Similar Posts


  1. @peter – yes the big question is whether a transfer can be done under pension rules. Traditionally the employee has a vested right to receive pension benefits at some point in the distant future, and that right cannot be (easily) transferred, if at all.

  2. Phil

    As I see it, where one person is UK or non-US, it might be possible to transfer the fund into the hands of spouse, leaving the US tax payer with no interest. This would remove the pension trust from reporting.

    Assuming this is possible under Pension Rules.

    This would keep the future pension in the hands of the family and out of the clutches of US.

    Also it is possible to give up US citizenship and not have to report again.

    For many, this might be a relief.

  3. I just received form 906 and they are asking for more than 60K in penalties for a wrong figure on form 4549-A. I’m trying to see if this number can be fixed. I can’t understand why they are doing this to regular people. I’m already 75 years old and at this point I can sleep, nor eat properly due to this letter.

    I sincerely don’t know what to do. I wonder though how this will effect the economy, who will go shopping thinking that one might have a large penalty waiting to be collect.

    This is truly unjustified because we are being penalized, for something that even till date, some tax professionals are still unfamiliar with, let along a person who does not understand the tax law and was never advised.

    I hope something can be done to change this.

  4. I’m an immigrant from France, an I also went into the program for an account I have there, that had been opened 20 years ago (and credited) by my parents. This account had a small interest rate (2%) and I suppose I should have paid interest on this…so I’m trying to get that done.

    What bothers me the most is not so much the penalty, than the IRS propaganda that offshore accounts are a major cause of missed revenues, and that “people should be prosecuted to the full extent of the law”.

    The IRS openly states that the tax gap is 14%, meaning that in average, people voluntarily pay 86% of the taxes they owe. If you try to put the good guys on one side and the bad guys on the other, this seems like the best criteria. So my question is, can you justify imposing hefty penalties on someone who paid 99% of their dues, and the remaining 1% is due to the (undeclared) interest of an offshore account ?

    When the IRS claims an 86% tax gap, it already tells to all the people who pay more than 86% : “You are been robbed by the others”. Yet because of your offshore account, we’re going to make it look like you’re the bad guy, and take a bit more from you.

    The thing is, if everybody paid 99% of their dues, the tax gap would be 1%, and the IRS probably wouldn’t bother going after the remaining 1%.

    So I’m wondering about the real meaning of “In God we trust”, written on every bill. I suppose, as Elwood said, that He works in mysterious ways…

  5. Phil, I have some suggestions for anyone in the “Program”-WATCH your
    lawyer-I had to fire my first one-Their hourly rates I found to be very high.I did a lot
    of the work directly with my revenue agent and I think that I saved some fees. If you
    don’t cooperate they will tell you”you can simply leave the program”. Then what
    option does one have-not a very good one. I went ahead and had my amended
    federal and state returns done by a CPA-watch that too. I paid my amended state
    taxes due plus interest and penalties before my case was settled. Also I had to
    file a #1116 Foreign tax form to recoup some of the taxes I had paid to Switzerland.
    The best I can say is “just settle” if you are in the program. CB

  6. @fred – I don’t have the skill set to answer this. However my general sense is that the courts defer to the bureaucrats when the bureaucrats impose penalties. As long as the penalties are within the approved range the courts go along with them. The exception is at the extreme: death penalties for parking tickets. This is where you would get an ACLU type of organization involved.

  7. Can tax laws which may potentially be discriminatory be challenged in court?

    For example, the ACLU has successfully challenged other laws.

  8. Carol, since you have finished the program I think you should consider being loud and public about the treatment you received. It is a complete abomination. By publicizing what the IRS is really doing you can help drive a wooden stake through this vampire.

    Your comment about the revenue agent’s hands being tied — absolutely. This is not a problem at the revenue agent’s level. This is a failure of leadership at 1111 Constitution Avenue. It builds career at the expense of public policy. It callously and unnecessarily damages individual lives.

  9. @Fred, if you look at people with money in pension plans (like you) there is a basic problem with the IRS approach. Technically the pension plan is a foreign trust and you are the beneficiary of the foreign trust, with all of the IRS paperwork that is spawned by that characterization. The penalties are staggering. You can’t get at the money because it is a pension plan. The IRS figured this out for Canadians with RRSPs a few years ago by publishing Form 8891. They still haven’t figured out that the same concept applies to people with money in ISAs (the U.K. analog to American IRAs or Canadian RRSPs). As for “normal” pension plans? Good luck. The U.S. tax system can’t figure those out.

    And yes I have seen exactly what you describe — people have money stashed quietly and safely somewhere for entirely non-tax reasons. Holocaust. Fleeing the overthrow of the Shah. Eastern European confiscation as you have described.

