May 14, 2023


We live our lives amidst a world of assumptions, the things we take for granted, not because they have been proved, but, because we simply believe them to be true.  Sometimes we later find that we have made a false assumption like having once naively believed all politicians are candid. Lemony Snicket in “The Austere Academy” says:

Assumptions are dangerous things to make, and like all dangerous things to make—bombs, for instance, or strawberry shortcake-if you make even the tiniest mistake you can find yourself in terrible trouble.    

In the espionage novel “The Kremlin Letter,” by Noel Behn  (January 1, 1966),  spies in training are taught “Avoid assumptions, stay alive.”


False assumptions can be false inferences or generalizations, false convictions or mistaken identities.  Believing to be true what is false can lead one to foolishness, disappointment, unhappiness or danger.

False Inference:  In David Benioff’s comic-tragic novel, “City of Thieves” a thief and deserter caught in the German siege of Leningrad during WWII, are offered an alternative to execution by the officer in charge.  Find a dozen eggs for his daughter’s wedding cake in a starving city barren of any food whatsoever. The badly paired companions hear of a farmer guarding a bunch of chickens on a rooftop. They track down the place only to find the farmer dead and his daughter guarding one surviving bird. They coax the bird from her and return with it to the communal apartment of a friend to wait for the chicken to produce eggs. They are watching the bird when another resident, a doctor enters.  Upon seeing the bird he says, great, we will have soup tonight as I have a potato.  The thief screams “do not touch that chicken, we need its eggs to save our lives.” The doctor laughing says, “You idiots that is not a chicken it is a rooster.”

 False Conviction:  In Pulitzer Prize recipient Philip Roth’s latest short novel “Nemesis” a promising young park counselor comes to believe he is the carrier of polio who has spread the dreaded disease to his playground charges.  As a result he forsakes his dearly beloved fiancé and lives out the remainder of his life in guilt ridden unhappiness.

 Mistaken Identity:  Middle aged advertising executive Roger Thornhill (Carey Grant), mistaken for a spy, in turn, mistakes Eve Kendall (Eva Marie Saint) for a foreign collaborator.  He is pursued across the country surviving a deadly crop duster and the dramatic heights of Mount Rushmore (Alfred Hitchcock’s legendary 1959 thriller “North by Northwest”).


In over 40 years of practice I have represented many clients in trouble with the IRS.  Many times the trouble emanated from a false assumption about how the tax system works.  Although Albert Einstein said, “We can’t solve problems by using the same kind of thinking we used when we created them,” that is exactly what many try to do.  Some examples of false assumptions about the tax system are:

 1.     It is best not to file my return until I can pay the tax due.  Here is an example of one poor decision leading to another based on a false assumption.  Poor decision No. 1: Not paying sufficient estimated tax or having sufficient tax withheld. No. 2: Waiting to file Form 1040 until able to pay the tax.  Result:  Best case: 5% per month penalty for late filing (25% maximum) instead of 0.5% penalty per month for late payment.  Worst case: Criminal charge for willful failure to file a return (sentence up to one year and fine up to $25,000).  The return should be filed by April 15. An extension may not be valid if the tax due is not paid on April 15. 

 2.     It is best to file an extension stating that the tax liability is zero when I cannot pay the tax actually known to be due. The false assumption here is twofold: (1) The extension is valid when it is not because the tax has not been reasonably estimated and paid, and (2) This is OK to do when it is not.  Although the extension is not a return filed under penalties of perjury like Form 1040, the extension so prepared is a false document knowingly submitted to IRS and could be construed as a tax crime carrying a sentence of up to one year in jail and a fine of up to $10,000.

3.     My spouse cheated on me and I am therefore an innocent spouse for tax purposes.  Your spouse may have cheated on you and on the IRS but filing a joint return carries with it joint and several liability, unless you qualify for one of three narrow and technical exceptions commonly referred to as “innocent spouse.”  The only way to guarantee that you won’t be liable for your spouse’s tax indiscretions is to file a separate return.  Thus, if you suspect that your spouse is flaunting the tax law, don’t sign a joint return, and file as a married person filing separately. Caveat: This is a financially disadvantage tax status in most cases.  Therefore, don’t file separate from your spouse unless you have good cause to believe the joint return presented is false or that the tax will not be paid.

4.     I owe the IRS money but I’m OK not having heard from them.  Wrong, you don’t have to actually receive a notice from IRS to be charged with having received the notice.  For example, if you were divorced in January 2010 and filed a 2009 joint return with the address listed as the marital residence (same as the address on your 2008 return) IRS will mail the notice and demand letter and collection due process notice to the marital address.  If your former spouse does not give you the notice, your appeal rights will be circumscribed, liens filed will adversely impact your credit rating and enforced collection action may ensue before you can offer alternative collection proposals.  Therefore, always file Form 8822 when you change your residence address before filing a tax return with IRS reporting the new address.

5.     I can settle my tax debt for pennies on the dollar using one of the so called tax dispute resolution companies: I wish this was true but the statement is another false premise for all but those having virtually no assets or income.  Most find virtually useless the Offer in Compromise process as a means of settling tax debts.  IRS accepts very few Offers in Compromise because the structure is very rigid and Revenue Officers have little discretion for making exceptions to the law or rules in the Internal Revenue Manual.  Moreover, it is safer to their careers to simply follow the guidelines to the letter.  The FTC recently put out of business American Tax Relief LLC, one of many scam operators promising to settle tax debts for pennies on the dollar.

6.     I’ll send IRS $100 per month to keep them off my back.  Wrong again, like Offers in Compromise, obtaining an installment payment agreement for amounts over $25,000 is very arduous.  IRS in determining the amount you must remit monthly starts with your gross income and deducts taxes and allowable necessary living expenses based on national and regional averages for various categories.  For upper income taxpayers or those in high cost localities like Miami the result is not very appealing.  Contrariwise, for tax debts up to $25,000 that can be paid in 5 years or less, the installment payment process can be useful.

7.     I own nothing but my home which is my homestead that creditors cannot take.    Wrong once more, as IRS is not like other creditors.  State creditor exemptions do not apply to IRS.

8.     I’ll prepare my own return and claim any mistake was due to a tax software error. Lots of luck to you.In Au v. Commissioner (TC memo 2010-247, the Tax Court rejected the taxpayer’s so called “Turbo Tax Defense” and upheld the 20% penalty assessed by IRS for erroneous deductions in the return.

9.     I’ll blame the tax preparer if deductions are disallowed or income is left off my return.  No matter who prepares your tax return, you are ultimately responsible for all of the information on your tax return. Read the declaration at the bottom of page two of Form 1040 before signing and never sign a blank return or one that contains errors or missing information. Blaming the tax preparer in a criminal tax case is a dangerous strategy because he or she will take the stand and bury you.

10.    I’m self employed and only have to report income for which I’ve received a Form 1099. Very, very wrong, as IRS has several court accepted methods of reconstructing your income even if they do not uncover the specific payment.  These include bank deposit analysis plus cash expenditures and net worth analysis plus cash expenditures for living expenses. In knowingly under-reporting income you subject yourself to substantial civil penalties (20% accuracy related penalty or 75% civil fraud penalty) and potential criminal sanctions.

11.   I’m not worried about criminal tax charges because I can always settle and agree to pay what I owe.  Wrong again as the IRS criminal tax enforcement program is not focused on collecting the tax.  It is intended as a deterrent to scare other taxpayers into compliance.  In the criminal case, IRS will seek jail time and restitution of the dollar loss to the government. Afterwards, IRS will assess the civil tax liability (there being no statue of limitations if fraud is proved) and civil fraud penalty.


Venerable Buddhist sage Ajahn Chah asks “I can observe anger and work with greed, but how does one observe delusion? Answer:  You’re riding a horse and asking “Where’s the horse? Pay attention.”  Life would be terribly frustrating without the common assumptions we live with.  How could we drive our automobiles if we didn’t assume that other driver’s will obey the traffic laws? This is probably not such a good example in Miami, but you get the idea; some cultural, biological, intellectual or personal assumptions are necessary if true or harmlessly self delusional.  But, self deception in the tax arena is another matter altogether.  It can be damaging to your financial health and personal freedom to make false assumptions while filing your tax return or in dealing with the IRS. A competent tax attorney can help you sort out fantasy from reality.     

Facing a tax problem with IRS? 

Facing a threatened or assessed tax penalty? 

Having tax problems during or after a divorce?

Contact me!

