About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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Comments

  1. I hope you win in Tax Court.

    As stories like your client’s get generally known, people are starting to decide to NOT clean up their nonfiling status. That’s what I am seeing now.

    Unfortunately, the Big Cheeses at the top of the food chain at 1111 Constitution Avenue seem to have worked themselves into a frenzy of punishing sinners. They don’t see what this is doing in the bigger picture.

  2. Mike Miller says:

    The penalty for a non-willful violation is no more than $10,000 and there are mitigation guidelines in the IRS Manual. (The 50% penalty is only for willful violations, and the burden would be on the IRS to prove willfulness.) Note also that, if the IRS wants to collect those penalties, they must take you to court. I wish you the best.

  3. Mike,

    Thanks for visiting.

    Please give me the cite for the law that says the IRS has to take you to court to collect the FBAR penalties. That is news to me.

  4. Peter,

    Take a look at 31 USC section 5321(b)(2), which says the Government may commence a civil action to collect within two years after assessing. Although not as clear as I would like, it appears that this is the ONLY way to collect (unless the taxpayer pays voluntarily).

    Indeed, in Joseph B. Williams, III v. Commissioner, 131 TC 54 (2008), the Tax Court (dismissing the case for lack of jurisdiction) went out of its way to give the taxpayer some comfort by pointing out that the collection mechanism authorized by the FBAR statute is not lien or levy, but bringing an action in court. See fn 6.

    See also U.S. v. Williams, 106 AFTR 2d 2010-6150 (DC VA, 9/1/10), in which the IRS brought an action to collect an FBAR penalty. Although not part of the decision, the fact that the Government brought this case strongly suggests (at least to me) that it had no other mechanism available for collecting the penalty. (The Government also lost the case, but that’s another matter.)

  5. Mike,

    Thanks. I’ll check your citations out. I appreciate it.

  6. Happy to be of service. If you want/need to discuss any of these issues, feel free to give me a call or send an email.

    By the way, in response to the original post there is in fact a reasonable cause exception in the statute (although I question how often it will be deemed to apply).

  7. I have many similar situations like the above. All Canadian citizens (many are seniors) that have filed Canadian tax returns and unaware they had to file US returns. The new intiative also doesn’t work as it takes 25% of 2003-2010 highest balance and in many cases that doesn’t make sense – eg. sold home in USA to buy home in Canada and transfer proceeds to Canadian bank account. Unfortunately, interest for a month was not report on the US form but reported on the Canadian tax return. Or another where the mortgage proceeds ended up in his bank account for a day before forwarding on to vendor. Unfortunately for these people they have savings account, chequing account, Registered retirement plan,, Registered Education Plans for their children and have not filed the FBAR forms for over 6 years. Are you saying that there is now no reasonable cause exception and the penalties is $10,000 per account per year for 6 years? If the accounts do not earn income would they be included in the penalty base? ie chequing account?

  8. I have a large fbar penalty due to my parents having an offshore trust and the IRs came after me as a bneficiary even thought I did not know it. I understand there is only a 2 year window to get a civil judgement after the fbar penalty is assessed. It has been over 2 years and no court filing has been done yet they are trying to collect (only $30 so far due to a tax credit they grabed. Anyway to get rid of the debt other than paying it. I am currently on public assistence and owe in the high six figures.

  9. Peter,

    It seems your client was classified as non-willful, right? Did the FBAR mitigation guideline apply to your client? I feel she should satisfy all 4 threshold conditions.. If so, her penalty will be reduced significantly..

  10. nope. Irs made a deal then renigged. Went into compliance program which then Irs required a full audit for 3 years and everyting to be exact. But when argued that was not part of the compliance they threw me out of the program and just went crazy. For the Fbar they decided all sub accounts, ie money market, carried a seperate Fbar Penalty and just added them up. They just did want they wanted to. 100 k for each FBAR penalty.

  11. my problem now is trying to see if there is a statutue of limitation. I have already been accessed the fine fr over 2 years. I was never taken to court to make this a civil penalty by the IRS.

  12. Client took advantage of the voluntary disclosures in sept 10.

    after all said and done, has been assessed tax and penalty on the highest amount in account for 6 years. However IRS included the value of real estate, the source of income.

    Group manager is not able to provide regulation except to point out to FAQ dated may 2009.

    Any suggestions.

  13. I am sad to say that the IRS has given honest people no place to turn to. The FBAR penalty only applies to assets that had unreported income associated to it. The penalty also includes non income producing assets that were purchased with income producing assets both of which were located off shore.

    The program is fair for all those tax cheaters. It does no fit in any way shape or form for honest taxpayers who were either not properly informed. As well the instances where the unintentional unreported income is so small, the penalty in the voluntary program doesnt fit the infraction.
    We are getting alot of people calling us. Quiet filing for most should not be an option. Tax professionals are also limited in representing quiet filers in current and future years.

    Sad :(

  14. what if the asset was not acquired with the income produced from the asset, but funds in 1977

  15. Michael J. Miller says:

    Walter,

    If you’re saying tax professionals cannot ethically represent quiet filers who fully comply on a going-forward basis, I strongly disagree. The 2011 OVDI originally had a misleading FAQ, but that was corrected.

  16. How does the IRS determine the value of the asset? If it is real estate, comps can vary widely.

  17. Richard S. Chiu, CPA says:

    This comment is to Mr. Michael J. Miller.
    Mr. Miller, I read your comment dated Oct. 30, 2010 stating that “if the IRS wants to collect those (FBAR) penalties, they must take you to court.” If the taxpayer had already signed the Form 906, would that be considered as an admission to the liability and preclude him to argue in court not to pay?

