Form 8938 update

H.S. has published an article titled "Form 8938 and Foreign Financial Assets:  A Comprehensive Analysis of the Reporting Rules after IRS Issues Final Regulations," here.  It is published in the March/April issue of the International Tax Journal.  The article (i) analyzes the new/final regulations for Form 8938, describing both the changes accepted and rejected by the IRS, (ii) divides and organizes the complicated rules into manageable portions, addresses the confusing overlap between Form 8938 and the FBAR, and (iv) incorporates guidance from multiple sources, aiming to be a “one-stop shop” for all things Form 8938.

The Senate Finance Committee just released the comments (1400 submissions) sent by the public including myself on tax reform.

As expected, there are lots of comments about CBT and FATCA.

The actual number of files was slightly different, 449 for individual and 316 for international (plus 5 broken links in international).  I used an Adobe tool to search all PDF files in a folder and count the number of files that contained the keywords citizenship, FATCA or FBAR.
Results:
Individual 172/449 = 38%
International 175/316 = 55%
Those are impressive percentages I’d say and beneath them lie many persuasive testimonies with thoughtful suggestions for reform. I think that having more than 50% of the submissions ought raise awareness. At Ways and Means, they pretty much ignored an overwhelming quantity of submissions. It will take them a much greater effort to ignore these which surpass the 50% mark.

http://www.finance.senate.gov/newsroom/chairman/release/?id=3b14e94b-69f9-41e2-9fd3-7d191971b7ee

In Search of FBAR Fullfilment and Consciousness

When history is written, 2011 will be remembered as the “year of the FBAR.”
So far court  decisions have only confirmed the plain wording of the FBAR statute which says that no FBAR penalty will be imposed if there is "reasonable cause" and the balance in the offending account was properly reported. We are still left with the "fact specific interpretation" of what constitutes precisely "reasonable cause".
What is deemed wilful has very nicely been documented in released FOIA docs:
https://www.bragertaxlaw.com/previously-unreleased-irs-guidelines-for-fbar-audits.html
It Begins in the 1970s:
The historical roots of the FBAR may be found in the Bank Secrecy Act which was enacted in 1970. Here is what it says:

“1970    CONGRESS ENACTS THE BANK SECRECY ACT (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) which requires American financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments and file reports of cash purchases of these negotiable instruments of $3,000 or more (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. (Bank Secrecy Act of 1970).”

THE BSA REGULATIONS NOW REQUIRE ALL FINANCIAL INSTITUTIONS to submit five types of reports to the government including:
FBAR: Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR): Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $5,000. (31 CFR 103.24)
The FBAR Has Been Asleep For A Long Time - But FBAR Consciousness Has Been Renewed and Is Moving Closer To Many Borders.

Why would you choose to be an American taxpayer without getting any of the benefits of citizenship or residence?

The situation, in a nutshell: you and your spouse are both U.S. citizens. You renounce your citizenship, but your spouse remains a U.S. citizen. You can elect (discussion below) to be treated as a U.S. taxpayer, even though you are no longer a U.S. citizen and are not living in the United States.
What the election does :
If you elect to be a U.S. taxpayer, the result is that you treated like a resident for income tax purposes, and for withholding on wages paid to you:
A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States—
(A) for purposes of chapter 1 for all of such taxable year, and (B) for purposes of chapter 24 (relating to wage withholding) for payments of wages made during such taxable year.

FATCA Security Risks with Sensitive Data

The Foreign Account Tax Compliance Act, commonly called “FATCA” has caused Americans abroad to be fearful of security risks when their personal financial information is reported by non-US financial institutions or foreign government agencies to the IRS. FATCA reporting will include the name, address and taxpayer identification number of each US account holder at the financial institution; the account number; account balance and value; the account’s gross receipts and gross withdrawals or payments; and other account related information requested by the Internal Revenue Service (IRS). The Treasury Inspector General for Tax Administration has expressed concerns with the security of data transmission as mandated by FATCA.  In September of 2014 the IRS issued a fraud alert to all international financial institutions that are complying with FATCA. Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identities as well as financial account information.  Financial institutions directly registered to comply with FATCA, and those in jurisdictions that are treated as having an IGA in effect to implement the FATCA provisions through their home governments, have already been approached by parties impersonating themselves as the IRS. The IRS now has reports of incidents from various countries and continents.

An Emotional Audit: IRS Workers Are Miserable and Overwhelmed

Businessweek thinks the IRS sucks.  The reasons are largely outlined by the John Oliver video above.  I’m sure this has generated a lot of scoffs, but I honestly do try to keep this in mind as I sit on hold for 90 minutes.  Maybe it helps me from being a complete jerk to the person who eventually picks up.  Solid chance that person’s day is worse than mine. How much longer before this all implodes? Is that the goal?  Might work.