Robert S. Steinberg, PA

Robert S. Steinberg, Tax Attorney


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“Beware of false knowledge; it is more dangerous than ignorance.”

– George Bernard Shaw

Shaw’s admonition is applicable to both fling delinquent returns using the Streamlined Filing Compliance Procedures or through normal filing channels with a Reasonable Cause Statement attached.   .    Calls I’ve received from both accountants and perspective clients demonstrate that many are aware of these alternatives but are ignorant of the nuances, complexities and risks of attempting to choose which path to employ to bring a taxpayer into compliance. 

The chart below is intended to assist attorneys and CPAs in understanding the important distinguishing features that separate the Streamlined Compliance Procedures and Filing amended returns through normal IRS channels with a Reasonable Cause Statement attached.  These two very different paths are the most commonly employed for bringing delinquent taxpayers with offshore income into compliance. 


Defined asHaving exercised ordinary business care and prudenceNot having intentionally violated a known legal duty to file or acted recklessly.
Negligent conductNOYES
Grossly negligent conductNO    Yes
Reckless conduct in failing to read instructions referred to on Schedule B of Form 1040 regarding foreign bank accountsNOCourts have treated as Willful Blindness but might still qualify under exceptional circumstances.
                                      Extent of Due diligence required  Did all that you could, given education and experience, but still could not timely file.    Lower bar – duty to file unknown or failure to file not intentional or conscious act.
Years includedGenerally must go back at least six years – both returns and FBARS3 for which due date of 1040 passed; 6 for which due date of FBAR passed. .
Reliance on return preparer Reliance on return preparer – Foreign reporting Forms  Generally, No RC for 1040 May provided RC due to complexityYes Yes
Income tax penaltyWaived if Reasonable. Cause found• Outside US  None for amended or delinquent returns. • Living inside US None – for amended returns. • If audited  None for reported assets or income as long as original return not fraudulent & FBAR not willful.  Any additional deficiency subject to all penalties. • Previously assessed penalties – not abated.  
Misc. Offshore PenaltyNone if Reasonable Cause Found.Living out of U.S. – none Living in U.S. – 5% of non-compliant assets(if non-willful)  
Escapes criminal tax liability?NO – Unless deemed Voluntary Disclosure.  Safer to use IRS Voluntary Disclosure Procedures if possible tax crimes indicatedSame as for Reasonable Cause
Certainty of result – civil?      NONO – return might be selected for audit just as any return might be.      
Time to completeOpen ended – IRS will assess penalty requiring a resubmit or appealComplete upon submission of Streamlined Filing unless audited.
Automatic audit?NoNo 
Public disclosure?NoNo
CostNeed tax attorney and qualified return preparer but more expensive than StreamlinedExpensive – Need tax attorney and qualified return preparer
Submission problems  IRS Service Centers are automatically assessing foreign reporting form penalties without  File returns with Non-Willful Certification – No automatic assessment of penalties.  
Conscious decision not to fileNoNo
Taking care of other matters and not filing tax return                     No                      No
Serious job, family, health issues                     Yes                      Yes
Simply forgetting                     NoPossibly if forgetting due to serous job, family, heath distractions.

Deciding how to proceed in offshore cases depends entirely on the specific facts of each taxpayer and requires both knowledge of the law and sound judgment in applying it.  Given that, one can still state some obvious and general advantages and disadvantages of these alternatives to the OVDP as related to U.S. citizens or residents. 

Major Advantages of Streamlined Process:

  • Three year income tax filing period in lieu of 6 year Reasonable Cause period.
    • There is no offshore penalty for taxpayer’s residing outside of the U.S.Lower tax and interest due to fewer returns amended.Lower legal and accounting fees due to less work required.No 20% accuracy related penalty on the income tax reported in the disclosure unless an examination shows fraud or willfulness.
    • No automatic audit – rather return processed like any other return and selected for audit under normal IRS procedures ( but see disadvantages below)

Major disadvantages of Streamlined Procedures:

  • The Streamlined filer must certify under penalties of perjury (Form 14654 for persons residing within the U.S. and Form 14653 for persons residing outside of the U.S.) that:
    • “My failure to report all income, pay all tax, and submit all required information returns, including FBARS, was due to non-willful conduct. I understand that non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of good faith misunderstanding of the requirements of the law.’
    • “I recognize if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.”
    • IRS has stated that submissions under the Streamlined Process may be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors and other sources. Therefore, “Taxpayers who are concerned that their failure to report income, pay tax and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/ or substantial monetary penalties should consider participating in the OVDP and should consult with their professional tax or legal advisors.”
      • Certification is a confession or at least an admission of all of the facts regarding opening and operation of the offshore account.
      • If willful other penalties may apply, e.g., civil fraud penalty.
    • Not available for delinquent returns of taxpayers residing within the U.S.
    • No simplified PFIC rules available as under former Offshore Voluntary Disclosure Program FAQ 10.

Major problems with filing with Reasonable Cause Statement

  • Reasonable Cause Statement is also made under penalties of perjury.
  • Automatic Assessment – When return is filed at an IRS Service Center with a delinquent foreign reporting form or when such form is filed separately (as required for Form 3520), the IRS has been automatically assessing penalties.  No one at the Service Centers is reading or considering the Reasonable Cause Statement and request for waiver of the penalties.  The IRS Commissioner has advised professionals to have clients resubmit the return and / or foreign reporting form.  This usually does not solve the problem and client has to deal with attempts by IRS to collect the assessments.  Usually, IRS, when contacted, will postpone collection action; but, this does not stop automated collection actions such as applying overpayments   from another year to the tax assessment. The IRS Taxpayer Advocate office has lately not been very helpful in solving these matters which can go on for many months, even more than a year.

Cautions about non-willful certification and Reasonable Cause affidavits

Clients often have fuzzy, or worse, inaccurate recollections of details pertaining to opening their account or accounts, what was discussed and what was written in emails or other communications. IRS or DOJ may obtain information from banks that differs from what the client remembers.  Thus, the statement must distinguish between what is known from documents and what is remembered.

Perspective clients are searching the internet and some will attempt to feed the attorney facts that they have learned point to non-willfulness.  The attorney must voir dire the client regarding the veracity of non-willful statements.

Original documents may or may not be available.

The willful versus non-willful characterization is a partly subjective analysis that depends to a large extent on the “eyes of the beholder.” Thus, IRS may view as willful that which the taxpayer and even the best counsel may have perceived as non-willful.

Can a taxpayer still qualify as non-willful?

A Tax Analysts Tax Notes article (Richman, Nathan J., “International Tax Enforcement Efforts Include Civil Tools”) quoted Acting Assistant Attorney General of the Department of Justice Tax Division, Caroline Ciraolo who was speaking at the March 4th Federal Bar Association Section on Taxation annual meeting. Ms. Ciraolo stated:

After three very well-publicized voluntary disclosure programs, nearly 200 criminal prosecutions, ongoing criminal investigations and the increasing assessment and enforcement of substantial civil penalties for failure to report foreign financial accounts, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are, quite simply, neither credible nor well-received.

The Acting Assistant Attorney General suggests that it would seem extraordinary at this late date that anyone with an unreported offshore bank account could convince IRS that a lack of knowledge on their part was the cause of their non-compliance with the tax filing and reporting obligations.

Her statement, not unreasonable on its face, seems to me to overstate and oversimplify the determination of willfulness versus non-willfulness.

For one thing, the publicity to which the Assistant Attorney General refers, while widespread is not part of the mass media news that most regular people digest. FBAR news and prosecutions is not usually mentioned on the nightly local TV news or reported with great fanfare in the non-financial daily newspapers.

Her statement is most appropriately related to those who opened accounts in tax havens with funds originating in the U.S. and who employed all sorts of devious means to hide their identity from the IRS. These people are not your average ordinary person but are the tax criminals who should have entered the Offshore Voluntary Disclosure Program.

For those in this category who have yet to come forward, the bell is tolling loudly. The IRS having concluded its Swiss Bank Settlement Program with almost 100 banks is shifting its focus to banks in other countries that have assisted U.S. persons with evading tax. These countries of new emphasis include, but are not limited to: The Bahamas, The Cayman Islands, Australia, India, Singapore and Israel.

But, those not committing overt acts in an attempt to evade U.S. tax are not home free. For, civil willfulness does not necessarily require overt acts of commission and the civil FBAR penalty may apply to one who is not a tax criminal. When present, overt acts often represent the nails in the coffin of willfulness, if not establishing a tax crime.

