My response on Jack Townsend’s Open Forum Comments to Congress and IRS Regarding Tax Administration for Offshore Accounts (4/9/12)

Like Petros, I have taken the opportunity to place a comment on Jack Townsend’s invitation to comment on an Open Forum. Below is my comment awaiting approval:

Open letter to IRS Commissioner Shulman,

I am taking the opportunity Jack has provided to address you in an open forum.  I have written you twice before, once at the beginning of the 2009 OVDP, and once again as I was nearing completion of the OVDP in 2011.  In that final letter, I was starring at the penalty abyss at the end of a long process you now tout has highly successful in both a compliance objective, efficiency, and in generating new revenues.

I must respectfully disagree.

While the responses to my letters were appreciated, the lack of any serious consideration of my pleas at the time greatly disappointed me. I naively believed that you too would see the “Bigger picture” of the compliance problem that I was seeing.  I was being directed into a program not appropriate for a minnow like me. However, the language of your FAQs left a person who was now aware of a benign compliance failure with almost no option but to enter the OVDP.  On advice of counsel, I did. In retrospect, that probably was the wrong decision.

My two letters are publicly published, so all can see my attempts to communicate a desire to do the right thing. I wanted to become compliant without suffering disproportionate penalties as a result. The OVDP did not provide an efficient route for such an effort.

The purpose of this comment is make six (6) specific recommendations for modifying your programs on a go forward basis.

As a preface to these recommendations, I want to ask five (5) basic questions about your claims of success not asked by any journalist in any publication to date.  Hopefully they will promote some “self reflection” on how effective your OVDP/OVDI programs have been if “compliance and efficiency” was really the goal when you launched them.


What conclusion can one draw about the efficient use of IRS and Tax payer time, if a process to bring a non willful minnow into compliance, takes 851 days from start to final reconciliation?

As a leader of a large business, as I have heard you describe the IRS on C-span, this inefficiency should concern you.  If it takes that long to process a U.S. person who was not willfully evading taxes by hiding funds in secret accounts offshore; whose failures were due to benign inattention and lack of understanding of the unique nature of U.S. Citizenship taxation; and who had no knowledge of FBAR requirements, wouldn’t a reasonable person naturally question what is wrong with process?

I have read your recent address to the National Press Club, where you speak favorably of your ‘myopic’ focus on priorities. I would respectfully suggest that this focus on offshore accounts has led to ‘willful blindness’ on your part. You seem unable to see the far reaching negative effects of a policy that, in opinion of many respected tax attorneys, the National Tax Advocate and ALL minnow participants in your program, has been terribly misguided in its application.

Was there not a better way to “front end” filter the non willful minnow rather than grind them up in the process with only a “back end” Opt Out relief added ~19 months later, on June 1st 2011, which has proved to be such an inefficient use of IRS and Tax payer time?

Your current programs certainly fail the efficiency test. It has wasted examiner time. It has taken an extreme and unnecessary toll in emotional capital and Life Credit Units (LCUs) of taxpayers which do not show up in any revenue stats or on a reconciliation spread sheet.  That cost alone was a significant drag on efficiency, good will and compliance.


If compliance is an objective, why won’t you release meaningful stats to support that claim?  We want to judge the actual effectiveness of your punitive approach to compliance as contrasted say, with an alternate educational outreach strategy which could have included a real amnesty for benign and non willful FBAR and offshore income tax reporting failures.

– Questions:

So far you have given us two numbers as evidence of success.

33,000 total participants and $4.4 Billion in revenue collected.

Even the novice accounting 101 student knows that two numbers do not a story make!

Single total numbers without comparison stats have no meaning.  We need other numbers for context. So far you have failed to provide additional statistics either voluntarily or by FOIA requests.  We need percentages. We need historical comparisons. We need participant data. We need unit measures. We need original goals.  Without these, we can not assess your characterizations of success.

Question  1.

Of the total population of OVDP /OVDI participants, what was the Minnow to Whale ratio? 

