Category Archives: FBAR

Mr. Bedrosian (a pioneer in FBAR history) meets Mr. #FBAR: The good, the bad and the ugly

Why the Arthur Bedrosian meeting with Mr. FBAR is important

Synopsis:

The Bedrosian FBAR case is an incredibly important victory for taxpayers. Judge Baylson first ruled that FBAR “willfulness” in the “civil” context did NOT require knowledge that filing an FBAR was a legal duty (the criminal standard). He then ruled that Mr. Bedrosian’s failure to report the account was a form of negligence that did NOT meet the required standard of “willfulness”.

Perhaps the message is:

The failure to file an FBAR will be “willful”, if the circumstances of the failure, were evidence of conduct that the FBAR statute was designed to punish.

 

In other words, it is possible to know about Mr. FBAR, fail to file Mr. FBAR and NOT be “willful”!

The “Readers Digest” Version …

The Bad …

The District Court held that the test for what constitutes “willfulness” in the “civil FBAR penalty” context is not the test used in a criminal context – “the intentional violation of a known legal duty”. All that is required is that the person voluntarily NOT file an FBAR. (One need not know that he is violating a legal duty).

The Good …

The failure to file an FBAR can be a form of “negligence” that falls short of “willfulness”. In other words, one can know about the FBAR requirement, fail to file the FBAR and still fall short of “willfulness”.

The Ugly …

The IRS had initially taken the position that Mr. Bedrosian’s misadventures in FBAR were nonwillful. But, they changed their mind.

Round 1 goes to Mr. Bedrosian. Will the IRS appeal?

Mr. Bedrosian has earned a place in FBAR history. He is a true “FBAR Pioneer”. His “Adventures in FBAR” place him in the club of: Mr. Pomerantz, Mr. Hom , Mr. Kentera, Mr. Horsky and Mr. Warner. Fortunately, mere visitors to American do not yet have to file the FBAR. Interestingly, Mr. FBAR appears to have been the “role model” for a Russia foreign bank account reporting laws.

To learn more about the FBAR Odyssey of Mr. Arthur Bedrosian …
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The Green Card and the “Oh My God” Moment: You know you want to leave the USA? Not so fast!

Well he won the lottery. Specifically he won the “Green Card” lottery. He and his wife came all the way from an Asian country to “Live The Dream” – specifically the dream of living in the United States of America.

He spoke English. His wife did not speak English. He believed in strict compliance in the law. His wife relied on him to ensure her compliance with the law.

As a Green Card holder he was vaguely aware that he could be deported if he were convicted of certain kinds of offenses. But, mainly he believed in compliance with the law for its own sake.

As a Green Card holder and as a U.S. resident he was subject to laws that were never explained to him. He didn’t realize that he was taxable on his WORLD income (including a small pension that he received from his country of citizenship).

In 2009 the “Offshore Jihad” began. He didn’t think of himself as having “offshore accounts”. After all, he was a just citizen of another country. Surely it could NOT be criminal to have a bank account in his country of origin. Did he have to report his small foreign pension to the IRS? That pension was in no way related to the United States of America? And then he learned about the alphabet soup of “reporting requirements” – Mr. FBAR, Uncle FATCA, etc. He began to learn what the “reporting requirements” were. But, the penalties (as least described) were certain. He could not believe the extent of the penalties.

It was at this moment that his “Oh My God” moment began. He was confused and mentally disorganized. At that moment, all of his life assumptions were reversed.

Assumption 1: He had always believed that he was a good, moral “law abiding” person. How could it be that he was NOT in compliance with the law. He had no reason to believe that the reporting requirements would even exist.

Welcome to the United States of America where any involvement with anything “foreign” makes you a presumptive criminal.

Assumption 2: He had always believed that the United States was a “just nation”. How could the United States threaten to impose such penalties on a person in his situation?

Welcome to the United States of America where justice is NOT the norm.

What’s a poor “Green Card” holder to do?

He was ill prepared to deal with the situation in which he found himself.

He strived to learn what he could. The IRS would not answer his questions – suggesting that he go to a “tax professional”

The “tax professionals” gave him different, conflicting and contradictory answers.

His greatest frustration was that he could NOT completely understand what was expected of him – although he did understand the threat of penalties, penalties and more penalties.

