The IRS and OVDI: Unintentional manslaughter or intentional murder?

Cross posted from RenounceUScitizenship

The IRS has proudly trumpeted OVDP and OVDI as successes. Both programs were understood to be attempts to go after “big time tax evaders”, “whales”, U.S. residents who were using “offshore bank accounts” and entities to hide income from the U.S. Treasury. That has been the conventional wisdom up until now. Of course, these programs also have had “well known” and “well documented” side effects. Specifically the “collateral damage” suffered by U.S. Green Card holders and U.S. citizens living abroad. But, of course as good Americans, we understand that this “collateral damage” is  understandable, completely appropriate, and a necessary incident of good citizenship. To put it simply: A good American citizen or Proud U.S. Green Card Holder, should be prepared to suffer this “collateral damage”. Your “collateral damage” is your “Contribution to America”.

Conventional wisdom has been that U.S. citizens living abroad are victims of OVDI collateral damage. Conventional wisdom has been that U.S. immigrants are victims of OVDI collateral damage. But, are these expats and immigrants really “collateral damage”? What are the real motives of the IRS? A recent post on Phil Hodgen’s blog is enlightening (presuming that it is true). You will find it here:

This incredible story, about an immigrant being chased out of the U.S., was heavily commented on at both the Hodgen blog and the Isaac Brock Society. Even a former IRS attorney referred to this as an outrage. When it comes to the intentions and credibility of the IRS,  people are starting to presume the worst. People are prepared to believe that the purpose of OVDI was and is nothing more than a “shake down”.  People are starting to believe that U.S. citizens living abroad and Green Card Holders either were or became the intended targets of OVDI. This is sad. The IRS cannot function without trust. But the facts really are starting to speak for themselves. After all, the IRS has done nothing to assist the thousands of minnows, who were victims of bad legal advice. The IRS has allowed Ambassador Jacobson’s 70 year old Grandma to be victimized by OVDI. The IRS even reactivated OVDI. When they reactivated OVDI, they promised special procedures for U.S. citizens living abroad. Those guidelines have not arrived (we are well into tax season). Once again, the IRS has become an obstacle to tax compliance. But, then again the IRS hasn’t responded to Nina Olsen’s TAD either. What’s a poor patriotic American taxpayer (who just wants to be in compliance) to believe? As Nina Olsen says:

The Silence Was Deafening!”

The IRS continues to be unresponsive. It’s as though they are demonstrating the “full ostrich” to taxpayers. The IRS must take affirmative action to clarify its position! It’s obvious that the IRS needs the taxpayers a lot more than the taxpayers need the IRS!

In the last week there have been two thought provoking comments at the Isaac Brock Society. Comments tend to be buried. But, these two comments are worth a post themselves.

1. How can a group be “collateral damage” when penalties for them are spelled out in the OVDI FAQs? In OVDI 2011 the IRS wanted 5% of the net worth of people who did not even know they were U.S. citizens.


Thanks for coming back here… You are right about those “Sailing Permits”. Right now, in some Carl Levin amendment buried in some bill, is a provision to add a 10K non willful penalty for failing to obtain a Sailing Permit! I can see it happening…

btw, good response to Jack on the OVDI penalty structure. I could feel your ire rising.. :) And you were absolutely correct… Good reply.

For those who didn’t read it…. Here it is…

MobyMar 22, 2012 12:03 AM
@ Jack…. you said…

“You are mistaken if you think this is an initiative to get the weak and the powerless who have no political power. Its principal aim is to get major tax cheats and the penalty structure is designed to incentivize them to come in.”

I must strongly disagree with this point. FAQ 52 of the 2011 OVDI specifies the 5% penalty for people that were unaware of their US citizenship. This is ***THE*** smoking gun that the IRS is intentionally shaking down the little guy. There can be no one on this planet who is less culpable in this matter than someone who is not even aware of their US citizenship. Rather than let these people of the hook, the IRS specifically called them out for application of penalties. This sets the baseline culpability:penalty ratio for the IRS effort. The most-innocent-of-innocent get the 5% penalty; people who are “less innocent” (recent immigrants, unsuspecting expats) obviously must pay more.

There was a time that the IRS could have claimed the moral high ground on who the targets were for OVDP/OVDI. They could still have claimed that they were targeting the bad actors. That time ended around the close of 2009 when they would have become fully aware of the true nature of the participants after they sifted through the stack of 2009 OVDP applicants. They could have (and should have) given all the benign actors an immediate and proactive pass on the penalties. Instead they chose to double down by further specifying which subgroups within the benign actor classification would be targeted for penalties.