To judge success we need to know what portion of the total were your target UBS type evader Whales who was deliberately engaged in evasion schemes by hiding millions in secret accounts offshore? What portion was just the Minnow expats and immigrants who recognized their compliance failures and wanted to “do the right thing”?  Were Whales 30% of the population or 70% ? Were Minnows 10% or 90% ?  A Minnow to Whale ratio would give us and you a better an indication of the success of your VDP efforts.

By extension how many participants had overseas addresses and how many were relatively new immigrants to this country as compared to the “Homeland” evader demographic we think you were targeting?

Question 2.

What was the actual increase in FBAR compliance as represented by a percentage?

I.E., did we go from 3% to 4%, or 2% to 10%, etc?  What compliance percentage would you consider successful?  Are you targeting 10%, 30% or 90%?

Any claims of success must show this. Surely you must have estimates of what the total population of FBAR filers “should be” that you can now compare to the increases that have occurred as a result of your efforts.  What was the starting base line, and what is the 2011 FBAR compliance number now?  Please provide us some hard numbers to calculate percentages.

Question 3.

Was there any FBAR educational outreach effort you could have employed that would have been more effective in increasing compliance, if that was the goal?

Did you follow any of the Enhanced Outreach and Educational Guidance , as issued in the Secretary of Treasury Report to Congress April 24, 2003?

There are 10s of millions of expats and immigrants that have normal funds in their home country or country of residence for many reasons unrelated to hiding funds from the IRS offshore.

Where was the educational effort?  Why were so many caught totally by surprise at your sudden enforcement of an administrative form we had NEVER heard of.

Question 4.

Of the total revenues collected, what was new taxes collected and want was just FBAR or “in lieu of” penalties? 

Are you being effective in getting new tax streams, or are you just co-mingling penalties and tax revenue with no recognition of the distinction?  What portion of these revenues are just a one-off ?  What portion will be re-occurring?  I.E., if foreign tax credits from high tax countries offset U.S. taxes, then what is the re-occurring income tax R.O.I. for all this enforcement effort?

Question 5.

What was the “cost vs benefit” analysis that you did prior to launching these VD programs to show that such extensive use of IRS examiner resources was a cost effective way to increase compliance?

You say you are a BIG business, so that is what a BIG business would do!  It seems like your VDP with all its ‘examiners’ has been very expensive to operate. How has the cost/benefit analysis compared to the actual cost of operating the program with its lengthy processing time?

What is the average processing time of a taxpayer from “get to go”?  In my case it was 851 days.  Am I the ‘mean’ or an ‘outlier’?  What did it cost the IRS to process me versus the TAS negotiated reduction you took from me for a benign failure?   What is the average processing cost per participant?

I know you are leaving office soon.  Before you go, I ask that you just take some self reflective time to ponder the answers to these questions above.  Honestly reassess if there isn’t a better way of creating an atmosphere of compliance and additional revenues without resorting to such an inefficient approach.

I think any objective observer, without a personal investment in creating this process, would see that:

The IRS application of a ‘one size fits all’ OVDP penalty regime for minnows is inefficient in process, punitive in application, confiscatory in practice, destructive of the IRS trust and not positively corrective in its compliance objective.

-Here are my 6 Recommendations for the IRS


Man up! Re-establish badly damaged IRS credibility and trust.  Affirm Nina Olson’s TAD on the “bait and switch” nature of the 2009 OVDP.  Respect the spirit of the law which created the TAS and respond publicly.


Redesign the OVDI program to either, have a front end opt out for minnows utilizing normal IRM discretion, or reinstitute FAQ 35.  Alternately, allow quiet disclosures for non willful, non criminal behavior so benign actors  have an easy route to compliance.


Design a positive educational outreach as the Secretary of Treasury said you were going to do back in 2003. Do not be just penalty/revenue focused, but work to positively engage and encourage compliance of those that remain unaware of the FBAR and the unique nature of US citizenship taxation requirements.