Willfulness for purposes of assessing the draconian FBAR civil penalty can be established by showing knowledge of the obligation to file and intentionally not filing; or, in intentionally burying your head in the sand (willful blindness).

The Streamlined Filling Non-willful certification is all about stating facts that show negligence, even gross negligence, or ignorance, but do not indicate knowledge of the reporting and filing rules and intentionally ignoring them. This analysis is both legal and factual and must delve into all of the facts surrounding the opening and operation of the offshore account – the why, from what source, how, when, where, who, and for how long.

Some examples of facts relating to the non-compliant-non-tax-criminal person, which, if present, might tend to evidence lack of knowledge and intentional non-reporting are:

  1. The person has no post-secondary school education.
  2. The person has a BS and Master’s Degree in Biology or other technical field and not one in taxation or finance with courses in taxation.
  3. The person inherited the account from a parent who lives in the foreign country.
  4. The person did not transfer funds offshore; but, rather the funds in the account originated offshore.
  5. The person has a close connection to the foreign country with family there with frequent visits.
  6. The person works as an IT specialist and has no background or contact with tax issues and international finance.
  7. The person works as a department store clerk or in another non-skilled job.
  8. The person prepared his or her own tax returns and misunderstood the program instructions. I’ve seldom reviewed a self- prepared return with offshore activities reported correctly.
  9. The person is an expatriate living in a high tax country and owes little tax to the U.S.
  10. The person living out of the U.S. has bank accounts only in his or her country of residence which are not viewed by him or her as foreign but as their local bank account.
  11. The person has recently immigrated to the U.S. and has been preoccupied with adapting to the new country, culture, lifestyle, language or a new spouse.
  12. The person who recently immigrated to the U.S came from a country that does not tax its citizens on world-wide income.
  13. The person living in the U.S. or outside of the U.S. has during the filing period suffered severe emotional, medical, family or business hardships.
  14. The person is not a sophisticated investor whose investments consist solely of an employer 401(k) and IRA.
  15. The person’s tax return preparer was a store-front operator who did not inquire about offshore bank accounts or provide a tax organizer to clients.
  16. The person’s return had no Schedule B.

The above list represents but a handful of illustrative facts that combined with other facts might help establish that the non-compliant person’s conduct was not willful. The analysis and determination of what these individual facts collectively mean is a job for a tax attorney experienced in these matters. CPAs, however competent in preparing tax returns, are not trained to decipher this difficult and consequential legal question: Whether a client’s conduct is criminal, willful or negligent. The consequences of getting this determination wrong can be disastrous.

There is no one size fits all solution to offshore noncompliance issues.  There are cases in which it is clear that the client has committed tax or other crimes which would likely be charged if uncovered.  These individuals cannot file Streamlined or use Reasonable Cause; but, should use the IRS Voluntary Disclosure procedures.  In other cases the facts may clearly indicate willful conduct or willful blindness that falls short of criminal conduct.  Often the facts are ambivalent, somewhere between reckless which the IRS views as willful and grossly negligent which IRS views as non-willful for purposes of Streamlined Filings.  Sorting out these variable fact patterns and suggesting how to proceed is impossible without possessing a full understanding of the available options for mitigating the potential consequences from the client’s non-compliance.  The chart above compares Reasonable Cause with Non-willful conduct under the Streamlined Procedures.

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The Streamlined Filing Compliance Procedures (Streamlined process or filing)represent a very attractive process by which certain non-compliant taxpayers can come into compliance without penalty (for those living outside of the U.S. who meet a non-residency test) or with a 5 percent miscellaneous offshore penalty for those residing inside the U.S. (that is, who fail to meet the non-residency test).

The Streamlined Process is a special program under which IRS provides a relatively simpler route by which U.S. taxpayers can potentially resolve past tax oversights and become compliant with U.S. tax reporting rules regarding income, foreign bank accounts or other required foreign reporting forms.  Basically, the returns and foreign forms are filed with a special Streamlined unit of the IRS who review the package for adequacy on its face and if found adequate are put through for normal return processing with penalty relief.


Eligibility for Streamlined Filing

The program is aimed at taxpayers who are not tax criminals and who meet the following eligibility requirements.

  1. Meet or fail to meet a non-residency test for one of the three streamlined years.
  2. Have filed returns for the past three years for which the due date has passed. Those qualifying as non-residents can file delinquent returns under the program.
  3. Have failed to report the income from a foreign financial account or other foreign source income as required by U.S. tax law and / or failed to file correct FBARs or other foreign reporting forms.
  4. Certify that the failure to report all income, pay all tax and submit all required information returns was due to non-willful conduct. The courts and IRS have defined willfulness as “the intentional violation of a known legal duty.”  That phrase is easier to recite than to clarify and IRS has been coy about how aggressively it will review taxpayer certifications of non-willfulness.  The test turns on both factual analysis and legal conclusions from those facts. Recently, several courts have held that willfulness includes reckless disregard of the law and IRS rules and return instructions referred to on Form 1040, Schedule B. With regard to eligibility for the Streamlined Process, IRS has the final say.  For a fuller discussion of willfulness see my blog post on the-tax-wars.net  “Will-O-The Wisp Willfulness in the Streamlined Process “(9/1/14)).  This affidavit is the tricky-as-a-maze part of the Streamlined process that requires great care, thought and legal skills to navigate without subjecting the filer to enhanced risks of criminal charges.

Attractiveness of Streamlined Process

The program beneficial for most who qualify because the Streamlined Process:

  • Allows one to come into compliance by filing only three years of returns and six years of FBARS instead of six years of returns required under the existing Voluntary Disclosure Procedures (VDP).
  • Avoids the VDP harsher penalty regime which would be inappropriate for those who are not tax criminals or reckless or willful violators and in all fairness should not be subject to the maximum FBAR penalties or, for willful violations or harsh penalties for failure to file Form 3520. Instead, the Streamlined Process for U.S. persons allows you to come into compliance by paying a reduced miscellaneous offshore penalty of 5 percent of the highest balance of noncompliant foreign financial assets (required to be reported in an FBAR or on Form 8938 or reported but income not reported) during a six year look back period but no other penalties such as the accuracy-related penalty (can be 20%) on any increased income tax liability or 3520 penalty (can be 25% of value of unreported trust assets). Those qualifying as living outside of the U.S. pay no penalty at all.
  • Removes the cloud of fear hanging over one’s head about discovery of the non-compliance and possible passport denial or revocation.
  • Brings one into compliance without identifying him or her as a tax-violator and without disclosing to the public that he or she has entered the program.


Uncertainty Associated with Streamlined Filings

Unlike the VDP, one does not initially know if IRS has accepted him or her into the Streamlined Process. While an IRS audit of Streamlined returns will not be automatic, returns may be selected for audit under normal IRS audit guidelines and IRS may determine that one’s conduct, in its eyes, was not non-willful.  In that case, IRS could go back further than three years and could assert an FBAR penalty at the conclusion of the audit process.  The IRS would have to act within the period allowed under law for making income tax assessments, normally three years unless large amounts of income (more than 25% of all income reported) are found to have not been reported in your returns.  This limitations period on making assessments would start to run from the filing date of your original or delinquent returns. These limitations periods, however, do not apply to a year for which IRS successfully proves that fraud was committed in filing the return.  The limitations period for IRS assessing the FBAR civil penalty is six years from the due date of the particular FBAR.  For a fuller discussion of the impact of limitations periods, read my blog post on www.the-tax-wars.net  “Statutes of Limitations and Streamlined Filings or File Forward Strategies” (8/10/15).


Linchpin of Safely Filing under Streamlined Process

Streamlined filings are safe provided the following rules are strictly observed:

  1. Provide only truthful and accurate information in the required Non-willful statement or affidavit.
  2. Make the affidavit (i.e., it is filed under penalties of perjury) completely transparent, including facts all relevant known facts, even those that may suggest willfulness, with an explanation, if required.
  3. Distinguish between facts that are known from documents and memory or recollections of past events.
  4. Have an experienced tax attorney prepare the non-willful affidavit and make the decision whether conduct described is non-willful conduct.
  5. Remember that statements in the non-willful affidavit are legal admissions. Do not inadvertently and ignorantly admit to a chargeable crime or you may find yourself so charged.