As far as I am concerned the IRS have fully clarified their position on the benign actors and it is a disgraceful position. I have been fortunate in my opt-out result and I hope that others follow suit and get the equivalent treatment. However, I will always be wondering what my opt-out result would have been if I wasn’t living outside US jurisdiction, making the assessment of any penalties irrelevant.

2. Who is/are the real targets of OVDI and FATCA?

(Note that the following comment was also discussed by Petros in a brilliant post about bears and other animals (or was it about animals?).

On the glass half full front, it was good to see the question raised, but the response and the intent of Congress Statement by Geinther just made me sick to my stomach.

Maybe I should give him the benefit of the doubt, but I think that time has now passed. As slow and measured as he was in this response, that was not a slip of the tongue. He knew exactly what he was saying.

“We are working very closely to try to meet the Congressional intent in making it harder for American Citizens overseas to avoid US taxes without putting undo burden on their ability to have a bank account for example…”

That was a such a deliberate expression and no one on that committee challenged it, I have now stepped across the line in giving him any benefit of the doubt. This is no longer “involuntary manslaughter” to be a bit hyperbolic here! :)

Further, when it comes to intents of Congress, he pays NO attention with his IRS DATCA imposition on US Banks. As Congressman Charles Boustany, Jr., Chairman of the Ways and Means Subcommittee on Oversight said in his September 27, 2011,

“Congress has long had the opportunity to legislate reporting requirements on deposit interest, and has declined to do so. In the waning days of the Clinton Administration, the IRS attempted to put in place similar reporting requirements. After Congress, the Federal Deposit Insurance Corporation, and the U.S. Small Business Administration raised strong concerns, the proposal was eventually withdrawn. It is disappointing to see the IRS once again try to impose unnecessary regulations and costs on U.S. banks.”

So intent of Congress only matters to Geithner, when it is his intent, and clearly it is his intent to go after Citizens abroad who he considers to be tax evaders.

I revise my previous statements which gave him/them the benefit of the doubt or chalked up these OVD activities and FATCA to “unintended Consequences”. Those abroad are not Collateral Damage, but were clearly prime objectives of this legislation and the offshore Voluntary Disclosure processes. Clearly he, Geithner, knows what he is saying and what he is doing.

Expats abroad, be forewarned. They are playing a serious game here, and compliance or denunciation are your “black and white” choices. Both come with great cost emotionally, financially and with LCU expenditure. After a long conversation with a progressive friend back in the States yesterday, if he is any example of the majority of progressive Americans, he doesn’t get it, nor does he care. In the myriad of issues he is concerned about in America today, Citizenship taxation doesn’t rate 2 seconds of time and attention, and he is all for DATCA! I have to say, I understand why he thinks that way. As he scornfully said, “If this is such an important issue, where are those GOP leaders of individual freedom and Democracy speaking up for your issue?” Answer, there are none!

So, like when I went sailing and launched offshore for the first time, once out there, you are on your own! You have to make your own decisions and chart your own course. If you want to cling to the shoreline and be part of the US Exceptionalism Club, then these are your choices, “Complain but Comply or Renounce.” Ignoring, evading or doing the full Ostrich, over time, given the current trends, is going to turn out badly for you, in my opinion.

JustMe advises that you have two options:

“Complain but Comply” or “Renounce”

Nina Olsen of TaxPayer Advocate has noted that it is almost impossible for U.S. citizens living abroad to comply with U.S. tax requirements.

The logical conclusion is:

Renounce U.S. citizenship and rejoice!

Remember to bring yourself into tax compliance first!


26 thoughts on “The IRS and OVDI: Unintentional manslaughter or intentional murder?

  1. We have the inescapable expert opinion of Nina Olsen, Taxpayer Advocate, that it is almost impossile for a US citizen to survive overseas. So that narrrows the decision down to one of two possible cholces, either return to the US (which for those US citzens those born abroad who have never been in the US in their entires lives, emigrate to the US and start life all over), or renounce your US ctitizenship.

    There is no other nation on the face of the earth that consders itself to be a champion of Universal Human Rights that forces its own citizens to make such a dracionian decision.

  2. On the other hand, if FATCA is really going to be fully implemented, there will be growing niche for US-compliant financial products. There will be a lot more accountants getting in on the game so prpfessional preparation fees should become more affordable due to the increasing competition.

