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Thursday, January 10, 2013

Three Cheers for the Taxpayer Advocate Service

And the American Taxpayer Advocate Service, our voice at the U.S. IRS, has done it again - come out swinging on behalf of Americans abroad.

In their 2012 Report to Congress (and many thanks to ACA for the link on Facebook) they once again take issue with how the IRS is conducting its business with respect to U.S. citizens living outside the U.S.  One section concerns folks who were unaware of a little known filing obligation called the FBAR (Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts).  Failure to file can lead to fines of up to 10,000 USD per account.

As the word has spread of this requirement many Americans abroad are living in a state of panic and fear.  Confusion reigns. There is no clear path to compliance even for those who would be more than happy to provide the information.  It's a real mess.

 The IRS’s Offshore Voluntary Disclosure Programs Discourage 
Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts

TAS says that the IRS has turned this situation into a real nightmare by treating people who made an innocent mistake (many of them lower or middle-income people aka "The Minnows") the same way they treat those who willfully and criminally evade U.S. tax and reporting requirements (the rich tax evaders aka "The Whales").
"As discussed in prior reports, these programs applied a resource-intensive, burdensome, punitive, one-size-fits-all approach designed for “bad actors” to “benign actors” who inadvertently violated the rules."
TAS says that IRS actually discouraged people from fixing the problem themselves (by just filing the damn missing 1040's and FBARs which is called a "quiet disclosure") once they became aware of the requirement by insisting that the non-compliant needed instead to go into one of the special programs for tax evaders (OVD) which meant hiring lawyers and going through a very complicated, bureaucratic (and dare we say it) punitive process.  Talking to some of the people who did I can only say that I am surprised that any of them are still sane.  

I agree with TAS 100%.  I remember reading that IRS FAQ which had these encouraging words,  "Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years."  So if you made an innocent mistake and try to make it right, we will still consider sending you to jail?  How comforting.

That and the horror stories coming out from all around the world of people's experiences in the OVD program had a chilling effect on everyone else who were still trying to determine what to do.  People became too afraid to do anything lest they run the risk of losing their houses, pensions plans, life savings and so on.  TAS is right again.  If the goal of the IRS was to get people to voluntary comply, they blew it.

And TAS is once again right on the money when they talk about the new IRS compliance program for non-resident non-filers.  Again the language is very unclear.  Apparently one can qualify if one is "low risk" but they don't define what that is.  That's not much help and given what went on before, no one trusts them anymore.  I would be very surprised if they get many takers.

And for the cerise sur le gateau (cherry on the cake) TAS announces in the report that IRS initiatives to communicate and educate people about their filing/reporting obligations are being abandoned.  They are giving up.  The FBAR Compliance Initiative Project has been shut down.  The FBAR Stop Filer Program never got off the ground and they aren't working on it anymore. 
"In addition, the IRS has not conducted in-person presentations about the FBAR filing requirements in foreign countries, even in countries where it has a tax attaché and a significant number of residents are required to file."
Excuse me?  I'm not sure I read that correctly.   I'm still meeting people here in France who have no clue about FBARs.  Welcome to a globalized world.  Americans citizens and Green Card holders move in and out of the U.S. all the time.  Immigrants are still coming to the U.S. and they had lives before they crossed that border which included bank accounts.  Are they really saying that no effort is going to be made so that these folks don't end up in the same pile of merde as those of us who came before? 
"This approach sends the message that the IRS will spend resources to punish, but not to educate, U.S. citizens abroad."
Perhaps homelanders will accuse me of being too negative  (when they aren't calling me a cowardly, traitorous, guilty until proven innocent, potential evil tax-evading Benedict Arnold) but that is exactly the message I am getting from the homeland government.

And the only bright spot I can point to today is that there is one lonely voice in that government that sees the situation clearly and is trying to get it fixed.  From the bottom of my heart, TAS, thank you.

16 comments:

bubblebustin said...

In spite of all of these recommendations and the impression that she understands the plight of the US person living abroad, the NTA will never recommend to congress that the US switch to a territorial based taxation for its citizens. We know that that is the crux of the problem and as one other blogger said, a prison cell with new curtains and a coat of paint is still a prison cell.

Just me said...

As you know, without the TAS I was toast. Too bad Congress reads reports the same way they due bills they vote for! At least the report gives some of us hope that there is some lonely sanity in DC. One brave lady, telling it like it is. I am not sure how she survives.

Ellen said...

Well done once again.

Ellen said...

Well done once again.

Victoria FERAUGE said...

