The taxpayer, the IRS and the “professionals” – where to go from here

Tax compliance for U.S. citizens living abroad is complicated and expensive. This is the fourth of a series of posts I have written on the recent problems of citizenship-based taxation.

Those interested in this post might also be interested in:

Possible Waiver of Tax and FBAR penalties for U.S. citizens living in Canada – December 2, 2011

IRS Issues Fact Sheet For U.S. citizens and dual citizens living outside the United States – December 9, 2011

Update on the IRS FS for U.S. citizens and dual citizens living outside the United States – No additional relief for Canadians – December 18, 2011

Tax Payer Advocate vs. The IRS: A question of trust – January 9, 2012

This post is related to this discussion.

As I have written on many occasions most U.S. citizens wish to be tax compliant – the problem is that they don’t know how. When one doesn’t “know how” – one seeks professional advice. In this case that professional advice comes from the “self proclaimed” “cross border professionals”. This post is prompted by the following part of a comment to a  recent article in the Globe and Mail:

“And finally, ixnay on the infomercialsway– for all those designated “cross-border tax specialists” whom Globe writers have plied as sources since breaking the thread last June. The inevitable tagline? “Phil N. LeBlanc recommends seeking professional advice.” To paraphrase California legislator Hiram Johnson, the first casualty of tax war is integrity”

There are competent professionals and there are incompetent professionals.  By competent or incompetent, I mean in a “technical” sense. Do they know the law? Do they understand the context of the law? Have they had experience with the IRS? The vast majority of lawyers and accountants do NOT have the technical expertise to  advise you. There is a great line  from the movie  “The Untouchables” – what was:

“Just like a ___________, brings a knife to gunfight!”

There are also good professionals and bad professionals in a moral sense. The good professionals see the client’s interest as unrelated to the professional’s financial interest. For those who have the money to be fleeced, there is no shortage of “cross border professionals to help”.

Professionals are overwhelmingly comprised of lawyers and accountants.  If you deal with a lawyer you have the advantage of “lawyer client privilege”. If you deal with accountants you don’t. Therefore, all other things being equal, I would suggest a lawyer. That is if you can afford one and find one you can trust.

The IRS assault on U.S. citizens living outside the United States has been a frightening interplay among three groups:

1. The Taxpayers

2. The Cross Border Professionals

3. The IRS

Let’s imagine the perspective of each.

The Perspective of the Taxpayers

I suspect that few U.S. expats will forget the events of 2011. It was a year where they realized how quickly life could change. For the most part U.S. citizens living abroad are hard working honest people who are paying higher income and value added taxes than they would be in the U.S. The U.S. uses citizenship-based taxation. Many of them have been filing  U.S. tax returns. But, virtually none of them (except those who always had the benefit of specialized and expensive legal and tax advice) knew about FBAR. When they heard about FBAR, OVDI and the rest they were:

- scared out of their minds; and

- wanted to be compliant

It’ just that they didn’t know how. Hence, they did what anybody would do. They sought professional help.

Furthermore, professional help did not come  easily. It did not come inexpensively. It was typically like this: “Yes, I will meet with you. But, bring in a money order for $2000 (or more) and we will start the conversation. The conversation usually focused on whether to enter OVDI. Entering OVDI was a logical option, an expensive option, but I believe for most people a bad option. It was also (because it was a new kind of program) something not well understood by the so called “cross border professionals”.

The Decision To Enter OVDI

For many there was no “decision” to enter OVDI. The entry into OVDI was an  “emotional reaction” based on fear.

What happened was something like this:

1. Media publishes articles written by journalists who don’t have a clue what they are talking about. Yes, the IRS is going after U.S. taxpayers who don’t reside in the U.S. Yes, there is OVDI and you must get in the program by August 31, 2011. No,  OVDI is not amnesty – but let’s pretend that it is and enter it. I have said before and I will say again that some people entered the OVDI program, without a consideration of their individual circumstances, following the advice of the so called “cross border professionals”. They will regret this.

It is interesting that the advice from a number of lawyers was something like:

“You must enter OVDI” – the IRS frowns on quiet disclosures, etc. These lawyers either did not think that “reasonable cause” was available or that the IRS would not consider arguments based on “reasonable cause”. The important point is that there were “cross border professionals” who did NOT inform their clients that:

A. OVDI was an optional program

B. Filing of FBARs was mandatory

C. The FBAR statute recognizes that “reasonable cause” was and continues to be a defense

(It is interesting that the effect of this advice was to deter people from doing what was mandatory (just file the damm FBARs) and encourage people to do what was voluntary (enter OVDI).

