Taxpayer Advocate vs. The IRS – It’s a question of trust

Bait and switch in America!

“Trust is like a vase.. once it’s broken, though you can fix it the vase will never be the same again.”

This post should  be read with a previous post: “The taxpayer, the IRS and the “professionals” – where to go from here“.  This post will suggest why,  given the IRS shift in policy on March 1, 2011 lawyers had difficulty advising clients  whether to enter OVDI (2011). With the exception of the most extreme cases (clear tax evasion at one end vs. Ambassador Jacobson’s 70 year old Gramma at the other), lawyers neither trusted nor understood the IRS. They could not. This post will suggest why. At the outset, it is important to recognize that “hindsight is always twenty twenty” and during the desperate summer of 2011, nobody had the benefit of hindsight.

The facts and issues are summarized by the conclusion of Taxpayer Advocates directive to the IRS on August 16, 2011:

“The 2009 OVDP was a great deal for people involved 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.  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 the IRS treated them unfairly as compared to similarly situated taxpayers.  It placed them in the  unacceptable position of having to agree to pay amounts they do not owe under “existing statutes” or face the prospect that the IRS would assert excessive civil and criminal penalties.
The IRS’s 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 with taxpayers as well as the practitioner community.  As a result, the IRS is likely to have more difficulty gaining participation in any future settlement initiatives.  This erosion in trust for the IRS among taxpayers and practitioners is also likely to have a negative impact on IRS’s mission and voluntary tax compliance more generally.”
I will consider this issue from  five perspectives.  Furthermore, these perspectives  are nothing more than my opinions and they certainly are not intended to be legal advice or any other kind of advice.

1. From the perspective of the taxpayer:

The decision to enter OVDI had absolutely nothing to do with taxes that may have been owing. It was completely driven by the perception of FBAR (and possibly other “information return”) penalties. It was the FBAR penalties that were the most fearsome.

2. From the perspective of the IRS:

OVDP (2009) and OVDI (2011) were programs that were designed for people who where using “offshore” vehicles to avoid or evade taxes. This is consistent with the stated objective of OVDI 2011 as stated in OVDI FAQ 2.

“The objective remains the same as the 2009 OVDP – to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws.”

Note that this focuses on the use of foreign entities to avoid or evade tax . Furthermore, the IRS has made it clear that another important objective was to bring taxpayers back into the tax system. (If you are thinking an amnesty is a good idea, I agree.)

The IRS assumed that anybody entering the program was a criminal and  was admitting to being a criminal. Once entering  the program a taxpayer was presumed to have acted “willfully”. (For those people OVDI was a pretty good deal.) Note that this focuses on the use of foreign entities to avoid or evade tax into compliance.

It is quite obvious that only criminals had any incentive to enter OVDI. For everybody else, it was a question of: Yes,  I want to be in compliance. But, I can’t use OVDI.

3. From the perspective of the lawyers:

Part A – The Mind of the lawyer in 2009:

OVDP (2009) was NOT (at least at the beginning) a program that was understood to presume criminality. The lawyers understood  the OVDP information, including FAQ 35, including to allow for the consideration of “reasonable cause” and “non-willfulness”:

“Voluntary disclosure examiners do not have discretion to settle cases for amounts less than what is properly due and owing.  These examiners will compare the 20 percent offshore penalty to the total penalties that would otherwise apply to a particular taxpayer.  Under no circumstances will a taxpayer be required to pay a penalty greater than what he would otherwise be liable for under existing statutes.”

S. 5314 of the FBAR is an “existing statute” that bars the IRS from imposing FBAR penalties if “reasonable cause” is demonstrated and the FBAR is filed. Furthermore, the maximum “non-willful” penalty is $10,000. Quite obviously the “non-willful” penalty of $10,000 or a complete abatement of penalties due to “reasonable cause” could be much better than 20% of the value of your assets.

Again: the lawyers understood “liable for under existing statutes” to include considerations of  “reasonable cause” and “non-willfulness”. They counseled their clients accordingly.