  18. Michael J. Miller says:

    Richard — Sorry, but if a closing agreement is executed willfulness no longer matters, because both sides reached a settlement. We certainly would all expect the IRS to be bound, so the taxpayer should as well.

  19. Islander says:

    I only recently learned of the FBAR and my full tax obligations. I have never lived or worked in the US and have had dual citizenship since birth. I am self employed through an offshore corporation. Upon hearing about the OVDI, we took legal advice, filed our 2010 taxes and paid a huge penalty for ignorant moves of funds out of my company which was deemed income. Then filed and met the 30 June 2010 FBAR filing.
    I am now preparing to file 2003-2009 as required under the OVDI, and will be in for 7 figures on taxes alone. I realise this is through not filing previously and happily accept the tax burden, penalties and interest, etc. but like many others I have read about, heard from and talked to, I cannot stomach to impact of the 25% FBAR penalty.
    For a brief moment after the 2 June revision was posted, we thought the IRS had realised the burden being placed on legit offshore citizens when they offered a lower 5% penalty. Though not delighted, I was willing to accept this and move on, only to find that the offer excluded anyone with US source income over $10,000. Never having lived or worked or owned US assets, I thought this was our lucky turn. However, upon further consultation, our dividend income for being a solid US citizen investing in US companies, would be considered US-sourced income, and as such, we were booted back to the 25% bracket.
    At this point, I fail to see how this can be a constitutional, fair and reasonable penalty. As a US citizen, I am being penalized for investing in my own country’s companies!!
    At the end of the day, the whole ordeal has never made me feel LESS American. We feel we are being caught up as innocent by-catch in the legitimate net of the IRS’s fight against those seeking to clandestinely hide assets from the IRS. But unlike by-catch in most normal and, for want of a better set of words, “sane, humane and rational”, scenario, we are not being tossed back, given a chance to move on, and having become fully into US tax compliance, allowed to go forward as a law abiding offshore resident. Instead, we are being bled for 25% of our net assets, home, property, businesses etc. Can anyone out there a, rationalise this for me, and b, give me one good reason to retain my US citizenship when I have new opportunities to do business in areas that will be profitable, but where Americans are not as welcome? I have resisted entering these areas, balancing my American citizenship against the financial gain. But when the very same citizenship threatens to wipe out the majority of my work for the last 20 employment years, why would I not chase these opportunites and move on as a former-American?

  20. Islander says:

    Further clarification to my closing sentences… I am also at a loss as to how the FBAR filing requirements only apply to reporting of bank accounts and other financial instruments, yet the penalty, when applied, will be levied across all of the above plus physical assets like land, home, offices, business values etc. This seems yet another insanely unfair punishment, and one that has caused a great many of the people I have spoken with to chose Option B – go black to the IRS radar. Switch all assets out of citizens’ names then renounce. I could not live with the cloud of the IRS catching up, but for many, this is apprently acceptable.

  21. Michael J. Miller says:

    Islander,

    You should consult someone who can advise on the risks and potential costs of each possible course of action, including opting out. Depending on the circumstances, a taxpayer who opts out may be subject to penalties that are even lower than the 5%.

  22. Please send me an email where I can contact you for a legit way to achieve this. I have consulted on every visible legal course of action, and cannot see where the FBAR penalty can be reduced. Would be happy to talk further with you. As far as I can see, the opt out opens me to a far higher potential FBAR hit on top of the undeclared income taxes as a negligent citizen who has not complied – ever!!!

  23. Islander,

    I’m happy to speak with you. If I have done this properly (a 50-50 proposition at best), you can click on my name to get to my firm’s site, and find my contact information there. I’d like to be respectful and not “spam” the site by posting contact details.

  24. I am planning to go for 2011 OVDI. When I was looking at the transactions of my account i do not recognize 3-4 entries. There are few numbers of small entries and I am assuming that its a shares dividends, I do not have any proof. Is it necessary that i should have justification for each entry? I have a real estate which never rented and bought before we immigrated to USA. Because I am not able to give justification on certain transactions, IRS can consider real estate saying may be its a rental income?
    Thanks everyone in advance.

  25. GoFigure says:

    I had a family requirement (long-term severe sickness of one of my parents), outside of the US, which I needed to attend to for about 2 ½ years beginning Nov 2008 and ending in April 2011. I had to transfer funds and open foreign bank accounts in order to take care of my parents’ financial needs and pay for medical expenses. I have been a salaried engineer as a professional and all of my transfers were after tax dollars based on legal salaried earnings in the US. Additionally, I physically relocated overseas to be closer to my parents for 9+ months during 2010-2011 and returned back into the US after the death of my terminally ill parent.

    I just happened to come across material online about the FBAR regulations/requirements and am saddened about this unjust program for hard-working US citizens that are trying to honestly do the right things. My interest income, over the last 3 years, on these offshore accounts would not even add up to $2k. I cannot imagine anyone, and certainly not me, would willfully and deliberately try to hide these minor accounts to evade reporting <$2k income from the IRS – especially when the timing of opening these accounts coincided with the announcement of the OVDP. I had no clue of the OVDP of 2009 (accounts were opened in NOV 2008) and also of the program of 2011 when I resided outside of the US for over 9 months.

    What are my options under this program, without paying the heavy penalties, and, more particularly, what should I be doing, going forward, to not be in violation of the regulations?

  26. Worried,

    Don’t do the voluntary disclosure without consulting an experienced tax attorney. And, for the love of Pete, don’t take advice from commenters on a blog.

