July 10, 2013 - Phil Hodgen

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.

Expatriation Voluntary Disclosure