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Tuesday, November 20, 2012

The TAS: Your Voice at the IRS

A name to know in the Diaspora Tax War of 2012.

TAS stands for Taxpayer Advocate Service and they are the U.S. government agency with a mandate to keep an eye on the American "fisc."

The TAS is run by the NTA, the National Taxpayer Advocate, Nina Olson, who is, in the eyes of many Americans abroad, a queen among women, an ally, and our heroine.  Why?

Because in her 2011 annual report to the US Congress released earlier this year Madame Olson singled out the IRS' treatment of U.S. persons abroad in the amnesty programs (aka OVDP - Offshore Voluntary Disclosure Programs) saying that the way the program was applied to certain categories of non-compliant taxpayers was positively draconian and may even have opened up the U.S. government to legal challenges.

Many of the people who went into these amnesty program were not criminals, they were simply folks who finally realized that they had a reporting obligation and wanted to make it right.  For their willingness to come forward, they were "rewarded" with penalties (not necessarily back taxes mind you) that would have wiped them out financially.   Some of these cases have been resolved and the fines and penalties lowered or forgiven entirely but I can assure you that trust for the IRS and the U.S. government right now is at an all time low.  Another amnesty program has been announced by the IRS and I don't know of anyone who is even contemplating joining - they'd rather do a deep dive and never set foot in the U.S. again even if it means not being able to take care of elderly parents back home.

For all of the IRS chest beating over the "success" of these amnesty programs, the casualty has been trust and the willingness of non-compliant Americans abroad to come forward voluntarily.  In fact I would even say that where many of the non-compliant middle-class American expatriates once felt that they had a moral obligation to set things right and file those damn forms, they now feel that they have a good moral case for NOT complying.  This means that IRS will have to work harder and spend more taxpayer money bringing them (kicking and screaming all the way) back into the fold. As Madame Olson warned nearly a year ago in her report:
"The IRS’s miscommunication has consequences. If the government does not appear to treat benign actors fairly when they try to correct honest mistakes, then fewer people (even well-advised people) will try to correct their mistakes, and voluntary compliance will suffer. even if it were inclined to do so, the IRS does not have the resources to rely entirely on enforcement. the IRS needs taxpayers to cooperate and comply voluntarily. While an estimated five to seven million U.S. citizens reside abroad, the IRS received only 218,840 FBAR filings in 2008. By comparison, the government closed only 2,386 FBAR examinations and initiated only 21 criminal investigations in 2010.
While the ovdp attracted 15,364 applications (perhaps less than one percent of those who did not file FBARs), a more effective initiative would have prompted even more taxpayers to come into compliance without leaving those who did come forward feeling terrified, tricked, or cheated. By generating such ill will and mistrust, the IRS is squandering an opportunity to improve voluntary compliance. "
And now The Taxpayer Advocate Service and Nina Olson have come out with their 2013 objectives and how thrilled (and relieved) I was to see that Americans and Green Card holders abroad have not been forgotten.  Click on the Areas of Focus link and scroll down to page 21 where they say:

TAS Will Continue Advocating for American Taxpayers Abroad Who 
Are Expressing Fear and Frustration about FBAR, FATCA and Other 
International Penalties

Yes!  And such efforts deserve positive reinforcement, don't you think?  Madame Olson has a blog here where you can submit comments and I think a "thank you and please keep up the good work" for TAS' efforts would be a darn good idea.  Clearly they have been listening and looking into it and they don't like what they see.

Those of us who are living this nightmare are screaming and kicking at the doors of our lawmakers trying to get some attention to how these issues impact the average mostly middle-class American citizen or Green Card holders abroad.  For our trouble we are often dismissed out of hand because clearly there is no such thing as a middle-class American abroad, right?  My answer to this one is simply to say if we actually had the kind of money we are accused of hiding then we'd be doing the American thing and buying ourselves a couple of politicians to vote on our behalf.  Since that isn't happening and U.S. lawmakers hardly give us the time of day (much less respond to our mail) I think we can safely say that that those billions and billions of ill-gotten gains supposedly hidden in offshore bank accounts exist only in the minds of the American homelanders.  

But we do have one ally within the U.S. government who is taking us seriously and both the TAS and the NTA have my eternal gratitude for their excellent work.  

13 comments:

Rosy said...

