Archive for 'Voluntary Disclosure'

Sooner or later, secrecy fails as a tax planning strategy


The train is headed straight at you. You cannot tell how far away it is. You can step off the tracks to safety.

Alt: you’re naked but you don’t know it yet.

British Crown Dependencies and Overseas Territories

I know that there are a lot of you out there with corporations, trusts, foundations, and other holding structures. You are relying on the “How not to be seen” strategy. (YouTube. You might laugh out loud. You Have Been Warned.)

I know this because I have set these structures up, and I have torn them apart. I have defended clients with Very Serious Problems involving these structures. I have prepared the tax returns to disclose the structures and the assets inside them.

If your structures are set up in British Crown Dependencies and Overseas Territories (the Channel Islands, British Virgin Islands, Bahamas, the Caymans, etc.), be warned. We are on the long march towards full disclosure of the beneficial ownership of these structures.

Translated: the U.K. wants to know the people behind the corporations, trusts, etc. Mr. Cameron wants to know your name.

The money quote from David Cameron’s speech on 15 June 2013:

“[S]ome people use complicated and fake structures to hide their profits and avoid taxes and because bribes are often held in opaquely owned companies with bank accounts in secrecy havens.

The UK is today leading the way by committing to create a central registry of company ownership.
And this morning I have held meetings with our overseas territories and crown dependencies.

Each and every one of our overseas territories and crown dependencies has agreed to sign up to the multi-lateral convention on information exchange to exchange information automatically with the UK and to produce action plans on beneficial ownership.”


That, too. NSA, etc.

No Secrets

What does this mean to you? For those of you with something to hide, I think you should plan on reality being approximately equal to:

“My ‘secret’ information is proactively handed to British government officials, who reflexively and promiscuously share it with the the United States and any other government official who asks, from any country in the world.”

In other words, your secrets are not secret.

This will take some time to happen. But it will take less time than you think.

Be prepared for the day when these holding structures are as visible to your home country government.

Only the whims and vagaries of U.K. politics and civil service will stand between you and total disclosure. And we know that a politician will throw you under the bus in a heartbeat–especially if you cannot vote for him.


Americans: secrecy is a weak tax planning strategy; stop using it.

What seemed like a good idea 10 years ago has now compounded itself into a seemingly intractable dilemma. I know this because people tell me so every day.

Start looking for what is true, not what you want to be true. When you hear the answer, accept it. Swallow and digest the big chunks of truth.

Other Countries

We have a lot of non-U.S. clients–from countries other than the EU, U.K, Australia, etc.

For many of them, the concern is rather more primal. When the revolution comes, everything they own can (and will) be seized. For a few of our clients, they will be among the first to be lined up against the wall and shot. Some of them tell me stories of seeing events like this in their own lifetimes. They do not want to repeat it.

You are the target of Mr. Cameron’s plans. Again, from his 15 June 2013 speech:

Take Equatorial Guinea, Africa’s third largest oil producer where the President has maintained that oil revenues are a state secret. Action by the US Justice Department against the President’s son lists assets allegedly acquired with money stolen from the state including a Gulfstream jet, eight Ferraris, seven Rolls-Royce, a $38 million estate in Malibu, and white gloves previously owned by Michael Jackson.

This is the model that the United Kingdom and the United States will follow. If it is politically expedient to the U.S. government, you will lose everything you own.

You need rather more nuanced thinking.


I am not saying your private financial affairs should be completely visible. Keeping things confidential is smart for a variety of reasons–personal safety among them.

Run your life like a poker game where you get to deal yourself the cards you want. If your opponent–the IRS, Inland Revenue, or anyone else–calls your bluff, you have to flip the cards over.

You are a fool if you don’t know your opponents.

You are a fool if you deal yourself losing cards.

Play the game as though your bluff will be called. Choose your cards so that even the Department of Justice will concede that you played the game right.

In other words, keep it confidential, and keep it legal.

In this poker game, your opponents WILL call your bluff.

You get to choose. Why are you playing to lose?

Tax Returns

A hint. Tax returns are how you talk to the government about money. It all starts here.

Opt out (of the OVDI) and get out (of the USA)

We get questions. This one came as a comment to a prior blog post. Lightly edited, it says:

I am a dual citizen in middle of OVDI and was planning to return to my home country for personal reasons. Have paid back taxes but haven’t gotten to point of deciding whether to opt out. Should I wait until its resolved? Can I negotiate better from a foreign country?

Here’s the answer.

I have no idea about your situation and your OVDI. I don’t know whether you are one of the many ordinary people who entered the OVDI with good intentions only to have see the true glory of the train wreck that is the OVDI process.


Or perhaps you are one of the few people for whom the OVDI process makes sense: it is better to give the government a lot of money than spend years in fear. Or in prison.

Again, I don’t know.

Here is what I do know. We had a metric ton of Voluntary Disclosure cases. We took the opt-out route on a very significant number of these cases. For your specific question — will you get a better deal if you are outside the United States or inside the United States? — I would guess that the answer is “It doesn’t matter.”