Dangerous Streamlined Filing

Whether a taxpayer’s conduct is non-willful requires a factual and legal analysis to determine where the taxpayer’s conduct falls on an imaginary ladder of culpability.  The ladder shows the most culpable conduct at the top rung and the least culpable conduct at the bottom rungs.  From the top down the ladder appears:


  • Criminal conduct.
  • Civilly willful conduct.
  • Reckless disregard conduct.
  • Non-willful conduct.
  • Grossly negligent conduct.
  • Negligence
  • Ignorance of the law


A taxpayer will qualify for Streamlined filing relief if they are ignorant of the law, negligent, grossly negligent or non-willful.  Only an experienced tax attorney has the training and experience to distinguish between the categories of conduct listed above. Often a taxpayer’s conduct will fall in the cracks between categories of grossly negligent, non-willful, reckless or willful.  Only an experienced tax lawyer will know the questions to ask the client to root out all of the relevant facts necessary to make a proper non-willful decision.

I’ve had been told that there are CPAs who are preparing non-willful affidavits for clients making Streamlined filings.  In doing so, they are subjecting their clients to unknowing risks of being charged with making a false Streamlined claim of non-willfulness or even worse of unwittingly admitting to a crime or committing perjury.  They are also inviting malpractice claims because practicing out of license (unlawful practice of law) is per se negligent.

CPA Indicted for foolhardy Streamlined Filing Caper

CPA Brian Nelson Booker prepared his own Streamlined filing.  He should have hired legal counsel.  He would certainly have been told that his conduct was willful and therefore he should not attempt a Streamlined filing.  A Voluntary Disclosure would have been more suitable for his situation.  The rueful facts of his indictment can be found in U.S. v. Brian Nelson Booker Case O: 19 Cr. 60152 (S.D. Fla.).


Lesson:  Tax criminal cannot sneak into a lower penalty regime through the Streamlined Process. IRS is on the watch for such people.   You cannot turn bad chop-meat into a wholesome meal. And, it is not always easy to determine if the chop-meat is bad.  A CPA will not know.  He or she may have the client sail off unaware of a hidden bomb aboard the Streamlined ship.  A bomb of willfulness, which, if triggered, will take both the client and CPA to the bottom.

Robert S. Steinberg, Esquire


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In John Milton’s epic biblical poem “Paradise Lost,” the fall of Man is depicted. The Devil is banished to Hell.   The Modern Wealthy Man has had his own fall.  The morality-play today devolves around tax-evasion and the loss of privacy.  Keeping one’s financial affairs secret from the masses, sometimes for good cause such as to protect personal safety, but often for more shady reasons like the evasion of tax obligations, is no longer a certainty.

After the Panama Papers were disseminated, no one with a sane mind would have continued to believe that offshore financial accounts in Tax Haven jurisdictions could continue to perfectly wall-off one’s financial affairs from public scrutiny.  Now comes the Paradise Papers to reinforce that point for any remaining non-believers.

The Paradise Papers were obtained by the German newspaper Suddeutsche Zeitung which called in the International Consortium of Investigative Journalists to head the inquiry.

Like the Panama Papers the obtained documents reveal financial dealings of many wealthy political leaders, celebrities and other extremely wealthy individuals.  Even the Queen of England’s financial affairs were revealed in the leak.

What is lost in these revelations?   The Paradise Lost is privacy and secrecy.  They simply do not exist anymore for information trusted to computer networks or cloud-based applications.

Very sophisticated hacker-groups are determined to obtain such information, no less governmental tax authorities.   Does this mean we are likely to go back to paper documents stored in rusting file cabinets?  Certainly not for most transactions, although I have read that certain spy agencies are employing typewritten again in their spy-craft.

What this does mean for U.S. non-compliant taxpayers is that their foreign financial accounts long hidden away in some remote tax haven jurisdiction are no longer safely hidden away that they will never be found-out.

If such accounts beneficially owned or controlled by U.S. citizens or resident aliens, are uncovered by the IRS and Department of Justice, the resultant criminal and civil sanctions may well feel like Hell.

So, the question is: What to do?  The options are limited.

One may continue to imitate an ostrich – stick one’s head in the sand and wish for non-discovery, like those poor souls who knew they should have left Europe during World War II but waited too long and fell under Nazi occupation.  The tragic consequences of those indecisions are well known.

The consequences of tax non-compliance today are less tragic but harsh enough: at a minimum severe or draconian amounts to pay for tax, penalty and interest; and, the distinct possibility of incarceration for tax crimes committed, no less, the embarrassment and shame of reputation that goes along with becoming a felon.

The above, sounding not particularly too palatable, the question still sits on the table, “What to do?”

Fortunately, there is a course of action that both caps the adverse financial consequences of one’s tax non-compliance and affords amnesty from criminal prosecution.  This result can be accomplished by entering an IRS / DOJ amnesty program called The Offshore Voluntary Disclosure Program or OVDP.

The OVDP is a special program under which IRS settles all potential criminal and civil tax issues relating to unreported offshore financial accounts under a specified civil penalty regime that is less severe than the maximum civil penalties that could be asserted by IRS outside of the program, were you audited, but in some cases more severe than the lowest level of civil penalties that IRS would assert outside of the program.  In the OVDP, IRS also grants immunity from any criminal charges that otherwise might arise from the non-reporting.


The OVDP has several beneficial features, namely:

  • Offers certainty that you will not be charged with a crime and that the civil FBAR penalty will be no more than 27.5% (50% if any account is with certain identified banks or facilitators under investigation) of the highest aggregate value in U.S. dollars of your offshore accounts during the OVDP period discussed below.
  • Allows you to repatriate and use offshore funds remaining after paying the tax and penalties and / or have funds owned by your parents remitted to them.
  • Removes the cloud of fear handing over you about discovery of the non-compliance.
  • Does all of the above without tainting your name, identifying you as a tax-violator and without disclosing to the public that you have entered the program.

The OVDP is a process that is completed in phases:

  1. Submit your name or names to the Criminal Investigation Division (CID) of IRS and CID will send notification by fax if your name or names are cleared or if you are already under audit consideration or have already been identified. In the latter instance, you will not be eligible to participate in OVDP and likely will be audited by IRS which could result in civil penalties more severe or less severe than are offered in OVDP and or criminal sanctions for all or some of you.
  2. Assuming your name clears CID, you will then submit a detailed OVDP Letter and Attachment for each foreign account to CID. The information required by this letter and the attachments is quite detailed and may take some time to gather, organize and relate in a coherent, accurate narrative.  The letter must be completely truthful and submitted within 45 days of initial clearance of your name by CID   CID will then notify by mail whether you have been provisionally accepted into the program.
  3. Following provisional acceptance, you will submit within 90 days, a more detailed package of amended returns with supporting documentation. Your case will then be assigned to an examiner by the IRS Philadelphia Service Center for review and certification.  This is not equivalent to a full-blown audit and usually goes smoothly but sometimes requests for clarification or additional information or documentation are made.  Checks for the FBAR penalty and for the income tax, accuracy related penalty and interest due must also be submitted at this time.
  4. The additional package will include amended returns and Amended FBARs (TD Form 90.22-1 or FinCEN 114) for each year of the OVDP period (8 years). The OVDP period is determined by income tax returns delinquent or requiring amendment. If any tax returns have not yet filed, such returns, if required, will be included with the OVDP submission.
  5. Once the OVDP review is complete you will sign a contract with IRS stating the income tax, accuracy related and FBAR penalties and interest owed and paid. This contract called a “Closing Agreement” is binding on IRS unless it is later found that you fraudulently misrepresented facts in your submission. The IRS can still audit your returns on domestic tax issues, but that is not a common occurrence unless controversial domestic issues are raised in the returns.  Thus, the “Closing Agreement” and payment of tax, penalty and interest should end the matter.

In addition to the OVDP penalty, there will be income tax to pay on unreported income, a substantial underpayment or accuracy related penalty of 20% of the additional tax, and a failure to pay penalty of up to 25% applied to the unpaid tax plus accrued interest.

Even if accepted into the OVDP, you have the option of opting-out of the program and seeking a lower FBAR civil penalty while preserving the OVDP criminal immunity.  Opting-out, however, can result in a higher as well as lower civil FBAR penalty and can result in higher income taxes and income tax penalties being asserted by IRS. Thus, opting-out sometimes presents potential monetary benefits but poses additional risks not present if one remains in the OVDP.


To be eligible for the OVDP one must act propitiously.  Once IRS or the DOJ has your name as being noncompliant you become ineligible for the program.

Thus, I strongly urge individuals still out of compliance with U.S. tax law regarding foreign financial accounts to consult with a tax attorney experienced in these matters.