  3. I guess the people involved are: Amricans Living in the USA with Foreign Bank Accounts, Americans Living Abroad who of course have Foreign Bank Accounts, Dual Citizens Living in the USA and Abroad with Foreign Bank Accounts, GreenCarders living in the USA and abroad who have Foreign Bank Accounts, foreigners with work permit in the USA who have Foreign Bank Accounts back home, I am not sure how many people will be involved in this FBAR and FATCA business. Any guess? I thank Roger for his participation and advices. I think he is right. It is impossible to be a dual citizen living back home and having to file IRS return every year. It wil take the whole year, a lot of aggravation, lost sleep and possibly mental depression. What I am curious about is how come Americans Living Abroad are not more visibly protesting and joining ACA.

  4. @markpinetree, Thank you for your kind comments. I have been a member of ACA from almost its beggining some 30 years ago, and it has been my honor to have been elected as a member of its board of directors for the past several years. Although it has been 35 years since I returned back to the US after living and working abroad for 11 years, I remain very much interested in the tax issues which made me decide to return and have done so much harm to the best interests of the US around the world and worked such hardships on those who live abroad.

    I do invited you to visit the ACA website It is a non-profit volunteer organization with members all over the world, The membership rates are modest, there is a discount for senior citizens and you can join and pay the membership fee on-line with your credit card (even though may be issued by a non-FATCA compliant financial instiution.) Membership will bring you via email the regular monthly bulletins on what is going on in the world that affects Americans living in other countries.

  5. @Renounce… I think you meant to say… The IRS cannot function withOUT trust. 🙂

    Thanks for digging out the Moby observations from my comments and highlighting them with this post. He has made a valuable contribution to understanding what is happening in the OVDP. Especially sharing his Opt Out letters..

    I might start posting those observations around in other appropriate comment sections of my posts so that others might come across them as they are doing their personal drudgery.

  6. The fees may come down when there is more competition, but remember that the professional tax preparers have to sign these returns and in so doing they now accept a high degree of responsibility for the accuracy of what they sign. With the high penalties if inaccuracies the preparers are ging to have to take into account that it is going to cost them money if everything is not letter perfect. As Just Me says it is still going take several weeks of wages to pay for really competent professional assistance and with verifiable references you will want to check out in advance. This is not where you want to buy a pig in a poke.

  7. With all due respect to Mr. Conklin, this might be an appropriate time to ask about ACA’s current position on relinquishment and renunciation. When I raised this question with ACA’s directors a few months ago, I was told that ACA cannot be seen to endorse or condone this kind of behaviour because it would undermine their lobbying efforts in Washington. The message seemed quite clear to me – we must continue to try to work within the system rather than admit defeat and counsel our members to instead flee the system itself.

    Mr. Conklin, can you shed any light on this topic and confirm if this is still ACA’s official policy? If so, how much longer will the organization continue to willfully ignore the growing reality of renunciations and relinquishments worldwide? While I respect the many fine efforts and dedication of ACA members, I have a problem with the organization’s intentional efforts to downplay or ignore the fact that a growing number of expats are now voting with their feet – realizing, quite rightly, that nothing is likely to stop FATCA nor the United State’s suicidal march into financial and diplomatic Armageddon.

  8. I for one want to try and work within the system unless I honestly see no other way out. What I hate about all the renunciations is that nothing will ever be reformed if everyone just quits and flees instead of fighting. I still love my country and for me to even have to consider renouncing is so evil of them to even have pushed me into that dilemma.

    Maybe I’m a fool but would like to think that a judge would look more favourably upon someone who has made an honest good effort to put things right and become compliant because at least such an individual is being loyal and honorable.

    I do understand why people want to renounce because on a pragmatic level, it probably makes sense financially. But given the current mindset, I wouldn’t put it past Congress to become vindictive towards renunciants (probably less so relinquents) and perhaps start enforcing the Reed Act.

    I know many here could live with never going back, but I need to know I could always easily visit. I don’t want to be exiled from my homeland. I also understand that if I renounced that my niece and nephews would face extra estate taxes on my estate.

  9. @JustMe

    Thanks for pointing the typo.


    This is like living with a violent spouse and you respond by trying to not antagonize them. Do you think this is an appropriate analogy? You are one of the lucky ones – you have dual citizenship.


    The IRS might accept that your failure to file FBARs has not (in the past) been willful. Now, since more and more people know of FBAR it will easier for the IRS to ascribe knowledge of FBAR to you. Now, it might be that at the beginning of OVDP the IRS did not realize how they were affecting innocent minnows abroad. It is no longer possible for them to claim that they don’t know. Their own Taxpayer advocate as made this clear to them in a public way. And following that lesson, what did the IRS do? Reactivated OVDI and once again has failed to follow through with its promised procedures for dual citizens.