Combining FBAR and 8938 is a step toward simplification of the onerous reporting required of US persons living overseas.

https://americansabroad.org/files/5914/2913/2714/tax-advocate-recommendations-13-april-2015.pdf
One set of nonfiling/inaccuraty penalties would be eliminated and that is a good step.
TAS did not go far enough to reduce the questionable and maybe even unconstitutional FBAR fines. Accounts in those countries are not foreign and should not be treated by such with "foreign account" penalties.
While one may hope that relieving FFI of their reporting obligations for bona fide tax residents, will be a relief for US persons living overseas - the notion is hypothetical. All FFI under FATCA  must vet through their account lists and hunt down US persons among existing accounts, for any new accounts, and this still must be done if the US persons are bona fide tax residents or not. So will this be any help? It will add an extra layer of bureaucracy and questions imposed on the banks at their expense to ask the extra questions.
There is no mention of the foreign nationals in the US getting their accounts shut in their home countries as a result of FATCA regulations.
Also, no mention of US persons with a "foreign address" getting financial accounts closed or services limited on US based accounts. This is still Unamerican!
Clearly with FATCA,FBAR, and Citizenship Based Taxation the US has treated overseas US persons with an expectation that they are to serve the US government, instead of the US government having the prime responsibility to serve them.
Double taxation, without representation, with excessive compliance, and with excessive compliance penalties, and with $0 in US government services in exchange is still wrong and unjust.

Income tax return that must be filed in the year of expatriation:

When a US person expatriates and becomes an alien , there is a dual status year. If the event happened in October, and X was a US person for >183 days in the year X expatriates, does he need to file a Form 8840 for the part of the year that he was an alien?

Will Filing an Amended Tax Return Extend the Statute of Limitations?

Many people fear that filing an amended tax return will cause the statute of limitations to be extended. In general, the filing of an amended tax return does not extend the statute of limitations on assessment.  If an amended return is received by the IRS within 60 days from when the assessment statute expiration date would otherwise expire, then the IRS is granted a period of 60 days from the received date to assess additional amounts of tax on that return. See IRC Section 6501(c)(7). For example, if an amended income tax return for the 2011 tax year was received on April 3, 2015, the IRS would have 60 days from April 3 to assess any additional tax due on that income tax return.


To claim a refund, Form 1040X must be filed generally no later than the date that is 3 years after the date the original return was filed or within 2 years after the date the tax was paid (whichever is later). Returns filed before the due date (without regard to extensions) are considered to be filed on the due date.

You can check the status of your Form 1040X (PDF) using the Where’s My Amended Return? (WMAR) online tool or the toll-free telephone number 866-464-2050 three weeks after you file your amended return. The WMAR tool allows you to track the status of amended returns for the current year and up to three prior years.
More information from the IRS on the topic of amending tax returns can be found here.

Nina Olson testifies before House Committee on Annual Report to Congress, April 15, 2015

Yesterday the  National Taxpayer Advocate Nina Olson testified before the House Committee on Oversight and Government Reform about her 2014 Annual Report to Congress.

She discussed this year’s tax filing season and the key points of the report, including the IRS’s failure to meet taxpayers’ need for service, which she said erodes taxpayer trust in the system and undermines voluntary compliance.

Watch the full testimony: House Committee on Oversight and Government Reform: The Taxpayer Advocate’s Annual Report.

Read the full text of the testimony.

Tax Heavyweight Says Congress Should End Puerto Rico Tax Incentive

Over the last year or so, the scheme that I’ve said “no” to more than anything else involves Puerto Rico. Back in 2012, Puerto Rico—a US territory—enacted tax incentives designed to entice hedge fund managers and other wealthy immigrants into relocating there from the mainland US.

The specific law I criticized is Act 22. Anyone who becomes a bona fide resident of Puerto Rico is now eligible for the following benefits, courtesy of Act 22:

• 100% tax exemption from Puerto Rico income taxes on all Puerto Rico source dividends and interest payments.
  
• 100% tax exemption from Puerto Rico income taxes on all short- and long-term capital gains accrued since becoming resident in the territory.
  

By itself, this exemption isn’t particularly noteworthy. But the US Tax Code provides that bona fide residents of the territory need not pay federal income tax on “income derived from sources within Puerto Rico.” 

Taxpayer Advocate Request Easing Foreign Reporting Requirements For US Taxpayers Abroad

The National Taxpayer Advocate suggested to the Internal Revenue Service to reduce the duplicate foreign asset reporting requirements created by the Foreign Account Tax Compliance Act. The Taxpayer Advocate Service (TAS) is your voice at the IRS. Our job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights.
April 13, 2015 the National Taxpayer Advocate stated in Recommendations for Published Guidance under IRC §§ 60380 and 1471: Eliminate Duplicative Reporting of Assets on the FATCA Form 8938 if the Asset is Reported or Reflected on the FBAR (FinCEN Report 114) and Exclude Financial Accounts Maintained by a Financial Institution in the Country of  Which the U.S. Person is a Bona Fide Resident from FATCA Reporting:

1. That taxpayers shouldn’t have to report assets on the Form 8938, Statement of Specified Foreign Financial Assets, if those assets are already reported or reflected on a Financial Crimes Enforcement Network Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

2. The IRS should amend the FATCA regulations to ease reporting for banks in countries where U.S. account holders are bona fide residents.

• Those banks shouldn’t be required to report those accounts under FATCA if the institutions are organized under the laws of that country.

• Those accounts also shouldn’t be among the specified foreign financial assets required to be reported on the Form 8938.

The UK is phasing out tax returns over the next 5 years. Here’s how to do the same in United States.