You've done it again Victoria ! What would we do without you ? I'm so cross-eyed from filling out all these damned forms for a bunch of peanuts that it never crossed my mind that some real help might actually be out there! Remember that even if you renounce, you simply will never get the Loss of Nationality certificate until you file all those back year forms. I'm currently dealing with TD F 90-22.1, 8938, the usual 1040, the 2555EZ and the 1116 - in several copies. (Did somebody mention the "Paperwork Reduction Act"???) And if you don't do it, your French bank will give you the boot. Or worse, tell on you. Anyhow, I've been at it for over a month, since the day I posted about my visit to the Embassy's "Walk-in Tax Assistance" on Oct. 16th. I refuse to pay a tax accountant for the privilege of going through this grief. The worst part is getting it all together, which a tax accountant can't do for you, so by that time, you might as well do it yourself and save some cash (for the fines).It's a comfort to know that I can appeal to TAS if my inevitable errors on the forms are prosecuted, although I think they'd have enough work to do without me. Anyhow, great work Victoria. We'll keep each other posted :-) Love 'ya!

Rosy said...

P.S. Don't anybody go anywhere near the Offshore Voluntary Compliance Program! You don't need to do that to comply, even if you owe several years of returns of any kind. I was advised at the Embassy to stay away from it - it's only for the filthy rich who have millions hidden in the sand under some palm trees. It's for those who are almost certain of criminal prosecution. I'm sure none of us here fall into that category, but once you're in it, apparently you quickly regret it.

Just me said...

I am one of those what would have been toast without Nina! For those that have an interest in the story, and a tolerance for long winded discussion of the struggle to become compliant without losing your soul, here is a link for those that enjoy boring reading.. :)

http://bit.ly/KLx6NL

Rosy said...

Hi Just Me, and believe it or not, I read it all - without really understanding it, but you should get the Nobel prize for Literature - Non-fiction ! So I imagine you're sorry about ever having entered the program, and somebody somewhere in a US Embassy should have advised you against it. But what I don't understand is, were you aware that you could comply without going into OVC ? In fact, I'm now wondering if I understood correctly on Oct. 16th ? :-$ GULP !

Just me said...

Rosy,

Thanks for attempting to read it and comprehend the incomprehensible! It all seems like a bad dream now.

The times were different back in 2009, and the advice ALL tax practitioners were giving were that you HAD TO enter the program.

The wording of the FAQ of the program, also made it very clear that silent disclosure were not acceptable, and there was some pretty hyperbolic language about how you would be treated outside the program.

It seemed, at the time, once you had knowledge of your failures your options were very limited. If you take a strict literal reading of the FAQ for the current OVDI, nothing has changed. It still implies you have to join. There is nothing that says this is just for RICH folks, all though they have added a program now for low compliance risk American's abroad.

I did not go to an embassy, as I was in the States on a vacation when I heard about the requirements. I did get expert advice, and made the mistake of thinking, if I joined, surely they would see I was not who they were looking for, and so would show some discretion and not apply the severe penalties.

Bad assumption on my part.

It was only in the end, with TAS intercession, that was was able to extradite myself with a penalty I didn't like, but could live it as compared to what my examiner was insisting I had to pay. It was kind of a "plea bargain agreement", where you accept a lower amount just to end a 2 year process and move on. It is extorted out of you, so to speak.

After this, the IRS finally added the Opt Out provisions, which are totally inadequate, and then they finally came up with the super minnow OVDI for Expats with low risk. That one is full of traps, and should not be taken as a easy route to compliance either.

Nothing the IRS does, makes things easy for those who would like to be compliant.

It is still all F$#@&d up! Nina Olson recently has tried again to send a message to the New Commissioner, Steve Miller, that she still is unsatisfied with the IRS approach.

Read this...

As Olsen noted at a conference sponsored by the Tax Section of the
American Bar Association, there may be as many as 5 to 7 million U.S.
resident taxpayers and perhaps tens of millions of nonresident U.S.
taxpayers who are subject to the FBAR rules this year. Only 741,000
taxpayers filed FBAR returns in 2011….”

…..”Olsen reasons that, given the number of taxpayers who are subject to the FBAR rules, there may be many different reasons for taxpayer non-compliance.

But instead of taking this diversity into account, Olson argued that IRS’s approach in this area has been driven solely by the view that all non-compliance stems from a willful disregard to the FBAR rules.”………
………….”
If the Ratzlaf standard for willfulness isn’t satisfied, then Olson said that the taxpayer should be given a break and permitted to only pay the accuracy-related
penalties. “Such an approach would increase voluntary compliance and
would stop terrorizing the entire country of Canada,” Olson observed.”