The agents are going to apply the rules. That is the glory of the IRS. “Rulez is Rulez.” Unless of course the Rulez were accidentally broken for political or other reasons. Oh hi, NSA and IRS. I will stop now. Hat tip to Patterico who notes that some at the IRS see themselves as motivation coaches.

Here’s my recommendation. Hire an experienced lawyer who has done a bunch of these cases (don’t hire me; I’m not taking on any of these cases). Get advice on the “opt-out” vs. “pay the OVDI penalty” for your OVDI case.

We have seen Revenue Agents follow the procedures in the Internal Revenue Manual very carefully in handling opt-out cases, and have seen actual touches of human kindness and consideration from time to time from Revenue Agents. If you are a normal person I think it is entirely possible that you will get a better result (i.e., pay lower penalties) in the opt-out than you will in the OVDI.

You didn’t say whether you plan to terminate your U.S. citizenship or not when you return to your home country. People sometimes think that they’ll just drop the U.S. passport and never come back to the USA. What’s the IRS going to do — chase them all the way to Kyrgyzstan and attempt to collect taxes?

We have squillions of brain cells in our office dedicated to Section 877A and expatriation. My only advice to you (and others) who are going through the expatriation process is this: remember your Primary Purpose to exit the United States cleanly, so you can move about the planet freely for the rest of your life. Don’t f— that up by playing games with your taxes.

“Your money or your life?” That is the question you are being asked. Choose life.

Note to Concerned Immigrant

A reader who nicknamed himself/herself “Concerned Immigrant” left me a message from the Contact page of this site.

Hi Concerned Immigrant. I sent you am email in response. It bounced because you gave an obviously fake email address.

Perhaps you just wanted to vent your anger at the FBAR stuff your parents face.

Anyway. Here is the gist of the response I tried to send you.

(1) Do everything correctly for 2012. Don’t miss this deadline.

(2) Get some competent advice about how to handle the past years. If the advice is OVDI, then stand up and walk away, swearing the mightiest oaths that a drunken sailor could swear.

(3) And yes. The IRS and its Streamlined Procedure. It is a steaming pile of . . . . Ahem. I digress. The Streamlined Procedure is useless. I will stop there. I’m heavily jet lagged and might ^H^H^H^H^H would probably lapse into ill-advised profanity if I continue. :-)

Greetings from Heathrow Terminal 5, BA’s lounge. Monday morning, after leaving Riyadh on a 12:40 am BA departure. I got off the plane singing Willie Nelson’s “Bloody Mary Morning” (YouTube) to myself.

It is an orange juice morning morning for me. I will see my own Mary later today. I’m happy about that.

Yet another FBAR minnow to the guillotine

I have permission to post this anonymously.

With regards to the US Government/IRS/FBAR/OVDI witchhunt/shakedown, I fit the mantle of victimhood at the hands of our so-called government for the people, of the people and by the people to a T.

Whether stupidly or not, I came forth this last March, because I did not disclose two or three of my [Country] savings accounts (I’ve lived in [Country] for almost 20 years) over my covered years (2003-2010).

I got a letter from the OVDI people in [recent month], to ask me to submit 1040X’s, submitted FBAR’s and their paperwork. The latter is essentially asking me to provide the rope to hang myself.

Tallying the results? I owe [under $200] in aggregate back taxes to the IRS, yet will very likely end up paying the 27.5% FBAR penalty of around $80-$90,000.

There isn’t much more I can say about the unfairness of all this. I am still reeling emotionally. My friend asked me to please control my anger, so I am doing it to keep this civil.

If there is a class action suit against the US Government, I would like to consider joining.

NB.  Not our client.  I don’t know his real name.  The email is edited to disguise identifying facts.  Why?  Here’s my correspondent’s first followup email to me:

I am reluctant to use my real name at this time for fear of retribution.  If they want to use any info I am to provide, as trailers for a witch-hunt, I am sure they will find things to make my life miserably – no matter how trivial or irrelevant to their supposedly mission of uncovering money laundering or unpaid tax [under a couple of hundred] dollars. 

Then the second follow-up email:

I further changed it to say “under $200″ rather than an exact figure.  I am that paranoid.

The paranoia is justified.  A government speaker at the California State Bar Tax Section’s annual meeting said that Criminal Investigations is following up any inquiries they can to see if the taxpayer entered the Voluntary Disclosure Program.  If not, expect a letter from Criminal Investigations. 

From Tax Notes Today, 2012 TNT 215-1:

The IRS Criminal Investigation division monitors the information it receives under the Service’s offshore voluntary disclosure initiatives to ensure that taxpayers who inquire about the programs follow through, a CI official said November 3.

Rebecca Sparkman, CI director (operations policy and support), said that CI checks to ensure that taxpayers who undergo a pre-clearance check for acceptance into the voluntary disclosure programs follow through with disclosure. “Those [taxpayers] are suspect, and we are looking at those who decided not to continue to come through. Will it be Criminal Investigation? I don’t know; it could be a civil audit,” she said at the annual meeting of the California Tax Bar and California Tax Policy Conference in Coronado, Calif.

