PwC suggests a check to see if you're an 'accidental American'

A leading accounting firm is taking the unusual step of urging Canadians to double-check their citizenship status, warning there may still be thousands of accidental Americans in Canada oblivious to their U.S. tax obligations.
Although this article does not contain false information, it is primarily advertising for the IRS and tax compliance industry. The article contains a number of "half truths". The main point is that the FATCA problem applies to those who really are U.S. citizens.When it comes to U.S. citizenship: 1. Being born in the U.S. means you start life as a U.S. citizen but it is very possible that one has relinquished U.S. citizenship along the way. 2. Being born outside the U.S. does not carry any presumption of U.S. citizenship. The accountants, banks, insurance companies and most lawyers are NOT capable of advising you on your citizenship status. What they do is help you comply with U.S. tax laws and they are happy to do this whether you are a U.S. citizen or not.

 

 

 

1. Being born in the U.S. means you start life as a U.S. citizen but it is very possible that one has relinquished U.S. citizenship along the way.

2. Being born outside the U.S. does not carry any presumption of U.S. citizenship.

The accountants, banks, insurance companies and most lawyers are NOT capable of advising you on your citizenship status. What they do is help you comply with U.S. tax laws and they are happy to do this whether you are a U.S. citizen or not.

The article contains a number of "half truths". The main point is that the FATCA problem applies to those who really are U.S. citizens.

When it comes to U.S. citizenship:

1. Being born in the U.S. means you start life as a U.S. citizen but it is very possible that one has relinquished U.S. citizenship along the way.

2. Being born outside the U.S. does not carry any presumption of U.S. citizenship.

The accountants, banks, insurance companies and most lawyers are NOT capable of advising you on your citizenship status. What they do is help you comply with U.S. tax laws and they are happy to do this whether you are a U.S. citizen or not.

1. Being born in the U.S. means you start life as a U.S. citizen but it is very possible that one has relinquished U.S. citizenship along the way.

Although this article does not contain false information, it is primarily advertising for the IRS and tax compliance industry.

The article contains a number of "half truths". The main point is that the FATCA problem applies to those who really are U.S. citizens.

When it comes to U.S. citizenship:

1. Being born in the U.S. means you start life as a U.S. citizen but it is very possible that one has relinquished U.S. citizenship along the way.

2. Being born outside the U.S. does not carry any presumption of U.S. citizenship.

The accountants, banks, insurance companies and most lawyers are NOT capable of advising you on your citizenship status. What they do is help you comply with U.S. tax laws and they are happy to do this whether you are a U.S. citizen or not.

Although this article does not contain false information, it is primarily advertising for the IRS and tax compliance industry.

The article contains a number of "half truths". The main point is that the FATCA problem applies to those who really are U.S. citizens.

When it comes to U.S. citizenship:

1. Being born in the U.S. means you start life as a U.S. citizen but it is very possible that one has relinquished U.S. citizenship along the way.

2. Being born outside the U.S. does not carry any presumption of U.S. citizenship.

The accountants, banks, insurance companies and most lawyers are NOT capable of advising you on your citizenship status. What they do is help you comply with U.S. tax laws and they are happy to do this whether you are a U.S. citizen or not.

http://www.theglobeandmail.com/report-on-business/are-you-an-accidental-american-pwc-alerts-customers-to-us-tax-obligations/article19832567/#dashboard/follows/

FIRST TIME ABATE of IRS Penalties

The Internal Revenue Manual (IRM) contains a Penalty Handbook intended to serve as the foundation for addressing the administration of penalties by the IRS. It is the “one source of authority for the administration of penalties. . .”[1] and provides a “fair, consistent, and comprehensive approach to penalty administration.” As such, the IRM is often the first stop for IRS examiners attempting to determine whether conduct should be subjected to further review and, potentially, civil penalties. Under the “First Time Abate” procedures of the IRM the IRS is to eliminate certain penalties if the taxpayer has not previously been required to file a return or if no prior penalties have been assessed against the taxpayer within the prior 3 years

IRS Group Request

Suppose that you have an undisclosed offshore account with UBS, a Swiss bank in Zurich. You received a declaration of consent from UBS Bank requesting your consent to disclose your account information to the IRS directly but you refused.

Because you did not consent, your account became subject to aggregate reporting by UBS Bank. Pursuant to the Swiss-U.S. FATCA Agreement, Swiss banks must report the number of accounts they hold for which the account holders have not given their consent, as well as the total value of such accounts, without disclosing the names of the account holders. This aggregate reporting procedure is complemented by an exchange of information upon request based on the Swiss-U.S. double taxation treaty.

August 3, 2014

Taxpayers who are considering applying to the OVDP should be mindful of a certain upcoming deadline: August 3, 2014. Willful non-disclosers who do not apply to the OVDP by August 3, 2014 and who have an offshore bank account with a foreign financial institution which has been publicly identified as being under investigation, or is cooperating with a U.S. government investigation will face an increased offshore penalty of 50% (from 27.5%).

The IRS has published a list of those foreign financial institutions or facilitators.
It includes the following:

1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. Swisspartners
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. HSBC India
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield).

The IRS reserves the right to add new financial institutions to this list at any time, in which case entire groups of taxpayers will be ineligible to participate in the OVDP without any prior notice.

To avoid any confusion concerning the August 3, 2014 deadline, an important distinction must be made. This deadline only impacts the offshore penalty and not overall eligibility to OVDP. In other words, a taxpayer who has an undisclosed offshore account with one or more of the banks on this dreaded list is still eligible to apply to the OVDP after August 3, 2014 — so long as the IRS does not already have that particular taxpayer’s name — but will be subject to a 50% offshore penalty, as opposed to the existing 27.% penalty.
To the extent that the IRS already has a particular taxpayer’s name, then it will be too late for him to apply to OVDP, even if he doesn’t have an account with any of the banks on the list. Such a taxpayer could break his neck trying to apply to the OVDP before August 3, 2014, and even if his application is timely received, he will still be rejected.
Taxpayers who have already been identified by the IRS no longer enjoy immunity from prosecution and could be subject to willful FBAR penalties for multiple years. With stakes this high, taxpayers who are fearful that their failure to disclose offshore accounts will be deemed willful and who want assurances that they will not be prosecuted and/or subjected to draconian FBAR penalties should apply to the OVDP.
 http://www.deblislaw.com/t-minus-two-days-and-counting.html

The new Taxpayer Bill of Rights document outlines your rights when dealing with the IRS.