The purpose of OVDI was  to go after people who were using foreign banks and other entities to evade U.S.  taxes. There is nothing illegal about having a foreign bank account. Most U.S. citizens living outside the United States had local bank accounts for the purpose of living their lives. On the other hand, the IRS has publicized the cases of U.S. citizens living inside the U.S. who used foreign bank accounts for tax evasion. Those of you who are aware of (outside of OVDI) anybody paying FBAR penalties based on willfulness) please leave a comment.

Anybody  could have entered OVDI – why would the IRS stop you? By entering OVDI you are simply agreeing to pay them penalties. Furthermore, the range of assets subjected to penalties in the OVDI program is greater than what is required to be disclosed on an FBAR (something not explained by some lawyers). Hence, it is clearly to the advantage of the IRS that people enter OVDI (plus the IRS doesn’t have to waste time on “reasonable cause” arguments).

It is important to note that OVDI is a program which is designed for criminals and removes “reasonable cause” from the discussion. The only way to get “reasonable cause” into the discussion is to “opt out” and subject yourself to a full audit along with all the risks and high costs associated with it.

“Reasonable cause” has always been a defense to FBAR penalties. S. 5314 of the FBAR statute bars the imposition of FBAR penalties if two conditions are met:

1. Failure to file FBARs was due to “reasonable cause”; and

2. The FBAR is filed

Now, I understand that there  is no clear definition of  “reasonable cause”. I also understand that this is a determination made by the IRS. My point is that the same  “reasonable cause” arguments must be made either inside OVDI (after an opt out) or outside OVDI.

While OVDI was going on, few “cross  border professionals” talked about “reasonable cause”.  Maybe, they thought that the IRS wouldn’t recognize or apply the law.  Who knows? I invite a lawyer who encouraged clients to enter OVDI to comment on this.

The Perspective of the “Cross  Border Professionals”

Make no mistake. For the most part they exploited the fear of the taxpayers. It is quite obvious that few had any experience with a problem of this magnitude. As “professionals” they were concerned about their potential liability. Many were simply in over their head. The OVDI decision was not primarily a tax issue. It was a compliance issue. Those are NOT the same thing. To advise on “compliance issues” is more difficult and requires some experience in dealing with the IRS. For that reason, many of the professionals consulted were simply not competent to advise people.

Those who were competent to advise seemed to fall into two camps:

Camp 1 – Let’s get you into OVDI without even considering your facts – yes these people existed – they were clearly just taking advantage of the fear – taxpayers were being exploited

Camp 2 – Let’s make a determination based on your facts and then make the appropriate decision – this is the only kind of advice worth paying for – but it will cost because you need to analyze your situation

Unfortunately, there were few in the second camp. Furthermore, those in Camp 2 were simply too expensive for the average person who was ignorant of FBAR.

A final thought on this: from the perspective  of professional liability, I suspect that many professionals thought that there was a liability risk to them if they did NOT encourage people to enter OVDI. Clearly  the route of least risk for all was to enter OVDI.

But In Fairness to the lawyers – What About The Risk of  The “Quiet Disclosure”?

Some advisers presented the options to taxpayers as follows: entering OVDI or a “quiet disclosure”. The IRS had make it clear that “quiet disclosures” (instead of entering OVDI) were frowned upon and were very risky.  On the other hand, shouldn’t the risk of a “quiet disclosure”  be understood in the context of people who had been hiding income or who had been using foreign bank accounts to hide evade tax? OVDI was aimed at people using foreign bank accounts and assets to evade tax. I simply cannot understand (and I invite somebody to educate me) how this principle can apply in the context of a U.S. citizen living outside the United States who has not been evading taxes. When you look in the mirror, do you see a criminal? Surely, there must be a way to come into compliance (even if small amounts of tax are owed) that does not require the apparatus of OVDI.

For a post on why lawyers had difficulty in advising clients see here.

The Perspective of The IRS

Although the IRS has great discretion (probably too much) the reality is that the IRS is the administrative agency charged with administering the law. The IRS can neither make nor change the law. For this reason it is impossible for the IRS to somehow offer a special deal or treat Canadians differently. Ambassador Jacobson’s October and December statements and the IRS FS published on December 7, 2011 need to be understood in this context.