    Conclusion: The IRS is NOW knowingly setting its sights on U.S. minnows abroad to shake them down. Even TaxPayer Advocate has made this clear. Yet, they continue.

    For me this is a very very painful realization. Please somebody show me why I am wrong.

  10. @Deckard1138, Please excuse the delay in this response to your very important question you posted earlier today. I can assure you ACA is deeply concerned with these events and is taking action to address them to the very best of our ability. Jackie Bugnion, the member of the Executive Committee of the ACA board of directors whose focus in on tax issues, has provided me with the statement which I have pasted below:


    ACA recognizes and often refers to the increasing number of renunciations in our documents, and we link this directly to FATCA and citizenship-based taxation which together make it very difficult, if not impossible to live overseas as an American.

    What ACA does not do is publicly encourage renunciation because it would cut off our potential contacts in DC. But personally, in just the last week I have had three conversations with individuals who are planning on renouncing and I send them the website reference and let them know what I hear from others. But the ACA website does not have a specific topic on renunciation, nor the link to the good websites out there on the topic.

    ACA is cooperating with the American Ambassador in Switzerland in a series of “Town Hall” meetings. The issue has been raised more than once about the desperate situation in which some find themselves and about how they are being forced to choose between their family and their U.S. citizenship, between a career opportunity and their U.S. citizenship. The Ambassador has heard it all and confirms the increase in the number of renunciations. The outcome of these townhall meetings should be a report of the Ambassador sent to the President and administration and to all members of Congress. So the reality of the issue is on the table.

    ACA is not an ostrich on this issue; it simply does not advocate it publicly.

    I hope this helps.


  11. @renounceuscitizenship

    You are not wrong. It is so obviously clear now, that even the blind can see. My rose colored glasses have been removed! LOL

  12. @ Roger Conklin

    Thank you very much, sir, for clarifying ACA’s current position on this subject. I appreciate you contacting Jackie directly for an update. I’m now satisfied that ACA is aware of and doing its best to balance the reality of renunciations and relinquishments with its desire to maintain its carefully-cultivated contacts in D.C. As long as they provide general links to other sites, like ours, which do provide plenty of resources for those contemplating renunciation or relinquishment, then I agree that’s about the best they can be expected to do at this time. Cheers.

  13. @ all
    I have read several statements and interviews, and listened to some podcasts with Jackie Bugnion from ACA.

    She is really first class and very down to earth.

    ACA obviously approaches the issues from a different perspective than many of the people on this blog. But I would like to really commend them for their recent proposals to Washington.

    If you are out there Jackie, thank you. Keep up the good fight!

  14. @Ben Franklin..

    I just wanted you to know that I have amplified your comments and made sure that Jackie saw them. She is modest, and generally doesn’t comment on blogs, so please don’t be put off by the silence. There were many seconds to your expression above that occurred on email as a result. It is was very kind of you to point the attributes that you so rightfully identified.

    When I was in the midst of depression over the OVDP lack or reason and progress, I discovered ACA. I can’t remember exactly how I met her, or how we struck up an email exchange. Maybe it was Phil Hodgen that suggested I contact them/her.

    However, it was she who reached out and called me in NZ to discussed some strategies for how to deal with the seemingly unscaleable obstacles that the IRS placed in front of the minnow with their OVDP. In fact, it was she who suggested the TAS to me as a possible relief valve. That idea was never mentioned by any practitioners that I consulted with or read, and ultimately her advice was right on the money, at least for me at that point in time. This was prior to the Opt Out process.

    I am glad you have identified her contributions and given her the kudos she deserves….

    Here are some others commendations I have received without attribution, as I don’t have their permission to reproduce.

    “Jackie is our David in the face of the biggest Goliath who has ever confronted our overseas citizens. We’re 100% with you!”

    “Jackie as always is the “voice of reason” when she meets with those in Washington. She is always measured, focused and knowledgable on the issues and problems. Thanks Jackie for all your great work!”

    “I add my applause too. Jackie is unique and a treasure for all of us.Many thanks and many hugs, Jackie!!!”

    “I wouldn’t be much of a singer if I didn’t join the choir in singing Jackie’s praise. Her patience and measured approach to dealing with people who are irrational (that wasn’t the word I was going to use, but I thought a modicum of decorum was appropriate) is inspiring and instructive. It is an honor to play on the same team with Jackie as our coach.”

    “Hear, hear! Jackie is pure gold, and has built up a varied group of people in DC who hear and sympathize with what we say on a broad base of tax-related issues. And they know she listens as well as talks. She is time and again sucked into all this beyond the limits of “reasonable” commitment.
    Bless her!”