1. 

   The Right to Be Informed

   Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
   

2. The Right to Quality Service

   Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
   

3. The Right to Pay No More than the Correct Amount of Tax

   Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
   

4. The Right to Challenge the IRS’s Position and Be Heard

   Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
   
   http://www.taxpayeradvocate.irs.gov/About-TAS/Taxpayer-Rights
   
   

5. The Right to Appeal an IRS Decision in an Independent Forum

   Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
   

6. The Right to Finality

   Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
   

7. The Right to Privacy

   Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
   

8. The Right to Confidentiality

   Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
   

9. The Right to Retain Representation

   Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
   

10. The Right to a Fair and Just Tax System

    Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.
    

Guns & Money, Bribery, Money Laundering, Major Insolvencies, Drug Dealing … and the week has just begun

Links to Articles -

Guns & Money – Smith & Wesson pays $2 million for bribery

Banco Espírito Santo’s former CEO arrested for Money Laundering & Tax Evasion as bank reports Portugal’s largest loss, Espirito Santo Financial Group seeks creditor protection

Guinea mining FCPA bribery investigation nets first jail sentence

Substantial money laundering penalties but not tax collection from OVDI disclosures

4th guilty plea in Indonesia bribery FCPA case

BOA settles alleged narco kingpin violations for $16 million

SunTrust Admits Issuing Mass Denials After Throwing Away Thousand of Customers Unopened Files

Lloyds Banking Group Will Pay $370 Million, Admits Criminal Wrongdoing

FTC seizes law firm assets, alleges $35 million fees bilked from distressed homeowners

Is FedEx a drug dealer? The $2.4 billion question

Analysis of the 88,000 Financial Firms on the IRS’ GIIN List for FATCA

Tax Inversions: The Basics

Lionel Messi to be Prosecuted for Alleged Tax Evasion of $5.4 million

UBS pays out in German tax case as lawsuits target private bank

Reuters - UBS AG booked a near $300 million charge in the second quarter mainly to settle claims it helped wealthy Germans to dodge taxes, the latest in a string of lawsuits that have targeted its private banking business.
The Zurich-based lender's offices in Germany were searched last year as part of a probe sparked by a CD with details of UBS clients that was purchased by the German state of North Rhine-Westphalia (NRW).
UBS, which faces a separate probe in Germany and similar probes in Belgium and France, took a 254 million Swiss franc ($280.8 million) charge and said it aimed to have all its German clients come clean by year-end, from more than 95 percent.
Yet the charge is only one of a slew of legal issues with which the bank is contending. It hiked its provisions against future litigation to nearly 2 billion francs but warned this might still not be enough to cover possible fines and charges.

Falling Down The Foreign Mutual Fund Rabbit Hole

If you are a U.S. citizen or resident (i.e. “Green-Card Holder”) and have investments in a foreign financial institution that includes foreign mutual funds, you need to learn what Passive Foreign Investment Companies (PFICs) are very quickly.
The passage of the Foreign Account Tax Compliance Act (FATCA) is bringing about a new era of dramatically heightened enforcement by the U.S. of laws regarding taxation of and reporting on investments held outside the U.S. by U.S. taxpayers. Thus, it is becoming increasingly more difficult if not impossible to be ignorant of filing requirements, including the filing requirements of PFICs.
One of the most confusing aspects of foreign investing is the difference (and the fact that there is a difference) in the reporting and taxation of foreign mutual funds as compared to U.S.-based mutual funds.
It is very clear that the US tax laws have been designed to deter US persons from investing in mutual funds outside the US but oftentimes US taxpayers are caught unaware (usually after the fact) about the reality of the investment in PFICs that they have. Investing in a mutual fund outside of the U.S. and PFICs in general is a trap of mammoth proportions for the unwary.

Credit Suisse Trader: “I Was Acting Under Orders”

Salmaan Siddiqui will be sentenced by  a New York federal judge in a little more than 24 hours. He was convicted of one count of conspiracy to falsify books and wire fraud for helping Credit Suisse AG hide mortgage losses in the run up to the financial crisis. He faces years in prison, however his lawyer says he should not go to jail at all. (Siddiqui’s boss, Kareem Serageldin was sentenced last November to 30 months in prison.) The real story isn’t whether Mr. Siddiqui goes to prison, its what he has to say to the judge and just how deep the culture of bank fraud runs within the “too big to fail” world of banking.
Siddiqui’s primary argument, according to a sentencing memorandum filed last week by his lawyers, claims that he provided substantial cooperation to the feds and that he was acting under orders from above. Both of those claims need to examined.

Jury Determines 150-Percent FBAR Penalty and U.S. Seeks FBAR Related Forfeiture of $12 Million

Journal of Tax Practice & Procedure
June-July, 2014

 http://taxlitigator.com/wp-content/uploads/2014/08/Jury_Determines.pdf

Americans in Israel Targeted by IRS for Tax Audits

Now the stakes have been raised as Israel will transfer detailed information on American-held financial accounts to U.S. tax authorities by Sept. 30, 2015, under the first phase of an accord to implement the Foreign Account Tax Compliance Act.

In the case of Israel with respect to each U.S. Reportable Account of each Reporting Israeli Financial Institution:

1. The name, address, and U.S. TIN of each Specified U.S. Person that is an Account Holder of such account and, in the case of a Non-U.S. Entity that, after application of the due diligence procedures set forth in Annex I, is identified as having one or more Controlling Persons that is a Specified U.S. Person, the name, address, and U.S. TIN (if any) of such entity and each such Specified U.S. Person;
2. The account number (or functional equivalent in the absence of an account number); 
3. The name and identifying number of the Reporting Israeli Financial Institution;  
4. The account balance or value (including, in the case of a Cash Value Insurance Contract or Annuity Contract, the Cash Value or surrender value) as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure; in the case of any Custodial Account:  

(A) the total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account, in each case paid or credited to the account (or with respect to the account) during the calendar year or other appropriate reporting period; and

(B) the total gross proceeds from the sale or redemption of property paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Israeli Financial Institution acted as a custodian, broker, nominee, 

or otherwise as an agent for the Account Holder;

(6) In the case of any Depository Account, the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period; and

(7) In the case of any account not described in subparagraph 2(a)(5) or 2(a)(6) of this Article, the total gross amount paid or credited to the Account Holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Israeli Financial Institution is the obligor or debtor, including the aggregate amount of any redemption payments made to the Account Holder during the calendar year or other appropriate reporting period.

