# Any evidence of IRS fining expats?



## ConfusedinCroatia

As many members here, including myself, are preparing to file under the streamlined program, I was wondering if any stories about the IRS coming down hard on normal, everyday Americans living abroad have surfaced. I would say that the majority of us are extremely nervous, and have had many sleepless nights. Googling tax and fbar related topics can drive a person nuts. How much do they scrutinize our returns, is this a witch hunt etc...

Just venting a bit...


----------



## Nononymous

To the best of my knowledge, no evidence has turned up on these forums, or any googling I've done, or ordinary folks being fined after quietly filing returns. There appear to be cases of people ill-advisedly entering OVDP and being penalized, however. 

Remember also that the IRS assessing a penalty is one thing, and being able to collect it is another. Depends on the country involved. (Currently next to impossible in Canada if the victim happens also to be a Canadian citizen.)


----------



## BBCWatcher

Nononymous said:


> Remember also that the IRS assessing a penalty is one thing, and being able to collect it is another....


I think you're overstating things a bit. In particular, the IRS certainly has the ability to go after any assets in the United States regardless of the citizenship(s) and place of residence of the target. That includes potential future inheritances from U.S. sources. The IRS also has the ability to refer tax delinquency cases to the DOJ for criminal prosecution if merited. While tax compliance in general is not currently enforced at the U.S. border and at U.S. embassies and consulates (for U.S. passport issuance), outstanding arrest warrants (of all types) are generally enforced at the U.S. border. If you never visit the U.S. (and never transit in the U.S.), that's not a direct issue.

There are potential secondary effects, but they're situational. If you have unresolved U.S. tax liens and/or an outstanding arrest warrant in the U.S. then even some non-U.S. entities may be hesitant to do business with you, e.g. certain prospective employers.

This is also a moving target, perhaps even fast moving. Nobody thought the Swiss would give up their banking secrets to the IRS, for example. Then a certain (now well compensated) whistleblower came along.

The original poster was asking about the Streamlined Program. No, I have seen no reports of anyone being fined. I have seen a couple reports of individuals being asked follow-up questions -- something that can always happen with any tax filing -- but that's all.


----------



## Nononymous

Hey, I'm not suggesting it's a good thing to be owing Uncle Sam (if I was, I wouldn't be crossing the border) but I do want to reassure all those folks who post freaked-out comments on news articles in the Canadian press that the US can't actually take money out of your Canadian bank account.


----------



## Bevdeforges

There is also a matter of "materiality" to IRS enforcement. It's highly unlikely they are going to slam a taxpayer with a $10,000 fine (even if it's "on the books") for late filing of FBARs declaring $50,000 in total foreign accounts, all of which are dead normal savings and retirement type accounts. 

Nor are they going to fine overseas residents for backfiling returns all showing $0 taxes due. Between the bad PR and the damage it would do to an individual agent's averages (they are evaluated on their average recovery on audit), it's just not a reasonable use of government resources. 

That said, you don't want to poke a sleeping bear, either. 
Cheers,
Bev


----------



## BBCWatcher

Bevdeforges said:


> Nor are they going to fine overseas residents for backfiling returns all showing $0 taxes due.


No matter where you live, there is no penalty for late filing a tax return when there is genuinely a $0 tax liability or a negative tax liability, i.e. when the IRS owes you a refund. Indeed the IRS is very happy when you provide the U.S. government with an interest free loan.


----------



## maz57

The only fines and penalties I have heard of were assessed when scared people entered those horrible voluntary disclosure programs. Those programs were designed for criminal tax evasion. The IRS should have actively modified the processing of such people once it discovered they were benign actors.

The IRS relies on threats and intimidation to scare people into compliance. In fact, the continuous threats may well be counterproductive to their objective. Some are so scared by all this they just continue to "fly under the radar".


----------



## Nononymous

Proudly stealthy since 1996!


----------



## BBCWatcher

maz57 said:


> The only fines and penalties I have heard of were assessed when scared people entered those horrible voluntary disclosure programs.


