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October 19, 2009 - Phil Hodgen

You missed the deadline and it isn’t your money – file an FBAR?

I got a call this morning from someone who just learned about the whole offshore bank account problem YESTERDAY.

Editorial aside: I want to point out to the IRS personnel reading this that just because YOU know about the requirement for reporting ownership or control over foreign financial accounts, it doesn’t mean that EVERYONE knows about it. Most people in the world in fact do NOT know that the IRS embarked on this Holy War Against Foreign Accounts.

In talking to IRS agents through this amnesty period they have taken the position that people who didn’t file FBARs did so intentionally, knowing that they had an obligation to file and consciously choosing to not disclose the accounts.

A giant OMFG WTF r u thnkg to that.

IRS people, listen. “If you are innocent, why were you arrested?” is not an appropriate question for a judge to ask, and “If you have a foreign bank account you must be a deliberate tax cheat” is a wrong assumption on your part.

Again it is the common pattern — the person is an immigrant who became a U.S. citizen. He has relatives in his home country. In this case, his mother added his name on her bank account.

Editorial aside: I want to point out to the IRS personnel reading this that the vast bulk of people who run afoul of the requirement for filing Form TD F 90-22.1 are in fact resoundingly average people doing remarkably average things. A mother adding her son on an account isn’t exactly tax cheat territory, is it?

The amount in question barely exceeds the $10,000 threshold. This is his mother’s retirement savings.

Editorial aside: I want to point out to the IRS personnel reading this that the vast bulk of the people who run afoul of the requirement for filing Form TD F 90-22.1 are in fact small potatoes in this great stew pot of life. We’re not talking about millions of dollars. In many cases we’re not even talking hundreds of thousands. The Treasury is not at risk here.

My caller had a high level of fear.

Editorial aside: I want to point out to the IRS personnel reading this that the recent enforcement effort against persons with undisclosed foreign accounts has caused severe emotional stress to ordinary people with ordinary amounts of money at risk. My caller’s fear is typical of the dozens and dozens of people I have talked to over the last 6 months.

What should my caller do?

I suggested he file a late Form TD F 90-22.1. Fill in Part IV — where he says he has signature control but it is not his money. File it.

I suggested that for two reasons. One is that the amounts involved are trivial. The IRS holds a massive cudgel behind its back — the power to impose life-altering financial penalties at the whim of the IRS agent auditing your file. For my caller I figure that the IRS would have a hard time beating him up with a massive FBAR penalty.

Editorial aside: I want to point out to the IRS personnel reading this that you don’t get an “Atta boy!” for holding a weapon, threatening a person with grave harm, then deciding at the last minute to withhold infliction of pain. Such actions by a parent would cause psychosis in a child.

The second reason I suggested that he file the late TD F 90-22.1 in this case was because of Notice 2009-62. This gives an extension of time until June 30, 2010 to file the form in certain cases, and his sounded like it would qualify.

Editorial aside: in case you haven’t figured it out, I am completely dim on the justification for and efficacy of the recently-deceased Voluntary Disclosure Program for disclosure of foreign financial accounts.

Let me put it more clearly. I believe the IRS program in fact caused ordinary citizens to make conscious decisions to break the law. They made these decisions because the penalty structure for doing the right thing was either incredibly punitive or murkier than a Louisiana swamp at midnight.

Regression to the mean, IRS. You’re going to find that voluntary taxpayer compliance rates will trend down to European levels. You’ve trained people to violate the law.

Oblig. disclaimer, warning shot, and pre-emptive strike

Your situation has nothing to do with my caller’s situation. This is not legal advice to you. You’d be a damned fool to read something on the internet and do exactly as it says without getting some sane advice first. This post — and in fact everything I write on the blog — is not legal or tax advice to you.

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