Unauthorized FATCA 'Intergovernmental Agreements' Are Part Of Obama's Executive Overreach

This article showcases the complete absence of legal authorization for FATCA Intergovernmental Agreements in a new opinion piece for Forbes.  As willfully ignorant countries around the world line-up to needlessly sign-away their sovereignty and privacy rights, it is important to remember that all FATCA IGA's are mere pseudo-treaties, built on a legal foundation of quicksand.  Only Congress has the constitutional authority to enact international treaties, not the executive branch - not Treasury, not the IRS and certainly not Obama, no matter how many executive orders he may sign with a Louis XIV-like flourish.
http://www.forbes.com/sites/realspin/2014/07/28/unauthorized-fatca-intergovernmental-agreements-are-part-of-obamas-executive-overreach/

As I have been saying for 3 years now..............

the IRS was always interested first in maximizing revenue through FBAR and Title 26 civil tax penalties and never in compliance . The Service forced many of their intimitaded "customers" to seek legal counsel at great expense, when even most legal counsel could only make somewhat better analyses of the situation, but not perfect because of the uncertainties in application of the concept of willfulness in conjunction with the IRS threats of dire consequences. Many benign actors (well, clearly on the innocence side of the continuum) joined OVDI/P, but because of the IRS continual saber rattling (aka threats), many of those innocents were afraid to opt out, and many lawyers were afraid or unable to counsel them as to their real or realistic risks on opt out.

Those taxpayers who got into the OVDI/P programs early to get right with the IRS will be treated more harshly and subjected to greater processing costs, time, angst, etc., than those who sat back and waited on straight Streamlined or proceeded otherwise (quiet disclosure, etc.). Of course the question arises now why the IRS makes such a fuss about these taxpayers still left in OVDI/P as of today and have not signed a Form 906 to proceed fully under either SDOP or SFOP ? It appears that the IRS wants to keep all of the income tax, penalties and interest for closed income tax years and penalties for open years that it is not entitled to, while giving a partial benefit of the Streamlined program (the 5% penalty applied to innocents, many of whom should owe no penalty).

Ty Warner Appellee Brief on Sentencing Appeal

Please find Warner's answering brief  from Paul Clement (Supreme Court and Appellate Counsel) and Mark Matthews here.

Swiss Bank Accounts ............Not So Secret Anymore

Crime writers and Hollywood producers take note: Secret Swiss bank accounts aren’t so secret anymore. Switzerland’s reputation for tight-lipped discretion made it a magnet for money from dictators and tax dodgers, along with Wolf of Wall Street Jordan Belfort and the fictional assassin Jason Bourne. Now whistleblowers and a crackdown after the 2008 financial crisis are creating a world less tolerant of offshore havens. That’s enabled the U.S., France and other countries to break open the vault. Switzerland’s biggest banks have paid fines and fingered their clients. Customers are being told to pay their taxes or clear out their accounts. What’s not clear is whether the cleanup will lead to less tax evasion, or just push it elsewhere. And whether Swiss banks will be able to hold on to their clients without the cloak of anonymity.

Former IRS Employees Arrested in Identity Theft Ring

A former Internal Revenue Service employee was arrested and charged with participating in an identity theft conspiracy that used information stolen from the files of other IRS employees.
The former IRS employee Viririana Hernandez, 30, was arrested Tuesday at her mother’s home in Parlier, Calif., and charged with identity theft conspiracy, according to U.S. Attorney Benjamin B. Wagner’s office.
Her co-defendants Roberto Martinez, 33, and Lilliana Gonzalez, 32, both of Fresno, were also arrested at their residence Tuesday morning. All three defendants were arraigned Tuesday and entered pleas of not guilty.
Martinez was released from custody with electronic monitoring. Hernandez and Gonzalez remain in custody and had a detention hearing on Thursday. Arraignment for a fourth defendant, Daniel Miranda, 25, has not yet been scheduled.

Another Summary : "Official" Options Available for U.S. Taxpayers with Undisclosed Foreign Accounts

Given the costs and benefits associated with each option, practitioners have a duty to evaluate the viability of the delinquent FBAR submission procedures for any taxpayers whose failure to report their foreign financial assets was not willful.

The IRS now offers taxpayers with undisclosed foreign financial assets the following options:
1. Offshore Voluntary Disclosure Program;
2. Streamlined Filing Compliance Procedures;
3. Delinquent FBAR and international information return submission procedures (otherwise known as a “qualified amended return”).

Delaware corporate secrecy and crime: a long-awaited debate begins

A fascinating blog from Global Witness:

“Last November, a former special agent for the Treasury Department, John Cassara, wrote an op-ed for the New York Times with the headline “Delaware, Den of Thieves?”  Cassara described how the state of Delaware (along with Wyoming and Nevada) has become “nearly synonymous with underground financing, tax evasion and other bad deeds facilitated by anonymous shell companies”.
. . .
This week, a debate has started in Delaware about its role as a corporate secrecy haven. One-half of the members of the Delaware State Legislature have sent a letter to the Delaware Congressional Delegation, urging them to support bipartisan federal legislation introduced by Senators Levin (MI-D) and Grassley (IA-R) to deal with anonymous companies.”

The Global Witness blog provides a lot of background to Delaware’s deep involvement in global criminality and abuses, and read that NY Times story too. Global Witness adds details of these latest moves – a relatively rare fightback against the financial sector in a smaller-state secrecy jurisdiction:

“Led by the Delaware chapter of Americans for Democratic Action, 13 state-based organizations including labor, good government and social justice groups issued a statement raising concerns about the of use of anonymous companies to set up dirty deals in their state’s back yard, and calling on the state to strengthen its own transparency laws. Today’s letter to the Congressional delegation takes that initiative one step further by showing that local lawmakers want Delaware’s Members of Congress to be partners in this effort as well.”

