Posts Tagged ‘FBAR amnesty’

IRS finally realizes that not all taxpayers with offshore accounts are notorious tax cheats

Wednesday, June 27th, 2012 by Joe Kristan

After years of treating every American abroad like a high-rolling tax cheat for simply having a normal financial life, it has finally dawned on the IRS that not everybody with an offshore bank account is a tax cheat.  Janet Novack explains:

The IRS said today that beginning Sept 1., those expatriates, dual citizens and green card holders living abroad who owe less than $1,500 a year on unfiled 1040s will be eligible for special relief. They will only have to file three years of back tax returns. And while they’ll have to file six years of back FBARS, they won’t get hit with an FBAR penalty. Moreover, participants in certain foreign tax deferred retirement plans such as the Canadian RRSPs ( like IRAs) will be able to exclude the deferred income from their back returns.  In the past, these foreign residents were stuck  because they hadn’t applied for income tax deferral on a timely basis.

This is long overdue.  Many expatriate citizens lived a normal life, marrying overseas and opening bank accounts like they would at home, with no idea that they were required to file form TD F 90-22.1 if their account balances exceeded $10,000.  There are severe financial penalties for non-filing, but honest citizens — most of whom owed little or no tax — found themselves treated like international money launderers when they signed up for the so-called amnesties for international non-filers.  The IRS, caught be surprise at the wide interest in the program, sadly understaffed it and enforced it with what I call a “shooting jaywalkers” mentality.

Ms. Novack passes on a story of how the new rules will help:

Robert E. McKenzie, a tax partner at the Chicago law firm of Arnstein & Lehr and a Forbes contributor, offered an example of one of his clients who he believes will be helped enormously by the new relief.  She is a retired widow, has lived in Canada for 30 years, has $150,000 in an RRSP and another $150,000 or so in other Canadian accounts. Under the 2011 OVDP, the IRS had demanded a $75,000 FBAR penalty from her. Now, she should be excused from any penalty.

Why the IRS didn’t have a program like this from the start of its offshore enforcement pogrom is beyond me.  Better late than never, though.   Still, they have yet to set up a similar program for U.S. residents with similar FBAR problems, such as green card holders who didn’t realize that they needed to tell the IRS about their bank accounts back home, or American citizens who have inherited bank accounts from foreign relatives.  I guess when it comes to providing relief to innocent taxpayers, the IRS feels that it has to dispense justice with an eyedropper.

The details of the new program are in IR-2012-65, taking effect on September 1.  The IRS will apparenly announce ahead of that time details, like where and how to file under the new program.  Meanwhile, Americans abroad with offshore accounts can breathe easier and watch for the additional details to emerge.  Meanwhile, remember that 2011 Form TD F 90.22-1 is due June 30, and that a bunch of new offshore reporting requirements for financial assets not in bank accounts also took effect for 2011 1040s.

Related:

Jack Towsend: IRS Announces Penalty Mitigation for Super Minnow US Taxpayers Living Abroad; RRSP (6/26/12).

Prior Tax Update coverage:

Shooting jaywalkers, wrist-tapping GE

Wall Street Journal coverage of the great IRS jaywalker hunt

Associated Press, here are your tax cheats.

Shooting jaywalkers so we can slap the real criminals on the wrist

Darth Shulman to foreign account holders: I am altering the deal. Pray I don’t alter it any further.

 

 

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All offshore taxpayers look alike to Shulman

Monday, April 9th, 2012 by Joe Kristan

Jack Townsend explains the fundamental problem with how the IRS treats offshore taxpayers:

I wonder if the Commissioner really understands how misfocused the program really is.  Does he really understand the difference between whales and minnows, both of which he sweeps into the same net?  Punishment should not be the same for both.  Yet, the IRS offers a program of one size fits all, where the penalties [are the same]  for the whales (most of whom are really bad guys in terms of tax noncompliance) and the minnows (most of who are not).

Does he understand?  If the worst commissioner ever does understand, he sure has a funny way of showing it.

Related: Shooting jaywalkers so we can slap the real criminals on the wrist

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Jaywalkers flee the gunfire

Thursday, February 2nd, 2012 by Joe Kristan

From Andrew Mitchel’s International Tax Blog:

In 2011, the total number of expatriates was 1,781, a 16% increase from 2010. Last year had the highest number of expatriates since at least 2004 (when I started keeping these records), and perhaps the most in any year in U.S. history.
According to the I.R.S., an estimated five to seven million U.S. citizens reside abroad. Many of these individuals have never lived in the U.S. and never expect to live in the U.S. However, these U.S. citizens must annually file U.S. tax returns.
For example, I spoke with a Canadian the other day who was born to two U.S. citizen parents in Canada. This individual therefore is a U.S. citizen. However, he has never lived in the U.S. and never expects to live in the U.S. Despite that he has never lived in the U.S., he will have to file U.S. tax returns for his entire working life.

