Switzerland Remains Offshore Wealth Magnet

http://www.valuewalk.com/2015/02/switzerland-remains-offshore-wealth-magnet/

2015 the year of increased penalties

Generally, taxpayers who submit a request for participation in the OVDP pay a miscellaneous offshore penalty equal to 27.5 % of the highest aggregate value of OVDP assets during the period covered by the voluntary disclosure. The offshore penalty is in lieu of all other penalties that may otherwise apply to the undisclosed foreign accounts, assets and entities, including FBAR and offshore-related information return penalties and tax liabilities for years prior to the voluntary disclosure period. These penalties could otherwise far exceed the value in an undisclosed offshore account. Howwever, the offshore penalty rate is increased to 50% under certain circumstances. Under the newly released list, the 50% penalty would apply if, at the time of making the initial submission to request participation in the OVDP to the IRS, the taxpayer had an account at any of 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 Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd. and swisspartners Versicherung AG
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.    The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
10.    The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries and affiliates
11.    Sovereign Management & Legal, Ltd., its predecessors, subsidiaries and affiliates (effective 12/19/14)
12.    Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A. and Bank Leumi USA (effective 12/22/14)

The IRS Scandal, Day 632

New American, Surveillance of the Right Is Not New: The IRS Scandal in Historical Perspective:

The Obama administration’s ongoing coverup of the IRS scandal about targeting the Tea Party is not the first instance of the federal government persecuting the political Right with IRS audits. In fact, the current IRS scandal — where Lois Lerner’s Blackberry and her desktop computer have apparently been wiped clean to destroy evidence — are actually following a more than 50-year script for government to destroy the political Right in the form of the “Reuther Memorandum.” “The flow of big money to the radical right should be dammed to the extent possible,” the “Reuther Memorandum” informed the Kennedy administration, asking for political assistance in stemming that flow. ...

Several lessons can be learned from the 1960s. The first is that the perseverance of The John Birch Society in the wake of such government persecution and surveillance over the past 55 years should be a source of hope for modern Tea Party organizations. The Obama administration has tried to delay and deny tax-exempt status designations from the IRS in order to starve the Tea Party for funds because they know most corporations and foundations won’t donate to an organization without a 501(c)(3) or 501(c)(4) tax-exempt designation from the IRS. Despite the intimidation, IRS harassment, and media ridicule, the JBS remains a major fixture on the political Right today.

Secondly, the experience of The John Birch Society teaches the lesson that government can’t be trusted — even the administration of the allegedly sainted and martyred John F. Kennedy — and its secrets need to be revealed through dogged congressional investigations and strong public information laws. Public information laws needed include a strengthened Freedom of Information Act, as well as stronger whistleblower laws so that public informants such as Edward Snowden can come to Congress with information about blatant government violations of the U.S. Constitution without fear of prosecution. Most of what we know about the FBI and IRS persecution of political groups — both in the 1960s and under the Obama administration — came from the congressional investigations and whistleblowers who testified before them.

Luring the rich: investor residence and citizenship packages

CBC ran a story yesterday on Canada allowing rich people to buy permanent residency status, which provoked some discussion on twitter about whether such a thing was something associated with secrecy jurisdiction (aka tax haven) behavior. I don't know what kind of behavior this is, but I think it is widespread and growing. It's all part of the complicated dance politicians around the world are doing: all trying to lure rich people and multinationals from everywhere else, in a relentless quest to keep impossible electoral promises about jobs and growth.
All the programs listed here are for residency unless citizenship is indicated. One important recent development that is missing in the table involves Puerto Rico, which I suggested a long time ago was poised to be the last, best tax haven for US citizens (while the U.S. will remain the world's last, best tax haven for everyone else in the world, but that is a different story). Janet Novack ran a story on PR  Puerto Rico Expands Tax Haven Deal For Americans To Its Own Emigrants. It seems policymakers understand PR's unique position in the world vis à vis US citizens, but so far it is having a limited luring effect.

Should or must I file a state income tax return if I live abroad?

If you are a US citizen or permanent resident living abroad, you not only have to make sure to file a tax return with the IRS each year if you meet the minimum income requirements, you may also have to file a state return.
Depending on the state where you lived immediately before your move, you may need to file a non-resident state income tax, even if you live abroad. Do not assume that since you left the United States, you are not required to file a state tax return. Each state has its own set of rules it considers a “resident” and their own minimum deposit requirements. Most states, but not all, also allow the exclusion of foreign income earned in determining taxable income.

Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

The IRS released IR-2015-09 (1/28/15), here, which I quote in full:

Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season 

IR-2015-09, Jan. 28, 2015 

TAS - Executive Summary on Offshore Matters

The link to the full report in PDF format is
http://www.taxpayeradvocate.ir...
The sections dealing with OVDP are on pages 79-93, and legislative recommendations on pages 331-344. These numbers are the numbers at the bottom of each page.
I consider pages 79-93 to be excellent because they are thorough, well researched, and address key points. Some of the key stats (You should look at the tables) re: 8,851 streamline cases through 4/24/14, (apparently most of these are Canadians) and a total of 11,146 cases in the 2009 OVDP, 13,189 in the 2011 OVDP, and 6,930 cases in the 2012 OVDP (as of 9/30/2014.)

