Something new (maybe) from the IRS for taxpayers residing outside the U.S. and who have NOT been filing tax returns and FBARs

Whatever this means was announced on June 26, 2012 under the title of New Filing Compliance Procedures for Non-Resident U.S. Taxpayers. Those interested in this topic should check back frequently for more specifics. The specifics should be available no later than September 1, 2012. I am certain that the “cross border professionals” will say that this is “nothing new”. After all the statute of limitations for FBARs is six years. This is a message from the IRS and therefore it needs to be read carefully. It also needs to be read in the context of:

1. OVDI – You are all criminals

2. The December 2011 FS – well maybe “reasonable cause” does really exist

3. Voluntary disclosure in general – always been there anway

You can be sure that the IRS chooses its words carefully. Therefore, we must read the words of the IRS carefully.

Compliance counseling is like a box of chocolates – “You never know what your gonna get” – Circular 230 vs. the fiduciary duty to the client

The Isaac Brock Society is becoming a interest place to “hang out”. At least this is true for many U.S. citizens living abroad who are desperately attempting to ensure that they are in U.S. tax compliance Many people are grappling with how to be compliant on a “going forward” basis. Others are trying to figure out to deal with “past compliance issues”. There are of course a number of ways to come into compliance. What all these people have in common is a desire to be U.S. tax compliant. Yet, the IRS seems hell bent on continuing on treating U.S. citizens living abroad as though they are tax cheats. For many U.S. citizens living abroad the emotional strain is such that they are driven to renounce U.S. citizenship. This is the price of a good nights sleep.

So, what’s a poor U.S. citizen living abroad to do? Well, they consult a “cross border professional” where they get advice that comes in all shapes, sizes and perspectives. The advice is so varied that it reminds me of the line in Forrest Gump:

“Life was like a box of chocolates. You never know what you’re gonna get.”

When it comes to “compliance counseling” – You never know what you’re gonna get.”

To OVDI or not OVDI: The “In lieu of other penalties” consideration

Deal with the devil

On January 9, 2012 the IRS reopened the Offshore Voluntary Disclosure Program “OVDI”. People should enter OVDI only after an objective discussion with a lawyer who is experienced in U.S. tax compliance issues. Contrary to what at least one tax preparation firm suggests, OVDI is one of a number of compliance options. Although OVDI is available to anyone who wants to enter, it presumes criminality. Minnows should think long and hard before entering OVDI and should have an objective reason based on your specific facts  for entering it. For many people, entering OVDI is an emotional reaction. You need to make a calm, rational decision. Those entering OVDI  should be able to answer in one short sentence the question:

“How did your analysis result in your decision  to enter OVDI?”

In any case, this is for you to decide with the help of your lawyer.

Entering OVDI – Your deal with the devil

If you enter OVDI you are entering into a agreement with the IRS. The “deal” is in relation to both “tax issues” and “information reporting issues”.

Tax Issues: You agree to pay the tax you owe and penalties on that tax.

Information Reporting Issues: You agree to pay “in lieu of other penalties” an amount equal to a percentage (ranging from 5% to 27.5%) on the value of your penalty base. Your penalty base may (depending on the circumstances) be the highest value of your worldwide assets over the 8 year period.

What are these “other penalties“? They are penalties for failing to file the appropriate information returns. Since the summer of 2011 (but not before) Mr. FBAR has become a well known information return. The FBAR is probably required by most U.S. citizens living outside the United States and many “Green Card” holders inside the United States. But, there are many other information returns that are not as well known. You might find the following conversation between an experienced IRS attorney and a  minnow to be of interest.

I came across a superb article by Alvin Brown that identifies “some information returns”.  I highly recommend his article. It is very comprehensive and precise. Once again, this is to educate you prior to your visit with your lawyer.

Loyalists in the American Revolution – Liberty’s Exiles

Liberty's Exiles - Maya Jasonoff

History is always written by the victors. The American Patriots were a little like George W. Bush. When it comes to the British:

“You are either with the Patriots or you are with the British”

In an earlier post I noted that not all the residents of the colonies wanted to break ties with Britain. Those who wanted to keep ties with Britain were called Loyalists. Given the persecution of American Citizens abroad, I have become interested in the lives of the Loyalists during the American Revolution.

The truth is that the Patriots were NOT an overwhelming majority. In fact, the early colonies came within one vote of agreeing to something close to the British North America Act. Would you like to have a Loyalist during the American Revolution? If you knew what they had to endure, the answer would be no.

I cam across a fascinating book (just walking around a bookstore) titled “Liberty’s Exiles” by Maya Jasanoff. I read the first chapter and was hooked. Then I came across the video of the author herself. This video is worth an hour of your life.