Well, at least until March 1, 2011 …

On March 1, 2011, (two years into OVDP) the IRS simply began taking the position that FAQ 35 did NOT allow for considerations of “reasonable cause” and “non-willfulness”. This was interpreted to be a change in the rules and was characterized as a “bait and switch”.  “Reasonable cause” and “non-willfulness” could be  considered on an “opt out”. As you can imagine this upset a number of people. (Lawyer Asher Rubenstein has written a good analysis of this.)Taxpayers were understandably afraid to subject themselves to the perceived “IRS thuggery and arbitrariness” on an opt out. Non-willful taxpayers who may have had “reasonable cause” paid far higher penalties than they thought they would have to pay. So much for OVDP 2009. The IRS can do what it wants. Why would a taxpayer pay the non-willful penalty instead of “opt out”? Here is what the IRS said about the “opt out” option:

“If the offshore penalty is unacceptable to a taxpayer, that taxpayer must indicate in writing the decision to withdraw from or opt out of the program.  Once made, this election is irrevocable.  An opt out is an election made by a taxpayer to have his or her case handled under the standard audit process.  It should be recognized that in a given case, the opt out option may reflect a preferred approach.  That is, there may be instances in which the results under the applicable voluntary disclosure program appear too severe given the facts of the case.  There will be other instances where this is less clear.  In the latter cases, the Service will look to ensure that the best interests of the Service and the integrity of the voluntary disclosure program remain intact.  In these cases, it is expected that full scope examinations will occur if opt out is initiated.  It is expected that opt out will be appropriate for a discrete minority of cases.   Moreover, to the extent that issues are found upon a full scope examination that were not disclosed by the taxpayer, those issues may be the subject of review by Criminal Investigation.  In either case, opting out is at the sole discretion of the taxpayer and the taxpayer should not be treated in a negative fashion merely because he or she chooses to opt out.”

Would you opt out under these circumstances?

This is bettered described by Taxpayer Advocate in the following language:

“On March 1, 2011, more than a year after the 2009 OVDP ended, after learning that examiners were spending the time to compare the 20 percent penalty to what would be due under existing statutes, the IRS “clarified” its seemingly unambiguous statement in FAQ #35.

The March 1 memo directed examiners to stop accepting less than the 20 percent offshore penalty under the 2009 OVDP regardless of whether a taxpayer would pay less under existing statutes, except in narrow circumstances.  Even in those few cases where the IRS was supposedly still applying FAQ #35, it generally did not consider reasonable cause and assumed the violation was subject to the maximum penalty for willful violations unless the taxpayer could prove that the violation was not willful.

 

Thus, in the absence of evidence, taxpayers who would be subject to the lower penalty for non-willful violations (or given a warning letter or overlooked) outside of the program would be subject to the 20 percent penalty inside the program.  Moreover, the IRS did not provide any guidance to taxpayers regarding what evidence they could use to establish non-willfulness or reasonable cause.”

But the story gets even worse. This great IRS “bait and switch” took effect on March 1, 2011. This means that taxpayers who had been processed prior to March 1, 2011 DID have the benefit of “reasonable cause”. This exacerbated the level of unfairness. From that moment on the IRS made it clear that it simply could not be trusted. As proof of that, AND THIS IS A BOMBSHELL (assuming this to be true), according to the results of a request under the Freedom of Information Act (are you ready for this):

“According to the IRS, all of the 3,000 applications to the 2011 OVDI came in after the 2009 OVDP deadline and before the IRS’s announcement of the 2011 OVDI on March 1, 2011.  IRS  response to TAS information request (July 13, 2011).  Thus, it appears that the 2011 OVDI may not have received any significant number submissions after the IRS’s reversal became known.”

In case you missed this, the March 1 shift in IRS policy appears to have made people reluctant to enter OVDO 2011.

Part B – The mind of the lawyer in 2011:

The IRS “bait and switch” of 2011 made people very distrustful of the IRS. It underscored the IRS presumption that OVDI was a program designed for criminals. That didn’t mean that other people couldn’t participate. But, it did mean that participation in OVDI 2011 meant that you were knocking on the door of the IRS and presenting yourself to be a criminal. Hence, it is reasonable to expect that you would be treated as a criminal. Of course you could always opt out and be subjected to the “standard audit”.