From a policy perspective, that's about 31,000 OVDP cases out of a universe of hundreds of thousands if not millions who should be filing FBARs. Clearly not a success, and I believe that the harshness of treatment for early participants, and fear of optouts has kept and will continue to keep many away.
Processing times of "only" 219 days for closed certifications and 308 days for closed optouts are far lower than the experience/reality shows .
The figures also show how low optout penalties were (granted, only those with the most favorable facts opted out.)
The TAS is proposing ceilings on FBAR penalties, both balance-based and based on previously unpaid tax. These are sorely needed.
Though the TAS only references a TNT (Tax Notes Today) article about the IRS OVDI FOIA documents, the training does assume that with few exceptions those who had not disclosed their foreign accounts were willful, and I am grateful to the TAS for combating this perception. The TNT article is at http://www.taxpayeradvocate.ir...

"What the OVDP Training Materials Tell US"

There is a brief article in Tax Notes Today based on the FOIA documents, "What the OVDP Training Materials Tell US" by Marie Sapirie, 2014 TNT 230-2 published 12/1/2014:

I was hoping to find memos or guidance as to how some of these decisions were made..... I don't think there's anything in there that comes as a big surprise forthose of us who have done hundreds of these [offshore voluntary disclosures].....Did this taxpayer act like anordinary, reasonable, prudent person?"..... lack of knowledge of the filing requirement is generally not reasonable cause.....one way taxpayers could establish reasonable cause was to show reliance on professional advice.......
"there are legitimate or non-tax motivated reasons [why] a U.S. Taxpayer would engage in offshore transactions.".......The IRS struggled with how to deal with offshore accounts and transactions that were not used for tax fraud, but that had not been reported........"Agents were encouraged to "put themselves in the taxpayer's shoes, understand the motivation for going offshore, and judge the reasonableness of their explanations for a specific transaction in that light.".......

https://www.bragertaxlaw.com/d...

Why Eric Holder's "Good Deed" on Civil Forfeiture...Wasn't That Good

One of the departing initiatives taken by retiring US Attorney General Eric Holder was to impose limits on a legal process called “adoption.”This is not the kind of adoption in which you add a child to your family. It is a process that allows local, county, or state police agencies to confiscate assets under federal civil forfeiture laws. In effect, the feds “adopt” the forfeiture and kick back up to 80% of the proceeds to the agency that originated the seizure.

The feds call this processing “equitable sharing.” A better term would be “legalized theft.” It’s almost beyond belief that the feds would actively encourage police departments to keep most of the money they seize, but they do. Not surprisingly, this inherently corrupt “policing for profit” scheme has led to abuse after abuse.

Civil forfeiture is a procedure that permits police to confiscate property without convicting, or even charging, the owner with any crime.

The cases have names like these:

• United States vs. 867 County Road 227
• United States vs. $124,700 in US Currency
• United States vs. James Daniel Good Real Property.

It's Hard for Minors to Expatriate

U.S. citizen parent wants to renounce citizenship and is curious about a child's ability to do so.

My child is not 18 yet. Can he renounce his U.S. citizenship?

Quick Answer

In theory, a minor can renounce U.S. citizenship after age 16 and before age 18.

In practice? I have not seen it happen; I tell people to wait.

Parents Have No Power

First things first. A parent has no legal power to cause a child's citizenship to be renounced. As the State Department's Foreign Affairs Manual notes:

Expatriation, like marriage and voting, is a personal elective right that cannot be exercised by another. Parents or legal guardians cannot renounce or relinquish the nationality of their children or wards, including adults who have been declared mentally incompetent. 7 FAM 1290 provides guidance regarding loss of nationality and minors, incompetents, prisoners, plea bargains, and other special circumstances.¹

It's your kid's decision and your kid's action to take. Let's take a look at the situation from point of view the Embassy official who is facing a child who seeks to renounce citizenship. It's all too easy for this person to say “No.”

‘FATCA: A Damaging Effort to Tax Foreign Accounts’

 FATCA is the tool to enforce U.S.
citizenship-based "place of birth taxation". Therefore, a separate goal is to bring an end to "place of birth" taxation. Think of how unfair it is to levy taxes on people based on their "place of birth" (and this is going on the 21st century).
FATCA will, in the end, draw much attention to the fact that the U.S. itself isn’t particularly compliant with the wishes of other countries searching for hidden assets. For instance, overseas companies such as Taiwan’s Acer or France’s Alcatel-Lucent have flocked to the U.S. and taken refuge in Wyoming or Texas (both of which boast across-the-board low tax rates and a zero-percent corporate income tax).  Perhaps, then, the U.S. should start rewarding those who keep their money within borders, instead of trying to beat-up those who didn’t.”
Presently the U.S. has no reciprocity on FATCA and is the only OECD member of the entire 34 not to have committed or signed up to the CRS.

This means that the U.S. is the biggest secrecy jurisdiction in the world and remains so, whilst weakening all the others.This means the hot money will go to the US. Given that there is no way they’ll get even close to the $8.9B they say they estimated, the only “benefit” of FATCA is that money flows to the US.

Also, nothing has changed. For financial secrecy, in general put you money in the US. For secrecy of beneficial ownership go to the Caymen Islands. For corporate secrecy keep ownership at less than 25% in an Inter Governmental Agreement country. It’s shocking, world wide misery on a worldwide scale with nothing positive achieved.

 http://www.andovereconomicreview.com/651/fatca-a-damaging-effort-to-tax-foreign-accounts
 http://radio.foxnews.com/2015/01/26/american-expat-keith-redmond-on-why-some-americans-abroad-renounce-us-citizenship/

Offshore Voluntary Disclosure Program's Non-Willful Narratives

The IRS's 2015 versions of the two streamlined procedures OVDP forms (Form 14653 and Form 14654) require taxpayers to "provide a “narrative statement of facts” explaining their failure to disclose their offshore assets, or the agency will consider the applications incomplete and the taxpayer won't get penalty relief."
The forms—Form 14653 (used by non-residents) and Form 14654 (used by US residents)—are for taxpayers to certify that their conduct was not willful, a prerequisite to qualifying for little to no penalties.

surprise, surprise......