I, of course, am available for such representation.  There are other post on this blog-site dealing with various aspects of the OVDP and Streamlined Filing Compliance Procedures, another IRS program, for taxpayers whose noncompliance was not willful.

My credentials, experience and publications may be found on my website www.steinbergtaxlaw.com

© 2017 by Robert S. Steinberg, Esquire
All rights reserved





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On October 26, 2017, Hyung Kwon Kim (Kim), a Greenwich, Connecticut man pleaded guilty to failing to report funds he maintained in foreign bank accounts to the Department of Treasury. The DOJ Press Release was announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division, U.S. Attorney Dana J. Boente for the Eastern District of Virginia, and Chief Don Fort, IRS Criminal Investigation.

U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file a Report of Foreign Bank and Financial Accounts, commonly known as an FBAR, disclosing the account.  Kim did not obey the law.

Acting Deputy Assistant Attorney General Goldberg discussed the plea:

For more than a decade … Kim concealed his wealth in secret offshore accounts, evading reporting requirements and the payment of income taxes due,” With his guilty plea, he is now held to account for his criminal conduct.  Offshore tax evasion is a top priority for the Tax Division, and we will continue to work with our partners at IRS to follow the money and actively pursue those who persist in thinking that they can safely hide their income and assets offshore.  

Court documents and information provided in court, reveal the actions that got Kim into trouble and resulted in his guilty plea:

  • Kim is a citizen of South Korea and, since 1998, a legal permanent resident (Green Card Holder) of the United States.
  • Kim resided in Massachusetts and later in Connecticut.
  •   Around 1998, Kim traveled to Switzerland to identify financial institutions at which to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong.
  • Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.  In 2004, the value of the funds in Kim’s accounts exceeded $28 million.
  • Kim conspired with several bankers, including Dr. Edgar H. Paltzer, to conceal the funds from U.S. authorities.
  • Paltzer, who was convicted in 2013 in the Southern District of New York for conspiring to defraud the United States, and the other bankers assisted Kim in opening accounts in the names of sham entities organized in Liechtenstein, Panama and the British Virgin Islands.
  • Paltzer and the other bankers facilitated financial transactions for Kim, so that Kim could use the funds in the United States.  For example, between 2003 and 2004, Kim directed Paltzer and another banker to issue nearly $3 million in checks payable to third parties in the United States for the purchase of a residence in Greenwich, Connecticut.  In 2005,
  • Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million.  Kim and Paltzer communicated about the purchase in a manner that created the appearance that Kim was renting the property from a fictitious owner.
  • Between 2000 and 2008, Kim took multiple trips to Zurich, Switzerland and withdrew more than $600,000 in cash during these visits.
  • Kim also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems.  For example, in 2008, Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler.
  • In 2008, during a trip to Zurich, Kim’s banker at Clariden Leu informed Kim that due to ongoing investigations in the United States, Kim could either disclose the accounts to the U.S. government, spend the funds, or move the funds to another institution.
  • Kim moved the funds into nominee accounts at another bank. In 2011, Kim liquidated the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from the Greenwich jeweler.
  • Kim also admitted that from 2000 through 2011, he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.

As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.

Don Fort, Chief of IRS Criminal Investigation commented on the plea:

Mr. Kim’s plea is another example of what happens to those who dodge their tax obligations by utilizing offshore tax havens. We owe it to the vast majority of honest U.S. taxpayers to tirelessly search for and prosecute those who avoid paying their fair share, regardless of how they may try to disguise their income.

Kim’s sentencing is scheduled for Jan. 26, 2018 before U.S. District Court Judge T.S. Ellis III.  Kim faces a statutory maximum sentence of five years in prison.  He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.


  1. Kim’s case provides examples of the sort of overt acts that will provide evidence of criminal intent.
  2. Kim’s downfall is a classic example of a taxpayer who could have averted criminal sanctions by entering the Offshore Voluntary Disclosure Program (OVDP).
  3. The OVDP is still open but IRS and the DOJ have indicated it may soon be coming to an end.

Those of a mind to avoid the fate of Hyung Kwon Kim should consult with an experienced offshore tax attorney to consider alternatives for comming into compliance with the minimum of risk and cost.


© 2017 Robert S. Steinberg, Esquire
All rights reserved


Posted in FBAR PENALTIES, OFFSHORE VOLUNTARY DISCLOSURE PROGRAM, Uncategorized | Tagged , , , , , , | Leave a comment


The House of Representatives has revealed its Tax Reform Plan encapsulated in The Tax Cuts and Jobs Act (HR 1)

The House Committee on Ways and Means Section by Section Summary describes the provision on Alimony as follows:

Sec. 1309. Repeal of deduction for alimony payments.

Current law: Under current law, alimony payments generally are an above-the line deduction for the payor and included in the income of the payee. However, alimony payments are no deductible by the payor or includible in the income of the payee if designated as such by the divorce decree or separation agreement.

Provision: Under the provision, alimony payments would not be deductible by the payor or includible in the income of the payee. The provision would be effective for any divorce decree or separation agreement executed after 2017 and to any modification after 2017 of any such instrument executed before such date if expressly provided for by such modification.


  • The provision would eliminate what is effectively a “divorce subsidy” under current law, in that a divorced couple can often achieve a better tax result for payments between them than a married couple can.
  • The provision recognizes that the provision of spousal support as a consequence of a divorce or separation should have the same tax treatment as the provision of spousal support within the context of a married couple, as well as the provision of child support.

 JCT estimate: According to JCT, the provision would increase revenues by $8.3 billion over 2018-2027.


  1. The alimony deduction is not really a divorce subsidy. Rather, the deduction reflects that a portion of the payor spouse’s gross income has been shifted to the payee spouse. Absent a deduction the payor spouse will be required to pay tax on income he or she will not have available for his or her own support. To say that this situation is the same as the payment of spousal support during the marriage is inaccurate. During the marriage the spouses live under one roof. After the divorce the spouses must maintain two separate households.   The only present tax revenue impact of alimony payments is a rate arbitrage benefit if the payee spouse is in a lower tax bracket than the payor spouse.
  2. The Joint Committee on Taxation (JCT) estimate of tax savings from the Bill also seems questionable. Should this provision become law, alimony payments will simply be reduced to reflect the fact that the payor spouse is paying the income tax on the payee spouse’s alimony payments. Negotiations over support will become more complicated.

Copyright 2017 by Robert S. Steinberg, Esquire
All rights reserved


Posted in DIVORCE, DIVORCE TAX, Uncategorized | Tagged , , | Leave a comment


The Tax Court decision in Victor A. Edwards v. Commissioner, TC Summary Opinion 2017-52 contains an instructive discussion of the rules applicable to determining whether a valid joint return has been filed. Bear in mind that this is a summary opinion and therefore may not be cited as precedent.  The case analysis may, nonetheless, be helpful.

Victor and Sharon Edwards divorced in 2014, although they lived together until divorced on September 5, 2014. They had adopted two minor children who lived with them while they remained married. Their divorce decree did not address whether they would file a joint income tax return or separate returns. They had e-filed joint returns for past years, both Sharon and Victor having signed the e-file authorizations, presumably on Form 8879, although the form number is not mentioned in the Tax Courts statement of facts. In the past Victor had delivered their tax information to the return preparer who never met or had spoken to Sharon.

On February 8, 2014 Sharon sent Victor a text message proposing that they file a joint return for 2013 and split the anticipated tax refund. They agreed to discuss that possibility when she returned to their shared home that evening.  There is no mention in the opinion whether they ever had that discussion.

On February 12, 2014 Victor filed a joint return for 2013. Sharon did not give her tax information (W-2) to Victor and authorize him to deliver it to the return preparer. Rather, Victor delivered the W-2, which had been mailed to the house, along with his tax information to the return preparer and had her prepare a joint return. Sharon did not sign an e-file authorization for 2013. It is not stated whether Victor forged her signature on the Form 8879, or, if not, how the return preparer submitted the return to IRS without an authorization for Sharon.

The joint return reported wages of $26,777 for Sharon and $3,937 for Victor. IRS issued a joint refund check in the amount of $6,240 which Victor cashed even though most of the tax paid had been withheld from Sharon’s wages.

Victor did not immediately tell Sharon that he had filed a joint return for both of them or that he’d received and cashed the refund. He did not share any of the refund with Sharon.

On April 5, 2014 Sharon sent Victor an additional text message inquiring about whether they should file a joint return for 2013. Victor responded with a cryptic message, “talk to the judge about it.”