IRS Fact Sheet for U.S. Citizens and Duals Citizens Residing Outside The United States

There was great disappointment with this FS. Where was the relief for those who had entered  OVDI? Where was the FBAR amnesty? Hadn’t the IRS simply just restated the law?

Well yes, but … What the FS sheet DID DO was confirm that the IRS recognized that “reasonable cause” existed and invited taxpayers to make arguments based on “reasonable cause”. Most “cross border professionals” are singing to the tune that the “IRS is not offering anything new”. Of course not. Something new has to come from Congress. It is impossible for the IRS to somehow exempt residents of Canada from the law that affects everybody. In that sense the IRS is not offering anything new (because it can’t).

What the IRS is doing is making it clear that “reasonable cause” arguments may be viable. The IRS is offering the only “something new” that it can – namely communication of the recognition that they understand that “reasonable cause” is a defense. Entering OVDI removed any consideration (subject to the “opt out”) of “reasonable cause”. Now, the IRS is signaling that “reasonable cause” will be considered.

If you are a “cross border” professional – don’t worry – there is lots of money to be made in advising on “reasonable cause”.

Conclusion and a request …

I don’t think that there will be a better time or opportunity for U.S. citizens living outside the United States to come into compliance. If nothing else, the IRS FS makes it clear that it is possible to do so. Why not do it? The answer is: because you don’t really know how. Furthermore, you don’t trust the lawyers and you don’t trust the IRS (all for good reason).

I request your comments sharing your experiences and thoughts on this important issue.

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19 thoughts on “The taxpayer, the IRS and the “professionals” – where to go from here

  1. Petros

    Hi Renounce: Thanks for this post. You always bring excellent insight into the problem.

    Couple of points: First, the IRS has much more flexibility with regard to FBAR, if only Mr. Geithner would allow them, because the Bank Secrecy Act actually gives considerable discretion in the enforcement of the law. This means that the IRS doesn’t get a pass in the draconian and frankly evil manner that they have applied penalties in the Voluntary disclosure programs.

    Secondly, I was arguing a similar point that a lawyer was incompetent because he entered a client into the OVDI, and then his bill was 14.5 times the FBAR fine. I thought he was incompetent because he brought a law abiding Canadian client into the program, when the program was designed for tax cheats. But the fact is this: The 5% penalty can only ever be applied to innocent people: why did they create the 5% penality if not to pick the pockets of accidental Americans? This shows the utter corruption of the IRS and that the very intention of the OVDI programs (2009,2011) was to create compromised fine, whereby the IRS waived the more draconian fines in order to create revenue. But FBAR isn’t supposed to be a tax; it is supposed to be a law enforcemnt tool. The lawyer’s bill was ridiculous to be sure, but the given the IRS’s guidelines, what choice does a lawyer have but to help his client take the safest route? But when it comes to helping you stand up for your rights, that is not in their job description.

    Reply
    1. renounceuscitizenship Post author

      Oh make no mistake about it – the IRS treats FBAR as a revenue raising tool. In fact, as I have said before, the most valuable FBAR to the IRS is an unfiled FBAR. Over the next week or so I will posting a series of posts on FBAR that explore these issues. The FBAR is at best only “tangentially related” to tax issues. I want to bring the posts out one at a time in the hopes of generating commentary on different aspects to the problem (I guess this post is accidentally one of them).

      From the perspective of the taxpayer – they need to get out of this mess – the question is how.

      Reply
  2. canuckdoc

    In a mass of miss-information, this is the best summary of the situation I have seen anywhere. Thank you. However, as in the above post, I also don’t understand the logic of the penalty for “non-willful non-compliance”.

    Reply
    1. renounceuscitizenship Post author

      Thanks Mr. Berg for your support of U.S. citizens in Canada during this difficult time. In particular your tweets from the IRS tax conference in December and your blog posts concerning this issue have been noted and appreciated.