  15. @Mona: The Reed Amendment can be used to ban people from the US who have been “determined by the Attorney General” to have renounced in order to avoid taxation by the US. I think you’d have to be a rather large whale in order for the Attorney General’s department to personally examine your case and decide that you’ve renounced in order to avoid taxes.

    I did not renounce in order to avoid taxes (I never ended up owing anything anyway); I renounced because being a US citizen abroad made my life unnecessarily complex. There is no law against that. Even the Consular at my renunciation ceremony wished me the best of luck. Even if I had ended up owing some taxes to the US every year it would not have caused me to renounce my citizenship. It wasn’t the $$$ but the LCUs that motivated my decision to give up the blue passport.

  16. @Rodgrod, you’re probably right about the Reed amendment focussing on whales. But I would be concerned that there could be a long period to wait for a CLN which could make travelling to see my parents difficult during that limbo period.

    I also am scared that I might get harrassed from the border guards. There’s also the issue that my niece and nephews would face a large punishment tax on my estate if they were receiving an inheritance from a renunciant.

    I am not completely ruling out renouncing but want to consider all the other options before making such an irrevocable decision. Obviously if I had no ties it would be a much easier decision but there you have it.

  17. @monalisa1776. The punishment tax on the estate of an overseas renunciant is an area which which I am not familiar. Can you or anyone else bring me up to speed on this aspect of citizenship renunciation? Many thanks.

  18. @roger: “Can you or anyone else bring me up to speed on this aspect of citizenship renunciation?”

    Google “irc section 2801”. In summary, recipients of gifts and bequests from a covered expat now have to pay US estate tax on the amount received, at the highest estate or gift tax rate in effect at the time.

  19. keyword is COVERED expatriate. if the expatriate has less than 2 million and is compliant before expatriation, the recipient pays nothing.

  20. The answer is no. Us law basically taxes the estate, not the recipient. When your parents die ( I prefer the euphemism ‘finish the back nine’ ), their estate pays estate taxes. There is an exemption which is currently 5 million dollars. This exemption could change at the end of 2012 with the expiration of the ‘Bush tax cuts’ Nobody knows what the exemption will be after 2012 but the best guess is that it will stay the same.

    After the exemption is applied, the TOP tax rate is 35%. Not the minimum rate or the average rate- the TOP rate. i. e. lets say your parents leave an estate of 10 million. The taxable portion is 5 million and tax owing is 1.75 million. I.e. you would inherit 8.25 million

    This is overly simplified. There are other deductions, possible state estate taxes and so on.

    The important thing is that the tax is paid by the estate. Then the balance can be paid to a US citizen resident, a US citizen non resident, a former US citizen non resident or the man in the moon. IT MAKES NO DIFFERENCE WHETHER OR NOT YOU HAVE EXPATRIATED.

    There is a difference for your parents estate passed to you as opposed to your estate when you die.


  21. @watcher, you ask, as have others, how renunciation of US citizenship affects inheritances from persons who die in the US and also to the estates of ex-US ex-citizens who have renounced and whose assets are abroad. These are of course very important quesions, but unfortunately I have absolutely no knowedge in this area. I suspect that this is an area where you would need to obtain legal advice from a source which undertans both US law and the laws of the other country. I don’t know, but suspect that there may be conflicts in the laws of the US and those of the other country..

  22. @Chester, thank you for that clarification. So it appears that I would still inherit from my parents without losing anything if I expatriated which is a huge relief. However, I wouldn’t want my niece and nephews to lose out. I feel that it’s only decent to try to pass most of what I’ll inherit eventually onto them and only go into that money for emergencies.

    I’ve also learned something really weird: that the UK has a notion of not only tax residence but tax domicile. They apparently could still deem me as US tax-domiciled in spite of also holding a UK passport…this could mean that when my UK husband dies that I could face death duties on his estate on I believe anything above 55,000 pounds sterling (about $95,000).

    It’s all so bizarre. To be honest, I’m getting so fed up with all this…it seems I could well be screwed by both the US and UK tax systems due to my dual nationality. However, as I understand it, because they base domicile on your birthplace and father’s nationality, I could still be considered US domiciled even if I only held the UK passport.

    It gets so bloody complicated. But the sun’s out, my spouse is cooking me a delicious brunch, and I will be going for a nice long walk. Life has to carry on. 🙂

  23. Pingback: The agony of U.S. citizenship for U.S. citizens living outside the U.S. « Renounce U.S. Citizenship – Be Free

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