First of all, I have not heard of any reports of fines or penalties assessed via the Streamlined Program. If you see some reports otherwise, let us know.

Second, what you just wrote is inaccurate. We've heard of lots of cases of fines and penalties among those who did not enter voluntary disclosure programs. Those are most of the cases, by far. That's called ordinary tax enforcement, and the IRS is pretty good at it (and getting better it seems). The cases coming out of Switzerland are excellent examples.

With the OVDP you have a decent shot, not a guarantee, of reducing fines and penalties. And an even better shot of avoiding criminal prosecution. Consult with your attorney if you're an OVDP candidate.

With the Streamlined Program (assuming you qualify), the evidence suggests you stand a superb chance of avoiding fines and penalties. Again, no guarantees, but it looks very good.

With "hide and seek" you stand a decent chance of fines, penalties, and/or criminal prosecution, and that chance is increasing over time.

I think that's the fairest way to characterize the situation.


----------



## maz57

1. No reports of fines or penalties with Streamlined. Agreed. Has anyone emerged out the back end of Streamlined yet? 

2. I stand by my statement. Don't know about Switzerland, but the only fines and penalties I've heard about in Canada were self-inflicted by being scared enough to enter one of those OVDP programs. Penalties are guaranteed, just a question of what the percentage is going to be.

3. OVDP is for criminals. Don't touch 'em with a ten foot pole. (Doubt if many criminals frequent this forum, but if you are, lawyer up.)

4. For a Canadian in Canada, you have zero chance of the IRS collecting fines and penalties, but if the IRS assesses them you'd be wise to not cross the border.


----------



## BBCWatcher

Canada is a fabulous place -- as we're constantly reminded  -- but you do realize Canada has about 0.5% of the world's population, right? The situation could be at least somewhat different for the other ~99.5% of the world's population, agreed? Like, for example, U.S. citizens with accounts in Switzerland? There's a big reason one guy collected a $150 million whistleblower award from a grateful IRS. Well, many, many big reasons adding up to billions for the IRS.

As it happens, one doesn't have to look very long or hard to see the IRS catching up with (alleged) U.S. tax cheats. In Canada. Here's a recent example. The alleged criminals in that case are not even U.S. citizens.

Can we at least agree that the _probability_ of being prosecuted for an IRS tax violation as a resident of Canada if you genuinely owe U.S. tax is something greater than zero? And can we also agree that the probability is increasing over time given that data mining techniques keep improving and the IRS is using them?

Those two stipulations do not mean that the OVDP (for example) is necessarily the "smart" choice in every instance at particular moments in time. As I wrote upthread, if you're a candidate for the OVDP, I would recommend consulting with a competent tax attorney to discuss your specific situation.


----------



## BBCWatcher

maz57 said:


> Has anyone emerged out the back end of Streamlined yet?


It's a pretty safe bet yes. The IRS introduced the (formal) Streamlined Program on June 26, 2012.

But there's no "back end" notice per se. In that program the IRS simply accepts the filings and takes no further action if they deem you qualified and compliant. And the IRS defines "qualified" and "compliant" pretty well up front in the program instructions. If you don't get a further tax assessment notice, that's the end of that, and you just file normally going forward. Pretty simple.


----------



## Bevdeforges

Just a note before anyone starts freaking out about the "long arm of the IRS" - the big, well publicized tax evasion cases coming out of Switzerland tend to be the result of the lists of numbered account holders leaked to the US (and other) tax authorities over the past several years, as well as a couple of legal actions against specific, large Swiss banks.

The OVDP appears to be a program for those taxpayers who have "issues" with their tax filings - generally large amounts of taxes due that have not been properly declared or significant unreported income.

The "streamlined program" is more or less a codification of the longstanding informal policy for "how to get straight with the IRS" for overseas residents who have not been filing but owe little or no tax. Do take a look at the latest IRS instructions for the program here: Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers, especially the section that outlines *Compliance Risk Determination*.