Let’s start with a dream: what if all you need to do on April 15 is open a pre-filled return online, see what the government thinks you owe, make any changes, and be done. No more charges from your accountant. No paying for software you don’t need. For most of us, taxes would be a breeze.

This is a happening in the UK.

Britain’s Chancellor of the Exchequer announced last month that the UK will phase out all annual tax returns within 5 years. That includes personal, small business, and large corporations. They’ll achieve this by automating the tax system - tying data from employers, banks, investment firms, and anyone else required to report, to a personal tax account.

LOL.....7 Tips For Dealing With A Cash-Strapped IRS

https://www.law360.com/tax/articles/641758/7-tips-for-dealing-with-a-cash-strapped-irs

With the IRS operating under constrained resources, tax practitioners are dealing with drawn-out audits, more correspondence exams and less-experienced agents. Here, experts provide seven tips for reducing the stress of working with a cash-strapped IRS.

Educate the Auditor

IRS Commissioner John Koskinen on Wednesday warned again about the “brain drain” at the agency. With a hiring freeze in place and the service losing employees to attrition, agents with decades of experience and specialized expertise are leaving the agency, and less-knowledgeable employees are taking their places....

Obama and Biden Release Their 2014 Tax Returns

President Obama and Vice-President Biden yesterday released their 2014 tax returns. Here are charts putting the 2014 returns in context with their earlier returns:

Obama:

Year	AGI	Tax	Charitable Gifts	Gifts/AGI
2014	$477,383	$93,362	$70,712	14.8%
2013	$481,098	$98,169	$59,251	12.3%
2012	$608,611	$112,214	$150,034	24.7%
2011	$789,674	$162,074	$172,130	21.8%
2010	$1,728,096	$453,770	$245,075	14.2%
2009	$5,505,409	$1,792,414	$329,100	6.0%
2008	$2,656,902	$855,323	$172,050	6.5%
2007	$4,139,965	$1,396,772	$240,370	5.8%
2006	$983,826	$277,481	$60,307	6.1%
2005	$1,655,106	$545,614	$77,315	4.7%
2004	$207,647	$40,426	$2,500	1.2%
2003	$238,327	$51,856	$3,400	1.4%
2002	$259,394	$68,958	$1,050	0.4%
2001	$272,759	$86,072	$1,470	0.5%
2000	$240,505	$63,732	$2,350	1.0%

Biden:

Year	AGI	Tax	Charitable Gifts	Gifts/AGI
2013	$388,844	$90,506	$7,380	1.90%
2013	$407,009	$96,378	$20,523	5.00%
2012	$385,072	$87,851	$7,190	1.90%
2011	$379,035	$87,900	$5,540	1.46%
2010	$379,178	$86,626	$5,350	1.41%
2009	$333,182	$71,147	$4,820	1.45%
2008	$269,256	$47,464	$1,885	0.70%
2007	$319,853	$66,273	$995	0.31%
2006	$248,859	$42,832	$380	0.15%
2005	$321,379	$70,473	$380	0.12%
2004	$234,271	$41,845	$380	0.16%
2003	$231,375	$38,393	$260	0.11%
2002	$227,811	$41,756	$260	0.11%
2001	$220,712	$40,728	$360	0.16%
2000	$219,953	$42,313	$360	0.16%
1999	$210,797	$40,309	$120	0.06%
1998	$215,432	$35,131	$195	0.09%

The IRS Scandal, Day 702

The Blaze, ‘America Is Fed Up’: GOP Schedules Votes on Major IRS Reforms Next Week:

The House next week is expected to pass several bills aimed at reforming the IRS, in

particular the way the IRS handles applications for groups seeking tax-exempt status.

That issue has been highly controversial since it was revealed that the IRS applied extra scrutiny to conservative groups seeking tax-exempt status just before the 2012 election. The resulting scandal forced former IRS official Lois Lerner to leave the agency, although Lerner has so far dodged any punishment for her role.

For example, the Justice Department just said it won’t prosecute Lerner for her decision not to testify before Congress about her actions in the targeting scandal.

GOP leaders say the IRS needs real reform, and quickly, to ensure it doesn’t become a political weapon for whichever party runs the executive branch.

“The IRS has maliciously targeted individuals and groups simply because of their personal beliefs,” House Majority Leader Kevin McCarthy (R-Calif.) told his colleagues on Thursday. “The current system is unfair and America is fed up.”

Three of the bills up next week deal with the targeting scandal. One of these, from Rep. George Holding (R-N.C.), would try to to ensure the IRS can no longer play politics with tax exempt applications by allowing groups to declare tax-exempt status on their own, without having to wait for the IRS.

Another from Rep. Jim Renacci (R-Ohio) calls for the firing of any IRS worker that delays their tasks for political reasons, such as slow-walking the tax-exempt status of a political group. And the third, from Rep. Pat Meehan (R-Pa.), would require the Treasury Department to issue regulations allowing groups to appeal decisions by the IRS not to grant them tax-exempt status.

The bills are being considered long after the targeting scandal broke, which shows a lingering resentment among conservatives, and a feeling that reforms are still needed at the tax collection agency. Just last month, some Republicans accused the IRS of quietly working to undo some of the reforms Congress has tried to impose on it, by putting forward a budget plan that doesn’t include language related to ending the political targeting of tax-exempt groups.