Why would any poor U.S. citizen living outside the United States  who didn’t know about and couldn’t imagine that an FBAR requirement existed get involved in this. To add to the ridiculousness, if one entered OVDI 2011 the taxpayer had to calculate their own penalty and include a check. This reminds me of:

– if the Chinese government shoots one of its  citizens  the family has to pay for the bullet (maybe the Obama administration should consider this next time they kill a U.S. citizen abroad);

– Jesus being forced to carry how own cross to the crucificion.

How could any lawyer recommend that anybody but a tax evader enter this program? (If you are a lawyer reading this please comment.)

4. From the perspective of Taxpayer Advocate – Calling in the Cavalry:

Now back to the OVDP 2009 AKA “The Great IRS “Bait and Switch”.  But, if you really want to fight the IRS you need somebody with the legislative authority. Believe it or not (and like most of you I had never heard of this until recently) there is a “Taxpayer Advocate in the IRS”. (The IRS probably views Taxpayer Advocate as a tumor inside the IRS.) In any case, Taxpayer Advocate agreed that the change in the IRS position with respect to FAQ 35 was a classic “bait and switch” and cried foul! they wanted to help the taxpayers. Now Taxpayer Advocate has a couple of “big sticks” available. They are “Big Stick – TAO” and “Big Club – TAD”.

Big Stick – TAO: Taxpayer Advocate Order: This usually is used in relation to  single taxpayer

Big Club – TAD:  Taxpayer Advocate Directive: This is used to correct a more general problem.

On August 16, 2011 Nina Olsen (the head of Taxpayer Advocate) issued a TAD against the IRS. (It is the most well written and well organized analysis of this issue that I have been able to find. Read it. You will learn a lot.) But, for those of you who do NOT want to become “OVDP Historians” the TAD of August 16, 2011 really says:

IRS you have cheated. You duped taxpayers into entering OVDP because they thought they could raise arguments of “reasonable cause” and “non-willfulness” without doing an “opt out”. You are like a slimy salesman who does a classic bait and switch. We are directing you (because we have the authority) to give taxpayers the benefit of “reasonable cause” and “non-willfulness” without an “opt out”.

 In “Taxpayer Advocate Speak”, Taxpayer Advocate directed the IRS to:

“Immediately direct all examiners that when determining whether a  taxpayer would be liable for less than the “offshore penalty” under “existing statutes,” as required by 2009 OVDP FAQ #35 (described below), they should not assume the violation was willful unless the taxpayer proves it was not.  Direct them to use standard examination procedures to determine whether a taxpayer would be liable for a lesser amount under existing statutes (e.g., because the taxpayer was eligible for (a) the reasonable cause exception, (b) a non-willful penalty because the IRS lacked evidence to establish its burden to prove willfulness, or (c) application of the mitigation guidelines set forth in the IRM) without shifting the burden of proof onto the taxpayer.”

Well hey, the IRS, like most big bullies, is always up for a fight. They are not going to be kicked around by Taxpayer Advocate. On August 30, 2011 they issued their response. When you can spend the taxpayers money on the finest lawyers that money can buy, you can come up with a pretty good response. Actually I congratulate the IRS on their choice of lawyers. Whoever wrote their response did a good job. Actually, a very good job. I  recommend it to you – an excellent example of lawyering. (Also a good example of why people don’t like lawyers).

Without boring you with the $750 per hour details, the response of the IRS was:

No, no and more no. FAQ 35 does not allow for the consideration of “reasonable cause” or “non-willfulness”. If you don’t like it then, you just opt out!

So, the stage has been set for a big brawl – featuring one division of the IRS (the good cop) versus another division of the IRS (the bad cop). We need a referee to settle our differences. Who is this referee to be? Yes,  you guessed it – the IRS Commissioner himself –  Douglass Shulman

5. The Perspective of Doug Shulman:

Or rather, what’s a poor IRS Commissioner to do? He is required to settle this fight by January 26, 2012. So, keep your eyes and ears open! This dispute is of great interest to lawyers, accountants, taxpayers, the good cop. the bad cops and everybody else. It is no surprise that this has been the subject of:

a great thread on Jack Townsend’s blog; and

a fascinating article in Tax Notes

He has two options:

1. Side with Taxpayer Advocate the “good cop”

2. Side with his own people the “bad cop”

As “Just Me” explains neither option is desirable for Mr. Shulman.  So, what should he do? The answer depends on his “long term” objectives. If his “long term” objective truly is to bring people back into the tax system he will side with “good cop”. If his objective is something else, then he will side with the “bad cop”. Neither  decision would surprise me. To date, Commissioner Shulman has given little indication that he understands most U.S. citizens with foreign bank accounts are NOT criminals. That does not bode well for the “good cop”. As a recent blog post at Roth CPA (by the way this is a great blog) noted:

“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.”