The IRS hits people like these — many of whom had no idea they were supposed to be filing — with severe financial penalties. Meanwhile, it provides relatively cushy deals with actual criminals through its OVDI program, because you have to shoot the jaywalkers to really slap the wrists of the serious offenders. No wonder the jaywalkers don’t want to play anymore.
Update: The TaxProf has more.

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Shooting jaywalkers, wrist-tapping GE

Thursday, January 26th, 2012 by Joe Kristan

GE just lost an appeal on a big basis-shifting tax shelter, to the point of getting hit with a 20% penalty. While that seems bad, Jack Townsend makes an arresting comparision of GE’s consequences from a “BS” shelter attempting to save GE over $60 million with the treatment of foot-faulters being hammered under the IRS pogrom against offshore tax evasion. From Mr. Townsend:

Was GE’s conduct in this case any more morally upright or commendable than most of the persons who have been herded into OVDP 2009 and OVDI 2011 with far more draconian penalties? Yet, GE drew a relatively light 20% penalty.

Because you have to shoot the jaywalkers to wrist-tap the bad guys.
Related: Darth Shulman to foreign account holders: I am altering the deal. Pray I don’t alter it any further.

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IRS begins third jaywalker hunt

Tuesday, January 10th, 2012 by Joe Kristan

News from the IRS yesterday:

The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.
The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.
“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation

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Taxpayer advocate tries to distract the jaywalker shooters

Friday, January 6th, 2012 by Joe Kristan

Practitioners, including me, have been saying that the IRS administration of the offshore disclosure “amnesty” has been cruel and incompetent. Apparently Taxpayer Advocate Nina Olsen agrees, reports Tax Analysts in a shocking, and unfortunately gated, report:

Arguing that IRS examiners treated some participants in the 2009 offshore voluntary disclosure program (OVDP) unfairly, the national taxpayer advocate has invoked a rarely used administrative tool to try to force the IRS Large Business and International and Small Business/Self-Employed divisions to change their audit procedures. That dispute has escalated and now awaits a final decision by IRS Commissioner Douglas Shulman.
At issue is whether the IRS must revoke a March 1, 2011, memo directing examiners to stop accepting less than the 20 percent offshore penalty as apparently permitted in OVDP FAQ 35 and instead instruct those examiners to assume a violation was not willful unless they can prove otherwise.

It’s not encouraging that the decision rests in the hands of Commissioner Shulman, who hasn’t lifted a finger to intervene in a process that has infamously treated Americans abroad and U.S. residents with foreign accounts as presumed criminals, hitting minor and harmless violations of obscure rules with absurd fines.
The Tax Anaysts story explains that the Taxpayer Advocate Directive is the biggest gun in the Taxpayer Advocate’s arsenal, and is rarely used. It says the IRS overrode a provision in its own amnesty with a secret (now released) memo ruling out leniency towards inadvertent violators.
It remains to be seen whether Commissioner Shulman will start to undo the damage. It’s a big job. From the Tax Analysts story:

Practitioners echoed Olson’s concerns that the missteps in the OVDP have implications beyond the program participants. “It’s all about long-term compliance,” said [tax attorney Mark E.] Matthews. As a result of the hard-line approach in the OVDP and the OVDI, as well as the coming Foreign Account Tax Compliance Act reporting requirements, foreigners have become convinced that the IRS is liable to be unreasonable. “It is not going to be easy to fix that,” he said.

Once you start shooting jaywalkers, it’s hard to get the others to cooperate.
Related: We will continue to execute jaywalkers ruthlessly, for their own good.

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IRS tells cowering jaywalkers that it might not shoot if they come out with their hands up

Friday, December 9th, 2011 by Joe Kristan

The IRS has earned a reputation for asserting harsh penalties on inadvertent violators of the foreign bank account reporting rules — an approach comparable to shooting jaywalkers to encourage traffic compliance. The IRS has now issued a slightly-reassuring “fact sheet” saying that it just might not hit you with penalties if you come in form the cold and had “reasonable cause” for not reporting.

Factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause include reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account, that the unreported account was established for a legitimate purpose and there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and that there was no tax deficiency (or there was a tax deficiency but the amount was de minimis) related to the unreported foreign account. There may be factors in addition to those listed that weigh in favor of a determination that a violation was due to reasonable cause. No single factor is determinative.
Factors that might weigh against a determination that an FBAR violation was due to reasonable cause include whether the taxpayer

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IRS to sue for peace in war against Americans in Canada; war against other Americans abroad continues

Monday, December 5th, 2011 by Joe Kristan

After bringing the nation to the verge of war with Canada, the IRS is preparing a retreat. Tax Analysts reports ($link) that the IRS is backing off of its aggressive approach to penalizing Americans in Canada who haven’t been reporting their Canadian financial accounts:

While the IRS spokesperson didn’t provide any details on what that guidance will provide, [U.S. Ambassador to Canada David] Jacobson said in the Globe and Mail interview that the IRS will make it clear that if a dual citizen living in Canada files a U.S. tax return late and owes no taxes, there will be no penalties for failure to file. The guidance also will provide that those who were unaware of the FBAR filing requirement will be able to file previous reports now, along with a statement explaining why they’re filing late, and that no penalty will be imposed if the IRS determines that there is reasonable cause. Finally, individuals who took part in the IRS’s 2011 offshore voluntary disclosure initiative or in the 2009 special offshore voluntary disclosure program will be able to get back penalties already paid, according to Jacobson.

That’s all well and good, but the IRS is still using the tactics that triggered the outrage in Canada on Americans worldwide. If it’s outrageous and unreasonable for Americans in Canada, it’s so everywhere.
Related:
Shulman’s great Canadian Pension Raid
Why IRS agents seldom transfer to the Foreign Service

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IRS menaces the Great White North

Thursday, October 6th, 2011 by Joe Kristan

The IRS Commissioner goads Canada into war — my new post at Going Concern.

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Associated Press, here are your tax cheats.

Friday, September 16th, 2011 by Joe Kristan

The IRS announced the preliminary results of the 2011 Offshore Voluntary Disclosure Program yesterday. The Associated Press disgraces itself with this headline:

12,000 tax cheats come clean under IRS program

Let’s meet some cheats:
A Canadian with an American parent who has spent his entire life in Canada, but who is inadvertently out of compliance with U.S. tax laws because he is a U.S. citizen and who faces ruinous penalties if the IRS can get ahold of him.
A 33-year old U.S. expat who moved to France when she was 20, became a French citizen, but who faces ruinous penalties for failing to report her French income and bank accounts to U.S. authorities.
Green Card holders who move to the U.S. for employment but don’t realize they are supposed to report all of their financial accounts in their home country to the IRS.
Second-generation Americans who inherited foreign property they never knew about who face– you guessed it– ruinous penalties under the FBAR “amnesty.”
So there’s your “tax cheats,” A.P. Yes, there are also some actual tax evaders that have taken advantage of the IRS program, but there are many inadvertent violators trying to get out from under penalties they incurred accidentally with no intent to evade taxes anywhere.
If the A.P. reporter ever accidently leaves a $10 1099 off his 1040, may he face felony tax evasion charges for being a “tax cheat.”
The TaxProf has a roundup.

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Why IRS agents seldom transfer to the Foreign Service

Tuesday, August 30th, 2011 by Joe Kristan

Now the IRS has done it. They’ve made Canada mad.
The pursuit of enormous fines for paperwork violations for U.S. citizens abroad has gotten bad enough that it threatens a diplomatic row:

For over a month, NDP MP Don Davies has been receiving worried calls from constituents with U.S. citizenship who fear the American government will impose severe penalties on them — up to 50 per cent of a major asset — if they don’t file their U.S. taxes by August 31, 2011.
“It’s outrageous,” said Davies. “Ninety-eight per cent of the people we’ve talked to are not trying to avoid paying U.S. taxes, but they have just had so little connection to the States so far that they didn’t even know they had to report to the IRS.”

Maybe it will take a firm stand by the Great White North against the IRS jaywalker shooters to restore a touch of sanity to the IRS offshore compliance pogrom.
Via Phil Hodgen.

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The jaywalker slayers would be more popular if they had a Twitter account

Friday, August 26th, 2011 by Joe Kristan

When billionaire Warren Buffet again climbed on his high horse to complain that other rich people should pay more taxes, fellow billionaire Harvey Golub was having none of it:

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Len Burman of the Tax Policy Center says that there is something to Mr. Golub’s complaint, but that he wouldn’t be so grumpy if the government just explained itself better — maybe with Facebook or something:

More importantly, the government does a terrible job explaining what it does well. I think in large part it

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Canada declines to shoot jaywalkers for IRS

Thursday, August 25th, 2011 by Joe Kristan

Russ Fox reports that Canadian revenue authorities won’t help US authorites collect the horrendous penalties they are collecting from U.S. citizens with respect to foreign financial account reporting. That should be a relief to at least one Canadian with a U.S. parent.