IRS Ethics Lawyer Disbarred

Not all attorney disbarments make news. But when the attorney being disbarred was an employee at the IRS who dealt with ethical issues, it becomes noteworthy.
The District of Columbia Court of Appeals last week accepted the recommendation of the Board of Professional Responsibility that Takisha Brown be disbarred. It found that Brown had intentionally misappropriated funds and made false statements with reckless disregard for the truth.
According to the Board, Brown misappropriated amounts from a settlement of an auto accident case that she handled in private practice, and misrepresented that she had paid a bill when in fact the bill had not been paid. The Hearing Committee noted that disbarment is the presumptive sanction for lawyers who intentionally misappropriate client funds, unless extraordinary circumstances justify a less severe sanction. The Court of Appeals upheld the Board’s conclusion that Brown failed to demonstrate extraordinary circumstances warranting a departure from the presumptive sanction of disbarment.

FBAR audit success story ????

After I read this blog post yesterday about a so called ``FBAR audit success story`` from a well-known FBAR ambulance chaser law firm I was thinking ......yes even 4/2015 these things happen. Where is Caroline C. Ciraolo when you need her !? I know it is a free market and buyers be aware.
http://www.irsmedic.com/2015/0...
The story does not make much sense and seems kind of invented or altered for promotion purposes because German income taxes are much higher than US income taxes. Reginald has the FEIE and FTC plus annual carry-overs. Reginald never had an income tax liability to the US.
He committed a “Form Crime“ by not filing 1040s, 8938 etc. and FBARs.
No big deal – typically the Service does not assess FBAR penalties when there is no tax due and Reginald has on top of everything else strong RC arguments. Another easy target and $25,000 income for IRSmedic.

How to tell the IRS that a TP was leaving the USA and is now a former U.S. taxpayer?

Are you familiar with the residency termination rule in the Regulations under section 7701(b) that states that unless one attaches a residency termination statement to the income tax return, the default residency termination date is December 31st of the year one leaves the US?

The tax rules for the final year of U.S. residency require that the individual attach a statement giving the IRS all of the details needed to establish a residency termination date. This is a residency termination statement.

There is a an FBAR nonwillfull penalty opinion entered April 1, 2015 by the US District Court for the Western District of Washington.

Taxpayers should not be forced to sue in federal court to get an explanation as to the agency’s rationale or the evidence it considered in making its decision.  In addition the District Court implies incorrect FBAR triggers !
The court seemed to muff up the FBAR reporting requirement threshold and then didn’t even acknowledge it later on: pg. 1, sec. II, “Essentially any person residing in the Unites States with foreign accounts totaling more than $550,000 [is required to file an FBAR].”
In legal terms, the proper follow up question is “WTF?” I can’t figure out where Judge Jones got this $550,000 figure or, if he decided that the filing threshold was $550,000, why he wouldn’t be compelled to rule that Mr. Moore did not have an FBAR filing obligation and, thus, deserved no penalties. So isn’t it fair to ask, that if a federal district court, presided over by a judge that must be fairly smart, and obviously well-rounded, after being briefed on this issue and having a staff of highly motivated legal clerks to assist him, can’t recite the actual FBAR reporting requirement correctly, what does this say about the burden placed on regular taxpayers?
I cannot get over this questionable revolving door career move from Caroline D. Ciraolo. Up to december of 2014 she played a big part in defending exactly these type of NW cases like the one here evolving Mr. Moore and just 2 month later I see her signature under this motion trying to nail exactly one of those NW TP she was so adamant in defending before.
Moore v. United States, 2015 U.S. Dist. LEXIS 43979 (W.D. WA 2015).  The opinion on summary judgment opinion is here.  The briefs  on the motion (excluding exhibits) are:

• US motion for summary judgment, here; 
• Moore's Response to the US Motion, here; and 
• the US Reply to Moore's Response, here.  

The docket entries as of 4/3/15 are here.
http://www.procedurallytaxing.com/district-court-fbar-penalty-opinion-raises-important-administrative-and-constitutional-law-issues/#respond

The cynical and embarrassing part of this case is that we learn that the US District Court for the Western District of Washington is only interested in procedural issues and that there is no binding law to guide the court when it comes to RC in the FBAR context or the standard of review issue .
What standard applied to the IRS’s determination on the FBAR penalty?
The court accepted the government’s position that it “should determine de novo whether Mr. Moore is subject to an FBAR penalty, but should review the IRS’s determination of the amount of that penalty only for abuse of discretion.”
Mr. Moore`s case thus opens the door to DOJ in the future to test the waters on perhaps getting a more deferential abuse of discretion standard of review on the question of liability.

You've never seen IRS penalties like these.............

http://money.cnn.com/2015/04/01/pf/taxes/irs-penalties/index.html?source=yahoo_hosted

Was it an April Fool's joke?  Only a homeland American could ask that.  US citizens abroad knew right away that it was dead serious.