  27. As a hypothetical example, let’s say a US citizen spent the last 40 years earning and sacrificing to save $1M.
    Let’s say this person decides to retire in a foreign
    country, and moves his assets to a local foreign bank.
    Furthur let’s say they put the money into a non-interest, dividend, or capital gains yielding account so as to remove any tax liability issues from the situation.
    Let’s say they never even heard about this FBAR rule and many years pass. After a while this retiree receives a letter from the Treasury stating that 50% per year for three years of his balance is now owed to the US Treasury for no other reason that he did not tell the Treasury where he kept his money.
    So this retiree’s 40 years life savings is totally wiped out. A lifetime of saving destroyed by the FBAR rule of the US Government.
    How is this even remotely fair?

  28. Alfred,

    It’s not, but its the law. Not all laws are fair.

  29. Mahesh Thakkar says:

    Alfred

    In situation stated by you htere will be zero FBAR penalty, because if you have no income and no tax payable for foreign income, you have not to pay any FBAR penalty but only file delinquent FBAR forms.

  30. Mahesh,

    You couldn’t be more wrong. The FBAR penalty is for late filing, not for owing tax.

    I removed the link to your site because, a) I don’t want anyone hawking their wares on my site; and b) I don’t want people to get bad advice.

    Anyone who has foreign bank accounts and unfiled FBARs should consult with an experienced tax lawyer before deciding on a course of action. Information divulged to anyone else can be obtained by federal subpoena.

  31. Peter

    You are wrong here, because the IRS has said that if there is no income AND no tax payable for foreign accounts, then all that has to be done is to send in delinquent FBARs. In theory, the penalties could be assessed anyway, but in the context of the voluntary disclosure, the IRS has made it clear that if all income on the accounts was reported (and if there is no income, there is nothing to report), then there will be no penalty

    http://www.irs.gov/businesses/international/article/0,,id=235699,00.html

    See FAQ #17.

  32. JF,

    You are talking about voluntary disclosure which is an entirely different thing. My post discusses situations not involving the OVDI.

    And the relief from penalties is limited. To wit:

    The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and the FBARs are filed by August 31, 2011. However, FBARs for 2010 are due on June 30, 2011 and must be filed by that date.

  33. Not_yet_a_fugitive says:

    I was born abroad of American parents, but grew up, and currently live in, Europe. The US is simply another foreign country to me. I have never bothered to renounce US citizenship, not understanding the implications of retaining it. But I learned about FBAR with a shock a couple months ago and have filed 6 years back (apparently it was supposed to be 8 years). Cpa’s I have contacted so far just said how sorry they are for me. I’m a 53 year old engineer but have not had regular employment over the years and have saved only modestly for retirement. I’m not sure if I will be applied penalties, but apparently it could wipe out my savings and pension. I am considering becoming a fugitive from the US authorities in this case and I presume I would be labelled a cheat and criminal. I would expect an arrest warrant. I have tried to live frugally – my most precious asset, outside of my mortgaged appartment – is my bicycle which serves to get me to work and back. Will the authorities try and collect from my children in this case?

  34. Not_yet_a_fugitive,

    I need a lot more information before I can give you any legal advice. For instance, what were the balances of your foreign bank accounts? Did you earn income on these accounts? If so, how much? Did you file US tax returns? Did you pay US tax? Did you file a tax return in Europe? If so, how much did you pay?

    I suggest you find out exactly what your exposure under the IRS Voluntary Disclosure Program (the deadline is August 31, 2011, so you need to move quickly) before you do something you might regret later.

    Good luck and call or email me if you want to discuss this further.

  35. Not_yet_a_fugitive says:

    That’s a lot of questions! Yes, I’ve always filed foreign tax returns. On these, the bank interest was included and the foreign tax paid on this interest. I then took the taxable income off of the foreign tax returns and filed it on the US tax returns – all income plus the bank interest fell within the foreign income exclusion limit. I’m an engineer with a regular job and regular salary. While I’m not sure that this is the place to go into details about the specific amounts, I have bought and sold my home 3 times in the past 8 years, so there are substantial sums going into and out of the accounts. However, all financial transactions were fully taxed in the 3 different foreign countries I have lived in. I sent the FBAR’s with a letter asking them to waive penalties. It boggles the mind that I should be paying penalties when I’ve been fully immersed in the bank/tax/earning structure in the country of my residence. That I should somehow pay reduced penalties seems entirely absurd since I can’t comprehend my crime. BTW, I’m Italian and am registered with the local authorities as an Italian only. I just happened to have been born American, too. But I can’t wait to get rid of the US citizenship now I know what a liability it is.
    And yes, I’m not sure how big of a nightmare this is going to turn into and I’m not sure what to do next. Surely there must be a zillion others in my situation..?

  36. Another_not_yet_a_fugitive says:

    Not_yet_a_fugitive –> Other than not being a 53-yr-Italian-engineer, I find myself in the same situation.

    I have carefully and prudently saved, and now the US is looking to, frankly, steal at least 5% of my very hard earned savings.

    I am a Canadian, born in Canada to American parents. I have diligently paid my Canadian taxes, saved money, and when I have earned interest or dividends on these savings, I have paid taxes on them again.

    It never occurred to me that I needed to file US tax returns. My income is significantly less than the foreign exclusion so I have not owed any taxes. I want to square up to my US tax obligations and am more than willing to file previous years’ returns, but the penalties that I will face are so absurdly out of proportion (and financially crippling to me and my family) that I can’t figure out the best way forward.

    I have signing authority on all of our family’s bank accounts (as I do the majority of the family banking). So the penalties will encompass my husband’s (who has no connection to the US) assets in addition to mine.

    I want to be on a honest footing with the IRS, but not at the cost my family’s financial security when I have been a diligent (Canadian) tax-payer my entire adult life. I await any response to “Not-yet-a-fugitive.”

  37. Sleepless in Vancouver Expat says:

    My situation is somewhat similar to the above.
    A landed immigrant since coming to Canada (as a baby) in 1973, I’ve filed Canadian taxes but was completely unaware I should have been filing US taxes or disclosing bank accounts and assets all these years.