And for those worried about FBAR and FATCA reporting, take a read-through of the model Bilateral Agreements - or the current BA for your country of residence - to see just what the banks are reporting (and which banks are required to report): Foreign Account Tax Compliance Act (FATCA) It's not "light" reading, but it will help you better assess your "risks" going forward.
Cheers,
Bev


----------



## Nononymous

> Canada is a fabulous place -- as we're constantly reminded  -- but you do realize Canada has about 0.5% of the world's population, right? The situation could be at least somewhat different for the other ~99.5% of the world's population, agreed? Like, for example, U.S. citizens with accounts in Switzerland? There's a big reason one guy collected a $150 million whistleblower award from a grateful IRS. Well, many, many big reasons adding up to billions for the IRS.


Ah, but we're special. We might well be the country with the most US citizens living within its borders (I hesitate to use the term "expat" for someone born here or who moved as a child). And almost certainly the country with the most dual US citizens. So for me it's a more interesting test case than Switzerland, a former tax haven where rich folks of many nationalities until recently stashed their ill-gotten dosh (and where a small number of "ordinary" US nationals were sideswiped by the crackdown).



> As it happens, one doesn't have to look very long or hard to see the IRS catching up with (alleged) U.S. tax cheats. In Canada. Here's a recent example. The alleged criminals in that case are not even U.S. citizens.


Oh come on - that's not even close. That was a criminal fraud scheme with Canadian participants submitting multiple false non-resident tax returns. What we're asking is a relatively simple question: are there reports in the media or on any forum of "ordinary" taxpayers using streamlined program or quiet disclosure (not OVDP) then being assessed fines or penalties for FBAR non-compliance or failure to file returns? (Somewhat different from genuinely owing the US money, which few would do.) So far, the answer appears to be no. Not to say it hasn't happened, but if it has, nobody's heard of it. 



> Can we at least agree that the _probability_ of being prosecuted for an IRS tax violation as a resident of Canada if you genuinely owe U.S. tax is something greater than zero? And can we also agree that the probability is increasing over time given that data mining techniques keep improving and the IRS is using them?


Sure. There's also the probability of being flattened by an asteroid. The reason I harp on this particularly is that in the few stories that appear in the Canadian media on this subject, they inevitably include a quote from some slightly hysterical parent who insists that their dual-citizen teenager will lose half their college savings (RESP) to the long arm of the US. The penalty assessment is - yes - theoretically possible, except that currently the US could not collect that money (unless the individual had US assets of course). I don't much love the Harper government, but I am actually quite content with the way they've handled this, reassuring the public that they will do nothing to assist the US in collecting penalties or taxes in Canada if incurred by dual citizens.

Of course this could all change. Data mining might result in more prosecutions, but collection would require political cooperation. And I think you're going to see an interesting public reaction when/if FATCA becomes more widely known, prior to implementation in 201X, should that truly come to pass.


----------



## maz57

@ BBC. Is this the guy you're talking about? Grassley Blows Whistle On IRS Whistleblower Program - Forbes

As I recall, Birkenfeld was sitting in a US jail at the time he spilled his guts and received the $104 mil. I think he received reduced time in addition to the money, which probably went a long way toward paying his legal bills; I can't remember if he got fines as well. While I certainly don't condone tax evasion or aiding and abetting tax evaders, Birkenfeld stupidly traveled to the US where he was arrested. To say the IRS had him over a barrel is an understatement.

But you'll notice the linked Forbes article goes on to say the IRS' whistleblower program is a shambles. The IRS is slow to follow up leads and slow to reward those who provide them, often at considerable risk to themselves. When the whistleblowers themselves are having to resort to the courts to get that which, according to the program, is rightfully theirs, you know there are serious problems at the IRS.

By the way, I'd consider Robert W. Woods and Forbes to be a very credible source. Over the past year or so he has been increasingly critical of IRS' enforcement of CBT and FATCA.


----------



## maz57

Well said, Nononymous. 