      Reply
  3. renounceuscitizenship Post author

    In this article I make it clear that the “cross border professionals” have become part of the problem. They continually spread the fear – making it hard for people to think clearly. Now that OVDI has been extended, they are out again doing their “fear mongering”. Here is one recent example from a tax preparation service. They do attempt to give an example of “reasonable cause”:

    Here is an example from a “high end” lawyer:

    “Just Me” had an interesting comment on this article, which I will share:

    http://www.forbes.com/sites/matthewcampione/2012/01/13/good-deal-latest-irs-crackdown-on-undisclosed-foreign-accounts/

    “Well, Matthew, I see your byline is “high end” attorney, and so I assume you are probably addressing “high end” clients. Fair enough. I call them Whales. Maybe you are assuming that those who should consider joining, upon advice, are already engaging in some willful criminal activity. They should come clean, take the deal and avoid jail.
    Great deal for them!
    However, there is another class of offenders, “low end” Minnows, that these programs have been a lousy deal for.
    There are millions of Expats and “US persons” around the world who probably are still unaware of the FBAR requirements which the IRS has been using as the regulation of choice to kill some flees with a hammer. These Minnows have been severely affected by the IRS VDP processes. The IRS did not expect to find Minnows in its net, and has yet to find a fair way to deal with them.

    For them the choice of the new VDP is not so simple.

    Surely you are aware of the TAD issued against the IRS related the 2009 OVDP, and how the IRS has been conducting itself which has seriously harmed its reputation.

    I am assuming that you have read the Tax Notes about the fight over fairness related to non willful activity. This has escalated up to Commissioner Shulman’s office, and he has to decide on January 26th.
    For lay readers not aware of these issues, I would direct them to Jack Townsend who has been blogging on the subject. Read the blog and comments and pay attention to how the IRS has been conducting itself.

    http://federaltaxcrimes.blogspot.com/2012/01/tax-notes-discusses-dispute-between.html

    In addition, this subject is also extensively covered in the new National Tax Advocacy (NTA) report to Congress.

    Again, here is a link to Jack’s comments on the NTA report…

    http://federaltaxcrimes.blogspot.com/2012/01/national-taxpayer-advocate-report.html

    In Conclusion he says…

    “The 2009 OVDP appears to have been a great deal for those engaged in criminal tax evasion. They were not affected by the IRS’s “clarification” that it would not consider nonwillfulness, reasonable cause, or the mitigation guidelines in applying the offshore penalty because their violations were willful and unlikely to qualify for mitigation. However, the IRS Is perceived as having “reneged on” the terms of the 2009 OVDP that would benefit taxpayers whose violations were not willful. Many felt that the IRS placed them in the unacceptable position of having to agree to pay amounts they did not owe or face the prospect the IRS would assert excessive civil and criminal penalties. This perceived reversal burdened taxpayers, wasted resources, violated longstanding IRS policy, opened the IRS to potential legal challenges, and was not properly disclosed as required by FOIA. It also damaged the IRS’s credibility. As a result, it is likely to have more difficulty gaining participation in any future settlement initiatives.“

    Finally a comment regarding “so called” VDP successes:

    Success depends on how you measure it. Total numbers, without context, as any accountant will tell you, mean nothing. You need other numbers to make sense of what you are seeing. You need percentages, unit measures and before and after statistics, for success analysis.

    For instance…

    $4.4 Billion dollars collected? So, any business would want to know how much did it cost in direct and indirect cost to produce that return? What is the ROI? What portion was actual taxes owed, and what portion was draconian penalties? Don’t know. The IRS isn’t saying.

    Of the participants who entered the first two programs, what was the Minnow to Whale ratio? Were they mostly the target UBS evading type Whales, or were they minnow Expats and US person immigrants who just benignly negligent in following the most complex tax system in the world? Don’t know. The IRS isn’t saying.

    These IRS programs are supposed to be about improved compliance. So how would you measure that? Would it be represented by an increase in FBAR filings? Again, totals tell you nothing, so you would want some estimate of the universe who should be filing, and how many filed before and after these initiatives. By looking at the change in compliance rates, then maybe you could come to a conclusion about success. If compliance went from 3% to 7% say, would that be deemed successful? Don’t know. The IRS isn’t saying.
    A couple more items, but surely you are getting my point.

    Finally, what is the cost to the Country of unintended consequences, such as Expats increasing renunciation of citizenship?

    or…skilled Immigrants, feeling badly dealt with and silently walking down jet ways and leaving their greencards on the airline seats as they deplane back home.

    or …the chorus of negative publicity these actions are getting around the world with many of us, now advising new immigrants who have assets in their home country that they should not consider immigrating to the US anymore. The cost, complexity, and risk associated with becoming a US person is just too high.

