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  1. @Rob,

    The Swiss banks have been doing this — freezing funds until proof of U.S. tax compliance is given.

    I doubt that the U.S. government called up a German bank and caused a freeze on a debit card. It was probably part of the complete database review at the bank that they (the bank) said “we will freeze your account until we get additional information from you”.

    As for the IRS to file a lawsuit in Germany, this would cost the IRS exactly the same amount of money as it would cost for me to do this. The IRS must hire a law firm and do all of the fun stuff that you do when you file a lawsuit. 🙂

  2. Thank you Phil.

    An accountant told me the story of a rich German lady that had her German debit card blocked by her bank until she clear up with IRS fbar and fatca issues.

    Do you know how much a international lawsuit will cost the IRS?

  3. I do not think the IRS has power like that. They do not have unlimited powers within the United States. So outside the United States I think they do not have the power — unless the other government agrees.

  4. Hi

    In ref to fbar collection:
    Don’t the IRS has the power to block the checking accounts oversea?

    A us accountant said they can call the foreign bank to have the account blocked

  5. Under the OVDI, taxpayers are subject to a penalty of 25 percent of the highest aggregate account balance on their undisclosed account(s) between 2003 and 2010. If the value was less than $75,000 at all times during those years, the penalty is only 12.5 percent.
    These account balance penalties are in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties. Plus, participants are required to pay taxes and interest on any monies (such as interest income on foreign accounts) they previously failed to report. Finally, they must pay an accuracy-related penalty equal to 20 percent of the underpayment of tax, plus interest.

  6. Mr Miller

    ‘I believe the mechanisms that would permit collection without a lawsuit will rarely be relevant.”

    Are you saying that the government has to bring a lawsuit before it can start collecting. i.e. the penalty does not exist till confirmed by a judge ? Or that the mechanisms would rarely be relevant because a taxpayer (especially an overseas resident) can arrange his or her affairs to not get any refund or other offsetting payment ?

  7. Here are few selfexplenatory points that should be communicated to those using this law:
    1. If the law is created to deal with crime activities then it should be used in accordiance with its purpose. Thus punishing heavily inocent people for having their foreign accounts for not being aware of it is non-sense.
    2. Saying not knowing the law is not an excause leads us to question: Why do we pay big dollars all those judges and lawyers for their diplomas if knowing the law is expected from all of us. Especially such a complex law as US tax law

    Here is my case:
    As many I was foreginer working in US. Of course as foreigner I do have foreign account. When doing my taxes I did hired US accountant and he did not ask much of questions (as German accountant would do). He was very busy with papers around him, my presence was appearing almost anoying. He was interested only in W2. I gave him banking 1099 form about interest from US bank but not from foreign bank. Why? He sadi its not important.

    So now it became important. Of course I cannot prove I told this to my accountant and goverment would charge me heavy percentile on my account. Many of Americans almost eaglry comented that we foreigners should pay for it. I am asking why? I do not reject to pay full penalties as I would pay if account was US account and I did not reported that interest. Actually I believe my accountant should be paying it but in such an “honest” system as US one is, there is no regulation to force him to ask client proper questions and make client leave written trace he was asked those questions and he asnwered them. Actually in original form there is not mentioning of FBAR one and he never make you read it understand it and answer to each ittem of 1040 form. CPA just tries to save his time making his bucks doing shit with our forms without properly guding us. Ultimately he is creating himself another customer now when we are in trouble and we need again help of those CPAs. So if for few hundreds dollars that I owed to US revenue I got to loose inappopriate part of my total life savings and for Americans it is fine, then do we in Europe should start penalizing Americans likewise. We did not do any crime, we are foreigners so we are not hiding accounts from US but we simply live or long lived there and still hold those passports. Its our home. However, trying to stay in US now makes risk for us to get into even prison??? Basically Revenue officer can do with our lives as pleased. If he wants and knows he can distroy it. For what “crime”? For avoding to pay few hundred of dollars on foreging accouint as foreign person. Considering amount of taxes I paid this was not even 1% of total value I paid annualy. There was no real intention to hide anything major. Interest on account was 1% (so no major idea of making “big” money out of revenu eye), nor there was a crime (drugs and what not). Only sin was few hundred bucks that stayed with me AND THE FACT THAT I AM FOREINGER HAVING FOREING ACCOUNT. If I kept my accoun in US I would be asked to pay few hundred + 50% on those few hundred.

    Not to mentioned that American working in Europe gets his pension benefits for years he worked in Europe. European working in America gets comments like this “…. you should kiss uncle sam ass for allowing you to come here and make big bucks here….”. I assume those Americans living in Europe and making “small salaries” have no gratefulness for Europe allowing them to come and give then out of our “missery” for their penisons.

    This is shame. Shulman or whatever is his name should come to his sanses

    Especially there are people who got green card and recently moved in US and had no clue they need to report anythin because they did not have income total even 10000 USD. Now immagine that such an person has account that is not reported and is punished so heavily. It is ridiculous to the pioint of being sinister and evil!

