Source: http://isaacbrocksociety.ca/2018/01/11/national-taxpayer-advocate-sees-titanic-growth-in-offshore-penalties-suggests-congress-re-arrange-deck-chairs/
Timestamp: 2019-04-21 00:38:00+00:00

Document:
Ms. Olson managed to find a problem which I have to admit I’d never noticed in more than a decade of occasionally browsing the relevant statutes.
26 USC § 6677 (demanding five-figure penalties for failure to file Form 3520 about “foreign” trusts), and § 6038D (demanding five-figure penalties for failure to file FATCA Form 8938) allow the IRS to waive both initial penalties and “continuation” penalties (additional penalties for each further period of 30 days). In an amazing example of legislative grace, § 6677 even limits the total penalty to 100% of the U.S. Person’s interest in the “foreign” trust. In contrast, 26 USC § 6038 and § 6679 (demanding five-figure penalties for failure to file Form 5471 about “foreign” corporations or Form 8865 about “foreign” partnerships) and their regulations only provide authority for the IRS to waive the initial penalties, not the continuation penalties.
Olson recommends that the language on “reasonable cause” and the authority to waive continuation penalties be made consistent among those four sections (and § 6038A, which requires foreigners who own US corporations to file Form 5472). She does not call for the reversal of the 3500% hike in offshore penalties over the past 20 years, documented by Andrew Mitchel over at International Tax Blog, nor even that the other four sections adopt § 6677′s limitation on confiscating merely all of your savings rather than several multiples of it.
Closer examination of the data belies the value of this recommendation: the IRS chose to abate lower amounts of penalties in 2016 vs. 2013, so giving them voluntary authority to abate additional penalties is not going to solve the problem (a facet of a broader issue we’ve discussed many times before: this is not just Congress’ fault). This is illustrated quite clearly by the zero percent abatement rate for continuation penalties on Form 3520 in 2016 — the IRS already have statutory authority to abate those penalties for a reasonable cause, § 6677(d), and aren’t using it anyway.
1. Form name and change in penalty abatement not in original; any errors in those columns are my own.
2. “%” in year columns means percentage of initially-assessed penalties which were abated.
3. “%” in change column means the 2016 % column less the 2013 % column, i.e. the change in percentage points in penalty abatement.
You’ll also be happy to learn that the US government spent all of that $73 million in decreased penalty abatement on “foreign trust” owners with delinquent paperwork, plus $30 million more, on increased penalty abatement for delinquent Form 5472 filers — taking money from U.S. persons in other countries, and giving it to foreigners investing in the United States. All part of making the U.S. the world’s greatest tax haven!
About the only praiseworthy thing in the recommendations is the comment that “penalizing taxpayers who acted reasonably in trying to comply, especially taxpayers abroad who may have to file in multiple jurisdictions, will alienate them further”.
The section on allowing taxpayers abroad additional time to respond to math error notices has been similarly condensed, from five pages last year to two pages this year. Portions removed include statistics about renunciations of citizenship, along with the example about the taxpayer in China who received a notice nearly two months late, was left with nine days to respond, and couldn’t get the IRS on the phone. (This year’s Purple Book, p. 47; last year’s Vol. 1, p. 393).
The 2018 Objectives Report to Congress includes similar comments about passport revocation (Vol 1, p. 36), and also contains a section about the lack of transparency in OVDP (Vol. 1, p. 43).
The IRS keeps finding new ways to use CBT to extract penalty revenue from the diaspora, and Congress aren’t listening, but at least this report gives us new statistics! And better yet, if you were looking for a chuckle, the NTA webpage (though not the report itself) accidentally refers to FATCA as “GATCA”. Just Me’s acronym has made it all the way to the IRS itself — change you can believe in, making America great again, et cetera!
Does the data differentiate between US residents and non-residents? That seems a critical piece of information.
Run to your embassy & renounce, if you can.
As my mother used to tell us, “choose your battles”.
This battle? It’s against an unrepentant & very strong bully who shows NO signs of weakening & likely will become MUCH worse….
As much as I applaud & respect those trying to challenge this, I feel like we have so little time on this orb & right now, everything is stacked against. I sure do wish Trudeau was more than a pretty face– he could have a real meaning to his time in CA then, & lead the way. Oh well.
Sounds like Ms US Tax Advocate might be getting a little anxious about her job security.
We wanted to publish some “statistical information,” per my statutory mandate, in our Area of Focus about the IRS’s Offshore Voluntary Disclosure initiatives. The IRS likes to make public the amount of dollars these programs have brought in, but other than that, it provides very little information. In light of the paucity of “statistical information,” we find it very difficult to assess the effectiveness of these programs.
Perhaps the IRS DOES NOT want it known it collects a disproportionate amount from minnows who were lured into the OVD net by beady-eyed compliance condors.
Why doesn’t the IRS publish how much it’s successfully collected as well other than trying to take Social Security off people?
Since 2012? The 2011 IRS Taxpayer Advocate’s report to Congress explained that thousands of honest taxpayers found themselves forced to renounce US citizenship since compliance was impossible.
But since a 1914 New York Times article was ignored, Congress has nearly a hundred year legacy of abusing its diaspora. The US is the only country that found itself benefiting from forcing its diaspora to renounce and never bring their money to their country of former citizenship. This gets them votes. This gets them new legislation to cut taxes on the president’s businesses.
You want change? Follow them around, hope they’ll get holes in their pockets, and scoop up their lost change.
And in the end this report makes no difference, except as further evidence of the institutionalized abuse of honest citizens. Renunciation is the only logical response.
@Norman Diamond: The 2011 IRS Taxpayer Advocate’s report to Congress explained that thousands of honest taxpayers found themselves forced to renounce US citizenship since compliance was impossible.
Ah, you’re right. Corrected, thanks. Somehow I’d been misremembering all along that the 2012 report was the first one to address this.
Nearly a hundred eh, now I can’t even subtract right. My heart isn’t the only organ that was injured by abuse from the US government.
For these “offshore” penalties, how much is collected from US residents versus non-residents?
Furthermore, for penalties collected from non-residents, how much is derived from those who were already compliant or entered an amnesty program, versus those who were not compliant and were found due to FATCA or other means and coerced into paying penalties?
I’m going to take a wild guess and suggest that the total amount collected from non-cooperative, non-compliant non-residents is approximately $0.

References: § 6677
 § 6038
 § 6677
 § 6038
 § 6679
 § 6038
 § 6677
 § 6677