untrustworthy this organization is. Honestly, the leaders of this organization are worthy of the star roles in a “Jackass the Movie” film. In business I used to tell my sales people: Sell More, For More and Spend Less. How could you go wrong. These morons are collecting less than they could and spending more by driving the price of simple compliance too high in terms of LCU’s and money. Duh Mr. Shulman!

  16. @annon123

    Right you are, and Shulman has the nerve in his Cspan interviews to compare the IRS to a large business. They operate as the antithesis of a Large Business There is no way a big Corporation in business would operate this way and alienate so many of it customers and create a negative marketing force that will poison their brand for years and years to come. If there was a really BOD, they would have yanked him by now, and replaced him…

    @Anonymouse. Renounce is providing you some very good advice, so hope you are absorbing it. Preparation is key.

    Bottom line with OVDI attorneys is that operate in this specialized area of Tax law. Theirs is a Sellers market, and they have a large potential client base with lots of money to draw from for their services. Essentially that is what has bid up their hourly rate. It is the market in action,. Scarcity drives up prices.

    So, you are competing with those much richer than you for their services, and they are not charities or altruistic. It is not good or bad, it is just the way it is. That said, if they know you are a Minnow going in, and your case is not going to finance the operation for the next year, I have found some to be more than generous with their time, and in fact provide advice in excess of their billable hours.

    Some do have consciences and heart, and do pro bono work. We have seen it demonstrated here by offers from Mopsick, and you see it in the blogs, where their advice and the learning you can gain from it is essentially free. Don’t stay away from them in spite your need because you resent what price they can command in the marketplace. Just do your homework on who you pick. That is your most important decision. And, if they know, like Renounce says, that they will not have your entire OVDI processing business, the advice you get won’t be driven so much by their need for more billable hours.

  17. @everyone. I have to stress that our lawyer did not push us into OVDI. He suggested three courses of action we could choose from: do nothing, file for 2011 only and hope for the best, make a quiet disclosure, or enter OVDI. We seriously considered each option. Although he didn’t say it, I know he hoped we’d avoid option four. Our Canadian tax accountant who recommended him to us was surprised when we chose OVDI in the end. We did so for what we thought were practical reasons. First, I had already once been told by a US border guard that I should be crossing into the US with a US passport. I wanted to continue to enter the US freely, as did my husband. Second, my husband’s business involves the creation of a product that is paid for by funds originating from the US and Europe via the US banking system and deposited into his business account. His, and the livelihood of those he employs depends on the free movement of these funds and he can’t afford to have anything emanating from FATCA jeopardize that. Regardless of our opinion of how the IRS chooses to implement the law, non-compliance resulting from exercising option one would have made us bona fide tax evaders. Option two and three didn’t offer us anything better than OVDI and didn’t have the “protections” of it. We felt our bank balances would have certainly resulted in an audit so we would likely have faced several years of returns anyway. Yes, we could have taken more time and been better informed but even with all the time and advice in the world, I feel we would have made the same choice under the same circumstances. And all of these choices come with each their own cost. The only event so far that would have stopped us in our and possibly our lawyer’s tracks, has been Nina Olson’s report to congress in which she stated: “In an effort to encourage taxpayers to enter into the OVDP and OVDI, the IRS emphasized that severe FBAR penalties that could apply outside of these programs, suggesting that the more reasonable provisions of the still-current IRM might be obsolete, and that those making “quiet” corrections might be subject to more severe penalties than they had been in the past.” (The “dupe”).
    We have yet to receive a response from the IRS to our submission. I sent a letter with it stating that my husband and I were previously unaware of our filing obligations and had certainly never conspired with anyone to hide money from the IRS. Our lawyer told us rather emphatically that entering OVDI is not an admission of guilt. It will be interesting to see how they will respond, as it’s clear our actions were not willful. They would have difficulty proving they were. When the IRS responds, we will have TAS ready to assist us. TAS suggests that penalty abatement may be available on the gain tax, but it’s still unclear how the FBAR penalty will be dealt with. Some may find it interesting that the IRS did not require us to pay the FBAR penalty with our submission, only the capital gain tax and the penalty associated it. I’d like to know why the IRS is negotiating within OVDI when they said they wouldn’t. Is it for expediency? Why opt out then? It appears to me that if ignorance of the law is not reasonable cause, anyone coming forward when they do become aware of their income reporting obligation is guilty, period. It then becomes a matter of pleading your case, and a plea for leniency that’s at the discretion of the IRS. Will they be as Draco, and punish those to the fullest extent of the law or choose to follow the IRM’s direction?
    Yes, John Weston is our point man with the government. He informed me of that last November, during my only meeting with him. He asked me at that time if I would allow him to use me as his “exhibit” in Parliament, under a pseudonym. He has written to Mr Flaherty about my situation, a letter I’ve yet to read. I’ll try to get a copy of it for us.
    I hope I managed to answer all of your questions, if not please let me know what I may have missed.