Prosecutors Return $447,000 in IRS Civil Asset Forfeiture Case

Federal prosecutors have agreed to return nearly $447,000 to a small business whose assets had been seized by the Internal Revenue Service and Treasury Department agents as part of the controversial civil forfeiture program.
In 2012, the IRS seized $446,651.11 from a Long Island convenience store distributor, Bi-County Distributors, and its owners, the Hirsch family, based on a pattern of cash deposits that had been deemed suspicious by federal agents. Federal law requires banks to report cash deposits larger than $10,000 to the IRS. Since the Hirsches frequently made deposits in amounts less than $10,000, the government claimed they were seeking to evade the reporting requirement.

How The IRS Turned Carole Hinders’ Life Upside Down

Iowa restaurant owner’s fight against the IRS gains national attention.

A restaurant owner in northwest Iowa has landed in the national news spotlight over her fight with the federal government. Carole Hinders who at the time was 67 years old and a grandmother has operated Mrs. Lady’s Mexican Food in Arnolds Park, Iowa for 38 years.
Nowadays it is most notable for a small business to be in operation for 38 years – especially if it is a restaurant which we all know “come and go”. Even more notable for Ms. Hinders was that she was always in full compliance with her tax obligations. But despite her clean tax record, on May 22, 2013 while settling into a crossword puzzle with her grandchildren she was visited at her home by a pair of IRS agents who stated that they had closed her business bank account and seized all her money, which at the time was almost $33,000.
As the IRS agents were leaving her house she pleaded “How am I supposed to pay my bills? How am I supposed to pay my people?” The agents replied – we don’t know.
You may ask how could this have happened? She did not have any outstanding liability to the IRS. The problem though is that Ms. Hinders’ restaurant only accepts cash so Ms. Hinders makes frequent trips to the bank to avoid having large sums of money on the business’ premises.
As part of the federal government’s dragnet surveillance of the civilian population, everyone’s banking activities are monitored for “red flag” activities. Under the Bank Secrecy Act of 1970, banks are required to report to the IRS transactions on every individual who deposits or withdraws more than $10,000 in cash to or from a personal bank account on a given day. These reports indicate the financial activities that took place and include the individual’s bank account number, name, address and social security number.
People who know of this law and are seeking to avoid this level of reporting by the bank will often go to great lengths to make multiple deposits so that no single deposit will be greater than $10,000. This tactic is called “structuring”. The IRS thinking that Ms. Hinders was making small deposits to evade this reporting requirement used its civil forfeiture power to seize Ms. Hinders’ bank account and close down her business.
That’s right – federal law enforcement agencies are invested with the power of civil forfeiture whereby the federal agency can take cash, cars and other property without charging the property owner with a crime. The property owner need not receive any advance warning or notice before the assets are seized by the federal government. The government need not prove that a person is guilty of a crime – only that he or she is suspected of committing a crime. This law was designed to catch terrorists, money launderers, drug lords and serious criminals – but it can also be used by the government against law-abiding businesses.
Ms. Hinders said she received no warning from either her bank or the government before her money was taken. The reason that the federal government does not have to read you your rights, or advise you that you can have a lawyer, or do any of the things that the constitution is supposed to provide, is that they don’t charge the person with the crime – instead they charge your money with the crime.
Since then, she’s had to borrow money and use credit cards to pay bills and keep her restaurant in business. But Ms. Hinder was not stopping there – she knew she didn’t do anything wrong and did not owe anything to the IRS. But yet the IRS took her money so Ms. Hinders’ decided she was going to fight the IRS.

Logic of Firing IRS Chief Comes Into Sharp Focus As Agency Bridles at Budget

The Internal Revenue Service now says that taxpayers had better get used to shabby service from the tax collection agency. The IRS is hardly an agency known for warm and friendly service to begin with. Complaining about belt tightening budget cuts, this week IRS Commissioner John Koskinen lectured: “People who file paper tax returns could wait an extra week — or possibly longer —to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.” ...

Congress needs to hold the IRS accountable and demand the firing of Mr. Kostiken because he has he admitted openly he can’t do his job. The IRS is nearly an $11 billion a year agency with some 100,000 employees. Congress wants to cut its budget by less than 4% and the agency says it can’t function. During the recession many businesses took cuts of 30% or 40%, and they did it by becoming more efficient and cutting waste. Meanwhile the IRS has spent millions of dollars on conferences at exotic resorts for its employees with some suites costing $3,000 a night. And Mr. Koskinen says he can’t find places to cut.

The IRS has also been rocked by scandals of targeting, abusing and financially harming individuals and conservative groups it doesn’t agree with. Maybe it could shut down that division and use those resources to help taxpayers. Instead of showing remorse the agency brass is petulant. The attempt to extort more tax dollars out of taxpayers is the so-called Washington Monument ploy, and Congress should demand an immediate private audit of the agency’s spending habits.

Washington demands full accountability and accuracy from tax filers, but the tax collection department is the least accountable agency of government. If the IRS can’t administer the tax code with 100,000 employees, it sounds like we need a new IRS and a new tax system.

Opinion on CBT vs. RBT or the “patriotism auction” re-election game aka. offshore treasure story

What is the argument for a residential or territorial tax system, as opposed to a citizenship-based tax system?