He eventually decided that he had to move back to his home country. He did this NOT to escape U.S. taxation, but because:

  1. He could not completely understand what was required of him to be U.S. tax complaint; and
  2. He was worried that he would die and leave his wife in a situation where she would not know how to be U.S. tax compliant.

In order to prepare for leaving he:

  • entered the streamlined program (domestic  version) and “back filed” for 3 years
  • stayed in America for two more years so that he could certify the “five years of tax compliance” when he handed in the I-407
  • even filed the “Sailing Permit” (The 1040C) that is required of ALL aliens (resident or nonresident) when they leave the United States

He in now trying to file his final return and 8854. Fortunately he will not be subject to the S. 877A Exit Tax. He is currently focusing on staying alive long enough to complete his U.S. tax filings. He feels that it is important that he NOT die and leave the U.S. tax compliance problem to his wife.

His emotional state:

Like many he is living in a state of fear. I pointed out to him that he was a small insignificant person and that nobody in the U.S. Government cared about him. He thanked me for telling him that “nobody in the U.S. Government cared about him”. He said that it was the first time in his life that he felt good that nobody cared about him.

Epilogue:

One more day. One more life ruined. One more person chased out of America because of the Internal Revenue Code.

His greatest wish is that he lives long enough to file Form 8854 to log him and his wife out of America.

Nobody, but nobody should move to America without reading the fine print!

#YouCantMakeThisUp!

John Richardson

 

 

 

 

 

Dewees 2: Why did he participate in the 2009 #OVDP Horror Show?

In an earlier post I explained why the Canada Revenue Agency assisted the IRS in collecting a $133,000 U.S. dollar penalty on a Canadian resident. The bottom line was that he was presumably NOT a Canadian citizen and therefore did NOT have the benefits of the tax treaty. This post is to explain where the penalty came from in the first place.
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13 Reasons Why I Committed #Citizide: (Inspired by the television series, 13 Reasons Why)

Introduction – Guest post by a perfectly ordinary person who renounced U.S. citizenship for perfectly ordinary reasons

In a recent submission to Senator Hatch  I argued that what the United States thinks of as “citizenship-based taxation”, is actually a system where the United States imposes U.S. taxation on the residents and citizens of other countries. That submission included:

On July 4, 2017, Americans living inside the USA celebrated the “4th of July” holiday – a day that Americans celebrate their independence and freedom.

On that same day, I had meetings with SEVEN American dual citizens, living outside the United States. This “Group of Seven” were in various stages of RENOUNCING their U.S. citizenship. Each of them was also a citizen and tax paying resident of another country. They varied widely in wealth, age, occupation, religion, and political orientation. Some of them have difficulty in affording the $2350 USD “renunciation fee” imposed by the U.S. Government. Some of the SEVEN identify as being American and some did NOT identify as being American. But each of them had one thing in common. They were renouncing their U.S. citizenship in order to gain the freedom that Americans have been taught to believe is their “birth right”.

On August 2, 2017 posts at the Isaac Brock Society and numerous other sources, reported that that there were 1759 expatriates reported in the second quarter report in the Federal Register. The number of people renouncing U.S. citizenship continues to grow.

Now on to the guest post by Jane Doe, which is a very articulate description of the reasons why people living outside the United States feel forced to renounce U.S. citizenship.

John Richardson

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U.S. “culture of penalty” and inflation: First, inflation used to increase the size of #FBAR penalty base and then to increase the size of actual penalties

Introduction: Penalty as a part of American Culture

The above tweet links to a wide range of examples of America’s culture of penalty.

The purpose of this post is to explore how inflation results in the facilitation of enhanced penalty collection in America today.

What is inflation?

In its simplest terms:

“Inflation is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. Put differently, as inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation.”

Source: Adam Hayes, CFA

(Note his use of the words “goods and services“. Are FBAR penalties and the S. 877A Exit Tax consumer goods or government services?)

Inflation can either be helpful or can be hurtful. Some benefit from inflation and others are hurt by inflation. At a minimum, inflation will always erode the value of cash.

Effect of inflation on owners/lenders of cash: When it comes to cash inflation will hurt the owners/lenders of cash. This is because inflation will erode the value of cash.