@bubblebustin, I see what you mean. It is a bit like trying to change the seat covers in a car that has no wheels. I would say that the IRS and the TAS don't make policy they just implement it. It's Congress that is responsible for these rules. Where the IRS is not clean is that they do have some discretion for how to apply those laws. Clearly they made situation even worse. Their next big challenge is Obamacare and oh my, I shudder to think how this is going to work out for homelanders.

@ellen and just me, I sent a "thank you" note this morning. I don't know how she survives either but I'd like to think that it helps when people send messages of support. Here's the link to her blog and one can leave a note by hitting the "Submit Feedback" button. http://www.taxpayeradvocate.irs.gov/Blog

Anonymous said...

Always great to see your inputs. Your delivery style puts in a lot of human-ness

Anonymous said...

Thank goodness for you Victoria. Without you and 'Just Me' I'm sure many expats would be in psychiatric institutions ... instead of only heading that way ;-) Keep up the good work.

Sally said...

Yes, hip-hip-hooray for Nina Olsen and the TAS!

Like Just me, I would have been "toast" without the TAS.

But it's incredible how the IRS brass just keeps on ignoring what she's been saying.

Forget about Congress. They don't care. They passed FATCA. They think it gets them votes.

Victoria FERAUGE said...

@anonymous and anonymous, Thank you! Some days it feels like bailing desperately in a sinking ship and that's why the TAS report is so important. It gives us something that backs up what we are desperately trying to get across to the homeland.

@sally, Yeah, I carefully read the IRS response and it wasn't much of one. They seem to have a party line and they are sticking to it. They don't address her points, they just talk about how "successful" they have been. So I'm to infer from this that we are just the eggs that had to be broken to create a delectable omelet?

Nuts! :-)

expatami said...

For me, the matter was simple. I didn't need the threats, harassment, scares and costs, so I renounced. Problem solved.

If the US would like to somehow attempt to justify citizenship-based taxation, then it needs to make filing simple and free for Americans abroad. In the past, Americans abroad have been mostly excluded from free-filing, and this is still unacceptable.

Citizenship-based taxation is wrong, criminal, illegal and cannot be justified.

Victoria FERAUGE said...

@expatami, You touched on the number one reason I'm hearing among people who are considering renouncing. I want to shout to the skies (and to the US gov) that it's the hassle, stress and uncertainty that move many to consider turning in their passport.

However, even if it were made easier (free filing and the like) I think most feel as you do (I certainly do) that CBT is not justified on any grounds. And I would contend that it's a waste of time for the US as well. " Schneider's paper makes that very clear. He said renunciation is driven not by a desire to escape taxation unjustly, but by the unjust imposition of taxation."

Yep.

Lisa said...

Let me be the person to give the third "Hurrah" to Nina Olson and the TAS. My OVDI case was accepted by the TAS. The interventions of the TAS on my behalf during my OVDI process have changed my life. I no longer live with the same fear, anger and frustration that I felt for more than two years of my life. As my case has not been completed I cannot say more. However, the TAS has set my case on what appears to be the right track after many things went awry.

I would also like to thank Just Me and Sally for being open about their experiences with the TAS. I was extremely skeptical when I first read that there was a type of Ombudsman in the IRS. Just Me's and Sally's openness about their experiences encouraged me to approach the TAS and as I said, TAS intervention has changed my life.

Rosy the Riveter said...

A question for Expatami. How did you do it? I looked at the forms and apparently you have to have been "compliant" for 5 years before the expatriating act, and pay the exit tax to boot. Is there a loophole in this ??
And thanks to Victoria for yet another great - if harrowing! - post. I still go back to my idea of a class action suit. The trouble is, it's hard to organize, find a lawyer, pay out and go through the process. I wonder if there aren't any professional class action organizers out there..

Victoria FERAUGE said...

@Lisa, I agree with you wholeheartedly. This has been one of the more positive aspects of this disaster is that we are now talking to each other (Americans abroad). We didn't do much of that before this. Just Me, Sally and others are incredibly courageous people. And the TAS? Everything I've heard about them has been good. Thank goodness they exist and they are clearly dedicated to their work.

Anonymous said...

I am in 2011 ovdi. I got 906 form. But I did not sign that.. I contacted TAS. They accepted my case. Can someone explain what will happen next. Will IRS force me to sign 906.will IRS throw me out.

Victoria FERAUGE said...

Anonymous,

The answer is "yes" there are people who can help you. There are others who have been down your path and you can benefit from their experience and their advice.

Here are links to posts at Isaac Brock that may help you. Just leave a comment on any one of them and someone will respond. Good luck to you:

OVDI Drudgery for Minnows
http://isaacbrocksociety.ca/2012/01/28/the-ovdi-drudgery-for-minnows/

Opting out of OVDI ("Moby's Case")
http://isaacbrocksociety.ca/2012/03/10/moby-opt-out-update/

Victoria