Please accept in advance my apologies for any feathers I might ruffle with my politically agnostic real world observations below. While some may call my observations cynical, I am attempting to answer this as an observer of the world as it is; not how it was; or how we wish it to be. In other words, I will try to be the little boy who pointed out that the Emperor has no clothes.
Given that the only real citizenship-based taxation (“CBT) regime is the US (apologies to those few remaining expat Eritreans who may pay a few % to their country for a clearance certificate), I will interpret the question to be whether there is any realistic chance that the US will abandon its current CBT basis for a residence based tax (“RBT”) regime .
There are several perspectives here to consider.
Group 1) US politicians;
Group 2) Americans who are not Golden Geese (1%ers) and will live in the US;
Group 3) Non-Golden Geese “Accidental Americans” who do not (and may never have) lived in the US, but who live, work, and will die in another taxing jurisdiction;
Group 4) Current or former US Golden Geese who may already be abroad or who could easily do so.

‘2015 Could Be The Year We Witness The ‘Weaponization Of Finance’

“Forget nukes and battleships. Washington may increasingly flex its geopolitical muscle in 2015 using an unconventional weapon: finance.

“Access to the US marketplace and US banks, and Washington’s ability and willingness to use them, are becoming more important as instruments of foreign and security policy,” Eurasia Group’s Ian Bremmer writes.

“There is no better example of this trend than the weaponization of finance — the systematic use of carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy,” he says.”

Exactly what FATCA is.
And it is being turned on allies like Canada and the UK, just as it is being turned on Russia, etc.

The US Treasury wanted NO exceptions for FATCA and the IGAs. Too much work. Just point the FATCA gun and wave it around in everyone’s face.

The article goes on to describe the drawbacks of this approach for the US;
“…….Although the “weaponization of finance” is a way to exert force without direct military conflict, the US risks further complicating political relations. And the strategy may see only limited success.”

 Read more: http://www.businessinsider.com/weaponization-of-finance-eurasia-group-2015-1#ixzz3PQhZxObs

FX rates for 2014 FBAR/FINCEN114 and Form 8938

 Treasury Reporting Rates of Exchange as of December 31, 2014

or 

 http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates

IRS Issues John Doe Summons To FedEx, DHL, UPS, HSBC In Massive Offshore Account Hunt

A federal judge approved the IRS issuing summonses requiring FedEx, DHL, UPS, and a bevy of other handlers to produce information about U.S. taxpayers who used Sovereign Management & Legal Ltd. for offshore accounts and assets. They include Western Union Financial Services Inc., the Federal Reserve Bank of New York, Clearing House Payments Company LLC, and HSBC USA.
The IRS uses John Doe summonses to obtain information when it searches for tax fraud by individuals whose identities are unknown. This is a sweeping order, allowing the IRS to get records from all of these companies. The target is any U.S. taxpayers who, from 2005 through 2013, used Sovereign’s services to control foreign accounts or entities. That is likely to be a long list.
The IRS may face budget cuts, but the hunt for offshore evaders continues, this time out of a DEA operation. A DEA investigation of online narcotics trafficking got the IRS on to Sovereign, a company allegedly helping U.S. clients evade taxes. A taxpayer in the IRS offshore program (OVDP) reported that Sovereign set up his Panamanian shell, so now Sovereign is in the hot seat.
 http://www.forbes.com/sites/robertwood/2014/12/20/irs-issues-john-doe-summons-to-fedex-dhl-ups-hsbc-in-massive-offshore-account-hunt/

International tax training materials

The Service did caution that such training does not constitute pronouncements of law, and cannot be relied upon…but it will show how your agent will be approaching your audit.
http://www.irs.gov/pub/int_practice_units/

Avoid U.S. Taxpayer Status After Expatriation

Substatial Presence Test : Max 183 days/year or 121 days/year for 3 consecutive years.
Is there a different rule for expatriates? It seems that under section 877, those who expatriated between 2004 and 2008 have a 30 day limit per year in the 10 years after expatriation.

The same rules that apply to every other nonresident apply to expatriates: if you spend too many days in the United States in a calendar year, you will be a resident of the United States and taxable on your worldwide income.

Quick numbers to remember if you want to avoid being a U.S. taxpayer after giving up your passport or green card:

• Never spend 183 days or more in the United States in any one year; and
• If you return to the United States year after year, and if you want to be safe, keep the number of days in the USA to 121 (or fewer) every year.
  
  

IRS Closes International Tax Offices

From Bloomberg: IRS Will Shut Last Overseas Taxpayer-Assistance Center’

http://www.bloomberg.com/news/2015-01-14/irs-will-shut-last-overseas-taxpayer-assistance-centers.html

I personally never liked the idea of these overseas IRS offices to begin with. They have always seemed to me to be an infringement of host country sovereignty and I am happy to see them disappear. In fact I don't believe any other country in the world has overseas tax collectors like this although I will have to do more research. This will also be a blow to the FATCA compliance complex which has frequently used "fear" of IRS overseas offices to sell their services.
 http://www.newsmax.com/Newsfront/irs-budget-shrinks/2015/01/14/id/618441/
Just 4 million USD in savings compared to the billions they are claiming exists abroad in potential revenue. Makes no sense, does it? And yet the IRS is stretched so thin and is being asked to do so much. Congress threw FATCA and ACA at them and then cut their budget? That's just nuts. And now everyone gets to suffer because the IRS doesn't have the staff to properly help US citizens in the US and the Commissioner is warning that refund checks will be delayed this year. What a mess.
They report that IRS offices in Beijing have already been closed down and the Paris, London and Frankfurt offices will be closed soon.  These offices were located at the US Embassies in those cities.  All the staff will be sent back to the US and all international taxpayer assistance will now be done from the US.