On April 15, 2014 Sharon e-filed Form 4868 to automatically extend her 2013 return due date to October 15, 2014.

Throughout the summer divorced attorneys for Victor and Sharon were exchanging messages regarding the divorce proceedings. During that time Sharon believed that Victor had filed a married filing separately return on his own behalf for 2013 on which he had claimed both of the couple’s children as his dependents.

The parties were finally divorced on September 5, 2014.

On October 6, 2014, Sharon filed a married filing separately return for 2013 reporting her W-2 wages and claiming a refund. IRS rejected the return. Sharon wrote to IRS stating that she now believed her former husband had filed a 2013 joint return for her.

She also sent Victor a text message asking whether he’d file a return using her Social Security Number. Victor responded, “you don’t need to file.’

On October 18, 2014 the IRS received a married filing separately return from Sharon in which she claimed both children as dependents. IRS asked Sharon to explain whether she’d filed two returns for 2013 and to indicate her filing status.   She replied to IRS that she’d filed only one return using the filing status of married filing separately but that her former husband, without her knowledge, had filed a joint return using her Social Security number. At the time, she’d also submitted Form 14039, ID Theft Affidavit, to IRS.

IRS then issued a Notice of Deficiency to Victor changing his filing status to married filing separately, removing the children as dependents and removing Sharon’s wages.  The Notice indicated a deficiency of $6,244 and proposed to assess the accuracy related penalty.

Victor petitioned the Tax Court for a redetermination of the deficiency and penalty.

The Court’s decision summarizes the law on determining whether a joint return has been filed. The general rule is that filing of a joint return is an election made by both spouses. Section 6103(a).

A return will be accepted by IRS as a joint return only if both spouses had intended to make the joint return election. Although both spouse must generally sign the joint return, the failure of one spouse to sign does not necessary mean that the return will not be treated as a joint return if IRS, or, the court finds that both spouses intended to make a joint return. A joint return is considered desirable in most cases since rate-splitting results generally in a lower tax liability for the couple. The other side of the coin, however, is that filing a joint return imposes joint and several liability on the spouses, unless one qualifies for relief from joint and several liability under Section 6015 (commonly called “the innocent spouse” rules). Thus, whether a return filed is treated as a joint or separate return is a matter of great consequence and one of the most frequently litigated tax disputes.

Whether a filed return will be treated as a joint return is a question of fact. The Tax Court considers the following factors in deciding these cases:

  • Was the return in question prepared in accordance with an established practice of preparing and filing a joint return?
  • Did the non-signing spouse fail to object to filing of the purported joint return?
  • Did the non-signing spouse perform an affirmative act indicating an intention to file a joint return?
  • Was only one spouse historically relied upon to prepare and see to the filing of the return and, if so, did that spouse handled the filing in question?
  • Did the non-signing spouse examine the return before it was filed?
  • Did the non-signing spouse file a separate return?
  • Did the return include the income and deductions of the non-singing spouse?
  • Was the non-signing spouse aware of the content of the purported joint return?

Generally, the IRS Notice of Deficiency is presumed correct and the taxpayer carries the burden of proving that it is incorrect. Tax Court Rule 142. Thus, the presumption is against the court finding that Sharon intended to file a joint return. Moreover, the petitioner, in this case Victor,  had the overall burden of proof with regard to the above facts. IRC Section 7491 (a). That burden may, however be shifted to IRS, if petitioner introduces credible evidence with regard to an issue.

The Court found that no joint return had been filed as Sharon did not intend to file jointly with Victor for the following reasons:

  • There was no credible testimony from either party, and Victor, not having adduced credible evidence, retained the burden of proof on the issue.
  • The preparer had interfaced only with Victor and never met or spoke to Sharon in earlier years or before e-filing the 2013 purported joint return.
  • Normal practice was not followed in 2013 as Sharon did not sign the e-file authorization form.
  • Sharon did not review the return prior to filing.
  • Sharon continued to message Victor about possibility filing a joint return after Victor had already submitted the purported joint return.
  • Sharon requested her own extension of time to file on April 15, 2014.
  • Sharon was therefore unaware that Victor had filed a purported joint return and likely believed that he had filed a married filing separately return.
  • Finally, Sharon, after the divorce was final, filed her own married filing separately return.

The court did not discuss whether a signature purporting to be Sharon’s appeared on the Form 8879. If a signature had been affixed to the return, the question of a forged signature would be the natural relevant inquiry. If Victor had forged Sharon’s signature, the return could not have been a valid joint return. If there was no spouse’s signature on the Form 8879, then the return preparer was not legally authorized to submit the return, and would have a potential problem with both the IRS Practice Office and malpractice liability or even fraud liability to Sharon, depending on additional facts being found.


  1. Noteworthy, is that the court found that Victor had established reasonable cause for filing the joint return and claiming the kids as dependents and therefore reduced the 20% accuracy related penalty to zero. Victor had argued that he’d informed Sharon of the joint return and had kept the refund of $6,240 to compensate him for her alleged failure to contribute to the joint housing expenses. The court did not find his argument tenable. I find it disingenuous. I believe Victor was pulling a fast-one: filing an early joint return, while the attorneys were still discussing the case, and, telling Sharon, “Go ask the judge,” than later, “You don’t have to file.” In both instances when she’d inquired about filing a joint return, he did not directly respond to her question, but gave her a cute cryptic answer.
  2. Divorce attorneys should make clear early in the proceedings to both clients and opposing counsel that no joint return is to be filed without the express written agreement of the other spouse.
  3. Spouses should be mindful that filing a joint return is a double-edged sword. While some tax may be saved, the non-income producing spouse is subjecting his or her separate assets (even non-marital assets) to possible adverse collection procedures by IRS in the event that tax due on the joint return is not paid or a later audit produces a deficiency. Relying on the innocent spouse escape-hatch can be an expensive mistake. Remember, when you are divorcing your spouse, from in whole or part, a lack of trust, why in the world would you trust a now former spouse, to file a return for you? Be cautious and do not sign a joint return without having the matter reviewed by a divorce-tax attorney who will know how to protect you.


© 2017 by Robert S. Steinberg, Esquire
All rights reserved



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I receive calls every day from U.S. Citizens living abroad who have recently learned that they are not compliant with U.S. tax filing and reporting obligations. They are angry, confused and frustrated. They’ve never heard of these requirements before getting the bad news that they could be subject to draconian penalties for not filing an obscure FBAR form. They are incredulous and dumbfounded by this news. After a while most calm down and opt to deal with the problem. Below is testimony from one U.S. expat living in Canada who eloquently expresses this universal frustration with the system and opts-out by renouncing her U.S. Citizenship. This may be a viable, although not less expensive solution, for many Canadian expats. But, the many living in less stable or more exposed parts of the world, may find a bid scary surrendering their U.S. Passport and safe-haven security blanket. After all only 75 years ago, Europe was in flames and people there would have given all that they owned for a U.S. Passport. The world today is not a bastion of stability and peace. In any event, I’m sure many of my readers will identity with the problems and feelings expressed below.

Testimony of Marilyn Ginsburg before the United States Senate Finance Committee
International Tax Section
April 9, 2015

Good morning and thank you for the opportunity to speak with you today. My name is Marilyn Ginsburg. I will be 70 years old next month and I renounced my U.S. citizenship, with great regret, in my 69th year.

I was born in St. Louis, grew up in Denver, and moved to Canada when I was 26 years old. My husband and I left the United States in June, 1971, a month after we had both finished graduate school, I with a law degree and my husband with a PhD. in American history. We both obtained jobs teaching in our fields at a Canadian University. We assumed we would stay in Canada for a few interesting years, living in another country, and then return to hearth and home. One thing led to another and this never happened, and we have now lived in Canada for 44 years.

In 1977 our daughter was born in Toronto and we registered her at the U.S. consulate as an American citizen. In 1985, in order to become a member of the Ontario Bar, I was required to become a Canadian citizen. I delivered an affidavit to the U.S. Consulate indicating that I did not intend to relinquish my U.S. citizenship by the act of acquiring Canadian citizenship. Eventually my husband also became a Canadian citizen because it was clear we were there to stay and he wanted to be able to vote in Canadian elections.

However, he and I also continued to vote in U.S. elections and we traveled on our U.S. passports. We have never failed, in 44 years of living outside the country, to file U.S. tax returns. I don’t remember why I knew to do this, but clearly we were among the lucky ones. In other words, we have been model U.S. citizens in every way. Nevertheless, all three of us have since renounced our U.S. citizenship. Why?