The response to this, politically inside Delaware and more broadly, will be a fascinating study in political economy. And if it proves to have teeth it could bring welcome changes around the world.

Taxes and Morality

I just revisited a Pew Research study titled A Barometer of Modern Morals:

Sex, Drugs, and the 1040 (3/28/06), here.  Here are the results of a poll of 745 people, with the percentages of people classifying each behavior as morally wrong:
· 85%  Married People Having an Affair
· 79%  Not Reporting All Income on Taxes
· 61%  Drinking Alcohol Excessively
· 52%  Having an Abortion
· 50%  Smoking Marijuana
· 50%  Homosexual Behavior
· 43%  Lying to Spare Someone's Feelings
· 35%  Sex Between Unmarried Adults
· 35%  Gambling
· 32%  Overeating
 This could be valuable information for estimating the general mindset of the jury in offshore cases. "Not Reporting All Income on Taxes" is presented as a qualifier rather than a quantifier. Big-time hustlers not getting the easy treatment in court cases is not a surprise (looking at the published reports), but I'm curious on the stats for small offenders

FATCA-DATCA-GATCA and IRS Form Crimes

I have phrased these terms in 2012 after realizing its global impact and consequences on every US taxpayer worldwide.
The rage at UBS in the States led directly to what I call the FATCA FATWA with it's Offshore Jihad and many iterations of the OVDI/P.
More ominously, and mostly ignored in the US media, FATCA has begat a global GATCA, or this OECD Common Reporting Standards (CRS) that David Jolly so benignly mentions in one sentence.
It is modeled on FATCA, although in many ways more restrictive. It is residency based and not Citizenship based, and doesn't have the coercive sanctions that FATCA has. It is a voluntary program, unlike FATCA, where FFIs really have little choice but to comply if they want to use the USD for international transactions, and they ALL do. GATCA IS A BIG DEAL! I have not seen it covered in any U.S. mainstream media, yet. It deserves more attention than the meager lines that David Jolly wrote.
For those that don't know what it is, here is some analysis :
http://bit.ly/1key1tO

If my bank accounts are “foreign” to the US, doesn’t that make the US government “foreign” to me ?

"It is also important to note that FATCA’s requirements are the same for all American taxpayers—expats are treated no differently. All citizens are required to comply with United States’ tax laws and FATCA is a tool to enforce them. Tax evaders should rightly worry that FATCA will reveal their illicit activities."
Mark J. Marzur, Assistant Secretary for tax policy, United States Treasury Department

(1) The Master Nationality Rule says that every country has the right to consider their resident citizens as only their citizens and not the citizens of any other country; (2) the Dominant Nationalty Rule says that a so-called dual citizen has the right to protection of the country with which they have the closest ties; and (3) The Rule of State Non responsibility, a state, has no right to protect a citizen–or steal from them–if they are currently inside a country in which they have citizenship. FATCA conforms to none of the international rules of dual citizenship.
The above statement of the Assistant Secretary raises a serious moral issue. If the US Treasury wishes to ignore international law, then it is the United States which is involved in the illicit activity.

Limitations an OVDP Form 906 closing agreement places on tax litigation

Once a civil action is filed in a federal court, the first challenge a taxpayer faces is the daunting task of setting aside the closing agreement that he or she executed through an OVDP/I.  All participants of an offshore voluntary disclosure initiative must execute a Form 906 entitled “Closing Agreement on Final Determination Covering Specific Matters.”

OVDP penalty refund in the absence of a 906 closing agreement and filing an administrative claim for refund

A taxpayer seeking a refund of an offshore penalty must first file an administrative claim for a refund with the IRS.  The Internal Revenue Code (IRC) discusses the procedure regarding filing an administrative claim for refund, and IRC Section 7422(a) further explains that such a claim must be filed before bringing a lawsuit:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.

Is making a disclosure outside of OVDP a grave mistake for a taxpayer who innocently or mistakenly failed to disclose a foreign bank account ?

Whether or not an individual can safely make a disclosure outside of OVDP is heavily dependent on the facts and circumstances of each individual case. The IRS has threatened to civilly challenge any disclosure made outside of an OVDP or SFOP,SDOP. The important message here is : it is one thing what the IRS can do but totally another what they will do !

Update from Agent Bayer

1.  When asked about a higher standard for non -willful than in the case of SDOP, the agent complained that most of the Transition certifications they are receiving are incomplete and have to be send back - there is already a back-log of a few thousand submissions. I take this to mean err on the side of a complete if lengthy explanation vs. a brief explanation.

2. While the decision of a fresh SDOP or SFOP application appears to hinge on the willfulness - non willfulness barrier (i.e., negligence vs. intent), the IRS' decision on a OVDP-into-SFCP transitional request seems to depend on a stricter standard (based on Agent Bayer's comments). Whether that standard goes all the way down to the one between RC and NW, nobody knows yet. Even if it doesn't go all the way down there, it could very likely be the case that the audit option after opt-out is superior to a successful transition request (all else being equal) in terms of expected penalties.

3.  It seems still the mindset at the IRS that taxpayers in OVDP are mostly dishonest or it could be an indication of smart revenue management ! If you had a pool of people telling you that they'll give you 27.5% in a few months (ignoring those that intended to opt out), would you settle for 5% now ?
The IRS is looking more suspiciously to those particular individuals who were ready to pay the 27.5% .

UBS Being Investigated in France Over Tax Evasion

UBS, the largest Swiss bank, was placed under formal investigation by the French authorities on Wednesday and ordered to post bail of more than $1 billion in the kind of tax-evasion case that ensnared it in the United States several years ago.

The bank, based in Zurich, faces charges of money laundering and tax fraud for helping French clients hide funds from the national tax administration from 2004 to 2012, an official in the Paris prosecutor’s office said. The official cannot be identified, in keeping with the rules of the office.

UBS has also been ordered to post bail of 1.1 billion euros (about $1.5 billion), the official said. The bank did not respond to requests for comment.