Great timing.  As more and more US Persons abroad are being FATCAed, they are desperately in need of reasonably priced assistance and reliable information.  Now as they try to make sense of US tax rules and reporting requirements that they never heard of and don't understand, they have fewer resources to make good decisions and get compliant.
That just doesn't make any sense, folks.  Before there was a Compliance Gap and a Communication Gap.  Keeping those IRS offices open and giving the staff the autonomy and resources to craft information campaigns to reach US Persons abroad would have been a damn good idea.  This would have sent an important signal to America's population overseas - yes, you have to file but we are here to help.

If the Bloomberg article is indeed correct then I would very much like to know what the IRS' Plan B is.  Assuming that they won't simply give up providing taxpayer assistance to US Persons abroad, how might they deliver those services from the US?  Is there any possibility that Americans abroad organizations and even citizens abroad panels could participate in the design of service delivery solutions?

All good questions to ask the IRS Taxpayer Advocate Service and you can do so right here.
Could the closures prompt a spike in passport/citizenship renunciations?
In response, the US might extend the "waiting" period to some incredibly long time (ten years?), post a list of "traitorous citizens" who wish to turn in their passports, and raise the price of renunciation...to some unaffordable level.
It doesn't look pretty, however you cut it.

Taxpayer advocate mentions the raw deal earlier OVDP victims had

Nina Olson, US Taxpayer Advocate: 2014 Annual Report to Congress
The report identifies at least 20 of the most serious problems facing taxpayers and offers recommendations to fix them. Some of the issues, like tax reform and IRS’s need to expand its various taxpayer services, affect virtually every American taxpayer. Others, like the Alternative Minimum Tax, refund delays, and tax-related identity theft, impact large groups of taxpayers.

Offshore Voluntary Disclosure (OVD) Program Inequities. The report describes the evolution of the OVD program and the disproportionate penalties it says were often imposed, particularly with respect to unrepresented taxpayers. The IRS changed the streamlined program in 2014 in ways that allow many taxpayers to pay lower penalties. However, the new rules do not allow taxpayers who already had entered into closing agreements with the IRS at higher penalty rates to amend those agreements. Therefore, taxpayers who are the most deserving of leniency because they were the first to acknowledge they had failed to comply with foreign account reporting requirements ultimately are paying substantially greater penalties than taxpayers who waited until later to acknowledge their noncompliance. Among other things, the report recommends that the IRS revisit this decision.

The TAS section of OVDP is very reasonable. What they propose could ease the burden of a lot of people (new balance limits indexed to inflation). Changing the closed agreements isn’t going to happen given what we know from the OVDP doc dump. They wanted the money and drove people with uncertainty (that did exist) to accept the deal.

Robert Wood's latest at Forbes: National Taxpayer Advocate Slams IRS Offshore Programs & FBAR Penalties, Demands Change

Who can believe anything the IRS says?

Koskinen of the IRS says:
…”“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS commissioner John Koskinen in a statement.”

He claims that:
“With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”……….

Using IDES, a Web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level is intended to safeguard sensitive tax information….”…

But, also recently;
…..”….Internal Revenue Service (IRS) Commissioner Koskinen has advised employees that the budget cuts will result in reduced services to taxpayers. In an email to employees sent earlier today, Commissioner Koskinen advised that “realistically we have no choice but to do less with less.”

Forbes author Kelly Phillips Erb says:
“What does that mean for taxpayers?

Identity theft could increase. Despite the need for increased taxpayer protections against identity theft, the implementation of additional measures will be delayed. That’s bad news for taxpayers since, despite the efforts of IRS and other agencies to stem the tide of identity theft, scammers have grown more bold. TIGTA reported that telephone scammers, posing as IRS representatives, managed to steal more than $5 million from taxpayers last year. And as quickly as the scams are picked up, they change. IRS-Criminal Investigation has responded to what has been termed an “epidemic” of identity theft by ramping up investigations – but with wholesale cuts to IRS, expect those investigations to dip, too….”…

The Taxpayer Advocate and the GAO and TIGTA have all identified IRS data security wanting... see:

http://webcache.googleusercontent.com/search?q=cache:2Z3u0CXRjzwJ:www.law360.com/articles/595818/irs-security-flaws-leave-taxpayer-data-exposed-gao-says&hl=en&gl=ca&strip=1
or
 https://bancdelasteroideb612.wordpress.com/2015/01/13/owngoal-team-usa-new-american-kidnapping-tool-released-by-irs-fatca-tool/

So any government with an IGA is exposing their financial sector and all their accountholders to an agency who admits it cannot cope, and who has already been taken to task for the inability to secure taxpayer data.

So many errors..............

Not only does it look like China is well on board the FATCA Express, it has been reported in the New York Times that China is now applying worldwide tax on its citizens no matter where they live! 
http://www.nytimes.com/2015/01/08/business/international/china-starts-enforcing-tax-law-for-citizens-working-abroad.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news&_r=1

 
..........but China does not tax non-resident citizens on a worldwide basis. The New York Times article is incorrect. Among other errors, the article conflates the worldwide taxation of residents with worldwide taxation of non-residents, confuses the definition of income with the definition of residence, and misses the point that some people who are physically non-resident may be resident for tax purposes.

The return of Mr. Hom - case No.14-16214

This is good news and I am happy that Joe took the case pro bono.......