  8. The article also points out hat enforced collection would generally require a lawsuit in federal court. I believe the mechanisms that would permit collection without a lawsuit will rarely be relevant.

  9. Mr. Miller

    This recent article

    seemed to suggest that the IRS can collect in the normal way debts to the Treasury are collected.

    ‘FBAR penalties constitute debts owed to an U.S. executive agency, and the IRS is authorized to collect debts using any of the methods enumerated n 31 USC §3711 (2008).’

    The FBAR statute says that the government can collect by bringing a lawsuit, but it doesn’t say this is the only method of collection, and there is no reason to assume the normal methods of collecting penalties assessed by a federal agency (like an SEC fine) would not apply.

    The taxpayer could go to federal court to stop the penalties, but that would be expensive for a small taxpayer (since the penalties cannot be challenged in tax court, but only in Federal court).

    I doubt this makes much of a difference for this person’s case (since I tend to agree with Skeptic’s comments), but I think some caution is warranted in assuming that the IRS may have difficulty collecting, at least for people who have US assets.

  10. LVJ – Yes, I think it’s clear that an FBAR penalty (whether willful or nonwillul) may only be collected if the DOJ brings a lawsuit. Although the IRS is charged with enforcement of the FBAR rules, FBAR penalties are not imposed under the Internal Revenue Code, and the collection mechanisms that apply to taxes (and related interest & penalties) do not apply to FBAR penalties.

  11. It is possible the person may be exaggerating a bit or perhaps not communicating clearly for e.g. 12 hr per day for 2 yars instead of 12 hr per days for a few days in a 2 yr period etc…in any case i do feel that most elements of his story are really true. I feel sorry for him.
    Regarding opt out as the skeptic also notes it is all based on anecdotal evidence. There are a few lawyers even today who claim that opt out will result in 5000$ per account per year penalty even for simple benign cases. I know a cpa who is saying this today. It could be misinformation or sacre mongering we dont know. The fact is no practitioner can confidently say what it willbe even today. The statutes do allow for absurd penalties even though the guidelines say that should not be done unless case is egregious.
    Irs incompetence and misinformation has lead to the situation. Even the tas has mentioned that people are confused about the vdpi. I dont blame this individual for the confusion. I feel sorry for his case. If the irs had handled the ovdi better and not made dozens of changes over the 3 year period, we would have probably never seen such an email from an immigrant.

  12. I would have been sympathetic to this person’s story, but frankly I am skeptical.

    This person spent 12 hours per day for 2 years on the Internet and trying to find CPAs and lawyers and did not realize the basic facts of the VD program — that transfers would not be doubly penalized and that there would be no separate 10K per penalty for 8 years (and the SOL for FBAR is only 6 years anyway), it would be 20% (or 12.5% as mentioned last year).

    He also says that he was working for an employee(sic) and could not work anywhere else, but his employer had no job for him. That is also illegal under temporary work visa rules, i.e. an employer who brings someone in on a work visa has to provide the job and salary specified under the visa.

    He says that he heard of people on opt outs in similar situations who had been hit even harder. In fact, the results of opt outs are starting to emerge only recently and the IRS seems (at least anecdotally) to be behaving reasonably towards opt outs.

    He says that lawyers said it would take 20K-30K to take his case. There are plenty of lawyers (Phil himself, Jack Townsend) who charge much less for a consultation and would have advised him properly. And he didn’t find these prominent lawyers after 12 hours of searching the Internet for 2 years ?

    He says that he was scared of the spying tools of the IRS and everyone seems scared of them. He also said that he was still scared they would pursue him in his home land.

    Even if there are some grains of truth in this person’s story, he seems to be jumping from phantoms. So I would caution about the use of this person as some sort of poster child.

  13. The IRS is going to be sh*t out of luck if you haven’t any US assets. Domestic Americans will have to watch out, overseas Americans more than likely will be able to avoid these penalities but risk hassle at the US border.

  14. Mr Miller, you say

    ‘Finally, the only way that the Government can collect an FBAR penalty is for the Department of Justice to bring a lawsuit.’

    Is that really so ? I read an article by a lawyer suggesting that the FBAR penalty was just a non tax penalty (like an SEC or EPA penalty) and hence the Treasury could collect it in the same manner it collected any other penalty. At least, I presume that holds for the non-willful penalty.

  15. My prediction that you are going to hear first is that non-filing of the infamous sailing permit among departing resident aliens is going to be the next “crisis”. Personally I don’t see why the US just doesn’t combine the sailing permit onto form 8854 which already has three options.

  16. Even if the DOJ were to bring a suit against this guy, it’s probably going to be extremely difficult for IRS to collect from abroad (especially from Canada who already announced they will not be collect FBAR fines).