I suspect that Mr. Shulman’s perception of this may be that:

On the one hand, Mr. Shulman states that:

“Collecting additional revenue for past misdeeds – as important as that may be – is not the main consideration here. It’s equally important that we’re bringing U.S. taxpayers back into the system…back into compliance… so they properly report and pay their taxes for years to come.”

https://renounceuscitizenship.wordpress.com/2011/11/09/bringing-u-s-taxpayers-into-the-system/

and on the other hand:

“… the biggest problem with the administration of the OVDP was the deeply entrenched view of the IRS that the people who entered the program were tax evaders. Lack of consistency also proved to be a problem for OVDP participants, especially those who sought refuge from penalties under FAQ 35 …”

– a lawyer quoted in the Tax Notes article

A decision in favor of Taxpayer Advocate could be the first step on a long long road of restoring some trust. The IRS simply cannot function without it.

You can expect an update on or around January 26, 2012. Until then, keep thinking about the obligations of U.S. citizenship!

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13 thoughts on “Taxpayer Advocate vs. The IRS – It’s a question of trust

  1. Petros

    Thanks Renounce. This was a great read and an excellent analysis of the situation. This should be the downfall of Obama’s hope for re-election, but I doubt that many people are paying attention.

    Reply
    1. renounceuscitizenship Post author

      Yes to the post either. But, Shulman’s response is going to be very very interesting. If he goes with the IRS it will be interpreted as a reaffirmation of the declaration of war on U.S. citizens living outside the U.S.

      You ought to look at Doug Schoen’s book about the Tea Party. In it he talks about the origins of people like Geithner, etc. I really wonder how many of these people have spent any time (or even been) outside the U.S. You do great research. How about out if Douglass Shulman has ever been outside the U.S. and if so, where, for what purpose and how long?

      They seem to have no capacity to understand how big of a problem this whole thing has become.

      Reply
  2. Just Me

    A very very good analysis, I think, but then as I often say, I am Just me so my analysis is suspect! I have been wrong too often on what I thought the IRS would do, logically speaking. I will be referencing this post in an email I am about to send to my Reporter/Journalist list Thanks for taking the time, energy, LCUs and brain power to articulate it so well.

    Reply
    1. renounceuscitizenship Post author

      Thanks for reading it. When I finished I was horrified to see how long it was. Therefore, I suspect that you and Petros will be the only readers. But, you are not “Just Me”. Here is who you are.

      ______________________________________________________

      Did you ever see the movie “Top Gun”. If so, you may recall that Mitchell was invited to “Top Gun” because he was the only one who had actually seem a Mig (or whatever the Soviet warplane was). Because of that unique experience he:

      – was invited to Top Gun

      – got a date with the character played by Kelly McGillis

      You are the only one with the actual OVDP and TaxPayer Advocate experience.

      Take a look at the following video (if you want pick it up at the 4 minute mark). You will recognize yourself as the one saluting with one finger to the Enemy pilot.

      Enjoy:

      Reply
      1. calgary411

        Great write-up / analysis. I will be looking for something new from the IRS / Doug Shulman side of things about the time I have my first appointment at the US Consulate. Very interesting.

        Thanks so much, renounceuscitizenship, Petros and Just Me. How well you advocate for all of us!!! Good salute, Just Me.

  3. Just Me

    Just posted this comment at Alvin’s blog. We will see if he publishes it…

    Go Nina!

    Open letter to Commission Shulman.

    Do the right thing! Affirm the TAD. Begin the process of restoring some trust in the IRS. If there is any grace, fairness and justice left in DC, then that is what you will do.

    Nina’s position is exactly correct, and I would bet my filed FBARS that a survey of your OVDP examiners would support her findings.