Work with Congress to eliminate the duplicate reporting of the FBAR and FATCA form 8938 for Homelanders.  Eliminate it for Expats. Take seriously those paperwork reduction notices that you print at the bottom of your forms.


Redesign the VD programs to model the Canadian approach which states this:

“The Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA. Taxpayers may avoid being penalized or prosecuted, if they make a valid disclosure:”

If you were not so short term penalty/revenue orientated in your VDPs, you might have better success in compliance outreach and actually generate more revenue over the long term than your current approach.


Finally, work with Congress to do away with the unusual Citizenship taxation model and move to a Territorial system in alignment with the rest of the OECD.  The U.S. is acting hypocritically when it enjoins UN resolutions condemning Eritrea for taxing its Diaspora overseas while doing exactly the same thing!  See SC10471

The cost of compliance and complexity of the citizenship model and the 2010 FATCA requirements associated with it, is very detrimental to the ability of U.S. Expats and GC holders to work and live normally overseas where they already pay taxes higher than in the Homeland. It also makes the IRS enforcement task practically impossible and strains your resources!

I encourage you to read this American Citizens Abroad (ACA) working paper on a Residency based taxation initiative which has been submitted to Senate and House Committees dealing with taxation issues.

Congress by Statute and the IRS by action have made pariahs out of its citizens abroad.  More and more they are finding the compliance hardship, costs and penalties (NOT THE TAXES) the biggest detriment to maintaining U.S. citizenship. It is coming down to stark choices for many to renounce or relinquish their citizenship. It is even a suggested option by the IRS’s own Branch Chief, from the Office of Associate Chief Council, Branch 1, (International)!

The Chief says… “If his U.S. tax liability and filing requirements are causing a hardship, he can consider relinquishing his U.S. Citizenship.  If he were to do so, he should be aware of some important tax consequences as explained in Form 8854, Initial and Annual Expatriation Statement. ”

I do not think that is what Congress really intends, but the search for revenues over seas is poisoning the international waters and turning Americans into ex-citizens not just expats.  Congress is losing the plot, sending its good-will ambassadors away, and when it should be solely focused on its territorial tax system, not a world wide one!

Thank you.


16 thoughts on “My response on Jack Townsend’s Open Forum Comments to Congress and IRS Regarding Tax Administration for Offshore Accounts (4/9/12)

  1. @Just Me.

    Thank you for your continued generosity to all concerned. Generosity of your experience, of your expertise, of the continued expenditure of your LCUs — and the strength you’ve given to so many to continue their individual fights, to not give up. I am sure, as well, you’ve saved more than one life, literally. It has been a privilege for me, personally, to have crossed paths with you, at this site Petros has set up.

    If your story and that of Petros and others are not taken into account by the US Government, all departments, it is a travesty.

    I thank everything that there are people like you, like Petros, like Nina Olson. I so appreciate your two latests posts, the other being the story of Nina Olson in the Christian Science Monitor —

    Where is the common sense? Where is the liberty and justice for all US persons abroad (expats, accidental Americans, immigrants, as well as the “homelanders”)?

  2. Well said but the US Congress is going to need some sort of crisis to change their ways. Otherwise that idiot Grassley and Company will continue peddling their toxic rubbish about ex-pats.

  3. In my case alone, in rough numbers our capital gain tax liability under OVDI is $65G plus $35G in associated penalties and another $50G’s for in FBAR penalties arising out of the sale of our principal residence. The IRS cashed our cheque for the tax and its penalty, but did not request the FBAR penalty. TAS has given us hope that we can use First time penalty abatement to eliminate $35G penalty, so already there is a discrepancy on what the total haul will be for the IRS. My MP John Weston said that there is a possibility that Article XXV of the Can/US tax treaty may eliminate the cap gain tax, but my lawyer does not agree. Is there anyone out there who can shed more light on this article of the treaty? I’ve asked TAS if their legal can look at it, but they can’t even open a file for us until we get a response from OVDI. Time will tell about he FBAR penalty.