The news, first reported Wednesday by Agence France-Presse, was not entirely unexpected. A whistle-blower’s tip had led the authorities to the Swiss bank, and UBS was last year placed under formal investigation on suspicion that it illegally sold banking services to French citizens to enable them to move money offshore. It was ordered to pay a 10 million euro fine in that case over lax internal controls. 

Tax Code and International Taxation

Finance and tax policy experts testified on the U.S. system of international taxation and ways to reverse the growing trend of American companies reincorporating overseas to avoid paying corporate taxes, also known as inversion.
http://www.c-span.org/video/?320557-1/hearing-us-tax-code

10 Signs Your Tax Missteps Are 'Willful' Triggering IRS Penalties Or Jail

“Gee, I didn’t know,” can get you off the hook in a variety of circumstances. Sometimes it can even work with the IRS. But it is hardly a Get Out of Jail Free card. Everyone has heard that ignorance of the law is no excuse.
Besides, on many key tax subjects, the IRS says that with hardly any effort, you could easily learn the IRS requirements. Surprisingly, some tax knowledge is attributed, and that’s true with intent too. In fact, your overall actions and conduct may reveal your intent, and that can trip you up. Your actions may spell the difference between an innocent mistake and one that is willful and therefore far more serious.
Willfulness involves a voluntary, intentional violation of a known legal duty. In taxes, it applies for civil and criminal violations. This definition causes many people to think they are home free. If you didn’t know you had a legal duty to report income or a foreign bank account, how can you be prosecuted? It’s not that simple.

Even civil penalties, you might figure, can’t be imposed if you weren’t actually trying to cheat anyone. Unfortunately, willfulness can be shown by your knowledge of reporting requirements and your conscious choice not to comply. But some knowledge is assumed.
You may not have meant any harm or to cheat anyone, but that may not be enough. One area rife with concern these days is reporting offshore income and bank accounts. The failure to learn of filing requirements, coupled with efforts to conceal the existence of the accounts, can spell willfulness.
IRS says any person with foreign accounts should read government tax forms and instructions. And failing to follow-up or get professional advice can provide evidence of willful blindness.

Mini Case Study

Taxpayer A has been a citizen of France who happens to hold a U.S. green card. The green card was issued in July, 2009. This, of course, makes the client a U.S. taxpayer for income tax purposes, taxable on his worldwide income.
The individual lived in the United States on the green card for 2 years, but has been living in his home country more-or-less full time for the last couple of years. It sounds like the green card holder probably does not want to live permanently in the United States in the future. He has family in the United States (children and grandchildren) so visits will happen, but in terms of "where do I live?" the answer is not the United States anymore.
Because of differences in the tax laws, a particular item of income that is tax-free in France will be taxable on his U.S. income tax return.
The taxpayer is thinking about to make an election to be a nonresident of the United States for income tax purposes for 2013. What are the consequences of making that election ?

Does the IRS investigate USCs and LPRs residing overseas ?

The short answer is yes, with varying degrees of investigation; reviews or audits.  Of course, not all individuals are audited or investigated.  However, the new data that will be collected under FATCA will be an increasingly valuable source of information for the IRS.
In practice, the IRS automatically generates “substitute for returns” for individuals living overseas where no U.S. federal income tax return has been filed.  In these cases, the IRS is receiving some type of income information (e.g., from a bank or broker) and then issuing the substitute for return.

First, there has been a much greater focus during the last 6 years on foreign, international tax matters.  That focus continues under the current Commissioner.
Second, the IRS has been opening offices internationally in different countries.  Most recently, an office in Beijing, China.  
To learn more about the functions of the Tax Attachés (TA) and Deputy Tax Attachés (DTA) and how they serve in the IRS overseas Posts, see the IRM, 4.30.3  Overseas Posts .
Third, with additional information that will be collected under FATCA (starting in 2015 for information for the calendar year 2014), the IRS will have additional information to sort, examine, audit, etc.  This will undoubtedly cause more substitute for returns to be automatically generated by the IRS for those individuals who have not been filing U.S. income tax returns.
Fourth, the offshore voluntary disclosure program has been a treasure trove of information for the government regarding non-U.S. banks and non-U.S. advisers (bankers, accountants and attorneys).
Fifth, the deferred prosecution agreements entered into with various Swiss financial institutions will be an additional source of information regarding USCs and LPRs and their accounts and assets.
Sixth, the IRS has developed a number of methods of collecting, sorting and identifying information (including the information that will be collected above).  For instance, in the Internal Revenue Manual provides the following, regarding USCs and LPRs, including those living overseas -

See, IRM regarding “Substitute for return (SFR) and delinquent return procedures were developed to deal with taxpayers who do not file required tax returns.“

The FBAR willfulness civil penalty - intent to violate a known legal duty Part II

"willfully" is a "word of many meanings whose construction is often dependent on the context in which it appears and where willfulness is a statutory condition of civil liability, we have generally taken it to cover not only knowing violations of a standard, but reckless ones or careless disregard as well".
https://www.courtlistener.com/flsd/dta6/creative-hospitality-ventures-v-us-liability/

Relevant cases and quoted from are :  
Bryan v. United States, 524 U.S. 184, ___ (1998), here
Cheek v. United States, 498 U.S. 192 (1991), here
Ratzlaf v. United States, 510 U.S. 135 (1994), here
Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007), here
Global Tech Appliances, Inc. v. SEB, ___ U.S. ___, 131 S. Ct. 2060 (2011), here
United States v. Williams, 489 Fed. Appx. 655, 2012 U.S. App. LEXIS 15017 (4th Cir. 2012), here
McBride v. United States, 908 F. Supp. 2d 1186 (D. UT 2012), here


(Section 5321(a)(5)(C), here:
C) Willful violations.— In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—

    (i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
        (I) $100,000, or
        (II) 50 percent of the amount determined under subparagraph (D),