In the United States Court of Appeals
for the Ninth Circuit
JOHN C. HOM
Appellant,
v.
UNITED STATES OF AMERICA
Appellee.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
CASE NO. 3:13-cv-03721-WHA
HON. WILLIAM ALSUP, PRESIDING
____________________________________________________

 Pro Bono Counsel for the Appellant..............Joseph A. DiRuzzo, III and Jeffrey J. Molinaro

What is the burden of proof for civil willful FBAR penalties ?

The reason this issue is so important for U.S. citizens and lawful permanent residents (LPRs) residing outside the U.S., is that few have historically filed FBARs.  Few may have had little knowledge or understanding of what is an FBAR in years past. Can the government truly take the position that “. . . But to establish a taxpayer’s liability under 31 U.S.C. Section 5321 for willfully failing to file an FBAR, the United States need not prove that the taxpayer actually knew of the FBAR requirements he violated. . . “?
This is a truly low bar and a low level of proof the government has, IF this is the law, particularly when the amounts of the penalties can exceed the value of the individual’s accounts in their country of residency.  To date, no appeals court has ruled on the question.
The current state of the law, leaves taxpayers at a terrible disadvantage when the IRS assesses FBAR penalties which seem to have little correlation with their failure to file the form.

1970 Dollars: The Current Day US$10,000 FBAR Threshold Reporting

The relevant statute that requires reporting of a so-called foreign bank account report (“FBAR”) is Section 5314 of Title 31 .  This is not a federal tax law provision from Title 26 (aka I.R.C. aka Internal Revenue Code.)

There have not been extensive revisions to this Section 5314 over the years and it remains largely as originally drafted and passed in the year 1970.
See, Currency and Foreign Transaction Reporting Act of 1970, P.L. No. 91-508, 84 Stat. 114 (1970).
Curiously, the US$10,000 threshold amount is not reflected in the statutory language, nor in the regulations.  Instead, this US$10,000 threshold is set forth in the instructions of the form. See page 4 of the FBAR electronic filing instructions.

The point of this post is twofold:
(1) the US$10,000 threshold amount is not part of the statutory or regulatory law; but rather is adopted in the instructions.
(2) US$10,000 in the year 1970 currently equals US$61,194 in inflation adjusted dollars (pursuant to the federal government’s CPI inflation calculator) which is a far different threshold for reporting

upside down - FBAR Lawyer moves to DOJ

Caroline D. Ciraolo of Rosenberg Martin and Greenberg LLP has moved to the US Department of Justice Tax Division in Washington, D.C

Final regulations on reporting by individuals of foreign financial assets to IRS

The Treasury Department and IRS yesterday released for publication in the Federal Register final regulations (T.D. 9706) concerning the requirement that individual taxpayers report to the IRS specified foreign financial assets for tax years beginning after March 18, 2010 (the date of enactment of the FATCA rules).

The final regulations provide guidance relating to the requirement that individuals attach a statement to their income tax return to provide required information regarding specified foreign financial assets in which they have an interest. Proposed regulations addressing the application of these rules to domestic entities remain in proposed form and will be finalized at a later date.

These regulations finalize regulations that were proposed in December 2011, and remove corresponding temporary regulations. Among the items addressed in the final regulations or in the preamble to the final regulations are measures concerning:

• The reporting requirements of dual resident taxpayers
• Individuals who are residents of the United States under non-immigrant visas
• Persons that do not owe U.S. tax for the tax year
• Reporting threshold amounts
• Employees who are seconded to work in the United States
• Clarifications of reporting requirements for certain assets, such as nonvested property under section 83, assets held by a disregarded entity, and jointly owned assets

The final regulations, which have an effective date of Dec. 12, adopt a recommendation that dual resident taxpayers who determine their U.S. tax liabilities as nonresident aliens and claim a treaty benefit are exempt from reporting on their tax returns specified foreign financial assets under tax code section 6038D.
Other provisions of the regulations, or the preamble, address short-term accounts, assets in an account maintained by a foreign financial institution, life insurance with a cash surrender value, assets held for investment or not used in the taxpayer’s business, certain hedging transactions, employment contracts, shares of foreign companies traded on public stock exchanges, investments in social security or social insurance programs, interests held in foreign trust, among other topics.

The final regulations declined to adopt requests made, in comments to the proposed regulations, to eliminate duplicate reporting related to Form 8938 and the requirement to report foreign financial accounts on FinCEN Form 114 (generally referred to as the “FBAR”). Also, the preamble to the final regulations notes that the IRS and Treasury Department are considering the proper treatment of virtual currency under section 6038D and request comments on this topic.

Great news.....IRS Is Big Loser in Government Funding Bill

Wall Street Journal, Funding Bill: The Losers:

House and Senate negotiators unveiled Tuesday evening a $1.1 trillion agreement to fund the U.S. government for the next fiscal year, and some federal government agencies, their staffs and the people they serve got some bad news. ...

The 3.1% reduction in the budget of the Internal Revenue Service — bringing its funding below its 2008 level — comes amid Republican outrage over allegations IRS officials targeted conservative political groups for extra scrutiny of their filings for non-profit status.