First, there is the expense of continuing to be tax compliant. We have to use the services of a specialized and expensive tax accountant who can complete and reconcile our tax returns for both countries. This service is not cheap. As a matter of fact, our accountant estimates that it costs at least twice as much for Americans living in Canada to file their U.S. returns than an American living in the U.S., due to the complexity and number of forms that must be filed.

Last year I had to retain the services of a second highly qualified tax accountant because we owned Canadian mutual funds. I had no idea this was an issue, and apparently neither did my first tax accountant. I chose not to be the one to pay him to do his first IRS form 8621, which according to the IRS website can take 41 hours to complete. Therefore, I found the second accountant, with experience in completing this form, to bring us up to date. Of course, we also must pay taxes to both countries.

Since we are both retired now, and the tax treaty does not address pension income in the same way it addresses employment income, we now owe taxes to the U.S. in addition to our sizable tax bill to Canada. Some of this is covered by the foreign tax credit on our Canadian returns, but not all.

If we combine the cost of accounting fees, and U.S. taxes, including the higher tax rate on any gains from our Canadian mutual funds, we estimate that just to remain U.S. citizens would cost us more than $125,000 of our retirement money over the next 15-20years.

Please note that we are not entitled to any U.S. Social Security or Medicare. We moved to Canada when we were too young to have accumulated sufficient credits, so we have been filing tax returns all those years for no future economic benefit whatsoever. The second reason we renounced our U.S. citizenship was because we felt the U.S. was treating us unfairly. I will cite one example of many.

Why should our Canadian mutual funds be treated as Passive Foreign Investment Corporations, requiring us to pay higher taxes on any gains than my sister in New York pays on her U.S. mutual funds?

Why should I have to pay an accountant for 41 hours of work to try to figure out how to report my small gains on every Canadian mutual fund I own?

Mutual funds are an important part of most peoples’ retirement savings because they spread the risk, and, as a resident of Canada, I am not allowed to own U.S. mutual funds. The law makes no sense.

I live in Canada so a Canadian mutual fund is not a foreign investment for me; it is a local investment like a U.S. mutual fund is for my sister. Is it fair for the United States to make it more expensive and more difficult for its citizens living abroad to save for their retirements than citizens living in America? That is discriminatory treatment and one reason why U.S. citizens living abroad feel like they are treated as second class citizens.

The third reason that I renounced is because I wanted to sleep better at night. I am not saying this jokingly. I am quite serious.

When I read that the penalty for a non-willful failure to properly file our FBAR forms was $10,000 I decided it was simply no longer worth the worry. These forms require me to give our tax account very detailed information for every bank, retirement, savings, checking and investment account we own. My accountant relies totally on what I tell him. What if, as I get older, I forget? Some days I go to our downstairs pantry and can’t remember why I went. However, no one is fining me $10,000 for forgetting that I went downstairs for a bag of sugar.

These forms are filed with the Financial Crimes Enforcement Network of the Department of the Treasury. They were originally, in 1970, intended to uncover criminal activity by those who were using secret bank accounts for money laundering, securities manipulation, insider trading, and other illegal activities. But ordinary Americans living abroad are not criminals using secret bank accounts to hide illegal activity.

I was recently made aware of the horrendous experience of an American woman, living in Canada, who, in an attempt to be totally tax compliant, entered into an IRS “amnesty” program. This was not because she was a tax cheat, or was hiding money off shore; it was just because she had not known, when filing her yearly U.S. tax returns that she also had to file the annual FBAR form. The manner in which this woman was treated by the IRS is enough to make one weep.

Any member of Congress who truly wishes to understand the damage being done to Americans abroad by the present tax regime, and the way in which it is being enforced by the IRS, must read Ms. d ’Addario’s complete letter to House Representatives Adrian Smith and John Larson.

While discussing the disproportionate nature of fines under FATCA, including the filing of these FBAR forms, Nina Olson, the U.S. Taxpayer Advocate, asked in October, 2014, “…why are we doing this to folks? Why are we tormenting them in this way”?

I wish I knew the answer to that question. What would have happened if I hadn’t, by chance, read in a seniors’ magazine that Americans living in Canada, who own Canadian mutual funds, are in big trouble? I lost sleep about that until I found our second accountant who brought us into compliance on that form, the IRS instructions for which are 13 pages long/ .I just can’t afford this amount of time and money and this level of anxiety trying to remain tax compliant any longer.

I have never been anything other than a loyal and law abiding American and yet I really began to worry. I have read horror stories about how the IRS treats people and frankly, I did not ever want to be one of those people. In 2014, even former IRS Commissioner, Steven Miller, when discussing his cost benefit analysis of FATCA and its reporting requirements, concluded that the costs may well outweigh the benefit.

Americans all over the world are doing their own personal analyses and they are not just about dollars and cents. They are about the stresses involved for non-American spouses, for children who have inherited American citizenship and must now make important tax and citizenship decisions; they are about fear and feelings of being treated unjustly.

I have many American friends living in Canada, most of whom have or will be renouncing their U.S. Citizenship. Others would like to, but for one reason or another, find it impossible to do so. I can tell you today that not one single dual citizen I know is hiding money off shore or has ever knowingly cheated the United States out of a single penny. Most of them didn’t realize, until recently, that they were still U.S. citizens, or they did know, but did not understand they had to file U.S. tax returns while living abroad. They are now caught in the cross hairs of a tax weapon that was meant to catch wealthy Americans hiding money outside the country, not my lovely neighbor, who married a Canadian 45 years ago and is now a retired teacher living on a pension.

Was it easy for me to renounce? I cried when signing the renunciation oath at the U.S. consulate in Quebec City, where we flew because the wait time to renounce at the consulate in Toronto is now over a year. It hurt then and it still hurts. My mother, who is nearly 93, was terribly upset that I renounced my citizenship, other relatives didn’t understand, and I am bitter and angry that a country my family has lived in since before the Civil War is treating its own citizens abroad like criminals and tax cheats and making their lives miserable because of an unfair tax regime. I believe that my earliest known American ancestor, who settled in Bowling Green, Kentucky in 1848, would understand my predicament.

Ms. Olson, the U.S. Taxpayer Advocate, when speaking about the possible future consequences of FATCA and all of its related reporting requirements, said, I don’t think we’ll know [what they are] for years. And by that point we’ll actually be a little too late to go, ‘Oops, my bad move, we shouldn’t have done this,’ and then try to unwind it.” In the meantime, how many Americans living abroad, who have represented this country proudly all over the world, will have renounced their U.S. citizenship?

Is this what you want?

RSS further comments

The above testimony was first published by John Richardson in American’s Abroad as “Testimony: The Effects of the Current Tax System on Americans Abroad.”.

For most expats renouncing U.S. citizenship is an unwise decision. Apart from the reasons stated above, the initial cost of tax compliance to renounce can be greater than the cost of coming into compliance and remaining a citizen. Once an expat has caught up with filing, annual U.S. filings are not too burdensome for most.

For most expats, the safest path to come back into the tax filing system or correct errors in previous filings is through the Streamlined Filing Compliance Procedures. The advantages and disadvantages are fully explained in other blog posts which can be found by searching under “Streamlined Filing Compliance Procedures, or, Streamlined Filings.”

It is important to remember, however, that each case is unique. The specific facts and circumstances of your particular situation need to be reviewed and evaluated by an experienced offshore tax attorney. Only then can the safest path to follow be determined.

Robert S. Steinberg, Esquire www.steinbergtaxlaw.com rss@steinbergtaxlaw.com




I receive many inquiries about Streamlined Filings from U.S. citizens or Green Card holders living outside the U.S. as well as from recent immigrants to the U.S. or work visa holders living inside the U.S. In all of these cases, the individuals have read a good deal about Streamlined Filings and often OVDP submissions on the internet. They frequently have spoken to any number of other professionals about these alternatives for coming into compliance. And, most often they are totally confused, misinformed or have misunderstood what they have read or been told.