Read the entire report here: http://oicattorney.blogspot.ca/2012/11/taxpayer-advocate-fbar-penalties.html

I also need my back of the envelope analysis of compliance improvement as measured by FBARs submitted. Here is that link, if you are interested.

http://bit.ly/T5Cyv9

Victoria FERAUGE said...

@Just Me, Thanks for more links. I'll be reading this afternoon once I get back from getting radiated. :-)

Here's what I find really interesting - I've talked to folks who discovered they were not compliant many years before this whole business became an issue (FBAR/FATCA and so on). Almost all (except one) did what the IRS calls a "silent disclosure." These were all folks that didn't owe a dime to the US - they just had to file the back 1040's. No mention of FBAR's by the way. The one person I know who said he went through the IRS said that it was just a matter of filing the forms PLUS some supporting documentation. In all these cases it was not a big deal. Nobody got fined or scolded. On the contrary people were told "yeah there are a lot of people who don't know about this - thanks for coming forward. Tell your friends."

That was a few years ago. What I want to know is what changed? Was it 911? Was it the budget deficit? Was it the fear that some other organization like the OECD was going to come up with a diaspora reporting system if the US didn't get there first?

I'd really love to know.

Just me said...

Victoria,

What changed, was a new Administration coming to power with a campaign pledge to crack down on offshore tax evasion.

Then, what really launched this promised action, was a Swiss Banker whistle blower!

Mr Birkenfeld walked into the IRS and offered them a treasure trove of evidence of Swiss bank marketing tax evasion activity on US shores.

BTW, he was just recently awarded $104 million for his efforts after a little jail time. http://bit.ly/113x2ie

This lead to the UBS prosecution by the DOJ for selling tax evasion schemes in America, and a Federal Court ordering them to turn over the names of 5000 clients holding secret Swiss bank accounts.

It was then that the IRS sensing an opportunity to ratchet up the offshore tax evasion effort, decided to take advantage of the press coverage being generated by this case.

They rode on the back of the UBS prosecution publicity surrounding these pending disclosures in an opportunistic effort to hurriedly put together a VD program to give those 5000 a means to come forward before their names were revealed.

But first they needed a stick to encourage fast action.

So they looked around and decided to pull that 1970 FBAR law off the shelf, and the thinking probably went like this:

"This FBAR form will do very well, thank you. Sure it has been dormant for years, but it has a very convenient little penalty hammer we need to 'encourage' those 'tax cheats' out of the shadows. Why not use it as a simple way to extract revenue without using up DOJ attorney resources to prosecute 5000 UBS sinners? Offer them a 20% penalty of the highest aggregate held offshore, with the threat of prosecution if they don't. It will seem like a bargain."

And, for the UBS Tax evading Whales, it was.

However, in the IRS rush, the VD program design was very broad brushed with no distinction between classes of sinners or FBAR failures. It threatened everyone equally that had an off shore account including minnows.

The entire Tax practitioner community, seeing an opportunity for a BIG Payday with a client fee bonanza marketed it heavily for the IRS.

"You must come clean and join the OVDP," was the message of the time to anyone who had an offshore account, Whale, Minnow, Expat or homelander.

If you happened to be a minnow who was hearing this message about FBARs for the first time in your life, you had a choice to make. Willfully ignore the message. Bury your head in the sand and hope it will go away, or step to the plate and deal with it.

Quiet disclosure, but the words of the FAQs, was ruled out! Frankly, it still is, even now 3 years later.

..And that is the beginning of the rest of the story. As we know, this saga is not yet ended.

Rosy said...

Just Me should be commended for all this information. As should Victoria who enlightened us also about Nina O. What is really stinky in all this business is the Whistleblower rpovision that pays ANYONE who rats on ANYONE a substantial reward for the snitching. Sounds like the Occupation here in France when "délation" - denouncing "undesirables" - had become a national sport. I have an idea! Let's all rat on each other, collect the rewards, and with that we'll have enough to pay the fines ! LOL

Rosy said...

P.S. Sorry to be taking up more space again, but the other thing that just popped into my mind about the lunacy of it all is that when you calculate the HIGHEST balance in an account, which might have then been transferred, let's say, from a checking account to a savings account, you're actually declaring the same money more than once. Here in France with all the different upper-limit accounts, that's very easy to do, and then let's not forget that much of the money in our checking account takes a French leave pratically as soon as it gets into it, with the next trip to the supermarket.This is NOT something U.S. residents have to do!