Sparkman warned that taxpayers who make only partial disclosures or don’t supply all the information about their offshore activity to the IRS will face severe consequences. “When [the taxpayer] is not truthful, yes, CI will come back in,” and the taxpayer may be criminally liable, she said, adding that the same is true if badges of fraud or lies are uncovered during an examination.

“I really believe that we are at the beginning of our work in the international offshore area,” Sparkman said, adding that the information received from the IRS’s offshore voluntary disclosure programs is fueling investigations into new banks and countries.

Read more…

IRS chases another person out of the USA

A real-life story submitted to me today. Draw your own conclusions.

I am a foreigner that lived and worked in the US under a work permit. (Not even a green card)

I struggled the past years to make a living, because I was self-employed under an employee that had few jobs, and under the rules of a work permit, you can legally work only under your US employee, in the US.

In 2009 I learned via the Internet about the fbar requirements, and the vdpi.

My tax accountant that I contacted about this said that it would have nothing to do with me, as I am a foreigner and not an American citizen.

I learned again through another Internet article, that also America “persons” are required to voluntarily disclose. I checked the definition of an America “person” and realized, that is me.

I emailed my tax accountant again, forwarded again the article online, and he said that as long as my home money was just sitting there. That I don’t need to file myself to the programme. He was also the one that had never checked the box in my income return that I had assets in my home country. He had never asked me if I have one.

I called the IR to verify, and filed myself voluntarily, after they said I must do so, to come ‘clean”, and after they promised that a person like me would not be what they are looking for and I would be treated fairly.

Since than I went through hell. I learned that they would take 20% of the highest amount of my assets I ever had on my home countries’ bank account (which I opened when I was 20 years younger) away from me. And an additional 80 000 Dollar for the 8 years I hadn’t filed the fbar. Even so I was not aware about any of these requirements.

I was also not aware that in the vdpi it didn’t matter that I had that money on my home account before I even put a foot in this country, and that this money was mine, as I had paid all taxes due, in my country, where I had earned that money with hard work!

It also didn’t helped that I could proof that even my tax accountant had no idea about these requirements. So how should I know, not an expert in tax law?

I learned that in the vdpi each sub-account back home was defined as an account, counting again with it’s highest value.

In my case, I had over the years many sub-accounts, for better interest rates, at the same bank, upon advise from my bank to cover the bank fees (interest income tax for that filed in my home country). Those sub-accounts amounts went back, for example after 2-3 month being fixed, back into my main account Meaning, even so I had only 50 K in its entire, in some years it counted as if I had 250K, because I had “several (sub) accounts” that are considered by the IRS as individual accounts. So, in on year my assets have been as high as 250K. 20% of that I was to pay to the IRS. Even so I had only 50K in savings in reality.

I went through psychological torture and hell because of the following:

– I found nobody to advise me.

– I was poor, because I had for 2007-2009 no real income because of the economic crisis that started earlier than 2008 in my job-field, (remember it was illegal for me to work elsewhere and not under my employee that provided for my work-permit, but had no jobs to forward to me)

– The assets I once had back home on my account I had long time already wired to my US account and had lived from it, paying rent, and food and transportation.

– I spend 12 hours per day, distressed, desperate, for 2 years to search on the internet for help and information, to find CPA’s, and Tax lawyers

– I tried to find others in my situation, help groups, forums that share real information, only to learn that there wasn’t any useful, and those few with email addresses that I contacted seemed to be too scared to be “investigated or caught “ via the spying tools of the powerful US / IRS mechanisms that we all know violate privacy rights. That was the response that I got, if at all.

– I didn’t had the 20 to 30 000 retainer fees the Tax lawyers demanded to take on my case

– The lawyers that I consulted gave me information where I knew after 10 minutes that I knew more about the vdpi and penalties than they do. I had to pay them, even so I would not know where from, my last savings dwindling

– The IRS had no information, cruel and heartless I was left alone and scared

– I was offered to opt-out. I researched about that, and realized that people in similar situations like mine had been hit even harder with more penalties and costs than under the vdpi.

At the end, I realized one thing. I am poor. I can’t pay lawyers. Didn’t find lawyers anyhow. This is too big for me to handle, the costs would ruin me to a point that I would never ever in my old age recover. That I am not willing to pay for penalties so absurd, so unfair and therefore in my view really criminal.

This vdpi was a high price for me to pay, my true love for this beautiful, special land, and it’s people, remains intact, but my faith in the state is broken. I turned my back to the US.

I left the US, and will never go back. Now I am still in stress, because I don’t know how save I am from the claws of this country. So, my life has been partly ruined, because I lost my live in the US, many dreams, and now I am feeling as if I am still not save, even outside, and again I search for information, and it is difficult, again I seek advise in regards to what the US could now do to me, might do based on my case, and what best I should do to be protected from them.

These are heartbreaking stories. Remember this person’s story when you read the next gloating press release from the Internal Revenue Service. Shameful.