FATCA: Swatting Flies With Atom Bombs:

Possible inflation of the offshore tax evasion problem and the staggering costs of the Foreign Account Tax Compliance Act are causing even the most ardent advocates of information sharing and ending bank secrecy to question the U.S. approach.
“For the U.S. to ask countries around the world to spend billions in implementation costs to deliver less than $1 billion per year is, economically, complete nonsense,” said Martin Naville, CEO of the Swiss-American Chamber of Commerce. He referred to FATCA as the least considered program in history and “mind boggling” in its unilateralism. “The net value of FATCA for the U.S. is probably negative,” said Naville, who added that tax compliance is a must but that there are better ways to achieve it.

But it goes after Fat Cats! Don’t you get our clever pun? And besides, how can we go after international money launderers without making it a crime to commit personal finance abroad?
Related: Wall Street Journal, Checking the IRS Overseas (Via the TaxProf). “Even the Obama Administration says the law would capture only $870 million a year in additional tax revenue, which is probably overstated given changes in behavior by Americans and their overseas employers.”

Swiss Asset Manager Pleads Guilty in Federal Court to Conspiring with U.S. Taxpayers to Evade Federal Income Taxes and File False Tax Returns

A Swiss citizen and former asset manager at a Swiss asset management firm pleaded guilty to conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide millions of dollars in offshore accounts from the Internal Revenue Service (IRS), and to evade U.S. taxes on the income earned in those accounts, the Justice Department announced.
Peter Amrein, 53, a Swiss citizen, pleaded guilty before U.S. District Judge Sidney H. Stein of the Southern District of New York pursuant to a plea agreement to one count of conspiracy to defraud the IRS, to evade federal income taxes and to file false federal income tax returns.  Amrein faces a maximum sentence of five years in prison at his July 1 sentencing before Judge Stein.

capital gains tax : sales price minus expenses of sale minus basis, multiplied by the tax rate

A TP [now a U.S. resident] sold his house in CH. Since the capital gain is calculated based on the original purchase price, why do some articles say that properties should be appraised before landing to this country?

Appraisals of property are a good idea when becoming a U.S. resident, unless you think you will never be covered expatriates sometime in the future.

Form W-8BENs for Expatriates

Once I have successfully expatriated, I want to keep my bank account, IRA, 401(k), brokerage account, etc. open in the United States. What paperwork is required and how will I be taxed?

Form W-8BEN. That is what you give the financial institution. It is pretty easy unless you want to reduce your U.S. income tax from the default 30% to a lower number (like zero).

The government has eroded the distinction between willful and non-willful violations.......

Court victories (bad facts) by the government in civil FBAR enforcement actions (Zwerner, Williams, McBride) have diluted the willfulness threshold, from the more appropriate standard of an intentional and voluntary violation of a known legal duty, to a standard of mere recklessness. A “recklessness” standard lacks precision and invites severe penalties simply because an individual is presumed – or is concerned about being presumed – to have “known better,” even if he in fact did not know.
It is clear that the willfulness requirement for civil FBAR actions must be amended legislatively to make clear that willfulness requires not just recklessness, but a voluntary and intentional violation of a known legal duty. This erosion of the willfulness standard fails to distinguish adequately between most account holders and true bad actors, and therefore can discourage those who otherwise wish to become fully compliant. (prior to the current offshore enforcement campaign, willfulness in the civil FBAR context was understood to be equivalent to willfulness in the criminal context)
If an individual did not act with the intent to violate a known legal duty, then it is difficult to argue why he should be subject to a very draconian, albeit civil, penalty from the perspective of either fairness or the smart use of limited enforcement resources.
The enhanced civil penalties for willful conduct were enacted to target bad actors, not to ensnare the inadvertent or negligent. Moreover, and aside from the benefits of attaining consistency between the civil and criminal penalty regimes for willful conduct, the practical reality is that the current IRS “streamlined” program for disclosing offshore accounts, which requires that the taxpayer submit a certificate attesting to his non-willfulness, is complicated by the possibility that the taxpayer is really being asked to assert that he did not act “recklessly,” which is a potentially much murkier claim than asserting that he did not act with fraudulent intent. Indeed, even the IRS used to state that willfulness for the substantial civil FBAR penalties demanded the same heightened showing required for criminal willfulness. Any legislative or policy change should prevent the government from meeting its burden through use of circumstantial evidence or the doctrine of willful blindness. Such proposals would contradict well-settled methods of showing mental state, and would be unworkable in practice.

THE SERVICE’S DUTY TO FOSTER VOLUNTARY COMPLIANCE THROUGH IRC SECTIONS 6014(a) AND 6020(a) -

American expatriates are especially good candidates to have their federal tax returns prepared under section 6014(a) or 6020 (a), because approximately 82% of them will owe no U.S. tax.
The cost for an American expatriate to comply with the Code is estimated to be, on average, between $2,000 and $4,000 per year per return.
Sections 6014(a), which allows individuals who meet certain income thresholds to elect for the IRS to compute taxes owed, and 6020(a), which allows the Service to prepare returns for persons who “consent to disclose all information necessary for the preparation thereof,” in lieu of self-assessment, may be a means to compel the government to assume the cost of compliance and complexity.
 As to the section 6020(a) return, a U.S. citizen or resident alien living abroad can proactively contact the Service to prepare his or her return under section 6020(a) by completing the “Tax Return and Consent to Assessment of Tax Pursuant to I.R.C. § 6020(a).”