    Yea, this is really a successful program alright, and to top it off, Congress added FATCA, which is loathed around the world.

    I do think Congress and the IRS have lost the plot. Go figure.”

    Reply
  4. royaberg

    Perhaps this is worthy of a separate entry on your blog, though it is apropos to the high cost (in terms of professional fees) to particiapte in the OVDI and to bring unfiled returns current:

    The Taxpayer Advocate Service report to the US Congress (released on January 11, 2012) is critical of the complexity and punative nature of US tax law as it applies to US citizens residing abroad. Page 154 of the report compares the average cost to prepare returns for taxpayers residing in the US and those residing abroad.

    For taxpayers residing abroad return preparation can cost $1,000 to $2,000 PER RETURN (the report cites two separate studies). For taxpayers residing in the US return preparation ranges from $173 and $373 per return.

    This means that participants in the OVDI (which requires filings for 8 years) should expect to incur preparation fees of between $8,000 – $16,000 for INDIVIDUAL RETURNS ONLY. If the taxpayer has a TFSA, trust, private company, private partnership, etc. these require additonal returns, which would multiply the return preparation cost accordingly.

    Reply
    1. renounceuscitizenship Post author

      Mr Berg:

      Thank you for your comment. And these fees do not include the legal fees involved in arguing “reasonable cause”, etc.

      Your comment has illuminated the obvious. For many people the cost of the accounting and legal fees would be a significant deterrent to entering OVDI. For others the cost would make entering OVDI (or any other kind of remedial action) impossible.

      This is a great tragedy. The reality is that most U.S. citizens living outside the U.S. want nothing more than to be, become and remain in compliance. The costs are a problem. But, the biggest problem is clear direction on how to do this. Your comment referred to recent Taxpayer Advocate Report to Congress. I can’t remember the exact page references, but time and time again, Taxpayer Advocate made it clear that people were confused and didn’t understand what to do. Taxpayer Advocate also noted that in the December 7 FS, the IRS had said:

      – on the one hand that “reasonable cause” was available; but

      – on the other hand had not done much to explain what “reasonable cause” was

      I recall that one of your posts (commenting on the Dec. 7 FS) that you had noted that people must be careful to understand what “as a matter of law” did constitute “reasonable cause” and what did NOT.

      Recognizing that there is no one factor that seems to be determinative, what would you advise people to consider when arguing “reasonable cause”?

      Thanks again for your comment.

      Reply
      1. royaberg

        Thank you for the opportunity to participate. I am a US citizen and a US tax lawyer residing in Canada with nearly two decades of experience. I represented scores of clients in the 2009 program as well as in the 2011 program. Further, my ancestors were immigrants to the US and I have been affected personally as well as professionally by the OVDI/OVDP, and I have the scars to prove it.

        The first step your readers need to do is to determine whether they may owe US tax for the 8-year period covered by the new OVDI. This process requires a commitment of time, energy, and capital. As I mentioned in my prior comment, US tax law as it applies to those living abroad is very complex and fraught with traps for the unwary (which the Taxpayer Advocate Service acknowledges in its report to Congress).

        Because of the foregoing, it is CRITICAL that the preparer knows what he/she is doing. This is not the time for trusting your brother-in-law who took an accounting course in college. You need to go to someone who has experience in cross-border tax.

        If no tax is owed, then my advice would be to wait until the procedures are announced. Keep in mind, that under US law return prep fees are deductible as an itemized deduction in arriving at taxable income (not so in CDA).

        If tax is owed, the question is whether to participate in the new OVDI or to follow the Fact Sheet and file 6 years of returns along with the “reasonable cause” argument. Alternatively the individual could enter the OVDI but “opt out” if they could get a better deal outside of the program. Recall “reasonable cause” argumnet is unavailable under the terms of the OVDI.

        Making the “reasonable cause” argument is critically important and needs to be based not only in the law, but also in the individual’s particular facts. Fact Sheet 2011-13 gave some good guidance on the facts that would support the “reasonable cause” argument, but the facts that the individual uses must be backed up by evidence (including statements made under penalty of perjury). If the statements made, or the evidence submitted, is false or misleading, then the individual has just jumped out of the frying pan and into the fire because then he will be facing the specter of criminal tax evasion.