    We’re a single income family (I’m home with 2 kids) and every little bit we’ve diligently managed to scrape together I’ve put into a savings account and an annually maximized TFSA. At my urging, we each started an RRSP and opened a small savings account for our 6 year old to teach him about saving. I have an additional account as part of a government low income savings program, it’s turning into a nightmare.

    I’m terrified that I’ve destroyed my family’s hard scrimped for savings simply by being born in the US. My husband (Canadian) has separate accounts for dealing with the normal paycheck/life cost flow, but I’m the keeper of the nest egg.

    I’ve certainly had 10k minimum all in all (4X that now, with no debt – I’ve been so proud), but it’s taken 10 years. Despite minimal interest earned, with all the separate penalties it sounds like we could easily have it all ripped away – from nearly in reach down-payment dreams to owing mindless amounts to somewhere I’ve never even lived.

    I don’t know how to sort it all out in time – what’s an honest person to do? I’ve been shaking for hours. I also eagerly await any response to the “Not-yet-fugitives.” above.

  38. Sleepless — there is a form 8891 that can be filed to take advantage of deferral of RRSP earnings. I think you can even file that late. So if the RRSP is your primary savings, that might (note, might) be excluded from any penalty in their disclosure scheme.

    “Another Fugitive” — if you were out of US and had US source income < 10K for past 8 years, then your penalty would be 5% under scheme. That still a nasty bite, but you seem to be thinking that it would be much higher, since you said it would jeopardize your entire family's financial future .

    Realistically, I would think the IRS has very little interest in people who live abroad and owe almost no tax and are not big time tax evaders. So I wouldn't think its something to be sleepless about.

  39. Sleepless in Vancouver Expat says:

    Madrian – thank you for your quick response.

    My primary savings is a TFSA (15k) and another 20k spread out over a number of accounts. My concern is that if I’m penalized 10k per account, per year (have I misunderstood the potential annual offshore expat penalty for each undisclosed account/asset if their consolidation is more than $10,000?) we’ll be moving into a cardboard box forever.

    I dearly hope you’re right about this not being as dark a hole as I’ve assumed – I would certainly have filed and pointed out required accounts if I’d known. Now I just want to clean up the mess without cleaning out our savings. There’s hardly any time left though. Thank you again.

  40. Not_yet_a_fugitive says:

    As far as Ican tell, the information about the need to report bank accounts was disseminated by telepathy and I apparently missed this. I decided to look at the website of the US embassy in Switzerland. After scouring it, I couldn’t find even a a hint of FBAR. And in Switzerland, of all places! I have yet to figure out how I was supposed to know of this requirement.

  41. Sleepless in Vancouver Expat says:

    Any thoughts re. quiet vs. loud disclosure?

    (Particularly for those of us that aren’t sneaky fatcats with bloated offshore accounts but just honest people living out of the country who worked hard to save something in our bank accounts and had no idea we were required to declare them?)

  42. Sleepless, 10K per account per year is the maximum non-willful penalty (the willful penalty is even higher and would bankrupt even Bill Gates, but that’s not applicable). Realistically though, the IRS has mitigation guidelines and the penalty would be lower for small accounts, probably considerably lower. I can’t say how much, though.

    If you joined the current offshore disclosure scheme (still open for another week or so), your penalty would be 5% of your accounts. Your TFSA might be eliminated if deferral is accepted (form 8891).

    As far as ‘quiet’s vs. ‘loud’ goes, I don’t think there’s really any ‘quiet’ when foreign accounts are concerned, since if old FBARs are filed, the IRS knows about it. Its not like a regular amended return, which might not be noticed.

  43. To be clear, what I meant was that the TFSA might be removed from penalty base, so penalty would be 5% of 20K = 1K.

  44. Karl Weiss says:

    Is there any possible action people could launch as a group?

    A class action lawsuit against the federal government, or some motion to stay the regulation until it can be reviewed?

  45. Not_yet_a_fugitive says:

    I’m guessing most people who haven’t been assigned penalties yet, whether the FBAR’s have been filed or not, will want to stay as quiet as possible. In the meantime, it would be interesting if there are some statistics available on the people penalized so far – are they really the tax cheats etc that the FBAR filing is meant to catch? If so, are they mostly people who had interest income of only a few hundred dollars or so? Or are they largely people who actually paid all the tax due and their “crime” is one of late/non FBAR filing only?

  46. Sleepless in Vancouver Expat says:

    I gather Democrats Abroad is trying to have the required amount total for filing an FBAR raised from 10k to 250k, which sounds much more reasonable and like a better net to catch the big fish in.

    If there are any stats as mentioned above, I’d love to see them too. Kindest thoughts go out to anyone else also going through anxiety hell over this issue.

  47. Sleepless, its probably easier for me to say this, but I would really try not to be in anxiety hell or be sleepless over this. Realistically speaking, the IRS is not going to come after someone who is essentially an accidental American and who has few US assets. And consider diplomatic issues if they start hassling Canadian residents/citizens who are not big time tax cheats.

    For the smaller penalties (and 10 K per account per year are actually ‘smaller’) , there are not likely to be any public stats unless the matter goes to court. The penalties assessed in criminal cases have been typically 50% of highest account balance + tax penalties (normally, these accounts > $500K and sometimes run into several million), although the statute allows 50% per year, i.e. 300%. But those are not applicable.

    If you really think it would help you sleep better, you could consider the current voluntary disclosure scheme. You would have to pay some back taxes, and 5% of your max account balance (depending on whether TFSA is penalized or not, that would be 20K or 35K), but lots of paperwork. Or you could just quietly file your old tax forms.