  18. @all

    Came across this video – dated August 17, 2011 that expresses the climate of fear in August 2011. I encourage you to watch this. The message was that voluntary disclosure was mandatory.

    Time and time again we have seen the Canadian media, “carry the water” (to use the words of Petros) of the IRS. In any case, this was the climate in which many of the decisions to enter OVDI were made.

  19. renouncecitizenship said: “I encourage you to watch this. The message was that voluntary disclosure was mandatory.”

    Sorry, I’ve reached my anxiety quota for the day. I’m going to pass : )

  20. @Bubblebustin: I must be missing something. Your husband has a business which makes a product which is paid for with US source income. So that product is consumed or used in the United States? You submitted an OVDI package which presumably included the filing of 8 years amended returns. I am assuming you had those returns professionally prepared and I guess they show that you had income which was not previously reported to the IRS but that you now acknowledge should have been reported. You are apparently not accidental Americans and in fact you took advantage of your US citizenship by voting in a presidential election.You don’t live in the Yukon Territory where you and your husband fish for narwhals all day in the Beaufort Sea. On the contrary, you are actively engaged in business in the United States which generates income which “is deposited into [your husband’s] business account.” you want free access to the United States so you can ” do business with Americans” who are bringing funds to Canada, and at the same time you say that neither you nor your husband “ever worked in the US”. At the same time you don’t want to hear any smart mouth border guard tell you what passport you should be using while you are exercising your “free access” to the Americans you are doing business with even though you insist you and your husband have never worked in the US.
    You have 51 (that’s a big FIVE ONE)bank accounts, some of which you acknowledge were “opened ….for your businesses.”
    YOU HAVEN’T HAD A SINGLE WORD FROM THE IRS YET SO YOU HAVE NO IDEA HOW YOU ARE TO BE TREATED BY THE TAX MAN AND YOU HAVEN’T EVEN STARTED THE OPT OUT PROCESS YET but you have already lined up the apparent willing support of the National Taxpayer Advocate. For what I don’t know.

    Respectfully submitted,

    30 Year IRS Vet

  21. @Steven Perhaps I can help. A Canadian who is not an American can do business in the United States and has free access to the US border without problems. They pay a lot of taxes in the Canada.

    A US person who is a Canadian pays a lot of taxes in Canada. A lot of taxes in Canada. But a certain percentage of tax breaks in certain areas where the United States swoops and kills us. Hell yeah. That makes me angry. Our tax burden extends to June. US residents only pay taxes until April. Now, the US comes in with OVDI program and gives the impression that this is the only good way to keep from having a huge percentage of one’s wealth confiscated legally by the United States. But it isn’t true, what the person doesn’t know is the IRS is playing a game, to try to catch minnows in a program intended for whales. I am very angry about Bubblebustin’s situation. It is an act of war.

    The capital gains she paid should have stayed in Canada. For one thing, we have a GST/PST/HST here in Canada which Americans don’t pay. We therefore pay way more taxes than Americans. And the IRS comes up here to Canada looking for money to spend in their profligate budget. When are you folks going to stop tyrannizing the rest of the world so that you can this charade going? Why don’t you start pulling your own weight in the world for once?

  22. The US treatment of dual citizens is one of the last forms of real discrimination still left. It’s economic discrimination … the worst kind.

    Free access to US markets is available to all Canadians but to the dual citizen it comes at a high cost.

    Almost all my customers are Americans but I don’t have to fill out IRS forms. I happen to have been lucky enough to be born in an impoverished village in India. I never thought that would be better than being born in the US but it is now.

    I’m so glad my husband is not a shareholder in my company. He was born in the US … although he lost his citizenship decades I still wouldn’t want the anxiety of wondering if the IRS could get their claws into my business.

    Long before FATCA, my accountant decided just for Canadian tax purposes it would be best if he was not a shareholder.

  23. @Everyone

    My view on this particular case is that thinking that somehow if you are a Canadian small business that has all of its banking arrangements in Canada but lets say you accept credit cards from US customers that somehow you are going to get “cut off” over a tax issue with the US is at this point a bit paranoid. I am not saying some day if the future some Senator will propose such a thing but at this point its not something I would be worried about yet.