Of the 7 million or so US "persons" living "abroad" about 1 million of them live in Canada. No one knows for sure, least of all the IRS. The percentage of those folks who actually file a US return is very low. To suggest the IRS (with FATCA) is suddenly going to identify and prosecute all those people is patently ridiculous. Even if the IRS did identify and prosecute, they couldn't collect, so why would they even bother trying?

Just think about it. If a US citizen decides to file a US tax return they must first have a Social Security number. To apply for a SSN you must travel to the US; can't do it by mail or online. For all the accidentals and border babies that is simply not going to happen. Besides, they've figured out that if you don't have a SSN, you don't exist as far the IRS is concerned.

Currently in Canada, the lipstick is starting to be wiped off the face of the FATCA pig. There has been a spate of media coverage re: FATCA. The general public is beginning to recognize it for what it really is; an extra-territorial law that attempts to rob Canadians and the Canadian Treasury. They've also figured out that there's a lot of compliance industry fear-mongering that is nothing more than self serving tripe.

If our government was intending to sign an IGA which throws Canadians to the IRS wolf, it would been signed more than a year ago. Every day that a deal isn't signed is another nail in FATCA's coffin. There is absolutely no upside in an IGA for the Canadian government; they're more likely stalling in the expectation that FATCA will fall flat on it's face. (And the offer of reciprocity is useless; Canada doesn't tax it's non-resident citizens.) I expect the Canadian government is taking the occasion of an IGA negotiation to insist on a complete carve-out for Canadian citizens resident in Canada.

If the USG can't even get Canada onside, FATCA is doomed. So yeah, Canada is "special".


----------



## Nononymous

There's a reason why most (or close to it) of the tax enquiries on this forum come from US citizens in Canada...


----------



## Bevdeforges

Nononymous said:


> There's a reason why most (or close to it) of the tax enquiries on this forum come from US citizens in Canada...


I would suggest that it is simply because you're "right next door" and are an easy target for the type of publicity campaign the IRS is well known for conducting. 

Here in Europe, there has been little or no PR about FATCA other than from the US expat associations. If you're not a member of one of those, and rely mainly on the local media for your news, there is next to nothing available on the subject. Honestly, I get most of my information about changes to the tax rules from the forum here - especially now that they don't send out tax forms or instructions anymore. 
Cheers,
Bev


----------



## Nononymous

Honestly it's not much of a publicity campaign in Canada. Not many people know about it. This has been going on for a couple of years now and only recently have you seen the first few things about FATCA popping up in regular news media, instead of being buried deep in the business or personal finance sections of the papers.


----------



## Bevdeforges

A couple of years ago there seemed to be some sort of PR blitz going on in Canada. That was when we first set up the Expat Tax section here because so many folks seemed to be getting all upset.

To tell the truth, I read through the FATCA agreement for France, and while the US does promise to inform France of any French nationals receiving more than $10 in interest in the US (like France actually cares), I was very impressed by the list of special investment accounts that are specifically exempted from reporting by the French banks. (Most tax-free and retirement savings accounts.) Also, that any account in existence prior to June 30th of this year is exempt from reporting as long as the account balance remains under $50,000. 

What that tells me is that the IRS isn't really looking for those sorts of accounts in the first place.
Cheers,
Bev


----------



## Zquircle

I´m going to dare to throw in my 0,02 ... If one of the main goals of the IRS was fining expats, many of us who live abroad and keep in order their passports and/or request every 4 years the Official Absentee Balloting Material, and have not filed timely tax returns, would have been fined already. You don´t need supercomputers to link that data.

I think (_I hope_) this is not their intention, as long as you have a moderate financial profile.


----------



## BBCWatcher

For the record, Mexico _probably_ has the largest share of U.S. citizens who live outside the U.S. (It's tough to get a good count.) As with Canada many of them are "latent."

Yes, of course FATCA has extraterritorial incentives. That's precisely the point. Governments are still perfectly free not to cooperate with the U.S. The consequence is that their financial institutions could be effectively shut off from doing business with U.S. financial institutions, but that's a free choice, too. We'll see which proves the more popular choice among governments. I know which side I'd place my bet on if I were betting.


----------