Mother Jones, Rich People Cheer As Republicans Cut IRS Budget, by Kevin Drum

Notorious Swiss whistleblowers

Christoph Meili was a Swiss security guard who saved Holocaust-era bank documents from the shredder at UBS bank in 1997.
Meili, who was then working for an outside security firm, gave the documents he saved to a Jewish organisation. The disclosure led to the Zurich authorities opening a judicial investigation against Meili on suspicion of violating banking secrecy.
Bradley Birkenfeld, a former Credit Suisse and UBS private banker, handed over confidential information to the United States authorities, starting a process that allowed them to prosecute several banks and tear down some of Switzerland’s secrecy walls.
Herve Falciani took data from his former employer, HSBC Switzerland, to several foreign governments. As a result, more charges have been laid at the doors of Swiss banks whilst Falciani holes out in Spain, which refuses to extradite him.
Rudolf Elmer worked for nearly two decades at Swiss private bank Julius Bär until he was sacked in 2002. He unsuccessfully attempted to pass on evidence of alleged malpractice of the bank to the media until finding a willing recipient in Wikileaks in 2007, that appeared on the campaigning group’s website.
In 2011, he passed on a second batch of information to Wikileaks, days before being convicted of violating Swiss banking secrecy laws. On December 10, 2014, Elmer will appear again before the same Zurich court to stand trial of a second breach of banking secrecy laws.
Other bankers have also passed on information (sometimes in exchange for financial rewards) in direct violation of Swiss laws. A few individuals have been jailed or fined for their activities, most recently former Credit Suisse employee Renzo Gadola who was given a suspended fine this summer for handing secret data to the Department of Justice in exchange for a lighter sentence in the US.

Elmer trial highlights whistleblowing dilemma

The Swiss whistleblowing debate has ratcheted up a few notches with the new trial of notorious former banker Rudolf Elmer, accused of violating banking secrecy as well as proposed new laws to prevent informants going to the media with their concerns.

Former Julius Bär employee Elmer could get up to three and half years behind bars if found guilty of illegally handing over client data to the Wikileaks campaigning website.In 2011, Elmer – dubbed the “Robin Hood” of Swiss banking by some media – was originally given a suspended fine for breaking bank secrecy laws. But days before that trial he defiantly, and publically, handed over more data to Wikileaks, leading to his further arrest and now the second court hearing.Elmer was not paid by Wikileaks, but has embarked on a crusade to expose what he claims are the immoral activities of some Swiss banks. His court cases are vehicles for drawing public attention to his message: that his former employer allegedly set up trust funds and other constructs to help people evade taxes and launder money.

The IRS Scandal, Day 579

Forbes:  Horrible Bosses, IRS Edition, by Robert W. Wood:

People joked about horrible bosses long before Horrible Bosses, Horrible Bosses 2, and The Office. I’m guessing that at least some employees over at the IRS may not be too impressed with their own leadership. I mean big issues, not relatively harmless but kitschy things like Star Trek, Gilligan’s Island or line dancing videos. Perhaps there may have been some mistakes from regular employees, but the bosses surely have the most explaining to do.

The news that the lost or destroyed Lois Lerner emails were actually not lost or destroyed, for one. Remember, when the IRS brass said they looked really hard, and spent $10 million (of taxpayer money!) trying to find those emails? After a year of investigation, they belatedly said they were lost, hard drives were recycled, etc. Anyhow, now they will be sorted, cataloged and released, which is good.

Some people are upset that money is being spent on a ‘witch hunt’ that reveals not even a smidgen of corruption. Others aren’t so sure. The Treasury Inspector General for Tax Administration has confirmed that, on top of the backed-up email horde, there are also nearly 2,500 documents relating to investigations of the improper disclosure of confidential taxpayer information by the IRS to the White House. ...

Lois Lerner–the former IRS official at the heart of Tea Party targeting–supposedly didn’t even direct them, though she remains silent. She was held in contempt of Congress for refusing to testify, but hasn’t been prosecuted. Yet after her long silence, in an exclusive interview with Politico she said did nothing wrong and considers herself the victim.She bristled at any suggestion she had anything to do with destroying emails, switching to texts, or letting her own political views influence her treatment of Tea Party “a__holes.”

In the midst of all this, many Americans could use a little reassurance on key points:

• We Want To Be Dealt With Fairly ...
• We Don’t Want Others To Get Away with Anything ...
• We Want Our Private Information Kept Private ...
• We Want IRS Employees To Be Policed ...
• We Don’t Want More Complex Tax Laws ...

Since the IRS is made up of humans, sometimes the IRS is unreasonable or wrong. Richard Nixon supposedly asked the IRS to audit his political enemies. There has been no proof yet that President Obama tried to influence the IRS in the Tea Party targeting scandal. But it’s not unreasonable to want to get to the bottom of it once and for all. ...

The IRS has a very hard job to do, and in general, does it well and fairly. But that is precisely why this is so important. We need fairness and faith in the tax system restored. We shouldn’t need a Freedom of Information Act lawsuit to get it.

Swiss Bank Drops Out of IRS Tax Compliance Program

Reversing earlier moves taken this summer and fall, a major international bank is ending its cooperation with the Internal Revenue Service’s efforts to prevent investors from investing money in foreign countries with more amenable tax structures and policies, such as Ireland or Switzerland.
During a Zurich speech, Barclays bank executive Francesco Grosoli announced that the firm’s Swiss operations had “recently exited the program,” after evaluating its legal options. Grosoli declined to reveal additional details, but said that the bank had decided to end compliance with the U.S. extra-territorial enforcement actions at some point within the last “three or four months.”

Renouncing vs. Naturalizing or quality vs. quantity !

The number of individuals who wish to come to the U.S. to become citizens is far in excess of the number who are renouncing their citizenship.  According to the USCIS, there are about 700,000 individuals annually who become naturalized citizens.  In the year 2008, there were more than 1 million naturalized citizens.  See table:
Compare these numbers to just about 3,000 annually of individual who are renouncing their citizenship.
Of course, everyone has their own story and reasons for either coming or going, but in relative terms, those who find it desirous to renounce citizenship (at least in absolute numbers and relative terms) represent a small speck (less than 1/2 of 1 percent), compared to those who are becoming naturalized citizens.
Finally, for anyone who wishes to become a naturalized citizen, they must be aware they cannot “reverse” the decision without having potentially adverse U.S. tax consequences.