    In terms of passport issues if you have lived as a solely Canadian citizen for decades and believe you have relinquished your US citizenship long ago I wouldn’t go out and apply for a US Passport just because you think you might have trouble at the border. I don’t know of any law that requires a former US citizen to show a CLN at the border. As we have discussed here frequently just about no one has a CLN among former US citizens now Canadian citizens.

    I admit I wasn’t following this issue that much last summer but I wish I was so at least I could have warned some people of making what I feel were some fairly rash decisions.

  24. @stevenjohnmopsick, I apologize if I was not clear. Our cross border activities are of a personal nature only, not business. My husband has a service company that creates a product for international companies. Monies deposited to his account are to cover the costs of production, and his fee. He’s had to illustrate to the IRS how the money is not his. He has reported all income earned in Canada to the CRA. He DOES NOT EARN INCOME IN THE US, we are not as you claim “actively engaged in business in the United States which generates income” thus had no reason to believe he had to report to the IRS. You don’t have to be living in the Yukon to not to have known this. Until last year we had no idea we as US citizens were required to report foreign income. We have never filed any US returns let alone any amended ones. As I mentioned, we have never worked in the US. The “income which was not previously reported to the IRS but that you now acknowledge should have been reported” was generated solely in Canada and paid to a Canadian company.
    I never claimed to be an accidental American, as I said I moved to Canada at 12. But I did vote because I believed I had the right to. I don’t recall receiving any information with my ballot saying I had to report to the IRS. The only passport I had was old, and issued prior to 2003, or whenever it was they started notifying US citizens of their income reporting requirement on the last page. I’m sure there are thousands of US citizens who have that printed on the last page who will still plead “reasonable cause”.
    Yes, we want free access to the US and anywhere else in the world to earn an income in Canada and provide jobs to Canadians. Being non compliant threatens the transfer of funds required to generate these jobs because the banking system requires them to go through the US.

  25. @Petros: the title of your thread implies, “here comes yet another story of IRS deception and American arrogance and over reaching as seen through the eyes of a dual citizen who simply wanted to comply with the law but got bamboozled in the OVDI process.” It turns out it is the story of a taxpayer who senses she should be worried about something but is not quite sure what it is. In any event, what she is complaining about hasn’t happened yet.
    Why didn’t you post a thread about how bad the tax burden is on hard working dual nationals because the US taxes it’s citizens on their world wide income.
    Yet again, the Isaac Brock Society has chosen an embarrassingly bad poster child and is way off message.
    30 Year IRS Vet

  26. @stevenjohnmopsick. Correction: Instead of writing “My husband has a service company that creates a product for international companies”, I should have said “companies based internationally”.

  27. Steven: you’re the one who is embarrassingly wrong. The United States has become the biggest overreaching tax pig in the world and doesn’t care what anyone else thinks. We are not off message and once again you are trying to defend the indefensible. I repeat the four points that I said at the head of this post:

    All Canadians should be aware of the hazard–that if we allow the IRS to shake down our people who happened to be “United States persons” it makes all the rest of us poorer because (1) it decreases our taxable base; (2) it reduces the total investment in the Canadian economy (destroying jobs); (3) it will increase the total tax burden on workers who have to pay the Old Age security for people impoverished by United States taxation of Canadians; (4) it is a very real threat to Canadian sovereignty because it is the exaction of tribute from Canadian taxpayers. We should all be very alarmed about United States extraterritorial taxation! We must put pressure on our politicians to nip this in the bud. Here is the story of one Canadian couple who the Godfather Douglas Shulman Barack Obama is shaking down.

    The money that this couple has paid to the IRS belongs to the Canadian tax base, NOT the United States. It is part of our tax base up here. Your country is quantitatively the most corrupt nation in the world, using its enjoyment of a being able to print the world’s reserve currency to leech off the rest of the world. Now, it expects Canadians to pay into that corruption. That is an embarrassment. It is an embarrassment for the biggest pig in the world to be looking to enlarge its trough so it can eat up the wealth of other countries.

    I adamantly refuse to acknowledge that I am “american” anything. I am a Canadian and I am ashamed of my former association with the United States.

  28. @stevenjohnmopsick, the tax and penalties my husband and I have already paid is surely proof that what we are worried about has in fact “happened”. We at this point wish to avoid paying more because we have been mislead by the IRS, as confirmed by Nina Olson. Short of a miracle, I don’t see how this will happen without the assistance of TAS.