  10. In my case the funds came from a company retirement pension plan while working in Switzerland as well as inheritance. My father , who was a joint account holder, strongly felt that we should keep an emergency secret fund. He lived in eastern Europe were everything he owned was confiscated by the Communists, then went to Brazil where he lost his savings in the 50s and 60s twice, due to revaluation or freezing of bank accounts by the government. In all these situations, reporting a foreign bank account would have targeted him, and with the current controls and paranoia towards anything foreign now in the USA, I wouldn’t be surprised if this will someday happen here. I am in VDP and am waiting to hear from CI and/or IRS. Had my Swiss pension been in the States, the pension would have gone into a tax-free IRA and the inheritance taxed normally. I feel the IRS practice is taking unfair advantage of individuals who saved overseas and is exploiting the circumstances of foreigners and immigrants. It is always convenient to punish and tax a foreign minority, as opposed to investigating and taxing individuals who are closer to the home base.

    This is a political situation, so please write to your public representative.

  11. Phil, I am in the Program, paid the 20% penalty, back taxes which didn’t amount
    to a total of $5,000, interest on the back taxes and a 20% penalty on the taxes
    owed. The program is draconian. Also every other week the revenue agent
    calls and tells me I need to sign another paper for the IRS. I must say that the
    agent I think “has her hand tied”. If they can’t handle this program how will the
    government ever deal with health care. It has been a TERRIBLE stressful
    experience for me. I even ipaid my 35% Swiss bank withholding taxes each
    year and never withdrew any funds from my account. CArol

  12. Phil, Be sure and put me on your list. I think that I will have lots to tell the
    people before the IRS is finished with everyone. I don’t think that the
    program was well thought out. Carol

  13. I am currently in the OVDP and have paid my 20% penalty, back taxes which
    did not even amount to $5,000 and paid a 20% penalty for the taxes not paid.
    I paid the 35% Swiss tax on my account each year and never withdrew any
    funds from the account. Also every other week the revenue auditor calls
    and tells me there is something new in the program and I need to sign some
    paper. I don’t think that I will ever get finished with this issue. I feel that
    this is a draconian program . I have found my revenue agent to be very
    professional but I think that “her hands are tied” I would like to be on your

  14. Phil –
    Suppose a taxpayer has paid all taxes and filed all forms and is delinquent on FBAR only. As you point out, the government has therefore suffered no loss or damage.

    Does not the 8th Amendment to the Constitution apply?

    “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted. “

  15. @Phil
    Great idea to get an anonymous discussion website/forum operating. I think more visibility of real stories of what is actually going on (i.e. shakedown of immigrants and expats) on is a great thing. I really look forward to it… thanks!

    A comment on the success of the VDP: Here are some numbers I scraped together from various places on the interweb over time (I’d have to relocate the references to make these more credible).
    Number of FBARS filed in 2007: ~300,000
    Number of Americans living overseas at at one time: ~6 million
    Number of immigrants to US getting green cards each year: ~1 million

    If me make some more spurious assumptions:
    We assume that 1/3 of all expats have opened local bank accounts in their guest country and have more than $10K in them;
    And we assume that 1/3 of immigrants getting greencards arrive with accounts containing more than $10K in their home countries;
    And we add all these expats with (say) six years worth of immigrants, (all with the fbar requirement) together
    –>Then we get (6m/3) + (1m/3 x 6) = ~4 million people needing to be filing fbars.

    Which means that the VDP brought forward less than 0.5% of the non-compliant taxpayers (on top of the less-than-10% who are currently filing fbars).
    Successful program? I’d say not.

    By all means question (or deride) my numbers and assumptions, but I think the order of magnitude is about right.

  16. Phil, excellent article.

    The above discussion has turned to the alleged success of the VDP. Of course the IRS has claimed it to be a success, when 14,700 taxpayers came forward. But on a dollar basis, success is questionable. Based on what I have seen, people with lots of offshore money, let’s say $10M+, once I tell them how large a check they will be writing to the IRS to become compliant, they elect not to enter the VDP and hope they will squeek by without discovery.

  17. @NK –

    You’ve identified a key question when you used that phrase “ultimate goal.” I suspect the government has several conflicting “ultimate goals” in the Voluntary Disclosure Program. Some “ultimate goals” serve the country’s revenue stream. Some serve individual career advancement motivations. That’s why it isn’t working.

    We must of course expect the program’s evangelists to sing its praises loudly despite appearances to the contrary. We can only hope that in the quiet of their own hearts there is some self-honesty, openmindness, and willingness to effect a change in direction.

  18. @Kronos – I agree that the voluntary disclosure program could be reworked for the benefit of all — the Treasury would collect more money, enforcement standards would be upheld, and taxpayers would be more likely to fly straight.

    This is not a legal problem. This is a political problem. Solving political problems is beyond my skill set. I know how to write, how to talk, and how to solve intractable problems. I am not a politician.

    Here’s an idea. Let’s see if we can set up an anonymous website for people like you to comment and tell your stories. If there is a critical mass of real people telling the truth, perhaps that is a start. I’ll get something set up and let everyone know. No one out there in the “real” world understands what is happening here. Ordinary people think anyone with a foreign bank account must be a criminal. Time to change that, I think. That would be a start.