  4. Wow @JustMe, thank you for sharing and posting that commentary:

    so well written and so many solid points made – some I had not even thought of. Plus the letter (IRS suggestion to relinquish Citizenship – Karzon) you attach re: “It is coming down to stark choices for many to renounce or relinquish their citizenship. It is even a suggested option by the IRS’s own Branch Chief, from the Office of Associate Chief Council, Branch 1, (International)!

    IRS suggestion to relinquish Citizenship” is an eye opener – particularly as I thought that we were never ever allowed to allude to anything that might connect relinquishing with any reference to taxation issues. Yes she, does mention that there are tax consequences, but she does not say that taxation or reporting is not a legitimate response to the problem.

    4/16 AM Edited by Just Me to remove IRS name reference due letter recipient request.

  5. Justme – I did a lot of searching on the IRS Chief name and I couldn’t find anything. YET I did find several fill-in-the-blank PDF files. They seem to be IRS cases where long-term US residents give up the green card to get out of taxes and the IRS goes after them.

    I would be interested in seeing some people like her mention that people should renounce / relinquish. I’m getting the feeling that they don’t really care about small guys. They want whales and they will throw us under the bus to do it.

    4/16 AM Edited by Just Me to remove IRS name reference due letter recipient request.

  6. @Badger and Geeez,

    Regarding the letter from the IRS Chief. If you downloaded it don’t publish anywhere else, as the anonymous recipient of this letter changed his mind about publication even though his identity is removed. I have removed the file for now, and will remove references to her name in your posts for now. Thanks for your understanding. Thnx

  7. Superb Letter Just Me! If Shulman had a fraction of the intelligence, logic and common sense that you do, something might change.

    I think we’ll be waiting a long time for him to “Man Up.”

  8. @bubblebustin – i may be in a similar situation.
    a) Are you in the ovdi or the ovdp?
    b) When you say “IRS did not request the FBAR penalty”
    what does this mean. This is usually at the end when they send
    you the closing agreement. SO have they sent you the
    closing agreement.
    c) As for the penalty abaement is this within the OVDI or do you need to opt out.

  9. as per my post above re the IRS official; I meant to say that I found it very surprising that they mention the possibility of relinquishing citizenship as a possible response to the hardship/burden issue as raised. ““If (his/her) U.S. tax liability and filing requirements are causing a hardship, (s/he) can consider relinquishing (his/her) U.S. Citizenship. ” – (followed by the note about the tax consequences). I simply thought that it would be totally verboten for them to even raise it in the same breath.

  10. @badger…
    The comment raises interesting questions. Actually, at a certain level it is stunning for the reasons you state. The attitude is almost “quit complaining and go away.” Now maybe that is too harsh of a characterization, and maybe the IRS person is just stating the reality of the situations and this is an emphatic statement… I.E., “Mate, There is nothing I can do about the Statutes that create this citizenship tax nonsense, so if it is a hardship on you, then maybe you should consider relinquishing your citizenship as I can’t change the law. ” Maybe that is what she was saying.

    @ Blaze… I am thinking of putting it in the mail and sending it to Shulman directly and copying Nina Olson, Obama, and my Congress persons. They won’t read it, but some poor IRS Director down the food chain will be assigned the task of responding for Shulman and I like making more work for them and wasting a few of their LCUs. 🙂

  11. Just Me and others,
    I agree. we need to keep writing this to as many people as possible and hopefully some of them would understand the monstrorous issue this is creating for expats and immigrants.

  12. @desi, you can read my story here and should answer your questions. If not, just ask!
    We have made our submission and are currently waiting for a response. I thought it was odd that our lady at TAS said that they’ve been negotiating within OVDI. I thought that the IRS considered it a priority to maintain the integrity of their amnesty programs by not allowing any negotiations within them. Is this for the sake of expediency or is something else going on here?

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