  29. @Petros, thank you for your unconditional steadfastness on these issues. I still believe that our choice to look at the big picture was the best to preserve our way of life. Contrary to what others may think, it has been an extreme sacrifice for us to do so, but in the long term I hope will prove to be worthwhile. It’s easy for some to say “just don’t comply”, but when you look at the implications of that, non compliance can be the bigger sacrifice especially if it destroys your livelihood. In the meantime, I’ll continue with my efforts to end citizenship based taxation.

  30. @bubblebustin In the end, this is not a private matter. Ok, each person is forced to decide, but eventually, Canada may have to do what Brazil did and forbid the payment of taxes to the United States. In the meantime, let’s hope that our own government officials will put their collective feet down on this shake down of US persons in Canada. I say again, the money that Canadian residents pay to the United States through this extra-territorial taxation is part of the Canadian tax base. We musn’t see this as a private issue, but a matter of national security and welfare.

  31. @Petros, I agree with you totally.
    I often come across the attitude, rampant among Americans living in the US, that the US’s taxation of all of its citizens is the sacrifice we all must make for our citizenship and the benefits of what that citizenship offers. I usually respond by first asking them what those things are. Some answers include access to consular services, emergency evacuation services (most don’t realize they will be charged for this), and as in the case of the above, unfettered access to US markets. I then ask them if I would or could be denied those things if I wasn’t taxed, as it is with all other nations excepting Eritrea. It’s a sort of elitism that many Americans believe that US citizenship should come at a premium, that it somehow must be better because the US charges for it.

  32. @ Bubblebustin. One other reason for extraterritorial taxation I read on some blog was “protection by the US military in the foreign country.” Though born elsewhere, Canada is my country. So, that scenario doesn’t sound like protection to me. Sounds like invasion.

  33. @ pacifica
    If the United States wants tribute, we in Canada should insist that they take it the old fashion way: by invading Canada and stealing what they want as war booty and tribute. This way they have to risk the lives of their sons in order to extract tax revenue from Canada.

    Why should Canada allow them to take this tribute without a fight? That’s why I gave this post the title, “How to exact tribute from a country without firing a shot” — We are making it too damn easy for the Yanks to steal from the Canadian tax base.

  34. @pacifica777,

    A US citizen is more vulnerable being kidnapped/killed/ by terrorists. The US foreign policy and the military operations are not doing a good PR job for American citizens living in foreign countries. On the contrary, US government should compensate its citizens for their own protection costs -:)

  35. @All

    It was recently said to me that ‘perhaps all Canadians should pay tax to the U.S., as they defend our common border’. You don’t want to know what my retort was – not fit to print.

  36. I have a distant relative who lives in the US but is a dual citizen. She said when she travels internationally she uses her Canadian passport because she receives much better treatment from foreigners that way.

  37. Hello,
    I entered OVDI 2011 and have paid back taxes and interest. Have not heard from IRS yet. I had income in India on assets that I inherited. The taxes for these were fully paid in India and these were in non repatriable accounts which were subject to restriction on transfer to US. I had not realized the implication of this in the US.

    I am considering opt out. I see comments here from others about approaching the TAS, Any advise on how one can solicit help from TAS would be appreciated. I feel it is unfair for me to pay 25% penalty on inherited assets which were tax paid in India (at roughly the same tax rate) and not easily movable to US. At no point did I move my assets to India to save taxes from US. Thanks!

  38. @OVDIMinnow

    I am probably the one you have heard most referenced about appealing to the TAS.

    The TAS has taken Minnow cases, and I can’t speak specifically for criteria of when they take them, but usually it is after all normal channels of appeal have been exhausted, or when they feel a grievous harm has been done. In my case, during the OVDP, I had asked for FAQ35 relief, and it was denied, and they were kicking me out of the OVDP if I didn’t accept their Penalty or if I didn’t Opt Out on my own. At that particular time, the Opt Out seemed very tenuous at best, and there was no reported cases on how they were being handled. Also, the TAS had not yet released its report to Congress, or had they issued the TAD which Shulman has so far failed to respond to officially..

    Since you haven’t yet even been contacted by your Examiner, I would doubt that they would intercede yet, until there was a real impasse. So, you may have to wait and suffer more agony yet, sad to say. That said, you can always contact them and see what they say.

