Monthly Archives: January 2012

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.” Continue reading
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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”. Continue reading

U.S. citizen employees and FBAR requirements

Yesterday I wrote a post describing why FBAR and FATCA will make U.S. born children unadoptable. After all, they carry with them U.S. tax filing and reporting obligations. The general toxicity of U.S. citizenship is such that non-U.S. citizens will NOT wish to risk financial involvement with U.S. citizens. Here is another example.

Continue reading