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Flight of the jaywalkers

Thursday, August 18th, 2011 by Joe Kristan

The dedication of the IRS to shooting jaywalkers in their foreign account compliance programs is yielding impressive results. From Andrew Mitchel:

The number of Published Expatriates for the second quarter of 2011 was 519. This is the second highest number of quarterly Published Expatriates during the past seven years. The only higher quarter during this time was the second quarter of 2010, with 560 Published Expatriates.
If current trends continue, the number of Published Expatriates for 2011 will exceed 2010 by 30% or more. The following graph shows the quarterly average number of Published Expatriates since 2004.


It’s a tribute to the sensitive and judicious IRS handling of trivial violations of the foreign account reporting rules.

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IRS: destroying innocent taxpayers to free up resources to vex innocent preparers

Thursday, August 11th, 2011 by Joe Kristan

Phil Hodgen’s call for victims of the IRS campaign against innocent foreign bank account holders brought forth this story:

I

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Offshore account ‘amnesty’ deadline looms

Tuesday, August 9th, 2011 by Joe Kristan

The 2011 Offshore Voluntary Disclosure Initiative expires August 31, as Peter Pappas and Kay Bell remind us. If you have big undisclosed accounts you have been using to evade U.S. taxes, it can be a sweet deal. If you have accidentally missed a minor amount of taxes because you were unaware of the foreign account requirements, the program may not be so sweet.
Related: Offshore account holders: should you use the ‘amnesty’?

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Shooting jaywalkers so we can slap the real criminals on the wrist

Tuesday, August 2nd, 2011 by Joe Kristan

Attorney Jack Townsend has another must read post about the horrible administration of the IRS offshore voluntary compliance program — a program that treats an expat or green card holder who has tried to pay all taxes due just like it treats a money-laundering tax evader.

I am concerned that the IRS does not have any idea as to the damage it is doing among this group of people whose footfault was small on any relative scale and in many cases non-existent in terms of culpability (they really did not know they had income tax and FBAR reporting obligations).

Read the whole thing. Everything in it is consistent with what I’ve seen.
Related: Offshore account holders: should you use the ‘amnesty’?

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Darth Shulman to foreign account holders: I am altering the deal. Pray I don’t alter it any further.

Friday, July 1st, 2011 by Joe Kristan

Jack Townsend explains the IRS bait and switch in its 2009 foreign account “amnesty”:

…the Taxpayer Advocate criticizes the IRS’s implementation of its statement in the 2009 OVDP that

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Scenes from the jaywalker hunt

Monday, May 23rd, 2011 by Joe Kristan

The horrible FBAR amnesty continues to grind up innocent citizens for no purpose. Check out this story from a comment on this Federal Tax Crime Blog post:

Anonymous said…
I have a client – she signed a poa when her father gifted her some foreign property. Unbeknown to her, he opened a bank account that was used to facilitate payment of taxes in the home country and disbursement of funds to her. She never signed anything with the bank, never got bank statements and never had any contact.
She filed under the 2009 OVDI. The net tax on the income in the account was $100 for all six years, in total. Because of an error her accountant made, she is in fact entitled to a refund of $700.
The IRS says that she caused the account to be opened by giving POA – this occured about 25 years ago. They say a penalty is due of $40k based on a high balance.
I pleaded with agent and supervisor who maintain this was decided by a tech advisor. The only appeal rights I know of are to put it in audit where I start with a minimum of $60k in penalties.

Because you have to shoot the jaywalkers so you can slap the real criminals on the wrist.
Meanwhile, Turbotax Tim Geithner and empire-building IRS Commissioner Shulman continue to misallocate IRS resources to their new preparer regulation bureaucracy while neglecting illegal tax credit scams and prisoner looting of the tax system. Priorities.

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To make an omelet, Commissioner Shulman will happily break more than a few taxpayers

Thursday, April 21st, 2011 by Joe Kristan

Great post from Phil Hodgen on the IRS jihad on foreign account filings. A sample:

think Mr. Shulman has decided that bankrupting a few thousand immigrants and Americans living abroad is worth it, pour encourager les autres.

But read the whole thing.

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