    I have heard of one case where they agreed to assign a case officer before the person had been contacted by the OVDI examiner and before they had Opted Out. I am not privy to the exact reasons why they took that one, but it may have had something to do with mistaken guidance the person received about entering the OVDI and the huge cost they already had in attorney fees. I do not know the outcome.

    If you want to read more about the TAS appeal and the experience, I have relayed most of it on Jack’s blog…

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


    My comments started at… AnonymousAug 29, 2011 09:27 AM

    Also, I have discussed more about how I came the decision to appeal to the TAS in my case study which is posted here…


    In my specific case, when I appealed, I went directly to Nina Olsons office in Washington DC,, but I don’t think that is necessary.

    Hope this helps, and best of luck. I know of many other reported immigrants in your situation, and the immigrant story and impacts are even less well known or discussed than Expat ones. A grievous harm is being done by the IRS zealots. A lot are falling victim to poor practitioner advice, I feel.

    btw, I would definitely read Moby’s Opt Out, if you have not done so, as he has good arguments that you could use…


    Also, I would read all of this….

    Hope this helps

  39. @OVDIMinnow
    Welcome. My heart goes out to you. We haven’t heard back from the IRS on our submission yet. Our experience with TAS has been positive so far, as a matter of fact of the few people I’ve read about going the TAS route after entering OVDI, no one has complained about how they’ve been dealt with. That being said, I would still run everything by your lawyer as you go. The woman we spoke to seemed to be really listening to our issues. She suggested we may be able to use the first time penalty abatement on our tax penalty as we had never been delinquent in our tax filing before-as we’ve never filed US taxes! Fax them with details of your submission (they don’t have an email that I’m aware of) http://www.irs.gov/advocate/article/0,,id=148099,00.html
    Our case worker called us back within a few days. Have you read Nina Olson’s report to congress on the IRS’s handling of OVDI participants? It’s worth a read:

  40. @petros, in introducing me to Brock, I couldn’t help but feel chastised for having made efforts to become US tax compliant. My effort to do so, you say, make “all the rest of us poorer because (1) it decreases our taxable base; (2) it reduces the total investment in the Canadian economy (destroying jobs); (3) it will increase the total tax burden on workers who have to pay the Old Age security for people impoverished by United States taxation of Canadians; (4) it is a very real threat to Canadian sovereignty because it is the exaction of tribute from Canadian taxpayers.”
    It has been foremost in mind to gain the ability to renounce through compliance. Were you required to pay tribute in order renounce, and if not, would the necessity to do so kept you from relinquishing US citizenship? It has been and continues to be a painful sacrifice for us, but it has been the first necessary step in becoming free.

  41. @ bubblebustin

    I want to apologize if I made you felt chastised. I do not intend to chastise individual victims for succumbing to the beatings of the abuser. Not at all. I am suggesting that our leaders in Canada, and all Canadians, should pay attention to this problem, because it is a threat to our collective tax base. That means we pull together as a nation and stop the abuser–not that we chastise the victim. I think one of the problem that many of us face is false guilt: we too often feel guilty for what the United States has done to us, when it is not our fault. We are actually the victims of this outrage.

    For years I paid a nominal fee to have my US taxes done. I never owed anything. If I’d been faced with your situation where there was a capital gain on my primary residence, I doubt very much I would have even reported it–and furthermore, there is little chance that the US could ever find out. Fortunately, I’ve never sold a house. My stock sales have always had a offsetting Canadian tax, so that there would be nothing to pay even if it had been a large amount.

    Many have paid thousands of dollars to come into compliance only to renounce. I’ve spoken personally to a few. It seems a pity, to have to put out such extravagant funds to IRS (rarely) and to the tax accounts and lawyers, when all you are paying for is to get the hell out of Dodge. I think this will cause deep and long lasting resent against the United States. It affects me deeply, even though I’ve personally paid so little, because I feel that I have a significant likelihood of living in exile.

  42. Thank you Petros, you have had some very kind words for me and I appreciate them. I can’t help but think that had you been given the same set of circumstances, you might
    have perhaps made choices similar to ours. If the goal is to renounce/relinquish US citizenship there is really only one course of action to take, the one you’ve successfully navigated, congratulations. But to encourage non-complaince, regardless of how noble the reason, is to recommend a route that will never end in the freedom from having to pay tribute to a country that hasn’t earned it. It makes me absolutely sick that we have to give them a share in the profit of out house in Canada, when we never asked anything of the US throughout our ownership of it. But when we decided to come forward, we would do so in honesty or not at all. Not disclosing the source of a significant amount of income is simply suicidal in an audit situation. And that would put us in the same league as those SOB’s who landed all the expats in this intolerable situation in the first place.
    I can’t wait until this is all behind me, because it weighs so heavy on my psyche and I think I’m getting battle worn and a bit strange. Some say I have Cadillac problems, they don’t see the persecution. You may not have had to suffer a huge monetary blow, but you’re just lucky and I suspect you would have taken a hit in order to be where you are today. There may be a long period of adjustment for you, not having this dragon to slay anymore (but feel free to continue for the rest of us!) I am curious to hear about your journey into the light, if you’d care to share it. You’ll be the encouragement some of us need to plow forward.