    I’ll post when this capability is operating.

  19. Unfortunately the IRS has declared it a huge success. The main reason is that previous initiatives have been much less productive and in the typical year they handle less than 100 disclosures. Depending on how many people are out there with these issues, 14,700 is probably a drop in the bucket. The real shame is that there has to be a better way than to have such draconian potential criminal and civil consequences that are probably a deal breaker for many. I think Phil hit the nail on the head by comparing the willful vs. the non-willful senario. I guess it depends on what the ultimate goal is. Is it to bring folks back into the fold who may have been careless or ignorant or is it to just scare the hell out of folks to the point that a few come in but many more are afraid to act? Now with the end of the initiative, there is more uncertainty for those who did not step up. When you look at the folks who were turned in by UBS they all seemed to get a limited incarceration if any along with a 50% FBAR for 1 year as well as paying back tax with interest and a penalty. I guess that is the ceiling to this point but who knows what the future will bring. It just seems so uncertain and potentially horrible when it could be so much more straight forward while reaping better results for the government. It’s kind of like how the Laffer curve works for generating revenue.
    Take a few less pounds of flesh from many more and have many more back in the fold for the future.

  20. Phil,
    As we all know 14.700 is a very small number and the IRS knows that it cannot claim it as a big success.
    I know many holders of “clean offshore accounts” who would like to regularize their money if they were offered an easier deal (like the italian deal). That would be good for the US: this money would then become taxable every year in the country.
    In addition, it would be subject to the estate tax, if and when congress makes a decision in 2010. The estate tax uncertainty is a strong reason why many people did not come forward for the V.D.
    The July 2008 “exit tax” and “covered expatriate” totally unfair status for green card holders were also substantial reasons who pissed off people in doing the VD.
    My suggestion: you regroup all people who have made the V.D. or who would like to make it, to fight the incredibly onerous FBAR penalty. Why on the highest amount? why does the account in foreign currencies has to be converted to the $ exchange rate at year-end, most favorable if you look at the numbers, to the goverment.
    Why so hard when the base penalty is supposed to be 10 k$/year?
    If you could convince the government, to change their approach and reformulate the VD program, I believe it would be a win-win for all.
    Wiil you embark in doing it ? And if for your own reasons you do not feel you should do it, do you have any suggestions as to whom could undertake it?

  21. @NK – I too have seen many people choose to remain in the shadows rather than announce themselves to the IRS.

    As for the comparison of the U.S. and Italian amnesties, there must be some Puritanical/Calvinistic DNA in the U.S. tax authorities that causes them to think that Sinners Must Be Punished. The Catholic view is considerably more relaxed. 🙂


  22. Yes indeed. I can relate to this post as I am an immigrant thats all in the program. I have read that the Italian amnesty has been a huge success for both the participants and the Italian fisc. The Italian program seems to have been straight forward, had reasonable costs for the participants and generated a lot of revenue for the government while bringing many back into the system. That sounds like win win. Unfortunately, the US program required you to have nuts of steel just to get through the CID part. Talk about walking around with a tight sphincter of the rear end until the magic letter arrives! Then you go through the unknowns of the civil side of things feeling like an insect thats about to get squashed. Really scary and no suprise to me that different tax practicioners have stated that many have stayed in the shadows. As I understood it, even if you had an unrelated red flag on your IRS account you could be rejected for the program and then run through the meet grinder by both CID and Civil. No wonder many are in the shadows and now they will be even more fearful to come out from the cold as all the harsh rhetoric is fully in play. As for me, I am waiting for the bell to ring and the tab to be presented. I hope I come out with some skin left on me! Still I am thankfull to put this behind me and move on with my life and get my kids through college. If you are in this situation…my best advice would be to get a good attorney and get it behind you. As scary as it has been, I would do it again because its the right thing to do.
    God Bless America

  23. @CoE, the holocaust money situation would be particularly ironic if it weren’t so sad. I’ve seen this too.


  24. Thanks for posting this Phil. It’s a good analysis of the situation. As an recent immigrant who is in the VDP due to my home-country accounts that I left behind, I can only hope that the IRS is looking at ways to make sure that penalties are flexibly applied with the consideration of the circumstances of the case.

    One thing that is intrigues me is the potential for “blowback” on the government from this whole exercise if the penalties are ruthlessly applied. 14,700 participants, many thousands of which will have very compelling stories of being victimized by this, and the ease of getting these stories into public view via the internet. The line about supposedly targeting “wealthy tax evaders with hidden Swiss accounts” may come back to haunt the people who architected the VDP.
    For example, I understand there are quite a few holocaust survivors in the VDP with family money in European accounts that escaped confiscation by the Nazi German government. To have that same money successfully confiscated by the US government 60 years later sounds like a headline that writes itself.

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.