    Just man up and admit it. In designing the VDP, no one at the IRS considered the consequences for benign failures of the Minnows: Expats around the world, or immigrants who have come to America but didn’t understand the world’s most complex reporting requirements. You were just anxious to net the UBS evader Whales. You did nothing to inform immigrants that they had any FBAR obligations at their visa issuance, or citizenship ceremonies. You did everything you could to frighten Expats. Filing their FBARs going forward, and doing quiet disclosures to become compliant was not an option. Once a Minnow became aware of their failure, they had no choice but to enter the OVDP and be subject to a 2 year grinding process. To do otherwise, was a willful act, and heaven knows you don’t want to do that! Letters appealing to your office that you find a way to separate Whales and Minnows at the front end of the process rather than in an Opt Out at the end, went unheeded.

    Well, now you have the TAD. Please deal with it in a manner that will restore some respect.

    Let’s face it. You have had to back track several times in changing your VDPs. Changing some FAQs on the fly here, adding technical adjustments for smaller threshold accounts amounts there, as you began to realize you were netting lots of Minnows just trying to be compliant. Still, you did not correct your press releases leaving the media impression that you were catching more Whales than I think you did. But then, without a FOIA, I don’t really know.

    You have allowed your program to be called an amnesty. If compliance was your objective of this amnesty, I do think it has failed. If you really wanted to bring all those Expats and immigrants into the fold, then you should have conducted a VDP the way Canada does. See link

    bit.ly/wPKJ6z

    “The VDP allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information… without penalty or prosecution….the taxpayer will have to pay the taxes or charges owing, plus interest. However, the taxpayer will not be subject to “penalty” or prosecution ….”

    Now compare that to your most recent VDP. – 27.5% penalty on 8 year highest aggregate of all accounts and FMV of assets, plus interest, plus a 20% accuracy penalty for tax underpayment!

    And you wonder why Expats overseas and new immigrants to America aren’t all that excited about your proposals, and why some immigrants are just silently leaving, and Expats in Canada are mobilized to oppose FBARS and FATCA.

    The core problem with the VDPs and new FATCA policies is the US system of citizenship taxation combined with your over-the-top enforcement. Even the Economist in a recent article called “Dutchman Trapped,” noted. “America’s unusual requirement that its passport-holders pay it tax no matter where they live gives many qualifying residents good reason not to apply.”

    Good “reason not to apply”, indeed!

    You now have expats like me, combining voices with US immigrants in a duet chorus of warnings to new aspiring skilled immigrants, “Don’t do it! Don’t take any action (immigration, marriage, adoption, or US investment) that could trap you into becoming a “US person”. The cost is just too great!”

    I just issued two today! Was that the goal?

    Bottom line, the last 3 years of VDP jihad with the addition of FATCA, has done serious harm to the US reputation around the world. It is resulting in very negative press while most in Kansas are oblivious. Now is the time to start a trend reversal.

    Please show me that you haven’t lost the plot!

    Reply
    1. renounceuscitizenship Post author

      Well, you posted it here too and this is a fantastic comment. So, thanks muchly.

      Would you please comment further on this point:

      “You did everything you could to frighten Expats. Filing their FBARs going forward, and doing quiet disclosures to become compliant was not an option. Once a Minnow became aware of their failure, they had no choice but to enter the OVDP and be subject to a 2 year grinding process. To do otherwise, was a willful act,”

      The “trusted professionals” all sang to the tune “you must enter OVDI” – it is the only way. Am I understanding you properly? Are you saying that:

      Your understanding was that if somebody failed to enter OVDI that the IRS would presume a “willful failure” to file FBARs, etc? Could you elaborate in general on what you understood the position of the IRS in relation to people who did NOT enter OVDI.

      It is clear that the IRS presumed that anybody who did enter OVDI was a criminal.

      So, let’s say the question is to enter OVDI or not – well either way it seems that you were presumed to be a criminal.

      OVDI is a voluntary program. Filing FBARs is mandatory. So, the IRS is saying: If you obey the law by filing FBARs outside of our “voluntary program” for criminals then you are a criminal.

      Go figure.

      99% of the stress endured by people has been related to the question of: “How do I come into compliance?”

      Anyway, would appreciate your sharing more of your thoughts on: what is/was the position of the IRS if one doesn’t enter OVDI.

      I wait January 26 with “baited breath”.

      Reply
      1. Just Me

        I see he hasn’t published it yet.