  43. @ bubblebustin I am around. I may not post something every single day, but I’m not going to quit. Besides, I still have to sort out the IRS. They still think that they own me.

    Also, don’t be too sure that I would have paid capital gains on my house to the United States. One major reason I considered relinquishing US citizenship was that I learned that TFSAs were subject to US tax. Also, it was whenI found out about HEROES (2008) and its exit tax that I decided to relinquish. I may not be super rich, but I hate paying taxes, if there is a way out. I have no qualms about paying cash for something, if that’s what someone wants. I grew up in Alaska. Washington DC was far far away and we didn’t really consider their sovereignty over us to be very legitimate. Some people even rebelled against the federal government. The majority resented it–especially the democrats because of D2 lands.

    Even in an audit, I don’t see how the US government is going to find out. I’m not doing FBAR either, so they don’t know my highest balance in my accounts, which is none of their business, and if they want to know what’s in them, they better bring an armed special agent to my door with a specific warrant.

  44. @petros I see you are guided by your principles, as I am by mine. We are all paying a price in some way or another. For us, it includes a great deal of our resources, for you, potentially your freedom to reenter the US. Time will tell whether the US will capitulate and let you go of their “ownership” of you. Imagine the precedent that would set if you are successful! Are you willing to live in purgatory forever? Thanks again for your unwavering steadfastness, and I apologize for not immediately recognizing you’re going for a greater prize.

  45. @ bubblebustin Purgatory? I live in one of the best places in the world to live. The only thing is that I am loathe to go to the United States. That’s not really purgatory.

  46. @ bubblebustin who wrote: “It makes me absolutely sick that we have to give them a share in the profit of out house in Canada, when we never asked anything of the US throughout our ownership of it.”

    I don’t know what your situation is exactly but since May 1997 any “US person” who sells a primary residence is allowed a fairly generous exemption on capital gains. This ruling came just in the nick of time for us when we sold our US home later that year. You are probably aware of this but just in case anyone else isn’t, here’s the pertinent section from Publication 523 at http://www.irs.gov/publications/p523/ar02.html

    Maximum Exclusion
    You can exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true.
    * You meet the ownership test.
    * You meet the use test.
    * During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
    For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later.
    If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.
    You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons.

  47. @em, you are absolutely correct, but you need to consider that our house was in Vancouver. Suffice it to say that the value of our home tripled over the years we owned it and the
    exclusion did not cover all of our net gain. We would have been better off having sold prior to the new exclusion rules, as we plowed everything into building a new home. Under the old rules: “If a taxpayer realized a gain on the sale of his old principal residence, the gain was not taxed if he purchased a new principal residence within a specified replacement period at a cost that equaled or exceeded the adjusted sales price of the old principal residence. If the cost of the new principal residence was less than the adjusted sales price of the old principal residence, all or a portion of the realized gain was taxed.”

  48. Sorry bubblebustin, but maybe the information will help someone else. The 1997 ruling was very welcomed by us for another reason. We paid cash for all the materials for our US house, hauled those materials 50 miles up to our mountain “estate” and built the house with nothing but our own labour. It would have been a nightmare trying to prove a “base amount” for that house with only a large shoebox full of material receipts and in the eyes of the IRS, labour counts for nothing if it is your own labour. As it turned out we didn’t have to go through that because the house sold for less than the exemption, even assuming zero for a “base amount”. Our good luck turned out to be bad luck for you and it should never be a matter of luck, only fairness.

  49. @Steven John Mopsick and all, I just read my story again and am afraid that I may have unintentionally misled some readers by stating:

    “we needed to be able to enter the US freely for personal reasons and do business with Americans bringing funds to Canada.”, implying we needed to enter the US to do business with Americans, although that would have required the word “to” before “do business” to have correctly implied that. It would have been less ambiguous to state: “We needed to do business with Americans bringing funds into Canada and to be able to enter the US for personal reasons”.

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