  48. Sleepless in Vancouver Expat says:

    Thank you again for your response, I’m finding myself frantic as I try to gather 6 years of paperwork and account information via old faded atm receipts and such in order to find out my peak level while juggling busy kids. I can’t get in to see anyone skilled in US/Canadian accounting/tax to help me, they’re all busy with people who can afford $500 an hour.

    I don’t think there would be back taxes, I may not have even had to file in the US because my income is so low, it’s the FBARs I’m worried about. Even if there was time to apply for OVDI, 5% would hurt quite a bit, and I can’t have all my information ready by the deadline.

    Quick advice received: One accountant said (unofficially) filing for so many years would flag me, so just hush and fly low, and another said send in the FBARs as soon as I have the info, but for how many years? 3?6? I honestly have no idea what to do and can hardly breathe.

    What do you think my best options are? This feels insane to me, potentially facing so much financial damage for simply not sending in a form for my puny (in comparison) life savings.

  49. Not_yet_a_fugitive says:

    Sleepless, your anxiety mirrors my own, but you’re better at communicating it! After getting lots of conflicting advice from tax experts, I’ve finally chosen a path for myself for better or worse. I filed 6 years of back tax returns with the IRS – in my case they show that I owe no taxes on my foreign income for any of the years. I then sent 6 years of FBAR’s but NOT under the voluntary disclosure system (the August 31 deadline wouldn’t apply in this case). I included a letter stating why the forms were late and I asked for a waiver of penalties. Additionally, I sent the FBAR’s together with my tax returns to the IRS Philadelphia Offshore Identification Unit. From the informal information I’ve gathered, it seems to mirror Madrian’s advice (BTW, thanks for your responses Madrian) in that the IRS is not going to chase the “accidental American” of few US assets. Nevertheless, if penalties were applied in my case, the financial damage would range, as best as my poor math skills can figure, from ruining my chances at retirement to being penalized far beyond my entire net worth. And I’ve never in my life have had issues of unpaid taxes!

  50. Sleepless,

    You need to hire a tax attorney experienced in handling these types of cases. It’s too important to try to do it yourself and you sound like you are overwhelmed. Feel free to email me at moc.walsappapnull@sappapp or call me at 1-866-529-9040 and we can talk.

  51. Sleepless in Vancouver Expat says:

    Peter, thank-you, I’ll try to pen an e-mail as soon as possible, I realize the sand is rapidly running out.

    In the meantime, would you know if there is anything to this: http://communities.canada.com/vancouversun/blogs/cayo/archive/2011/08/23/verbatim-what-canada-says-about-collecting-irs-non-filing-penalties.aspx stating that penalties imposed under FBAR would not be collected by the CRA — if so, I may very well find my breath again.

  52. Sleepless in Vancouver Expat says:

    *PS to above – NOT to say I don’t want to file everything properly albeit late, I do, but breathing does help with focusing on what exactly I have to do now. Forgive me for the blog clog.

  53. Sleepless — legal issues of collection aside, do you really think politics would allow the CRA to collect large penalties from probably tens of thousands of Canadian/dual citizens living in Canada unless they are guilty of major tax violations ? We might see a repeat of the war of 1812 if that happened :-).

    [I think the legal argument might be sound actually, since the FBAR penalty is not a tax penalty. ]

    By all means, consult a professional like Peter. I believe there is still some time (just a few days) left to join OVDI and request an extension, but your penalty would be 5% of 20K or maybe 5% of 35K if they don’t accept late election for your Canadian retirement account.

  54. For someone who us a US person that permanently resides in a foreign country and has a mortgage loan account number, does that need to be reported on the FBAR? It is not an asset but rather a mortgage loan. Thank you

  55. IRS EXTENDS THE FILING DEADLINE OF OVDI FROM AUGUST 31, 2011 TO SEPTEMBER 09, 2011 DUE TO IRENE ON THE EAST COAST.

  56. Confused,

    The short answer is “no.” But if you have some kind of escrow account with the bank that exceeds $10,000, you may have a reporting requirement.

  57. msingh,

    Thanks for the heads up. And thanks for visiting.

  58. I am an expat married to a foreigner (not a resident). I am planning to file 9 years of old taxes as an expat (owe 0 taxes) but am very worried for my FBAR filing. I have signature authority in two of my husband’s accounts-lets say 100k (he owns the two accounts) where he has had high balances from his foreign business. If I disclose this two accounts in the FBAR will I have topay any fines or penalty?????

  59. Danny Simmons says:

    I have a similar situation to some of the posts in this thread. I was born in Canada to American parents.

    I have never filed anything with the US. I’m not sure I even have a Social Security #. I do have an expired passport though.

    Is there a consensus as to how far back I need to report?

    This definitely was not willful, since last week was the first I’ve heard of this. My problem is that I have had sizable accounts of up to 600k do to an inheritance and investments, although due to disabilities, my income bracket has been low.

    Do I understand correctly that I will be penalized 5% of the highest balance for every year back to 2003 if I make the Sept. 9 deadline?
    What means do I have to combat this?

    Thank you

  60. Not_yet_a_fugitive says:

    http://www.irs.gov/businesses/international/article/0,,id=235699,00.html?portlet=7

    I think this is worth a read, particularly question 17.

  61. SomeDumbAmerican says:

    Yeah, here’s the rub.

    Do you really think that the IRS wants upwards 7 million documents per year from expats that have paid their taxes in their local jurisdictions?

    What would be the point of processing all of this information when all of the foreign tax credits be greater than the amount paid in the USA. I am quite sure that Ontario Tax rates are much higher than the USA. 41% after 85k in taxable income. Americans’ head’s would explode at even seeing those numbers.

    So, tell me why the IRS would want to process 7 million docs per year for a total net revenue of $000.00. Simple… The don’t.