        But knew you would. 🙂

        You ask….The “trusted professionals” all sang to the tune “you must enter OVDI” – it is the only way. Am I understanding you properly? Are you saying that:

        Basically yes. That was the advice I was given, but in fairness, given their reading of the “Do not do a Quiet Disclosure” language, and the FAQ35 which implied reasonable cause discretion, I understood it. Ultimately it was my decision, and I did the DIY approach. I was not going to enrich an attorney to do the administrative drudgery that I knew would result. That made no financial sense. So, I paid for advice, but that was it. In the scope of things, it wasn’t that much money.

        You ask….”Could you elaborate in general on what you understood the position of the IRS in relation to people who did NOT enter OVDI.”

        I didn’t really know what their position would be, but came to the conclusion, rightfully or wrongly, that joining was my only option. I viewed the program kind of like the surrounding seine net of the fisherman. It is drawing around you, and you do have time to dive deeper to escape, but that was a willful decision. I could see that coming back against me in future arguments in an audit were I discovered. Maybe I was too passive in allowing myself to be netted, but this fisherman has other harpooning skills and other nets, so I joined.

        You say… OVDI is a voluntary program.

        That is just what my Examiner said, and my response was basically “Bull S….”. Just because you put voluntary in the title, doesn’t make it voluntary, just like calling deregulation of the coal industry a “Clean Air Act.” Sure, I could voluntarily decide not to murder someone, but given the death penalty for following that voluntary decision was very much coerced by the Statutes for disobeying to say nothing about the Ten Commandments. I know it is a bit of convoluted logic, but that was how I saw it.

        I didn’t know before about the FBARs or even understand foreign income reporting requirements, However, once I became aware of my failures and aware of the program…. I knew. There was no escaping that knowledge. At that point, I had to decide if I was going to cross the line into willful behavior (ie dive deep) or enter the front door of disclosure. QDs were ruled out. So, what was the choice? To me it was to enter the OVDP. My big mistake was assuming that the IRS would see this too, and my appeals to logic and reason would prevail. They would do the right thing and not treat me as a Whale. How wrong I was!!

        You say…..99% of the stress endured by people has been related to the question of: “How do I come into compliance?”

        I understand that, and too bad the IRS didn’t There was an easy answer to that. The IRS could have said, if you are an Expat or an immigrant, and are not actively engaged in a UBS type evasion scheme, then just file your FBARs and do a QD like Geithner, pay up your taxes with interest and come into compliance with no penalty or prosecution. You other guys, and you know who you are, as we have the DOJ on your tail. We have designed a program for you specifically and you better come into the OVDP, or you are toast! That is how my simple mind sees it.

        You say, “I wait January 26 with “baited breath”.

        Me too, and I expect to be disappointed. Shulman has expended a lot political capital in the wrong course, he has skillfully gotten the press to do his messaging, and now it may be too hard for him to alter it.

        I have a lot of respect for Nina Olson and what she is attempting to do. She needs a medal for her valor.

  4. renounceuscitizenship Post author

    Oh my God look at this. I hope this is not true.

    http://isaacbrocksociety.com/2011/12/12/relinquish-dont-renounce-if-you-can/#comment-1188

    “Roger Conklin
    January 14, 2012 at 10:00 am

    It was in a story reported by ACA-Ameirican citizens abroad, an organization of US citizens headquartered in Geneva, of which I am both a member and on its board of directors.

    It used to be that the IRS and Immgration did not communicate with each other, but Congress enacted legislation that changed that. I am sorry that at 80 years of age I am not as organized as I used to be and can’t lay my hands on that story. But it was a Canadian lady resident of British Colombia. She had been born in San Diego of Canadian parents who were students there who returned with her to Canada as a baby shortly after her birth. She was interrogated by a US immigration officer when she made one of her frequent cross-border visits to the US and, although it was determined that with the foreign earned income exclusionan and Canadian foreign tax credits she would have owed no US tax had she filed US tax returns, she ended up paying $80,000 in penalties for having failed to do so. Up until she was apprehended at the border she did not even realize she was a dual US-Canadian citizen.”