 Section 6014(a) and section 6020(a) are but two statutory tools available to help American expatriates reduce their ever-increasing cost of compliance.

http://www.agostinolaw.com/wp-content/uploads/2015/03/AA-Newsletter-2015-March.pdf

Ex-Credit Suisse Banker Wants Probation For Tax Evasion Plot

A former Credit Suisse AG banker on Friday urged a Virginia federal judge to spare him prison time for advising U.S. clients on how to dodge taxes through Swiss bank accounts, saying his ready cooperation with investigators and low place on the bank’s totem pole warrant probation.

Andreas M. Bachmann, who pled guilty last March to conspiring to defraud the U.S., voluntarily came to the U.S. to answer for the charges and has provided valuable information to the government on a “massive conspiracy".....
 https://www.law360.com/tax/articles/634173/ex-credit-suisse-banker-wants-probation-for-tax-evasion-plot

I think it might be worthwhile to repeat what information category 2 banks exchange in detail and how they exchange it at this stage.

U.S. taxpayers resolving their U.S. tax consequences by OVDP, streamlined (by transition or otherwise) or still otherwise might be better off to advise the Swiss Category 2 banks if they have been less than truthful in their resolution of the U.S. tax consequences.
Category 2 banks are sending over account numbers (without names), balances and transactions to DOJ. They divide them in a "red flag" list which they pay penalties on and a "green light" list which they don't pay penalties on because the account holder is already in compliance or have joined the OVDP (and provided proof to the bank). The information is the same at this stage, except that the "green flag" list include some form of evidence of the requirements, such as a copy of the OVDP acceptance letter. The bank has to receive this from the client, as well as consent to share this info with the DOJ, otherwise they would commit a Swiss banking law crime at this stage.
Its fair to assume that the "red flag" list will be subject to John Doe requests already being prepared and that more detailed information such as communication between bank and client, account opening papers etc might be included in the John Doe summary.
One critical issue is if there will be a John Doe request on the "green light" list. I guess it could be possible but would they spend all that resources? And would the Swiss agree to this since it is a huge workload considering the banks are bending backwards already?
From what I understand at the heart of the deal was what info could be shared (without consent from the client) and that is after all fairly limited. I assume that all clients who are cooperating with the bank are smart enough not to sign a blank POA for the bank to give IRS anything but the specific limited information they need to prove their entry into OVDP.
If you have joined the OVDP (or streamlined), you have given proof of this to your bank of this so that they have put you on the "green light" list. As long as you don't lie in your OVDP documentation about basic things like account numbers, balances or transactions (which would be beyond stupid), I have a hard time seeing any other information being shared automatically?
The only way the DOJ could later get more information on the account would to pressure the client to hand it over within the ODVP process, or, if the balances or account numbers do not add up, use that as an indication of fraud and make a treaty request for that specific account. But again, it is really only things like account numbers, balances and transactions that could be subject to scrutiny here from what I understand and that I assume almost everyone hands over that same data in the OVDP or streamlined process in any case.
One conclusion from all of this is that it actually might make a lot of sense to cooperate with your category 2 bank in order to end up on the green list (if it is not too late already). Thereby you control/are aware of the bulk of the information being handed over assuming I am right about the future John Doe requests.

Here’s another big, fat, hairy lie being trotted out right now by President Obama, Congress, and the mass media: ‘Offshore tax evasion costs the US Treasury more than $150 billion annually.’

I have written last year a couple of blog posts about this subject.
http://www.nestmann.com/government-stats-strike-again#.VQ0LgU1_lMt
Sadly, the article is from 2014. It is still relevant though- it should be published in mainstream media again and again! But the world believes what they want to believe, and when faced with such debt – even more so and a feeding frenzy ensues.
Funny enough in 2001, it was $70 billion annually. By 2010, the number was $100 billion. According to a recently published Senate report, it’s now $150 billion.
That’s one hell of a jump. Either the rich are totally sticking it to “the man,” or someone has been massaging the numbers just a tad.
Let’s look at the history, shall we?
The $70 billion figure originated with Jack Blum, an attorney and former congressional researcher. Blum cited this figure in 2001, when he signed an affidavit in support of an IRS summons for records from MasterCard and American Express.
He never explained how he arrived at this number…he never had to either or was ever challenged.

Actually, the analysis he makes is a bit of apples and oranges. All of the govt whoppers make the assumption that the money going “offshore” is principle that was never taxed as income. The analysis ignores that and calculates on missed taxation of interest upon the principle.
Those govt/media assumptions are what is scary and is the prejudice that is built into FBAR and OVDP.

http://www.fas.org/sgp/crs/misc/R40623.pdf
Tax Havens: International Tax Avoidance and Evasion
Jane G. Gravelle Senior Specialist in Economic Policy
January 15, 2015
Congressional Research Service
It has quite a history of Obama’s proposals in it. Together with a record of the known things such as Ex Patriot Act.