    I have had my taxes done for 30 years by CAs in Ontario that know full well that I am a dual citizen. I don’t ask my Accountants to “fill in my CAD return.” I ask them to look after all of my tax requirements. Why did none of them mention this to me? They have a professional obligation, and if I am on the hook, I WILL go after them.

    They say “because the IRS did not want the paperwork.” That is what they say now, but I assure you, none of them even knew of these requirements.

    Skip ahead to 2011, the USA is dirt poor and now they have tied millions of dollars in penalties, it is now worth their while to process all of this paperwork.

    The other main impetus for this program is to get people back in the system. As our (boomer’s) parents move on and leave an inheritence, the IRS wants their piece of the pie.

    I have a meeting with my Federal MP on Tuesday to try and get some answers.

    As long as the Canadian banks keep the IRS out of my account until I have time to sort this out… Seems TD is the only bank pushing back. They have had it stalled until 2014.

    Yeah, this all seems real fair to me.

  62. I am an American who has lived in England most of their life and paid UK taxes. I have only just found out that I should be paying US taxes and a form called FBAR. I have savings split into 4 accounts, some with over 30k in them. I am having sleepless nights over this. What should I do?

  63. SomeDumbAmerican,

    Thanks for the comment.

    I am surprised that you are naive enough to expect life to be “fair.”

  64. Even with foreign tax credits, and higher marginal rates, there is often (in fact, almost always) income that is taxable in country A that is not taxable in country B because of impedance mismatch.

    Countries exempt different categories of income, have different tax deductions, different retirement plans, different life insurance deductions, different mutual fund rules, different rates and time periods for capital gains. So its entirely possible that a US person in a country with a significantly higher marginal rate could still end up owing taxes to the US. Canada may be an exception since Canadian retirement accounts can be deferred in the US (and vice versa) assuming that election is made, but there are still categories of business income that have lower tax rates in Canada than the US.

  65. Pathologic1 says:

    So does anyone know of even a single case where the IRS has actually collected an FBAR fine from someone other than an obvious genuine tax cheat? I haven’t.

    Seems an overblown case of hysteria the more I learn about it.

    And I think if they try and collect these outrageous fines outside of the US they are going to be sorely dissappointed with the results. No court outside the US would find that these were reasonable for failing to file informational forms to the Treasury Department.

  66. Pathologic,

    Yes, I know of several such cases. The concern is warranted.

  67. There are some cases reported earlier in the thread too. Penalties would not be reported unless they go to court.

    As far as collection goes, of course the IRS wouldn’t be able to collect from someone who doesn’t have US source income or assets.

  68. After taking this seriously for weeks, and investigating and running into brick walls one after the other, I gave up completely. I am ignoring the whole thing and have no intention of ‘complying’ as they call it. I have done nothing wrong, the USA itself is the criminal here. I moved to Canada with my parents as a 4 year old, have never had a social security number, have never lived or worked in the United States, and have Canadian citizenship and a Canadian passport. Screw them big time. I am NOT going to waste another minute trying to figure out how to appease the voracious appetite of the IRS. Seems to me that Americans do not mind taxes at all, as long as they are not paying them. And, I will accept that I am a target of a sick regime if neccessary, and like so many other people on this earth, will accept that I can never again safely return to my country of birth. That means no more vacations or family visits to the USA, and nobody in my family will be going down there if I am not. So, I hope the IRS is proud of their stupidity. There are lots like me who will shake the dust off their feet.

  69. Well, I never heard of an FBAR and if I had it would seem like a fantasy rather than something real. I’ve been a stay at home mom to a Canadian son and a Canadian husband. Yes, I can write a check or pay a bill but, I never made a red cent in our checking account. No American did. My husband objects strongly to me reporting HIS income as a foreigner to the Treasury Dept. In my case there’s only one year I would have had to and I’m late to file on that now. Any penalties will come out of a foreign persons income. I’m renouncing. I’m sick of this. I see the IRS looked at accounts where the American only had signing rights but, made none of the income and decided to keep that requirement because you “choose” to live outside the U.S. I see, so ex pats are being “punished” Fifty percent of Americans living outside the U.S. did so for marriage reasons. In my case my husbands parents were twenty years older than mine when we met and I did not feel it was moral for me to have him move thousands of miles away from them. It was actually quite the sacrifice on my part, I really missed the U.S. Well, now I see what the U.S. really thinks of me. This is taxation without representation to the hilt as my husband certainly has no representation there. Further, I have volunteered in a woman’s shelter. Imagine the case where someone has to report on an abusers accounts and it will happen.

    The United States is utterly wrong to be doing this to people in a penalty grab. They do not care about us, our families or children. The fines on FBAR are outrageous and draconian. This is the most disgusting thing I’ve ever heard of. I would have owed no taxes but,now I have to live in fear of fines and guilt knowing any fines will come out of my foreign spouses hard earned income. This makes me almost giddy to renounce and be done with them as they are clearly done with seeing me as a human being to be treated fairly.

  70. Angered_Canadian says:

    As a Canadian citizen spouse (no ties to the U.S. whatsoever); because my wife, a US Citizen (came to Canada in 2000; and is a current landed immigrant who is thinking of renouncing her US Citizenship once she gets her Canadian Citizenship), I get caught up in the web of this disclosure for the sake of FATCA.

    So because my wife holds a joint-account with me, the IRS has the right to look at MY financial records as well…and potentially tax my wife on the majority of MY income? It invades the rights of a “sovereign Canadian citizen with no ties to the U.S. other than through marriage”. Plus on top of that, I’m not too certain, but I think it is blatently illegal in Canada for a financial institution to privately sign an agreement with a foreign nation to disclose personal information of a fully Canadian Citizen by birth with no ties (dual citizenship concerns).