Effect of inflation on borrowers of cash: Inflation will help he borrowers of cash. This is because inflation erodes the value of the cash that must be repaid.
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Mr. Pomerantz meets Mr. #FBAR in the Homeland: The “willful” FBAR penalty requires proof of “willfulness”

Looking for Mr. FBAR

This is one more in a series of posts discussing the FBAR rules. The FBAR rules were born in 1970, laid virtually dormant until the 2000s and then were then unleashed in their full “ferocity” on U.S. persons. A good review of the history of Mr. FBAR is here. A discussion of how the discovery of Mr. FBAR can lead to larger problems is here. Finally, a discussion of of why people must exercise caution in “fixing problems with FBAR” is here.

Mr. FBAR has not visited Canada, but he has visited Canadian citizens

Mr. Pomerantz returns …

Readers of this blog (particularly those in Canada) may recall that I have previously written about the adventures of Mr. Jeffrey P. Pomerantz (currently of Vancouver, Canada) with Mr. FBAR. At that point (March 2017) it was clear that the U.S. Department of Justice planned to sue Mr. Pomerantz to collect the FBAR penalties to which it felt entitled. It is worth noting that FBAR penalties are assessed under the Bank Secrecy Act (Title 31 of U.S. laws) which is different from the Internal Revenue Code (Title 26 of U.S. laws.) In order to collect FBAR penalties the U.S. Government must sue, and sue it did. The purpose of this post is to tell the story of what happened when the U.S. Government sued Mr. Pomerantz in U.S. District Court in Seattle.

But, before we begin our story, this post is more about “Civil Procedure” than it is about “Mr. FBAR” …

Bottom line: Although the U.S. Government suffered a temporary (probably) defeat, the defeat was because the Government failed to follow the rules of “Civil Procedure”. In other words, whether Mr. Pomerantz actually violated the FBAR statute was NOT the issue in this case. The issue was whether the Government followed the rules that they were required to follow in order to win their case. The Government did NOT follow the rules. Therefore, the Government lost. With that disclosure, we are no ready to begin yet another example of an adventure with Mr. FBAR.

Once upon a time in District Court in Seattle …

It appears that the hearing took place in early June of 2017. In any event, the court’s judgement was dated June 8, 2017.

Interesting fact: Mr. Jeffrey P. Pomerantz appeared “pro se” – he represented himself at the hearing. He may have had “legal advice” prior to the hearing. On the other hand, he may have had the assistance of the judge who recognized that he did NOT appear with a lawyer.

The judgement references the fact that Mr. Pomerantz sought to transfer the venue from Washington State to Washington, DC. Apparently his “lawyer of choice” was in Washington, DC. The court (for various procedural reasons) denied his request for this “change in venue”. In other words, the hearing took place in Seattle.
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Impressions of the @RepMarkMeadows April 26/17 #FATCA Hearing in Washington, DC – Opportunity to make case to end “taxation-based citizenship”

FATCA Hearings in Washington, DC – April 26, 2017

Beginnings – It all began in July 2016

The purpose of this post is NOT to describe the hearing in detail (that has already been well done), but rather to provide my overall (and perhaps broader) impressions based on actually having attended the hearing.

The April 26, 2017 FATCA hearing in Washington was long in the making. It’s genesis was rooted in a meeting that took place in July of 2016 at the Republican National Convention. The planning and preparation involved the efforts and consistent cooperation (weekly meetings since August) of a number of people in different countries and on different continents. It was a privilege to have been part of this group. A list of the people who worked on making the hearing happen – the  “FATCA prep team” – is  described here. Those efforts culminated in what some  witnessed “in real time” on April 26, and what thousands more will see (thanks to Youtube) in days to come.

The hearing has already been documented IN DETAIL and discussed in various places IN DETAIL, with the best commentary coming from posts at the Isaac Brock Society here and here and various Facebook groups here, here, here and here. (An example of ridiculous commentary is here.) When I say “commentary” I mean NOT ONLY the posts, but the rich and insightful comments. Seriously, this collection of “digital experiences” really is “History In The Making!”

Thinking about FATCA, What is it anyway?

I have written numerous posts about FATCA – “The Little Red FATCA Book” which you will find here. An explanation of how the Meadows “Repeal FATCA” bill would actually work is here. Basically, FATCA is the collective effect of a number of amendments (including the creation of a new Chapter 4 of Subtitle A of the Internal Revenue Code – which has made largely irrelevant by the FATCA IGAs)  which are designed to identify, attack and impose sanctions on:

A. FATCA: Non-U.S. banks and other financial institutions

Forcing them to “hunt down” the financial accounts and entities (examples include mutual funds, corporations, trusts and some insurance policies) owned by “U.S. persons”. The goal is to “turn them over” to the IRS.