Let me try to clear up some common misconceptions:

  1. Nature of Streamlined Filing Compliance Procedures (SFCP).   The OVDP is an offspring of the IRS general Voluntary Disclosure Procedures found in the Internal Revenue Manual IRM), with added features that include prescribed FBAR penalty and income tax penalty provisions along with the grant of amnesty from criminal prosecution for disclosed criminal conduct related to the offshore accounts.   The SFCP on the other hand do not represent a formal voluntary disclosure program and do not grant amnesty from criminal charges.   Rather, the SFCP are procedures for filing delinquent returns and foreign reporting forms of non-willful taxpayers under a filing process that offers penalty relief. Unlike the OVDP there is no upfront screening of candidates for the Streamlined Process and the process does not end with the signing of a closing agreement, a contract between IRS and the taxpayers, resolving all tax issues for the years covered. Streamlined Filings, after a preliminary facial review by IRS Streamlined personnel in Austin Texas, are processed like other tax returns but subject to Streamlined relief as to penalties.   Because the Streamlined Procedures do not offer criminal amnesty taxpayers whose conduct borders on criminal or could be viewed as criminal, should not attempt to come into compliance under the Streamlined Process. Yet some comfort may be taken from the likelihood that a Streamlined Filing which IRS considers to flow from willful noncompliance, nonetheless may qualify as a Voluntary Disclosure under the Voluntary Disclosure policies stated in the IRM. This could be a vital fallback argument should IRS disagree with the conclusion of the Non-willful Certification.
  2. Streamlined returns are not ordinary returns: Streamlined returns may be processed like other delinquent or amended returns but they are not ordinary tax filings. Because there is no criminal amnesty grant, IRS could still treat the taxpayer’s conduct as willful or even criminal. Therefore, streamlined returns must be prepared with much greater care and due diligence than would be required for a timely filed original return.  All items of income, deduction and credit should be verified by the return preparer. It is imperative that no mistakes or errors appear in the Streamlined returns. Normally, a return preparer need not review underlying source documents but can take the taxpayer’s word for amounts of income, deduction and credit that do not appear unreasonable on their face. Not so in a Streamlined filing. The return preparer must examine all source documents and make sure that the items are properly reported both as to amount, year and character of the item being reported. Being cavalier about a Streamlined filing can lead to disastrous results. As a result, Streamlined returns will be more costly than timely filed returns or most amended returns that do not seek to correct offshore noncompliance.
  3. Streamlined filings have a legal component: Streamlined Filings required submission of Form 14653 or Form 14654, Non-willful Certifications. The forms, signed under penalties of perjury contain some tax and foreign account information but also require a detailed statement of the reasons why the taxpayer believes his or her conduct is non-willful. Characterizing a taxpayer’s conduct as negligent, grossly negligent, inadvertent, ignorant, reckless, willful, willfully blind, non-willful or criminal is a legal determination. It requires that an attorney experience in these matters who must:
    1. Obtain documents concerning the foreign financial accounts from the client, foreign financial institutions, others and IRS records on the taxpayer;
    2. Interview the client and other individuals having knowledge of the facts.
    3. In all of this gathering of facts attempt to preserve, in so far as may be possible, attorney-client privilege, the client’s Fifth Amendment Privilege against self-incrimination, and attorney work product privilege.
    4. Draw legal conclusions as to the character of the client’s conduct based on all of the evidence obtained.
    5. CPAs or Enrolled Agents, usually are capable return preparers, but they are not licensed or trained as attorneys and therefore commit malpractice and do clients a serious disservice when attempting, as some do, to complete the legal component of Streamlined filings.
  4. Husbands, Wives and the 330 day rule: Taxpayers who spend 330 days outside of the U.S. in any one of the three most recent years for which the filing due date has passes are treated as residing outside of the U.S and may file under the Streamlined Procedures for persons residing outside of the U.S.   A husband and wife are tested separately for this rule. Thus, if a couple live outside of the U.S., have no U.S. abode but the husband spent more than 35 days in the U.S. during all three most recent delinquent return years, the couple will not be able to file delinquent joint returns under the Streamlined Process. Nor will the husband be able to file Married Filing Separately returns under the Streamlined Process. Rather, the choices available are:
    1. Assuming as stated above that no returns have previously been filed for the three most recent years for which the due date has passed:
      • Wife files a Married Filing Separately Streamlined return under the Streamlined Foreign Procedures; and, Husband files a Married Filing Separately returns outside of the Streamlined process. Under this approach:
        • Wife pays no Miscellaneous Offshore Penalty on the penalty base representing her interest in the highest balance of couples’ foreign financial accounts for the most recent six years for which the FBAR due date has passed.
        • Husband will pay no penalty if he establishes in a statement attached to his delinquent returns that he has reasonable cause for the delinquency. Such a filing should be made only if a compelling argument can be made for reasonable cause because IRS will carefully examine amended returns with offshore disclosures made outside of the Streamlined Process of OVDP.
        • Husband and wife both enter the OVDP. Note that is wife makes a Streamlined filing the husband will be ineligible for the OVDP. According to the OVDP Hotline neither must have made a Streamlined Filing for either to be eligible to enter the OVDP.
    2. Assuming joint returns have been filed for the three most recent years for which the due date has passed:
      • Streamlined filing: File a joint Streamlined filing for persons living inside the U.S. and pay a 5% penalty on the highest balance of their combined foreign financial accounts.
      • Wife cannot file a MFS Streamlined return as in (1) above because a joint return can only be amended by a joint return.
      • If compelling case for reasonable cause can be made, file amended returns outside of the Streamlined Process understanding again that such a filing shines a light on the taxpayers and offers neither protection from penalties nor criminal amnesty.
  5. Husbands, Wives and Non-willfulness: Be mindful that husbands and wives often act in concert but also often act independently of one another. Determinations of willful versus non-willful conduct are specific to each taxpayer. Legal determinations of the culpability of each spouse will play a large part in deciding how to proceed with coming into compliance. Refer to paragraph 3 above.
  6. Calculation of the offshore penalty for Streamlined Domestic Offshore filings:
    1. Under the OVDP regime the penalty base is expansive and includes all assets connected to the noncompliance on which income was not reported. Thus, the value of a rental property on which the rental income was not reported, is included in the penalty base.
    2. For Streamlined filings the penalty base is much narrower and includes only foreign financial assets required to be reported in an FBAR or foreign financial assets reported on those forms but on which the income was not reported. Thus, not reporting rental income does not result in the value of the rental property being included in the Streamlined Domestic penalty base.
  7. Most compelling reasons for entering the OVDP:
    1. You have committed a tax crime or may be viewed as having committed a tax crime and want to avoid being charged.
    2. You fear that the maximum FBAR willful penalty may be assessed against you.
    3. You feel you were non-willful but had very large foreign accounts and want the certainty of not being charged with a crime and more time to consider opting-out of the OVDP penalty regime to argue for a lower FBAR penalty amount on audit.
    4. Taxpayers not falling into the above categories do not belong in the OVDP.
  8. Most compelling reasons for filing returns under the Streamlined Filing Compliance Procedures:
    1. You committed no overt acts that would tend to evidence, “the intentional violation of a known legal duty,” such as by hiding your identify behind a non-operating, nominee entity, using mail-holds or other incriminating means of deception, programmed repatriation of funds in amounts under $10,000 and so on. Again, these determinations must be made by a tax attorney experienced in such matters.
    2. Your tax filing history, educational background, investment experience, financial sophistication, work experience and other detailed facts establish that your failure to property file or report was due to negligence, inadvertence, mistake or good faith ignorance of the law but was not reckless, willful, or, conduct seeking to willfully avoid knowledge of the FBAR reporting requirement; and, also establish that, upon gaining such knowledge, that you promptly began to rectify the noncompliance. Other facts might include:
      1. That the amounts of income not reported are relatively small compared to the income reported in your filed returns.
      2. That the value of assets offshore not reported is relatively small compared to the value of U.S. based assets.
      3. That the assets and income were located in a country from which you immigrated to the US or in which you now live and were not located in a known tax haven country to which you had no connection other connection apart from owing the foreign financial asset.
      4. You’ve lived outside of the U.S. for a long period of time.
      5. Circumstances in your life such as illness prevented you from timely filing or reporting.
      6. Any other facts and circumstances tending to negate willfulness.



The Streamlined Filing Compliance Procedures may seem simple to the uninformed. In reality however, Streamlined filings are very risky to navigate and require specific legal tax expertise as well and sound legal judgment. A Streamlined filing that should not have been made may subject the taxpayer to both criminal prosecution and potentially draconian FBAR and income tax penalties. Thus, taxpayers should carefully select tax counsel seeking legal tax knowledge, experience and mature judgment. Taxpayers should be suspicious of promised results or unreasonably low fees. The wise man sayeth: “When the stakes are high, seek the best advice available.”


© 2017 by Robert S. Steinberg, Esquire
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