    Maybe Canada should be looking at bringing charges against Senator Carl Levin, Rep. Doggett and Sen. Baucus for violations of Canada’s Privacy Act. Privacy Act (R.S.C., 1985, c. P-21) as well as the banks who signed a voluntary agreement of disclosure. with the IRS.

    I am not happy with the banks violating my trust and right to privacy of my financial dealings as a purely Canadian citizen who was born and raised here just because my “American” wife is on my financial dealings as a “joint account-holder”. The account was solely mine (initially).

    So far those who have been raising the biggest stink are people who are dual-citizens. Right now my wife has no such protection and my finances (as a Canada-born Canadian…with no ties other than marriage to the US…) have the potential to get wiped out due to overwhelming penalties for not filing tax returns or FBARs.

  71. I’m wondering about Peter’s response to “Pathologic1″.

    The IRS has been ramping up enforcement effort on offshore assets since 2000. They’ve had the enforcement authority for FBAR since 2003. Toscher and Stein 2003, “FBAR Enforcement is Coming” discuss how when FinCEN delegated its enforcement authority for FBARs to the IRS the authority to collect was stated to emanate from Title 31 rather than the usual means the IRS has available that won for it its fearsome reputation for being able to collect. I see Mike Miller up there in the comments also pointed out Title 31. I’m not a lawyer, and I am not that familiar with why the IRS has the reputation it does for its ability to collect, but what this looks like to me is the IRS can’t collect on FBAR according to whatever guidelines it sets out when it is pretending to a taxpayer that that taxpayer has to do whatever the IRS says. If the taxpayer says this is insane, the IRS has to decide if it can persuade a court. The burden of proof is on the IRS to show there was not “reasonable cause”, and the court, in cases of non-willful violation is not required to do anything. According to the “Penalties” set out in the “General Instructions” on the Form TD F 90-22.1 which was revised in January 2012 (the dreaded FBAR form), “a person who… fails to properly file… may be subject to a civil penalty not to exceed $10,000 per violation”.

    Now if this extremely serious crime of failure to fill in a form a taxpayer had no idea existed has been an enforcement priority for the IRS since 2003 and the courts don’t care what the intent of Congress was or whether the taxpayer had any intent, and instead just rubber stamps whatever execution orders the IRS presents, there must be all manner of cases of jaywalkers ordered executed by courts that we can study.

    The IRS may indeed be telling jaywalkers to sign papers entitling the IRS to execute them, some jaywalkers may be signing agreements with the IRS to let them do that to them, and the IRS may be executing these jaywalkers left and right, and all this may be the IRS way to get criminal multimillion dollar tax cheaters Congress said they actually wanted the IRS to go after.

    But I would like to see some dead bodies, I mean read about the circumstances – who was assessed what penalty by a court, for doing what.

  72. John Doe says:

    Regarding the comment of SomeDumbAmerican dated Sept 2 2011, who thought he had hired CAs in Ontario to “look after all of” his “tax requirements”, who says if he is on the hook now he doesn’t understand why they are not liable. As he says “I WILL go after them”. This is the way I feel, although I am so low on the totem pole I have never felt I needed to hire anyone to look after my taxes. I filled them out successfully for my entire life so far, and I am now in my 60s. But I face FBAR problems now.

    SomeDumbAmerican reports he’s hearing CAs say they didn’t fill in FBARs for him “because the IRS did not want the paperwork.” and he comments: “that is what they say now, but I assure you, none of them even knew of these requirements.”

    One reason I had no idea FBAR existed or that I needed to file one was due to using TurboTax. I am a new immigrant to the US who left a bank account behind in my country of origin. I got reference copies of the TurboTax 2009 and 2010 programs that failed to protect me from this FBAR risk and studied them now that I have been burned.

    TurboTax asked me specifically if I had income from another US state before allowing me to continue using it. It never asked about income from another country, and never asked if I had any financial accounts in a foreign country.

    Now I say TurboTax is a tax “preparer”. Keep that in mind as you read on.

    Toscher and Stein 2008, “FBAR Enforcement – Five Years Later” discuss what the IRS expects of tax “preparers”, i.e. “it is not too far afield to anticipate that if a taxpayer violation is found, the focus could turn to the preparer as to whether due diligence was exercised under Circular 230″. As for what “due diligence” in this case is, Toscher and Stein 2008 say: “the FBAR Q&A would seem to require that all preparers ask the taxpayer this question – which does not seem to have been the practice in the past – at least for most preparers.” That’s for SomeDumbAmerican. He can tell his Ontario CA that the IRS may be interested in whether the CA asked SomeDumb “the question”.

    What interests me, as a poor slob who relied on TurboTax to fill out my tax form without leaving me open to criminal prosecution and heavy civil penalty as a result, is that Toscher and Stein point out that “most tax return sofware programs default to the answer no when it comes to this question”.

    TurboTax never asks that question, and defaults to NO. What TurboTax is is an interface sitting on top of IRS tax forms that asks users questions then fills in the forms for them. The whole idea is to make it possible for users to avoid struggling to figure out exactly where to put what information on the form, as well as to do the calculations required. The only question is whether the IRS does or will come to view the authors of tax return software as the tax preparers that they clearly are.

    I’ve been fascinated by computers since 1980 and given a lot of thought to their potential to impact the culture. I’ve also written software as a hobby. It is apparent to me that the law and a lot of judges are lagging in getting up to speed as to what computers and software are.

    In the case of tax return software, a very few “preparers”, or even one single “preparer” is signing off on his list of questions that he deems will protect his software publishing company, and for that matter, him or her, from liability to be hit by the IRS and liability to be sued by the tax software user, for any problems arising. He decides this once, and millions of people may be affected as his software is used. He’s using a machine to magnify his impact. It isn’t the software that somehow fails to ask me the question the IRS says they require a human “preparer” to ask me or they will suspect that preparer did not exercise due diligence. There is a human being who wrote that software. It is the “preparer” who signed off on the list of questions given to the programmers who wrote the program, who is liable to the IRS and to me.