        I hate to end my comment with the statement “you need to see a professional” because it sounds self-serving. However, there is a lot at stake when someone comes forward voluntarily to the IRS. If the returns are not prepared correctly and procedures are not followed to the letter, the individual risks examination, which can quickly spiral out of control.

        As you mentioned in a prior posting, some practitioners have seen the OVDI as a cash-grab. Some of us, however, realize that there is no one-size-fits-all solution and each case needs to be examined on its own merits. Before anyone hires a professional, they need to ask them hard questions:

        a) Are you experienced in cross-border tax?
        b) How many CDN-US returns do you prepare in a year?
        c) Did you represent anyone in the 2009 OVDP, and if so, how many?
        d) Did you represent anyone in the OVDI, and if so how many?
        e) Have you ever represented taxpayers before IRS appeals?
        f) Have you ever represented taxpayers in US Tax Court?
        g) Have you represented taxpayers in US District Court?

        Jack Townsend’s blog has a listing of professionals with experience in these matters, and I recommend checking that list. http://federaltaxcrimes.blogspot.com/p/ovdi-attorneys.html

      2. Petros

        This is all very frightening. I think this is why we need the Canadian government to fight for a better deal for residents. I won’t cooperate with this, and I’m glad, Mr. Berg, that qualified people like yourself are indeed available for those who are able to pay and want to keep their relationship with the United States. But I see myself now as under the protection of the Canadian government, who have said they will not collect FBAR penalties, even if that means I can never return to the United States. As others have said, my family will just have to visit me in exile now.

    2. renounceuscitizenship Post author

      Thanks Roy (as per your last comment to Petros);

      Your comment is exactly what people need in terms of providing a model/structure for how to think about this problem.

      A couple of thoughts/questions:

      1. You give great advice (IMHO) when you say that the first step is to see whether tax is owed and if so how much. There are many ways a U.S. taxpayer living in Canada can owe tax (as we are all learning). To give credit where credit is due, I acknowledge and thank your firm for a superb blog post in December 2011, where you spot some “tax triggering” issues. I had tweeted on at it:

      This is a great read. Obviously different people are affected differently by different issues.

      2. If I may just clarify, although “reasonable cause” is not available under the general terms of OVDI, it is available under the “opt out” option. I believe that this is made clear in your conversation with the IRS at the IRS tax conference in December.

      http://renounceuscitizenship.wordpress.com/2011/12/18/update-on-the-irs-fs-for-u-s-citizens-and-dual-citizens-living-outside-the-united-states-no-additional-relief-for-canadians

      and on your blog post:

      I believe that anybody reading this thread will become compliant on a “going forward” basis (as they should). The real issue is how to become compliant in terms of the past (which I believe most people want to do). You suggest that the two options for becoming “past compliant” either:

      – entering OVDI (8 years of filings);

      – following the instructions in the December FS (6 years of filing).

      It seems obvious that if there is a “material risk” (to use a Jack Townsendism), of criminal prosecution, that entering OVDI is the answer.

      But, (at least I would think) for most U.S. taxpayers in Canada, they are not compliant because they simply didn’t know the rules. Even those who owe some tax (and there may be more than conventional wisdom suggests) are probably not in the category of “material risk” of criminal prosecution.

      The Taxpayer Advocate Report to Congress, makes it clear that one of their concerns was that the OVDI was a program that was designed for criminals and seemed to assume those who entered it were criminals. Anecdotal evidence and the comments of highly regarded tax lawyers suggests that many people who entered OVDI who had made “innocent mistakes”.

      My question therefore is: How (in a general sense assuming no “material risk” of prosecution) should somebody decide whether to enter OVDI or whether to work the six years in the December FS?

      Thank you again for sharing your insight.

      Reply
      1. royaberg

        @ Petros – I’m not sure the position of your on which I was silent. I didn’t mean to be evasive, just must have missed something.

        Regarding your question whether to use OVDI or FS 2011-13 where there is no realistic risk of presecution: That is a tough question and depends on several factors, including the client’s risk aversion. Risk averse clients may view the increased cost associated with OVDI as an “insurance premium” for (relatively) quick and certain resolution. It is important not to underestimate the peace of mind that the “insurance premuium” can bring. Others who are less risk averse may wish to take the FS rout.

        I hate to answer with “it depends” but it really does. There is no “one solution” that fits every fact pattern, which is why it is important to work with a professional that understands not only the nuance of the various procedures, but also can communicate this to the client in a way that will enable the client to make an informed decision.