With regards to the FBAR criminal penalty -  the Supreme Court held that willfully as used in Section 5322(a), here, the criminal provision for willfully violating the provisions, should be interpreted the same as in Cheek . The FBAR civil willfullness penalty is part of the same regulatory scheme, incorporated in the immediately  preceding Code section, Section 5321. Significantly, Section 5321(d) says that the civil penalty can apply "notwithstanding the fact that a criminal penalty is imposed with respect to the same violation."
 http://sports.aliexirs.ir/Federal-Taxation-Developments-Blog-Federal-Taxation.html
The general rule that a common law term in a statute comes with a common law meaning, absent anything pointing another way leads us to the legally non binding IRMs.
The IRM  states that, for purposes of the FBAR civil penalty, "The test for willfulness is whether there was a voluntary, intentional violation of a known legal duty.  4.26.16.4.5.3  (07-01-2008) FBAR Willfulness Penalty - Willfulness, here.  http://www.irs.gov/irm/part4/irm_04-026-016.html We thus do not have to pick or choose among possible meanings of willfully, we know the meaning of willfully. In addition we have seen that the Court adopted a "standard civil usage" of the term willfully to include reckless conduct. ("willfully," as used in a civil penalty provision, includes "'conduct marked by careless disregard whether or not one has the right so to act'"  This construction reflects common law usage, which treated actions in "reckless disregard" of the law as "willful" violations). But lets focus on what the Courts did not do....they did not adopt the strict meaning of willfully to require intent to violate a known legal duty, but rather adopted a different one where recklessness would suffice.  Recklessness does not suffice to constitute willfulness as defined to mean intent to violate a know legal duty. http://itlaw.wikia.com/wiki/Willfulness

People who expatriate often assume that they must handle their tax filings immediately after their expatriation date. Not so. The final year’s tax filings are done in the following year.

On Form 8854 you are supposed to tell the IRS when you renounced citizenship or abandoned your green card.
When someone expatriates (renounces U.S. citizenship or abandons a green card after holding it for a long time), there is one eternal truth:

You still have to file a U.S. income tax return for the final year that you were a citizen or a green card holder, even if it is only for part of the year. This is usually (but not always) a dual-status tax return. See IRS Publication 519, Chapter 6.

The Form 8854 is filed along with that final tax return. From the Instructions to the 2013 Form 8854, at page 3, in the right hand column:

When To File
If you expatriated after June 16, 2008, attach Form 8854 to your income tax return (Form 1040 or Form 1040NR) for the year that includes your expatriation date, and file your return by the due date of your tax return (including extensions). Also send a copy of your Form 8854 to the address in Where To File, later. If you are not required to file Form 1040NR or Form 1040, send your Form 8854 to the address in Where To File, later, by the date your Form 1040NR (or Form 1040) would have been due (including extensions) if you had been required to file. (See Resident Alien or Nonresident Alien in the Instructions for Form 1040NR.)

For someone who expatriates in 2014, that final tax return will be due in 2015. The filing deadline will either be April 15, 2015 or June 15, 2015, depending on circumstances. An extension request can be made, giving you until October 15, 2015. A further extension request is possible to December 15, 2015.
If you are a covered expatriate and you have deferred compensation plans (think “pension”), you must file Form W-8CE with the compensation plan administrator within 30 days of your expatriation Date.
If you do this, your U.S. income tax on pension distributions will be 30%, as the payments are made to you. If you miss the 30 day deadline, you are treated as if you received a giant lump sum distribution of your entire lifetime’s worth of pension payments. This will create a Godzilla-sized income tax payment that the IRS will be keenly interested in receiving promptly.
The problem is a cash flow problem. If you are receiving small payments every month for the rest of your life, you probably don’t have the cash available to pay some hundreds of thousands of dollars in income tax today.
 http://hodgen.com/blog/page/2/

Until the IRS says that it has adopted a special definition of non willfulness.....

Willful blindness for purposes of the income tax and the FATCA willful penalty does not include gross negligence or its parallel recklessness.
Willful blindness goes by various labels, such as specific intent, willful ignorance, deliberate ignorance, conscious avoidance, etc. For most tax crimes and the FBAR crimes, willfulness -- defined as specific intent to violate a known legal duty -- is required.  Ignorance is an excuse.  In the context of tax crimes requiring willfulness, the willful blindness construct says that, if a trier of fact is otherwise unable to find the requisite specific intent for willfulness, the trier may consider the fact that the defendant deliberately acted in a way to be – or appear to be – ignorant of the facts or the law applicable to the facts and treat that real or feigned ignorance as either (a) the equivalent of the specific intent required or (b) an inference of the specific intent which, with the other evidence, will permit the trier to find the required specific intent beyond a reasonable doubt.  (willful blindness is not the equivalent of specific intent.)  In either event, if permitted, it can lead to a conviction of a crime requiring specific intent where the evidence might otherwise be insufficient for the trier to find the requisite specific intent.  In the FBAR civil penalty context, the willful blindness concept can permit the application of the FBAR willful civil penalty.  The current IRS definition of NW conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law....This definition seems to be incomplete.

FATCA Remains Vulnerable Despite Implementation

It’s fair to say that FATCA has not been wholly welcomed with open arms, globally or indeed in the US itself. One leading US tax lawyer memorably compared the regime to “exterminating ants with a nuclear bomb” which would not have the right effect on offshore tax avoidance. FATCA is many things: it is extra-territorial,ham-fisted, unilateral, complex, and most importantly, validly enacted US law. Personally and professionally, I wish FATCA didn’t exist in its current form, it seems odd that it targets only individuals and specifically exempts reporting on accounts held by U.S. corporations.

FATCA’s stated purpose is to catch Americans who use international capital markets to cheat on their taxes. Few would argue the validity of this goal. However, the manner in which FATCA sets out to achieve this goal is ambitious to say the least.

FATCA basically turns non-US financial institutions into a conduit for the collection and disclosure of information on US depositors. It would be difficult to imagine the domestic law of any jurisdiction

having more lofty ambitions. Only Treasury’s creative and extra-legal invention of intergovernmental agreements (IGAs) to enforce the law has made its implementation even remotely possible.