 

Lackluster Tools For International Collection

I have written and mentioned it before that only 5 treaties provide for assistance in collecting tax judgments against U.S. citizens living abroad..... Canada, France, Holland, Denmark and Sweden.
I’m referring to the ability of the US to collect tax claims against its own citizens who happen to be living in one of these 5 countries. Because these treaties are bilateral, the reverse is also true: partner countries may collect tax claims against their own citizens who happen to be living in the United States. Which means the US has no collection treaties with 190 countries !
The IRS filing a notice of federal tax lien with the foreign taxing authority as is typical in a domestic collections case, or using foreign courts to collect U.S. taxes would not work. These collection devices are useless when it comes to the cross-border collection of taxes.
 One technique that has been getting a lot of attention lately – not to mention gathering up steam – is the “Customs Hold" in connection with TECS data sharing. The procedure for detaining such taxpayers is so simple that it could happen to virtually anyone. First, the revenue officer prepares Form 6668, TECS Entry Request, to have a Customs Hold placed on a delinquent taxpayer. The completed form is sent to the group manager for approval, which consists of nothing more than a signature. After signing it, the group manager emails it to the TECS Coordinator. The TECS Coordinator adds the taxpayer’s name into TECS. Finally, DHS notifies the IRS whenever the taxpayer attempts to reenter the United States. Taxpayers are (theoretically) informed with a Letter 4106, Letter Advising Taxpayer of Department of Homeland Security Notification, that an international revenue officer has notified the DHS “that the taxpayer has outstanding tax liabilities.”

This procedure allows  for brief detainment of the person by a Customs and Border Protection Officer for the purpose of gathering his or her “contact information” (i.e., “where he will be staying while in the United States”). Nothing more. Nothing less. In other words, while it is supposed to be a tool for collecting taxes from delinquent taxpayers, it offers no ironclad guarantee that the person being detained will actually pay the tax. Holding individuals as they seek to return to the United States only works as a collection device if the experience itself was so emotionally traumatic as to convince them to pay. At a primitive level, it only works if it instills the fear of God in the taxpayer.
While it might potentially cause the person some alarm, it’s hard to imagine that it will have the desired effect of inspiring taxpayers to take out their checkbooks and write out a check to Uncle Sam. And before we can even get to that point, do not forget that the person has to attempt to reenter the United States. Suffice to say, it would be a cold day in hell before someone who receives Letter 4106 steps foot back in the United States again.
 According to recent statistics, there are approximately 1,700 taxpayers on the TECS with approximately $ 1.6 billion in delinquent tax assessments. This includes assessments of approximately $ 1.1 billion exclusively owed by international taxpayers.

Lol...H&R Block CEO Asks IRS To Make it Harder to Self-Prepare Tax Returns

Last month, William Cobb, the President and CEO of H&R Block, wrote to the Commissioner asking that the IRS implement changes to tax forms to make it more difficult for taxpayers to prepare their own returns claiming the earned income tax credit (EITC). The cynical response to this is that Cobb wants more taxpayers to come to the paid preparer behemoth. After all, Cobb’s main role is to increase profitability for the company.

As most readers know, the EITC is and has been for some time one of the principal ways the federal government incentivizes lower-wage work and reduces poverty, especially among children. Its administrative costs are relatively low, and the credit has generally received bipartisan support. Despite the EITC’s success, its error rates have drawn attention from those who criticize the credit (or wish to discredit the IRS or transfer programs generally; more on EITC errors and reasons for bashing IRS for its EITC administration in an earlier post EITC: Do Attitudes on Redistribution Fuel a Particular Focus on Errors). Despite the criticism, the EITC error rate is relatively low compared to other segments of the tax gap, such as small business underreporting of income (which costs the fisc way more than misclaimed EITC), and I suspect that many of the EITC errors are more in the way of foot faults with a wrong parent or relative claiming a child whom the relative has some connection with. Alternatively, in some instances what is reported as an EITC error may in fact be the result of correspondence audits that taxpayers are ill-equipped to meaningfully engage even when the claimed credit was proper (To that end see a 2010 article by former clinician Kate Leifeld in the Maine Law Review discussing a 2007 Taxpayer Advocate Service study on the impact of representation on low-income taxpayers subject to audit).

From the 106 Requests of Swiss Entities to participate in a DOJ settlement program now only 96 remain

Update : 10 Swiss Banks that requested the US Department of Justice’s non-prosecution program have now withdrawn from it because they have decided they did not systematically break US tax laws.

Give up green card, make an election to file a joint tax return

Today's question comes from Ann:

I'm a green card holder for over 9 years already (starting from year 2006 date count) and I want to expatriate on 2015 because my husband (American citizen) and I plan to move to my country (country removed) by 2015.

The tricky part for me to handle this matter is the IRS filing status. I want to expatriate next year 2015 hopefully from my green card residency, but my husband will remain as an American citizen. How will I fill up the IRS tax form filing status? Will it be "married filing jointly" or "married filing separately"?

I'm planning to choose or opt for "married filing jointly" because of tax savings advantage on my part considering I only earn around $12,000 in a year and also my husband and I have been filing joint income tax returns from the start of our marriage in the United States. I need your advice or suggestions on this matter on what to do, so I can start planning now and the next year to avoid any hassles when the time is near.