This imposes enormous compliance costs on non-U.S. banks. The obvious effect is that they will not want  U.S. person customers. Would you? Interestingly the focus of the witnesses (Mr. Crawford and Mr. Kuettel) was primarily on the denial of basic access to financial and banking services.

Although important, this is only one half of the equation. What happens when “U.S. persons” learn (the vast majority had no idea) that they are subject to U.S. taxation?

B. FATCA: “U.S. Persons” with non-U.S. financial assets and bank accounts

It is not possible for “U.S. citizens” to BOTH: be U.S. tax compliant and live a productive life outside the United States, when they are also subject to the tax laws of other nations. (Digital nomads are the exception.) The reason is that U.S. citizens living outside the United States are living under a system where:

  1. They are presumed to live in the United States (which they don’t); and
  2. Their assets (which are local to them) are presumed to be “foreign” to the United States.

If you don’t understand (or don’t believe) why this is true, you will find an explanation here.

Just remember:

“When In Rome, Live As A Homelander” and do NOT “Commit Personal Finance Abroad!” (It’s UnAmerican)

Although a major effect of FATCA is to subject Americans abroad to a very special set of tax rules (think PFIC, foreign pension, CFC, and a crushing burden of forms that impact ONLY Americans abroad), there was NO witness that even alluded to this as one of the effects of FATCA. (FATCA is the enforcer of the uniquely American policy of “taxation-based citizenship”). There was also no witness that described how a “FATCA letter” can lead to absolute financial ruin for honest taxpayers, who have made a life outside the friendly borders of the United States of America. There was no witness who explained the confiscatory effects of entering one of the IRS “Amnesty – Ministry of Love” programs.

This had had the effect of making it seem as though FATCA (in terms of the effect on Americans abroad) was just a simple “disclosure – Form 8938 issue. Nothing could be further from the truth.

If it were not for “taxation-based citizenship”, FATCA would be no more or less a problem for Americans abroad than it would be for Homelanders (which doesn’t mean it is not a problem). Unfortunately, the hearing did not provide evidence on this point.

(This is NOT a criticism. But, just imagine if there had been witnesses who had been identified as a “U.S. Person” because of FATCA, did NOT know about “taxation-based citizenship” and then were forced into the “Offshore Voluntary Disclosure Program“. Now that would have been a story …!)

It is “taxation-based citizenship” that makes the effects of FATCA so hard on Americans abroad! In 2011, I remember thinking:

The United States can have either FATCA or it can have “taxation-based citizenship” but it CANNOT have both!

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Green card holders: the “tax treaty tiebreaker” and eligibility for Streamlined Offshore

Before you read this post!! Warning!! Warning!!

Before a “Green Card” holder uses the “Treaty Tiebreaker” provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the “Treaty Tiebreaker” on:

A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)

B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A “Exit Tax” provisions?

This is another in a series of posts on the “tax treaty tiebreaker” (which is a standard provision in most U.S. tax treaties). “Tax treaty tiebreakers” are rules that are used to assign a person’s “tax residency” to one country when an individual is a “tax resident” of both countries. In the context of U.S. tax treaties, “treaty tie breaker” rules are used when an individual is both:

1. A “U.S. person” for tax purposes (U.S. citizen or U.S. resident); and

2. A “tax resident” of another country.

It is very common to use tax treaties to assign “tax residency” to a country when an individual is  a tax resident of more than one country.

For example, Article IV of the Canada U.S. tax treaty provides for a rule to assign an individual’s “tax residency” to either Canada or the United States when an individual is a “tax resident” of Canada and and a tax resident of the the United States.

The “savings clause” prohibits U.S. citizens from using the “tax treaty tiebreaker” from avoiding being a “tax resident” of the United States.

Article IV of the Canada U.S. tax treaty includes:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

It is clear that the “tax treaty tiebreaker” provision does NOT exclude Green Card Holders from it’s application. In fact, the impact of the “tax treaty tie breaker” may be the reason why the Canada Revenue Agency advises that “Green Card Holders” are NOT U.S. residents for FATCA reporting purposes.