    But more to the point, the amount of tax this guy would’ve owed is at the low-end (what could the interest on $250K be about $3500 in today’s environment) so the guy might have owed $750 – $900 tax if the IRS is lucky. And he deserves to be fined over $80,000 in fines – get real.

    Perhaps if the IRS weren’t given billions away in fake tax refunds, and urging Congress that consumption taxes are the REAL way to reduce the federal deficit, they wouldn’t have to resort such extreme measures.

    Sen Carl Levin & Company please use your brains on “real solutions” to reduce the federal deficit, not popularist political solutions that don’t bring real deficit changing money.

    The world is waking up to FATCA and will find ways around the US banking system. The US is a declining economy in world GDP terms and commands less and less power everyday. Think about it – the US economy years ago used to be refered to as the “world’s economic locomotive” to get the world economy growing again – how often to you hear that these days? The focus seems to be on the Far East these days as a saviour to the world’s problems.

  17. Like I have said previously at Isaac Brock, the immigrant distress story is the bigger story untold which arises out of the stupid design of the OVDI/OVDP with its uniform penalties and lack of discretion rigidity. The harm that is being done to them really bothers me almost more than what happened to me. Expats have had their forums,and we have had some minor success with media coverage, yet it is the immigrant that is feeling the serious harm of the IRS hammer approach to compliance. They have no voice or attention, except in specialized blogs like this.

    It is beyond shameful how the IRS has conducted its offshore jihad.

    This gentleman has joined the ranks of many immigrants are voting silently with their feet and walking down jetways to head home as the IRS abuse continues unabated. What a loss for America, and I am personally ashamed.

    I trust Shulman and Geithner can sleep soundly at night secure in the knowledge that they are following the intent of Congress,and happy now that there is one less immigrant for them to worry about for non compliance. They will be leaving government soon, and will find high paying jobs defending the Whales that can afford them as defense against the programs of their design. And in the meantime, the minnow immigrant goes home, and the minnow expat goes to ground. And the beat goes on.

  18. Synonyms for persecute: afflict, torture, torment, wrong, crucify, victimize, maltreat….
    If this wasn’t the US gov’t, this person would have grounds to do something about his treatment. It’s appalling and shameful. His advisors and the lawyers he/she consulted should be more than ashamed of themselves, they should be held criminally liable.
    My heart goes out to this person who was trying to find a better life but instead found a living hell instead.

  19. This has to be the worst story I’ve heard yet regarding OVDI, etc. I don’t know if this person would like to talk with others who would understand but would invite him/her to visit us at Isaac Brock Society.

    It is simply inconceivable and reprehensible that the IRS would even accept this person into the program and speak of “coming clean.” Ditto that they would not adjust the penalties to accounts where it was obvious the same money was counted as “separate.” Grrr.

    I am sure Just Me will have plenty to say about this.

  20. Below, the sonnet from the Statue of Liberty;

    “The New Collosus”

    Not like the brazen giant of Greek fame,
    With conquering limbs astride from land to land;
    Here at our sea-washed, sunset gates shall stand
    A mighty woman with a torch, whose flame
    Is the imprisoned lightning, and her name
    Mother of Exiles. From her beacon-hand
    Glows world-wide welcome; her mild eyes command
    The air-bridged harbor that twin cities frame.
    “Keep, ancient lands, your storied pomp!” cries she
    With silent lips. “Give me your tired, your poor,
    Your huddled masses yearning to breathe free,
    The wretched refuse of your teeming shore.
    Send these, the homeless, tempest-tost to me,
    I lift my lamp beside the golden door!”
    Emma Lazarus, 1883

    new and REVISED verse:
    But now, brazen – with cold and heartless powers,
    We return you penniless, still poorer, from whence you came
    – having seized without regard to justice or restraint, even those early homeland savings; hard-won and earned by true, legal, and honest toil; taxed in the lands of their birth.

    Send more to me, I will lift my club of taxation behind the golden door.
    and smite with labyrinthine laws, all those who enter here….

    Join hands oh new brothers, join hands with your fellows, expatriate millions fleeced abroad without recourse or regard.

  21. I agree completely. Also, the information provided to this taxpayer in this case is, in many instances, entirely inaccurate. If the total amount of “real” money in the foreign accounts is truly not more than $50,000, then the total penalty under the 2009 program should have been 20% of $50,000, which is only $10,000 — with no further FBAR penalties. And, based on certain additional guidance under the 2011 program, that should be reduced to 12.5% of $50,000, which is $6,250, I believe.

    Furthermore, there seem to be valid grounds for reasonable cause, given the advice from taxpayer’s accountant.

    Finally, the only way that the Government can collect an FBAR penalty is for the Department of Justice to bring a lawsuit. In the case of a person from another country whose foreign accounts never exceeded $50,000, I find it very difficult to imagine that they bring that suit.

    There’s much more to say, but I have no time to say it now.

Comments are closed.

Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.