OVDI or quiet disclosure?

416 · Post by **416** » Wed Aug 24, 2011 9:35 pm

Thanks to everyone who puts their time into this forum - I find it very useful.

I am a Canadian/US dual citizen who has never filed a US tax return, but am correct with my Canadian taxes. I earn $70,000. I have never lived or worked in the US. I have no short- or medium-term plans to work in the US, though I can't rule it out - I have 22 years of working life to go and specialized skills in my field. If I was 60 I'd have a much better idea of where my career was heading. But at the moment I have minimal ties to the US. I may at some point be left money by an American relative, one reason to regularize my US tax situation.

My accountant is working on eight years of back tax returns, which is what she recommended.

My options as I see them are:

- OVDI. In my case a 5% penalty applied to the highest year would be attached to a recent year we sold a house and the proceeds moved through an account, so it could come to a $22,000 penalty. I feel to a certain extent like I've been spooked by a punitive measure designed for drug dealers in the Cayman Islands and exile billionaires (this is, very forcefully. my wife's position). On the other hand it would pave the way to renouncing my US citizenship in a bulletproof way, something I'm in the mood for at the moment but may be short-sighted.

- Quiet disclosure. (Is this the right term for just filing a stack of tax returns?) This has the advantage of being far cheaper (obviously) but carries a notional risk of FBAR penalties. On the other hand I take some comfort in the CRA saying they won't collect, so the more medieval financial consequences (zillion-dollar fines and bankruptcy for someone who doesn't owe money and is trying to comply) don't seem realistic.

I'm leaning to quiet disclosure. Any thoughts?

tsanaha · Post by **tsanaha** » Wed Aug 24, 2011 9:41 pm

you may consider PLAN C, just do nothing.

QD will still expose you to IRS -- while you have never worked/lived in US, there is no record of you. Then why bother to alert IRS "hey I am here, get me !"

416 · Post by **416** » Wed Aug 24, 2011 9:47 pm

That's my wife's position - she thinks I've been spooked by a lot of the recent media coverage. What happens when the banks have to report US nationals (not that they have any way of knowing).

I do have a US passport and a SS number, if that matters.

tsanaha · Post by **tsanaha** » Wed Aug 24, 2011 10:15 pm

my view is that expat US citizen should pay no penalty on FBAR --- (logically, they should keep their money where they live), however, the law does not say so --and it is IRS who decide how to apply to the law.

here is a link
http://timesofindia.indiatimes.com/nri/ ... 722584.cms

Now, if immigrants can make a case for less penalty or even just amend returns, then expat US citizen should have much better chance. After all, residents should report their global income along with disclose their assets.. regardless their reason.

Back to your SSN/passport issue, if someday, they start to share information between gov/banks/ etc... (technically it is easy, but legally it may be difficult -- needs a lot change in treaty), it may give you trouble --- say IRS just sends a notice to all SSN (because they know who are citizen/green card holders, etc).

here is pros and cons

A. OVDI --- clean/certainty.

B. QD --- cheap/but possible trouble later

C. Do nothing -- running risk being wilful violation (indeed it is)

No CAP/tax lawyer would suggest B and C -- not only because they want your business, they have to make sure you are trouble free ..