Just me said...

Rosey,

In the OVDI, the highest aggregate was not counted twice toward the penalty calculation, although it was on you to prove it was the same money.

When filing a FATCA or FBAR form, it is counted twice, so it makes those that file it look like they may have twice the assets of more, than they actually have, due to the transfers which are doubly shown!

That way, all expats can be seen as Rich bastards if the uninitiated happen upon the reports without knowledge of the transfer activity that normally occurs when a term deposit matures and then rolled into another term deposit with a unique new number. Double counted!

Lisa said...

I have nothing but praise for the Taxpayer Advocate. Nina and her staff are aware of the difficulties US Persons abroad face and are the only ones in the IRS giving voice to that concern.

By the way, Rosy's P.S. is valid advice. I think she was smart in going to the embassy. I never thought of going there and went to a US tax professional and got advice based on the tough policy on offshore accounts at the time and on the dollar signs in his eyes. That lawyer steered me to Voluntary Disclosure without any analysis of my situation.

One month later, I told a colleague at work who has a US wife about about OVDI and what the lawyer told me. As my colleague is active in local politics, he knew people in the embassy and called them. He was told, like Rosy, to stay away from the program as it was not meant for people like his wife. It was a program for criminals. Imagine how I felt.

I regret to this day ever contacting a tax professional in the US. I regret contacting the tax professionals that I contacted. However, these are sunk costs now and I have to move forward.

I think Victoria's suggestion of posting thanks on Nina Olson's blog is a good one. She does read them and does take action. I know this for certain because I had some suggestions for improvements of the handling of overseas taxpayers based on my experiences in OVDI versus how similar matters are handled by the Tax Authority of the country I reside in. I posted them on a blog and Just Me posted and told me to write Nina at nina.e.olson@irs.gov with these ideas. I did and she responded to me personally. That is all I am going to say for now.

I have also submitted systemic issues to TAS and received call backs. They are contacting lots of people and interviewing them about their experiences.

The policy changes of the IRS are slow, but Nina Olson and her staff at the TAS are truly our voice within the IRS.

Rosy the Riveter said...

ALLELUJIA !!!!! I've just finished - for the better or for the worse, and with possible mistakes - the 50-something pages of 1040s, schedule B, 2555EZ (my eye, if anything is easy in this), a foreign tax credit form where there's no place to put local taxes, some FBARs and TD F...s and I'm sure I screwed up somewhere, but I'll be d..ned if I'm going to pay a tax accountant to do this, even if I praise Victoria's decision to do so. I also wrote a 2-page letter explaining my personal circumstances, since there's no form for that, then CITING MY FIRST AMENDMENT RIGHTS my opposition to the FATCA as a diplomatic screwup that will make no friends for Uncle Sam and penalizes those of us who are doing some good ambassadorial work on our own. I also reminded the IRS of all the obscene money that is being made from the "Are you FATCA ready" seminars, the FATCA software being sold and the even higher rates being charged by tax accountants who know how dependent people in trouble can be on them. Not democratic and I'm sure the framers of the Constitution never thought the tax forms would be so complicated as to require a specialist(and what do poor people do if they can't afford one?). I also asked somebody in Congress to reread the "Avoidance of Double Taxation" Treaty I mentioned in a previous post which is exactly the opposite - lets the French clean up on US family-origin money. The Fools on the Hill syndrome. Anyhow, it's done although I still don't have the faintest idea where to send this stuff, except for the TD to Detroit. It's so heavy I wish I could just drop it off at the Embassy. I'm still laughing about the Paperwork Reduction Act. I'm renewing my offer to discuss this privately with anyone who so needs, and will offer up elements of my letter (not the personal situation stuff but the rest) to anyone who so wishes to include it in an eventual attachment to the IRS. I have no idea of fines or how much I owe, or even whether I do, but I'm sure I'll soon know :-(. Bye for now.

Victoria FERAUGE said...

Rosy,

Congratulations! There is something so psychologically satisfying in getting it done, knowing that one did one's best and made a good faith effort to comply with something that frankly I consider to be an unjust system.

One thing to remember here is that the IRS is complicit in this nightmare but they didn't make the rules, Congress and the President did. So maybe it would be good to send a copy of your letter to your US reps and Obama. What do you think?