Even if by some miracle FATCA survives its current challenges, in several years time Congress will be forced to take it up again as recognition sets in that it simply is not capable of accomplishing its intended goals. For all the acrimony and international financial upheaval it has caused, FATCA is a poor excuse for a solution to tax evasion. There’s a direct correlation between the severity of a tax code and the level of effort individuals are willing to put into avoiding or evading taxes. Attempting to address the latter while ignoring the former is a fool’s errand. It’s the fiscal equivalent of the war on drugs – a costly enforcement-minded solution in which government agencies are always two steps behind their targets. And like the drug war, FATCA will produce considerable collateral damage and invasions on innocent Americans.

Swiss Bank Attempts to Reduce DOJ Penalty

The Wall Street Journal has an interesting article on Swiss banks' smart attempts to reduce the DOJ penalties for assisting US tax cheats.
John Letzing, Swiss Banks Use Carrot and Stick in Addressing Hidden Accounts (WSJ Markets 7/18/14), here.  The Journal reports that banks offering assistance include Coutts (a division of the Royal Bank of Scotland), Union Bancaire Privee, Bank Coop and Zuger Kantonalbank.
Key excerpts:

Thinking about joining Streamline OVDP? Think again. “All You May Need To Do Is File Your Delinquent FBARs”

Congress authorized the Form FinCEN 114 (“FBAR”) filing requirement, and the draconian penalty of 31 USC 5321(a)(5)(C) for willful failure to file an FBAR, to curb evasion of United States income tax by use of foreign accounts.  Intuitively, the 31 USC 5321(a)(5)(C) penalty ought not apply where the account owner owes no income tax on the account.  The Internal Revenue Service (“IRS”) has recently confirmed that indeed this is the case.
“Delinquent FBAR Submission Procedures,” published by the IRS on June 18, 2014, provides that taxpayers who do not need the Offshore Voluntary Disclosure Procedures  (“OVDP”), or the new Streamlined Filing Compliance Procedures, to file delinquent or amended income tax returns to report and pay additional tax, but who:

1.  have not filed a required FBAR,
2.  are not under civil audit or criminal investigation by the IRS, and
3.  have not already been contacted by the IRS concerning delinquent FBARs,
should file their delinquent FBARs according to the electronic FBAR filing procedures, including a statement of why the FBARs are filed late.  There is a dropdown box of explanations for late filing on the FBAR form; the most likely explanation is, “I did not know I had to file.”
Delinquent FBAR Submission Procedures continues, “The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign accounts reported on the delinquent FBARs and you have not been previously contacted regarding an income tax examination or a request for the delinquent returns for the years for which the delinquent FBARs are submitted.”

Guidance Anyone Or The Labyrinth of Overlapping Rules Within OVDP

The primary source of confusion (or should I say frustration) lies in juxtaposing the conditions that are needed to satisfy eligibility for one aspect of the program with the conditions that are needed to satisfy eligibility for a different aspect of the program. This confusion is only exacerbated when both aspects tend to overlap. Admittedly, I would be less than sincere if I didn’t acknowledge the existence of another factor that contributes to this shortcoming – that when this level of confusion exists, and the taxpayer is in greatest need of guidance, the IRS is nowhere to be found.
I do acknowledge the fact that the IRS could be more assertive in issuing notices, updating “questions and answers,” issuing technical advice memoranda, and/or issuing revenue rulings in order to inject uniformity into areas of the program that are susceptible to more than one interpretation. 
While rules do help create uniformity, the following disclaimer applies: “Be careful what you wish for, you just might get it …” In other words, if the IRS were to weigh in, the guidance it provides may have unforeseen and unpleasant consequences. There is no better example of confusion these days than in the case of taxpayers who are juxtaposing the requirements that trigger an increase in the offshore penalty from 27.5% to 50% with the requirements that disqualify a taxpayer from participating in OVDP. Contrary to popular belief, they are not one and the same.
Beginning on August 4, 2014, the offshore penalty within the OVDP program will increase from 27.5% to 50% for taxpayers whose foreign accounts are held with financial institutions that the IRS has relegated to a list. If you’re wondering what this list is, all you need to know is that it’s not a list of financial institutions that the IRS plans to take out to dinner. If that wasn’t enough of a clue, it’s not the type of list that any financial institution would aspire to be on. Taxpayers who have already filed a pre-clearance letter or who expect to do so before August 3, 2014 remain unaffected.  

What is “Willful” and what is “Non-Willful” for USCs and LPRs Residing Overseas Who Have Not Filed U.S. Tax Returns or FBARs?

A LPR residing predominantly in a country with a US. income tax treaty (of which there are 68) may be in the best position to “clean up” their U.S. tax filing and return positions.  Specifically their facts might allow them to file as a non-resident under the “tie-breaker provisions” – typically Article 4); and indeed such filings might be applicable for several prior years.

Specifically, the statutory language of IRC Section 7701(b)(6) has three tests for when the individual is no longer a LPR for federal tax purposes:

1. The individual is treated as a resident of a foreign country under the provisions of a tax treaty;
2. The individual does not waive the benefits of the treaty, and
3. Notifies the Secretary of the commencement of such treatment. (I-407...etc.)

If the LPR has not been “non-willful” (double negative intended) by not filing U.S. income tax returns, interesting legal questions are raised as to the consequences to the LPR.

http://tax-expatriation.com/2014/07/18/part-i-what-is-willful-and-what-is-non-willful-for-uscs-and-lprs-residing-overseas-who-have-not-filed-u-s-tax-returns-or-fbars/

New Legal and Accounting Malpractice website launched

There are very few law firms specializing in legal malpractice and until now, I have never heard of any involving accounting malpractice.
Sure, some law firms will accept the occasional case against a CPA but it is usually ancillary to their main practice. This week a new website launched. Looking at the website, it is clear the firm does two things; prosecuting cases against accountants and lawyers.
The site’s promoter promises that there will be weekly stories about actual cases against CPAs and lawyers.... I will be closely watching those cases.

Can the IRS learn from the UK’s Voluntary Compliance Program ?