The application of the “tax treaty tiebreaker” makes one a “nonresident alien, WITH RESPECT TO INCOME TAXATION, for U.S. tax purposes but NOT for other purposes (including FBAR and other information returns).

The “nonresident alien” and the 1040NR

Nonresident aliens file a 1040NR. A “nonresident alien” filing a 1040NR is filing to report and pay tax on income connected to the United States. A 1040NR is NOT used to report “non-U.S. income”. General information for the 1040NR is here. IRS Publication 519 – The U.S. Tax Guide For Aliens” is here.

Possible advantages for a “Green Card Holder” using the “tax treaty tiebreaker” to file the 1040NR

1. A Green Card Holder, by virtue of the “tax treaty tiebreaker”, would NOT be subject to U.S. taxation on “foreign income” which includes Subpart F income and PFIC income.

2. A Green Card Holder, by virtue of the “tax treaty tiebreaker”, would NOT be required to file Form 8938, Form 8621 and is subject to modified reporting requirements for Form 5471.

A reminder …

A Green Card Holder, using the “tax treaty tiebreaker” IS still a “U.S. Person”. He is a “U.S. Person” who is deemed to NOT be a U.S. person for the limited purposes of the “tax treaty tiebreaker”. He is a “U.S. Person”, who is NOT treated as a “U.S. Person” and  who is therefore able to file a 1040NR.

There are millions of “U.S. persons” (citizens and Green Card Holders) abroad who have not been filing U.S. taxes

Many of them are “coming into compliance” using the IRS Streamlined Foreign Offshore Program. As a general principle, “streamlined” is NOT available to “nonresident” aliens. This makes sense. After all, a “nonresident alien” is NOT a “U.S. person” for tax purposes.

Is “streamlined” available to a “U.S. Person”, who is filing a 1040NR, because he is treated as a “nonresident” pursuant to the “tax treaty tiebreaker”?

I suggest the answer comes from the instructions for streamlined which include:

“Eligibility for the Streamlined Foreign Offshore Procedures

In addition to having to meet the general eligibility criteria, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must: (1) meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement described below) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

Let’s focus specifically on this part of the requirements:

“(2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law,”

If one is filing a 1040NR, then one is reporting ONLY U.S. source income. The whole point of the 1040NR would be to NOT have to report income from foreign financial assets. Think of the specific examples of Subpart F income and PFIC income.

Therefore, (although I will confess to never having analyzed this in terms of the streamlined rules) I suggest that one could NOT use the Foreign Offshore streamlined program to file the 1040NR.

It’s NOT that Green Card Holders who use the “tax treaty tiebreaker are NOT “U.S. Persons”. It’s that filing a 1040NR means that there is no reason to report income from a foreign financial asset (meaning that one fails the eligibility test for streamlined)!

John Richardson

How #digitalnomads use the #FEIE to avoid paying income tax anywhere

The above tweet references a post by Virginia La Torre Jeker describing the “Foreign Earned Income Exclusion” found in Internal Revenue Code S. 911. Her description of the Foreign Earned Income Exclusion includes:

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Did Mr. #FBAR really pay a surprise visit to Canada?

Update June 19, 2017:

The Department of Justice sued Mr. Pomerantz in Seattle. The purpose of the lawsuit was to get a judgment against Mr. Pomerantz. Interestingly, the Government lost the lawsuit for reasons unrelated to the substance of the issue. The Government failed to plead the facts that it needed to succeed in the lawsuit.

A full discussion of the ongoing adventures or Mr. Jeffrey Pomerantz and Mr. FBAR is here.

The FBAR Chronicles continue …

First, A Public Service Announcement – Mr. FBAR Get’s A New Filing Due Date

 

This is one more of my posts about Mr. FBAR. Mr. FBAR is a mean, nasty vicious thug who has no place in any civilized society.

Thomas Jefferson once said:

Were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter.

My thoughts are that:

Were it left to me to decide whether we should have FBAR without outlaws, or outlaws without FBAR, I should not hesitate a moment to prefer the latter.

Unfortunately, Mr. FBAR has become the new symbol of American citizenship. Furthermore, Mr. FBAR disproportionately affects the local bank accounts of Americans abroad – becoming (in effect) a form of “domestic terrorism” against U.S. citizens living outside the United States.

Mr. FBAR As Applied To The Canada U.S. Dual Citizen …

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