November 6, 2012 - Phil Hodgen

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.

The government is not your friend.  In any way whatsoever.  If there is a lesson the world should have learned since the whole Voluntary Disclosure Debacle started in 2009, it is that ordinary people should stay the f— away from it.  The IRS, in its enthusiastic embrace of procedural due process (if we process everyone through the system in the same way, we are being fair) will impose equal penalties on the grandmother living on Social Security and the multimillionaire tax evader.  Because equality matters.  

That’s what Anatole France first told us:

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.

Related from Scott Adams, the creator of Dilbert:

It has come to my attention that many of my readers in the United States believe they have the right to privacy because of something in the Constitution. That is an unsupportable view. A more accurate view is that the government divides the details of your life into two categories:

1. Stuff they don’t care about.
2. Stuff they can find out if they have a reason.

Read his whole blog post, titled The Privacy Illusion.

Happy Election Day.

(We are hiring.  If you’re looking for an international tax lawyer job, give us a call.) 

Americans Living Abroad Voluntary Disclosure