One Country/Two Citizenships

The first form of US citizenship is delineated for purposes of the immigration and nationality laws, while the second form of US citizenship is defined strictly by the US tax laws.  An individual can be a US “tax citizen” and therefore subject to US income taxation on his worldwide income regardless of where he lives or where the income was earned. In addition, at death, the estate of such a “tax citizen” is subject to US estate tax on the fair market value of the citizen’s worldwide assets.  All of these burdens will apply to the “tax citizen” even though the individual is not a “citizen” for purposes of the immigration and nationality laws, and therefore is not entitled to a US passport or to enter the US without a visa or eligibility for a visa waiver.

With regards to an inheritance. How does taxation change upon renunciation?

Getting

Receiving an inheritance is no problem at all. No tax.

Giving

Leaving an inheritance to someone depends on two factors: whether you are a covered expatriate (or not), and whether the recipient is a U.S. taxpayer (or not):

• Noncovered expatriates can make gifts or leave bequests to anyone at all. The recipients do not have any U.S. tax burdens. The noncovered expatriate's assets are subjected to U.S. estate tax under the normal rules that apply to nonresident noncitizens (i.e., assets in the U.S. get taxed; assets outside the U.S. don't).
• Covered expatriates cannot make a gift or leave a bequest to a U.S. citizen or resident without a traumatic tax liability being imposed on the recipient. (A 40% tax, under current conditions). The covered expatriate's assets are also subject to the normal estate and gift tax rules (assets in the USA are at risk, while assets outside the USA are not).

Drumming-up FATCA business in the Caymans

A new video report from CNS Business in the Cayman Islands dives right into the front-lines of the rapidly-spreading FATCA compliance business. A good-sized group of Caman-based US Persons attended a free seminar last week at the Caribbean Club entitled "Navigating US Tax Requirements and Strategic Methods of Coming into Compliance" Some of them were interviewed on-camera for the story, as was an attorney from Caplin & Drysdale, a DC-based law firm specializing in "the tax controversy area" and event co-host with Ham, Langston & Brezina LLP, a multi-service accounting firm based in Texas.

As the story reports:

“It’s becoming harder and harder to hide and you really want to be ahead of the situation. You don’t want the IRS knocking on your door. There are options for you to come forward and come into compliance now before they come to you because once they come to you, it’s a very different conversation,” added Caplin & Drysdale attorney, Zhanna Ziering.

“Right now the message I deliver is FATCA is changing all of that and just because you’ve had an account here for 20 or 30 years without issues doesn’t mean you won’t get a letter in the mail. We’ve had clients in Cayman, as well as a host of other countries, receiving these letters,” stated [Caplin & Drysdale attorney, Dianne Mehany].

Both attorneys explained they are not trying to scare anyone, but want them to understand there are criminal and civil penalties if you don’t come into compliance.

Be sure to watch the interview clips.

CNN Quotes compliance vulture Scott Michel on the Taxation of American Minors Living Abroad

Caplin & Drysdale's Scott D. Michel spoke with CNN Money concerning the tax compliance issues facing expats with children born outside the U.S.  Children born abroad to Americans are generally automatically granted U.S. citizenship and are required to file U.S. returns as if they resided in the U.S.  For more on the story, please visit CNN Money's website.

Excerpt taken from the article.
American citizen minors living abroad, like Gaisler's sons, are subject to the same tax obligations as children born and raised in the U.S. "If they meet the income threshold, they've got to file a tax return," said Scott Michel, a tax lawyer with Caplin & Drysdale.
. . .
"It's crazy -- you have to hire a [certified public accountant] to deal with your kid's $5,000 or $10,000 of income," Michel said. "The compliance costs associated with all of this are somewhat disproportionate to the amounts at issue in many circumstances."................oh really !!

5 Myths and Facts of Getting Audited

Although the IRS audits hundreds of thousands of returns each year, audits represent less than 1% of all returns filed so there is generally little cause for concern.  There are, however, some red flags that may cause the IRS to place additional scrutiny on your return– but those red flags might not be what you think. Myth: The likelihood of getting audited increases with e-Filing.
Fact:  You are actually less likely to be audited with e-Filing.  Mathematical errors are a trigger for a tax audit and e-Filed returns offer some safeguards for math errors thereby avoiding these kinds of mistakes.
Myth: The likelihood of getting audited increases if you file an extension.
Fact: Many tax professionals actually see fewer audits on tax returns that are submitted after tax season; some believe that IRS auditors have less incentive to audit a return once their “quota” has been met.  Whether or not this “quota” truly exists is a matter of speculation. At any rate, anyone can get a  6-month extension upon request, and millions of people and businesses request them each year, so it is unlikely to have any impact on the chance of an audit.  Remember, however, than an extension of time to file is NOT an extension of time to pay!
Myth: The likelihood of getting audited increases if you amend your return. 
Fact:  Tax returns that contain mistakes and/or inconsistencies with other records such as employer filings and other income-generating sources (e.g., partnerships, LLCs and other  pass-through entities) are what increase your chances of getting audited.  Seek advice if you believe your returns contain mistakes.
Myth: The likelihood of getting audited increases if you have a home office. 
Fact: Not any more.  The IRS recognizes that the era of virtual offices is upon us and millions of people work from home. As long as your deductions are accurate, reasonable, and don’t include personal expenses, having a home-based office does not make you any more likely to be audited than working elsewhere.
Note, however, that filing certain forms and schedules with your return may increase your chances of being audited. For example, triggers include Schedule C losses for a hobby-turned-business and high valuations on Form 8283 Noncash Charitable Contributions. Also make sure that you are filing all of your 1099s – the IRS matches your 1099s with the corresponding 1098s, and inconsistencies between them is a virtual guarantee of an audit.
Myth:  Only rich people get audited.
Fact: For the most part, tax returns are selected for audit when their DIF (Discriminant Function System) score is higher than average. Although the amount of income declared is a factor, there are 66 different areas of interest that make up a DIF score, including – as noted above - the number and type of deductions made and the schedules included in the return.  Certain businesses are more likely to be audited, such as real estate investing, employers who work with independent contractors, and new small businesses that could be classified as hobbies, to name a few.  Note that if the IRS is dissatisfied with a business return, its owners’ personal returns as well as the tax returns of related entities will be placed under increased scrutiny – being rich, however, is not the primary motivation for these audits.