    My response:

    http://isaacbrocksociety.com/2011/12/12/relinquish-dont-renounce-if-you-can/#comment-1199

    Mr. Conklin:

    Could you could find the story of the lady born in San Diego who paid all the fines. The description you give sounds like:

    1. IRS thuggery at its finest; and

    2. Quite arguably an example (this is why it is important to get more information) of the IRS acting unlawfully.

    The IRS is barred by the FBAR statute 5314 from collecting FBAR fines if there is a “reasonable cause” AND the FBARs are filed.

    But, even if the FBARs are NOT filed, they still have the discretion to issue a warning letter. I am getting extremely angry just reading this.

    So, assuming the accuracy of these facts, and assuming no extraordinary additional circumstances, the IRS is either or total thug or could be in violation of the law or both.

    Please help by locating this story – let’s this is NOT true.

    When it comes to the IRS, it is a question of trust:

    https://renounceuscitizenship.wordpress.com/2012/01/09/taxpayer-advocate-vs-the-irs-its-a-question-of-trust/

    Reply
  5. Just Me

    Thought I would post a question and answer from Jack Townsend’s blog… 4 days left for Shulman to affirm the TAS TAD!

    The question…
    AnonymousJan 20, 2012 09:55 AM
    Just Me:
    What happens if TAD is tossed out ? Are we at the mercy of one person in this great democratic country in the world ? There is no one who can come to rescue the Minnows ?
    The slight thought of this creates the high blood pressure.

    My Answer:

    Just MeJan 21, 2012 04:32 PM
    Anonymous Jan 20, 2012 09:55 AM

    “What happens if the TAD is tossed out?”

    In the short term, nothing. Things proceed as they are with no changes to any VDP programs, or at least that is how I see it.

    In the longer term, either the Commissioner has to report his decision to Congress, or Nina can take the issue to Congress herself. I am not sure which is the technically correct answer, as I have heard and read it expressed both ways, but that is my understanding. I could be wrong. (Maybe I should research it more.)

    If it does go to Congress, then it gets visibility on the subject, but does Congress do anything about it?

    Given their “broad-brush” views of anyone having an Offshore account as a Rich evader is shown by how poor ole Romney is getting negative press right now without any knowledge of his compliance status.

    Then, there is the provincial view of Expats as expressed in this comment by well known Homeland Offshore Tax cheat Charlie Rangel, I have little hope they will do the fair and right thing.

    “I hope that one day we will just publish the names of people that America has given so much to and that they care so little about that citizenship that they would flee in order to avoid taxes.”

    Implication: If you are an Expat, you must be fleeing to avoid taxes.

    Poor Charlie didn’t even understand the IRS rules he was writing and voting for. His failure to report his rental income on his offshore condo got him censored. Not sure what his IRS penalty was, but bet it was less than yours!

    Of course, now he has learned, and probably regrets that statement, still there are those in Treasury that probably think like this…

    “If you’ve gotten your riches from America, you should pay your fair share of taxes. These expatriates are really like economic Benedict Arnolds.”

    – Leslie Samuels, Assistant Secretary for tax policy, U.S. Department of the Treasury

    and there are more classic statements in similar veins going back years, but will give it a rest.

    As for Immigrants to America, it is all your own fault for not reading those 77,000 pages of tax regulations before you applied for your Greencard! Or, so their reasoning would go.

    They feel no responsibility at all to work with Immigration and provide full disclosure offshore tax rules with every Visa Application and Citizenship ceremony. The SEC has stricter disclosure provisions on Corporations for financial products with less complex rules than the Tax laws. But never mind. They didn’t even enforce those either.

    So, for the IRS, “bait and switch” OVDP actions (intentional or not), and education via fear and prosecution is SOP, There is only the TAS standing in the way. They would just as soon ignore Nina, and I am sure that the underlings that designed the OVDP program are probably lobbying Shulman strongly to “Not affirm.” Let’s see what he does. Will be interesting. 5 days left until January 26th.

    So, that is what you are up against.

    Remember, Shulman calls all his VDPs “highly successful” Hard to back away from his public statements. From his end of the hunting rifle, looking down his narrow field scope, I am sure that he sees it that way. You are experiencing what the deer feels.

    PS, You might warn your potential immigrant friends back home what to expect before they come to America. If they have any assets or skills, the Offshore tax issues (and penalty regimes) might take some of the gloss off that Visa application.

    Reply

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