The UK HMRC announced on July 17, 2014 that its High Net Worth Unit (HNWU) has brought in £1bn in compliance yield (approximately US$1.7 billion).
The HNWU, which was set up in 2009, is made up of about 400 staff in 31 customer teams.  HNWU deals with the tax affairs of the 6,200 wealthiest individual customers of HM Revenue and Customs (HMRC) – those with a net worth of £20 million or more.
When the unit takes ownership of a customer’s tax affairs, both the customer and their authorised tax agent or adviser will receive a letter welcoming them to HNWU.  This letter also contains contact details for their Customer Relationship Manager.  The relationship manager has detailed oversight over the customer and develops a close understanding of the wealthy individuals tax risks.
The High Net Worth Unit (HNWU) deals with the tax affairs of HM Revenue & Customs (HMRC) wealthiest individual customers. By focusing primarily on this customer group, the unit aims to:

• build relationships to better understand these customers and make it easier for them to pay the right amount of tax
• tailor service delivery for these customers through proactive engagement and provide a single point of contact and a holistic approach to their tax affairs

The program, through good customer engagement with a focus on influencing behaviour, has led  to voluntary compliance of the majority of customers, enabling HMRC to allocate its audit resources against noncompliant taxpayers.

OIC

1. Actual expenses

Don’t prepare your Offer in Compromise based only on your actual expenses and leave it at that. You have to know when the IRS won’t allow expenses over their maximum and when they will. If you are arguing actual expenses,they have to be fully documented and you have to provide reason why expense over the standard is necessary. Understand what the IRS considers “necessary.” The result could be that you were never eligible for an offer, or it had no chance of acceptance because you didn’t understand the rules. Additionally, you want to use the IRS Standards (IRM 5.8.5.20 Allowable Expenses) to your advantage when it is more beneficial than using actual expenses.

2. Legitimately reduce equity positions

Take advantage of ways to exclude or reduce equity in assets. Don’t over value your assets. Make sure you claim the additional allowable deductions on the offer for vehicles of certain age and mileage (there is one for decreasing vehicle equity and increasing vehicle operating costs). Research the limitations on withdrawing funds from your retirement account or taking loans, or converting equity in savings into an arms-length future stream of income that won’t be considered a dissipated asset.

3. Use the Collection Statute Expiration Date (CSED) to your advantage

Use the IRS statute of limitations (CSED)  as leverage even if you have a decent ability to pay the liability. If the liability is about to expire, the IRS may consider granting an Offer in Compromise (OIC) instead of gambling on if they will collect the full amount though an Installment Agreement.

4. Get ready for appeal if you are rejected

If your Offer in Compromise is rejected, obtain the income, expense and asset tables the Offer Examiner prepared. You can usually find something incorrect that is arguable or you can at least ensure they have the right figures. Provide further arguments at that stage if possible. It may be the difference between an acceptance or going to appeal. Plus if the OIC isn’t accepted you can still get an alternative resolution through appeal.

Conclusion: Prepare an Offer in Compromise with caution.

Getting the optimal Offer in Compromise approved is both a science and an art. These Offer in Compromise tips are only a very basic outlines and there are certainly more tricks of the trade.

FATCA expert Haydon Perryman's 3rd GATCAst is out

GATCA Podcast
http://haydonperryman.com/2014/07/18/3rd-gatcast-is-out/

There is no FATCA or OVD equivalent for the State of Delaware

Advice from Panama; the US should be looking at Delaware; http://richarddetrich.com/tag/fatca/

As we know, Delaware has long been known as a leading world tax haven http://www.theguardian.com/business/2009/nov/01/delaware-leading-tax-haven . But strangely, there is no FATCA or OVD equivalent for the state of Delaware – the state of VP Biden. No confiscation of funds, no demands by Treasury that it come forward and enter a domestic voluntary disclosure program, no threats from the IRS, Treasury and the White House. No reports issuing wild guesstimates of the size of unpaid taxes (US and other countries) being laundered and evaded with State of Delaware assistance. No demands that there be automatic reporting to FINCEN, or other US law enforcement agencies, or the tax agencies of other countries. How will the OECD’s Common Reporting initiative treat Delaware? The US will rig itself a free pass or just state that it won’t cooperate, but continue to demand the expensive multi-course free lunch from the rest of the world who it is extorting via FATCA and CBT.

Where are the FATCA crew – where are their public statements making threats to Delaware and demanding that the State cease profiting off a culture and practice of financial secrecy? And that the true owners of the shell companies pay their fair share of taxes to the countries they should have been paying to. Where are the FATCAnatics insisting that the owners of the shell companies in Delaware enter a Voluntary Disclosure program before they are discovered – and fess up? When will they levy confiscatory fines and penalties on the State of Delaware and institute an investigation and report that looks into the current governor, Congressman, Senator, and VP Biden’s role in maintaining or tacitly condoning Delaware’s tax haven status? And what does the POTUS have to say about the State of Delaware affairs? 

Revenue from OVDI/P, FBAR, and FATCA

On June 18, 2014, IRS Commissioner John Koskinen disclosed that the 2009, 2011, and ongoing 2012 OVDPs have generated more than 45,000 disclosures and the collection of about $6.5 billion in taxes, interest and penalties.  Thus, on its face, the OVDIs look to be batting an average of approximately 9,000 taxpayers a year with approximately $1.3 billion revenue.
However, at the beginning of the year it was reported that (OVDI/P) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date.  The past 6 months only generating 2,000 additional disclosures and $500 million additional revenue may lead one to speculate that the OVDP, at least for high net wealth disclosures, is petering out.  Regarding the 2012 IRS Streamlined OVD program, the Taxpayer Advocate found that as of September 2013, 2,990 taxpayers submitted returns reporting only an additional $3.8 million in taxes.
Substantial Money Laundering Penalties – But Not Tax Collection
The substantial majority of the $6.5 billion OVDI/P revenue is FBAR penalty, not tax collection and not tax penalty.
In the July 16, 2014 report, the Taxpayer Advocate found that the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly 6x the tax on their unreported income.  Among unrepresented taxpayers with small accounts it was nearly 8x the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about 3x their unreported tax.
In her January 9, 2014 report, the Taxpayer Advocate previously found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances.
When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70% of the unpaid tax and interest.   Given the harsh treatment the IRS applied to benign actors, the Taxpayer Advocate reported that non-compliant taxpayers have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process.  Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.
The IRS reported to the Taxpayer Advocate that its FY2014 FBAR Communication Strategy includes efforts to reach U.S. citizens residing abroad via Internet, social media, and collaboration with the State Department.