FATCA and Citizenship based taxation

Video made by a young man studying in Germany ...... Interesting to see a young person's reaction to this dilemma. Worth a listen.

https://www.youtube.com/watch?v=oYEIGRezIiI

ABA Tax Section Webinar part III

ABA Webinar “ANSWERING YOUR CIVIL AND CRIMINAL OFFSHORE DISCLOSURE QUESTIONS” – Tuesday, February 24, 2015 at 12:00 to 1:30PM ET.
The Department of Justice’s greater concern is over funds that originated in the U.S. as opposed to funds that were always offshore. Thus, U.S. profits and gains diverted to offshore accounts garner more attention on the criminal side than do foreign gifts or inheritances that were deposited into offshore accounts.Swiss Bank Secrecy laws still prevent banks in the program from turning over a client’s name unless the client consents or a proper Treaty Request is made (must indicate fraud) such as where nominee entity was employed although a Treaty Protocol pending in the U.S. Senate would expose personal numbered accounts to being turned over.The banks must turn over the name and location of bank accounts to which “Leavers” transferred funds but not the name itself. With that information IRS will be able to identify the individuals by obtaining a John Doe Summons requiring the bank to turn over names.

U.S. FATCA: American Legal Imperialism?

 A very well-written but depressing read with words like extraterritorial, egregious, outcry, unintended consequences, predicament, imposed, etc. Although the authors’ critical voice and choice of words will appeal to those of us who are negatively affected by FATCA and CBT but the authors make a convincing case that in the long run, resistance is futile.

ILSA Journal of International & Comparative Law, Vol. 21, No. 2, 2015

Nevertheless it is important to keep

A. Reminding the US that the there is a world outside the United States;

B. Demonstrating that there are people who resent the attempts of the United States to impose its laws on the rest of the world;

C. Illuminating the immorality of (during a time when the U.S. Senate Finance Committee is considering tax reform): the U.S. practice of attempting to levy taxes on people who do NOT reside in the United States on income and property not associated with the United States. What the United States proudly calls "citizenship based taxation" is primarily an attempt to levy taxes on people based on a U.S. place of birth or because their parents had a U.S. place of birth.

ABA Webcast on streamlined part II

There seems to be two important points that are being overlooked as to why obtaining a Pre-Clearance is important:
1. My understanding is that to do a Voluntary Disclosure you have to inform the IRS of your decision to want to become compliant before the IRS receives information that would have led them to you. By obtaining a Pre-Clearance you put a tourniquet on the non-compliance and stop the bleeding. You provide a date after which if the IRS receives information, that information can't be used to keep you out of the OVDP. A few years ago I had a client that was initially denied entry into the program but was later allowed into the OVDP because my Pre-Clearance was earlier by a day or so of the IRS obtaining information about the client. I was surprised that Jeff Neiman didn't comment on this a little more at the Webinar. When he was an AUSA in Florida and prosecuting the UBS cases he obtained the names of about 280 persons with accounts at UBS on February 18, 2009. Once those names were obtained, if those people applied to the OVDP, they were rejected and often prosecuted. Being on the audit list is not the only way your Pre-Clearance can be denied.
2. Clients, especially the new ones, are never "non-willful" in their eyes. Almost all "new" clients want to go Streamline because of the reduced penalty. By doing the Pre-Clearance you obtain some breathing room, like the automatic stay in bankruptcy, to discuss with the client how "non-willful" the client is. You also have time to investigate the client's circumstances. In many cases, clients, when presented with incidents of their willfulness, change their mind and go into the OVDP. It usually happens after you present them with a tax return organizer sent by their CPA where the client claims in the organizer that they don't have a foreign bank account. Later, when you speak to their CPA, he tells you that they were also asked by the CPA about a foreign bank account and your client always said "no".
I think that it is very risky not to do a Pre-Clearance.

Illinois Republican Introduces Bills Aimed at Protecting Taxpayers from the IRS

http://dailysignal.com/2015/02/25/illinois-republican-introduces-bills-aimed-protecting-taxpayers-irs/?utm_source=twitter&utm_medium=social

see also :  "I was guilty until proven innocent." #AboveTheLaw #DebtCollectionNightmares http://gag.gl/qcdZHe  @CNNMoney