    I don’t have the resources to really go after TurboTax. If there are enough cases like mine, TurboTax will suffer a class action suit.

  73. Mr Doe

    ‘The burden of proof is on the IRS to show there was not “reasonable cause”, ‘

    I actually believe this is incorrect. When it comes to demonstrating reasonable cause, the burden of proof is typically on the taxpayer. However, if the IRS wants to demonstrate willfulness, then they have to go court.

    Mr Pappas

    With respect to your 80 year old client with FBAR penalties, did you succeed in getting these abated ? Can you even challenge FBAR penalties in tax court since they are not tax penalties ?

  74. MDar: I meant the burden of proof is on the IRS when it ends up in court. The sort of plea bargaining that apparently goes on sounds hair raising as the IRS can point to court costs and the cost to a taxpayer if he has to defend himself. The relative size of the IRS and one taxpayer makes the odds seem a bit on the side of the IRS.

    But an innocent taxpayer who is speaking the truth can agree he didn’t file an FBAR but because he didn’t know and the IRS could have no reasonable expectation that he could have known that taxpayer can and should ask that be assess a warning letter. As 4.26.16.4 4 says, penalties should be asserted only to promote compliance. 5 says the examiner should exert discretion. 6 says examiners are expected to exercise discretion.

    This recent immigrant knows the USCIS did not inform him, and he knows that the IRS also did not inform him via a notice on the top of the 1040 as the Treasury Secretary himself told Congress in 2003 he would ask the IRS to do. He knows how it was as his tax preparer TurboTax failed to protect him from making this mistake. At some point this taxpayer would say if the IRS doesn’t believe he did not know, he must then prepare himself to receive the worst the IRS will impose, because he doesn’t believe in what he sees going on. There isn’t going to be a big song and dance. I didn’t know.

    A country that grinds up innocent people without allowing them practical access to due process isn’t the country I thought I was immigrating into.

  75. Peter

    I know this is an old thread, but what happened to your client ? Was she able to get a reasonable cause waiver ?

  76. Maybe a million of us should just show up and say
    we did nothing wrong but lock us up if you must because we are not and cannot afford to defend ourselves. If you want to feed me, clothe me, house me and have my family return to the USA to live on welfare then arrest me.

    What will they do? I for one am willing to go to jail.

  77. Hi, the woman who was fined $120,000 was that in the Overseas Voluntary Disclosure Program, or a noisy disclosure?

    I am working on a presentation for a FATCA conference, and the answer to this question is germane. I’d greatly appreciate your response. Peter W. Dunn

  78. So we have just come out the other end of this shit squeeze ..

    My story.

    Married to an american who was abused at home by an ex-US-military personal and fled the country to be with me.

    I am Australian, and had nothing to do with the USA.

    We got married in 2001 and we were living abroad in Europe. To establish immigration we obviously had joint accounts of which she contributed absolutely nothing to. I earned every single penny that went into those accounts.

    We moved back to Australia in 2003 and started to invest the money I had saved. Sometimes in joint sometimes in single accounts.

    During this time she worked for perhaps 3-6 months and earned under $10k which all tax was paid in Australia and none owed to the USA.

    She did not know about needing to file tax returns when not earning any income or secondly about these FBARs.

    We moved to USA in 2006. I went to HRBlock to do taxes. Not once in 2006, 2007, 2008 did anyone ask me about foreign accounts.

    2009 they did. I said yes. I have nothing to hide. They said, you didn’t declare it last year, why? I told them, YOU did not ask me that question. They said, you might need to seek legal counsel.

    I did and started to correct the so called mistake I had made.

    Now it seems that because I had money that I earned BEFORE arriving in the USA because of my wife and HRBlock, I am required to pay out $68k in penalties for money the USA had no right to, I didn’t HIDE it overseas, I earned it overseas while I HAD NOTHING TO DO WITH THE USA.

    Then this is what I get for being honest and trying to correct things. Why would any one want to be honest with a government bent on F#$#% people over.

    Yes, I had some interest due which was all paid back with penalties which amounted to under $20k

    This pretty much cleans us out. I still don’t understand why we are being fined. The whole point of this is to prevent people setting up schemes to hide money overseas. But when you move here with your own money still overseas and then the IRS has a way to take it all.. seriously do you wonder why there is so much hatred against the IRS..

    What have I been using my savings for.. paying for my daughter to attend school because the US School system is $%#ed, paying for my wife to see therapy so she doesn’t commit suicide due to the abuse…

    This money was our house deposit, my child’s education and my wife’s therapy.

    Going to fight this crap. I just realize now that being honest gets you @#$@# over.

  79. What I’d like to know is there any recourse legal action against HR Block and how many other people who have used HR Block were not notified about declaring overseas accounts.

    So far to date, I have asked about 7-8 expat friends of mine to also warn them, not one of them who used HR Block were asked if they had overseas accounts.

    There must be some gross negligence damages we can claim against HR Block.

  80. Noisy disclosure

Trackbacks

  1. [...] I trust the IRS approximately zero in this area. Unless and until the IRS comes right out and says offshore gambling accounts are not subject to FBAR reporting, I would assume they are. It’s Pascal’s Wager applied to tax: the consequences of excess FBAR reporting are minimal, but the consequences of failing to file if it is required are horrendous. [...]

  2. [...] some trouble. They could be devasted with fines FOR REPORTING, but hardly for not reporting. FBAR Penalties Absurd, Unfair "I have an eighty year old client who inherited several foreign bank accounts. She had no [...]