      2. Petros

        Hi Roy: Ok to be specific. I am never going to fill out an FBAR. That is why I have relinquished my citizenship. Thus, I am trusting wholly upon the Canadian government statement that they would not collect any FBAR fines. So my position is F FBAR and F the FS. I lose potentially my access to the US but I have gain a country, I keep my money, and my Canadian wife.

      3. royaberg

        @ Petros, I understand your outrage at the FBAR and all the other filing requirements and associated penalties. Can’t say I would do the same thing, but I can certainly understand the sentiment.

      4. Petros

        Also I want to thank you for explaining this in terms of risk tolerance. I believe that is what it is all about. I am an DIY investor, and I understand risk very well. I don’t actual buy insurance in my investing, I sell it to other people (I always sell put contracts, and I never buy them, and so you can see my level of risk tolerance–I sell to a market with less tolerance than me).

        I’ll say further with regard to the IRS and FBAR: My risk tolerance is similar to Viet Nam draft dodgers. It is both high and low.

        I have high tolerance when it comes to not fearing the IRS while living in far away country. Low tolerance when it comes to voluntarily giving my money to lawyer, accountants and to the IRS.

        Since the US wants to take away my life, liberty and property, I am willing never to return to the United States. The United States has become my enemy, wanting to reach into my pockets and take my livelihood. This is not the country I grew up in. It is a monster that has no concern for the real problems of real people and I will not voluntarily feed that beast.

      5. Petros

        I was thinking of how some of the people in my correspondence protested the Viet Nam War and under threat of prosecution came to Canada, where they were safe from both prosecution and the draft. And I have decided to use that trump card with regard to FBAR and FS.

        If your business would very likely require your ability to travel to the United States, you would of course not be able to take such an option yourself. But if one of your clients said F the IRS, I’m staying in Canada, would you try to dissuade them? I think the Canadian government has offered very specific protection to her citizens. I see less risk in my scenario than how my friend “MVH” was handed a $170,000 bill that was only reduced to $25K by the TAS. I will not pay $170,000 or $25,000. It is my money, not the property of the United States Government to do with as they see fit.

        I’m flying to Aruba soon. What are the chances that the flight gets waylaid in the United States due to mechanical problem or a terrorist threat and I am arrested by customs and immigration upon landing? I think my risk assessment is accurate. I’m safe here in Canada.

    3. renounceuscitizenship Post author

      Thanks for the idea of a post dealing with the costs of compliance. Very sobering. What is somebody to do who doesn’t have the money?

      It’s kind of like this:

      Compliance: you can’t afford to do it and you can’t afford not to do it.

      Here are my thoughts:

      http://renounceuscitizenship.wordpress.com/2012/01/17/u-s-citizenship-has-been-priced-out-of-the-market/

      Reply
    1. Petros

      Thanks Roy.

      Your silence on my particular position is curious. But in this fight I see my role as very different from yours. I want to encourage people to take advantage of the rights they have as Canadians, and your is perhaps to help estranged Americans back into a compliant relationship with the United States.

      One person said that she thought I was in great risk, this is what I wrote:

      Thanks for your concern, and I have thought this through. I came out in the open about FBAR only after the Canadian government said it would not collect FBAR fines. All my assets are here in Canada. I am now a Canadian citizen and no longer US. The statute of limitations is 6 years if I am not indicted. If indicted, in abstentia, I would never be able to return to the United States because then the statute of limitations would never expire. If they indict me however I would never have to fill out FBAR because of Fifth Amendment rules. So they would have no knowledge of my accounts or their balances (except an RRSP which was legally reported in my 1040 filings). Under the USA/Canada extradiction treaty, there is no provision for taxes or FBAR. So I am safe here in Canada, at least for now. And if I am no longer safe, then no one is safe.

      I’m not trying to be martyr. I am only trying to protect my small fortune and my Canadian wife. In many ways, you are the martyr. You have agreed to pay the unjust taxes, and have laid down your life. …[snip]

      So what do I give up? The ability to travel to the US. What do I save? All my money and my relationship with my Canadian wife.

      I still see a presidential pardon as the only easy way, for everyone, out of this whole mess. Perhaps you saw my post on that subject? http://isaacbrocksociety.com/2012/01/08/jimmy-carter-redux-the-presidential-pardon-as-the-constitutional-solution-to-the-fbar-madness/

      Reply

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